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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 0-24068
------------------------
CONSOLIDATED GRAPHICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0190827
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
2210 WEST DALLAS STREET
HOUSTON, TEXAS 77019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (713) 529-4200
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock, par value $.01 per share, of the
Registrant outstanding at
October 31, 1996 was 6,133,340.
================================================================================
<PAGE>
CONSOLIDATED GRAPHICS, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
INDEX
PAGE
----
Part I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets at September 30, 1996 and
March 31, 1996 .................................................. 1
Consolidated Income Statements for each of the
three month and the six month periods ended
September 30, 1996 and 1995 ..................................... 2
Consolidated Statements of Cash Flows for the six
months ended September 30, 1996 and 1995 ........................ 3
Notes to Consolidated Financial Statements ...................... 4
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................ 6
Part II -- Other Information
Item 1 -- Legal Proceedings .......................................... 11
Item 6 -- Exhibits and Reports on Form 8-K ........................... 11
Signatures ................................................................ 12
(i)
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, MARCH 31,
1996 1996
-------- --------
(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............... $ 2,118 $ 3,086
Accounts receivable, net ................ 25,274 19,317
Inventories ............................. 7,666 8,023
Prepaid expenses ........................ 895 1,077
-------- --------
Total current assets ............... 35,953 31,503
PROPERTY AND EQUIPMENT, net .................. 72,793 50,591
GOODWILL, net ................................ 5,305 5,015
OTHER ASSETS ................................. 771 700
-------- --------
$114,822 $ 87,809
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt ....................................... $ 2,055 $ 1,221
Accounts payable ............................ 5,986 5,719
Accrued liabilities ......................... 7,579 5,648
Income taxes payable ........................ 191 60
-------- --------
Total current
liabilities ......................... 15,811 12,648
LONG-TERM DEBT, net of current
portion ........................................ 34,734 20,105
DEFERRED INCOME TAXES ............................ 5,983 5,180
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value;
20,000,000 shares authorized,
6,117,840 and 5,927,360 issued
and outstanding,
respectively ............................... 61 59
Additional paid-in capital .................. 37,073 32,762
Retained earnings ........................... 21,160 17,055
-------- --------
Total shareholders'
equity .............................. 58,294 49,876
-------- --------
$114,822 $ 87,809
======== ========
See accompanying notes to consolidated financial statements.
1
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED INCOME STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
SALES............................... $ 34,451 $ 19,308 $ 62,709 $ 38,786
COST OF SALES....................... 23,864 13,689 44,030 27,679
--------- --------- --------- ---------
Gross profit................... 10,587 5,619 18,679 11,107
SELLING EXPENSES.................... 3,410 1,860 6,258 3,883
GENERAL AND ADMINISTRATIVE
EXPENSES.......................... 2,722 1,478 5,014 3,004
--------- --------- --------- ---------
Operating income............... 4,455 2,281 7,407 4,220
INTEREST EXPENSE.................... 595 206 934 358
--------- --------- --------- ---------
Income before provision for
income taxes................. 3,860 2,075 6,473 3,862
PROVISION FOR INCOME TAXES.......... 1,428 723 2,368 1,351
--------- --------- --------- ---------
NET INCOME.......................... $ 2,432 $ 1,352 $ 4,105 $ 2,511
========= ========= ========= =========
EARNINGS PER SHARE OF COMMON STOCK.. $.40 $.25 $.68 $.46
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
2
<PAGE>
CONSOLIDATED GRAPHICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
-------- --------
OPERATING ACTIVITIES:
Net income ................................ $ 4,105 $ 2,511
Adjustments to reconcile net
income to net cash provided
by operating activities --
Depreciation and
amortization ...................... 2,634 1,636
Deferred tax provision
(benefit) ......................... (164) 223
Changes in assets and
liabilities, net of
effects of acquisitions --
Accounts receivable ............... (1,754) 139
Inventories ....................... 1,289 (324)
Prepaid expenses .................. 212 (13)
Other assets ...................... (55) (131)
Accounts payable and
accrued liabilities ............. (1,427) (1,336)
Income taxes payable .............. 181 (576)
-------- --------
Net cash provided
by operating
activities ................ 5,021 2,129
-------- --------
INVESTING ACTIVITIES:
Acquisitions of businesses ................ (7,017) (6,461)
Purchases of property and
equipment ................................ (5,325) (1,323)
Proceeds from disposition of
assets ................................... 55 176
-------- --------
Net cash used in
investing
activities ................ (12,287) (7,608)
-------- --------
FINANCING ACTIVITIES:
Proceeds from revolving credit
agreement ................................ 32,200 14,725
Payments on revolving credit
agreement ................................ (24,800) (8,125)
Payments on long-term debt ................ (1,230) (770)
Proceeds from exercise of stock
options and other ........................ 128 225
-------- --------
Net cash provided
by financing
activities ................ 6,298 6,055
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................. (968) 576
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD .......................... 3,086 1,707
-------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ....................................... $ 2,118 $ 2,283
======== ========
See accompanying notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements include the
accounts of Consolidated Graphics, Inc. and its wholly owned subsidiaries (the
"Company"). All intercompany balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and the
Securities and Exchange Commission's rules and regulations for reporting interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month and six-month periods ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended March 31, 1997. Balance sheet information as of
March 31, 1996 has been derived from the 1996 annual audited financial
statements of the Company. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Form 10-K
filed with the Securities and Exchange Commission in July 1996.
Earnings per share are calculated by dividing net income by the weighted
average number of shares outstanding of 6,116,307 and 5,474,342 for the three
months ended September 30, 1996 and 1995, respectively, and 6,024,367 and
5,470,468 for the six months ended September 30, 1996 and 1995, respectively.
The consolidated statements of cash flows provide information about changes
in cash and exclude the effects of noncash transactions. For purposes of the
consolidated statements of cash flows, the Company considers all highly liquid
investments purchased with original maturities of three months or less to be
cash equivalents. Interest paid during the six-month periods ended September 30,
1996 and 1995 was $502 and $364, respectively. Income tax payments during the
six-month periods ended September 30, 1996 and 1995 were $1,650 and $1,704,
respectively. Significant non-cash transactions in the six month period ended
September 30, 1996 include debt of $6,835 incurred by the Company to finance the
purchase of three printing presses and the issuance of common stock and
assumption of debt and capital leases in connection with certain of the
Company's acquisitions (see Note 3. Acquisitions).
2. LONG-TERM DEBT
The following is a summary of the Company's long-term debt:
SEPTEMBER 30, MARCH 31,
1996 1996
-------------- ---------
Revolving credit agreement........... $ 23,700 $16,300
Notes payable and capital leases..... 13,089 5,026
-------------- ---------
Total long-term debt............ 36,789 21,326
Less current portion............ (2,055) (1,221)
-------------- ---------
$ 34,734 $20,105
============== =========
4
<PAGE>
CONSOLIDATED GRAPHICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
3. ACQUISITIONS
During the six months ended September 30, 1996, the Company completed the
following acquisitions: Bridgetown Printing in Portland, Oregon (June 1996),
Garner Printing in Des Moines, Iowa (July 1996), and Eagle Press in Sacramento,
California (July 1996). Each of these transactions were accounted for using the
purchase method of accounting. In addition to cash expended of $7,017, the
Company issued 177,780 shares of common stock and assumed debt and capital
leases totaling $2,622 in connection with these transactions.
In November 1996, the Company announced that it had completed the
acquisition of Mobility, Inc. in Richmond, Virginia and signed nonbinding
letters of intent to acquire Direct Color in Long Beach, California and Theo
Davis Sons, Inc., located near Raleigh-Durham, North Carolina.
5
<PAGE>
CONSOLIDATED GRAPHICS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSIONS CONTAIN FORWARD-LOOKING INFORMATION. READERS ARE
CAUTIONED THAT SUCH INFORMATION INVOLVES RISKS AND UNCERTAINTIES, INCLUDING
THOSE CREATED BY GENERAL MARKET CONDITIONS, COMPETITION AND THE POSSIBILITY THAT
EVENTS MAY OCCUR WHICH LIMIT THE ABILITY OF THE COMPANY TO MAINTAIN OR IMPROVE
ITS OPERATING RESULTS OR EXECUTE ITS GROWTH STRATEGY OF ACQUIRING ADDITIONAL
COMPANIES. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE
FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD BE
INACCURATE, AND THERE CAN THEREFORE BE NO ASSURANCE THAT THE FORWARD-LOOKING
STATEMENTS INCLUDED HEREIN WILL PROVE TO BE ACCURATE. THE INCLUSION OF SUCH
INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY
OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
GENERAL
Consolidated Graphics, Inc. (the "Company") is one of the fastest growing
providers of general commercial printing services in the United States. Since
its formation in 1985, the Company has expanded its operations to include 16
printing companies in twelve markets: Dallas, Denver (3), Des Moines, Houston
(3), Phoenix, Portland, Richmond, Sacramento, San Antonio, San Diego, Seattle
and Tulsa.
The Company's sales are derived from the production and sale of printed
materials. The materials are sold and manufactured by each of the operating
subsidiaries, and each product is customized depending on the needs of the
customer. All of the operating subsidiaries provide general commercial printing
services relating to the production of annual reports, training manuals, product
and capability brochures, direct mail pieces, catalogs and other promotional
material, all of which tend to be recurring in nature. In addition, one of the
subsidiaries also provides transaction-oriented financial printing services,
including the printing of registration and information statements filed with the
Securities and Exchange Commission and official statements for municipal
securities. Each printing company has its own separate operations which include
sales, estimating, customer service, prepress, production and postpress
operations, and accounting. The Company's corporate office, located in Houston,
provides centralized cash management, financial reporting and certain
administrative services to all of the operating subsidiaries.
The Company's financial results in a given period may be affected by the
timing and magnitude of acquisitions. Operating income margins of acquired
companies typically are lower than those of the Company at the date of
acquisition. As a result, the Company's overall operating income margins in the
periods immediately following a significant acquisition or series of
acquisitions may be lower depending upon the timing and extent that an acquired
company is able to adapt to and implement the Company's management practices.
The Company competes in the general commercial and financial printing
sectors, which are characterized by individual orders from customers for
specific printing projects rather than long-term contracts, with continued
engagement for successive jobs dependent upon the customer's satisfaction with
the services provided. As such, the Company is unable to predict, for more than
a few weeks in advance, the number, size and profitability of printing jobs in a
given period. Consequently, the timing of projects in any quarter could have a
significant impact on financial results in that quarter.
6
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth the Company's historical income statements
for the periods indicated:
THREE MONTHS SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Sales............................... $ 34.5 $ 19.3 $ 62.7 $ 38.8
Cost of sales....................... 23.9 13.7 44.0 27.7
--------- --------- --------- ---------
Gross profit................... 10.6 5.6 18.7 11.1
Selling expenses.................... 3.4 1.8 6.3 3.9
General and administrative
expenses.......................... 2.7 1.5 5.0 3.0
--------- --------- --------- ---------
Operating income............... 4.5 2.3 7.4 4.2
Interest expense.................... .6 .2 .9 .3
--------- --------- --------- ---------
Income before provision for
income taxes................. 3.9 2.1 6.5 3.9
Provison for income taxes........... 1.5 .7 2.4 1.4
--------- --------- --------- ---------
Net income..................... $ 2.4 $ 1.4 $ 4.1 $ 2.5
========= ========= ========= =========
The following tables set forth the components of income expressed as a
percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- --------------------
1996 1995 1996 1995
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Sales................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales........................ 69.3 70.9 70.2 71.4
--------- ------------- --------- ---------
Gross profit.................... 30.7 29.1 29.8 28.6
Selling expenses..................... 9.9 9.6 10.0 10.0
General and administrative
expenses........................... 7.9 7.7 8.0 7.7
--------- ------------- --------- ---------
Operating income................ 12.9 11.8 11.8 10.9
Interest expense..................... 1.7 1.1 1.5 .9
--------- ------------- --------- ---------
Income before provision for
income
taxes......................... 11.2 10.7 10.3 10.0
Provision for income taxes........... 4.1 3.7 3.8 3.5
--------- ------------- --------- ---------
Net income...................... 7.1% 7.0% 6.5% 6.5%
========= ============= ========= =========
</TABLE>
Acquisitions in fiscal 1996 and fiscal 1997 are the primary causes of the
absolute increases in revenues and expenses since the three-month and six-month
periods ended September 30, 1995. In fiscal 1996, the Company acquired Clear
Visions in August, 1995, Heritage Graphics in September, 1995, Emerald City
Graphics and Precision Litho in February, 1996 and Tulsa Litho Company in March,
1996 (collectively, the "1996 Acquisitions"). In the first six months of
fiscal 1997, the Company acquired Bridgetown Printing Co. ("Bridgetown") in
June, 1996 and Garner Printing ("Garner") and Eagle Press ("Eagle") in July,
1996 (collectively, the "1997 Acquisitions"). Each of the 1996 Acquisitions
and the 1997 Acquisitions (together, the "Acquired Companies") were accounted
for under the purchase method of accounting; accordingly, the Company's
consolidated income statements reflect their revenues and expenses only for the
post acquisition periods.
Additionally, operating results for the three-month and six-month periods
ended September 30, 1996, as compared to the same periods in 1995, were affected
by the merger in late fiscal 1996 of the operations of two of the Company's
Houston-based subsidiaries, which has had the effect of reducing sales,
primarily lower-margin web printing sales, and improving profit margins through
reduced administrative costs and improved utilization of printing capacity.
For more information regarding the 1996 Acquisitions and the consolidation
of certain of the Company's Houston operations in fiscal 1996, refer to
"Management's Discussion and Analysis of
7
<PAGE>
Financial Condition and Results of Operations" included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1996.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1995
Sales increased 78.4% from $19.3 million for the three months ended
September 30, 1995 to $34.5 million for the three months ended September 30,
1996. The increase primarily resulted from sales contributed by the Acquired
Companies, net of a decrease in web printing sales pursuant to the consolidation
of certain operations as discussed above. A net increase in sales at the
Company's other operating subsidiaries also contributed to the increase in sales
for the current period.
Gross profit increased 88.4% from $5.6 million for the three months ended
September 30, 1995 to $10.6 million for the three months ended September 30,
1996 primarily due to the addition of the Acquired Companies. Gross profit as a
percentage of sales increased from 29.1% for the three months ended September
30, 1995 to 30.7% for the three months ended September 30, 1996, reflecting
generally the effect of operating efficiencies the Company is gaining through
economies of scale and its master purchasing arrangements and a reduction in
lower-margin web printing sales.
Selling expenses increased 83.3% from $1.8 million for the three months
ended September 30, 1995 to $3.4 million for the three months ended September
30, 1996 due to increased sales levels as discussed above. Selling expenses as a
percentage of sales increased from 9.6% for the three months ended September 30,
1995 to 9.9% for the three months ended September 30, 1996, reflecting a higher
percentage of non-commissioned sales as a percentage of total sales in the three
months ended September 30, 1995.
General and administrative expenses increased 84.2% from $1.5 million for
the three months ended September 30, 1995 to $2.7 million for the three months
ended September 30, 1996. In addition to the increase in general and
administrative expenses attributable to the Acquired Companies, an increase in
the Company's corporate staffing was a contributing factor. The staffing
increase reflects primarily the effort by the Company to focus the resources
necessary on quickly implementing the benefits of its master purchasing
arrangements and other operating efficiencies into its acquired companies.
Accordingly, general and administrative expenses as a percentage of sales
increased slightly from 7.7% in the three months ended September 30, 1995 to
7.9% for the three months ended September 30, 1996.
Interest expense increased from $.2 million for the three months ended
September 30, 1995 to $.6 million for the three months ended September 30, 1996.
The increase is primarily due to additional borrowings under the Company's
revolving credit facility to finance the cash portions of the purchase price of
the Acquired Companies and borrowings to finance certain printing press
purchases. See "Liquidity and Capital Resources" below.
Effective income tax rates increased from 34.8% for the three months ended
September 30, 1995 to 37.0% for the three months ended September 30, 1996, due
primarily to the Company's further expansion into states with higher income tax
rates than those in the State of Texas.
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH SIX MONTHS ENDED SEPTEMBER 30,
1995.
Sales increased 61.7% from $38.8 million for the six months ended September
30, 1995 to $62.7 million for the six months ended September 30, 1996. The
increase primarily resulted from sales contributed by the Acquired Companies,
net of a decrease in web printing sales pursuant to the consolidation of certain
operations as discussed above. A net increase in sales at the Company's other
operating subsdiaries also contributed to the increase in sales for the current
period.
Gross profit increased 68.2% from $11.1 million for the six months ended
September 30, 1995 to $18.7 million for the six months ended September 30, 1996,
primarily due to the profit contribution from the Acquired Companies. Gross
profit increased as a percentage of sales from 28.6% for the six months ended
September 30, 1995 to 29.8% for the six months ended September 30, 1996. This
increase was attributable to operating efficiencies the Company is gaining
through economies of scale and its master purchasing arrangements and a
reduction in lower-margin web printing sales.
Selling expenses increased 61.2% from $3.9 million for the six months ended
September 30, 1995 to $6.3 million for the six months ended September 30, 1996
due to increased sales levels as discussed above.
8
<PAGE>
Selling expenses as a percentage of sales remained constant at 10.0% for the six
months ended September 30, 1996.
General and administrative expenses increased 66.9% from $3.0 million for
the six months ended September 30, 1995 to $5.0 million for the six months ended
September 30, 1996, primarily due to general and administrative expenses
attributable to the Acquired Companies and the aforementioned increase in the
Company's corporate staffing. As a percentage of sales, general and
administrative expenses increased slightly from 7.7% for the six months ended
September 30, 1995 to 8.0% for the six months ended September 30, 1996.
Interest expense increased from $.3 million for the six months ended
September 30, 1995 to $.9 million for the six months ended September 30, 1996,
due to additional borrowings under the Company's revolving credit facility to
finance the cash portions of the purchase price of the Acquired Companies and
borrowings to finance certain printing press purchases. See "Liquidity and
Capital Resources" below.
Effective income tax rates reflect an increase to 36.6% for the six months
ended September 30, 1996 as compared to 35.0% during the same period in the
prior year due to the Company's further expansion into states with higher income
tax rates than those in the State of Texas.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital, capital
expenditures and acquisitions. The Company has generated cash from operations
(net income plus depreciation and amortization expense and deferred tax
provision) since its inception. Cash generated from operations, as defined, was
$6.6 million for the six months ended September 30, 1996, while cash expended on
purchases of property and equipment was $5.3 million. The net increase in the
Company's debt since March 31, 1996 reflects (1) an increase of $7.4 million
outstanding under the Company's revolving credit facility with a bank which was
used to finance $7.0 million expended in connection with the acquisitions of
Bridgetown and Eagle, (2) debt of $6.8 million attributable to the purchase of
three printing presses from Komori America Corporation ("Komori"), (3)
assumption of debt totalling $2.6 million in connection with the acquisition of
Garner and (4) debt retirements of $1.2 million.
On August 23, 1995, the Company entered into a $25 million revolving credit
agreement (the "Agreement") with a bank which was scheduled to expire on
August 31, 1997. In October 1996 the Agreement was renewed through October 31,
1998 and the available line of credit was increased by $10 million to $35
million. Loans outstanding under the renewed Agreement accrue interest at the
London Interbank Offered Rate (LIBOR) plus .625% to 1.75% based on the Company's
Funded Debt to EBITDA ratio as defined in the Agreement, generally redetermined
quarterly. Additionally, a commitment fee of .10% to .50% accrues on any unused
portion of the available line of credit. On September 30, 1996, loans
outstanding under the Agreement were $23.7 million and were subject to an
interest rate of 6.50% per annum. On October 31, 1996, loans outstanding under
the Agreement were $22.0 million and were subject to an interest rate of 6.76%
per annum. Certain of the Company's operating subsidiaries have guaranteed the
Company's indebtedness under the Agreement. The covenants in the Agreement,
among other things, restrict the Company's ability to (i) merge, consolidate
with or acquire other companies where the total consideration paid is above
certain levels, (ii) engage in hostile acquisitions, (iii) change its primary
business, (iv) pay dividends and (v) incur other borrowed debt or pledge assets
as collateral in excess of certain levels. Although there can be no assurances
made, the Company believes that the covenants in the Agreement pertaining to
restrictions on acquisitions of other companies do not adversely affect its
acquisition strategy and that, if necessary, the Company would likely be able to
obtain the appropriate waivers. The Company must also meet certain financial
tests defined by the Agreement, including achieving specific ratios of Funded
Debt to EBITDA, net worth and coverage of fixed charges. The indebtedness is
unsecured; however, the bank could require inventories and receivables as
collateral for the payment of indebtedness in the event of default. The Company
is in compliance with all financial tests and other covenants set forth in the
Agreement.
Pursuant to an agreement between the Company and Komori (the "Komori
Agreement"), the Company installed three new printing presses in the second
quarter of fiscal 1996. The Komori Agreement requires that the Company take
delivery of at least one additional press, resulting in a total capital
9
<PAGE>
commitment of approximately $10 million for the purchase of the four presses.
The Komori Agreement further provides certain volume purchase incentives and
financing options under which the Company may, but is not obligated to, purchase
up to $50 million of printing presses over its term. The Company has exercised
the financing option in connection with the purchase of the first three presses,
resulting in a long-term obligation of $6.8 million at September 30, 1996. The
terms of the financing provide for monthly principal and interest payments
through 2006 at a fixed interest rate of 8.25%. Payment of the Company's
obligations will be secured by the purchased presses. The Company will not be
subject to any significant financial covenants or restrictions in connection
with these obligations.
The Company's remaining debt obligations generally consist of mortgages,
capital leases and promissory notes, some of which contain financial covenants
and restrictions. The most significant of these place certain restrictions on
future borrowings and acquisitions above specified levels. The Company believes
these restrictions do not adversely affect its acquisition strategy.
Significant immediate and future uses of cash by the Company are expected
to consist of additional acquisitions of businesses and purchases of property
and equipment.
Subsequent to September 30, 1996, the Company completed the acquisition of
Mobility Inc, ("Mobility") in Richmond, Virginia, and announced that it has
signed nonbinding letters of intent to acquire Direct Color in Long Beach,
California and Theo Davis Sons near Raleigh-Durham, North Carolina. Borrowings
under the Agreement were used to finance the Mobility acquisition and are
expected to be used to finance the two pending acquisitions. The Company expects
to make additional acquisitions in the remainder of fiscal 1997 and to be able
to finance them with borrowings under the Agreement, but currently has no other
understandings, arrangements or agreements in place. In addition to one or more
printing press purchases under the Komori Agreement (which the Company expects
to finance thereunder), the Company will make other purchases of property and
equipment in the remainder of fiscal 1997 and expects to use primarily cash flow
from operations as financing.
There can be no assurances that the Company will be able to acquire
additional companies on acceptable terms in the future. In addition, there can
be no assurance that the Company will be able to establish, maintain or increase
profitability of an entity once it has been acquired, or that the diversion of
its management and financial resources away from existing operations will not
have a material adverse impact on the Company or its ability to meet its
existing obligations and commitments.
Further, there can be no assurances that additional financing to make
acquisitions, purchase property and equipment or meet operating requirements
will be obtained if needed, or that the proposed terms of such financing, in the
opinion of management, will be acceptable.
10
<PAGE>
CONSOLIDATED GRAPHICS, INC.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company
maintains insurance coverage against potential claims in an amount which it
believes to be adequate. In 1996, the Company received a summary judgment in its
favor from the presiding court in a case styled ALEJANDRO ROBLES V. CONSOLIDATED
GRAPHICS, INC. ET AL. involving a material claim by the plaintiff pertaining to
a sales commission contract. The plaintiff appealed the ruling. The Company
believes the decision of the presiding court should be upheld; however, there
can be no assurance that the appellate court will rule in favor of the Company.
All other litigation in which the Company is currently involved is not believed
by management to be significant to the Company's financial position or results
of operations. While the outcome of lawsuits or other proceedings against the
Company cannot be predicted with certainty, the Company does not believe the
ultimate outcome of any of these matters will have a material adverse effect on
its business or financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Amended and Restated Loan Agreement by and between
Consolidated Graphics, Inc. and NationsBank of Texas N.A.
dated as of October 21, 1996.
10.2 Revolving Promissory Note by and between Consolidated
Graphics, Inc. and NationsBank of Texas N.A. dated as of
October 21, 1996.
10.3 Amended and Restated Loan Agreement by and between
Consolidated Graphics, Inc. and NationsBank of Texas N.A.
dated as of October 29, 1996.
(b) Reports on Form 8-K:
(1) Form 8-K, filed July 10, 1996 in connection with the press
release issued on July 10, 1996 regarding the completion of
the acquisition of Garner Printing.
(2) Form 8-K, filed July 18, 1996 in connection with the
acquisition of Garner Printing on July 3, 1996.
(3) Form 8-K, filed July 24, 1996 in connection with the
acquisition of Eagle Press of Sacramento, California on July
12, 1996, the press release issued on July 18, 1996 regarding
the completion of the acquisition of Eagle Press, the press
release issued on July 24, 1996 regarding the announcement of
the Company's first quarter results, and a press purchase
incentive agreement entered into between the Company and
Komori America Corporation.
(4) Form 8-K/A, filed August 13, 1996 containing pro forma
financial statements of the Company and the financial
statements of Garner Printing.
(5) Form 8-K/A, filed August 14, 1996 containing pro forma
financial statements of the Company and the financial
statements of Eagle Press.
(6) Form 8-K, filed September 13, 1996 in connection with the
press release issued on September 6, 1996 regarding the letter
of intent to acquire Mobility, Inc. ("Mobility") of Richmond,
Virginia.
(7) Form 8-K, filed October 31, 1996 in connection with the press
release issued on October 30, 1996 regarding the announcement
of the Company's first quarter results.
(8) Form 8-K, filed November 4, 1996 in connection with the press
release issued on November 4, 1996 regarding the completion of
the acquisition of Mobility.
(9) Form 8-K, filed November 6, 1996 in connection with the press
release issued on November 6, 1996 regarding the letter of
intent to acquire Direct Color of Long Beach, California and
Theo Davis Sons near Raleigh-Durham, North Carolina.
11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT, CONSOLIDATED GRAPHICS, INC., HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CONSOLIDATED GRAPHICS, INC.
(Registrant)
Dated: November 13, 1996 By: G. CHRISTOPHER COLVILLE
G. CHRISTOPHER COLVILLE
VICE PRESIDENT -- MERGERS AND
ACQUISITIONS, CHIEF FINANCIAL AND
ACCOUNTING OFFICER
12
EXHIBIT 10.1
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT to Loan Agreement ("Second Amendment") is made and
entered into as of the 21st day of October, 1996, by and between CONSOLIDATED
GRAPHICS, INC., a Texas corporation, with offices and place of business at 2210
West Dallas, Houston, Texas 77019 (hereinafter called "Borrower") and
NATIONSBANK OF TEXAS, N.A., a national banking association, with offices and
banking quarters at 700 Louisiana, Houston, Texas 77002 (hereinafter called
"Lender"). For and in consideration of the mutual covenants and agreements
herein contained, Borrower and Lender hereby amend as of the date of this Second
Amendment that certain Amended and Restated Loan Agreement between Borrower and
Lender dated the 7th day of November, 1994, as previously amended by the First
Amendment to Loan Agreement dated August 23, 1995 ( as amended, the "Loan
Agreement"), in the following respects:
Section 1. AMENDMENTS TO LOAN AGREEMENT.
A. Section 1.1 is deleted and the following is substituted
in its place:
1.1 INDEBTEDNESS. Upon the terms and conditions hereinafter set
forth, the Lender agrees to lend and Borrower agrees to borrow an
aggregate of up to $35,000,000.00, as evidenced by a Revolving Line of
Credit to be extended to the Borrower by the Lender in an amount up to
$35,000,000.00, as more specifically described in Section 1.3 hereof.
B. Section 1.2(a)(10) is deleted.
C. Section 1.2(a)(18) is deleted.
D. Section 1.2(a)(14A) is added as follows:
<PAGE>
(14A) "EBITDA" shall mean earnings before interest, taxes,
depreciation and amortization. With respect to the calculation of EBITDA
with respect to newly acquired Subsidiaries, EBITDA may be adjusted on a
pro forma basis to include the EBITDA of such Subsidiary of the
applicable period prior to the date of the acquisition by Borrower as
more fully set forth in Sections 1.2(d) and 1.3 hereof.
E. Section 1.2(a)(19B) is added as follows:
(19B) "Funded Debt" shall mean the outstanding balance of
interest bearing indebtedness of Borrower and its Subsidiaries.
F. Section 1.2(a)(19C) is added as follows:
(19C) "Funded Debt to EBITDA Ratio" shall mean the ratio of the
outstanding principal balance of Funded Debt as of the end of each
fiscal quarter to the EBITDA of the Borrower and its Subsidiaries for
the quarter then ended plus the immediately preceding three (3) fiscal
quarters.
G. Section 1.2(a)(20) is deleted and the following is
substituted in its place:
(20) "Guarantor" shall mean all Subsidiaries of the Borrower
which conduct commercial printing activity as their primary line of
business which, as of the date of the Second Amendment to Loan
Agreement, are: Western Lithograph Company, a Texas corporation, Grover
Printing Company, a Texas corporation, Tewell Warren Printing Company, a
Texas corporation, Chas P. Young Company, a Texas corporation, Gulf
Printing Company, a Texas corporation, Gritz-Ritter Graphics, Inc., a
Colorado corporation, The Jarvis Press, Inc., a Texas corporation,
Frederic Printing Company, a Colorado corporation, Clear Visions, Inc.,
a Texas corporation, Bridgetown Printing Company, a Texas corporation,
Consolidated Eagle Press, Inc., a Texas corporation, Emerald City
Graphics, Inc., a Texas corporation, Garner Printing Company, an Iowa
corporation, Heritage Graphics, Inc., a Texas corporation, and Precision
Litho, Inc., a Texas corporation. In addition, Consolidated Graphics
Management, Ltd., a Texas limited partnership, shall be a guarantor.
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H. Section 1.2(a)(22A) is added as follows:
(22A) "Interim Rate Determination Date shall have the meaning set
forth in Section 1.3(b).
I. Section 1.2(a)(25) is deleted.
J. Section 1.2(a)(35) is deleted and the following is substituted
in its place:
(35) "Prior Financial Statements" shall mean the audited
consolidated financial statements for the Borrower and its Subsidiaries
for the period ended March 31, 1996 and as at such date, as modified and
supplemented by Borrower prepared consolidated financial statements for
the period ending June 30, 1996 and as at such date.
K. Section 1.2(a)(38) is deleted and the following is substituted
in its place:
(38) "Revolving Note" shall mean the promissory note of the
Borrower in the original principal amount of $35,000,000.00 issued
pursuant to Section 1.3 of this Agreement in the form attached as
Exhibit "1.3" to the Second Amendment to Loan Agreement, together with
any amendments, renewals and extensions thereof.
L. Section 1.2(d) is added as follows:
(d) The preparation of proforma financial statements required
hereunder shall be generally in accordance with the requirements
established by the Securities and Exchange Commission for acquisition
accounting for reported acquisitions for public companies (i.e. (i)
directly attributable to the transaction, (ii) expected to have a
continuing impact on the Borrower and its Subsidiaries, and (iii)
factually supportable), whether or not the applicable transactions are
required to be publicly reported, and applying such requirements to make
such proforma financial statements reflect the accounting procedures
used in the preparation of the regular financial statements of Borrower
and its Subsidiaries unless otherwise approved in writing by Lender. The
application of the foregoing requirements with respect to the
preparation of proforma financial statements or financial statements
including proforma adjustments shall be subject to the approval of
Lender, provided that compliance with the requirements for Form
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<PAGE>
8-k shall represent a minimum standard of Lender's evaluation.
M. Section 1.3(a) and (b) are deleted and the following are
substituted in their place:
1.3 REVOLVING LINE OF CREDIT. (a) The Lender, during the period
from the date of the Second Amendment to Loan Agreement until October
31, 1998, subject to the terms and conditions of this Agreement, and
subject to the condition that at the time of each borrowing hereunder,
no Default or Event of Default has occurred and is then continuing to
occur and, as to each borrowing which increases the principal amount
outstanding under the Revolving Note, that the representations and
warranties given by the Borrower in Section 2 as of the date of this
Agreement shall remain true and correct in all material respects (unless
such representation and warranty relates to an earlier date), agrees to
make loans to Borrower pursuant to a Revolving Line of Credit up to but
not in excess of an aggregate principal amount outstanding at any time
of $35,000,000.00 on the same Business Day upon receipt from Borrower on
or before 1:00 p.m. Houston time of written applications for loans
hereunder in the form attached as Exhibit "1.3.1". Each advance shall be
in an amount of not less than $50,000.00.
(b) The Borrower's obligation to repay the Revolving Line of
Credit shall be evidenced by a promissory note of the Borrower in
substantially the form attached as Exhibit "1.3.2" to the Second
Amendment to Loan Agreement, payable to the order of Lender. The
Revolving Note shall bear interest at the rates indicated below, but in
no event to exceed the maximum non-usurious interest rate permitted by
applicable law with the balance of principal plus accrued and unpaid
interest due and payable on or before October 31, 1998.
Applicable Interest Fees
Funded Debt/ Rate Unused
Ebitda Ratio Options Portion
------------ ------- -------
Less than or LIBOR + .625% or
equal to .75 Prime Rate .10%
Greater than .75 LIBOR + .875% or .175%
to 1.0 but less Prime Rate
than or equal to
1.5 to 1.0
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<PAGE>
Greater than 1.5 LIBOR + 1.25% or .25%
to 1.0 but less Prime Rate
than or equal to
2.0 to 1.0
Greater than 2.0 LIBOR + 1.50% or .375%
to 1.0 but less Prime Rate + .25%
than or equal to
2.5 to 1.0
Greater than 2.5 LIBOR + 1.75% or .50%
to 2.5 to 1.0 Prime Rate + .25%
The adjustment in the interest rate options on the Revolving Note and
the fees charged pursuant to this Agreement shall be effective on (i)
the first of the month following receipt of a quarterly financial
statement and Compliance Certificate pursuant to Section 3.8 indicating
the Funded Debt to EBITDA Ratio, and no Default or Event of Default
exists, as more fully set forth in the Revolving Note and (ii) on an
Interim Rate Determination Date. As used herein, "Interim Rate
Determination Date" shall mean the effective date of the consummation of
a merger and acquisition either (i) requiring the approval of Lender
under the terms of this Agreement, or (ii) which does not require the
approval of Lender but as to which Borrower desires to add historical
EBITDA for the purposes of calculating compliance with financial
covenants hereunder. In such event Borrower shall deliver within sixty
(60) days following consummation of such merger or acquisition an
interim redetermination of the Funded Debt to EBITDA Ratio based upon
proforma financial statements which reflect such merger or acquisition,
which redetermination and the calculation related thereto shall be
subject to review and approval by Lender. The applicable interest rate
options on the Revolving Note and the fees charged pursuant to this
Agreement shall be adjusted effective as of the Interim Rate
Determination Date based upon such approved interim redetermination.
N. Section 1.3(c)(1)(ii) is amended by adding "one hundred twenty
(120)" following "ninety (90)" and by deleting "November 8, 1996 and replacing
it with "October 31, 1998."
O. Section 1.3(c)(3) is amended by adding the following at the end
of the Section: "provided that Borrower may prepay such
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<PAGE>
amount upon the payment of a fee in the amount of one percent (1%) of the amount
prepaid, not to exceed $10,000."
P. Section 1.4 is deleted and the following is substituted in its
place:
1.4 FEES. (a) For the periods from the date of the Second
Amendment Borrower shall pay to Lender a commitment fee in an amount
equal to the percentage then applicable for the Unused Portion as set
forth in Section 1.3(b) per annum on the average daily unadvanced
portion of the Revolving Line of Credit, which fee shall be payable
quarterly on the 10th day of the month following the end of each fiscal
quarter and shall be payable for the period ending on October 31, 1998
on the 10th day of November, 1998.
(b) On the date of the Second Amendment to Loan Agreement
Borrower shall pay Lender a commitment fee in the amount of $15,000. On
the anniversary of the date of such Second Amendment, Borrower shall pay
Lender a commitment fee in the amount equal to $25,000. Borrower shall
have the right to terminate this Agreement upon written notice to Lender
at any time and upon the payment of the commitment fee which would have
been otherwise due upon the anniversary date of the Second Amendment.
Q. Section 3.1(a), 3.1(b), 3.1(c) and 3.9 are amended by adding
"senior vice president" immediately after "chief executive officer" in each
Section.
R. Section 3.1(i) is added as follows:
(i) In the event Borrower completes an acquisition
or merger and a proforma calculation of EBITDA is required under the
terms of this Agreement, Borrower agrees to provide Lender with such
information as Lender may reasonably request with respect to such
acquisition or merger and the proforma calculation of EBITDA, including
without limitation, the information necessary to calculate the Funded
Debt to EBITDA Ratio pursuant to Section 1.3.
S. Section 3.10 is deleted and the following is substituted in its
place:
3.10 SECURITY. Upon the occurrence of and during the continuance
of an Event of Default, the Indebtedness and obligations of the Borrower
and Guarantors under this Agreement and related documents shall, upon
the written
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<PAGE>
request of Lender, be secured within ten (10) Business Days by the
following:
(a) A security interest in favor of Lender prior to any other
security interest (except as set forth in Section 4.4) in all of the
Borrower's and any Guarantor's right, title and interest in and to: (i)
all accounts receivable now or hereafter existing; (ii) all inventory
now owned or hereafter acquired; and (iii) the proceeds, products and
accessions of and to any and all of the foregoing.
In such event, the security agreements will be in substantially similar
form to the agreements which were executed in connection with the Prior
Loan Agreement, but in all events sufficient to grant a first and prior
security interest. In the event the Indebtedness has been secured in
accordance with the foregoing provisions and Event of Default exists
hereunder at such time and no Event of Default has existed during the
preceding fiscal quarter, the foregoing security interests shall, upon
the written request of Borrower, be released by Lender.
(b) The Indebtedness shall, as of the date of the Second
Amendment to Loan Agreement, be guaranteed by the following parties:
Consolidated Graphics Management, Ltd.
Western Lithograph Company
Grover Printing Company
Tewell Warren Printing Company
Chas. P. Young Company
Gulf Printing Company
Gritz-Ritter Graphics, Inc.
The Jarvis Press, Inc.
Frederic Printing Company
Clear Visions, Inc.
Bridgetown Printing Co.
Consolidated Eagle Press, Inc.
Emerald City Graphics, Inc.
Garner Printing Company
Heritage Graphics, Inc.
Precision Graphics, Inc.
In addition, in the event Borrower acquires after the date of the Second
Amendment to Loan Agreement additional Subsidiaries whose primary
business is the commercial printing business, such Subsidiaries shall
execute a Guaranty. In the event the acquisition causes an Interim Rate
Determination Date to occur, such Subsidiary shall execute the required
Guaranty immediately following acquisition by Borrower. If the
acquisition does not
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<PAGE>
cause an Interim Rate Determination Date to occur, such Guaranty shall
be executed within thirty (30) days following such acquisition. Borrower
may have up to six (6) months following all acquisitions to insure the
execution of such Guaranty does not violate any agreements to which such
Subsidiary is subject.
T. Section 3.11 is deleted and the following is substituted
in its place:
3.11 BORROWING BASE. During any period the Revolving Line of
Credit is required to be secured pursuant to Section 3.10, the aggregate
indebtedness pursuant to the Revolving Line of Credit shall never exceed
the sum of (i) ninety percent (90%) of the Eligible Accounts Receivable
of (y) corporations whose securities are publicly traded with debt
ratings of "A" or better as determined by Lender based upon Moody's or
Standard & Poor's classification and (z) the United States government
and any agency thereof; plus (ii) eighty percent (80%) of other Eligible
Accounts Receivable; plus (iii) (y) sixty percent (60%) of the book
value of unopened inventory plus (z) forty percent (40%) of book value
of other inventory, provided inventory shall not include work-in-process
and (iv) fifty percent (50%) of work-in-process, provided that the
amount determined under this subsection (iii) shall never exceed forty
percent (40%) of the Borrowing Base. In accordance with Section 3.1(d),
Borrower shall provide the Lender a calculation of the foregoing
Borrowing Base in the form attached as Exhibit "3.11" ("Borrowing Base
Report"). In the event the aggregate unpaid principal balance under the
Revolving Line of Credit exceeds the Borrowing Base calculated as
described above, the Borrower will promptly, but in any event no later
than within five (5) Business Days (no additional notice or cure period
being required prior to such failure becoming an Event of Default
hereunder), reduce the Indebtedness under the Revolving Line of Credit
until the amount owed is less than that calculated as described above.
In the event such required payment involves a LIBOR Portion, such amount
shall be prepaid without premium or restriction.
U. Section 4.1(f) and 4.1(g) are deleted and the following Section
4.1(f) is substituted in its place:
(f) indebtedness in an amount not to exceed $10,000,000 to Komori
America Corporation (or an affiliate thereof) utilized to purchase sheet
feed
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<PAGE>
presses from Komori America Corporation, secured solely by such presses.
V. The following is added to Section 4.2:
Investments in the stock of Subsidiaries which do not guarantee the
Indebtedness (other than Consolidated Graphics Properties, Inc. and
Consolidated Graphics Properties, II, Inc.) and loans or advances to
Subsidiaries which do not guaranty the Indebtedness (other than
Consolidated Graphics Properties, Inc. and Consolidated Graphics
Properties, II, Inc.) shall not exceed one percent (1%) of Borrower's
consolidated Net Worth.
W. Section 4.3(c) is deleted and the following is substituted in its
place:
(a) a merger or acquisition by Borrower or any of Borrower's
Subsidiaries if the Borrower or the Subsidiary is the surviving entity,
and the total consideration paid in connection with such transaction
does not exceed $10,000,000 and the aggregate consideration paid for all
such transactions during any fiscal year does not exceed forty percent
(40%) of Borrower's consolidated Net Worth; and further provided that in
no event shall any such transaction permitted hereunder be a transaction
in which existing management is not cooperative with Borrower's
acquisition; and
X. The following is added to Section 4.3:
The total consideration and aggregate consideration paid for the
purposes of Section 4.3(a) shall be the sum of cash paid, liabilities
assumed, plus tangible assets transferred, but shall exclude the value
of common or preferred stock issued in connection with such
transactions.
Y. Section 4.4(e) is deleted and the following is substituted in its
place:
(e) liens securing the indebtedness described in Sections
4.1(b), 4.1(d) and 4.1(f) hereof insofar as such liens are not on
any of the Collateral;
Z. Section 4.6 is deleted and the following is substituted in its
place:
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4.6 FINANCIAL COVENANTS. The Borrower will not permit:
(a) its Funded Debt to EBITDA Ratio to be greater than 3.00 to
1.0;
(b) its Net Worth to be less than $46,512,000 plus (i) one
hundred percent (100%) of equity, whether common or preferred, issued
after June 30, 1996, and (ii) seventy-five percent (75%) of net income
for each fiscal year ending after the date of the Second Amendment;
provided that no more than fifty percent (50%) of the amount of Net
Worth can consist of intangible assets;
(c) its Fixed Charge Ratio to exceed 1.25 to 1.0.
Each of the covenants in (a), (b), and (c) above shall be
determined as of the end of each fiscal quarter. All terms not expressly
defined shall be defined in accordance with generally accepted
accounting principles. All determinations under this Agreement shall be
made in accordance with generally accepted accounting principles
consistently applied, on a consolidated basis, except where expressly
provided to the contrary. All references to a preceding period shall
mean the period ending as of the end of the month, quarter or fiscal
year for which the applicable report is delivered. All references to a
period immediately following shall mean the period beginning on the
first day of the month, quarter or fiscal year following the end of the
period for which the applicable report is delivered.
AA. Section 4.8 is added as follows:
4.8 DIVIDENDS AND REDEMPTIONS. The Borrower will not declare or pay
dividends (other than a dividend payable solely in stock of the
Borrower) or make any other distribution on account of, or purchase,
acquire, redeem or retire any stock of the Borrower.
AB. Exhibit 1.3.2 to the Loan Agreement is deleted and the Exhibit 1.3.2
attached hereto is substituted in its place.
AC. Exhibit 2.8 to the Loan Agreement is deleted and the Exhibit 2.8
attached hereto is substituted in its place.
AD. Exhibit 3.8 to the Loan Agreement is deleted and the Exhibit 3.8
attached hereto is substituted in its place.
AE. Exhibit 3.11 to the Loan Agreement is deleted and the Exhibit 3.11
attached hereto is substituted in its place.
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AF. Exhibit 4.4 to the Loan Agreement is deleted and the Exhibit 4.4
attached hereto is substituted in its place.
Section 2. CLOSING.
The closing of the transactions contemplated by this Amendment is
subject to the satisfaction of the following conditions.
2.1 COUNSEL TO LENDER. All legal matters incident to the transactions
herein contemplated shall be satisfactory to Gardere Wynne Sewell & Riggs,
L.L.P., counsel to the Lender.
2.2 REQUIRED DOCUMENTS.
(a) The Lender shall have received certified copies of resolutions of
the Board of Directors of the Borrower and each of the Guarantors in form and
substance satisfactory to Lender with respect to authorization of this
Amendment, the Ratification of Guaranty Agreements, the Guaranty Agreements, and
the other corporate instruments provided for herein, including a certificate of
the Secretary of the Borrower and the sole director of each of the Guarantors as
to the names of officers of such entity authorized to execute the loan documents
and the other instruments or certificates related hereto together with the true
signatures of such officers.
(b) The Lender shall have received fully executed copies of this
Amendment, the Revolving Note, the Ratifications of Guaranty, the Guaranty
Agreements, and such other documents as Lender may reasonably require.
2.3 OPINION OF COUNSEL. The Lender shall have received from Baker &
Botts, LLP, counsel to the Borrower, a written opinion, satisfactory to the
Lender and its counsel.
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Section 3. RATIFICATION.
Except as amended hereby, the Loan Agreement shall remain unchanged and
the terms, conditions, representations, warranties, and covenants of said Loan
Agreement, are true as of the date hereof (unless such representations and
warranties relate to an earlier date), are ratified and confirmed in all
respects and shall be continuing and binding upon the parties.
Section 4. DEFINED TERMS.
All terms used in this Amendment which are defined in the Loan Agreement
shall have the same meaning as in the Loan Agreement, except as otherwise
indicated in this Amendment.
Section 5. MULTIPLE COUNTERPARTS.
This Amendment may be executed by the parties hereto in several separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
Section 6. APPLICABLE LAW.
This Amendment shall be deemed to be a contract under and subject to,
and shall be construed for all purposes in accordance with the laws of the State
of Texas.
Section 7. FINAL AGREEMENT.
THE WRITTEN LOAN AGREEMENTS IN CONNECTION WITH THIS SECOND AMENDMENT
REPRESENT THE FINAL AGREEMENT BETWEEN THE BORROWER AND THE LENDER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE BORROWER AND THE LENDER. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE LENDER AND THE BORROWER.
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IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized officers as of the _____ day of October, 1996.
CONSOLIDATED GRAPHICS, INC.
By: /s/ JOE R. DAVIS
Joe R. Davis
Chief Executive Officer
NATIONSBANK OF TEXAS, N.A.
By: /s/ JAMES D. RECER
James D. Recer
Vice President
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EXHIBIT "2.8"
SUBSIDIARIES
PRIMARY
NAME BUSINESS JURISDICTION
- ----------------------------------------- --------- ------
Western Lithograph Company ................... (1) Texas
Grover Printing Company ...................... (1) Texas
Tewell Warren Printing Company ............... (1) Texas
Consolidated Graphics Properties II, Inc. .... (2) Texas
Chas. P. Young Company ....................... (1) Texas
Gulf Printing Company ........................ (1) Texas
Consolidated Graphics Properties, Inc. ....... (2) Texas
Superb Printing Company ...................... (1)(3) Texas
Gritz-Ritter Graphics, Inc. .................. (1) Colorado
The Jarvis Press, Inc. ....................... (1) Texas
Frederic Printing Company .................... (1) Colorado
Consolidated Graphics Management, Inc. ....... (2) Texas
Chas P. Young Company, Inc. .................. (2) New York
Clear Visions, Inc. .......................... (1) Texas
Bridgetown Printing Co. ...................... (1) Texas
Consolidated Eagle Press, Inc. ............... (1) Texas
Emerald City Graphics, Inc. .................. (1) Texas
Garner Printing Company ...................... (1) Iowa
Heritage Graphics, Inc. ...................... (1) Texas
Precision Litho, Inc. ........................ (1) Texas
Tulsa Litho Company .......................... (1) Oklahoma
(1) Printing Operations
(2) Other
(3) Inactive
<PAGE>
EXHIBIT "2.8"
SUBSIDIARIES
(Continued)
OWNERSHIP OPTIONS, WARRANTS
NAME NUMBER/% SUBSCRIPTS, ETC.
- ----------------------------------------- --------- ------
Western Lithograph Company ................... 100% None
Grover Printing Company ...................... 100% None
Tewell Warren Printing Company ............... 100% None
Consolidated Graphics Properties II, Inc. .... 100% None
Chas. P. Young Company ....................... 100% None
Gulf Printing Company ........................ 100% None
Consolidated Graphics Properties, Inc. ....... 100% None
Superb Printing Company ...................... 100% None
Gritz Ritter Graphics, Inc. .................. 100% None
The Jarvis Press, Inc. ....................... 100% None
Frederic Printing Company .................... 100% None
Consolidated Graphics Management, Inc. ....... 100% None
Chas P. Young Company, Inc. .................. 100% None
Clear Visions, Inc. .......................... 100% None
Bridgetown Printing Co. ...................... 100% None
Consolidated Eagle Press, Inc. ............... 100% None
Emerald City Graphics, Inc. .................. 100% None
Garner Printing Company ...................... 100% None
Heritage Graphics, Inc. ...................... 100% None
Precision Litho, Inc. ........................ 100% None
Tulsa Litho Company .......................... 100% None
<PAGE>
EXHIBIT "3.8"
CERTIFICATE OF COMPLIANCE
In accordance with Section 3.8 of the Amended and Restated Loan
Agreement ("Loan Agreement") dated November 7, 1994, as amended, between
NATIONSBANK OF TEXAS, N.A. ("Lender") and CONSOLIDATED GRAPHICS, INC., a Texas
corporation ("Borrower"), I, ,
of the Borrower do hereby certify that the following is
true and correct as of , 19 .
-------------- ----
1. To the best of my knowledge and belief, no Default or Event of
Default has occurred and is continuing under the Loan Agreement.
2. That the Borrower's financial condition for the quarter ending
is as follows:
FINANCIAL REQUIRED RATIO/ ACTUAL RATIO/
COVENANT AMOUNT AMOUNT
- -------- ------ ------
Funded Debt/EBITDA Ratio 3.0 to 1.0
Net Worth [Per loan Agreement]
Fixed Charge Ratio 1.25 to 1.0
COLLATERAL LOCATION (ONLY APPLICABLE PER SECTION 3.10):
All inventory of Borrower and the Guarantors is located in Texas except
for inventory of:
Inventory
COMPANY LOCATION
------- --------
Tewell Warner Printing Company Colorado
Gritz-Ritter Graphics, Inc. Colorado
Frederic Printing Company Colorado
Consolidated Eagle Press, Inc. California
Emerald City Graphics, Inc. Washington
Garner Printing Company Iowa
Bridgetown Printing Co. Oregon
Heritage Graphics, Inc. Arizona
Precision Litho, Inc. California
The foregoing terms are used as defined in the Loan Agreement.
----------------------------------
(Signature of Certifying Officer)
<PAGE>
EXHIBIT "3.11"
BORROWING BASE REPORT
FORM OF
BORROWING BASE CERTIFICATE
NO. ____________________ Dated ____________, 19_______
In accordance with a loan agreement dated November 7, 1994 (as amended
"Loan Agreement") between NATIONSBANK OF TEXAS, N.A. ("Lender") and CONSOLIDATED
GRAPHICS, INC. ("Borrower"), I, ____________________________ of the Borrower
hereby certify and warrant that the following schedule accurately states
Borrower's and the Guarantors' Eligible Accounts Receivables and Inventory and
Borrower's Borrowing Base as of the date hereof and that no Default or Event of
Default under the Loan Agreement has occurred and is continuing:
<TABLE>
<CAPTION>
<S> <C> <C>
1. Total Accounts Receivable Control as of ______________________ $___________
2. Less: (A) Accounts 120 days from date of Invoice$_____________
(B) Affiliate Accounts $_____________
(C) Intercompany Accounts $_____________
(D) Disputed Accounts $_____________
(E) Bankrupt/Financially Distressed $_____________
(F) Foreign (No L/C) $_____________
3. ELIGIBLE Accounts Receivable [Line 1 minus Line 2] $____________
4. ELIGIBLE Accounts Receivable - Public/Governmental
(A) ELIGIBLE Accounts from "A" Rated
Public Companies $_____________
(B) ELIGIBLE Accounts from
U.S. Government $_____________
5. ELIGIBLE Accounts Receivable - Public/Governmental
[Line 4(A) plus Line 4(B) $____________
6. 90% of Line 5 $____________
7. Other ELIGIBLE Accounts Receivable
[Line 3 minus Line 5] $____________
8. 80% of Line 7 $____________
9. Total Account Receivable Borrowing Base [Line 6 plus Line 8] $____________
10. Unopened Paper and Ink Inventory $____________
11. 60% of Line 10 $____________
12. Opened Paper, Ink and Other Inventory $____________
13. 40% of Line 12 $____________
14. Work-In-Process at Cost $____________
15. 50% of Line 14 $____________
16. Total Inventory Borrowing Base [Line 11 plus Line 13 plus Line 15]$____________
17. Preliminary Borrowing Base [Line 9 plus Line 16] $____________
18. 40% of Line 17 $____________
19. Lesser of Line 16 and Line 18 $____________
20. Borrowing Base [Line 9 plus Line 19] $____________
21. Loan Balance this report $____________
22. Excess of Line 20 over line 21 $____________
</TABLE>
--------------------------------------
Signature of Certifying Officer
Title:________________________________
EXHIBIT 10.2
REVOLVING PROMISSORY NOTE
-------------------------
$35,000,000.00 October ___, 1996
FOR VALUE RECEIVED, after date, without grace, in the manner, on the
dates and in the amounts so herein stipulated, the undersigned, CONSOLIDATED
GRAPHICS, INC. acting by and through its duly authorized officer, ("Borrower"),
PROMISES TO PAY TO THE ORDER OF NATIONSBANK OF TEXAS, N.A. ("Lender"), in
Houston, Harris County, Texas, the sum of THIRTY-FIVE MILLION AND NO/100 DOLLARS
($35,000,000.00) or, if less, the aggregate unpaid principal amount of advances
made by Lender to Borrower pursuant to this Note, in lawful money of the United
States of America, which shall be legal tender in payment of all debts and dues,
public and private, at the time of payment, and to pay interest on the unpaid
principal amount from date until maturity at a rate equal to the Stated Rate (as
hereinafter defined), not to exceed the maximum non-usurious interest rate
permitted by applicable law from time to time in effect as such law may be
interpreted, amended, revised, supplemented or enacted ("Maximum Rate"),
provided that if at any time the Stated Rate exceeds the Maximum Rate then
interest hereon shall accrue at the Maximum Rate. In the event the Stated Rate
subsequently decreases to a level which would be less than the Maximum Rate or
if the Maximum Rate applicable to this Note should subsequently be changed, then
interest hereon shall accrue at a rate equal to the applicable Maximum Rate
until the aggregate amount of interest so accrued equals the aggregate amount of
interest which would have accrued at the Stated Rate without regard to any usury
limit, at which time interest hereon shall again accrue at the Stated Rate. As
used herein, the Stated Rate shall mean, in the absence of Borrower's exercise
of a LIBOR Option (as defined in the Loan Agreement), the applicable Prime Rate
as set forth in the column entitled "Interest Rate Options" in the following
paragraph.
In the event the Borrower exercises its right to select LIBOR (as
defined in the Loan Agreement), (i) such selection shall be in accordance with
the provisions of the Loan Agreement and (ii) the Stated Rate as to the LIBOR
Portion (as defined in the Loan Agreement) shall be as follows:
Applicable Funded Debt/ Interest Rate
EBITDA RATIO OPTIONS
------------ -------
Less than or equal to LIBOR + .625% or
.75 to 1.0 Prime Rate
Greater than .75 to LIBOR + .875% or
1.0 but less than or Prime Rate
equal to 1.5 to 1.0
- --------
Initials
<PAGE>
Greater than 1.5 LIBOR + 1.25% or
to 1.0 but less than Prime Rate
or equal to 2.0 to 1.0
Greater than 2.0 LIBOR + 1.50% or
to 1.0 but less than Prime Rate + .25%
or equal to 2.5 to 1.0
Greater than 2.5 LIBOR + 1.75% or
to 1.0 Prime Rate + .25%
The adjustment in the applicable Stated Rate of this Note shall be effective
either (i) the first of the month following receipt of quarterly financial
statements pursuant to Section 3.1 and Compliance Certificate pursuant to
Section 3.8 of the Loan Agreement indicating the Funded Debt to EBITDA Ratio (as
such terms are defined in the Loan Agreement) or (ii) upon an Interim Rate
Determination Date as such term is defined in the Loan Agreement, based upon the
ratio so redetermined.
Interest shall be due and payable monthly as it accrues on the
first day of each and every month, beginning November 1, 1996, and
continuing regularly thereafter until October 31, 1998, when the entire
balance of principal and accrued interest shall be due and payable.
This Note is the Revolving Note referred to in, is subject to,
and is entitled to the benefits of, the Amended and Restated Loan Agreement
dated November 7, 1994, between Borrower and Lender, as amended by that certain
First Amendment to Loan Agreement dated August 23, 1995, as that Amended and
Restated Loan Agreement may be further amended, modified or supplemented from
time to time (as amended, the "Loan Agreement"). The Loan Agreement contains,
among other things, provisions for the acceleration of the maturity hereof upon
the occurrence of certain stated events. All capitalized terms used herein which
are defined in the Loan Agreement shall have the same meaning as in the Loan
Agreement.
It is agreed that time is of the essence of this agreement. Upon the
occurrence of an Event of Default, Lender may accelerate and declare this Note
immediately due and payable as provided in the Loan Agreement. Any failure to
exercise this option shall not constitute a waiver by Lender of the right to
exercise the same at any other time.
Upon the occurrence of an Event of Default under Section 5.1(a) of the
Loan Agreement or in the event this Note is declared due interest shall accrue
at the lesser of (i) the Prime Rate plus two percent (2%) per annum or (ii) the
Maximum Rate.
Borrower hereby agrees to pay all expenses incurred, including
reasonable attorneys' fees, all of which shall become a part of the
- --------
Initials
-2-
<PAGE>
principal hereof, if this Note is placed in the hands of an attorney for
collection or if collected by suit or through any probate, bankruptcy or any
other legal proceedings.
Interest charges will be calculated on amounts advanced hereunder on the
actual number of days these amounts are outstanding on the basis of a 365 or
366-day year, as is applicable. It is the intention of the parties hereto to
comply with all applicable usury laws; accordingly, it is agreed that
notwithstanding any provision to the contrary in this Note, or in any of the
documents securing payment hereof or otherwise relating hereto, no such
provision shall require the payment or permit the collection of interest in
excess of the Maximum Rate. If any excess of interest in such respect is
provided for, or shall be adjudicated to be so provided for, in this Note or in
any of the documents securing payment hereof or otherwise relating hereto, then
in such event (1) the provisions of this paragraph shall govern and control, (2)
neither Borrower, endorsers or guarantors, nor their heirs, legal
representatives, successors or assigns nor any other party liable for the
payment hereof, shall be obligated to pay the amount of such interest to the
extent that it is in excess of the Maximum Rate, (3) any such excess which may
have been collected shall be either applied as a credit against the then unpaid
principal amount hereof or refunded to Borrower, and (4) the provisions of this
Note and any documents securing payment of this Note shall be automatically
reformed so that the effective rate of interest shall be reduced to the Maximum
Rate. For the purpose of determining the Maximum Rate, all interest payments
with respect to this Note shall be amortized, prorated and spread throughout the
full term of the Note so that the effective rate of interest on account of this
Note is uniform throughout the term hereof.
Borrower agrees that the Maximum Rate to be charged or
collected pursuant to this Note shall be the applicable indicated
rate ceiling as defined in TEX. REV. CIV. STAT. ANN. Art. 5069-
1.04, provided that Lender may rely on other applicable laws,
including without limitation laws of the United States, for
calculation of the Maximum Rate if the application thereof results
in a greater Maximum Rate. Except as provided above, the provi-
sions of this Note shall be governed by the laws of the State of
Texas.
Each maker, surety, guarantor and endorser (i) waives demand, grace,
notice, presentment for payment, notice of intention to accelerate the maturity
hereof, notice of acceleration of the maturity hereof and protest, (ii) agrees
that this Note and the liens securing its payment may be renewed, and the time
of payment extended from time to time, without notice and without releasing any
of the foregoing, and (iii) agrees that without notice or consent from any
maker, surety, guarantor, or endorser, Lender may release any collateral which
may from time to time be pledged to secure repayment of this Note, or may
release any party who might be liable for this Note.
- --------
Initials
-3-
<PAGE>
Subject to the provisions of the Loan Agreement, Borrower may prepay
this Note, in whole or in part, at any time prior to maturity without penalty,
and interest shall cease on any amount prepaid.
As used in this Note, the term "Prime Rate" shall mean the variable rate
of interest announced by Lender from time to time as its prime rate of interest
and, without notice to the maker of this Note or any other person, such rate of
interest shall change as and when changes in that prime rate of interest are
announced. The Prime Rate is set by Lender as a general reference rate of
interest, taking into account such factors as Lender may deem appropriate, it
being understood that many of Lender's commercial or other loans are priced in
relation to such rate, that it is not necessarily the lowest or best rate of
interest actually charged on any loan, and that Lender may make various
commercial or other loans at rates of interest having no relationship to the
Prime Rate. If at any time the "Prime Rate" of NationsBank of Texas, N.A. is no
longer available, then the owner of this Note ("Owner") will designate a
different "Prime Rate" as announced by a national banking association of Owner's
choice.
The principal of this Note represents funds which Lender will
advance to Borrower from time to time upon request of Borrower.
Any part of the principal may be repaid by Borrower and thereafter
reborrowed, provided the outstanding principal amount of this Note
shall never exceed the face amount of this Note. Each advance
shall constitute a part of the principal hereof and shall bear
interest from the date of the advance. The provisions of TEX. REV.
CIV. STAT. ANN. Art. 5069-15.01, ET SEQ, as may be amended, shall
not apply to this Note or to any of the security documents executed
in connection with this Note.
Borrower represents and warrants that this loan is for business,
commercial, investment or similar purposes and not primarily for personal,
family, household or agricultural use, as such terms are used in Chapter One of
the Texas Credit Code.
CONSOLIDATED GRAPHICS, INC.
By: /s/ JOE R. DAVIS
Joe R. Davis
Chief Executive Officer
"BORROWER"
-4-
EXHIBIT 10.3
THIRD AMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT to Loan Agreement ("Third Amendment") is made and
entered into as of the 29th day of October, 1996, by and between CONSOLIDATED
GRAPHICS, INC., a Texas corporation, with offices and place of business at 2210
West Dallas, Houston, Texas 77019 (hereinafter called "Borrower") and
NATIONSBANK OF TEXAS, N.A., a national banking association, with offices and
banking quarters at 700 Louisiana, Houston, Texas 77002 (hereinafter called
"Lender"). For and in consideration of the mutual covenants and agreements
herein contained, Borrower and Lender hereby amend as of the date of this Third
Amendment that certain Amended and Restated Loan Agreement between Borrower and
Lender dated the 7th day of November, 1994, as previously amended by the First
Amendment to Loan Agreement dated August 23, 1995 and by the Second Amendment to
Loan Agreement dated October 21, 1996 (as amended, the "Loan Agreement"), in the
following respects:
Section 1. AMENDMENTS TO LOAN AGREEMENT.
A. Section 1.3(a) and (b) are deleted and the following are
substituted in their place:
1.3 REVOLVING LINE OF CREDIT. (a) The Lender, during the period
from the date of the Second Amendment to Loan Agreement until October
31, 1998, subject to the terms and conditions of this Agreement, and
subject to the condition that at the time of each borrowing hereunder,
no Default or Event of Default has occurred and is then continuing to
occur and, as to each borrowing which increases the principal amount
outstanding under the Revolving Note, that the representations and
warranties given by the Borrower in Section 2 as of the date of this
Agreement shall remain true and correct in all material respects (unless
such representation and warranty relates to an earlier date), agrees to
make
<PAGE>
loans to Borrower pursuant to a Revolving Line of Credit up to but not
in excess of an aggregate principal amount outstanding at any time of
$35,000,000.00 on the same Business Day upon receipt from Borrower on or
before 1:00 p.m. Houston time of written applications for loans
hereunder in the form attached as Exhibit "1.3.1". Each advance shall be
in an amount of not less than $50,000.00. Letters of credit may be
issued pursuant to the Revolving Line of Credit provided that (i) the
aggregate face amount of outstanding letters of credit shall not exceed
$5,000,000 and (ii) the availability under the Revolving Line of Credit
will be reduced by an amount equal to the aggregate face amount of
outstanding letters of credit. Any letters of credit issued hereunder
will have expiry dates not exceeding November 30, 1998.
(b) The Borrower's obligation to repay the Revolving Line of
Credit shall be evidenced by a promissory note of the Borrower in
substantially the form attached as Exhibit "1.3.2" to the Second
Amendment to Loan Agreement, payable to the order of Lender. The
Revolving Note shall bear interest at the rates indicated below, but in
no event to exceed the maximum non-usurious interest rate permitted by
applicable law with the balance of principal plus accrued and unpaid
interest due and payable on or before October 31, 1998.
Applicable Interest Fees
Funded Debt/ Rate Unused Letters
Ebitda Ratio Options Portion of Credit
------------ ------- ------- ---------
Less than or LIBOR + .625% or
equal to .75 Prime Rate .10% .625%
Greater than .75 LIBOR + .875% or .175% .875%
to 1.0 but less Prime Rate
than or equal to
1.5 to 1.0
Greater than 1.5 LIBOR + 1.25% or .25% 1.25%
to 1.0 but less Prime Rate
than or equal to
2.0 to 1.0
Greater than 2.0 LIBOR + 1.50% or .375% 1.50%
to 1.0 but less Prime Rate + .25%
than or equal to
2.5 to 1.0
Greater than 2.5 LIBOR + 1.75% or .50% 1.75%
to 2.5 to 1.0 Prime Rate + .25%
-2-
<PAGE>
The adjustment in the interest rate options on the Revolving Note and
the fees charged pursuant to this Agreement shall be effective on (i)
the first of the month following receipt of a quarterly financial
statement and Compliance Certificate pursuant to Section 3.8 indicating
the Funded Debt to EBITDA Ratio, and no Default or Event of Default
exists, as more fully set forth in the Revolving Note and (ii) on an
Interim Rate Determination Date. As used herein, "Interim Rate
Determination Date" shall mean the effective date of the consummation of
a merger and acquisition either (i) requiring the approval of Lender
under the terms of this Agreement, or (ii) which does not require the
approval of Lender but as to which Borrower desires to add historical
EBITDA for the purposes of calculating compliance with financial
covenants hereunder. In such event Borrower shall deliver within sixty
(60) days following consummation of such merger or acquisition an
interim redetermination of the Funded Debt to EBITDA Ratio based upon
proforma financial statements which reflect such merger or acquisition,
which redetermination and the calculation related thereto shall be
subject to review and approval by Lender. The applicable interest rate
options on the Revolving Note and the fees charged pursuant to this
Agreement shall be adjusted effective as of the Interim Rate
Determination Date based upon such approved interim redetermination.
B. Section 3.11 is deleted and the following is substituted
in its place:
3.11 BORROWING BASE. During any period the Revolving Line of
Credit is required to be secured pursuant to Section 3.10, the aggregate
indebtedness pursuant to the Revolving Line of Credit plus the amount of
any unexpired letters of credit shall never exceed the sum of (i) ninety
percent (90%) of the Eligible Accounts Receivable of (y) corporations
whose securities are publicly traded with debt ratings of "A" or better
as determined by Lender based upon Moody's or Standard & Poor's
classification and (z) the United States government and any agency
thereof; plus (ii) eighty percent (80%) of other Eligible Accounts
Receivable; plus (iii) (y) sixty percent (60%) of the book value of
unopened inventory plus (z) forty percent (40%) of book value of other
inventory, provided inventory shall not include work-in-process and (iv)
fifty percent (50%) of work-in-process, provided that the amount
determined under this subsection (iii) shall never exceed forty percent
(40%) of the Borrowing Base. In accordance with Section 3.1(d), Borrower
shall provide
-3-
<PAGE>
the Lender a calculation of the foregoing Borrowing Base in the form
attached as Exhibit "3.11" ("Borrowing Base Report"). In the event the
aggregate unpaid principal balance under the Revolving Line of Credit
plus the amount of any unexpired letters of credit exceeds the Borrowing
Base calculated as described above, the Borrower will promptly, but in
any event no later than within five (5) Business Days (no additional
notice or cure period being required prior to such failure becoming an
Event of Default hereunder), reduce the unpaid principal balance under
the Revolving Line of Credit until the amount owed is less than that
calculated as described above. In the event such required payment
involves a LIBOR Portion, such amount shall be prepaid without premium
or restriction.
Section 2. RATIFICATION.
Except as amended hereby, the Loan Agreement shall remain unchanged and
the terms, conditions, representations, warranties, and covenants of said Loan
Agreement, are true as of the date hereof (unless such representations and
warranties relate to an earlier date), are ratified and confirmed in all
respects and shall be continuing and binding upon the parties.
Section 3. DEFINED TERMS.
All terms used in this Amendment which are defined in the Loan Agreement
shall have the same meaning as in the Loan Agreement, except as otherwise
indicated in this Amendment.
Section 4. MULTIPLE COUNTERPARTS.
This Amendment may be executed by the parties hereto in several separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
-4-
<PAGE>
Section 5. APPLICABLE LAW.
This Amendment shall be deemed to be a contract under and subject to,
and shall be construed for all purposes in accordance with the laws of the State
of Texas.
Section 6. FINAL AGREEMENT.
THE WRITTEN LOAN AGREEMENTS IN CONNECTION WITH THIS THIRD AMENDMENT
REPRESENT THE FINAL AGREEMENT BETWEEN THE BORROWER AND THE LENDER AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE BORROWER AND THE LENDER. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE LENDER AND THE BORROWER.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized officers as of the 29th day of October, 1996.
CONSOLIDATED GRAPHICS, INC.
By:/s/ JOE R. DAVIS
Joe R. Davis
Chief Executive Officer
NATIONSBANK OF TEXAS, N.A.
By: /s/ JAMES D. RECER
James D. Recer
Vice President
-5-
<PAGE>
EXHIBIT "3.11"
BORROWING BASE REPORT
FORM OF
BORROWING BASE CERTIFICATE
NO. ____________________ Dated ____________, 19_______
In accordance with a loan agreement dated November 7, 1994 (as amended
"Loan Agreement") between NATIONSBANK OF TEXAS, N.A. ("Lender") and CONSOLIDATED
GRAPHICS, INC. ("Borrower"), I, ____________________________ of the Borrower
hereby certify and warrant that the following schedule accurately states
Borrower's and the Guarantors' Eligible Accounts Receivables and Inventory and
Borrower's Borrowing Base as of the date hereof and that no Default or Event of
Default under the Loan Agreement has occurred and is continuing:
<TABLE>
<CAPTION>
<S> <C> <C>
1. Total Accounts Receivable Control as of ______________________ $___________
2. Less: (A) Accounts 120 days from date of Invoice$_____________
(B) Affiliate Accounts $_____________
(C) Intercompany Accounts $_____________
(D) Disputed Accounts $_____________
(E) Bankrupt/Financially Distressed $_____________
(F) Foreign (No L/C) $_____________
3. ELIGIBLE Accounts Receivable [Line 1 minus Line 2] $____________
4. ELIGIBLE Accounts Receivable - Public/Governmental
(A) ELIGIBLE Accounts from "A" Rated
Public Companies $_____________
(B) ELIGIBLE Accounts from
U.S. Government $_____________
5. ELIGIBLE Accounts Receivable - Public/Governmental
[Line 4(A) plus Line 4(B) $____________
6. 90% of Line 5 $____________
7. Other ELIGIBLE Accounts Receivable
[Line 3 minus Line 5] $____________
8. 80% of Line 7 $____________
9. Total Account Receivable Borrowing Base [Line 6 plus Line 8] $____________
10. Unopened Paper and Ink Inventory $____________
11. 60% of Line 10 $____________
12. Opened Paper, Ink and Other Inventory $____________
13. 40% of Line 12 $____________
14. Work-In-Process at Cost $____________
15. 50% of Line 14 $____________
16. Total Inventory Borrowing Base [Line 11 plus Line 13 plus Line 15]$____________
17. Preliminary Borrowing Base [Line 9 plus Line 16] $____________
18. 40% of Line 17 $____________
19. Lesser of Line 16 and Line 18 $____________
20. Borrowing Base [Line 9 plus Line 19] $____________
21. Loan Balance this report $____________
22. Outstanding Letters of Credit $____________
23. Excess of Line 20 over Line 21 plus Line 22 $____________
</TABLE>
--------------------------------------
Signature of Certifying Officer
Title:________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED GRAPHICS SEPTEMBER 30, 1996, FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,118
<SECURITIES> 0
<RECEIVABLES> 26,369
<ALLOWANCES> (1,095)
<INVENTORY> 7,666
<CURRENT-ASSETS> 35,953
<PP&E> 87,118
<DEPRECIATION> (14,325)
<TOTAL-ASSETS> 114,822
<CURRENT-LIABILITIES> 15,811
<BONDS> 0
0
0
<COMMON> 61
<OTHER-SE> 58,233
<TOTAL-LIABILITY-AND-EQUITY> 114,822
<SALES> 34,451
<TOTAL-REVENUES> 34,451
<CGS> 23,864
<TOTAL-COSTS> 23,864
<OTHER-EXPENSES> 6,132
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 595
<INCOME-PRETAX> 3,860
<INCOME-TAX> 1,428
<INCOME-CONTINUING> 2,432
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,432
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
