1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended June 30, 2001
Commission File No. 333-51569
PARAGON CORPORATE HOLDINGS INC.
-------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 34-1845312
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
CO-REGISTRANTS AND SUBSIDIARY GUARANTORS
A.B.Dick Company Delaware 04-3892065
CI, Inc. Delaware 13-3583725
Itek Graphix Corp. Delaware 04-2893064
Curtis Sub, Inc. Delaware 34-1737529
Paragon Corporate Holdings Inc. A.B.Dick Company CI, Inc.
7400 Caldwell Avenue 7400 Caldwell Avenue 6140 Parkland Boulevard
Niles, Illinois 60714 Niles, Illinois 60714 Mayfield Heights, Ohio 44124
(847) 779-2500 (847) 779-1900 (440) 446-9700
Itek Graphix Corp. Curtis Sub, Inc.
7400 Caldwell Avenue 6140 Parkland Boulevard
Niles, Illinois 60714 Mayfield Heights, Ohio 44124
(847) 779-1900 (440) 446-9700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ( X ) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practical date.
As of August 14, 2001, there were 4,200,000 shares of the registrant's common
stock outstanding.
2
INDEX
PARAGON CORPORATE HOLDINGS INC.
Page
Number
------------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited) 1
Condensed Consolidated Balance Sheets 2
June 30, 2001 and December 31, 2000
Condensed Consolidated Statements of Operations 3
Three and Six Months ended June 30, 2001 and 2000
Condensed Consolidated Statements of Cash Flows 4
Six Months ended June 30, 2001 and 2000
Notes to Condensed Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial 14
Condition and Results of Operations
Item 3 Quantitative and Qualitative Disclosures About Market Risk 18
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 20
I
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
-1-
4
Paragon Corporate Holdings Inc.
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
June 30, December 31,
2001 2000
--------- ------------
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents $ 51,665 $ 56,914
Accounts receivable 31,781 33,895
Inventories 36,864 43,794
Deferred income taxes 3,085 3,602
Other current assets 1,440 2,321
--------- ---------
Total current assets 124,835 140,526
Property, plant and equipment, net 9,403 10,826
Goodwill, net 34,433 35,088
Other assets 3,730 3,984
--------- ---------
$ 172,401 $ 190,424
========= =========
Liabilities and Stockholders' Equity (Deficit):
Current liabilities:
Revolving credit facility $ 31,535 $ 25,534
Accounts payable 22,060 28,671
Accrued compensation 4,953 5,194
Accrued interest 2,767 3,010
Accrued other 10,508 13,036
Deferred service revenue 14,145 16,017
Due to GEC 817 817
Current portion of long-term debt
and capital lease obligations 834 1,010
--------- ---------
Total current liabilities 87,619 93,289
Senior notes 115,000 115,000
Other long-term debt and capital lease
obligations, less current portion 1,204 1,554
Retirement obligations 7,964 7,825
Deferred income taxes 3,085 3,602
Other long-term liabilities 5,547 6,204
Stockholders' equity (deficit):
Common stock, $0.01 par value, authorized 5,000,000
shares; issued and outstanding 4,200,000 shares 42 42
Paid-in capital 106 106
Shareholder note (100) (100)
Retained earnings (deficit) (46,530) (35,916)
Accumulated other comprehensive loss (1,536) (1,182)
--------- ---------
Total stockholders' equity (deficit) (48,018) (37,050)
--------- ---------
$ 172,401 $ 190,424
========= =========
See notes to condensed consolidated financial statements
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5
Paragon Corporate Holdings Inc.
Condensed Consolidated Statements of Operations
(In Thousands)
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
Net revenue $ 54,934 $ 62,205 $ 110,541 $ 119,803
Cost of revenue 41,420 45,779 83,857 89,332
--------- --------- --------- ---------
Gross profit 13,514 16,426 26,684 30,471
COSTS AND EXPENSES:
Sales and marketing expenses 6,171 7,166 12,687 13,628
General and administrative expenses 6,514 8,009 13,123 14,990
Research and development 893 731 1,854 1,625
Depreciation and amortization 1,675 1,338 3,077 2,468
Management fee -- (12) -- 80
Acquisition, relocation and severance costs 304 588 627 1,069
--------- --------- --------- ---------
15,557 17,820 31,368 33,860
--------- --------- --------- ---------
Operating loss (2,043) (1,394) (4,684) (3,389)
Interest income 574 136 1,305 184
Interest expense (3,466) (3,614) (6,911) (7,071)
Other income (expense) (167) 6 (306) (263)
--------- --------- --------- ---------
Loss from continuing operations before income taxes (5,102) (4,866) (10,596) (10,539)
Income tax expense 12 94 18 100
--------- --------- --------- ---------
Loss from continuing operations (5,114) (4,960) (10,614) (10,639)
Discontinued operations (Note D):
Income from discontinued operations, net of
income taxes ($0, $10, $0, $10, respectively) -- 49 -- 954
Gain on disposal of discontinued operations -- 10,260 -- 10,260
--------- --------- --------- ---------
-- 10,309 -- 11,214
Net income (loss) $ (5,114) $ 5,349 $ (10,614) $ 575
========= ========= ========= =========
See notes to condensed consolidated financial statements.
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6
Paragon Corporate Holdings Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Six Months Ended
-----------------------------
June 30, 2001 June 30, 2000
------------- -------------
(Unaudited)
Operating activities:
Net loss $(10,614) $ 575
Adjustments to reconcile net loss
to net cash used in operating activities:
Gain on sale of business -- (10,260)
Provision for depreciation and amortization 3,077 4,070
Amortization of deferred financing costs 258 258
Changes in operating assets and liabilities (2,976) (7,025)
-------- --------
Net cash used in operating activities (10,255) (12,382)
Investing activities:
Acquisition of business, net of cash acquired -- (4,603)
Purchases of property, plant and equipment (626) (1,285)
Proceeds from sale of property, plant and equipment 53 --
Decrease in short-term investments -- 3,610
Proceeds from sale of business, net -- 60,492
-------- --------
Net cash (used in) provided by investing activities (573) 58,214
Financing activities:
Borrowings on revolving credit facility 6,000 15,637
Payment of debt assumed in acquisition -- (7,383)
Decrease in amounts due to GEC -- (35)
Principal payments on long-term borrowings (517) (984)
Distribution for taxes -- (4,500)
-------- --------
Net cash provided by financing activities 5,483 2,735
Effect of exchange rate changes on cash 96 (176)
-------- --------
Increase (decrease) in cash and cash equivalents (5,249) 48,391
Cash and cash equivalents at beginning of period 56,914 15,341
-------- --------
Cash and cash equivalents at end of period $ 51,665 $ 63,732
======== ========
See notes to condensed consolidated financial statements.
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7
Paragon Corporate Holdings Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In Thousands)
A. ORGANIZATION
Paragon Corporate Holdings Inc. (hereinafter referred to as the "Company") is a
Delaware holding company organized in September 1996. The Company has no
independent operations or investments other than its investments in its
subsidiaries, except that the Company has temporarily invested, at the holding
company level, the residual proceeds from the Senior Notes issued during 1998
and the net proceeds from the sale of its Curtis Industries Inc. ("Curtis")
subsidiary sold in 2000. As of June 30, 2001, N.E.S. Investment Co. owns 83% of
the Company.
B. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. 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 and six month periods ended June
30, 2001 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001. For further information, refer to the
consolidated financial statements and footnotes of Paragon Corporate Holdings
Inc. set forth in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
C. ACQUISITION
On January 27, 2000, the Company completed the acquisition of all the
outstanding common stock of Multigraphics, Inc., a supplier of high quality
pre-press, press and post-press equipment, supplies, and technical services to
the printing industry. Pursuant to the Merger Agreement, the Company paid $1.25
in cash per share ($3.6 million) and assumed $7.4 million of outstanding debt of
Multigraphics which was refinanced by the Company at the date of acquisition.
The aggregate purchase price was $12.5 million including expenses of the
transaction. The excess of purchase price over net assets acquired has been
assigned a value of approximately $36.1 million and is being amortized over
thirty years.
In connection with the acquisition of Multigraphics, the Company anticipated
that it would incur restructuring costs of approximately $2.2 million comprised
primarily of employee termination and relocation costs. Since the acquisition,
the Company incurred and paid $2.4 million of these costs, which represents
substantially all of the costs to complete the integration. Employee termination
costs and contractual obligations pertaining to the integration of Multigraphics
that qualified under EITF 95-3, Recognition of Liabilities in Connection with a
Purchase Business Combination, and thus included in the purchase price
allocation, amounted to $4.5 million. Since the acquisition, amounts paid and
charged against this liability were $2.0 million in 2000 and $0.6 million in
2001.
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D. DISCONTINUED OPERATIONS
On April 27, 2000, the Company entered into a definitive agreement to sell
substantially all of the assets and related liabilities of its wholly-owned
subsidiary, Curtis, which comprised entirely the Company's automotive and
industrial supplies segment. The transaction closed on May 10, 2000 and the
Company received proceeds of $61.0 million resulting in a $10.3 million gain
which was recognized in the second quarter of 2000.
The disposition of Curtis represents the disposal of a segment of a business
under APB Opinion No. 30. Accordingly, the consolidated statements of operations
reflect the results of Curtis as a discontinued operation. Net revenues of
Curtis were $6.5 million and $27.7 million, respectively, for the three-month
and six-month periods ended June 30, 2000.
E. 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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) are as follows:
Three Months Ended Six Months Ended
------------------------- ------------------------
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
-------- -------- -------- --------
Net income (loss) $ (5,114) $ 5,349 $(10,614) $ 575
Foreign currency translation adjustment 202 (274) (354) (241)
-------- -------- -------- --------
Comprehensive income/(loss) $ (4,912) $ 5,075 $(10,968) $ 334
======== ======== ======== ========
G. FINANCING ARRANGEMENTS
The carrying amount of cash and cash equivalents, trade receivables and payables
approximates fair value because of the short maturity of these instruments. The
carrying amount of the revolving credit facility approximates fair value. The
carrying amount of the senior notes exceeds its fair value at June 30, 2001 by
$67.9 million. The fair value has been determined using the market price of the
related securities at June 30, 2001.
The Company's senior notes require semi-annual interest payments on October 1
and April 1 in arrears. On July 3, 2001, the Company commenced an offer (the
"Exchange Offer") to exchange a payment of cash and the issuance of new
promissory notes (the "Promissory Notes") of the Company and A.B.Dick Company
("A.B.Dick"), for all of its outstanding senior notes, which are currently
outstanding in an aggregate principal amount of $115 million. The Exchange Offer
expires on August 14, 2001. As of August 13, 2001, noteholders representing
approximately 95% of the outstanding senior notes tendered or consented.
At June 30, 2001, the Company was in violation of certain financial covenants
under the terms of the Credit Agreement for which it has received waivers
through June 30, 2001.
H. INVENTORIES
Domestic inventories, which represent approximately 76% of total consolidated
inventory, are determined on the last-in, first-
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out (LIFO) basis and foreign inventories are determined on the first-in,
first-out (FIFO) basis. Where necessary, reserves are provided to value
inventory at the lower of cost or market.
Inventories are summarized as follows:
June 30, December 31,
2001 2000
-------- ------------
Raw materials and work in process $ 7,892 $ 8,678
Finished goods 31,048 36,654
LIFO reserve (2,076) (1,538)
-------- --------
$ 36,864 $ 43,794
======== ========
I. INCOME TAXES
On March 14, 2000, A.B.Dick, a wholly-owned subsidiary of the Company, elected C
Corporation status for United States income tax purposes effective January 1,
2000. Accordingly, as of January 1, 2000, A.B.Dick recognized its existing
deferred income taxes. On July 14, 2000, the Company elected C Corporation
status for United States income tax purposes effective May 12, 2000. The Company
did not have any deferred income taxes. Prior to these elections, the Company
and its wholly-owned subsidiary, A.B.Dick, were treated as Subchapter S
Corporations for United States income tax purposes. The Company has subsidiaries
located in the United Kingdom, Canada, Belgium and the Netherlands which are
subject to income taxes in their respective countries. For the three months
ended June 30, 2001 and 2000, the Company recorded foreign income tax expense of
$12 and $94 respectively, related to its foreign subsidiaries. For the six
months ended June 30, 2001 and 2000, the Company recorded foreign income tax
expense of $18 and $100 respectively, related to its foreign subsidiaries.
Where the Company has determined that it is more likely than not that the net
deferred tax assets will not be realized, a valuation allowance has been
established.
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J. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The Company's domestic operating subsidiaries, all of which are directly or
indirectly wholly owned, are the only guarantors of Senior Notes. The guarantees
are full, unconditional and joint and several. Separate financial statements of
these guarantor subsidiaries are not presented as management has determined that
they would not be material to investors.
The Company's foreign subsidiaries and Multigraphics LLC are not guarantors of
the Senior Notes. Summarized consolidating balance sheets as of June 30, 2001
and December 31, 2000 for the Company, the guarantor subsidiaries, and the
non-guarantor subsidiaries are as follows (in thousands):
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
--------- ------------ --------------- ------------ ---------
BALANCE SHEET DATA
(JUNE 30, 2001):
Current assets:
Cash and cash equivalents $ 150 $ 50,676 $ 839 $ -- $ 51,665
Accounts receivable, net -- 25,563 6,218 -- 31,781
Inventories -- 29,873 7,677 (686) 36,864
Other 125 3,578 822 -- 4,525
--------- --------- --------- --------- ---------
Total current assets 275 109,690 15,556 (686) 124,835
Property, plant and equipment, net -- 8,707 696 -- 9,403
Goodwill, net -- 34,433 -- -- 34,433
Investment in subsidiaries 93,088 17,426 -- (110,514) --
Other assets 3,393 337 -- -- 3,730
Intercompany -- 12,390 -- (12,390) --
--------- --------- --------- --------- ---------
$ 96,756 $ 182,983 $ 16,252 $(123,590) $ 172,401
========= ========= ========= ========= =========
Current liabilities:
Revolving credit facility $ 31,535 $ -- $ -- $ -- $ 31,535
Accounts payable -- 19,960 2,100 -- 22,060
Accrued expenses 2,806 10,640 4,782 -- 18,228
Deferred service revenue -- 13,235 910 -- 14,145
Due to GEC -- 817 -- -- 817
Current portion of long-term debt
and capital lease obligations -- 790 44 -- 834
Intercompany 4,101 7,679 610 (12,390) --
--------- --------- --------- --------- ---------
Total current liabilities 38,442 53,121 8,446 (12,390) 87,619
Senior Notes 115,000 -- -- -- 115,000
Other long-term debt and capital lease
obligations, less current portion -- 1,127 77 -- 1,204
Retirement obligations -- 4,056 3,908 -- 7,964
Other long-term liabilities -- 6,503 2,129 -- 8,632
Stockholder's equity (deficit) (56,686) 118,176 1,692 (111,200) (48,018)
--------- --------- --------- --------- ---------
$ 96,756 $ 182,983 $ 16,252 $(123,590) $ 172,401
========= ========= ========= ========= =========
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11
J. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES - CONTINUED
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
--------- ------------ -------------- ------------ ---------
BALANCE SHEET DATA
(DECEMBER 31, 2000):
Current assets:
Cash and cash equivalents $ 3,440 $ 52,719 $ 755 $ -- $ 56,914
Accounts receivable, net -- 27,990 5,905 -- 33,895
Inventories -- 35,946 8,569 (721) 43,794
Other 102 3,957 1,864 -- 5,923
--------- --------- --------- --------- ---------
Total current assets 3,542 120,612 17,093 (721) 140,526
Property, plant and equipment, net -- 9,904 922 -- 10,826
Goodwill -- 35,088 -- -- 35,088
Investment in subsidiaries 93,088 15,348 -- (108,436) --
Other assets 3,656 328 -- -- 3,984
Intercompany -- 10,267 -- (10,267) --
--------- --------- --------- --------- ---------
Total Assets $ 100,286 $ 191,547 $ 18,015 $(119,424) $ 190,424
========= ========= ========= ========= =========
Current liabilities:
Revolving credit facility $ 25,534 $ -- $ -- $ -- $ 25,534
Accounts payable -- 26,188 2,483 -- 28,671
Accrued expenses 3,093 11,848 6,299 -- 21,240
Deferred service revenue -- 15,197 820 -- 16,017
Due to GEC -- 817 -- -- 817
Current portion of long-term debt
and capital lease obligations -- 964 46 -- 1,010
Intercompany 4,991 3,787 1,489 (10,267) --
--------- --------- --------- --------- ---------
Total current liabilities 33,618 58,801 11,137 (10,267) 93,289
Senior notes 115,000 -- -- -- 115,000
Other long-term debt and capital lease
obligations, less current portion -- 1,445 109 -- 1,554
Retirement obligations -- 3,904 3,921 -- 7,825
Other long-term liabilities -- 7,588 2,218 -- 9,806
Stockholders' equity (deficit) (48,332) 119,809 630 (109,157) (37,050)
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 100,286 $ 191,547 $ 18,015 $(119,424) $ 190,424
========= ========= ========= ========= =========
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J. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES - CONTINUED
Summarized consolidating statements of operations for the three months ended
June 30, 2001 and 2000, respectively, for the Company, the guarantor
subsidiaries, and the non-guarantor subsidiaries are as follows (in thousands):
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
-------- ------------ -------------- ------------ --------
INCOME STATEMENT DATA:
(THREE MONTHS ENDED JUNE 30, 2001):
Net revenue $ -- $ 47,007 $ 8,655 $ (728) $ 54,934
Cost of revenue -- 35,441 6,707 (728) 41,420
-------- -------- -------- -------- --------
Gross profit -- 11,566 1,948 -- 13,514
Total operating expenses 722 12,390 2,445 -- 15,557
-------- -------- -------- -------- --------
Operating loss (722) (824) (497) -- (2,043)
Interest income (expense), net (3,420) 536 (8) -- (2,892)
Other expense (71) (60) (36) -- (167)
-------- -------- -------- -------- --------
Loss from continuing operations
before income taxes (4,213) (348) (541) -- (5,102)
Income tax expense -- 12 -- -- 12
-------- -------- -------- -------- --------
Net loss $ (4,213) $ (360) $ (541) $ -- $ (5,114)
======== ======== ======== ======== ========
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ -------------- ------------ --------
INCOME STATEMENT DATA:
(THREE MONTHS ENDED JUNE 30, 2000):
Net revenue $ -- $ 54,251 $ 8,742 $ (788) $ 62,205
Cost of revenue -- 40,122 6,445 (788) 45,779
-------- -------- -------- -------- --------
Gross profit -- 14,129 2,297 -- 16,426
Total operating expenses 878 14,020 2,899 23 17,820
-------- -------- -------- -------- --------
Operating income (loss) (878) 109 (602) (23) (1,394)
Interest income (expense), net (2,768) (725) 15 -- (3,478)
Other income (expense) (18) 26 (2) -- 6
-------- -------- -------- -------- --------
Loss from continuing operations
before income taxes (3,664) (590) (589) (23) (4,866)
Income tax expense -- 15 79 -- 94
-------- -------- -------- -------- --------
Loss from continuing operations (3,664) (605) (668) (23) (4,960)
Discontinued operations:
Income (loss) from discontinued
operations, net of tax -- 242 (216) 23 49
Gain on disposal of discontinued
operations -- 10,260 -- -- 10,260
-------- -------- -------- -------- --------
-- 10,502 (216) 23 10,309
Net income (loss) $ (3,664) $ 9,897 $ (884) $ -- $ 5,349
======== ======== ======== ======== ========
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J. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES - CONTINUED
Summarized consolidating statements of operations for the six months ended June
30, 2001 and 2000, respectively, for the Company, the guarantor subsidiaries,
and the non-guarantor subsidiaries are as follows (in thousands):
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------ ------------- ---------
INCOME STATEMENT DATA:
(SIX MONTHS ENDED JUNE 30, 2001):
Net revenue $ -- $ 94,501 $ 17,648 $ (1,608) $ 110,541
Cost of revenue -- 71,992 13,473 (1,608) 83,857
--------- --------- --------- --------- ---------
Gross profit -- 22,509 4,175 -- 26,684
Total operating expenses 1,284 25,089 4,995 -- 31,368
--------- --------- --------- --------- ---------
Operating loss (1,284) (2,580) (820) -- (4,684)
Interest income (expense), net (6,744) 1,143 (5) -- (5,606)
Other expense (202) (3) (101) -- (306)
--------- --------- --------- --------- ---------
Loss from continuing operations
before income taxes (8,230) (1,440) (926) -- (10,596)
Income tax expense -- 18 -- -- 18
--------- --------- --------- --------- ---------
Net loss $ (8,230) $ (1,458) $ (926) $ -- $ (10,614)
========= ========= ========= ========= =========
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------- ------------- ---------
INCOME STATEMENT DATA:
(SIX MONTHS ENDED JUNE 30, 2000):
Net revenue $ -- $ 100,766 $ 20,838 $ (1,801) $ 119,803
Cost of revenue -- 75,239 15,894 (1,801) 89,332
--------- --------- --------- --------- ---------
Gross profit -- 25,527 4,944 -- 30,471
Total operating expenses 1,441 26,425 5,871 123 33,860
--------- --------- --------- --------- ---------
Operating loss (1,441) (898) (927) (123) (3,389)
Interest income (expense), net (5,497) (1,414) 24 -- (6,887)
Other expense (66) (47) (150) -- (263)
--------- --------- --------- --------- ---------
Loss from continuing operations
before income taxes (7,004) (2,359) (1,053) (123) (10,539)
Income tax expense -- 22 78 -- 100
--------- --------- --------- --------- ---------
Loss from continuing operations (7,004) (2,381) (1,131) (123) (10,639)
Discontinued operations:
Income (loss) from discontinued
operations, net of tax -- 1,187 (356) 123 954
Gain on disposal of discontinued
operations -- 10,260 -- -- 10,260
--------- --------- --------- --------- ---------
-- 11,447 (356) 123 11,214
Net income (loss) $ (7,004) $ 9,066 $ (1,487) $ -- $ 575
========= ========= ========= ========= =========
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J. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES - CONTINUED
Summarized consolidating statements of cash flows for the six months ended June
30, 2001 and 2000, respectively, for the Company, the guarantor subsidiaries,
and the non-guarantor subsidiaries are as follows (in thousands):
Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ -----
CASH FLOW DATA:
(SIX MONTHS ENDED JUNE 30, 2001):
Net cash used in operating activities $ (8,290) $ (617) $ (1,326) $ (22) $(10,255)
Investing activities:
Proceeds from sale of property, plant and
Equipment -- 5 48 -- 53
Purchases of property, plant and
equipment -- (483) (143) -- (626)
-------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities -- (478) (95) -- (573)
Financing activities:
Borrowings made on revolving credit 6,000 -- -- -- 6,000
facility
Principal payments on long-term
borrowings -- (492) (25) -- (517)
Intercompany transactions (1,000) (456) 1,520 (64) --
-------- -------- -------- -------- --------
Net cash provided by (used in)
Financing activities 5,000 (948) 1,495 (64) 5,483
Effect of exchange rate changes on cash -- -- 10 86 96
-------- -------- -------- -------- --------
Increase (decrease) in cash and cash
Equivalents (3,290) (2,043) 84 -- (5,249)
Cash and cash equivalents at beginning
Of period 3,440 52,719 755 -- 56,914
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ 150 $ 50,676 $ 839 $ -- $ 51,665
======== ======== ======== ======== ========
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Combined Combined
The Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ -----
CASH FLOW DATA:
(SIX MONTHS ENDED JUNE 30, 2000):
Net cash used in operating activities $ (4,008) $ (6,452) $ (1,924) $ 2 $(12,382)
Investing activities:
Acquisition of business, net of cash (5,091) 488 -- -- (4,603)
acquired
Purchases of property, plant and
equipment -- (975) (310) -- (1,285)
Proceeds from sale of business -- 60,492 -- -- 60,492
Decrease in short-term investments 3,610 -- -- -- 3,610
-------- -------- -------- -------- --------
Net cash (used in) provided by investing
Activities (1,481) 60,005 (310) -- 58,214
Financing activities:
Borrowings on revolving credit facilities 15,637 -- -- -- 15,637
Payment of debt assumed in acquisition (7,383) -- -- -- (7,383)
Decrease in amounts due to GEC -- (35) -- -- (35)
Principal payments on long-term -- (950) (34) -- (984)
borrowings
Intercompany (3,557) 1,775 1,784 (2) --
Dividends received/(paid) 4,500 (4,500) -- -- --
Distribution for taxes (4,500) -- -- -- (4,500)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing
Activities 4,697 (3,710) 1,750 (2) 2,735
Effect of exchange rate changes on cash -- 29 (205) -- (176)
-------- -------- -------- -------- --------
Increase (decrease) in cash and
Cash equivalents (792) 49,872 (689) -- 48,391
Cash and cash equivalents at beginning
Of period 7,760 5,396 2,185 -- 15,341
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ 6,968 $ 55,268 $ 1,496 $ -- $ 63,732
======== ======== ======== ======== ========
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K. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. The provisions of SFAS No. 141
are effective for all business combinations accounted for by the purchase method
that are completed after June 30, 2001. SFAS No. 142 is effective January 1,
2002 and applies to all goodwill and other intangibles assets recognized in the
Company's statement of financial position at that date, regardless of when those
assets were initially recognized. SFAS No. 141 requires that any unamortized
deferred credit related to an excess of cost arising from any prior business
combinations be recognized as a cumulative effect of a change in accounting
principle upon the adoption of SFAS No. 142. At June 30, 2001, the Company has a
$1.8 million unamortized deferred credit arising from the Company's acquisition
of A. B. Dick recorded in other long-term liabilities. Under SFAS No. 142,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests. Other intangible
assets will continue to be amortized over their useful lives. The transition
provisions in SFAS No. 142 provide that goodwill and intangible assets with
indefinite lives acquired in a business combination completed after June 30,
2001 will not be amortized. The Company is currently evaluating the provisions
of SFAS No. 141 and SFAS No. 142 and has not yet determined the effects of these
Statements on the Company's financial position or results of operations.
L. SUBSEQUENT EVENTS
On May 31, 2001, the Company entered into a merger agreement with Rhemai I B.V.
"Rhemai", a Netherlands company and manufacturer and distributor of equipment
and supplies and a service provider to the graphic arts industry. Under the
terms of the Merger Agreement, all of the outstanding common stock of A.B. Dick
Netherlands B.V. and A.B. Dick N.V. (a Belgian company) will be issued to Rhemai
in exchange for a 55% interest in the issued share capital of Rhemai. The
completion date for the merger is scheduled for the third quarter 2001 subject
to the attainment of certain financial requirements as stated in the agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For further information, refer to the consolidated financial statements and
footnotes of Paragon Corporate Holdings Inc. set forth in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.
GENERAL
The Company, through its wholly-owned subsidiaries, is engaged in the
manufacture, sale, distribution and service of offset presses, cameras and plate
makers and related supplies for the graphic arts and printing industry. On May
10, 2000, the Company sold substantially all of the assets and liabilities of
its Curtis Industries, Inc.("Curtis") subsidiary previously reported as the
automotive and industrial segment. The results of operations for Curtis have
been reported as a discontinued operation. On January 27, 2000, the Company
acquired all of the outstanding common stock of Multigraphics, Inc.
("Multigraphics"), a supplier of high quality pre-press, press and post-press
equipment, supplies, and technical service to the printing industry. The
acquisition has been accounted for as a purchase and, accordingly, the
consolidated financial statements include the results of Multigraphics since the
date of acquisition.
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RESULTS OF CONTINUING OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001, COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2000:
NET REVENUE
For the three months ended June 30, 2001, net revenue decreased $7.3 million or
11.7% to $54.9 from $62.2 million for the quarter ended June 30, 2000. Printing
equipment sales decreased $3.6 million or 19.2% over the prior year to $15.0
million. Printing supplies sales decreased $2.6 million or 10.1% from the prior
year. The decrease in both equipment and supplies was primarily attributable to
weaker analog product demand in domestic and certain European markets. Repair
parts and service revenues decreased $1.1 million or 6.2% to $16.9 million
primarily due to lower revenues on prepaid service contracts.
GROSS PROFIT
Gross profit decreased $2.9 million or 17.7% to $13.5 million for the quarter
ended June 30, 2001. Gross profit as a percentage of sales was 24.6% during the
first quarter of 2001 compared to 26.4% for the same period last year. The
decrease in gross profit percentage is attributable to increased freight costs,
lower fixed cost absorption in 2001 on manufactured equipment due to reduced
volume, increase in inventory valuation allowances on discontinued products, and
lower prepaid service contract revenues which in large part fall through to the
gross profit line. These higher costs and allowances were partially offset by
lower field service costs and increased operating efficiencies.
COSTS AND EXPENSES
Costs and expenses decreased $2.3 million or 12.7% to $15.6 million for the
quarter ended June 30, 2001 from $17.8 million for the quarter ended June 30,
2000. General and administrative expenses decreased $1.5 million as a result of
eliminating redundant functions. Sales and marketing costs decreased $1.0
million or 13.9% due to lower promotional spending and lower compensation
including commissions. Relocation and severance costs decreased by $0.3 million
to $0.3 million for the second quarter of 2001. Offsetting these decreases were
the increases in depreciation and amortization of $0.3 million and research and
development costs of $0.2 million.
OPERATING LOSS
The operating loss increased $0.6 million to $2.0 million for the quarter ended
June 30, 2001 from $1.4 million for the quarter ended June 30, 2000. The
increase in operating loss from 2000 resulted primarily from lower revenues and
gross profits partially offset by lower operating expenses.
SIX MONTHS ENDED JUNE 30, 2001, COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000:
NET REVENUE
For the six months ended June 30, 2001, net revenue decreased $9.3 million or
7.7% to $110.5 from $119.8 million for the six months ended June 30, 2000.
Weaker demand more than offset the positive effect of having the Multigraphics
acquisition in the operating results for the six months in the current year
compared to approximately five months in the prior year. Printing equipment
sales decreased $6.7 million or 18.6% over the prior year to $29.4 million.
Printing supplies sales decreased $2.7 million or 5.3% from the prior year. The
decrease in both equipment and supplies was primarily attributable to weaker
demand in domestic and certain
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European markets for the Company's analog products. Repair parts and service
revenues increased $0.1 million or 0.4% to $34.0 million primarily due to the
acquisition of Multigraphics.
GROSS PROFIT
Gross profit decreased $3.8 million or 12.4% to $26.7 million for the six months
ended June 30, 2001. Gross profit as a percentage of sales decreased to 24.1%
from 25.4% compared to the same period last year. The decrease in gross profit
percentage is attributable to increased freight costs, lower fixed cost
absorption in 2001 on manufactured equipment due to reduced volume, and an
increase in inventory valuation allowances on discontinued products. These
higher costs and allowances were partially offset by higher service margins
resulting from lower field service costs and increased operating efficiencies.
The Company believes that its margin percentage may decrease in the future as
its sales shift from higher margin analog products to lower margin digital
products. To offset lower margins, the Company continues to seek increased
operating efficiencies and lower expenses.
COSTS AND EXPENSES
Costs and expenses decreased by $2.5 million or 7.4% to $31.4 million for the
six months ended June 30, 2001 from $33.9 million for the six months ended June
30, 2000. General and administrative expenses decreased $1.9 million or 12.5% as
a result of eliminating redundant functions. Sales and marketing costs decreased
$1.0 million or 6.9% due to lower promotional spending and lower compensation
including commissions. Relocation and severance costs decreased by $0.4 million
to $0.6 million for the six months of 2001. Offsetting these decreases were the
increases in depreciation and amortization of $0.6 million and research and
development costs of $0.2 million.
OPERATING LOSS
The operating loss increased $1.3 million to $4.7 million for the six months
ended June 30, 2001 from $3.4 million for the six months ended June 30, 2000.
The increase in operating loss from 2000 resulted primarily from lower revenues
and gross profits partially offset by lower operating expenses.
RESTRUCTURING CHARGE
In connection with the acquisition of Multigraphics, the Company anticipated
that it would incur restructuring costs of approximately $2.2 million comprised
primarily of employee termination and relocation costs. Since the acquisition,
the Company incurred and paid $2.4 million of these costs, which represents
substantially all of the costs to complete the integration. Employee termination
costs and contractual obligations pertaining to the integration of Multigraphics
that qualified under EITF 95-3, Recognition of Liabilities in Connection with a
Purchase Business Combination, and thus included in the purchase price
allocation, amounted to $4.5 million. Since the acquisition, amounts paid and
charged against this liability were $2.0 million in 2000 and $ 0.6 million in
2001.
INTERNATIONAL OPERATIONS
The Company transacts business in a number of countries throughout the world and
has facilities in the United States, Canada, the United Kingdom, the
Netherlands, and Belgium. As a result, the Company is subject to business risks
inherent in non-U.S. operations, including political and economic uncertainty,
import and export limitations, exchange controls, and currency fluctuations. The
Company believes that the risks related to its foreign operations are mitigated
by the relative political and economic stability of the countries in which its
largest foreign operations are located. As the U.S. dollar strengthens and
weakens against foreign currencies in which the Company
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transacts business, its financial results will be affected. The principal
foreign currencies in which the Company transacts business are the Japanese yen,
the Canadian dollar, the British pound sterling, the Dutch guilder, and the
Belgian franc. The fluctuation of the U.S. dollar versus other currencies
resulted in decreases to stockholder's equity of approximately $0.3 million and
$0.3 million for the six months ended June 30, 2001 and 2000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $10.3 million and $12.4 million for
the six months ended June 30, 2001 and 2000, respectively. The net cash used in
operating activities in 2001 was principally the result of net losses incurred
of $10.6 million, reduction of accounts payable of $6.0 million, and decrease in
accrued liabilities of $4.1 million offset by a decrease in inventory of $6.0
million and in receivables of $1.8 million. The net loss in 2001 is due to
operating losses and interest costs on the senior notes. Net cash used in
operating activities in 2000 was also primarily attributable to operating losses
and interest on the senior notes mentioned above.
The net cash used in investing activities was $0.6 million and $58.2 million for
the six months ended June 30, 2001 and 2000, respectively. The 2000 amount
reflects the payment for the Multigraphics acquisition of $4.6 million and the
proceeds from the sale of the net assets of Curtis Industries of $60.5 million.
Net cash provided by financing activities was $5.5 million and $2.7 million for
the six months ended June 30, 2001 and 2000, respectively. The net cash provided
by financing activities in 2001 was from $6.0 million of borrowings on the
Company's revolving credit facility offset by $0.5 million for principal
payments on long-term borrowings. The net cash provided by financing activities
in 2000 was primarily the result of $15.6 million of borrowings on the Company's
revolving credit facility to fund the Multigraphics acquisition and operating
losses partially offset by $7.4 million payment of debt assumed in the
acquisition.
The Company's primary capital requirements (excluding acquisitions) consist of
working capital, capital expenditures and debt service. The Company expects
current financial resources and funds from operations to be adequate to meet
current cash requirements. At June 30, 2001, the Company had cash and cash
equivalents of $51.7 million and unused credit facilities of approximately $1.3
million available for its use. At June 30, 2001, the Company was in violation of
certain financial covenants under the terms of the Credit Agreement for which it
has received waivers through June 30, 2001.
The Company's senior notes require semi-annual interest payments on October 1
and April 1 in arrears. On July 3, 2001, the Company commenced an offer (the
"Exchange Offer") to exchange a payment of cash and the issuance of new
promissory notes (the "Promissory Notes") of the Company and A.B.Dick Company
("A.B.Dick"), for all of its outstanding senior notes, which are currently
outstanding in an aggregate principal amount of $115 million. The Exchange Offer
expires on August 14, 2001. As of August 13, 2001, noteholders representing
approximately 95% of the outstanding senior notes tendered or consented.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. The provisions of SFAS No. 141
are effective for all business combinations accounted for by the purchase method
that are completed after June 30, 2001. SFAS No. 142 is effective January 1,
2002 and applies to all goodwill and other intangibles assets recognized in the
Company's statement of financial position at that date, regardless of
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when those assets were initially recognized. SFAS No. 141 requires that any
unamortized deferred credit related to an excess of cost arising from any prior
business combinations be recognized as a cumulative effect of a change in
accounting principle upon the adoption of SFAS No. 142. At June 30, 2001, the
Company has a $1.8 million unamortized deferred credit arising from the
Company's acquisition of A. B. Dick recorded in other long-term liabilities.
Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment
tests. Other intangible assets will continue to be amortized over their useful
lives. The transition provisions in SFAS No. 142 provide that goodwill and
intangible assets with indefinite lives acquired in a business combination
completed after June 30, 2001 will not be amortized. The Company is currently
evaluating the provisions of SFAS No. 141 and SFAS No. 142 and has not yet
determined the effects of these Statements on the Company's financial position
or results of operations.
CAUTIONARY STATEMENT FOR SAFE HARBOR PURPOSES
This Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) contains forward-looking statements within the meaning of the
federal securities laws. As a general matter, forward-looking statements are
those focused upon future plans, objectives, or performance as opposed to
historical items and include statements of anticipated events or trends and
expectations and beliefs relating to matters that are not historical in nature.
Such forward-looking statements are subject to uncertainties and factors
relating to the Company's operations and business environment, all of which are
difficult to predict and many of which are beyond the control of the Company,
that could cause actual results of the Company to differ materially from those
matters expressed in or implied by such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's interest income and expense are most sensitive to changes in the
general level of U.S. interest rates. In this regard, changes in the U.S.
interest rates affect interest earned on the Company's cash equivalents as well
as interest paid on a portion of its debt. To mitigate the impact of
fluctuations in U.S. interest rates, the Company generally maintains the
majority of its debt as fixed rate by borrowing on a long-term basis.
The Company's earnings are also affected by fluctuations in the value of the
U.S. dollar as compared to foreign currencies, predominantly in European
countries. An additional risk relates to product shipped between the Company's
European subsidiaries. In addition to the impact on the intercompany balances,
changes in exchange rates also affect volume of sales or the foreign currency
sales price as competitors products become more or less attractive.
The carrying amount of cash and cash equivalents, trade receivables and payables
approximates fair value because of the short maturity of these instruments. The
carrying amount of the revolving credit facility approximates fair value. The
carrying amount of the senior notes exceeds its fair value at June 30, 2001 by
$67.9 million. The fair value has been determined using the market price of the
related securities at June 30, 2001.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Index of Exhibits
(b) Reports on Form 8-K filed in the second quarter of 2001
Form 8-K Current Report dated April 13, 2001, regarding the
Exchange Offer with respect to the Registrant's outstanding
9-5/8% Series B Notes due 2008.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARAGON CORPORATE HOLDINGS INC.
By: /s/ Brian J. Longe
----------------------------------------
BRIAN J. LONGE
President and Chief Executive Officer and Director (As duly
authorized representative and Principal Executive Officer)
PARAGON CORPORATE HOLDINGS INC.
By: /s/ Gregory T. Knipp
----------------------------------------
GREGORY T. KNIPP
Chief Financial Officer (As duly authorized representative
and as Principal Financial and Accounting Officer)
A.B.DICK COMPANY
By: /s/ Gregory T. Knipp
----------------------------------------
GREGORY T. KNIPP
Chief Financial Officer (As duly authorized representative
and as Principal Financial and Accounting Officer)
ITEK GRAPHIX CORP.
By: /s/ Brian J. Longe
----------------------------------------
BRIAN J. LONGE
President and Chief Executive Officer (As duly authorized
Officer)
Date: August 14, 2001
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PARAGON CORPORATE HOLDINGS INC.
FORM 10-K INDEX OF EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
3.1 (a) Certificate of Incorporation of Paragon Corporate Holdings Inc., as currently in effect. (1)
(b) Certificate of Amendment to Certificate of Incorporation of Paragon Corporate Holdings Inc., (5)
as currently in effect, dated May 26, 2000.
3.2 By-Laws of Paragon Corporate Holdings Inc. as currently in effect (1)
3.3 Certificate of Incorporation of A.B.Dick Company, as currently in effect (1)
3.4 By-Laws of A.B.Dick Company, as currently in effect. (1)
3.5 (a) Certificate of Incorporation of Curtis Industries, Inc. as currently in effect. (1)
(b) Certificate of Amendment to Certificate of Incorporation of Curtis Industries, Inc., as currently in (6)
effect.
3.6 By-Laws of Curtis Industries, Inc. as currently in effect. (1)
3.7 Certificate of Incorporation of Itek Graphix Corp. , as currently in effect. (1)
3.8 By-Laws of Itek Graphix Corp., as currently in effect. (1)
3.9 Certificate of Incorporation of Curtis Sub, Inc., as currently in effect. (1)
3.10 By-Laws of Curtis Sub, Inc., as currently in effect. (1)
4.1 Indenture, dated as of April 1, 1998, among Paragon Corporate Holdings Inc., A.B.Dick Company, Curtis (1)
Industries, Inc., Itek Graphix Corp., Curtis Sub, Inc and Norwest Bank Minnesota, National Association, as
Trustee (containing, as exhibits, specimens of the Series A Notes and the Series B Notes).
4.4 (a) Credit and Security Agreement, dated as of April 1, 1998 amended by Amendment I, between Paragon (1)
Corporate Holdings Inc. and Key Corporate Capital Inc.
(b) Amendment I, dated as of March 17, 1999, to the Credit and Security Agreement, dated as of April 1, 1998 (1)
between Paragon Corporate Holdings Inc. and Key Corporate Capital Inc.
(c) Waiver and Amendment to the Credit and Security Agreement, dated March 29, 2000, between Paragon (2)
Corporate Holdings Inc. and Key Corporate Capital, Inc.
(d) Amendment No. 2 to Credit and Security Agreement dated June 30, 2000, between Paragon Corporate Holdings (5)
Inc. and Key Corporate Capital, Inc.
(e) Amendment No. 3 to Credit and Security Agreement dated May 10, 2000, between Paragon Corporate Holdings (5)
Inc. and Key Corporate Capital, Inc.
(f) Waiver Letter to the Credit and Security Agreement dated August 14, 2000 between Paragon Corporate (6)
Holdings Inc. and Key Corporate Capital, Inc.
(g) Amendment No. 4 to Credit and Security Agreement dated March 30, 2001 between Paragon Corporate (7)
Holdings, Inc. and Key Corporate Capital, Inc.
(h) Waiver Letter to the Credit and Security Agreement dated May 15,2001 between Paragon Corporate
Holdings Inc. and Key Corporate Capital, Inc.
10.3 Management Agreement, dated as of April 1, 1998, between Paragon Corporate Holdings Inc. and NESCO, Inc. (1)
10.4 Tax Payment Agreement, dated as of April 1, 1998, among Paragon Corporate Holdings Inc., A.B.Dick Company, (1)
Curtis Industries, Inc., Itek Graphix Corp., Curtis Sub, Inc. and NES Group, Inc.
10.6 Severance and Non-Competition Agreement dated February 28, 1996 between Curtis Industries, Inc. and A. Keith (1)
Drewett.
10.7 Agreement dated July 2, 1998 among Curtis Industries, Inc., Paragon Holdings Inc. and A. Keith Drewett. (3)
10.8 Agreement and plan of merger, dated September 29, 1999 between Multi Acquisition Corp., a wholly-owned (4)
subsidiary of Paragon Corporate Holdings Inc., and Multigraphics, Inc.
(1) Incorporated by reference from Form S-4 Registration Number 333-51569 filed under the Securities Act
of 1933,
as amended
(2) Incorporated by reference from Form 10-K File Number 333-51569 filed June 30, 2000
(3) Incorporated by reference from Amendment No. 2 to Form S-4 Registration Number 333-51569 filed July
17, 1998
under the Securities Act of 1933, as amended
(4) Incorporated by reference from Appendix A of Schedule 14A filed December 6, 1999, by Multigraphics, Inc.
(5) Incorporated by reference from Form 10-Q File Number 333-51569 filed August 14, 2000.
(6) Incorporated by reference from Form 10-Q File Number 333-51569 filed November 14, 2000.
(7) Incorporated by reference from Form 10-K File Number 333-51569 filed April 6, 2001.
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May 15, 2001
Paragon Corporate Holdings
7400 Caldwell Avenue
Niles, Illiniois 60714
Attention: John H. Fountain, Chairman
Re: Credit and Security Agreement
Dear Sir:
Reference is hereby made to that certain Credit and Security Agreement,
dated as of April 1, 1998, as amended by that certain Amendment No. 1 to Credit
and Security Agreement, dated as of March 17, 1999, as further amended by that
certain Amendment No. 2 to Credit and Security Agreement, dated as of March 31,
2000, as further amended by that certain Amendment No. 3 to Credit and Security
Agreement, dated as of May 10, 2000, as further amended by that certain
Amendment No. 4 to Credit and Security Agreement, dated as of March 31, 2001 (as
amended, modified, restated, substituted, extended and renewed at any time and
from time to time, the "Credit Agreement"), by and among PARAGON CORPORATE
HOLDINGS INC. ("Borrower"), certain financial institutions listed on the
signature pages hereto (the "Banks"), KEY CORPORATE CAPITAL INC., as Letter of
Credit Bank (the "Letter of Credit Bank"), and KEY CORPORATE CAPITAL INC. as
Agent for the Banks and the Letter of Credit Bank (the "Agent"). All capitalized
terms used but not otherwise defined herein shall have the meanings ascribed to
such terms in the Credit Agreement.
Borrower has informed the Agent and the Banks that the Consolidated
EBITDA of A. B. Dick for the period beginning January 1, 2001 and ending March
31, 2001, was approximately $-438,000, which amount violated Section 8.4(a) of
the Credit Agreement and resulted in an Event of Default. The Agent and the
Banks hereby waive such Event of Default resulting from the violation of Section
8.4(a) of the Credit Agreement for the period beginning January 1, 2001 and
ending March 31, 2001.
Borrower has informed the Agent and the Banks that the Consolidated
Fixed Charge Coverage Ratio of A.B. Dick as at the end of the period beginning
January 1, 2001 and ending March 31, 2001, was approximately -0.56 which amount
violated Section 8.4(b)(ii) of the Credit Agreement and resulted in an Event of
Default. The Agent and the Banks hereby waive such Event of Default resulting
from the violation of Section 8.4(b)(ii) of the Credit Agreement for the period
beginning January 1, 2001 and ending March 31, 2001.
The waivers granted herein are limited strictly to their respective
terms, shall apply only to the specific waivers described herein, shall not
extend to or affect any of the Borrower's other obligations contained in the
Credit Agreement or any of the other financing documents and shall not impair
any rights consequent thereon. Except as expressly set forth herein, nothing
contained herein shall be deemed to be a waiver of, or shall in any way impair
or prejudice, any rights of the Agent or the Banks under the Credit Agreement.
Neither the Agent nor any Bank shall have any obligation to issue any other or
further waivers with respect to the subject matter hereof or any other matter,
and, except as expressly provided herein, the Credit Agreement and all
documents, instruments and agreements related thereto are hereby ratified and
confirmed in all respects and shall continue in full force and effect.
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The effectiveness of this waiver is conditioned upon the Agent's
receipt of the attached acknowledgment and consent executed by the Borrower.
Sincerely,
KEY CORPORATE CAPITAL INC., as Agent KEY CORPORATE CAPITAL INC., as a Bank
- ----------------------------------- -----------------------------------
By: By:
-------------------------------- --------------------------------
Its: Its:
------------------------------- -------------------------------
KEY CORPORATE CAPITAL INC., as a
Letter of Credit Bank
-----------------------------------
By:
--------------------------------
Its:
-------------------------------
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ACKNOWLEDGMENT AND CONSENT
As of the date of this Acknowledgment and Consent, Borrower has no
defenses, claims, counterclaims or setoffs with respect to the Credit Agreement
or its Obligations thereunder or with respect to any actions of the Agent, any
Bank or any of their respective officers, directors, shareholders, employees,
agents or attorneys, and Borrower irrevocably and absolutely waives any such
defenses, claims, counterclaims and setoffs and releases the Agent, the Banks
and each of their respective officers, directors, shareholders, employees,
agents and attorneys from the same.
PARAGON CORPORATE HOLDINGS INC.
-----------------------------------
By:
--------------------------------
Its:
-------------------------------
Dated May 15, 2001.
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