-----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, PhYhFMw9Wrl0zF+YzLeRkrnQyDHX8/F6Dxs+nPfifjI0CPrWBnbomNXdsKISI//y jyzbzm84XXeXZctQR9w7lw== 0000890566-96-001834.txt : 19961115 0000890566-96-001834.hdr.sgml : 19961115 ACCESSION NUMBER: 0000890566-96-001834 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED GRAPHICS INC /TX/ CENTRAL INDEX KEY: 0000921500 STANDARD INDUSTRIAL CLASSIFICATION: COMMERCIAL PRINTING [2750] IRS NUMBER: 760190827 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24068 FILM NUMBER: 96660442 BUSINESS ADDRESS: STREET 1: 2210 W DALLAS ST CITY: HOUSTON STATE: TX ZIP: 77019 BUSINESS PHONE: 7135294200 10-Q 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________ COMMISSION FILE NUMBER 0-24068 ------------------------ CONSOLIDATED GRAPHICS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) TEXAS 76-0190827 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 2210 WEST DALLAS STREET HOUSTON, TEXAS 77019 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (713) 529-4200 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of Common Stock, par value $.01 per share, of the Registrant outstanding at October 31, 1996 was 6,133,340. ================================================================================ CONSOLIDATED GRAPHICS, INC. FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 INDEX PAGE ---- Part I -- Financial Information Item 1 -- Financial Statements Consolidated Balance Sheets at September 30, 1996 and March 31, 1996 .................................................. 1 Consolidated Income Statements for each of the three month and the six month periods ended September 30, 1996 and 1995 ..................................... 2 Consolidated Statements of Cash Flows for the six months ended September 30, 1996 and 1995 ........................ 3 Notes to Consolidated Financial Statements ...................... 4 Item 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations ........................ 6 Part II -- Other Information Item 1 -- Legal Proceedings .......................................... 11 Item 6 -- Exhibits and Reports on Form 8-K ........................... 11 Signatures ................................................................ 12 (i) CONSOLIDATED GRAPHICS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) SEPTEMBER 30, MARCH 31, 1996 1996 -------- -------- (UNAUDITED) (AUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents ............... $ 2,118 $ 3,086 Accounts receivable, net ................ 25,274 19,317 Inventories ............................. 7,666 8,023 Prepaid expenses ........................ 895 1,077 -------- -------- Total current assets ............... 35,953 31,503 PROPERTY AND EQUIPMENT, net .................. 72,793 50,591 GOODWILL, net ................................ 5,305 5,015 OTHER ASSETS ................................. 771 700 -------- -------- $114,822 $ 87,809 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt ....................................... $ 2,055 $ 1,221 Accounts payable ............................ 5,986 5,719 Accrued liabilities ......................... 7,579 5,648 Income taxes payable ........................ 191 60 -------- -------- Total current liabilities ......................... 15,811 12,648 LONG-TERM DEBT, net of current portion ........................................ 34,734 20,105 DEFERRED INCOME TAXES ............................ 5,983 5,180 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Common stock, $.01 par value; 20,000,000 shares authorized, 6,117,840 and 5,927,360 issued and outstanding, respectively ............................... 61 59 Additional paid-in capital .................. 37,073 32,762 Retained earnings ........................... 21,160 17,055 -------- -------- Total shareholders' equity .............................. 58,294 49,876 -------- -------- $114,822 $ 87,809 ======== ======== See accompanying notes to consolidated financial statements. 1 CONSOLIDATED GRAPHICS, INC. CONSOLIDATED INCOME STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- 1996 1995 1996 1995 --------- --------- --------- --------- SALES............................... $ 34,451 $ 19,308 $ 62,709 $ 38,786 COST OF SALES....................... 23,864 13,689 44,030 27,679 --------- --------- --------- --------- Gross profit................... 10,587 5,619 18,679 11,107 SELLING EXPENSES.................... 3,410 1,860 6,258 3,883 GENERAL AND ADMINISTRATIVE EXPENSES.......................... 2,722 1,478 5,014 3,004 --------- --------- --------- --------- Operating income............... 4,455 2,281 7,407 4,220 INTEREST EXPENSE.................... 595 206 934 358 --------- --------- --------- --------- Income before provision for income taxes................. 3,860 2,075 6,473 3,862 PROVISION FOR INCOME TAXES.......... 1,428 723 2,368 1,351 --------- --------- --------- --------- NET INCOME.......................... $ 2,432 $ 1,352 $ 4,105 $ 2,511 ========= ========= ========= ========= EARNINGS PER SHARE OF COMMON STOCK.. $.40 $.25 $.68 $.46 ========= ========= ========= ========= See accompanying notes to consolidated financial statements. 2 CONSOLIDATED GRAPHICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) SIX MONTHS ENDED SEPTEMBER 30, ------------------------ 1996 1995 -------- -------- OPERATING ACTIVITIES: Net income ................................ $ 4,105 $ 2,511 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization ...................... 2,634 1,636 Deferred tax provision (benefit) ......................... (164) 223 Changes in assets and liabilities, net of effects of acquisitions -- Accounts receivable ............... (1,754) 139 Inventories ....................... 1,289 (324) Prepaid expenses .................. 212 (13) Other assets ...................... (55) (131) Accounts payable and accrued liabilities ............. (1,427) (1,336) Income taxes payable .............. 181 (576) -------- -------- Net cash provided by operating activities ................ 5,021 2,129 -------- -------- INVESTING ACTIVITIES: Acquisitions of businesses ................ (7,017) (6,461) Purchases of property and equipment ................................ (5,325) (1,323) Proceeds from disposition of assets ................................... 55 176 -------- -------- Net cash used in investing activities ................ (12,287) (7,608) -------- -------- FINANCING ACTIVITIES: Proceeds from revolving credit agreement ................................ 32,200 14,725 Payments on revolving credit agreement ................................ (24,800) (8,125) Payments on long-term debt ................ (1,230) (770) Proceeds from exercise of stock options and other ........................ 128 225 -------- -------- Net cash provided by financing activities ................ 6,298 6,055 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................. (968) 576 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......................... 3,086 1,707 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................................... $ 2,118 $ 2,283 ======== ======== See accompanying notes to consolidated financial statements. 3 CONSOLIDATED GRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED) 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements include the accounts of Consolidated Graphics, Inc. and its wholly owned subsidiaries (the "Company"). All intercompany balances and transactions have been eliminated. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles and the Securities and Exchange Commission's rules and regulations for reporting interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended March 31, 1997. Balance sheet information as of March 31, 1996 has been derived from the 1996 annual audited financial statements of the Company. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K filed with the Securities and Exchange Commission in July 1996. Earnings per share are calculated by dividing net income by the weighted average number of shares outstanding of 6,116,307 and 5,474,342 for the three months ended September 30, 1996 and 1995, respectively, and 6,024,367 and 5,470,468 for the six months ended September 30, 1996 and 1995, respectively. The consolidated statements of cash flows provide information about changes in cash and exclude the effects of noncash transactions. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Interest paid during the six-month periods ended September 30, 1996 and 1995 was $502 and $364, respectively. Income tax payments during the six-month periods ended September 30, 1996 and 1995 were $1,650 and $1,704, respectively. Significant non-cash transactions in the six month period ended September 30, 1996 include debt of $6,835 incurred by the Company to finance the purchase of three printing presses and the issuance of common stock and assumption of debt and capital leases in connection with certain of the Company's acquisitions (see Note 3. Acquisitions). 2. LONG-TERM DEBT The following is a summary of the Company's long-term debt: SEPTEMBER 30, MARCH 31, 1996 1996 -------------- --------- Revolving credit agreement........... $ 23,700 $16,300 Notes payable and capital leases..... 13,089 5,026 -------------- --------- Total long-term debt............ 36,789 21,326 Less current portion............ (2,055) (1,221) -------------- --------- $ 34,734 $20,105 ============== ========= 4 CONSOLIDATED GRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED) 3. ACQUISITIONS During the six months ended September 30, 1996, the Company completed the following acquisitions: Bridgetown Printing in Portland, Oregon (June 1996), Garner Printing in Des Moines, Iowa (July 1996), and Eagle Press in Sacramento, California (July 1996). Each of these transactions were accounted for using the purchase method of accounting. In addition to cash expended of $7,017, the Company issued 177,780 shares of common stock and assumed debt and capital leases totaling $2,622 in connection with these transactions. In November 1996, the Company announced that it had completed the acquisition of Mobility, Inc. in Richmond, Virginia and signed nonbinding letters of intent to acquire Direct Color in Long Beach, California and Theo Davis Sons, Inc., located near Raleigh-Durham, North Carolina. 5 CONSOLIDATED GRAPHICS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSIONS CONTAIN FORWARD-LOOKING INFORMATION. READERS ARE CAUTIONED THAT SUCH INFORMATION INVOLVES RISKS AND UNCERTAINTIES, INCLUDING THOSE CREATED BY GENERAL MARKET CONDITIONS, COMPETITION AND THE POSSIBILITY THAT EVENTS MAY OCCUR WHICH LIMIT THE ABILITY OF THE COMPANY TO MAINTAIN OR IMPROVE ITS OPERATING RESULTS OR EXECUTE ITS GROWTH STRATEGY OF ACQUIRING ADDITIONAL COMPANIES. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD BE INACCURATE, AND THERE CAN THEREFORE BE NO ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN WILL PROVE TO BE ACCURATE. THE INCLUSION OF SUCH INFORMATION SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED. GENERAL Consolidated Graphics, Inc. (the "Company") is one of the fastest growing providers of general commercial printing services in the United States. Since its formation in 1985, the Company has expanded its operations to include 16 printing companies in twelve markets: Dallas, Denver (3), Des Moines, Houston (3), Phoenix, Portland, Richmond, Sacramento, San Antonio, San Diego, Seattle and Tulsa. The Company's sales are derived from the production and sale of printed materials. The materials are sold and manufactured by each of the operating subsidiaries, and each product is customized depending on the needs of the customer. All of the operating subsidiaries provide general commercial printing services relating to the production of annual reports, training manuals, product and capability brochures, direct mail pieces, catalogs and other promotional material, all of which tend to be recurring in nature. In addition, one of the subsidiaries also provides transaction-oriented financial printing services, including the printing of registration and information statements filed with the Securities and Exchange Commission and official statements for municipal securities. Each printing company has its own separate operations which include sales, estimating, customer service, prepress, production and postpress operations, and accounting. The Company's corporate office, located in Houston, provides centralized cash management, financial reporting and certain administrative services to all of the operating subsidiaries. The Company's financial results in a given period may be affected by the timing and magnitude of acquisitions. Operating income margins of acquired companies typically are lower than those of the Company at the date of acquisition. As a result, the Company's overall operating income margins in the periods immediately following a significant acquisition or series of acquisitions may be lower depending upon the timing and extent that an acquired company is able to adapt to and implement the Company's management practices. The Company competes in the general commercial and financial printing sectors, which are characterized by individual orders from customers for specific printing projects rather than long-term contracts, with continued engagement for successive jobs dependent upon the customer's satisfaction with the services provided. As such, the Company is unable to predict, for more than a few weeks in advance, the number, size and profitability of printing jobs in a given period. Consequently, the timing of projects in any quarter could have a significant impact on financial results in that quarter. 6 RESULTS OF OPERATIONS The following tables set forth the Company's historical income statements for the periods indicated: THREE MONTHS SIX MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, -------------------- -------------------- 1996 1995 1996 1995 --------- --------- --------- --------- Sales............................... $ 34.5 $ 19.3 $ 62.7 $ 38.8 Cost of sales....................... 23.9 13.7 44.0 27.7 --------- --------- --------- --------- Gross profit................... 10.6 5.6 18.7 11.1 Selling expenses.................... 3.4 1.8 6.3 3.9 General and administrative expenses.......................... 2.7 1.5 5.0 3.0 --------- --------- --------- --------- Operating income............... 4.5 2.3 7.4 4.2 Interest expense.................... .6 .2 .9 .3 --------- --------- --------- --------- Income before provision for income taxes................. 3.9 2.1 6.5 3.9 Provison for income taxes........... 1.5 .7 2.4 1.4 --------- --------- --------- --------- Net income..................... $ 2.4 $ 1.4 $ 4.1 $ 2.5 ========= ========= ========= ========= The following tables set forth the components of income expressed as a percentage of sales for the periods indicated:
THREE MONTHS SIX MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------- -------------------- 1996 1995 1996 1995 --------- ------------- --------- --------- Sales................................ 100.0% 100.0% 100.0% 100.0% Cost of sales........................ 69.3 70.9 70.2 71.4 --------- ------------- --------- --------- Gross profit.................... 30.7 29.1 29.8 28.6 Selling expenses..................... 9.9 9.6 10.0 10.0 General and administrative expenses........................... 7.9 7.7 8.0 7.7 --------- ------------- --------- --------- Operating income................ 12.9 11.8 11.8 10.9 Interest expense..................... 1.7 1.1 1.5 .9 --------- ------------- --------- --------- Income before provision for income taxes......................... 11.2 10.7 10.3 10.0 Provision for income taxes........... 4.1 3.7 3.8 3.5 --------- ------------- --------- --------- Net income...................... 7.1% 7.0% 6.5% 6.5% ========= ============= ========= =========
Acquisitions in fiscal 1996 and fiscal 1997 are the primary causes of the absolute increases in revenues and expenses since the three-month and six-month periods ended September 30, 1995. In fiscal 1996, the Company acquired Clear Visions in August, 1995, Heritage Graphics in September, 1995, Emerald City Graphics and Precision Litho in February, 1996 and Tulsa Litho Company in March, 1996 (collectively, the "1996 Acquisitions"). In the first six months of fiscal 1997, the Company acquired Bridgetown Printing Co. ("Bridgetown") in June, 1996 and Garner Printing ("Garner") and Eagle Press ("Eagle") in July, 1996 (collectively, the "1997 Acquisitions"). Each of the 1996 Acquisitions and the 1997 Acquisitions (together, the "Acquired Companies") were accounted for under the purchase method of accounting; accordingly, the Company's consolidated income statements reflect their revenues and expenses only for the post acquisition periods. Additionally, operating results for the three-month and six-month periods ended September 30, 1996, as compared to the same periods in 1995, were affected by the merger in late fiscal 1996 of the operations of two of the Company's Houston-based subsidiaries, which has had the effect of reducing sales, primarily lower-margin web printing sales, and improving profit margins through reduced administrative costs and improved utilization of printing capacity. For more information regarding the 1996 Acquisitions and the consolidation of certain of the Company's Houston operations in fiscal 1996, refer to "Management's Discussion and Analysis of 7 Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996. THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1995 Sales increased 78.4% from $19.3 million for the three months ended September 30, 1995 to $34.5 million for the three months ended September 30, 1996. The increase primarily resulted from sales contributed by the Acquired Companies, net of a decrease in web printing sales pursuant to the consolidation of certain operations as discussed above. A net increase in sales at the Company's other operating subsidiaries also contributed to the increase in sales for the current period. Gross profit increased 88.4% from $5.6 million for the three months ended September 30, 1995 to $10.6 million for the three months ended September 30, 1996 primarily due to the addition of the Acquired Companies. Gross profit as a percentage of sales increased from 29.1% for the three months ended September 30, 1995 to 30.7% for the three months ended September 30, 1996, reflecting generally the effect of operating efficiencies the Company is gaining through economies of scale and its master purchasing arrangements and a reduction in lower-margin web printing sales. Selling expenses increased 83.3% from $1.8 million for the three months ended September 30, 1995 to $3.4 million for the three months ended September 30, 1996 due to increased sales levels as discussed above. Selling expenses as a percentage of sales increased from 9.6% for the three months ended September 30, 1995 to 9.9% for the three months ended September 30, 1996, reflecting a higher percentage of non-commissioned sales as a percentage of total sales in the three months ended September 30, 1995. General and administrative expenses increased 84.2% from $1.5 million for the three months ended September 30, 1995 to $2.7 million for the three months ended September 30, 1996. In addition to the increase in general and administrative expenses attributable to the Acquired Companies, an increase in the Company's corporate staffing was a contributing factor. The staffing increase reflects primarily the effort by the Company to focus the resources necessary on quickly implementing the benefits of its master purchasing arrangements and other operating efficiencies into its acquired companies. Accordingly, general and administrative expenses as a percentage of sales increased slightly from 7.7% in the three months ended September 30, 1995 to 7.9% for the three months ended September 30, 1996. Interest expense increased from $.2 million for the three months ended September 30, 1995 to $.6 million for the three months ended September 30, 1996. The increase is primarily due to additional borrowings under the Company's revolving credit facility to finance the cash portions of the purchase price of the Acquired Companies and borrowings to finance certain printing press purchases. See "Liquidity and Capital Resources" below. Effective income tax rates increased from 34.8% for the three months ended September 30, 1995 to 37.0% for the three months ended September 30, 1996, due primarily to the Company's further expansion into states with higher income tax rates than those in the State of Texas. SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH SIX MONTHS ENDED SEPTEMBER 30, 1995. Sales increased 61.7% from $38.8 million for the six months ended September 30, 1995 to $62.7 million for the six months ended September 30, 1996. The increase primarily resulted from sales contributed by the Acquired Companies, net of a decrease in web printing sales pursuant to the consolidation of certain operations as discussed above. A net increase in sales at the Company's other operating subsdiaries also contributed to the increase in sales for the current period. Gross profit increased 68.2% from $11.1 million for the six months ended September 30, 1995 to $18.7 million for the six months ended September 30, 1996, primarily due to the profit contribution from the Acquired Companies. Gross profit increased as a percentage of sales from 28.6% for the six months ended September 30, 1995 to 29.8% for the six months ended September 30, 1996. This increase was attributable to operating efficiencies the Company is gaining through economies of scale and its master purchasing arrangements and a reduction in lower-margin web printing sales. Selling expenses increased 61.2% from $3.9 million for the six months ended September 30, 1995 to $6.3 million for the six months ended September 30, 1996 due to increased sales levels as discussed above. 8 Selling expenses as a percentage of sales remained constant at 10.0% for the six months ended September 30, 1996. General and administrative expenses increased 66.9% from $3.0 million for the six months ended September 30, 1995 to $5.0 million for the six months ended September 30, 1996, primarily due to general and administrative expenses attributable to the Acquired Companies and the aforementioned increase in the Company's corporate staffing. As a percentage of sales, general and administrative expenses increased slightly from 7.7% for the six months ended September 30, 1995 to 8.0% for the six months ended September 30, 1996. Interest expense increased from $.3 million for the six months ended September 30, 1995 to $.9 million for the six months ended September 30, 1996, due to additional borrowings under the Company's revolving credit facility to finance the cash portions of the purchase price of the Acquired Companies and borrowings to finance certain printing press purchases. See "Liquidity and Capital Resources" below. Effective income tax rates reflect an increase to 36.6% for the six months ended September 30, 1996 as compared to 35.0% during the same period in the prior year due to the Company's further expansion into states with higher income tax rates than those in the State of Texas. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital requirements are for working capital, capital expenditures and acquisitions. The Company has generated cash from operations (net income plus depreciation and amortization expense and deferred tax provision) since its inception. Cash generated from operations, as defined, was $6.6 million for the six months ended September 30, 1996, while cash expended on purchases of property and equipment was $5.3 million. The net increase in the Company's debt since March 31, 1996 reflects (1) an increase of $7.4 million outstanding under the Company's revolving credit facility with a bank which was used to finance $7.0 million expended in connection with the acquisitions of Bridgetown and Eagle, (2) debt of $6.8 million attributable to the purchase of three printing presses from Komori America Corporation ("Komori"), (3) assumption of debt totalling $2.6 million in connection with the acquisition of Garner and (4) debt retirements of $1.2 million. On August 23, 1995, the Company entered into a $25 million revolving credit agreement (the "Agreement") with a bank which was scheduled to expire on August 31, 1997. In October 1996 the Agreement was renewed through October 31, 1998 and the available line of credit was increased by $10 million to $35 million. Loans outstanding under the renewed Agreement accrue interest at the London Interbank Offered Rate (LIBOR) plus .625% to 1.75% based on the Company's Funded Debt to EBITDA ratio as defined in the Agreement, generally redetermined quarterly. Additionally, a commitment fee of .10% to .50% accrues on any unused portion of the available line of credit. On September 30, 1996, loans outstanding under the Agreement were $23.7 million and were subject to an interest rate of 6.50% per annum. On October 31, 1996, loans outstanding under the Agreement were $22.0 million and were subject to an interest rate of 6.76% per annum. Certain of the Company's operating subsidiaries have guaranteed the Company's indebtedness under the Agreement. The covenants in the Agreement, among other things, restrict the Company's ability to (i) merge, consolidate with or acquire other companies where the total consideration paid is above certain levels, (ii) engage in hostile acquisitions, (iii) change its primary business, (iv) pay dividends and (v) incur other borrowed debt or pledge assets as collateral in excess of certain levels. Although there can be no assurances made, the Company believes that the covenants in the Agreement pertaining to restrictions on acquisitions of other companies do not adversely affect its acquisition strategy and that, if necessary, the Company would likely be able to obtain the appropriate waivers. The Company must also meet certain financial tests defined by the Agreement, including achieving specific ratios of Funded Debt to EBITDA, net worth and coverage of fixed charges. The indebtedness is unsecured; however, the bank could require inventories and receivables as collateral for the payment of indebtedness in the event of default. The Company is in compliance with all financial tests and other covenants set forth in the Agreement. Pursuant to an agreement between the Company and Komori (the "Komori Agreement"), the Company installed three new printing presses in the second quarter of fiscal 1996. The Komori Agreement requires that the Company take delivery of at least one additional press, resulting in a total capital 9 commitment of approximately $10 million for the purchase of the four presses. The Komori Agreement further provides certain volume purchase incentives and financing options under which the Company may, but is not obligated to, purchase up to $50 million of printing presses over its term. The Company has exercised the financing option in connection with the purchase of the first three presses, resulting in a long-term obligation of $6.8 million at September 30, 1996. The terms of the financing provide for monthly principal and interest payments through 2006 at a fixed interest rate of 8.25%. Payment of the Company's obligations will be secured by the purchased presses. The Company will not be subject to any significant financial covenants or restrictions in connection with these obligations. The Company's remaining debt obligations generally consist of mortgages, capital leases and promissory notes, some of which contain financial covenants and restrictions. The most significant of these place certain restrictions on future borrowings and acquisitions above specified levels. The Company believes these restrictions do not adversely affect its acquisition strategy. Significant immediate and future uses of cash by the Company are expected to consist of additional acquisitions of businesses and purchases of property and equipment. Subsequent to September 30, 1996, the Company completed the acquisition of Mobility Inc, ("Mobility") in Richmond, Virginia, and announced that it has signed nonbinding letters of intent to acquire Direct Color in Long Beach, California and Theo Davis Sons near Raleigh-Durham, North Carolina. Borrowings under the Agreement were used to finance the Mobility acquisition and are expected to be used to finance the two pending acquisitions. The Company expects to make additional acquisitions in the remainder of fiscal 1997 and to be able to finance them with borrowings under the Agreement, but currently has no other understandings, arrangements or agreements in place. In addition to one or more printing press purchases under the Komori Agreement (which the Company expects to finance thereunder), the Company will make other purchases of property and equipment in the remainder of fiscal 1997 and expects to use primarily cash flow from operations as financing. There can be no assurances that the Company will be able to acquire additional companies on acceptable terms in the future. In addition, there can be no assurance that the Company will be able to establish, maintain or increase profitability of an entity once it has been acquired, or that the diversion of its management and financial resources away from existing operations will not have a material adverse impact on the Company or its ability to meet its existing obligations and commitments. Further, there can be no assurances that additional financing to make acquisitions, purchase property and equipment or meet operating requirements will be obtained if needed, or that the proposed terms of such financing, in the opinion of management, will be acceptable. 10 CONSOLIDATED GRAPHICS, INC. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. The Company maintains insurance coverage against potential claims in an amount which it believes to be adequate. In 1996, the Company received a summary judgment in its favor from the presiding court in a case styled ALEJANDRO ROBLES V. CONSOLIDATED GRAPHICS, INC. ET AL. involving a material claim by the plaintiff pertaining to a sales commission contract. The plaintiff appealed the ruling. The Company believes the decision of the presiding court should be upheld; however, there can be no assurance that the appellate court will rule in favor of the Company. All other litigation in which the Company is currently involved is not believed by management to be significant to the Company's financial position or results of operations. While the outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, the Company does not believe the ultimate outcome of any of these matters will have a material adverse effect on its business or financial position. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 10.1 Amended and Restated Loan Agreement by and between Consolidated Graphics, Inc. and NationsBank of Texas N.A. dated as of October 21, 1996. 10.2 Revolving Promissory Note by and between Consolidated Graphics, Inc. and NationsBank of Texas N.A. dated as of October 21, 1996. 10.3 Amended and Restated Loan Agreement by and between Consolidated Graphics, Inc. and NationsBank of Texas N.A. dated as of October 29, 1996. (b) Reports on Form 8-K: (1) Form 8-K, filed July 10, 1996 in connection with the press release issued on July 10, 1996 regarding the completion of the acquisition of Garner Printing. (2) Form 8-K, filed July 18, 1996 in connection with the acquisition of Garner Printing on July 3, 1996. (3) Form 8-K, filed July 24, 1996 in connection with the acquisition of Eagle Press of Sacramento, California on July 12, 1996, the press release issued on July 18, 1996 regarding the completion of the acquisition of Eagle Press, the press release issued on July 24, 1996 regarding the announcement of the Company's first quarter results, and a press purchase incentive agreement entered into between the Company and Komori America Corporation. (4) Form 8-K/A, filed August 13, 1996 containing pro forma financial statements of the Company and the financial statements of Garner Printing. (5) Form 8-K/A, filed August 14, 1996 containing pro forma financial statements of the Company and the financial statements of Eagle Press. (6) Form 8-K, filed September 13, 1996 in connection with the press release issued on September 6, 1996 regarding the letter of intent to acquire Mobility, Inc. ("Mobility") of Richmond, Virginia. (7) Form 8-K, filed October 31, 1996 in connection with the press release issued on October 30, 1996 regarding the announcement of the Company's first quarter results. (8) Form 8-K, filed November 4, 1996 in connection with the press release issued on November 4, 1996 regarding the completion of the acquisition of Mobility. (9) Form 8-K, filed November 6, 1996 in connection with the press release issued on November 6, 1996 regarding the letter of intent to acquire Direct Color of Long Beach, California and Theo Davis Sons near Raleigh-Durham, North Carolina. 11 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT, CONSOLIDATED GRAPHICS, INC., HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. CONSOLIDATED GRAPHICS, INC. (Registrant) Dated: November 13, 1996 By: G. CHRISTOPHER COLVILLE G. CHRISTOPHER COLVILLE VICE PRESIDENT -- MERGERS AND ACQUISITIONS, CHIEF FINANCIAL AND ACCOUNTING OFFICER 12 EX-10.1 2 EXHIBIT 10.1 SECOND AMENDMENT TO LOAN AGREEMENT THIS SECOND AMENDMENT to Loan Agreement ("Second Amendment") is made and entered into as of the 21st day of October, 1996, by and between CONSOLIDATED GRAPHICS, INC., a Texas corporation, with offices and place of business at 2210 West Dallas, Houston, Texas 77019 (hereinafter called "Borrower") and NATIONSBANK OF TEXAS, N.A., a national banking association, with offices and banking quarters at 700 Louisiana, Houston, Texas 77002 (hereinafter called "Lender"). For and in consideration of the mutual covenants and agreements herein contained, Borrower and Lender hereby amend as of the date of this Second Amendment that certain Amended and Restated Loan Agreement between Borrower and Lender dated the 7th day of November, 1994, as previously amended by the First Amendment to Loan Agreement dated August 23, 1995 ( as amended, the "Loan Agreement"), in the following respects: Section 1. AMENDMENTS TO LOAN AGREEMENT. A. Section 1.1 is deleted and the following is substituted in its place: 1.1 INDEBTEDNESS. Upon the terms and conditions hereinafter set forth, the Lender agrees to lend and Borrower agrees to borrow an aggregate of up to $35,000,000.00, as evidenced by a Revolving Line of Credit to be extended to the Borrower by the Lender in an amount up to $35,000,000.00, as more specifically described in Section 1.3 hereof. B. Section 1.2(a)(10) is deleted. C. Section 1.2(a)(18) is deleted. D. Section 1.2(a)(14A) is added as follows: (14A) "EBITDA" shall mean earnings before interest, taxes, depreciation and amortization. With respect to the calculation of EBITDA with respect to newly acquired Subsidiaries, EBITDA may be adjusted on a pro forma basis to include the EBITDA of such Subsidiary of the applicable period prior to the date of the acquisition by Borrower as more fully set forth in Sections 1.2(d) and 1.3 hereof. E. Section 1.2(a)(19B) is added as follows: (19B) "Funded Debt" shall mean the outstanding balance of interest bearing indebtedness of Borrower and its Subsidiaries. F. Section 1.2(a)(19C) is added as follows: (19C) "Funded Debt to EBITDA Ratio" shall mean the ratio of the outstanding principal balance of Funded Debt as of the end of each fiscal quarter to the EBITDA of the Borrower and its Subsidiaries for the quarter then ended plus the immediately preceding three (3) fiscal quarters. G. Section 1.2(a)(20) is deleted and the following is substituted in its place: (20) "Guarantor" shall mean all Subsidiaries of the Borrower which conduct commercial printing activity as their primary line of business which, as of the date of the Second Amendment to Loan Agreement, are: Western Lithograph Company, a Texas corporation, Grover Printing Company, a Texas corporation, Tewell Warren Printing Company, a Texas corporation, Chas P. Young Company, a Texas corporation, Gulf Printing Company, a Texas corporation, Gritz-Ritter Graphics, Inc., a Colorado corporation, The Jarvis Press, Inc., a Texas corporation, Frederic Printing Company, a Colorado corporation, Clear Visions, Inc., a Texas corporation, Bridgetown Printing Company, a Texas corporation, Consolidated Eagle Press, Inc., a Texas corporation, Emerald City Graphics, Inc., a Texas corporation, Garner Printing Company, an Iowa corporation, Heritage Graphics, Inc., a Texas corporation, and Precision Litho, Inc., a Texas corporation. In addition, Consolidated Graphics Management, Ltd., a Texas limited partnership, shall be a guarantor. -2- H. Section 1.2(a)(22A) is added as follows: (22A) "Interim Rate Determination Date shall have the meaning set forth in Section 1.3(b). I. Section 1.2(a)(25) is deleted. J. Section 1.2(a)(35) is deleted and the following is substituted in its place: (35) "Prior Financial Statements" shall mean the audited consolidated financial statements for the Borrower and its Subsidiaries for the period ended March 31, 1996 and as at such date, as modified and supplemented by Borrower prepared consolidated financial statements for the period ending June 30, 1996 and as at such date. K. Section 1.2(a)(38) is deleted and the following is substituted in its place: (38) "Revolving Note" shall mean the promissory note of the Borrower in the original principal amount of $35,000,000.00 issued pursuant to Section 1.3 of this Agreement in the form attached as Exhibit "1.3" to the Second Amendment to Loan Agreement, together with any amendments, renewals and extensions thereof. L. Section 1.2(d) is added as follows: (d) The preparation of proforma financial statements required hereunder shall be generally in accordance with the requirements established by the Securities and Exchange Commission for acquisition accounting for reported acquisitions for public companies (i.e. (i) directly attributable to the transaction, (ii) expected to have a continuing impact on the Borrower and its Subsidiaries, and (iii) factually supportable), whether or not the applicable transactions are required to be publicly reported, and applying such requirements to make such proforma financial statements reflect the accounting procedures used in the preparation of the regular financial statements of Borrower and its Subsidiaries unless otherwise approved in writing by Lender. The application of the foregoing requirements with respect to the preparation of proforma financial statements or financial statements including proforma adjustments shall be subject to the approval of Lender, provided that compliance with the requirements for Form -3- 8-k shall represent a minimum standard of Lender's evaluation. M. Section 1.3(a) and (b) are deleted and the following are substituted in their place: 1.3 REVOLVING LINE OF CREDIT. (a) The Lender, during the period from the date of the Second Amendment to Loan Agreement until October 31, 1998, subject to the terms and conditions of this Agreement, and subject to the condition that at the time of each borrowing hereunder, no Default or Event of Default has occurred and is then continuing to occur and, as to each borrowing which increases the principal amount outstanding under the Revolving Note, that the representations and warranties given by the Borrower in Section 2 as of the date of this Agreement shall remain true and correct in all material respects (unless such representation and warranty relates to an earlier date), agrees to make loans to Borrower pursuant to a Revolving Line of Credit up to but not in excess of an aggregate principal amount outstanding at any time of $35,000,000.00 on the same Business Day upon receipt from Borrower on or before 1:00 p.m. Houston time of written applications for loans hereunder in the form attached as Exhibit "1.3.1". Each advance shall be in an amount of not less than $50,000.00. (b) The Borrower's obligation to repay the Revolving Line of Credit shall be evidenced by a promissory note of the Borrower in substantially the form attached as Exhibit "1.3.2" to the Second Amendment to Loan Agreement, payable to the order of Lender. The Revolving Note shall bear interest at the rates indicated below, but in no event to exceed the maximum non-usurious interest rate permitted by applicable law with the balance of principal plus accrued and unpaid interest due and payable on or before October 31, 1998. Applicable Interest Fees Funded Debt/ Rate Unused Ebitda Ratio Options Portion ------------ ------- ------- Less than or LIBOR + .625% or equal to .75 Prime Rate .10% Greater than .75 LIBOR + .875% or .175% to 1.0 but less Prime Rate than or equal to 1.5 to 1.0 -4- Greater than 1.5 LIBOR + 1.25% or .25% to 1.0 but less Prime Rate than or equal to 2.0 to 1.0 Greater than 2.0 LIBOR + 1.50% or .375% to 1.0 but less Prime Rate + .25% than or equal to 2.5 to 1.0 Greater than 2.5 LIBOR + 1.75% or .50% to 2.5 to 1.0 Prime Rate + .25% The adjustment in the interest rate options on the Revolving Note and the fees charged pursuant to this Agreement shall be effective on (i) the first of the month following receipt of a quarterly financial statement and Compliance Certificate pursuant to Section 3.8 indicating the Funded Debt to EBITDA Ratio, and no Default or Event of Default exists, as more fully set forth in the Revolving Note and (ii) on an Interim Rate Determination Date. As used herein, "Interim Rate Determination Date" shall mean the effective date of the consummation of a merger and acquisition either (i) requiring the approval of Lender under the terms of this Agreement, or (ii) which does not require the approval of Lender but as to which Borrower desires to add historical EBITDA for the purposes of calculating compliance with financial covenants hereunder. In such event Borrower shall deliver within sixty (60) days following consummation of such merger or acquisition an interim redetermination of the Funded Debt to EBITDA Ratio based upon proforma financial statements which reflect such merger or acquisition, which redetermination and the calculation related thereto shall be subject to review and approval by Lender. The applicable interest rate options on the Revolving Note and the fees charged pursuant to this Agreement shall be adjusted effective as of the Interim Rate Determination Date based upon such approved interim redetermination. N. Section 1.3(c)(1)(ii) is amended by adding "one hundred twenty (120)" following "ninety (90)" and by deleting "November 8, 1996 and replacing it with "October 31, 1998." O. Section 1.3(c)(3) is amended by adding the following at the end of the Section: "provided that Borrower may prepay such -5- amount upon the payment of a fee in the amount of one percent (1%) of the amount prepaid, not to exceed $10,000." P. Section 1.4 is deleted and the following is substituted in its place: 1.4 FEES. (a) For the periods from the date of the Second Amendment Borrower shall pay to Lender a commitment fee in an amount equal to the percentage then applicable for the Unused Portion as set forth in Section 1.3(b) per annum on the average daily unadvanced portion of the Revolving Line of Credit, which fee shall be payable quarterly on the 10th day of the month following the end of each fiscal quarter and shall be payable for the period ending on October 31, 1998 on the 10th day of November, 1998. (b) On the date of the Second Amendment to Loan Agreement Borrower shall pay Lender a commitment fee in the amount of $15,000. On the anniversary of the date of such Second Amendment, Borrower shall pay Lender a commitment fee in the amount equal to $25,000. Borrower shall have the right to terminate this Agreement upon written notice to Lender at any time and upon the payment of the commitment fee which would have been otherwise due upon the anniversary date of the Second Amendment. Q. Section 3.1(a), 3.1(b), 3.1(c) and 3.9 are amended by adding "senior vice president" immediately after "chief executive officer" in each Section. R. Section 3.1(i) is added as follows: (i) In the event Borrower completes an acquisition or merger and a proforma calculation of EBITDA is required under the terms of this Agreement, Borrower agrees to provide Lender with such information as Lender may reasonably request with respect to such acquisition or merger and the proforma calculation of EBITDA, including without limitation, the information necessary to calculate the Funded Debt to EBITDA Ratio pursuant to Section 1.3. S. Section 3.10 is deleted and the following is substituted in its place: 3.10 SECURITY. Upon the occurrence of and during the continuance of an Event of Default, the Indebtedness and obligations of the Borrower and Guarantors under this Agreement and related documents shall, upon the written -6- request of Lender, be secured within ten (10) Business Days by the following: (a) A security interest in favor of Lender prior to any other security interest (except as set forth in Section 4.4) in all of the Borrower's and any Guarantor's right, title and interest in and to: (i) all accounts receivable now or hereafter existing; (ii) all inventory now owned or hereafter acquired; and (iii) the proceeds, products and accessions of and to any and all of the foregoing. In such event, the security agreements will be in substantially similar form to the agreements which were executed in connection with the Prior Loan Agreement, but in all events sufficient to grant a first and prior security interest. In the event the Indebtedness has been secured in accordance with the foregoing provisions and Event of Default exists hereunder at such time and no Event of Default has existed during the preceding fiscal quarter, the foregoing security interests shall, upon the written request of Borrower, be released by Lender. (b) The Indebtedness shall, as of the date of the Second Amendment to Loan Agreement, be guaranteed by the following parties: Consolidated Graphics Management, Ltd. Western Lithograph Company Grover Printing Company Tewell Warren Printing Company Chas. P. Young Company Gulf Printing Company Gritz-Ritter Graphics, Inc. The Jarvis Press, Inc. Frederic Printing Company Clear Visions, Inc. Bridgetown Printing Co. Consolidated Eagle Press, Inc. Emerald City Graphics, Inc. Garner Printing Company Heritage Graphics, Inc. Precision Graphics, Inc. In addition, in the event Borrower acquires after the date of the Second Amendment to Loan Agreement additional Subsidiaries whose primary business is the commercial printing business, such Subsidiaries shall execute a Guaranty. In the event the acquisition causes an Interim Rate Determination Date to occur, such Subsidiary shall execute the required Guaranty immediately following acquisition by Borrower. If the acquisition does not -7- cause an Interim Rate Determination Date to occur, such Guaranty shall be executed within thirty (30) days following such acquisition. Borrower may have up to six (6) months following all acquisitions to insure the execution of such Guaranty does not violate any agreements to which such Subsidiary is subject. T. Section 3.11 is deleted and the following is substituted in its place: 3.11 BORROWING BASE. During any period the Revolving Line of Credit is required to be secured pursuant to Section 3.10, the aggregate indebtedness pursuant to the Revolving Line of Credit shall never exceed the sum of (i) ninety percent (90%) of the Eligible Accounts Receivable of (y) corporations whose securities are publicly traded with debt ratings of "A" or better as determined by Lender based upon Moody's or Standard & Poor's classification and (z) the United States government and any agency thereof; plus (ii) eighty percent (80%) of other Eligible Accounts Receivable; plus (iii) (y) sixty percent (60%) of the book value of unopened inventory plus (z) forty percent (40%) of book value of other inventory, provided inventory shall not include work-in-process and (iv) fifty percent (50%) of work-in-process, provided that the amount determined under this subsection (iii) shall never exceed forty percent (40%) of the Borrowing Base. In accordance with Section 3.1(d), Borrower shall provide the Lender a calculation of the foregoing Borrowing Base in the form attached as Exhibit "3.11" ("Borrowing Base Report"). In the event the aggregate unpaid principal balance under the Revolving Line of Credit exceeds the Borrowing Base calculated as described above, the Borrower will promptly, but in any event no later than within five (5) Business Days (no additional notice or cure period being required prior to such failure becoming an Event of Default hereunder), reduce the Indebtedness under the Revolving Line of Credit until the amount owed is less than that calculated as described above. In the event such required payment involves a LIBOR Portion, such amount shall be prepaid without premium or restriction. U. Section 4.1(f) and 4.1(g) are deleted and the following Section 4.1(f) is substituted in its place: (f) indebtedness in an amount not to exceed $10,000,000 to Komori America Corporation (or an affiliate thereof) utilized to purchase sheet feed -8- presses from Komori America Corporation, secured solely by such presses. V. The following is added to Section 4.2: Investments in the stock of Subsidiaries which do not guarantee the Indebtedness (other than Consolidated Graphics Properties, Inc. and Consolidated Graphics Properties, II, Inc.) and loans or advances to Subsidiaries which do not guaranty the Indebtedness (other than Consolidated Graphics Properties, Inc. and Consolidated Graphics Properties, II, Inc.) shall not exceed one percent (1%) of Borrower's consolidated Net Worth. W. Section 4.3(c) is deleted and the following is substituted in its place: (a) a merger or acquisition by Borrower or any of Borrower's Subsidiaries if the Borrower or the Subsidiary is the surviving entity, and the total consideration paid in connection with such transaction does not exceed $10,000,000 and the aggregate consideration paid for all such transactions during any fiscal year does not exceed forty percent (40%) of Borrower's consolidated Net Worth; and further provided that in no event shall any such transaction permitted hereunder be a transaction in which existing management is not cooperative with Borrower's acquisition; and X. The following is added to Section 4.3: The total consideration and aggregate consideration paid for the purposes of Section 4.3(a) shall be the sum of cash paid, liabilities assumed, plus tangible assets transferred, but shall exclude the value of common or preferred stock issued in connection with such transactions. Y. Section 4.4(e) is deleted and the following is substituted in its place: (e) liens securing the indebtedness described in Sections 4.1(b), 4.1(d) and 4.1(f) hereof insofar as such liens are not on any of the Collateral; Z. Section 4.6 is deleted and the following is substituted in its place: -9- 4.6 FINANCIAL COVENANTS. The Borrower will not permit: (a) its Funded Debt to EBITDA Ratio to be greater than 3.00 to 1.0; (b) its Net Worth to be less than $46,512,000 plus (i) one hundred percent (100%) of equity, whether common or preferred, issued after June 30, 1996, and (ii) seventy-five percent (75%) of net income for each fiscal year ending after the date of the Second Amendment; provided that no more than fifty percent (50%) of the amount of Net Worth can consist of intangible assets; (c) its Fixed Charge Ratio to exceed 1.25 to 1.0. Each of the covenants in (a), (b), and (c) above shall be determined as of the end of each fiscal quarter. All terms not expressly defined shall be defined in accordance with generally accepted accounting principles. All determinations under this Agreement shall be made in accordance with generally accepted accounting principles consistently applied, on a consolidated basis, except where expressly provided to the contrary. All references to a preceding period shall mean the period ending as of the end of the month, quarter or fiscal year for which the applicable report is delivered. All references to a period immediately following shall mean the period beginning on the first day of the month, quarter or fiscal year following the end of the period for which the applicable report is delivered. AA. Section 4.8 is added as follows: 4.8 DIVIDENDS AND REDEMPTIONS. The Borrower will not declare or pay dividends (other than a dividend payable solely in stock of the Borrower) or make any other distribution on account of, or purchase, acquire, redeem or retire any stock of the Borrower. AB. Exhibit 1.3.2 to the Loan Agreement is deleted and the Exhibit 1.3.2 attached hereto is substituted in its place. AC. Exhibit 2.8 to the Loan Agreement is deleted and the Exhibit 2.8 attached hereto is substituted in its place. AD. Exhibit 3.8 to the Loan Agreement is deleted and the Exhibit 3.8 attached hereto is substituted in its place. AE. Exhibit 3.11 to the Loan Agreement is deleted and the Exhibit 3.11 attached hereto is substituted in its place. -10- AF. Exhibit 4.4 to the Loan Agreement is deleted and the Exhibit 4.4 attached hereto is substituted in its place. Section 2. CLOSING. The closing of the transactions contemplated by this Amendment is subject to the satisfaction of the following conditions. 2.1 COUNSEL TO LENDER. All legal matters incident to the transactions herein contemplated shall be satisfactory to Gardere Wynne Sewell & Riggs, L.L.P., counsel to the Lender. 2.2 REQUIRED DOCUMENTS. (a) The Lender shall have received certified copies of resolutions of the Board of Directors of the Borrower and each of the Guarantors in form and substance satisfactory to Lender with respect to authorization of this Amendment, the Ratification of Guaranty Agreements, the Guaranty Agreements, and the other corporate instruments provided for herein, including a certificate of the Secretary of the Borrower and the sole director of each of the Guarantors as to the names of officers of such entity authorized to execute the loan documents and the other instruments or certificates related hereto together with the true signatures of such officers. (b) The Lender shall have received fully executed copies of this Amendment, the Revolving Note, the Ratifications of Guaranty, the Guaranty Agreements, and such other documents as Lender may reasonably require. 2.3 OPINION OF COUNSEL. The Lender shall have received from Baker & Botts, LLP, counsel to the Borrower, a written opinion, satisfactory to the Lender and its counsel. -11- Section 3. RATIFICATION. Except as amended hereby, the Loan Agreement shall remain unchanged and the terms, conditions, representations, warranties, and covenants of said Loan Agreement, are true as of the date hereof (unless such representations and warranties relate to an earlier date), are ratified and confirmed in all respects and shall be continuing and binding upon the parties. Section 4. DEFINED TERMS. All terms used in this Amendment which are defined in the Loan Agreement shall have the same meaning as in the Loan Agreement, except as otherwise indicated in this Amendment. Section 5. MULTIPLE COUNTERPARTS. This Amendment may be executed by the parties hereto in several separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same agreement. Section 6. APPLICABLE LAW. This Amendment shall be deemed to be a contract under and subject to, and shall be construed for all purposes in accordance with the laws of the State of Texas. Section 7. FINAL AGREEMENT. THE WRITTEN LOAN AGREEMENTS IN CONNECTION WITH THIS SECOND AMENDMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE BORROWER AND THE LENDER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE BORROWER AND THE LENDER. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE LENDER AND THE BORROWER. -12- IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized officers as of the _____ day of October, 1996. CONSOLIDATED GRAPHICS, INC. By: /s/ JOE R. DAVIS Joe R. Davis Chief Executive Officer NATIONSBANK OF TEXAS, N.A. By: /s/ JAMES D. RECER James D. Recer Vice President -13- EXHIBIT "2.8" SUBSIDIARIES PRIMARY NAME BUSINESS JURISDICTION - ----------------------------------------- --------- ------ Western Lithograph Company ................... (1) Texas Grover Printing Company ...................... (1) Texas Tewell Warren Printing Company ............... (1) Texas Consolidated Graphics Properties II, Inc. .... (2) Texas Chas. P. Young Company ....................... (1) Texas Gulf Printing Company ........................ (1) Texas Consolidated Graphics Properties, Inc. ....... (2) Texas Superb Printing Company ...................... (1)(3) Texas Gritz-Ritter Graphics, Inc. .................. (1) Colorado The Jarvis Press, Inc. ....................... (1) Texas Frederic Printing Company .................... (1) Colorado Consolidated Graphics Management, Inc. ....... (2) Texas Chas P. Young Company, Inc. .................. (2) New York Clear Visions, Inc. .......................... (1) Texas Bridgetown Printing Co. ...................... (1) Texas Consolidated Eagle Press, Inc. ............... (1) Texas Emerald City Graphics, Inc. .................. (1) Texas Garner Printing Company ...................... (1) Iowa Heritage Graphics, Inc. ...................... (1) Texas Precision Litho, Inc. ........................ (1) Texas Tulsa Litho Company .......................... (1) Oklahoma (1) Printing Operations (2) Other (3) Inactive EXHIBIT "2.8" SUBSIDIARIES (Continued) OWNERSHIP OPTIONS, WARRANTS NAME NUMBER/% SUBSCRIPTS, ETC. - ----------------------------------------- --------- ------ Western Lithograph Company ................... 100% None Grover Printing Company ...................... 100% None Tewell Warren Printing Company ............... 100% None Consolidated Graphics Properties II, Inc. .... 100% None Chas. P. Young Company ....................... 100% None Gulf Printing Company ........................ 100% None Consolidated Graphics Properties, Inc. ....... 100% None Superb Printing Company ...................... 100% None Gritz Ritter Graphics, Inc. .................. 100% None The Jarvis Press, Inc. ....................... 100% None Frederic Printing Company .................... 100% None Consolidated Graphics Management, Inc. ....... 100% None Chas P. Young Company, Inc. .................. 100% None Clear Visions, Inc. .......................... 100% None Bridgetown Printing Co. ...................... 100% None Consolidated Eagle Press, Inc. ............... 100% None Emerald City Graphics, Inc. .................. 100% None Garner Printing Company ...................... 100% None Heritage Graphics, Inc. ...................... 100% None Precision Litho, Inc. ........................ 100% None Tulsa Litho Company .......................... 100% None EXHIBIT "3.8" CERTIFICATE OF COMPLIANCE In accordance with Section 3.8 of the Amended and Restated Loan Agreement ("Loan Agreement") dated November 7, 1994, as amended, between NATIONSBANK OF TEXAS, N.A. ("Lender") and CONSOLIDATED GRAPHICS, INC., a Texas corporation ("Borrower"), I, , of the Borrower do hereby certify that the following is true and correct as of , 19 . -------------- ---- 1. To the best of my knowledge and belief, no Default or Event of Default has occurred and is continuing under the Loan Agreement. 2. That the Borrower's financial condition for the quarter ending is as follows: FINANCIAL REQUIRED RATIO/ ACTUAL RATIO/ COVENANT AMOUNT AMOUNT - -------- ------ ------ Funded Debt/EBITDA Ratio 3.0 to 1.0 Net Worth [Per loan Agreement] Fixed Charge Ratio 1.25 to 1.0 COLLATERAL LOCATION (ONLY APPLICABLE PER SECTION 3.10): All inventory of Borrower and the Guarantors is located in Texas except for inventory of: Inventory COMPANY LOCATION ------- -------- Tewell Warner Printing Company Colorado Gritz-Ritter Graphics, Inc. Colorado Frederic Printing Company Colorado Consolidated Eagle Press, Inc. California Emerald City Graphics, Inc. Washington Garner Printing Company Iowa Bridgetown Printing Co. Oregon Heritage Graphics, Inc. Arizona Precision Litho, Inc. California The foregoing terms are used as defined in the Loan Agreement. ---------------------------------- (Signature of Certifying Officer) EXHIBIT "3.11" BORROWING BASE REPORT FORM OF BORROWING BASE CERTIFICATE NO. ____________________ Dated ____________, 19_______ In accordance with a loan agreement dated November 7, 1994 (as amended "Loan Agreement") between NATIONSBANK OF TEXAS, N.A. ("Lender") and CONSOLIDATED GRAPHICS, INC. ("Borrower"), I, ____________________________ of the Borrower hereby certify and warrant that the following schedule accurately states Borrower's and the Guarantors' Eligible Accounts Receivables and Inventory and Borrower's Borrowing Base as of the date hereof and that no Default or Event of Default under the Loan Agreement has occurred and is continuing:
1. Total Accounts Receivable Control as of ______________________ $___________ 2. Less: (A) Accounts 120 days from date of Invoice$_____________ (B) Affiliate Accounts $_____________ (C) Intercompany Accounts $_____________ (D) Disputed Accounts $_____________ (E) Bankrupt/Financially Distressed $_____________ (F) Foreign (No L/C) $_____________ 3. ELIGIBLE Accounts Receivable [Line 1 minus Line 2] $____________ 4. ELIGIBLE Accounts Receivable - Public/Governmental (A) ELIGIBLE Accounts from "A" Rated Public Companies $_____________ (B) ELIGIBLE Accounts from U.S. Government $_____________ 5. ELIGIBLE Accounts Receivable - Public/Governmental [Line 4(A) plus Line 4(B) $____________ 6. 90% of Line 5 $____________ 7. Other ELIGIBLE Accounts Receivable [Line 3 minus Line 5] $____________ 8. 80% of Line 7 $____________ 9. Total Account Receivable Borrowing Base [Line 6 plus Line 8] $____________ 10. Unopened Paper and Ink Inventory $____________ 11. 60% of Line 10 $____________ 12. Opened Paper, Ink and Other Inventory $____________ 13. 40% of Line 12 $____________ 14. Work-In-Process at Cost $____________ 15. 50% of Line 14 $____________ 16. Total Inventory Borrowing Base [Line 11 plus Line 13 plus Line 15]$____________ 17. Preliminary Borrowing Base [Line 9 plus Line 16] $____________ 18. 40% of Line 17 $____________ 19. Lesser of Line 16 and Line 18 $____________ 20. Borrowing Base [Line 9 plus Line 19] $____________ 21. Loan Balance this report $____________ 22. Excess of Line 20 over line 21 $____________
-------------------------------------- Signature of Certifying Officer Title:________________________________ EX-10.2 3 EXHIBIT 10.2 REVOLVING PROMISSORY NOTE ------------------------- $35,000,000.00 October ___, 1996 FOR VALUE RECEIVED, after date, without grace, in the manner, on the dates and in the amounts so herein stipulated, the undersigned, CONSOLIDATED GRAPHICS, INC. acting by and through its duly authorized officer, ("Borrower"), PROMISES TO PAY TO THE ORDER OF NATIONSBANK OF TEXAS, N.A. ("Lender"), in Houston, Harris County, Texas, the sum of THIRTY-FIVE MILLION AND NO/100 DOLLARS ($35,000,000.00) or, if less, the aggregate unpaid principal amount of advances made by Lender to Borrower pursuant to this Note, in lawful money of the United States of America, which shall be legal tender in payment of all debts and dues, public and private, at the time of payment, and to pay interest on the unpaid principal amount from date until maturity at a rate equal to the Stated Rate (as hereinafter defined), not to exceed the maximum non-usurious interest rate permitted by applicable law from time to time in effect as such law may be interpreted, amended, revised, supplemented or enacted ("Maximum Rate"), provided that if at any time the Stated Rate exceeds the Maximum Rate then interest hereon shall accrue at the Maximum Rate. In the event the Stated Rate subsequently decreases to a level which would be less than the Maximum Rate or if the Maximum Rate applicable to this Note should subsequently be changed, then interest hereon shall accrue at a rate equal to the applicable Maximum Rate until the aggregate amount of interest so accrued equals the aggregate amount of interest which would have accrued at the Stated Rate without regard to any usury limit, at which time interest hereon shall again accrue at the Stated Rate. As used herein, the Stated Rate shall mean, in the absence of Borrower's exercise of a LIBOR Option (as defined in the Loan Agreement), the applicable Prime Rate as set forth in the column entitled "Interest Rate Options" in the following paragraph. In the event the Borrower exercises its right to select LIBOR (as defined in the Loan Agreement), (i) such selection shall be in accordance with the provisions of the Loan Agreement and (ii) the Stated Rate as to the LIBOR Portion (as defined in the Loan Agreement) shall be as follows: Applicable Funded Debt/ Interest Rate EBITDA RATIO OPTIONS ------------ ------- Less than or equal to LIBOR + .625% or .75 to 1.0 Prime Rate Greater than .75 to LIBOR + .875% or 1.0 but less than or Prime Rate equal to 1.5 to 1.0 - -------- Initials Greater than 1.5 LIBOR + 1.25% or to 1.0 but less than Prime Rate or equal to 2.0 to 1.0 Greater than 2.0 LIBOR + 1.50% or to 1.0 but less than Prime Rate + .25% or equal to 2.5 to 1.0 Greater than 2.5 LIBOR + 1.75% or to 1.0 Prime Rate + .25% The adjustment in the applicable Stated Rate of this Note shall be effective either (i) the first of the month following receipt of quarterly financial statements pursuant to Section 3.1 and Compliance Certificate pursuant to Section 3.8 of the Loan Agreement indicating the Funded Debt to EBITDA Ratio (as such terms are defined in the Loan Agreement) or (ii) upon an Interim Rate Determination Date as such term is defined in the Loan Agreement, based upon the ratio so redetermined. Interest shall be due and payable monthly as it accrues on the first day of each and every month, beginning November 1, 1996, and continuing regularly thereafter until October 31, 1998, when the entire balance of principal and accrued interest shall be due and payable. This Note is the Revolving Note referred to in, is subject to, and is entitled to the benefits of, the Amended and Restated Loan Agreement dated November 7, 1994, between Borrower and Lender, as amended by that certain First Amendment to Loan Agreement dated August 23, 1995, as that Amended and Restated Loan Agreement may be further amended, modified or supplemented from time to time (as amended, the "Loan Agreement"). The Loan Agreement contains, among other things, provisions for the acceleration of the maturity hereof upon the occurrence of certain stated events. All capitalized terms used herein which are defined in the Loan Agreement shall have the same meaning as in the Loan Agreement. It is agreed that time is of the essence of this agreement. Upon the occurrence of an Event of Default, Lender may accelerate and declare this Note immediately due and payable as provided in the Loan Agreement. Any failure to exercise this option shall not constitute a waiver by Lender of the right to exercise the same at any other time. Upon the occurrence of an Event of Default under Section 5.1(a) of the Loan Agreement or in the event this Note is declared due interest shall accrue at the lesser of (i) the Prime Rate plus two percent (2%) per annum or (ii) the Maximum Rate. Borrower hereby agrees to pay all expenses incurred, including reasonable attorneys' fees, all of which shall become a part of the - -------- Initials -2- principal hereof, if this Note is placed in the hands of an attorney for collection or if collected by suit or through any probate, bankruptcy or any other legal proceedings. Interest charges will be calculated on amounts advanced hereunder on the actual number of days these amounts are outstanding on the basis of a 365 or 366-day year, as is applicable. It is the intention of the parties hereto to comply with all applicable usury laws; accordingly, it is agreed that notwithstanding any provision to the contrary in this Note, or in any of the documents securing payment hereof or otherwise relating hereto, no such provision shall require the payment or permit the collection of interest in excess of the Maximum Rate. If any excess of interest in such respect is provided for, or shall be adjudicated to be so provided for, in this Note or in any of the documents securing payment hereof or otherwise relating hereto, then in such event (1) the provisions of this paragraph shall govern and control, (2) neither Borrower, endorsers or guarantors, nor their heirs, legal representatives, successors or assigns nor any other party liable for the payment hereof, shall be obligated to pay the amount of such interest to the extent that it is in excess of the Maximum Rate, (3) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal amount hereof or refunded to Borrower, and (4) the provisions of this Note and any documents securing payment of this Note shall be automatically reformed so that the effective rate of interest shall be reduced to the Maximum Rate. For the purpose of determining the Maximum Rate, all interest payments with respect to this Note shall be amortized, prorated and spread throughout the full term of the Note so that the effective rate of interest on account of this Note is uniform throughout the term hereof. Borrower agrees that the Maximum Rate to be charged or collected pursuant to this Note shall be the applicable indicated rate ceiling as defined in TEX. REV. CIV. STAT. ANN. Art. 5069- 1.04, provided that Lender may rely on other applicable laws, including without limitation laws of the United States, for calculation of the Maximum Rate if the application thereof results in a greater Maximum Rate. Except as provided above, the provi- sions of this Note shall be governed by the laws of the State of Texas. Each maker, surety, guarantor and endorser (i) waives demand, grace, notice, presentment for payment, notice of intention to accelerate the maturity hereof, notice of acceleration of the maturity hereof and protest, (ii) agrees that this Note and the liens securing its payment may be renewed, and the time of payment extended from time to time, without notice and without releasing any of the foregoing, and (iii) agrees that without notice or consent from any maker, surety, guarantor, or endorser, Lender may release any collateral which may from time to time be pledged to secure repayment of this Note, or may release any party who might be liable for this Note. - -------- Initials -3- Subject to the provisions of the Loan Agreement, Borrower may prepay this Note, in whole or in part, at any time prior to maturity without penalty, and interest shall cease on any amount prepaid. As used in this Note, the term "Prime Rate" shall mean the variable rate of interest announced by Lender from time to time as its prime rate of interest and, without notice to the maker of this Note or any other person, such rate of interest shall change as and when changes in that prime rate of interest are announced. The Prime Rate is set by Lender as a general reference rate of interest, taking into account such factors as Lender may deem appropriate, it being understood that many of Lender's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate of interest actually charged on any loan, and that Lender may make various commercial or other loans at rates of interest having no relationship to the Prime Rate. If at any time the "Prime Rate" of NationsBank of Texas, N.A. is no longer available, then the owner of this Note ("Owner") will designate a different "Prime Rate" as announced by a national banking association of Owner's choice. The principal of this Note represents funds which Lender will advance to Borrower from time to time upon request of Borrower. Any part of the principal may be repaid by Borrower and thereafter reborrowed, provided the outstanding principal amount of this Note shall never exceed the face amount of this Note. Each advance shall constitute a part of the principal hereof and shall bear interest from the date of the advance. The provisions of TEX. REV. CIV. STAT. ANN. Art. 5069-15.01, ET SEQ, as may be amended, shall not apply to this Note or to any of the security documents executed in connection with this Note. Borrower represents and warrants that this loan is for business, commercial, investment or similar purposes and not primarily for personal, family, household or agricultural use, as such terms are used in Chapter One of the Texas Credit Code. CONSOLIDATED GRAPHICS, INC. By: /s/ JOE R. DAVIS Joe R. Davis Chief Executive Officer "BORROWER" -4- EX-10.3 4 EXHIBIT 10.3 THIRD AMENDMENT TO LOAN AGREEMENT THIS THIRD AMENDMENT to Loan Agreement ("Third Amendment") is made and entered into as of the 29th day of October, 1996, by and between CONSOLIDATED GRAPHICS, INC., a Texas corporation, with offices and place of business at 2210 West Dallas, Houston, Texas 77019 (hereinafter called "Borrower") and NATIONSBANK OF TEXAS, N.A., a national banking association, with offices and banking quarters at 700 Louisiana, Houston, Texas 77002 (hereinafter called "Lender"). For and in consideration of the mutual covenants and agreements herein contained, Borrower and Lender hereby amend as of the date of this Third Amendment that certain Amended and Restated Loan Agreement between Borrower and Lender dated the 7th day of November, 1994, as previously amended by the First Amendment to Loan Agreement dated August 23, 1995 and by the Second Amendment to Loan Agreement dated October 21, 1996 (as amended, the "Loan Agreement"), in the following respects: Section 1. AMENDMENTS TO LOAN AGREEMENT. A. Section 1.3(a) and (b) are deleted and the following are substituted in their place: 1.3 REVOLVING LINE OF CREDIT. (a) The Lender, during the period from the date of the Second Amendment to Loan Agreement until October 31, 1998, subject to the terms and conditions of this Agreement, and subject to the condition that at the time of each borrowing hereunder, no Default or Event of Default has occurred and is then continuing to occur and, as to each borrowing which increases the principal amount outstanding under the Revolving Note, that the representations and warranties given by the Borrower in Section 2 as of the date of this Agreement shall remain true and correct in all material respects (unless such representation and warranty relates to an earlier date), agrees to make loans to Borrower pursuant to a Revolving Line of Credit up to but not in excess of an aggregate principal amount outstanding at any time of $35,000,000.00 on the same Business Day upon receipt from Borrower on or before 1:00 p.m. Houston time of written applications for loans hereunder in the form attached as Exhibit "1.3.1". Each advance shall be in an amount of not less than $50,000.00. Letters of credit may be issued pursuant to the Revolving Line of Credit provided that (i) the aggregate face amount of outstanding letters of credit shall not exceed $5,000,000 and (ii) the availability under the Revolving Line of Credit will be reduced by an amount equal to the aggregate face amount of outstanding letters of credit. Any letters of credit issued hereunder will have expiry dates not exceeding November 30, 1998. (b) The Borrower's obligation to repay the Revolving Line of Credit shall be evidenced by a promissory note of the Borrower in substantially the form attached as Exhibit "1.3.2" to the Second Amendment to Loan Agreement, payable to the order of Lender. The Revolving Note shall bear interest at the rates indicated below, but in no event to exceed the maximum non-usurious interest rate permitted by applicable law with the balance of principal plus accrued and unpaid interest due and payable on or before October 31, 1998. Applicable Interest Fees Funded Debt/ Rate Unused Letters Ebitda Ratio Options Portion of Credit ------------ ------- ------- --------- Less than or LIBOR + .625% or equal to .75 Prime Rate .10% .625% Greater than .75 LIBOR + .875% or .175% .875% to 1.0 but less Prime Rate than or equal to 1.5 to 1.0 Greater than 1.5 LIBOR + 1.25% or .25% 1.25% to 1.0 but less Prime Rate than or equal to 2.0 to 1.0 Greater than 2.0 LIBOR + 1.50% or .375% 1.50% to 1.0 but less Prime Rate + .25% than or equal to 2.5 to 1.0 Greater than 2.5 LIBOR + 1.75% or .50% 1.75% to 2.5 to 1.0 Prime Rate + .25% -2- The adjustment in the interest rate options on the Revolving Note and the fees charged pursuant to this Agreement shall be effective on (i) the first of the month following receipt of a quarterly financial statement and Compliance Certificate pursuant to Section 3.8 indicating the Funded Debt to EBITDA Ratio, and no Default or Event of Default exists, as more fully set forth in the Revolving Note and (ii) on an Interim Rate Determination Date. As used herein, "Interim Rate Determination Date" shall mean the effective date of the consummation of a merger and acquisition either (i) requiring the approval of Lender under the terms of this Agreement, or (ii) which does not require the approval of Lender but as to which Borrower desires to add historical EBITDA for the purposes of calculating compliance with financial covenants hereunder. In such event Borrower shall deliver within sixty (60) days following consummation of such merger or acquisition an interim redetermination of the Funded Debt to EBITDA Ratio based upon proforma financial statements which reflect such merger or acquisition, which redetermination and the calculation related thereto shall be subject to review and approval by Lender. The applicable interest rate options on the Revolving Note and the fees charged pursuant to this Agreement shall be adjusted effective as of the Interim Rate Determination Date based upon such approved interim redetermination. B. Section 3.11 is deleted and the following is substituted in its place: 3.11 BORROWING BASE. During any period the Revolving Line of Credit is required to be secured pursuant to Section 3.10, the aggregate indebtedness pursuant to the Revolving Line of Credit plus the amount of any unexpired letters of credit shall never exceed the sum of (i) ninety percent (90%) of the Eligible Accounts Receivable of (y) corporations whose securities are publicly traded with debt ratings of "A" or better as determined by Lender based upon Moody's or Standard & Poor's classification and (z) the United States government and any agency thereof; plus (ii) eighty percent (80%) of other Eligible Accounts Receivable; plus (iii) (y) sixty percent (60%) of the book value of unopened inventory plus (z) forty percent (40%) of book value of other inventory, provided inventory shall not include work-in-process and (iv) fifty percent (50%) of work-in-process, provided that the amount determined under this subsection (iii) shall never exceed forty percent (40%) of the Borrowing Base. In accordance with Section 3.1(d), Borrower shall provide -3- the Lender a calculation of the foregoing Borrowing Base in the form attached as Exhibit "3.11" ("Borrowing Base Report"). In the event the aggregate unpaid principal balance under the Revolving Line of Credit plus the amount of any unexpired letters of credit exceeds the Borrowing Base calculated as described above, the Borrower will promptly, but in any event no later than within five (5) Business Days (no additional notice or cure period being required prior to such failure becoming an Event of Default hereunder), reduce the unpaid principal balance under the Revolving Line of Credit until the amount owed is less than that calculated as described above. In the event such required payment involves a LIBOR Portion, such amount shall be prepaid without premium or restriction. Section 2. RATIFICATION. Except as amended hereby, the Loan Agreement shall remain unchanged and the terms, conditions, representations, warranties, and covenants of said Loan Agreement, are true as of the date hereof (unless such representations and warranties relate to an earlier date), are ratified and confirmed in all respects and shall be continuing and binding upon the parties. Section 3. DEFINED TERMS. All terms used in this Amendment which are defined in the Loan Agreement shall have the same meaning as in the Loan Agreement, except as otherwise indicated in this Amendment. Section 4. MULTIPLE COUNTERPARTS. This Amendment may be executed by the parties hereto in several separate counterparts, each of which shall be an original and all of which taken together shall constitute one and the same agreement. -4- Section 5. APPLICABLE LAW. This Amendment shall be deemed to be a contract under and subject to, and shall be construed for all purposes in accordance with the laws of the State of Texas. Section 6. FINAL AGREEMENT. THE WRITTEN LOAN AGREEMENTS IN CONNECTION WITH THIS THIRD AMENDMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE BORROWER AND THE LENDER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE BORROWER AND THE LENDER. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE LENDER AND THE BORROWER. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their duly authorized officers as of the 29th day of October, 1996. CONSOLIDATED GRAPHICS, INC. By:/s/ JOE R. DAVIS Joe R. Davis Chief Executive Officer NATIONSBANK OF TEXAS, N.A. By: /s/ JAMES D. RECER James D. Recer Vice President -5- EXHIBIT "3.11" BORROWING BASE REPORT FORM OF BORROWING BASE CERTIFICATE NO. ____________________ Dated ____________, 19_______ In accordance with a loan agreement dated November 7, 1994 (as amended "Loan Agreement") between NATIONSBANK OF TEXAS, N.A. ("Lender") and CONSOLIDATED GRAPHICS, INC. ("Borrower"), I, ____________________________ of the Borrower hereby certify and warrant that the following schedule accurately states Borrower's and the Guarantors' Eligible Accounts Receivables and Inventory and Borrower's Borrowing Base as of the date hereof and that no Default or Event of Default under the Loan Agreement has occurred and is continuing:
1. Total Accounts Receivable Control as of ______________________ $___________ 2. Less: (A) Accounts 120 days from date of Invoice$_____________ (B) Affiliate Accounts $_____________ (C) Intercompany Accounts $_____________ (D) Disputed Accounts $_____________ (E) Bankrupt/Financially Distressed $_____________ (F) Foreign (No L/C) $_____________ 3. ELIGIBLE Accounts Receivable [Line 1 minus Line 2] $____________ 4. ELIGIBLE Accounts Receivable - Public/Governmental (A) ELIGIBLE Accounts from "A" Rated Public Companies $_____________ (B) ELIGIBLE Accounts from U.S. Government $_____________ 5. ELIGIBLE Accounts Receivable - Public/Governmental [Line 4(A) plus Line 4(B) $____________ 6. 90% of Line 5 $____________ 7. Other ELIGIBLE Accounts Receivable [Line 3 minus Line 5] $____________ 8. 80% of Line 7 $____________ 9. Total Account Receivable Borrowing Base [Line 6 plus Line 8] $____________ 10. Unopened Paper and Ink Inventory $____________ 11. 60% of Line 10 $____________ 12. Opened Paper, Ink and Other Inventory $____________ 13. 40% of Line 12 $____________ 14. Work-In-Process at Cost $____________ 15. 50% of Line 14 $____________ 16. Total Inventory Borrowing Base [Line 11 plus Line 13 plus Line 15]$____________ 17. Preliminary Borrowing Base [Line 9 plus Line 16] $____________ 18. 40% of Line 17 $____________ 19. Lesser of Line 16 and Line 18 $____________ 20. Borrowing Base [Line 9 plus Line 19] $____________ 21. Loan Balance this report $____________ 22. Outstanding Letters of Credit $____________ 23. Excess of Line 20 over Line 21 plus Line 22 $____________
-------------------------------------- Signature of Certifying Officer Title:________________________________ EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED GRAPHICS SEPTEMBER 30, 1996, FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-31-1996 SEP-30-1996 2,118 0 26,369 (1,095) 7,666 35,953 87,118 (14,325) 114,822 15,811 0 0 0 61 58,233 114,822 34,451 34,451 23,864 23,864 6,132 0 595 3,860 1,428 2,432 0 0 0 2,432 0.40 0.40
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