<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION NO. 333-48821
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
to
Form S-4
Registration Statement Under The Securities Act of 1933
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IMPAC Group, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 2657 23-2923682
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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David C. Underwood
1950 North Ruby Street Chief Financial Officer
Melrose Park, Illinois 60160 IMPAC Group, Inc.
(708) 344-9100 1950 North Ruby Street,
(Address, including zip code, Melrose Park, Illinois 60160
and telephone number, (708) 344-9100
including area code, (Name, address, including
of Registrant's principal --------------- zip code, and telephone
executive offices) number, including area
code, of agent for
service)
Copy to:
John R. Utzschneider, Esq.
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
(617) 951-8852
Facsimile No. (617) 951-8736
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of each class
of securities to be Amount to be Proposed maximum Proposed maximum aggregate Amount of
registered registered offering price per unit offering price registration fee(1)
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<S> <C> <C> <C> <C>
10 1/8% Senior
Subordinated Notes due
2008
Series B of IMPAC
Group, Inc. (C) (C) (C) (C)
(the "New Notes")..... $100,000,000 100% $100,000,000 $29,500.00(1)
Subsidiary
Guarantees(2)......... (3) (3) (3) (3)
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</TABLE>
(1)Based on the book value of the securities as of the most recent practicable
date in accordance with Rule 457(f)(2) under the Securities Act of 1933, as
amended. The registration fee has been paid.
(2)The subsidiaries of IMPAC Group, Inc., AGI Incorporated, Klearfold, Inc.,
KF-Delaware, Inc. and KF-International, Inc. (collectively, the "Guarantors"),
have guaranteed on a senior subordinated basis, jointly and severally, the
payment of all amounts on the New Notes being registered hereby (the
"Subsidiary Guarantees"). The Guarantors are registering the Subsidiary
Guarantees. Pursuant to Rule 457(n) under the Securities Act of 1933, as
amended, no registration fee is required with respect to the Subsidiary
Guarantees.
Set forth below is the name, address, I.R.S. Employer Identification Number
and primary industrial classification number for each of the Guarantors.
<TABLE>
<CAPTION>
SIC
NAME ADDRESS IRS ID# CODE
- ---- ---------------------------- ---------- ----
<S> <C> <C> <C>
AGI Incorporated c/o IMPAC Group, Inc. 36-2262685 2657
1950 North Ruby Street
Melrose Park, Illinois 60160
(708) 344-9100
Klearfold, Inc. c/o IMPAC Group, Inc. 23-1996496 3089
1950 North Ruby Street
Melrose Park, Illinois 60160
(708) 344-9100
KF-Delaware, Inc. c/o IMPAC Group, Inc. 51-0346583 6794
1950 North Ruby Street
Melrose Park, Illinois 60160
(708) 344-9100
KF-International, Inc. c/o IMPAC Group, Inc. 66-0503968 9999
1950 North Ruby Street
Melrose Park, Illinois 60160
(708) 344-9100
</TABLE>
(3)Not applicable.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 12, 1998
PROSPECTUS
OFFER TO EXCHANGE UP TO $100,000,000 OF 10 1/8%
SENIOR SUBORDINATED NOTES DUE 2008, SERIES B OF IMPAC GROUP, INC., WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL
OF ITS OUTSTANDING 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008
IMPAC GROUP, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
----------
IMPAC Group, Inc. ("IMPAC") hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal," and together with this Prospectus,
the "Exchange Offer"), to exchange up to an aggregate amount of $100,000,000 of
IMPAC's 10 1/8% Senior Subordinated Notes Due 2008, Series B (the "New Notes"),
for a like principal amount of IMPAC's outstanding 10 1/8% Senior Subordinated
Notes due 2008 (the "Existing Notes"). The Existing Notes have been guaranteed
(the "Existing Guarantees") and the New Notes will be guaranteed (the "New
Guarantees" and together with the Existing Guarantees, the "Guarantees") by AGI
Incorporated, Klearfold, Inc., KF-Delaware, Inc. and KF-International, Inc.
(the "Guarantors") and by certain future subsidiaries of IMPAC and the
Guarantors. The Guarantees are full and unconditional, joint and several
guarantees of IMPAC's payment obligations of all amounts under the Notes. The
terms of the New Notes and the New Guarantees are identical in all material
respects to the terms of the Existing Notes and the Existing Guarantees, except
for certain transfer restrictions and registration rights relating to the
Existing Notes. The New Notes will be issued pursuant to, and entitled to the
benefits of, the Indenture, dated as of March 12, 1998 (the "Indenture"),
between IMPAC, the Guarantors and State Street Bank and Trust Company, as
trustee, governing the Existing Notes. The New Notes and the Existing Notes are
hereinafter sometimes collectively referred to as the "Notes". The New Notes
and New Guarantees have been registered under the Securities Act of 1933, as
amended (the "Securities Act") pursuant to a Registration Statement of which
this Prospectus is a part.
The Notes will be general, unsecured obligations of IMPAC, will rank at the
same level with all senior subordinated debt of IMPAC and will be senior in
right of payment to all existing and future subordinated debt of IMPAC, if any.
There is currently no indebtedness outstanding that is subordinated to the
Notes. The claims of the holders of Notes will be subordinated to Senior Debt
(as defined under "Description of Notes"). At March 31, 1998, approximately
$11.6 million in Senior Debt was outstanding, fully secured by approximately
$12.6 million in letters of credit issued under IMPAC's credit facility with
Bank of America, National Trust & Savings Association (the "New Credit
Facility"). The Guarantors' obligations under the Guarantees will be
subordinated to all of the Guarantors' Senior Debt, including guarantees of all
obligations under the New Credit Facility. The New Credit Facility is
guaranteed by all current and future subsidiaries of the Company (as defined
under "Prospectus Summary") and is secured by all assets of IMPAC and its
subsidiaries. See "The Combination", "Capitalization" and "Description of Other
Indebtedness".
IMPAC will accept for exchange any and all Existing Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be , 1998, unless the Exchange Offer is extended
(the "Expiration Date"). Tenders of Existing Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the business day prior to the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Existing Notes being tendered for exchange. However, the
Exchange Offer is subject to certain conditions which may be waived by the
Company and to the terms and provisions of a registration rights agreement
entered into by IMPAC in connection with the initial sale of the Existing
Notes. See "Exchange Offer". IMPAC has agreed to pay the expenses of the
Exchange Offer. The New Notes and New Guarantees will not be listed on any
securities exchange.
Holders of Existing Notes whose notes are not tendered and accepted in the
Exchange Offer will continue to hold such Existing Notes. Following
consummation of the Exchange Offer, the holders of Existing Notes will continue
to be subject to the existing restrictions upon transfer thereof and, except as
provided herein, IMPAC and the Guarantors will have no further obligation to
such holders to provide for the registration under the Securities Act of the
Existing Notes held by them or the Existing Guarantees.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED BY HOLDERS OF EXISTING NOTES AND PROSPECTIVE
PURCHASERS OF NEW NOTES.
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IMPAC will not receive any proceeds from this Exchange Offer and no
underwriter is being utilized in connection with this Exchange Offer.
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THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
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The date of this Prospectus is , 1998.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
NEITHER IMPAC NOR THE INITIAL PURCHASERS (AS DEFINED UNDER "PROSPECTUS
SUMMARY--THE TRANSACTIONS") ARE MAKING ANY REPRESENTATION TO ANY OFFEREE OR
PURCHASER OF THE NOTES REGARDING THE LEGALITY OF AN INVESTMENT THEREIN BY SUCH
OFFEREE OR PURCHASER UNDER APPROPRIATE LEGAL INVESTMENT OR SIMILAR LAWS. THE
EXCHANGE OFFER IS BEING MADE ON THE BASIS OF THIS PROSPECTUS. ANY DECISION TO
EXCHANGE NOTES IN THE EXCHANGE OFFER MUST BE BASED ON THE INFORMATION
CONTAINED HEREIN. EACH PROSPECTIVE PURCHASER OF THE NEW NOTES MUST COMPLY WITH
ALL APPLICABLE LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION IN WHICH IT
PURCHASES, OFFERS OR SELLS THE NEW NOTES OR POSSESSES OR DISTRIBUTES THIS
PROSPECTUS AND MUST OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED BY IT
FOR THE PURCHASE, OFFER OR SALE BY IT OF THE NEW NOTES UNDER THE LAWS AND
REGULATIONS IN FORCE IN ANY JURISDICTION TO WHICH IT IS SUBJECT OR IN WHICH IT
MAKES SUCH PURCHASES, OFFERS OR SALES, AND NEITHER THE COMPANY NOR THE INITIAL
PURCHASERS SHALL HAVE ANY RESPONSIBILITY THEREFOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
NOTES TO ANY PERSON IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION.
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NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE
FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT
ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER ANY SUCH FACT NOR THE FACT THAT ANY EXEMPTION OR EXCEPTION IS
AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF
THE STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATION OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE
PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE
PROVISIONS OF THIS PARAGRAPH.
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THE INITIAL PURCHASERS WHO PARTICIPATED IN THE OFFERING OF THE EXISTING
NOTES MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT
THE PRICE OF THE NOTES. SPECIFICALLY, THE INITIAL PURCHASERS MAY BID FOR AND
PURCHASE INITIAL NOTES AND NEW NOTES IN THE OPEN MARKET.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise stated in this Prospectus, references to (a) "AGI"
shall mean AGI Incorporated, an Illinois corporation which, after the
Combination (as defined under "--The Transactions"), became a wholly-owned
subsidiary of KFI Holding Corporation, a Delaware corporation ("KFI Holding"),
which changed its corporate name upon consummation of the Transactions to
"IMPAC Group, Inc." ("IMPAC"); (b) "Klearfold" shall mean Klearfold, Inc., a
Pennsylvania corporation and a wholly owned subsidiary of IMPAC, and
Klearfold's subsidiaries; and (c) the "Company" shall mean IMPAC and its
consolidated subsidiaries, including AGI and Klearfold. See "--The
Transactions." All references to a fiscal year refer to the 12 months ended
December 31 of the year referenced. An index showing where other terms are
defined in this Prospectus begins on page 117.
THE COMPANY
The Company is a leading designer, manufacturer and marketer of high-end,
value-added specialty packaging for various consumer products markets including
entertainment, cosmetics and personal care. Through its creative design work,
specialized manufacturing techniques and diverse printing capabilities, the
Company offers innovative specialty packaging solutions for customers that seek
to differentiate their products in the consumer marketplace. In addition,
unlike most of its competitors, the Company utilizes a broad range of paper,
paperboard and transparent rigid plastic materials for its products. As a
result, the Company believes that it is well-positioned to supply the growing
demand for distinctive consumer product packaging resulting from increased
competition and consolidation in the retail marketplace. For the 12 months
ended December 31, 1997, the Company had pro forma net sales and EBITDA (as
defined under "Summary Unaudited Pro Forma Data") of $160.8 million and $24.5
million, respectively.
IMPAC was formed through the combination of AGI and Klearfold. Management
believes the packaging industry has not historically had a participant that
offers manufacturers of consumer products the broad range of unique and
innovative specialty packaging solutions that are available from the Company.
COMPANY STRENGTHS
The Company has achieved a leadership position in the high-end, value-added
specialty packaging market. Management believes that the Company will further
develop this leadership position by capitalizing on the following competitive
strengths:
Leading Market Positions and Strong Customer Relationships. In the
entertainment industry, the Company has established a leading market position
through strong relationships with PolyGram Group Distribution, Inc.
("PolyGram"), EMI Records Group North America ("EMI"), Universal Studios, Inc.
("Universal"), BMG Music ("BMG") and Sony Music Entertainment ("Sony"), the
five largest music distributors that outsource their packaging needs. The
Company has contracts to supply standard CD packaging inserts to Universal,
PolyGram and BMG. In the cosmetics and personal care industries, the Company is
a leading supplier of high-end, value-added specialty packaging products to a
number of well-known consumer product companies including Avon, Chesebrough-
Pond's, Cosmair, Mary Kay and Revlon.
Provider of Creative Packaging Solutions. Utilizing its strong design
capabilities, the Company seeks to proactively provide its customers with
creative packaging solutions. Aided by a number of proprietary products as well
as design and manufacturing expertise with a variety of materials, including
paper, paperboard and transparent rigid plastic, the Company often provides
customers with several distinct packaging alternatives for any single job.
Management believes that it is the only
1
<PAGE>
company that manufactures this broad line of specialty packaging solutions and
provides strong design services, which it believes represent a unique
competitive advantage.
Established Reputation for Product Innovation. The Company's structural
design capabilities and culture of innovation enable it to develop creative
packaging solutions in response to specific customer needs. By integrating its
design, sales and manufacturing groups, the Company has become an important
member of many of its customers' product development teams.
Strong Manufacturing Capabilities. The Company has invested significantly to
modernize its facilities and equipment. Since 1995, the Company has placed into
service $22.1 million of new printing capacity such that over 50% of the
Company's current printing capacity is less than three years old. The Company
intends to maintain this level of commitment by continuing to develop
innovative manufacturing processes and investing in modern manufacturing
equipment.
Proven Management Team with Significant Equity Ownership. The Company has
assembled a strong management team with an average of 25 years of experience in
the packaging industry. Management's proven track record is demonstrated by the
strong financial performance of the combined Company. Since 1993, the Company's
net sales and EBITDA have grown at compound annual rates of 9.8% and 15.3%,
respectively. Senior management is heavily invested in the Combination. Their
ownership of approximately 55% of the outstanding Common Stock of IMPAC will be
coupled with a management equity incentive plan that is based primarily upon
the future operating performance of the Company.
POST-COMBINATION STRATEGY
The Company intends to enhance its market position and maximize profitability
and cash flow by implementing the following business strategies:
Capitalize on Cross-Selling Opportunities. The Company believes that it will
create significant additional revenue opportunities with existing customers by
marketing its expanded array of high-end packaging solutions.
Further Integrate with Key Customers. Historically, the Company has enjoyed
cooperative integrated relationships with its key customers. The Combination
broadens the Company's product line and increases its creative design
capabilities, which the Company believes will allow it to further integrate
with its customers.
Pursue New Market Opportunities. The Company intends to expand into related
product lines that serve new markets, which will provide an opportunity for
additional revenue growth. As a result of the Combination, the Company's
creative design team has an enhanced capability to develop new packaging
products based on the most suitable type of materials or combinations. The
Company believes that its innovative product development experience positions
it to capture additional customers in new and existing markets.
Increase Operating Efficiencies. The Company believes that combining the
operations of AGI and Klearfold presents opportunities to effectively
capitalize on economies of scale in the areas of manufacturing, transportation,
general and administrative functions and management information systems.
Pursue Strategic Acquisitions. The Company may pursue strategic acquisitions
within the specialty packaging industry. The Company believes that significant
opportunities exist to acquire distinctive businesses that would enable the
Company to further broaden its product offerings as well as to expand its
operations both domestically and internationally. The Company currently has no
agreements or commitments with respect to any acquisitions.
2
<PAGE>
SUMMARY RISK FACTORS
LEVERAGE
In connection with the consummation of the Transactions, the Company incurred
a significant amount of indebtedness and, as a result, the Company is highly
leveraged. The Company is permitted to incur substantial additional
indebtedness in the future.
RANKING
The Notes and the Subsidiary Guarantees are subordinated in right of payment
to all current and future Senior Debt of IMPAC and the Guarantors. The
Indenture permits the incurrence of substantial additional indebtedness,
including Senior Debt, by the Company and its subsidiaries in the future.
BUSINESS INTEGRATION RISK
The Company has no prior history as a combined entity and its operations have
not previously been managed on a combined basis. Prior to the Transactions, AGI
and Klearfold were operated as separate entities. The historical financial
statements and unaudited pro forma statements presented in this Prospectus may
not necessarily be indicative of the results that would have been attained had
the Company operated on a combined basis.
EFFECTS OF INDUSTRY SHIFTS
The Company's packaging products are almost entirely targeted to consumer
products companies. Sales of consumer products are subject to changing tastes
and technologies that cannot be predicted.
TECHNOLOGICAL CHANGE
The markets for the Company's products may be affected by technological
change and new product introductions. The Company's success will depend, in
part, upon its continued ability to manufacture products that meet changing
customer needs, successfully anticipate or respond to technological changes in
manufacturing processes on a cost-effective and timely basis and enhance and
expand its existing product offerings.
RISKS RELATED TO POTENTIAL FUTURE ACQUISITIONS
The Company may in the future pursue selective acquisitions within the
specialty packaging industry, although the Company currently has no agreement
or commitment with respect to any acquisition. In the event that any such
acquisition were to occur, there can be no assurance that the Company's
business, financial condition and results of operations would not be materially
adversely affected.
COMPETITION
Most of the Company's products are sold in highly competitive markets in the
United States.
ENVIRONMENTAL MATTERS
The past and present operations of the Company and the past and present
ownership and operations of real property by the Company are subject to
extensive and changing federal, state and local environmental laws and
regulations pertaining to the discharge of materials into the environment, the
handling and disposition of wastes, the recycling, composition and recycled
content of packaging, or otherwise, relating to the protection of the
environment.
3
<PAGE>
DEPENDENCE ON CONTRACTS
If fiscal 1997, BMG, PolyGram and Universal accounted for 11.6% of the
Company's net sales. The Company has entered into supply contracts with three
key customers, BMG, PolyGram and Universal. These supply contracts are
generally terminable for any material breach or events of insolvency. Three of
these contracts expire in 1999 and one expires in 2004. These contracts also
provide for minimum levels of purchases by the customer, with these minimums
expressed either in dollars of sales or percentages of the customer's
requirements for packaging. While the Company believes that the contracts
expiring in 1999 will be renewed, there can be no assurance that these
contracts will be renewed. The Company does not have a long term contract with
either EMI or Sony. See "Risk Factors--Dependence on Key Contracts."
CONTROLLING STOCKHOLDERS
Heritage (as defined under "The Transactions") and certain members of senior
management or their affiliates own substantially all of the outstanding voting
stock of IMPAC, which is the sole stockholder of AGI and Klearfold and, by
virtue of such ownership, have the power to control all matters submitted to
stockholders of IMPAC and to elect all directors of IMPAC and its subsidiaries,
including AGI and Klearfold.
FRAUDULENT TRANSFER STATUTES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, the Notes or the Subsidiary
Guarantees, could be voided, or claims in respect of the Notes or the
Subsidiary Guarantees could be subordinated to all other debts of IMPAC or any
Guarantor. In addition, the payment of interest and principal by the Company or
any Guarantor pursuant to the Notes could be voided and required to be returned
to the person making such payment, or to a fund for the benefit of the
creditors of the Company or any Guarantor.
POSSIBLE INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control (as defined under "Description of Notes"), IMPAC
will be required to offer to repurchase all outstanding Notes at 101% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages (as defined under "Exchange Offer"), if any, to the date of repurchase.
However, there can be no assurance that sufficient funds will be available at
the time of any Change of Control to make any required repurchases of Notes
tendered or that restrictions in the New Credit Facility will allow IMPAC to
make such required repurchases.
RISK OF ADVERSE CONSEQUENCES OF POTENTIAL FAILURE TO ADHERE TO EXCHANGE OFFER
PROCEDURES
Holders of Existing Notes who fail to participate in the Exchange Offer could
be adversely affected.
ABSENCE OF A PUBLIC MARKET
There can be no assurance regarding the future development of a market for
any of the Notes, or the ability of holders of any of the Notes to sell their
Notes, or the price at which such holders may be able to sell such Notes.
----------------
These and other risk factors are described in greater detail in "Risk
Factors."
4
<PAGE>
THE TRANSACTIONS
THE COMBINATION
In February 1998, KFI Holding, its stockholders, and certain stockholders and
holders of stock appreciation rights of AGI entered into an Investment
Agreement (the "Investment Agreement"), under which (i) the stockholders of KFI
Holding agreed to contribute to KFI Holding the entire outstanding capital
stock of KFI Holding and a warrant to purchase KFI Holding capital stock and to
invest approximately $4.6 million in cash, and (ii) certain stockholders and
holders of stock appreciation rights of AGI agreed to contribute to KFI Holding
shares of AGI common stock and to invest the proceeds of their stock
appreciation rights, totaling an aggregate of $14.4 million. In exchange for
these contributions and cash investments, KFI Holding agreed to issue to the
contributing or investing parties shares of its common stock (the "Common
Stock") and upon consummation of such issuance, KFI Holding was renamed IMPAC
Group, Inc.
At the same time, KFI Holding, its wholly-owned subsidiary AGI Acquisition
Corp., AGI and certain stockholders of AGI and KFI Holding entered into an
Agreement and Plan of Merger (the "Agreement and Plan of Merger"), under which
AGI Acquisition Corp. merged on March 12, 1998 with and in to AGI, with AGI as
the surviving corporation. In this merger, the shares of AGI not contributed to
the Company under the Investment Agreement, a stock option and certain stock
appreciation rights were converted into a right to receive cash in the
aggregate amount of approximately $30.5 million, net of fees. In addition,
immediately prior to the closing of the Combination the stockholders of AGI
received a dividend in the aggregate amount of approximately $22.5 million. See
"Management" and "Certain Relationships and Related Transactions".
Klearfold and AGI are wholly-owned subsidiaries of IMPAC. The combination of
AGI with KFI Holding and its subsidiaries pursuant to the Agreement and Plan of
Merger, and related transactions, are referred to together in this Prospectus
as "the Combination". The Combination, a new credit facility providing for
$40.0 million in revolving credit borrowings and $13.0 million in letters of
credit and secured by substantially all the assets of IMPAC and its
subsidiaries (the "New Credit Facility"), the offering of the Existing Notes
(the "Offering") and the application of the proceeds therefrom are collectively
referred to as the "Transactions".
The senior management of the Company together own approximately 55% of
IMPAC's Common Stock. An affiliate of Heritage Partners, Inc. ("Heritage") owns
approximately 40% of IMPAC's Common Stock, with the remaining 5% held by
certain former stockholders of AGI. Heritage is a Boston-based private
investment company with $530 million in capital under management, specializing
in the acquisition and equity-based recapitalization of private, family owned
businesses.
Set forth below is a diagram showing the post-Combination structure of IMPAC
Group, Inc. and its subsidiaries.
[DIAGRAM APPEARS HERE]
[This "The Transactions" section contains a diagram showing the post-Combination
organizational structure of IMPAC Group, Inc. and its subsidiaries. A box
entitled "IMPACT Group, Inc." has two boxes set forth below it; one entitled
"AGI Incorporated" and the other entitled "Klearfold, Inc." Both AGI
Incorporated and Klearfold, Inc. are wholly owned subsidiaries of IMPAC Group,
Inc. The box entitled "Klearfold, Inc." has two boxes set forth below it; one
entitled "KF-Delaware, Inc." and the other entitled "KF-International, Inc."
Both KF-Delaware, Inc. and KF-International, Inc. are wholly owned subsidiaries
of Klearfold, Inc.]
5
<PAGE>
THE FINANCING
The Combination was effected through the establishment of the New Credit
Facility, the issuance of the Existing Notes and the equity contributions
described in the Investment Agreement. The Offering was conditioned on the
concurrent closing of the Transactions. The following table illustrates the
sources and uses of funds in connection with the Transactions. See "The
Combination" and "Unaudited Pro Forma Combined Financial Data".
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS
New Credit Facility(1)............................................ $ 0.0
10 1/8% Senior Subordinated Notes(2).............................. 100.0
Equity contributions:
AGI management equity investment................................ 14.4
KFI Holding management equity investment(3)..................... 6.0
Heritage equity investment(4)................................... 13.6
------
Total sources of funds........................................ $134.0
======
USES OF FUNDS
Purchase AGI equity(5)............................................ $ 69.0
Contributed KFI Holding equity.................................... 15.0
Retirement of Klearfold indebtedness(6)........................... 30.3
Retirement of AGI indebtedness(7)................................. 8.3
Cash for working capital.......................................... 6.4
Fees and expenses................................................. 5.0
------
Total uses of funds........................................... $134.0
======
</TABLE>
- --------
(1) The New Credit Facility provides for up to $40.0 million of revolving
credit borrowings and up to $13.0 million of letters of credit, and matures
in 2003. As of the date of the closing of the Transactions, letters of
credit in the aggregate amount of approximately $12.6 million were
outstanding under the New Credit Facility and $40.0 million of revolving
credit borrowings were available to the Company. The New Credit Facility is
guaranteed by all current and future subsidiaries of IMPAC and is secured
by all assets of IMPAC and its subsidiaries.
(2) There is currently no indebtedness outstanding that is subordinated to the
Notes.
(3) Represents $1.2 million in cash and $4.8 million in contributed stock of
KFI Holding (the value ascribed to the equity of KFI Holding taking into
account (i) the repayment of approximately $30.3 million of Klearfold
indebtedness (including accrued interest) and (ii) approximately $4.0
million of the Klearfold IRBs (as defined under "Description of Other
Indebtedness") remaining outstanding after the Transactions).
(4) Represents $3.4 million in cash and $10.2 million in contributed stock of
KFI Holding (the value ascribed to the equity of KFI Holding taking into
account (i) the repayment of approximately $30.3 million of Klearfold
indebtedness (including accrued interest) and (ii) approximately $4.0
million of the Klearfold IRBs remaining outstanding after the
Transactions).
(5) Represents the acquisition by the Company of all of the outstanding common
stock of AGI and settlement of certain stock appreciation rights, for $54.6
million of cash, including a dividend of approximately $22.5 million paid
to AGI stockholders immediately prior to the Combination, and $14.4 million
(the ascribed value) of Common Stock of the Company issued to AGI
management. Approximately $7.6 million of the AGI IRBs (as defined under
"Description of Other Indebtedness") remain outstanding after the
Transactions. See "Management" and "Certain Relationships and Related
Transactions".
(6) Reflects the total funded indebtedness (including accrued interest) of
Klearfold, other than the Klearfold IRBs, that was outstanding immediately
prior to the Combination.
(7) Reflects the total funded indebtedness of AGI, other than the AGI IRBs,
that was outstanding immediately prior to the Combination.
6
<PAGE>
THE EXCHANGE OFFER
Securities Offered..........
Up to $100,000,000 aggregate principal amount
of 10 1/8% Senior Subordinated Notes due
2008, Series B of IMPAC (the "New Notes"),
together with guarantees thereof by each of
the Guarantors (the "New Guarantees"), in
exchange for up to $100,000,000 aggregate
principal amount of outstanding 10 1/8%
Senior Subordinated Notes due 2008 of IMPAC
(together with a guarantee thereof by each of
the Guarantors, referred to hereinafter as
the "Existing Guarantees," and together with
the New Guarantees, the "Guarantees"). The
terms of the New Notes and the New Guarantees
and those of the Existing Notes and the
Existing Guarantees are identical in all
material respects, except for certain
transfer restrictions relating to the
Existing Notes. There is currently no
indebtedness outstanding that is subordinated
to the Notes. The Guarantees are full and
unconditional, joint and several guarantees
of IMPAC's payment obligations under the
Notes. See "Description of Notes" and "--
Comparison of New Notes with Existing Notes".
Registration Rights
Agreement................... The Existing Notes were issued on March 12,
1998 to Goldman, Sachs & Co. and Donaldson,
Lufkin & Jenrette Securities Corporation (the
"Initial Purchasers"). The Initial Purchasers
resold the Existing Notes to certain
qualified institutional buyers in reliance
on, and subject to the restrictions imposed
pursuant to, Rule 144A and Regulation S under
the Securities Act. In connection therewith,
the Company and the Initial Purchasers
entered into the Registration Rights
Agreement, dated as of March 12, 1998 (the
"Registration Rights Agreement"), providing,
among other things, for the Exchange Offer.
See "The Exchange Offer".
Resale of New Notes.........
Based on interpretations by the staff of the
Commission (as defined under "Description of
Notes") as set forth in no-action letters
issued to third parties, the Company believes
that the New Notes issued pursuant to the
Exchange Offer may be offered for resale,
resold or otherwise transferred by any holder
thereof (other than any such holder that is a
broker-dealer or an "affiliate" of the
Company within the meaning of Rule 405 under
the Securities Act) without compliance with
the registration and prospectus delivery
provisions of the Securities Act, provided
that: (i) neither IMPAC nor any Guarantor has
entered into any arrangement or understanding
with any person to distribute the New Notes
to be received in the Exchange Offer, (ii) to
the best of IMPAC's information and belief,
each Holder (as defined under "Description of
Notes") participating in the Exchange Offer
is acquiring the New Notes in its ordinary
course of business, and (iii) to the best of
IMPAC's information and belief, each Holder
participating in the Exchange Offer has no
arrangement or
7
<PAGE>
understanding with any person to participate
in the distribution of the New Notes received
in the Exchange Offer. By tendering Existing
Notes in exchange for New Notes, each holder
will represent to IMPAC that: (i) it is not
such an affiliate of IMPAC, (ii) it is not
engaged in, and does not intend to engage in,
and has no arrangement or understanding with
any person to participate in, a distribution
of the New Notes to be issued in the Exchange
Offer, and (iii) any New Notes to be received
by it will be acquired in the ordinary course
of business. If a holder of Existing Notes is
unable to make the foregoing representations,
such holder may not rely on the applicable
interpretations of the staff of the
Commission as set forth in such no-action
letters, and must comply with the
registration and prospectus delivery
requirement of the Securities Act in
connection with any secondary resale
transaction.
Each broker-dealer that receives New Notes
for its own account pursuant to the Exchange
Offer in exchange for Existing Notes, where
such Existing Notes were acquired by such
broker-dealer as a result of market-making
activities or other activities, must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities
Act and that it has not entered into any
arrangement or understanding with IMPAC or an
affiliate of IMPAC to distribute the New
Notes in connection with any resale of such
New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
This Prospectus, as it may be amended or
supplemented from time to time, may be used
by a broker-dealer in connection with resales
of New Notes where such Existing Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities. The Company has agreed that,
starting on the Expiration Date, and ending
on the close of business 180 days after the
Expiration Date, it will make this Prospectus
available to any participating broker dealer
for use in connection with any such resale.
See "Plan of Distribution". The Company has
also agreed that, during this period, it will
amend the Registration Statement or amend or
supplement this Prospectus as may be required
under the Securities Act or the rules
thereunder or as may be required so that this
Prospectus will not contain an untrue
statement of a material fact or omit to state
any material fact necessary to make the
statements contained herein, in light of the
circumstances under which they were made, not
misleading.
To comply with the securities laws of certain
jurisdictions, it may be necessary to qualify
for sale or register the New Notes prior to
offering or selling such New Notes in such
8
<PAGE>
jurisdictions. The Company has agreed,
pursuant to the Registration Rights Agreement
and subject to certain specified limitations
therein, to cause all necessary filings in
connection with the registration and
qualification of the New Notes to be made
under the "Blue Sky" laws of such
jurisdictions as are necessary to permit the
Exchange Offer to be consummated.
The Exchange Offer.......... The New Notes are being offered in exchange
for a like principal amount of Existing
Notes. Existing Notes may be exchanged only
in existing multiples of $1,000. The issuance
of the New Notes is intended to satisfy
obligations of the Company under the
Registration Rights Agreement. For a
description of the procedures for tendering,
see "Exchange Offer--Procedures for Tendering
Existing Notes".
Expiration Date; The Exchange Offer will expire at 5:00 p.m.,
Withdrawal.................. New York City time, on , 1998, or such
later date and time to which it may be
extended in the sole discretion of the
Company (the "Expiration Date"). The tender
of Existing Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to
any time prior to 5:00 p.m., New York City
time, on the business day prior to the
Expiration Date. Any Existing Notes not
accepted for exchange for any reason will be
returned without expense to the tendering
holders thereof as promptly as practicable
after the expiration or termination of the
Exchange Offer. See "Exchange Offer--
Expiration Date; Extensions; Termination;
Amendments; and Withdrawal Rights".
Conditions to Exchange
Offer....................... The Exchange Offer is subject to the
following conditions:
(A) an injunction, order or decree shall not
have been issued by any court or governmental
agency that would prohibit, prevent or
otherwise materially impair the ability of
the Company to proceed with the Exchange
Offer; and
(B) there shall not have occurred a change in
the current interpretation of the staff of
the Commission which current interpretation
permits the New Notes issued pursuant to the
Exchange Offer in exchange for the Existing
Notes to be offered for resale, resold and
otherwise transferred by holders thereof
(other than (i) a broker-dealer who purchases
such New Notes directly from the Company to
resell pursuant to Rule 144A, Regulation S or
any other available exemption under the
Securities Act or (ii) a person that is an
affiliate of the Company within the meaning
of Rule 405 under the Securities Act),
without compliance with the registration and
prospectus delivery provisions of the
Securities Act provided that such New Notes
are acquired in the ordinary course of such
holders' business and such holders have no
arrangement with any person to participate in
the distribution of New Notes.
9
<PAGE>
Procedures for Tendering
Existing Notes.............
Each holder of Existing Notes wishing to
accept the Exchange Offer must complete, sign
and date a Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such Existing Notes and any other required
documents, to the Exchange Agent (as defined
below) at the address set forth herein. See
"Exchange Offer--Procedures for Tendering
Existing Notes".
Use of Proceeds............. There will be no proceeds to the Company from
the exchange of Notes pursuant to the
Exchange Offer.
Federal Income Tax
Consequences..........
Subject to certain limitations discussed in
"Federal Income Tax Consequences", the
exchange pursuant to the Exchange Offer will
not be a taxable event to the holder for
federal income tax purposes, and the holder
will not recognize any taxable gain or loss
as a result of such exchange. See "Federal
Income Tax Consequences".
Untendered Existing Notes...
Upon consummation of the Exchange Offer, the
holders of Existing Notes, if any, will have
no further rights under the Registration
Rights Agreement, except as provided herein.
Holders of Existing Notes whose Existing
Notes are not tendered or are tendered but
not accepted in the Exchange Offer will
continue to hold such Existing Notes and will
be entitled to all the rights and preferences
and subject to the limitations applicable
thereto. Following consummation of the
Exchange Offer, the holders of Existing Notes
will continue to be subject to the existing
restrictions upon transfer thereof and,
except as provided herein, IMPAC will have no
further obligation to such holders to provide
for the registration under the Securities Act
of the Existing Notes held by them. To the
extent that Existing Notes are tendered and
accepted in the Exchange Offer, the trading
market for untendered and tendered by
unaccepted Existing Notes could be adversely
affected.
Exchange Agent.............. State Street Bank and Trust Company is
serving as the Exchange Agent in connection
with the Exchange Offer.
TERMS OF THE NOTES
Except as otherwise indicated, the following description relates both to the
Existing Notes issued pursuant to the Offering and to the New Notes to be
issued in exchange for Existing Notes in connection with the Exchange Offer.
The New Notes will be obligations of IMPAC evidencing the same indebtedness as
the Existing Notes, and will be entitled to the benefits of the same Indenture.
The for m and terms of the New Notes are the same as the form and terms of
the Existing Notes, except that
10
<PAGE>
the New Notes have been registered under the Securities Act and therefore will
not bear legends restricting the transfer thereof. For a more complete
description of the Notes see "Description of Notes". Throughout this
Prospectus, references to the "Notes" refer to the New Notes and the Existing
Notes collectively.
Issuer...................... IMPAC Group, Inc.
Securities Offered.......... $100.0 million in aggregate principal amount
of 10 1/8% Senior Subordinated Notes due
March 15, 2008, Series B.
Maturity Date............... March 15, 2008
Guarantees..................
IMPAC's payment obligations under the Notes
are guaranteed on a senior subordinated basis
(the "Subsidiary Guarantees") by each of
IMPAC's current Subsidiaries and all future
Subsidiaries other than those IMPAC
designates as being "Unrestricted
Subsidiaries" (with all other Subsidiaries
referred to as "Restricted Subsidiaries").
All of IMPAC's existing Subsidiaries are
Restricted Subsidiaries. The Guarantees are
joint and several unsecured guarantees of all
of IMPAC's payment obligations under the
Notes. The Subsidiary Guarantees are
subordinated to all Senior Debt of the
Guarantors. There is currently no
indebtedness outstanding that is subordinated
to the Guarantees. See "Description of
Notes--Subsidiary Guarantees".
Guarantors................. The Guarantors currently are AGI
Incorporated, an Illinois corporation that
designs, manufactures and markets specialty
packaging for various consumer products
markets, Klearfold, Inc., a Pennsylvania
corporation that designs, manufactures and
markets specialty packaging for various
consumer products markets, KF-Delaware, Inc.,
a Delaware corporation formed to hold certain
intellectual property related to Klearfold,
Inc.'s business, and KF-International, Inc.,
a U.S. Virgin Islands corporation formed to
effect certain types of international sales
on behalf of Klearfold, Inc.
Interest on the Notes.......
The Existing Notes accrue interest at a rate
of 10 1/8% per annum from the Issue Date. The
New Notes will accrue interest at a rate of
10 1/8% per annum from March 12, 1998 (the
"Issue Date") or from the most recent date to
which interest had been paid on the Existing
Notes.
Interest Payment Dates...... March 15 and September 15 of each year,
commencing September 15, 1998.
Optional Redemption.........
Except as described below, the Notes are not
redeemable at IMPAC's option prior to March
15, 2003. From and after March 15, 2003, the
Notes will be subject to redemption at the
option of IMPAC, in whole or in part, at the
redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption.
11
<PAGE>
In addition, prior to March 15, 2001, up to
an aggregate of $35.0 million in aggregate
principal amount of Notes will be redeemable
at the option of IMPAC from the net proceeds
of public equity offerings by IMPAC, at a
price of 110.125% of the principal amount of
the Notes, plus accrued and unpaid interest
and Liquidated Damages, if any, to the date
of redemption; provided that at least $65.0
million in aggregate principal amount of
Notes remains outstanding immediately after
each such redemption; and provided, further,
that the notice of any such redemption shall
be mailed within 60 days of the receipt by
IMPAC of proceeds from the public offering.
See "Description of Notes--Optional
Redemption".
Change of Control...........
In the event of a Change of Control, Holders
of the Notes will have the right to require
IMPAC to repurchase their Notes, in whole or
in part, at a price equal to 101% of the
aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, to the date of repurchase.
See "Description of Notes--Repurchase at the
Option of Holders".
Ranking.....................
The Notes constitute general, unsecured
obligations of IMPAC, are subordinated in
right of payment to all Senior Debt of IMPAC,
rank at the same level with all senior
subordinated debt of IMPAC and are senior in
right of payment to all existing and future
subordinated debt of IMPAC, if any. There is
currently no indebtedness outstanding that is
subordinated to the Notes. The claims of the
Holders of the Notes are subordinated to
Senior Debt. At March 31, 1998, approximately
$11.6 million in Senior Debt was outstanding,
fully secured by approximately $12.6 million
in letters of credit issued under the New
Credit Facility. The Indenture will permit
the incurrence of additional Senior Debt in
the future. See "Description of Notes--
Subordination" and "Description of Other
Indebtedness".
Restrictive Covenants.......
The Indenture governing the Notes contains
certain covenants that, among other things,
limits the ability of IMPAC and its
Subsidiaries to incur additional Indebtedness
(as defined under "Description of Notes") and
issue Disqualified Stock (as defined under
"Description of Notes"), pay dividends or
distributions or make investments or make
certain other Restricted Payments (as defined
under "Description of Notes"), enter into
certain transactions with affiliates, dispose
of certain assets, incur liens securing
subordinated indebtedness and indebtedness
ranking at the same level and engage in
mergers and consolidations. See "Description
of Notes".
12
<PAGE>
Use of Proceeds.............
The gross proceeds of $100.0 million from the
Offering along with the proceeds of equity
investments made by Heritage and members of
management were used to fund the Combination,
repay certain existing Indebtedness, pay
certain fees and expenses in connection with
the Transactions, and for general corporate
purposes. See "Use of Proceeds". No proceeds
will be received by IMPAC and the Guarantors
from the Exchange Offer.
COMPARISON OF NEW NOTES WITH EXISTING NOTES
Freely Transferable.........
Generally, the New Notes will be freely
transferable under the Securities Act by
holders thereof other than any holder that is
either an affiliate of the Company or a
broker-dealer that purchased the Notes from
IMPAC to resell pursuant to Rule 144A,
Regulation S or any other available
exemption. The New Notes otherwise will be
substantially identical in all material
respects (including interest rate and
maturity) to the Existing Notes. See
"Exchange Offer".
Registration Rights.........
The holders of Existing Notes currently are
entitled to certain registration rights
pursuant to the Registration Rights
Agreement. However, upon consummation of the
Exchange Offer, subject to certain
exceptions, holders of Existing Notes who do
not exchange their Existing Notes for New
Notes in the Exchange Offer will no longer be
entitled to registration rights and will not
be able to offer or sell their Existing
Notes, unless such Existing Notes are
subsequently registered under the Securities
Act (which, subject to certain limited
exceptions, IMPAC will have no obligation to
do), except pursuant to an exemption from, or
in a transaction not subject to, the
Securities Act and applicable state
securities laws. See "Risk Factors--Failure
to Exchange Existing Notes".
Absence of a Public Market
for the New Notes..........
The New Notes are new securities and there is
currently no established market for the New
Notes. Accordingly, there can be no assurance
as to the development or liquidity of any
market for the New Notes. IMPAC does not
intend to apply for listing on a securities
exchange of the New Notes.
For more complete information regarding the Existing Notes and the New Notes,
including the definitions of certain capitalized terms used above, see
"Description of Notes".
13
<PAGE>
SUMMARY UNAUDITED PRO FORMA DATA--IMPAC GROUP, INC.
The summary unaudited pro forma data for the year ended December 31, 1997 and
the three months ended March 31, 1997 and 1998 have been derived from the
Unaudited Pro Forma Combined Financial Data included elsewhere in this
Prospectus. The Unaudited Pro Forma Combined Financial Data are based on the
historical consolidated financial statements of KFI Holding and AGI included
elsewhere in this Prospectus, adjusted to give effect to the pro forma
adjustments described in the notes thereto. The unaudited pro forma income
statement data presented below gives effect to the Offering and the Combination
as though these transactions had occurred as of January 1, 1997. The Unaudited
Pro Forma Combined Financial Data do not purport to represent what the
Company's financial position or results of operations would actually have been
had the Transactions in fact occurred on the assumed date or to project the
Company's financial position or results of operations for any future date or
period. The information contained in the following table should also be read in
conjunction with "Capitalization", "Unaudited Pro Forma Combined Financial
Data", "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AGI/KFI HOLDING COMBINED
-----------------------------
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, ----------------
1997 1997 1998
------------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA
Net sales...................................... $160,774 $33,849 $31,306
Cost of goods sold............................. 116,416 24,552 23,375
-------- ------- -------
Gross profit................................. 44,358 9,327 7,931
Selling, general and administrative expenses... 28,087 6,407 6,345
-------- ------- -------
Operating income............................. $ 16,271 $ 2,920 $ 1,586
Interest expense, net.......................... (11,398) (2,845) (2,884)
Gain on sale of fixed assets................... 139 -- --
-------- ------- -------
Income (loss) before income taxes and extraor-
dinary loss................................... 5,012 75 (1,298)
Income (taxes) benefit......................... (2,411) (133) 418
-------- ------- -------
Income (loss) before extraordinary loss........ $ 2,601 $ (58) $ (880)
======== ======= =======
OTHER DATA
EBITDA (as defined)(1)......................... $ 24,536 $ 4,929 $ 3,717
Depreciation and amortization.................. 8,298 2,039 2,131
Capital expenditures........................... 10,171 1,870 814
Ratio of earnings to fixed charges(2).......... 1.4x 1.0x --
</TABLE>
- --------
(1) EBITDA is defined as income from continuing operations before deducting
interest expense, income taxes, depreciation and amortization and excludes,
to the extent applicable for the relevant period, (i) gain (loss) on sale
of fixed assets, (ii) stock-based compensation expense, and (iii) PTP
Industries, Inc. ("PTP") royalty and commission income of $33 for the year
ended December 31, 1997 and $30 for the three months ended March 31, 1997.
EBITDA is not a substitute for operating income, net earnings and cash flow
from operating activities as determined in accordance with generally
accepted accounting principles as a measure of profitability or liquidity.
EBITDA is presented as additional information because management believes
it to be a useful indicator of the Company's ability to service and/or
incur indebtedness.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
are defined as income before income taxes, plus fixed charges. Fixed
charges consist of interest expenses on all indebtedness (including
amortization of deferred financing costs) and a portion of operating lease
rental expense (one-third) that is representative of the interest factor.
IMPAC's earnings were insufficient to cover fixed charges by $1,298 for the
three months ended March 31, 1998.
14
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA--KFI HOLDING CORPORATION
The summary consolidated financial data of KFI Holding set forth below as of
and for the five years ended December 31, 1997 have been derived from the
financial statements of KFI Holding which have been audited by KPMG Peat
Marwick LLP, independent public accountants. The audited consolidated financial
statements of KFI Holding as of December 31, 1996 and 1997 and for the three
years ended December 31, 1997 are included elsewhere herein. The summary
historical financial and other data of KFI Holding presented below for the
three months ended March 31, 1997 and March 31, 1998 are unaudited and are not
necessarily indicative of KFI Holding's results for the full fiscal year. The
summary historical financial and other data of KFI Holding include AGI from
March 13, 1998. Upon consummation of the Transactions, KFI Holding changed its
name to "IMPAC Group, Inc." The information contained in the following table
should also be read in conjunction with "Capitalization", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and the related notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales............... $38,309 $47,714 $51,214 $54,218 $52,493 $10,837 $ 15,801
Cost of goods sold...... 28,186 35,223 36,757 40,094 39,322 7,789 12,418
------- ------- ------- ------- ------- ------- --------
Gross profit.......... 10,123 12,491 14,457 14,124 13,171 3,048 3,383
Selling, general and
administrative
expenses............... 6,121 7,029 7,942 7,594 7,589 1,748 2,530
PTP royalty and
commission
(income)(1)............ (176) (200) (377) (731) (33) (30) --
------- ------- ------- ------- ------- ------- --------
Operating income...... 4,178 5,662 6,892 7,261 5,615 1,330 853
Interest expense, net... (1,013) (1,020) (1,197) (2,324) (3,469) (766) (1,216)
------- ------- ------- ------- ------- ------- --------
Income (loss) from con-
tinuing operations be-
fore income taxes...... 3,165 4,642 5,695 4,937 2,146 564 (363)
Income (taxes) benefit.. (1,159) (1,616) (2,417) (2,003) (754) (198) 128
------- ------- ------- ------- ------- ------- --------
Income (loss) from
continuing
operations(2) $ 2,006 $ 3,026 $ 3,278 $ 2,934 $ 1,392 $ 366 $ (235)
======= ======= ======= ======= ======= ======= ========
OTHER DATA
EBITDA (as defined)(3).. $ 5,625 $ 6,983 $ 8,289 $ 8,499 $ 7,396 $ 1,704 $ 1,585
Depreciation and amorti-
zation................. 1,623 1,521 1,774 1,969 1,814 459 732
Capital expenditures.... 741 2,980 1,394 1,271 4,144 463 814
Ratio of earnings to
fixed charges(4)....... 3.4x 4.2x 4.2x 2.7x 1.5x 1.4x --
BALANCE SHEET DATA(5)
(AT PERIOD END)
Total assets............ $27,430 $33,602 $38,025 $27,275 $28,247 $24,926 $142,258
Long-term debt,
including current
portion................ 7,828 9,120 6,623 30,950 33,850 32,591 111,640
Stockholders' equity
(deficit).............. 6,255 8,807 11,511 (15,279) (13,887) (15,048) 4,324
</TABLE>
- -------
(1) Klearfold received commissions and royalties on certain sales made by PTP.
Klearfold owned 51% of PTP prior to the sale of this subsidiary on April
19, 1996. PTP ceased operations in 1997.
(2) The results of operations for the three months ended March 31, 1998 include
an extraordinary loss of $553 (net of tax benefit of $368) due to the
write-off of deferred financing costs.
(3) EBITDA is defined as income from continuing operations before deducting
interest expense, income taxes, depreciation and amortization and excludes,
to the extent applicable for the relevant period, (i) gain (loss) on sale
of fixed assets, (ii) stock-based compensation expense, and (iii) PTP
royalty and commission income. EBITDA is not a substitute for operating
income, net earnings and cash flow from operating activities as determined
in accordance with generally accepted accounting principles as a measure of
profitability or liquidity. EBITDA is presented as additional information
because management believes it to be a useful indicator of the Company's
ability to service and/or incur indebtedness.
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
are defined as income before income taxes, plus fixed charges. Fixed
charges consist of interest expense on all indebtedness (including
amortization of deferred financing costs) and a portion of operating lease
rental expense (one-third) that is representative of the interest factor.
IMPAC's earnings were insufficient to cover fixed charges by $363 for the
three months ended March 31, 1998.
(5) Balance sheet data includes amounts related to PTP at December 31, 1993,
1994 and 1995 prior to the sale of PTP on April 19, 1996.
15
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OTHER DATA--AGI INCORPORATED
The summary financial data of AGI set forth below as of and for the four
years ended December 31, 1996 have been derived from the financial statements
of AGI which have been audited by Arthur Andersen LLP, independent public
accountants. The summary financial data of AGI set forth below as of and for
the year ended December 31, 1997 have been derived from the financial
statements of AGI which have been audited by Price Waterhouse LLP, independent
public accountants. The audited financial statements of AGI as of December 31,
1996 and 1997 and for the three years ended December 31, 1997 are included
elsewhere herein. The information contained in the following table should also
be read in conjunction with "Capitalization", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales....................... $72,354 $74,756 $97,463 $92,834 $108,281
Cost of goods sold.............. 55,259 58,492 74,441 67,860 76,459
------- ------- ------- ------- --------
Gross profit.................. 17,095 16,264 23,022 24,974 31,822
Selling, general and administra-
tive expenses.................. 11,456 12,584 15,374 15,894 19,444
Stock-based compensation ex-
pense(1)....................... -- -- -- 171 2,326
------- ------- ------- ------- --------
Operating income.............. 5,639 3,680 7,648 8,909 10,052
Interest expense, net........... (913) (807) (1,365) (1,370) (1,242)
Gain (loss) on sale of fixed as-
sets........................... -- 658 45 (204) 139
------- ------- ------- ------- --------
Income before income taxes...... 4,726 3,531 6,328 7,335 8,949
Income taxes.................... (141) (71) (23) (234) (231)
------- ------- ------- ------- --------
Net income...................... $ 4,585 $ 3,460 $ 6,305 $ 7,101 $ 8,718
======= ======= ======= ======= ========
OTHER DATA
EBITDA (as defined)(2).......... $ 8,261 $ 6,928 $11,613 $13,667 $ 17,140
Depreciation and amortization... 2,622 3,248 3,965 4,587 4,762
Capital expenditures............ 5,430 9,776 9,792 7,644 6,027
BALANCE SHEET DATA (AT PERIOD
END)
Total assets.................... $37,506 $44,550 $54,418 $56,928 $ 58,919
Long-term debt, including cur-
rent portion................... 13,183 16,084 18,242 18,241 16,040
Stockholders' equity............ 11,718 13,284 17,276 20,911 24,756
</TABLE>
- --------
(1) Stock-based compensation relates to stock appreciation rights held by
certain executives of AGI.
(2) EBITDA is defined as income from continuing operations before deducting
interest expense, income taxes, depreciation and amortization and excludes,
to the extent applicable for the relevant period, (i) gain (loss) on sale
of fixed assets, (ii) stock-based compensation expense, and (iii) PTP
royalty and commission income. EBITDA is not a substitute for operating
income, net earnings and cash flow from operating activities as determined
in accordance with generally accepted accounting principles as a measure of
profitability or liquidity. EBITDA is presented as additional information
because management believes it to be a useful indicator of the Company's
ability to service and/or incur indebtedness.
16
<PAGE>
RISK FACTORS
This Prospectus includes statements that may be considered "forward
looking". Although the Company believes that its plans, intentions and
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such plans, intentions or expectations will be
achieved. Important factors that could cause actual results to differ
materially from the Company's forward-looking statements are set forth below
and elsewhere in this Prospectus. All forward-looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in
their entirety by the cautionary statements set forth below. See "Special Note
Regarding Forward-Looking Statements".
LEVERAGE
Significant Leverage as a Result of Transactions
In connection with the consummation of the Transactions, the Company
incurred a significant amount of indebtedness and, as a result, the Company is
highly leveraged. At March 31, 1998, approximately $11.6 million in Senior
Debt was outstanding, fully secured by approximately $12.6 million in letters
of credit issued under the New Credit Facility, and the Company had
stockholders' equity of approximately $4.1 million. Also, after giving pro
forma effect to the Transactions, the Company's ratio of earnings to fixed
charges would have been 1.4x for the year ended December 31, 1997 and 0.6x for
the three months ended March 31, 1998. The Company is permitted to incur
substantial additional indebtedness in the future. See "Capitalization",
"Unaudited Pro Forma Combined Financial Data" and "Description of Notes".
Liquidity and Capital Resources
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures
and any acquisitions will depend on its future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. Based
upon the current level of operations and anticipated cost savings and revenue
growth, management believes that cash flow from operations and available cash,
together with available borrowings under the New Credit Facility, will be
adequate to meet the Company's future liquidity needs for at least the next
several years. The Company may, however, need to refinance all or a portion of
the principal of the Notes on or prior to maturity. There can be no assurance
that the Company's business will generate sufficient cash flow from
operations, that anticipated revenue growth and operating improvements will be
realized or that future borrowings will be available under the New Credit
Facility in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or to fund its other liquidity needs. In
addition, there can be no assurance that the Company will be able to effect
any such refinancing on commercially reasonable terms or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-IMPAC Group, Inc. Liquidity and Capital Resources".
Effects of Leverage
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to: (i)
making it more difficult for the Company to satisfy its obligations with
respect to the Notes, (ii) increasing the Company's vulnerability to general
adverse economic and industry conditions, (iii) limiting the Company's ability
to obtain additional financing to fund future working capital, capital
expenditures, acquisitions and other general corporate requirements, (iv)
requiring the dedication of a substantial portion of the Company's cash flow
from operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures, research and development
17
<PAGE>
or other general corporate purposes, (v) limiting the Company's flexibility in
planning for, or reacting to, changes in its business and the specialty
packaging industry, and (vi) placing the Company at a competitive disadvantage
with respect to less leveraged competitors.
EFFECTS OF COVENANT NON-COMPLIANCE
The Indenture and the New Credit Facility contain financial and other
restrictive covenants that limit the ability of the Company to, among other
things, borrow additional funds. Failure by the Company to comply with such
covenants could result in an event of default which, if not cured or waived,
could have a material adverse effect on the Company. In addition, the degree
to which the Company is leveraged could prevent it from repurchasing all of
the Notes tendered to it upon the occurrence of a Change of Control. See
"Description of Notes--Repurchase at the Option of Holders--Change of Control"
and "Description of Other Indebtedness--New Credit Facility".
RANKING
The Notes and the Subsidiary Guarantees are subordinated in right of payment
to all current and future Senior Debt of IMPAC and the Guarantors. However,
the Indenture provides that IMPAC will not, and will not permit any of the
Guarantors to, incur or otherwise become liable for any indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes or any of the Subsidiary Guarantees.
Upon any distribution to creditors of IMPAC or a Guarantor in a liquidation or
dissolution of IMPAC or a Guarantor or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to IMPAC or a
Guarantor or its property, the holders of Senior Debt will be entitled to be
paid in full before any payment may be made with respect to the Notes. In
addition, the subordination provisions of the Indenture provide that payments
with respect to the Notes will be blocked in the event of a payment default on
Senior Debt and may be blocked for up to 179 days each year in the event of
certain non-payment defaults on Senior Debt. In the event of a bankruptcy,
liquidation or reorganization of IMPAC or a Guarantor, holders of the Notes
will participate ratably with all holders of subordinated indebtedness of
IMPAC or such Guarantor that is deemed to be of the same class as the Notes,
and potentially with all other general creditors of IMPAC, based upon the
respective amounts owed to each holder or creditor, in the remaining assets of
IMPAC. In any of the foregoing events, there can be no assurance that there
would be sufficient assets to pay amounts due on the Notes. As a result,
holders of Notes may receive less, ratably, than the holders of Senior Debt.
As of March 31, 1998, approximately $11.6 million in Senior Debt was
outstanding, fully secured by approximately $12.6 million in letters of credit
issued under the New Credit Facility, and approximately $40.0 million was
available for additional borrowing under the New Credit Facility. The
Indenture permits the incurrence of substantial additional indebtedness,
including Senior Debt, by IMPAC and its subsidiaries in the future. See
"Description of Other Indebtedness--New Credit Facility".
ABILITY OF COMPANY TO OBTAIN FUNDS FROM SUBSIDIARIES
IMPAC has no operations of its own and derives substantially all of its
revenue from its subsidiaries. Holders of indebtedness of, and trade creditors
of, subsidiaries of IMPAC would generally be entitled to payment of their
claims from the assets of the affected subsidiaries before such assets were
made available for distribution to IMPAC. The Indenture permits the incurrence
of substantial additional indebtedness by IMPAC and its subsidiaries and
permits significant investments by IMPAC in its subsidiaries. In the event of
a bankruptcy, liquidation or reorganization of a subsidiary, holders of any of
such subsidiary's indebtedness will have a claim to the assets of the
subsidiaries that is prior to IMPAC's interest in those assets.
18
<PAGE>
FAILURE TO INTEGRATE BUSINESSES
The Company has no prior history as a combined entity and its operations
have not previously been managed on a combined basis. Prior to the
Transactions, AGI and Klearfold were operated as separate entities. The
Company's future operations and earnings are largely dependent upon
management's ability to successfully execute the Company's strategy of
offering the combined product line of AGI and Klearfold to the Company's
customers. This requires substantial attention from the Company's management
team which, to date, has not operated on a combined basis. In addition,
management is required to apply its business strategy to an entity which is
significantly larger than the entity it previously managed. Additionally, the
need to focus management's attention on integration of the businesses and
implementation of the Company's post-Combination strategy may limit the
Company's ability to successfully pursue other opportunities related to its
business for the foreseeable future. The historical financial statements and
pro forma financial statements presented in this Prospectus may not
necessarily be indicative of the results that would have been attained had the
Company operated on a combined basis.
EFFECTS OF INDUSTRY SHIFTS
The Company's packaging products are almost entirely targeted to consumer
products companies. Sales of consumer products are subject to changing tastes
and technologies that cannot be predicted. Moreover, the adoption by various
consumer products industries of new forms of packaging or industry shifts in
the manner in which certain products, such as music, are delivered to
consumers may in the future have a material adverse effect on the Company. For
example, the Company experienced significant, although temporary, declines in
revenues as the CD (as defined under "Business") displaced the LP and as the
CD industry abandoned the long-box. Although the Company has in the past
successfully adapted to industry changes, no assurances can be made that the
Company will be able to do so in the future without substantial loss of
revenues, or at all, or that in the future the medium for delivery of products
such as music, including delivery through the Internet, will not result in
lower demand for the Company's products or cause the Company's products to
become less competitive or obsolete.
VARIABILITY OF QUARTERLY RESULTS
A significant portion of the Company's business is attributable to special
projects relating to particular hit movie or music releases. The existence and
timing of such major releases may cause the Company's quarterly and annual
revenues to vary significantly. These swings in quarterly results could have a
material adverse effect on the Company's ability to comply with the financial
covenants in its financing agreements and could have a material adverse effect
on the market prices for the Notes.
EFFECT OF TECHNOLOGY CHANGES IN MARKET DEMAND AND COMPETITION
The markets for the Company's products may be affected by technological
change and new product introductions. The Company's success will depend, in
part, upon its continued ability to manufacture products that meet changing
customer needs, successfully anticipate or respond to technological changes in
manufacturing processes on a cost-effective and timely basis and enhance and
expand its existing product offerings. Current competitors or new market
entrants may develop new products with features that could adversely affect
the competitive position of the Company's products. The Company has invested
and continues to invest resources in the development of new products and
improved manufacturing processes; however, there can be no assurance that the
Company's new product or process development efforts will be successful or
that the emergence of new technologies, industry standards or customer
requirements will not render the Company's technology, equipment or processes
obsolete or uncompetitive. Any failure or delay in accomplishing
19
<PAGE>
these goals could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, to the extent that
the Company determines that new manufacturing equipment or processes are
required to remain competitive, the acquisition and implementation of these
technologies, equipment and processes are likely to require significant
capital investment by the Company.
POTENTIAL FUTURE ACQUISITIONS COULD INCREASE DEBT OR DISRUPT OPERATIONS
The Company may in the future pursue selective acquisitions within the
specialty packaging industry, although the Company currently has no agreement
or commitment with respect to any acquisition. Future acquisitions by the
Company could result in the incurrence of debt and contingent liabilities and
an increase in amortization expenses related to goodwill and other intangible
assets, which could have a material adverse effect upon the Company's
business, financial condition and results of operations. In addition,
acquisitions involve numerous risks, including difficulties in the
assimilation of the operation, technologies, services and products of the
acquired companies and the diversion of management's attention from other
business concerns. In the event that any such acquisition were to occur, there
can be no assurance that the Company's business, financial condition and
results of operations would not be materially adversely affected.
COMPETITION
Most of the Company's products are sold in highly competitive markets in the
United States. The Company competes with a significant number of companies of
varying sizes on the basis of quality, service and price and the ability to
supply products to customers in a timely manner. The Company believes that its
primary competitors are Ivy Hill Corporation, Queens Group, Inc. and Shorewood
Packaging Corporation, some of which are larger than the Company and may have
substantially greater financial resources. Competitive pressures or other
factors could cause the Company to lose existing business or opportunities to
generate new business or could result in significant price erosion, all of
which would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Competition".
FAILURE TO COMPLY WITH ENVIRONMENTAL MATTERS AND GOVERNMENTAL REGULATIONS
The past and present operations of the Company and the past and present
ownership and operations of real property by the Company are subject to
extensive and changing federal, state and local environmental laws and
regulations pertaining to the discharge of materials into the environment, the
handling and disposition of wastes, the recycling, composition and recycled
content of packaging, or otherwise relating to the protection of the
environment. These laws include, but are not limited to, the Comprehensive
Environmental Response Compensation and Liability Act, the Water Pollution
Control Act, the Clean Air Act and the Resource Conservation and Recovery Act,
as those laws have been amended and supplemented, the regulations promulgated
thereunder, and any applicable state analogs. The Company's operations are
also governed by laws and regulations relating to employee health and safety.
Governmental authorities have the power to enforce compliance with their
regulations, and violations may result in the payment of fines or the entry of
injunctions or both. The Company believes that it is in material compliance
with such applicable laws and regulations and that its current environmental
controls are adequate to address existing regulatory requirements.
As is the case with other companies engaged in similar businesses, the
Company could incur costs relating to environmental compliance, including
remediation costs related to historical hazardous materials handling and
disposal practices at certain facilities. In the past the Company has
undertaken remedial activities to address on-site soil contamination caused by
historic operations. None of these cleanups has resulted in any material
liability. It is possible that future developments (for example, new
20
<PAGE>
regulations or stricter regulatory requirements) could result in the Company
incurring material costs to comply with applicable environmental laws and
regulations. In addition, the Company has not undertaken an independent
investigation of all of its facilities; accordingly, there can be no assurance
that in the future conditions requiring remediation will not be identified.
EFFECT OF ENVIRONMENTAL CONCERNS ON MARKET
In addition to the effects of regulation, the Company's business may also be
affected by environmental concerns of consumers with respect to packaging. For
example, in the early 1990's the music industry voluntarily stopped using
"long-box" packaging for CDs in response to these concerns. Future
environmental concerns could have a material effect on the demand for the
Company's packaging. See "Effects of Industry Shifts".
DEPENDENCE ON KEY CONTRACTS
In fiscal 1997, BMG, PolyGram and Universal accounted for 11.6% of the
Company's net sales. The Company has entered into supply contracts with three
key customers, BMG, PolyGram and Universal. These supply contracts are
generally terminable for any material breach or events of insolvency. Three of
these contracts expire in 1999 and one expires in 2004. These contracts also
provide for minimum levels of purchases by the customer, with these minimums
expressed either in dollars of sales or percentages of the customer's
requirements for packaging. While the Company believes that the contracts
expiring in 1999 will be renewed, there can be no assurance that these
contracts will be renewed. The Company does not have a long term contract with
either EMI or Sony, which are also significant customers.
CONTROLLING STOCKHOLDERS
Heritage and certain members of senior management or their affiliates own
substantially all of the outstanding voting stock of IMPAC, which is the sole
stockholder of AGI and Klearfold and, by virtue of such ownership, have the
power to control all matters submitted to stockholders of IMPAC and to elect
all directors of IMPAC and its subsidiaries, including AGI and Klearfold. In
addition, Heritage and certain members of senior management have the right,
under certain circumstances, to sell their stock back to IMPAC (subject to
certain restrictions under the Indenture and the New Credit Facility) which
could result in further concentration of ownership. Lastly, pursuant to the
Stockholder Agreement (as defined under "Description of Notes"), Heritage has
the right to elect a majority of IMPAC's board of directors in the event the
Company does not meet certain levels of financial performance, with testing of
these targets to commence after June 30, 1999, and under certain other
circumstances. See "Principal Stockholders", "Management" and "Certain
Relationships and Related Transactions".
EFFECT OF FRAUDULENT TRANSFER STATUTES ON VALIDITY OF NOTES AND GUARANTEES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, IMPAC, or
any Guarantor, at the time it incurred the indebtedness evidenced by the Notes
or the Subsidiary Guarantees, (i) (a) was or is insolvent or rendered
insolvent by reason of such incurrence or (b) was or is engaged in a business
or transactions for which the assets remaining with IMPAC or any Guarantor
constituted unreasonably small capital or (c) intended or intends to incur, or
believed or believes that it would incur debts beyond its ability to pay such
debts as they mature, and (ii) received or receives less than reasonably
equivalent value or fair consideration for the incurrence of such
indebtedness, then the Notes or the Subsidiary Guarantees, could be voided, or
claims in respect of the Notes or the Subsidiary Guarantees could be
subordinated to all other debts of IMPAC or any Guarantor. In addition, the
payment of interest and principal by IMPAC or any Guarantor pursuant to the
Notes could be voided and required to be returned to the person making such
payment, or to a fund for the benefit of the creditors of IMPAC or any
Guarantor.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, IMPAC or any
21
<PAGE>
Guarantor would be considered insolvent if (i) the sum of its debts, including
contingent liabilities, were greater than the saleable value of all of its
assets at a fair valuation or if the present fair saleable value of its assets
were less than the amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they become
absolute and mature or (ii) it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, IMPAC and the Guarantors believe that, after giving effect
to the indebtedness incurred in connection with the Transactions, neither
IMPAC nor any Guarantor will be insolvent, will have unreasonably small
capital for the business in which it is engaged or will incur debts beyond its
ability to pay such debts as they mature. There can be no assurance, however,
as to what standard a court would apply in making such determinations or that
a court would agree with IMPAC's and the Guarantors' conclusions in this
regard.
POSSIBLE INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control, IMPAC will be required to offer to repurchase all
outstanding Notes at 101% of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of repurchase. A
Change of Control is defined as including (i) certain transfers of all or
substantially all of the assets of IMPAC, (ii) the acquisition of 50% or more
of the Voting Stock (as defined under "Description of Notes") of IMPAC by
certain persons, (iii) the acquisition of 35% or more of the Voting Stock of
IMPAC if certain current stockholders and their affiliates then own less than
35% of the Voting Stock of IMPAC and (iv) certain changes in a majority of the
Board of Directors of IMPAC. Under the terms of the Stockholder Agreement,
Heritage has the right to cause a sale of the Company under certain
circumstances, which would constitute a Change of Control. See "Management"
and "Certain Relationships and Related Transactions". However, there can be no
assurance that sufficient funds will be available at the time of any Change of
Control to make any required repurchases of Notes tendered or that
restrictions in the New Credit Facility will allow IMPAC to make such required
repurchases. The Indenture does not contain provisions that permit the Holders
of the Notes to require that IMPAC repurchase or redeem the Notes in the event
of a takeover, recapitalization or similar transaction except as described in
"Description of Notes--Repurchase at the Option of Holders--Change of
Control". See "Description of Notes--Repurchase at the Option of Holders".
FAILURE TO EXCHANGE EXISTING NOTES
Issuance of the New Notes in exchange for the Existing Notes pursuant to the
Exchange Offer will be made only after a timely receipt by IMPAC of such
Existing Notes, a properly completed and duly executed Letter of Transmittal
and all other required documents. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of the Existing Notes
tendered for exchange will be determined by IMPAC in its sole discretion,
which determination will be final and binding on all parties. Holders of the
Existing Notes desiring to tender such Existing Notes in exchange for New
Notes should allow sufficient time to ensure timely delivery. IMPAC is under
no duty to give notification of defects or irregularities with respect to the
tenders of the Existing Notes for exchange. Existing Notes that are not tender
or are tendered but not accepted will, following the consummation of the
Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and, except as provided herein, the Company will have no
further obligations to provide for the registration under the Securities Act
of such Existing Notes. To the extent that Existing Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Existing Notes could be adversely affected. See "Exchange
Offer."
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
There can be no assurance regarding the future development of a market for
any of the Notes, or the ability of holders of any of the Notes to sell their
Notes, or the price at which such holders may be
22
<PAGE>
able to sell such Notes. If such a market were to develop, the Notes could
trade at prices that may be lower than the initial offering price depending on
many factors, including prevailing interest rates, the Company's operating
results and the market for similar securities. The Initial Purchasers have
advised IMPAC that they currently intend to make a market in the Notes. The
Initial Purchasers are not obliged to do so, however, and any market-making
activity with respect to the Notes may be discontinued at any time without
notice. Therefore, there can be no assurance as to the liquidity of any
trading market for the Notes, or that an active public market for the New
Notes will develop. In addition, such market-making activity will be subject
to the limitations imposed by the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and may be limited during the
Exchange Offer. IMPAC does not intend to apply for listing or quotation of the
New Notes on any securities exchange or stock market; however, the Existing
Notes are eligible for trading in the PORTAL market of the National
Association of Securities Dealers, Inc.
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered or tendered but not
accepted Existing Notes could be adversely affected. Because IMPAC anticipates
that most holders of the Existing Notes will elect to exchange such Existing
Notes for New Notes due to the absence of restrictions on the resale of New
Notes under the Securities Act, IMPAC anticipates that the liquidity of the
market for any Existing Notes remaining after the consummation of the Exchange
Offer may be substantially limited.
23
<PAGE>
USE OF PROCEEDS
No proceeds will be received by IMPAC and the Guarantors from the Exchange
Offer. The net proceeds of the sale of the Existing Notes were approximately
$97.0 million, after deducting discounts and commissions and expenses related
to the sale of the Existing Notes. The Company used the net proceeds of the
sale of the Existing Notes to consummate the Combination, repay certain
existing indebtedness, pay certain fees and expenses in connection with the
Transactions and for general corporate purposes.
The following table summarizes the sources and uses of funds for the sale of
the Existing Notes:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF FUNDS
New Credit Facility(1)............................................ $ 0.0
10 1/8% Senior Subordinated Notes(2)............................. 100.0
Equity contributions:
AGI management equity investment............................... 14.4
KFI Holding management equity investment(3).................... 6.0
Heritage equity investment(4).................................. 13.6
------
Total sources of funds..................................... $134.0
======
USES OF FUNDS
Purchase of AGI equity(5)......................................... $ 69.0
Contributed KFI Holding equity.................................... 15.0
Retirement of Klearfold indebtedness(6)........................... 30.3
Retirement of AGI indebtedness(7)................................. 8.3
Cash for working capital.......................................... 6.4
Fees and expenses................................................. 5.0
------
Total uses of funds........................................ $134.0
======
</TABLE>
- --------
(1) The New Credit Facility provides for up to $40.0 million of revolving
credit borrowings and up to $13.0 million of letters of credit, and
matures in 2003. As of the date of the closing of the Transaction, letters
of credit in the aggregate amount of approximately $12.6 million were
outstanding under the New Credit Facility and $40.0 million of revolving
credit borrowings were available to the Company. The New Credit Facility
is guaranteed by all current and future subsidiaries of IMPAC and is
secured by all assets of the Company and its subsidiaries.
(2) There is currently no indebtedness outstanding that is subordinated to the
Notes.
(3) Represents $1.2 million in cash and $4.8 million in contributed stock of
KFI Holding (the value ascribed to the equity of KFI Holding taking into
account (i) the repayment of approximately $30.3 million of Klearfold
indebtedness (including accrued interest) and (ii) approximately $4.0
million of the Klearfold IRBs remaining outstanding after the
Transactions).
(4) Represents $3.4 million in cash and $10.2 million in contributed stock of
KFI Holding (the value ascribed to the equity of KFI Holding taking into
account (i) the repayment of approximately $30.3 million of Klearfold
indebtedness (including accrued interest) and (ii) approximately $4.0
million of the Klearfold IRBs remaining outstanding after the
Transactions).
(5) Represents the acquisition by the Company of all of the outstanding common
stock of AGI and settlement of certain stock appreciation rights for $54.6
million of cash, including a dividend of approximately $22.5 million paid
to AGI stockholders immediately prior to the Combination, and $14.4
million (the ascribed value) of common stock of the Company issued to
AGI's management. Approximately $7.6 million of the AGI IRBs remain
outstanding after the Transactions. See "Management" and "Certain
Relationships and Related Transactions".
24
<PAGE>
(6) Reflects the total funded indebtedness (including accrued interest) of
Klearfold, other than the Klearfold IRBs, that was outstanding immediately
prior to the Combination. All of such indebtedness was owed under the
Revolving Credit and Term Loan Agreement (the "Revolving Credit and Term
Loan Agreement"), dated as of June 7, 1996, with BankBoston, N.A. and
National Westminster Bank Plc., as co-agents, providing for two term loans
aggregating $31.0 million in principal amount (the "Term Loans") and
revolving credit loans of up to $12.0 million, including letters of credit
(the "Revolving Loan"). Term Loan A ($21.0 million) had a final maturity
date of June 30, 2002. Term Loan B ($10.0 million) had a final maturity
date of June 30, 2003. Term Loans bore interest at the bank's base rate
plus applicable margins. The effective rates at December 31, 1997 were
8.5% and 9.0% for Term Loans A and B, respectively. As of December 31,
1997, no borrowings were outstanding and $4.0 million of letters of credit
were outstanding under the Revolving Loan. The effective interest rate on
the Revolving Loans at December 31, 1997 was 9.75% per annum and letters
of credit bore fees equal to 3.0% per annum. This Revolving Credit and
Term Loan Agreement was terminated and refinanced concurrently with the
Transactions.
(7) Reflects the total funded indebtedness of AGI, other than the AGI IRBs,
that was outstanding immediately prior to the Combination.
25
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998. This table should be read in conjunction with the related financial
statements and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1998
-------------
(IN MILLIONS)
<S> <C>
New Credit Facility(1)............................................ $ 0.0
IRB Financings(2)................................................. 11.6
10 1/8% Senior Subordinated Notes(3).............................. 100.0
-------
Total debt........................................................ 111.6
Total stockholders' equity........................................ 4.3
-------
Total capitalization.............................................. $ 115.9
=======
</TABLE>
- --------
(1) The New Credit Facility provides for up to $40.0 million of revolving
credit borrowings and up to $13.0 million of letters of credit, and
matures in 2003. As of March 31, 1998, letters of credit in the aggregate
amount of approximately $12.6 million were outstanding under the New
Credit Facility and $40.0 million of revolving credit borrowings were
available to the Company. The New Credit Facility is guaranteed by all
current and future subsidiaries of IMPAC and is secured by all assets of
IMPAC and its subsidiaries.
(2) Consists of the IRB Financings (as defined under "Description of Other
Indebtedness") incurred by AGI and Klearfold. The IRB Financings are fully
secured by approximately $12.6 million of letters of credit issued under
the New Credit Facility. See "Description of Other Indebtedness".
(3) There is currently no indebtedness outstanding that is subordinated to the
Notes.
26
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
In February 1998, KFI Holding, its stockholders, and certain stockholders
and holders of stock appreciation rights of AGI entered into an Investment
Agreement (the "Investment Agreement"), under which (i) the stockholders of
KFI Holding agreed to contribute to KFI Holding the entire outstanding capital
stock of KFI Holding and a warrant to purchase KFI Holding capital stock and
to invest approximately $4.6 million in cash, and (ii) certain stockholders
and holders of stock appreciation rights of AGI agreed to contribute to KFI
Holding shares of AGI common stock and to invest the proceeds of their stock
appreciation rights, totaling an aggregate of $14.4 million. In exchange for
these contributions and cash investments, KFI Holding agreed to issue to the
contributing or investing parties shares of its common stock (the "Common
Stock") and upon consummation of such issuance, KFI Holding was renamed IMPAC
Group, Inc.
At the same time, KFI Holding, its wholly-owned subsidiary AGI Acquisition
Corp., AGI and certain stockholders of AGI and KFI Holding entered into an
Agreement and Plan of Merger (the "Agreement and Plan of Merger"), under which
AGI Acquisition Corp. merged on March 12, 1998 with and into AGI, with AGI as
the surviving corporation. In this merger, the shares of AGI not contributed
to KFI Holding under the Investment Agreement, a stock option and certain
stock appreciation rights were converted into a right to receive cash in the
aggregate amount of approximately $30.5 million, net of fees. In addition,
immediately prior to the closing of the Combination the stockholders of AGI
received a dividend in the aggregate amount of approximately $22.5 million. As
a result of the foregoing transactions Klearfold and AGI became wholly-owned
subsidiaries of IMPAC.
In order to finance the Combination and the Company's working capital needs
thereafter, the Company issued $100 million aggregate principal amount of
Existing Notes and entered into the New Credit Facility.
The following Unaudited Pro Forma Combined Financial Data of IMPAC are based
on the historical financial statements of AGI and the historical consolidated
financial statements of KFI Holding included elsewhere in this Prospectus,
adjusted to give effect to the pro forma adjustments described in the notes
thereto. The Unaudited Pro Forma Combined Statements of Income give effect to
the Offering and the Combination as though these transactions had occurred on
January 1, 1997.
The pro forma adjustments are based upon available data and certain
assumptions that Company management believes are reasonable. Management does
not believe that any pro forma adjustments are necessary to reflect the
exchange of New Notes for Existing Notes. The Unaudited Pro Forma Combined
Financial Data are not necessarily indicative of the Company's results of
operations that might have occurred had the aforementioned transactions been
completed as of the date indicated above and do not purport to represent what
the Company's results of operations might be for any future period or date.
The Unaudited Pro Forma Combined Financial Data should be read in conjunction
with the financial statements and the related notes and the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
27
<PAGE>
IMPAC GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
KFI ACQUISITION OFFERING PRO
HOLDING AGI(1) ADJUSTMENTS ADJUSTMENTS FORMA
------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales............... $52,493 $108,281 $ -- $ -- $160,774
Cost of goods sold...... 39,322 76,459 635 (4) -- 116,416
------- -------- ------- ------- --------
Gross profit.......... 13,171 31,822 (635) -- 44,358
Selling, general and
administrative
expenses............... 7,589 19,444 1,087 (4) -- 28,120
Stock-based compensation
expense................ 2,326 (2,326)(6) --
PTP royalty and
commission (income).... (33) -- -- -- (33)
------- -------- ------- ------- --------
Operating income...... 5,615 10,052 604 -- 16,271
Interest expense, net... (3,469) (1,242) -- (6,687)(2) (11,398)
Gain on sale of fixed
assets................. 139 -- -- 139
------- -------- ------- ------- --------
Income before income
taxes.................. 2,146 8,949 604 (6,687) 5,012
Income taxes............ (754) (231) (4,101)(3) 2,675 (3) (2,411)
------- -------- ------- ------- --------
Net income.............. $ 1,392 $ 8,718 $(3,497) $(4,012) $ 2,601
======= ======== ======= ======= ========
OTHER DATA:
EBITDA (as defined)(7).. $ 24,536
Cash interest
expense(8)............. 10,891
Depreciation and
amortization........... 8,298
Capital expenditures.... 10,171
Ratio of earnings to
fixed charges(9)....... 1.4x
</TABLE>
28
<PAGE>
IMPAC GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------------
IMPAC ACQUISITION OFFERING PRO
GROUP AGI(1) ADJUSTMENTS ADJUSTMENTS FORMA
------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Net sales............... $15,801 $15,505 $ -- $ -- $31,306
Cost of goods sold...... 12,418 11,299 (342)(4) -- 23,375
------- ------- ------ ------- -------
Gross profit.......... 3,383 4,206 342 -- 7,931
Selling, general and
administrative
expenses............... 2,530 5,157 (1,342)(4)(5) -- 6,345
Stock-based compensation
expense................ -- 1,171 (1,171)(6) --
------- ------- ------ ------- -------
Operating income
(loss)............... 853 (2,122) 2,855 -- 1,586
Interest expense, net... (1,216) (152) -- (1,516)(2) (2,884)
------- ------- ------ ------- -------
(Loss) before income
taxes and extraordinary
item................... (363) (2,274) 2,855 (1,516) (1,298)
Income (taxes) benefit.. 128 68 (384)(3) 606(3) 418
------- ------- ------ ------- -------
Income (loss) before ex-
traordinary item....... $ (235) $(2,206) $2,471 $ (910) $ (880)
======= ======= ====== ======= =======
OTHER DATA:
EBITDA (as defined)(7).. $ 3,717
Cash interest
expense(8)............. 2,755
Depreciation and
amortization........... 2,131
Capital expenditures.... 814
Ratio of earnings to
fixed charges(9)....... --
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------------
KFI ACQUISITION OFFERING PRO
HOLDING AGI(1) ADJUSTMENTS ADJUSTMENTS FORMA
------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Net sales............... $10,837 $23,012 $ -- $ -- $33,849
Cost of goods sold...... 7,789 16,584 149 (4) -- 24,522
------- ------- ------ ------- -------
Gross profit.......... 3,048 6,428 (149) -- 9,327
Selling, general and
administrative
expenses............... 1,718 4,408 281 (4) -- 6,407
Stock-based compensation
expense................ -- 582 (582)(6) -- --
------- ------- ------ ------- -------
Operating income...... 1,330 1,438 152 -- 2,920
Interest expense, net... (766) (307) -- (1,772)(2) (2,845)
------- ------- ------ ------- -------
Income before income
taxes.................. 564 1,131 152 (1,772) 75
Income (taxes).......... (198) (54) (628)(3) 747 (3) (133)
------- ------- ------ ------- -------
Net income (loss)....... $ 366 $ 1,077 $ (476) $(1,025) $ (58)
======= ======= ====== ======= =======
OTHER DATA:
EBITDA (as defined)(7).. $ 4,929
Cash interest
expense(8)............. 2,722
Depreciation and
amortization........... 2,039
Capital expenditures.... 1,870
Ratio of earnings to
fixed charges(9)....... 1.0x
</TABLE>
29
<PAGE>
IMPAC GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(1) Adjustments to the three months ended March 31, 1998 were made to
reflect the operations of AGI for the period from January 1, 1998 to March 12,
1998. AGI operations are included in the Company's historical operations from
March 13, 1998. Adjustments for the three months ended March 31, 1997 are made
to reflect the operations of AGI for that period.
(2) The increase in pro forma interest expense as a result of the Offering
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31,
---------------
YEAR ENDED
DECEMBER 31, 1997 1998 1997
----------------- ------- ------
<S> <C> <C> <C>
Interest on new borrowings:
Interest expense on the Notes at an in-
terest rate of 10.125%................. $10,125 $ 2,531 $2,531
Commitment fee of 0.5% on unused
availability under the New Credit
Facility............................... 200 50 50
Interest expense on outstanding Letters
of Credit under the New Credit Facility
at an assumed rate of 1.625%........... 205 51 51
Amortization of deferred financing cost
incurred in connection with the
Offering and the New Credit Facility... 492 123 123
------- ------- ------
Total interest from debt requirements
of the Offering....................... $11,022 $ 2,755 $2,755
Elimination of historical interest ex-
pense, except for IRB interest........... (4,335) (1,239) (983)
------- ------- ------
Net increase in interest expense........ $ 6,687 $ 1,516 $1,772
======= ======= ======
</TABLE>
(3) Represents the income tax adjustment required to result in a pro forma
income tax provision based upon (i) pro forma pre-tax income plus non
deductible amortization of intangibles; and (ii) an estimated effective tax
rate of 40%.
(4) Reflects adjustments to record amortization of the excess of the
purchase price of the AGI common stock over the fair value of the net assets
acquired ("Excess Purchase Price") after the preliminary allocation of the
purchase price to the estimated fair value of AGI's assets and liabilities
acquired and to record depreciation of Excess Purchase Price allocated to
property, plant and equipment. The amortization of the allocation of the
Excess Purchase Price to inventory is not reflected in the Unaudited Pro Forma
Combined Statements of Income as it is non-recurring in nature.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
----------------------
SELLING,
COST OF GENERAL AND
GOODS ADMINISTRATIVE
SOLD EXPENSES
------- --------------
<S> <C> <C>
Amortization of intangible assets...................... $-- $1,016
Depreciation of property, plant and equipment.......... 635 71
---- ------
Total adjustment..................................... $635 $1,087
==== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
MARCH 31, 1998 MARCH 31, 1997
--------------------- --------------------
COST SELLING, COST SELLING,
OF GENERAL AND OF GENERAL AND
GOODS ADMINISTRATIVE GOODS ADMINISTRATIVE
SOLD EXPENSES SOLD EXPENSES
----- -------------- ----- --------------
<S> <C> <C> <C> <C>
Amortization of intangible
assets........................... $ -- $212 $-- $254
Depreciation of property, plant
and equipment.................... 114 27 149 27
Amortization of inventory......... (456) -- -- --
----- ---- ---- ----
Total adjustment................ $(342) $239 $149 $281
===== ==== ==== ====
</TABLE>
30
<PAGE>
(5) Reflects the elimination of $1,581 of non-recurring Combination-related
fees which are included in the AGI historical results.
(6) In connection with the Combination, certain AGI executives signed
employment agreements which specify such executives' compensation through the
term of the agreements. The new employment agreements do not contain stock
appreciation rights or any other equity component requiring variable
accounting. It is anticipated that the compensation expense associated with
the AGI executives in 1998 will approximate the 1997 expense less the expense
associated with the stock-based compensation. This adjustment eliminates the
expense associated with the stock appreciation rights ("SARs") recorded in the
historical AGI financial statements.
(7) EBITDA is defined as income from continuing operations before deducting
interest expense, income taxes, depreciation and amortization and excludes, to
the extent applicable, (i) gain (loss) on sale of fixed assets, (ii) stock-
based compensation expense, and (iii) PTP royalty and commission income.
EBITDA is not a substitute for operating income, net earnings and cash flow
from operating activities as determined in accordance with generally accepted
accounting principles as a measure of profitability or liquidity. EBITDA is
presented as additional information because management believes it to be a
useful indicator of the Company's ability to service and/or incur
indebtedness.
(8) For purposes of this computation, cash interest expense consists of pro
forma interest expense before the amortization of deferred financing costs.
(9) For purposes of computing the ratio of earnings to fixed charges,
earnings are defined as income before income taxes, plus fixed charges. Fixed
charges consist of interest expense on all indebtedness (including
amortization of deferred financing costs) and a portion of operating lease
rental expense (one-third) that is representative of the interest factor.
IMPAC's earnings were insufficient to cover fixed charges by $1,298 for the
three months ended March 31, 1998.
31
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION AND
OTHER DATA--KFI HOLDING CORPORATION
The selected consolidated financial data of KFI Holding set forth below as
of and for the five years ended December 31, 1997 have been derived from the
financial statements of KFI Holding which have been audited by KPMG Peat
Marwick LLP, independent public accountants. The audited consolidated
financial statements of KFI Holding as of December 31, 1996 and 1997 and for
the three years ended December 31, 1997 are included elsewhere herein. The
selected historical financial information and other data presented below for
the three months ended March 31, 1997 and March 31, 1998 are unaudited and are
not necessarily indicative of KFI Holding's results for the full fiscal year.
The selected historical financial information and other data of KFI Holding
includes AGI from March 31, 1998. Upon consummation of the Transactions, KFI
Holding changed its name to "IMPAC Group, Inc." The information contained in
the following table should also be read in conjunction with "Capitalization",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998 (5)
------- ------- ------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales............... $38,309 $47,714 $51,214 $ 54,218 $ 52,493 $10,837 $ 15,801
Cost of goods sold...... 28,186 35,223 36,757 40,094 39,322 7,789 12,418
------- ------- ------- -------- -------- ------- --------
Gross profit............ 10,123 12,491 14,457 14,124 13,171 3,048 3,383
Selling, general and
administrative
expenses............... 6,121 7,029 7,942 7,594 7,589 1,748 2,530
PTP royalty and
commission income(1)... (176) (200) (377) (731) (33) (30) --
------- ------- ------- -------- -------- ------- --------
Operating income........ 4,178 5,662 6,892 7,261 5,615 1,330 853
Interest expense, net... (1,013) (1,020) (1,197) (2,324) (3,469) (766) (1,216)
------- ------- ------- -------- -------- ------- --------
Income (loss) from
continuing operations
before income taxes.... 3,165 4,642 5,695 4,937 2,146 564 (363)
Income (taxes) benefit.. (1,159) (1,616) (2,417) (2,003) (754) (198) 128
------- ------- ------- -------- -------- ------- --------
Income from continuing
operations............. $ 2,006 $ 3,026 $ 3,278 $ 2,934 $ 1,392 $ 366 $ (235)
======= ======= ======= ======== ======== ======= ========
OTHER DATA
EBITDA (as defined)(2).. $ 5,625 $ 6,983 $ 8,289 $ 8,499 $ 7,396 $ 1,704 $ 1,585
Depreciation and
amortization........... 1,623 1,521 1,774 1,969 1,814 459 732
Capital expenditures.... 741 2,980 1,394 1,271 4,144 463 814
Ratio of earnings to
fixed charges(3)....... 3.4x 4.2x 4.2x 2.7x 1.5x 1.4x --
BALANCE SHEET DATA (AT
PERIOD END)(4)
Total assets............ $27,430 $33,602 $38,025 $ 27,275 $ 28,247 $24,926 $142,258
Long-term debt, includ-
ing current portion.... 7,828 9,120 6,623 30,950 33,850 32,591 111,640
Stockholders' equity
(deficit).............. 6,255 8,807 11,511 (15,279) (13,887) (15,048) 4,324
</TABLE>
- --------
(1) Klearfold received commissions and royalties on certain sales made by PTP.
Klearfold owned 51% of PTP prior to the sale of this subsidiary on April
19, 1996. PTP ceased operations in 1997.
32
<PAGE>
(2) EBITDA is defined as income from continuing operations before deducting
interest expense, income taxes, depreciation and amortization and
excludes, to the extent applicable for the relevant period, (i) gain
(loss) on sale of fixed assets, (ii) stock-based compensation expense, and
(iii) PTP royalty and commission income. EBITDA is not a substitute for
operating income, net earnings and cash flow from operating activities as
determined in accordance with generally accepted accounting principles as
a measure of profitability or liquidity. EBITDA is presented as additional
information because management believes it to be a useful indicator of the
Company's ability to service and/or incur indebtedness.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
are defined as income before income taxes, plus fixed charges. Fixed
charges consist of interest expense on all indebtedness (including
amortization of deferred financing costs) and a portion of operating lease
rental expense (one-third) that is representative of the interest factor.
IMPAC's earnings were insufficient to cover fixed charges by $363 for the
three months ended March 31, 1998.
(4) Balance sheet data includes amounts related to PTP at December 31, 1993,
1994 and 1995 prior to the sale of PTP on April 19, 1996.
(5) The results of operations for the three months ended March 31, 1998
include an extraordinary loss of $553 (net of tax benefit of $368) due to
the write-off of deferred financing costs.
33
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER DATA--AGI INCORPORATED
The selected financial data of AGI set forth below as of and for the four
years ended December 31, 1996 have been derived from the financial statements
of AGI which have been audited by Arthur Andersen LLP, independent public
accountants. The selected financial data of AGI set forth below as of and for
the year ended December 31, 1997 have been derived from the financial
statements of AGI which have been audited by Price Waterhouse LLP, independent
public accountants. The audited financial statements of AGI as of December 31,
1996 and 1997 and for the three years ended December 31, 1997 are included
elsewhere herein. The information contained in the following table should also
be read in conjunction with "Capitalization", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales....................... $72,354 $74,756 $97,463 $92,834 $108,281
Cost of goods sold.............. 55,259 58,492 74,441 67,860 76,459
------- ------- ------- ------- --------
Gross profit.................... 17,095 16,264 23,022 24,974 31,822
Selling, general and administra-
tive expenses.................. 11,456 12,584 15,374 15,894 19,444
Stock-based compensation ex-
pense(1)....................... -- -- -- 171 2,326
------- ------- ------- ------- --------
Operating income................ 5,639 3,680 7,648 8,909 10,052
Interest expense, net........... (913) (807) (1,365) (1,370) (1,242)
Gain (loss) on sale of fixed as-
sets........................... -- 658 45 (204) 139
------- ------- ------- ------- --------
Income before income taxes...... 4,726 3,531 6,328 7,335 8,949
Income taxes.................... (141) (71) (23) (234) (231)
------- ------- ------- ------- --------
Net income...................... $ 4,585 $ 3,460 $ 6,305 $ 7,101 $ 8,718
======= ======= ======= ======= ========
OTHER DATA
EBITDA (as defined)(2).......... $ 8,261 $ 6,928 $11,613 $13,667 $ 17,140
Depreciation and amortization... 2,622 3,248 3,965 4,587 4,762
Capital expenditures............ 5,430 9,776 9,792 7,644 6,027
Ratio of earnings to fixed
charges(3)..................... 4.9x 3.5x 3.7x 4.2x 5.1x
BALANCE SHEET DATA (AT PERIOD
END)
Total assets.................... $37,506 $44,550 $54,418 $56,928 $ 58,919
Long-term debt, including cur-
rent portion................... 13,183 16,084 18,242 18,241 16,040
Stockholders' equity............ 11,718 13,284 17,276 20,911 24,756
</TABLE>
- --------
(1) Stock-based compensation relates to stock appreciation rights held by
certain executives of AGI.
(2) EBITDA is defined as income from continuing operations before deducting
interest expense, income taxes, depreciation and amortization and
excludes, to the extent applicable for the relevant period, (i) gain
(loss) on sale of fixed assets, (ii) stock-based compensation expense, and
(iii) PTP royalty and commission income. EBITDA is not a substitute for
operating income, net earnings and cash flow from operating activities as
determined in accordance with generally accepted accounting principles as
a measure of profitability or liquidity. EBITDA is presented as additional
information because management believes it to be a useful indicator of the
Company's ability to service and/or incur indebtedness.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
are defined as income before income taxes, plus fixed charges. Fixed
charges consist of interest expense on all indebtedness (including
amortization of deferred financing costs) and a portion of operating lease
rental expense (one-third) that is representative of the interest factor.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
On March 12, 1998, KFI Holding completed its acquisition of AGI as part of
the Transactions. Upon consummation of the Transactions KFI Holding changed
its corporate name to "IMPAC Group, Inc." References below to the "Company"
mean IMPAC Group, Inc. and its consolidated subsidiaries. As a result of the
Transactions, the Company's consolidated financial statements for the three
months ended March 31, 1997 and 1998 are not comparable due to the Offering
and the inclusion in the consolidated financial statements of AGI's assets,
liabilities and operating results from the date of acquisition. As such, the
discussion and analysis of the results of operations and financial condition
for the three months ended March 31, 1997 and 1998 are presented on a pro
forma basis as if the Offering and acquisition of AGI occurred on January 1,
1997. The discussion below should be read in conjunction with "Unaudited Pro
Forma Combined Financial Data." The discussion and analysis of the results of
operations and financial condition for the years ended December 31, 1995, 1996
and 1997 are based on the separate financial statements of KFI Holding (the
predecessor of IMPAC Group, Inc.) and AGI prior to the consummation of the
transactions in March 1998 and should be read in conjunction with the
consolidated financial statements of KFI Holding and the financial statements
of AGI, including the notes thereto, included elsewhere in this Prospectus.
IMPAC GROUP, INC.
Overview
IMPAC is a leading designer, manufacturer and marketer of high-end, value-
added specialty packaging for various consumer products markets including
entertainment, cosmetics and personal care. Through its creative design work,
specialized manufacturing techniques and diverse printing capabilities, the
Company offers innovative specialty packaging solutions for customers that
seek to differentiate their products in the consumer marketplace. In addition,
unlike most of its competitors, the Company utilizes a broad range of paper,
paperboard and transparent rigid plastic materials for its products.
PRO FORMA THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED) COMPARED TO PRO FORMA
THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
RESULTS OF OPERATIONS
The following table sets forth certain unaudited income statement data
(expressed as a percentage of net sales) for the three months ended March 31,
1997 (the "1997 period") and the three months ended March 31, 1998 (the "1998
period") on a pro forma basis as if the Combination and the Offering occurred
on January 1, 1997.
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS
ENDED MARCH 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................. 100.0% 100.0%
Cost of goods sold.................................... 72.4% 74.7%
------- -------
Gross profit.......................................... 27.6% 25.3%
Selling, general and administrative expenses.......... 18.9% 20.3%
------- -------
Operating income...................................... 8.6% 5.1%
Interest expense, net................................. 8.4% 9.2%
------- -------
Income (loss) before income taxes..................... 0.2% (4.1%)
Income taxes (benefit)................................ 0.4% (1.3%)
------- -------
Net (loss)............................................ (0.2%) (2.8%)
======= =======
</TABLE>
35
<PAGE>
Net Sales for the 1998 period were $31.3 million compared to $33.8 million
for the 1997 period, a decrease of 7.5%. This decline was due primarily to a
decrease of $2.4 million in sales to the Company's entertainment customers.
The 1997 period was a particularly strong quarter in sales of specialty music
packaging and of CD-ROM packaging. Specialty music packaging sales decreased
$1.1 million and CD-ROM packaging sales decreased $1.3 million in the 1998
period.
Gross Profit for the 1998 period was $7.9 million compared to $9.3 million
for the 1997 period, a decrease of 15.0%. The resulting decline in gross
margin from 27.5% to 25.3% was due to additional expenses associated with the
start-up of a new printing press and less favorable absorption of fixed costs
due to the reduction in sales volume. Additionally, the 1997 period benefited
from a supply contract termination settlement of $0.4 million.
Selling, General and Administrative Expenses for the 1998 period were $6.3
million compared to $6.4 million for the 1997 period, a decrease of 0.9%. The
increase in SG&A as a percentage of sales from 18.9% to 20.2% was due to the
reduction in sales volume.
Operating Income for the 1998 period was $1.6 million compared to $2.9
million for the 1997 period, a decrease of 45.7% due to the factors discussed
above.
Net Interest Expense for the 1998 period was $2.9 million compared to $2.8
million for the 1997 period, an increase of 1.4% due to the issuance of $4.0
million of IRBs by Klearfold in August, 1997.
Income Taxes for the 1998 period were a benefit of $0.4 million compared to
a provision of $0.1 million for 1997. The Company's effective tax rates for
the periods are not meaningful due to the effects of non-deductible goodwill
amortization of approximately $0.3 million in each period relative to the
amounts of income (loss) before income taxes.
Net Loss for the 1998 period was $0.9 million compared to $0.1 million for
the 1997 period due to the factors discussed above. The pro forma net loss for
the 1998 period does not include an extraordinary charge of $553, net of tax,
related to the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
On March 12, 1998, KFI Holding acquired all of the common stock of AGI for
$69.0 million including $54.6 million of cash and $14.4 million of newly
issued common stock, plus acquisition costs. Concurrently, the Company funded
the retirement of $8.3 million of indebtedness outstanding under AGI's credit
facility immediately prior to the transaction. The acquisition was funded by
the proceeds (net of $4.3 million in debt issuance costs) from the issuance of
$100.0 million aggregate principal amount of Notes and $4.6 million of new
common stock. The balance of the proceeds of the Notes were used to retire all
outstanding indebtedness of $29.9 million under KFI Holding's prior bank
credit agreement. At the same time, KFI Holding entered into a new five year
Credit Agreement which provides for a $40.0 million revolving credit facility
and a $13.0 million letter of credit facility. Upon consummation of the
Transactions KFI Holding changed its corporate name to "IMPAC Group, Inc".
References below to the "Company" mean IMPAC Group, Inc. and its consolidated
subsidiaries.
The Company's primary cash requirements historically have related to capital
expenditures, working capital and debt service. The Company has historically
funded these requirements through internally generated cash flow, borrowings
under bank credit arrangements and the issuance of industrial revenue bonds.
Net cash used by operating activities for the 1998 period was $1.3 million
compared to net cash provided by operating activities of $2.8 million for the
1997 period. Income from operations before non-cash charges decreased to $0.4
million from $0.7 million due to decreased income from operations. In the 1998
period, income from operations before non-cash charges of $.4 million, the
issuance of the Notes and Common Stock and $0.2 million of proceeds from the
Company's industrial revenue bonds were used to fund the acquisition of AGI,
the repayment of bank borrowings, a $1.7 million increase in
36
<PAGE>
working capital requirements and $0.8 million of capital expenditures. In the
1997 period, income from operations before non-cash charges of $0.7 million
and a $2.2 million decrease in working capital requirements were used to fund
a net decrease of $2.4 million in outstanding borrowings under the Company's
bank credit facility and $0.5 million of capital expenditures. The Company
expects to spend approximately $14.5 million on capital projects on a combined
basis in 1998, with approximately $1.9 million of that amount representing
maintenance-related capital expenditures. The Company currently has no
commitments for significant capital expenditures beyond 1998. The Company
currently has no significant required principal payments on any outstanding
indebtedness over the next several years.
The Company believes that, based on current levels of operations and
anticipated growth, its cash from operations, together with other available
sources of liquidity, including borrowings under the New Credit Facility, will
be sufficient over the next several years to make required payments of
principal and interest on its debt, including payments due on the Notes and
remaining obligations under the New Credit Facility, permit anticipated
capital expenditures and fund working capital requirements.
ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which is effective for fiscal years
beginning after December 15, 1997. Statement No. 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers in annual
financial statements and interim financial reports. The Company is currently
evaluating Statement No. 131 and plans to adopt the standard during the year
ending December 31, 1998.
In March 1998 and April 1998, the AcSEC (Accounting Standards Executive
Committee) issued Statement of Position ("SOP") 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" and SOP 98-
5, "Reporting on the Costs of Start-Up Activities," respectively. Both
Statements are effective for fiscal years beginning after December 15, 1998,
and early adoption is encouraged. SOP 98-1 provides guidance on accounting for
the costs of computer software developed or obtained for internal use. SOP 98-
5 requires that entities expense start-up costs and organization costs as they
are incurred. The Company is currently evaluating the new Statements and does
not expect the adoption of either to have a material effect on the results of
operations.
YEAR 2000 ISSUES
The Company has conducted a review of its computer systems to identify those
areas that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Company presently believes, with
modification to existing software and converting to new software, the Year
2000 problem will not pose significant operational problems and is not
anticipated to be material to its financial position or results of operations
in any given year.
KFI HOLDING CORPORATION
RESULTS OF OPERATIONS
Overview
KFI Holding, through its wholly-owned subsidiary Klearfold, is a leading
supplier of visual packaging solutions to the cosmetics, personal care, food
and beverage, and other consumer products markets. High quality, innovative
packaging that attractively displays the enclosed product, enhances the
consumer's perception of product value and encourages impulse purchases is an
important element of the marketing strategies of Klearfold's customers.
Klearfold has a strong reputation for developing creative packaging designs
with superior structural integrity. Klearfold believes it is a leader in
quality, service and innovation of creative, visual, value-added packaging.
37
<PAGE>
On June 7, 1996, a merger between Klearfold and KFI/Heritage Acquisition
Corporation, a wholly owned subsidiary of KFI Holding was consummated. KFI
Holding and KFI/Heritage Acquisition Corporation were formed to accomplish the
acquisition of all of the capital stock of Klearfold by certain affiliates of
Heritage together with existing Klearfold shareholders and key management
members.
The following discussion should be read in conjunction with the audited
financial statements and related notes thereto of KFI Holding included
elsewhere in this Prospectus. The following table sets forth for the periods
indicated certain historical income statement data, derived from KFI Holding's
income statements, expressed as a percentage of net sales.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... 100.0% 100.0% 100.0%
Cost of goods sold...... 71.8% 73.9% 74.9%
----- ----- -----
Gross profit............ 28.2% 26.1% 25.1%
Selling, general and
administrative
expenses............... 15.5% 14.0% 14.5%
PTP royalty and
commission income...... (0.7)% (1.3)% (0.1)%
----- ----- -----
Operating income........ 13.4% 13.4% 10.7%
Interest expense, net... (2.3)% (4.3)% (6.6)%
----- ----- -----
Income from continuing
operations before
income taxes........... 11.1% 9.1% 4.1%
Income taxes............ (4.7)% (3.7)% (1.4)%
----- ----- -----
Income from continuing
operations............. 6.4% 5.4% 2.7%
===== ===== =====
</TABLE>
38
<PAGE>
1997 COMPARED TO 1996
Net Sales for 1997 were $52.5 million compared to $54.2 million for 1996, a
decrease of 3.2%. This decrease was due to a decrease in sales in the
cosmetics market of approximately $4.3 million. This decrease in cosmetics
sales was due primarily to a decision by Klearfold's largest customer for
cosmetics packaging to begin to manufacture certain of its packaging
internally. In 1998, Klearfold expects this customer to continue to purchase
higher value-added packaging from Klearfold while completing its transition to
internal production of certain packaging, which may further impact Klearfold's
sales during 1998. The decrease in sales to this customer was partially offset
by an approximately $2.6 million increase in sales of windowed packaging to
other cosmetics customers. The increased sales to other consumer products
markets was due largely to increased demand for Klearfold's visual packaging,
particularly with customers in the personal care and undergarment markets.
Gross Profit for 1997 was $13.2 million compared to $14.1 million for 1996,
a decrease of 6.7%. The decrease in gross margin from 26.1% to 25.1% was due
primarily to additional expenses experienced in the fourth quarter of 1997
associated with the installation and start-up of a new printing press and a
less favorable absorption rate of fixed costs at the lower sales volume.
Klearfold expects to incur additional expenses in connection with the
installation and start-up of this press, particularly in the first quarter of
1998, and expects this press to be on line in the first half of 1998. Gross
profit in 1997 also reflects the effect of the termination of a packaging
purchase arrangement for which Klearfold received $0.8 million as compensation
for manufacturing costs incurred.
Selling, General and Administrative Expenses for both 1997 and 1996 were
$7.6 million. Selling, general and administrative expenses as a percentage of
net sales were 14.5% in 1997 compared to 14.0% in 1996.
PTP Royalty and Commission Income for 1997 were $33,000 compared to $0.7
million for 1996, a decrease of 95.5%. The decrease was due to PTP closing
operations in February.
Operating Income for 1997 was $5.6 million compared to $7.3 million for
1996, a decrease of 22.7%.
Net Interest Expense for 1997 was $3.5 million compared to $2.3 million for
1996, an increase of 49.3%. The increase was due to higher average debt levels
in 1997 due to the June 1996 recapitalization and the associated debt which
includes $58,000 of interest expense with respect to the Klearfold IRBs.
Income Taxes for 1997 were $0.8 million compared to $2.0 million for 1996
reflecting an effective tax rate of approximately 35% and 41%, for 1997 and
1996, respectively, which includes the effect of reduced state income taxes.
Income from Continuing Operations for 1997 was $1.4 million compared to $2.9
million for 1996.
1996 COMPARED TO 1995
Net Sales for 1996 were $54.2 million compared to $51.2 million for 1995, an
increase of 5.9%. This increase was due primarily to a $6.2 million increase
in sales to the cosmetics market partially offset by a $3.0 million decrease
in sales to other consumer products markets. The increase in cosmetics sales
was largely due to improved market penetration. The decreased sales to other
consumer products markets was due primarily to the year-to-year change in one
significant food and beverage customer's promotional program, along with
decreased demand due to a one-time inventory reduction effort by a significant
apparel customer.
39
<PAGE>
Gross Profit for 1996 was $14.1 million compared to $14.5 million for 1995,
a decrease of 2.3%. The resulting decrease in gross margin was from 28.2% to
26.1%. In 1995, large manufacturing efficiency savings were realized in the
production of packaging for the cosmetics market. To generate increased 1996
cosmetics sales, a portion of the savings were passed through to certain
cosmetic customers, impacting 1996 gross profit by $0.5 million. In addition
in 1996, the Virginia manufacturing facility was expanded to meet increased
production levels, adding fixed costs of $0.8 million.
Selling, General and Administration Expenses for 1996 were $7.6 million
compared to $7.9 million in 1995, a decrease of 4.4%. Selling, general and
administrative expenses as a percentage of sales were 14.0% in 1996 compared
to 15.5% in 1995.
PTP Royalty and Commission Income for 1996 were $0.7 million compared to
$0.4 million for 1995, an increase of 93.9%. This increase is due to higher
PTP sales levels in 1996, which generated royalties and commissions.
Operating Income for 1996 was $7.3 million compared to $6.9 million for
1995, an increase of 5.4%.
Net Interest Expense for 1996 was $2.3 million compared to $1.2 million for
1995, an increase of 94.2%. The increase was due to higher average debt levels
due to the June, 1996 recapitalization and the associated debt.
Income Taxes for 1996 were $2.0 million compared to $2.4 million for 1995, a
decrease of 17.1%, reflecting an effective tax rate of approximately 41% and
42% for 1996 and 1995, respectively.
Income from Continuing Operations for 1996 was $2.9 million compared to $3.3
million for 1995.
LIQUIDITY AND CAPITAL RESOURCES
Klearfold's primary cash requirements historically have related to capital
expenditures, working capital and debt service. Klearfold has funded these
requirements through internally generated cash flow, borrowings under its bank
credit facilities and the issuance of industrial revenue bonds.
Net cash provided by operating activities for 1997 was $6.2 million compared
to $4.2 million for 1996. Income from continuing operations before non-cash
charges/income decreased to $2.6 million from $5.2 million due to decreased
income from operations. In 1997, income from operations before non-cash
charges, $3.3 million of proceeds from the issuance of industrial revenue
bonds net of $0.2 million of deferred financing costs and $3.6 million
generated from decreased working capital requirements were used to fund $4.1
million of capital expenditures and $5.1 million net payments under
Klearfold's bank credit facility. In 1996, income from operations before non-
cash charges, the $1.9 million proceeds of the sale of PTP, the $34.2 million
proceeds of Klearfold's bank credit facility and the issuance of $1.0 million
of common stock and $19.0 million of preferred stock as part of Klearfold's
recapitalization were used to fund $0.7 million of working capital
requirements, $1.3 million of capital expenditures, $49.7 million to
repurchase common stock, the retirement of $8.1 million of existing pre-
recapitalization debt and $1.2 million of deferred financing costs.
Net cash provided by operating activities for 1996 was $4.2 million compared
to $3.8 million for 1995. Income from continuing operations before non-cash
charges/income was $5.2 million for each of 1996 and 1995. In 1996, income
from operations before non-cash charges, the $1.9 million proceeds of the sale
of PTP, the $34.2 million proceeds of Klearfold's bank credit facility and the
issuance of $1.0 million of common stock and $19.0 million of preferred stock
as part of Klearfold's recapitalization were used to fund $0.7 million of
working capital requirements, $1.3 million of capital expenditures, $49.7
million to repurchase common stock, the retirement of $8.1 million of existing
pre-recapitalization debt and $1.2 million of deferred financing costs. In
1995, income from operations before non-cash charges was used to fund $1.3
million of working capital requirements, $1.4 million of
40
<PAGE>
capital expenditures, a $0.5 million dividend to shareholders and net
borrowings under Klearfold's bank credit facility of $1.9 million.
Klearfold's prior bank credit facility (with a bank group consisting of
BankBoston N.A., National Westminster Bank PLC and Mellon Bank) provided for
term loans and a revolving line of credit bearing interest, at Klearfold's
option, at prime plus 1.75% or the London International Bank Offer 30, 60, 90
or 180-day Rate plus 3.0% or 3.5%. Klearfold also has $4.0 million aggregate
principal amount of industrial revenue bonds outstanding, which were issued to
fund the purchase of a printing press in its Warrington, Pennsylvania plant in
1997. The variable rate bonds mature on August 1, 2007 and remain outstanding.
The bank credit facility was refinanced as part of the Transactions.
During 1997 KFI Holding and the bank group for its revolving credit line and
term loans amended the related loan agreement to enable KFI Holding to
maintain compliance with its loan covenants through December 31, 1997. Prior
to the consummation of the Transactions, KFI Holding had projected, however,
that it would have been in default on certain financial loan covenants when
next calculated as of February 28, 1998. Therefore, all amounts due under the
term loans have been classified as current liabilities. Management of KFI
Holding did not seek to further amend or restructure the loan agreement to
maintain compliance with such covenants due to the planned Transactions.
AGI INCORPORATED
RESULTS OF OPERATIONS
Overview
AGI Incorporated is a leading supplier of high quality, value-added
packaging solutions to the entertainment, cosmetics, personal care and other
consumer products markets. Since its founding in 1968 as Album Graphics, Inc.,
AGI has evolved from a designer and manufacturer of quality LP record jackets
to a provider of a wide range of printed packaging, high-end specialty
packaging, creative design services and production services. The marketing
strategies of AGI's customers rely on high quality, innovative packaging that
enhances the consumer's perception of product value and encourages impulse
purchases. AGI has established a strong reputation for developing creative
designs and utilizing innovative manufacturing techniques to provide its
customers with extremely high quality products with short turnaround times.
The following discussion should be read in conjunction with the audited
financial statements and related notes thereto of AGI included elsewhere in
this Prospectus. The following table sets forth for the periods indicated
certain historical income statement data, derived from AGI's income
statements, expressed as a percentage of net sales.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... 100.0% 100.0% 100.0%
Cost of goods sold...... 76.4% 73.1% 70.6%
-------- -------- --------
Gross profit............ 23.6% 26.9% 29.4%
Selling, general and ad-
ministrative expenses.. 15.8% 17.1% 18.0%
Stock-based compensation
expense................ 0.0% 0.2% 2.1%
-------- -------- --------
Operating income........ 7.8% 9.6% 9.3%
Interest expense, net... (1.4)% (1.5)% (1.1)%
Gain (loss) on sale of
fixed assets........... 0.0% (0.2)% 0.1%
-------- -------- --------
Income before income
taxes.................. 6.4% 7.9% 8.3%
Income taxes............ (0.0)% (0.3)% (0.2)%
-------- -------- --------
Net income.............. 6.4% 7.6% 8.1%
======== ======== ========
</TABLE>
41
<PAGE>
1997 COMPARED TO 1996
Net Sales for 1997 were $108.3 million compared to $92.8 million for 1996,
an increase of 16.6%. Of this increase, approximately $18.8 million was due
largely to additional sales to AGI's entertainment customers. AGI experienced
strong sales of specialty video packaging resulting in an increase of $15.2
million in that category related primarily to the successful releases by AGI's
existing customers of several popular titles. In addition, approximately $3.6
million of the increase in entertainment sales was due to additional volume of
standard and specialty CD packaging. These increases were partially offset by
a $5.5 million decrease in sales of CD-ROM packaging.
Gross Profit for 1997 was $31.8 million compared to $25.0 million for 1996,
an increase of 27.4%. The improvement in gross margin from 26.9% to 29.4% was
due to an increase in sales of higher value-added packaging products to the
entertainment industry, as discussed above. Gross margin also benefited from
the increased absorption rate of fixed costs at the higher overall sales
volume and improved operating efficiencies at AGI's Melrose Park facility as a
result of shifting the focus of this facility to the manufacturing of
packaging products for the cosmetics industry.
Selling, General and Administrative Expenses for 1997 were $19.4 million
compared to $15.9 million for 1996, an increase of 22.3%. The increase in
selling, general and administrative expenses as a percentage of sales from
17.1% to 18.0% was due primarily to a $1.7 million increase in payouts under
various compensation programs tied to AGI's sales and profitability.
Stock-Based Compensation Expense for 1997 was $2.3 million compared to $0.2
million in 1996. This amount relates to stock appreciation rights held by
certain executives of AGI. The increase in expense related to increases in
AGI's equity value and vesting of certain awards during 1997.
Operating Income for 1997 was $10.1 million compared to $8.9 million for
1996, an increase of 12.8%.
Net Interest Expense for 1997 was $1.2 million compared to $1.4 million for
1996, a decrease of 9.3%. This decrease was due largely to lower average debt
levels resulting from an increase in cash provided by operating activities.
Income Taxes were $0.2 million for each of 1997 and 1996. During the 1997
and 1996 periods, AGI was treated as an S corporation for Federal income tax
purposes and, accordingly, the related Federal tax liabilities were the
obligations of its individual shareholders.
Net Income for 1997 was $8.7 million compared to $7.1 million for 1996 an
increase of 22.8%.
1996 COMPARED TO 1995
Net Sales for 1996 were $92.8 million compared to $97.5 million for 1995, a
decrease of 4.7%. Of this decrease, approximately $8.9 million was due to year
to year variation in the performance of AGI's customers' video titles and a
general decline in CD-ROM based products offset partially by a $4.7 million
increase in sales of standard CD packaging. The increased volume of standard
CD packaging related to additional market share resulting primarily from new
customer relationships.
Gross Profit for 1996 was $25.0 million compared to $23.0 million for 1995,
an increase of 8.5%. The improvement in gross margin from 23.6% to 26.9%
resulted largely from improved margins on standard CD packaging realized at
AGI's Jacksonville facility, which completed its first full year of operations
in 1996.
Selling, General and Administrative Expenses for 1996 were $15.9 million
compared to $15.4 million for 1995, an increase of 3.4%. Of the resulting
increase in selling, general and administrative
42
<PAGE>
expenses as a percentage of sales from 15.8% to 17.1%, approximately $1.0
million was due to increased administrative costs related to the first full
year of operations at both the Jacksonville and Franklin Park facilities along
with the impact of lower overall 1996 sales.
Stock-Based Compensation Expense for 1996 of $0.2 million related to stock
appreciation rights awarded to certain executives of AGI. The increase in
expense related primarily to vesting of certain awards during 1996.
Operating Income for 1996 was $8.9 million compared to $7.6 million for
1995, an increase of 16.5%.
Net Interest Expense was $1.4 million for 1996 and 1995 due to consistent
levels of debt in each of the periods.
Income Taxes for 1996 were $0.2 million and less than $0.1 million in 1995.
During the 1996 and 1995 periods, AGI was treated as an S corporation for
Federal income tax purposes and, accordingly, the related Federal tax
liabilities were the obligations of its individual shareholders.
Net Income for 1996 was $7.1 million compared to $6.3 million for 1995, an
increase of 12.6%.
LIQUIDITY AND CAPITAL RESOURCES
AGI's primary cash requirements historically have related to capital
expenditures, working capital and distributions to shareholders to fund the
portion of their tax liabilities related to their distributive share of AGI's
S Corporation taxable income. AGI has funded these requirements through
internally generated cash flow, borrowings under its bank credit facility and
the issuance of industrial revenue bonds.
Net cash provided by operating activities for 1997 was $14.7 million
compared to $9.9 million for 1996. Income from operations before non-cash
charges increased to $13.3 million from $11.9 million due to increased income
from operations. In 1997, income from operations before non-cash charges and a
$1.3 million decrease in working capital requirements were used to fund $5.6
million of net capital expenditures, $4.9 million of distributions to
shareholders, a net decrease of $2.2 million in outstanding borrowings under
AGI's bank credit facility and a decrease of $0.9 million in installment
notes. In 1996, income from operations before non-cash charges, along with
increased net borrowings under AGI's bank credit facility of $1.1 million,
were used to fund $2.0 million of working capital requirements, $6.8 million
of net capital expenditures, $3.5 million of distributions to shareholders and
a decrease of $0.7 million in installment notes.
Net cash provided by operating activities for 1996 was $9.9 million compared
to $8.2 million for 1995. Income from operations before non-cash charges
increased to $11.9 million from $10.2 million due to increased income from
operations. In 1996, income from operations before non-cash charges, along
with increased net borrowings under AGI's bank credit facility of $1.1
million, were used to fund $2.0 million of working capital requirements, $6.8
million of net capital expenditures, distributions to shareholders of $3.5
million and a decrease of $0.7 million in installment notes. In 1995, income
from operations before non-cash charges, $6.6 million of industrial revenue
bond proceeds and a $1.7 million increase in installment notes were used to
fund $5.4 million of net payments under AGI's bank credit facility, $8.8
million of net capital expenditures, distributions to shareholders of $2.2
million, $2.0 million of working capital requirements and a repurchase of
common stock of $0.1 million.
AGI entered into a credit agreement with Bank of America, Illinois, dated
November 22, 1993, for a bank term note and line or credit (the "AGI Credit
Facility"). The agreement was amended on July 30, 1996, increasing the term
note to $10 million. The available line of credit was the lower of $11 million
or the borrowing base, which was a percentage of eligible accounts receivable
and
43
<PAGE>
inventories, reduced by amounts outstanding under certain letters of credit.
Borrowings under the AGI Credit Facility, at AGI's election, bore interest at
prime or the London International Bank Offer Rate (30, 60 or 90-day) plus
2.25%. At December 31, 1997, the interest rate on all borrowings were at LIBOR
rates ranging from 8.125% to 8.15625%. The line of credit agreement extended
through October 1998. AGI paid a commitment fee of 1/2 of 1% per annum on the
amount of available credit over the amount outstanding, plus any outstanding
letters of credit available at December 31, 1997. The AGI Credit Facility had
certain restrictions which, among other things, required that AGI maintain a
specified amount of tangible net worth, as defined. Also, the AGI Credit
Facility imposed substantial limitations on AGI's ability to, among other
things, pay dividends, incur liens, incur additional indebtedness, make other
restricted payments, issue guaranties, enter into transactions with related
parties and dispose of or acquire assets. AGI was in compliance with the AGI
Credit Facility at December 31, 1997 and 1996. The agreements with Bank of
America, Illinois, were collateralized by substantially all of the assets of
AGI. All obligations under the AGI Credit Facility were repaid and such
agreement was terminated on March 12, 1998.
On January 19, 1995, the City of Jacksonville, Illinois issued an aggregate
principal amount of $7.6 million of Multi-Mode Industrial Project Revenue
Bonds. The Bonds were issued to fund a loan, under a loan agreement, dated
January 1, 1995, between the City of Jacksonville and AGI to finance the cost
of acquiring land and construction and equipping AGI's manufacturing facility
in Jacksonville, Illinois, which became operational during the second quarter
of 1995. The variable rate bonds mature on February 1, 2026. Interest rates on
the bonds ranges from 3.4741% to 4.3938% during 1997. The interest rate at
December 31, 1997 was 4.2%. Prior to the consummation of the Transactions, the
bonds were secured by an irrevocable letter of credit issued by Bank of
America, Illinois, under an agreement with AGI. The debt agreements had
certain restrictions which, among other things, required that AGI maintain a
specified amount of tangible net worth, as defined. AGI was in compliance with
the debt agreements at December 31, 1997 and 1996. The agreements with Bank of
America, Illinois, were collateralized by substantially all of the assets of
AGI. Since the consummation of the Transactions, this letter of credit is now
issued pursuant to the New Credit Facility.
44
<PAGE>
BUSINESS
THE COMPANY
The Company is a leading designer, manufacturer and marketer of high-end,
value- added specialty packaging for various consumer products markets
including entertainment, cosmetics and personal care. Through its creative
design work, specialized manufacturing techniques and diverse printing
capabilities, the Company offers innovative specialty packaging solutions for
customers that seek to differentiate their products in the consumer
marketplace. In addition, unlike most of its competitors, the Company utilizes
a broad range of paper, paperboard and transparent rigid plastic materials for
its products. As a result, the Company believes that it is well-positioned to
supply the growing demand for distinctive consumer product packaging resulting
from increased competition and consolidation in the retail marketplace. For
the twelve months ended December 31, 1997, the Company had pro forma net sales
and EBITDA of $160.8 million and $24.5 million, respectively.
The Company has built strong relationships with marketing-driven customers
in diverse industries, including Avon Products and Revlon in the cosmetics
industry, EMI (including the Capitol and Virgin Records labels), PolyGram
(including the Mercury and Motown labels) and 20th Century Fox Home
Entertainment in the entertainment industry, and Procter & Gamble and Colgate
in the personal care industry. In the entertainment industry, examples of the
Company's products include printed paper inserts for standard compact disc
("CD") packaging as well as specialty paperboard-based CD packaging and
specialty packaging for home videos and digital versatile discs ("DVD"). In
the cosmetics and personal care industries, the Company offers products such
as paperboard folding cartons, transparent rigid plastic toothbrush packages
and windowed boxes made of paperboard and transparent rigid plastic for face
creams, lipsticks and other skin care products.
IMPAC was formed through the combination of AGI and Klearfold. Management
believes the packaging industry has not historically had a participant that
offers manufacturers of consumer products the broad range of unique and
innovative specialty packaging solutions that are available from the Company.
The combination of AGI and Klearfold allows management to build upon the
strengths of each company. For example, AGI's creative capabilities and fast
turnaround times, which are continually refined by the intensive demands of
the entertainment industry, complement Klearfold's innovative packaging
technology and product development expertise. In addition, while AGI and
Klearfold each have a well-established customer base, the Company believes
there are significant cross-selling opportunities.
COMPANY HISTORY
AGI, founded in 1968 as Album Graphics, Inc., established its position in
the packaging business as a specialized commercial print broker engaged in the
design and manufacture of high quality LP record jackets for the music
industry. As the LP format was replaced by the CD and cassette tape in the
early 1980s, AGI adapted quickly and solidified its position as a leading
supplier of CD packaging. AGI also diversified into other markets, such as the
premium cosmetics packaging business, by applying the successful techniques
developed in building its position in the entertainment industry. In 1987, a
group led by Richard Block effected a recapitalization of AGI, whereby Mr.
Block became the principal shareholder and president. Since the
recapitalization, AGI has implemented a long-term investment strategy designed
to enhance its product offerings and service capabilities and broaden its
markets served to include home video as well as the emerging DVD market.
Klearfold was founded in 1977 by Melvin B. Herrin. Klearfold's original
product was its all-plastic transparent folding carton, followed in the early
1980s with the introduction of its proprietary line of specialty windowed
folding cartons ("Duofold"), which combine rigid plastic film with paperboard.
Initially, both types of products were predominately used by customers for the
packaging of promotional items. In the early 1990s, management began a
strategic initiative to broaden Klearfold's
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customer base by reducing product cost through capital investment and process
improvement, thereby making Klearfold's packaging solutions more accessible to
its customers for their core product lines. In 1996, Klearfold became
privately held after ten years of trading publicly on the London Stock
Exchange through a recapitalization whereby Heritage acquired approximately
54% of KFI Holding, which had been established as a holding company of
Klearfold. Melvin Herrin and Scott Herrin, the chairman and president of
Klearfold, respectively, along with certain key members of management retained
ownership of approximately 46% of KFI Holding.
KF-Delaware, Inc. was incorporated in Delaware in 1993 to hold certain
intellectual property related to Klearfold's business. KF-International, Inc.
was incorporated in the U.S. Virgin Islands in 1994 to effect certain types of
international sales on behalf of Klearfold.
CONSUMER PRODUCTS PACKAGING INDUSTRY OVERVIEW
Management believes that recent trends in the consumer products industry
suggest a migration towards high-quality specialty packaging. Management
believes that as the retail sales environment continues to consolidate, the
demand for innovative, value-added packaging will increase. Management
believes that products that have historically been sold through distinct
retail distribution channels, such as cosmetics, CDs and sell-through videos,
are currently being distributed through a wider variety of outlets. As a
result, management believes that competition for the consumer's attention has
increased the importance of visually attractive packaging. Additionally, many
of these products sell at premium price points and distinctive packaging is an
important element in enhancing the perceived value of the product to the
customer. Moreover, management believes that the emergence of self-select
retail outlets, such as Wal-Mart, K-Mart and Rite-Aid, and the decline in the
use of dedicated sales assistants, have heightened the demand for specialty
packaging that (i) attracts the consumer to the product, (ii) allows the
retailer to maximize shelf space by displaying the product in a variety of
formats (i.e., stacked, hanging or shelved), and (iii) distinguishes products
not only from competitors within the same market segment, but also from other
types of products.
COMPANY STRENGTHS
The Company has achieved a leadership position in the high-end, value-added
specialty packaging market. Management believes that the Company will further
develop this leadership position by capitalizing on the following competitive
strengths:
Leading Market Positions and Strong Customer Relationships. In the
entertainment industry, the Company has established a leading market position
through strong relationships with PolyGram, EMI, Universal, BMG and Sony, the
five largest music distributors that outsource their packaging needs. The
Company has contracts to supply standard CD packaging inserts to Universal,
PolyGram and BMG. In the cosmetics and personal care industries, the Company
is a leading supplier of high-end, value-added specialty packaging products to
a number of well-known consumer product companies including Avon, Chesebrough-
Pond's(R), Cosmair, Mary Kay and Revlon. The Company is the primary supplier
of its products to a number of its customers with respect to certain product
lines, such as Revlon's specialty windowed boxes for its Colorstay(R) line of
cosmetics and Procter & Gamble's Crest(R) toothbrushes.
Provider of Creative Packaging Solutions. Utilizing its strong design
capabilities, the Company seeks to proactively provide its customers with
creative packaging solutions. Aided by a number of proprietary products as
well as design and manufacturing expertise with a variety of materials,
including paper, paperboard and transparent rigid plastic, the Company often
provides customers with several distinct packaging alternatives for any single
job. Management believes that it is the only company that manufactures this
broad line of specialty packaging solutions and provides strong design
services, which it believes represent a unique competitive advantage.
Established Reputation for Product Innovation. The Company's structural
design capabilities and culture of innovation enable it to develop creative
packaging solutions in response to specific customer
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needs. By integrating its design, sales and manufacturing groups, the Company
has become an important member of many of its customers' product development
teams. Examples of innovative packaging solutions offered by the Company
include the DIGIPAK(R), a paperboard-based CD package, and Duofold(R), a
patented folding carton that integrates paperboard and transparent rigid
plastic film, each of which have become leading products in their market
niches. Many of the Company's entertainment packaging solutions have resulted
in Grammy award nominations for the Company's customers in the category of
"Best Retail Package" and "Best Box Set", which are intended to recognize
outstanding creative design for the entire packaging solution, including both
the form of packaging and the art work, including CD packages for Pearl Jam's
Vitalogy album and Frank Zappa's Civilization Phaze III album. In addition,
through its participation in the Diginet, an international network of leading
specialty packaging companies, the Company has worldwide access to new design
concepts, manufacturing techniques and marketing information principally
relating to the specialty music packaging industry.
Strong Manufacturing Capabilities. The Company has invested significantly to
modernize its facilities and equipment. Since 1995, the Company has placed
into service $22.1 million of new printing capacity such that over 50% of the
Company's current printing capacity is less than three years old. The Company
utilizes its modern machinery to lower turnaround time while reducing staffing
requirements and maintaining "just-in-time" manufacturing capabilities.
Management believes that the Company was one of the first packaging
manufacturers to use web production technology with rigid plastic (i.e., using
rolls of plastic versus separate plastic sheets). This technology has
increased production speeds and lowered material costs for its products
utilizing rigid plastic. The Company intends to maintain this level of
commitment by continuing to develop innovative manufacturing processes and
investing in modern manufacturing equipment.
Proven Management Team with Significant Equity Ownership. The Company has
assembled a strong management team with an average of 25 years of experience
in the packaging industry. Management's proven track record is demonstrated by
the strong financial performance of the combined Company. Since 1993, the
Company's net sales and EBITDA have grown at compound annual rates of 9.8% and
15.3%, respectively. Senior management is heavily invested in the Combination.
Their ownership of approximately 55% of the outstanding Common Stock of IMPAC
will be coupled with a management equity incentive plan that is based
primarily upon the future operating performance of the Company.
POST-COMBINATION STRATEGY
The Company intends to enhance its market position and maximize
profitability and cash flow by implementing the following business strategies:
Capitalize on Cross-Selling Opportunities. The Company believes that it will
create significant additional revenue opportunities with existing customers by
marketing its expanded array of high-end packaging solutions. The Company
believes that this strategy will have its most powerful impact initially in
the cosmetics industry, where currently Revlon represents the only customer
with significant purchases from both AGI and Klearfold. Further, as a result
of AGI's long-standing relationships with customers in the entertainment
industry, the Company believes that it will be able to realize additional
revenue opportunities by successfully offering an enhanced line of products
based on Klearfold's proprietary rigid plastic technology.
Further Integrate with Key Customers. Historically, the Company has enjoyed
cooperative integrated relationships with its key customers. The Combination
broadens the Company's product line and increases its creative design
capabilities, which the Company believes will allow it to further integrate
with its customers. This ability to integrate with customers' product design
operations is important as the general trend in the industry is to limit the
number of outside suppliers. In an effort to
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enhance its service and turnaround time, the Company built a facility in
Jacksonville, Illinois in 1995 and is currently building a facility in Grover,
North Carolina, which is expected to be completed in the second quarter of
1998, in each case in close proximity to several of its major music customers.
Pursue New Market Opportunities. The Company intends to expand into related
product lines that serve new markets, which will provide an opportunity for
additional revenue growth. As a result of the Combination, the Company's
creative design team has an enhanced capability to develop new packaging
products based on the most suitable type of materials or combinations. The
Company believes that its innovative product development experience positions
it to capture additional customers in new and existing markets.
Increase Operating Efficiencies. The Company believes that combining the
operations of AGI and Klearfold presents opportunities to effectively
capitalize on economies of scale in the areas of manufacturing,
transportation, general and administrative functions and management
information systems. A portion of AGI's and Klearfold's printing capacity is
interchangeable, allowing work to be processed wherever capacity is available
during times of peak demand. The Company expects that this interchangeability
will allow it to increase its utilization rate without creating bottlenecks or
otherwise compromising service. The Company will utilize the most efficient
practices currently used in the facilities of AGI and Klearfold to enhance
manufacturing capabilities and improve cost structures.
Pursue Strategic Acquisitions. The Company may pursue strategic acquisitions
within the specialty packaging industry. The Company believes that significant
opportunities exist to acquire distinctive businesses that would enable the
Company to further broaden its product offerings as well as to expand its
operations both domestically and internationally. The Company currently has no
agreements or commitments with respect to any acquisitions.
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PRODUCTS
The Company designs, manufactures and markets high-end specialty packaging
for a variety of applications in the consumer products industry. The Company
believes it offers its customers one of the most extensive product lines in
the specialty packaging industry. Principal product areas include (i) standard
music packaging, (ii) specialty music packaging, (iii) specialty video
packaging, (iv) paperboard folding cartons, (v) plastic folding cartons, (vi)
specialty windowed folding cartons, and (vii) rigid paperboard set-up boxes.
The following table details the proprietary products sold by the Company:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION SAMPLE APPLICATIONS
------- ----------- -------------------
<C> <S> <C>
DIGIPAK(R) A paperboard-based Music releases by leading artists
package that can fold such as Pearl Jam, Eric Clapton, The
open in a variety of Beatles, Indigo Girls, George
ways and hold single or Michael, David Bowie, Soundgarden
multiple CDs as well as and Blind Melon.
DVDs.
Digilite(TM) A lighter version of the Music releases by leading artists
DIGIPAK typically such as Kenny G, Carly Simon and
utilized for packaging Duran Duran.
CD singles.
DIGI-BOKS(R) A rigid one-piece Multi-CD boxed releases by The
paperboard set-up box Police and Crosby Stills & Nash and
used in a wide variety multi-product cosmetics packages
of applications licensed including Ralph Lauren(R) and Polo
through the Diginet. Sport(R).
Klearfold(R) Plastic folding cartons Procter & Gamble's Crest(R)
produced from toothbrush line, Jockey(R)
transparent rigid International, Inc. brand underwear
plastic, offering and Totes(R) umbrellas.
maximum visibility for
the consumer product at
the retail level.
Duofold(R) Durable, windowed boxes Chesebrough-Pond's(R) skin care
made from paperboard and products and Revlon's Colorstay(R)
scored rigid film. lipsticks and mascara.
Because the Company's
rigid film can wrap
around any edge, Duofold
cartons allow far more
visibility than
conventional windowed
cartons.
KlearPOP(TM) Plastic folding cartons BIC(R) writing instruments, Andes(R)
which utilize Klearfold candies and other products
transparent packaging to frequently sold at impulse purchase
provide multi-unit locations.
dispensers and displays
that can be hung or
placed on shelves.
KlearForm(TM) An alternative type of Small consumer products such as
plastic folding carton pocket knives and personal care
which combines products.
thermoformed plastic
parts with printed film.
The result is a striking
package that holds the
packaged product
securely.
Hologravure(TM) Licensed three- Point-of-sale posters, computer
dimensional printing mouse pads and packaging for CDs and
technology that provides candy.
a cost-effective means
of adding three-
dimensional visual
effects to standard
transparent plastic
materials.
</TABLE>
Set forth below is a description of the categories of products sold by the
Company utilizing the proprietary products described above as well as various
other products.
Standard Music Packaging. The Company's standard music packaging products
for CDs and cassette tapes include paper inlay cards, folders and booklets for
CD jewel boxes and insert cards for cassette tape boxes, as well as the
Company's patented DIGIPAK and Digilite products. The Company provides
standard CD and cassette packaging components to a wide variety of customers
in the recorded music industry and also provides standard CD packaging to
customers in the CD-ROM multimedia industry. These products are manufactured
in a variety of size configurations and process
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printing color combinations. Examples of the Company's recent standard music
packaging include the CD inserts for Elton John's Candle in the Wind 1997,
Spice Girls' Spice and Garth Brooks' Sevens.
Specialty Music Packaging. The Company's creative staff often works in close
collaboration with music customers to create and develop ideas for unique or
unusual custom packaging. These packages are designed to be highly distinctive
and often incorporate a variety of materials and advanced manufacturing
processes into a single package. The Company's patented DIGIPAK and Digilite
and its licensed DIGIBOKS have provided the recorded music industry with the
flexibility to create innovative and interesting CD packaging. Specialty music
packages have been used for music releases by The Smashing Pumpkins, Pearl
Jam, Pink Floyd, Janet Jackson and the Rolling Stones.
Specialty Video Packaging. In the home video market, the Company provides
paperboard packaging for major event titles and multi-title collections
combined for re-release principally directed to the sell-through market. The
Company manufactures specialty video packaging utilizing any combination of
its innovative manufacturing processes and its well-developed network of
specialized outside suppliers. Recent creative specialty video packages have
included the Star Wars and Die Hard multi-title video collections as well as
the Men in Black release.
Paperboard Folding Cartons. Premium paperboard folding cartons are
manufactured using a variety of production and design techniques including
special prints and coatings, foil stamping, laminates and other special
materials which help customers achieve product differentiation and add to the
perceived value of the product. Premium paperboard folding cartons are used to
package a wide variety of products for the Company's cosmetics and personal
care customers and are frequently included in packaging solutions for CD-ROM
multimedia industry customers.
Plastic Folding Cartons. The Company is a leading manufacturer of plastic
folding cartons under the Klearfold, KlearPOP and KlearForm brand names. The
vast majority of such cartons are produced from transparent rigid plastic
film, offering maximum visibility of the product packaged in the carton. Like
more conventional folding cartons produced from paperboard, Klearfold cartons
ship and store in flat form, minimizing storage space. The Company's patented
Soft Crease feature enables Klearfold cartons to be used easily and
effectively in manual or automatic filling of its cartons on its customers'
packaging lines. In addition, the Company's manufacturing process produces a
Smooth Edge feature, which minimizes sharp edges along the perimeter of the
cartons and provides safer handling than most competitive products.
The Company is a leading printer of the plastic film used in the manufacture
of its products, offering a variety of printing processes to enhance the
package's appearance. Klearfold cartons are also manufactured from tinted,
opaque, or embossed plastic film, increasing the options available to
customers. The Company believes that few, if any, of its competitors possess
the range of printing options that the Company has in its manufacturing
facilities. The trend toward value-added packaging in the personal care
industry has resulted in the increased use of Klearfold, KlearForm and
KlearPOP packaging for products including Procter & Gamble's Crest(R)
toothbrush lines, writing instruments and candy.
Specialty Windowed Folding Cartons. The Company has created its line of
Duofold cartons in order to offer many of the benefits of its fully
transparent cartons, in combination with the advantages of additional graphics
capabilities and rigidity offered by incorporating paperboard into the
package. In addition, by substituting less expensive paperboard for plastic in
a portion of the carton, Duofold is more cost efficient than all-plastic
cartons. Unlike the typical thin film in windowed cartons, the rigid film used
in Duofold cartons resists tearing and puncturing and contributes to the
stability of the carton. Additionally, the Duofold manufacturing process
allows the transparent rigid plastic film to wrap around any edge of the
carton without compromising structural strength. Duofold cartons are available
in a wide variety of structures that can be stacked, racked or hung in
virtually any configuration without
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sacrificing visual impact or display density. Also, as with Klearfold
transparent cartons, Duofold cartons are shipped flat, can be easily set up
manually or automatically, and can be enhanced using a wide variety of
processes, including printing directly on the transparent film portion of the
package. Examples of products utilizing Duofold cartons include Chesebrough-
Pond's(R) Skin Cream and Revlon's Colorstay(R) lipsticks and mascara.
Rigid Paperboard Set-Up Boxes. The Company's licensed DIGIBOKS product and
the Company's two-piece rigid setup boxes are used to provide creative
packaging solutions for special music releases, special promotions and
cosmetics boxed sets which include multiple products. Most notably, these
products have been used to package multi-CD boxed releases by The Police and
Crosby Stills & Nash and to package Ralph Lauren Safari(R) and Polo Sport(R)
multi-product sets.
MARKETS AND CUSTOMERS
The Company's markets are divided into three principal categories: (i)
entertainment, (ii) cosmetics, and (iii) other consumer products. The
following chart illustrates the Company's combined historical sales in each of
these markets for each of the last three fiscal years:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
MARKET 1995 1996 1997
- ------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Entertainment........................ $ 69.5 46.7% $ 64.9 44.1% $ 78.9 49.0%
Cosmetics............................ 39.2 26.4 46.9 31.9 44.5 27.7
Other Consumer Products.............. 40.0 26.9 35.3 24.0 37.4 23.3
------ ----- ------ ----- ------ -----
Total............................... $148.7 100.0% $147.1 100.0% $160.8 100.0%
====== ===== ====== ===== ====== =====
</TABLE>
ENTERTAINMENT INDUSTRY
Music. In recent years, the strong economy, widening demographic base of
music consumers and the popularity of the CD have propelled music industry
sales to record levels. From 1991 to 1996, industry sources estimate that CD
sales grew at a compound annual growth rate of over 18%. The packaging market
for CDs is currently comprised of standard jewel box packaging and specialty
packaging. The jewel box, a clear plastic container which holds a single CD,
contains a printed insert or booklet that serves as its cover and may provide
additional information such as song titles or lyrics. Management estimates
that the jewel box, the industry standard for CD distribution, currently
represents over 90% of the U.S. market. However, the Company believes the
jewel box provides limited options for enhanced product differentiation at the
retail level. This factor, combined with the emergence of retail superstores
and the desire of certain artists to differentiate their releases, has created
demand for other types of CD packaging.
Over the last several years, alternative or specialty CD packaging has grown
as artists and recording studios seek to differentiate their products,
particularly for higher priced items such as boxed sets or anthologies. In
addition, the demand for specialty CD packaging has grown in response to
perceived disadvantages of the jewel box format, such as uniformity and
breakage. Management estimates that approximately 10% of industry CD sales are
in the specialty package format and that this proportion is growing. Certain
artists, such as Pearl Jam, Pink Floyd, Janet Jackson, Bonnie Raitt, Sting and
the Rolling Stones, often request that specialty packaging be used for a
particular release. These industry dynamics create a substantial opportunity
for high quality, value-added packaging sales as premium packaging attracts
the consumer's attention and provides greater perceived value.
The recorded music industry is currently dominated by Time-Warner, PolyGram,
EMI, Universal, BMG and Sony, all of which, with the exception of Time-Warner,
fulfill their packaging requirements through third party suppliers. Typically,
these companies enter into contracts for a portion of their
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packaging requirements with a limited number of providers of CD packaging and
related components. Contracts are utilized in order to assure the availability
of sufficient manufacturing capacity on extremely short notice, because a hit
CD can require rapid printing of a large number of units. In recent years, the
supplier/customer relationship has increasingly evolved into a just-in-time
production model, thereby placing additional emphasis on integrated product
design and manufacturing. Short cycle times have become a critical service
element for the major record companies, as just-in-time delivery eliminates
the need to carry large packaging inventory without incurring production
delays.
Home Video. The home video market includes both the rental and sell-through
sectors. The rental sector generally utilizes low-end, commodity packaging.
The sell-through sector consists of three principal segments: (i) titles that
generally produced average theatrical results, are not heavily promoted and
utilize low-end packaging, (ii) event titles that generally produced strong
theatrical results, are heavily promoted and utilize value-added packaging
(such as the Men in Black release), and (iii) multi-title collections combined
for re-release (such as the Star Wars and Die Hard trilogies), are also
heavily promoted and utilize specialty packaging. Market analysts estimate
that the home video sell-through market grew at a 15.2% compound annual growth
rate during the period 1991-1996, greatly exceeding the overall growth in
video sales during this period.
Management believes the growing necessity to differentiate sell-through
event titles has increased the need for specialty packaging. For example,
growth in multi-tape sets and anthologies has fueled demand for value-added
specialty packaging, because the packaging expense is often small relative to
the high price points of the product. Furthermore, with the proliferation of
theatrical releases threatening the prospects for box office success,
management believes that the demand for specialty packaging will increase as
the movie studios place heightened emphasis on revenue potential available
through the video markets. Finally, specialty packaging is also deemed
important for the growing direct to video market as these movies do not
benefit from the same investment in promotional spending as theatrical
releases.
Digital Versatile Discs (DVD). The introduction of DVDs, which is expected
to capture a significant percentage of the current market for VHS tapes,
represents a meaningful growth opportunity for the home video market. Much as
the CD expanded the market for recorded music in the mid-1980s, the DVD format
has the potential to expand the home video market in coming years as consumers
take advantage of its superior technical features relative to videocassettes,
such as improved picture and sound quality. In order to gain market acceptance
for the premium price of DVDs, and to minimize the well-publicized impact of
cheaper duplication expenses, the Company believes that the major movie
studios are likely to provide added value to the consumer in the form of
higher quality packaging. Therefore, the DVD market is expected to offer
significant opportunities for packaging companies focused on this new product.
See "Risk Factors--Effects of Industry Shifts".
COSMETICS
The skin care, makeup and fragrance industries are characterized by vigorous
competition on a worldwide scale. In order to maintain market share, companies
in the cosmetics industry must continually develop innovative new brands and
products, promote a compelling brand image and maintain a high degree of
consumer awareness. Because a premium is often charged for their products,
cosmetics companies often utilize specialty packaging to promote higher price
points and to serve as a powerful marketing tool at the point of purchase.
Cosmetics packages are generally based on premium paperboard box technology or
a paperboard and plastic windowed folding carton. These packages often utilize
value-added enhancements, such as special coatings, embossing, foil stamping
and laminates to improve the package's appearance.
The high-end of the cosmetics industry is dominated by companies such as
Avon Products, Cosmair, Estee Lauder, Mary Kay and Revlon. These companies
have historically marketed their
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products either through high-end retail outlets including department stores
and boutiques or through direct, personalized selling. Each of these two
channels has historically relied upon sales assistants, such as a counter
person in a retail outlet or a knowledgeable direct salesperson. Recently,
however, cosmetics sales have begun to take advantage of the sales potential
increasingly offered by self-select retail outlets such as Wal-Mart and K-
Mart. This change in distribution from assisted sales to self-select has
caused cosmetics companies to place even greater emphasis on packaging in
order to attract the consumer to the product with minimal sales assistance.
ADDITIONAL CONSUMER PRODUCTS MARKETS
Similar to the entertainment and cosmetics markets, the Company's customers
in other consumer product markets are facing competitive pressures at the
retail level and are increasingly utilizing high-end, specialty packaging to
market their products at the point of purchase. The Company sells its products
to leading consumer products manufacturers in a wide range of industries
including personal care, liquor, fine candies, undergarments and
pharmaceuticals. Some of the Company's key customers in these markets include
Totes(R) and Jockey(R) International, Inc.
Management believes that the liquor and the pharmaceutical markets, in
particular, are experiencing strong trends toward the increased usage of high-
end, specialty packaging. Major liquor companies are combating flat sales by
aggressively introducing new products and encouraging consumers to switch from
generic to premium brands in part through specialty packaging. Pharmaceutical
manufacturers are focusing their efforts on providing consumers with over-the-
counter products that were previously prescription items. Management believes
that pharmaceutical companies will increasingly utilize high-end, specialty
packaging in order to differentiate their products and, moreover, to promote
higher price points for their products.
SALES AND MARKETING
Customer relationships in the specialty packaging industry are generally
developed and maintained over extended periods. These relationships develop
because of the high degree of coordination necessary between packaging
suppliers and their customers to ensure that packaging conforms precisely to
the needs of the customer. The integration of product design and manufacturing
along with inventory management and distribution systems provide the Company
with a competitive advantage in maintaining and expanding business with
established customers. This integrated marketing, design and manufacturing
operation also represents an important source of new business opportunities
through the modification of existing packaging and the development of new
applications. The Company has approximately 25 sales professionals each
offering the combined product lines of AGI and Klearfold allowing for broader
product offerings and creating opportunities for significant cross-selling to
existing customers.
The Company has entered into supply contracts with three key customers.
These contracts represented approximately 11% of the Company's business in
fiscal 1997. The supply contracts are typically terminable for any material
breach or events of insolvency. While the Company has no reason to believe
otherwise, there can be no assurance that these contracts will be renewed. See
"Risk Factors--Dependence on Key Contracts". In fiscal 1997, a single customer
of the Company accounted for 11.6% of net sales.
INDUSTRY AND CUSTOMER CONCENTRATIONS
Industry Concentrations
Although the Company markets its packaging to various consumer products, a
substantial portion of its products are sold to the entertainment industry and
the cosmetics and personal care industry. In
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1997, approximately 49.0% of the Company's total sales represented sales to
the entertainment industry and approximately 51.0% of the Company's total
sales represented sales to the cosmetic and personal care industry.
Customer Concentration
In fiscal 1997, BMG, PolyGram and Universal accounted for 11.6% of the
Company's net sales. The Company has entered into supply contracts with three
key customers, BMG, PolyGram and Universal. These supply contracts are
generally terminable for any material breach or events of insolvency. Three of
these contracts expire in 1999 and one expires in 2004. These contracts also
provide for minimum levels of purchases by the customer, with these minimums
expressed either in dollars of sales or percentages of the customer's
requirements for packaging. While the Company believes that the contracts
expiring in 1999 will be renewed, there can be no assurance that these
contracts will be renewed. The Company does not have a long term contract with
either EMI or Sony. See "Risk Factors--Dependence on Key Contracts."
Geographic Concentration
The Company's customers are primarily large consumer products companies with
national markets. Accordingly, the Company's markets have not historically
been geographically concentrated.
THE DIGINET
The Company has licensed the use of its DIGIPAK technology to members of the
Diginet, a worldwide network of packaging and design companies located in
Japan, the United Kingdom, the Netherlands, Australia, Canada and Italy. The
Diginet provides the Company with a competitive advantage relative to its
domestic competitors as it offers the Company some of the benefits of a large
international organization. The Company regularly meets with these partners to
discuss new design advances, manufacturing techniques and trade and marketing
information. In addition, members of the Diginet share industry, marketing and
product reports and samples of new products with each other on a quarterly
basis. This cross-border cooperation provides the Company with research and
development cost savings as well as new business leads. Recently, in
conjunction with other Diginet members, the Company participated in the
worldwide release of Pearl Jam's Vitalogy, which was made possible by the
coordinated effort of the Diginet members. Similarly, the Diginet is also
expected to give the Company an advantage as the DVD market emerges. The
Company's licenses to the other Diginet members are generally for a period of
three years and are exclusive with respect to the licensed territory.
DISTRIBUTION
A significant amount of the Company's products are shipped directly from the
Company's manufacturing facilities to customer's facilities. Because of this,
the proximity of the manufacturing facility to the customer's plant can
significantly affect the price of products. The Company believes that its
manufacturing facilities are well-positioned to serve national markets. In an
effort to enhance its service and turnaround time, the Company built a
facility in Jacksonville, Illinois in 1995 and is currently building a
facility in Grover, North Carolina, which is expected to be completed in the
second quarter of 1998, in each case in close proximity to several of its
major music customers. In part because of the foregoing factors, the Company
does not have significant warehouse facilities.
COMPETITION
The Company's business is highly competitive. Major competitive factors
include product quality, service and price. In addition, as more of the
Company's customers adopt "just-in-time" inventory systems, delivery lead time
has taken on increasing importance. The Company believes that its
54
<PAGE>
manufacturing facilities are well-positioned to serve national markets. See
"--Distribution" above. Foreign competition has not been an important factor
to date, which the Company believes is due primarily to the speed to market
and flexibility required to adequately service its customers.
The Company believes that some of its primary competitors are Ivy Hill
Corporation, Queens Group, Inc. and Shorewood Packaging Corporation, some of
which are larger than the Company and may have substantially greater financial
resources.
TECHNOLOGY, PRODUCT DEVELOPMENT AND PATENTS
The Company produces high-quality, value-added, specialized packaging
products through the development of creative designs and innovative
manufacturing techniques. The Company's technical and product development
centers that support the Company's marketing efforts are staffed with 20 full-
time personnel as of March 31, 1998 and feature extensive in-house design,
engineering, tooling, prototype production, graphics and processing
capabilities. The Company's in-house design and production engineers work
closely with existing and potential customers in the preliminary stages of
product design and development, in many instances producing real-time
prototypes. The Company believes that its in-house design, engineering and
graphics capabilities, which utilize CAD/CAM technology, are among the more
extensive and sophisticated in the industry and enhance the Company's ability
to better integrate its creative design capabilities with its customers'
conceptual design process.
The Company has patented some of its various technology and processes. The
Company currently owns approximately 49 patents and patent applications, with
its patents expiring on various dates between 1998 and 2016. However, the
Company believes that the design, innovation and quality of its products and
its relationships with its customers are substantially more important to the
maintenance and growth of its business than its patents. Accordingly, the
Company does not believe that its business is dependent to any material extent
upon any single patent. Certain of the Company's patents are expiring in the
next few years.
MANUFACTURING AND SUPPLIES
Since 1995, the Company has placed into service $22.1 million of new
printing capacity such that over 50% of the Company's current printing
capacity is less than three years old. The Company intends to continue this
level of commitment by investing in equipment. The Company utilizes its modern
machinery to lower turnaround time while reducing staffing requirements and
maintaining "just-in- time" manufacturing.
The Company, like its competitors, is subject to rigorous quality control
standards imposed by its customers. The Company has implemented a
comprehensive quality assurance program, which includes computer-aided testing
of parts for size, color and strength. Using advanced measurement technology,
the Company is able to satisfy and exceed the most demanding customer
requirements. Statistical quality control methods are also used to promote
total customer satisfaction.
The Company believes that it is generally able to pass raw material price
increases on to its customers, given the customized and high-end nature of its
packaging and the relatively low proportion of packaging cost in relation to
the cost of the end-product. In addition, the Company's customer contracts for
longer production runs generally include provisions for raw material cost
escalation.
ENVIRONMENTAL MATTERS AND GOVERNMENTAL REGULATIONS
The past and present operations of the Company and the past and present
ownership and operations of real property by the Company are subject to
extensive and changing federal, state and local environmental laws and
regulations pertaining to the discharge of materials into the environment,
55
<PAGE>
the handling and disposition of wastes, the recycling, composition and
recycled content of packaging, or otherwise relating to the protection of the
environment. These laws include, but are not limited to, the Comprehensive
Environmental Response Compensation and Liability Act, the Water Pollution
Control Act, the Clean Air Act and the Resource Conservation and Recovery Act,
as those laws have been amended and supplemented, the regulations promulgated
thereunder, and any applicable state analogs. The Company's operations are
also governed by laws and regulations relating to employee health and safety.
Governmental authorities have the power to enforce compliance with their
regulations, and violations may result in the payment of fines or the entry of
injunctions or both. The Company believes that it is in material compliance
with such applicable laws and regulations and that its current environmental
controls are adequate to address existing regulatory requirements.
As is the case with other companies engaged in similar businesses, the
Company could incur costs relating to environmental compliance, including
remediation costs related to historical hazardous materials handling and
disposal practices at certain facilities. In the past the Company has
undertaken remedial activities to address on-site soil contamination caused by
historic operations. None of these cleanups has resulted in any material
liability. It is possible that future developments (e.g., new regulations or
stricter regulatory requirements) could result in the Company incurring
material costs to comply with applicable environmental laws and regulations.
In addition, the Company has not undertaken an independent investigation of
all of its facilities; accordingly, there can be no assurance that in the
future conditions requiring remediation will not be identified.
EMPLOYEES
As of March 31, 1998, the Company had 949 employees, of which 813 were
engaged in production or product support, 20 in research, development and
engineering, 49 in marketing and sales and 67 in corporate management and
administration. The 199 member hourly workforce at the Company's Warrington,
Pennsylvania facility is represented by the United Paperworkers International
Union under a collective bargaining agreement which expires on November 30,
2002. The Company believes that its relations with employees are good, and it
has not experienced any strikes or work stoppages.
PROPERTIES
The Company's operations are conducted through 11 facilities (one of which
is currently under construction) in six states, within the United States. The
Company's principal executive offices are located in Melrose Park, Illinois
and are leased by the Company. The leases for the Warrington, Pennsylvania and
Louisa, Virginia facilities provide the Company with an option to renew for an
additional five year period. The Company's 22,000 square foot office space in
its Melrose Park, Illinois facility underwent a major renovation in 1993. The
Company's facilities are designed to provide for efficient manufacturing,
material handling and storage of its products and no facility is materially
underutilized. The Company believes that substantially all of its property and
equipment is in good condition and that it has sufficient capacity to meet its
current manufacturing and distribution requirements.
The Company provides its multi-media customers with complete turnkey
fulfillment solutions, which often includes the purchase of materials as well
as assembly, warehousing and distribution of finished product, from its
Franklin Park, Illinois facility. The Company's long-range plans for this
operation are currently under review by management. See--"Certain
Relationships and Related Transactions".
56
<PAGE>
The following table provides certain information regarding the Company's
operating facilities.
<TABLE>
<CAPTION>
BUILDING
FACILITY OWNERSHIP SQ. FEET FUNCTION LEASE EXPIRATION
- -------- --------- -------- -------- ----------------
<S> <C> <C> <C> <C>
Franklin Park, IL Leased 40,650 Fulfillment Center/Office September 30, 2000
Horsham, PA Leased 3,000 Corporate office December 31, 1998
Jacksonville, IL Owned 76,000 Manufacturing/Office N/A
Los Angeles, CA Leased 3,000 Sales August 31, 1999
Louisa, VA Leased 77,500 Manufacturing December 31, 2005
Melrose Park, IL Leased 256,629 Manufacturing/Office September 30, 2002
Melrose Park, IL Leased 40,650 Warehouse March 31, 1999
New York, NY Leased 5,000 Sales July 31, 1998
Warrington, PA Leased 100,000 Manufacturing December 31, 2005
Warrington, PA Leased 86,000 Warehouse/Manufacturing December 31, 1999
Grover, NC
(under construction) Owned 51,400 Manufacturing N/A
</TABLE>
LEGAL PROCEEDINGS
The Company is a party to various legal actions arising in the ordinary
course of its business. The Company believes that the resolution of these
legal actions will not have a material adverse effect on the Company's
financial position or results of operation.
57
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of IMPAC, AGI and Klearfold are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Melvin B. Herrin................ 63 Director and Chairman
Richard H. Block................ 57 Director and Chief Executive Officer
H. Scott Herrin................. 41 Director, President of Klearfold and
Executive Vice President of the Company
Michel Reichert................. 47 Director
Michael F. Gilligan............. 42 Director
David C. Underwood.............. 38 Chief Financial Officer
James H. Oppenheimer............ 55 Executive Vice President--Sales
Richard L. Oppenheimer.......... 49 Executive Vice President--Sales
Dean J. Henkel.................. 45 Executive Vice President--Manufacturing of
AGI Incorporated
Zenas Block..................... 81 Director
David H. Horowitz............... 69 Director
</TABLE>
Mr. Melvin B. Herrin founded Klearfold and has been Chairman of Klearfold
since its incorporation in 1977 and a Director of KFI Holding since 1996. Mr.
Herrin graduated from Temple University. Mr. Herrin is the father of Scott
Herrin.
Mr. Richard H. Block has served as the President and Chief Executive Officer
of AGI since October 1987. He began his career at AGI in 1970 as a salesman;
he was subsequently promoted to Sales Manager and Executive Vice President.
Prior to 1970, he served as a Sales Manager for Westvaco Corporation in New
York and Chicago. Mr. Block graduated from Alfred University. Mr. Block is the
son of Zenas Block.
Mr. H. Scott Herrin has been a Director of Klearfold since 1981 and a
Director of KFI Holding since 1996. Mr. Herrin graduated from Amherst College
and has a law degree from Harvard Law School. Mr. Herrin is the son of Melvin
Herrin.
Mr. Michel Reichert has been a Director of KFI Holding and Klearfold since
1996. Since 1994, Mr. Reichert has been a Managing General Partner of Heritage
Partners, Inc. a Boston-based private investment company. Prior to 1994, Mr.
Reichert was a Managing Director of BancBoston Capital Inc., a private equity
investment firm. Mr. Reichert graduated from the University of Bourges,
France.
Mr. Michael F. Gilligan has been a Director of KFI Holding since 1996. Since
1994, Mr. Gilligan has been a General Partner of Heritage Partners, Inc., a
Boston-based private investment company. Prior to 1994, Mr. Gilligan was a
Director of BancBoston Capital Inc., a private equity investment firm. Mr.
Gilligan graduated from Boston College.
Mr. James H. Oppenheimer is responsible for sales, marketing and
administration for the packaging and multimedia markets, as well as the
Franklin Park fulfillment center. Mr. Oppenheimer joined AGI in 1983 as the
East Coast Sales Manager, and subsequently served as Vice President of East
Coast Sales. Prior to joining the AGI, he served as Executive Vice President
of Sales for the Walter Frank Organization, a packaging company specializing
in cosmetics. Mr. Oppenheimer graduated from the University of Illinois,
Champaign-Urbana. Mr. Oppenheimer is the brother of Richard Oppenheimer.
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<PAGE>
Mr. Richard L. Oppenheimer is responsible for sales, marketing and
administration for the music and video markets. Mr. Oppenheimer joined AGI in
1977 as Chicago Sales Representative, and subsequently served in positions
including California Sales Representatives for Music, Sales Manager for
Packaging and Vice President of West Coast Sales. Prior to joining the AGI, he
spent six years selling custom injection molding designs, specializing in the
cosmetics industry. Mr. Oppenheimer graduated from Southern Illinois
University. Mr. Oppenheimer is the brother of James Oppenheimer.
Mr. David C. Underwood has been with AGI since 1990 and has been responsible
for AGI's finance, information technologies and human resources functions.
Prior to joining AGI, Mr. Underwood was a manager in the audit and financial
consulting division of Arthur Andersen & Company's Chicago office. Mr.
Underwood graduated from the University of Wisconsin and is a Certified Public
Accountant.
Mr. Dean J. Henkel is responsible for the manufacturing operations at AGI's
Melrose Park and Jacksonville plants. Mr. Henkel has worked at AGI since 1975
in a number of positions, including as a machine operator, finishing
superintendent, plant superintendent and plant manager in AGI's Melrose Park
facility and most recently as Executive Vice President--Manufacturing. He
graduated from Illinois Benedictine College.
Mr. Zenas Block has been a director of AGI since 1988. Since 1991, Mr. Block
has been an adjunct professor at the New York University Stern School of
Business and was a founder of its Center for Entrepreneurial Studies. Mr.
Block graduated from the City College of New York. Mr. Block is the father of
Richard Block.
Mr. David H. Horowitz has been a director of AGI since 1988. Mr. Horowitz is
a consultant and investor in the media and communications industry. Mr.
Horowitz graduated from Columbia College and has a law degree from Columbia
Law School.
STOCKHOLDER AGREEMENT
On March 12, 1998, IMPAC and its stockholders entered into a stockholders'
agreement (the "Stockholder Agreement"). The Stockholder Agreement provides
that IMPAC's board of directors (the "Board") will in most circumstances
consist of seven members to be elected as follows: (i) two individuals
designated by the holders of a majority of the shares of the Common Stock to
be purchased by Heritage (the "Heritage Holders"); (ii) two individuals
designated by the holders of a majority of the shares of Common Stock to be
purchased by or on behalf of Melvin Herrin and Scott Herrin (the "Klearfold
Holders"); and (iii) three individuals designated as follows: (A) if Richard
Block is both chief executive officer of IMPAC and continues to hold at least
75% of his shares of Common Stock, Richard Block and two individuals
designated by Richard Block; (B) if Richard Block is both chief executive
officer of IMPAC and continues to hold at least 50% but less than 75% of his
shares of Common Stock, Richard Block, one individual designated by Richard
Block, and one individual designated by the holders of a majority of the
shares of the Common Stock held by the holders of the Common Stock then
employed by IMPAC and who had been employed by AGI prior to the Combination
(the "AGI Holders"); (C) if Richard Block is both chief executive officer of
IMPAC and continues to hold less than 50% of his shares of Common Stock held
by him after the closing of the Combination, Richard Block and two individuals
designated by the AGI Holders; (D) if Richard Block is not chief executive
officer of IMPAC and continues to hold more than 50% of his shares of Common
Stock, one individual designated by Richard Block and two individuals
designated by the AGI Holders; and (E) if Richard Block is not chief executive
officer of IMPAC and continues to hold less than 50% of his shares of Common
Stock, three individuals designated by the AGI Holders.
In the event that IMPAC fails to achieve certain operating earnings targets
(testing will commence after September 30, 1999), IMPAC fails at any time
after June 7, 2002 to appoint a sale committee under the control of the
directors designated by the Heritage Holders when required to do so in
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<PAGE>
accordance with the Stockholder Agreement, or certain events of default occur
under the Notes or under the New Credit Facility, then the Board will consist
of: (A) four individuals designated by the
Heritage Holders; (B) two individuals designated by the AGI Holders; and (C)
one individual designated by the Klearfold Holders.
Board vacancies will be filled by a designee of the individual or group who
originally designated the vacating director. Each individual or group entitled
to designate a director will also be entitled to direct the removal of such
director and designate a replacement director.
Executive officers of IMPAC will be appointed by the Board upon the
President's recommendations, subject to the provisions of such officers'
respective employment agreements.
At any time after June 7, 2002 the Heritage Holders will have the right to
request IMPAC to repurchase the shares of Common Stock held by them at a
repurchase price based on fair market value. In such event, IMPAC will have
the right to elect to (i) repurchase the shares held by the Heritage Holders,
(ii) defer such repurchase, and use commercially reasonable efforts to
complete within 180 days a sale of the Company or an initial public offering
of IMPAC's Common Stock or (iii) elect neither (i) nor (ii), in which case (or
in the case of a failure to complete either (i) or (ii)) the Heritage Holders
will have the right to create a sale committee of the Board, to be comprised
of two Heritage appointees, which shall have the right to cause a sale of the
Company over the subsequent two years. In the event such a sale does not occur
within such period, the Heritage Holders shall thereafter have the right to
re-exercise their right to cause IMPAC to repurchase shares of Common Stock.
The Stockholder Agreement also contains each of a (i) registration rights
provisions, which will provide certain demand registration rights, to become
effective upon the earlier to occur of June 7, 2002 and six months following
the consummation of an initial public offering of IMPAC's Common Stock, and
certain piggyback registration rights, (ii) transfer restrictions, (iii)
piggy-back and co-sale rights, (iv) rights of first refusal with respect to
certain transfers of Common Stock, (v) rights of first refusal with respect to
certain proposed sales of the Company and (vi) certain pre-emptive rights with
respect to certain equity issuances.
EMPLOYMENT, NON-COMPETITION AND STOCK REPURCHASE AGREEMENTS
At the closing of the Combination, IMPAC entered into Employment, Non-
Competition and Stock Repurchase Agreements with each of Richard H. Block,
Melvin B. Herrin, H. Scott Herrin, David C. Underwood, James H. Oppenheimer,
Richard L. Oppenheimer and Dean J. Henkel, as well as with certain other
employees who are officers of one or more of its Subsidiaries, but will not be
officers of IMPAC.
Each employment agreement with one of the employees named above provides a
term of employment through June 2001, specifies a base salary and a package of
benefits and provides for participation in IMPAC's Bonus Plan (as defined
below). Each such employment agreement (except as noted below) gives such
individual (or his estate) the right to offer his or her shares back to IMPAC
in the event of death, disability, retirement, upon his termination of his
employment for good reason, or upon termination of his employment by IMPAC
without cause, and, except in the instance of retirement or, if insurance
proceeds are not available to complete the repurchase, death or disability,
IMPAC shall be required to complete such repurchase, in each case at fair
market value calculated in accordance with such employment agreements. Each of
Melvin Herrin's and Scott Herrin's employment agreement will give such
individual's estate the right, following the death of both Melvin Herrin and
Scott Herrin, to offer such estate's shares of Common Stock back to IMPAC. In
the event that a repurchase offer following an employee's death, disability or
retirement is rejected by IMPAC, and the offered shares are not repurchased by
those of the employee's fellow managers who may also
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<PAGE>
have rights to repurchase the employee's shares, then such shares will become
freely transferable. Any repurchase is subject to compliance with the terms of
the New Credit Facility and the Indenture, and if IMPAC is unable to complete
a purchase in compliance with such terms, the purchase may be delayed until
compliance is possible.
The employment agreements provide base salaries for the year ending December
31, 1998, as follows: Richard H. Block--$350,000; Melvin B. Herrin--$325,000;
H. Scott Herrin--$325,000; David C. Underwood--$225,000; James H.
Oppenheimer--$325,000; Richard L. Oppenheimer--$325,000; and Dean J. Henkel--
$225,000. Such base salaries are subject to cost of living adjustments for
each year thereafter.
Each of the employment agreements also provides for severance pay upon
termination by IMPAC without cause or by the employee for good reason. IMPAC
must pay the employee his base salary as in effect prior to any such
termination, together with benefits and a variable compensation element
calculated with reference to IMPAC's payments under the Bonus Plan, until the
later of (i) the end of the term of the employment contract, or (ii) if so
elected by IMPAC, the first anniversary of termination, provided that the
period during which severance pay is payable may be extended for up to one
additional year by notice to the employee from IMPAC. If the employee is
terminated by IMPAC without cause, or the employee terminates his employment
for good reason, at any time after the end of the term of the employment
agreement, IMPAC may by written notice to the employee elect to pay the
employee his base salary as in effect prior to any such termination, together
with benefits and a variable compensation element calculated with reference to
IMPAC's payments under the Bonus Plan, for a period of one year from the date
of termination, provided that such period may be extended for up to one
additional year by notice to the employee from IMPAC. No severance is payable
in the event of a termination of employment as a result of death, disability
or retirement, or a termination by the employee without good reason or by
IMPAC with cause.
Each of the employment agreements with the employees named above also
contains non-competition covenants pursuant to which the employee is
prohibited, during the term of his employment and for a "Restricted Period"
thereafter, from competing with the Company in any place where the Company now
or during the employee's employment does business, and, subject to certain
exceptions, from soliciting or encouraging any employee, contractor, customer,
vendor or supplier of the Company to terminate or materially reduce its
relationship with the Company. The applicable "Restricted Period" will, with
certain exceptions, be that period following the employee's termination during
which severance pay is being paid to the employee, and if no severance pay is
payable, the "Restricted Period" shall be the longer of (i) one year from the
date of termination, and (ii) two years from March 12, 1998. In addition, the
"Restricted Period" shall be extended by any period in which the employee is
in breach of his non-competition and non-solicitation obligations.
Each of the employment agreements also provides that IMPAC and certain "co-
managers", taken together (in the case of Richard H. Block, David C.
Underwood, James H. Oppenheimer, Richard L. Oppenheimer and Dean J. Henkel,
the "co-managers" include each such person (other than himself), as well as
Dennis L. McGuin, Mary Frances Griffin and Jacqueline M. Barry) have the right
to repurchase the employee's shares of IMPAC's Common Stock following
termination of the employee's employment, as well as providing the rights
described above for the employee to require the repurchase of his stock. The
Company will obtain insurance policies on the life of each of Richard H.
Block, David C. Underwood, James H. Oppenheimer, Richard L. Oppenheimer and
Dean J. Henkel, and on the life of the survivor of Melvin Herrin and Scott
Herrin in order to assist in the financing of its obligations to repurchase
their stock. IMPAC will finance any stock repurchase, first, out of cash if
and to the extent available under the terms of the New Credit Facility and the
Indenture and if IMPAC is unable to complete a purchase at any time because no
cash is then available under such terms, the purchase may be delayed until
cash becomes available to permit IMPAC to complete the purchase in compliance
with such terms.
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<PAGE>
BONUS PLAN
The Company has adopted a cash bonus plan that will provide for annual cash
bonuses based on achievement of Company and individual performance objectives.
DIRECTOR COMPENSATION
Directors of the Company do not receive compensation from the Company for
their service in such capacities.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by Klearfold
and AGI for services rendered during fiscal 1997 to their seven most highly-
compensated executive officers (determined on a combined basis).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION FOR FISCAL 1997
----------------------------------------
ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION(1) SALARY BONUS (2)
- ------------------------------ ------------ ---------------------------
<S> <C> <C> <C>
Melvin B. Herrin......................... $297,429 $ -- $ 6,708
Chairman of Klearfold
Richard H. Block......................... $224,124 $ 420,244 $ 30,434
President and Chief Executive Officer of
AGI
H. Scott Herrin.......................... $312,426 $ -- $ 9,685
President of Klearfold
James H. Oppenheimer..................... $143,774 $ 406,293 $ 14,671
Vice President of Sales of AGI
Richard L. Oppenheimer................... $140,000 $ 365,153 $ 59,421
Vice President of Entertainment Sales of
AGI
Dean J. Henkel........................... $126,000 $ 347,083 $ 12,643
Vice President of Manufacturing of AGI
David C. Underwood....................... $126,000 $ 347,083 $ 11,671
Vice President of Finance of AGI
</TABLE>
- --------
(1) Position held before the Combination.
(2) Reflects automobile allowances paid to each executive and housing
allowances paid to Richard Block and Richard Oppenheimer.
MANAGEMENT EQUITY INCENTIVE PLAN
The Company intends to adopt one or more management equity incentive plans
to attract, retain and incentivize its management and employees. These plans
may include a stock option plan to make stock options available to employees,
directors and consultants. Stock options granted may be qualified or non-
qualified. The Company expects that vesting of stock options may be subject to
certain conditions, including achievement of Company and individual
performance objectives. In addition, these plans may include a restricted
stock plan providing for the grant of restricted stock that would be subject
to vesting based on the achievement of operating and financial goals. In
connection with a restricted stock plan, the Company may decide to adopt a
separate class of voting common stock with terms reflecting the management
incentive plan.
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<PAGE>
BENEFICIAL OWNERSHIP
The following table sets forth, after giving effect to the Combination,
certain information regarding ownership of the Common Stock of IMPAC by (i)
each director of IMPAC, (ii) each of the executive officers of IMPAC named in
the "Summary Compensation Table", (iii) each of the directors and executive
officers of IMPAC as a group, and (iv) each person who beneficially owns more
than 5% of the outstanding shares of IMPAC's Common Stock.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENT OF CLASS(1)
- ---- ---------------- -------------------
<S> <C> <C>
Heritage Partners Fund I Investment Cor-
poration................................ 40,000 40.0%
c/o Heritage Partners, Inc.
30 Rowes Wharf
Boston, MA 02110
Michel Reichert(2)....................... 40,000 40.0%
c/o Heritage Partners, Inc.
30 Rowes Wharf
Boston, MA 02110
Michael Gilligan(3)...................... 40,000 40.0%
c/o Heritage Partners, Inc.
30 Rowes Wharf
Boston, MA 02110
Richard H. Block......................... 18,100 18.1%
c/o AGI Incorporated
1950 North Ruby St.
Melrose Park, IL 60160
H. Scott Herrin, Arthur S. Keyser and
Matthew H. Kamens,...................... 7,958 8.0%
as Trustees under an Irrevocable Deed of
Trust dated August 12,
1992 f/b/o H. Scott Herrin
c/o Klearfold, Inc.
364 Valley Road
Warrington, PA 18976
H. Scott Herrin(4)....................... 7,958 8.0%
James H. Oppenheimer..................... 6,227 6.2%
Melvin B. Herrin......................... 4,964 5.0%
Richard L. Oppenheimer................... 4,440 4.4%
Arthur S. Keyser and Matthew H. Kamens,
as Trustees under....................... 3,916 4.0%
an Indenture of Trust of Melvin B. Herrin
dated June 4, 1996
c/o Klearfold, Inc.
364 Valley Road
Warrington, PA 18976
Dean J. Henkel........................... 3,782 3.8%
David C. Underwood....................... 3,072 3.1%
David Horowitz........................... 588 0.6%
Zenas Block.............................. 147 0.2%
All Directors and executive officers as a
group (9 persons)....................... 92,459 92.5%
</TABLE>
- --------
(1) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of a security, or the sole or shared
power to dispose, or direct the disposition of, a security.
(2) The shares shown as beneficially owned by Mr. Reichert represent 40,000
shares owned of record by Heritage. Mr. Reichert through one or more
intermediaries may be deemed to control the voting
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<PAGE>
and disposition of the securities owned by Heritage, and accordingly may be
deemed to have shared voting and investment power with respect to all
shares held by Heritage. However, Mr. Reichert disclaims beneficial
ownership of the securities held by Heritage.
(3) The shares shown as beneficially owned by Mr. Gilligan represent 40,000
shares owned of record by Heritage. Mr. Gilligan through one or more
intermediaries may be deemed to control the voting and disposition of the
securities owned by Heritage, and accordingly may be deemed to have shared
voting and investment power with respect to all shares held by Heritage.
However, Mr. Gilligan disclaims beneficial ownership of the securities
held by Heritage.
(4) Includes 7,958 shares held by H. Scott Herrin, Arthur S. Keyser and
Matthew H. Kamens, as Trustees under an Irrevocable Deed of Trust dated
August 12, 1992 f/b/o H. Scott Herrin, and over which H. Scott Herrin
shares investment and voting control.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INVESTMENT AGREEMENT AND RELATED TRANSACTIONS
Investment Agreement
In February 1998, KFI Holding, each of Heritage Fund I Investment
Corporation (an affiliate of Heritage, "Fund I"), Matthew H. Kamens, as
Trustee under Indenture of Trust dated 06/04/96 of Melvin B. Herrin ("Kamens")
and Arthur S. Keyser, as Trustee under an Irrevocable Deed of Trust dated
08/12/92 f/b/o H. Scott Herrin ("Keyser", and, together with Fund I and
Kamens, each a security holder who owns more than 5% of the outstanding shares
of IMPAC's Common Stock, the "Major Stockholders"), each of Zenas Block and
David Horowitz (each a director of IMPAC and, collectively, the "Outside
Directors"), each of Melvin B. Herrin, H. Scott Herrin, Richard Block, James
Oppenheimer, Richard Oppenheimer, David Underwood and Dean Henkel (each an
executive officer of IMPAC and, collectively, the "Executive Officers") and
other IMPAC shareholders entered into an Investment Agreement, pursuant to
which (i) the existing stockholders of KFI Holding (the "Klearfold
Contributing Parties") agreed to contribute to KFI Holding the entire
outstanding capital stock of KFI Holding and a warrant to purchase KFI Holding
capital stock and to invest approximately $4.6 million in cash, and (ii)
certain stockholders and holders of stock appreciation rights of AGI (the "AGI
Contributing Parties") agreed to contribute to KFI Holding shares of common
stock and to invest the proceeds of their stock appreciation rights, totaling
an aggregate of $14.4 million. In exchange for these contributions and cash
investments, KFI Holding will issue to each contributing or investing party
shares of KFI Holding's common stock.
In addition, immediately prior to completion of the Transactions, Melvin B.
Herrin and H. Scott Herrin, and other shareholders of KFI Holding surrendered
to KFI Holding shares of its outstanding capital stock in exchange for the
cancellation of certain promissory notes representing approximately $35,000 in
unpaid purchase price for such shares. Such employees and certain other
employees of KFI Holding will receive options to purchase shares of IMPAC's
Common Stock.
Pursuant to the Investment Agreement, each of the Executive Officers and
other managers of IMPAC entered into Employment, Non-Competition and Stock
Repurchase Agreements and each recipient of stock options as described above
entered into an Agreement relating to Employment and Stock Ownership. See
"Management--Employment, Non-Competition and Stock Repurchase Agreements".
Pursuant to the Investment Agreement, each of the contributing or investing
parties made representations and warranties to KFI Holding as to their title
to the shares being contributed and as to their authority to enter into the
Investment Agreement and the related transactions, and KFI Holding made
customary representations and warranties to the contributing or investing
parties. From and after the closing of the Combination, Heritage and Messrs.
Herrin and their affiliates (the "KFI Indemnitors") will indemnify the AGI
Contributing Parties for any breach by the Company of its representations,
warranties and covenants in the Investment Agreement ("Holding Indemnified
Claims").
The aggregate amount payable by the KFI Indemnitors with respect to all
claims for indemnification after the closing of the Combination will not
exceed approximately $2.3 million, except with respect to claims arising from
breaches of representations as to KFI Holding's equity capitalization,
authority to consummate the Combination, taxes and brokers, as to which
indemnification will be limited to the value to the KFI Indemnitors of their
investment in KFI Holding pursuant to the Investment Agreement, immediately
after the Combination (the "Share Value").
Each of the contributing or investing parties will indemnify KFI Holding for
breach of such party's representations and warranties in the Investment
Agreement, up to such party's Share Value.
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Pursuant to the Investment Agreement KFI Holding will agree to comply with a
number of operating covenants that will survive the completion of the
Transactions, including the maintenance of corporate existence and insurance,
compliance with applicable laws and contracts and the provision of financial
information and similar matters.
AGI Dividend
Prior to the consummation of the Combination the AGI stockholders received a
dividend in the form of promissory notes aggregating approximately $22.5
million, which is approximately the amount of AGI's undistributed accumulated
S corporation earnings. These notes were paid in full concurrently with the
consummation of the Combination.
Agreement and Plan of Merger
In February 1998, KFI Holding, its wholly-owned subsidiary AGI Acquisition
Corp., AGI and Klearfold, and Richard Block, James Oppenheimer, Richard
Oppenheimer, Donald W. Kosterka, James A. Ladwig, Dean Henkel, Gary Mankoff
and David Underwood (the "Principal AGI Stockholders") and Melvin B. Herrin,
H. Scott Herrin and the Major Stockholders entered into an Agreement and Plan
of Merger under which AGI Acquisition Corp. agreed to merge with and into AGI,
with AGI as the surviving corporation. In this merger, the shares of AGI not
contributed to KFI Holding under the Investment Agreement, together with
certain outstanding stock appreciation rights of AGI and an outstanding option
for the purchase of AGI's common stock, were converted into a right to receive
cash in the aggregate amount of $30.5 million, net of fees. Of this amount,
approximately $813,000 was placed in escrow to secure certain indemnification
obligations described below.
The payment of the foregoing cash consideration was funded from the proceeds
of the Offering and the cash investments made pursuant to the Investment
Agreement.
In the Agreement and Plan of Merger, AGI and the Principal AGI Stockholders
made customary representations and warranties to KFI Holding, the existing
stockholders of KFI Holding, and AGI Acquisition Corp., and KFI Holding,
Klearfold and AGI Acquisition Corp. made customary representations and
warranties to AGI. From and after the closing of the Combination, all of the
existing stockholders of AGI (the "AGI Indemnitors") will indemnify the
Company for any breach of certain representations, warranties and covenants in
the Agreement and Plan of Merger. From and after the closing of the
Combination, the KFI Indemnitors will indemnify the former AGI investors for
any breaches of certain representations, warranties and covenants in the
Agreement and Plan of Merger.
The aggregate amount payable by the AGI Indemnitors with respect to all
claims for indemnification after the closing of the Combination will not
exceed $3.5 million, except with respect to claims arising from breaches of
representations as to equity capitalization, authority to consummate the
Transaction, taxes and brokers, as to which indemnification will be limited to
the combined after-tax value to the indemnifying party of its proceeds from
the merger and related transactions. The aggregate amount payable by the KFI
Indemnitors with respect to all claims for indemnification after the closing
of the Combination will not exceed approximately $2.3 million, except with
respect to claims arising from breaches of representations as to equity
capitalization, authority to consummate the Transactions, taxes and brokers,
and certain other specified claims, as to which indemnification will be
limited to the KFI Indemnitors' Share Value.
Charter
At the time of the closing of the Transactions, IMPAC amended its
Certificate of Incorporation to provide for one class of common stock, par
value $.001 per share ("Common Stock"). The holders of
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Common Stock have one vote per share. However, in connection with the adoption
of a restricted stock incentive plan IMPAC may adopt a separate class of
voting common stock with terms reflecting the management incentive plan.
Payments to Management Shareholders
In connection with the Combination and certain related transactions, Richard
Block, James Oppenheimer, Richard Oppenheimer and Dean Henkel received an
aggregate of approximately $18.3 million in cash payments for the repurchase
of equity and cancellation of stock appreciation rights, net of amounts
reinvested in the Company, including approximately $16.9 million paid to Mr.
Richard Block, the Chief Executive Officer of the Company.
PRE-ACQUISITION TRANSACTIONS
The Company's manufacturing facility in Warrington, Pennsylvania is leased
directly from Melvin B. Herrin for an annual rent of approximately $336,000,
and the Louisa, Virginia facility is also leased directly from Mr. Herrin
through an entity controlled by Mr. Herrin for an annual rent of approximately
$273,000. The leases expired on December 31, 1995 and, pursuant to option
clauses, were renewed effective January 1, 1996. The leases contain escalation
clauses based on the producer price index increase and expire on December 31,
2005 with an option to renew for a further five year period. The Company
believes the terms of these leases to be at fair market value.
The Company's Melrose Park, Illinois facility is leased to the Company by a
partnership which includes the founder of AGI and Richard Block for an annual
rent of approximately $475,000. The term of the lease expires on September 30,
2002. AGI has options to extend the lease for several additional five year
terms. The Company believes that the terms of these leases were at fair market
value at the time entered into by the Company.
For fiscal 1997, the Company paid approximately $114,000 to Freya Block
Design, Inc. for consulting services. Freya Block Design, Inc. is a
corporation wholly-owned by Freya Block, the wife of Richard Block.
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DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITY
The Company entered into a credit facility with Bank of America, National
Trust and Savings Association ("Bank of America") that provides for up to
$40.0 million of revolving credit borrowings by IMPAC and up to $13.0 million
in letters of credit by Klearfold and AGI (the "New Credit Facility"). The New
Credit Facility has a five-year maturity. Bank of America issued up to $13.0
million of letter of credit accommodations to provide credit enhancement to
outstanding AGI and Klearfold municipal variable rate demand bonds. The New
Credit Facility ranks senior to the Notes and the Company's obligations under
the New Credit Facility are guaranteed by each of the Company's existing and
future subsidiaries on a senior basis and secured by substantially all of the
assets of the Company and its subsidiaries. Interest on the Company's loan
balance will be payable quarterly at Bank of America's base rate (plus an
applicable margin), with IBOR (plus an applicable margin) options on customary
terms. The applicable margins for base rate loans will range between 0.50% and
1.25% based upon the Company's ratio of Funded Debt to EBITDA and the
applicable margin for IBOR loans will range between 1.50% and 2.25% based upon
the Company's ratio of Funded Debt to EBITDA. The Company paid and expects to
pay customary fees in connection with the execution of the New Credit
Facility, with respect to any unused portion of the revolving loan commitment
and with respect to the maintenance of the letter of credit accommodations. In
addition to customary covenants, the New Credit Facility imposes substantial
limitations on the Company's ability to incur additional indebtedness, incur
liens, pay dividends, make other restricted payments, issue guaranties, make
advances to affiliates and dispose of assets. The New Credit Facility
constitutes Senior Debt for purposes of the Notes and the Indenture. The
Company expects to use the proceeds from borrowings under the New Credit
Facility to provide for working capital and other general corporate purposes.
IRB FINANCINGS
Both AGI and Klearfold have entered into certain industrial revenue bond
financing arrangements (the "IRB Financings"), as described below. The IRB
Financings remain outstanding and the Company's obligations thereunder are
fully secured by letters of credit issued under the New Credit Facility.
Bucks County Industrial Development Authority. Pursuant to a loan agreement
(the "Bucks Loan Agreement") between the Bucks County Industrial Development
Authority ("Bucks County") and Klearfold, Klearfold borrowed $4.0 million from
Bucks County to finance certain costs of the acquisition and installation of
an offset printing press and related equipment for its facility in Warrington,
Pennsylvania. In connection with the loan, Bucks County issued $4.0 million
aggregate principal amount of Bucks County Industrial Development Authority
Variable Rate Demand Revenue Bonds, Series 1997 (Klearfold, Inc. Project) (the
"Klearfold IRBs"). The Klearfold IRBs mature on August 1, 2007 and accrued
interest at 4.35% per annum as of December 31, 1997.
City of Jacksonville, Illinois. Pursuant to a loan agreement (the
"Jacksonville Loan Agreement") between the City of Jacksonville, Illinois
("Jacksonville") and AGI, AGI borrowed $7.6 million from Jacksonville to
finance certain costs of the acquisition of land, and construction and
equipping of AGI's manufacturing facility in Jacksonville, Illinois in 1995.
In connection with the loan, Jacksonville issued $7.6 million aggregate
principal amount of City of Jacksonville, Illinois Multi-Mode Industrial
Project Revenue Bonds, Series 1995 (AGI Incorporated Project) (the "AGI
IRBs"). The AGI IRBs mature on February 1, 2026 and accrued interest at 4.2%
per annum as of December 31, 1997.
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EXCHANGE OFFER
GENERAL
IMPAC hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $100.0 million
aggregate principal amount of New Notes for a like aggregate principal amount
of Existing Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The
Exchange Offer is being made with respect to all of the Existing Notes; the
total aggregate principal amount of Existing Notes and New Notes will in no
event exceed $100.0 million.
A copy of the Registration Rights Agreement referred to below has been filed
as an exhibit to the Registration Statement of which this Prospectus is a
part. See "Available Information".
PURPOSE OF THE EXCHANGE OFFER
On March 12, 1998, IMPAC issued $100.0 million aggregate principal amount of
Existing Notes. The issuance of the Existing Notes was not registered under
the Securities Act in reliance upon the exemption provided in Section 4(2) of
the Securities Act.
IMPAC, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on the Closing Date. Pursuant to the
Registration Rights Agreement, IMPAC and the Guarantors agree to use
commercially reasonable efforts to file with the Commission the Exchange Offer
Registration Statement (as defined under "Description of Notes") on the
appropriate form under the Securities Act with respect to the Exchange Notes.
Upon the effectiveness of the Exchange Offer Registration Statement, IMPAC and
the Guarantors will offer notes of IMPAC which will have terms substantially
identical in all material respects to the Notes, including the Existing
Guarantees (the "Exchange Notes") (except that the Exchange Notes will not
contain terms with respect to transfer restrictions). If (i) IMPAC and the
Guarantors are not required to file the Exchange Offer Registration Statement
or to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of
Transfer Restricted Securities (as defined under "Description of Notes")
notifies IMPAC within 20 days after the Exchange Offer has been consummated
(A) that it is prohibited by applicable law or Commission policy from
participating in the Exchange Offer or (B) that it may not resell the Exchange
Notes acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by such Holder, or
(C) that such Holder is a broker-dealer and holds Notes acquired directly from
IMPAC or one of its affiliates, then IMPAC and the Guarantors will use
commercially reasonable efforts to file a shelf registration statement
pursuant to Rule 415 under the Securities Act, which may be an amendment to
the Existing Offer Registration Statement (in either event, the "Shelf
Registration Statement") on or prior to the earliest to occur of (1) the 60th
day after the date on which IMPAC determines that it is not required to file
the Exchange Offer Registration Statement or (2) the 60th day after the date
on which IMPAC receives notice from a Holder of Transfer Restricted Securities
as contemplated by clause (ii) above (such earliest date being the "Shelf
Filing Deadline"), which Shelf Registration Statement shall provide for
resales of all Transfer Restricted Securities the Holders of which shall
provide certain information to IMPAC. IMPAC and the Guarantors will use
commercially reasonable efforts to cause such Shelf Registration Statement to
be declared effective by the Commission on or before the 135th day after the
obligation to file the Shelf Registration Statement arises. For purposes of
the foregoing, "Transfer Restricted Securities" means each Note until the
earliest of (i) the date on which such Note is exchanged in the Exchange Offer
and the Note for which it is exchanged is entitled to be resold to the public
by the Holder thereof without complying with the prospectus delivery
requirements of the Securities Act, (ii) the date on which such Note has been
disposed of in accordance with a Shelf Registration Statement, or (iii) the
date on which such
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Note is permitted to be distributed to the public pursuant to Rule 144 under
the Securities Act or by a broker-dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of a copy of this prospectus).
The Registration Rights Agreement provides that unless the Exchange Offer
shall not be permissable under applicable law or Commission policy (i) IMPAC
and the Guarantors shall cause to be filed an Exchange Offer Registration
Statement with the Commission as soon as practicable after March 12, 1998 (the
"Closing Date"), but in no event later than 90 days after the Closing Date,
(ii) IMPAC and the Guarantors shall use commercially reasonable efforts to
cause the Exchange Offer Registration Statement to become effective at the
earliest possible time, but in no event later than 150 days after the Closing
Date, (iii) in connection with the foregoing, file (A) all pre-effective
amendments to such Registration Statement as may be necessary in order to
cause such Registration Statement to become effective, (B) if applicable, a
post-effective amendment to such Registration Statement pursuant to Rule 430A
under the Securities Act and (C) cause all necessary filings in connection
with the registration and qualification of the Exchange Notes to be made under
the Blue Sky laws of such jurisdictions as are necessary to permit the
Exchange Offer to be consummated, and (iv) upon the effectiveness of such
Registration Statement, commence the Exchange Offer. IMPAC will be entitled to
suspend the use of a prospectus under the Exchange Offer Registration
Statement or any Shelf Registration Statement for certain limited periods
under certain prescribed circumstances. If (a) any of the Registration
Statements required by the Registration Rights Agreement is not filed with the
Commission on or prior to the date specified for such filing; (b) any of such
Registration Statements has not been declared effective by the Commission on
or prior to the date specified for such effectiveness (the "Effectiveness
Target Date"); (c) an Exchange Offer Registration Statement becomes effective
but IMPAC and the Guarantors fail to consummate the Exchange Offer within 30
business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement; or (d) subject to certain exceptions, the Shelf
Registration Statement or the Exchange Offer Registration Statement is filed
and is declared effective but thereafter ceases to be effective or fails to be
usable for its intended purpose prior to the expiration of the time period
specified in the Registration Rights Agreement without being succeeded
immediately by a post-effective amendment to such Registration Statement that
cures such failure and that is itself declared effective immediately (each
such event referred to in clauses (a) through (d) above, a "Registration
Default," and each period during which a Registration Default has occurred and
is continuing, a "Registration Default Period"), IMPAC and Guarantors jointly
and severally agree that the liquidated damages ("Liquidated Damages"), in
addition to the base interest that would otherwise accrue on the Transfer
Restricted Securities, shall accrue at a per annum rate of 0.25% of the
aggregate principal amount of such Transfer Restricted Securities for the
first 90 days of the Registration Default Period, increasing by 0.25% per
annum every 90 days up to a maximum of 1.0% per annum until such Registration
Default has been cured. All accrued Liquidated Damages will be paid by IMPAC
to the Record Holders (as defined under "Description of Notes") by wire
transfer of immediately available funds or by federal funds check on each
Damages Payment Date (as defined under "Description of Notes") at the office
or agency of IMPAC maintained for such purpose in the Borough of Manhattan,
The City of New York. Following the cure of all Registration Defaults relating
to any particular Transfer Restricted Securities, the accrual of Liquidated
Damages with respect to such Transfer Restricted Securities will cease
immediately.
Holders of such Notes will be required to make certain representations to
IMPAC and the Guarantors (as described in the Registration Rights Agreement)
in order to participate in the Exchange Offer and will be required to deliver
information to be used in connection with the Shelf Registration Statement
within the time periods set forth in the Registration Rights Agreement in
order to have their Notes included in the Shelf Registration Statement and
benefit from the provisions regarding Liquidated Damages set forth above.
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EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1998, unless the Company, in its sole discretion, has extended the period of
time (as described below) for which the Exchange Offer is open (such date, as
it may be extended, is referred to herein as the "Expiration Date"). The
Expiration Date will be at least 30 days after the commencement of the
Exchange Offer (or longer if required by applicable law). IMPAC expressly
reserves the right, at any time or from time to time, to extend the period of
time during which the Exchange Offer is open, and thereby delay acceptance for
exchange of any Existing Notes by giving oral notice (confirmed in writing) or
written notice to the Exchange Agent (as defined herein) and by giving written
notice of such extension to the holders thereof or by timely public
announcement communicated, unless otherwise required by applicable law or
regulation, by making a release through the Dow Jones News Service, in each
case, no later than 9:00 a.m. New York City time, on the next business day
after the previously scheduled Expiration Date. Such announcement may state
that IMPAC is extending the Exchange Offer for a specified period of time.
During any such extension, all Existing Notes previously tendered will remain
subject to the Exchange Offer.
In addition, IMPAC expressly reserves the right to terminate or amend the
Exchange Offer and not to accept for exchange any Existing Notes not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "--Certain Conditions to the Exchange Offer". If any
such termination or amendment occurs, IMPAC will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the
holders of the Existing Notes as promptly as practicable.
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to IMPAC of Existing Notes by a holder thereof as set forth below
and the acceptance thereof by IMPAC will constitute a binding agreement
between the tendering holder and IMPAC upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal.
A holder of Existing Notes may tender the same by (i) properly completing
and signing the Letter of Transmittal or a facsimile thereof (all references
in this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Existing Notes being tendered, if any, and any
required signature guarantees, to the Exchange Agent at its address set forth
below on or prior to 5:00 p.m., New York City time, on the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF EXISTING NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND DELIVERY SERVICE, BE
USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY
DELIVERY. NO EXISTING NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO IMPAC.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Existing Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Existing Notes
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined herein). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a participant
in a recognized signature guaranty medallion program (each an "Eligible
Institution"). If Existing Notes are registered in the name of a person other
than a signer of the Letter of Transmittal,
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the Existing Notes surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by IMPAC in its sole discretion, duly executed
by the registered holder with the signature thereon guaranteed by an Eligible
Institution.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Existing Notes at the
book-entry transfer facility, The Depository Trust Company, for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of Existing Notes by causing
such book-entry transfer facility to transfer such Existing Notes into the
Exchange Agent's account with respect to the Existing Notes in accordance with
the book- entry transfer facility's procedures for such transfer. Although
delivery of Existing Notes may be effected through book-entry transfer in the
Exchange Agent's account at the book-entry transfer facility, an appropriate
Letter of Transmittal with any required signature guarantee and other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Existing Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed
on a timely basis, a tender may be effected if the Exchange Agent has received
at its address or facsimile number set forth below on or prior to the
Expiration Date a letter, telegram or facsimile from an Eligible Institution
setting forth the name and address of the tendering holder, the name in which
the Existing Notes are registered and, if possible the certificate number or
numbers of the certificate or certificates representing the Existing Notes to
be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date the
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at the book-
entry transfer facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal
(and any other required documents). Unless Existing Notes being tendered by
the above-described method are deposited with the Exchange Agent within the
time period set forth above (accompanied or preceded by a properly completed
Letter of Transmittal and any other required documents), IMPAC may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by an Eligible Institution for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Existing Notes (or a confirmation of book-entry transfer of
such Existing Notes into the Exchange Agent's account at the book-entry
transfer facility) is received by the Exchange Agent, or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile to similar effect (as
provided above) from an Eligible Institution is received by the Exchange
Agent. Issuances of New Notes in exchange for Existing Notes tendered pursuant
to a Notice of Guaranteed Delivery or letter, telegram or facsimile to similar
effect (as provided above) by an Eligible Institution will be made only
against deposit of the Letter of Transmittal (and any other required
documents) and the tendered Existing Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by IMPAC in its sole discretion, which determination will be final
and binding on all parties. IMPAC reserves the right to reject any and all
tenders of any particular Existing Notes not properly tendered or reject any
particular shares of Existing Notes the acceptance of which might, in the
judgment of IMPAC or its counsel, be unlawful. IMPAC also reserves the
absolute right to waive any defects or irregularities or condition of the
Exchange Offer as to any particular Existing Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Existing Notes in the Exchange Offer). The
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interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) by IMPAC shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Existing Notes for exchange must be cured within
such time as IMPAC shall determine. Neither IMPAC nor any other person shall
be under any duty to give notification of defects or irregularities with
respect to tenders of Existing Notes for exchange, nor shall any of them incur
any liability for failure to give such notification.
If the Letter of Transmittal or any Existing Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
IMPAC, proper evidence satisfactory to IMPAC of their authority to so act must
be submitted.
By tendering, each holder that is not a broker-dealer or is a broker-dealer
but is not receiving New Notes for its own account will represent to IMPAC
that, among other things, the New Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of such holder's business,
that such holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes and that such holder is not
an "affiliate" of IMPAC as defined in Rule 405 under the Securities Act or, if
it is an affiliate, such holder will comply with the registration and
prospectus delivery requirements of the Securities Act, to the extent
applicable. Each broker-dealer that is receiving New Notes for its own account
in exchange for Existing Notes that were acquired as a result of market-making
or other trading activities will represent to IMPAC that it will deliver a
prospectus in connection with any resale of such Existing Notes.
In addition, IMPAC reserves the right in its sole discretion to (a) purchase
or make offers for any Existing Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under "--Certain Conditions to the
Exchange Offer", to terminate the Exchange Offer and (b) to the extent
permitted by applicable law, purchase Existing Notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such
purchases or offers may differ from the terms of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the business day prior to the Expiration Date. For a
withdrawal to be effective, a written notice of withdrawal sent by letter,
telegram or facsimile must be received by the Exchange Agent at any time prior
to 5:00 p.m., New York City time, on the business day prior to the Expiration
Date at its address or facsimile number set forth below. Any such notice of
withdrawal must (i) specify the name of the person having tendered the
Existing Notes to be withdrawn (the "Depositor"), (ii) identify the Existing
Notes to be withdrawn (including the certificate number of numbers of the
certificate or certificates representing such Existing Notes and the aggregate
principal amount of such Existing Notes), (iii) be signed by the holder in the
same manner as the original signature on the Letter of Transmittal by which
such Existing Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to permit
the Transfer Agent with respect to the Existing Notes to register the transfer
of such Existing Notes into the name of the person withdrawing the tender and
(iv) specify the name in which any such Existing Notes are to be registered,
if different from that of the Depositor. All questions as to the validity,
form and eligibility (including time of receipt) of such withdrawal notices
will be determined by IMPAC in its sole discretion, which determination will
be final and binding on all parties. Any Existing Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer
and no New Notes will be issued with respect thereto unless the Existing Notes
so withdrawn are validly retendered. Any Existing Notes which have been
tendered but which are withdrawn will be returned to the holder thereof
without cost to such holder as soon as practicable after such withdrawal.
Properly withdrawn Existing Notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering Existing Notes"
at any time prior to the Expiration Date.
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ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
IMPAC will accept, promptly after the Expiration Date, all Existing Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Exchange Offer. See "--Certain Conditions to the Exchange Offer" below.
For purposes of the Exchange Offer, IMPAC will be deemed to have accepted
properly tendered Existing Notes for exchange when IMPAC has given oral or
written notice thereof to the Exchange Agent.
In all cases, issuance of the New Notes in exchange for Existing Notes
pursuant to the Exchange Offer will be made only after timely receipt by IMPAC
of such Existing Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Existing Notes
are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer, such unaccepted Existing Notes will be
returned without expense to the tendering holder thereof as promptly as
practicable after the rejection of such tender or the expiration or
termination of the Exchange Offer.
UNTENDERED EXISTING NOTES
Holders of Existing Notes whose Existing Notes are not tendered or are
tendered but not accepted in the Exchange Offer will continue to hold such
Existing Notes and will be entitled to all the rights and preferences and
subject to the limitations applicable thereto. Following consummation of the
Exchange Offer, the holders of Existing Notes will continue to be subject to
the existing restrictions upon transfer thereof and, except as provided
herein, IMPAC will have no further obligation to such holders to provide for
the registration under the Securities Act of the Existing Notes held by them.
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Existing
Notes could be adversely affected.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, IMPAC will not be
required to accept for exchange, or issue New Notes in exchange for, any
Existing Notes, and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Existing Notes for exchange, any of the
following events shall occur:
(A) an injunction, order or decree shall have been issued by any court or
governmental agency that would prohibit, prevent or otherwise materially
impair the ability of IMPAC to proceed with the Exchange Offer; or
(B) there shall occur a change in the current interpretation of the staff
of the Commission which current interpretation permits the New Notes issued
pursuant to the Exchange Offer in exchange for the Existing Notes to be
offered for resale, resold and otherwise transferred by holders thereof
(other than (i) a broker-dealer who purchases such New Notes directly from
IMPAC to resell pursuant to Rule 144A, Regulation S or any other available
exemption under the Securities Act or (ii) a person that is an affiliate of
IMPAC within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with
any person to participate in the distribution of New Notes.
The foregoing conditions are for the sole benefit of IMPAC and may be
asserted by IMPAC regardless of the circumstances giving rise to any such
condition or may be waived by IMPAC in whole or in part at any time and from
time to time in its sole discretion. The failure by IMPAC at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
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If IMPAC determines that it may terminate the Exchange Offer, as set forth
above, IMPAC may (i) refuse to accept any Existing Notes and return any
Existing Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Existing Notes tendered prior to the Expiration
Date, subject to the rights of such holders of tendered shares of Existing
Notes to withdraw their tendered Existing Notes, or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Existing Notes that have not been withdrawn. If such waiver
constitutes a material change in the Exchange Offer, IMPAC will disclose such
change by means of a supplement to this Prospectus that will be distributed to
each registered holder of Existing Notes, and IMPAC will extend the Exchange
Offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the Existing Notes, if the Exchange Offer would otherwise expire
during such period.
In addition, IMPAC will not accept for exchange any Existing Notes tendered,
and no New Notes will be issued in exchange for any such Existing Notes, if at
any time any stop order shall be threatened by the Commission or in effect
with respect to the Registration Statement.
The Exchange Offer is not conditioned on any minimum principal amount of
Existing Notes being tendered for exchange.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions regarding Exchange Offer procedures and requests
for additional copies of this Prospectus or the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
By Mail: By Hand or Overnight Delivery:
State Street Bank and Trust Company State Street Bank and Trust Company
Two International Place Corporate Two International Place Corporate
Trust Department, 4th Floor Boston, Trust Department, 4th Floor Boston,
MA 02110 MA 02110
Attention: Kellie Mullen Re: IMPAC Attention: Kellie Mullen Re: IMPAC
Group, Inc. Group, Inc.
By Facsimile:
(617) 664-5290 Confirm by Telephone:
(617) 664-5587
State Street Bank and Trust Company is also the Transfer Agent for the
Existing Notes and New Notes.
SOLICITATION OF TENDERS; FEES AND EXPENSES
IMPAC has not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to brokers, dealers or other persons
soliciting acceptance of the Exchange Offer. IMPAC, however, will pay the
Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The cash expenses to be incurred by IMPAC in connection
with the Exchange Offer will be paid by IMPAC.
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by IMPAC.
Neither the delivery of this Prospectus nor any exchange made hereunder shall,
under any circumstances, create any implication that there has been no change
in the affairs of IMPAC since the
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respective dates as of which information is given herein. The Exchange Offer
is not being made to (nor will tenders be accepted from or on behalf of)
holders of Existing Notes in any jurisdiction in which the making of the
Exchange Offer or the acceptance thereof would not be in compliance with the
laws of such jurisdiction.
TRANSFER TAXES
IMPAC will pay all transfer taxes, if any, applicable to the exchange of
Existing Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Existing Notes not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Existing Notes tendered, or if
tendered Existing Notes are registered in the name of any person other than
the person signing the Letter of Transmittal, or if a transfer tax is imposed
for any reason other than the exchange of New Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holders.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by IMPAC upon the
consummation of the Exchange Offer. Expenses incurred in connection with the
issuance of the New Notes will be amortized by IMPAC over the term of the New
Notes under generally accepted accounting principles.
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PLAN OF DISTRIBUTION
Based on no-action letters issued by the staff of the Commission to third
parties, IMPAC believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Existing Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than (i) a broker-dealer who
purchases such New Notes directly from IMPAC to resell pursuant to Rule 144A
or any other available exemption under the Securities Act or (ii) a person
that is an affiliate of IMPAC within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery requirements of the Securities Act provided that New Notes are
acquired in the ordinary course of such holders' business and such holders
have no arrangement with any person to participate in the distribution of such
New Notes. Any holder of Existing Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the New Notes could not rely
on such interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Thus, any New Notes acquired by such
holders will not be freely transferable except in compliance with the
Securities Act.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes acquired as a result of market-making or other trading
activities must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. For a period of 180 days after the
Expiration Date, this Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
such New Notes. During such 180-day period, IMPAC will use its reasonable best
efforts to make this Prospectus available to any broker-dealer for use in
connection with such resale, provided that such broker-dealer indicates in the
Letter of Transmittal that it is a broker-dealer.
IMPAC will not receive any proceeds from any sale of New Notes by broker-
dealers. New Notes received by broker-dealers for their own account pursuant
to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through broker-dealers who
may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Notes. Any broker-
dealer that resells New Notes that were received by it for its own account
pursuant to the Exchange Offer and any person that participates in the
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes
and any commissions or concessions received by any such broker-dealers may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that a broker-dealer, by acknowledging that it will deliver
and by delivering a prospectus, will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
IMPAC will indemnify the holders of the New Notes (including any broker-
dealers) against certain liabilities, including liabilities under the
Securities Act.
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DESCRIPTION OF NOTES
GENERAL
Except as otherwise indicated, the following description relates both to the
Existing Notes issued in the Offering and the New Notes, together with the New
Guarantees, to be issued in exchange for the Existing Notes in the Exchange
Offer. The form and terms of the New Notes are the same as the form and terms
of the Existing Notes, except that the New Notes have been registered under
the Securities Act and therefore will not bear legends restricting the
transfer thereof. The New Notes will be obligations of IMPAC evidencing the
same indebtedness as the Existing Notes. The Existing Notes were issued, and
the New Notes offered hereby will be issued, pursuant to an Indenture between
IMPAC, the Guarantors and State Street Bank and Trust Company, as trustee (the
"Trustee"), in a private transaction that is not subject to the registration
requirements of the Securities Act. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the Trust Indenture Act for a statement thereof. The following summary of
the material provisions of the Indenture does not purport to be complete and
is qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. Copies of the Indenture and
Registration Rights Agreement are available as set forth below under "--
Additional Information". The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions".
The Notes are general unsecured obligations of IMPAC and are subordinated in
right of payment to the prior payment in full in cash of all current and
future Senior Debt including borrowings under the New Credit Facility and the
IRB Financings. As of March 31, 1998, approximately $11.6 million in Senior
Debt was outstanding, fully secured by approximately $12.6 million in letters
of credit, and IMPAC and its Subsidiaries had additional liabilities
(including trade payables) aggregating approximately $26.3 million. The
Indenture permits the incurrence of additional Senior Debt in the future.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount of $100.0 million and
will mature on March 15, 2008. Interest on the Notes accrues at the rate of 10
1/8% per annum and will be payable semi-annually in arrears on March 15 and
September 15, commencing on September 15, 1998, to Holders of record on the
immediately preceding March 1 and September 1 (each a "Record Date"). Interest
on the Notes accrues from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of original issuance. Interest
is computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages on the Notes
is payable at the office or agency of IMPAC maintained for such purpose or, at
the option of IMPAC, payment of interest and Liquidated Damages may be made by
check mailed to the Holders of the Notes at their respective addresses set
forth in the register of Holders of Notes; provided that all payments of
principal, premium, interest and Liquidated Damages with respect to Notes the
Holders of which have given wire transfer instructions to IMPAC prior to the
Record Date are required to be made by wire transfer of immediately available
funds to the accounts specified by the Holders thereof. Until otherwise
designated by IMPAC, IMPAC's office or agency for payment is the office of the
Trustee maintained for such purpose. The Notes will be issued in denominations
of $1,000 and integral multiples thereof.
SUBSIDIARY GUARANTEES
IMPAC's payment obligations under the Notes are jointly and severally
guaranteed (the "Subsidiary Guarantees") by the Guarantors. All of IMPAC's
Subsidiaries are Restricted Subsidiaries and Guarantors. The Subsidiary
Guarantee of each Guarantor are unsecured and subordinated to the
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prior payment in full in cash of all Senior Debt of such Guarantor. At March
31, 1998, approximately $11.6 million in Senior Debt was outstanding, fully
secured by approximately $12.6 million in letters of credit issued under the
New Credit Facility. The Obligations (as defined under "--Certain
Definitions") of each Guarantor under its Subsidiary Guarantee are limited so
as not to constitute a fraudulent conveyance under applicable law. See,
however, "Risk Factors--Effect of Fraudulent Transfer Statutes on Validity of
Notes and Guarantees".
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person (as defined
under "-- Certain Definitions")), another corporation, Person or other entity
whether or not affiliated with such Guarantor unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture, in form
and substance reasonably satisfactory to the Trustee, under the Notes, the
Indenture and the Registration Rights Agreement; (ii) immediately after giving
effect to such transaction, no Default (as defined under "--Certain
Definitions") or Event of Default exists; and (iii) except in the case of a
merger of a Guarantor with or into another Guarantor or a merger of a
Guarantor with or into IMPAC, IMPAC would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio (as defined under "--Certain
Definitions"), immediately after giving effect to such transaction, to incur
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the covenant described below under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock".
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor (other than to IMPAC or another Guarantor),
by way of merger, consolidation or otherwise, or a sale or other disposition
of all of the Capital Stock (as defined under "--Certain Definitions") of any
Guarantor (other than to IMPAC or another Guarantor), then such Guarantor (in
the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the Capital Stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Guarantor) will be released and
relieved of any obligations under its Subsidiary Guarantee and any such
acquiring corporation will not be required to assume any obligations of such
Guarantor under the applicable Subsidiary Guarantee; provided that such sale
or other disposition complies with all applicable provisions of the Indenture
including, without limitation, the covenant described below under the caption
"--Repurchase at the Option of Holders--Asset Sales". See "--Repurchase at the
Option of Holders--Asset Sales".
SUBORDINATION
The payment of principal of, premium, if any, interest and all other amounts
or obligations due under or on the Notes is subordinated in right of payment,
as set forth in the Indenture, to the prior payment in full in cash of all
Senior Debt, whether outstanding on the date of the Indenture or thereafter
incurred.
Upon any distribution to creditors of IMPAC or any Guarantor in a
liquidation or dissolution of the Company or any Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to
IMPAC or its property, an assignment for the benefit of creditors or any
marshaling of IMPAC's or any Guarantor's assets and liabilities, the holders
of Senior Debt will be entitled to receive payment in full in cash of all
Obligations due in respect of such Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt whether or not allowed as a claim in any such proceeding) before
the Holders of Notes will be entitled to receive any payment with respect to
the Notes, and until all Obligations with respect to Senior Debt are paid in
full in cash, any distribution to which the Holders of Notes would be entitled
shall be made to the holders of Senior Debt (except that Holders of Notes may
receive and retain Permitted Junior Securities (as defined under "--Certain
Definitions") and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance").
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IMPAC and the Guarantors also may not make any payment upon or in respect of
the Notes or the Subsidiary Guarantees (except in Permitted Junior Securities
or from the trust described under "--Legal Defeasance and Covenant
Defeasance") if (i) a default in the payment of the principal of, premium, if
any, or interest on Senior Debt occurs and is continuing or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt (as
defined under "--Certain Definitions") that currently, or with the passage of
time or giving of notice, permits holders of the Designated Senior Debt as to
which such default relates to accelerate its maturity and, in the case of any
such default described in this clause (ii), the Trustee receives a notice of
such default of the type referred to in this clause (ii) (a "Payment Blockage
Notice") from IMPAC or the holders of any Designated Senior Debt. Payments on
the Notes may and shall be resumed (a) in the case of a payment default, upon
the date on which such default is cured or waived in writing by the holders of
the applicable Senior Debt and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived in
writing by the holders of Designated Senior Debt or 179 days after the date on
which the applicable Payment Blockage Notice is received by the Trustee,
unless the maturity of any Designated Senior Debt has been accelerated. No new
period of payment blockage may be commenced under clause (ii) above unless and
until (i) 360 days have elapsed since the initial effectiveness of the
immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal of, premium, if any, and interest on the Notes that have come due
have been paid in full in cash. No nonpayment default that existed and was
continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice unless such default shall have been waived in writing or cured for a
period of not less than 90 days. In the event that IMPAC or any Guarantor
makes any payment to the Trustee or any Holder of any Note prohibited by the
foregoing, such payment will be required to be held in trust for and paid over
to the holders of Senior Debt (or the representative thereof). The Trustee and
the Holders of the Notes will agree not to challenge or contest the
enforceability or validity of the New Credit Facility or any obligation, Lien
(as defined under "--Certain Definitions") or encumbrance thereunder.
The Indenture further requires that IMPAC promptly notify holders of Senior
Debt if payment of the Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of IMPAC and the Guarantors including creditors who are holders of
Senior Debt. At March 31, 1998, approximately $11.6 million in Senior Debt was
outstanding, fully secured by approximately $12.6 million in letters of credit
issued under the New Credit Facility. The Indenture limits, subject to certain
financial tests, the amount of additional Indebtedness (as defined under "--
Certain Definitions"), including Senior Debt, that IMPAC and its Subsidiaries
can incur. See "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock".
OPTIONAL REDEMPTION
The Notes will not be redeemable at IMPAC's option prior to March 15, 2003.
Thereafter, the Notes will be subject to redemption at any time at the option
of IMPAC, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated
Damages thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on March 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003............................................................ 105.062%
2004............................................................ 103.375
2005............................................................ 101.687
2006 and thereafter............................................. 100.000
</TABLE>
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Notwithstanding the foregoing, at any time prior to March 15, 2001, IMPAC
may on any one or more occasions redeem up to $35.0 million in aggregate
principal amount of Notes at a redemption price of 110.125% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the redemption date, with the net cash proceeds of public
equity offerings by IMPAC; provided that at least $65.0 million in aggregate
principal amount of Notes remain outstanding immediately after the occurrence
of such redemption (excluding Notes held by IMPAC and its Subsidiaries); and
provided, further, that such redemption shall occur within 60 days of the date
of the closing of such public equity offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
Notes or portions of them called for redemption.
MANDATORY REDEMPTION
IMPAC is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control each Holder of Notes will have
the right to require IMPAC to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase (the "Change of Control Payment"). Within fifteen Business Days (as
defined under "--Certain Definitions") following any Change of Control, IMPAC
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by the Indenture
and described in such notice. IMPAC will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Notes as a result of a Change of
Control.
On the Change of Control Payment Date, IMPAC will, to the extent lawful, (1)
accept for payment all Notes or portions thereof properly tendered pursuant to
the Change of Control Offer, (2) deposit with the Paying Agent an amount equal
to the Change of Control Payment in respect of all Notes or portions thereof
so tendered and (3) deliver or cause to be delivered to the Trustee the Notes
so accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being repurchased by IMPAC. The
Paying Agent will promptly mail to each Holder of
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Notes so tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unrepurchased portion of the Notes surrendered, if any; provided that each
such new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Indenture will provide that, prior to complying with the
provisions of this covenant, but in any event within 90 days following a
Change of Control, IMPAC will either repay all outstanding Senior Debt or
obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of Notes required by this
covenant. IMPAC will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that IMPAC
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The New Credit Facility currently prohibits IMPAC from purchasing any Notes
and also provides that certain change of control events including, without
limitation, a Change of Control, with respect to IMPAC would constitute a
default thereunder. Any future credit agreements or other agreements relating
to Senior Debt to which IMPAC becomes a party may contain similar restrictions
and provisions. In the event a Change of Control occurs at a time when IMPAC
is prohibited from purchasing Notes, IMPAC could seek the consent of its
lenders to the purchase of Notes or could attempt to refinance the borrowings
that contain such prohibition. If IMPAC does not obtain such a consent or
repay such borrowings, IMPAC will remain prohibited from purchasing Notes. In
such case, IMPAC's failure to purchase tendered Notes would constitute an
Event of Default under the Indenture which would, in turn, constitute a
default under the New Credit Facility. In such circumstances, the
subordination provisions in the Indenture restrict payments to the Holders of
Notes.
IMPAC will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner,
at the times and otherwise in compliance with the requirements set forth in
the Indenture applicable to a Change of Control Offer made by IMPAC and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of "Change of Control" includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the assets of IMPAC and its Subsidiaries taken as a
whole. Although there is case law interpreting the phrase "substantially all",
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Notes to require IMPAC to repurchase
such Notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of IMPAC and its Subsidiaries taken
as a whole to another Person or group may be uncertain.
Asset Sales
The Indenture provides that IMPAC will not, and will not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale (as defined under "--
Certain Definitions") unless (i) IMPAC (or the Restricted Subsidiary, as the
case may be) receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee) of
the assets or Equity Interests (as defined under "--Certain Definitions")
issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by IMPAC or such Restricted Subsidiary is in
the form of cash; provided that the amount of (x) any liabilities (as shown on
IMPAC's or such Restricted Subsidiary's most recent balance sheet) of IMPAC or
any Restricted Subsidiary (other than contingent liabilities and liabilities
that are by their terms subordinated to the Notes or the Subsidiary
Guarantees) that are assumed by the
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transferee of any such assets pursuant to a customary novation agreement that
releases IMPAC or such Restricted Subsidiary from further liability and (y) in
the case of any Asset Sale constituting the transfer (by merger or otherwise)
of all of the Capital Stock of a Restricted Subsidiary, any liabilities (as
shown on such Restricted Subsidiary's most recent balance sheet) of such
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or the Subsidiary Guarantees)
that will remain outstanding after such transfer and will not be a liability
of IMPAC or any other Restricted Subsidiary of IMPAC following such transfer
and (z) any securities, notes or other obligations received by IMPAC or any
such Restricted Subsidiary from such transferee that are contemporaneously
(subject to ordinary settlement periods) converted by IMPAC or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to
be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds (as defined under "--
Certain Definitions") from an Asset Sale, IMPAC may apply such Net Proceeds,
at its option, (a) to repay Senior Debt, or (b) to the acquisition of a
majority of the assets of, or a majority of the Voting Stock of, another
business, the making of a capital expenditure or the acquisition of other
long-term assets, in each case, in, or used or useful in, the same or a
similar line of business as IMPAC or one of its Subsidiaries was engaged in on
the date of the Indenture or any reasonable extension or expansion thereof.
Pending the final application of any such Net Proceeds, IMPAC may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in
any manner that is not prohibited by the Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds". When the
aggregate amount of Excess Proceeds exceeds $5.0 million, IMPAC will be
required to make an offer to all Holders of Notes and all holders of other
Indebtedness ranking at the same level containing provisions similar to those
set forth in the Indenture with respect to offers to purchase or redeem with
the proceeds of sales of assets an "Asset Sale Offer" to purchase the maximum
principal amount of Notes and such other Indebtedness ranking at the same
level that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount thereof plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase, in accordance with the procedures set forth in the Indenture and
such other Indebtedness. To the extent that any Excess Proceeds remain after
consummation of an Asset Sale Offer, IMPAC may use such Excess Proceeds for
any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Notes and such other Indebtedness tendered into such Asset
Sale Offer surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes and such other Indebtedness to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that IMPAC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of IMPAC's or
any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving IMPAC or any of its Restricted Subsidiaries) or to the direct or
indirect holders of IMPAC's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock (as defined under
"--Certain Definitions") of IMPAC or to IMPAC or a Restricted Subsidiary of
IMPAC); (ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving IMPAC) any Equity Interests of IMPAC or any direct or indirect
parent of IMPAC; (iii) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness that
is subordinated to the Notes, except a payment of interest or principal at
Stated Maturity (as defined
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under "--Certain Definitions"); or (iv) make any Restricted Investment (as
defined under "--Certain Definitions") (all such payments and other actions
set forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default (as defined under "--Event of Default
and Remedies") shall have occurred and be continuing or would occur as a
consequence thereof; and
(b) IMPAC would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by IMPAC and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv) and (vi) of the next succeeding paragraph), is
less than the sum, without duplication, of (i) 50% of the Consolidated Net
Income (as defined under "--Certain Definitions") of IMPAC for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of IMPAC's
most recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by
IMPAC since the date of the Indenture as a contribution to its common
equity capital or from the issue or sale of Equity Interests of IMPAC
(other than Disqualified Stock) or from the issue or sale of Disqualified
Stock or debt securities of IMPAC that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of IMPAC), plus (iii) to
the extent that any Restricted Investment (as defined under "--Certain
Definitions" that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost
of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) $1.0 million.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Indebtedness that is subordinated to the Notes or Equity
Interests of IMPAC in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of IMPAC) of, other
Equity Interests of IMPAC (other than any Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of Indebtedness that
is subordinated to the Notes with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness (as defined under "--Certain Definitions");
(iv) the payment of any dividend (in cash or otherwise) by a Subsidiary of
IMPAC to the holders of its common Equity Interests on a pro rata basis; (v)
the repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of IMPAC or any Subsidiary of IMPAC held by any member of
IMPAC's (or any of its Subsidiaries') management pursuant to any management
equity subscription agreement, stock option agreement or employment agreement;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $2.5 million in any
twelve-month period and no Default or Event of Default shall have occurred and
be continuing immediately after such transaction; or (vi) the repurchase,
redemption or other acquisition or retirement for value of any Equity
Interests of IMPAC or any Subsidiary of IMPAC held by any member of IMPAC's
(or any of its Subsidiaries') management pursuant to any management equity
subscription agreement, stock option agreement or
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employment agreement, provided that the purchase price is paid with the
proceeds to IMPAC of key man life insurance or disability insurance policies
purchased by IMPAC specifically to finance any such repurchase, redemption or
other acquisition.
The Board of Directors of IMPAC may designate any Restricted Subsidiary
(other than Klearfold, Inc. or AGI Incorporated) to be an Unrestricted
Subsidiary (as defined under "--Certain Definitions") if such designation
would not cause a Default. For purposes of making such determination, all
outstanding Investments by IMPAC and its Restricted Subsidiaries (except to
the extent repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will reduce the
amount available for Restricted Payments under clause (c) of the first
paragraph of this covenant. All such outstanding investments will be deemed to
constitute Investments (as defined under "--Certain Definitions") in an amount
equal to the greatest of (x) the net book value of such Investments at the
time of such designation, (y) the fair market value of such Investments at the
time of such designation and (z) the original fair market value of such
Investments at the time they were made. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by IMPAC or such Subsidiary,
as the case may be, pursuant to the Restricted Payment. The fair market value
of any non-cash Restricted Payment shall be determined by the Board of
Directors whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if
such fair market value exceeds $5.0 million. Not later than the date of making
any Restricted Payment, IMPAC shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting
forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, together with a copy of any opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that IMPAC will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt (as defined under "--Certain Definitions")) and that IMPAC will
not issue any Disqualified Stock and will not permit any of its Subsidiaries
to issue any shares of preferred stock; provided, however, that IMPAC may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for IMPAC's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred or such Disqualified Stock is issued would have been at least 2.0 to
1, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred,
or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by IMPAC of Indebtedness and letters of credit (with
letters of credit being deemed to have a principal amount equal to the
stated amount thereof) and other obligations under Credit Facilities (as
defined under "--Certain Definitions") in an aggregate principal amount
that does not exceed at any one time $40.0 million less the aggregate
amount of all Net Proceeds of Asset Sales applied to repay Indebtedness
under a Credit Facility pursuant to the covenant
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described above under the caption "--Asset Sales" (other than temporary
paydowns pending final application of such Net Proceeds);
(ii) the incurrence by IMPAC and the Guarantors of the Existing
Indebtedness (as defined under "--Certain Definitions") and letters of
credit (including reimbursement obligations with respect thereto)
supporting Existing Indebtedness whether such letters of credit are
incurred under the New Credit Facility or otherwise;
(iii) the incurrence by IMPAC of Indebtedness represented by the Notes;
(iv) the incurrence by IMPAC or any of the Guarantors of Indebtedness
represented by Capital Lease Obligations (as defined under "--Certain
Definitions"), mortgage financings or purchase money obligations, in each
case incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or
equipment used in the business of IMPAC or such Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any other Indebtedness incurred pursuant to
this clause (iv), not to exceed $5.0 million at any time outstanding;
(v) the incurrence by IMPAC or any of the Guarantors of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to refund, refinance or replace Indebtedness (other than intercompany
Indebtedness) that was permitted by the Indenture to be incurred under the
first paragraph hereof or clauses (ii) or (iv) of this paragraph;
(vi) the incurrence by IMPAC or any of the Guarantors of intercompany
Indebtedness between or among IMPAC and any Guarantor; provided, however,
that (i) if IMPAC is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Notes and (ii)(A) any subsequent issuance
or transfer of Equity Interests that results in any such Indebtedness being
held by a Person other than IMPAC or a Subsidiary thereof and (B) any sale
or other transfer of any such Indebtedness to a Person that is not either
IMPAC or a Guarantor thereof shall be deemed, in each case, to constitute
an incurrence of such Indebtedness by IMPAC or such Guarantor, as the case
may be, that was not permitted by this clause (vi);
(vii) the incurrence by IMPAC or any of the Guarantors of Hedging
Obligations (as defined under "--Certain Definitions") that are incurred
for the purpose of fixing or hedging interest rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of this Indenture
to be outstanding;
(viii) the guarantee by IMPAC or any of its Subsidiaries or any of the
Guarantors of Indebtedness of IMPAC or another Guarantor that was permitted
to be incurred by another provision of this covenant;
(ix) the incurrence by IMPAC's Unrestricted Subsidiaries of Non-Recourse
Debt (as defined under "--Certain Definitions"), provided, however, that if
any such Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of IMPAC that was not permitted by
this clause (ix), and the issuance of preferred stock by Unrestricted
Subsidiaries; and
(x) the incurrence by IMPAC or any of the Guarantors of additional
Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (x), not to exceed $5.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (x) above or is entitled to
be incurred pursuant to the first paragraph of this covenant, IMPAC shall, in
its sole discretion, classify such item of Indebtedness in any manner that
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complies with this covenant. Accrual of interest, accretion or amortization of
original issue discount, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the same
class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant; provided, in each such case, that the amount thereof is included in
Fixed Charges (as defined under "--Certain Definitions") of IMPAC as accrued
(to the extent not already included in Fixed Charges).
Liens
The Indenture provides that IMPAC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, securing Indebtedness or trade payables, except for Permitted Liens
(as defined under "--Certain Definitions").
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that IMPAC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other
distributions to IMPAC or any of its Restricted Subsidiaries (1) on its
Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any Indebtedness owed to IMPAC or any
of its Restricted Subsidiaries, (ii) make loans or advances to IMPAC or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets
to IMPAC or any of its Restricted Subsidiaries. However, the foregoing
restrictions will not apply to encumbrances or restrictions existing under or
by reason of (a) Existing Indebtedness as in effect on the date of the
Indenture, (b) the New Credit Facility as in effect as of the date of the
Indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are not
materially more restrictive, taken as a whole, with respect to such dividend
and other payment restrictions than those contained in the New Credit Facility
as in effect on the date of the Indenture as determined in good faith by
IMPAC's Board of Directors, (c) the Indenture and the Notes, (d) applicable
law, (e) any instrument governing Indebtedness or Capital Stock of a Person
acquired by IMPAC or any of its Restricted Subsidiaries as in effect at the
time of such acquisition (except to the extent such Indebtedness was incurred
in connection with or in contemplation of such acquisition), which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) customary non-
assignment provisions in leases and other contracts, (g) purchase money
obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) any agreement for the sale of a Subsidiary or a
substantial portion of such Subsidiary's assets that restricts distributions
by that Subsidiary pending its sale, (i) Permitted Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are not materially more restrictive, taken
as a whole, than those contained in the agreements governing the Indebtedness
being refinanced as determined in good faith by IMPAC's Board of Directors,
(j) secured Indebtedness otherwise permitted to be incurred pursuant to the
provisions of the covenant described above under the caption "--Liens" that
limits the right of the debtor to dispose of the assets securing such
Indebtedness, (k) provisions with respect to the disposition or distribution
of assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business and (l) restrictions on cash
or
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other deposits or net worth imposed by customers under contracts entered into
in the ordinary course of business.
Merger, Consolidation, or Sale of Assets
The Indenture provides that IMPAC may not consolidate or merge with or into
(whether or not IMPAC is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) IMPAC is the surviving corporation or
the entity or the Person formed by or surviving any such consolidation or
merger (if other than IMPAC) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof
or the District of Columbia; (ii) except in the case of a merger or
consolidation of IMPAC with or into a Wholly Owned (as defined under "--
Certain Definitions") Restricted Subsidiary of IMPAC, the entity or Person
formed by or surviving any such consolidation or merger (if other than IMPAC)
or the entity or Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the
obligations of IMPAC under the Registration Rights Agreement, the Notes and
the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) except in the case of a merger or
consolidation of IMPAC with or into a Wholly Owned Restricted Subsidiary of
IMPAC, IMPAC or the entity or Person formed by or surviving any such
consolidation or merger (if other than IMPAC), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth (as defined under "--Certain
Definitions") immediately after the transaction equal to or greater than the
Consolidated Net Worth of IMPAC immediately preceding the transaction and (B)
will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock".
Transactions with Affiliates
The Indenture provides that IMPAC will not, and will not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (as defined under "--Certain Definitions") (each
of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to IMPAC or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction by IMPAC or such Restricted Subsidiary with an unrelated Person
and (ii) IMPAC delivers to the Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal
or investment banking firm of national standing. Notwithstanding the
foregoing, the following items shall not be deemed to be Affiliate
Transactions: (i) any employment agreement entered into by IMPAC or any of its
Subsidiaries in the ordinary course of business and consistent with the past
practice of IMPAC or such Subsidiary, (ii) transactions between or among IMPAC
and/or its Subsidiaries, (iii) payment of reasonable directors fees to Persons
who are not otherwise Affiliates of IMPAC, (iv) Restricted
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Payments that are permitted by the provisions of the Indenture described above
under the caption "--Restricted Payments" and (v) Existing Affiliate
Transactions (as defined under "--Certain Definitions").
Senior Subordinated Debt
The Indenture provides that (i) IMPAC will not incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate
or junior in right of payment to any Senior Debt and senior in any respect in
right of payment to the Notes, and (ii) no Guarantor will incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that
is subordinate or junior in right of payment to Senior Debt of such Guarantor
and senior in any respect in right of payment to the Subsidiary Guarantees.
Payments for Consent
The Indenture provides that neither IMPAC nor any of its Subsidiaries will,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or is paid to all Holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
Additional Subsidiary Guarantees
The Indenture provides that if IMPAC or any of its Restricted Subsidiaries
shall acquire or create another Subsidiary after the date of the Indenture,
then such newly acquired or created Subsidiary shall become a Guarantor and
execute a supplemental indenture and deliver an Opinion of Counsel, in
accordance with the terms of the Indenture; provided, that all Subsidiaries
that have properly been designated as Unrestricted Subsidiaries in accordance
with the Indenture (i) shall not be subject to the requirements of this
covenant and (ii) shall be released from all Obligations under any Subsidiary
Guarantee, in each case for so long as they continue to constitute
Unrestricted Subsidiaries.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, IMPAC
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if IMPAC were required to file such Forms,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information only, a
report thereon by IMPAC's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if IMPAC were required to file such reports, in each case within the time
periods specified in the Commission's rules and regulations. In addition,
following the consummation of the exchange offer contemplated by the
Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, IMPAC will file a copy of all such information
and reports with the Commission for public availability within the time
periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request. In addition,
IMPAC and the Guarantors have agreed that, for so long as any Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act. Any materials
required to be furnished to Holders of Notes by this covenant shall discuss,
in reasonable detail, either on the face of the financial statements included
therein or in the footnotes thereto and in any Management's Discussion and
Analysis of Financial Condition and Results of Operations, the financial
condition and results of operations of IMPAC and
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its Restricted Subsidiaries separate from the financial condition and results
of operations of the Unrestricted Subsidiaries of IMPAC.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (ii) default in payment when
due of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
IMPAC or any of its Subsidiaries for 30 days after notice to comply with the
provisions described under the captions "--Change of Control", "--Asset
Sales", "--Restricted Payments" or "--Incurrence of Indebtedness and Issuance
of Preferred Stock"; (iv) failure by IMPAC or any of its Subsidiaries for 60
days after notice to comply with any other agreements in the Indenture or the
Notes; (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by IMPAC or any of its Restricted Subsidiaries
(or the payment of which is guaranteed by IMPAC or any of its Restricted
Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created
after the date of the Indenture, which default results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the
principal amount of any such Indebtedness, together with the principal amount
of any other such Indebtedness the maturity of which has been so accelerated,
aggregates $5.0 million or more (other than Existing Indebtedness to the
extent it is secured by or paid by the drawing against a letter of credit
permitted to be issued under the Indenture); (vi) failure by IMPAC or any of
its Restricted Subsidiaries to pay final judgments aggregating in excess of
$5.0 million, which judgments are not paid, discharged or stayed for a period
of 60 days; (vii) certain events of bankruptcy or insolvency with respect to
IMPAC or any of its Significant Subsidiaries (as defined under "--Certain
Definitions"); and (viii) except as permitted by the Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid in any material respect or shall cease for any reason to be in full
force and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to IMPAC, any Significant Subsidiary or
any group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of IMPAC with the
intention of avoiding payment of the premium that IMPAC would have had to pay
if IMPAC then had elected to redeem the Notes pursuant to the optional
redemption provisions of the Indenture, an equivalent premium shall also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the Notes. If an Event of Default occurs prior to March
15, 2003 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of IMPAC with the intention of avoiding the prohibition on
redemption of the Notes prior to March 15, 2003, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
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The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
IMPAC is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and IMPAC is required, upon becoming aware of
any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Registration Rights Agreement or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
IMPAC may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) IMPAC's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and IMPAC's obligations
in connection therewith and (iv) the Legal Defeasance provisions of the
Indenture. In addition, IMPAC may, at its option and at any time, elect to
have the obligations of IMPAC released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
IMPAC must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Notes on the Stated Maturity (as defined
under "--Certain Definitions") or on the applicable redemption date, as the
case may be, and IMPAC must specify whether the Notes are being defeased to
maturity or to a particular redemption date; (ii) in the case of Legal
Defeasance, IMPAC shall have delivered to the Trustee an opinion of counsel in
the United States reasonably acceptable to the Trustee confirming that (A)
IMPAC has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the Indenture, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the
Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, IMPAC shall have delivered
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to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; (iv) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which IMPAC or any of its Subsidiaries is a party or by which
IMPAC or any of its Subsidiaries is bound, including, without limitation, the
New Credit Facility; (vi) IMPAC must have delivered to the Trustee an opinion
of counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) IMPAC must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by IMPAC with the intent of preferring
the Holders of Notes over the other creditors of IMPAC with the intent of
defeating, hindering, delaying or defrauding creditors of IMPAC or others; and
(viii) IMPAC must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and IMPAC may require
a Holder to pay any taxes and fees required by law or permitted by the
Indenture. IMPAC is not required to transfer or exchange any Note selected for
redemption. Also, IMPAC is not required to transfer or exchange any Note for a
period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest on any Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes (except a rescission of acceleration of the Notes by
the Holders of at least a majority in aggregate principal amount of the Notes
and a waiver of the payment default that resulted from such acceleration), (v)
make any Note payable in money other than that stated in the Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders
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of Notes to receive payments of principal of or premium, if any, or interest
on the Notes, (vii) waive a redemption payment with respect to any Note (other
than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders") or (viii) make any change in
the foregoing amendment and waiver provisions. In addition, any amendment to
the provisions of Article 10 of the Indenture (which relate to subordination)
will require the consent of the Holders of at least 75% in aggregate principal
amount of the Notes then outstanding if such amendment would adversely affect
the rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
IMPAC and the Trustee may amend or supplement the Indenture or the Notes to
cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of IMPAC's obligations to Holders of Notes in the case of a merger
or consolidation or sale of all or substantially all of IMPAC's assets, to
make any change that would provide any additional rights or benefits to the
Holders of Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of IMPAC, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to IMPAC Group, Inc.,
1950 North Ruby Street, Melrose Park, Illinois 60160, Attention: Chief
Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The Existing Notes were offered and sold to qualified institutional buyers
in reliance on Rule 144A ("Rule 144A Notes"). Notes were also offered and sold
in offshore transactions in reliance on Regulation S ("Regulation S Notes").
Except as set forth below, Notes are issued in registered, global form in
minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof. Notes are issued at the closing of the Offering (the "Closing") only
against payment in immediately available funds.
Rule 144A Notes initially will be represented by one or more Notes in
registered, global form without interest coupons (collectively, the "Rule 144A
Global Notes"). Regulation S Notes initially will be represented by one or
more Notes in registered, global form without interest coupons (collectively,
the "Regulation S Global Notes" and, together with the Rule 144A Global Notes,
the "Global Notes").
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The Global Notes are deposited with the Trustee as custodian for The
Depository Trust Company ("DTC"), in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to an account of a direct
or indirect participant in DTC as described below. Through and including the
40th day after the later of the commencement of the Offering and the Closing
(such period through and including such 40th day, the "Restricted Period"),
beneficial interests in the Regulation S Global Notes may be held only through
the Euroclear System ("Euroclear") and Cedel, S.A. ("Cedel") (as indirect
participants in DTC), unless transferred to a person that takes delivery
through a Rule 144A Global Note in accordance with the certification
requirements described below. Beneficial interests in the Rule 144A Global
Notes may not be exchanged for beneficial interests in the Regulation S Global
Notes at any time except in the limited circumstances described below. See "--
Exchanges between Regulation S Notes and Rule 144A Notes".
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Notes in certificated form except in the limited circumstances described
below. See "--Exchange of Book-Entry Notes for Certificated Notes". Except in
the limited circumstances described below, owners of beneficial interests in
the Global Notes are entitled to receive physical delivery of Certificated
Notes (as defined below).
Rule 144A Notes (including beneficial interests in the Rule 144A Global
Notes) are subject to certain restrictions on transfer and bear a restrictive
legend as described under "Notice to Investors". Regulation S Notes also bear
the legend as described under "Notice to Investors". In addition, transfers of
beneficial interests in the Global Notes are subject to the applicable rules
and procedures of DTC and its direct or indirect participants (including, if
applicable, those of Euroclear and Cedel), which may change from time to time.
Initially, the Trustee acts as Paying Agent and Registrar. The Notes may be
presented for registration of transfer and exchange at the offices of the
Registrar.
Depository Procedures
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. IMPAC takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised IMPAC that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book- entry
changes in accounts of its Participants. The Participants include securities
brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised IMPAC that, pursuant to procedures established by it,
(i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes and (ii) ownership of such interests in
the Global Notes will be shown on, and the transfer of ownership thereof will
be effected only through, records
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maintained by DTC (with respect to the Participants) or by the Participants
and the Indirect Participants (with respect to other owners of beneficial
interest in the Global Notes).
Investors in the Rule 144A Global Notes may hold their interests therein
directly through DTC, if they are Participants in such system, or indirectly
through organizations (including Euroclear and Cedel) which are Participants
in such system. Investors in the Regulation S Global Notes must initially hold
their interests therein through Euroclear or Cedel, if they are participants
in such systems, or indirectly through organizations that are participants in
such systems. After the expiration of the Restricted Period (but not earlier),
investors may also hold interests in the Regulation S Global Notes through
Participants in the DTC system other than Euroclear and Cedel. Euroclear and
Cedel will hold interests in the Regulation S Global Notes on behalf of their
participants through customers' securities accounts in their respective names
on the books of their respective depositories, which are Morgan Guaranty Trust
Company of New York, Brussels office, as operator of Euroclear, and Citibank,
N.A., as operator of Cedel. All interests in a Global Note, including those
held through Euroclear or Cedel, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Cedel may also
be subject to the procedures and requirements of such systems. The laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer
beneficial interests in a Global Note to such persons will be limited to that
extent. Because DTC can act only on behalf of Participants, which in turn act
on behalf of Indirect Participants and certain banks, the ability of a person
having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global Note registered in the name of DTC
or its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, IMPAC and the Trustee
will treat the persons in whose names the Notes, including the Global Notes,
are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
IMPAC, the Trustee nor any agent of IMPAC or the Trustee has or will have any
responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made
on account of beneficial ownership interests in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Notes or (ii) any other matter relating to
the actions and practices of DTC or any of its Participants or Indirect
Participants. DTC has advised IMPAC that its current practice, upon receipt of
any payment in respect of securities such as the Notes (including principal
and interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interest in the relevant
security as shown on the records of DTC unless DTC has reason to believe it
will not receive payment on such payment date. Payments by the Participants
and the Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practices and will be the
responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or IMPAC. Neither IMPAC nor the
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Notes, and IMPAC and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
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Except for trades involving only Euroclear and Cedel participants, interest
in the Global Notes are expected to be eligible to trade in DTC's Same-Day
Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in
all cases to the rules and procedures of DTC and its Participants. See "--Same
Day Settlement and Payment".
Subject to the transfer restrictions set forth under "Notice to Investors",
transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds, and transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between the Participants in DTC, on
the one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary; however, such cross-
market transactions will require delivery of instructions to Euroclear or
Cedel, as the case may be, by the counterparty in such system in accordance
with the rules and procedures and within the established deadlines (Brussels
time) of such system. Euroclear or Cedel, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf
by delivering or receiving interests in the relevant Global Note in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositories for
Euroclear or Cedel.
DTC has advised IMPAC that it will take any action permitted to be taken by
a Holder of Notes only at the direction of one or more Participants to whose
account DTC has credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the Notes as to which
such Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Notes, DTC reserves the right to
exchange the Global Notes for legended Notes in certificated form, and to
distribute such Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Regulation S Global Notes and in the
Rule 144A Global Notes among Participants in DTC, Euroclear and Cedel, they
are under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. Neither IMPAC nor the
Trustee nor any of their respective agents will have any responsibility for
the performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if (i) DTC (x) notifies IMPAC that it
is unwilling or unable to continue as depositary for the Global Notes and
IMPAC thereupon fails to appoint a successor depositary or (y) has ceased to
be a clearing agency registered under the Exchange Act, (ii) IMPAC, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of the Certificated Notes or (iii) there shall have occurred and be continuing
an Event of Default with respect to the Notes. In addition, subject to certain
limitations, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon request but only upon prior written notice given to
the Trustee by or on behalf of DTC in accordance with the Indenture. In all
cases, Certificated Notes delivered in exchange for any Global Note or
beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures) and will bear the
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applicable restrictive legend referred to in "Notice to Investors", unless
IMPAC determines otherwise in compliance with applicable law.
Transfer of Notes Held through DTC
The Trustee and DTC have confirmed that the Exchange Offer is eligible for
the DTC Automated Tender Offer Program ("ATOP"). DTC has authorized DTC
participants that hold Notes on behalf of beneficial owners of Notes through
DTC to tender their Notes as if they were Holders. To effect a tender, DTC
participants should transmit their acceptance to DTC through ATOP by causing
DTC to transfer Notes to the Trustee for such Notes in accordance with ATOP's
procedures for transfer. DTC will then send an Agent's Message (as defined
below) to the Trustee. Delivery of tendered Notes by a DTC participant must be
made to the Trustee pursuant to the procedure for book-entry transfer set
forth below or the tendering DTC participant must comply with the guaranteed
delivery procedures set forth below.
Except as provided below, unless the Notes being tendered are deposited with
the Trustee for such Notes prior to 5:00 p.m., New York City time, on the
Expiration Date (accompanied by a properly completed and duly executed Letter
of Transmittal or a properly transmitted Agent's Message relating to such
Notes), IMPAC may, at its option, treat such tender as defective.
Book-Entry Delivery Procedures
The Trustee has established or will establish within two Business Days (as
defined below) after the date of this Prospectus an account at DTC under the
ATOP program with respect to the Notes, as the case may be, for purposes of
the Exchange Offer in respect of such Notes, and any financial institution
that is a participant in DTC may make book-entry delivery of the Notes, as the
case may be, by causing DTC to transfer such Notes to the DTC for such Notes
in accordance with DTC's procedures for such transfer. A "Business Day"
includes any day which is not a Saturday, Sunday or federal holiday. However,
although delivery of Notes may be effected through book-entry transfer to the
Trustee through DTC, an Agent's Message in connection with a book-entry
transfer or, if a Letter of Transmittal is utilized, the applicable Letter of
Transmittal (or facsimile thereof) with any required signature guarantees, the
certificates representing the Notes and any other documents required by the
applicable Letter of Transmittal, must, in any case, be transmitted to and
received by the Trustee at its address set forth herein prior to 5:00 p.m.,
New York City time, on the Expiration Date, or, to be validly tendered prior
to 5:00 p.m., New York City time, on the Expiration Date, the guaranteed
delivery procedures described below must be complied with. Delivery of
documents to DTC does not constitute delivery to the Trustee. The confirmation
of a book-entry transfer to the Trustee through DTC via DTC's ATOP procedures
as described above in referred to herein as "Book-Entry Confirmation."
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Trustee and forming a part of the Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from each
participant in DTC tendering the Notes that such participant has received the
applicable Letter of Transmittal and agrees to be bound by the terms of such
Letter of Transmittal and that IMPAC may enforce such agreement against such
participants.
Exchange of Certificated Notes for Book-Entry Notes
Prior to the consummation of the Exchange Offer, Notes issued in
certificated form may not be exchanged for beneficial interests in any Global
Note unless the transferor first delivers to the Trustee a written certificate
(in the form provided in the Indenture) to the effect that such transfer will
comply with the appropriate transfer restrictions applicable to such Notes.
See "Notice to Investors".
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Exchanges Between Regulation S Notes and Rule 144A Notes
Prior to the expiration of the Restricted Period, beneficial interests in
the Regulation S Global Note may be exchanged for beneficial interests in the
Rule 144A Global Note only if such exchange occurs in connection with a
transfer of the Notes pursuant to Rule 144A and the transferor first delivers
to the Trustee a written certificate (in the form provided in the Indenture)
to the effect that the Notes are being transferred to a person who the
transferor reasonably believes to be a qualified institutional buyer within
the meaning of Rule 144A, purchasing for its own account or the account of a
qualified institutional buyer in a transaction meeting the requirements of
Rule 144A and in accordance with all applicable securities laws of the states
of the United States and other jurisdictions.
Beneficial interest in a Rule 144A Global Note may be transferred to a
person who takes delivery in the form of an interest in the Regulation S
Global Note, whether before or after the expiration of the Restricted Period,
only if the transferor first delivers to the Trustee a written certificate (in
the form provided in the Indenture) to the effect that such transfer is being
made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if
available) and that, if such transfer occurs prior to the expiration of the
Restricted Period, the interest transferred will be held immediately
thereafter through Euroclear or Cedel.
Transfers involving an exchange of a beneficial interest in the Regulation S
Global Note for a beneficial interest in a Rule 144A Global Note or vice versa
will be effected in DTC by means of an instruction originated by the Trustee
through the DTC Deposit/Withdraw at Custodian system. Accordingly, in
connection with any such transfer, appropriate adjustments will be made to
reflect a decrease in the principal amount of the Regulation S Global Note and
a corresponding increase in the principal amount of the Rule 144A Global Note
or vice versa, as applicable. Any beneficial interest in one of the Global
Notes that is transferred to a person who takes delivery in the form of an
interest in the other Global Note will, upon transfer, cease to be an interest
in such Global Note and will become an interest in the other Global Note and,
accordingly, will thereafter be subject to all transfer restrictions and other
procedures applicable to beneficial interest in such other Global Note for so
long as it remains such an interest. The policies and practices of DTC may
prohibit transfers of beneficial interests in the Regulation S Global Note
prior to the expiration of the Restricted Period.
Same Day Settlement and Payment
The Indenture requires that principal, premium, if any, and interest and
Liquidated Damages on the Notes are payable at the office or agency of IMPAC
maintained for such purpose within the City and State of New York or, at the
option of IMPAC, payment of interest and Liquidated Damages may be made by
check mailed to the Holders of the Notes at their respective addresses set
forth in the register of Holders of Notes; provided that all payments of
principal, premium, interest and Liquidated Damages with respect to Notes the
Holders of which have given wire transfer instructions to IMPAC will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. The Notes represented by the Global
Notes are expected to be eligible to trade in the PORTAL market and to trade
in the DTC's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Notes will, therefore, be required by the DTC
to be settled in immediately available funds. IMPAC expects that secondary
trading in any certificated Notes will also be settled in immediately
available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. DTC has advised IMPAC that
cash received in Euroclear or Cedel as a result of sales of interests in a
Global Note by or through a Euroclear or Cedel participant to a Participant in
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DTC will be received with value on the settlement date of DTC but will be
available in the relevant Euroclear or Cedel cash account only as of the
business day for Euroclear or Cedel following DTC's settlement date.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person but in any event excluding the agent and
lenders under the New Credit Facility. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of IMPAC and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
the Indenture described above under the caption "--Change of Control" and/or
the provisions described above under the caption "--Merger, Consolidation, or
Sale of Assets" and not by the provisions of the Asset Sale covenant), and
(ii) the issue or sale by IMPAC or any of its Restricted Subsidiaries of
Equity Interests of any of IMPAC's Restricted Subsidiaries, in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions (a) that have a fair market value in excess of $1.0
million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the
foregoing, the following items shall not be deemed to be Asset Sales: (i) a
transfer of assets by IMPAC to a Restricted Subsidiary or by a Restricted
Subsidiary to IMPAC or to another Restricted Subsidiary, (ii) an issuance of
Equity Interests by a Restricted Subsidiary to IMPAC or to another Restricted
Subsidiary, and (iii) a Restricted Payment that is permitted by the covenant
described above under the caption "--Restricted Payments".
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
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"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any lender
party to the New Credit Facility or with any domestic commercial bank having
capital and surplus in excess of $500 million and a Thompson Bank Watch Rating
of "B" or better, (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (ii)
and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. or Standard
& Poor's Corporation and in each case maturing within six months after the
date of acquisition and (vi) money market funds at least 95% of the assets of
which constitute Cash Equivalents of the kinds described in clauses (i)-(v) of
this definition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of IMPAC and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than one or more Principals (as defined herein) or
Related Parties (as defined herein) of one or more Principals or a Management
Group, (ii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than one or more Principals and their
Related Parties or a Management Group, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all securities
that such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of
IMPAC (measured by voting power rather than number of shares), (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above)
other than a Management Group becomes the "beneficial owner" (as defined
above), directly or indirectly, of 35% or more of the Voting Stock of IMPAC
(measured by voting power rather than number of shares) and the Principals and
their Related Parties in the aggregate "beneficially own" (as defined above)
less than 35% of the Voting Stock of IMPAC (measured by voting power rather
than number of shares) or (iv) the first day on which a majority of the
members of the Board of Directors of IMPAC are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent
that such provision for taxes was included in computing such Consolidated Net
Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit
or bankers' acceptance financings, and net payments (if any) pursuant to
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent
that it represents an accrual of or reserve for cash expenses in any future
period or
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amortization of a prepaid cash expense that was paid in a prior period) of
such Person and its Restricted Subsidiaries for such period to the extent that
such depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, minus (v) non-cash items increasing
such Consolidated Net Income for such period, in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent that a corresponding amount would be
permitted at the date of determination to be dividended to IMPAC by such
Restricted Subsidiary without prior governmental approval (that has not been
obtained), and without direct or indirect restriction pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Restricted
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded, (v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to IMPAC or one of its Restricted
Subsidiaries, and (vi) the Net Income of any Restricted Subsidiary shall be
calculated after deducting preferred stock dividends payable by such
Restricted Subsidiary to Persons other than IMPAC and its other Restricted
Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) effected subsequent to the date
of the Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount
and expense and unamortized deferred charges as of such date, all of the
foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of IMPAC who (i) was a member of such Board of
Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election or (iii) was elected to such Board of Directors
pursuant to a designation made pursuant to the Stockholder
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Agreement, provided that at such time the Principals, any Management Group and
their Related Parties own more than 50% of the Voting Stock of IMPAC.
"Credit Facilities" means, with respect to IMPAC and its Restricted
Subsidiaries, one or more debt facilities (including, without limitation, the
New Credit Facility) or commercial paper facilities with banks, insurance
companies, commercial finance companies or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit or Hedging Obligations, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"Damages Payment Date" means with respect to the Notes, March 15 and
September 15 of each year, or if any such day is not a Business Day, on the
next succeeding Business Day (and each such day an "Interest Payment Date").
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
New Credit Facility (ii) any other Senior Debt permitted under the Indenture
the principal amount of which is $10.0 million or more and that has been
designated by IMPAC as "Designated Senior Debt"; provided, however, that so
long as the New Credit Facility remains in effect, lenders holding a majority
in aggregate amount of the loan commitments thereunder shall have consented,
in writing, to such designation of additional Indebtedness as Designated
Senior Debt.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the Holder thereof,
in whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the
right to require IMPAC to repurchase such Capital Stock upon the occurrence of
a Change of Control or an Asset Sale shall not constitute Disqualified Stock
if the terms of such Capital Stock provide that IMPAC may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such
repurchase or redemption complies with the covenant described above under the
caption "--Certain Covenants--Restricted Payments".
"Employment Agreement" means any of the employment agreements, dated the
date of the Indenture between IMPAC and Richard Block, Melvin Herrin, H. Scott
Herrin, David Underwood, James Oppenheimer, Richard Oppenheimer or Dean
Henkel.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Offer Registration Statement" means the Registration Statement
relating to the Exchange Offer, including the related Prospectus.
"Existing Affiliate Transactions" means any transaction contemplated by any
of (i) the Stockholder Agreement, (ii) the Employment Agreements, (iii) the
Agreement and Plan of Merger, dated as of February 19, 1998, among IMPAC, AGI
Acquisition Corp., AGI Incorporated and certain individuals named therein,
(iv) the Investment Agreement, dated as of February 19, 1998, among IMPAC, the
Principals and certain other individuals named therein, (v) the lease of
Klearfold's Warrington, Pennsylvania facility, dated as of June 7, 1996,
between Klearfold, Inc. and Melvin B. Herrin, (vi) the
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lease of Klearfold's Louisa, Virginia facility, dated as of June 7, 1996,
between Klearfold, Inc. and Dena Corp. and (vii) the lease of AGI's Melrose
Park, Illinois facility, dated as of May 29, 1985, between AGI and Chicago
Title and Trust Company, as lessor and trustee to Ruby North Partnership,
L.P., a real estate trust, in each case as in effect on the date of the
Indenture.
"Existing Indebtedness" means up to $11.6 million in aggregate principal
amount of Indebtedness of IMPAC and its Restricted Subsidiaries (other than
Indebtedness under the New Credit Facility) in existence on the date of the
Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Indebtedness of another Person that is guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) all dividend
payments, whether or not in cash, on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, other than dividend payments on
Equity Interests payable solely in Equity Interests of IMPAC (other than
Disqualified Stock) or to IMPAC or a Restricted Subsidiary of IMPAC, times (b)
a fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person and its Restricted Subsidiaries for such
period. In the event that the referrent Person or any of its Restricted
Subsidiaries incurs, assumes, guarantees or redeems or prepays any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated but prior to the date on which
the event for which the calculation of the Fixed Charge Coverage Ratio is made
(the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, Guarantee,
redemption or prepayment of Indebtedness, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the
applicable four-quarter reference period. In addition, for purposes of making
the computation referred to above, (i) acquisitions that have been made by
IMPAC or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first
day of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii)
the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded, but only to the extent that the obligations giving rise to
such Fixed Charges will not be obligations of the referent Person or any of
its Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public
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Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession, which are in
effect.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantors" means each of (i) AGI Incorporated, Klearfold, Inc., KF-
International, Inc. and KF-Delaware, Inc. and (ii) any other subsidiary that
executes a Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency changes.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any Indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (ii) the principal amount thereof in the case of
any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If IMPAC or any Restricted Subsidiary of IMPAC sells or otherwise disposes of
any Equity Interests of any direct or indirect Restricted Subsidiary of IMPAC
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary of IMPAC, IMPAC shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Restricted Payments".
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in such
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and any filing of or agreement to give any financing statement under the
Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Management Group" means a group consisting of Richard Block and his Related
Parties and any other Person that is a member of IMPAC's management as of the
date of the Indenture and each of their Related Parties; provided that Richard
Block, together with his Related Parties, owns at least 25% of the Voting
Stock of IMPAC.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Subsidiaries or
the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received directly or
indirectly by IMPAC or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale),
net of the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available
tax credits or deductions and any tax sharing arrangements), amounts required
to be applied to the repayment of Indebtedness (other than Indebtedness under
the New Credit Facility) secured by a Lien on the asset or assets that were
the subject of such Asset Sale and any reserve for adjustment in respect of
the sale price of such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain Credit Agreement, dated as of the
date of the Indenture, by and among IMPAC and its Subsidiaries and Bank of
America National Trust and Savings Association, as agent and lender, and the
other lenders named therein, providing for up to $40.0 million of revolving
credit borrowings and $13.0 million of letters of credit, including any
related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Non-Recourse Debt" means Indebtedness: (i) as to which neither IMPAC nor
any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender; (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other
than the Notes being offered hereby) of IMPAC or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of IMPAC or any of its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investment in IMPAC or in a Restricted
Subsidiary of IMPAC that is a Guarantor; (b) any Investment in Cash
Equivalents; (c) any Investment by IMPAC or any Restricted Subsidiary of IMPAC
in a Person, if as a result of such Investment (i) such Person becomes a
Restricted Subsidiary of IMPAC and a Guarantor or (ii) such Person is merged,
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consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, IMPAC or a
Restricted Subsidiary of IMPAC that is a Guarantor; (d) any Investment made as
a result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales"; (e) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of IMPAC; (f) Hedging Obligations; and (g)
other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving effect
to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (g) that are at the time outstanding,
not to exceed $1.0 million.
"Permitted Junior Securities" means Equity Interests in IMPAC or any
Guarantor or debt securities that are unsecured and subordinated to all Senior
Debt (and any debt securities issued in exchange for Senior Debt) to at least
the same extent as, or to a greater extent than, the Notes are subordinated to
Senior Debt pursuant to the Indenture (without limiting the forgoing, such
Permitted Junior Securities shall have no required principal payments or
equity redemption requirements until after the final maturity of all Senior
Debt).
"Permitted Liens" means (i) Liens on assets of IMPAC, any of its Restricted
Subsidiaries or any of the Guarantors securing Senior Debt that was permitted
by the terms of the Indenture to be incurred; (ii) Liens in favor of IMPAC;
(iii) Liens on property of a Person existing at the time such Person is merged
into or consolidated with IMPAC or any Restricted Subsidiary of IMPAC;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of
the Person merged into or consolidated with IMPAC; (iv) Liens on property or
assets existing at the time of acquisition thereof or the acquisition of a
Person owning such property or assets by IMPAC or any Restricted Subsidiary of
IMPAC, provided that such Liens were in existence prior to the contemplation
of such acquisition; (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business; (vi) Liens to
secure Indebtedness (including Capital Lease Obligations) permitted by clause
(iv) of the second paragraph of the covenant entitled "--Incurrence of
Indebtedness and Issuance of Preferred Stock" covering only the assets
acquired or financed with such Indebtedness; (vii) Liens existing on the date
of the Indenture; (viii) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good
faith by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; (ix) Liens incurred in
the ordinary course of business of IMPAC or any Restricted Subsidiary of IMPAC
with respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate materially
detract from the value of the property or materially impair the use thereof in
the operation of business by IMPAC or such Restricted Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of IMPAC or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of IMPAC or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed,
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replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right
of payment to the Notes, such Permitted Refinancing Indebtedness is
subordinated in right of payment to the Notes on terms at least as favorable
to the Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by IMPAC or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any
subdivision or ongoing business of any such entity or substantially all of the
assets of any such entity, subdivision or business).
"Principals" means Heritage Partners, Inc., Heritage Fund I Investment
Corporation, Melvin B. Herrin, Richard Block and H. Scott Herrin.
"Record Holder" means with respect to any Damages Payment Date relating to
the Notes, each Person who is a Holder of Notes on the record date with
respect to the Interest Payment Date on which such Damages Payment Date shall
occur.
"Related Party" with respect to any Principal or member of a Management
Group means (A) any controlling stockholder, 80% (or more) owned Subsidiary,
or spouse or ex-spouse or immediate family member (in the case of an
individual) of such Principal or member of a Management Group or (B) any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or more
controlling interest of which consist of such Principal or Member of a
Management Group and/or such other Persons referred to in the immediately
preceding clause (A) or (C) any investment fund, whether a limited
partnership, limited liability corporation or corporation, managed and
controlled by Heritage Partners Management Co., Inc. d/b/a Heritage Partners,
Inc.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means, with respect to any Person, each Subsidiary
of such Person that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) all principal, premium, interest, fees, expenses and
other obligations or liabilities of any kind together with available undrawn
amounts under letters of credit issued or guaranteed under the New Credit
Facility (including, without limitation, post-petition interest whether or not
allowed as a claim in any bankruptcy, reorganization, insolvency, receivership
or similar proceeding) with respect to Indebtedness outstanding under Credit
Facilities and all Hedging Obligations with respect thereto, (ii) any other
Indebtedness permitted to be incurred by IMPAC under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes and (iii) all Obligations with respect to the foregoing.
Senior Debt will not include (w) any liability for federal, state, local or
other taxes owed or owing by IMPAC, (x) any Indebtedness of IMPAC to any of
its Subsidiaries or other Affiliates excluding, any Indebtedness owed to any
Affiliate that was incurred prior to such Person becoming an Affiliate in
connection with the acquisition by IMPAC or any Subsidiary of a business or
Person from such Affiliate, (y) any trade payables or (z) any Indebtedness
that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
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"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Stockholder Agreement" means the Stockholder Agreement, dated as of the
date of the Indenture, among the Company and its stockholders, as in effect on
the date of the Indenture, and as thereafter amended from time to time;
provided for purposes of the definition of "Continuing Director" that no such
amendment alters the provision relating to the designation and election of
members of IMPAC's Board of Directors.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Transfer Restricted Securities" means each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer
and the Note for which it is exchanged is entitled to be resold to the public
by the Holder thereof without complying with the prospectus delivery
requirements of the Securities Act, (b) the date on which such Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (c) the date on which such Note is
permitted to be distributed to the public pursuant to Rule 144 under the
Securities Act or by a broker-dealer pursuant to the "Plan of Distribution"
section.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a board
resolution, but only to the extent that such Subsidiary: (i) has no
Indebtedness other than Non-Recourse Debt; (ii) is not party to any agreement,
contract, arrangement or understanding with IMPAC or any Restricted Subsidiary
of IMPAC unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to IMPAC or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of IMPAC; (iii) is a Person with respect to which neither IMPAC nor
any of its Restricted Subsidiaries has any direct or indirect obligation (A)
to subscribe for additional Equity Interests or (B) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; (iv) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of IMPAC
or any of its Restricted Subsidiaries; and (v) has at least one director on
its board of directors that is not a director or executive officer of IMPAC or
any of its Restricted Subsidiaries and has at least one executive officer that
is not a director or executive officer of IMPAC or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
board resolution giving effect to such designation and an Officers'
Certificate certifying that such designation compiled with the foregoing
conditions and was permitted by the covenant described above under the caption
"Certain Covenants- -Restricted Payments". If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of IMPAC as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date
under the covenant described under the caption "Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock", IMPAC shall be in default of
such covenant). The Board of Directors of IMPAC may at any time designate any
Unrestricted
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Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of
IMPAC of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted
under the covenant described under the caption "Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock", calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in
existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned" means, when used with respect to any Subsidiary or Restricted
Subsidiary of a Person, a Subsidiary (or Restricted Subsidiary, as
appropriate) of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned
Subsidiaries (or Wholly Owned Restricted Subsidiaries, as appropriate) of such
Person and one or more Wholly Owned Subsidiaries (or Wholly Owned Restricted
Subsidiaries, as appropriate) of such Person.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the anticipated federal income tax
consequences of an exchange of the Existing Notes for New Notes and of the
purchase at original issue, ownership, and disposition of the New Notes is
based upon the provisions of the Internal Revenue Code of l986, as amended
(the "Code"), the final, temporary, and proposed regulations promulgated
thereunder, and administrative rulings and judicial decisions now in effect,
all of which are subject to change (possibly with retroactive effect) or
different interpretations. This summary does not purport to deal with all
aspects of federal income taxation that may be relevant to a particular
investor, nor any tax consequences arising under the laws of any state,
locality, or foreign jurisdiction, and it is not intended to be applicable to
all categories of investors, some of which, such as dealers in securities,
banks, insurance companies, tax-exempt organizations, foreign persons, persons
that hold New Notes as part of a straddle or conversion transactions, persons
that purchase the New Notes from other Holders at a discount or a premium or
holders subject to the alternative minimum tax, may be subject to special
rules. In addition, the summary is limited to persons that will hold the New
Notes as "capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the Code.
ALL INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE AND THE
OWNERSHIP AND DISPOSITION OF NEW NOTES.
TAXATION OF HOLDERS ON EXCHANGE
Subject to the limitation set forth above, an exchange of Existing Notes for
New Notes will not be a taxable event to holders of Existing Notes, and
holders will not recognize any taxable gain or loss as a result of such an
exchange. Accordingly, a holder would have the same adjusted basis and holding
period in the New Notes as it had in the Existing Notes immediately before the
exchange. Further, the tax consequences of ownership and disposition of any
New Notes will be the same as the tax consequences of ownership and
disposition of Existing Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
A "U.S. Holder" is any holder who or which is (i) a citizen or resident of
the United States; (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States; (iii) an estate the
income of which is subject to United States Federal income taxation regardless
of its source; (iv) a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust; (v) a former citizen or resident of the United States
whose income and gain on the Notes will be subject to United States Federal
income taxation; or (vi) a person otherwise included within the definition of
United States person under the Code and the regulations thereunder.
Taxation of Stated Interest. In general, a U.S. Holder of the Notes will be
required to include interest received thereon in taxable income as ordinary
income at the time it accrues or is received, in accordance with the holder's
regular method of accounting for federal income tax purposes.
Effect of Optional Redemption and Repurchase. Under certain circumstances
the Company may be entitled to redeem a portion of the Notes. In addition,
under certain circumstances, each holder of Notes will have the right to
require the Company to repurchase all or any part of such holder's Notes.
Treasury Regulations contain special rules for determining the yield to
maturity and maturity on a debt instrument in the event the debt instrument
provides for a contingency that could result in the acceleration or deferral
of one or more payments. The Company does not believe that these rules should
apply to either the Company's right to redeem Notes or to the holders' rights
to require the
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Company to repurchase Notes. Therefore, the Company has no present intention
of treating such redemption and repurchase provisions of the Notes as
affecting the computation of the yield to maturity or maturity date of the
Notes.
Sale or other Taxable Disposition of the Notes. The sale, exchange,
redemption, retirement or other taxable disposition of a Note will result in
the recognition of gain or loss to a U.S. Holder in an amount equal to the
difference between (a) the amount of cash and fair market value of property
received in exchange therefor (except to the extent attributable to the
payment of accrued but unpaid stated interest) and (b) the holder's adjusted
tax basis in such Note.
A holder's tax basis in a Note purchased by such holder will be equal to the
price paid for the Note, less any principal payments received by such holder.
Any gain or loss on the sale or other taxable disposition of a Note
generally will be capital gain or loss and will be long-term capital gain or
loss if the Note had been held for more than one year and otherwise will be
short-term capital gain or loss. Long-term capital gain realized by an
individual U.S. Holder is generally subject to a maximum tax rate of 28% in
respect of property held for more than one year and to a maximum rate of 20%
in respect of property held in excess of 18 months. Payments on such sale or
other taxable disposition for accrued interest not previously included in
income will be treated as ordinary interest income.
If Liquidated Damages are paid, although not free from doubt, such payment
should be taxable to a U.S. Holder as ordinary income at the time it accrues
or is received in accordance with such holder's regular method of accounting.
It is possible, however, that the IRS may take a different position, in which
case the timing and amount of income inclusion may be different. A U.S. Holder
will not recognize any gain or loss on the exchange of Notes for Exchange
Notes pursuant to the exchange offer.
Backup Withholding. The backup withholding rules require a payor to deduct
and withhold a tax if (i) the payee fails to furnish a taxpayer identification
number ("TIN") in the prescribed manner, (ii) the IRS notifies the payor that
the TIN furnished by the payee is incorrect, (iii) the payee has failed to
report properly the receipt of "reportable payments" and the IRS has notified
the payor that withholding is required, or (iv) the payee fails to certify
under the penalty of perjury that such payee is not subject to backup
withholding. If any one of the events discussed above occurs with respect to a
holder of Notes, the Company, its paying agent or other withholding agent will
be required to withhold a tax equal to 31% of any "reportable payment" made in
connection with the Notes of such holder. A "reportable payment" includes,
among other things, payments of principal, premium, if any, and interest on a
Note. Any amount withheld from a payment to a holder under the backup
withholding rules will be allowed as a refund or credit against such holder's
federal income tax, provided that the required information is furnished to the
IRS. Certain holders (including, among others, corporations and certain tax-
exempt organizations) are not subject to backup withholding.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS
This section discusses special rules applicable to a Non-U.S. Holder of
Notes. This summary does not address the tax consequences to stockholders,
partners or beneficiaries in a Non-U.S. Holder. For purposes hereof, a "Non-
U.S. Holder" is any person who is neither (i) a U.S. Holder nor (ii) a person
whose income with respect to a Note is subject to U.S. federal income tax on a
net basis because such income is effectively connected with the conduct of a
U.S. trade or business.
Interest. Payments of interest to a Non-U.S. Holder that do not qualify for
the portfolio interest exception discussed below will be subject to
withholding of U.S. federal income tax at a rate of 30%
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unless a U.S. income tax treaty applies to reduce the rate of withholding. To
claim a treaty reduced rate, the Non-U.S. Holder must provide a properly
executed Form 1001.
Interest that is paid to a Non-U.S. Holder on a Note will not be subject to
U.S. income or withholding tax if the interest qualifies as "portfolio
interest". Generally, interest on the Notes that is paid by the Company will
qualify as portfolio interest if (i) the Non-U.S. Holder does not own,
actually or constructively, 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote; (ii) the Non-U.S. Holder
is not a controlled foreign corporation that is related to the Company
actually or constructively through stock ownership for U.S. federal income tax
purposes; (iii) the Non-U.S. Holder is not a bank receiving interest on a loan
entered into in the ordinary course of business; and (iv) either (x) the
beneficial owner of the Note provides the Company or its paying agent a
properly executed certification on IRS Form W-8 (or a suitable substitute
form) signed under penalties of perjury that the beneficial owner is not a
"U.S. person" for U.S. federal income tax purposes and that provides the
beneficial owner's name and address, or (y) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its business (a "financial institution")
holds the Note and certifies to the Company or its agent under penalties of
perjury that the IRS Form W-8 (or a suitable substitute) has been received by
it from the beneficial owner of the Note or from a financial institution
acting for the beneficial owner and furnishes the Company or its agent a copy
thereof.
Sale, Exchange or Retirement of Notes. Any gain realized by a Non-U.S.
Holder on the sale, exchange or retirement of the Notes, will generally not be
subject to U.S. federal income tax or withholding unless (i) the Non-U.S.
Holder is an individual who was present in the U.S. for 183 days or more in
the taxable year of the disposition and meets certain other requirements; or
(ii) the Non- U.S. Holder is subject to tax pursuant to certain provisions of
the Code applicable to certain individuals who renounce their U.S. citizenship
or terminate long-term U.S. residency. If a Non-U.S. Holder falls under (ii)
above, the holder will be taxed on the net gain derived from the sale under
the graduated U.S. federal income tax rates that are applicable to U.S.
citizens and resident aliens, and may be subject to withholding under certain
circumstances. If a Non-U.S. Holder falls under (i) above, the holder
generally will be subject to U.S. federal income tax at a rate of 30% on the
gain derived from the sale (or reduced treaty rate) and may be subject to
withholding in certain circumstances. Such gains may also be subject to U.S.
federal income tax if the Non-U.S. Holder has a present or former status as a
personal holding company, a foreign personal holding company with respect to
the United States, a controlled foreign corporation, a passive foreign
investment company, or a foreign private foundation or foreign tax exempt
entity for United States tax purposes, or a corporation which accumulates
earnings to avoid United States federal income tax.
U.S. Information Reporting and Backup Withholding Tax. Back-up withholding
and information reporting generally will not apply to a Note issued in
registered form that is beneficially owned by a Non-U.S. Holder if the
certification of Non-U.S. Holder status is furnished to the Company or its
agent as described above in "Certain Federal Income Tax Consequences to Non-
U.S. Holders--Interest," provided that the payor does not have actual
knowledge that the holder is a U.S. person. The Company may be required to
report annually to the IRS and to each Non-U.S. Holder the amount of interest
paid to, and any tax withheld from, such Non-U.S. Holder.
If payments of principal and interest are made to the beneficial owner of a
Note by or through the foreign office of a custodian, nominee or other agent
of such beneficial owner, or if the proceeds of the sale of Note are paid to
the beneficial owner of a Note through a foreign office of a "broker" (as
defined in the pertinent Regulations), the proceeds will not be subject to
backup withholding (absent actual knowledge that the payee is a U.S. person).
Information reporting (but not backup withholding) will apply, however, to a
payment by a foreign office of a custodian, nominee, agent or broker that is
(i) a U.S. person, (ii) a controlled foreign corporation for U.S. federal
income tax purposes, or (iii) derives 50% or more of its gross income from the
conduct of a U.S. trade or business for a specified
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three-year period, unless the broker has in its records documentary evidence
that the holder is a Non-U.S. Holder, has no actual knowledge to the contrary,
and certain other conditions are met, or unless the holder otherwise
establishes an exemption. Payment through the U.S. office of a custodian,
nominee, agent or broker is subject to both backup withholding at a rate of
31% and information reporting, unless the holder certifies that it is a Non-
U.S. Holder under penalties of perjury or otherwise establishes an exemption.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against, or refund of, such
holder's U.S. federal income tax liability, provided that certain information
is provided by the holder to the IRS.
Recently finalized Treasury regulations (the "Withholding Regulations") will
change the methods for satisfying the certification requirements discussed
above. The Withholding Regulations also will require, in the case of Notes
held by a foreign partnership, that (a) this certification generally be
provided by the partners rather than the foreign partnership and (b) the
partnership provide certain information, including a United States employer
identification number. A look-through rule would apply in the case of tiered
partnerships. The Withholding Regulations are generally effective for payments
made after December 31, 1998, subject to certain transition rules. NON-UNITED
STATES HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
IMPACT, IF ANY, OF THE NEW WITHHOLDING REGULATIONS.
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INTELLECTUAL PROPERTY
DIGI-BOKS(R), DIGIPAK(R), Klearfold(R) and Duofold(R) are registered
trademarks of the Company and Digilite/TM/, KlearPOP/TM/, Klearform/TM/ and
Hologravure/TM/ are trademarks of the Company. Chesebrough-Pond's(R) is a
registered trademark of Chesebrough-Pond's, Inc. BIC(R) is a registered
trademark of BIC Corporation. Andes(R) is a registered trademark of Jacobs
Suchard S.A.; Jacobs Suchard AG; and Jacobs Suchard Ltd. Totes(R) is a
registered trademark of 'Totes', Incorporated. Safari(R) is a registered
trademark of Polo Ralph Lauren, L.P. Polo Sport(R) is a registered trademark
of PRL USA Holdings, Inc. Crest(R) is a registered trademark of Procter &
Gamble. Colorstay(R) is a registered trademark of Revlon. Jockey(R) is a
registered trademark of Jockey International, Inc. Ralph Lauren(R) is a
registered trademark of The Ralph Lauren Trust of 9/21/76 and The Polo/Lauren
Company.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Bingham Dana LLP, Boston, Massachusetts.
AVAILABLE INFORMATION
IMPAC has agreed that whether or not required by the rules and regulations
of the Commission so long as any Notes are outstanding, IMPAC shall deliver to
each holder of the Notes (i) all annual and quarterly financial statements
substantially equivalent to financial statements that would have been included
in a filing with the Commission on Forms 10-Q and 10-K, if IMPAC were required
to file such Forms, including, with respect to annual information only, a
report thereon by IMPAC's certified independent public accountants as such
would be required in such reports to the Commission, and, in each case,
together with a management's discussion and analysis of financial condition
and results of operations which would be so required and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
IMPAC were required to file such Forms. In addition, following the
consummation of the Exchange Offer contemplated by the Registration Rights
Agreement, whether or not required by the rules and regulations of the
Commission, IMPAC will file a copy of all such information and reports with
the Commission for public availability (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request.
Once the Registration Statement has been declared effective by the
Commission, IMPAC will become subject to the informational requirements of the
Exchange Act and in accordance therewith will be required to file reports and
other information with the Commission. The Registration Statement and the
exhibits thereto, as well as such reports and other information to be filed by
IMPAC with the Commission, may be inspected, without charge, at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, as well as the regional offices of the
Commission at the Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such documents can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. In addition, IMPAC will be
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site, located at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
114
<PAGE>
EXPERTS
The consolidated financial statements of KFI Holding as of December 31, 1996
and 1997 and for each of the years in the three-year period ended December 31,
1997 have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing. The financial statements of AGI as of
and for the four years ended December 31, 1996 have been audited by Arthur
Andersen LLP, independent public accountants. The financial statements of AGI
as of and for the year ended December 31, 1997 have been audited by Price
Waterhouse LLP, independent accountants. The consolidated financial statements
for AGI as of December 31, 1996 and 1997 and for each of the years in the
three year period ended December 31, 1997 together with the respective reports
of independent accountants are included elsewhere herein in reliance upon the
authority of said firms as experts in accounting and auditing.
On May 29, 1998, IMPAC's Board of Directors voted to appoint Price
Waterhouse LLP as IMPAC's independent accountants for fiscal 1998, dismissing
KPMG Peat Marwick LLP who had served as the independent auditors of KFI
Holding and its subsidiaries since December 1990. Price Waterhouse LLP had
served as the independent accountants of AGI Incorporated since 1997. During
the fiscal years ended December 31, 1996 and 1997 and through May 29, 1998,
there were no disagreements with KPMG Peat Marwick LLP on any matter of
accounting principles or practices, financial statement disclosures, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of KPMG Peat Marwick LLP would have caused them to make reference
thereto in their report on the financial statements of KFI Holding and its
subsidiaries for such years. Further, no "reportable events" (as defined in
Regulation S-K Item 304) occurred within KFI Holding and its subsidiaries' two
most recent fiscal years. None of the audit reports of KPMG Peat Marwick LLP
for any period, including the fiscal years ended December 31, 1996 and 1997,
contained an adverse opinion or disclaimer of opinion, or was qualified or
modified as to uncertainty, audit scope or accounting principles.
In 1997, AGI appointed Price Waterhouse LLP as AGI's independent accountants
for fiscal 1997, dismissing Arthur Andersen LLP who had served as AGI's
independent auditors since prior to December 1990. During the fiscal year
ended December 31, 1996 and through their dismissal, there were no
disagreements with Arthur Andersen LLP on any matter of accounting principles
or practices, financial statement disclosures, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of Arthur Andersen LLP
would have caused them to make reference thereto in their report on AGI's
financial statements for such years. Further, no "reportable events" (as
defined in Regulation S-K Item 304) occurred within AGI's fiscal year ended
December 31, 1996. None of the audit reports of Arthur Andersen LLP for any
period, including the fiscal year ended December 31, 1996, contained an
adverse opinion or disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope or accounting principles. The decision to change
accountants was not recommended or approved by any audit or similar committee
of AGI's board of directors or AGI's board of directors.
115
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that may be considered "forward-
looking." Such forward-looking statements include, among other things,
management's expectations about consumer products industry trends including,
without limitation, industry revenue and profit growth rates, industry
migration toward high quality specialty packaging, consolidation of retail
sales companies, increased demand for innovative, value-added packaging,
content distribution moving toward a disk-based format, the emergence of the
DVD market and the opportunities therefrom and shifts in distribution channels
toward self- select outlets. Forward-looking statements are also made
concerning the Company's expectations regarding the growth of the music
industry and CD sales, growth of the home video sell-through market, synergies
resulting from the Combination, reductions in the Company's manufacturing,
transportation, general and administrative and management information costs,
expansion of the Company's product lines, expansion of relationships with
existing customers, increased operating efficiencies as a result of the
Combination, the success of its acquisition strategy, the continued acceptance
of the DIGIPAK, the advantage of the Diginet in the emerging DVD market, the
maintenance of relationships with existing customers, the Company's ability to
pass raw material price increases on to its customers and the Company's
ability to generate cash flow or make borrowings sufficient to pay interest
and principal on the Notes, the Company's ability to anticipate and respond to
technological change in manufacturing processes, the Company's ability to
create additional revenue opportunities, the Company's ability to meet
changing customer needs, the Company's initial marketing impact in the
cosmetics industry, the Company's ability to develop new packaging products,
the Company's ability to capture additional customers in new and existing
markets, the Company's acquisition strategy, the costs and time frame
associated with the installation of the new printing press, the liquidity
demands of the Company, the amount of future capital expenditures, the
Company's ability to meet its liquidity needs, the resolution of Year 2000
issues, the ability of the Company's manufacturing facilities to serve
national markets. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements of the Company expressed or
implied by such forward-looking statements. Prospective investors in the Notes
offered hereby are cautioned that although the Company believes that the
assumptions on which the forward-looking statements contained herein are based
are reasonable, any of those assumptions could prove to be inaccurate and, as
a result, the forward- looking statements based on those assumptions also
could be materially incorrect. The uncertainties in this regarding include,
but are not limited to, those identified in the section of this Prospectus
entitled "Risk Factors". In light of these and other uncertainties, the
inclusion of a forward-looking statement herein should not be regarded as a
representation by the Company that the Company's plans and objectives will be
achieved and prospective investors in the Notes should not place undue
reliance on such forward-looking statements.
116
<PAGE>
INDEX OF DEFINED TERMS
The following is an index of defined terms and the page at which such defined
term is first defined:
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
Acquired Debt.............................................................. 99
Affiliate.................................................................. 99
Affiliate Transaction...................................................... 88
Agent's Message............................................................ 97
AGI........................................................................ 1
AGI Credit Facility........................................................ 43
AGI Holders................................................................ 59
AGI Indemnitors............................................................ 66
AGI IRBs................................................................... 68
Agreement and Plan of Merger............................................... 5
Asset Sale................................................................. 99
Asset Sale Offer........................................................... 83
ATOP....................................................................... 97
Bank of America............................................................ 68
BMG........................................................................ 1
Board...................................................................... 59
Book-Entry Confirmation.................................................... 97
Bucks County............................................................... 68
Bucks Loan Agreement....................................................... 68
Business Day............................................................... 97
Calculation Date........................................................... 103
Capital Lease Obligation................................................... 99
Capital Stock.............................................................. 99
Cash Equivalents........................................................... 100
CD......................................................................... 45
Cedel...................................................................... 94
Certificated Notes......................................................... 96
Change of Control.......................................................... 100
Change of Control Offer.................................................... 81
Change of Control Payment.................................................. 81
Change of Control Payment Date............................................. 81
Closing.................................................................... 93
Code....................................................................... 110
Combination, the........................................................... 5
Commission................................................................. 91
Common Stock............................................................... 5
Company.................................................................... 1
Consolidated Cash Flow..................................................... 100
Consolidated Net Income.................................................... 101
Consolidated Net Worth..................................................... 101
Continuing Directors....................................................... 101
Covenant Defeasance........................................................ 91
Credit Facilities.......................................................... 102
Damages Payment Date....................................................... 102
Default.................................................................... 102
Depositor.................................................................. 73
Designated Senior Debt..................................................... 102
Disqualified Stock......................................................... 102
</TABLE>
117
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
DTC....................................... 94
Duofold................................... 45
DVD....................................... 45
Effectiveness Target Date................. 70
Eligible Institution...................... 71
EMI....................................... 1
Employment Agreement...................... 102
Equity Interests.......................... 102
Euroclear................................. 94
Event of Default.......................... 90
Excess Proceeds........................... 83
Excess Purchase Price..................... 30
Exchange Act.............................. 23
Exchange Agent............................ 75
Exchange Notes............................ 69
Exchange Offer............................ Cover Page of the Prospectus
Exchange Offer Registration Statement..... 102
Executive Officers........................ 65
Existing Affiliate Transactions........... 102
Existing Guarantees....................... Cover Page of the Prospectus
Existing Indebtedness..................... 103
Existing Notes............................ Cover Page of the Prospectus
Expiration Date........................... Cover Page to the Prospectus
Fixed Charge Coverage Ratio............... 103
Fixed Charges............................. 103
Fund I.................................... 65
GAAP...................................... 103
Global Notes.............................. 93
Guarantee................................. 104
Guarantees................................ Cover Page of the Prospectus
Guarantors................................ Cover Page of Registration Statement
Hedging Obligations....................... 104
Heritage.................................. 5
Heritage Holders.......................... 59
Holder.................................... 104
Holding Indemnified Claims................ 65
IMPAC..................................... Cover Page of the Prospectus
Indebtedness.............................. 104
Indenture................................. Cover Page to the Prospectus
Indirect Participants..................... 94
Initial Purchasers........................ 7
Interest Payment Date..................... 102
Investment Agreement...................... 5
Investments............................... 104
IRB Financings............................ 68
Jacksonville.............................. 68
Jacksonville Loan Agreement............... 68
Kamens.................................... 65
Keyser.................................... 65
KFI Holding............................... 1
KFI Indemnitors........................... 65
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
Klearfold............... 1
Klearfold Contributing
Parties................ 65
Klearfold Holders....... 59
Klearfold IRBS.......... 66
Legal Defeasance........ 91
Letter of Transmittal... Cover Page of the Prospectus
Lien.................... 104
Liquidated Damages...... 70
Major Stockholders...... 65
Management Group........ 105
Net Income.............. 105
Net Proceeds............ 105
New Credit Facility..... Cover Page of the Prospectus
New Guarantees.......... Cover Page of the Prospectus
New Notes............... Cover Page of Registration Statement
Non-Recourse Debt....... 105
Non-U.S. Holder......... 111
Notes................... Cover Page of the Prospectus
Obligations............. 105
Offering................ 5
Outside Directors....... 65
Participants............ 94
Payment Blockage Date... 80
Permitted Debt.......... 85
Permitted Investments... 105
Permitted Junior Securi-
ties................... 106
Permitted Liens......... 106
Permitted Refinancing
Indebtedness........... 106
Person.................. 107
PolyGram................ 1
Principal AGI Stockhold-
ers.................... 66
Principals.............. 107
PTP..................... 14
Record Date............. 78
Record Holder........... 107
Registration Default.... 70
Registration Default Pe-
riod................... 70
Registration Rights
Agreement.............. 7
Regulation S Global
Notes.................. 93
Regulation S Notes...... 93
Related Party........... 107
Restricted Investment... 107
Restricted Payments..... 84
Restricted Period....... 94
Restricted Subsidiar-
ies.................... 11
Restricted Subsidiary... 110
Revolving Credit and
Term Loan Agreement.... 25
Revolving Loans......... 25
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C> <C>
Rule 144A Global Notes........... 93
Rule 144A Notes.................. 93
Securities Act................... Cover Page of the Prospectus
Senior Debt...................... 107
Share Value...................... 65
Shelf Filing Deadlines........... 69
Shelf Registration Statement..... 69
Significant Subsidiary........... 107
Sony............................. 1
Stated Maturity.................. 108
Stockholder Agreement............ 59
Subsidiary....................... 108
Subsidiary Guarantees............ Cover Page to the Registration Statement
Term Loans....................... 25
TIN.............................. 111
Transactions..................... 4
Transfer Agent................... 75
Transfer Restricted Securities... 69
Trust Indenture Act.............. 78
Trustee.......................... 78
Universal........................ 1
Unrestricted Subsidiaries........ 11
Unrestricted Subsidiary.......... 108
U.S. Holder...................... 110
Voting Stock..................... 109
Weighted Average Life to Maturi-
ty.............................. 109
Wholly Owned..................... 109
Witholding Regulations........... 113
</TABLE>
120
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
IMPAC GROUP, INC.
Condensed Consolidated Balance Sheets as of December 31, 1997 and March
31, 1998 (unaudited) ................................................... F-2
Unaudited Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 1997 and 1998.................................... F-3
Unaudited Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1998.................................... F-4
Notes to Unaudited Condensed Consolidated Financial Statements........... F-5
KFI HOLDING CORPORATION AND SUBSIDIARIES
Independent Auditors' Report............................................. F-8
Consolidated Balance Sheets as of December 31, 1996 and 1997............. F-9
Consolidated Statements of Income for the Years Ended December 31, 1995,
1996 and 1997........................................................... F-10
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended
December 31, 1995, 1996 and 1997........................................ F-11
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997..................................................... F-12
Notes to Consolidated Financial Statements............................... F-13
</TABLE>
<TABLE>
<S> <C>
AGI INCORPORATED
Report of Independent Accountants........................................ F-21
Report of Independent Public Accountants................................. F-22
Balance Sheets as of December 31, 1996 and 1997.......................... F-23
Statements of Income for the Years Ended December 31, 1995, 1996 and
1997.................................................................... F-24
Statements of Shareholders' Equity for the Years Ended December 31, 1995,
1996 and 1997........................................................... F-25
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997.................................................................... F-26
Notes to the Financial Statements........................................ F-27
</TABLE>
F-1
<PAGE>
IMPAC GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 194 $ 5,175
Trade accounts receivable, net....................... 5,986 16,316
Other receivables.................................... 439 2,676
Inventories.......................................... 6,957 15,508
Prepaid expenses..................................... 510 1,122
Deferred income taxes................................ 661 2,351
Other current assets................................. 156 156
------- --------
Total current assets.................................. 14,903 43,304
Long-term assets:
Property, plant and equipment, net................... 11,100 51,681
Goodwill............................................. 0 40,547
Deferred financing costs, net........................ 1,024 4,731
Restricted cash...................................... 625 404
Other assets......................................... 641 1,591
------- --------
Total assets.......................................... $28,293 $142,258
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft....................................... $ 0 $ 789
Trade payables....................................... 5,098 8,782
Accrued expenses..................................... 1,925 9,910
------- --------
Total current liabilities............................. 7,023 19,481
------- --------
Long-term debt........................................ 33,850 111,640
Deferred income taxes................................. 1,307 6,813
------- --------
Total liabilities..................................... 42,180 137,934
------- --------
Shareholders' (deficit) equity:
Common stock, voting, $.001 par value; authorized
135,813 shares, 90,500 shares issued and outstanding
at December 31, 1997................................ 0 --
Common stock, nonvoting, $.001 par value; 9,500
shares authorized, issued and outstanding at
December 31, 1997................................... 0 --
Common stock, series A, $.001 par value; 150,000
shares authorized, 100,000 shares issued and
outstanding at March 31, 1998....................... -- 0
Common stock, series B, $.001 par value; 50,000
shares authorized, 0 shares issued and outstanding
at March 31, 1998................................... -- 0
Preferred stock nonvoting, $.001 par value; 100,000
shares authorized, issued and outstanding at
December 31, 1997................................... 0 --
Paid in capital...................................... 20,000 38,964
Notes receivable..................................... (35) 0
Carryover basis adjustment........................... (37,142) (37,142)
Retained earnings.................................... 3,290 2,502
------- --------
Total shareholders' (deficit) equity.................. (13,887) 4,324
------- --------
Total liabilities & shareholders' (deficit) equity.... $28,293 $142,258
======= ========
</TABLE>
F-2
<PAGE>
IMPAC GROUP INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31.
----------------
1997 1998
------- -------
<S> <C> <C>
Net sales.................................................... $10,837 $15,801
Costs of goods sold.......................................... 7,789 12,418
------- -------
Gross profit................................................. 3,048 3,383
Selling, general and administrative expenses................. 1,718 2,530
------- -------
Operating income............................................. 1,330 853
Other income (expense):
Interest income............................................ 0 6
Interest expense........................................... (766) (1,222)
------- -------
Income (loss) before income taxes and extraordinary item..... 564 (363)
Income (taxes) benefit....................................... (198) 128
------- -------
Income (loss) before extraordinary item...................... 366 (235)
Extraordinary charge for early retirement of debt,
net of tax benefit of $368.................................. 0 (553)
------- -------
Net income (loss)............................................ $ 366 $ (788)
======= =======
</TABLE>
F-3
<PAGE>
IMPAC GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss)....................................... $ 366 $ (788)
Adjustments to reconcile net income to net cash provided
by (used for) operating activities--
Extraordinary charge for early retirement of debt..... 0 553
Depreciation and amortization......................... 459 793
Deferred income taxes................................. 7 (188)
Changes in assets and liabilities--
Trade accounts receivable, net....................... 2,965 628
Inventories.......................................... (1,115) (1,553)
Accounts payable and bank overdraft.................. 551 654
Accrued compensation and profit sharing.............. (327) 89
Other assets and liabilities......................... (64) (1,515)
-------- ---------
Net cash provided by (used for) operating
activities......................................... 2,842 (1,327)
-------- ---------
Cash flows from investing activities:
Capital expenditures.................................... (463) (814)
Acquisitions, net of cash acquired...................... 0 (63,551)
-------- ---------
Net cash used for investing activities.............. (463) (64,365)
-------- ---------
Cash flows from financing activities:
Net change in borrowings under revolving credit line.... (2,330) 0
Repayment of long term debt............................. (25) (29,850)
Proceeds from senior subordinated notes................. 0 100,000
Decrease in restricted cash............................. 0 221
Proceeds from issuance of common stock.................. 0 4,600
Change in deferred financing costs...................... 0 (4,298)
-------- ---------
Net cash provided by (used for) financing
activities......................................... (2,355) 70,673
-------- ---------
Increase in cash.......................................... 24 4,981
Cash, beginning of period................................. 6 194
-------- ---------
Cash, end of period....................................... $ 30 $ 5,175
======== =========
Supplemental disclosures:
Cash payments (receipts) for--
Interest $ 787 $ 731
Income taxes (43) 161
Details of acquisitions--
Fair market value of assets acquired.................... $ 102,917
Fair market value of liabilities assumed................ 24,945
Common stock issued..................................... 14,400
---------
Cash paid............................................... 63,572
Cash acquired........................................... 21
---------
Acquisitions, net of cash acquired..................... $ 63,551
=========
</TABLE>
F-4
<PAGE>
IMPAC GROUP, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--BASIS OF PRESENTATION
In the opinion of IMPAC Group, Inc. ("IMPAC"), the accompanying unaudited
condensed consolidated financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial position, results of operations and the changes in cash flows at
March 31, 1998 and for all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should
be read in conjunction with the audited financial statements as of and for the
year ended December 31, 1997 of KFI Holding Corporation and AGI Incorporated
included elsewhere in this Prospectus.
NOTE 2--ACQUISITION
On March 12, 1998, KFI Holding Corporation acquired all of the common stock
of AGI Incorporated for $69.0 million including $54.6 million of cash and
$14.4 million of newly issued common stock, plus acquisition costs. Upon
consummation of this acquisition, KFI Holding Corporation changed its name to
"IMPAC Group, Inc." Concurrently, IMPAC funded the retirement of $8.3 million
of indebtedness outstanding under AGI Incorporated's credit facility
immediately prior to the transaction. The acquisition was funded by the
proceeds from the issuance of $100.0 million of 10 1/8% Senior Subordinated
Notes Due 2008 and $4.6 million of new common stock.
This acquisition was accounted for as a purchase and, accordingly, the
operating results of AGI Incorporated have been included in IMPAC's
consolidated financial statements from the date of acquisition. A summary of
IMPAC's preliminary purchase price allocation follows:
<TABLE>
<S> <C>
Receivables..................................................... $ 11,555
Inventories..................................................... 6,998
Deferred incomes taxes.......................................... 1,501
Property, plant and equipment................................... 40,550
Other assets.................................................... 1,723
Accounts payable and accrued liabilities........................ (11,799)
Long-term debt.................................................. (7,640)
Deferred income taxes........................................... (5,505)
--------
Net assets acquired......................................... $ 37,383
========
</TABLE>
The excess of the purchase price over the fair market value of the net
assets acquired is being amortized over 40 years.
The following pro forma information presents certain operating data
calculated to reflect the acquisition as if it occurred on January 1, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Net sales........................................... $ 33,849 $ 31,306
Net loss............................................ (58) (880)
</TABLE>
This pro forma data does not purport to represent what actual operating
results would have been had the acquisition been consummated on the date
indicated or what such results will be for any future period.
F-5
<PAGE>
NOTE 3--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
Raw materials...................................... $3,658 $ 5,660
Work in process and finished goods................. 1,530 6,732
------ -------
$6,957 $15,508
====== =======
</TABLE>
NOTE 4--LONG-TERM DEBT
On March 12, 1998, IMPAC completed the issuance of $100.0 million in 10 1/8%
Senior Subordinated Notes Due 2008 (the "Notes"). The Notes bear interest at
10 1/8% and mature in 2008. The Indenture governing the Notes contains certain
covenants that, among other things, limit the ability of IMPAC to incur
additional indebtedness, pay dividends, distributions or make investments or
certain restricted payments, enter into certain transactions with affiliates,
dispose of certain assets, incur liens securing subordinated indebtedness and
engage in mergers and consolidations. The Notes are general, unsecured
obligations of IMPAC and are guaranteed by all current and future subsidiaries
of IMPAC. They will be senior to any future subordinated debt of IMPAC. The
proceeds of the Notes were used to fund the acquisition of AGI Incorporated
and to retire all outstanding indebtedness under IMPAC's prior credit
agreement. As a result of the refinancing, IMPAC recorded an extraordinary
item of $553 (net of tax), reflecting the write-off of deferred financing
costs.
On March 12, 1998, IMPAC entered into a new five year Credit Agreement which
provides for a $40.0 million revolving credit facility (the "Revolver") and a
$13.0 million letter of credit facility (the "L/C Facility"). The facilities
rank senior to the Notes and are guaranteed by each of IMPAC's existing and
future subsidiaries on a senior basis and are secured by substantially all of
the assets of IMPAC and its subsidiaries. Currently, there are no outstanding
borrowings under the Revolver. IMPAC currently has $12.6 million in letters of
credit outstanding under the L/C Facility securing its industrial revenue bond
("IRB") borrowings. The interest rate on the Revolver is based on either the
IBOR or Base Rate plus the applicable margin. The interest rate on the L/C
Facility is based on the Base Rate plus the applicable margin. IMPAC currently
pays a commitment fee of 1/2 of 1% per annum on the amount of the available
credit over the amount outstanding, plus any outstanding letters of credit
available.
The Credit Agreement includes covenants requiring IMPAC to maintain (i)
maximum leverage ratios, (ii) maximum senior leverage ratios, (iii) minimum
interest coverage ratios, (iv) minimum net assets ratios, and (v) minimum net
worth levels. The Credit Agreement also contains covenants limiting additional
indebtedness, liens, dividends, restricted payments, guaranties, advances to
affiliates, investments, mergers, creation of subsidiaries, assets sales and
dispositions.
In connection with the acquisition of AGI Incorporated, IMPAC assumed $7.6
million of variable rate IRB borrowings which mature on February 1, 2026.
Long-term debt as of December 31, 1997 and March 31, 1998, consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
Bank borrowings.................................... $29,850 $ --
Senior subordinated notes.......................... -- 100,000
Industrial revenue bonds........................... 4,000 11,640
------- --------
Total long-term debt............................. $33,850 $111,640
======= ========
</TABLE>
F-6
<PAGE>
NOTE 5--NEW STOCK ISSUANCE
In connection with the acquisition of AGI Incorporated on March 12, 1998,
IMPAC (i) exchanged 44,118 shares of new Common Stock, Series A for all
previously issued and outstanding shares of non-voting Common Stock, voting
Common Stock and Preferred Stock of KFI Holdings, (ii) 13,529 shares of new
Common Stock, Series A were issued for $4.6 million, and (iii) 42,353 shares
of new Common Stock, Series A were issued as partial consideration to former
shareholders of AGI Incorporated.
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
KFI Holding Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of KFI Holding
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of KFI
Holding Corporation and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
February 6, 1998
F-8
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 6 $ 194
Trade receivables, less allowances of $226 in 1996 and
$560 in 1997............................................ 8,185 5,986
Receivable from PTP Industries, Inc...................... 37 (46)
Inventories (note 6)..................................... 7,033 6,957
Prepaid expenses......................................... 768 401
Prepaid income taxes..................................... -- 109
Deferred income taxes (note 13).......................... 385 661
Other assets............................................. 909 595
-------- --------
Total current assets....................................... 17,323 14,857
LONG-TERM ASSETS:
Property, plant, and equipment, net (note 7)............... 8,568 11,100
Deferred financing costs, net.............................. 1,066 1,024
Restricted cash (note 11).................................. -- 625
Other assets............................................... 318 641
-------- --------
Total assets............................................... $ 27,275 $ 28,247
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Borrowings under line of credit agreement (notes 3 and
10)..................................................... $ 3,996 $ --
Current installments of long-term debt (notes 3 and 11).. 1,100 33,850
Trade accounts payable................................... 4,049 5,098
Income taxes payable (note 13)........................... 52 --
Accrued expenses......................................... 1,777 1,821
-------- --------
Total current liabilities.................................. 10,974 40,769
Long-term debt, excluding current installments (notes 3 and
11)....................................................... 29,850 --
Deferred compensation (note 16)............................ 104 58
Deferred income taxes (note 13)............................ 1,626 1,307
-------- --------
Total liabilities.......................................... 42,554 42,134
-------- --------
Commitments and contingencies (note 14)
Stockholders' deficit (note 3):
Common stock, voting, $.001 par value; authorized
135,813 shares, 90,500 shares issued and outstanding.... -- --
Common stock, nonvoting, $.001 par value; authorized,
issued and outstanding 9,500 shares..................... -- --
Preferred stock, nonvoting $.001 par value; authorized,
issued, and outstanding 100,000 shares.................. -- --
Additional paid-in-capital............................... 20,000 20,000
Notes receivable......................................... (35) (35)
Carryover basis adjustment............................... (37,142) (37,142)
Retained earnings........................................ 1,898 3,290
-------- --------
Total stockholders' deficit................................ (15,279) (13,887)
-------- --------
Total liabilities and stockholders' deficit................ $ 27,275 $ 28,247
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net sales............................................ $51,214 $54,218 $52,493
Cost of goods sold................................... 36,757 40,094 39,322
------- ------- -------
Gross profit......................................... 14,457 14,124 13,171
------- ------- -------
Selling, general and administrative expenses......... 7,942 7,594 7,589
PTP royalty and commission (income).................. (377) (731) (33)
------- ------- -------
Operating income..................................... 6,892 7,261 5,615
Interest expense, net................................ (1,197) (2,324) (3,469)
------- ------- -------
Income from continuing operations before income
taxes............................................... 5,695 4,937 2,146
Income taxes (note 13)............................... (2,417) (2,003) (754)
------- ------- -------
Income from continuing operations.................... 3,278 2,934 1,392
------- ------- -------
Discontinued operations (note 4):
Loss from operations of PTP Industries, Inc. (net
of applicable income tax benefit of $192)......... (34) -- --
Gain on disposal of PTP Industries, Inc. (less
applicable income taxes of $140).................. -- 35 --
------- ------- -------
Net income........................................... $ 3,244 $ 2,969 $ 1,392
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------- ---------------- CARRYOVER
NUMBER OF NUMBER OF PAID-IN NOTES BASIS RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE ADJUSTMENT EARNINGS TOTAL
----------- ------ --------- ------ ------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 13,500,000 $ 135 -- $-- $ 3,983 $-- $ -- $4,689 $ 8,807
Net income.............. -- -- -- -- -- -- -- 3,244 3,244
Dividends............... -- -- -- -- -- -- -- (540) (540)
----------- ----- ------- ---- ------- ---- -------- ------ --------
Balance at December 31,
1995................... 13,500,000 135 -- -- 3,983 -- -- 7,393 11,511
Net income from January
1, 1996 to June 7,
1996................... -- -- -- -- -- -- -- 1,071 1,071
Redemption of common
stock.................. (13,500,000) (135) -- -- (3,983) -- (37,142) (8,464) (49,724)
Sale of common stock.... 100,000 -- -- -- 1,000 -- -- -- 1,000
Issuance of notes
receivable............. -- -- -- -- -- (35) -- -- (35)
Sale of preferred
stock.................. -- -- 100,000 -- 19,000 -- -- -- 19,000
Net income from June 8,
1996 to December 31,
1996................... -- -- -- -- -- -- -- 1,898 1,898
----------- ----- ------- ---- ------- ---- -------- ------ --------
Balance at December 31,
1996................... 100,000 -- 100,000 -- 20,000 (35) (37,142) 1,898 (15,279)
Net income.............. -- -- -- -- -- -- -- 1,392 1,392
----------- ----- ------- ---- ------- ---- -------- ------ --------
Balance at December 31,
1997................... 100,000 $ -- 100,000 $-- $20,000 $(35) $(37,142) $3,290 $(13,887)
=========== ===== ======= ==== ======= ==== ======== ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $3,244 $ 2,969 $ 1,392
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 1,774 1,969 1,814
Deferred income taxes............................ 133 253 (595)
Net cash (used in) provided by discontinued
operations........................................ 34 (250) --
Changes in assets and liabilities:
(Increase) decrease in trade receivables......... (195) (423) 2,199
(Increase) decrease in receivable from PTP
Industries, Inc................................ (81) 118 83
(Increase) decrease in inventories............... (1,108) 1,014 76
(Increase) decrease in prepaid expenses.......... (135) 266 367
(Increase) decrease in prepaid income taxes...... (202) 152 (109)
Increase in other assets......................... (448) (117) (9)
Increase (decrease) in trade accounts payable.... 1,216 (2,079) 1,049
Increase (decrease) in payable to PTP Industries,
Inc............................................. 90 (316) --
Increase (decrease) in income taxes payable...... -- 52 (52)
Increase (decrease) in accrued expenses.......... (473) 495 44
Increase (decrease) in deferred compensation..... -- 104 (46)
------ ------- -------
Net cash provided by operating activities............ 3,849 4,207 6,213
------ ------- -------
Cash flows from investing activities:
Capital expenditures............................... (1,394) (1,271) (4,144)
Proceeds from sale of investment in PTP Industries,
Inc............................................... -- 1,860 --
------ ------- -------
Net cash provided by (used in) investing activities.. (1,394) 589 (4,144)
------ ------- -------
Cash flows from financing activities:
Increase in deferred financing costs............... (4) (1,171) (160)
Net borrowings under line of credit agreements..... 301 833 (3,996)
Proceeds from issuance of bonds.................... -- -- 4,000
Increase in restricted cash........................ -- -- (625)
Proceeds from issuance of credit facilities........ -- 34,200 --
Proceeds from issuance of common stock............. -- 1,000 --
Proceeds from issuance of preferred stock.......... -- 19,000 --
Payments to acquire stock of previous
shareholders...................................... -- (49,724) --
Principal payments on long-term debt............... (2,215) (8,942) (1,100)
Dividends paid..................................... (540) -- --
------ ------- -------
Net cash used in financing activities................ (2,458) (4,804) (1,881)
------ ------- -------
Net increase (decrease) in cash...................... (3) (8) 188
Cash at beginning of year............................ 17 14 6
------ ------- -------
Cash at end of year.................................. $ 14 $ 6 $ 194
====== ======= =======
Supplemental disclosures of cash flows information:
Interest paid...................................... $1,148 $ 2,147 $ 3,474
====== ======= =======
Income taxes paid.................................. $2,428 $ 1,630 $ 1,479
====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the financial
statements of KFI, Klearfold, Inc., KFI International Inc., and KFI Delaware,
Inc. (referred to collectively as Klearfold or the Company). All balances and
transactions among these parties have been eliminated in the accompanying
financial statements.
(2) DESCRIPTION OF BUSINESS AND BUSINESS CONCENTRATIONS
The Company manufactures innovative display packaging using folding cartons
that are produced either in part or entirely of rigid film. Customers are
located primarily throughout the United States and are comprised of users in
the cosmetics, pharmaceutical, and other consumer products industries. Sales
to two customers accounted for approximately 27% and 23% of the Company's net
sales for the years ended December 31, 1996 and 1997. Sales to one customer
accounted for approximately 14% of the Company's net sales for the year ended
December 31, 1995.
(3) LEVERAGED RECAPITALIZATION
On June 7, 1996, a merger between Klearfold and KFI/Heritage Acquisition
Corporation (Acquisition), a wholly-owned subsidiary of KFI, was consummated.
KFI and Acquisition were formed for the purpose of acquiring all the capital
stock of Klearfold by certain affiliates of Heritage Partners Management
Company (Heritage) together with certain existing Klearfold shareholders and
key members of Klearfold management (Management Investors) in a leveraged
transaction.
The Management Investors have maintained the majority voting interest in KFI
and no change in control as described in Emerging Issue Task Force Issue 88-16
occurred as a result of the merger. Therefore, the merger has been accounted
for as a leveraged recapitalization with the accounting basis of Klearfold's
assets and liabilities being carried over after the merger. The difference
between the accounting basis of Klearfold's assets and liabilities and their
fair values is $34,831, which has been recorded in stockholders' deficit as a
carryover basis adjustment. Management Investors own 50.3% and 46.5% of the
outstanding voting common stock and total outstanding common stock,
respectively. Heritage owns 49.7% and 53.5% of the outstanding voting common
stock and total outstanding common stock, respectively. Management Investors
and Heritage own 23.7% and 76.3% of the outstanding preferred stock.
Of the funds required to effect the recapitalization, $20,000 was provided
in the form of common and preferred stock by Heritage ($15,035) and Management
Investors ($4,965). Certain Management Investors borrowed $35 in the form of
notes receivable to the Company to acquire common stock. The notes receivable
have been recorded as a reduction to stockholders' deficit on the Company's
balance sheet. The balance of the funding was provided under the $43,000
Senior Secured Credit Facilities (Facilities) through a bank syndication. The
Facilities consist of (1) $12,000 six-year Revolving Credit, with availability
subject to a borrowing base of accounts receivable and inventory (note 10);
and (2) $21,000 six-year Term Loan A and $10,000 seven-year Term Loan B (note
11). The total source of funds obtained for the recapitalization as of June 7,
1996 was $54,900, of which $20,000 was received from the issuance of capital
stock, $34,200 from the Facilities, and $700 from Company cash on hand. The
total use of these funds was as follows: $45,203 to pay a substantial portion
of the purchase price to acquire all of the outstanding stock of Klearfold's
previous shareholders, $7,763 to repay existing bank loans, and $1,934 to pay
merger and financing costs, which consisted primarily of financial and
F-13
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
legal fees. An additional $3,652 of funds was required subsequent to June 7,
1996 to pay the remaining costs in connection with the recapitalization. The
remaining funds to be paid consisted of $2,116 to Klearfold's previous
shareholders and $1,536 for remaining merger and financing costs relating to
the recapitalization. At December 31, 1997, previous shareholders are due
$153.
Total merger and financing costs relating to the recapitalization were
$3,470, of which $2,341 was recorded as a carryover basis adjustment and
$1,129 was recorded as deferred financing costs.
The preferred stock provided by Heritage and Management Investors have no
fixed repayment date and will be redeemed only upon liquidation of Heritage's
common stock investment. The preferred stock carries a 10% dividend rate, to
be accrued during the first three years following closing, and thereafter, to
be paid from available earnings. Dividends not paid will accumulate. The
aggregate amount of arrearages in cumulative preferred dividends is $2,777 at
December 31, 1997.
Heritage has warrants attached to its preferred stock that entitle the
holder to an additional 14.5% of economic value of the Company if certain
valuation parameters are not achieved upon disposition of all or a portion of
Heritage's interest in the Company.
(4) DISCONTINUED OPERATIONS
On April 19, 1996, the Company sold its 51% interest in its thermoform
packaging operations--PTP Industries, Inc. (PTP). Accordingly, PTP is
accounted for as discontinued operations in the accompanying consolidated
financial statements. There are no net assets of PTP recorded on the balance
sheet at December 31, 1997 and December 31, 1996. Proceeds from the sale of
PTP were $1,860 and a gain of $35 (net of taxes of $140) was recognized in
1996.
(5) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Sales
Sales, which arise primarily within the United States, represent the net
invoiced value of goods supplied to customers. Sales are generally recognized
when goods are shipped to customers. In certain instances, sales are
recognized prior to shipment if the goods are completed and held by the
Company at the request of the customer.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost.
Machinery and equipment depreciation is calculated on the straight-line
method over the estimated useful lives of the assets. Leasehold improvements
are amortized straight-line over the shorter of the lease term or estimated
useful life of the related asset. Equipment under construction is not
depreciated until placed in full-time production. The useful lives of property
and equipment are summarized as follows:
<TABLE>
<S> <C>
Leasehold improvements......................................... 5-10 years
Machinery and equipment........................................ 10 years
Furniture and fixtures......................................... 6-10 years
</TABLE>
F-14
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred Financing Costs
The Company incurred various financing costs relating to the Facilities as
previously described in the notes to the consolidated financial statements.
The Company is amortizing these deferred costs over seven years, which
represents the life of the Facilities agreement.
The premium paid for the purchased interest rate cap agreement is amortized
to interest expense over the term of the cap. The unamortized premium is
included in deferred financing costs in the consolidated balance sheet.
Amounts receivable under the cap agreement are accrued as a component of
interest expense.
Income Taxes
Income taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
the recording of reported amounts of revenues and expenses and the disclosure
of contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
Fair Values of Financial Instruments
The carrying value of the Company's financial instruments consisting of
cash, trade receivables, trade payables, borrowings under line of credit
agreement, and long-term debt are estimated to approximate fair value due to
the short-term maturity of cash, trade receivables, and trade payables, and
due to the line of credit and long-term debt agreements having a variable
interest rate.
(6) INVENTORIES
Components of inventories at December 31, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Raw materials.................................................. $3,138 $3,658
Work in process................................................ 1,233 1,530
Finished goods................................................. 2,662 1,769
------ ------
$7,033 $6,957
====== ======
</TABLE>
F-15
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1996 and
1997:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Machinery and equipment................................... $20,026 $ 24,244
Furniture and fixtures.................................... 1,826 2,034
Leasehold improvements.................................... 1,841 1,916
Construction in progress.................................. 532 176
------- --------
24,225 28,370
Less accumulated depreciation and amortization............ (15,657) (17,270)
------- --------
$ 8,568 $ 11,100
======= ========
</TABLE>
(8) LEASES
The Company has several noncancelable operating leases, primarily for
buildings and equipment that expire over the next 6 years. Future minimum
lease payments under noncancelable operating leases as of December 31, 1997
were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998............................................................... $1,925
1999............................................................... 1,599
2000............................................................... 1,107
2001............................................................... 701
2002............................................................... 625
Thereafter......................................................... 1,719
------
Total minimum lease payments....................................... $7,676
======
</TABLE>
Total rent expense for the years ended December 31, 1995, 1996 and 1997 was
$1,732, $1,995 and $2,034, respectively.
(9) PENSION AND EMPLOYEES SAVINGS PLAN
The Company is required, on behalf of union-registered employees, to
contribute to a union-managed multi-employer pension plan. If the Company
completely or partially withdraws from the pension plan, the Company may be
required to pay its share of the pension plan's unfunded vested liability.
There was no unfunded vested liability at December 31, 1997. The cost incurred
for the union pension plan was $113, $118 and $121 in 1995, 1996 and 1997,
respectively.
The Company operates an employees savings plan for the benefit of all non-
union employees upon retirement, disability, death, or departure from the
companies. The Company is not required to fund a minimum level of benefits for
such employees' and employer contributions are at the discretion of the
Company. The cost incurred for the savings plan in 1995, 1996 and 1997 was
$27, $24 and $28, respectively.
(10) LINE OF CREDIT
The Company has a six-year revolving bank line of credit agreement that is
subject to a maximum amount of $12,000 ($0 outstanding at December 31, 1997).
Borrowings under the line bear interest at LIBOR plus applicable margin, or
bank base rate plus applicable margin (9.75% at December 31, 1997). Maximum
borrowings under the line are limited to the sum of 85% of the Company's
eligible
F-16
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accounts receivable plus 50% of eligible inventory. As a result, the maximum
borrowings under the line of credit were limited to $4,590 at December 31,
1997. A commitment fee is payable at the end of each quarter, equal to 0.5%
per annum on the average daily amount of the unborrowed portion of the
revolving credit agreement.
(11) LONG-TERM DEBT
Outstanding long-term debt consists of the following
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Secured term loan A....................................... $21,000 $ 20,000
Secured term loan B....................................... 9,950 9,850
Industrial Development Demand Revenue Bonds............... -- 4,000
------- --------
30,950 33,850
Less current installments................................. (1,100) (33,850)
------- --------
$29,850 $ --
======= ========
</TABLE>
Term Loan A matures by June 30, 2002. Term Loan B matures by June 30, 2003.
Term Loans A and B bear interest at the bank's base rate plus applicable
margins. The effective rate at December 31, 1997 was 8.5% and 9.0% for Term
Loans A and B, respectively. The effect of a .25% increase in interest rates
would increase interest expense on the term loans by approximately $77 in
1997.
In connection with the term loans, the Company entered into an interest cap
agreement with the same bank, effective December 1996, for a notional amount
of $20,000, with a cap rate of 7.68% per annum. The cost of the agreement,
which expires in June 1998, was $42. In exchange, the Bank will reimburse the
Company interest costs in excess of 7.68% plus the Bank's applicable margins.
The fair value of the interest rate cap agreement approximated its carrying
value at December 31, 1997.
On August 1, 1997, the Bucks County Industrial Development Authority issued
$4,000 of Variable Rate Demand Revenue Bonds. The Company borrowed the
proceeds of the issuance from the Authority. The principal balance is due in
full on August 1, 2007. Interest accrues on the bonds at 4.35% . The Company
is required to maintain a letter of credit supporting the outstanding balance
of the bonds. The outstanding letter of credit balance as of December 31, 1997
is $4,064. The fee charged for the letter of credit is 3% of the outstanding
balance. The Bond Trust Indenture Agreement requires the Company to use the
proceeds for the acquisition and installation of an offset printing press and
related equipment. All proceeds not used immediately for these costs are to be
kept in a restricted cash account. The balance of restricted cash at December
31, 1997 is $625.
The aggregate scheduled annual maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
TERM TERM
LOAN A LOAN B BONDS TOTAL
------- ------ ----- ------
<S> <C> <C> <C> <C>
1998........................................... $ 3,000 $ 100 $ -- $3,100
1999........................................... 4,500 100 -- 4,600
2000........................................... 5,000 100 -- 5,100
2001........................................... 5,000 1,550 -- 6,550
2002........................................... 2,500 4,750 -- 7,250
Thereafter..................................... -- 3,250 4,000 7,250
------- ------ ----- ------
Total long-term debt........................... 20,000 9,850 4,000 33,850
Less current installments...................... 20,000 9,850 4,000 33,850
------- ------ ----- ------
Long-term debt, excluding current
installments.................................. $ -- $ $ -- $ --
======= ====== ===== ======
</TABLE>
F-17
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's line of credit and term loan agreements include various
financial covenants with which the Company must comply. These covenants
generally restrict the amount of capital expenditures and dividend
distributions, and require the Company to meet minimum requirements for
earnings, leverage, and fixed charge coverage. All borrowings under the line
of credit and the term loans are secured by substantially all of the Company's
assets.
During 1997 the Company and the bank group for the credit line and term
loans amended the related loan agreement to enable the Company to maintain
compliance with its loan covenants through December 31, 1997. The Company
projects, however, that it will be in default on certain financial loan
covenants (related to earnings before income taxes, depreciation and
amortization) when next calculated as of February 28, 1998. Therefore, all
amounts due under the term loans have been classified as current.
Additionally, the industrial revenue bonds are supported by a letter of credit
issued by the bank group which is subject to the same financial loan covenants
as the line of credit and term loan. Therefore, the industrial revenue bonds
have also been classified as current. Management of the Company has not sought
to further amend or restructure the loan agreement to maintain compliance with
such covenants due to the planned merger discussed in note 16 and related
senior note financing. Management's plan should the Company not consummate the
merger and related financing is to commence negotiations with the bank group
to amend or restructure the loan agreement. Management believes that it would
be able to reach mutually agreeable terms with the bank lending group to allow
repayment of the debt on a long-term basis.
(12) CUSTOMER TERMINATION OF PURCHASE ARRANGEMENT
During 1997, a customer terminated its packaging purchase arrangement with
the Company. As a result of this termination the Company received $840 as
compensation for manufacturing costs incurred. This credit was recorded as a
reduction of cost of goods sold.
(13) INCOME TAXES
Income tax expense attributable to income from continuing operations for the
years ended December 31, 1995, 1996 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current tax expense:
U.S. federal........................................ $1,962 $1,616 $1,292
U.S. state and local................................ 322 134 57
------ ------ ------
2,284 1,750 1,349
------ ------ ------
Deferred tax expense:
U.S. federal........................................ 113 215 (504)
U.S. state and local................................ 20 38 (91)
------ ------ ------
133 253 (595)
------ ------ ------
Total income tax expense.............................. $2,417 $2,003 $ 754
====== ====== ======
</TABLE>
F-18
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total income tax expense for the years ended December 31, 1995, 1996 and
1997 differed from the amount computed by applying the U.S. Federal income tax
rate of 34 percent to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ----
<S> <C> <C> <C>
Computed "expected" tax expense.......................... $1,936 $1,679 $730
State income taxes, net of federal benefit............... 225 113 --
Other, net............................................... 256 211 24
------ ------ ----
Total income tax expense................................. $2,417 $2,003 $754
====== ====== ====
</TABLE>
The tax effects of temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities that give rise to
significant portions of the net deferred tax liability were as follows at
December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable..................................... $ 101 $ 212
Inventories............................................. 235 362
Other................................................... 49 87
------- -------
Total gross deferred tax assets........................... 385 661
------- -------
Gross deferred tax liabilities:
Property, plant and equipment........................... (1,428) (1,245)
Prepaid expenses........................................ (198) (62)
------- -------
Total gross deferred tax liabilities...................... (1,626) (1,307)
------- -------
Net deferred tax liability................................ $(1,241) $ (646)
======= =======
</TABLE>
(14) COMMITMENTS AND CONTINGENCIES
The Company has entered into employment agreements with certain employee-
shareholders which expire at the end of the year 2000. The aggregate
commitment for future salaries, excluding bonuses, under these employment
agreements at December 31, 1997 is approximately $1,926.
(15) RELATED PARTY TRANSACTIONS
The Company leases manufacturing and warehouse premises in Warrington,
Pennsylvania, from Melvin B. Herrin for $336 annually and is adjustable for
inflation beginning in 2001. Melvin B. Herrin is Chairman of the Board of
Directors and CEO of the Company. The Company leases manufacturing and
warehouse premises in Louisa, Virginia, from Dena Corporation, a company
wholly-owned by Melvin B. Herrin, for $273 annually and is adjustable for
inflation beginning in 2001. Both leases expire in 2005 and may be extended
for an additional five years at the option of the Company.
Arthur S. Keyser, a director of the Company, is a senior managing partner in
the firm of Kleinbard, Bell & Brecker, which received professional fees of
$346, $120 and $83 in 1995, 1996 and 1997, respectively, for legal advice
provided in the normal course of business.
Certain key members of management signed $5 promissory notes with the
Company in exchange for their common stock shares. These promissory notes
which total $35 are interest-free and have no stated maturity date.
F-19
<PAGE>
KFI HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) STOCK OPTION PLANS
Stock options which were granted in the past to members of executive
management have been terminated as of June 7, 1996. The value of the options
to be paid was $243 as of June 7, 1996. As of December 31, 1997, $58 was the
remaining obligation and has been recorded as deferred compensation. Deferred
compensation is payable in five equal installments beginning in June 1997,
only if the individual is working for the Company at the time the installment
becomes payable. The value of the options recorded in accrued expenses is
payable upon demand.
(17) SUBSEQUENT EVENTS
The Company, in the first quarter of 1998, plans to enter into a merger with
AGI Incorporated (AGI) whereby the shareholders of the Company will make a
contribution of equity which, along with the proceeds from a contemporaneous
offering of senior subordinated notes, will be used to acquire shares of AGI
and repay amounts outstanding under the secured term loans described in note
11.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
OF AGI INCORPORATED:
We have audited the accompanying balance sheet of AGI Incorporated as of
December 31, 1997, and the related statements of income, shareholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of AGI Incorporated for the years ended December 31, 1996 and 1995
were audited by other independent accountants whose reports dated February 25,
1997 and March 1, 1996, respectively, expressed unqualified opinions on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements audited by us present fairly, in
all material respects, the financial position of AGI Incorporated at December
31, 1997, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
Price Waterhouse LLP
Chicago, Illinois
February 9, 1998
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF
AGI INCORPORATED:
We have audited the accompanying balance sheet of AGI Incorporated (an
Illinois corporation) as of December 31, 1996, and the related statements of
income, shareholders' equity and cash flows for the years ended December 31,
1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AGI Incorporated as of
December 31, 1996, and the results of its operations and its cash flows for
the years ended December 31, 1996 and 1995 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Milwaukee, Wisconsin
February 25, 1997.
F-22
<PAGE>
AGI INCORPORATED
BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT FOR COMMON STOCK DATA)
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................................... $ 17 $ 1,029
Trade accounts receivable--
Net of reserves of $513 and $388 in 1996 and 1997,
respectively............................................... 15,189 15,921
Other receivables............................................. 752 831
Inventories (Notes 2 and 3)................................... 7,540 6,407
Prepaid expenses.............................................. 452 803
------- -------
Total current assets............................................ 23,950 24,991
------- -------
Long-term assets:
Property, plant and equipment, net (Notes 2 and 4)............ 31,788 32,785
Other assets.................................................. 1,190 1,143
------- -------
Total assets.................................................... $56,928 $58,919
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft................................................ $ 2,493 $ --
Current maturities of long-term debt (Note 8)................. 2,407 1,980
Accounts payable and accrued liabilities (Note 5)............. 14,105 18,067
Installment note payable...................................... 1,007 56
------- -------
Total current liabilities....................................... 20,012 20,103
------- -------
Long-term debt, less current maturities (Note 8)................ 15,834 14,060
Other long-term liabilities..................................... 171 --
Shareholders' equity:
Common stock, par value $1 per share; authorized 1,500,000
shares; 909,714 issued and outstanding in both 1997 and 1996
(Notes 11
and 12)...................................................... 910 910
Paid-in capital............................................... 565 565
Retained earnings............................................. 19,436 23,281
------- -------
Total shareholders' equity...................................... 20,911 24,756
------- -------
Total liabilities and shareholders' equity...................... $56,928 $58,919
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE>
AGI INCORPORATED
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Net sales........................................... $97,463 $92,834 $108,281
Cost of goods sold.................................. 74,441 67,860 76,459
------- ------- --------
Gross profit........................................ 23,022 24,974 31,822
------- ------- --------
Selling, general and administrative expenses........ 15,374 15,894 19,444
Stock-based compensation expense (Note 12).......... -- 171 2,326
------- ------- --------
Operating income.................................... 7,648 8,909 10,052
Other income (expense):
Interest income................................... 135 36 31
Interest expense (Note 8)......................... (1,500) (1,406) (1,273)
Gain (loss) on sale of fixed assets............... 45 (204) 139
------- ------- --------
Income before income taxes.......................... 6,328 7,335 8,949
State income taxes (Note 6)......................... (23) (234) (231)
------- ------- --------
Net income.......................................... $ 6,305 $ 7,101 $ 8,718
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
AGI INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED SUBSCRIPTIONS
STOCK CAPITAL EARNINGS RECEIVABLE TOTAL
------ ------- -------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994.... $916 $592 $11,787 $(11) $13,284
---- ---- ------- ---- -------
Net income for the year....... -- -- 6,305 -- 6,305
Distributions to
shareholders................. -- -- (2,144) -- (2,144)
Payments received for
subscribed stock............. -- -- -- 11 11
Repurchase of common stock.... (6) (27) (147) -- (180)
---- ---- ------- ---- -------
Balance, December 31, 1995.... 910 565 15,801 -- 17,276
Net income for the year....... -- -- 7,101 -- 7,101
Distributions to
shareholders................. -- -- (3,466) -- (3,466)
---- ---- ------- ---- -------
Balance, December 31, 1996.... 910 565 19,436 -- 20,911
Net income for the year....... -- -- 8,718 -- 8,718
Distributions to
shareholders................. -- -- (4,873) -- (4,873)
---- ---- ------- ---- -------
Balance, December 31, 1997.... $910 $565 $23,281 $-- $24,756
==== ==== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
AGI INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, BRACKETS DENOTE CASH DECREASES)
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $6,305 $7,101 $ 8,718
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization..................... 3,965 4,587 4,762
Loss (gain) on sale of fixed assets............... (45) 204 (139)
Changes in assets and liabilities--
Trade accounts receivable, net.................. (3,811) 605 (732)
Inventories..................................... 492 (1,661) 1,133
Accounts payable and accrued liabilities........ 1,981 (124) 2,558
Bank overdrafts................................. (419) (1,316) (2,493)
Other, net...................................... (224) 506 849
------ ------ -------
Net cash provided by operating activities..... 8,244 9,902 14,656
------ ------ -------
Cash flows from investing activities:
Capital expenditures................................ (9,792) (7,644) (6,027)
Proceeds from sale of fixed assets.................. 981 822 408
------ ------ -------
Net cash used in investing activities........... (8,811) (6,822) (5,619)
------ ------ -------
Cash flows from financing activies:
Net change in borrowings under revolving line-of-
credit agreement................................... (4,000) (3,000) --
Proceeds from issuance of industrial revenue bonds.. 7,640 -- --
Payments on long-term debt.......................... (1,421) (1,494) (2,201)
Proceeds from term note............................. -- 4,536 --
Payments received on subscriptions receivable....... 11 -- --
Bond funds held in trust............................ (1,069) 1,069 --
Distributions to shareholders....................... (2,144) (3,467) (4,873)
Repurchase of common stock.......................... (180) -- --
Proceeds from installment note...................... 1,735 -- --
Payment of installment note......................... -- (728) (951)
------ ------ -------
Net cash provided by (used in) financing
activities..................................... 572 (3,084) (8,025)
------ ------ -------
Increase (decrease) in cash........................... 5 (4) 1,012
Cash, beginning of year............................... 16 21 17
------ ------ -------
Cash, end of year..................................... $ 21 $ 17 $ 1,029
====== ====== =======
Supplemental disclosures:
Cash payments for--
Interest, net of capitalization................... $1,589 $1,475 $ 1,304
State income taxes................................ 62 103 69
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
AGI INCORPORATED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
NOTE 1--BUSINESS DESCRIPTION
AGI Incorporated (the "Company") is engaged in the manufacturing of high-
quality printed packaging products for customers primarily in the
entertainment, cosmetics, multimedia and tobacco industries.
Sales to a significant customer amounted to 11% of total sales in 1995.
Sales to two significant customers amounted to 21% and 28% of total sales in
1996 and 1997, respectively.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Net revenues are recognized upon shipment to a customer pursuant to specific
purchase orders.
Cash equivalents
The Company defines cash equivalents as highly liquid short-term investments
with an original maturity of three months or less when purchased. The carrying
amount of short-term investments approximates fair value because of the short
maturity of these investments.
Inventories
Inventories are stated at the lower of cost or market and include the
appropriate elements of material, labor and manufacturing overhead costs. Cost
is determined using the last-in, first-out ("LIFO") method for the paper
component of inventory and the first-in, first-out ("FIFO") method for all
other components of inventory.
Property, plant and equipment
Property, plant and equipment are stated at cost and depreciated over their
estimated useful lives using the straight-line method (3 to 10 years for
machinery and equipment and 10 to 19 years for buildings and leasehold
improvements).
The Company capitalized interest expense incurred of $155, $73 and $16 in
1995, 1996 and 1997, respectively, during the construction and installation of
certain facilities and equipment.
Depreciation expense included in the statements of income was $3,965, $4,587
and $4,762 for the years ended December 31, 1995, 1996 and 1997, respectively.
Bond issuance costs
Costs associated with the issuance of Multi-Mode Industrial Project Revenue
Bonds have been capitalized and are included in Other Assets. These costs are
being amortized over the term of the bonds.
Employee stock awards
The Company accounts for employee stock awards in accordance with the
provisions of APB No. 25, "Accounting for Stock Issued to Employees," and
related interpretations (APB No. 25). There were no differences between
applying APB No. 25 and the accounting that would have resulted had the
Company applied the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation".
F-27
<PAGE>
AGI INCORPORATED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Fair value of financial instruments
Management believes that the fair value of all financial instruments
approximates their carrying value.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and related disclosures. Actual
results could differ from these estimates.
NOTE 3--INVENTORIES
Inventories at December 31, 1996 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Raw materials................................................. $1,426 $1,748
Work in process and finished goods............................ 6,114 4,659
------ ------
$7,540 $6,407
====== ======
</TABLE>
Inventories accounted for under the LIFO method at December 31, 1995, 1996
and 1997 were $2,179, $3,109 and $2,748, respectively. Under the FIFO method
of accounting, such inventories would have been $463, $377 and $249 higher
than those reported at December 31, 1995, 1996 and 1997, respectively. During
1997, LIFO inventory quantities were reduced resulting in a partial
liquidation of inventory at LIFO costs, the effect of which increased net
income by $128.
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net at December 31, 1997 and 1996 consisted
of the following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Land..................................................... $ 67 $ 218
Building and leasehold improvements...................... 10,331 10,981
Machinery and equipment.................................. 47,345 50,965
Construction in progress................................. 145 1,306
-------- --------
57,888 63,470
Less--Accumulated depreciation........................... (26,100) (30,685)
-------- --------
Net property, plant and equipment........................ $ 31,788 $ 32,785
======== ========
</TABLE>
NOTE 5--ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1997 and 1996
consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Trade accounts payable...................................... $ 5,048 $ 3,606
Rebates payable............................................. 3,112 4,039
Employee compensation and withholdings...................... 4,391 8,562
Other....................................................... 1,554 1,860
------- -------
$14,105 $18,067
======= =======
</TABLE>
F-28
<PAGE>
AGI INCORPORATED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--INCOME TAXES
No provision has been made for amounts representing current or deferred
Federal tax liabilities as the Company is treated as an S-Corporation.
Accordingly, any such tax liabilities are the obligation of the individual
shareholders.
The Company is a tax-paying entity in the states of Illinois, California and
New York. The provision for these taxes is included in the accompanying
statements of income.
NOTE 7--EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution plan covering substantially all
employees. The Company contribution is discretionary and is determined each
year by the Company's Board of Directors. The Company recorded a provision for
this plan of $450, $622 and $738 for 1995, 1996 and 1997, respectively.
The Company also sponsors a retirement savings plan in which all employees
may voluntarily elect to participate. Under this plan, the Company matches a
portion of the amounts contributed by employees. The Company recorded expense
related to this plan of $131, $212 and $211 in 1995, 1996 and 1997,
respectively.
NOTE 8--LONG-TERM DEBT
Long-term debt as of December 31, 1996 and 1997, consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
City of Jacksonville, Illinois Multi-Mode Industrial Project
Revenue Bonds, variable interest, due on February 1,
2026....................................................... $ 7,640 $ 7,640
Bank term note, interest at prime or LIBOR plus 2.25%, due
in quarterly installments of $358,000 through March 2001
with the remaining balance due June 2001................... 9,284 7,852
Subordinated notes payable to two current and one former
shareholder(s), interest at prime not to exceed 10% over
the life of the notes, 8.5% at December 31, 1997, due in
annual installments through 1998........................... 1,302 548
Capitalized lease obligations, 6.2% to 7.9%, due in varying
installments through September 1997........................ 15 --
------- -------
18,241 16,040
Less--Current portion....................................... 2,407 1,980
------- -------
Total long-term debt...................................... $15,834 $14,060
======= =======
</TABLE>
Future maturities of long-term debt including line-of-credit borrowings as
of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 1,980
1999................................................................ 1,432
2000................................................................ 1,432
2001................................................................ 3,556
2002................................................................ --
Thereafter.......................................................... 7,640
-------
$16,040
=======
</TABLE>
F-29
<PAGE>
AGI INCORPORATED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
The Company has a credit agreement with Bank of America, Illinois, dated
November 22, 1993, for a bank term note and line of credit (the "Credit
Facility"). The agreement was amended on July 30, 1996, increasing the term
note to $10,000. The available line of credit is the lower of $11,000 or the
borrowing base, which is a percentage of eligible accounts receivable and
inventories, reduced by amounts outstanding under certain letters of credit.
Borrowings under the Credit Facility may, at the Company's election, bear
interest at prime or the London International Bank Offer Rate (30, 60 or 90-
day) plus 2.25%. At December 31, 1997, the interest rate on all borrowings
were at LIBOR rates ranging from 8.125% to 8.15625%. The line of credit
agreement extends through October 1998. The Company pays a commitment fee of
1/2 of 1% per annum on the amount of available credit over the amount
outstanding, plus any outstanding letters of credit available at December 31,
1997.
On January 19, 1995, the City of Jacksonville, Illinois issued an aggregate
principal amount of $7,640 of Multi-Mode Industrial Project Revenue Bonds. The
Bonds were issued to fund a loan, under a loan agreement, dated January 1,
1995, between the City of Jacksonville and the Company to finance the cost of
acquiring land and constructing and equipping the Company's manufacturing
facility in Jacksonville, Illinois, which became operational during the second
quarter of 1995. The variable rate bonds mature on February 1, 2026. Interest
rates on the bonds ranged from 3.4741% to 4.3938% during 1997. The interest
rate at December 31, 1997 was 4.2%. The bonds are secured by an irrevocable
letter of credit issued by Bank of America, Illinois, under an agreement with
the Company.
The debt agreements have certain restrictions which, among other things,
require that the Company maintain a specified amount of tangible net worth, as
defined. The Company was in compliance with the debt agreements at December
31, 1997 and 1996. The agreements with Bank of America, Illinois, are
collateralized by substantially all of the assets of the Company.
NOTE 9--LEASES
The Company leases a significant portion of its real estate, including the
Melrose Park and Franklin Park facilities and various sales offices under
operating leases which expire over the next four years. The lease for the
Melrose Park facility is with a related party as described in Note 10.
Minimum future rental commitments under noncancellable operating leases
having initial or remaining terms in excess of one year as of December 31,
1997, are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 2,594
1999.............................................................. 2,266
2000.............................................................. 2,051
2001.............................................................. 1,577
2002.............................................................. 1,350
Thereafter........................................................ 297
-------
Total minimum payments............................................ $10,135
=======
</TABLE>
Rental expense was $1,814, $2,230 and $2,556 for 1995, 1996 and 1997,
respectively.
NOTE 10--RELATED PARTY TRANSACTIONS
The Company leases its primary operating location under an operating lease
which expires in September 2002. The Company has the option to renew the lease
for up to an additional five years. The lessor is a partnership that includes
certain executives of the Company. The Company has paid a deposit to the
partnership of approximately $340 which is reflected in the accompanying
balance sheets as part of Other Assets. Rents under this lease amounted to
approximately $475 in 1997, 1996 and 1995.
F-30
<PAGE>
AGI INCORPORATED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
In connection with a recapitalization in 1987, the Company signed notes with
two current shareholders to finance a portion of the purchase price of the
reacquired stock. These notes are subordinated to the term loan, line of
credit and the revenue bonds and bear interest at the prime rate, not to
exceed 10% over the life of the notes.
NOTE 11--SHAREHOLDERS' AGREEMENT
Under the terms of the shareholders' agreement, the Company may be required
to repurchase at fair value, as determined by the Board of Directors, any
shareholder's common stock upon death, disability or, in the case of
management employees, resignation from the Company.
NOTE 12--EQUITY INCENTIVE PLAN
The Company sponsors an equity incentive plan that allows the Board of
Directors to grant key employees stock awards up to an aggregate amount of
100,000 shares in the form of stock options and stock appreciation rights
(SARs). The terms of the awards may not exceed 12 years and vesting generally
occurs ratably over a four year period with acceleration of vesting in the
event of a change in control of the Company.
There were grants of SARs in 1995 and 1996, all of which had 10 year terms.
All benefits for the SARs will be paid in cash. There have been no grants of
options. Details relating to the SAR units for the three years ended December
31, 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------------- --------------- ---------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
RIGHTS PRICE RIGHTS PRICE RIGHTS PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year......................... -- -- 16,000 $30.16 95,454 $29.98
Granted....................... 16,000 $30.16 79,454 29.94 -- --
------ ------ ------ ------ ------ ------
Outstanding at end of year.... 16,000 $30.16 95,454 $29.98 95,454 $29.98
====== ====== ====== ====== ====== ======
Vested at end of year......... 694 29,808 65,223
====== ====== ======
</TABLE>
The expense recorded associated with the SARs was $171 and $2,326 in 1996
and 1997, respectively. The expense in 1995 was not significant.
NOTE 13--RECENT DEVELOPMENTS
The Company plans to merge with AGI Acquisition Corp., a subsidiary of KFI
Holding Corporation ("KFI Holding"), in the first quarter of 1998. Klearfold,
Inc., a wholly-owned subsidiary of KFI Holding, is a manufacturer of high
quality clear packaging for various consumer products. Under the terms of the
merger, the stockholders of KFI Holding agreed to contribute the entire
outstanding capital stock of KFI Holding and a warrant to purchase KFI Holding
capital stock and to invest approximately $4.6 million in cash; and certain
stockholders and holders of stock appreciation rights of AGI agreed to
contribute to KFI Holding shares of common stock and to invest the proceeds of
their stock appreciation rights, totalling an aggregate of $14.4 million. In
exchange for these contributions and cash investments, KFI Holding agreed to
issue to the contributing or investing parties shares of its common stock.
Concurrently with the transactions, KFI Holding will change its name to IMPAC
Group, Inc. AGI and Klearfold will be wholly-owned subsidiaries of IMPAC
Group, Inc.
F-31
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
Until . , 1998 all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 17
Use of Proceeds.......................................................... 24
Capitalization........................................................... 26
Unaudited Pro Forma Combined Financial Data.............................. 27
Selected Historical Financial Information and Other Data-KFI Holding
Corporation............................................................. 32
Selected Historical Financial Information and Other Data-AGI
Incorporated............................................................ 34
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 35
Business................................................................. 45
Management............................................................... 58
Beneficial Ownership..................................................... 63
Certain Relationships and Related Transactions........................... 65
Description of Other Indebtedness........................................ 68
Exchange Offer........................................................... 69
Plan of Distribution..................................................... 77
Description of Notes..................................................... 78
Federal Income Tax Consequences.......................................... 110
Intellectual Property.................................................... 114
Legal Matters............................................................ 114
Available Information.................................................... 114
Experts.................................................................. 115
Special Note Regarding Forward-Looking Statements........................ 116
Index of Defined Terms................................................... 117
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
IMPAC GROUP, INC.
OFFER TO EXCHANGE UP TO $100,000,000
OF 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008, SERIES B WHICH HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL
OF ITS OUTSTANDING 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008,
OF WHICH $100,000,000 IN PRINCIPAL AMOUNT IS OUTSTANDING ON THE DATE HEREOF
-----------
PROSPECTUS
-----------
JUNE . , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") grants a
Delaware corporation the power to indemnify any director, officer, employee or
other agent if such person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. No
indemnification may be provided, however, for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to
have acted in good faith in the reasonable belief that his action was in the
best interest of the corporation unless and only to the extent that the Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
With respect to indemnification of directors, Article 6 of the Amended and
Restated Certificate of Incorporation of IMPAC, a copy of which is filed as
Exhibit 3.1, provides as follows:
"The Company shall indemnify, and upon request shall advance expenses to, in
the manner and to the full extent permitted by law, any person (or the estate
of any person) who was or is a party to, or is threatened to be made a party
to, any threatened, pending or completed action, suit or proceeding, whether
or not by or in the right of the Company, and whether civil, criminal,
administrative, investigative or otherwise, by reason of the fact that such
person is or was a director or officer of the Company, or is or was serving at
the request of the Company as a director, officer, partner or trustee of
another company, partnership, joint venture, trust or other enterprise. The
Company may, to the fullest extent permitted by law, purchase and maintain
insurance on behalf of any such person against any liability which may be
asserted against him or her, whether or not the Company would have the power
to indemnify him or her against such liability pursuant to this Article 6. To
the fullest extent permitted by law, the indemnification and advances provided
for herein shall include expenses (including attorney's fees), judgments,
fines and amounts paid in settlement. The indemnification provided herein
shall not be deemed to limit the right of the Company to indemnify any other
person for any such expenses to the full extent permitted by law, nor shall it
be deemed exclusive of any other rights to which any person seeking
indemnification from the Company may be entitled under any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
A director shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (a) for any breach of the director's duty of loyalty to the Company
or its stockholders, (b) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the Delaware General Corporation Law, or (d) for any
transaction from which the director derived an improper personal benefit."
With respect to indemnification, Article VII of each of the Amended and
Restated By-laws of IMPAC, a copy of which is filed as Exhibit 3.2, provides
as follows:
"Section 7.1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of being or having been a director
or officer
II-1
<PAGE>
of the Corporation or serving or having served at the request of the
Corporation as a director, trustee,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to an
employee benefit plan (an "Indemnitee"), whether the basis of such proceeding
is alleged action or failure to act in an official capacity as a director,
trustee, officer, employee or agent or in any other capacity while serving as
a director, trustee, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than
permitted prior thereto) (as used in this Article 7, the "Delaware Law"),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such Indemnitee in connection therewith and
such indemnification shall continue as to an Indemnitee who has ceased to be a
director, trustee, officer, employee or agent and shall inure to the benefit
of the Indemnitee's heirs, executors and administrators; provided, however,
that, except as provided in (S)7.2 hereof with respect to Proceedings to
enforce rights to indemnification, the Corporation shall indemnify any such
Indemnitee in connection with a Proceeding (or part thereof) initiated by such
Indemnitee only if such Proceeding (or part thereof) was authorized by the
Board of Directors. The right to indemnification conferred in this Article 7
shall be a contract right and shall include the right to be paid by the
Corporation the expenses (including attorneys' fees) incurred in defending any
such Proceeding in advance of its final disposition (an "Advancement of
Expenses"); provided, however, that, if the Delaware Law so requires, an
Advancement of Expenses incurred by an Indemnitee shall be made only upon
delivery to the Corporation of an undertaking (an "Undertaking"), by or on
behalf of such Indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (a "Final Adjudication") that such Indemnitee is not
entitled to be indemnified for such expenses under this Article 7 or
otherwise.
Section 7.2. Right of Indemnitee to Bring Suit. If a claim under (S)7.1
hereof is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the case of a
claim for an Advancement of Expenses, in which case the applicable period
shall be twenty days, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an Advancement of Expenses pursuant to the terms of an
Undertaking, the Indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the Indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the Indemnitee to enforce a right to an Advancement of Expenses) it shall be a
defense that, and (ii) in any suit by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking the
Corporation shall be entitled to recover such expenses upon a Final
Adjudication that, the Indemnitee has not met the applicable standard of
conduct set forth in the Delaware Law. Neither the failure of the Corporation
(including the Board of Directors, its independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set forth in
the Delaware Law, nor an actual determination by the Corporation (including
the Board of Directors, its independent legal counsel, or its stockholders)
that the Indemnitee has not met such applicable standard of conduct, shall
create a presumption that the Indemnitee has not met the applicable standard
of conduct or, in the case of such a suit brought by the Indemnitee, be a
defense to such suit. In any suit brought by the Indemnitee to enforce a right
to indemnification or to an Advancement of Expenses hereunder, or by the
Corporation to recover an Advancement of Expenses pursuant to the terms of an
Undertaking, the burden of proving that the Indemnitee is not entitled to be
indemnified, or to such Advancement of Expenses, under this Article 7 or
otherwise shall be on the Corporation.
II-2
<PAGE>
Section 7.3 Non-Exclusivity of Rights The rights to indemnification and to
the Advancement of Expenses conferred in this Article 7 shall not be exclusive
of any other right which any person may have or hereafter acquire under any
statute, the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 7.4. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under this Article 7 or under the Delaware Law.
Section 7.5. Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and to the Advancement of
Expenses, to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article 7 with respect to the indemnification and
Advancement of Expenses of directors and officers of the Corporation."
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS
(a) The following is a list of exhibits filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated February 19, 1998, between KFI
Holding Corporation (which subsequently changed its name to "IMPAC
Group, Inc." and is sometimes referred to below as "Holding"), AGI
Acquisition Corporation, Heritage, Klearfold, AGI, certain
stockholders of AGI, and certain stockholders of Holding.*
2.2 Investment Agreement, dated February 19, 1998, between Holding,
Heritage Fund I Investment Corporation ("Heritage"), certain
stockholders of Holding, certain stockholders of AGI and certain other
persons.*
3.1 Amended and Restated Certificate of Incorporation of IMPAC Group, Inc.
(the "Company").*
3.2 Amended and Restated By-laws of the Company.*
4.1 Indenture, dated as of March 12, 1998, by and among the Company, AGI
Incorporated ("AGI"), Klearfold, Inc. ("Klearfold"), KF--Delaware,
Inc. ("KFD"), KF--International, Inc. ("International" and,
collectively, with AGI, Klearfold, KFD and International, the
"Guarantors") and State Street Bank and Trust Company, as Trustee.*
4.2 Form of the Company's 10 1/8% Senior Notes due 2008.*
4.3 Registration Rights Agreement, dated as of March 12, 1998, by and
among the Company, the Guarantors, Goldman, Sachs & Co. ("Goldman")
and Donaldson, Lufkin, and Jenrette Securities Corporation ("DLJ").*
5.1 Opinion of Bingham Dana LLP, as to legality of securities being
registered.**
10.1 Purchase Agreement, dated as of March 5, 1998, by and among the
Company, Goldman and DLJ.*
10.2 Escrow Agreement, dated March 12, 1998, between AGI, the Company, the
Escrow Agent and the Escrowed Stockholder Representative.*
10.3 Stockholder Agreement, dated as of March 12, 1998, between the
Company, certain Holding stockholders, certain stockholders of AGI and
certain other persons.*
10.4 Labor Agreement between Klearfold and United Paperworker's
International Union Local 286, effective December 1, 1994, as extended
by amendment through November 30, 2002.*
10.5 Second Amendment to Lease dated September 30, 1994 between Norman
Levin and Evelyn F. Levin and Klearfold (Warrington, Pennsylvania).*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
10.6 Amended and Restated Lease, dated as of June 7, 1996, between Dena
Corp. and Klearfold (Louisa, Virginia).*
10.7 Amended and Restated Lease, dated as of June 7, 1996, between Melvin
B. Herrin and Klearfold (Warrington, Pennsylvania).*
10.8 Lease dated May 29, 1985 by and between Chicago Title and Trust
Company as Trustee under Trust Agreement dated February 1, 1977, and
known as Trust No. 1069185 and AGI re 256,629 sq. ft. at 1950 N. Ruby
Street.*
10.9 Amendment to Lease dated as of October 1, 1987 by and between Chicago
Title and Trust Company, as Trustee under a Trust Agreement dated
February 1, 1977, and known as Trust No. 1069185 and AGI re 256,629
sq. ft. at 1950 Ruby Street.*
10.10 Second Amendment to Lease dated as of April 30, 1992, by and between
Chicago Title and Trust Company as Trustee under a Trust Agreement
dated February 1, 1977 and known as Trust No. 1069185 and AGI re
256,629 sq. ft. at 1950 Ruby Street.*
10.11 Third Amendment to Lease dated July 2, 1997 by and between Chicago
Title and Trust Company as Trustee under Trust Agreement dated
February 1, 1997 and known as Trust No. 1069185 and AGI re 256,629 sq.
ft. at 1950 N. Ruby Street.*
10.12 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and David Underwood.*
10.13 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and James Oppenheimer.*
10.14 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Richard
Oppenheimer.*
10.15 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Dean Henkel.*
10.16 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and H. Scott Herrin.*
10.17 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Melvin Herrin.*
10.18 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Richard Block.*
10.19 Credit Agreement, dated as of March 12, 1998, between Bank of America
NT & SA ("BofA") and the Company.*
10.20 Form of the Company's $40,000,000 Revolving Note, dated as of March
12, 1998.*
10.21 Company Security Agreement, dated as of March 12, 1998 between the
Company and BofA.*
10.22 Borrowers Security Agreement, dated as of March 12, 1998 between AGI,
Klearfold and BofA.*
10.23 Klearfold Subsidiaries Security Agreement, dated as of March 12, 1998
between KFD and International (the "Klearfold Subsidiaries") and
BofA.*
10.24 Company Pledge Agreement, dated as of March 12, 1998 between the
Company and BofA.*
10.25 Borrowers Pledge Agreement, dated as of March 12, 1998 between AGI,
Klearfold and BofA.*
10.26 Klearfold Subsidiaries Pledge Agreement, dated as of March 12, 1998
between the Klearfold Subsidiaries and BofA.*
10.27 Company Guaranty, dated as of March 12, 1998, between the Company and
BofA.*
10.28 Borrowers Guaranty, dated as of March 12, 1998 between AGI, Klearfold
and BofA.*
10.29 Klearfold Subsidiaries Guaranty, dated as of March 12, 1998 between
the Klearfold Subsidiaries and BofA.*
10.30 Company Patent Assignment dated as of March 12, 1998 between the
Company and BofA.*
10.31 AGI Patent Assignment, dated as of March 12, 1998 between AGI and
BofA.*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
10.32 Klearfold Patent Assignment, dated as of March 12, 1998 between
Klearfold and BofA.*
10.33 International Patent Assignment, dated March 12, 1998, between
International and BofA.*
10.34 KFD Patent Assignment, dated March 12, 1998, between KFD and BofA.*
10.35 Company Trademark Assignment, dated as of March 12, 1998 between the
Company and BofA.*
10.36 AGI Trademark Assignment, dated as of March 12, 1998 between AGI and
BofA.*
10.37 Klearfold Trademark Assignment, dated as of March 12, 1998 between
Klearfold and BofA.*
10.38 International Trademark Assignment, dated March 12, 1998, between
International and BofA.*
10.39 KFD Trademark Assignment, dated March 12, 1998, between KFD and BofA.*
10.40 Company Copyright Assignment, dated as of March 12, 1998 between the
Company and BofA.*
10.41 AGI Copyright Assignment, dated as of March 12, 1998 between AGI and
BofA.*
10.42 Klearfold Copyright Assignment, dated as of March 12, 1998 between
Klearfold and BofA.*
10.43 International Copyright Assignment, dated March 12,, 1998, between
International and BofA.*
10.44 KFD Copyright Assignment, dated March 12, 1998, between KFD and BofA.*
10.45 Promissory Note--L/C Loan Note, dated March 12, 1998, from Klearfold
to BofA.*
10.46 Promissory Note--L/C Loan Note, dated March 12, 1998, from AGI to
BofA.*
10.47 AGI Pledge and Security Agreement, dated March 12, 1998, between AGI,
BofA, Bank One, Illinois, NA and William Blair & Co.*
10.48 Subrogation Agreement, dated March 11, 1998, between Mellon Bank, N.A.
("Mellon"), BofA, the Company and Klearfold.*
10.49 Letter of Credit and Reimbursement Agreement, dated August 1, 1997,
between Klearfold and Mellon.**
10.50 First Amendment to Reimbursement Agreement, dated March 11, 1998,
between Mellon, and Klearfold.*
10.51 AGI Letter of Credit, dated December 15, 1997.*
10.52 Mellon Bank, N.A. Letter of Credit, dated as of August 21, 1997.*
10.53 Back-Up Klearfold Letter of Credit, dated March 11, 1998.*
10.54 Loan Agreement, dated January 1, 1995, between AGI and City of
Jacksonville, Illinois.*
10.55 Loan Agreement, dated August 1, 1997, between Bucks County and
Klearfold.*
10.56 Klearfold Profit Sharing/401(K) Plan*
10.57 Klearfold Flexible Benefits Plan for Salaried Employees*
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges.**
21.1 List of Subsidiaries.*
23.1 Consent of Bingham Dana LLP, counsel to the Company (included in
Exhibit 5.1).**
23.2 Consent of Arthur Andersen LLP.**
23.3 Consent of KPMG Peat Marwick LLP.**
23.4 Consent of Price Waterhouse LLP.**
24.1 Power of Attorney (included in signature pages to Registration
Statement).**
25.1 Statement re: Eligibility of Trustee.**
99.1 Form of Letter of Transmittal.+
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Exchange Agency Agreement between the Exchange Agent and the
Company.+
99.4 Form of Letter Regarding Eligibility for use of Form S-4.*
</TABLE>
- --------
* Previously filed.
** Filed herewith.
+ To be filed by amendment.
II-5
<PAGE>
(b)The following is a list of schedules filed as a part of this Registration
Statement:
Schedule II Valuation and Qualifying Accounts and Reserves for the Years Ended
December 31, 1995, 1996 and 1997.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
REGULATION SK ITEM 512(A)
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) ((S)2304.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
REGULATION SK ITEM 512(H)
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
the Registrant's counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by the Registrant is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
II-6
<PAGE>
FORM S-4 ITEM 22(C)
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it went effective.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 2 TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MELROSE
PARK, STATE OF ILLINOIS, ON THIS 12TH DAY OF JUNE, 1998.
Impac Group Inc.
/s/ David C. Underwood
By___________________________________
DAVID C. UNDERWOOD CHIEF FINANCIAL
OFFICER
II-7
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON BEHALF OF IMPAC
GROUP, INC. BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED:
<TABLE>
<S> <C>
SIGNATURES TITLE
DATE
/s/ Melvin B. Herrin* Chairman and June 12, 1998
- ------------------------------------- Director of IMPAC
MELVIN B. HERRIN Group, Inc.
/s/ Richard Block* Chief Executive June 12, 1998
- ------------------------------------- Officer and
RICHARD BLOCK Director of IMPAC
Group, Inc.
(principal
executive officer)
/s/ H. Scott Herrin* Director of IMPAC June 12, 1998
- ------------------------------------- Group Inc.
H. SCOTT HERRIN
/s/ Michel Reichert* Director of IMPAC June 12, 1998
- ------------------------------------- Group, Inc.
MICHEL REICHERT
/s/ Michael Gilligan* Director of IMPAC June 12, 1998
- ------------------------------------- Group, Inc.
MICHAEL GILLIGAN
/s/ Zenas Block* Director of IMPAC June 12, 1998
- ------------------------------------- Group, Inc.
ZENAS BLOCK
/s/ David Horowitz* Director of IMPAC June 12, 1998
- ------------------------------------- Group, Inc.
DAVID HOROWITZ
/s/ David C. Underwood Chief Financial June 12, 1998
- ------------------------------------- Officer of IMPAC
DAVID C. UNDERWOOD Group, Inc.
(principal
financial and
accounting officer)
/s/ David C. Underwood
*By:_________________________________
DAVID C. UNDERWOOD
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE UNDERSIGNED
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MELROSE
PARK, STATE OF ILLINOIS, ON THIS 12TH DAY OF JUNE, 1998.
AGI Incorporated
/s/ David C. Underwood
By: _________________________________
DAVID C. UNDERWOOD Chief Financial
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Richard Block and
David C. Underwood, and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with the authority to execute in
the name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective
amendments) to this Registration Statement necessary or advisable to enable
the Registrant to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission
in respect thereof, which amendments may make such other changes in this
Registration Statement as the aforesaid attorney-in-fact executing the same
deems appropriate.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON BEHALF OF AGI INCORPORATED BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ Melvin B. Herrin Director of AGI June 12, 1998
- ------------------------------------- Incorporated
MELVIN B. HERRIN
/s/ Richard Block Chief Executive June 12, 1998
- ------------------------------------- Officer and
RICHARD BLOCK Director of AGI
Incorporated
(principal
executive officer)
/s/ H. Scott Herrin Director of AGI June 12, 1998
- ------------------------------------- Incorporated
H. SCOTT HERRIN
/s/ Michel Reichert Director of AGI June 12, 1998
- ------------------------------------- Incorporated
MICHEL REICHERT
</TABLE>
II-9
<PAGE>
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ Michael Gilligan Director of AGI June 12, 1998
- ------------------------------------- Incorporated
MICHAEL GILLIGAN
/s/ David C. Underwood Chief Financial June 12, 1998
- ------------------------------------- Officer of AGI
DAVID C. UNDERWOOD Incorporated
(principal
financial and
accounting officer)
/s/ Zenas Block Director of AGI June 12, 1998
- ------------------------------------- Incorporated
ZENAS BLOCK
/s/ David Horowitz Director of AGI June 12, 1998
- ------------------------------------- Incorporated
DAVID HOROWITZ
</TABLE>
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE UNDERSIGNED
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MELROSE
PARK, STATE OF ILLINOIS, ON THIS 12TH DAY OF JUNE, 1998.
Klearfold, Inc.
/s/ David C. Underwood
By: _________________________________
DAVID C. UNDERWOOD CHIEF FINANCIAL
OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Richard Block and
David C. Underwood, and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with the authority to execute in
the name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective
amendments) to this Registration Statement necessary or advisable to enable
the Registrant to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission
in respect thereof, which amendments may make such other changes in this
Registration Statement as the aforesaid attorney-in-fact executing the same
deems appropriate.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON BEHALF OF KLEARFOLD, INC. BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ Melvin B. Herrin Director of June 12, 1998
- ------------------------------------- Klearfold, Inc.
MELVIN B. HERRIN
/s/ Richard Block Chief Executive June 12, 1998
- ------------------------------------- Officer and Director
RICHARD BLOCK of Klearfold, Inc.
(principal executive
officer)
/s/ H. Scott Herrin Director of June 12, 1998
- ------------------------------------- Klearfold, Inc.
H. SCOTT HERRIN
/s/ Michel Reichert Director of June 12, 1998
- ------------------------------------- Klearfold, Inc.
MICHEL REICHERT
/s/ Michael Gilligan Director of June 12, 1998
- ------------------------------------- Klearfold, Inc.
MICHAEL GILLIGAN
/s/ David C. Underwood Chief Financial June 12, 1998
- ------------------------------------- Officer of
DAVID C. UNDERWOOD Klearfold, Inc.
(principal
financial and
accounting officer)
/s/ Zenas Block Director of June 12, 1998
- ------------------------------------- Klearfold, Inc.
ZENAS BLOCK
/s/ David Horowitz Director of June 12, 1998
- ------------------------------------- Klearfold, Inc.
DAVID HOROWITZ
</TABLE>
II-11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE UNDERSIGNED
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MELROSE
PARK, STATE OF ILLINOIS, ON THIS 12TH DAY OF JUNE, 1998.
KF-International, Inc.
<TABLE>
<S> <C>
By: /s/ David C. Underwood
--------------------------------
DAVID C. UNDERWOOD
CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Richard Block and
David C. Underwood, and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with the authority to execute in
the name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective
amendments) to this Registration Statement necessary or advisable to enable
the Registrant to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission
in respect thereof, which amendments may make such other changes in this
Registration Statement as the aforesaid attorney-in-fact executing the same
deems appropriate.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON BEHALF OF KF-INTERNATIONAL,
INC. BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE
DATE
/s/ Melvin B. Herrin Director of June 12, 1998
- ------------------------------------- KF-International,
MELVIN B. HERRIN Inc.
/s/ H. Scott Herrin Director of June 12, 1998
- ------------------------------------- KF-International,
H. SCOTT HERRIN Inc.
/s/ Arthur S. Keyser Director of June 12, 1998
- ------------------------------------- KF-International,
ARTHUR S. KEYSER Inc.
/s/ James Hindels Director of June 12, 1998
- ------------------------------------- KF-International,
JAMES HINDELS Inc.
</TABLE>
II-12
<PAGE>
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ John deJongh Director of June 12, 1998
- ------------------------------------- KF-International,
JOHN DEJONGH Inc.
/s/ Richard Block Chief Executive June 12, 1998
- ------------------------------------- Officer of
RICHARD BLOCK KF-International,
Inc.
(principal
executive officer)
/s/ David C. Underwood Chief Financial June 12, 1998
- ------------------------------------- Officer of
DAVID C. UNDERWOOD KF-International,
Inc.
(principal
financial and
accounting officer)
</TABLE>
II-13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE UNDERSIGNED
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MELROSE
PARK, STATE OF ILLINOIS, ON THIS 12TH DAY OF JUNE, 1998.
<TABLE>
<S> <C>
KF-International, Inc.
/s/ David C. Underwood
By: _________________________________
DAVID C. UNDERWOOD
CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Richard Block and
David C. Underwood, and each of them severally, acting alone and without the
other, his true and lawful attorney-in-fact with the authority to execute in
the name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective
amendments) to this Registration Statement necessary or advisable to enable
the Registrant to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission
in respect thereof, which amendments may make such other changes in this
Registration Statement as the aforesaid attorney-in-fact executing the same
deems appropriate.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON BEHALF OF KF-DELAWARE, INC. BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE
DATE
/s/ Richard Block Chief Executive June 12, 1998
- ------------------------------------- Officer of KF-
RICHARD BLOCK Delaware, Inc.
(principal
executive officer)
/s/ David C. Underwood Chief Financial June 12, 1998
- ------------------------------------- Officer and
DAVID C. UNDERWOOD Director of KF-
Delaware, Inc.
(principal
financial and
accounting officer)
/s/ Adam Murphy Director of KF- June 12, 1998
- ------------------------------------- Delaware, Inc.
ADAM MURPHY
</TABLE>
II-14
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE YEARS ENDED DECEMBER 31,
1995, 1996 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
AT CHARGED BALANCE
BEGINNING TO OTHER AT END
OF YEAR EXPENSE CHANGES(1) OF YEAR
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
Klearfold
Allowance for Doubtful Accounts
1995...................................... $150 $37 ($40) $147
1996...................................... $147 $44 ($91) $100
1997...................................... $100 ($3) $43 $140
Credit Memo Reserve
1995...................................... $655 $416 ($665) $406
1996...................................... $406 $463 ($703) $166
1997...................................... $166 $454 ($200) $420
</TABLE>
- --------
(1) Net accounts (written-off)/recovered to the Allowance for Doubtful
Accounts; Credit memos issued against the Credit Memo Reserve.
S-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated February 19, 1998, between KFI
Holding Corporation (which subsequently changed its name to "IMPAC
Group, Inc." and is sometimes referred to below as "Holding"), AGI
Acquisition Corporation, Heritage, Klearfold, AGI, certain
stockholders of AGI, and certain stockholders of Holding.*
2.2 Investment Agreement, dated February 19, 1998, between Holding,
Heritage Fund I Investment Corporation ("Heritage"), certain
stockholders of Holding, certain stockholders of AGI and certain other
persons.*
3.1 Amended and Restated Certificate of Incorporation of IMPAC Group, Inc.
(the "Company").*
3.2 Amended and Restated By-laws of the Company.*
4.1 Indenture, dated as of March 12, 1998, by and among the Company, AGI
Incorporated ("AGI"), Klearfold, Inc. ("Klearfold"), KF--Delaware,
Inc. ("KFD"), KF--International, Inc. ("International" and,
collectively, with AGI, Klearfold, KFD and International, the
"Guarantors") and State Street Bank and Trust Company, as Trustee.*
4.2 Form of the Company's 10 1/8% Senior Notes due 2008.*
4.3 Registration Rights Agreement, dated as of March 12, 1998, by and
among the Company, the Guarantors, Goldman, Sachs & Co. ("Goldman")
and Donaldson, Lufkin, and Jenrette Securities Corporation ("DLJ").*
5.1 Opinion of Bingham Dana LLP, as to legality of securities being
registered.**
10.1 Purchase Agreement, dated as of March 5, 1998, by and among the
Company, Goldman and DLJ.*
10.2 Escrow Agreement, dated March 12, 1998, between AGI, the Company, the
Escrow Agent and the Escrowed Stockholder Representative.*
10.3 Stockholder Agreement, dated as of March 12, 1998, between the
Company, certain Holding stockholders, certain stockholders of AGI and
certain other persons.*
10.4 Labor Agreement between Klearfold and United Paperworker's
International Union Local 286, effective December 1, 1994, as extended
by amendment through November 30, 2002.*
10.5 Second Amendment to Lease dated September 30, 1994 between Norman
Levin and Evelyn F. Levin and Klearfold (Warrington, Pennsylvania).*
10.6 Amended and Restated Lease, dated as of June 7, 1996, between Dena
Corp. and Klearfold (Louisa, Virginia).*
10.7 Amended and Restated Lease, dated as of June 7, 1996, between Melvin
B. Herrin and Klearfold (Warrington, Pennsylvania).*
10.8 Lease dated May 29, 1985 by and between Chicago Title and Trust
Company as Trustee under Trust Agreement dated February 1, 1977, and
known as Trust No. 1069185 and AGI re 256,629 sq. ft. at 1950 N. Ruby
Street.*
10.9 Amendment to Lease dated as of October 1, 1987 by and between Chicago
Title and Trust Company, as Trustee under a Trust Agreement dated
February 1, 1977, and known as Trust No. 1069185 and AGI re 256,629
sq. ft. at 1950 Ruby Street.*
10.10 Second Amendment to Lease dated as of April 30, 1992, by and between
Chicago Title and Trust Company as Trustee under a Trust Agreement
dated February 1, 1977 and known as Trust No. 1069185 and AGI re
256,629 sq. ft. at 1950 Ruby Street.*
10.11 Third Amendment to Lease dated July 2, 1997 by and between Chicago
Title and Trust Company as Trustee under Trust Agreement dated
February 1, 1997 and known as Trust No. 1069185 and AGI re 256,629 sq.
ft. at 1950 N. Ruby Street.*
10.12 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and David Underwood.*
10.13 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and James Oppenheimer.*
10.14 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Richard
Oppenheimer.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
10.15 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Dean Henkel.*
10.16 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and H. Scott Herrin.*
10.17 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Melvin Herrin.*
10.18 Employment, Non-Competition and Stock Repurchase Agreement, dated as
of March 12, 1998, by and between the Company and Richard Block.*
10.19 Credit Agreement, dated as of March 12, 1998, between Bank of America
NT & SA ("BofA") and the Company.*
10.20 Form of the Company's $40,000,000 Revolving Note, dated as of March
12, 1998.*
10.21 Company Security Agreement, dated as of March 12, 1998 between the
Company and BofA.*
10.22 Borrowers Security Agreement, dated as of March 12, 1998 between AGI,
Klearfold and BofA.*
10.23 Klearfold Subsidiaries Security Agreement, dated as of March 12, 1998
between KFD and International (the "Klearfold Subsidiaries") and
BofA.*
10.24 Company Pledge Agreement, dated as of March 12, 1998 between the
Company and BofA.*
10.25 Borrowers Pledge Agreement, dated as of March 12, 1998 between AGI,
Klearfold and BofA.*
10.26 Klearfold Subsidiaries Pledge Agreement, dated as of March 12, 1998
between the Klearfold Subsidiaries and BofA.*
10.27 Company Guaranty, dated as of March 12, 1998, between the Company and
BofA.*
10.28 Borrowers Guaranty, dated as of March 12, 1998 between AGI, Klearfold
and BofA.*
10.29 Klearfold Subsidiaries Guaranty, dated as of March 12, 1998 between
the Klearfold Subsidiaries and BofA.*
10.30 Company Patent Assignment dated as of March 12, 1998 between the
Company and BofA.*
10.31 AGI Patent Assignment, dated as of March 12, 1998 between AGI and
BofA.*
10.32 Klearfold Patent Assignment, dated as of March 12, 1998 between
Klearfold and BofA.*
10.33 International Patent Assignment, dated March 12, 1998, between
International and BofA.*
10.34 KFD Patent Assignment, dated March 12, 1998, between KFD and BofA.*
10.35 Company Trademark Assignment, dated as of March 12, 1998 between the
Company and BofA.*
10.36 AGI Trademark Assignment, dated as of March 12, 1998 between AGI and
BofA.*
10.37 Klearfold Trademark Assignment, dated as of March 12, 1998 between
Klearfold and BofA.*
10.38 International Trademark Assignment, dated March 12, 1998, between
International and BofA.*
10.39 KFD Trademark Assignment, dated March 12, 1998, between KFD and BofA.*
10.40 Company Copyright Assignment, dated as of March 12, 1998 between the
Company and BofA.*
10.41 AGI Copyright Assignment, dated as of March 12, 1998 between AGI and
BofA.*
10.42 Klearfold Copyright Assignment, dated as of March 12, 1998 between
Klearfold and BofA.*
10.43 International Copyright Assignment, dated March 12,, 1998, between
International and BofA.*
10.44 KFD Copyright Assignment, dated March 12, 1998, between KFD and BofA.*
10.45 Promissory Note--L/C Loan Note, dated March 12, 1998, from Klearfold
to BofA.*
10.46 Promissory Note--L/C Loan Note, dated March 12, 1998, from AGI to
BofA.*
10.47 AGI Pledge and Security Agreement, dated March 12, 1998, between AGI,
BofA, Bank One, Illinois, NA and William Blair & Co.*
10.48 Subrogation Agreement, dated March 11, 1998, between Mellon Bank, N.A.
("Mellon"), BofA, the Company and Klearfold.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- --------------------------------------------------------------------
<C> <S>
10.49 Letter of Credit and Reimbursement Agreement, dated August 1, 1997,
between Klearfold and Mellon.**
10.50 First Amendment to Reimbursement Agreement, dated March 11, 1998,
between Mellon, and Klearfold.*
10.51 AGI Letter of Credit, dated December 15, 1997.*
10.52 Mellon Bank, N.A. Letter of Credit, dated as of August 21, 1997.*
10.53 Back-Up Klearfold Letter of Credit, dated March 11, 1998.*
10.54 Loan Agreement, dated January 1, 1995, between AGI and City of
Jacksonville, Illinois.*
10.55 Loan Agreement, dated August 1, 1997, between Bucks County and
Klearfold.*
10.56 Klearfold Profit Sharing/401(K) Plan*
10.57 Klearfold Flexible Benefits Plan for Salaried Employees*
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges.**
21.1 List of Subsidiaries.*
23.1 Consent of Bingham Dana LLP, counsel to the Company (included in
Exhibit 5.1).+
23.2 Consent of Arthur Andersen LLP.**
23.3 Consent of KPMG Peat Marwick LLP.**
23.4 Consent of Price Waterhouse LLP.**
24.1 Power of Attorney (included in signature pages to Registration
Statement).**
25.1 Statement re: Eligibility of Trustee.**
99.1 Form of Letter of Transmittal.+
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Exchange Agency Agreement between the Exchange Agent and the
Company.+
99.4 Form of Letter Regarding Eligibility for use of Form S-4.*
</TABLE>
- --------
* Previously filed.
** Filed herewith.
+ To be filed by amendment.
<PAGE>
EX. 5.1
June 5, 1998
IMPAC Group, Inc.
1950 North Ruby Street
Melrose Park, IL 60160
Re: IMPAC Group, Inc. - Registration of
$100,000,000 Aggregate Principal Amount of
10 1/8% Senior Notes Due
2008, Series B on Form S-4
--------------------------
Ladies and Gentlemen:
This opinion is furnished in connection with the registration, pursuant to
a Registration Statement on Form S-4 under the Securities Act of 1933, as
amended (the "Act"), filed with the Securities and Exchange Commission on March
---
27, 1998 (the "Registration Statement"), of $100,000,000 aggregate principal
----------------------
amount of 10 1/8% Senior Notes due 2008, Series B (the "New Notes") of IMPAC
---------
Group, Inc. (the "Company"), together with guarantees thereof (the "New
------- ---
Guarantees") by AGI Incorporated, Klearfold, Inc., KF-International, Inc. and
- ----------
KF-Delaware, Inc. (the "Guarantors").
----------
The New Notes and the New Guarantees will be offered in exchange for the
Company's outstanding 10 1/8% Senior Notes due 2008 (the "Old Notes"), which
---------
have also been guaranteed by the Guarantors, pursuant to the terms of the
exchange offer (the "Exchange Offer") set forth in the form of prospectus
--------------
included in the Registration Statement.
We have acted as counsel to the Company and the Guarantors in connection
with the foregoing registration of the New Notes. We have examined and relied
upon the originals or copies, certified or otherwise identified to our
satisfaction, of such records, instruments, certificates, memoranda and other
documents as we have deemed necessary or advisable for purposes of this opinion
and have assumed, without independent inquiry, the accuracy of those documents.
In that examination,
<PAGE>
IMPAC Group, Inc.
June 5, 1998
Page 2
we have assumed the genuineness of all signatures, the conformity to the
originals of all documents reviewed by us as copies, the authenticity and
completeness of all original documents reviewed by us in original or copy form
and the legal competence of each individual executing such documents.
As to all matters of fact (including factual conclusions and
characterizations and descriptions of purpose, intent or other state of mind),
we have relied on the representations of the Company and the Guarantors, and we
have assumed, without independent inquiry, the accuracy of those
representations.
We have also assumed that the Indenture (as defined in the Registration
Statement), the New Notes and the New Guarantees have been duly authorized and
validly executed and delivered by each of AGI Incorporated ("AGI"), Klearfold,
---
Inc. ("Klearfold"), and KF-International, Inc. ("International") and that each
--------- -------------
of AGI, Klearfold and International is a corporation validly existing under the
laws of its jurisdiction of organization and has the corporate power and
authority to enter into each of the Indenture, the New Notes and the New
Guarantees.
The opinion set forth below relating to the binding effect of the
Indenture, the New Notes and the New Guarantees (collectively, the "Operative
---------
Documents") upon the Company and the Guarantors are subject to the following
- ---------
general qualifications:
(i) as to any instrument delivered by the Company or the Guarantors as
contemplated by the Operative Documents, we assume that the Company
or the respective Guarantor has received the agreed to consideration
therefor;
(ii) as to any agreement to which the Company or a Guarantor is a party,
we assume that such agreement is the binding obligation of each
party thereto other than the Company or the Guarantors;
(iii) the enforceability of any obligation of the Company or the
Guarantors may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, marshalling or other laws
and rules of law affecting the enforcement generally of creditors'
rights and remedies (including such as may deny giving effect to
waivers of debtors' or guarantors' rights);
(iv) no opinion is given herein as to the enforceability of any
particular provision of any of the Operative Documents relating to
remedies after default or as to the availability of any specific or
equitable relief of any kind;
<PAGE>
(v) no opinion is given herein as to the enforceability of any
particular provision of any of the Operative Documents relating to
(A) waivers of defenses, of rights to trial by jury, or rights to
obtain jurisdiction or venue and other rights or benefits bestowed
by operation of law, (B) waivers of provisions which are not capable
of waiver under Section 1-102(3) of the Uniform Commercial Code, or
(C) exculpation clauses, indemnity or contribution clauses and
clauses relating to releases or waivers of unmatured claims or
rights; we express no opinion as to the effect of suretyship
defenses, or defenses in the nature thereof, with respect to the
obligor or of any guarantor, joint obligor or surety;
(vi) with respect to any liquidated damages provisions, we have assumed
that the amount of the liquidated damages specified in such
provision bears a reasonable proportion to the probable loss from
failure to comply with the relevant covenant and the amount of
actual loss is incapable of precise estimation or difficult to
estimate precisely; and
(vii) the enforcement of any rights may in all cases be subject to an
implied duty of good faith and to general principles of equity
(regardless of whether such enforceability is considered in a
proceeding at law or in equity).
This opinion is limited to the internal substantive laws of The
Commonwealth of Massachusetts as applied by courts located in Massachusetts, the
internal substantive laws of the State of New York as applied by courts located
in New York, and the General Corporation Law of the State of Delaware as applied
by courts located in Delaware. No opinion is given herein as to the choice of
law or internal substantive rules of law which any tribunal may apply to the
transactions referred to herein. We express no opinion as to, and assume
compliance, with any applicable, federal or state securities law.
We understand that all of the foregoing assumptions and limitations are
acceptable to you.
Based upon the foregoing, we are of the opinion that:
<PAGE>
IMPAC Group, Inc.
June 5, 1998
Page 4
1. the Indenture has been duly authorized and validly executed and
delivered by the Company and KF - Delaware, Inc. and is a valid and binding
agreement of the Company and the respective Guarantors, enforceable against the
Company and the respective Guarantors in accordance with its terms; and
2. the New Notes, when issued by the Company in accordance with the terms
of the Indenture against receipt of Old Notes pursuant to the terms of the
Exchange Offer, will have been duly authorized and validly executed and
delivered by the Company, and will be binding obligations of the Company
enforceable in accordance with their terms and the New Guarantees will be
binding obligations of the Guarantors enforceable against the Guarantors in
accordance with their terms.
We consent to the filing of a copy of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Registration
Statement under the caption "Legal Matters."
Very truly yours,
/s/ BINGHAM DANA LLP
BINGHAM DANA LLP
<PAGE>
Exhibit 10.49
LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
BETWEEN
KLEARFOLD, INC.
AND
MELLON BANK, N.A.
DATED AS OF
AUGUST 1, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RECITALS........................................................................... 1
ARTICLE 1 - DEFINITIONS............................................................ 2
Section 1.1. Definitions...................................................... 2
Section 1.2. Rules of Construction; Time of Day............................... 4
ARTICLE 2- LETTER OF CREDIT AND REIMBURSEMENT...................................... 4
Section 2.1. Issuance of Letter of Credit..................................... 4
Section 2.2. Reimbursement and Other Payments................................. 4
(a) Reimbursement Payments.................................... 4
(b) Issuance and Other Fees................................... 5
(c) Opening Fee............................................... 5
(d) Commitment Fees........................................... 5
(e) Transaction and Transfer Charges and Expenses............. 5
Section 2.3. Transfer; Reduction Reinstatement of Letter of Credit............ 6
(a) Transfer.................................................. 6
(b) Reduction................................................. 6
(c) Reinstatement............................................. 6
Section 2.4. Costs, Place for Payments, Etc................................... 6
(a) Loss of Margin............................................ 6
(b) General Interest Accrual; Place of Payment................ 7
Section 2.5. Obligations Absolute............................................. 8
Section 2.6. Indemnification.................................................. 8
Section 2.7. Liability of Mellon.............................................. 8
ARTICLE 3 - SECURITY............................................................... 9
Section 3.1. Security and Subrogation Under Trust Agreement................... 9
Section 3.2. Pledge of Rights to Certain Funds and Investments................ 10
Section 3.3. Financing Statements............................................. 10
Section 3.4. Pledged Bonds.................................................... 10
(a) Pledge.................................................... 10
(b) Pledged Bond Payments..................................... 11
(c) Release of Pledged Bonds.................................. 11
(d) Liability of Mellon....................................... 11
(e) Rights and Remedies....................................... 11
</TABLE>
i--
<PAGE>
<TABLE>
<S> <C>
Section 3.5. Cash Collateralization................................................... 11
Section 3.6. Collateral Under Revolving Credit Loan Agreement......................... 12
Section 3.7. Currency................................................................. 12
ARTICLE 4 - CONDITIONS PRECEDENT........................................................... 12
Section 4.1. Conditions Precedent..................................................... 12
(a) Fees................................................................ 12
(b) Documentation....................................................... 12
(c) Other Documents..................................................... 13
ARTICLE 5 - REPRESENTATIONS, WARRANTIES AND COVENANTS...................................... 13
Section 5.1. Representations and Warranties of the Company............................ 13
(a) Incorporation of Representations and Warranties by Reference........ 13
(b) Validity and Binding Nature......................................... 13
(c) Due Authorization................................................... 14
(d) Conflicting Instruments............................................. 14
(e) Authorizations and Consents......................................... 14
(f) Misrepresentation................................................... 14
Section 5.2. Covenants of the Company................................................. 14
(a) Compliance with Prior Covenants..................................... 14
(b) Amendments to Bond Documents and Other Agreements................... 15
(c) Limitation on Optional or Extraordinary Calls....................... 15
(d) Termination of Revolving Credit Loan Agreement...................... 15
(e) Further Assurances.................................................. 15
ARTICLE 6 - DEFAULTS AND REMEDIES.......................................................... 15
Section 6.1. Defaults................................................................. 15
Section 6.2. Remedies................................................................. 16
Section 6.3. Waivers; Consents........................................................ 17
Section 6.4. No Waiver; Remedies Cumulative........................................... 17
Section 6.5. Setoff................................................................... 17
ARTICLE 7 - MISCELLANEOUS.................................................................. 17
Section 7.1. Notices; Assignment...................................................... 17
Section 7.2. Survival of Covenants.................................................... 18
Section 7.3. Counterparts............................................................. 18
Section 7.4. Costs, Expenses and Taxes................................................ 18
Section 7.5. Amendments............................................................... 19
Section 7.6. Severability; Interest Limitation........................................ 19
Section 7.7. Complete Agreement....................................................... 19
</TABLE>
ii--
<PAGE>
<TABLE>
<S> <C>
Section 7.8. Consent to Jurisdiction; Venue; Waiver of Jury Trial..................... 19
(a) Jurisdiction........................................................ 19
(b) Jury Trial Waiver................................................... 20
(c) Governing Law....................................................... 20
Section 7.9. Headings................................................................. 20
Section 7.10. Participation........................................................... 20
Section 7.11. Successor Bank.......................................................... 21
</TABLE>
iii--
<PAGE>
LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
THIS LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT (this "AGREEMENT"), dated
as of the 1st day of August, 1997, between KLEARFOLD, INC., a corporation for
profit duly formed and validly existing under the laws of the Commonwealth of
Pennsylvania and having its chief executive office at 364 Valley Road,
Warrington, Pennsylvania 18976 (the "COMPANY"), and MELLON BANK, N.A., a
national banking association having a business office at Plymouth Meeting
Executive Campus, 610 West Germantown Pike, Suite 200, Plymouth Meeting,
Pennsylvania 19462 ("MELLON").
RECITALS:
A. Pursuant to that certain Revolving Credit and Term Loan Agreement
dated June 7, 1996, as amended (the "REVOLVING CREDIT LOAN AGREEMENT"),
BankBoston, N.A. (formerly known as The First National Bank of Boston)
("BOSTON"), National Westminster Bank Plc ("NATWEST") and Mellon (collectively,
the "BANKS ") agreed, inter alia, to extend to the Company a revolving credit
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facility in the maximum principal amount of up to Twelve Million Dollars
($12,000,000.00) (the "REVOLVER").
B. Pursuant to that certain Trust Indenture between the Bucks County
Industrial Development Authority (the "AUTHORITY"), the Company and Mellon, as
trustee (Mellon, in its capacity as trustee being referred to in this Agreement
as the "TRUSTEE") dated August 1, 1997 (the "TRUST AGREEMENT"), the Authority
agreed to issue for the benefit of the Company, the Authority's $4,000,000.00
Variable Rate Demand Revenue Bonds, Series of 1997 (Klearfold, Inc. Project)
(the "BONDS").
C. Pursuant to that certain Loan Agreement between the Authority and the
Company dated August 1, 1997 (the "LOAN AGREEMENT"), the Authority agreed to
loan the proceeds received from the sale of the Bonds to the Company.
D. As security for the payment of the principal and purchase price of and
interest on the outstanding Bonds, the Company has requested Mellon, and Mellon
has agreed, to issue its irrevocable letter of credit (the "LETTER OF CREDIT")
in an amount not exceeding $4,064,440 (as reduced and reinstated from time to
time in accordance with the provisions hereof and of the Letter of Credit, the
"LETTER OF CREDIT AMOUNT") of which (i) $4,000,000.00 (the "PRINCIPAL
COMPONENT") shall be in respect of the principal of the Bonds, and (ii) $64,440
(the "INTEREST COMPONENT"), equal to 49 days of interest on the Bonds (assuming
a maximum interest rate on the Bonds of 12% per annum computed on the basis of a
year of 365/366 days, for the number of days actually elapsed), shall be in
respect of interest accrued on the outstanding principal amount of the Bonds.
E. The Letter of Credit shall be issued for the account of the Company by
Mellon under the Revolver pursuant to the terms of the Revolving Credit Loan
Agreement. The Letter of
<PAGE>
Credit is being issued by Mellon, in its individual name, but each of the Banks
will have a risk participation in the Letter of Credit pursuant to the Revolving
Credit Loan Agreement, as set forth in the First Amendment to the Revolving
Credit and Term Loan Agreement.
F. The Company and Mellon desire to specify the reimbursement obligations
of the Company and the conditions to the issuance of the Letter of Credit.
NOW, THEREFORE, in consideration of the foregoing and the undertakings
hereinafter set forth and intending to be legally bound, the Company and Mellon
hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. DEFINITIONS. In this Agreement (except as otherwise expressly
-----------
provided for or unless the context otherwise requires), defined terms may be
used in the singular or the plural, the use of any gender includes all other
genders, and the following terms have the meanings specified in the foregoing
recitals:
Boston NatWest
Authority Letter of Credit Amount
Mellon Principal Component
Bonds Company
Interest Component Trust Agreement
Letter of Credit Trustee
Revolving Credit Loan Agreement Banks
In addition, terms used herein and not otherwise defined shall have the meanings
ascribed thereto in the Trust Agreement or the Revolving Credit Loan Agreement,
as applicable. The following terms shall have the meanings specified in this
Article, unless the context otherwise requires:
"BOND DOCUMENTS" means the Bonds, the Trust Agreement, the Loan Agreement,
the Remarketing Agreement, the Placement Agreement, and any other agreements or
instruments relating thereto.
"BUSINESS DAY" means any day other than (i) a Saturday or Sunday, or (ii) a
day on which banking institutions in Pittsburgh, Pennsylvania, or in any other
city where the principal corporate trust office of the Trustee or the office of
Mellon is located at which draws under the Letter of Credit are to be presented
pursuant to the Letter of Credit, are required or authorized by law (including
executive order) to close or on which the principal corporate trust office of
the Trustee or the principal office of Mellon is closed for a reason not related
to financial condition, or (iii) a day on which the New York Stock Exchange is
closed.
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<PAGE>
"CLOSING DATE" means August 21, 1997 or such other date agreed to by Mellon
and the Company.
"INTEREST DRAFT" means a "C DRAWING" as such term is defined in the Letter
of Credit.
"MELLON DOCUMENTS" means this Agreement, the Letter of Credit, the
Revolving Credit Loan Agreement, and any other document or instrument executed
and delivered by the Company and Mellon in connection with the transactions
contemplated herein.
"OUTSTANDING" when applied to the Bonds shall have the meaning ascribed to
such term in the Trust Agreement.
"PLACEMENT AGREEMENT" means the Bond Placement Agreement dated August 1,
1997, between Mellon Bank, N.A. as placement agent, the Authority and the
Company, relating to the Bonds.
"REDEMPTION DRAFT" means a "B DRAWING" as such term is defined in the
Letter of Credit.
"RELATED DOCUMENTS" mean Mellon Documents and the Bond Documents.
"REMARKETING AGREEMENT" means the Remarketing Agreement dated August 1,
1997, between the Remarketing Agent and the Authority and approved by the
Company.
"REMARKETING AGENT" means the Remarketing Agent appointed and serving
pursuant to Section 918 of the Trust Agreement.
"STATE" means the Commonwealth of Pennsylvania.
"SUBSIDIARY" means an existing or future corporation, the majority of the
outstanding capital stock or voting power, or both, of which is (or upon the
exercise of all outstanding warrants, options and other rights would be) owned
at the time in question by the Company or by another such corporation or by any
combination of the Company and such corporations.
"TENDER DRAFT" means a "A DRAWING" as such term is defined in the Letter of
Credit.
"UNREMARKETED TENDERED BONDS" means Bonds which (a) have been delivered for
purchase pursuant to the provisions of such Bonds and the Trust Agreement and
(b) have not been successfully remarketed by the Remarketing Agent prior to
10:00 a.m. on the required purchase date.
SECTION 1.2. RULES OF CONSTRUCTION; TIME OF DAY. The words "hereof,"
----------------------------------
"herein", "hereto," "hereby" and "hereunder" refer to this entire Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
are references to the Articles or Sections of this
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<PAGE>
Agreement. References to any time of the day in this Agreement shall refer to
Eastern standard time or Eastern daylight saving time, as in effect in the State
on such day.
ARTICLE 2
LETTER OF CREDIT AND REIMBURSEMENT
SECTION 2.1. ISSUANCE OF LETTER OF CREDIT. Subject to the conditions
----------------------------
precedent set forth in this Agreement, Mellon will issue to the Trustee pursuant
to the request of the Company, on the date of execution and delivery of this
Agreement, the Letter of Credit in the Letter of Credit Amount and substantially
in the form attached hereto as Annex "A". The Interest Component of the Letter
---------
of Credit Amount has been established in accordance with the Trust Agreement, on
the basis of 49 days of interest on the Bonds at the rate of twelve percent
(12%) per annum and a 365/366 day year. The Letter of Credit shall expire at
5:00 p.m. on August 21, 1998 or, if such day is not a Business Day, on the next
succeeding Business Day, unless Mellon, at its option, upon written request of
the Company, by one or more amendments delivered to the Trustee, extends the
Letter of Credit for one or more years as provided in the first paragraph
thereof, in which case the Letter of Credit shall expire as set forth in such
amendment(s), it being understood that Mellon shall have no obligation to grant
any such extension(s). The Letter of Credit is subject to prior automatic
termination as provided therein and in the Trust Agreement. All drawings under
the Letter of Credit will be paid with Mellon's own funds.
SECTION 2.2. REIMBURSEMENT AND OTHER PAYMENTS.
--------------------------------
(A) REIMBURSEMENT PAYMENTS. The Company hereby agrees to pay to
----------------------
Mellon a sum equal to each amount drawn under the Letter of Credit on the same
Business Day that such drawing is honored.
The Company hereby irrevocably authorizes and directs the Banks to fund the
reimbursement obligations of the Company under this SECTION 2.2(a) by making
-------------
Revolving Loans under the Revolving Credit Loan Agreement and paying the
proceeds of such Revolving Loans to Mellon. If, for any reason any of the Banks
do not fund their pro-rata shares of such Revolving Loans, the Company will make
such reimbursement payments to Mellon from its own funds as follows:
(1) If the draw is an Interest Draft unrelated to a Tender
Draft, the Company will reimburse Mellon on the Business Day after the Banks
fail to honor their agreement to fund Revolving Loans to pay that reimbursement
obligation.
(2) If the draw is an Interest Draft related to a Tender Draft,
the Company will reimburse Mellon for the Interest Draft on or before the first
to occur of (i) the first Interest Payment Date following the date on which such
drawing is honored, (ii) the date on which the Bonds purchased with the proceeds
of such Interest Draft and the related Tender Draft are
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<PAGE>
remarketed by the Remarketing Agent, or (iii) the date on which the Bonds
purchased with the proceeds of such Tender Draft are redeemed or otherwise paid
in full.
(3) If the draw is a Tender Draft, the Company will reimburse
Mellon for such Tender Draft, on or before the first to occur of (i) the date on
which the Bonds purchased with the proceeds of such Tender Draft are remarketed
by the Remarketing Agent, or (ii) the date on which Bonds purchased with the
proceeds of such Tender Draft are redeemed or otherwise paid in full.
(4) If the draw is a Redemption Draft, the Company will
reimburse Mellon on the Business Day after the Banks fail to honor their
agreement to fund Revolving Loans to pay that reimbursement obligation.
(B) ISSUANCE AND OTHER FEES. On the date of execution and delivery of
-----------------------
this Agreement, the Company shall pay to Mellon a Letter of Credit issuance fee
of $150.00. In addition, Mellon will charge the following fees in connection
with the Letter of Credit: $75.00 for each amendment, if any, to the Letter of
Credit, $ 10.00 in each instance that courier service is required, and $20.00 in
each instance that Telex service is required.
(C) OPENING FEE. On the Closing Date, the Company shall pay to Mellon
-----------
a nonrefundable Letter of Credit opening fee equal to one-quarter percent (1/4%)
of the original Letter of Credit Amount.
(D) COMMITMENT FEES. So long as any credit remains available to the
---------------
Trustee under the Letter of Credit, the Company shall pay to Mellon, for the
pro-rata benefit of the Banks, a Letter of Credit commitment fee computed at the
Commitment Fee Rate (as described below) on the average daily Letter of Credit
Amount during the preceding quarterly period (or portion thereof in the case of
the first such payment and in the case of a termination of the Letter of Credit
on a day other than a date on which a quarterly payment is scheduled); provided
that, for purposes of computing such average daily Letter of Credit Amount,
there shall be added to the Letter of Credit Amount for each day the aggregate
amount of any Interest Drafts theretofore honored by Mellon in respect of which
Mellon may thereafter be required to reinstate the Letter of Credit pursuant to
the terms thereof. Computations of Letter of Credit commitment fees under this
Section shall be for the actual number of days in the applicable period, based
on a 365-day year. Such fee shall be payable quarterly in arrears on each
November21, February 21, May 21 and August 21 with any unpaid balance due in
full on the date of termination of the Letter of Credit.
For purposes of this SECTION 2.2(D) The "Commitment Fee Rate"
--------------
shall be equal to 2.50% per annum from the date hereof through the date on which
the Banks receive the next annual or quarterly financial statements required to
be delivered pursuant to SECTION 5.1(A) or SECTION 5.1(B) of the Revolving
-------------- --------------
Credit Loan Agreement. Thereafter, in the event that the applicable LIBOR Margin
(as defined in the Revolving Credit Loan Agreement) is ever reduced or increased
in accordance with the provisions of SECTION 2.10(C) of the Revolving Credit
---------------
Loan Agreement, then
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<PAGE>
the Commitment Fee Rate will also be reduced or increased in the same percentage
amount and on the same effective date.
(E) TRANSACTION AND TRANSFER CHARGES AND EXPENSES. The Company shall
---------------------------------------------
pay to Mellon a transaction charge of $40.00 for each drawing under the Letter
of Credit. Such transaction charge shall be payable upon submission to the
Company by Mellon of Mellon's bill therefor. In addition, the Company shall pay
to Mellon on demand any and all reasonable charges and expenses which Mellon may
pay or incur relative to the Letter of Credit. The Company shall pay to Mellon
upon each transfer of the Letter of Credit in accordance with its terms a
transfer fee equal to $250.00, together with any and all costs and expenses of
Mellon incurred in connection with such transfer.
SECTION 2.3. TRANSFER; REDUCTION REINSTATEMENT OF LETTER OF CREDIT.
-----------------------------------------------------
(A) TRANSFER. The Letter of Credit may be transferred in accordance
--------
with the provisions set forth in the Letter of Credit.
(B) REDUCTION. The Letter of Credit Amount and the respective
---------
Principal Component and Interest Component thereof shall be automatically
reduced as specified in the Letter of Credit. With respect to any reductions of
the Letter of Credit Amount pursuant to the terms of the Letter of Credit as a
result of Bonds ceasing to be Outstanding, Mellon shall have the right, at its
option, at no cost to the Company, to require the Trustee to promptly surrender
the outstanding Letter of Credit to Mellon and to accept in substitution
therefor a substitute letter of credit in the form of ANNEX "A" attached hereto,
---------
dated the date of such substitution, for an amount equal to the Letter of Credit
Amount as so reduced, but otherwise having terms identical to the then
outstanding Letter of Credit.
(C) REINSTATEMENT. In the event of a drawing under the Letter of
-------------
Credit with an Interest Draft, the Interest Component of the Letter of Credit
Amount shall, as provided in the Letter of Credit and subject to the conditions
therein set forth, be automatically reinstated by an amount equal to the amount
of such drawing. In the event of a drawing under the Letter of Credit with a
Tender Draft, the Principal Component and the Interest Component of the Letter
of Credit Amount shall be reinstated with respect to such drawing if, as and to
the extent that the Letter of Credit provides for such reinstatement and subject
to any conditions and limitations to such reinstatement set forth in the Letter
of Credit.
SECTION 2.4. COSTS, PLACE FOR PAYMENTS, ETC.
------------------------------
(A) LOSS OF MARGIN. In the event that any future law, rule,
--------------
regulation, treaty or official directive or the interpretation or application
thereof by any central bank, monetary authority or governmental authority, or
the compliance with any guideline or request of any central bank, monetary
authority or governmental authority (whether or not having the force of law):
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<PAGE>
(1) subjects Mellon to any tax with respect to any amounts
payable under this Agreement or the other Related Documents by the Company or
otherwise with respect to the transactions contemplated under this Agreement or
the other Related Documents (except for taxes on the overall net income of
Mellon imposed by the United States of America or any political subdivision
thereof); or
(2) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit, capital maintenance, capital adequacy, or similar
requirement against assets held by, or deposits in or for the account of, or
loans or advances or commitments to make loans or advances by, or letters of
credit issued or commitments to issue letters of credit by, including, without
limitation, the Letter of Credit; or
(3) imposes upon Mellon any other condition with respect to
advances or extensions of credit or the commitment to make advances or
extensions of credit under this Agreement or under the Revolving Credit Loan
Agreement,
and the result of any of the foregoing is to increase the costs of Mellon,
reduce the income receivable by or return on equity of Mellon or impose any
expense upon Mellon with respect to any advances or extensions of credit or
commitments to make advances or extensions of credit under this Agreement,
Mellon shall so notify the Company in writing. The Company agrees to pay Mellon
the amount of such increase in cost, reduction in income, reduced return on
equity or capital, or additional expense within thirty (30) days after
presentation by Mellon of a statement concerning such increase in cost,
reduction in income, reduced return on equity or capital, or additional expense.
Such statement shall set forth a reasonable explanation of the amount and
Mellon's calculation of the amount (in determining such amount Mellon may use
any reasonable averaging and attribution methods), which statement shall be
conclusively deemed correct absent manifest error. If the amount set forth in
such statement is not paid within thirty (30) days after such presentation of
such statement, interest will be payable on the unpaid amount at the default
rate payable under the Revolving Credit Loan Agreement from the due date until
paid, both before and after judgment.
(B) GENERAL INTEREST ACCRUAL; PLACE OF PAYMENT. All payments to
------------------------------------------
Mellon under this Agreement (including without limitation all payments becoming
due under SECTIONS 2.2(A), 2.2(B), 2.2(C), 2.2(D), 2.2(E), 2.6 AND 7.4) shall be
------------------------------------------------------------
accompanied by interest thereon, from the date the drawing under the Letter of
Credit is honored with respect to payments under SECTION 2.2(A) and from the
-------------
date such payments become due with respect to all other payments, at the
interest then applicable to Base Rate Loans as provided in the Revolving Credit
Loan Agreement. If any amount is not paid by the Company when due under this
Agreement such amount shall thereafter bear interest at the default rate of
interest for Base Rate Loans as set forth in the Revolving Credit Loan
Agreement. All payments by the Company to Mellon under this Agreement shall be
made in lawful currency of the United States at Mellon's office at Trade Banking
Operations, Room 2329, Three Mellon Bank Center, Pittsburgh, PA 15259-0001,
Attention: Standby Letter of Credit Manager or at such other address and to the
attention of such other person as Mellon may stipulate by written notice to the
Company, or by a wire transfer in immediately available funds from
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<PAGE>
the Company to Mellon in accordance with written wire instructions given to the
Company by Mellon; provided that all reimbursement payments under SECTION 2.2(A)
--------------
shall be made in immediately available funds.
SECTION 2.5. OBLIGATIONS ABSOLUTE. The obligations of the Company under
--------------------
this Article shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances: (a) any lack of validity or enforceability of the Letter of
Credit, the Related Documents or any other agreement or document relating
thereto; (b) any amendment or waiver of or any consent to or departure from the
Letter of Credit, the Related Documents or any document relating thereto; (c)
the existence of any claim, set-off, defense or other right which the Company
may have at any time against the Trustee (or any persons or entities for whom
the Trustee may be acting), Mellon (other than the defense of payment to Mellon
in accordance with the terms of this Agreement) or any other person or entity,
whether in connection with this Agreement, the transactions described herein or
any unrelated transaction, or (d) any of the circumstances contemplated in
clauses (i) through (vii), inclusive, of SECTION 2.7(A); provided that nothing
--------------
in this SECTION 2.5 shall prevent the assertion of any such claim, set-off,
-----------
defense or other right by separate suit or compulsory counterclaim.
SECTION 2.6. INDEMNIFICATION. To the extent permitted by applicable law,
---------------
the Company hereby indemnifies and holds harmless Mellon (and its directors,
officers, employees and agents) from and against any and all claims, damages,
losses, liabilities, costs or expenses, (including reasonable attorneys' fees
for counsel of Mellon's choice) whatsoever which Mellon may incur (or which may
be claimed against Mellon by any person or entity whatsoever) by reason of or in
connection with any (a) breach by the Company of any representation, warranty,
covenant, term or condition in, or the occurrence of any default under, this
Agreement, or the Related Documents, including all reasonable fees or expenses
resulting from the settlement or defense of any claims or liabilities arising as
a result of any such breach or default, and (b) involvement of Mellon in any
legal suit, investigation, proceeding, inquiry or action as a consequence,
direct or indirect, of Mellon's issuance of the Letter of Credit, its entering
into this Agreement or any other event or transaction contemplated by any of the
foregoing; provided the Company shall not be required to indemnify Mellon for
any claims, damages, losses, liabilities, costs or expenses to the extent, but
only to the extent, caused by (i) the willful misconduct or gross negligence of
Mellon or (ii) Mellon's wrongful failure to pay under the Letter of Credit after
the presentation to it by the Trustee of a draft and certificate strictly
complying with the terms and conditions of the Letter of Credit, unless Mellon
believes that it is prohibited by law or other legal authority from making such
payment. Nothing in this section is intended to limit the Company's
reimbursement obligations contained in SECTION 2.2(A). The obligations of the
--------------
Company under this section shall survive the termination of this Agreement.
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<PAGE>
SECTION 2.7. LIABILITY OF MELLON.
-------------------
(A) As between the Company and Mellon, the Company assumes all risks
of the acts or omissions of the Trustee with respect to the Trustee's use of the
Letter of Credit. Neither Mellon nor any of its officers or directors shall be
liable or responsible for: (i) the use which may be made of the Letter of Credit
or for any acts or omissions of the Trustee in connection therewith; (ii) the
form, validity, sufficiency, accuracy or genuineness of any documents (including
without limitation any documents presented under the Letter of Credit), or of
any statement therein or endorsement thereon, even if any such documents,
statements or endorsements should in fact prove to be in any or all respects
invalid, insufficient, fraudulent, forged, inaccurate or untrue; (iii) any
failure by the Trustee to comply fully with conditions required in order to
effect a drawing under the Letter of Credit; (iv) the validity or sufficiency of
any instrument transferring or assigning or purporting to transfer or assign the
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
(v) errors, omissions, interruptions or delays in transmission or delivery of
any messages from the Trustee by mail, cable, telegraph, telex, telephone or
otherwise; (vi) any loss or delay in the transmission or otherwise of any
document or draft required in order to make a drawing under the Letter of
Credit; or (vii) any other circumstances whatsoever in making or failing to make
payment under the Letter of Credit; except only that the Company shall have a
claim against Mellon, and Mellon shall be liable to the Company, to the extent,
but only to the extent, of any direct, as opposed to consequential, damages,
suffered by the Company which were caused by (A) Mellon's willful misconduct or
gross negligence or (B) Mellon's wrongful failure to pay under the Letter of
Credit after the presentation to it by the Trustee of a draft complying with the
terms and conditions of the Letter of Credit, unless Mellon is prohibited by law
or other legal authority from making such payment and so notifies the Company.
In furtherance and not in limitation of the foregoing, Mellon may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary;
provided that if Mellon shall receive written notification from both the Trustee
and the Company that documents conforming to the terms of the Letter of Credit
to be presented to Mellon are not to be honored, Mellon agrees that it will not
honor such documents. To the extent that Mellon is serving as Trustee, the terms
of this subsection (a) shall not limit Mellon's liability for acts or omissions
in its capacity as Trustee.
(B) Except for Mellon's obligations under the Letter of Credit,
Mellon shall have no liability to the Company or any other person as a result of
any reduction of the credit rating of Mellon or any deterioration in Mellon's
financial condition. No reduction of the credit rating of Mellon or any
deterioration in Mellon's financial condition shall reduce or in any way
diminish the obligations of the Company to Mellon under this Agreement,
including without limitation the Company's obligation to pay Letter of Credit
fees to Mellon and to reimburse Mellon for any drawing under the Letter of
Credit.
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<PAGE>
ARTICLE 3
SECURITY
SECTION 3.1. SECURITY AND SUBROGATION UNDER TRUST AGREEMENT. The Company
----------------------------------------------
and Mellon intend that in the event of one or more draws under the Letter of
Credit and the application thereof to the payment of Bonds, subject to the
provisions of the Trust Agreement, Mellon will be subrogated pro tanto to the
---------
rights of the Trustee and the holders of such Bonds in and to all funds (except
rebate and bond purchase funds) and security held by the Trustee under the Bond
Documents for the payment of the principal of and interest on such Bonds,
including without limitation all bond funds, construction funds, revenue funds,
debt service funds, and other funds (except rebate and bond purchase funds) and
securities and other instruments comprising investments thereof. In addition,
Mellon shall have all other subrogation rights available to Mellon at law and in
equity, to the extent such rights do not violate any other agreements of the
Company.
SECTION 3.2. PLEDGE OF RIGHTS TO CERTAIN FUNDS AND INVESTMENTS. To secure
-------------------------------------------------
the Company's obligations to Mellon under this Agreement and all Obligations
under the Revolving Credit Loan Agreement, the Company hereby pledges to Mellon
(for itself and as collateral agent for the Banks), and grants to Mellon a
security interest in, all of the Company's right, title and interest in and to
all funds (except rebate and bond purchase funds) and investments thereof now or
hereafter held by the Trustee under the Trust Agreement as security for the
payment of the Bonds, including without limitation any and all bond funds,
reserve funds, revenue funds, debt service funds, and other funds and securities
and other instruments comprising investments thereof and interest and other
income derived therefrom held as security for the payment of the Bonds; such
pledge, assignment and grant being under and subject only to the rights of the
Trustee under the Trust Agreement. The Company covenants and agrees that it will
defend Mellon's rights and security interests created by this section against
the claims and demands of all persons. In addition to its other rights and
remedies under this Agreement and the Bond Documents, Mellon shall have all the
rights and remedies of a secured party under the Uniform Commercial Code of the
State or other applicable law with respect to the security interests created by
this Article III. Mellon's rights under this section are in addition to, and not
in lieu of, its rights described in SECTION 3.1.
-----------
SECTION 3.3. FINANCING STATEMENTS. The Company will execute and deliver
--------------------
such financing statements and continuation statements under the Uniform
Commercial Code of the State or other applicable law as Mellon may specify in
order to perfect and maintain perfection of Mellon's security interests under
this Agreement, and will pay the costs of filing the same in such public offices
as Mellon may designate.
SECTION 3.4. PLEDGED BONDS.
-------------
(A) PLEDGE. To secure the Company's obligations to Mellon under this
------
Agreement with respect to the Letter of Credit and all Obligations under the
Revolving Credit Loan Agreement, the Company hereby pledges and assigns to
Mellon (for itself and as collateral agent for
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<PAGE>
the Banks), and grants to Mellon (for itself and as collateral agent for the
Banks) a security interest in, all of the right, title and interest of the
Company, now owned or hereafter acquired, in and to any and all Unremarketed
Tendered Bonds (together with all income therefrom and proceeds thereof) which
are purchased pursuant to the Trust Agreement with funds derived in whole or in
part from a drawing under the Letter of Credit for which full reimbursement has
not been made. Such Unremarketed Tendered Bonds shall be pledged to Mellon,
registered in the Company's name and delivered to and held by the Trustee as
agent for Mellon under this SECTION 3.4 or, at the option of Mellon by written
-----------
notice to the Company and the Trustee, the pledged Unremarketed Tendered Bonds
specified in such notice shall be delivered to and held by Mellon; provided
that, if the Unremarketed Tendered Bonds are held in uncertificated form
pursuant to an agreement with The Depository Trust Company or a successor
securities depository, then such pledge to Mellon shall be recorded in the
registration books maintained by the Trustee and in the records of ownership
maintained by the securities depository and/or the participant through which
such Unremarketed Tendered Bonds are held. Unremarketed Tendered Bonds which are
so pledged to Mellon are herein referred to as "Pledged Bonds." The Trust
Agreement provides that the Trustee will act as agent for Mellon with respect to
Pledged Bonds as provided in this Section.
(B) PLEDGED BOND PAYMENTS. Any principal of, premium on and interest
---------------------
on Pledged Bonds which becomes due and payable shall be paid to Mellon. All sums
of money so paid to Mellon in respect of Pledged Bonds shall be credited against
the obligation of the Company to reimburse Mellon, with interest, under SECTION
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2.2(A) for the amount drawn with a Tender Draft to fund the purchase of
- ------
such Pledged Bonds pursuant to the Trust Agreement.
(C) RELEASE OF PLEDGED BONDS. If the Company pays or causes to be
------------------------
paid in full the Revolving Loan (or allocable portion thereof) applied to the
reimbursement of the amount (or allocable portion thereof) drawn with a Tender
Draft to fund the purchase of Pledged Bonds pursuant to the Trust Agreement and
provided no Event of Default has occurred and is continuing, Mellon will release
from the pledge of this Agreement and will deliver, or cause its agent to
deliver, such Pledged Bonds to such Person or Persons as the Company or the
Remarketing Agent may direct. Upon receipt by the Trustee from Mellon of
confirmation that the Letter of Credit has been reinstated with respect to
Pledged Bonds, such Bonds shall be automatically deemed released from the pledge
of this Agreement and the Trustee shall be automatically authorized to deliver
such Bonds free from the pledge of this Agreement, unless the Trustee has
received from Mellon written or telephonic notice (which shall thereafter be
confirmed in writing) that such release shall not occur.
(D) LIABILITY OF MELLON. Mellon shall not be liable for failure to
-------------------
collect or realize upon the obligations secured by the Pledged Bonds or any
collateral security or guarantee therefor, or any part thereof, or for any delay
in so doing, and Mellon shall not be under any obligation to take any action
whatsoever with regard thereto.
(E) RIGHTS AND REMEDIES. The Company covenants and agrees that it
-------------------
will defend Mellon's rights, title and interest in and to the Pledged Bonds and
the proceeds thereof against the claims and demands of all Persons. In addition
to its other rights and remedies under this
-11-
<PAGE>
Agreement and the Trust Agreement, Mellon shall have all the rights and remedies
of a secured party under the Uniform Commercial Code or other applicable law
with respect to the security interests created by this Agreement.
SECTION 3.5. CASH COLLATERALIZATION. To additionally secure the Company's
----------------------
obligations to Mellon under this Agreement in the event that amounts are still
available to be drawn by the Trustee under the Letter of Credit and the right of
the Company to receive advances under the Revolving Credit Loan Agreement has
been terminated, the Company hereby agrees that it shall collateralize its
obligations to Mellon under this Agreement by immediately depositing into an
account with Mellon an amount equal to 100% of the Letter of Credit Amount.
SECTION 3.6. COLLATERAL UNDER REVOLVING CREDIT LOAN AGREEMENT. The Company
------------------------------------------------
acknowledges and agrees that the obligations of the Company under the Mellon
Documents are also secured by the Security Documents, the Collateral, the
Collateral Assignments and the Guarantees (as such terms are defined in the
Revolving Credit Loan Agreement).
SECTION 3.7. Currency. All payments and collateralization required under
--------
the terms of this Agreement shall be made in legal tender of the United States.
ARTICLE 4
CONDITIONS PRECEDENT
SECTION 4.1. CONDITIONS PRECEDENT. The obligation of Mellon to issue the
--------------------
Letter of Credit is subject to the accuracy, as of the Closing Date, of the
representations and warranties herein contained, to the performance by the
Company of its obligations to be performed hereunder on or before the Closing
Date and to the satisfaction of the following further conditions:
(A) FEES. On the date of execution and delivery hereof. the Company
----
shall pay to Mellon the Letter of Credit opening fee due pursuant to SECTION
-------
2.2(C).
- ------
(B) DOCUMENTATION. As conditions precedent to Mellon's issuance of
-------------
the Letter of Credit, Mellon shall have received each of the following in form
and substance satisfactory to Mellon:
(1) Executed originals of this Agreement and all documentation
to be delivered in connection therewith;
(2) Executed originals of the Consent and Agreement from the
Banks, to be delivered in connection with this Agreement;
(3) An executed Amendment to the Revolving Credit Loan Agreement
and an executed Consent of Guarantors both in form and content acceptable to
Mellon;
-12-
<PAGE>
(4) Such financing statements as Mellon may require pursuant to
SECTION 3.3;
- -----------
(5) Certified copies of the Articles of Incorporation, the
Bylaws and resolutions of the Company authorizing the obligations of the Company
to Mellon hereunder and under any other agreements between the Company and
Mellon:
(6) A certificate of an executive officer and a financial
officer of the Company as of the date of execution and delivery hereof stating
that (i) the representations and warranties contained in Article V are true and
correct, and (ii) no Event of Default has occurred and is continuing, and no
event has occurred and is continuing which, with the giving of notice or lapse
of time or both, would constitute an Event of Default;
(7) An opinion (or opinions) of Ballard Spahr Andrews &
Ingersoll and Kleinbard, Bell & Brecker, counsels to the Company, in form and
substance acceptable to Mellon and its counsel;
(8) Such other documents, certificates, approvals, assurances
and opinions as are listed in the closing memorandum filed with the Trustee in
connection with the issuance of the Bonds or as Mellon may reasonably request.
(C) OTHER DOCUMENTS. Such other documents as may be required to be
---------------
submitted to Mellon by the terms hereof or any of the Related Documents.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 5.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------
represents and warrants to Mellon as follows:
(A) INCORPORATION OF REPRESENTATIONS AND WARRANTIES BY REFERENCE.
------------------------------------------------------------
Except as disclosed to Mellon in writing on or before the execution and delivery
of this Agreement, the Company hereby represents and warrants to Mellon that the
representations and warranties made by the Company in ARTICLE IV of the
----------
Revolving Credit Loan Agreement and the other Related Documents are accurate on
the date hereof (except to the extent that such representations and warranties
expressly relate to an earlier date). Such representations and warranties, as
well as the related defined terms contained therein, are hereby incorporated by
reference with the same effect as if each and every such representation and
warranty and defined term were set forth herein in its entirety.
-13-
<PAGE>
(B) VALIDITY AND BINDING NATURE. The Company has the power to
---------------------------
execute, deliver and perform this Agreement and the Related Documents, and when
executed and delivered, this Agreement and the other Related Documents will be
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms; provided, however, that this representation with
respect to enforceability is limited by bankruptcy, insolvency or other laws of
general application and by equitable principles relating to or affecting the
enforcement of creditors' rights.
(C) DUE AUTHORIZATION. The execution, delivery and performance of
-----------------
this Agreement and the Related Documents have been duly authorized by all
corporate action required for the lawful creation and issuance and performance
thereof and will not violate any provisions of law, any order of any court or
governmental agency, the charter documents and bylaws of the Company.
(D) CONFLICTING INSTRUMENTS. The execution, delivery and performance
-----------------------
of this Agreement and the Related Documents will not violate any provisions of
any indenture, agreement, or other instrument to which the Company or any of the
Company's properties or assets are bound, and will not be in conflict with, or
result in a breach of, or constitute (with due notice and/or lapse of time) a
default under any such indenture, agreement, or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company, other than the
liens created by the Related Documents.
(E) AUTHORIZATIONS AND CONSENTS. No authorization, consent, approval,
---------------------------
license or exemption of, and no registration, qualification, designation,
declaration or filing with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is necessary to
the valid execution, delivery and performance by the Company of this Agreement
and the other Related Documents.
(F) MISREPRESENTATION. Neither this Agreement, the other Related
-----------------
Documents, nor any other document, statement, financial statement, or other
certificate furnished to Mellon or its counsel by or on behalf of the Company in
connection herewith, contains an untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein not
misleading and, insofar as the Company can now foresee, there is no event or
condition which may in the future materially adversely affect the financial
condition, operations, assets or properties of the Company which has not been
set forth in this Agreement or in a document, statement, financial statement, or
certificate furnished to Mellon or its counsel in connection with the
transactions contemplated hereby.
SECTION 5.2. COVENANTS OF THE COMPANY. So long as the Letter of Credit
------------------------
remains outstanding or any amount is due and owing to Mellon hereunder, the
Company covenants that, except to the extent Mellon shall otherwise consent in
writing, each of the following covenants shall be performed and complied with by
the Company as indicated:
-14-
<PAGE>
(A) COMPLIANCE WITH PRIOR COVENANTS. The Company will comply with
-------------------------------
all of its covenants and agreements as set forth in SECTIONS 5 AND 6 of the
----------------
Revolving Credit Loan Agreement and under the other Related Document, as the
same may hereafter be amended or supplemented from time to time.
(B) AMENDMENTS TO BOND DOCUMENTS AND OTHER AGREEMENTS. The Company
-------------------------------------------------
will not consent to or enter into any amendment or termination of or supplement
to the Bond Documents without the prior, written consent of Mellon.
(C) LIMITATION ON OPTIONAL OR EXTRAORDINARY CALLS. The Company will
---------------------------------------------
not exercise its rights under the Bond Documents to direct the Authority to call
the Bonds for any optional or extraordinary redemption thereof, unless the
Company first demonstrates to the reasonable satisfaction of Mellon that at the
time of such redemption Mellon will be fully reimbursed for all drawings on the
Letter of Credit in connection with such redemption.
(D) TERMINATION OF REVOLVING CREDIT LOAN AGREEMENT. The Company will
----------------------------------------------
not terminate the Revolving Credit Loan Agreement unless the Company complies
with the requirements of SECTION 3.5 hereof regarding cash collateralization of
-----------
the Company's reimbursement obligations.
(E) FURTHER ASSURANCES. The Company will execute and deliver from
------------------
time to time such further instruments and take such further actions as may
reasonably be required to carry out the purposes and provisions of this
Agreement and to assure Mellon of the subrogation and security rights in favor
of Mellon contemplated by the Trust Agreement.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. DEFAULTS. Each of the following shall constitute an event of
--------
default hereunder ("EVENT OF DEFAULT"):
(A) Failure by the Company to pay (or cause to be paid) when due any
payment under this Agreement as reimbursement for a drawing under the Letter of
Credit or any commitment fees within five (5) day after the due date therefor;
(B) Failure by the Company to make any other payment when it is due
under this Agreement within fifteen (15) days after the due date therefor;
(C) Failure by the Company to perform, observe or comply with any of
the other terms, covenants, agreements or conditions contained in this Agreement
(other than in respect of SECTIONS 6.1(A), 6.1(B), and such failure continues
-----------------------
uncured for a period of 20 days, provided that the Company shall have no cure
period for any defaults for which there is no cure
-15-
<PAGE>
period under the Revolving Credit Loan Agreement or for defaults under SECTIONS
--------
5.2(B) OR 5.2(C) or for defaults which are incapable of being cured);
- ----------------
(D) Any of the representations or warranties of the Company set forth
in this Agreement, any Related Documents or any other document furnished to
Mellon pursuant to the terms hereof is incorrect in any material respect when
made;
(E) Any material provision of this Agreement shall at any time for
any reason cease to be valid and binding on the Company, or shall be declared to
be null and void, or the validity or enforceability thereof shall be contested
by the Company, or the Company shall deny that it has any or further liability
or obligation under this Agreement;
(F) The occurrence of an Event of Default as defined in any of the
Related Documents;
(G) The occurrence of an event of default under any other loan or
credit agreement between the Company and Mellon after the expiration of any
applicable grace period; or
(H) The termination of the Revolving Credit Loan Agreement for any
reason, unless the Company shall have posted and thereafter maintains with
Mellon cash collateral in an amount equal to the amount available from time to
time under the Letter of Credit.
SECTION 6.2. REMEDIES. If an Event of Default under SECTION 6.1 of this
-------- -----------
Agreement has occurred and is continuing uncured, Mellon may:
(A) Notify the Trustee of such Event of Default, direct the Trustee
to call the Bonds for mandatory purchase and direct the Trustee to draw on the
Letter of Credit and/or to exercise remedies under the Bond Documents;
(B) Declare the Company's obligations hereunder to be, whereupon the
same shall become, immediately due and payable;
(C) Exercise, or cause to be exercised, any and all such remedies as
it may have under this Agreement, the Related Documents or any other document or
at law or in equity;
(D) Unless the Revolving Credit Loan Agreement is then outstanding
and in full force and effect, require that the Company deposit with Mellon an
amount equal to the face amount of the Letter of Credit plus all fees to become
due and payable hereunder. Such funds will be held by Mellon as cash collateral
to secure the Company's obligations to Mellon; and
(E) Notify Banks to make a Revolving Credit Loan (as defined in the
Revolving Credit Loan Agreement) to the Company under the Revolving Credit Loan
Agreement as reimbursement for a drawing under the Letter of Credit.
-16-
<PAGE>
SECTION 6.3. WAIVERS; CONSENTS. No waiver of, or consent with respect to,
-----------------
any provision of this Agreement shall in any event be effective unless the same
shall be in writing and signed by Mellon, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which it was given.
SECTION 6.4. NO WAIVER; REMEDIES CUMULATIVE. No failure on the part of
------------------------------
Mellon to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; and no single or partial exercise of any right
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies available under any other document or at law or in
equity.
SECTION 6.5. SETOFF. Upon the occurrence and during the continuance of any
------
Event of Default, Mellon is hereby authorized at any time and from time to time
without notice to the Company (any such notice being expressly waived by the
Company) and, to the fullest extent permitted by law, to set off and to apply
any and all balances, credits, deposits (general or special, time or demand,
provisional or final), accounts or monies at any time held, and other
indebtedness at any time owing by Mellon to or for the account of the Company
against any and all of the obligations of the Company now or hereafter existing
under this Agreement or any instrument delivered by the Company to Mellon in
connection herewith, whether or not Mellon shall have made any demand hereunder
or thereunder and although such obligations may be contingent or unmatured. For
purposes of this section, any moneys, balances, credits or deposits made by the
Company exclusively for the payment of any federal, state or local withholding
taxes shall not be subject to setoff by Mellon.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1. NOTICES; ASSIGNMENT. All notices and other communications
-------------------
provided for hereunder shall be in writing and sent by United States certified
or registered mail, return receipt requested, or by telegraph or private
delivery service, addressed as follows:
If to Mellon:
Mellon Bank, N.A.
Plymouth Meeting Executive Campus
610 West Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
Attention: Middle Market Banking Department Group
-17-
<PAGE>
If to the Company:
Klearfold, Inc.
364 Valley Road
Warrington, Pennsylvania 18976
Attention: Chief Financial Officer
-18-
<PAGE>
If to the Trustee:
Mellon Bank, N.A.
Two Mellon Bank Center, Room 325
Pittsburgh, PA 15259
Attention: Corporate Trust Group
Any such notice to Mellon shall refer to this Agreement and, if appropriate,
Mellon Bank, N.A. Irrevocable Letter of Credit No. S854302. Either party hereto
and the Trustee may change the address to which notices to it are to be sent by
written notice given to successors and assigns. This Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
successors and assigns. The Company may not assign its rights under this
Agreement without the prior written consent of Mellon. The Company and Mellon
intend that no other person shall have any claim or interest under this
Agreement or right of action hereon or hereunder.
SECTION 7.2. SURVIVAL OF COVENANTS. All covenants made by the Company
---------------------
herein and in any document delivered pursuant hereto shall survive the delivery
of this Agreement and the Letter of Credit, as well as any advances under the
Letter of Credit.
SECTION 7.3. COUNTERPARTS. The execution hereof by each party hereto shall
------------
constitute a contract between them for the uses and purposes herein set forth,
and this Agreement may be executed in any number of counterparts, with each
executed counterpart constituting an original and all counterparts together
constituting one agreement.
SECTION 7.4. COSTS, EXPENSES AND TAXES. The Company agrees to pay on demand
-------------------------
all reasonable costs and expenses of Mellon in connection with the preparation,
execution and delivery of this Agreement, the Letter of Credit, and any other
documents that may be delivered in connection with this Agreement, the Letter of
Credit, or the Related Documents or any amendments thereto, including, without
limitation, the reasonable fees and expenses of counsel for Mellon with respect
thereto. In addition, the Company shall pay all costs and expenses, if any, of
Mellon in connection with the enforcement of this Agreement, the Letter of
Credit, and the Related Documents. In addition, the Company shall pay any and
all stamp and other taxes and fees payable or determined to be payable in
connection with the execution and delivery of this Agreement, the Letter of
Credit, and the Related Documents and agrees to indemnify and to hold Mellon
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes and fees; provided Mellon
promptly notifies the Company of any such taxes and fees.
SECTION 7.5. AMENDMENTS. This Agreement may only be amended by an
----------
instrument in writing executed and delivered by the Company and Mellon.
SECTION 7.6. SEVERABILITY; INTEREST LIMITATION. If any provision hereof is
---------------------------------
found by a court of competent jurisdiction to be prohibited or unenforceable in
any jurisdiction, it shall be ineffective as to such jurisdiction only to the
extent of such prohibition or unenforceability, and such
-19-
<PAGE>
prohibition or unenforceability shall not invalidate the balance of such
provision as to such jurisdiction to the extent it is not prohibited or
unenforceable, nor invalidate such provision in any other jurisdiction, nor
invalidate the other provisions hereof, all of which shall be liberally
construed in favor of Mellon in order to effect the provisions of this
Agreement. Notwithstanding anything to the contrary herein contained, the total
liability of the Company for payment of interest pursuant hereto shall not
exceed the maximum amount, if any, of such interest permitted by applicable law
to be contracted for, charged or received, and if any payments by the Company to
Mellon include interest in excess of such a maximum amount, Mellon shall apply
such excess to the reduction of the unpaid principal amount due pursuant hereto,
or if none is due, such excess shall be refunded to the Company; provided that,
to the extent permitted by applicable law, in the event the interest is not
collected, is applied to principal or is refunded pursuant to this sentence and
interest thereafter payable pursuant hereto shall be less than such maximum
amount, then such interest thereafter so payable shall be increased up to such
maximum amount to the extent necessary to recover the amount of interest, if
any, theretofore uncollected, applied to principal or refunded pursuant to this
sentence. Any such application or refund shall not cure or waive any Event of
Default. In determining whether or not any interest payable under this Agreement
exceeds the highest rate permitted by law, any non-principal payment (except
payments specifically stated in this Agreement to be "interest") shall be
deemed, to the extent permitted by applicable law, to be an expense, fee,
premium or penalty rather than interest.
SECTION 7.7. COMPLETE AGREEMENT. Taken together with the other instruments
------------------
and documents delivered in compliance herewith, this Agreement is a complete
memorandum of the agreement of the Company and Mellon. Waivers or modifications
of any provision hereof must be in writing signed by the party to be charged
with the effect thereof.
SECTION 7.8. CONSENT TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL.
----------------------------------------------------
(A) JURISDICTION. The Company hereby irrevocably (i) agrees that any
------------
suit, action or other legal proceeding arising out of or relating to this
Agreement or the Letter of Credit may be brought in any federal or state court
located in Philadelphia, Pennsylvania and consents to the jurisdiction of such
court in any such suit, action or proceeding and (ii) waives any objection which
it may have to the laying of venue of any such suit, action or proceeding in any
such court and any claim that any such suit, action or proceeding has been
brought in an inconvenient forum. The Company hereby irrevocably consents to the
service of any and all process in any such suit, action or proceeding by mailing
of copies of such process to the Company at its address provided in Section 7.1.
The Company agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. All mailings under this section shall be
by certified mail, return receipt requested. Nothing in this section shall
affect the right of Mellon to serve legal process in any other manner permitted
by law or affect the right of Mellon to bring any suit, action or proceeding
against the Company or its property in the courts of any other jurisdiction.
-20-
<PAGE>
(B) JURY TRIAL WAIVER. COMPANY AND MELLON WAIVE ANY RIGHT TO TRIAL
-----------------
BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION EITHER OF THEM MAY HAVE
(A) ARISING UNDER THIS AGREEMENT OR THE BOND DOCUMENTS OR (B) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE COMPANY OR MELLON
WITH RESPECT TO THIS AGREEMENT OR THE BOND DOCUMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE. THE COMPANY AND MELLON AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND
THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE COMPANY
AND MELLON TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. THE COMPANY
ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL REGARDING
THIS SECTION, THAT IT FULLY UNDERSTANDS ITS TERMS, CONTENT AND EFFECT, AND THAT
IT VOLUNTARILY AND KNOWINGLY AGREES TO THE TERMS OF THIS SECTION.
(C) GOVERNING LAW. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the Commonwealth of Pennsylvania,
without regard to its rules and principles regarding conflicts of law or any
rule or canon of construction which interprets agreements against the draftsman.
SECTION 7.9. HEADINGS. Section headings in this Agreement are included
--------
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
SECTION 7.10. PARTICIPATION. The Letter of Credit is being issued by Mellon
-------------
as the "MELLON LETTER OF CREDIT" under the Revolving Credit Loan Agreement for
the ratable account of the Banks, each of whom is participating in the risk of
the Letter of Credit. The Company acknowledges that, for the convenience of all
parties, the Company's obligations under this Agreement are and will be
undertaken for the benefit of, and as an inducement to, the Banks as well as
Mellon. Without limiting the foregoing, the Company acknowledges that SECTIONS
--------
2.2, 2.4, 2.5 AND 2.6 hereof are for the benefit of the Banks as if such
- ---------------------
sections specifically referred to the Banks and their participations in the
payment obligations of the Company and the funding obligations of Mellon, and
the Company agrees to make payments required by such provisions for the account
of any one or more Banks to Mellon on demand of Mellon. Upon funding of their
pro-rata shares of Revolving Loans under the Revolving Credit Loan Agreement to
reimburse Mellon for draws under the Letter of Credit, the Banks will be
subrogated to Mellon's rights under this Agreement on a pro-rata basis.
SECTION 7.11. SUCCESSOR BANK. Any corporation or association into which
--------------
Mellon may be converted or merged, or with which it or any successor to it may
be consolidated, or to which
-21-
<PAGE>
corporation or association resulting from any such conversion, sale, merger,
consolidation or transfer to which it is a party, ipso facto, shall be and
----------
become successor Mellon hereunder and vested with all of the title to the whole
property hereunder and all the powers, discretions, immunities, privileges and
all other matters as was its predecessor, without the execution or filing or any
instrument or any further act on the part of any of the parties hereto, anything
to the contrary notwithstanding.
IN WITNESS WHEREOF, the Company and Mellon have caused this Agreement to be
duly executed and delivered.
KLEARFOLD, INC.
By: /s/ Daniel F. Santry
-----------------------------------------
Daniel F. Santry, VP Finance
Name/Title: ---------------------------------
MELLON BANK, N.A.
By: [SIGNATURE ILLEGIBLE]
------------------------------------------
Title: VICE PRESIDENT
---------------------------------------
<PAGE>
Exhibit 12.1
IMPAC Group, Inc.
Computation of Ratio of Earnings to Fixed Charges
($ in thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31, For the Three Months Ended
----------------------------------------------- --------------------------------
1993 1994 1995 1996 1997 March 31, 1997 March 31, 1998
---- ---- ---- ---- ---- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing operations
before taxes $3,165 $4,642 $5,695 $4,937 $2,146 $389 ($363)
----------------------------------------------- --------------------------------
Fixed Charges:
Interest expense 1,013 1,020 1,197 2,324 3,469 766 1,222
Appropriate portion (1/3) of rentals 329 418 577 665 678 165 205
----------------------------------------------- --------------------------------
Total fixed charges 1,342 1,438 1,774 2,989 4,147 931 1,427
Capitalized interest 0 0 0 0 0 0 0
----------------------------------------------- --------------------------------
Total Fixed Charges and Capitalized
Interest 1,342 1,438 1,774 2,989 4,147 931 1,427
----------------------------------------------- --------------------------------
Income from continuing operations
before taxes plus fixed charges $4,507 $6,080 $7,469 $7,926 $6,293 $1,320 $1,064
=============================================== ================================
Ratio of earnings to fixed charges and
capitalized interest 3.4 4.2 4.2 2.7 1.5 1.4 0.7
=============================================== ================================
<CAPTION>
Pro Forma
-------------------------------------
Three Months Ended
Year Ended -----------------------
December 31, March 31, March 31,
1997 1997 1998
---- ---- ----
<S> <C> <C> <C>
Income from continuing operations
before taxes $5,012 $78 ($1,298)
--------------------------------------
Fixed Charges:
Interest expense 11,424 2,845 2,884
Appropriate portion (1/3) of rentals 1,530 371 388
--------------------------------------
Total fixed charges 12,954 3,216 3,272
Capitalized interest 16 9 9
--------------------------------------
Total Fixed Charges and Capitalized
Interest 12,970 3,225 3,281
--------------------------------------
Income from continuing operations
before taxes plus fixed charges $17,982 $3,303 $1,983
======================================
Ratio of earnings to fixed charges and
capitalized interest 1.4 1.0 0.6
======================================
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
June 9, 1998
<PAGE>
EXHIBIT 23.3
REPORT AND CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
IMPAC Group, Inc.:
The audits of the consolidated financial statements of KFI Holding Corporation
and subsidiaries referred to in our report dated February 6, 1998, included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 1997, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Summary Historical Financial and Other Data--KFI
Holding Corporation", "Selected Historical Financial Information and Other
Data--KFI Holding Corporation", and "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
June 9, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of IMPAC Group, Inc. of our report dated
February 9, 1998 relating to the financial statements of AGI Incorporated which
appears in such Prospectus. We also consent to the reference to us under the
heading "Selected Historical Financial Information and Other Data--AGI
Incorporated" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Historical Financial
Information and Other Data". We also consent to the references to us under the
heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Chicago, Illinois
June 9, 1998
<PAGE>
EXHIBIT 25.1
AMENDED
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
IMPAC GROUP, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 23-2923682
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1950 NORTH RUBY STREET
MELROSE PARK, ILLINOIS 60160
(Address of principal executive offices) (Zip Code)
10 1/8% SENIOR SUBORDINATED NOTES DUE 2008
(Title of indenture securities)
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GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its parent,
State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to
commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment No.
1 to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by reference
thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST
POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED
IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No. 22-
17940) and is incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4 to
the Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Eastern Edison
Company (File No. 33-37823) and is incorporated herein by
reference thereto.
2
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5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 5TH DAY OF JUNE, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Arthur J. MacDonald
-------------------------------
NAME: ARTHUR J. MACDONALD
TITLE: ASSISTANT VICE PRESIDENT
3
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by IMPAC GROUP,
INC. of its 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Arthur J. MacDonald
--------------------------------
NAME: ARTHUR J. MACDONALD
TITLE: Assistant Vice President
DATED: JUNE 5, 1998
4
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1998,
--------------
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
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<CAPTION>
Thousands of
Dollars
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin...................................................... 1,144,309
Interest-bearing balances............................................................................... 9,914,704
Securities................................................................................................... 10,062,052
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary..................................................................... 8,073,970
Loans and lease financing receivables:
Loans and leases, net of unearned income ............ 6,433,627
Allowance for loan and lease losses.................. 88,820
Allocated transfer risk reserve...................... 0
Loans and leases, net of unearned income and allowances................................................. 6,344,807
Assets held in trading accounts.............................................................................. 1,117,547
Premises and fixed assets.................................................................................... 453,576
Other real estate owned...................................................................................... 100
Investments in unconsolidated subsidiaries................................................................... 44,985
Customers' liability to this bank on acceptances outstanding................................................. 66,149
Intangible assets............................................................................................ 263,249
Other assets................................................................................................. 1,066,572
----------
Total assets................................................................................................. 38,552,020
==========
LIABILITIES
Deposits:
In domestic offices..................................................................................... 9,266,492
Noninterest-bearing................................. 6,824,432
Interest-bearing.................................... 2,442,060
In foreign offices and Edge subsidiary.................................................................. 14,385,048
Noninterest-bearing................................. 75,909
Interest-bearing.................................... 14,309,139
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary..................................................................... 9,949,994
Demand notes issued to the U.S. Treasury and Trading Liabilities............................................. 171,783
Trading liabilities.......................................................................................... 1,078,189
Other borrowed money......................................................................................... 406,583
Subordinated notes and debentures............................................................................ 0
Bank's liability on acceptances executed and outstanding..................................................... 66,149
Other liabilities............................................................................................ 878,947
Total liabilities............................................................................................ 36,203,185
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus................................................................ 0
Common stock................................................................................................. 29,931
Surplus...................................................................................................... 450,003
Undivided profits and capital reserves/Net unrealized holding gains (losses)................................. 1,857,021
Net unrealized holding gains (losses) on available-for-sale securities....................................... 18,136
Cumulative foreign currency translation adjustments.......................................................... (6,256)
Total equity capital......................................................................................... 2,348,835
----------
Total liabilities and equity capital......................................................................... 38,552,020
----------
</TABLE>
5
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
6
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter of the
obligor, the trustee has relied upon the information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer to Item 2. of this statement will be amended, if necessary, to
reflect any facts which differ from those stated and which would have been
required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation duly
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 5TH DAY OF JUNE, 1998.
STATE STREET BANK AND TRUST COMPANY
By /s/ ARTHUR J. MACDONALD
--------------------------
NAME: Arthur J. MacDonald
TITLE: ASSISTANT VICE PRESIDENT
7
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by IMPAC GROUP,
INC. of its 10 1/8% SENIOR SUBORDINATED NOTES DUE 2008, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ ARTHUR J. MACDONALD
---------------------------
NAME: Arthur J. MacDonald
TITLE: ASSISTANT VICE PRESIDENT
DATED: JUNE 5, 1998
8
<PAGE>
EX. 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
ANY AND ALL OUTSTANDING
10 1/8% SENIOR NOTES DUE 2008
OF
IMPAC GROUP, INC.
FULLY AND UNCONDITIONALLY GUARANTEED
BY __________________
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Corporation (as defined below) (the "Existing Securities")
are not immediately available, (ii) Existing Securities, the Letter of
Transmittal and all other required documents cannot be delivered to State Street
Bank and Trust Company (the "Exchange Agent") on or prior to 5:00 P.M. New York
City time, on the Expiration Date (as defined in the Prospectus referred to
below) or (iii) the procedures for delivery by book-entry transfer cannot be
completed on a timely basis. This Notice of Guaranteed Delivery may be
delivered by hand, overnight courier or mail, or transmitted by facsimile
transmission, to the Exchange Agent. See "The Exchange Offer--Procedures for
Tendering Existing Notes" in the Prospectus. In addition, in order to utilize
the guaranteed delivery procedure to tender Existing Securities pursuant to the
Exchange Offer, a completed, signed and dated Letter of Transmittal relating to
the Existing Securities (or facsimile thereof) must also be received by the
Exchange Agent on or prior to 5:00 P.M. New York City time, on the Expiration
Date. Capitalized terms not defined herein have the meanings assigned to them
in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
State Street Bank and Trust Company
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<S> <C> <C>
By Registered or Certified Mail Facsimile Transmissions: By Hand Or Overnight Delivery
Street Bank and Trust Company (617) 664-5290 State Street Bank and Trust Company
Two International Place Two International Place
Corporate Trust Department Confirm By Telephone: Corporate Trust Department
4th Floor (617) 664-5587 4th Floor
Boston, MA 02110 Boston, MA 02110
Attention: Kellie Mullen Attention: Kellie Mullen
Re: IMPAC Group, Inc. Re: IMPAC Group, Inc.
</TABLE>
<PAGE>
Delivery of this Notice Of Guaranteed Delivery to an address other than as
set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above will not constitute a valid
delivery.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
Ladies and Gentlemen:
The undersigned hereby tenders to IMPAC Group, Inc., a Delaware Corporation
(the "Corporation"), upon the terms and subject to the conditions set forth in
the Prospectus dated ______________, 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Existing Securities
set forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering
Existing Notes."
Aggregate Principal Amount Name(s) of Registered Holder(s):_________________
Tendered: $______________ _________________________________________________
Certificate No(s)
if available):_____________________
___________________________________
(Total Principal Amount Represented by
Existing Securities Certificate(s))
$__________________________________
If Existing Securities will be tendered by book-entry transfer, provide the
following information:
DTC Account Number:________________________
Date:______________________________________
_____________________________________
Must be in denominations of a principal amount of $1,000 and an integral
multiple thereof.
<PAGE>
________________________________________________________________________________
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs personal representatives, successors
and assigns of the undersigned.
________________________________________________________________________________
PLEASE SIGN HERE
X_____________________________ ___________________
X_____________________________ ___________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:______________________________________
Must be signed by the holder(s) of the Existing Securities as their name(s)
appear(s) on certificates for Existing Securities or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian, attorney-in-
fact, officer or other person acting in a fiduciary or representative capacity,
such person must set forth his or her full title below.
Please print name(s) and address(es)
Name(s): ____________________________________________________________
____________________________________________________________
____________________________________________________________
Capacity: ____________________________________________________________
____________________________________________________________
____________________________________________________________
Address(es): ____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
____________________________________________________________
<PAGE>
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
learning agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Existing
Securities tendered hereby in proper form for transfer, or confirmation of the
book-entry transfer of such Existing Securities to the Exchange Agent's account
at The Depositary Trust Company ("DTC"), pursuant to the procedures for book-
entry transfer set forth in the Prospectus, in either case together with one or
more properly completed and duly executed Letter(s) of Transmittal (or facsimile
thereof) and any other required documents within five business days after the
date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Existing Securities tendered hereby to the Exchange Agent
within the time period set forth above and that failure to do so could result in
a financial loss to the undersigned.
_________________________ _________________________
Name of Firm Authorized Signature
_________________________ _________________________
Address Title
_________________________ _________________________
Zip Code (Please Type or Print)
Area Code and Telephone No.___ Dated:___________________
NOTE: DO NOT SEND CERTIFICATES FOR EXISTING SECURITIES WITH THIS FORM.
CERTIFICATES FOR EXISTING SECURITIES SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
