-----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, EEpTnI+cTfdmYdioOJcdS43uFcO9f8bg/DCOdEnp3VgwiCtQgvxe5OFxCfw360pe 2uWLsSPpkHK17iz9UN+CdQ== 0000080984-96-000003.txt : 19960314 0000080984-96-000003.hdr.sgml : 19960314 ACCESSION NUMBER: 0000080984-96-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960313 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBCO CORP CENTRAL INDEX KEY: 0000080984 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 530246410 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01359 FILM NUMBER: 96534303 BUSINESS ADDRESS: STREET 1: 3830 KELLEY AVE CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 2168815300 MAIL ADDRESS: STREET 1: 3830 KELLEY AVE CITY: CLEVELAND STATE: OH ZIP: 44114 FORMER COMPANY: FORMER CONFORMED NAME: PUBLISHERS CO INC DATE OF NAME CHANGE: 19730809 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM l0-K (Mark One) / X / ANNUAL REPORT PURSUANT TO SECTION l3 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF l934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-1359 PUBCO CORPORATION (Exact name of registrant as specified in its charter) Delaware 53-0246410 (State of incorporation) (I.R.S. Employer Identification No.) 3830 Kelley Avenue, Cleveland, Ohio 44114 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (216) 881-5300 Securities registered pursuant to Section l2(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section l2(g) of the Act: Common Stock, Par Value $.0l Per Share Class B Stock, Par Value $.01 Per Share Common Stock Purchase Rights (Title of class) Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during the preceding l2 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 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. [X] At March 1, 1996, the aggregate market value of the common shares held by non-affiliates of the registrant (based upon the average bid and asked prices of the Common Stock), was approximately $5,548,430. As of March 1, l996, 3,461,727 common shares (Common Stock and Class B Stock) were outstanding. Documents Incorporated by Reference Form l0-K Reference None The exhibit index begins on page of this Form l0-K. PART I ITEM l. BUSINESS (a) General Development of Business. Pubco Corporation ("Pubco"), a Delaware corporation originally organized in Maryland in 1958, is a holding company which owns over 90% of the Common Stock and 100% of the Preferred Stock of Bobbie Brooks, Incorporated ("Brooks"), a Delaware corporation originally organized in Ohio in 1946. Brooks owns Buckeye Business Products, Inc. ("Buckeye"), which operates as a division and manufactures and markets computer and data processing supplies, approximately 85% of Allied Construction Products, Inc. ("Allied"), a Delaware corporation organized in 1993, which manufactures and distributes products for the construction and related industries, and approximately 62% of Aspen Imaging International, Inc. ("Aspen"), a Delaware corporation originally organized in Colorado in 1977, which manufactures and markets computer and data processing supplies. Brooks also licenses the use by others of certain apparel-related and printing-related trademarks and tradenames. Pubco and its wholly-owned and majority-owned subsidiaries are collectively referred to as the "Company". As of December 31, 1995, the Company employed approximately 220 persons. Brooks acquired Allied on March 1, 1993 and acquired Buckeye on January 1, 1994. Buckeye acquired approximately 41% of Aspen on July 1, 1993 and increased its ownership to approximately 62% during 1995. Brooks' commercial printing subsidiary ceased its printing operations near the end of the 1994 first quarter and liquidated its assets. The decision to discontinue this segment was made in the third quarter of 1993. Brooks' retail subsidiary closed or sold its stores near the end of 1994. Brooks' apparel manufacturing operations (other than trademark licensing), which operations did not represent any material amount of the Company's business, completed their final season during 1994. On October 24, 1995, Pubco announced that it had made separate proposals to Brooks and to Aspen, which if accepted, would result in Pubco owning 100% of Brooks and the assets of Aspen and the stockholders of each such company receiving Pubco Common Stock. The proposal made to Brooks would provide for the merger of Brooks into Pubco and the conversion of each six shares of Brooks Common Stock into one share of Pubco Common Stock. The proposal made to Aspen would provide for the acquisition of the assets of Aspen by a wholly owned subsidiary of Pubco for Pubco Common Stock and the distribution to former Aspen stockholders of one share of Pubco Common Stock for each seven shares of Aspen Common Stock. The proposals are subject to the approval of Pubco's stockholders and the approval of the Board of Directors and stockholders of each of Brooks and Aspen, after each of those companies has received a fairness opinion from its independent financial advisor. 2 On October 30, 1995, Pubco announced that it would purchase, from time to time in open market purchases, up to 175,000 of its shares. Through December 31, 1995, the Company had purchased 2,000 of its shares at a purchase price of approximately $12,000. (b) Financial Information About Industry Segments. For purposes of industry segment reporting, the Company deems that its operations are conducted in two segments: computer printer supplies and construction products. See Note K of Notes to Consolidated Financial Statements for further information on industry segment reporting. (c) Narrative Description of Business. Computer Printer Supplies Segment Buckeye, which operates as a division of Brooks, manufactures and markets computer ribbons, cartridge ribbons, computer paper, laser toners, remanufactured toner cartridges and thermal transfer ribbons. Buckeye also re-markets ink-jet supplies, magnetic media and copy paper. Ribbons constitute approximately 65% of Buckeye's business with paper and toner products representing 25% and 10%, respectively. Aspen manufactures toner and purchases from suppliers, including Buckeye, ribbon products and other supplies for printing devices. Some of Aspen's contractors produce component parts on molds owned by Aspen. Ribbon products constitute approximately 50% of Aspen's business with toner products constituting approximately 35%. The remaining 15% of Aspen's business is derived from the purchase and resale of other office supplies used primarily with printing devices and from the sale of its AspenGuideR, the definitive computer printer industry compatiblity guide which provides cross-reference information concerning ribbons, fax, laser and other related supplies. At December 31, 1995, Buckeye employed approximately 100 persons and Aspen employed approximately 20 persons. Buckeye markets its products exclusively through an in-house telemarketing organization primarily to end-users in the United States. Buckeye also produces products for the original equipment manufacturer ("OEM") market. Aspen's products are sold primarily through dealers located in the United States who resell the products to end-users, sometimes utilizing their own labeling. Buckeye has approximately 12,000 accounts, none of which represents 5% of its business. Aspen has approximately 2,000 accounts, none of which represents 5% of its business. Principal raw materials used by Buckeye are nylon impression fabric which is primarily purchased from one weaving mill, but is readily available from other sources, uncoated free sheet paper, which is purchased primarily from two suppliers, but is also readily available from numerous sources, and plastic cartridge components, which are purchased from numerous suppliers. Toner manufacturing chemicals are purchased by Aspen from numerous suppliers. 3 Neither Buckeye's nor Aspen's business is seasonal and neither relies on patents or trademarks for any material part of its business. Backlog is not important to Buckeye's business which depends on sales to end users who purchase product when needed or on scheduled deliveries. Backlog is not important to Aspen which depends on sales to dealers who purchase product when needed. Both Buckeye and Aspen maintain a one to two month's supply of inventory. There are no dominant suppliers of product in the computer printing supplies market which has numerous manufacturers and resellers. Construction Products Segment Allied designs, manufactures, assembles and distributes products for the construction, utility and mining industries. Primary product lines are divided into (A) products which are mounted on excavators, industrial tractors, loaders and other equipment, including (i) hydraulic hammers used for breaking rock, concrete and similar materials, (ii) hydraulic mounted compactors used for soil compaction and pile and sheeting driving applications, (iii) grapples used for material handling and demolition, (iv) asphalt cutters, and (v) hydraulic pedestal boom systems used for breaking oversize material at rock crushing operations and for waste handling operations, and (B) underground products, including (i) pneumatic piercing tools used to make horizontal holes for placement or repair of underground utility lines, and (ii) aluminum trench supports used to support the walls of open construction trenches. During the last three fiscal years, mounted products represented approximately 80-85% of Allied's sales while underground products represented the balance. Allied maintains a contractual relationship with Krupp Maschinentechnik GmbH, a German manufacturer of hammers and the component parts thereof, under which these component parts are purchased by Allied, assembled by Allied and exclusively sold and distributed in the United States and Canada under Allied's own tradenames. These purchases have represented approximately 50% of Allied's total component and material purchases during the past three fiscal years. Other sources of components and materials for Allied's products include various metal products manufacturers, hydraulic system component suppliers, and steel and aluminum suppliers, principally located in the United States. No other supplier represents more than 5% of Allied's component and material purchases. Raw materials used in the manufacture of Allied's products are available from a variety of sources. Allied's business is seasonal with approximately 60% of its annual sales generated during the first half of the calendar year. Allied actively sells to over 200 customers, none of which represents more than 5% of Allied's annual sales. Firm order backlog totalled approximately $4,286,000 as of February 23, 1996 compared to approximately $4,103,000 at February 24, 1995. Average backlog ranges from a high of $5,000,000 to a low of less than 4 $1,000,000. Backlog represents orders expected to be filled within the current fiscal year. Allied markets its products principally through distributors. Allied competes with approximately 15 other foreign and domestic manufacturers in the mounted product market and approximately 10 other foreign and domestic manufacturers in the underground product market. None of Allied's competitors are believed to hold a dominant position although some have greater financial resources than Allied. At December 31, 1995, Allied employed approximately 75 persons. Trademark Licensing Since 1986, Garan, Incorporated, a New York City based AMEX company, has been using the "Bobbie Brooks", "New Expressions by Bobbie Brooks" and "Present Co. by Bobbie Brooks" registered trademarks under a license agreement with Brooks. Garan and its sublicensees sell sportswear under these labels exclusively at Wal-Mart Stores. While the license agreement allows sales throughout the United States, Canada, Puerto Rico and Mexico, sales are actually occuring only where Wal-Mart operates retail stores. Through December 31, 1995, the license agreement provided for a quarterly licensing fee based upon sales of garments bearing these trademarks. Effective for the three year period commencing January 1, 1996, Brooks will receive a set annual licensing fee of $475,000, payable quarterly. Under separate licensing agreements with two unaffiliated commercial printers, Brooks has been licensing the use of its "Tabard/Copley" tradename in the cities of New York and Atlanta in exchange for monthly licensing fees based upon sales of printing services by such printers using this tradename. All licensing fees are recorded within the Corporate segment in Industry Segment Information at Note K. 5 ITEM 2. PROPERTIES The Company owns or leases the following properties: Owned or Square Location Leased Footage Use St. Louis, MO Owned 100,000 Commercial printing/offices leased through 2001 Elk Grove Village, IL Owned 84,000 Manufacturing/warehouse for short term tenants; for sale Havana, IL Owned 25,000 Retail; leased through 2000 Princeton, IL Owned 40,000 Under contract for sale Cleveland, OH Leased 312,000 Buckeye's/Allied's operations executive/administrative facilities; portion subleased to third party Dixon, IL Owned 22,000 Retail; for sale ITEM 3. LEGAL PROCEEDINGS The Company is not involved in any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 3l, l995. 6 PART II ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Information. Pubco's Common Stock is traded over-the-counter and quoted on NASDAQ SmallCap Market under the symbol PUBO. The following table presents for 1994 and 1995 the high and low bid prices of Pubco's Common Stock as reported by NASDAQ. Quotations are interdealer prices which do not include retail markups, markdowns or commissions and do not necessarily represent actual transactions. 1994 High Low First Quarter $ 5 1/2 $ 5 Second Quarter 5 1/4 4 3/4 Third Quarter 5 4 7/8 Fourth Quarter 5 3/4 5 1995 First Quarter $ 5 $ 4 1/2 Second Quarter 5 4 Third Quarter 5 1/4 4 Fourth Quarter 6 1/2 5 1/4 Transferability of Class B Stock is restricted to certain family members and others who are "Permitted Transferees" (as defined) and accordingly there is no market for Class B Stock. However, Class B Stock is convertible into Common Stock on a share-for-share basis. (b) Holders. There were approximately 7,500 holders of Common Stock of record and approximately 400 holders of Class B Stock of record, as of March 1, 1996. (c) Dividends. Pubco has never paid cash dividends on its Common Stock and Class B Stock and does not anticipate paying dividends on its Common Stock or Class B Stock in the forseeable future. In addition, no dividends may be paid on the Common Stock or Class B Stock while there is any unpaid dividend on the Preferred Stock. Subject to the foregoing, the payment of dividends will depend, among other factors, on earnings, capital requirements and the operating and financial condition of the Company. 7 ITEM 6. SELECTED FINANCIAL DATA (All numbers shown in 000's except share data and ratios) Selected Statement of Operations Data Years ended December 31 1995 1994 1993 1992 1991 Net sales (A),(B) $ 47,590 $ 46,016 $ 42,084 $ 25,030 $ 26,787 Net income (loss): (A) Continuing operations 3,953 3,380 2,386 925 521 Discontinued operations 1,100 (13,588) (2,511) (8,555) (1,162) Net income (loss) 5,053 (10,208) (125) (7,630) (641) Net income (loss) applicable to Common Stockholders (D) 4,178 (10,908) (825) (8,365) (1,621) Income (loss) per share: (A) Continuing operations (D) .89 .77 .49 .05 (.13) Discontinued operations .32 (3.92) (.73) (2.47) (.34) Net income (loss) per Common Share (D) $ 1.21 $ (3.15) $ (.24) $ (2.42) $ (.47) Weighted average number of shares 3,463,387 3,463,727 3,463,727 3,463,727 3,463,727 Selected Balance Sheet Data Years ended December 31 1995 1994 1993 1992 1991 Working capital ratio 2.3 to 1 1.3 to 1 1.5 to 1 2.0 to 1 1.8 to 1 Total assets $ 45,104 $ 42,876 $ 65,945 $ 71,090 $ 94,767 Long-term debt 2,407 949 6,057 10,695 8,685 Stockholders' equity 21,515 16,548 27,456 31,192 43,575 Common Stockholders' equity (C) 14,515 9,548 20,456 24,192 36,575 Per Common Share (C) $ 4.19 $ 2.76 $ 5.91 $ 6.98 $ 10.56 Shares outstanding at year end 3,461,727 3,463,727 3,463,727 3,463,727 3,463,727 (A) The information contained in the above table has been restated to give effect to the Buckeye business combination and the discontinuance of the commercial printing segment in 1993 and the discontinuance of the apparel and retail segments in 1994. Refer to Notes B and C of the Consolidated Financial Statements. (B) The increase in sales in 1993 is primarily due to the Allied acquisition. (C) Common Stockholders' Equity and Stockholders' Equity Per Common Share are computed net of the face value of Preferred Stock. (D) Net of Preferred Stock dividend requirements.
8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of 1995 and 1994 The Company has completed its transformation from a company with predominantly retail and apparel operations into a company which manufactures and distributes business to business products. The closure of the Company's retail department store chain in 1994 and discontinuance of its apparel manufacturing operations in 1994 have been accounted for as discontinued operations. Income from discontinued operations, net of taxes, for 1995 is the result of actual results being more favorable than anticipated when the accrual was established during 1994. The Company's continuing operations primarily consist of Buckeye and Allied. Each of these operations is located at the Company's manufacturing facility in Cleveland, Ohio. The increase in sales from 1994 to 1995 is primarily due to an increase in sales at Allied resulting from the introduction of a grapple product line in late 1994, as well as increased sales of pedestal boom systems and trench shoring equipment. The decrease in gross profit percentage in 1995 from 1994 is primarily due to a lower gross profit percentage at Allied. Because Allied purchases components from a German manufacturer, the lower value of the Dollar versus the Deutsche Mark in 1995 compared with 1994 resulted in increased cost of sales and lower gross profits at Allied. Lower borrowing levels at Allied and Buckeye in 1995 compared to 1994 resulted in a decrease in interest expense in 1995. The 1995 results of operations include interest income from the proceeds of the discontinued operations. These factors caused the change in net interest from 1994 to 1995. The Company will continue to generate interest and other income on its available funds until used to make an acquisition of other operating businesses. While no particular acquisition is pending or has been identified, the Company routinely reviews acquisition opportunities. The dividend requirements for the preferred stock adjust annually, in January, based on changes in the prime rate. The increase at January, 1995 caused the increase in preferred stock dividend requirements. Due to the increase in Brooks' ownership of Aspen to approximately 62% at the end of 1995, the Company's Consolidated Statement of Operations will include Aspen beginning in 1996. In 1995, 1994 and 1993, the Company accounted for Aspen's results of operations using the equity method which were not significant and were included in other income in the Company's Consolidated Statements of Operations. 9 Comparison of 1994 and 1993 All of the financial statement information has been restated to give effect to the business combination with Buckeye and the discontinued operations described below. The Company has completed its transformation from a company with predominantly retail and apparel operations into a company which manufactures and distributes business to business products. During 1994, the Company closed its remaining retail stores and discontinued its apparel manufacturing operations (other than trademark licensing), which apparel manufacturing operations did not represent any material amount of the Company's business. These actions have been accounted for as discontinued operations. The Company's continuing operations primarily consist of Buckeye and Allied. Each of these operations is located at the Company's manufacturing facility in Cleveland, Ohio. Buckeye contributed approximately $23,356,000 of sales and approximately $3,966,000 of pretax income in 1994 and approximately $23,391,000 of sales and approximately $3,729,000 of pretax income in 1993. Without Buckeye's operations, the Company would have reported a net loss from continuing operations of approximately $586,000 in 1994. Had the financial statements included herein not been retroactively restated to include Buckeye, the Company would have reported net losses from continuing operations of approximately $1,263,000 in 1993. Therefore, Buckeye has made a positive contribution in each of the years reported. Allied's sales increased from 1993 to 1994 primarily because of the inclusion of Allied's operations for the entire 1994 year. The decrease in Allied's income from 1993 to 1994 is primarily the result of a decline in gross margins due to increased sales of lower margin products, unfavorable currency fluctuations which adversely affected raw material cost, and the liquidation of inventory from phased-out product lines. The increase in sales from 1993 to 1994 is the result of the inclusion of Allied in the entire 1994 period. The changes in cost of sales from 1993 to 1994 are predominantly due to the same factors. Gross margins decreased from 1993 to 1994 primarily because Allied's products are sold at lower gross margins than Buckeye's. Selling, general and administrative expenses decreased from 1993 to 1994 because of cost reductions at Buckeye. As a result of the discontinuance of the Company's retail and apparel businesses in 1994 and the discontinuance of the Company's commercial printing business in 1993, the Company reported a loss from discontinued operations in each year. Losses from discontinued operations represent the Company's best estimate of the costs incurred and to be incurred from the discontinuance of such operations. 10 Liquidity and Capital Resources As a result of the increase in Brooks' ownership of Aspen at year-end 1995 from approximately 41% to approximately 62%, the Company's consolidated balance sheet at December 31, 1995 includes the accounts of Aspen, whereas the Company's consolidated balance sheet at December 31, 1994 accounted for its investment in Aspen using the equity method of accounting. At December 31, 1995, the Company had almost $20,000,000 of cash, cash equivalents, marketable securities and other short-term investments, including approximately $5,000,000 owned by Aspen, and approximately $2,407,000 of long-term debt. Accounts payable and accrued liabilities decreased from December 31, 1994 to December 31, 1995, notwithstanding the consolidation with Aspen at December 31, 1995, primarily as the result of the payment of certain obligations related to the closing of the retail department store chain. Stockholders' equity of $21,515 at December 31, 1995 includes Common and Preferred stockholders' equity. In order to calculate Common stockholders' equity at December 31, 1995, the face value of the Preferred Stock ($7,000,000) and any unpaid cumulative dividends on the Preferred Stock must be subtracted from total stockholders' equity. There were no unpaid cumulative preferred stock dividends outstanding at December 31, 1995. The Company has not consistently generated pretax income and the potential future tax benefits of the deferred tax assets, primarily net operating loss carryforwards, may not be realized. Accordingly, a valuation allowance has been provided equal to the net deferred tax assets related to these potential future tax benefits, which totaled approximately $16,000,000 at December 31, 1995. Should the Company generate pretax income in future years, the tax benefits of the net operating loss carryforwards and other items will be realized, which will have a positive impact on the future cash flows, liquidity and capital resources of the Company. New Accounting Standards In 1995, the Financial Accounting Standards Board issued a new accounting standard effective for 1996 that will be applicable to the Company. SFAS No. 121-"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of", establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The Company has determined the effect upon its adoption to be immaterial to results of operations. 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AUDITED CONSOLIDATED FINANCIAL STATEMENTS PUBCO CORPORATION AND SUBSIDIARIES DECEMBER 31, 1995 12 Ernst & Young LLP One Cascade Plaza Akron, Ohio 44308 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Pubco Corporation We have audited the accompanying consolidated balance sheets of Pubco Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pubco Corporation and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP March 8, 1996 13 CONSOLIDATED BALANCE SHEETS PUBCO CORPORATION AND SUBSIDIARIES ($ in 000's except share amounts) December 3l 1995 1994 ASSETS CURRENT ASSETS Cash and cash equivalents $ 7,919 $ 12,583 Marketable securities and other investments available for sale--Note D 11,836 - Trade receivables (less allowances of $279 in 1995 and $1,250 in 1994) 5,058 5,808 Inventories--Note H 7,447 7,258 Prepaid expenses and other current assets 756 589 --------- --------- TOTAL CURRENT ASSETS 33,016 26,238 PROPERTY AND EQUIPMENT--Notes G and H 8,492 10,446 INTANGIBLE ASSETS ARISING FROM ACQUISITIONS (at cost less accumulated amortization of $490 in 1995 and $324 in 1994)--Note A 676 842 EQUITY INVESTMENT--Note B - 2,689 OTHER ASSETS 2,920 2,661 --------- --------- TOTAL ASSETS $ 45,104 $ 42,876 ========= ========= See notes to consolidated financial statements.
14 CONSOLIDATED BALANCE SHEETS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES ($ in 000's except share amounts) December 3l 1995 l994 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,738 $ 6,509 Accrued liabilities--Note H 9,287 10,211 Loans payable-related party--Note G 289 1,911 Current portion of long-term debt--Note G 218 1,740 --------- --------- TOTAL CURRENT LIABILITIES 14,532 20,371 LONG-TERM DEBT--Note G 2,407 949 DEFERRED CREDITS AND NONCURRENT LIABILITIES 3,628 4,378 MINORITY INTERESTS 3,022 630 STOCKHOLDERS' EQUITY--Notes A and E Preferred Stock: Preferred Stock-par value $.01; 2,000,000 shares authorized, 70,000 shares issued and outstanding in 1994 ($7,000 aggregate liquidation preference in 1995 and 1994) 1 1 Convertible preferred stock-par value $1; 20,000 shares authorized, none issued - - Common Stock: Common Stock-par value $.01; 3,500,000 shares authorized; 2,906,697 issued and 2,904,697 outstanding in 1995 and 2,905,225 issued and outstanding in 1994 29 29 Class B Stock-par value $.01; 2,000,000 shares authorized; 557,030 issued and outstanding in 1995 and 558,502 issued and outstanding in 1994 6 6 Additional paid in capital 30,082 30,957 Unrealized gains on investments available for sale 801 - Retained (deficit) (9,392) (14,445) --------- ---------- 21,527 16,548 Treasury stock at cost, 2000 shares in 1995 (12) - --------- ---------- TOTAL STOCKHOLDERS' EQUITY 21,515 16,548 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 45,104 $ 42,876 ========= ========= See notes to consolidated financial statements.
15 CONSOLIDATED STATEMENTS OF OPERATIONS PUBCO CORPORATION AND SUBSIDIARIES ($ in 000's except share amounts) Year Ended December 3l 1995 1994 1993 Net sales $ 47,590 $ 46,016 $ 42,084 Cost of sales 34,844 32,402 28,662 --------- --------- --------- GROSS PROFIT 12,746 13,614 13,422 Costs and expenses: Selling, general and administrative expenses 8,835 8,829 9,592 Depreciation and amortization 1,121 1,303 1,118 Interest, net (911) 398 601 --------- --------- --------- 9,045 10,530 11,311 Other income, net 335 370 376 --------- --------- --------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST 4,036 3,454 2,487 Provision for income taxes--Note I 53 38 7 --------- --------- --------- INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST 3,983 3,416 2,480 Minority interest (30) (36) (94) --------- --------- --------- INCOME FROM CONTINUING OPERATIONS 3,953 3,380 2,386 Income (loss) from discontinued operations, net of taxes--Note C 1,100 (13,588) (2,511) --------- --------- ---------- NET INCOME (LOSS) 5,053 (10,208) (125) Preferred stock dividend requirements 875 700 700 --------- --------- --------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ 4,178 $(10,908) $ (825) ========= ========= ========= Earnings (loss) per share--Note A: CONTINUING OPERATIONS (NET OF PREFERRED STOCK DIVIDEND REQUIREMENTS) $ .89 $ .77 $ .49 DISCONTINUED OPERATIONS .32 (3.92) (.73) --------- --------- --------- NET INCOME (LOSS) $ 1.21 $ (3.15) $ (.24) ========= ========= ========= Weighted average number of shares outstanding--Notes A and E 3,463,387 3,463,727 3,463,727 ========== ========== ========== See notes to consolidated financial statements.
16 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY PUBCO CORPORATION AND SUBSIDIARIES ($ in 000's except share amounts) Three Years Ended December 3l, l995 Preferred Stock Common Stock Class B Stock Additional Retained Par Par Par Paid In Earnings Shares Value Shares Value Shares Value Capital (Deficit) Balance at December 31, 1992 70,000 $ 1 2,903,079 $29 560,648 $ 6 $31,657 $ (501) Conversion of Class B Stock to Common Stock--Note E - - 1,214 - (1,214) - - - Subchapter S distribution to shareholder of Buckeye--Note B - - - - - - - (3,611) Net (loss) for 1993 - - - - - - - (125) ------- ------ --------- ----- ------- ---- ------- --------- Balance at December 31, 1993 70,000 $ 1 2,904,293 $29 559,434 $ 6 $31,657 $ (4,237) Conversion of Class B Stock to Common Stock--Note E - - 932 - (932) - - Preferred Stock dividends paid (paid at $10.00 per share) --Note E - - - - - - (700) - Net (loss) for l994 - - - - - - - (10,208) ------- ------ --------- ----- ------- ---- ------- --------- Balance at December 31, 1994 70,000 $ 1 2,905,225 $29 558,502 $ 6 $30,957 $(14,445) Conversion of Class B Stock to Common Stock--Note E 1,472 (1,472) Shares purchased to Treasury (2,000) Preferred Stock dividends paid (paid at $12.50 per share) --Note E (875) Net income for l995 5,053 ------- ------ --------- ----- ------- ---- ------- --------- Balance at December 31, 1995 70,000 $ 1 2,904,697 $29 557,030 $ 6 30,082 (9,392) ======= ====== ========= ===== ======= ==== ======== ========= See notes to consolidated financial statements.
17 CONSOLIDATED STATEMENTS OF CASH FLOWS PUBCO CORPORATION AND SUBSIDIARIES ($ in 000's except share amounts) Year Ended December 3l 1995 1994 1993 OPERATING ACTIVITIES Net income from continuing operations $ 3,953 $ 3,380 $ 2,386 Adjustments to reconcile net income to net cash provided by operating activities: Income (loss) from discontinued operations 1,100 (13,588) (2,511) Write-down of assets of discontinued segments - 3,836 2,572 Depreciation and amortization 1,379 2,255 2,272 Net (gain) loss on sales of securities (75) (133) (488) Net (gain) loss on disposal of fixed assets (256) 199 (45) Minority interest (55) 36 94 Changes in operating assets and liabilities net of acquisitions and divestitures: Trade receivables 1,292 6,919 4,027 Inventories 491 19,938 9,469 Other assets (272) 1,006 1,736 Accounts payable (2,121) (4,401) (1,435) Other current liabilities (2,471) (929) (5,429) Deferred credits and noncurrent liabilities (750) 750 136 --------- --------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,215 19,268 12,784 INVESTING ACTIVITIES Distributions from partnership and trust investments - 25 79 Purchase of marketable securities (11,764) - - Proceeds from sale of marketable securities 1,364 723 53 Purchases of fixed assets (327) (3,808) (1,204) Proceeds from the sale of fixed assets 2,727 3,769 236 Purchase of Aspen stock (665) - (2,858) Cash acquired in Aspen investment 4,359 - - Acquisition of construction products business - - (3,000) --------- --------- ---------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (4,306) 709 (6,694) FINANCING ACTIVITIES Net borrowings (repayments) on loans payable (1,622) (300) 2,211 Net borrowings (repayments) on other facilities - (1,577) 1,110 Proceeds from long-term debt 32,614 34,465 37,960 Principal payments on long-term debt (32,678) (40,404) (46,045) Dividends paid (875) (700) - Purchase of treasury stock (12) - - Distribution to shareholder of Buckeye - - (3,611) --------- --------- ---------- NET CASH (USED IN) FINANCING ACTIVITIES (2,573) (8,516) (8,375) --------- --------- ---------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,664) 11,461 (2,285) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,583 1,122 3,407 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,919 $ 12,583 $ 1,122 ========= ========= ========= See notes to consolidated financial statements.
18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PUBCO CORPORATION AND SUBSIDIARIES December 3l, l995 ($ in 000's except share amounts) NOTE A--SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements of Pubco Corporation ("Company" or "Pubco") include the accounts of the Company and its wholly-owned and majority-owned subsidiaries, including Bobbie Brooks, Incorporated ("Brooks"), an approximately 90% owned subsidiary. Investments of 20%-50% owned affiliates are accounted for using the equity method. Intercompany balances and transactions have been eliminated upon consolidation. Cash and Cash Equivalents: Cash equivalents are composed of all highly liquid investments generally with a maturity of three months or less at the time of purchase. Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market. Financial Instruments: The Company's financial instruments recorded on the balance sheet include cash and cash equivalents and long-term debt. Because of their short maturity, the carrying amount of cash and cash equivalents approximates fair value. Because the majority of long-term debt is at market rates of interest that adjust frequently, the carrying amount of long-term debt approximates fair value. Off balance sheet financial instruments include foreign currency exchange agreements. In the normal course of business, the Company's construction products subsidiary purchases components from a German supplier and from time to time, enters into foreign currency exchange contracts with banks in order to fix its trade payables denominated in the Deutsche Mark. The contract amounts outstanding and the net deferred gains or losses were not significant at December 31, 1995 and 1994. Long-lived Assets: Property and equipment are recorded at cost with depreciation and amortization principally computed by the straight-line method. Intangible assets ("goodwill") represents the excess of the purchase price over the fair value of the net assets of acquired businesses and is being amortized by the straight-line method, in most cases over 10 years. The carrying amount in goodwill is reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of the goodwill is reduced by the estimated shortfall of cash flows. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset or related groups of assets, may not be recoverable. Measurement of the amount of impairment may be based on appraisal, market values of similar assets or estimated undiscounted future cash flows resulting from use and ultimate disposition of the asset. Research and Development Costs: The Company's construction products subsidiary performs research and development on present and future products and all costs are expensed as incurred. Total expenditures amounted to $489 and $647 for the years ended December 31, 1995 and 1994 and $363 for the 10 months ended December 31, 1993. Per Common Share Amounts: Per common share amounts are computed after preferred dividend requirements on the basis of the weighted average number of shares of Common Stock outstanding. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recently Issued Accounting Standards: In March 1995, the Financial Accounting Standards Board issued SFAS No. 121 - "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of." SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The Company is required to adopt the provisions of SFAS No. 121 for 1996, and the Company has determined the effect upon its adoption to be immaterial to results of operations. Reclassifications: Certain prior year amounts have been reclassified to conform to the 1995 presentation. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE B--BUSINESS COMBINATIONS Business Combination with Buckeye. Buckeye Business Products, Inc. ("Buckeye") manufactures and nationally markets, primarily to end users, computer data processing supplies, including computer ribbons, laser toner, ink jet cartridges, magnetic media, and computer paper, using an in-house telemarketing staff. On January 1, 1994, the business of Buckeye was transferred by the Company to Brooks. Buckeye had merged (the "Merger") with and into a wholly-owned subsidiary of the Company immediately prior to the transfer of Buckeye's business to Brooks. As consideration for Buckeye, Robert H. Kanner, Buckeye's sole stockholder who is also the Company's and Brooks' Chairman, President and CEO and the Company's controlling stockholder, received 1,820,724 newly issued shares of the Company's Common Stock and 70,000 shares of a newly-created Preferred Stock of the Company with a face value of $100 per share. In consideration for the Buckeye business, the Company received 194,600 shares of a newly-created Preferred Stock of Brooks with a face value of $100 per share. The Buckeye business is being operated as a division of Brooks. Acquisition of Aspen. On July 12, 1993, Brooks purchased an approximately 41% ownership interest in Aspen Imaging International, Inc. ("Aspen"), a publicly-held (NASDAQ Small Cap) corporation headquartered in Boulder, Colorado. Aspen manufactures ribbons, toner and other supplies for impact and non-impact printing devices. Brooks paid approximately $2,858 for its equity interest and accounted for its investment in Aspen on the equity method through year-end 1995. The Company's Statements of Operations include its share of the earnings or losses of Aspen from July 12, 1993 through year-end 1995, which are insignificant and are included in "Other Income, Net" in the Consolidated Statements of Operations. At year-end 1995, Brooks acquired additional shares in Aspen bringing its interest to approximately 62% at December 31, 1995. The total purchase price, which is comprised of the $665 additional investment made in 1995 and the equity investment account balance of approximately $2,689, was allocated based upon the fair values of the assets and liabilities acquired. Summarized below are the unaudited consolidated results of operations of the Company, including Aspen on a pro forma basis, assuming the acquisition of 62% of Aspen's stock had occurred at the beginning of each respective year. These results include certain adjustments, principally depreciation and amortization expense, and are not necessarily indicative of what the results would have been had the Company owned Aspen's business during these periods. Year Ended December 3l 1995 1994 Net sales $ 52,260 $ 53,323 Income from continuing operations $ 4,057 $ 3,391 Net income from continuing operations per common share (net of Preferred Stock dividend requirements) $ .92 $ .78 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE B--BUSINESS COMBINATIONS--CONTINUED The Company's financial statements include transactions with Aspen prior to year-end 1995. Product sales to and purchases from Aspen approximated $1,001 and $147, respectively, for the year ended December 31, 1995, $1,486 and $296, respectively, for the year ended December 31, 1994, and $270 and $70, respectively, for the six months ended December 31, 1993. All such transactions were at cost. In addition, during 1994, to replace Aspen's toner filling operation which was eliminated when Aspen sold its Colorado building, the Company constructed a toner filling room for Aspen's use at the Company's facility costing approximately $40, which amount was reimbursed to the Company by Aspen. Company personnel performed a variety of manufacturing, accounting, shipping and other support services for Aspen at the Company's cost. During 1995 and 1994, these costs approximated $157 and $136, respectively which amounts were reimbursed to the Company by Aspen. Acquisition of Allied. On March 1, 1993, Allied Construction Products, Inc. ("Allied"), an 85% owned subsidiary of Brooks, purchased the assets and business of a fabricator, assembler and distributor of construction products for the construction and related industries. Brooks paid $3,000 for its equity interest in the subsidiary. The purchase price was allocated based upon the fair values of the assets and liabilities acquired. The results of operations of Allied have been included in the consolidated financial statements of the Company since the date of acquisition. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE C--DISCONTINUED OPERATIONS At September 30, 1994, the Company discontinued the operations of its retail and apparel manufacturing segments. Accordingly, a charge was made in 1994 for such discontinued operations related to the write-down of net assets to their net realizable value and to provide for operating losses during the phaseout period. Operations of the retail and apparel manufacturing segment in 1994 resulted in a loss of approximately $2,821 through the measurement date. Operations of the retail and apparel manufacturing segment for the fourth quarter of 1994 resulted in a loss of approximately $2,124 which was charged against the reserve for discontinued operations. In 1995, the Company reduced the reserve by $1,100 primarily related to actual results being more favorable than anticipated when the accrual was established in 1994. The remaining reserve balance of $1,805 at December 31, 1995, is believed to be sufficient to provide primarily for the costs of future lease, employee and other liabilities. During 1993, the Company discontinued the operations of its commercial printing segment. Accordingly, a charge was made in 1993 for such discontinued operations relating to the write-down of net assets to their net realizable value and to provide for operating losses during the phaseout period. The Company ceased its printing operations at the end of the 1994 first quarter and liquidated most of its commercial printing assets by early 1995. Results of these discontinued operations include: Year Ended December 3l 1995 1994 1993 Sales $ - $ 40,702 $84,293 ---------- --------- -------- (Loss) income from operations - $ (2,808) $ 1,470 Income tax expense (benefit) - 13 (19) ---------- --------- -------- (Loss) income from operations - (2,821) 1,489 Income (loss) on disposals (no tax effect) 1,100 (10,767) (4,000) ---------- --------- -------- Income (loss) from discontinued operations $ 1,100 $(13,588) $(2,511) ========== ========= ======== 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE D--MARKETABLE SECURITIES The following is a summary of marketable securities available for sale at December 31, 1995: Gross Gross Estimated Unrealized Unrealized Fair Cost Gains (Loss) Value US Corporate Equity Securities $ 4,425 $ 176 $ (140) $ 4,461 US Corporate Debt Securities 3,056 30 - 3,086 Foreign Government Debt Securities 3,554 735 - 4,289 ---------- ---------- ---------- ---------- $ 11,035 $ 941 $ (140) $ 11,836 ========== ========== ========== ==========
The gross realized gains on sales of securities available for sale totaled $75. The net adjustment to unrealized holding gains on securities available for sale included as a separate component of stockholders' equity totaled $801 in 1995. The cost and estimated fair value of debt securities at December 31, 1995, by estimated maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. Estimated Fair Cost Value Due after one year through three years $ 1,083 $ 1,089 Due after three years 5,527 6,286 ---------- ---------- $ 6,610 $ 7,375 ========== ========== 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE E--CORPORATE ORGANIZATION AND STOCKHOLDERS' EQUITY The Company owns approximately 90% of the outstanding Common Stock of Brooks and all of the Brooks Preferred Stock. The Brooks Preferred Stock, which is made up of non-voting Series A and B issues, although eliminated in consolidation, provides certain preferences to the holders thereof. In the event of the liquidation of Brooks, Pubco is entitled to a distribution equal to the face value of the Preferred Stock (and any unpaid cumulative dividends) before any amount may be paid on Brooks' Common Stock. Brooks' Preferred Stock Series A is subject to redemption, in whole or in part, at Brooks' option. In addition to any unpaid cumulative dividends, ($10,523 at December 31, 1995), the redemption price includes a premium of three percent of face value during 1995, reducing to face value during 1998 and thereafter. Brooks Preferred Stock Series B is subject to redemption, in whole or in part, at Brooks' option. There are no unpaid cumulative dividends at year end, and the redemption price is equal to face value. In 1995 and 1994, Brooks declared and paid $650 and $700, respectively, of Preferred Stock dividends. As of December 31, 1995, $3,029 of cumulative dividends were undeclared and unpaid on the Preferred Stock. The Company's Common Stock has one vote per share and Class B Stock has ten votes per share. Transferability of Class B Stock is restricted and, accordingly, there is no market for Class B Stock. However, Class B Stock is convertible into Common Stock on a share-for-share basis. The Company issued a newly-created class of Preferred Stock Series A on January 1, 1994 in connection with the merger of Buckeye. See Note B. The Company's Preferred Stock is subject to redemption, in whole or in part, at the Company's option at any time after December 31, 1994. In the event of a redemption of the Preferred Stock or a liquidation of the Company, holders of Preferred Stock are entitled to a distribution equal to the face value of the Preferred Stock (and any unpaid cumulative dividends) before any amount may be paid on Common Stock. The Company's non-voting Preferred Stock Series A requires cumulative annual dividends on the $100 face value per share at four percent above the averaged base lending rate of three large commercial banks. No dividend may be paid on Common Stock while there is any dividend arrearage on the Preferred Stock. In 1995, the Company paid $875 ($12.50 per share) of Preferred Stock Series A dividends which were treated as a return of capital. As of December 31, 1995, there were no undeclared and unpaid dividends on the Preferred Stock. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE E--CORPORATE ORGANIZATION AND STOCKHOLDERS' EQUITY--CONTINUED Stockholders' equity of $21,515 at December 31, 1995 includes Common and Preferred stockholders' equity. In order to calculate Common stockholders' equity at December 31, 1995, the face value of the Preferred Stock ($7,000) and any unpaid cumulative dividends on the Preferred Stock must be subtracted from total stockholders' equity. There were no unpaid cumulative Preferred Stock dividends outstanding at December 31, 1995. The Company has an Incentive Plan that allows the granting of stock options and stock awards to officers and key employees of the Company. Up to 80,000 shares of Common Stock are available under the Incentive Plan. Stock options are generally not exercisable until five years after grant and then vest over time. The exercise price per share must generally be at least equal to the fair market value per share on the date of the respective grant. All shares subject to a stock award are deemed Restricted Stock until the fifth anniversary of the date of the award and then lose such restricted qualification over time. Shares of Restricted Stock are subject to forfeiture following termination of employment and other events. No options or stock awards have been granted under such plan. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE F--RETIREMENT PLANS The Company maintains two discretionary non-qualified profit sharing plans to provide retirement benefits for certain of its key employees. The assets are segregated, but are included in Other Assets. The liabilities associated with these plans are included in Other Liabilities. In 1993, Allied adopted a 401(k) plan, with discretionary Company contributions. Expenses under the foregoing plans aggregated approximately $346, $322 and $316 for the years ended December 3l, 1995, l994 and l993, respectively. The Company makes contributions to union-sponsored, collectively-bargained, multiemployer defined benefit pension plans. The Company contributed and charged to expense $8, $151 and $327 for the years ended December 3l, l995, l994 and 1993, respectively, for such plans. These contributions are determined in accordance with the provisions of negotiated labor contracts and generally are based on the amount of time worked. Information as to the Company's portion of the accumulated plan benefits, plan net assets and unfunded vested benefits, if any, is not determinable. In the event of a withdrawal from one or more of the plans, the Company may be subject to a withdrawal liability under the provisions of the Multiemployer Pension Plan Amendments Act of 1980. The discontinuance of the commercial printing segment has triggered withdrawal liability which was provided for in the charge for discontinued operations in 1993. Management does not intend to take any action which would subject the Company to any such liability under any other multiemployer pension plans. The Company maintains a noncontributory defined benefit pension plan covering employees who are under a collective bargaining agreement and sponsors a pension plan for terminated employees of a former operation of a predecessor company. The excess actuarial present value of accumulated plan benefits over net assets available for benefits under these plans was approximately $365 and $370 at December 31, 1995 and 1994, respectively, which amounts have been reflected in the accompanying balance sheets. Expenses under these plans were approximately $50, $48 and $54 for 1995, 1994 and 1993, respectively. The Company provides life insurance benefits and/or contributes to the cost of medical insurance for certain retired salaried and commission basis employees. The accumulated postretirement benefit obligation and related expense recorded for each year are not material to the balance sheet or the results of operations. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE G--FINANCING ARRANGEMENTS The Company had a demand note payable to Robert H. Kanner, the Company's Chairman, President & CEO, with a balance of $289 and $1,911 at December 31, 1995 and 1994, respectively. Interest on the unpaid balance is payable monthly at rates up to 2% above Society National Bank's base lending rate ("BLR"). Interest expense for the Company was $51, $177 and $127 in the years ended December 31, 1995, December 31, 1994, and December 31, 1993, respectively. The Company has a $2,500 demand credit facility at BLR plus .5% with no outstanding balance at December 31, 1995. The Company has a $3,000 revolving credit facility at LIBOR plus 2.5% or BLR, at the Company's options, expiring in 1997, with $1,677 outstanding at December 31, 1995. The Company has a term note at BLR plus 1% due through 1996 with $36 outstanding at December 31, 1995. The Company has a mortgage note at BLR due through 1997 with $825 outstanding at December 31, 1995. A portion of the debt is collateralized by assets with aggregate carrying values of $14,569 at December 31, 1995. Debt maturities for the years l996 through 1999 are $218, $2,370, $28 and $9, respectively. Interest payments by the Company were $244, $846 and $1,137 for the years ended December 31, 1995, 1994 and 1993, respectively. Interest expense was $280, $512 and $696 for the years ended December 31, 1995, 1994 and 1993, respectively. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE H--OTHER INFORMATION December 31 1995 1994 Inventories: Raw materials and supplies $ 4,532 $ 4,912 Work in process 484 622 Finished goods and merchandise 2,431 1,724 --------- --------- $ 7,447 $ 7,258 ========= ========= Property and equipment: Land and buildings $ 3,773 $ 5,968 Machinery, equipment and fixtures 12,004 13,870 Leasehold improvements 3,115 3,147 Construction in progress 97 37 18,989 23,022 Less accumulated depreciation, --------- --------- amortization and allowance to reduce fixed assets to net realizable value (10,497) (12,576) --------- --------- $ 8,492 $ 10,446 ========= ========= Accrued liabilities: Payroll and other employee benefits $ 2,207 $ 2,243 Accrued taxes 1,867 2,105 Accrual for discontinued businesses 1,717 2,766 Other 3,496 3,097 --------- --------- $ 9,287 $ 10,211 ========= ========= 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE I--INCOME TAXES Pubco and its consolidated subsidiaries file a consolidated federal income tax return. The provision for income taxes for continuing operations consists of the following components: Year Ended December 3l 1995 1994 1993 Federal currently payable $ 39 $ 20 $ (77) State and local currently payable 14 18 84 ------- ------- ------- $ 53 $ 38 $ 7 ======= ======= ======= Income taxes paid by (refunded to) the Company were $30, $(57) and $37 for the years ended December 31, 1995, 1994 and 1993, respectively. A reconciliation of the statutory federal income tax rate to the effective rate for continuing operations is as follows: Year Ended December 3l 1995 1994 1993 Statutory federal rate 34.0% 34.0% 34.0% State and local taxes .2 0.3 2.2 Write-off of intangibles - - 14.6 Utilization of net operating loss carryforwards (34.6) (33.4) (2.2) Subchapter S corporation income (not subject to tax) - - (49.7) Other 1.7 0.2 1.4 ------ ------ ------ 1.3% 1.1% 0.3% ====== ====== ====== At December 31, 1995, the Company had available net operating loss carryforwards of approximately $23,500 for federal income tax purposes. Approximately $17,600 are subject to limitations based on certain subsidiaries' ability to generate future taxable income. The loss carryforwards, if not used, will expire as follows: $1,100 in 1996, $3,800 in 1997, $1,200 in 1998, $2,000 in 1999, $4,100 in 2000, $300 in 2002, $200 in 2004, $1,200 in 2006, $2,100 in 2007, $1,600 in 2008 and $5,900 in 2009. In addition, for tax purposes, the Company has investment tax credit carryforwards of approximately $100 which expire between 1996 and 2000 and alternative minimum tax credit carryforwards of approximately $500. 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE I--INCOME TAXES--CONTINUED Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities, for financial reporting purposes, and the amounts used for income tax purposes. Significant components of the Company's federal and state deferred tax assets and liabilities are as follows: 1995 1994 Deferred tax assets: Net operating loss carryforwards and credits $ 9,500 $ 11,200 Accrual for discontinued operations 600 1,000 Deferred compensation 3,300 2,500 Other 3,700 4,200 --------- --------- Total deferred tax assets 17,100 18,900 Deferred tax liabilities: Tax over book depreciation 700 1,000 Other 100 - --------- --------- Total deferred tax liabilities 800 1,000 --------- --------- Net deferred tax assets 16,300 17,900 Valuation allowance for deferred tax assets (16,300) (17,900) --------- --------- Net deferred taxes $ - $ - ========= ========= The Company has not consistently generated pretax income and the potential future tax benefits of the deferred tax assets, primarily net operating loss carryforwards, may not be realized. Accordingly, a valuation allowance has been provided equal to the net deferred tax assets related to these potential future tax benefits. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE J--LEASING ARRANGEMENTS As Lessee: Pubco, Brooks and Buckeye are parties to separate leasing arrangements for office and factory space in an approximately 312,000 square foot building owned and operated by a partnership that is controlled by the majority stockholder of the Company. Buckeye and Allied conduct substantially all of their business activities from this building. Pubco and Brooks have their corporate offices at this building. The leases expire in 2005. The leases require annual payments aggregating $549. Rent expense associated with these leases was $549 for each of the years ended December 31, 1995, 1994 and 1993. The Company and its subsidiaries lease certain facilities and equipment under non-cancellable leases for periods ranging from 1 to 10 years. Total rental expense from continuing operations under all operating leases is summarized below: Year Ended December 31 1995 1994 1993 Minimum rentals $ 732 $ 707 $ 623 Sublease rental income (61) (60) (61) -------- -------- -------- $ 671 $ 647 $ 562 ======== ======== ======== At December 3l, l995, the commitments under non-cancellable operating leases are as follows: Operating Leases l996 $ 650 l997 566 l998 565 1999 559 2000 553 Thereafter 1,920 -------- $ 4,813 ======== Future minimum sublease rentals to be received on facilities under non-cancellable operating leases approximate $144 at December 3l, l995. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE J--LEASING ARRANGEMENTS--CONTINUED As Lessor: The Company leases certain land, buildings, equipment and a trade name asset with an aggregate net book value of $3,757 at December 3l, l995, under operating leases expiring between 1996 and 2000. Upon expiration of the initial terms, the lessees have options to renew for periods up to 10 years. At December 3l, l995, future minimum rentals to be received under operating leases are as follows: l996 $ 860 l997 822 l998 822 1999 822 2000 755 Thereafter - -------- $ 4,081 ======== 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE K--INDUSTRY SEGMENT INFORMATION Summarized industry segment information is as follows: Computer Printer Construction Supplies Products Corporate Consolidated 1995 Net sales $ 22,735 $ 24,855 $ - $ 47,590 Trade receivables 2,603 2,433 22 5,058 Income (loss) from continuing operations before income taxes and minority interest 4,127 101 (192) 4,036 Identifiable assets 13,223 8,998 22,883 45,104 Capital expenditures 51 141 135 327 Depreciation and amortization 192 374 813 1,379 1994 Net sales $ 23,356 $ 22,660 $ - $ 46,016 Trade receivables 2,170 2,321 1,317 5,808 Income (loss) from continuing operations before income taxes and minority interest 3,966 632 (1,144) 3,454 Identifiable assets 6,124 9,551 27,201 42,876 Capital expenditures 245 663 2,900 3,808 Depreciation and amortization 215 352 895 1,462 1993 Net sales $ 23,391 $ 18,693 $ - $ 42,084 Trade receivables 2,120 2,162 8,445 12,727 Income (loss) from continuing operations before income taxes and minority interest 3,729 1,095 (2,337) 2,487 Identifiable assets 6,114 11,518 48,313 65,945 Capital expenditures 256 25 923 1,204 Depreciation and amortization 166 252 848 1,266 Aspen was consolidated as part of the computer printer supplies segment beginning December 31, 1995, and is included in the 1995 trade receivables and identifiable asset amounts above. Corporate includes certain amounts related to the previously discontinued segments. 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED PUBCO CORPORATION AND SUBSIDIARIES NOTE L--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The Company's unaudited quarterly results of operations in 1995 and 1994 are set forth below. 1995 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Net sales $ 13,459 $ 13,304 $ 10,759 $ 10,068 ========= ========= ========= ========= Gross profit $ 3,572 $ 3,729 $ 2,769 $ 2,676 ========= ========= ========= ========= Income from: Continuing operations $ 1,369 $ 1,261 $ 1,191 $ 132 Discontinued operations - - 1,100 - --------- --------- --------- --------- Net income $ 1,369 $ 1,261 $ 2,291 $ 132 ========= ========= ========= ========= Income (loss) applicable to Common Stockholders $ 1,150 $ 1,042 $ 2,073 $ (87) ========= ========= ========= ========= Net income (loss) per common share from: Continuing operations $ .33 $ .30 $ .28 $ (.02) Discontinued operations - - .32 - --------- --------- --------- --------- Net income (loss) $ .33 $ .30 $ .60 $ (.02) ========= ========= ========= ========= 1994 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Net sales $ 12,256 $ 12,425 $ 11,165 $ 10,170 ========= ========= ========= ========= Gross profit $ 3,517 $ 3,768 $ 3,368 $ 2,961 ========= ========= ========= ========= Income (loss) from: Continuing operations $ 1,318 $ 1,389 $ 1,159 $ (486) Discontinued operations (1,705) 201 (13,369) 1,285 --------- --------- --------- --------- Net income (loss) $ (387) $ 1,590 $(12,210) $ 799 ========= ========= ========= ========= Income (loss) applicable to Common Stockholders $ (562) $ 1,415 $(12,385) $ 624 ========= ========= ========= ========= Net income (loss) per common share from: Continuing operations $ .33 $ .35 $ .28 $ (.19) Discontinued operations (.49) .06 (3.86) .37 --------- --------- --------- --------- Net income (loss) $ (.16) $ .41 $ (3.58) $ .18 ========= ========= ========= ========= During the third quarter of 1994, the Company discontinued its apparel and retail segments resulting in a reclassification of all prior 1994 quarters, as presented above.
35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Identification of Directors and Executive Officers. Stanley R. Browne, age 72, has been a Director of the Registrant since 1979 and is a member of its Audit Committee. Mr. Browne has been a Director of Brooks since March,1987. He has been an independent business consultant since April, 1985. For more than five years prior to that date, Mr. Browne was Washington (DC) Counsel, Legal Department, of E. I. duPont de Nemours & Company, Inc., Wilmington, Delaware. Stephen R. Kalette age 45, has been a Director of the Registrant since December, 1983 and has been an executive officer of the Registrant since April, 1984. Mr. Kalette currently serves as its Vice President, Administration, General Counsel and Secretary. Mr. Kalette has been a Director, Vice President, Administration, General Counsel and Secretary of Brooks since October, 1985. Mr. Kalette has been a Director and executive officer of Aspen since July, 1993. Mr. Kalette currently serves as its Vice President, Administration, General Counsel and Secretary. Robert H. Kanner, age 48, has been a Director and executive officer of the Registrant since December, 1983. Mr. Kanner currently serves as its Chairman, President and Chief Financial Officer. Mr. Kanner has been a Director and executive officer of Brooks since October, 1985 and currently serves as its Chairman, President and Chief Financial Officer. Mr. Kanner has been a Director and executive officer of Aspen since July, 1993 and currently serves as its Chairman. Mr. Kanner is also a Director of Riser Foods, Inc., a grocery wholesaler and retailer, and CleveTrust Realty Investors, which invests in real estate. William A. Dillingham, age 52, has been President of Buckeye for more than the past five years. Mr. Dillingham has been a Director and executive officer of Aspen since July, 1993 and currently serves as its President. Leo L. Matthews, age 56, has been President of Allied since it was acquired in March, 1993. Between 1987 and 1993, Mr. Matthews provided consulting services in strategic planning, marketing, management and finance. Harold L. Inlow, age 62, had been the President and Chief Operating Officer of the Registrant's former retail subsidiary until its closure in 1994. 36 Family Relationships. There are no familial relationships between any Director and executive officer of the Registrant. Board of Directors The Board of Directors establishes broad corporate policies which are carried out by the officers of the Registrant who are responsible for day-to-day operations. In 1995, the Board held 4 meetings and took action by unanimous written consent on 14 other occasions. No Director was absent during the year from any of the meetings of the Board of Directors or of any of the committees of the Board on which he served. Committees of the Board of Directors The Registrant has a standing Audit Committee. The Audit Committee, which met once in 1995, consists of the Director not otherwise employed by the Registrant. The Audit Committee (i) reviews the internal controls of the Registrant and its financial reporting; (ii) meets with the Treasurer and such other officers as it, from time to time, deems necessary; (iii) meets with the Registrant's independent public accountants and reviews the scope and results of auditing procedures, the degree of such auditors' independence, audit and non-audit fees charged by such accountants, and the adequacy of the Registrant's internal accounting controls; and (iv) recommends to the Board the appointment of the independent accountants. 37 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table discloses compensation paid or accrued, during each of the Company's last three fiscal years, to the Registrant's Chief Executive Officer and to its other executive officers. Long-Term Compensation Annual Compensation Awards Payouts Name and Other Annual Restricted LTIP All Other Principal Bonus Compensation Stock Options Payouts Compensation Position Year Salary($) ($) ($) Awards ($) SARs(#) ($) ($) Robert H. Kanner(1)(2) Chairman, CEO, 1995 $525,000 --- $59,836(3) --- --- --- $188,973(4,5) President & 1994 525,000 --- 56,145 --- --- --- 190,420 CFO 1993 525,000 --- 49,987 --- --- --- 92,108 Stephen R. Kalette(6) VP-Admin., 1995 $330,000 --- $25,776(7) --- --- --- $35,815(5) General Counsel 1994 330,000 --- 22,958 --- --- --- 35,640 & Secretary 1993 330,000 --- 23,761 --- --- --- 35,492 William A. Dillingham(8) President of 1995 $450,000 --- $ 5,946(8) --- --- --- $ 30,000(9) Buckeye Division 1994 450,000 --- 6,105 --- --- --- 30,000 1993 450,000 --- 6,504 --- --- --- 30,000 Leo L. Matthews(10) President of 1995 $120,000 $ 10,000 $ 4,817(11) --- --- --- $ 7,200(12) Allied 1994 120,000 22,000 6,314 --- --- --- 3,600 1993 100,000 20,000 912 --- --- --- Harold L. Inlow(13) President & COO 1995 $225,000 $ 0 $ 7,235(14) --- --- --- --- of Former Retail 1994 225,000 123,333 29,642 --- --- --- --- Subsidiary 1993 225,000 120,140 26,624 --- --- --- --- 38 (1) Of the amounts reported each year as salary for Mr. Kanner, $100,000 was paid directly by the Registrant and $425,000 was paid by Brooks. (2) Mr. Kanner deferred his entire Salary for each of the years reported under the terms of deferred compensation plans established for his benefit. The amounts reported for each year are the amounts deferred for that year. As compensation is earned by Mr. Kanner, it is paid by the Registrant to deferred compensation trusts. These amounts will be distributed to Mr. Kanner by the trusts in accordance with the terms of the deferred compensation plans. The assets and corresponding liabilities of the trusts are not carried on the Registrant's balance sheet. (3) Of the amount shown in the table, $55,870 in 1995, $50,870 in 1994 and $45,870 in 1993 represents the premiums on life insurance paid for by the Registrant on Mr. Kanner's life, and for which the Registrant is not a beneficiary; and $3,966 in 1995, $5,275 in 1994 and $4,117 in 1993 represents the cost of providing Mr. Kanner with use of an automobile during the year. (4) Of the amount reflected, $130,100 in 1995, $132,100 in 1994 and $34,100 in 1993 represents an advance by the Registrant toward the payment of the premium on life insurance on Mr. Kanner's life and for which the Registrant is not the beneficiary. The advance will be repaid to the Registrant out of the death proceeds from such policy. (5) In 1988, the Registrant adopted a non-qualified plan to provide retirement benefits for executive officers and other key employees. The plan provides benefits upon retirement, death or disability of the participant and benefits are subject to a restrictive vesting schedule. $58,873 in 1995, $58,320 in 1994 and $58,008 in 1993 of the amounts shown in the table for Mr. Kanner and all of the amounts shown in the table for Mr. Kalette are amounts contributed to such plan for the benefit of such executive officers with respect to the years noted. Vesting of benefits under the plan is phased in over 20 years and only a portion of the amount contributed for each year has fully vested. (6) Of the amounts reported each year as salary for Mr. Kalette, $60,000 was paid directly by the Registrant and $270,000 was paid by Brooks. (7) Of the amount shown in the table, $20,546 in 1995, $19,076 in 1994 and $19,649 in 1993 represents the premiums on life insurance paid for by the Registrant on Mr. Kalette's life, and for which the Registrant is not a beneficiary; and $4,023 in 1995, $3,883 in 1994 and $2,808 in 1993 represents the cost of providing Mr. Kalette with use of an automobile during the year (8) All of the amounts shown as paid to or for Mr. Dillingham were paid by Buckeye. Of the amount shown in the table, $3,205 in 1995, $2,955 in 1994 and $2,695 in 1993 represents the premiums on life insurance paid for by Buckeye on Mr. Dillingham's life, and for which Buckeye is not a beneficiary; and $2,741 in 1995, $3,150 in 1994 and $3,809 in 1993 represents the cost of providing Mr. Dillingham with use of an automobile during the year. (9) In 1988, Buckeye adopted a non-qualified plan to provide retirement benefits for executive officers and other key employees. The plan provides benefits upon retirement, death or disability of the participant and benefits are subject to a 39 restrictive vesting schedule. All of the amount shown in the table for Mr. Dillingham are amounts contributed to such plan for the benefit of such executive officer with respect to the years noted. Vesting of benefits under the plan is phased in over 20 years and only a portion of the amount contributed for each year has fully vested. (10) All of the amounts shown as paid to or for Mr. Matthews were paid by Allied. Mr. Matthews has an employment agreement with Allied providing for a minimum $120,000 per year base salary; a share of Allied's earnings in excess of its operating plan earnings, if any, and discretionary bonuses (as were paid in 1995, 1994 and 1993). (11) Of the amount shown in the table, $1,710 in 1995, $1,710 in 1994 and $912 in 1993 represents the premiums on life insurance paid for by Allied on Mr. Matthew's life, and for which Allied is not a beneficiary; and $3,107 in 1995, $4,604 in 1994 represents the cost of providing Mr. Matthews with use of an automobile during that year. (12) In 1993, Allied adopted a 401-K plan to provide retirement benefits for Allied's employees, including officers. Participating employees make voluntary contributions to the Plan, a portion of which Allied matches. All of the amount shown in the table for Mr. Matthews was contributed by Allied to such plan. Vesting of benefits under the plan is phased in over three years. (13) All of the amounts shown as paid to or for Mr. Inlow were paid by the Registrant's retail subsidiary. Mr. Inlow's salary and bonus compensation were paid pursuant to the terms of an employment agreement between Mr. Inlow and the Registrant's retail subsidiary. Following the December, 1994 closing of the retail subsidiary, Mr. Inlow is entitled to a 3-year salary continuation. (14) Of the amount shown in the table, $1,763 in 1995, $12,290 in 1994 and $10,833 in 1993 represents the premiums on life insurance paid for by the Registrant's retail subsidiary on Mr. Inlow's life, and for which the Registrant's retail subsidiary is not a beneficiary; $5,472 in 1995, $5,434 in 1994 and $3,873 in 1993 represents the cost of providing Mr. Inlow with use of an automobile during the year; and $11,918 in each of the years 1994 and 1993 represents deferred compensation. Unless covered by an employment agreement with the Registrant, officers serve for one year terms or until their respective successors are duly elected and qualified.
40 Compensation of Directors The Registrant pays its outside Directors an annual fee of $15,000, payable monthly. The Registrant also reimburses its Directors for any expense reasonably incurred while performing services for the Registrant. Directors who are employees of the Registrant or otherwise receive compensation from the Registrant do not receive any fee for acting as Directors of the Registrant. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION As Directors of the Registrant, Mr. Kanner and Mr. Kalette participate in Board of Directors' deliberations and decisions concerning executive officer compensation. Mr. Kanner and Mr. Kalette are executive officers of the Registrant. 41 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of December 31, 1995 (i) the number of shares of the Registrant's stock owned, directly or indirectly, by each Director of the Registrant and by all Directors and officers as a group, and (ii) the number of shares of the Registrant's stock held by each person who was known by the Registrant to beneficially own more than 5% of the Registrant's stock: Common Stock Class B Stock Aggregate Amount and Nature Amount and Nature Percent of of Beneficial Percent of of Beneficial Percent of Voting Name of Holder Ownership (1)(2) Class Ownership (1)(2) Class Power Stanley R. Browne -- -- 1,538 * * Stephen R. Kalette(3) -- -- 13,759 2.5 1.6 Robert H. Kanner 2,066,894 71.2 514,044 92.3 85.0 William A. Dillingham(4) 3,500 * -- -- -- Leo L. Matthews(5) -- -- -- -- -- Harold L. Inlow(6) -- -- -- -- -- 3830 Kelley Avenue Cleveland, OH 44114 All Directors and officers as a group 2,070,394 71.3 529,441 95.0 86.9 (7 persons) * indicates less than 1%. (1) Except as set forth below, each owner has sole voting and investment power with respect to the shares beneficially owned by him. (2) Class B Stock is convertible into Common Stock on a share for share basis. Therefore, ownership of Class B Stock may also be deemed to be beneficial ownership of the same number of shares of Common Stock. (3) Mr, Kalette owns 1,000 shares (less than 1%) of the Common Stock of Brooks. (4) Mr. Dillingham owns 500 shares (less than 1%) of the Common Stock of Brooks and 1,000 shares (less than 1%) of the Common Stock of Aspen. (5) Mr. Matthews owns approximately 3.6% of the Common Stock of Allied. (6) Mr. Inlow owns 9,000 shares (less than 1%) of the Common Stock of Brooks.
Warrants and Options to Purchase Securities. No warrants, options or rights to purchase the Registrant's Common Stock were granted by the Company to, or exercised by, any officer or Director of the Registrant during 1995. 42 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On January 1, 1994, Buckeye was merged into a wholly-owned subsidiary of the Registrant in exchange for 1,820,724 newly-issued shares of the Registrant's Common Stock and 70,000 shares of newly-created Preferred Stock of the Registrant. Mr. Kanner was the sole stockholder of Buckeye and Mr. Kalette was an officer and Director of Buckeye. Buckeye was then the owner of approximately 41% of the capital stock of Aspen. Since that date, ownership in Aspen has increased to approximately 62%. On January 1, 1994, immediately following the merger, the Buckeye business was transferred by the Registrant to Brooks for 194,600 shares of a newly-created Brooks Preferred Stock with a face value of $100 per share. Since January 1, 1994, the Buckeye business has been operated as a division of Brooks. The Registrant and Brooks lease a general purpose 312,000 square foot building in Cleveland, Ohio (the "Building") on a triple net basis. The premises are used for executive and administrative facilities, Buckeye's manufacturing and administrative operations and Allied's manufacturing and administrative operations. Brooks subleases a portion of the building to an unrelated party. The annual rental for the Building is approximately $548,700. The Partnership that owns the Building is 80% owned and controlled by Mr. Kanner. Mr. Dillingham, Mr. Kalette and five other individuals have a minority interest in the Partnership. Mr. Kanner made loans to Buckeye attributable to pre-1994 operations. The Company repaid $1,911,000 of these loans during 1995. At December 31, 1995, the Company still owed Mr. Kanner $289,000. Until repaid, these loans bear interest at 2% above the base lending rate charged by the Company's lending bank. 43 PART IV ITEM l4. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) l. List of Financial Statements Page Number Consolidated Balance Sheets at December 3l, l995 and l994........................ 14 Consolidated Statements of Operations for each of the three years in the period ended December 3l, l995.................... 16 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 3l, l995................ 17 Consolidated Statements of Cash Flows for each of the three years in the period ended December 3l, l995.................... 18 Notes to Consolidated Financial Statements........ 19 2. List of Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts.......................................... S-1 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 3. List of Exhibits Exhibit No. Description 10.21 June 30, 1995 (Fifth) Amendment to Credit Facility and Security Agreement dated March 1, 1993 between Allied Construction Products, Inc. and Society National Bank. 21 Subsidiaries of the Registrant. 44 The following exhibits were previously filed with the Commission as indicated in the bracketed [] references and are hereby incorporated by reference. Exhibit No. Description 3.1 Certificate of Incorporation of Pubco, as amended [Form 10-K for year ended December 31, 1987, Exhibit 3.1 and Information Statement dated June 27, 1990 for August 14, 1990 Annual Meeting of Stockholders, Appendix I]. 3.2 By-Laws of Pubco, as amended [Form 10-K for year ended December 31, 1986, Exhibit 3.2(a)]. 4.5 Rights Agreement dated as of March 19, 1987 between Pubco and American Stock Transfer Company, as Successor Rights Agent, as amended [Form 10-K for year ended December 31, 1987, Exhibit 4.5]. 10.1 Security Agreement dated February 24, 1986 between Bobbie Brooks, Incorporated and AmeriTrust Company National Association, as amended [Bobbie Brooks, Incorporated Form 10-K for year ended December 31, 1987, Exhibit 10.10]. 10.3 Term Note Agreement dated August 2, 1988 between Buxton & Skinner Printing Company and AmeriTrust Company National Association, as amended [Bobbie Brooks, Incorporated Form 10-K for year ended December 31, 1988, Exhibit 10.3]. 10.5 Security Agreements dated August 2, 1988 between Buxton & Skinner Printing Company and AmeriTrust Company National Association [Bobbie Brooks, Incorporated Form 10-K for year ended December 31, 1988, Exhibit 10.5]. 10.13 Lease dated April 18, 1986 by and between Pubco Corporation and Kelley Avenue Partnership, as amended [Form 10-K for year ended December 31, 1987, Exhibit 10.14]. 10.14 Lease Agreement dated November 29, 1985 between Bobbie Brooks, Incorporated and Kelley Avenue Partnership, as amended [Bobbie Brooks, Incorporated Form 10-K for year ended December 31, 1988, Exhibit 10.12]. 45 10.18 Term Note Agreement dated April 26, 1989 between Buxton & Skinner Printing Company and AmeriTrust Comany National Association [Bobbie Brooks, Incorporated Form 10-K for year ended December 31, 1989, Exhibit 10.16]. 10.19 Credit Facility and Security Agreement dated March 1, 1993 between Allied Construction Products, Inc. and Society National Bank [Form 10-K for year ended December 31, 1993, Exhibit 10.19]. 10.20 Amendments to Credit Facility and Security Agreement dated March 1, 1993 between Allied Construction Products, Inc. and Society National Bank [Form 10-K for year ended December 31, 1994, Exhibit 10.20]. (b) Reports on Form 8-K Filed during Fourth Quarter None. 46 SIGNATURES Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PUBCO CORPORATION By: /s/ Robert H. Kanner --------------------------------- Robert H. Kanner, Chairman of the Board, President, Chief Executive Officer and Chief Financial Officer Date: March 12, l996 Pursuant to the requirements of the Securities Exchange Act of l934, this report has been signed below by the following persons on behalf of the Registrant, on the date indicated above: /s/ Robert H. Kanner ------------------------------------- Robert H. Kanner, Director /s/ Stephen R. Kalette ------------------------------------- Stephen R. Kalette, Director /s/ Stanley R. Browne ------------------------------------- Stanley R. Browne, Director 47 PUBCO CORPORATION AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (000's) Column A Column B Column C Column D Column E Balance at Additions Balance at Beginning Charged to: End of Description of Period Cost/Expense Other Deductions Period Allowance for doubtful accounts-trade receivables Year ended December 31, 1995 $1,250 $ 44 $ 66 (B) $ 480 (A) $ 279 601 (D) Year ended December 31, 1994 $1,078 $ 794 $ - $ 608 (A) $1,250 14 (C) Year ended December 31, 1993 $ 587 $ 543 $ 327 (B) $ 379 (A) $1,078 (A) Bad-debt writeoffs. (B) Allowances for doubtful accounts acquired. (C) Sale of receivables. (D) Recoveries of accounts previously reserved.
S-1 EXHIBIT INDEX Exhibit No. Description 3.1 Certificate of Incorporation of Pubco, as amended [Form 10-K for year ended December 31, 1987, Exhibit 3.1 and Information Statement dated June 27, 1990 for August 14, 1990 Annual Meeting of Stockholders, Appendix I]. 3.2 By-Laws of Pubco, as amended [Form 10-K for year ended December 31, 1986, Exhibit 3.2(a)]. 4.5 Rights Agreement dated as of March 19, 1987 between Pubco and American Stock Transfer Company, as Successor Rights Agent, as amended [Form 10-K for year ended December 31, 1987, Exhibit 4.5]. 10.1 Security Agreement dated February 24, 1986 between Bobbie Brooks, Incorporated and AmeriTrust Company National Association, as amended [Bobbie Brooks, Incorporated Form 10-K for year ended December 31, 1987, Exhibit 10.10]. 10.3 Term Note Agreement dated August 2, 1988 between Buxton & Skinner Printing Company and AmeriTrust Company National Association, as amended [Bobbie Brooks, Incorporated Form 10-K for year ended December 31, 1988, Exhibit 10.3]. 10.5 Security Agreements dated August 2, 1988 between Buxton & Skinner Printing Company and AmeriTrust Company National Association [Bobbie Brooks, Incorporated Form 10-K for year ended December 31, 1988, Exhibit 10.5]. 10.13 Lease dated April 18, 1986 by and between Pubco Corporation and Kelley Avenue Partnership, as amended [Form 10-K for year ended December 31, 1987, Exhibit 10.14]. 10.14 Lease Agreement dated November 29, 1985 between Bobbie Brooks, Incorporated and Kelley Avenue Partnership, as amended [Bobbie Brooks, Incorporated Form 10-K for year ended December 31, 1988, Exhibit 10.12]. Exhibit No. Description 10.18 Term Note Agreement dated April 26, 1989 between Buxton & Skinner Printing Company and AmeriTrust Comany National Association [Bobbie Brooks, Incorporated Form 10-K for year ended December 31, 1989, Exhibit 10.16]. 10.19 Credit Facility and Security Agreement dated March 1, 1993 between Allied Construction Products, Inc. and Society National Bank [Form 10-K for year ended December 31, 1993, Exhibit 10.19]. 10.20 Amendments to Credit Facility and Security Agreement dated March 1, 1993 between Allied Construction Products, Inc. and Society National Bank. [Form 10-K for year ended December 31, 1994, Exhibit 10.20]. 10.21 June 30, 1995 (Fifth) Amendment to Credit Facility and Security Agreement dated March 1, 1993 between Allied Construction Products, Inc. and Society National Bank. 21 Subsidiaries of the Registrant. EX-10.21 2 EXHIBIT 10.21 FIFTH AMENDMENT TO CREDIT FACILITY AND SECURITY AGREEMENT WHEREAS, ALLIED CONSTRUCTION PRODUCTS, INC. (herein called the "Borrower") and SOCIETY NATIONAL BANK (herein called the "Bank") entered into a certain Credit Facility and Security Agreement dated March 1, 1993 which was previously amended (as amended herein called the "Agreement"), and WHEREAS, the Borrower and the Bank have agreed to further amend the Agreement. NOW, THEREFORE, for valuable consideration received to their mutual satisfaction, the Borrower and the Bank hereby agree as follows: 1. The definition of "Borrowing Base" appearing in Section 1.2 of the Agreement is hereby amended to delete it in its entirety and to substitute therefor the following: "'Borrowing Base' means an amount not in excess of the sum of the following: (a) seventy-five percent (75%) of the amount due and owing on Eligible Accounts Receivable, plus (b) up to the lesser of (i) $3,000,000 or (ii) up to seventy-five percent (75%) of the amount due and owing on the sum of Eligible Notes Receivable and Eligible Dating Receivables, plus (c) the lesser of (1) forty percent (40%) of the cost on a first-in, first-out inventory cost basis or market value (whichever is lower) of Borrower's Eligible Parts Inventory during the preceding month, (ii) fifty percent (50%) of the cost on a first-in, first-out inventory cost basis or market value (whichever is lower) of Borrower's Eligible Finished Goods Inventory, or (iii) Two Million Dollars ($2,000,000), less (d) Ineligible FFC Receivables in the form of an availability block against the Borrowing Base for such amount." 2. The definition of "Termination Date" appearing in Section 1.2 of the Agreement is hereby amended to delete it in its entirety and to substitute therefor the following: "'Termination Date' means June 30, 1997, or such earlier date on which the commitment of Bank to make Advances pursuant to Section 2.1 of this Agreement shall have been terminated pursuant to Sections 10 or 14 of this Agreement." E-1 3. Section 1.2 of the Agreement is hereby amended by adding the following definitions: "'Interest Period' means, with respect to any Libor Rate Loan, the period commencing on the date such Loan is made, continued, or converted and ending on the last day of such period as selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of such period as selected by the Borrower pursuant to the provisions below. The duration of each Interest Period for any Libor Rate Loan shall be 1 month, 2 months, or 3 months, in each case as the Borrower may select upon notice, as set forth in Section 2.1(b), provided that: 'Libor Rate' means, for any Interest Period for any Libor Rate Loan, an interest rate per annum (rounded upwards to the next higher whole multiple of 1/16% if such rate is not such a multiple) equal at all times during such Interest Period to the quotient of (a) the rate per annum (rounded upwards to the next higher whole multiple of 1/16% if such rate is not such a multiple) at which deposits in United States dollars are offered at 11:00 a.m. (London, England time) (or as soon thereafter as is reasonably practicable) by prime banks in the London interbank eurodollar market two Business Days prior to the first day of such Interest Period in an amount and maturity of such Libor Rate Loan, divided by (b) a number equal to 1.00 minus the aggregate (without duplication) of the rates (expressed as a decimal fraction) of the Libor Reserve Requirements current on the date two Business Days prior to the first day of such Interest Period. 'Libor Rate Loan' means any Advance that bears interest with reference to the Libor Rate. 'Libor Reserve Requirements' means, for any Interest Period for any Libor Rate Loan, the maximum reserves (whether basic, supplemental, marginal, emergency, or otherwise) prescribed by the Board of Governors of the Federal Reserve System (or any successor) with respect to liabilities or assets consisting of or including 'Eurocurrency liabilities' (as defined in Regulation D of the Board of Governors of the Federal Reserve System) having a term equal to such Interest Period. 'Prime Rate Loan' means any Advance that bears interest with reference to the Prime Rate. 'Special Dividend' means a cash dividend in an amount not to exceed One Million Dollars ($1,000,000), which may be paid exclusively during the month of December, 1995." 4. The sixth line of Section 2.1(a) of the Agreement is hereby amended to delete the words "Three Million Dollars ($3,000,000)" and to substitute therefor the words "Four Million Five Hundred Thousand Dollars ($4,500,000)". E-2 5. Section 2.1(b) of the Agreement is hereby amended by deleting in its entirety and substituting the following in place thereof: "(b) As compensation for the Advances made by Bank, Borrower undertakes and agrees to pay to Bank with respect to each Advance interest at an annual rate to be elected by Borrower equal to either the Libor Rate plus two and one-half percent (2-1/2%) or the Prime Rate. Interest on Advances shall be payable monthly in arrears commencing on the first day of the month following the month in which such Advance is made and continuing on the first day of each consecutive month thereafter by debiting the Operating Account. Interest on the Advances shall accrue upon the average daily balance in Borrower's Loan Account during the preceding month with respect to all Advances. Bank shall use its best efforts to give Borrower notice prior to debiting the Operating Account." 6. The Agreement is hereby amended by a new Section 2.5 reading as follows: "2.5. (i) Advances. Advances shall be made pursuant to Borrower's written, telegraphic, or telephonic request therefor (a "Request for a Advance"), given by Borrower to Bank (upon three Business Days notice for a Libor Rate Loan) stating the date of the proposed borrowing, the amount of Bank's Advance, whether it will be a Prime Rate Loan, or Libor Rate Loan, the applicable Interest Period, if any, and the total amount to be borrowed. Each written Request for a Advance shall be signed by an authorized person of Borrower and accompanied by a Borrower's Certificate, and each telephonic request for a Advance shall be made, and confirmed in writing thereafter, by such an authorized person and accompanied by a Borrower's Certificate. No Request for a Advance shall become effective until actually received by Bank. Each Libor Rate Loan shall not be an amount less than $100,000. (ii) Change in Interest Rates. The interest rate elected by the Borrower under this Section 2.5 shall, as to each Advance, remain in effect until changed by the Borrower by written notice to Bank on or prior to the date of change or, in the case of Prime Rate Loans until changed by the terms thereof; provided however, (a) that a change to the Libor Rate, or the election of a Libor Rate Loan, can be effected only upon three (3) Business Days' notice (with notice to be received by Bank not later than 11:00 a.m. Cleveland, Ohio time on such day), and (b) when the rate of interest is the Libor Rate it may be changed to a Prime Rate Loan before the end of the applicable Interest Period subject, however, to payment of any applicable additional amount required by Section 2.5(v) hereof (but without requiring prepayment of the effected borrowing); E-3 (iii) Limitations in Interest Rate Selections. The Borrower may not elect the Libor Rate if U.S. dollar deposits are not available to any Bank in the London Eurodollar Interbank Market for the period and in the amount requested by the Borrower; (iv) Special Provisions for Libor Rate Loans and Taxes. If the making or maintaining of a Libor Rate Loan becomes illegal for Bank as a result of any change in an applicable law, governmental regulation, guideline or order or the interpretation thereof by an authority charged with the administration thereof, then upon notice thereof by Bank, the Borrower (a) shall not cause a new Libor Rate Loan to be made or elect another Libor Rate Interest Period for an outstanding Libor Rate Loan for so long as the making of a Libor Rate Loan by Bank remains illegal, and (b) shall prepay, or select another interest rate for, any then outstanding Libor Rate Loans and pay any applicable additional amount required by Section 2.5(vi) but without giving effect to any notice requirements in each case when and to the extent required by such change. (v) Increased Costs. With respect to Libor Rate Loans, if the effect of any change occurring after the date of this Agreement in an applicable law, governmental regulation, guideline or order or the interpretation or application of any thereof by any authority charged with the administration thereof is to increase the actual cost to Bank of making or maintaining such Libor Rate Loans (assuming for such purpose that each such borrowing is funded by Bank from sources referred to in the definition of the interest rate applicable to such borrowing) such as, but not limited to, any reserve, special deposit or similar requirements against assets held by, or deposits in or for the account of, or loans by, or any other acquisition of funds for loans by Bank, or to reduce the amount of any payment of principal or of interest, in respect of any Libor Rate Loan, received by Bank (including any reduction for withholding taxes), the Borrower will, after demand by Bank, pay to Bank such additional amounts as will compensate Bank for such additional cost or reduction, such payments to be made on the next date when interest is payable to Bank pursuant to such borrowings. The Borrower shall have the option, upon being notified by Bank pursuant to this Section, to change the interest rate on the affected borrowings pursuant to Section 2.5(vi) but without giving effect to the notice requirements provided therein or make any prepayments permitted under this E-4 Agreement and, in each case, with payment of any additional applicable amount required by Section 2.5(vi). If either (i) any law, rule, or regulation now or hereafter in effect, and whether or not presently applicable to Bank, or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), affects or would affect the amount of capital required or expected to be maintained by Bank or any corporation controlling Bank and Bank determines that the amount of such capital is increased by or based upon the existence of the Advances (or commitment to make the Advances) and other extensions of credit (or commitments to extend credit) of similar type, then, upon demand by Bank, the Borrower shall pay to Bank from time to time as specified by Bank additional amounts sufficient to compensate Bank in the light of such circumstances, to the extent that Bank reasonably determines such increase in capital to be allocable to the existence of Bank's Advances (or commitment to make the Advances). A certificate of Bank submitted to the Borrower as to such amounts shall be conclusive and binding for all purposes, absent manifest error. Upon notice from the Borrower to Bank within five (5) Business Days after Bank notifies the Borrower of any such additional costs pursuant to this Section, the Borrower may either (A) prepay in full all Advances of any types so affected then outstanding, together with interest accrued thereon to the date of such prepayment, or (B) convert all Advances of any types so affected then outstanding into Advances of any other type not so affected upon not less than four (4) Business Days' notice to Bank. If any such prepayment or conversion of any Libor Rate Loan occurs on any day other than the last day of the applicable Interest Period for such Advance, the Borrower also shall pay to Bank such additional amount sufficient to indemnify Bank against any loss, cost, or expense incurred by Bank as a result of such prepayment or conversion, including, without limitation, any loss (including loss of anticipated profits), cost, or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by Bank to fund any such Loan, and a certificate as to the amount of any such loss, cost, or expense submitted by Bank to the Borrower shall be conclusive and binding for all purposes, absent manifest error. E-5 (vi) Indemnification. If the Borrower makes any payment of principal with respect to any Libor Rate Loan on any other date than the last day of an Interest Period applicable thereto (whether pursuant to Sections 2.1, 7, 8, and 10 hereof, or otherwise), or if the Borrower fails to borrow any Libor Rate Loan after notice has been given to Bank in accordance with Section 2.5 or if the Borrower fails to make any payment of principal or interest in respect of a Libor Rate Loan or when due, the Borrower shall reimburse Bank on demand for any resulting loss or expense incurred by Bank, including without limitation any loss incurred in obtaining, liquidating or employing deposits from third parties, whether or not Bank shall have funded or committed to fund such Loan. A statement as to the amount of such loss or expense, prepared in good faith and in reasonable detail by Bank and submitted by Bank to the Borrower, shall be conclusive and binding for all purposes absent manifest error in computation. Calculation of all amounts payable to Bank under this Section shall be made as though Bank shall have actually funded or committed to fund its relevant Libor Rate Loan through the transfer of such deposit from an offshore office of Bank to a domestic office of Bank in the United States of America; provided, however, that Bank may fund any Libor Rate Loan in any manner it sees fit and the foregoing assumption shall be utilized only for the purpose of calculation of amounts payable under this Section. (vii) Contribution and Conversion of Loans. In the event that the Borrower shall fail to give timely notice of its election to convert or continue any Advance as provided above, or in the event that any such conversion or continuation shall be prohibited by the terms of this Agreement, such Advance (unless repaid) shall automatically be deemed to be refinanced with a Prime Rate Loan at the end of the Interest Period then in effect with respect to such Advance. For purposes of this Section, notice received by Bank after 11:00 a.m. on a Banking Day shall be deemed to be received on the immediately succeeding Banking Day. (viii) Computation of Interest. Interest under this Agreement shall be calculated on the basis of a year of 360 days, for the actual number of days (including the first day but excluding the last day) elapsed. For any Prime Rate Loan, the rate will increase or decrease on the day of, and by an amount equal to, each increase or decrease in the Prime Rate. The rate charged to Borrower under this Agreement shall change when and as the Prime Rate is changed. E-6 (ix) Default Interest Rate. After maturity (whether by acceleration or otherwise), the unpaid principal and accrued interest on any Advance shall bear interest at a rate per annum equal to the greater of three percent (3%) in excess of the interest rate prior to default or twelve percent (12%). Prior to maturity, if any payment of principal or interest is not paid when due, Borrower shall pay a late fee of an amount equal to the greater of ten percent (10%) of such payment or one hundred dollars ($100). Notwithstanding the Bank's remedies as set forth in Section 10 hereof, prior to maturity hereof, upon the occurrence of any Event of Default under this Agreement and until such Event of Default is cured by Borrower, at Bank's option and upon written notice to Borrower, the unpaid principal and accrued interest on any Advance shall bear interest at a rate per annum equal to the greater of three percent (3%) in excess of the interest rate prior to default, or twelve percent (12%)." 7. Section 5.10 of the Agreement entitled "Cash Flow" shall be amended to read as follows: "5.10 Cash Flow Borrower shall at all times maintain a Cash Flow Coverage Ratio of at least 1.1 to 1.0, calculated at the end of the fiscal period of Borrower ending closest to the end of each calendar quarter based upon a cumulative year calculation. 8. Section 6.4(d) of the Agreement is hereby amended by deleting it in its entirety and substituting the following in place thereof: "(d) pay or declare dividends in any fiscal year (except the following (i) payments pursuant to a tax sharing arrangement with Brooks Management Company in form and substance acceptable to Bank, so long as the amount paid is equivalent to the amount that would have been paid by Borrower in taxes, if it had filed a separate return, (ii) a Special Dividend provided that such Special Dividend could be paid exclusively during the month of December 1995 if all of the following conditions are met: (1) no Event of Default (financial or otherwise) exists prior to the payment of the Special Dividend; (2) no Event of Default (financial or otherwise) exists after the payment of the Special Dividend; with the exception of the Cash Flow Coverage Ratio; and (3) excess availability under the Borrowing Base during the preceding three (3) months prior to payment of the Special Dividend (in addition to the month of December 1995) would have exceeded Five Hundred Thousand Dollars ($500,000) on a look-back basis, (iii) dividends may be declared after December 31, 1995 if no Event of Default would exist after the payment of such dividends)." E-7 9. Section 6.6 of the Agreement entitled "Leverage" shall be amended to read as follows: "6.6 Leverage. Borrower shall not permit the ratio of its Adjusted Debt to its Tangible Net Worth, measured and reviewed monthly, to exceed 2.0 to 1.0." 10. The Borrower hereby agrees that it will, contemporaneously with the execution of this Amendment to the Agreement, execute and deliver to the Bank a new Revolving Credit Promissory Note in the form of Exhibit A-1, attached hereto, to replace the Revolving Credit Promissory Note currently held and owned by the Bank representing the Borrower's borrowings under the Agreement. 11. In consideration for entering into this Amendment, Borrower agrees to pay Bank on the date hereof a renewal fee of $1,000. 12. Except as herein specifically amended, directly or by reference, all of the terms and conditions set forth in the Agreement are confirmed and ratified and shall remain in full force and effect. 13. In consideration of this Amendment, Borrower hereby releases and discharges the Bank and its shareholders, directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, demands, liability, and causes of action whatsoever, now known or unknown, arising out of or in any way related to the extension or administration of the Loan, the Agreement or any mortgage or security interest related thereto. 14. Borrower hereby represents and warrants to Bank that (a) Borrower has the legal power and authority to execute and deliver this Amendment; (b) the officials executing this Amendment have been duly authorized to execute and deliver the same and bind Borrower with respect to the provisions hereof; (c) the execution and delivery hereof by Borrower and the performance and observance by Borrower of the provisions hereof do not violate or conflict with the organizational agreements of Borrower or any law applicable to Borrower or result in a breach of any provisions of or constitute a default under any other agreement, instrument or document binding upon or enforceable against Borrower, and (d) this Amendment constitutes a valid and binding obligation upon Borrower in every respect. IN WITNESS WHEREOF, the Borrower and the Bank have caused this Second Amendment to the Agreement to be executed by their duly authorized officers as of the 30th day of June, 1995. BANK: BORROWER: SOCIETY NATIONAL BANK ALLIED CONSTRUCTION PRODUCTS, INC. E-8 EXHIBIT A-l REVOLVING CREDIT PROMISSORY NOTE $4,500,000.00 , 1995 Cleveland, Ohio FOR VALUE RECEIVED, ALLIED CONSTRUCTION PRODUCTS, INC., a Delaware corporation (the "Borrower"), promises to pay to the order of SOCIETY NATIONAL BANK (the "Holder") on June 30, 1997, or sooner as hereinafter provided, the principal amount of Four Million Five Hundred Thousand and no/100 Dollars ($4,500,000.00) or, if less, the aggregate unpaid principal amount from time to time borrowed by the Borrower from the Holder pursuant to the Credit Agreement (hereinafter defined). The unpaid principal balance outstanding on this Revolving Credit Promiossory Note from time to time (the "Outstanding Principal Balance") shall be determined by the ledgers and records of the Holder as accurately maintained. This Revolving Credit Promissory Note is the "Revolving Note" defined and referred to in, and is entitled to the benefits of, a certain Credit Facility and Security Agreement dated March 1, 1993 (said Credit Facility and Security Agreement as amended and including, as it may be from time to time further amended, restated or otherwise modified, being herein called the "Credit Agreement"), between the Borrower and the Holder, to which reference is hereby made for a statement of the rights of the Holder and the duties and obligations of the Borrower in relation thereto, but neither this reference to the Credit Agreement nor any provision thereof shall affect or impair the absolute and unconditional obligation of the Borrower to pay the principal of and interest on this Revolving Credit Promissory Note when due. Capitalized terms used in this Revolving Credit Promissory Note not defined hereinafter shall have the respective meanings given to such terms in the Credit Agreement. This Revolving Credit Promissory Note is being executed and delivered in substitution for an existing Revolving Credit Promissory Note executed by Borrower and dated June 1, 1994, and the execution and delivery of this Revolving Credit Promissory Note shall not constitute a novation and shall not terminate or otherwise affect the first lien and security interest of the Bank in Borrower's property. E-9 The Outstanding Principal Balance of this Revolving Credit Promissory Note shall bear interest from and including the date hereof until the date of payment in full at the rate per annum as set forth in the Credit Agreement. All interest on this Revolving Credit Promissory Note shall be paid in accordance with the terms of the Credit Agreement. Interest shall be computed on the basis of a year of 360 days for the actual number of days elapsed. All unpaid principal and interest on this Revolving Credit Promissory Note shall be due on the maturity date hereof as set forth in the Credit Agreement. Reference is hereby made to the Credit Agreement which contains provisions for the acceleration of the maturity hereof upon the happening of certain stated events and for mandatory prepayments and voluntary prepayments hereon. The term "Holder" includes the successors and assigns of Holder. This Revolving Credit Promissory Note is secured by collateral assigned, pledged or granted to the Holder; reference is made to the Credit Agreement and the documents and instruments assigning, pledging or granting said collateral for a description of the Holder's rights with respect thereto. Payment of the principal of and interest on this Revolving Credit Promissory Note shall be made in lawful money of the United States of America, by federal funds wire transfer to the main office of Holder, 127 Public Square, Cleveland, Ohio 44114-1306, or at such other place or in such other manner of payment as Holder or any subsequent holder hereof shall have designated to the Borrower in writing. The Borrower waives demand, presentment for payment, notice of dishonor, protest, and notice of protest and diligence in collection and bringing suit and agrees that Holder may extend the time for payment, accept partial payment, take security therefor, or exchange or release any collateral, without discharging or releasing the Borrower. This Revolving Credit Promissory Note was executed in Cleveland, Cuyahoga County, Ohio. The construction, validity, and enforceability of this Revolving Credit Promissory Note shall be governed by the laws of the State of Ohio. The Borrower authorizes any attorney at law to appear before any court of record, state or federal, in the county where this Revolving Credit Promissory Note was executed or where the Borrower resides or may be found, after the unpaid principal balance of this Revolving Credit Promissory Note becomes due, either by lapse of time or by operation of any provision for acceleration of maturity contained in the Credit Agreement, and waive the issuance and service of process, admit the maturity of this Revolving Credit Promissory Note, by reason of acceleration or otherwise, and confess judgment against the Borrower in favor of the holder of this Revolving Credit Promissory Note for the amount then appearing due on this Revolving Credit Promissory Note, together with interest thereon and costs of suit, and thereupon E-10 to release all errors and to waive all rights of appeal and stay of execution. The foregoing warrant of attorney shall survive any judgment and may be used from time to time without exhausting the right to further use the warrant of attorney and, if any judgment be vacated for any reason, the holder of this Revolving Credit Promissory Note nevertheless may use the foregoing warrant of attorney to obtain an additional judgment or judgments against the Borrower. Borrower agrees that the holder's attorney may confess judgment pursuant to the foregoing warrant of attorney. Borrower further agrees that the attorney confessing judgment pursuant to the foregoing warrant of attorney may receive a legal fee or other compensation from the holder. WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE. ALLIED CONSTRUCTION PRODUCTS, INC. E-11 EX-21 3 EXHIBIT 21 PUBCO CORPORATION Subsidiaries of the Registrant The Registrant directly or indirectly owns 100% of the capital stock of the following significant subsidiaries: Subsidiaries State of Incorporation The Century Wholesale Company Delaware PC Real Estate Corporation Illinois Pubco Management Company Ohio The Registrant directly or indirectly owns over 90% of the capital stock of the following significant subsidiaries: Subsidiaries State of Incorporation Bobbie Brooks, Incorporated Delaware [including the Buckeye Business Products, Inc. division] Brooks Management Company Ohio The Registrant owns an indirect 85% plus interest in Allied Construction Products, Inc., a Delaware corporation. The Registrant owns an indirect approximately 62% plus interest in Aspen Imaging International, Inc., a Delaware corporation. E-12 EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEET AT 12/31/95 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED 12/31/95 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR DEC-31-1995 DEC-31-1995 7,919 11,836 5,337 279 7,447 33,016 18,989 10,497 45,104 14,532 2,407 35 0 1 21,479 45,104 47,590 47,590 34,844 34,844 0 0 0 4,036 53 3,953 1,100 0 0 5,053 1.21 1.21
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