-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F8fSd4Cz3Z0NzasRT7Zi2JZ6MP6Ll/VvQTMBrmSGHZXxbI1TYeWvrk1uHLKZ1qH9 uTYBoY6kExJESqBNRbkaFA== 0001047469-98-043255.txt : 19981209 0001047469-98-043255.hdr.sgml : 19981209 ACCESSION NUMBER: 0001047469-98-043255 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980926 FILED AS OF DATE: 19981208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COURIER CORP CENTRAL INDEX KEY: 0000025212 STANDARD INDUSTRIAL CLASSIFICATION: BOOK PRINTING [2732] IRS NUMBER: 042502514 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-07597 FILM NUMBER: 98765314 BUSINESS ADDRESS: STREET 1: 15 WELLMAN AVENUE CITY: NORTH CHELMSFORD STATE: MA ZIP: 01863 BUSINESS PHONE: (978) 251-6000 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 26, 1998 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 0-7597 Courier Corporation A Massachusetts corporation I.R.S. Employer Identification No. 04-2502514 15 Wellman Avenue Chelmsford, Massachusetts 01863 Telephone No. 978-251-6000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1 par value 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant as of November 20, 1998 Common Stock, $1 par value - $54,648,144 Indicate the number of shares outstanding of each of the registrant's classes of common stock as of November 20, 1998 Common Stock, $1 par value - 1,900,805 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's proxy statement for the annual meeting of stockholders scheduled to be held on January 21, 1999 (Part III). PART I Item 1. Business. INTRODUCTION Registrant, Courier Corporation ("Courier" or the "Company"), was incorporated under the laws of Massachusetts on June 30, 1972. Courier owns all of the capital stock of Courier-Citizen Company, a Massachusetts corporation organized in 1894 as successor to a printing business which originated in 1824. Courier Corporation helps organizations manage the process of creating and distributing intellectual properties. Courier is the largest book manufacturer in the Northeast offering services from preparation, production, media replication, kitting and packaging through storage, and distribution. Products include Bibles, reference texts, books, software kits and technical documentation. Courier also operates businesses which respond to the need for greater choice in education. Copyright Management Services provides Internet-based solutions that enable educators to use coursepacks combining materials from multiple publishers. The Home School is a direct marketer of educational materials to families engaged in educating children at home. In December 1994, the Company formed Courier New Media, Inc. ("Courier New Media"), an information management services company which works with publishers and other information developers to create new products from new and existing intellectual properties. Simultaneously, Courier New Media launched a new business, Copyright Management Services ("CMS"). CMS specializes in managing the process of creating multiple-publisher college coursepacks for college professors, enabling personalized course curriculum and 100% relevant materials for students. CMS obtains copyright permissions and provides either ready-to-print masters to a campus print shop, or high quality printed coursepacks to college bookstores. On July 21, 1997, the Company acquired all of the outstanding stock of Book-mart Press, Inc. ("Book-mart"), a North Bergen, New Jersey book manufacturer specializing in short to medium runs of softcover and hardcover books. Founded in 1977, Book-mart has built a strong reputation and loyal customer following in New York and the surrounding areas. Book-mart offers high quality offset printing and binding for order quantities as low as 300 copies. The acquisition complements the Company's existing range of services so that the Company can offer its customers, and Book-mart customers, one-stop full-service shopping for book production at any run length. On September 30, 1997, the Company purchased the assets of The Home School Books & Supplies ("The Home School"), based in Arlington, Washington. The Home School markets curriculum and other learning materials direct to home schoolers through retail and catalog businesses. 1 In May 1998, the Company restructured the Courier EPIC division located in North Chelmsford, Massachusetts. Kitting, assembly, disk replication and related services were consolidated into Courier Stoughton where similar operations were performed. Simultaneously, North Chelmsford's end-user fulfillment operation was expanded to handle The Home School's national catalog roll out and other end-user fulfillment business. PRODUCTS Courier's products include the manufacture of books, manuals and replicated diskettes and CD-ROMs for publishers, software developers and other information providers as well as related services involved in managing the process of creating and distributing these products. Courier provides manufacturing and related services from six facilities in Westford, Stoughton and North Chelmsford, Massachusetts; Philadelphia, Pennsylvania; Kendallville, Indiana; and North Bergen, New Jersey. Courier's book manufacturing operations consist of both electronic and conventional film processing, platemaking, printing and binding of soft and hard bound books and manuals. These book manufacturing operations are conducted through five subsidiaries, Courier Westford, Inc. ("Westford"), Courier Stoughton, Inc. ("Stoughton"), Courier Kendallville, Inc. ("Kendallville"), National Publishing Company ("National"), and Book-mart. Each of these subsidiaries has certain specialties adapted to the needs of the market niches Courier serves, such as short-run book manufacturing capabilities, printing on lightweight paper for medical and religious publishers and 4-color book manufacturing for educational and trade publishers. In December 1994, the Company formed Courier New Media to work with publishers and other information providers to develop new products from new and existing intellectual properties. Courier New Media includes two operating units, CMS and end user fulfillment. In May 1998, Courier EPIC's project management, product assembly, packaging, and diskette replication were consolidated into Stoughton. CMS specializes in managing the process of creating multiple-publisher college coursepacks for college professors by obtaining copyright permissions and providing either ready-to-print masters to campus print shops or printed coursepacks to college bookstores. On September 30, 1997, the Company purchased the assets of The Home School Books & Supplies, based in Arlington, Washington. The Home School markets curriculum and other learning materials direct to home schoolers through retail and catalog businesses. Retail operations are located in Arlington, Washington, while catalog operations were transferred to North Chelmsford, Massachusetts. 2 MARKETING AND CUSTOMERS Courier's book manufacturing services are primarily sold to publishers of educational, religious, consumer, professional and reference books and to computer software and hardware manufacturers. Courier's book manufacturing sales force of 24 people is responsible for all of the Company's sales to over 650 customers, excluding customers of The Home School and CMS. Courier's salespeople operate out of sales offices located in New York, Chicago, Philadelphia, Hayward, California, Orlando, Florida, North Chelmsford, Massachusetts, and North Bergen, New Jersey. Sales to one customer, the Gideon Society, aggregated approximately 26% of consolidated sales in fiscal 1998 and sales to another customer, Simon & Schuster, aggregated approximately 12% of consolidated 1998 sales. In November 1998, Pearson PLC, another customer of the Company, announced its acquisition of The Simon & Schuster education, reference, and business and professional publishing businesses from Viacom Inc. At this time, the Company has no basis for determining the impact that the acquisition may have on its business relationship with the combined entity. The loss of these customers would have a material adverse effect on the Company. No other customer accounted for more than 10% of fiscal 1998 consolidated sales. The Company distributes products around the world; export sales, as a percentage of consolidated sales, were approximately 17% in fiscal 1998, 18% in fiscal 1997 and 17% in fiscal 1996. CMS markets its custom coursepack services to college bookstores, campus print shops and direct to professors nationwide. It utilizes direct marketing techniques including mailings and e-mail backed up by one sales person and an internal direct response staff located in North Chelmsford, Massachusetts. The Home School markets curriculum and other learning materials direct to home schoolers through retail operations in Arlington, Washington, and through catalog operations in North Chelmsford, Massachusetts. COMPETITION All phases of Courier's business are highly competitive. The printing and publishing industries, exclusive of newspapers, include over 50,000 establishments. While most of these establishments are relatively small, several of Courier's competitors are considerably larger or are affiliated with companies which are considerably larger and have greater financial resources than Courier. In recent years, consolidation of both customers and competitors within the Company's markets has increased pricing pressures. The major competitive factors in Courier's business in addition to price are product quality, customer service, availability of appropriate printing capacity, related services and technology support. 3 MATERIALS AND SUPPLIES Courier purchases its principal raw materials, primarily paper, but also plate materials, ink, cover stock and casebinding materials, from numerous suppliers, and is not dependent upon any one source for its requirements. Many of Courier's book manufacturing customers purchase their own paper and furnish it at no charge to these operations for book production purposes. The Home School purchases books and other learning materials from over 100 educational publishers and it is not dependent upon any one source. ENVIRONMENTAL REGULATIONS The Company believes that its operations comply in all material respects with applicable federal, state and local environmental laws and regulations. Although the Company makes capital expenditures for environmental protection, it does not anticipate any significant expenditures in order to comply with such laws and regulations which would have a material impact on the Company's capital expenditures, earnings or competitive position. EMPLOYEES The Company and its subsidiaries employed 1,254 persons at September 26, 1998 compared to 1,202 a year ago. OTHER Courier's overall business is not significantly seasonal in nature. Although in prior years sales volume was generally lower in the Company's second quarter, recent results have not reflected that seasonal trend due to changes in the business, including acquisitions. In addition, market demand for CMS and The Home School products and services is highest in the Company's fourth quarter. There is no portion of Courier's business subject to cancellation of government contracts or renegotiation of profits. Courier holds no patents, licenses other than third-party software, franchises or concessions which are important to its operations. The Company considers Courier, Courier New Media, The Home School, Copyright Management Services, E-Master, CoursepackCounselors, SmartMail, CampusPrint, Coursepack.com and SmartChoice to be proprietary trademarks. In addition, www.coursepack.com and www.coursepak.com are proprietary Universal Resource Locators (URL) on the World Wide Web for Courier's coursepack business and are important to its operations. 4 Item 2. Properties. REAL PROPERTIES The following schedule lists the facilities occupied by Courier at September 26, 1998. The list also includes real estate which is held for sale or lease, as discussed in Note J to the Consolidated Financial Statements, which appears on page F-14 of this Annual Report on Form 10-K. Courier considers its plants and other facilities to be well maintained and suitable for the purpose intended.
Owned/ Size in Principal Activity and Location (Year Constructed) Leased Sq. Ft. - ------------------------------------------------- ------ ------- Corporate headquarters and executive offices North Chelmsford, MA (1973, 1996) Owned 69,000 (1) Book manufacturing and warehousing Westford plant, Westford, MA (1900, 1968, 1969, 1981, 1990) Owned 593,000 Kendallville plant, Kendallville, IN (1978) Owned 155,000 National plant, Philadelphia, PA (1975, 1997) Owned 229,000 (2) Stoughton plant, Stoughton, MA (1980) Leased 169,000 Book-mart plant, North Bergen, NJ (1917, 1935, 1997) Leased 75,000 Real estate held for sale or lease Raymond, NH (1973) Owned 59,000 (3)
(1) In September 1996, the Company relocated its corporate headquarters into approximately 17,000 square feet of an existing facility in North Chelmsford, MA which also houses CMS, The Home School and end user fulfillment operations.. (2) In December 1996, the Company completed construction of a 100,000 square foot addition to its principle Philadelphia facility. The expansion enabled the Company to consolidate operations located in an older multistory facility to the newer, more efficient property. The older multistory facility, which had been vacant, was sold in June 1998. (3) This building, which had been leased through June 1996 to the purchaser of the Company's former forms printing business, is now vacant pending sale or lease. EQUIPMENT The Company's products are manufactured on equipment which in most cases is owned by the Company, although it leases computers, image setters and electronic printing systems which are subject to more rapid obsolescence. In addition, it leases three printing presses where title is held by the lessor including one new press installed in July 1998. Capital expenditures amounted to approximately $4.1 in 1998, $6.7 million in 1997, and $7.3 million in 1996. Capital expenditures in 1998 included $0.5 million for a computer-to-plate system which eliminates the need to produce film prior to printing and $0.5 million to upgrade the Company's information systems and infrastructure. Capital expenditures for fiscal 1999 are expected to be approximately $8-10 million, including approximately $0.6 million related to Year 2000 issues. Courier considers its equipment to be in good operating condition and adequate for its present needs. 5 ENCUMBRANCES AND RENTAL OBLIGATIONS For a description of encumbrances on certain properties and equipment, see Note D of Notes to Consolidated Financial Statements on page F-10 of this Annual Report on Form 10-K. Information concerning leased properties and equipment is disclosed in Note E of Notes to Consolidated Financial Statements, which appears on page F-10 of this Annual Report on Form 10-K. Item 3. Legal Proceedings. In the ordinary course of business, the Company is subject to various legal proceedings and claims. The Company believes that the ultimate outcome of these matters will not have a material adverse effect on its financial statements. Item 4. Submission of Matters to a Vote of Security Holders. There were no matters submitted to a vote of security holders during the quarter ended September 26, 1998. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The information required by this Item is contained in the section captioned "Selected Quarterly Financial Data (Unaudited)" which appears on page F-15 of this Annual Report on Form 10-K. Item 6. Selected Financial Data. The information required by this Item is contained in the section captioned "Five-Year Financial Summary" appearing on page F-16 of this Annual Report on Form 10-K. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information required by this Item is contained in the section captioned "Management's Discussion and Analysis" appearing on pages F-17 through F-20 of this Annual Report on Form 10-K. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company does not hold any derivative financial instruments, derivative commodity instruments or other financial instruments except as noted in Note A to the financial statements. The Company engages neither in speculative nor derivative trading activities. As of September 26, 1998, the Company had $5.3 million of debt outstanding with a variable interest rate (see Note D to the consolidated financial statements). A fluctuation in the underlying interest rate on this debt at its current balance would not have a material effect on the Company's financial results. 6 Item 8. Financial Statements and Supplementary Data. The information required by this Item is contained on pages F-1 through F-14 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. Courier's executive officers, together with their ages and all positions and offices with the Company presently held by each person named, are as follows: James F. Conway III 46 Chairman, President and Chief Executive Officer George Q. Nichols 69 Corporate Senior Vice President and President of National Publishing Company Robert P. Story, Jr. 47 Senior Vice President and Chief Financial Officer Thomas G. Osenton 45 Senior Vice President and Chief Marketing Officer Peter M. Folger 45 Vice President and Controller
The terms of office of all of the above executive officers continue until the first meeting of the Board of Directors following the next annual meeting of stockholders and the election or appointment and qualification of their successors, unless any officer sooner dies, resigns, is removed or becomes disqualified. Mr. Conway III was elected Chairman of the Board in September 1994 after serving as acting Chairman since December 1992. He has been Chief Executive Officer since December 1992 and President since July 1988. 7 Mr. Nichols became an executive officer of Courier in June 1989 while retaining his position as President of National Publishing Company, a position he has held since 1975. He was elected a Director of the Company in March 1995 and became Senior Vice President of the Company in November 1996. Mr. Story became Senior Vice President and Chief Financial Officer in April 1989. He joined Courier in November 1986 as Vice President and Treasurer. He was elected a Director of the Company in February 1995. Mr. Osenton joined Courier in October 1993 as Senior Vice President and Chief Marketing Officer. He has been President of Courier New Media since January 1996. He had previously served as President/Chief Executive Officer and Publisher of The Sporting News Publishing Company, a subsidiary of the Times Mirror Company. Mr. Folger has been Controller since 1982 and became Vice President in November 1992. All other information called for by Item 10 is contained in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Thursday, January 21, 1999. Such information is incorporated herein by reference. Item 11. Executive Compensation. and Item 12. Security Ownership of Certain Beneficial Owners and Management. and Item 13. Certain Relationships and Related Transactions. Information called for by Items 11, 12 and 13 is contained in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Thursday, January 21, 1999. Such information is incorporated herein by reference. 8 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) Documents filed as part of this report
1. Financial statements Page(s) - Report of Independent Accountants F-1 - Consolidated Balance Sheets as of September 26, 1998 and September 27, 1997 F-2 to F-3 - Consolidated Statements of Income for each of the three years in the period ended September 26, 1998 F-4 - Consolidated Statements of Cash Flows for each of the three years in the period ended September 26, 1998 F-5 - Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended September 26, 1998 F-6 - Notes to Consolidated Financial Statements F-7 to F-14 2. Financial statement schedule - Schedule II - Valuation and Qualifying Accounts S-1 3. Exhibits
Exhibit No. Description of Exhibit - ---------- ---------------------- 3A-1 Articles of Organization of Courier Corporation, as of June 29, 1972 (filed as Exhibit 3A-1 to the Company's Annual Report on Form 10-K for the fiscal year ended September 26, 1981, and incorporated herein by reference). 3A-2 Articles of Amendment of Courier Corporation (changing stockholder vote required for merger or consolidation), as of January 20, 1977 (filed as Exhibit 3A-2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 26, 1981, and incorporated herein by reference). 3A-3 Articles of Amendment of Courier Corporation (providing for staggered election of directors), as of January 20, 1977 (filed as Exhibit 3A-3 to the Company's Annual Report on Form 10-K for the fiscal year ended September 26, 1981, and incorporated herein by reference).
9 3A-4 Articles of Amendment of Courier Corporation (authorizing class of Preferred Stock), as of February 15, 1978 (filed as Exhibit 3A-4 to the Company's Annual Report on Form 10-K for the fiscal year ended September 26, 1981, and incorporated herein by reference). 3A-5 Articles of Amendment of Courier Corporation (increasing number of shares of authorized Common Stock), as of January 16, 1986 (described in item #2 of the Company's Proxy Statement for the Annual Meeting of Stockholders held on January 16, 1986, and incorporated herein by reference). 3A-6 Articles of Amendment of Courier Corporation (providing for fair pricing procedures for stock to be sold in certain business combinations), as of January 16, 1986 (filed as Exhibit A to the Company's Proxy Statement for the Annual Meeting of Stockholders held on January 16, 1986, and incorporated herein by reference). 3A-7 Articles of Amendment of Courier Corporation (limiting personal liability of directors to the Corporation or to any of its stockholders for monetary damages for breach of fiduciary duty), as of January 28, 1988 (filed as Exhibit 3A-7 to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1988, and incorporated herein by reference). 3A-8 Articles of Amendment of Courier Corporation (establishing Series A Preferred Stock), as of November 8, 1988 (filed as Exhibit 3A-8 to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1988, and incorporated herein by reference). 3B By-Laws of Courier Corporation, as amended through April 28, 1988 (filed as Exhibit 3B to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1988, and incorporated herein by reference). 4 First Refusal Agreement, dated July 5, 1989, relating to stock owned by the Estate of Dorothy F. French (filed as Exhibit 3 to the Company's Current Report on Form 8-K, dated July 6, 1989, and incorporated herein by reference). 10A-1+ Courier Corporation Stock Grant Plan (filed as Exhibit C to the Company's Proxy Statement for the Annual Meeting of Stockholders held on January 20, 1977, and incorporated herein by reference). 10A-2+ Amendment, effective January 19, 1989, to the Courier Corporation Stock Grant Plan (described in Item 4 of the Company's Proxy Statement for the Annual Meeting of Stockholders held January 19, 1989, and incorporated herein by reference).
10 10B+ Letter Agreement, dated February 8, 1990, of Courier Corporation relating to supplemental retirement benefit and consulting agreement with James F. Conway, Jr. (filed as Exhibit 10B to the Company's Annual Report on Form 10-K for the fiscal year ended September 29, 1990, and incorporated herein by reference). 10C-1+ Courier Corporation 1989 Deferred Income Stock Option Plan for Non-employee Directors, effective September 28, 1989 (filed as Exhibit A to the Company's Proxy Statement for the Annual Meeting of Stockholders held January 18, 1990, and incorporated herein by reference). 10C-2+ Amendment, effective November 4, 1993, to the 1989 Deferred Income Stock Option Plan for Non-employee Directors (filed as Exhibit 10C-2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 25, 1993, and incorporated herein by reference). 10C-3+* Amendment, effective September 24, 1998, to the 1989 Deferred Income Stock Option Plan for Non-employee Directors. 10D-1+ Courier Corporation 1983 Stock Option Plan (filed as Exhibit A to the Company's Proxy Statement for the Annual Meeting of Stockholders held on January 20, 1983, and incorporated herein by reference). 10D-2+ Amendment, effective January 17, 1985, to the Courier Corporation 1983 Stock Option Plan (described in Item 2 of the Company's Proxy Statement for the Annual Meeting of Stockholders held on January 17, 1985, and incorporated herein by reference). 10D-3+ Amendment, effective January 19, 1989, to the Courier Corporation 1983 Stock Option Plan (described in Item 3 of the Company's Proxy Statement for the Annual Meeting of Stockholders held January 19, 1989, and incorporated herein by reference). 10E-1+ Executive Incentive Compensation Program as amended and restated effective December, 1987 (filed as Exhibit 10L-1 to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1988, and incorporated herein by reference). 10E-2+ The Courier Executive Compensation Program, effective October 4, 1993 (filed as Exhibit 10E-2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 25, 1993, and incorporated herein by reference). 10E-3+ The Management Incentive Compensation Program, effective October 4, 1993 (filed as Exhibit 10E-3 to the Company's Annual Report on Form 10-K for the fiscal year ended September 25, 1993, and incorporated herein by reference).
11 10F+ Courier Corporation Senior Executive Severance Program and Agreements, dated October 25, 1988 pursuant to the program with Messrs. Conway III, Nichols, Story and Osenton (filed as Exhibit 10P to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1988, and incorporated herein by reference). 10G Rights Amendment between Courier Corporation and State Street Bank and Trust Company dated October 25, 1988 (filed as Exhibit 1 to the Company's Current Report on Form 8-K, dated October 28, 1988, and incorporated herein by reference). 10H+ 1989 Incentive Program, as amended and restated on May 28, 1992 for the purchase of Courier Common Stock by Executive Officers and Key Employees of the Corporation (filed as Exhibit 10H to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, and incorporated herein by reference). 10I+ Courier Corporation 1988 Employee Stock Purchase Plan (filed as Exhibit A to the Company's Proxy Statement for the Annual Meeting of Stockholders held on January 21, 1988, and incorporated herein by reference). 10J-1+ Agreement, as of March 3, 1993, of Courier Corporation relating to employment contract and supplemental retirement benefit with George Q. Nichols (filed as Exhibit 10J to the Company's Annual Report on Form 10-K for the fiscal year ended September 25, 1993, and incorporated herein by reference). 10J-2+ Amendment, as of April 16, 1997, to supplemental retirement benefit agreement with George Q. Nichols (filed as Exhibit 10J-2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 1997, and incorporated herein by reference). . 10K Agreement, dated as of October 16, 1995, of Courier Corporation relating to employment of John Pugsley (filed as Exhibit 10K to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995, and incorporated herein by reference). 10L-1 Revolving Credit Agreement, dated as of March 18, 1997, between Courier Corporation, State Street Bank and Trust Company and BankBoston, N.A., providing for a $20 million revolving credit facility (filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the period ended March 29, 1997, and incorporated herein by reference). 10L-2 Amendment, dated July 22, 1997, to Note Agreement between Courier Corporation, State Street Bank and Trust Company and BankBoston, N.A., providing for a $30 million revolving credit facility (filed as Exhibit 10L-2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 1997, and incorporated herein by reference).
12 10L-3 Amendment, dated February 27, 1998, to Note Agreement between Courier Corporation, State Street Bank and Trust Company and BankBoston, N.A., providing for a $30 million revolving credit facility (filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the period ended March 28, 1998, and incorporated herein by reference). 10M-1 Term Promissory Note, dated as of October 15, 1991, between Courier Corporation and MetLife Capital Credit Corporation for the principal sum of $2,000,000 at 9.5% due October 15, 2001 (filed as Exhibit 4F-1 to the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1991, and incorporated herein by reference). 10M-2 Loan and Security Agreement, dated as of October 15, 1991, between Courier Corporation and MetLife Capital Credit Corporation (filed as Exhibit 4F-2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1991, and incorporated herein by reference). 10N Master Lease Finance Agreement, dated as of July 27, 1994, between Courier Corporation and BancBoston Leasing (filed as Exhibit 10P to the Company's Annual Report on Form 10-K for the fiscal year ended September 24, 1994, and incorporated herein by reference). 10O-1+ Courier Corporation 1993 Stock Incentive Plan, as amended and restated, effective May 6, 1996 (filed as Exhibit 10O to the Company's Annual Report on Form 10-K for the fiscal year ended September 28, 1996, and incorporated herein by reference). 10O-2+* Amendment, effective September 24, 1998, to the Courier Corporation 1993 Stock Incentive Plan. 10P Stock Purchase Agreement by and among Courier Corporation and the stockholders of Book-mart Press, Inc., dated as of July 21, 1997 (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K dated July 21, 1997, and incorporated herein by reference). 10Q+ Courier Corporation Deferred Compensation Program dated November 6, 1997 with Messrs. Conway III, Nichols, Story and Osenton (filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the period ended December 27, 1997, and incorporated herein by reference).
13 10R* Master Lease Finance Agreement, dated as of September 23, 1998 between Courier Corporation and General Electric Capital Corporation. 21* Schedule of Subsidiaries. 23* Consent of Deloitte & Touche LLP, independent accountants. 27* Financial Data Schedule.
* Exhibit is furnished herewith. + Designates a Company compensation plan or arrangement. (c) Reports on Form 8-K None. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 3, 1998. COURIER CORPORATION By: s/James F. Conway III -------------------------- James F. Conway III Chairman, President and Chief Executive Officer By: s/Robert P. Story, Jr. -------------------------- Robert P. Story, Jr. Senior Vice President and Chief Financial Officer By: s/Peter M. Folger -------------------------- Peter M. Folger Vice President and Chief Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated, on December 3, 1998. s/James F. Conway III s/George Q. Nichols - -------------------------- ---------------------------- James F. Conway III George Q. Nichols Chairman, President and Director Chief Executive Officer s/Kathleen Foley Curley s/Charles E. Otto - ------------------------- ---------------------------- Kathleen Foley Curley Charles E. Otto Director Director s/Richard K. Donahue s/Robert P. Story, Jr. - ------------------------- ---------------------------- Richard K. Donahue Robert P. Story, Jr. Director Director s/Edward J. Hoff s/W. Nicholas Thorndike - ------------------------- ---------------------------- Edward J. Hoff W. Nicholas Thorndike Director Director s/Arnold S. Lerner - ------------------------- Arnold S. Lerner Director 15 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Courier Corporation: We have audited the accompanying consolidated balance sheets of Courier Corporation and subsidiaries ("the Company") as of September 26, 1998 and September 27, 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 26, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 26, 1998 and September 27, 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 26, 1998 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Boston, Massachusetts November 5, 1998 F-1 COURIER CORPORATION CONSOLIDATED BALANCE SHEETS
September 26, 1998 September 27, 1997 ------------------ ------------------ ASSETS Current assets: Cash and cash equivalents (Note A) $ 722,000 $ 27,000 Accounts receivable, less allowance for uncollectible accounts of $1,078,000 in 1998 and $1,242,000 in 1997 27,941,000 25,919,000 Inventories (Note B) 10,828,000 9,695,000 Deferred income taxes (Note C) 1,758,000 1,642,000 Other current assets 847,000 780,000 ------------ ------------ Total current assets 42,096,000 38,063,000 Property, plant and equipment (Notes A and D): Land 1,059,000 1,059,000 Buildings and improvements 18,803,000 18,521,000 Favorable building lease 2,816,000 2,816,000 Machinery and equipment 77,490,000 74,422,000 Furniture and fixtures 1,668,000 1,681,000 Construction in progress 523,000 841,000 ------------ ------------ 102,359,000 99,340,000 Less-Accumulated depreciation and amortization (69,102,000) (62,398,000) ------------ ------------ Net property, plant and equipment 33,257,000 36,942,000 Real estate held for sale or lease, net (Note J) 336,000 2,459,000 Goodwill and other intangibles, net (Notes A and I) 11,421,000 11,618,000 Other assets 520,000 561,000 ------------ ------------ Total assets $ 87,630,000 $ 89,643,000 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the consolidated financial statements. F-2 COURIER CORPORATION CONSOLIDATED BALANCE SHEETS
September 26, 1998 September 27, 1997 -------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt (Note D) $ 312,000 $ 387,000 Accounts payable 9,294,000 9,557,000 Accrued payroll 4,319,000 3,644,000 Accrued taxes 4,935,000 4,961,000 Other current liabilities 6,709,000 5,426,000 ------------ ------------ Total current liabilities 25,569,000 23,975,000 Long-term debt (Note D) 6,781,000 18,593,000 Deferred income taxes (Note C) 2,992,000 3,375,000 Other liabilities 2,498,000 1,952,000 ------------ ------------ Total liabilities 37,840,000 47,895,000 ------------ ------------ ------------ ------------ Commitments and contingencies (Note E) Stockholders' equity (Notes A and F): Preferred stock, $1 par value-authorized 1,000,000 shares; none issued Common stock, $1 par value: Shares 1998 1997 ------ --------- --------- Authorized 6,000,000 6,000,000 Issued 3,750,000 4,500,000 Outstanding 3,172,000 2,007,000 3,750,000 4,500,000 Additional paid-in capital 384,000 9,277,000 Retained earnings 49,464,000 52,060,000 Treasury stock, at cost: 578,000 shares in 1998 and 2,493,000 shares in 1997 (3,808,000) (24,089,000) ------------ ------------ Total stockholders' equity 49,790,000 41,748,000 ------------ ------------ Total liabilities and stockholders' equity $ 87,630,000 $ 89,643,000 ------------ ------------
The accompanying notes are an integral part of the consolidated financial statements. F-3 COURIER CORPORATION CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended ------------------------------------------------------------ September 26, 1998 September 27, 1997 September 28, 1996 ------------------ ------------------ ------------------ Net sales $ 151,591,000 $ 131,433,000 $ 125,232,000 Cost of sales 113,937,000 103,342,000 102,594,000 ------------- ------------- ------------- Gross profit 37,654,000 28,091,000 22,638,000 Selling and administrative expenses 26,653,000 20,945,000 18,647,000 Interest expense 1,303,000 867,000 840,000 Other income (expense) (Note J) 2,057,000 (275,000) (267,000) ------------- ------------- ------------- Income before taxes 11,755,000 6,004,000 2,884,000 Provision for income taxes (Note C) 4,030,000 1,688,000 334,000 ------------- ------------- ------------- Net income $ 7,725,000 $ 4,316,000 $ 2,550,000 ------------- ------------- ------------- ------------- ------------- ------------- Net income per share (Notes A and H): Basic $ 2.49 $ 1.44 $ .84 Diluted $ 2.37 $ 1.41 $ .82 Cash dividends declared per share $ .385 $ .32 $ .32
The accompanying notes are an integral part of the consolidated financial statements. F-4 COURIER CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended ------------------------------------------------------------------ September 26, 1998 September 27, 1997 September 28, 1996 ------------------ ------------------ ------------------ Operating Activities: Net income $ 7,725,000 $ 4,316,000 $ 2,550,000 Adjustments to reconcile net income to cash provided from operating activities: Depreciation and amortization 8,541,000 7,237,000 6,534,000 Deferred income taxes (499,000) (812,000) (303,000) Change in accounts receivable (2,022,000) 1,671,000 (4,916,000) Change in inventory (1,010,000) (705,000) 1,271,000 Change in accounts payable (263,000) (472,000) 726,000 Change in accrued taxes (26,000) 364,000 (119,000) Change in other elements of working capital 1,891,000 1,431,000 (561,000) Other, net (1,695,000) 1,051,000 75,000 ---------------- ----------------- ----------------- Cash provided from operating activities 12,642,000 14,081,000 5,257,000 ---------------- ----------------- ----------------- Investment Activities: Business acquisitions (Note I) (563,000) (12,701,000) - Capital expenditures (4,147,000) (6,732,000) (7,335,000) Proceeds from sale of assets (Note J) 4,600,000 - 1,792,000 ---------------- ----------------- ----------------- Cash used for investment activities (110,000) (19,433,000) (5,543,000) ---------------- ----------------- ----------------- Financing Activities: Scheduled long-term debt repayments (387,000) (466,000) (409,000) Other long-term borrowings (repayments) (11,500,000) 7,404,000 282,000 Cash dividends (1,205,000) (969,000) (970,000) Stock repurchase program - (882,000) - Proceeds from stock plans 1,255,000 259,000 269,000 ---------------- ----------------- ----------------- Cash provided from (used for) financing activities (11,837,000) 5,346,000 (828,000) ---------------- ----------------- ----------------- Increase (decrease) in cash and cash equivalents 695,000 (6,000) (1,114,000) Cash at the beginning of the period 27,000 33,000 1,147,000 ---------------- ----------------- ----------------- Cash at the end of the period $ 722,000 $ 27,000 $ 33,000 ---------------- ----------------- ----------------- ---------------- ----------------- ----------------- Supplemental cash flow information: Interest paid $ 1,243,000 $ 774,000 $ 724,000 Income taxes paid (net of receipts) $ 4,498,000 $ 2,060,000 $ 739,000
The accompanying notes are an integral part of the consolidated financial statements. F-5 COURIER CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Additional Retained Treasury Stockholders' Stock Paid-in Capital Earnings Stock Equity ------------ --------------- -------------- ------------- ------------ Balance, September 30, 1995 $ 4,500,000 $ 8,884,000 $ 47,133,000 $(23,691,000) $ 36,826,000 Net income -- -- 2,550,000 -- 2,550,000 Cash dividends -- -- (970,000) -- (970,000) Shares issued under stock plans -- 171,000 -- 187,000 358,000 ------------ --------------- -------------- ------------- ------------ Balance, September 28, 1996 4,500,000 9,055,000 48,713,000 (23,504,000) 38,764,000 Net income -- -- 4,316,000 -- 4,316,000 Cash dividends -- -- (969,000) -- (969,000) Stock repurchase program -- -- -- (882,000) (882,000) Shares issued under stock plans -- 125,000 -- 194,000 319,000 Shares issued in connection with business acquisition (Note I) -- 97,000 -- 103,000 200,000 ------------ --------------- -------------- ------------- ------------ Balance, September 27, 1997 4,500,000 9,277,000 52,060,000 (24,089,000) 41,748,000 Net income -- -- 7,725,000 -- 7,725,000 Cash dividends -- -- (1,205,000) -- (1,205,000) Shares issued under stock plans -- 734,000 -- 788,000 1,522,000 Convert treasury shares (Note A) (2,000,000) (9,627,000) (7,866,000) 19,493,000 -- Stock dividend (Note A) 1,250,000 -- (1,250,000) -- -- ------------ --------------- -------------- ------------- ------------ Balance, September 26, 1998 $ 3,750,000 $ 384,000 $ 49,464,000 $ (3,808,000) $ 49,790,000 ------------ --------------- -------------- ------------- ------------ ------------ --------------- -------------- ------------- ------------
The accompanying notes are an integral part of the consolidated financial statements F-6 COURIER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business: Courier Corporation ("Courier" or the "Company") helps organizations manage the process of creating and distributing intellectual properties. Courier's book manufacturing business offers services from preparation, production, media replication, kitting and packaging through storage, and distribution. Products include Bibles, reference texts, books, software kits and technical documentation. Courier also operates businesses which respond to the need for greater choice in education, providing Internet-based solutions for custom coursepacks, as well as direct marketing of educational materials to families engaged in educating children at home. Principles of Consolidation: The consolidated financial statements, prepared on a fiscal year basis, include the accounts of Courier Corporation and its subsidiaries after elimination of all significant intercompany transactions. Such financial statements have been prepared in conformity with generally accepted accounting principles which require the use of certain estimates and assumptions. Financial Instruments: Financial instruments consist primarily of cash, accounts receivable, accounts payable and debt obligations. The Company classifies as cash and cash equivalents amounts on deposit in banks and cash invested temporarily in various instruments with maturities of three months or less at time of purchase. The Company estimates the fair value of financial instruments based on interest rates available to the Company and by comparison to quoted market prices. At September 26, 1998 and September 27, 1997, the fair value of the Company's financial instruments approximated their carrying values. Property, Plant and Equipment: Property, plant and equipment are recorded at cost, including interest on funds borrowed to finance the acquisition or construction of major capital additions. Capitalized interest was approximately $34,000 in fiscal 1997 and $15,000 in fiscal 1996. No interest was capitalized in fiscal 1998. The Company provides for depreciation of plant and equipment on a straight-line basis over periods ranging from 3 to 11 years, except for depreciation on buildings and improvements which is based on estimated useful lives ranging from 10 to 40 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. A favorable building lease is being amortized over the life of the lease, which expires in 2005. Expenditures for maintenance and repairs are charged against income as incurred; betterments which increase the value or materially extend the life of the related assets are capitalized. When assets are sold or retired, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income. Goodwill: Goodwill arising from recent business acquisitions, which are discussed more fully in Note I, is being amortized using the straight-line method over periods ranging from 5 to 20 years. Amortization expense was $597,000 and $97,000 for fiscal 1998 and fiscal 1997, respectively. The Company continues to carry goodwill of approximately $1.2 million arising from the purchase of a company prior to October 31, 1970; such amount is not being amortized because management believes that the value has not diminished. Income Taxes: The provision for income taxes is determined as required by SFAS No. 109, "Accounting for Income Taxes", issued by the Financial Accounting Standards Board (FASB). Under SFAS No. 109, deferred income taxes are recorded based upon the differences between the financial statement and tax bases of assets and liabilities, and are measured by applying enacted tax rates and laws for the taxable years in which these differences are expected to reverse. Revenue Recognition: Revenue is recognized upon shipment of goods to customers or upon the transfer of ownership interest. F-7 COURIER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Use of Estimates: The process of preparing financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. Actual results may differ from these estimates. Net Income per Share: Basic net income per share is based on the weighted average number of common shares outstanding each period. Diluted net income per share also includes potentially dilutive items such as options (see Note H). Stock Split: On April 16, 1998, the Company announced a three-for-two stock split effected in the form of a 50% stock dividend which was distributed on June 1, 1998 to stockholders of record on May 15, 1998. Per share amounts for each period presented in the accompanying financial statements have been restated to give effect to the stock split. In addition, related to this stock split, the Company converted 2,000,000 shares of treasury stock to authorized but unissued shares. New Accounting Pronouncements: The FASB recently issued SFAS No. 130, "Reporting Comprehensive Income", SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", SFAS No. 132, "Employer Disclosures about Pensions and Other Postretirement Benefits" and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". These new standards will be effective in the Company's fiscal year ending September 25, 1999, with the exception of SFAS No. 133 which will be effective in the Company's fiscal year ending September 30, 2000. The Company does not expect that the implementation of these new standards will be material to the consolidated financial statements. B. INVENTORIES Inventories are valued at the lower of cost or market using the last-in, first-out (LIFO) method for most inventories. Inventories as of September 26, 1998 and September 27, 1997 consisted of the following:
1998 1997 ----------- ------------ Raw materials $ 3,171,000 $ 3,912,000 Work in process 4,903,000 4,108,000 Finished goods 2,754,000 1,675,000 ----------- ------------ Total $10,828,000 $ 9,695,000 ----------- ------------ ----------- ------------
On a first-in, first-out (FIFO) basis, reported year-end inventories would have increased by $5.3 million in fiscal 1998 and $5.7 million in fiscal 1997. C. INCOME TAXES The statutory federal tax rate is 34%. The total provision differs from that computed using the statutory federal income tax rate for the following reasons:
1998 1997 1996 ----------- ----------- ----------- Federal income taxes at statutory rate $ 3,997,000 $ 2,041,000 $ 980,000 State income taxes, net of federal income tax benefit 428,000 189,000 143,000 Export related income (310,000) (288,000) (279,000) Donation of real estate -- (300,000) (500,000) Other (85,000) 46,000 (10,000) ----------- ----------- ----------- Total $ 4,030,000 $ 1,688,000 $ 334,000 ----------- ----------- -----------
F-8 COURIER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The provision for income taxes consisted of the following:
1998 1997 1996 ----------- ----------- ----------- Currently payable: Federal $ 3,697,000 $ 2,040,000 $ 343,000 State 832,000 460,000 294,000 ----------- ----------- ----------- 4,529,000 2,500,000 637,000 ----------- ----------- ----------- Deferred: Federal (315,000) (638,000) (225,000) State (184,000) (174,000) (78,000) ----------- ----------- ----------- (499,000) (812,000) (303,000) ----------- ----------- ----------- Total $ 4,030,000 $ 1,688,000 $ 334,000 ----------- ----------- ----------- ----------- ----------- -----------
The deferred income tax net benefit arose from the following temporary differences:
1998 1997 1996 --------- ---------- --------- Accelerated depreciation $(549,000) $(648,000) $ 605,000 Non-deductible accruals and reserves (144,000) (238,000) (363,000) Retirement plan contributions (77,000) 51,000 (69,000) Charitable contributions carryforward 379,000 47,000 (500,000) Other (108,000) (24,000) 24,000 --------- ---------- --------- Total $(499,000) $(812,000) $(303,000) --------- ---------- --------- --------- ---------- ---------
The following is a summary of the significant components of the Company's deferred tax assets and liabilities as of September 26, 1998 and September 27, 1997:
1998 1997 ---------- ---------- Deferred tax assets: Vacation accrual not currently deductible $ 444,000 $ 433,000 Other accruals not currently deductible 375,000 436,000 Non-deductible reserves 881,000 686,000 Other 58,000 87,000 ---------- ---------- Classified as current 1,758,000 1,642,000 Deferred compensation arrangements 1,058,000 915,000 Charitable contributions carryforward 74,000 453,000 Other 75,000 5,000 ---------- ---------- Total deferred tax assets $2,965,000 $3,015,000 ---------- ---------- ---------- ---------- Deferred tax liabilities: Accelerated depreciation $4,199,000 $4,748,000 -----------------------
Non-current deferred tax assets have been netted against non-current deferred tax liabilities for balance sheet classification purposes. F-9 COURIER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS D. LONG-TERM DEBT Long-term debt of the Company and its consolidated subsidiaries consisted of the following:
1998 1997 ----------- ----------- Obligation under revolving bank credit facility at 6.2% as of September 26, 1998 $ 5,250,000 $16,750,000 Obligation under industrial development bond arrangement at 3%, payable in monthly installments through May 2011 1,041,000 1,108,000 9.5% secured promissory note, payable in monthly installments through October 2001 802,000 1,022,000 Other -- 100,000 ----------- ----------- 7,093,000 18,980,000 Less: Current maturities 312,000 387,000 ----------- ----------- Total $ 6,781,000 $18,593,000 ----------- ----------- ----------- -----------
Scheduled aggregate principal payments of long-term debt are $312,000 in fiscal 1999, $5,588,000 in fiscal 2000, $366,000 in fiscal 2001, $76,000 in fiscal 2002, $78,000 in fiscal 2003 and $673,000 thereafter. In March 1997, the Company replaced its $11 million long-term revolving credit facility with BankBoston, N.A. and $10 million informal bank credit line with State Street Bank and Trust Company with a $20 million long-term revolving credit facility involving both banks. In July 1997, this facility was extended from $20 million to $30 million in contemplation of the acquisition of Book-mart Press, Inc. (see Note I). Under this credit facility, the Company can borrow at either LIBOR plus 3/4% or the bank's money market rates. The revolving credit facility matures in February 2000 and borrowings of $5,250,000 at September 26, 1998 are included in scheduled aggregate principal payments due in 2000; the maturity date is expected to be extended in 1999. The Company has not had any short-term borrowings during the three fiscal years ended September 26, 1998. The revolving credit facility contains restrictive covenants including provisions relating to the maintenance of working capital, the incurring of additional indebtedness and a quarterly test of cash flow to debt service. It also provides for a commitment fee of 1/4% per annum on the unused portion. The industrial bond arrangement and the 9.5% promissory note provide for a lien on the assets acquired with the proceeds. E. COMMITMENTS AND CONTINGENCIES The Company is committed under various operating leases to make annual rental payments for certain buildings and equipment. Amounts charged against income under such leases approximated $2,872,000 in fiscal 1998, $2,365,000 in fiscal 1997 and $2,370,000 in fiscal 1996. As of September 26, 1998, minimum annual rental commitments under the Company's long-term operating leases are approximately $3,064,000 in fiscal 1999, $2,680,000 in fiscal 2000, $2,390,000 in fiscal 2001, $1,964,000 in fiscal 2002, $1,664,000 in fiscal 2003 and $4,580,000 in the aggregate thereafter. In the ordinary course of business, the Company is subject to various legal proceedings and claims. The Company believes that the ultimate outcome of these matters will not have a material adverse effect on its financial statements. F. STOCK ARRANGEMENTS Stock Option/Incentive Plans: In January 1993, stockholders approved the Courier Corporation 1993 Stock Incentive Plan to replace the expiring 1983 Stock Option Plan. The 1993 Stock Incentive Plan was amended and restated, with stockholder approval, in January 1996. The amendment provided for, among other things, an increase in the number of shares available for granting of stock options and stock grants under the plan by 150,000 shares to a total of 345,000 shares. Under the provisions of each plan, both non-qualified and incentive stock options to purchase shares of the Company's common stock may be granted to key employees. The option price per share may not be less than the fair market value of stock at the time the option is granted and incentive stock options must expire not later than ten years from the date of grant. F-10 COURIER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Directors' Option Plan: A 1989 plan, as amended in November 1993, allows members of the Company's Board of Directors to make an election to apply either 50% or 100% of their annual retainer fee, including the committee chair retainer, toward the annual grant of a stock option to be offered at a price per share $5 below the fair market value of the Company's common stock at the time the option is granted. Retainer fees for fiscal 1998 amounted to $14,000 per director; in addition, the two committee chair fees amounted to a total of $15,000 for fiscal 1998. The plan, as approved by stockholders, provides that 150,000 shares be reserved for the granting of options. The following is a summary of all option activity for these plans:
Stock Option/Incentive Plans Directors' Option Plan ------------------------------------------------------ Average Average Exercise Exercise Shares Price Shares Price ------- -------- -------- --------- Outstanding at September 30, 1995 350,520 $ 9.65 18,600 $ 7.26 Issued during period 44,288 10.91 20,100 10.34 Exercised during period (19,673) 8.61 (3,600) 8.07 Canceled during period (12,357) 10.11 -- -- ------- -------- -------- --------- Outstanding at September 28, 1996 362,778 $ 9.85 35,100 $ 8.77 Issued during period 31,538 14.50 21,000 7.46 Exercised during period (5,250) 6.38 (13,200) 7.40 Canceled during period (2,250) 12.89 -- -- Expired during period (15,450) 13.25 -- -- ------- -------- -------- --------- Outstanding at September 27, 1997 371,366 $ 10.13 42,900 $ 8.69 Issued during period 35,300 21.46 24,000 11.29 Exercised during period (137,510) 8.69 (22,500) 9.43 Canceled during period (3,599) 10.11 -- -- ------- -------- -------- --------- Outstanding at September 26, 1998 265,557 $ 12.39 44,400 $ 9.72 ------- -------- -------- --------- ------- -------- -------- --------- Exercisable at September 26, 1998 187,584 $ 10.51 44,400 $ 9.72 Available for future grants 64,537 -- 28,500 --
The following table presents information with regard to all stock options outstanding at September 26, 1998:
Directors' Stock Option/Incentive Plans Option Plan -------------------------------------------------------------- $ 8.83- $ 14.17- $ 22.83- $ 7.42- Range of Exercise Prices $ 4.67 $ 13.17 $ 20.75 $ 27.25 $ 15.17 - ------------------------ -------- --------- -------- -------- --- --------- Options outstanding 14,250 176,970 65,487 8,850 44,400 Weighted average exercise price of options outstanding $ 4.67 $ 10.63 $ 17.30 $ 23.58 $ 9.72 Weighted average remaining life 2.6 years 2.7 years 6.0 years 5.3 years 3.0 years Options exercisable 14,250 157,821 15,513 -- 44,400 Weighted average exercise price of options exercisable $ 4.67 $ 10.57 $ 15.28 -- $ 9.72
Stock Grant Plan: The Company established a stock grant plan in 1977 entitling key employees to receive shares of common stock of the Company. Shares granted are either fully vested or vest over periods up to 5 years. The maximum number of shares of common stock which may be awarded under the stock grant plan is 198,750 shares and no more than 33,750 shares may be awarded in any one fiscal year. The number of shares granted under the plan were 2,000 in fiscal 1998, 3,000 in fiscal 1997 and 6,000 in fiscal 1996. The related compensation expense, based on the amortization over the vesting period of the fair market value of the shares on the date granted, was $52,000 in fiscal 1998, $22,000 in fiscal 1997 and $31,000 in fiscal 1996. As of September 26, 1998, there were 4,928 shares available for future grants under the plan. F-11 COURIER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Employee Stock Purchase Plan: Under the Company's Employee Stock Purchase Plan ("ESPP") adopted in fiscal 1988, eligible employees may purchase shares of Company common stock at not less than 85% of fair market value at the beginning or end of the grant period. During fiscal 1998, 8,077 shares were issued under the plan. At September 26, 1998, 92,712 shares had been issued under the plan since inception at an average price of $8.40 per share, with an additional 42,288 shares reserved for future issuances. Stock Repurchase Program: In November 1996, the Company announced a program to repurchase up to $3 million of its common stock because the Company believed the stock was attractively priced. When the program ended in October 1997, the Company had acquired 81,273 shares of common stock at an average cost of $10.85 per share. These shares were included in treasury stock which the Company has historically used for stock options and grants; the Company intends to continue to use treasury stock for such purposes. Stockholders' Rights Plan: In October 1988, the Board of Directors adopted a ten-year stockholders' rights plan. Under the plan, the Company's stockholders of record at November 4, 1988 received rights to purchase one one-hundredth of a share of preferred stock for each share of common stock held on that date. The rights are not exercisable, or transferable apart from the common stock, until certain events occur. Pro forma Disclosures: The Company accounts for its stock option plans under APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Had compensation cost for stock options granted after 1995 and for grants under the ESPP during fiscal 1998 been determined under the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net income would have been $7,524,000, or $2.31 per diluted share, for fiscal 1998; $4,250,000, or $1.39 per diluted share, for fiscal 1997; and $2,519,000, or $.81 per diluted share, for fiscal 1996. The pro forma effect on net income and net income per share for fiscal 1998, fiscal 1997 and fiscal 1996 is not representative of the pro forma effect on net income in future years, because it does not take into consideration pro forma compensation expense related to options granted prior to fiscal 1996 or ESPP grants prior to fiscal 1998. For purposes of pro forma disclosures, the fair value of each grant was estimated on the date of grant using the Black-Scholes option pricing model. The following key assumptions were used to value grants issued:
1998 1997 1996 --------- -------- ------- Risk-free interest rate 4.9% 6.2% 6.3% Expected volatility 35% 34% 24% Expected dividend yields 2.0% 2.3% 3.4% Estimated life for grants under: 1993 Stock Incentive Plan 7 years 7 years 7 years Directors' Option Plan 5 years 5 years 5 years Employee Stock Purchase Plan 6 months --------- -------- ------- --------- -------- -------
Following is a summary of the weighted average fair value per share of options granted during 1998, 1997 and 1996:
1993 Stock Incentive Plan Directors' Option Plan ------------------------------------------------------ On grant date: 1998 1997 1996 1998 1997 1996 -------- ----- ----- ------- ----- ------- Exercise price was equal to stock price $7.74 $5.29 $2.87 - - - Exercise price was in excess of stock price $5.98 $4.16 $1.84 - - - Exercise price was less than stock price - - - $5.79 $3.73 $4.49 -------- ----- ----- ------- ----- -------
F-12 COURIER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS G. RETIREMENT PLANS The Company and its consolidated subsidiaries maintain various retirement plans covering substantially all of its employees. Pension costs of multi-employer union plans consist of defined contributions determined in accordance with the respective collective bargaining agreements. Retirement benefits for non-union employees are provided through the Courier Profit Sharing and Savings Plan, which includes an Employee Stock Ownership Plan ("ESOP"). Retirement costs for the Company's principal plans amounted to $1,934,000 in fiscal 1998, $1,466,000 in fiscal 1997 and $1,063,000 in fiscal 1996. The Profit Sharing and Savings Plan is qualified under Section 401(k) of the Internal Revenue Code. The plan allows eligible employees to contribute up to 16% of their compensation, with the Company matching 25% of the first 6% of employee contributions. The Company also makes contributions to the plan annually based on profits each year for the benefit of all eligible non-union employees. Shares of Company common stock may be allocated to participants' ESOP accounts annually based on their compensation as defined in the plan. During fiscal 1998, no such shares were allocated to eligible participants. At September 26, 1998, the ESOP held 188,847 shares on behalf of the participants. H. NET INCOME PER SHARE During the first quarter of fiscal 1998, the Company adopted SFAS No. 128, "Earnings per Share". Prior period net income per share has been restated to reflect current presentation. Following is a reconciliation of the shares used in the calculation of basic and diluted net income per share. Potentially dilutive shares, calculated using the treasury stock method, consist of shares issued under the Company's stock option and stock grant plans. Shares and per share amounts have been adjusted to reflect a three-for-two stock split effected in the form of a dividend distributed on June 1, 1998 (see Note A).
1998 1997 1996 ------------------------------------ Average shares outstanding for basic 3,100,000 3,007,000 3,031,000 Effect of potentially dilutive shares 154,000 60,000 75,000 --------- --------- ---------- Average shares outstanding for diluted 3,254,000 3,067,000 3,106,000 --------- --------- ---------- --------- --------- ----------
I. BUSINESS ACQUISITIONS On July 21, 1997, the Company acquired all of the outstanding capital stock of Book-mart Press, Inc. ("Book-mart"), a North Bergen, New Jersey book manufacturer specializing in short to medium runs of softcover and hardcover books. The Company paid approximately $12.7 million in cash to the former stockholders of Book-mart for their shares of capital stock. At the time of the closing, Book-mart had approximately $2.3 million of outstanding bank indebtedness which was subsequently paid in full. In connection with the acquisition, 16,667 shares of Courier common stock (based upon a valuation of $12 per share) were issued to two key executives of Book-mart for non-compete agreements. In addition, one of such executives was issued 25,000 shares (subject to a four-year vesting schedule) in connection with an employment agreement. The acquisition was accounted for as a purchase and, accordingly, Book-mart's results of operations have been included in the consolidated financial statements from July 21, 1997 forward. The excess of the purchase price over the fair value of net assets acquired amounted to approximately $10 million, which has been accounted for as goodwill and is being amortized on a straight-line basis over twenty years. Book-mart leases its office and plant facility from a corporation owned by two of the former stockholders of Book-mart, one of whom remains as a key executive of Book-mart. The lease agreement requires annual payments of approximately $216,000 and expires five years from the date of acquisition. On September 30, 1997, the Company purchased The Home School Books & Supplies ("The Home School"), based in Arlington, Washington. The Home School is a direct marketer of educational materials to families engaged in educating children at home. The purchase price was approximately $0.5 million. F-13 COURIER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS J. OTHER INCOME (EXPENSE) Other income (expense) as reported in the accompanying income statements consisted of the following:
1998 1997 1996 -------------- --------------- --------------- Net rental income $ 14,000 $ 31,000 $ 99,000 Gain (loss) on sale/donation of real estate 2,043,000 (306,000) (366,000) -------------- --------------- --------------- Total $ 2,057,000 $ (275,000) $ (267,000) -------------- --------------- --------------- -------------- --------------- ---------------
In June 1998, the Company completed the sale of a former industrial facility in Philadelphia which had been vacant. During fiscal 1997, the Company had consolidated its operations in Philadelphia from this older, multistory facility to a recently expanded, more efficient manufacturing facility also in Philadelphia. The selling price of the property was $4.6 million, resulting in a pretax gain of approximately $2.0 million. The after-tax gain of approximately $1.1 million, or $.34 per diluted share, generated approximately $3.2 million of cash after taxes. In September 1996, the Company relocated its corporate headquarters into an existing facility in North Chelmsford, Massachusetts. In August 1997, the Company finalized the donation of its former corporate headquarters in Lowell, Massachusetts. The donation had no impact on 1997 earnings as a pretax loss of approximately $300,000 was offset by a comparable tax benefit. In March 1996, the Company completed the sale and donation of its former telephone directory manufacturing facility which had been vacant. Sales proceeds of $1.8 million for approximately half the facility resulted in a pretax loss of $366,000. Tax benefits from the donation of the remainder of the facility resulted in an after-tax gain on the overall transaction of approximately $250,000, or $.08 per diluted share. The Company's Raymond, New Hampshire facility, which had been leased through June 1996, is now vacant pending sale or lease and is included in the September 26, 1998 balance sheet as "Real estate held for sale or lease, net." Management does not believe that there is any material impairment of this or any other asset of the Company as measured in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". K. BUSINESS SEGMENTS AND FOREIGN OPERATIONS The Company is engaged principally in one industry, the manufacture and distribution of printed products. Customers, which consist primarily of publishers, are granted credit on an unsecured basis. Export sales as a percentage of consolidated sales were approximately 17% in fiscal 1998, 18% in fiscal 1997 and 17% in fiscal 1996. Sales to the Company's largest customer amounted to approximately 26% of consolidated sales in fiscal 1998, 28% in fiscal 1997 and 27% in fiscal 1996. In addition, sales to another customer amounted to 12% of consolidated sales in fiscal 1998 and 11% in fiscal 1997. No other customer accounted for more than 10% of consolidated sales. F-14 COURIER CORPORATION SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal 1998 (Dollars in thousands except per share amounts) First Second Third Fourth ------- -------- -------- -------- Operating Results: Net sales $35,306 $39,136 $36,903 $40,246 Gross profit 8,789 9,227 9,308 10,330 Net income 1,210 1,358 2,572 2,585 Net income per diluted share .38 .42 .79 .78 Dividends declared per share .093 .093 .093 .105 Stock Price: Highest bid 20 3/8 19 3/8 30 29 Lowest bid 13 7/8 17 3/8 17 3/4 20 3/4 ------- -------- -------- -------- ------- -------- -------- --------
Fiscal 1997 (Dollars in thousands except per share amounts) First Second Third Fourth ------- -------- -------- -------- Operating Results: Net sales $30,539 $32,011 $32,721 $36,162 Gross profit 6,321 6,769 6,509 8,492 Net income 929 828 815 1,744 Net income per diluted share .30 .27 .27 .57 Dividends declared per share .08 .08 .08 .08 Stock Price: Highest bid 10 1/2 11 5/8 12 1/4 14 1/2 Lowest bid 8 7/8 9 5/8 11 3/8 11 1/2 ------- -------- -------- -------- ------- -------- -------- --------
Common shares of the Company are traded over-the-counter on the Nasdaq National Market - symbol "CRRC". There were approximately 680 stockholders of record as of September 26, 1998. F-15 COURIER CORPORATION FIVE-YEAR FINANCIAL SUMMARY
(Dollar amounts in millions except per share data) 1998 1997 1996 1995* 1994** ------- ------- ------- ------- ------- Net sales $ 151.6 $ 131.4 $ 125.2 $ 120.7 $ 122.7 Gross profit 37.7 28.1 22.6 26.3 24.8 Net income 7.7 4.3 2.6 5.2 3.7 Net income per diluted share 2.37 1.41 .82 1.73 1.28 Dividends per share .385 .32 .32 .267 .133 Working capital 16.5 14.1 13.7 11.0 10.8 LIFO reserve 5.3 5.7 6.0 5.9 5.1 Current ratio (FIFO basis) 1.9 1.8 1.9 1.8 1.7 Total assets 87.6 89.6 74.8 73.0 64.4 Long-term debt 6.8 18.6 9.3 9.5 5.8 Long-term debt as a percentage of capitalization 12.0% 30.8% 19.3% 20.5% 15.6% Depreciation and amortization 8.5 7.2 6.5 6.0 5.8 Capital expenditures 4.1 6.7 7.3 15.0 2.2 Stockholders' equity 49.8 41.7 38.8 36.8 31.6 Return on stockholders' equity 15.5% 10.3% 6.6% 14.2% 16.6% Stockholders' equity per share 15.70 13.87 12.74 12.23 10.75 Shares outstanding (000's omitted) 3,172 3,011 3,044 3,011 2,936 Number of employees 1,254 1,202 1,050 1,103 1,093 ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income per share is based on weighted average shares outstanding; stockholders' equity per share is based on shares outstanding at year end. Shares outstanding and per share amounts have been retroactively adjusted to reflect a three-for-two stock split effected on June 1, 1998 (see Notes A and H). *Fiscal 1995 included 53 weeks. **Fiscal 1994 net income and net income per diluted share above are before the cumulative effect of an accounting change related to the adoption of SFAS No. 109, "Accounting for Income Taxes." After the cumulative effect of the accounting change, net income was $5.2 million, or $1.81 per diluted share. F-16 COURIER CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Sales in fiscal 1998 increased 15% to $151.6 million compared to $131.4 million in fiscal 1997. Strong sales to educational and religious publishers continued to provide much of the growth, while sales to software customers continued to drop, reflecting a reduction in the use of printed instruction manuals. The acquisition in July 1997 of Book-mart Press, Inc. ("Book-mart"), a short-run book manufacturer, accounted for approximately half of the 1998 sales increase. Sales from the Company's two newer businesses, The Home School and Copyright Management Services ("CMS"), which address the growing demand for choice in education, added $2 million in incremental revenues in 1998. The Home School, which was acquired on September 30, 1997, is a direct marketer of books and other educational products for supplementing or replacing traditional education with home-based learning. CMS provides customized coursepacks and copyright clearance services primarily to colleges and universities. Sales in fiscal 1997 increased 5% to $131.4 million compared to $125.2 million in fiscal 1996, despite a drop in paper prices and highly competitive market conditions. Growth came primarily from educational and religious markets while sales to software customers continued to fall sharply as printed manuals are replaced by CD-ROM and on-line services. In July 1997, the Company acquired Book-mart which added sales from the date of acquisition of approximately $2 million to 1997 sales. Gross profits increased by $9.6 million or 34% and, as a percentage of sales, increased to 24.8% from 21.4% in 1997. The improvement in gross profits resulted from increased sales volume and an improved mix of sales combined with productivity gains and cost savings. Gross profits in 1997 increased by $5.5 million or 24% and, as a percentage of sales, increased to 21.4% from 18.1% in 1996. The improvement reflects the benefits of increased sales volume, lower costs primarily from consolidation of two facilities in 1997 and from the streamlining of software documentation operations, and gains in productivity resulting from investments in new equipment and processes. Inflation has not had a significant impact on the Company's gross profits, nor on its overall operations, during the past three years. Selling and administrative expenses increased to $26.7 million in 1998 from $20.9 million in 1997 and, as a percentage of sales, were 17.6% in 1998 compared to 15.9% in 1997. The increase as a percentage of sales resulted from increased expenses of approximately $1 million for improvements to the Company's information systems and infrastructure, including expenses related to "Year 2000" remediation efforts, incremental selling and marketing expenses of approximately $1 million associated with the Company's newer businesses, The Home School and CMS, goodwill amortization of approximately $0.5 million related to the acquisition of Book-mart, and other expenses that relate directly to the increase in profitability. Selling and administrative expenses in 1997 increased by approximately $2.3 million over 1996. As a percentage of sales, selling and administrative expenses increased to 15.9% in 1997 from 14.9% in 1996. The increase resulted from the acquisition of Book-mart, expansion of CMS and expenses that relate directly to the increase in profitability. Interest expense was $1.3 million in 1998 compared to $0.9 million in 1997, reflecting increased average borrowings of approximately $6 million. Increased borrowings of approximately $16 million to finance the acquisitions of Book-mart and The Home School were offset by cash generated from operations which reduced borrowings by approximately $12 million during 1998. Interest expense for fiscal 1997 was $27,000 higher than fiscal 1996. Interest on debt of approximately $15 million related to the July 21, 1997 acquisition of Book-mart was approximately $175,000. Offsetting this was a drop in interest expense from a reduction in average (non-acquisition) borrowings of approximately $2.2 million. Other income (expense) in 1998 includes a gain from the sale of a former industrial facility in Philadelphia which had been vacant. During fiscal 1997, the Company had completed the consolidation of its operations in Philadelphia from this older facility to a recently expanded, more efficient manufacturing facility also in Philadelphia. The selling price of the facility was $4.6 million, resulting in a pretax gain of approximately $2.0 million and an after-tax gain of approximately $1.1 million, or $.34 per diluted share. In 1997, other income (expense) included a pretax loss of approximately $300,000 from the Company's donation of its former corporate headquarters. The donation had no impact on 1997 net income as the pretax loss was offset by a comparable tax benefit. In 1996, other income (expense) included a pretax loss from the Company's sale and donation of its former telephone directory manufacturing facility. F-17 COURIER CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS The sale of approximately half of the facility resulted in a pretax loss of $366,000. Tax benefits of approximately $500,000 from the donation of the remainder of the facility resulted in an after-tax gain on the overall transaction of approximately $250,000. The Company's effective tax rate for 1998 was 34% compared to 33% for 1997, exclusive of the $300,000 tax benefit related to the donation of property in 1997. The 1998 tax rate was higher than 1997 primarily due to nondeductible goodwill related to the acquisition of Book-mart. The Company's effective tax rate for 1997 was 33% compared to 29% for 1996, exclusive of the tax benefits derived from property donations in both 1997 and 1996. The 1996 tax rate was lower than 1997 primarily due to benefits from export related income in 1996. Net income was $7.7 million or $2.37 per diluted share in 1998, up 79% from $4.3 million or $1.41 per diluted share in 1997. The increase in net income in 1998 was from a $1.1 million gain on the sale of Philadelphia real estate and from a significant increase in sales and gross profits. Net income was $4.3 million or $1.41 per diluted share for fiscal 1997, up 69% from $2.6 million or $.82 per diluted share in fiscal 1996. The improvement in gross profit margins was the primary factor contributing to the increase in earnings. Weighted average shares outstanding increased approximately 187,000 shares in 1998. The increase was due to shares exercised under the Company's stock option plans, shares issued as compensation for noncompetition agreements pursuant to a business acquisition, and the impact of potentially dilutive shares which increased primarily due to the increase in the price per share of the Company's stock. Weighted average shares outstanding decreased approximately 39,000 shares from 1996 to 1997. The Company repurchased approximately 81,000 shares of its common stock in 1997 and common stock equivalents decreased by approximately 14,000 shares. On April 16, 1998, the Company announced a three-for-two stock split effected in the form of a 50% stock dividend which was distributed on June 1, 1998 to stockholders of record on May 15, 1998. Weighted average shares outstanding and net income per share amounts have been restated to give effect to the stock split. The Financial Accounting Standards Board recently issued SFAS No. 130, "Reporting Comprehensive Income", SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", SFAS No. 132, "Employer Disclosures about Pensions and Other Postretirement Benefits" and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". These new standards will be effective in the Company's fiscal year ending September 25, 1999, with the exception of SFAS No. 133 which will be effective in the Company's fiscal year ending September 30, 2000. The Company does not expect that the implementation of these new standards will be material to the consolidated financial statements. LIQUIDITY AND CAPITAL RESOURCES In fiscal 1998, operations provided approximately $12.6 million in cash. Net income for the year was $7.7 million and depreciation and amortization were $8.5 million. Working capital utilized approximately $1.4 million of cash, primarily from an increase in accounts receivable. Investment activities in 1998 used approximately $100,000 in cash. The acquisition of The Home School on September 30, 1997 used $0.6 million of cash. Proceeds from the sale of the Philadelphia real estate were $4.6 million, resulting in an after-tax gain of approximately $1.1 million. The sale generated $3.2 million of cash after taxes. Capital expenditures were $4.1 million, including $0.5 million for a computer-to-plate system which eliminates the need to produce film prior to printing and $0.5 million to upgrade the Company's information systems and infrastructure. The balance of 1998 capital expenditures were for improvements to increase productivity, lower costs and improve quality. A web press installed late in fiscal 1998 was financed under a $4.5 million operating lease. Fiscal 1999 capital expenditures are expected to be approximately $8-10 million, including $0.6 million related to Year 2000 issues. The Company's Raymond, New Hampshire facility, which had been leased through June 1996, continues to be vacant pending sale or lease. F-18 COURIER CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS Financing activities used approximately $11.8 million of cash to reduce long-term debt. Dividend payments were $1.2 million and proceeds from the Company's stock plans were $1.3 million, primarily from the exercise of stock options. At September 26, 1998, the Company utilized $5.3 million of its borrowing capacity available under a $30 million long-term revolving credit facility, which expires in February 2000. The Company intends to extend the maturity of this revolving credit facility in 1999. The Company does not hold any derivative financial instruments, derivative commodity instruments or other financial instruments except as noted in Note A to the financial statements. The Company engages neither in speculative nor derivative trading activities. The Company expects that its cash from operations and available credit facilities will be sufficient to meet its cash requirements through 1999. YEAR 2000 ISSUE The statements in the following section include "Year 2000 readiness disclosure" within the meaning of the Year 2000 Information and Readiness Disclosure Act. Historically, many computer programs were written using two digits rather than four to specify the year. Such software may recognize the year 2000 as "00" which could result in computer system failures or miscalculations, commonly referred to as the Year 2000 ("Y2K") issue. The Company recognizes the need to ensure that its operations will not be adversely impacted by a Year 2000 software failure. Incomplete or untimely resolution of the Y2K issue by the Company, key suppliers, customers and other parties could have a material adverse effect on the Company's results of operations, financial condition and cash flows. The Company established a Year 2000 Management Task Force to address the Y2K issue. This Task Force is coordinating efforts to identify, assess and implement changes to information technology ("IT") systems and operational systems such as presses and binders, telecommunications equipment, building security and environmental controls, and is evaluating the Y2K readiness of key suppliers, customers and other parties. Operational systems have been inventoried and assessment of Y2K compliance is approximately 60% complete. No instances of non-compliance have been found to date, indicating a low overall risk of non-compliance. Assessment, remediation and testing is expected to be completed for operational systems by March 31, 1999. The Company has substantially completed inventories and assessments of its IT systems in use at each of its locations. Many of the IT systems are not compliant. The Company is in the process of replacing or upgrading these systems with enterprise-wide systems across all of the Company's operations, utilizing a common IT infrastructure which collectively is designed to give the Company the benefit of new technology with enhanced functionality and resultant improvements in service and productivity. The replacement of non-compliant systems at the Company's largest, most complex operation was completed on schedule in October 1998. Progress on upgrading all remaining operations is in process. The Company anticipates the implementation and testing of these IT systems will be completed at all of the Company's operations before the end of fiscal 1999. The Company is actively assessing the Y2K readiness of third parties (including suppliers, financial institutions and customers) with which it has a material relationship to identify potentially non-compliant parties. The Company has performed site visits and is actively working with the key suppliers of raw materials, such as paper mills and film and plate manufacturers. The Company believes that its most reasonably likely, worst-case Y2K scenario may involve non-compliant third parties, including suppliers of energy. The Company is assessing the degree of exposure and risk of non-compliance by such third parties which could include possible consequences such as temporary plant disruptions, delays in the receipt of key materials, delays in receiving orders, delivering finished products, or receiving payments. The Company will be developing contingency plans specific to these risks during 1999 as it works with its key suppliers, customers and other parties. The Year 2000 Task Force will be continually monitoring the Y2K risks and related contingency plans throughout 1999. F-19 COURIER CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS The Company estimates the cost of achieving Y2K compliance to be approximately $2 million of which approximately half will be capital expenditures, primarily for new IT systems. Costs incurred through September 26, 1998 directly related to Y2K remediation were approximately $0.8 million, of which approximately $0.4 million was expensed. The remainder of the Y2K costs are expected to be incurred in fiscal 1999. The Y2K costs are expected to be funded through operating cash flows and available credit facilities. FORWARD-LOOKING INFORMATION Statements that describe future expectations, plans or strategies are considered forward-looking. Such statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated. Factors that could affect actual results include, among others, changes in customers' demand for the Company's products, changes in raw material costs and availability, seasonal changes in customer orders, pricing actions by competitors, consolidation among customers, success in the integration of acquired businesses, Year 2000 glitches, and general changes in economic conditions. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements will prove to be accurate. The forward-looking statements included herein are made as of the date hereof, and the Company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. F-20 COURIER CORPORATION SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END OF PERIOD EXPENSES DEDUCTIONS CHANGES (1) OF PERIOD Fiscal year ended September 26, 1998 Allowance for uncollectible accounts $1,242,000 $178,000 $342,000 - $1,078,000 Fiscal year ended September 27, 1997 Allowance for uncollectible accounts $829,000 $242,000 $79,000 $250,000 $1,242,000 Fiscal year ended September 28, 1996 Allowance for uncollectible accounts $564,000 $313,000 $48,000 - $829,000
(1) Other changes reflects amount related to a business acquisition. S-1 EX-10.C-3 2 EX 10C-3 AMENDMENT TO 1989 DEFERRED INCOME STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS Effective as of September 24, 1998, the 1989 Deferred Income Stock Option Plan for Non-Employee Directors (the "Directors' Plan") is amended as follows in accordance with Section 14 of the Directors' Plan: 1. The following sentence is hereby added to Section 9: Notwithstanding the foregoing, an Optionee may transfer, without consideration for the transfer, his Options to members of his immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option. 2. All remaining provisions of the Directors' Plan shall remain in full force and effect. Approved by the Board of Directors on September 24, 1998. EX-10.O-2 3 EX 10O-2 AMENDMENT TO 1993 AMENDED AND RESTATED STOCK INCENTIVE PLAN Effective as of September 24, 1998, the 1993 Amended and Restated Stock Incentive Plan (the "Stock Incentive Plan") is amended as follows in accordance with Section 12 of the Stock Incentive Plan: 1. The first clause of the second paragraph of Section 5(c) is replaced by the following text: "Alternatively, payment of the exercise price may be made, in whole or in part, by the delivery (or attestation to the ownership) of shares of Common Stock owned by the Optionee;" 2. All remaining provisions of the Stock Incentive Plan shall remain in full force and effect. Approved by the Board of Directors on September 24, 1998. EX-10.R 4 EX 10R MASTER LEASE AGREEMENT THIS MASTER LEASE AGREEMENT, dated as of September 23, 1998 ("Agreement"), between General Electric Capital Corporation with an office at 44 Old Ridgebury Road, Danbury, CT 06810 (hereinafter called, together with its successors and assigns, if any, "Lessor"), and Courier Kendallville, Inc., a corporation organized and existing under the laws of the State of Indiana with its mailing address and chief place of business at 2500 Marion Drive, Kendallville, Indiana 46755 (hereinafter called "Lessee"). WITNESSETH: I. LEASING: (a) Subject to the terms and conditions set forth below, Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment ("Equipment") described in Annex A to any schedule hereto ("Schedule"). Terms defined in a Schedule and not otherwise defined herein shall have the meanings ascribed to them in such Schedule. (b) The obligation of Lessor to purchase Equipment from the manufacturer or supplier thereof ("Supplier") and to lease the same to Lessee under any Schedule shall be subject to receipt by Lessor, prior to the Lease Commencement Date (with respect to such Equipment), of each of the following documents in form and substance satisfactory to Lessor: (i) a Schedule relating to the Equipment then to be leased hereunder, (ii) a Purchase Order Assignment and Consent in the form of Annex B to the applicable Schedule, unless Lessor shall have delivered its purchase order for such Equipment, (iii) evidence of insurance which complies with the requirements of Section X, and (iv) such other documents as Lessor may reasonably request. As a further condition to such obligations of Lessor, Lessee shall, upon delivery of such Equipment (but not later than the Last Delivery Date specified in the applicable Schedule) execute and deliver to Lessor a Certificate of Acceptance (in the form of Annex C to the applicable Schedule) covering such Equipment, and deliver to Lessor a bill of sale therefor (in form and substance satisfactory to Lessor). Lessor hereby appoints Lessee its agent for inspection and acceptance of the Equipment from the Supplier. Upon execution by Lessee of any Certificate of Acceptance, the Equipment described thereon shall be deemed to have been delivered to, and irrevocably accepted by, Lessee for lease hereunder. II. TERM, RENT AND PAYMENT: (a) The rent payable hereunder and Lessee's right to use the Equipment shall commence on the date of execution by Lessee of the Certificate of Acceptance for such Equipment ("Lease Commencement Date"). The term of this Agreement shall be the period specified in the applicable Schedule. If any term is extended, the word "term" shall be deemed to refer to all extended terms, and all provisions of this Agreement shall apply during any extended terms, except as may be otherwise specifically provided in writing. (b) Rent shall be paid to Lessor at its address stated above, except as otherwise directed by Lessor. Payments of rent shall be in the amount set forth in, and due in accordance with, the provisions of the applicable Schedule. Rent shall consist of principal and interest components as provided in the principal and interest amortization table attached to each schedule. If one or more Advance Rentals are payable, such Advance Rental shall be (i) set forth on the applicable Schedule, (ii) due upon acceptance by Lessor of such Schedule, and (iii) when received by Lessor, applied to the first rent payment and the balance, if any, to the final rental payment(s) under such Schedule. In no event shall any Advance Rental or any other rent payments be refunded to Lessee. If rent is not paid within ten days of its due date, Lessee agrees to pay a late charge of three cents (3(cent)) per dollar on, and in addition to, the amount of such rent but not exceeding the lawful maximum, if any. III. Intentionally Deleted. IV. TAXES: , Except as provided in Section XIV, Lessee shall have no liability for taxes imposed by the United States of America or any State or political subdivision thereof which are on or measured by the net income of Lessor. Lessee shall report (to the extent that it is legally permissible) and pay promptly all other taxes, fees and assessments due, imposed, assessed or levied against any Equipment (or the purchase, ownership, delivery, leasing, possession, use or operation thereof), this Agreement (or any rentals or receipts hereunder), or any Schedule, by any foreign, federal, state or local government or taxing authority during or related to the term of this Agreement, including, without limitation, all license and registration fees, and all sales, use, personal property, excise, gross receipts, franchise, stamp or other taxes, imposts, duties and charges, together with any penalties, fines or interest thereon (all hereinafter called "Taxes"). Lessee shall (i) reimburse Lessor upon receipt of written request for reimbursement for any Taxes charged to or assessed against Lessor, (ii) on written request of Lessor, submit to Lessor written evidence of Lessee's payment of Taxes, and (iii ) upon written request of Lessor send a copy thereof to Lessor. V. REPORTS: (a) Lessee will notify Lessor in writing, within ten days after any tax or other lien shall attach to any Equipment, of the full particulars thereof and of the location of such Equipment on the date of such notification. (b) Lessee will within 120 days of the close of each fiscal year of Lessee, deliver to Lessor, Courier Corporation's consolidated balance sheet and consolidated profit and loss statement, certified by a recognized firm of certified public accountants. Upon request Lessee will deliver to Lessor quarterly, within 1 90 days of the close of each fiscal quarter of Lessee, in reasonable detail, copies of Courier Corporation's quarterly financial report certified by the chief financial officer of Lessee. (c) Lessee will permit Lessor to inspect any Equipment during normal business hours. (d) Lessee will keep the Equipment at the Equipment Location (specified in the applicable Schedule) and will promptly notify Lessor of any relocation of Equipment. Upon the written request of Lessor, Lessee will notify Lessor forthwith in writing of the location of any Equipment as of the date of such notification. (e) Lessee will promptly and fully report to Lessor in writing if any Equipment is lost or damaged (where the estimated repair costs would exceed 10% of its then fair market value), or is otherwise involved in an accident causing personal injury or property damage. (f) Within 60 days after any request by Lessor, Lessee will furnish a certificate of an authorized officer of Lessee stating that he or she has reviewed the activities of Lessee and that, to the best of his or her knowledge, there exists no default (as described in Section XII) or event which with notice or lapse of time (or both) would become such a default. VI. DELIVERY, USE AND OPERATION: (a) All Equipment shall be shipped directly from the Supplier to Lessee. (b) Lessee agrees that the Equipment will be used by Lessee solely in the conduct of its business and in a manner complying with all applicable federal, state, and local laws and regulations. (c) LESSEE SHALL NOT ASSIGN, MORTGAGE, SUBLET OR HYPOTHECATE ANY EQUIPMENT, OR THE INTEREST OF LESSEE HEREUNDER , NOR SHALL LESSEE REMOVE ANY EQUIPMENT FROM THE CONTINENTAL UNITED STATES, WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR. (d) Lessee will keep the Equipment free and clear of all liens and encumbrances other than those which result from acts of Lessor. VII. SERVICE: (a) Lessee will, at its sole expense, maintain each unit of Equipment in good operating order, repair, condition and appearance in accordance with manufacturer's recommendations, normal wear and tear excepted. (b) Lessee will not, without the prior consent of Lessor, affix or install any accessory, equipment or device on any Equipment if such addition will impair the originally intended function or use of such Equipment. All additions, repairs, parts, supplies, accessories, equipment, and devices furnished, attached or affixed to any Equipment which are not readily removable shall be made only in compliance with applicable law, including Internal Revenue Service guidelines, and shall become the property of Lessor. Lessee will not, without the prior written consent of Lessor and subject to such conditions as Lessor may impose for its protection, affix or install any Equipment to or in any other personal or real property (such consent will be implied for on equipment for which a Landlord Mortgagee waiver (in form acceptable to Lessor) has been obtained. (c) Any alterations or modifications to the Equipment that may, at any time during the term of this Agreement, be required to comply with any applicable law, rule or regulation shall be made at the expense of Lessee. VIII. STIPULATED LOSS VALUE: Lessee shall promptly and fully notify Lessor in writing if any unit of Equipment shall be or become worn out, lost, stolen, destroyed, irreparably damaged in the reasonable determination of Lessee, or permanently rendered unfit for use from any cause whatsoever (such occurrences being hereinafter called "Casualty Occurrences"). On the rental payment date next succeeding a Casualty Occurrence (the "Payment Date"), Lessee shall pay Lessor the sum of (x) the Stipulated Loss Value of such unit calculated as of the rental next preceding such Casualty Occurrence ("Calculation Date"); and (y) all rental and other amounts which are due hereunder as of the Payment Date. Upon payment of all sums due hereunder, the term of this lease as to such unit shall terminate and (except in the case of the loss, theft or complete destruction of such unit) Lessor shall be entitled to recover possession of such unit. IX. LOSS OR DAMAGE: Lessee hereby assumes and shall bear the entire risk of any loss, theft, damage to, or destruction of, any unit of Equipment from any cause whatsoever. X. INSURANCE: Lessee agrees, at its own expense, to keep all Equipment insured for such amounts and against such hazards as Lessor may require, including, but not limited to, insurance for damage to or loss of such Equipment and liability coverage for personal injuries, death or property damage, with Lessor named as additional insured and with a loss payable clause in favor of Lessor, as its interest may appear, irrespective of any breach of warranty or other act or omission of Lessee. All such policies shall be with companies, and on term reasonably satisfactory to Lessor. Upon written request by Lessor Lessee agrees to deliver to Lessor evidence of insurance satisfactory to Lessor . No insurance shall be subject to any co-insurance clause. Lessee hereby appoints Lessor as Lessee's attorney in 2 fact to make proof of loss and claim for insurance, and to make adjustments with insurers and to receive payment of and execute or endorse all documents, checks or drafts in connection with payments made as a result of such insurance policies, provided however, that Lessor agrees not to exercise its powers pursuant to such appointment unless and until Lessee is in default under this Agreement. Any expense of Lessor in adjusting or collecting insurance shall be borne by Lessee. Lessee will not make adjustments with insurers except (i) with respect to claims for damage to any unit of Equipment where the repair costs do not exceed 40% of such unit's fair market value, or (ii) with Lessor's written consent. Said policies shall provide that the insurance may not be altered or cancelled by the insurer until after thirty (30) days written notice to Lessor. Lessor may, at its option, apply proceeds of insurance to which it is entitled, in whole or in part, to (i) repair or replace Equipment or any portion thereof, or (ii) satisfy any obligation of Lessee to Lessor hereunder. XI. RETURN OF EQUIPMENT: (a) Upon any expiration or termination of this Agreement or any Schedule, Lessee shall promptly, at its own cost and expense: (i) perform any testing and repairs required to place the affected units of Equipment in the same condition and appearance as when received by Lessee (reasonable wear and tear excepted) and in good working order for their originally intended purpose; (ii) if deinstallation, disassembly or crating is required, cause such units to be deinstalled, disassembled and crated by an authorized manufacturer's representative or such other service person as is satisfactory to Lessor; and (iii) return such units to a location within a 750 mile radius of the Equipmejnt location as Lessor shall direct. (b) Until Lessee has fully complied with the requirements of Section XI(a) above, Lessee's rent payment obligation and all other obligations under this Agreement shall continue from month to month notwithstanding any expiration or termination of the lease term. Lessor may terminate such continued leasehold interest upon ten (10) day's notice to Lessee. XII. DEFAULT: (a) Lessor may in writing declare this Agreement in default if: Lessee breaches its obligation to pay rent or any other sum when due and fails to cure the breach within fifteen (15) days; Lessee breaches any of its insurance obligations under Section X; Lessee breaches any of its other obligations and fails to cure that breach within thirty (30) days after written notice thereof; any representation or warranty made by Lessee in connection with this Agreement shall be false or misleading in any material respect; Lessee becomes insolvent or ceases to do business as a going concern; any Equipment is illegally used; or a petition is filed by Lessee under any bankruptcy or insolvency laws, or a petition is filed against Lessee or any guarantor of Lessee's obligations to Lessor under any bankruptcy or insolvency laws and such petition is not dismissed within 45 days thereafter. Such declaration shall apply to all Schedules except as specifically excepted by Lessor. (b) After default, at the request of Lessor, Lessee shall comply with the provisions of Section XI(a). Lessee hereby authorizes Lessor to enter, with or without legal process, any premises where any Equipment is believed to be and take possession thereof. Lessee shall, without further demand, forthwith pay to Lessor (i) as liquidated damages for loss of a bargain and not as a penalty, the Stipulated Loss Value of the Equipment (calculated as of the rental payment date next preceding the declaration of default), and (ii) all rentals and other sums then due and payable hereunder. Lessor may, but shall not be required to, sell Equipment at private or public sale, in bulk or in parcels, with or without notice, and without having the Equipment present at the place of sale; or Lessor may, but shall not be required to, lease, otherwise dispose of or keep idle all or part of the Equipment; and Lessor may use Lessee's premises for any or all of the foregoing without liability for rent, costs, damages or otherwise for 360 days after the date of the written defualt notice. The proceeds of sale, lease or other disposition, if any, shall be applied in the following order of priorities: (1) to pay all of Lessor's costs, charges and expenses incurred in taking, removing, holding, repairing and selling, leasing or otherwise disposing of Equipment; then, (2) to the extent not previously paid by Lessee, to pay Lessor all sums due and payable from Lessee hereunder; then (3) to reimburse to Lessee any sums previously paid by Lessee as liquidated damages; and (4) any surplus shall be retained by Lessor. Lessee shall pay any deficiency in (1) and (2) forthwith. (c) The foregoing remedies are cumulative, and any or all thereof may be exercised in lieu of or in addition to each other or any remedies at law, in equity, or under statute. Lessee waives notice of sale or other disposition (and the time and place thereof), and the manner and place of any advertising. Lessee shall pay reasonable attorney's fees and the Stipulated Loss Value due upon default, or if prohibited by law, such lesser sum as may be permitted. Waiver of any default shall not be a waiver of any other or subsequent default. (d) Any default under the terms of this or any other agreement between Lessor and Lessee may be declared by Lessor a default under this and any such other agreement. XIII. ASSIGNMENT: Lessor may assign this Agreement or any Schedule. Lessee hereby waives and agrees not to assert against any such assignee any defense, set-off, recoupment claim or counterclaim which Lessee has or may at any time have against Lessor for any reason whatsoever. XIV. NET LEASE; NO SET-OFF, ETC: This Agreement is a net lease. Lessee's obligation to pay rent and other amounts due hereunder shall be absolute and unconditional. Lessee shall not be entitled to any abatement or reductions of, or set-offs against, said rent or other amounts, including, without limitation, those arising or allegedly arising out of claims (present or future, alleged or actual, and including claims arising out of strict tort or negligence of Lessor) of Lessee against Lessor under this Agreement or otherwise. Nor shall this Agreement terminate or the obligations of Lessee be affected by reason of any defect in or damage to, or loss of possession, use or destruction of, any Equipment from whatsoever cause. It is the intention of the parties that rents and other amounts due hereunder shall continue to be payable in all events in the manner and at the times set forth herein unless the obligation to do so shall have been terminated pursuant to the express terms hereof. 3 XV. INDEMNIFICATION: (a) Lessee hereby agrees to indemnify, save and keep harmless Lessor, its agents, employees, successors and assigns from and against any and all losses, damages, penalties, injuries, claims, actions and suits, including legal expenses, of whatsoever kind and nature, in contract or tort, whether caused by the active or passive negligence of Lessor or otherwise, (including, but not limited to, Lessor's strict liability in tort),to the extent but only to the extent arising out of (i) the selection, manufacture, purchase, acceptance or rejection of Equipment, the ownership of Equipment during the term of this Agreement, and the delivery, lease, possession, maintenance, uses, condition, return or operation of Equipment (including, without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee and any claim for patent, trademark or copyright infringement) or (ii) the condition of Equipment sold or disposed of after use by Lessee, any sublessee or employees of Lessee. Lessee shall, upon request, defend any actions based on, or arising out of, any of the foregoing. (b) All of Lessor's rights, privileges and indemnities contained in this Section XV shall survive the expiration or other termination of this Agreement and the rights, privileges and indemnities contained herein are expressly made for the benefit of, and shall be enforceable by Lessor, its successors and assigns. XVI. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE EQUIPMENT LEASED HEREUNDER OR ANY COMPONENT THEREOF, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without limiting the foregoing, Lessor shall have no responsibility or liability to Lessee or any other person with respect to any of the following, regardless of any negligence of Lessor (i) any liability, loss or damage caused or alleged to be caused directly or indirectly by any Equipment, any inadequacy thereof, any deficiency or defect (latent or otherwise) therein, or any other circumstance in connection therewith; (ii) the use, operation or performance of any Equipment or any risks relating thereto; (iii) any interruption of service, loss of business or anticipated profits or consequential damages; or (iv) the delivery, operation, servicing, maintenance, repair, improvement or replacement of any Equipment. If, and so long as, no default exists under this Lease, Lessee shall be, and hereby is, authorized during the term of this Lease to assert and enforce, at Lessee's sole cost and expense, from time to time, in the name of and for the account of Lessor and/or Lessee, as their interests may appear, whatever claims and rights Lessor may have against any Supplier of the Equipment. XVII. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents and warrants to Lessor that on the date hereof and on the date of execution of each Schedule: (a) Lessee has adequate power and capacity to enter into, and perform under, this Agreement and all related documents (together, the "Documents") and is duly qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Equipment is or is to be located. (b) The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies therein provided may be limited under applicable bankruptcy and insolvency laws. (c) No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents except such as have already been obtained. (d) The entry into and performance by Lessee of the Documents will not: (i) violate any judgment, order, law or regulation applicable to Lessee or any provision of Lessee's Certificate of Incorporation or By-Laws; or (ii) result in any breach of, constitute a default under or result in the creation of any lien, charge, security interest or other encumbrance upon any Equipment pursuant to any indenture, mortgage, deed of trust, bank loan or credit agreement or other instrument (other than this Agreement) to which Lessee is a party. (e) There are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Lessee, which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Agreement. (f) The Equipment accepted under any Certificate of Acceptance is and will remain tangible personal property. (g) Each consolidated Balance Sheet and consolidated Statement of Income of Courier Corporation delivered to Lessor has been prepared in accordance with generally accepted accounting principles, and since the date of the most recent such consolidated Balance Sheet and consolidated Statement of Income, there has been no material adverse change. (h) Lessee is and will be at all times validly existing and in good standing under the laws of the State of its incorporation (specified in the first sentence of this Agreement). 4 (i) The Equipment will at all times be used for commercial or business purposes. XVIII. EARLY TERMINATION (a) On or after the First Termination Date (specified in the applicable Schedule), Lessee may, so long as no default exists hereunder, terminate this Agreement as to all (but not less than all) of the Equipment on such Schedule as of a rent payment date ("Termination Date") upon at least 90 day's prior written notice to Lessor. (b) Lessee shall, and Lessor may, solicit cash bids for the Equipment on an AS IS, WHERE IS BASIS without recourse to or warranty from Lessor, express or implied ("AS IS BASIS"). Prior to the Termination Date, Lessee shall(i) certify to Lessor any bids received by Lessee and (ii) pay to Lessor (A) the Termination Value (calculated asof the Termination Date) for the Equipment, and (B) all rent and other sums due and unpaid as of the TerminationDate. (c) Provided that all amounts due hereunder have been paid on the Termination Date, Lessor shall (i) sell the Equipment on an AS IS BASIS for cash to the highest bidder and (ii) refund the proceeds of such sale (net of any related expenses) to Lessee up to the amount of the Termination Value. If such sale is not consummated, no termination shall occur and Lessor shall refund the Termination Value (less any expenses incurred by Lessor) to Lessee. (d) Notwithstanding the foregoing, Lessor may elect by written notice, at any time prior to the Termination Date, not to sell the Equipment. In that event, on the Termination Date Lessee shall (i) return the Equipment (in accordance with Section XI) and (ii) pay to Lessor all amounts required under Section XVIII(b) less the amount of the highest bid certified by Lessee to Lessor. XIX. OWNERSHIP FOR TAX PURPOSES, GRANT OF SECURITY INTEREST: (a) For income tax purposes, the parties hereto agree that it is their mutual intention that Lessee shall be considered the owner of the Equipment. Accordingly, Lessor agrees (i) to treat Lessee as the owner of the Equipment on its federal income tax return, (ii) not to take actions or positions inconsistent with such treatment on or with respect to its federal income tax return, and (iii) not to claim any tax benefits available to an owner of the Equipment on or with respect to its federal income tax return. The foregoing undertakings by Lessor shall not be violated by Lessor's taking a tax position inconsistent with the foregoing sentence to the extent such position is required by law or is taken through inadvertence so long as such inadvertent tax position is reversed by Lessor promptly upon its discovery. Lessor shall in no event be liable to Lessee if Lessee fails to secure anyof the tax benefits available to the owner of the Equipment. (b) Lessor and Lessee hereby agree that the transaction contemplated herein is intended as a lease; PROVIDED HOWEVER that, if it is determined for other reasons that the lease so intended creates a security interest, Lessee shall have been deemed to grant, effective as of each Lease Commencement Date, and hereby grants, to Lessor the following: (i)To secure the prompt payment and performance, as and when due, of all obligations and indebtedness of Lessee, now existing or hereafter created, to Lessor pursuant to this Agreement or otherwise, Lessee hereby grants to Lessor a first priority security interest in the Equipment and all accessions, substitutions and replacements thereto and therefor, and proceeds (cash and non-cash, including without limitation insurance proceeds) thereof. In furtherance of the foregoing, Lessee shall (A) execute and deliver to Lessor, to be recorded at Lessee's expense, Uniform Commercial Code financing statements, statements of amendment and statements of continuation as reasonably may be required by Lessor to perfect and maintain perfected the first priority security interest granted by Lessee herein and (B) execute and deliver, to be recorded at Lessee's expense, any such forms and documents as reasonably may be required by Lessor to evidence Lessor's title to and security interest in any item of Equipment which is covered by a certificate of title issued under a statute of any applicable jurisdiction. 5 (iii)Lessee also grants to Lessor a security interest in all accounts, as such term is defined in the Uniform Commercial Code of any applicable jurisdiction, now owned by Lessee or hereafter acquired or owned by Lessee that might arise or result from any lease or other disposition of any of the Equipment, including, but not limited to, any right of Lessee to payment for Equipment sold or leased or for services rendered whether or not evidenced by an instrument or chattel paper, and whether or not such right has been earned by performance. (iv)To the extent that this Lease and/or any Equipment Schedule would constitute chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest herein or therein may be created through the transfer or possession of this Lease in and of itself without the transfer or possession of the original of an Equipment Schedule executed pursuant to this Lease and incorporating this Lease by reference; and no security interest in this Lease and an Equipment Schedule may be created by the transfer or possession of any counterpart of the Equipment Schedule other than the original thereof, which shall be identified as the document marked "Original" and all other counterparts shall be marked "Duplicate" or "Copy". (v)It is the intention of the parties hereto to comply with any applicable usury laws to the extent that any Schedule is determined to be subject to such laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in any Schedule or this Lease, in no event shall any Schedule require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under any Schedule or this Lease, or in the event that all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under any Schedule or this Lease shall exceed the maximum amount of interest permitted by applicable law, then in such event (A) the provisions of this paragraph shall govern and control, (B) neither Lessee nor any other person or entity now or hereafter 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 amount of interest permitted by applicable law, (C) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Lessee, at the option of the Lessor, and (D) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that , without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under any Schedule or this Lease which are made for the purpose of determining whether such rate exceed the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the Lease, all interest at any time contracted for, charged or received from Lessee or otherwise by Lessor during such term; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for Lessor to receive a greater interest per annum rate than is presently allowed, the Lessee agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America. XX. END OF LEASE OPTIONS. Lessee shall have the end of Lease term options specifically set forth in each applicable Schedule. XXI. MISCELLANEOUS: (a) Any cancellation or termination by Lessor, pursuant to the provisions of this Agreement, any Schedule, supplement or amendment hereto, or the lease of any Equipment hereunder, shall not release Lessee from any then outstanding obligations to Lessor hereunder. Except as provided in Section XIX, all Equipment shall at all times remain personal property of Lessor regardless of the degree of its annexation to any real property and shall not by reason of any installation in, or affixation to, real or personal property become a part thereof. (b) Time is of the essence of this Agreement. Lessor's failure at any time to require strict performance by Lessee of any of the provisions hereof shall not waive or diminish Lessor's right thereafter to demand strict compliance therewith. Lessee agrees, upon Lessor's request, to execute any instrument necessary or expedient for filing, recording or perfecting the interest of Lessor. All notices required to be given hereunder shall be deemed adequately given if in writing and sent by overnight mail, registered or certified mail, postage prepaid, to the addressee at its address stated herein, or at such other place as such addressee may have designated in writing. This Agreement and any Schedule and Annexes thereto constitute the entire agreement of the parties with respect to the subject matter hereof. NO VARIATION OR MODIFICATION OF THIS AGREEMENT OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF EACH OF THE PARTIES HERETO. (c) In case of a failure of Lessee to comply with any provision of this Agreement, Lessor shall have the right, but shall not be obligated to, effect such compliance, in whole or in part; and all moneys spent and expenses and obligations incurred or assumed by Lessor in effecting such compliance shall constitute additional rent due to Lessor within five days after the date Lessor sends written notice to Lessee requesting payment. Lessor's effecting such compliance shall not be a waiver of Lessee's default. (d) Lessor agrees that Lessee shall quietly possess and use the Equipment subject to and in accordance with the provisions of this Agreement. As long as there has been no default hereunder, neither Lessor, nor any party claiming under or through Lessor, shall interfere with Lessee's right of quiet possession and use of the Equipment. 6 (e) Any rent or other amount not paid to Lessor when due hereunder shall bear interest, both before and after any judgment or termination hereof, at the lesser of fifteen percent (15% ) per annum or the maximum rate allowed by law. Any provisions in this Agreement and any Schedule which are in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. (f) LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS WITH RESPECT TO THE FOREGOING MATTERS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS LEASE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY COURT. IN WITNESS WHEREOF, Lessee and Lessor have caused this Agreement to be executed by their duly authorized representatives as of the date first above written. LESSOR: General Electric Capital LESSEE: Courier Kendallville, Inc. Corporation By: /s/ Patrick J. Cooney By: /s/ Lee E. Cochrane ----------------------------- ----------------------------------- Title: Senior Risk Analyst Title: Asst. Treasurer -------------------------- -------------------------------- 7 EQUIPMENT SCHEDULE SCHEDULE NO. 1 DATED THIS September 23, 1998 TO MASTER LEASE AGREEMENT DATED AS OF September 23, 1998 Lessor & Mailing Address: Lessee & Mailing Address: General Electric Capital Corporation Courier Kendallville, Inc. 44 Old Ridgebury Road 2500 Marion Drive Danbury, CT 06810 Kendallville, IN 46755 Capitalized terms not defined herein shall have the meanings assigned to them in the Master Lease Agreement identified above ("Agreement"; said Agreement and this Schedule being collectively referred to as "Lease"). A. Equipment Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee the Equipment listed on Annex A attached hereto and made a part hereof. B. Financial Terms 1. Advance Rent (if any): Not Applicable. 2. Capitalized Lessor's Cost: $ 4,378,156.92. 3. Interest Rate: 6.21% during the Basic Term and any Renewal Term. 4. [Omitted]. 5. Basic Term (No. of Months): Eighty-Four (84) months. 6. Basic Term Commencement Date: 9-23-98. 7. Equipment Location: 2500 Marion Drive, Kendallville, Indiana 46755. 8. Lessee Federal Tax ID No.: 35-1804679. 9. Supplier: See Annex A. 10. Last Delivery Date: 9-23-98. 11 Lessee agrees and acknowledges that the Capitalized Lessor's Cost of the Equipment as stated on the Schedule is equal to the fair market value of the Equipment on the date hereof. 12 Renewal Terms: One (1) consecutive Thirty Six (36) month term. 13 Maximum Lease Term: ten (10) years. 14 Stipulated Loss Values: See Annex D. 15 First Termination Date: Any time after the Basic Term Commencement Date C. [Omitted] D. Term and Rent 1. Interim Rent. For the period from and including the Lease Commencement Date to the Basic Term Commencement Date ("Interim Period"), interest shall accrue at the Interest Rate set forth above on the Capitalized Lessor's Cost of the Equipment, which amount shall be capitalized and added to the Capitalized Lessor's Cost on the Basic Term Commencement Date. 2. Basic Term Rent and Renewal Term Rent. Commencing on October 23, 1998 and on the same day of each month thereafter (each, a "Rent Payment Date") (a) during the Basic Term, Lessee shall pay as rent ("Basic Term Rent"), and (b) during any Renewal Term, Lessee shall pay as rent ("Renewal Term Rent"), monthly installments in arrears, calculated to amortize the Capitalized Lessor's Cost of the Equipment over the Term, together with lessor's return on its investment, each installment in the principal amount specified on the attached Amortization Schedule together with Interest on the Unamortized Principal Balance specified on the attached Amortization Schedule as of the preceding Rent Payment Date at the Interest Rate for the Interest Period following such immediately preceding Rent Payment Date. Interest shall be calculated on the basis of a 360 day year for the actual 8 number of days elapsed. As used herein "Interest period" shall mean the period beginning on the Lease Commencement date and ending on the next Rent Payment date , and each subsequent monthly period.. 3. Adjustment to Capitalized Lessor's Cost. Lessee hereby irrevocably authorizes Lessor to adjust the Capitalized Lessor's Cost up or down by no more than ten percent (10%) to account for equipment change orders, equipment returns, invoicing errors, and similar matters. Lessee acknowledges and agrees that the Rent shall be adjusted as a result of such change in the Capitalized Lessor's Cost (pursuant to paragraphs 1 and 2 above). Lessor shall send Lessee a written notice stating the final Capitalized Lessor's Cost, if different from that disclosed on this Schedule. E. Insurance 1. Public Liability: $1,000,000 total liability per occurrence. 2. Casualty and Property Damage: An amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Equipment. Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. F. Fixed Purchase Price and Residual Risk Amount
End of Month Fixed Purchase Price Residual Risk Amount ------------ -------------------- -------------------- 84 41.735% 16.35%
The above amounts are expressed as a percent of the Capitalized Lessor's Cost of the Equipment. For the purposes of this Schedule only, the following section is incorporated by reference into the Lease. XX. END OF LEASE OPTIONS: (a) Return. So long as Lessee has not exercised its option to terminate a Schedule pursuant to Section XVIII hereof, Lessee shall have the option, upon the scheduled expiration of the Basic Term of the Schedule, to return all (but not less than all) of the Equipment described on such Schedule, in accordance with the terms hereof, to Lessor upon the following terms and conditions. If Lessee desires to exercise this option it shall (i) pay to Lessor on the last day of the Basic Term of the Schedule, in addition to the scheduled rent due on such date and all other sums due hereunder, a terminal rental adjustment amount equal to the Fixed Purchase Price percentage multiplied by the Capitalized Lessor's Cost for such Equipment (as stated in such Schedule) for such Equipment and (ii) return the Equipment to Lessor in accordance with Section XI hereof. Thereafter, Lessor and Lessee will arrange for the commercially reasonable sale, scrap or other disposition of such Equipment. Upon the sale, scrap or other disposition of the Equipment, the net sales proceeds with respect to the Equipment sold will be paid to Lessor. Lessor shall promptly thereafter pay to Lessee the Residual Risk Amount multiplied by the Capitalized Lessor's Cost for such Equipment, less all costs, expenses and fees, including remarketing fees incurred in connection with the sale, scrap or disposition of such Equipment plus all net proceeds, if any, of such sale in excess of the Residual Risk Amount of such Equipment. All calculations under this Section XX hereof shall be made on an aggregate basis with respect of all of the Equipment described on the applicable Schedule. (b) Purchase. Provided that no default shall have occurred and be continuing, unless Lessee has exercised its option to terminate this Agreement pursuant to Section XVIII hereof or has exercised its option to return all the Equipment in accordance with paragraph (a) above or renew the Lease as to such Equipment in accordance with paragraph (c) below, upon the expiration of the Basic Term of this Agreement with respect to any Schedule, upon at least 30 days' written notice to Lessor, Lessee may purchase all of the Equipment described on such Equipment Schedule on an AS IS BASIS, upon the following terms and conditions: At the expiration of the Basic Term of this Agreement with respect to any such Schedule, Lessee shall pay to Lessor in cash the Fixed Purchase Price for the Equipment so purchased, determined as hereinafter provided. The Fixed Purchase Price of the Equipment shall be an amount specified in the applicable Schedule, together with all rent and other sums due on such date, plus all taxes and charges upon sale and all other reasonable expenses incurred by Lessor in connection with such sale. Upon satisfaction of the requirements specified in this Section, Lessor will sell the Equipment to Lessee on an AS IS BASIS. 9 (c) Renewal. Provided that no default shall have occurred and be continuing, unless Lessee shall have exercised its option to terminate this Agreement pursuant to Section XVIII hereof or has exercised its option to either purchase or return the Equipment in accordance with paragraphs (a) or (b) above, Lessee automatically renew this Agreement with respect to all (but not less than all) Equipment on any Schedule an additional thirty six (36) month term (the "Renewal Term"), at a monthly rental amount as set forth in the applicable Schedule. At the end of the Renewal Term, provided that Lessee is not then in default hereunder, Lessee shall purchase all, but not less than all, of the Equipment on the Schedule for $1.00 cash, together with all rent and other sums due on such date, plus all taxes and charges upon transfer, and all other reasonable expenses incurred by Lessor in connection with such sale. Upon satisfaction of the conditions specified in this Subsection (c), Lessor will transfer, on an AS IS basis all of Lessor's interest in and to the Equipment. Lessor shall not be required to make, and may specifically disclaim, any representation and warranty as to the condition of the Equipment and any other matters. IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSOR: LESSEE: General Electric Capital Corporation Courier Kendallville, Inc. By: /s/ Patrick J. Cooney By: /s/ Lee E. Cochrane ----------------------------- ------------------------- Name: Patrick J. Cooney Name: Lee E. Cochrane --------------------------- ----------------------- Title: Senior Risk Analyst Title: Asst. Treasurer -------------------------- ----------------------- Attest By: /s/ Mary Gail D. McCarthy -------------------------- Name: Mary Gail D. McCarthy ----------------------- Asst. Secretary CORPORATE GUARANTY Date: September 23, 1998 General Electric Capital Corporation 44 Old Ridgebury Road Danbury, CT 06810-5105 To induce you to enter into, purchase or otherwise acquire, now or at any time hereafter, any promissory notes, security agreements, chattel mortgages, pledge agreements, conditional sale contracts, lease agreements, and/or any other documents or instruments evidencing, or relating to any lease, loan, extension of credit or other financial accommodation (collectively "Account Documents" and each an "Account Document") to Courier Kendallville, Inc., a corporation organized and existing under the laws of the State of Indiana ("Customer"), but without in my way binding you to do so, the undersigned or for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, does hereby guarantee to you, your successors and assigns, the due regular and punctual payment of any sum or sums of money which the Customer may owe to you now or at any time hereafter, whether evidenced by an Account Document, on open account or otherwise, and whether it represents principal, interest, rent, late charges, indemnities, an original balance, an accelerated balance, liquidated damages, a balance reduced by partial payment, a deficiency after sale or other disposition of any leased equipment, collateral or security, or any other type of sum of any kind whatsoever that the Customer may owe to you now or at any time hereafter, and does hereby further guarantee to you, your successors and assigns, the due, regular and punctual performance of any other duty or obligation of any kind or character whatsoever that the Customer may owe to you now or at any time hereafter (all such payment and performance obligations being collectively referred to as "Obligations"). Undersigned does hereby further guarantee to pay upon demand all losses, costs, attorneys' fees and expenses which may be suffered by you by reason of Customer's default or default of the undersigned. This Guaranty is a guaranty of prompt payment and performance (and not merely a guaranty of collection). Nothing herein shall require you to first seek or exhaust any remedy against the Customer, its successors and assigns, or any other person obligated with respect to the Obligations, or to first foreclose, exhaust or otherwise proceed against any leased equipment, collateral or security which may be given in connection with the Obligations. It is agreed that you may, upon any breach or default of the Customer, or at any time thereafter, make demand upon the undersigned and receive payment and performance of the Obligations, with or without notice or demand for payment or performance by the Customer, its successors or assigns, or any other person. Suit may be brought and maintained against the undersigned, at your election, without joinder of the Customer or any other person as parties thereto. The obligations of each signatory to this Guaranty shall be joint and several. The undersigned agrees that its obligations under this Guaranty shall be primary, absolute, continuing and unconditional, irrespective of and unaffected by any of the following actions or circumstances (regardless of any notice to or consent of the undersigned): (a) the genuineness, validity, regularity and enforceability of the Account Documents or any other document; (b) any extension, renewal, amendment, change, waiver or other modification of the Account Documents or any other document; (c) the absence of, or delay in, any action to enforce the Account Documents, this Guaranty or any other document; (d) your failure or delay in obtaining any other guaranty of the Obligations (including, without limitation, your failure to obtain the signature or any other guarantor hereunder); (e) the release of, extension of time for payment or performance by, or any other indulgence granted to the Customer or any other person with respect to the Obligations by operation of law or otherwise; (f) the existence, value, condition, loss, subordination or release (with or without substitution) of, or failure to have title to or perfect and maintain a security interest in, or the time, place and manner of any sale or other disposition of any leased equipment, collateral or security given in connection with the Obligations, or any other impairment (whether intentional or negligent, by operation of law or otherwise) of the rights of the undersigned; (g) the Customer's voluntary or involuntary bankruptcy, assignment for the benefit of creditors, reorganization, or similar proceedings affecting the Customer or any of its assets; or (h) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor. This Guaranty may be terminated upon deliver to you (at your address shown above) of a written termination notice from the undersigned. However, as to all Obligations (whether matured, unmatured, absolute, contingent or otherwise) incurred by the Customer prior to your receipt of such written termination notice (and regardless of any subsequent amendment, extension or other modification which may be made with respect to such Obligations), this Guaranty shall nevertheless continue and remain undischarged until all such Obligations are indefeasibly paid and performed in full. The undersigned agrees that this Guaranty shall remain in full force and effect or be reinstated (as the case may be) if at any time payment or performance of any of the Obligations (or any part thereof) is rescinded, reduced or must otherwise be restored or returned by you, all as though such payment or performance had not been made. If, by reason of any bankruptcy, insolvency or similar laws effecting the rights of creditors, you shall be prohibited from excising any of your rights or remedies against the Customer or any other person or against any property, then, as between you and the undersigned, such prohibition shall be of no force and effect, and you shall have the right to make demand upon, and receive payment from, the undersigned of all amounts and other sums that would be due to you upon a default with respect to the Obligations. Notice of acceptance of this Guaranty and of any default by the Customer or any other person is hereby waived. Presentment, protest demand, and notice of protest, demand and dishonor of any of the Obligations, and the exercise of possessory, collection or other remedies for the Obligations, are hereby waived. The undersigned warrants that it has adequate means to obtain from the Customer on a continuing basis financial data and other information regarding the Customer and is not relying upon you to provide any such data or other information. Without limiting the foregoing, notice of adverse change in the Customer's financial condition or of any other fact which might materially increase the risk of the undersigned is also waived. All settlements, compromises, accounts stated and agreed balances made in good faith between the Customer, its successors or assigns, and you shall be binding upon and shall not affect the liability of the undersigned. Payment of all amounts now or hereafter owed to the undersigned by the Customer or any other obligor for any of the Obligations is hereby subordinated in right of payment to the indefeasible payment in full to you of all Obligations and is hereby assigned to you as a security therefor. The undersigned hereby irrevocably and unconditionally waives and relinquishes all statutory, contractual, common law, equitable and all other claims against the Customer, any other obligor for any of the Obligations, any collateral therefor, or any other assets of the Customer or any such other obligor, for subrogation, reimbursement, exoneration, contribution, indemnification, setoff or other recourse in respect of sums paid or payable to you by the undersigned hereunder, and the undersigned hereby further irrevocably and unconditionally waives and relinquishes any and all other benefits which it might otherwise directly or indirectly receive or be entitled to receive by reason of any amounts paid by, or collected or due from it, the Customer or any other obligor for any of the Obligations, or realized from any of their respective assets. THE UNDERSIGNED HEREBY UNCONDITIONALLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN US RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN US. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY, THE OBLIGATIONS GUARANTEED HEREBY, OR ANY RELATED DOCUMENTS. IN THE EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. As used in this Guaranty, the word "person" shall include any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, or any government or any political subdivision thereof. This Guaranty is intended by the parties as a final expression of the guaranty of the undersigned and is also intended as a complete and exclusive statement of the terms thereof. No course of dealing, course of performance or trade usage, nor any paid evidence of any kind, shall be used to supplement or modify any of the terms hereof. Nor are there any conditions to the full effectiveness of this Guaranty. This Guaranty and each of its provisions may only be waived, modified, varied, released, terminated or surrendered, in whole or in part, by a duly authorized written instrument signed by you. No failure by you to exercise your rights hereunder shall give rise to any estoppel against you, or excuse the undersigned from performing hereunder. Your waiver of any right to demand performance hereunder shall not be a waiver of any subsequent or other right to demand performance hereunder. This Guaranty shall bind the undersigned's successors and assigns and the benefits thereof shall extend to and include your successors and assigns. In the event of default hereunder, you may at any time inspect undersigned's records, or at your option, undersigned shall furnish you with a current independent audit report. If any provisions of this Guaranty are in conflict with any applicable statute, rule or law, then such provisions shall be deemed null and void to the extent that they may conflict therewith, but without invalidating any other provisions hereof. Each signatory on behalf of a corporate guarantor warrants that he had authority to sign on behalf of such corporation and by so signing to bind said guarantor corporation hereunder. IN WITNESS WHEREOF, this Guaranty is executed the day and year above written. Courier Corporation By: /s/ Lee E. Cochrane ----------------------------- (Signature) Title: Treasurer ----------------------------- (Officer's Title) ATTEST: /s/ Mary Gail D. McCarthy ------------------------------- Assistant Secretary EX-21 5 EX 21 COURIER CORPORATION SUBSIDIARIES OF REGISTRANT EXHIBIT 21 Registrant has the following subsidiaries:
% Owned Jurisdiction of by Immediate Name Immediate Parent Incorporation Parent - ------------------------------------ -------------------------------------- --------------------- --------------- Courier-Citizen Company Courier Corporation Massachusetts 100% Courier Investment Corporation Courier Corporation Massachusetts 100% Book-mart Press, Inc. Courier Corporation New Jersey 100% The Home School, Inc. Courier Corporation Massachusetts 100% Courier Westford, Inc. Courier Delaware Holding Corp. Massachusetts 100% National Publishing Company Courier Delaware Holding Corp. Pennsylvania 100% Courier Stoughton, Inc. Courier Delaware Holding Corp. Massachusetts 100% Courier Companies, Inc. Courier Delaware Holding Corp. Massachusetts 100% Courier Kendallville, Inc. Courier Delaware Holding Corp. Indiana 100% Courier New Media, Inc. Courier Delaware Holding Corp. Massachusetts 100% Courier Foreign Sales Corporation Ltd. National Publishing Company Jamaica 99% Courier Delaware Holding Corp. Courier-Citizen Company Delaware 100% Courier Properties, Inc. Courier-Citizen Company Massachusetts 100%
EX-23 6 EX 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-03201 of Courier Corporation on Form S-8 of our report dated November 5, 1998, appearing in this Annual Report on Form 10-K of Courier Corporation and subsidiaries for the fiscal year ended September 26, 1998. Deloitte & Touche LLP Boston, Massachusetts December 4, 1998 EX-27 7 EX 27
5 1,000 YEAR SEP-26-1998 SEP-28-1997 SEP-26-1998 722 0 27,941 1,078 10,828 42,096 102,359 69,102 87,630 25,569 0 0 0 3,750 46,040 87,630 151,591 151,591 113,937 113,937 26,474 179 1,303 11,755 4,030 7,725 0 0 0 7,725 2.49 2.37 Accounts receivable are net of allowances for doubtful accounts. Other SE includes treasury stock.
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