<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 5
TO
FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES
UNDER THE
TRUST INDENTURE ACT OF 1939
SAN JACINTO HOLDINGS INC.
(NAME OF APPLICANT)
2121 San Jacinto Street, Suite 1000
Dallas, Texas 75201
(Address of Principal Executive Offices)
SECURITIES ISSUED UNDER
THE INDENTURE QUALIFIED
Title of Class Amount
12% Senior Subordinated Notes Maximum of
Due December 31, 2002 $66,138,406
Name and Address of Agent
for Service of Process:
Elvis L. Mason
San Jacinto Holdings Inc.
2121 San Jacinto Street, Suite 1000
Dallas, Texas 75201
with a copy to:
J. Kenneth Menges, Jr., P.C.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4618
Effective Date of Form T-3: January 25, 1996
This Document Consists of ____ Pages
Exhibit Index Begins on Page ____
<PAGE> 2
November 14, 1996
POST-EFFECTIVE AMENDMENT NO. 5 TO FORM T-3
Filed herewith as Exhibit T3E-9 is the Quarterly Financial Statements for the
three and nine month periods ended September 30, 1996 of San Jacinto Holdings
Inc. (the "Company") and Safeguard Business Systems, Inc. which is required to
be furnished to holders of the Company's 12% Senior Subordinated Notes (the "New
Notes") and filed with the Securities and Exchange Commission pursuant to
Section 4.03 of the indenture between the Company and U.S. Trust Company of
Texas, N.A., as Trustee which governs the New Notes of the Company.
THE DATE OF THIS POST-EFFECTIVE AMENDMENT NO. 5 TO FORM T-3 IS NOVEMBER 14,
1996.
<PAGE> 3
Contents of Application for Qualification. This application for qualification
comprises:
(a) One page, numbered 1.
** (b) The Statement of Eligibility and Qualification of U.S. Trust
Company of Texas, N.A. as trustee under the New Notes Indenture
to be qualified.
(c) The following exhibits in addition to those filed as part of
the Statement of Eligibility and Qualification of the trustee.
** EXHIBIT T3A - Certificate of Incorporation, with all amendments
thereto, of the Company.
** EXHIBIT T3B - Amended and Restated By-laws of the Company.
** EXHIBIT T3C-1 - Indenture dated as of ___________, 1995, between
the Company and U.S. Trust Company of Texas, N.A., as Trustee.
** EXHIBIT T3C-2 - Indenture dated as of ____________, 1995,
between the Company and U.S. Trust Company of Texas, N.A., as
Trustee pursuant to the Supplement to Exchange Offer and Consent
Solicitation.
** EXHIBIT T3C-3 - Indenture dated as of _____________, 1996, between
the Company and U.S. Trust Company of Texas, N.A., as Trustee
pursuant to the Third Supplement to Exchange Offer and Consent
Solicitation.
** EXHIBIT T3C-4 - Amended Indenture dated as of January 26, 1996,
between the Company and U.S. Trust Company of Texas, N.A., as
Trustee.
EXHIBIT T3D - Not Applicable.
** EXHIBIT T3E-1 - Exchange Offer and Consent Solicitation.
** EXHIBIT T3E-2(a) - Form of Letter of Transmittal to holders of the
Company's 8% Senior Subordinated Notes due December 31, 2000.
** EXHIBIT T3E-2(b) - Form of Letter of Transmittal to holders of the
Company's 8% Subordinated Debentures due December 31, 2000.
** EXHIBIT T3E-2(c) - Form of Letter of Transmittal to holders of the
Company's 8% Senior Subordinated Notes due December 31, 2000
pursuant to the Supplement to Exchange Offer and Consent
Solicitation.
** EXHIBIT T2E-2(d) - Form of Letter of Transmittal to holders of the
Company's 8% Subordinated Debentures due December 31, 2000 pursuant
to the Supplement to Exchange Offer and Consent Solicitation.
** EXHIBIT T3E-2(e) - Form of Letter of Transmittal to holders of the
Company's 8% Senior Subordinated Notes due December 31, 2000
pursuant to the Third Supplement to Exchange Offer and Consent
Solicitation.
** EXHIBIT T3E-2(f) - Form of Letter of Transmittal to holders of the
Company's 8% Subordinated Debentures due December 31, 2000 pursuant
to the Third Supplement to Exchange Offer and Consent Solicitation.
** EXHIBIT T3E-3(a) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Senior Subordinated Notes
due December 31, 2000.
** EXHIBIT T3E-3(b) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Subordinated Debentures due
December 31, 2000.
<PAGE> 4
** EXHIBIT T3E-3(c) - Form of letter to Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees.
** EXHIBIT T3E-3(d) - Form of letter to be sent by Brokers,
Dealers, Commercial Banks, Trust Companies and Other Nominees to
their clients.
** EXHIBIT T3E-3(e) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Senior Subordinated Notes
due December 31, 2000 pursuant to the Supplement to Exchange Offer
and Consent Solicitation.
** EXHIBIT T3E-3(f) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Subordinated Debentures due
December 31, 2000 pursuant to the Supplement to Exchange Offer and
Consent Solicitation.
** EXHIBIT T3E-3(g) - Form of letter to Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees pursuant to the
Supplement to Exchange Offer and Consent Solicitation.
** EXHIBIT T3E-3(h) - Form of letter to be sent by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees to their
clients pursuant to the Supplement to Exchange Offer and
Consent Solicitation.
** EXHIBIT T3E-3(i) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Senior Subordinated Notes
due December 31, 2000 pursuant to the Third Supplement to Exchange
Offer and Consent Solicitation.
** EXHIBIT T3E-3(j) - Form of Notice of Guaranteed Delivery to be
provided to holders of the Company's 8% Subordinated Debentures due
December 31, 2000 pursuant to the Third Supplement to Exchange
Offer and Consent Solicitation.
** EXHIBIT T3E-(k) - Form of letter to Broker, Dealers, Commercial
Banks, Trust Companies and Other Nominees pursuant to the Third
Supplement to Exchange Offer and Consent Solicitation.
** EXHIBIT T3E-(l) - Form of letter to be sent by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees to their
clients pursuant to the Third Supplement to Exchange Offer and
Consent Solicitation.
** EXHIBIT T3E-4(a) - Supplement to Exchange Offer and Consent
Solicitation.
** EXHIBIT T3E-4(b) - Second Supplement to Exchange Offer and
Consent Solicitation.
** EXHIBIT T3E-4(c) - Third Supplement to Exchange Offer and
Consent Solicitation.
** EXHIBIT T3E-5 - Notice of Extension of Expiration Date.
** EXHIBIT T3E-6 - 1995 Annual Report of the Company and Safeguard
Business Systems, Inc.
** EXHIBIT T3E-7 - Quarterly Financial Statements for the three month
period ended March 31, 1996.
** EXHIBIT T3E-8 - Quarterly Financial Statements for the three and
six month periods ended June 30, 1996.
- -------------
* Filed herewith.
** Filed previously.
3
<PAGE> 5
* EXHIBIT T3E-9 - Quarterly Financial Statements for the three and
nine month periods ended September 30, 1996.
** EXHIBIT T3F - A cross reference sheet showing the exact location of
the provisions of the New Notes Indenture inserted therein pursuant
to Section 310 through 318(A), inclusive, of the Act (included as
part of Exhibit T3C).
- ----------------
* Filed herewith.
** Filed previously.
4
<PAGE> 6
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the applicant,
San Jacinto Holdings Inc., a corporation organized and existing under the laws
of the State of Delaware, has duly caused this Post-Effective Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the City of Fort Washington,
Pennsylvania on the 14th day of November, 1996.
(SEAL)
SAN JACINTO HOLDINGS INC.
Attest: By: /s/ Elvis L. Mason
-----------------------------------
Name: Elvis L. Mason
Title: President
Executive Officer
/s/ James R. Braun
- ----------------------------------
Name: James R. Braun
Title: Secretary
5
<PAGE> 7
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT PAGE
** EXHIBIT T3A Certificate of Incorporation, with
all amendments thereto, of the Company
** EXHIBIT T3B Amended and Restated By-laws of the
Company...............................
** EXHIBIT T3C-1 Indenture dated as of ___________,
1995, between the Company and U.S.
Trust Company of Texas, N.A., as
Trustee...............................
** EXHIBIT T3C-2 Indenture dated as of ___________,
1995, between the Company and U.S.
Trust Company of Texas, N.A., as
Trustee pursuant to the Supplement to
Exchange Offer and Consent
Solicitation..........................
** EXHIBIT T3C-3 Indenture dated as of _________,
1996, between the Company and U.S.
Trust Company of Texas, N.A., as
Trustee pursuant to the Third
Supplement to Exchange Offer and
Consent Solicitation..................
** EXHIBIT T3C-4 Amended Indenture dated as of January
26, 1996, between the Company and
U.S. Trust Company of Texas, N.A., as
Trustee...............................
EXHIBIT T3D Not Applicable
** EXHIBIT T3E-1 Exchange Offer and Consent
Solicitation..........................
** EXHIBIT T3E-2(a) Form of Letter of Transmittal to
holders of the Company's 8% Senior
Subordinated Notes due December 31,
2000..................................
** EXHIBIT T3E-2(b) Form of Letter of Transmittal to
holders of the Company's 8%
Subordinated Debentures due December
31, 2000..............................
** EXHIBIT T3E-2(c) Form of Letter of Transmittal to
holders of the company's 8% Senior
Subordinated Notes due December 31,
2000 pursuant to the Supplement to
Exchange Offer and Consent
Solicitation..........................
** EXHIBIT T3E-2(d) Form of Letter of Transmittal to
holders of the Company's 8%
Subordinated Debentures due December
31, 2000 pursuant to the Supplement
to Exchange Offer and Consent
Solicitation..........................
** EXHIBIT T3E-2(e) Form of Letter of Transmittal to
holders of the Company's 8% Senior
Subordinated Notes due December 31,
2000 pursuant to the Third Supplement
to Exchange Offer and Consent
Solicitation..........................
- ----------------
* Filed herewith.
** Filed previously.
<PAGE> 8
** EXHIBIT T3E-2(f) Form of Letter of Transmittal to
holders of the Company's 8% Senior
Subordinated Debentures due December
31, 2000 pursuant to the Third
Supplement to Exchange Offer and
Consent Solicitation..................
** EXHIBIT T3E-3(a) Form of Notice of Guaranteed Delivery
to be provided to holders of the
Company's 8% Senior Subordinated
Notes due December 31, 2000...........
** EXHIBIT T3E-3(b) Form of Notice of Guaranteed Delivery
to be provided to holders of the
Company's 8% Subordinated Debentures
due December 31, 2000.................
** EXHIBIT T3E-3(c) Form of letter to Brokers, Dealers,
Commercial Banks, Trust Companies and
Other Nominees........................
** EXHIBIT T3E-3(d) Form of letter to be sent by Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees to their
clients...............................
** EXHIBIT T3E-3(e) Form of Notice of Guaranteed Delivery
to be provided to holders of the
Company's 8% Senior Subordinated
Notes due December 31, 2000 pursuant
to the Supplement to Exchange Offer
and Consent Solicitation..............
** EXHIBIT T3E-3(f) Form of Notice of Guaranteed Delivery
to be provided to holders of the
Company's 8% Subordinated Debentures
due December 31, 2000 pursuant to the
Supplement to Exchange Offer and
Consent Solicitation..................
** EXHIBIT T3E-3(g) Form of letter to Brokers, Dealers,
Commercial Banks, Trust Companies and
Other Nominees pursuant to the
Supplement to Exchange Offer and
Consent Solicitation..................
** EXHIBIT T3E-3(h) Form of letter to be sent by Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees to their
clients pursuant to the Supplement to
Exchange Offer and Consent
Solicitation..........................
** EXHIBIT T3E-3(i) Form of Notice of Guaranteed Delivery
to be provided to holders of the
Company's 8% Senior Subordinated
Notes due December 31, 2000 pursuant
to the Third Supplement to Exchange
Offer and Consent Solicitation........
** EXHIBIT T3E-3(j) Form of Notice of Guaranteed Delivery
to be provided to holders of the
Company's 8% Subordinated Debentures
due December 31, 2000 pursuant to the
Third Supplement to Exchange Offer
and Consent Solicitation..............
- --------------
* Filed herewith.
** Filed previously.
<PAGE> 9
** EXHIBIT T3E-3(k) Form of letter to Broker, Dealers,
Commercial Banks, Trust Companies and
Other Nominees pursuant to the Third
Supplement to Exchange Offer and
Consent Solicitation..................
** EXHIBIT T3E-3(l) Form of letter to be sent by Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees to their
clients pursuant to the Third
Supplement to Exchange Offer and
Consent Solicitation..................
** EXHIBIT T3E-4(a) Supplement to Exchange Offer and
Consent Solicitation..................
** EXHIBIT T3E-4(b) Second Supplement to Exchange Offer
and Consent Solicitation..............
** EXHIBIT T3E-4(c) Third Supplement to Exchange Offer
and Consent Solicitation..............
** EXHIBIT T3E-5 Notice of Extension of Expiration Date
** EXHIBIT T3E-6 1995 Annual Report of the Company and
Safeguard Business Systems, Inc.
** EXHIBIT T3E-7 Quarterly Financial Statements for
the three month period ended March
31, 1996.
** EXHIBIT T3E-8 Quarterly Financial Statements for
the three and six month periods ended
June 30, 1996.
* EXHIBIT T3E-9 Quarterly Financial Statements for the
three and nine month periods ended
September 30, 1996.
- ------------
* Filed herewith.
** Filed previously.
8
<PAGE> 1
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
Page
----
Chairman's Letter 1 - 2
Attachment to Chairman's Letter 3 - 5
Safeguard Business Systems, Inc.'s
Chief Executive Officer and Chief Financial Officer's Letter 6 - 8
Financial Statements 9 - 15
The accompanying unaudited interim consolidated financial
statements were prepared on a consistent basis utilizing the
accounting policies described in the Summary of Significant
Accounting Policies included in the notes to the consolidated
financial statements of the Company for the years ended December
31, 1995 and 1994. These policies and the Notes to Consolidated
Financial Statements should be read in conjunction with the
accompanying statements. These interim statements have been
drawn from unaudited internal data and include all adjustments
which the Company believes necessary to a fair presentation of the
statements. The interim operating results are not necessarily
indicative of the results expected for the full year.
Management's Discussion and Analysis of Financial, Condition 16 - 18
and Results of Operations
<PAGE> 2
November 14, 1996
TO ALL STOCKHOLDERS AND BONDHOLDERS:
Enclosed are the consolidated financial statements and operating results
for the nine month period ended September 30, 1996 for San Jacinto Holdings and
its subsidiary, Safeguard Business Systems. Many significant developments have
occurred this year and progress continues to be made on a broad number of
critical projects announced in previous quarters.
On September 20, we made an announcement regarding the Board's decision to
elect Doug Reiter Vice Chairman and Chief Executive Officer of Safeguard. A copy
of that announcement is enclosed. This is a key move in developing the Company's
executive management for the years ahead. I am confident that Doug will do a
superior job in leading Safeguard into a much improved position in a rapidly
changing and fiercely competitive market place. He is an experienced and proven
senior executive with extensive knowledge of Safeguard's basic industry,
products and markets.
Consolidated operating earnings (EBITA) for this nine month period
declined by $2.5 million, or 20%, compared to prior year results before the
special restructuring charge of $5.7 million recorded in the 3rd quarter of
1995. This result is a continuation of trends reported in previous periods and
is discussed fully by management in the enclosed report.
-1-
<PAGE> 3
In previous reports, we have reviewed for you the total transformation
taking place in Safeguard to respond to fundamental market and industry changes.
Safeguard and its primary competitors are being impacted severely by these
changes which are basic and far reaching. Today's customers demand that
companies focus on basic services, operating functions, cost structure,
competitive pricing, information requirements and effective distribution
channels.
In September, 1995, Safeguard announced comprehensive changes and
restructuring decisions to become a "market driven" company. We said then that
it would be 1997 and the periods beyond before those moves would have a
favorable impact on growth and earnings. We remain committed to achieving those
objectives.
We are currently evaluating additional actions to strengthen Safeguard's
future financial performance. There may well be important opportunities
available to us and we will keep you well informed when key strategic decisions
are reached. Many thanks for your continued support and interest.
Sincerely,
/s/Elvis Mason
Elvis L. Mason
Chairman
-2-
<PAGE> 4
September 17, 1996
Dear Safeguard Distributors and Fellow Employees:
On behalf of the Board of Directors, I am pleased to announce that Doug
Reiter has been elected Chief Executive Officer and Vice Chairman of the Board
of Safeguard. In that capacity, Doug becomes the senior executive officer of the
Company and will continue to serve as President of the North American Sales and
Marketing Division based in Dallas. He succeeds me as C.E.O., a position I have
occupied since 1992. I will continue to be an active participant with management
in my role as Chairman.
I am also very pleased to announce that Richard H. Gommel will continue to
serve as President and Chief Operating Officer. In addition to his consolidated
operating responsibilities in North America, he also has management
responsibility for Safeguard's operations headquartered in the United Kingdom
which are now expanding into selected markets in Europe. Since joining Safeguard
in 1988, Dick has provided manufacturing and operational leadership across all
areas of the Company resulting in major improvements. Safeguard's manufacturing
capabilities and operational support services, driven by rapid changes in
technology, must achieve even higher levels of innovative strengths to remain
cost effective and competitive in the future. Dick is a very able and dedicated
executive. I am confident that he will be successful in leading Safeguard to new
standards of operational excellence in the future.
James R. Braun, Executive Vice President and Chief Financial Officer
continues in that important senior position. He will assume a much broader role
in financial planning and development of expanded financial resources to
facilitate and support Safeguard's growth expectations over the next three to
five years. We have moved Safeguard into a far more competitive posture in the
market place, working together with our independent distributor channel. The
financial requirements to support profitable, double-digit annual growth are
vital to our future
-3-
<PAGE> 5
success. Jim's record of accomplishments and experience with Safeguard will
insure success in this critical mission.
As Chairman, I am excited to have Doug assume this leadership role in our
Company. Working closely with Dick Gommel, Jim Braun and our entire employee
team, Doug will be a highly successful Chief Executive Officer for Safeguard. He
is a decisive, capable and proven business executive with more than 25 years
experience in successfully managing significant administrative, technical
services and sales/marketing organizations. Since joining the Company in June
1994, he has provided aggressive and sound leadership in moving Safeguard
forward. His knowledge of our industry and his vision of the future are superb
strengths.
Doug is deeply committed to our independent distributor channel, their
profitability and long term equity. He truly understands the necessity of
delivering high quality products and services at affordable prices to the small
business markets. In my nearly 10 years involvement with Safeguard, I have never
seen the level of distributor participation and leadership that has evolved in
the last year under Doug's management policies, practices and encouragement. His
dynamic leadership and his sense of urgency are precisely what Safeguard needs
to succeed in the future.
In September 1995, exactly one year ago this week, Dick Gommel and Doug
Reiter joined with me in a presentation to all of our distributors and employees
announcing a new era for Safeguard. We talked about creating a "market driven"
company which, in full partnership with our independent distributor network,
will be "THE PREMIER CHANNEL IN SMALL BUSINESS". It is with a great sense of
pride and appreciation that I can confirm to you that it is happening. Much
remains to be done, but we are on track and we will succeed.
On a personal note, I am very pleased to have the opportunity to
contribute to this exciting story. I plan to continue supporting and assisting
our management team in every way possible to help Safeguard, its distributors
and its employees to enjoy a profitable and successful future. Working together
that can and will happen.
Sincerely,
/s/Elvis Mason
Elvis L. Mason
Chairman
-4-
<PAGE> 6
SAFEGUARD BUSINESS SYSTEMS, INC.
DOUG REITER
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Doug Reiter, age 55, joined Safeguard in June 1994 as Vice President of
Key Accounts. In December 1994 he was elected Senior Vice President, Marketing
and Business Development, and in June 1995 was elected Executive Vice President
of Sales & Marketing. He then led the Company's establishment of a new North
American sales & Marketing Division, located in Dallas, beginning in September
1995, as its President. Before joining Safeguard, Doug spent over 25 years
managing diverse administrative and sales/marketing organizations in Xerox, EFM,
Inc. and PIP Printing. He holds a Bachelor of Science degree in Business
Administration from Creighton University.
RICHARD H. GOMMEL
PRESIDENT AND CHIEF OPERATING OFFICER
Dick Gommel, age 50, joined Safeguard in May 1988 as Vice
President-Operations and was elected Senior Vice President of Operations and
Business Development in February 1992. He has served as President and Chief
Operating Officer of Safeguard since November 1992. From 1980 to 1988, Mr.
Gommel was an executive with Krueger-Ringier, Inc., a printing company
subsidiary of Mobil Oil Corporation, last serving as Senior Vice
President-Operations. He holds a Bachelor of Science degree in Engineering from
Penn State University.
JAMES R. BRAUN
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Jim Braun, age 42, joined Safeguard in February 1988 as Controller and
Chief Accounting Officer. In June 1988, he was elected Vice President and Chief
Financial Officer and served in that capacity until his election as Executive
Vice President and Chief Financial Officer in June 1995. He also serves as
Corporate Secretary of the Company. Before joining Safeguard, Jim was Vice
President and Chief Financial Officer of General Devices, Inc. a publicly held
company headquartered in Norristown, PA.. He holds a Bachelor of Science degree
in Accounting (Magna Cum Laude) from Villanova University and is a Certified
Public Accountant.
-5-
<PAGE> 7
November 14, 1996
TO ALL STOCKHOLDERS AND BONDHOLDERS:
Enclosed are the consolidated financial statements of San Jacinto Holdings
Inc. and its operating subsidiary, Safeguard Business Systems, Inc., for the
three and nine month periods ended September 30, 1996.
Net sales in the third quarter of 1996 are $51.4 million, reflecting an
increase of $2.3 million (or 4.6%) above the third quarter of 1995. For the
first nine months of 1996 net sales are $153.7 million reflecting a $4.2 million
growth (or 2.8%) above last years sales levels. The sales increase reflects
growth in sales of computer forms (8.5%), brokered products (17.6%) and payroll
processing service (14.6%). This growth is off-set by a 6.4% decline in manual
form sales. The changes in sales trends from manual forms to computer forms,
brokered products and payroll processing are being addressed strategically and
operationally throughout the Company.
Earnings from operations before special charge in the third quarter of
1996 are $2.9 million compared to $3.4 million in 1995, a $0.5 million (or
16.9%) decline. The decline in earnings is attributable to planned increases in
selling and administrative expenses, partially offset by a $2.1 million increase
in gross profit for the quarter, a result of a leveling off of raw material cost
increases. The increased selling and administrative costs are in support of the
establishment of a sales and marketing function that is positioned to meet the
needs of a changing small business marketplace, and the conversion and redesign
of the Company's computer system hardware and software. Earnings from operations
before special charges for the nine month period are $10.2 million in 1996, a
$2.5 million (or 19.9%) decrease in comparison to 1995. The decline in earnings
is attributable to planned increases in selling and administrative expense,
partially offset by an increase in gross profit, as noted above.
-6-
<PAGE> 8
The special charge of $5.7 million in September 1995 reflected the
anticipated cost to centralize the sales and marketing function, the first step
in creating a technologically advanced customer support center, and a provision
for the probable loss on the sale of two real estate properties owned by the
Company. The grand opening of the Dallas support center in June 1996 marked the
completion of the sales/marketing centralization. The cost incurred to complete
this centralization approximated the expenditures estimated in 1995. Of the two
properties held for sale, one was sold in August 1996 at approximately net book
value; the second property is under agreement of sale at its net book value.
The Company's net loss before special charge and extraordinary item for
the third quarter of 1996 is $5.3 million compared to $3.7 million for the same
period in 1995. The net loss before special charges and extraordinary item for
the nine month period is $14.7 in 1996 compared to $8.9 million in 1995. The
increased loss is attributable to increased selling and administrative costs, an
increase in interest expense due to a rise in the Company's effective borrowing
rate from 8% to 12%, as more fully described in the notes to be consolidated
financial statements, partially offset by an increase in gross profit. These
losses include amortization (non-cash) charges of $14.3 million for the first
nine months of 1996 and $14.5 million for the same period in 1995.
The Company's operations in the United Kingdom remain strong. Net sales
for the first nine months of 1996 are 8.4% above 1995 sales level for the same
period. This growth is in both manual and computer form sales. During the first
nine months of 1996, earnings from operations are $1.9 million, a $0.6 million
increase. The earnings growth includes a $0.7 million gain on the sales of an
existing manufacturing facility in June 1996. The construction and relocation to
the new facility was completed in April 1996.
The small business marketplace continues to increase rapidly. Safeguard
has reached over 800,000 of the potential 15 million small businesses operating
in the United States. This rapidly growing group is industrious, cost conscious,
and has limited resources to cope with changes in government regulations, new
technology and cash management. To meet their specific business needs, as
detailed in the attached capabilities brochure, Safeguard offers value added,
innovative solutions designed to manage change. Safeguard's state-of-the-art
support center in Dallas, Texas is focused on; the small business marketplace,
customized direct marketing programs, and a solutions-driven major accounts
organization. This center combined with Safeguard's customer referral sources is
small business's premier channel for integrated solutions in a changing business
environment. The Dallas Support Center provides fast, efficient support to
Safeguard's distribution network and is designed to anticipate the future needs
of small business.
-7-
<PAGE> 9
The Company is celebrating 40 years of leadership in the small business
arena serving the marketplace as an information systems company with a total
service approach. Safeguard's management and employees are dedicated to
maintaining and expanding this preeminent position in the small business
marketplace in the coming years. We appreciate your continuing support.
Sincerely,
/s/Doug Reiter /s/James R. Braun
Gerald D. Reiter James R. Braun
Vice Chairman and Executive Vice President
Chief Executive Officer Chief Financial Officer
-8-
<PAGE> 10
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
($000 omitted)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 644 $ 2,802
Receivables less allowances 26,380 27,072
Inventories 8,172 8,809
Other current assets 2,513 2,248
--------- ---------
Total current assets 37,709 40,931
Property, machinery and equipment - net 20,286 17,739
Excess purchase price over net assets acquired 43,586 44,671
Customer list 21,591 34,545
Other assets 3,777 4,973
--------- ---------
Total assets $ 126,949 $ 142,859
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current debt obligations $ 9,052 $ 7,395
Accounts payable 12,192 9,741
Accrued expenses 14,813 14,612
--------- ---------
Total current liabilities 36,057 31,748
Long-term debt 108,581 100,853
Deferred interest -- 14,805
Other liabilities 6,540 7,183
Stockholders' equity (deficiency):
Preferred stock:
$5.00 Junior Preferred Stock, par value $.01 a share
Authorized 1,000,000 shares, $5 cumulative
No shares issued and outstanding
Common stock, par value $.01 a share:
Authorized 2,000,000 shares,
Issued and outstanding 1,052,384 shares in 1996 and 11 10
999,960 shares in 1995
Additional paid-in capital 94,143 94,143
Deficit (117,125) (104,591)
Foreign currency translation adjustment (1,258) (1,292)
--------- ---------
Total stockholders' equity (deficiency) (24,229) (11,730)
--------- ---------
Total liabilities and stockholders' equity (deficiency) $ 126,949 $ 142,859
========= =========
</TABLE>
See notes to consolidated financial statements.
-9-
<PAGE> 11
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
($000 omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Month Period Nine Month Period
Ended September 30, Ended September 30,
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $51,443 $49,174 $153,652 $149,470
Cost of sales 23,625 23,456 71,114 68,451
------- ------- -------- --------
Gross profit 27,818 25,718 82,538 81,019
Selling expense 20,707 18,930 60,541 57,901
General & administrative
expense 4,797 3,972 13,455 12,261
Other income - cash received
greater than carrying value
of distributor receivables (550) (630) (1,650) (1,874)
Special charge -
centralization costs -- 5,700 -- 5,700
Amortization expense 4,572 4,830 14,338 14,457
Interest expense 3,595 2,340 10,565 7,172
------- ------- -------- --------
Loss from operations before
income taxes and
extraordinary item (5,303) (9,424) (14,711) (14,598)
Income tax (benefit)
provision 84 (38) 224 113
------- -------- -------- --------
Loss before extraordinary
item (5,387) (9,386) (14,935) (14,711)
Extraordinary item:
Gain on early
extinguishment of debt -- -- 2,401 --
------- ------- -------- --------
Net loss ($ 5,387) ($ 9,386) ($ 12,534) ($ 14,711)
======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
-10-
<PAGE> 12
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM JANUARY 1, 1995
TO SEPTEMBER 30, 1996
($000 omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Additional Currency
Preferred Stock Common Stock Paid In Translation
Shares Amount Shares Amount Capital Deficit Adjustment
------ ------ ---------- ------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
January 1, 1995 -- -- $ 999,960 $10 $94,143 $ (86,037) $(1,424)
Net loss (18,554)
Unrealized gain on
foreign currency
translation -- -- -- -- -- -- 132
-- --- ---------- --- ------- --------- -------
Balance -
December 31, 1995 -- -- 999,960 10 94,143 (104,591) (1,292)
Issuance of common
stock in conjunction
with exchange offer 52,424 1
Net loss (12,534)
Unrealized gain on
foreign currency
translation -- -- -- -- -- -- 34
-- --- ---------- --- ------- --------- -------
Balance -
September 30, 1996 -- $-- 1,052,384 $11 $94,143 ($117,125) ($1,258)
== === ========== === ======= ========= =======
</TABLE>
See notes to consolidated financial statements.
- 11-
<PAGE> 13
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000 omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(12,534) $(14,711)
Adjustments to reconcile net loss to cash
provided by operating activities:
Extraordinary Item (2,401) --
Amortization 14,338 14,457
Depreciation 3,961 3,439
Gain on sale of assets (725) --
Provisions for loss of sale assets -- 1,700
Unrealized exchange gain 34 510
(Increase) decrease in operating assets:
Receivables 692 2,036
Inventories 638 (231)
Other assets 1,300 (576)
Increase (decrease) in operating liabilities:
Accounts payable (539) 3,302
Accrued expense and other liabilities 2,548 4,801
Deferred interest -- 1,048
-------- --------
Net cash provided by operating activities 7,312 15,775
Cash Flows from Investing Activities:
Purchase of property, machinery and equipment (5,071) (3,749)
Proceeds from sale of assets 1,176 --
Adjustment due to currency fluctuations
and foreign purchase price adjustments (50) 175
-------- --------
Net cash used in investing activities (3,945) (3,574)
-------- --------
Cash Flows from Financing Activities:
Repayment of long-term debt and capital lease obligations (21,199) (11,256)
Temporary borrowings from (repayment of) revolving loans 17,067 (2,900)
Net proceeds from foreign obligations 137 741
Deferred financing costs (1,530) (75)
-------- --------
Net cash used in financing activities (5,525) (13,490)
Decrease in cash and cash equivalents (2,158) (1,289)
Cash and cash equivalents at beginning of period 2,802 2,716
-------- --------
Cash and cash equivalents at end of period $ 644 $ 1,427
======== ========
</TABLE>
-12-
<PAGE> 14
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996
($000 omitted)
(UNAUDITED)
(Continued)
Supplemental disclosure of noncash investing and financing activities:
PIK ("Payment in Kind") Debentures totaling $11 and $806 were issued in the
second quarter of 1996 and 1995, respectively. The PIK Debentures are in
payment of accrued interest on the Company's 8% Subordinated Debentures.
Capital lease obligations of $1,837 and $916 were entered into during the
first nine months of 1996 and 1995 respectively, to acquire certain
machinery and equipment.
Supplemental disclosure of cash flow information:
Cash paid during the period for:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Interest $8,734 $4,587
</TABLE>
See notes to consolidated financial statements
-13-
<PAGE> 15
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
NOTE A. UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Basis of presentation - The accompanying interim financial statements have
been prepared by the Company without audit. These statements include all
adjustments which management believes necessary for a fair presentation of
the statements and have been prepared on a consistent basis using the
accounting policies described in the Summary of Significant Accounting
Policies in the notes to the consolidated financial statements included in
the Company's 1995 audited financial statements. These policies and notes
to consolidated financial statements should be read in conjunction with
the accompanying interim financial statements. The interim operating
results are not necessarily indicative of the operating results expected
for the full year. The accompanying financial statements as of and for the
year ended December 31, 1995 are derived from the Company's audited
financial statements as of that date.
NOTE B. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
($000 omitted)
<S> <C> <C>
Finished goods $4,221 $4,062
Work-in-process 714 629
Raw materials 3,237 4,118
------ ------
$8,172 $8,809
====== ======
</TABLE>
NOTE C. LONG-TERM DEBT:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
($000 omitted)
<S> <C> <C>
New Revolving Loan $ 15,703 $ --
New Term Loan 5,900 --
Revolving Credit Loan -- 15,582
Amended Exchange Loan 23,568 24,656
12% Senior Subordinated Notes 65,878 --
8% Senior Subordinated Notes 3 39,998
8% Subordinated Debentures 309 21,801
Capital lease obligations 2,837 2,913
Foreign obligations 3,435 3,298
--------- ---------
117,633 108,248
Less current debt obligations (9,052) (7,395)
--------- ---------
$ 108,581 $ 100,853
========= =========
</TABLE>
-14-
<PAGE> 16
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
NOTE C. LONG-TERM DEBT: (continued)
On January 26, 1996, the Company consummated an exchange offer of its
existing 8% Senior Subordinated Notes due December 31, 2000 (the "Existing
Notes") and 8% Subordinated Debentures due December 31, 2000 ("Existing
Debentures") for 12% Senior Subordinated Notes due December 31, 2002 (the
"New Notes"). Of the Existing Notes and the associated deferred interest,
99.99% were tendered; the tendering Existing Notes were exchanged at a
rate of $1,000 in New Notes for each $1,000 in tendering Existing Notes
and deferred interest. Of the Existing Debentures, 98.6% were tendered;
the tendering Existing Debentures were exchanged at a rate of $850 in New
Notes for each $1,000 in tendering Existing Debentures. In addition to New
Notes, each tendering Existing Note and Existing Debenture holder was
issued a pro rata share of Common Stock of the Company equal to 5% of the
outstanding Capital Stock after giving effect to this exchange offer. The
exchange offer, based upon its terms, is accounted for as an
extinguishment and resulted in an extraordinary gain of $2.4 million after
deducting related expenses.
In conjunction with the Exchange Offer described above, on January 26,
1996 the Company and Safeguard also refinanced existing bank debt. The
refinancing plan included payment in full of the Revolving Credit Loan and
unpaid deferred interest on an existing Term Loan, and the amendment of
the existing Exchange Loan Agreement. The existing Exchange Loan was
converted to a $25,750,000 Term Loan bearing interest at 12% per annum
payable in monthly installments over a five year period beginning March
1996. Safeguard also entered into a Loan and Security Agreement which
includes a Revolving Loan and a Term Loan. The new Revolving Loan allows
for borrowing against eligible accounts receivable and inventories up to a
maximum of $23,500,000. The new Revolving Loan bears interest at the prime
leading rate plus 1% or Eurodollar Rate plus 2.75% for a five year term,
with automatic renewal for successive one year periods. The new Term Loan,
under the Loan and Security Agreement, is for $6,500,000 bearing interest
at 12% per annum payable in monthly installments over a five year period
beginning February 1996.
-15-
<PAGE> 17
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected financial
data as a percentage of net sales.
<TABLE>
<CAPTION>
Nine Month Period Nine Month Period
Ended September 30, Ended September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 45.9 47.7 46.3 45.8
------ ------ ------ ------
Gross profit 54.1 52.3 53.7 54.2
Selling expense 40.3 38.5 39.4 38.7
General & administrative
expense 9.3 8.1 8.8 8.2
Other income - distributor
receivables (1.1) (1.3) (1.1) (1.3)
Special Charge -- 11.6 -- 3.8
Amortization expense 8.9 9.8 9.3 9.7
Interest expense 7.0 4.8 6.9 4.8
----- ----- ----- -----
Loss from operations before
income taxes and
extraordinary item (10.3) (19.2) (9.6) (9.7)
Income tax provision 0.2 0.1 0.2 0.1
----- ----- ----- -----
Loss before extraordinary
item (10.5) (19.1) (9.8) (9.8)
Extraordinary item -- -- 1.6 --
----- ----- ----- -----
Net loss (10.5)% (10.5)% (8.2)% (9.8)%
===== ===== ===== =====
</TABLE>
COMPARISON OF THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 TO THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1995.
NET SALES. Net sales for the third quarter of 1996 are $51.4 million compared to
$49.2 million for the same period in 1995, representing a sales growth of 4.6%.
For the first nine months of 1996, net sales are $153.7 million, reflecting
growth of $4.2 million or 2.8% in comparison to 1995. The sales growth during
the first nine months reflects a 8.5% growth in computer and laser forms and a
17.6% growth in brokered product sales partially off-set by a 6.4% decline in
manual forms sales. Approximately 60% of the growth in computer forms is related
to volume increases, with the remainder attributable to price increases. The
decline in manual forms sales is off-set in part by a 3.7% average price
increase.
GROSS PROFIT. Gross profit margin is 54.1% of net sales for the third quarter of
1996 and 52.3% in 1995. This increase in gross profit margin is attributable in
part to a leveling off of paper and paper related supply cost increases
experienced in the second half of 1995. For the first nine months, the gross
margin is 53.7% of net sales in 1996 compared to 54.2% in 1995. The decline in
margin, for the first nine months, is a result of the change in the Company's
product mix from manual forms sales to computer forms and brokered products. As
noted above, the Company experienced increases in paper and paper related supply
costs in 1995; these price increases have been partially passed through to
customers. Computer forms and brokerage products, high growth product lines,
carry greater material, direct labor and overhead costs (as a percentage of
sales) resulting in lower gross profit margin than for manual forms.
-16-
<PAGE> 18
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996
RESULTS OF OPERATIONS - Continued
SELLING EXPENSE. Selling expenses are $20.7 million in the third quarter of 1996
compared to $18.9 million for the same period in 1995, representing 40.3% and
38.5% of net sales in each period. For the first nine months, selling expenses
are $60.5 million in 1996 compared to $57.9 million in 1995, representing 39.4%
and 38.7% of net sales in each period. The increase in selling costs, as a
percentage of net sales, in the third quarter and nine month period, is
attributable to planned increases to support the establishment of a
technologically advanced customer support center. Commissions to independent
distributors account for approximately 80% of total selling costs and, as a
percent of total sales, has remained constant.
GENERAL AND ADMINISTRATIVE. General and administrative expenses are $4.8 million
for the third quarter of 1996 compared to $4.0 million in 1995. For the first
nine months, general and administrative expenses are $13.5 million in 1996 and
$12.3 million in 1995. The increase in costs during the third quarter and nine
month period is due to planned cost increases in support of the conversion and
redesign of the Company's computer system hardware and software, partially
offset by a $0.7 million gain on the sale of a production facility in the United
Kingdom.
SPECIAL CHARGE - CENTRALIZATION COSTS. In September 1995 the Company announced
its decision to centralize the North America sales and marketing function, and
create a new sales and marketing division. The centralization was completed in
the second quarter 1996. The anticipated cost included severance, recruiting and
relocation costs to complete this centralization, and a provision for a book
loss on the sale of two properties. The cost incurred to complete the
centralization approximated the expenditures estimated in 1995. Of the two
properties held for sale, one was sold in August 1996 at approximately net book
value; the second property is under agreement of sale at its net book value.
OTHER INCOME. Distributor Receivables. Other income (cash received greater than
carrying value of Distributor receivables) is $0.6 million for the third quarter
1996 and 1995, representing 1.1% of net sales in 1996 and 1.3% in 1995. Other
income for the nine month period is $1.7 million in 1996 and $1.9 million in
1995. In connection with the Company's purchase price allocation for the
acquisition of Safeguard in December 1986, the value assigned to distributor
receivables associated with loans and advances previously made by Safeguard to
facilitate the purchase of account protection rights by distributors was $4.8
million, net of deferred interest income of approximately $7.8 million. This
value was primarily based on an independent valuation of the distributor
receivables which aggregated approximately $26.0 million as of December 31,
1986. Due to the effect of collection and distributor advance policies
instituted in 1988, the net distributor receivables balance was reduced to zero
by early 1992. Cash collection of this distributor receivable are expected to
continue in amounts approximating $2.0 million through the year 2000.
AMORTIZATION EXPENSE. Amortization expense is $4.6 million for the third quarter
of 1996 and $4.8 million in 1995. Amortization expense is $14.3 million and
$14.5 million for the first nine months of 1996 and 1995, respectively. The
expense consists primarily of the amortization of intangible assets, including
the customer list, excess purchase price over net assets acquired and deferred
financing costs.
INTEREST EXPENSE. Interest expense is $3.6 million for the third quarter of 1996
and $2.3 million for the same period in 1995. For the first nine months,
interest expense is $10.6 million in 1996 in comparison to $7.2 million in 1995.
The increase in interest expense in 1996 is attributable to the rise in the
Company's effect interest rate from 8% to 12% per annum in connection with the
Company's debt refinancing in January 1996.
INCOME TAX PROVISION (BENEFIT). The Company's provision (benefit) for income tax
is related to its operations in the United Kingdom. No tax liability is incurred
in the United States as a result of net losses from operations.
-17-
<PAGE> 19
SAN JACINTO HOLDINGS INC. AND SUBSIDIARY
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows generated from
operations, cash on hand and borrowing capacity under the new Revolving Loan.
The Company's cash flows from operating activities is $7.3 million in the first
nine months of 1996. As of September 30, 1996, the Company had $0.6 million in
cash and cash equivalents, working capital of $1.7 million and a ratio of
current assets to current liabilities of 1:05:1 At that date, the Company also
had $2.8 million in availability under the new Revolving Loan and the equivalent
of $0.7 million available through a short term line of credit maintained by the
Company's subsidiary in the United Kingdom.
The Company's ongoing liquidity requirements arise primarily from capital
expenditures, working capital needs and debt service. The Company's capital
expenditures for the first nine months of 1996 are $5.7 million in machinery and
equipment, in addition to $1.2 million in costs associated with the construction
of a new facility in the United Kingdom. This new facility was financed by a
construction loan and cash flow from operations. The facility in the United
Kingdom was sold in June 1996; the net proceeds from the sale of this facility
was $1.2 million. The Company anticipates total machinery and equipment capital
expenditures in 1996 of $6.5 million, which will include the installation of an
integrated computerized order entry system and the upgrade of existing
manufacturing production equipment. These expenditures will be funded through
additional capital lease obligations and cash flow from operations.
As more fully described in the Notes to the Consolidated Financial Statements,
on January 26, 1996, the Company consummated an exchange of substantially all of
its existing 8% Senior Subordinated Notes due December 31, 2000 and 8%
subordinated Debentures due December 31, 2000, for 12% Senior Subordinated notes
due December 31, 2002. Tendering note and debenture holders were also issued
common stock of the Company equal to 5% of the outstanding capital stock. In
conjunction with the Exchange Offer, the Company and Safeguard refinanced its
existing bank debt. The refinancing included payment in full of a bank loan and
deferred interest, the amendment of an existing bank loan, and entering into a
new revolver/term loan facility. The exchange and refinancing provides an
extension of the average life of the Company's indebtedness and increases the
Company's financial resources to support operations.
-18-
