<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1997
REGISTRATION NO. 333-23425
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
JOURNAL REGISTER COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2711 22-3498615
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
</TABLE>
--------------------------
STATE STREET SQUARE
50 WEST STATE STREET
TRENTON, NJ 08608
(609) 396-2200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------------------
ROBERT M. JELENIC
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
JOURNAL REGISTER COMPANY
STATE STREET SQUARE
50 WEST STATE STREET
TRENTON, NJ 08608
(609) 396-2200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
ANDREW R. BROWNSTEIN, ESQ. JOHN S. D'ALIMONTE, ESQ.
Wachtell, Lipton, Rosen & Katz Willkie Farr & Gallagher
51 West 52nd Street 153 East 53rd Street
New York, NY 10019 New York, NY 10022
(212) 403-1000 (212) 821-8000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share 10,781,250 shares $17.00 $183,281,250 $55,540(3)
</TABLE>
(1) Includes shares issuable upon exercise of the Underwriters' over-allotment
option. See "Underwriters."
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
(3) $52,273 of the Registration Fee was previously paid on March 17, 1997.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a prospectus relating to a public
offering in the United States and Canada (the "U.S. Offering") of an aggregate
of 7,500,000 shares of Common Stock, par value $.01 (the "Common Stock"), of
Journal Register Company, together with a separate prospectus cover page
relating to a concurrent offering outside the United States and Canada (the
"International Offering") of an aggregate of 1,875,000 shares of Common Stock.
The complete prospectus for the U.S. Offering follows immediately after this
Explanatory Note. After such prospectus is the alternate cover page for the
International Offering. All of the pages of the prospectus for the U.S. Offering
are to be used for both the U.S. Offering and the International Offering.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED APRIL 21, 1997
9,375,000 SHARES
[LOGO]
COMMON STOCK
-----------------
OF THE 9,375,000 SHARES OF COMMON STOCK BEING OFFERED, 7,500,000 SHARES ARE
BEING OFFERED INITIALLY IN THE
UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND 1,875,000 SHARES ARE
BEING OFFERED
INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE
BEING SOLD BY
THE COMPANY. PRIOR TO THE OFFERINGS, THERE HAS BEEN NO PUBLIC
MARKET FOR THE
COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT
THE INITIAL
PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $15.00 AND
$17.00. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS
CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.
- -------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "JRC."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE................................................ $ $ $
TOTAL(3)................................................. $ $ $
</TABLE>
- ---------
(1) THE COMPANY AND CERTAIN AFFILIATES OF E.M. WARBURG, PINCUS & CO., LLC
(COLLECTIVELY, "WARBURG, PINCUS") HAVE AGREED TO INDEMNIFY THE UNDERWRITERS
AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. WARBURG, PINCUS CURRENTLY OWNS SUBSTANTIALLY ALL OF
THE EQUITY SECURITIES OF THE COMPANY. UPON COMPLETION OF THE OFFERINGS AND
ASSUMING ISSUANCE OF THE BONUS SHARES DESCRIBED HEREIN, WARBURG, PINCUS
WILL OWN APPROXIMATELY 78.2% OF THE SHARES OF COMMON STOCK THEN
OUTSTANDING. IT IS PROBABLE THAT, FOLLOWING COMPLETION OF THE OFFERINGS,
WARBURG, PINCUS WILL CONTINUE TO BE ABLE TO ELECT THE COMPANY'S BOARD OF
DIRECTORS AND TAKE, OR BLOCK, OTHER CORPORATE ACTIONS REQUIRING STOCKHOLDER
APPROVAL, AS WELL AS DICTATE THE DIRECTION AND POLICIES OF THE COMPANY. SEE
"RISK FACTORS--INFLUENCE BY EXISTING STOCKHOLDER." UPON COMPLETION OF THE
OFFERINGS AND ASSUMING ISSUANCE OF THE BONUS SHARES DESCRIBED HEREIN,
OFFICERS AND DIRECTORS OF THE COMPANY (OTHER THAN DIRECTORS WHO ARE
AFFILIATED WITH WARBURG, PINCUS) WILL OWN, IN THE AGGREGATE, APPROXIMATELY
1.5% OF THE SHARES OF COMMON STOCK THEN OUTSTANDING.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
APPROXIMATELY $34.6 MILLION OF THE PROCEEDS TO COMPANY WILL BE USED TO REPAY
INDEBTEDNESS OWED TO WARBURG, PINCUS.
(3) WARBURG, PINCUS CAPITAL PARTNERS, L.P. ("WPCP"), AN AFFILIATE OF E.M.
WARBURG, PINCUS & CO., LLC HAS GRANTED TO THE UNDERWRITERS AN OPTION,
EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN
AGGREGATE OF 1,406,250 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO
PUBLIC LESS UNDERWRITING DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF
COVERING OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION
IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS,
PROCEEDS TO COMPANY AND PROCEEDS TO WPCP WILL BE $ , $ ,
$ , AND $ , RESPECTIVELY. SEE "UNDERWRITERS" AND SEE NOTE
(1) ABOVE.
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY WILLKIE FARR & GALLAGHER, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1997 AT THE OFFICE
OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
-----------------
MORGAN STANLEY & CO.
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
CHASE SECURITIES INC.
, 1997
<PAGE>
[Graphic, art and photographic images
related to Journal Register Company
and its daily and non-daily newspapers.]
[Two-page spread entitled "Journal
Register Company at a Glance"
showing photographic images of
Journal Register Company daily and
non-daily newspapers.]
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED IN THE OFFERINGS, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OFFERED IN THE OFFERINGS TO ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE IN THE OFFERINGS SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 12
The Company........................................................................... 17
Use of Proceeds....................................................................... 17
Dividend Policy....................................................................... 18
Dilution.............................................................................. 18
Capitalization........................................................................ 19
Selected Combined Financial and Operating Data........................................ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 22
Business.............................................................................. 33
Management............................................................................ 47
Certain Transactions.................................................................. 56
Principal and Selling Stockholders.................................................... 57
Description of Capital Stock.......................................................... 59
Shares Eligible for Future Sale....................................................... 61
Underwriters.......................................................................... 62
Legal Matters......................................................................... 65
Experts............................................................................... 65
Additional Information................................................................ 66
Forward-Looking Statements............................................................ 66
Index to Financial Statements......................................................... F-1
</TABLE>
------------------------
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
interim unaudited financial information.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERINGS
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND
THE HISTORICAL COMBINED FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED HEREIN, THE
INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. EXCEPT AS OTHERWISE INDICATED HEREIN, ALL PRO FORMA
INFORMATION HAS BEEN PREPARED TO GIVE EFFECT TO THE CONVERSION OF THE COMPANY
FROM A LIMITED LIABILITY COMPANY TO A CORPORATION AND THE CONTRIBUTION OF AN
AFFILIATED ENTITY TO THE COMPANY AS IF SUCH TRANSACTIONS HAD OCCURRED AS OF
DECEMBER 31, 1996. PRO FORMA NET INCOME, AS ADJUSTED, GIVES EFFECT TO THE
DECREASE IN INTEREST EXPENSE, NET OF TAXES, ATTRIBUTABLE TO THE APPLICATION OF
THE NET PROCEEDS FROM THE OFFERINGS AND TO THE MANAGEMENT BONUSES (AS DEFINED
HEREIN). EXCEPT AS OTHERWISE INDICATED HEREIN, THE MANAGEMENT BONUSES HAVE BEEN
CALCULATED BASED UPON A PRICE TO PUBLIC SET FORTH ON THE COVER PAGE OF THIS
PROSPECTUS ("PRICE TO PUBLIC") OF $16.00. UNLESS THE CONTEXT INDICATES OR
REQUIRES OTHERWISE, AS USED IN THIS PROSPECTUS, THE "COMPANY" MEANS JOURNAL
REGISTER COMPANY AND ALL OF ITS SUBSIDIARIES AND THEIR RESPECTIVE PREDECESSORS.
"COMMON STOCK" MEANS THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE.
UNLESS OTHERWISE INDICATED, INDUSTRY DATA CONTAINED HEREIN ARE DERIVED FROM
PUBLICLY AVAILABLE INDUSTRY JOURNALS, REPORTS AND OTHER PUBLICLY AVAILABLE
SOURCES, WHICH THE COMPANY HAS NOT INDEPENDENTLY VERIFIED AND WHICH THE COMPANY
BELIEVES TO BE RELIABLE, AND WHERE SUCH SOURCES WERE NOT AVAILABLE, FROM COMPANY
ESTIMATES, WHICH THE COMPANY BELIEVES TO BE REASONABLE, BUT WHICH CANNOT BE
INDEPENDENTLY VERIFIED. DAILY AND SUNDAY CIRCULATION DATA CONTAINED HEREIN ARE
AVERAGES FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 ACCORDING TO THE AUDIT
BUREAU OF CIRCULATIONS ("ABC") FAS-FAX REPORT. ALL POPULATION AND HOUSEHOLD
INCOME DATA CONTAINED HEREIN ARE AS OF 1996 AND WERE OBTAINED FROM EQUIFAX MDS,
1996. EBITDA IS DEFINED BY THE COMPANY AS OPERATING INCOME (LOSS) PLUS
DEPRECIATION, AMORTIZATION AND OTHER NON-CASH CHARGES. EBITDA IS NOT INTENDED TO
REPRESENT CASH FLOW FROM OPERATIONS AND SHOULD NOT BE CONSIDERED AS AN
ALTERNATIVE TO OPERATING OR NET INCOME COMPUTED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES ("GAAP"), AS AN INDICATOR OF THE COMPANY'S
OPERATING PERFORMANCE, AS AN ALTERNATIVE TO CASH FLOW FROM OPERATING ACTIVITIES
(AS DETERMINED IN ACCORDANCE WITH GAAP) OR AS A MEASURE OF LIQUIDITY. THE
COMPANY BELIEVES THAT EBITDA IS A STANDARD MEASURE COMMONLY REPORTED AND WIDELY
USED BY ANALYSTS, INVESTORS AND OTHER INTERESTED PARTIES IN THE MEDIA INDUSTRY.
HOWEVER, NOT ALL COMPANIES CALCULATE EBITDA USING THE SAME METHODS; THEREFORE,
THE EBITDA FIGURES SET FORTH HEREIN MAY NOT BE COMPARABLE TO EBITDA REPORTED BY
OTHER COMPANIES.
THE COMPANY
Journal Register Company is a leading U.S. newspaper publisher, with total
paid daily circulation of approximately 556,000 and total non-daily distribution
of approximately 2.7 million. The Company owns and operates 18 daily newspapers
and 118 non-daily publications strategically clustered in five geographic areas:
Connecticut; Ohio; Philadelphia and its surrounding areas; the greater St. Louis
area; and central New England. The Company's newspapers are characterized by an
intense focus on coverage of local news and sports and offer compelling graphic
design in colorful, reader-friendly packages.
Since 1993, the Company has successfully completed seven strategic
acquisitions, acquiring six daily newspapers, 52 non-daily publications and one
commercial printing company. The Company has generally increased the revenues
and significantly increased the cash flow and profitability of its acquired
newspapers. For the fiscal year ended December 31, 1996, the Company generated
revenues of $351.1 million, EBITDA of $119.4 million, net income of $28.1
million and pro forma net income, as adjusted of $36.3 million. In 1996, the
Company's EBITDA as a percentage of revenues ("EBITDA Margin") was approximately
34%, representing the sixth consecutive year of improvement in its EBITDA
Margin. From 1992 through 1996, the Company recorded compound annual growth in
revenues and EBITDA of approximately 8% and 12%, respectively. The Company has
achieved this growth through a combination of expanding revenues in existing
geographic areas, strategic acquisitions and implementing cost controls and
ongoing expense reduction efforts at existing and acquired newspapers.
The majority of the Company's daily newspapers have been published for more
than 100 years and are established franchises with strong identities in the
communities they serve. For example, the NEW HAVEN REGISTER, the Company's
largest newspaper based on daily circulation, has roots in the New Haven,
Connecticut area dating back to 1755. In many cases, the Company's daily
newspapers are the only general circulation daily newspapers published in their
respective communities. The Company's non-daily publications serve well defined
suburban circulation areas and include the St. Louis, Missouri SUBURBAN JOURNALS
(the "JOURNALS"), the largest group of weekly newspapers in the United States
based on total distribution.
The Company manages its newspapers to best serve the needs of its local
readers and advertisers. The editorial content of its newspapers is tailored to
the specific interests of each community served, and
4
<PAGE>
includes coverage of local youth, high school, college and professional sports,
as well as local business, politics, entertainment and culture. The Company
maintains high product quality standards, using extensive process color and
compelling graphic design to attract new readers and to more fully engage
existing readers. The Company's newspapers typically are produced using advanced
prepress pagination technology and are printed on efficient, high-speed presses.
The Company's revenues are derived from advertising (approximately 73% of
1996 revenues), paid circulation (23%), and commercial printing and other (4%).
The Company's advertiser base is predominantly local. The Company's newspapers
seek to produce desirable results for local advertisers by targeting readers
based on certain geographic and demographic characteristics. The Company seeks
to increase readership, and thereby generate traffic for its advertisers, by
focusing on high product quality, local content and creative and interactive
promotions. The Company promotes single copy sales of its newspapers because it
believes that such sales have higher readership than subscription sales, and
that single copy readers tend to be more active consumers of goods and services,
as indicated in a recent Newspaper Association of America ("NAA") study. Single
copy sales also tend to generate higher profits than subscription sales, as
single copy sales generally have higher per unit prices and lower associated
distribution costs. Subscription sales, which provide readers with the
convenience of home delivery, are an important component of the Company's
circulation base. The Company also publishes numerous special sections and niche
and special interest publications. Such publications tend to increase readership
within targeted demographic groups and geographic areas. The Company believes
that as a result of these strategies, its newspapers represent an attractive and
cost-effective medium for its readers and advertisers.
The Company's advertising revenues in 1996 were derived primarily from a
broad group of local retailers (approximately 58%) and classified advertisers
(approximately 38%). No advertiser accounted for more than 2% of the Company's
1996 advertising revenues. The Company believes that because its newspapers rely
on a broad base of local retail and local classified advertising rather than
more volatile national and major account advertising, its advertising revenues
tend to be relatively stable.
Substantially all of the Company's operations relate to newspaper
publishing. In addition to its daily newspapers and non-daily publications, the
Company owns other businesses that complement its publishing operations,
consisting of three commercial printing operations as well as a company which
develops application software for the newspaper industry.
STRATEGY
The Company's objective is to continue its growth in revenues, cash flow,
profitability and net income. The principal elements of the Company's strategy
are to: (i) expand advertising revenues and readership; (ii) grow by
acquisition; (iii) capture synergies from geographic clustering; and (iv)
implement consistent operating policies and standards.
- EXPAND ADVERTISING REVENUES AND READERSHIP. The Company focuses on
increasing advertising and circulation revenues and expanding readership
at its existing and newly acquired properties. The Company's expansion
strategy includes, among other things, cross-selling advertising space
among publications, developing creative and interactive promotional
campaigns, launching new products and increasing its on-line presence.
- GROW BY ACQUISITION. Since 1993, the Company has completed seven strategic
acquisitions and has generally increased the revenues and significantly
increased the cash flow and profitability of its acquired newspapers. The
Company seeks to acquire publications located within its existing
geographic clusters. However, the Company may acquire publications not
located within existing clusters, but which, in turn, could form the bases
of new clusters. Following the acquisition of a publication, the Company
seeks to implement improvements quickly and efficiently. Typically, these
improvements are aimed at increasing readership, enhancing advertising and
circulation revenues and reducing expenses by implementing strategies
similar to those in use at the Company's existing
5
<PAGE>
properties. The Company believes that there are sufficient potential
acquisition candidates to justify the continued pursuit of its acquisition
strategy.
Historically, the Company has financed acquisitions through cash on hand
and borrowings and anticipates that it will finance future acquisitions
through cash on hand, borrowings and/or issuances of capital stock. The
Credit Agreement contains certain restrictions on sources of financing for
acquisitions. In addition, the financial covenants contained in the Credit
Agreement may limit the Company's ability to make acquisitions. See "Risk
Factors--Acquisition Strategy" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations-- Liquidity and Capital
Resources."
- CAPTURE SYNERGIES FROM GEOGRAPHIC CLUSTERING. The Company's strategy of
clustering newspapers and other operations has resulted in significant
synergies and cost savings within each cluster, including cross-selling of
advertising, centralized news-gathering and consolidation of certain
production functions, primarily printing. Such synergies and cost savings
have resulted in the cost effective introduction of new products and
services, improved printing quality, expanded paging and improved
distribution.
- IMPLEMENT CONSISTENT OPERATING POLICIES AND STANDARDS. The Company has
developed certain operating policies and standards which it believes have
resulted in significant improvements in the cash flow and profitability of
existing and acquired newspapers. These policies and standards include
specific guidelines regarding, among other things, local content, product
quality, distribution and customer service, marketing and promotion,
financial controls, centralized purchasing and community involvement.
6
<PAGE>
The following table sets forth information regarding the Company's
newspapers:
<TABLE>
<CAPTION>
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- -------------------------------- --------------- ----------- ---------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CONNECTICUT
NEW HAVEN REGISTER............ 1755 1989 New Haven 100,102 116,936
THE HERALD.................... 1881 1995 New Britain 28,061 56,370(4)
THE BRISTOL PRESS............. 1871 1994 Bristol 18,238 -- (4)
THE REGISTER CITIZEN.......... 1889 1993 Torrington 13,601 12,871
THE MIDDLETOWN PRESS.......... 1884 1995 Middletown 12,111 -- (4)
Non-Daily Distribution........ 675,010
OHIO
THE NEWS-HERALD............... 1878 1987 Lake County 51,752 64,349
THE MORNING JOURNAL........... 1921 1987 Lorain 41,272 46,136
THE TIMES REPORTER............ 1903 1987 Dover-New 24,316 26,513
Philadelphia
Non-Daily Distribution........ 54,651
PHILADELPHIA AND SURROUNDING
AREAS
DAILY LOCAL NEWS.............. 1872 1986 West Chester, PA 34,457 32,582
THE TIMES HERALD.............. 1799 1993 Norristown, PA 25,365 21,583
THE PHOENIX................... 1888 1986 Phoenixville, PA 4,681
THE TRENTONIAN................ 1945 1985 Trenton, NJ 61,678 48,468
Non-Daily Distribution........ 164,817
GREATER ST. LOUIS AREA
Suburban Newspapers
of Greater St. Louis
73 editions of 40
JOURNALS.................... 1922 1984 St. Louis, MO 1,616,592
THE TELEGRAPH................. 1836 1985 Alton, IL 29,812 32,143 32,000
CENTRAL NEW ENGLAND
THE HERALD NEWS............... 1872 1985 Fall River, MA 30,319 32,558
TAUNTON DAILY GAZETTE......... 1848 1996 Taunton, MA 15,270
THE RECORD.................... 1896 1987 Troy, NY 27,216 31,003
THE CALL...................... 1892 1984 Woonsocket, RI 19,807 19,485
THE TIMES..................... 1885 1984 Pawtucket, RI 18,098
Non-Daily Distribution........ 153,036
------------- ------------- --------------
TOTALS.......................... 556,156 540,997 2,696,106
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
- ------------------------
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1996, according
to the ABC Fas-Fax Report. The Company provides the circulation figures set
forth in the table above and elsewhere in this Prospectus because newspaper
circulation is a traditional statistic provided by newspaper companies as
descriptive of their respective newspapers. The Company does not view
circulation as a primary indicator of operating performance or manage its
business to maximize the circulation of its individual newspapers. See
"Selected Combined Financial and Operating Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Results of
Operations," "Business--Strategy--Expand Advertising Revenues and
Readership" and "Business--Circulation."
(3) Non-daily distribution includes both paid (110,880) and free (2,585,226)
distribution. Non-daily distribution reflects average distribution for
December 1996, except as otherwise noted in "Business--Overview of
Operations."
(4) In August 1996, the Company commenced publication of a Sunday newspaper, THE
HERALD PRESS, serving readers of THE HERALD, THE BRISTOL PRESS and THE
MIDDLETOWN PRESS.
7
<PAGE>
BACKGROUND
Affiliates of E.M. Warburg, Pincus & Co., LLC (collectively, "Warburg,
Pincus") have owned the majority of the equity securities of the Company and its
predecessors since 1983. Since 1990, Warburg, Pincus has owned substantially all
of the equity securities of the Company. Warburg, Pincus is a specialized
financial services organization which manages approximately $7.0 billion of
investments in its venture banking activities. Upon completion of the Offerings
and assuming issuance of the Bonus Shares, Warburg, Pincus will own
approximately 78.2% of the Common Stock then outstanding. Warburg, Pincus has
agreed with the Company that, following consummation of the Offerings and with
respect to any matter brought to a stockholder vote, Warburg, Pincus will vote
in its own discretion shares representing no more than 50% of the voting power
of the Company's shares entitled to vote on the applicable matter. The shares
owned by Warburg, Pincus which represent in excess of such 50% will be voted in
the same proportion as the shares voted by the other stockholders on the
applicable matter.
In 1997, the Company was converted from a limited liability company to a
Delaware corporation in connection with the Offerings. The structure of the
Company as a corporation is not expected to cause the financial condition and
operations of the Company to differ materially from its operations as a limited
liability company.
8
<PAGE>
THE OFFERINGS
The offering of 7,500,000 shares of Common Stock initially being offered in
the United States and Canada (the "U.S. Offering") and the offering of 1,875,000
shares of Common Stock initially being offered in a concurrent international
offering outside the United States and Canada (the "International Offering") are
collectively referred to as the "Offerings." The closing of each of the
Offerings is conditioned upon the closing of the other Offering.
<TABLE>
<S> <C>
Common Stock offered
United States Offering..................... 7,500,000 shares
International Offering..................... 1,875,000 shares
Total.................................... 9,375,000 shares(1)
Common Stock to be outstanding after the
Offerings.................................. 48,437,500 shares(2)
New York Stock Exchange symbol............... JRC
Use of Proceeds.............................. For repayment of outstanding indebtedness.
Approximately $34.6 million will be used to
repay indebtedness (including accrued
interest) owed to Warburg, Pincus. See "Use
of Proceeds."
</TABLE>
- ------------------------
(1) Assumes the Underwriters' over-allotment option is not exercised. If such
over-allotment is exercised, up to an additional 1,406,250 shares will be
sold by Warburg, Pincus Capital Partners, L.P. ("WPCP"), an affiliate of
E.M. Warburg, Pincus & Co., LLC, in the Offerings.
(2) Includes the Bonus Shares (as defined herein). Excludes 4,843,750 shares of
Common Stock reserved for issuance under the Company's 1997 Stock Incentive
Plan (the "1997 Plan"), of which options for 1,937,500 shares have been
granted or will be issued upon completion of the Offerings. See
"Management--Compensation Pursuant to Plans--1997 Stock Incentive Plan."
RISK FACTORS
In addition to the other information contained in this Prospectus, the
discussion of risk factors, which begins on page 12 hereof, should be considered
carefully in evaluating an investment in the Common Stock. The risks of
investing in the Common Stock include the following factors: newspaper industry
competition, dependence on local economies, fluctuation of quarterly results,
the Company's acquisition strategy, the price and availability of newsprint, the
Company's indebtedness, the holding company structure, the stockholders'
deficit, the expected charge to second quarter earnings, environmental matters,
potential litigation exposure, influence by existing stockholders, anti-takeover
effect of certain certificate of incorporation and by-laws provisions, absence
of prior public market and possible volatility of stock price, shares eligible
for future sale and dilution.
9
<PAGE>
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
The following summary combined data (except number of newspapers and per
share amounts) for (i) the combined balance sheets of the Company as of December
31, 1992, 1993 and 1994 and the related combined statements of operations and
cash flows for each of the two years in the period ended December 31, 1993 have
been derived from unaudited financial statements which include audited financial
statements of the Company's material subsidiaries, (ii) the combined balance
sheets of the Company as of December 31, 1995 and 1996 and the related combined
statements of operations and cash flows for each of the three years in the
period ended December 31, 1996 have been derived from the audited financial
statements of the Company, and (iii) the combined balance sheet as of March 31,
1997 and the related combined statements of operations and cash flows for the
three months ended March 31, 1996 and 1997 have been derived from the unaudited
financial statements of the Company. In the opinion of management, the unaudited
financial statements include all necessary adjustments (consisting of normal,
recurring accruals) for a fair presentation of the financial position, results
of operations and cash flows for the periods presented. The summary combined
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Combined
Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT NUMBER OF NEWSPAPERS AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues:
Advertising................................. $ 193,064 $ 201,929 $ 224,071 $ 249,534 $ 256,971 $ 58,668 $ 60,419
Circulation................................. 54,607 58,230 65,204 73,797 79,776 19,739 19,830
--------- --------- --------- --------- --------- --------- ---------
Newspaper revenues............................ 247,671 260,159 289,275 323,331 336,747 78,407 80,249
Commercial printing and other................. 13,150 11,710 10,875 15,626 14,373 3,802 2,791
--------- --------- --------- --------- --------- --------- ---------
260,821 271,869 300,150 338,957 351,120 82,209 83,040
Operating expenses:
Salaries and employee benefits.............. 95,522 96,252 105,607 110,651 111,626 28,129 28,663
Newsprint, ink and printing charges......... 32,964 35,285 36,481 48,243 50,110 13,190 9,130
Selling, general and administrative......... 25,770 24,017 25,312 28,678 30,993 7,619 7,641
Depreciation and amortization............... 33,812 24,097 18,605 19,178 20,525 4,956 5,418
Other....................................... 30,622 30,757 34,187 38,743 38,976 9,625 9,543
Unusual items(1)............................ 119,583 241,969 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
338,273 452,377 220,192 245,493 252,230 63,519 60,395
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)....................... (77,452) (180,508) 79,958 93,464 98,890 18,690 22,645
Net interest and other expense................ (60,876) (55,295) (42,049) (64,028) (56,472) (15,743) (12,989)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for income
taxes, extraordinary items and cumulative
effect of accounting changes................ (138,328) (235,803) 37,909 29,436 42,418 2,947 9,656
Provision for income taxes (benefit).......... (3,726) 3,067 4,126 2,653 14,309 994 3,932
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items and
cumulative effect of accounting changes..... (134,602) (238,870) 33,783 26,783 28,109 1,953 5,724
Extraordinary items and cumulative effect of
accounting changes(2)....................... 99,146 7,698 (13,100) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................. $ (35,456) $(231,172) $ 20,683 $ 26,783 $ 28,109 $ 1,953 $ 5,724
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income per common share(3)...... -- -- -- -- $ .74 -- $ .15
OTHER DATA:
EBITDA(4)..................................... $ 75,943 $ 85,558 $ 98,563 $ 112,642 $ 119,415 $ 23,646 $ 28,063
EBITDA Margin................................. 29.1% 31.5% 32.8% 33.2% 34.0% 28.8% 33.8%
Capital expenditures.......................... $ 3,896 $ 12,457 $ 8,326 $ 4,859 $ 7,675 $ 1,616 $ 1,531
Net cash provided by operating activities..... 20,404 23,277 46,268 26,778 60,065 8,532 14,439
Net cash used in investing activities......... 3,298 54,995 22,614 50,557 25,700 1,613 1,193
Net cash (used in) provided by financing
activities.................................. (29,495) 32,055 (33,361) 24,384 (34,441) (9,804) (15,713)
Number of daily newspapers, end of period..... 13 15 16 17 18 17 18
Number of non-daily publications, end of
period...................................... 62 65 68 114 118 114 118
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------------
PRO FORMA
PRO FORMA(5) AS ADJUSTED(6)
------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Total current assets.............................................................. $ 61,989 $ 75,013
Property, plant and equipment, net................................................ 89,331 89,331
Total assets...................................................................... 299,275 313,520
Total current liabilities, less current maturities of long-term debt.............. 38,175 38,175
Total debt, including current maturities.......................................... 639,119 516,144
Stockholders' deficit............................................................. (417,934) (283,714)
</TABLE>
10
<PAGE>
- ------------------------------
(1) As a result of the restructuring of the Company's debt in 1992 and 1993 and
management's assessment of certain of its newspaper properties, the Company
reduced the carrying value of its intangible assets related to prior
acquisitions and reflected this charge as an unusual item in the financial
statements.
(2) Extraordinary items represent gains or losses related to debt
extinguishment. In 1992, a Plan of Reorganization of a subsidiary of the
Company was approved by the court. As a result, certain of that subsidiary's
obligations were discharged, and the Company recognized a gain on
extinguishment of debt of $113.9 million. In connection with certain
refinancings, the Company recognized a net gain of $7.7 million in 1993 and
a loss of $13.1 million in 1994 on extinguishment of debt. In 1992, the
Company incurred a charge of $14.8 million, which was classified as a
cumulative effect of accounting changes relating to the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and Statement of Financial Accounting Standards No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions."
(3) The pro forma net income per common share was calculated reflecting the
37,962,500 shares which were issued prior to the Offerings but subsequent to
December 31, 1996. If effect were given to the issuance of the shares of
Common Stock in the Offerings and the Bonus Shares (as defined herein) and
to the net interest expense reduction related to the use of proceeds used to
reduce debt and additional debt to pay the cash portion of the Management
Bonuses, the pro forma net income per common share would increase by $.01
for the year end December 31, 1996 and would be the same for the three month
period ended March 31, 1997. See "The Company" and Notes 2 and 11 of "Notes
to Combined Financial Statements."
(4) EBITDA is defined by the Company as operating income (loss) plus
depreciation, amortization and other non-cash charges. EBITDA is not
intended to represent cash flow from operations and should not be considered
as an alternative to operating or net income computed in accordance with
GAAP, as an indicator of the Company's operating performance, as an
alternative to cash flows from operating activities (as determined in
accordance with GAAP) or as a measure of liquidity. The Company believes
that EBITDA is a standard measure commonly reported and widely used by
analysts, investors and other interested parties in the media industry.
Accordingly, this information has been disclosed herein to permit a more
complete comparative analysis of the Company's operating performance
relative to other companies in the industry. However, not all companies
calculate EBITDA using the same methods; therefore, the EBITDA figures set
forth above may not be comparable to EBITDA reported by other companies.
Certain covenants contained in the Company's Credit Agreement are based upon
EBITDA. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 4 of "Notes to Combined Financial
Statements."
(5)Reflects the conversion of the Company from a limited liability company to a
Delaware corporation. As a result of such conversion, the membership
interests in the limited liability company were exchanged for shares of
Common Stock.
(6) Adjusted to give effect to the Offerings and the application of the net
proceeds therefrom. Also, reflects the charge for discontinuation of the
StarShare Plan (as defined herein) and for the Management Bonuses and
related incurrence of indebtedness. See "Risk Factors--Charge to Second
Quarter Earnings," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Management Bonus Plan" and
"Management."
11
<PAGE>
RISK FACTORS
PRIOR TO MAKING AN INVESTMENT DECISION, PROSPECTIVE PURCHASERS SHOULD
CONSIDER CAREFULLY AND EVALUATE, IN ADDITION TO OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS, THE FOLLOWING RISK FACTORS:
NEWSPAPER INDUSTRY COMPETITION
The Company's business is concentrated in newspapers and other publications
located primarily in small metropolitan and suburban areas in the United States.
Revenues in the newspaper industry primarily consist of advertising and paid
circulation. Competition for advertising expenditures and paid circulation comes
from local, regional and national newspapers, shopping guides ("shoppers"),
television, radio, direct mail, on-line services and other forms of
communication and advertising media. Competition for newspaper advertising
expenditures is based largely upon advertiser results, readership, advertising
rates, demographics and circulation levels, while competition for circulation
and readership is based largely upon the content of the newspaper, its price and
the effectiveness of its distribution. Many of the Company's competitors are
larger and have greater financial resources than the Company. See "Business--
Competition."
DEPENDENCE ON LOCAL ECONOMIES
The Company's advertising revenues and, to a lesser extent, circulation
revenues are dependent on a variety of factors specific to the communities which
the Company's newspapers serve. These factors include, among others, the size
and demographic characteristics of the local population, local economic
conditions in general, and the related retail segments in particular, and local
weather conditions. If the local economy, prevailing retail environment or
weather conditions of the communities which the Company's newspapers serve were
to be adversely affected, there could be no assurance that the Company's
financial condition or results of operations would not be adversely affected.
For a discussion of recent population and household income trends in the areas
which are served by the Company's newspapers, see "Business--Overview of
Operations."
FLUCTUATION OF QUARTERLY RESULTS
Newspaper companies tend to follow a distinct and recurring seasonal
pattern. The first quarter of the year (January-March) tends to be the weakest
quarter because advertising volume is then at its lowest level. Correspondingly,
the fourth quarter (October-December) tends to be the strongest quarter, as it
includes heavy holiday season advertising. The Company expects that seasonal
fluctuations will continue to affect its results of operations in future
periods. Results of operations in any period should not be considered indicative
of the results to be expected for any future periods. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results."
ACQUISITION STRATEGY
The Company has grown through, and anticipates that it will continue to grow
through, acquisitions of daily and non-daily newspapers and similar
publications. Acquisitions may expose the Company to particular risks,
including, without limitation, diversion of management's attention, assumption
of liabilities and amortization of goodwill and other acquired intangible
assets, some or all of which could have a material adverse effect on the
financial condition or results of operations of the Company. Depending on the
value and nature of the consideration paid by the Company for acquisitions, such
acquisitions may have a dilutive impact on the Company's earnings per share. In
making acquisitions, the Company competes for acquisition targets with other
companies, many of which are larger and have greater financial resources than
the Company. There can be no assurance that the Company will continue to be
successful in identifying acquisition opportunities, assessing the value,
strengths and weaknesses of such opportunities, evaluating the costs of new
growth opportunities at existing operations or managing the publications it owns
and improving their operating efficiency. Historically, the Company has financed
12
<PAGE>
acquisitions through cash on hand and borrowings, which borrowings have
increased the Company's indebtedness. The Company anticipates that it will
finance future acquisitions through cash on hand, borrowings and issuances of
capital stock. The Credit Agreement limits acquisitions to certain permitted
investments and newspapers in the United States, and requires that acquisitions
be financed through certain permitted sources. In addition, the financial
covenants contained in the Credit Agreement may limit the Company's ability to
make acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Strategy--Grow by Acquisition."
PRICE AND AVAILABILITY OF NEWSPRINT
The basic raw material for newspapers is newsprint. The Company's newsprint
consumption (excluding paper consumed in the Company's commercial printing
operations) totaled approximately $41 million in 1996, which was approximately
12% of the Company's newspaper revenues. In 1996, the Company consumed
approximately 61,000 metric tons of newsprint. The average price per metric ton
of newsprint based on East Coast transaction prices in 1995, 1996 and March 1997
was $668, $645 and $535, respectively, as reported by the trade publication PULP
AND PAPER WEEKLY. The Company has no long-term contracts to purchase newsprint.
Generally, the Company has in the past and currently purchases all of its
newsprint from two suppliers, although the Company may purchase newsprint from
other suppliers. The inability of the Company to obtain an adequate supply of
newsprint in the future could have a material adverse effect on the financial
condition or results of operations of the Company. Historically, the price of
newsprint has been cyclical and volatile. In 1995 and 1996, the Company's
average cost of newsprint consumed reflected increases of approximately 34% and
13%, compared to the previous year, respectively. In December 1996, newsprint
suppliers announced a newsprint price increase planned to take effect in
February 1997; this increase was delayed. The initial announcements indicated
the increase would be $75 per metric ton. The Company has been informed by its
suppliers that they will implement some portion of the announced price increase.
The Company believes that if any price increase is sustained in the industry,
the Company will also be impacted by such increase. The Company is unable to
predict whether, or to what extent, any increase will be sustained. Significant
increases in newsprint costs could have a material adverse effect on the
financial condition or results of operations of the Company. The Company seeks
to manage the effects of increases in prices of newsprint through a combination
of, among other things, technology improvements, including web width reductions,
inventory management and advertising and circulation price increases. The
Company also has reduced fringe circulation in response to increased newsprint
prices, as it is the Company's experience that such circulation does not provide
adequate response for advertisers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview--Operating Expenses" and
"Business--Raw Materials."
INDEBTEDNESS
The Company has a substantial amount of indebtedness. As of March 31, 1997,
after giving effect to the Offerings, the application of the net proceeds
therefrom and the payment of the Management Bonuses, the consolidated
indebtedness of the Company would have been approximately $516.1 million, which
represents a multiple of 4.2 times the Company's twelve months trailing EBITDA
of approximately $123.8 million. As of March 31, 1997, after giving effect to
the Offerings, the application of the net proceeds therefrom and the payment of
the Management Bonuses and the amount related to the discontinuation of the
StarShare Plan, the Company would have had a net stockholders' deficit of
approximately $283.7 million and a total capitalization of $232.4 million. The
Company may incur additional indebtedness to fund operations, capital
expenditures or future acquisitions. See "-- Stockholders' Deficit," "Use of
Proceeds", "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management Bonus Plan."
13
<PAGE>
The Company believes that cash provided by operating activities will be
sufficient to fund its operations and to meet payment requirements under its
Senior Secured Term Loans (collectively, the "Term Loan") and Senior Secured
Revolving Credit Facility (the "Revolver," and together with the Term Loan, the
"Senior Facilities") under the Credit Agreement (as defined herein). However, a
decline in cash provided by operating activities, which could result from
factors beyond the Company's control, such as unfavorable economic conditions,
an overall decline in advertising expenditures or increased competition, could
impair the Company's ability to service its debt. The Credit Agreement requires
the maintenance of certain financial ratios and imposes certain operating and
financial restrictions on the Company which restrict, among other things, the
Company's ability to declare dividends, redeem stock, incur indebtedness, create
liens, sell assets, consummate mergers and make capital expenditures,
investments and acquisitions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and Notes 4 and 11 of "Notes to Combined Financial Statements."
HOLDING COMPANY STRUCTURE
The Company is a holding company which conducts its operations through
direct and indirect subsidiaries. The Company's available cash will depend upon
the cash flow of its subsidiaries and the ability of such subsidiaries to make
funds available to the Company in the form of loans, dividends or otherwise. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to make funds available to the Company, whether in the
form of loans, dividends or otherwise. The Credit Agreement is secured by the
common stock and certain assets of the Company's operating subsidiaries. In
addition, the Company's subsidiaries may, subject to limitations contained in
the Credit Agreement, become parties to financing arrangements which may contain
limitations on the ability of such subsidiaries to pay dividends or to make
loans or advances to the Company. In the event of any insolvency, bankruptcy or
similar proceedings of a subsidiary, creditors of such subsidiary would
generally be entitled to priority over the Company with respect to assets of the
affected subsidiary.
STOCKHOLDERS' DEFICIT
As of March 31, 1997, after giving effect to the Offerings, the application
of the net proceeds therefrom and the payment of the Management Bonuses and the
amount related to the discontinuation of the StarShare Plan, the stockholders'
deficit of the Company would have been approximately $283.7 million. There can
be no assurance as to when or if such deficit will be eliminated. The Company
believes that the deficit does not have a material adverse effect on its
liquidity or financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Financial Statements."
CHARGE TO SECOND QUARTER EARNINGS
The Company expects to incur a charge to pre-tax earnings of approximately
$35.0 million in the second quarter of 1997. The charge consists of an amount
for the Management Bonuses and an amount for the discontinuation of the
StarShare Plan. The Management Bonuses are expected to account for approximately
$32.0 million of such charge, comprised of 1,100,000 shares of Common Stock (the
"Bonus Shares") at an assumed Price to Public of $16.00, plus a cash portion
assumed to be approximately $14.4 million. The Company expects that the cash
portion of the Management Bonuses will be used to satisfy recipients' tax
obligations arising from the Management Bonuses. The charge relating to the
Management Bonuses will depend on the Price to Public. For each one dollar
change in the Price to Public, the pre-tax charge will change by $2.0 million.
The discontinuation of the StarShare Plan (as defined herein) will account for
approximately $3.0 million of such charge. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Management Bonus
Plan," "Management-- Compensation Pursuant to Plans--Management Bonus Plan,"
"Management--Executive Compensation" and "Certain Transactions."
14
<PAGE>
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local
environmental laws and regulations pertaining to air and water quality, storage
tanks and the management and disposal of wastes at its facilities. To the best
of the Company's knowledge, its operations are in material compliance with
applicable environmental laws and regulations as currently interpreted. The
Company cannot predict with any certainty whether future events, such as changes
in existing laws and regulations or the discovery of conditions not currently
known to the Company, may give rise to additional costs which could be material.
Furthermore, actions by federal, state and local governments concerning
environmental matters could result in laws or regulations that could have a
material adverse effect on the financial condition or results of operations of
the Company. The Company is not aware of any pending legislation by federal,
state or local governments relating to environmental matters which, if enacted,
would reasonably be expected to have a material adverse effect on the financial
condition or results of operations of the Company. See "Business--Environmental
Matters."
POTENTIAL LITIGATION EXPOSURE
The Company and its subsidiaries are involved in a number of litigation
matters which have arisen in the ordinary course of business. The Company
believes that the outcome of these legal proceedings will not have a material
adverse effect on the Company's financial condition or results of operations.
For the periods covered by the Financial Statements contained herein, the
Company has not paid damages in connection with litigation matters that have had
a material adverse effect on the financial condition or results of operations of
the Company. See "Business--Legal Proceedings."
INFLUENCE BY EXISTING STOCKHOLDER
Upon completion of the Offerings and assuming issuance of the Bonus Shares,
Warburg, Pincus will beneficially own approximately 78.2% of the outstanding
shares of the Common Stock. Warburg, Pincus has agreed with the Company that,
following completion of the Offerings and with respect to any matter brought to
a stockholder vote, Warburg, Pincus will vote in its own discretion shares
representing no more than 50% of the voting power of the Company's shares
entitled to vote on the applicable matter. The shares owned by Warburg, Pincus
which represent in excess of such 50% will be voted in the same proportion as
the shares voted by the other stockholders on the applicable matter.
Notwithstanding such agreement, it is probable that Warburg, Pincus will
continue to be able to elect the Company's Board of Directors (the "Board of
Directors") and take, or block, other corporate actions requiring stockholder
approval, as well as to dictate the direction and policies of the Company. The
concentration of ownership, whether or not the agreement is in effect, also
could delay, deter or prevent a sale of the Company or a majority of the
outstanding stock of the Company. The controlling stock ownership of the Company
by Warburg, Pincus could result in changes in the Company's structure, even if
not deemed to be in the best interest of the minority stockholders of the
Company. See "Principal and Selling Stockholders."
ANTI-TAKEOVER EFFECT OF CERTAIN CERTIFICATE
OF INCORPORATION AND BY-LAWS PROVISIONS
Certain provisions of the Company's Certificate of Incorporation (the
"Certificate") and By-laws (the "By-laws") may have the effect of delaying,
deterring or preventing a sale of the Company or a majority of the outstanding
stock of the Company. Such provisions may also render the removal of directors
and management more difficult. Specifically, the By-laws provide for a
classified Board of Directors serving staggered three-year terms, restrictions
on who may call a special meeting of stockholders, a prohibition on stockholder
action by written consent and certain advance notice requirements for
stockholder nominations of candidates for election to the Board of Directors and
certain other stockholder proposals. The Certificate does not include an
election to opt out of the Delaware anti-takeover statute. In addition, the
Certificate authorizes the issuance of preferred stock, par value $.01 per share
(the "Preferred Stock"), without stockholder approval and upon such terms as the
Board of Directors may determine. The issuance
15
<PAGE>
of Preferred Stock may also have the effect of delaying, deterring or preventing
a sale of the Company or a majority of the outstanding stock of the Company. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of Preferred Stock that may be issued in the
future. The Company has no present plans to issue any shares of Preferred Stock.
See "Description of Capital Stock."
ABSENCE OF PRIOR PUBLIC MARKET;
POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. Although the Common Stock has been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, there can be no
assurance that an active trading market for the Common Stock will develop or be
sustained following the Offerings or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined by negotiation between the Company and the
representatives of the Underwriters based upon several factors and may not be
indicative of future market prices. The price at which the Common Stock will
trade will depend upon a number of factors, some of which are beyond the
Company's control. Such factors include, but are not limited to, the Company's
historical and anticipated operating results, general market and economic
conditions, quarterly fluctuations in the Company's financial and operating
results, announcements by the Company or others and developments affecting the
Company, its publications, its advertisers, readers and suppliers, the markets
in which it competes or the newspaper industry generally. In addition, the stock
market has from time to time experienced extreme price and volume fluctuations.
These broad market fluctuations may have an adverse effect on the market price
of the Common Stock. See "Underwriters-- Pricing of the Offerings."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rule 144 ("Rule
144") of the Securities Act of 1933, as amended (the "Securities Act"), or
otherwise could have an adverse effect on the price of the Common Stock. The
shares of Common Stock sold in the Offerings will be eligible for immediate
resale, except to the extent acquired by "affiliates" of the Company, as such
term is defined in Rule 144. Additionally, the Bonus Shares and 37,962,500
shares of Common Stock will be eligible for sale in the public market pursuant
to Rule 144 or Rule 701 ("Rule 701") under the Securities Act, or otherwise, 180
days after the effective date of the Registration Statement of which this
Prospectus is a part upon expiration of lock-up agreements with the
Underwriters. Sales of such shares in the public market or the perception that
such sales may occur, could adversely affect the market price of the Common
Stock or impair the Company's ability to raise additional capital in the future
through the sale of equity securities. Any additional shares outstanding upon
completion of these Offerings will be eligible for sale pursuant to Rule 144
upon the expiration of the applicable holding period. Promptly after completion
of the Offerings, the Company expects to file with the Securities and Exchange
Commission (the "Commission") a registration statement covering the Bonus Shares
and the shares of Common Stock underlying grants available under the 1997 Plan.
In addition, Warburg, Pincus and certain individuals (collectively, the
"Individuals") who, immediately prior to completion of the Offerings, owned in
the aggregate less than 1% of the shares of Common Stock outstanding, have
rights under certain circumstances to require the Company to register a total of
37,962,500 shares of Common Stock, in certain cases, after expiration of lock-up
agreements. See "Management--Compensation Pursuant to Plans," "Description of
Capital Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriters."
DILUTION
Investors purchasing Common Stock in the Offerings will incur substantial
and immediate dilution in the amount of approximately $(24.49) in net tangible
book value per share of Common Stock from the initial public offering price. See
"Dilution."
16
<PAGE>
THE COMPANY
The Company is a leading U.S. newspaper publisher, with total paid daily
circulation of approximately 556,000 and total non-daily distribution of
approximately 2.7 million. The Company owns and operates 18 daily newspapers and
118 non-daily publications strategically clustered in five geographic areas:
Connecticut; Ohio; Philadelphia and its surrounding areas; the greater St. Louis
area; and central New England. The Company's newspapers are characterized by an
intense focus on coverage of local news and sports and offer compelling graphic
design in colorful, reader-friendly packages.
Warburg, Pincus has owned the majority of the equity securities of the
Company and its predecessors since 1983. Since 1990, Warburg, Pincus has owned
substantially all of the equity securities of the Company. Upon completion of
the Offerings and assuming issuance of the Bonus Shares, Warburg, Pincus will
own approximately 78.2% of the Common Stock then outstanding.
Beginning in 1983, Warburg, Pincus acquired and owned newspaper publications
in partnership with the prior management of the Company's predecessors. In 1990,
Warburg, Pincus acquired substantially all of the equity securities of these
ventures, and such ventures have been operated by current management since such
time. In 1992 and 1993, certain of the Company's subsidiaries underwent certain
debt restructuring transactions. See Note 2 of "Selected Combined Financial and
Operating Data." In 1997, the Company was converted from a limited liability
company into a Delaware corporation in connection with the Offerings. See Note
11 of "Notes to Combined Financial Statements."
The Company's principal executive office is located at State Street Square,
50 West State Street, Trenton, New Jersey 08608-1298, and its telephone number
is (609) 396-2200. The Company's Internet address is
http://www.journalregister.com.
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock in the
Offerings are estimated to be $137.4 million, after deducting underwriting
discounts and commissions and estimated offering expenses and assuming an
initial offering price of $16 per share. The Company will not receive any
proceeds from the sale of Common Stock by WPCP if the Underwriters'
over-allotment option is exercised.
The Company intends to use the net proceeds of the Offerings to repay
indebtedness. Approximately $102.8 million of such proceeds will be used to
repay a portion of the amounts outstanding under the Term Loan and the Revolver,
which bear interest at floating rates which were each approximately 7.75% per
annum (as of January 1, 1997). The Term Loan has a final maturity of December
31, 2002, and all borrowings under the Revolver must be repaid by December 31,
2003. Paydowns on the Revolver increase the availability thereof, subject to the
requirement that all borrowings must be repaid by December 31, 2003. In
connection with the Offerings, the Credit Agreement will be amended and
restated. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." Approximately $34.6
million of the net proceeds will be used to retire all of the outstanding
principal amount of and accrued and unpaid interest on the Company's
Subordinated Notes due to Warburg, Pincus, which bear interest at a rate of
10.0% per annum and mature on June 30, 2002 (the "Subordinated Notes"). The
Company intends to use cash on hand and/or borrowings under the Revolver to fund
the cash portion of the Management Bonuses. The Company expects that the
Management Bonuses will total approximately $32.0 million, comprised of
1,100,000 Bonus Shares, valued at an assumed Price to Public of $16, plus a cash
portion assumed to be approximately $14.4 million. The Company expects that the
cash portion of the Management Bonuses will be used to satisfy recipients' tax
obligations arising from the Management Bonuses. The total value of the Bonus
Shares and the cash portion of the Management Bonuses will depend on the Price
to Public. See "Risk Factors--Charge to Second Quarter Earnings,"
"Management--Compensation Pursuant to Plans--Management Bonus Plan," "Certain
Transactions" and Notes 4 and 11 of "Notes to Combined Financial Statements."
17
<PAGE>
DIVIDEND POLICY
The Company has not paid dividends on the Common Stock and does not
anticipate paying dividends on the Common Stock in the foreseeable future. The
Company intends to retain future earnings for reinvestment in the Company. In
addition, the Credit Agreement places limitations on the Company's ability to
pay dividends or make any other distributions on the Common Stock. See Note 4 of
"Notes to Combined Financial Statements." Any future determination as to the
payment of dividends will be subject to such prohibitions and limitations, will
be at the discretion of the Board of Directors and will depend on the Company's
results of operations, financial condition, capital requirements and other
factors deemed relevant by the Board of Directors. See "Risk Factors--Holding
Company Structure" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
DILUTION
The pro forma net tangible book deficit of the Company as of March 31, 1997
was $545.6 million, or approximately $14.37 per share of Common Stock. Net
tangible book deficit per share represents the amount of total tangible assets
less total liabilities, as of March 31, 1997, divided by the aggregate number of
shares of Common Stock to be issued in connection with the conversion of the
Company from a limited liability company to a Delaware corporation. After giving
effect to the sale by the Company of the 9,375,000 shares of Common Stock in the
Offerings (at an assumed price of $16 per share less underwriting discounts and
commissions and estimated offering expenses), payment of Management Bonuses
including issuance of Bonus Shares and the charge related to the discontinuation
of the StarShare Plan, the net tangible book deficit of the Company on March 31,
1997 would have been $411.3 million or $8.49 per share. This represents an
immediate decrease in net tangible book deficit of $5.88 per share of Common
Stock to existing stockholders and an immediate dilution of approximately $24.49
per share to new investors purchasing shares in the Offerings. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share................................. $ 16.00
Net tangible book (deficit) per share before the Offerings............ $ (14.37)
Increase per share attributable to the Offerings...................... 5.88
---------
Net tangible book (deficit) per share after the Offerings............... (8.49)
---------
Dilution per share to new investors..................................... $ (24.49)
---------
---------
</TABLE>
The following table sets forth on a pro forma basis reflecting the
completion of the Offerings as of March 31, 1997, the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid by existing stockholders and by the new
investors purchasing shares of Common Stock from the Company in the Offerings
(before deducting the underwriting discount and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ---------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C>
Existing stockholders................................. 37,962,500 78% $ 224,271 57% $ 5.91
New investors......................................... 9,375,000 20 150,000 38 $ 16.00
Management............................................ 1,100,000 2 17,600 5 $ 16.00
------------ ----- ---------- -----
Total................................................. 48,437,500 100% $ 391,871 100%
------------ ----- ---------- -----
------------ ----- ---------- -----
</TABLE>
The foregoing calculations reflect the issuance of the Bonus Shares to
certain management employees, assume no exercise of the Underwriters'
over-allotment option and exclude shares subject to options granted under the
1997 Plan that will be issued upon completion of the Offerings. See
"Management--Compensation Pursuant to Plans--1997 Stock Incentive Plan."
18
<PAGE>
CAPITALIZATION
The following table sets forth the historical, pro forma and pro forma, as
adjusted capitalization of the Company as of March 31, 1997. The pro forma
capitalization reflects the conversion of the Company from a limited liability
company to a Delaware corporation. The pro forma as adjusted capitalization
reflects the Offerings, and the application of the estimated net proceeds
therefrom, the discontinuation of the StarShare Plan and the payment of the
Management Bonuses. See "The Company," "Use of Proceeds" and
"Management--Compensation Pursuant to Plans--Management Bonus Plan." This table
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Prospectus. See "Combined Financial Statements" and
Notes thereto.
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt (including current maturities):
Term Loan................................................................. $ 487,995 $ 487,995 $ 397,995
Revolver.................................................................. 116,000 116,000 117,166
Subordinated Notes and accrued interest due to stockholders............... 34,141 34,141 --
Other debt................................................................ 983 983 983
---------- ---------- -----------
Total debt.............................................................. 639,119 639,119 516,144
Stockholders' equity (deficit):
Membership interests...................................................... 2,104 -- --
Common stock, par value $.01 per share, 300,000,000 shares authorized,
37,962,500 shares issued and outstanding pro forma and 48,437,500 shares
issued and outstanding as adjusted(1)................................... -- 380 484
Additional paid-in capital................................................ 222,167 223,891 378,762
Accumulated deficit....................................................... (642,205) (642,205) (662,960)
---------- ---------- -----------
Total stockholders' deficit............................................. (417,934) (417,934) (283,714)
---------- ---------- -----------
Total capitalization........................................................ $ 221,185 $ 221,185 $ 232,430
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- ------------------------
(1) Includes the issuance of the Bonus Shares. Excludes 4,843,750 shares of
Common Stock reserved for issuance under the 1997 Plan, of which options for
1,937,500 shares have been granted or will be issued upon completion of the
Offerings. See "Management--Compensation Pursuant to Plans."
19
<PAGE>
SELECTED COMBINED FINANCIAL AND OPERATING DATA
The following summary combined data (except number of newspapers and per
share amounts) for (i) the combined balance sheets of the Company as of December
31, 1992, 1993 and 1994 and the related combined statements of operations and
cash flows for each of the two years in the period ended December 31, 1993 have
been derived from unaudited financial statements which include audited financial
statements of the Company's material subsidiaries, (ii) the combined balance
sheets of the Company as of December 31, 1995 and 1996 and the related combined
statements of operations and cash flows for each of the three years in the
period ended December 31, 1996 have been derived from the audited financial
statements of the Company, and (iii) the combined balance sheet as of March 31,
1997 and the related combined statement of operations and cash flows for the
three months ended March 31, 1996 and 1997 have been derived from the unaudited
financial statements of the Company. In the opinion of management, the unaudited
financial statements include all necessary adjustments (consisting of normal,
recurring accruals) for a fair presentation of the financial position, results
of operations and cash flows for the periods presented. The selected combined
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Combined
Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT NUMBER OF NEWSPAPERS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Advertising.............................. $ 193,064 $ 201,929 $ 224,071 $ 249,534 $ 256,971 $ 58,668 $ 60,419
Circulation.............................. 54,607 58,230 65,204 73,797 79,776 19,739 19,830
--------- --------- --------- --------- --------- --------- ---------
Newspaper revenues......................... 247,671 260,159 289,275 323,331 336,747 78,407 80,249
Commercial printing and other.............. 13,150 11,710 10,875 15,626 14,373 3,802 2,791
--------- --------- --------- --------- --------- --------- ---------
260,821 271,869 300,150 338,957 351,120 82,209 83,040
Operating expenses:
Salaries and employee benefits........... 95,522 96,252 105,607 110,651 111,626 28,129 28,663
Newsprint, ink and printing charges...... 32,964 35,285 36,481 48,243 50,110 13,190 9,130
Selling, general and administrative...... 25,770 24,017 25,312 28,678 30,993 7,619 7,641
Depreciation and amortization............ 33,812 24,097 18,605 19,178 20,525 4,956 5,418
Other.................................... 30,622 30,757 34,187 38,743 38,976 9,625 9,543
Unusual items(1)......................... 119,583 241,969 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
338,273 452,377 220,192 245,493 252,230 63,519 60,395
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss).................... (77,452) (180,508) 79,958 93,464 98,890 18,690 22,645
Net interest and other expense............. (60,876) (55,295) (42,049) (64,028) (56,472) (15,743) (12,989)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for income
taxes, extraordinary items and cumulative
effect of accounting changes............. (138,328) (235,803) 37,909 29,436 42,418 2,947 9,656
Provision for income taxes (benefit)....... (3,726) 3,067 4,126 2,653 14,309 994 3,932
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items
and cumulative effect of accounting
changes.................................. (134,602) (238,870) 33,783 26,783 28,109 1,953 5,724
Extraordinary items and cumulative effect
of accounting changes(2)................. 99,146 7,698 (13,100) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).......................... $ (35,456) $(231,172) $ 20,683 $ 26,783 $ 28,109 $ 1,953 $ 5,724
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income per common share(3)... -- -- -- -- $ .74 -- $ .15
OTHER DATA:
EBITDA(4).................................. $ 75,943 $ 85,558 $ 98,563 $ 112,642 $ 119,415 $ 23,646 $ 28,063
EBITDA Margin.............................. 29.1% 31.5% 32.8% 33.2% 34.0% 28.8% 33.8%
Capital expenditures....................... $ 3,896 $ 12,457 $ 8,326 $ 4,859 $ 7,675 $ 1,616 $ 1,531
Net cash provided by operating
activities............................... 20,404 23,277 46,268 26,778 60,065 8,532 14,439
Net cash used in investing activities...... 3,298 54,995 22,614 50,557 25,700 1,613 1,193
Net cash (used in) provided by financing
activities............................... (29,495) 32,055 (33,361) 24,384 (34,441) (9,804) (15,713)
Number of daily newspapers, end of period.. 13 15 16 17 18 17 18
Number of non-daily publications, end of
period................................... 62 65 68 114 118 114 118
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- -----------
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT NUMBER OF NEWSPAPERS AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total current assets................................. $ 57,248 $ 57,901 $ 56,959 $ 73,456 $ 66,035 $ 61,989
Property, plant and equipment, net................... 105,012 104,958 100,842 99,036 91,713 89,331
Total assets......................................... 447,734 244,428 245,290 306,434 305,985 299,275
Total current liabilities, less current maturities of
long-term debt..................................... 54,167 31,028 33,734 44,582 37,720 38,175
Total debt, including current maturities............. 570,777 625,317 664,298 689,256 654,825 639,119
Members' deficit(5).................................. (206,462) (437,634) (478,548) (451,767) (423,658) (417,934)
</TABLE>
- ------------------------
(1) As a result of the restructuring of the Company's debt in 1992 and 1993 and
management's assessment of certain of its newspaper properties, the Company
reduced the carrying value of its intangible assets related to prior
acquisitions and reflected this charge as an unusual item in the financial
statements.
(2) Extraordinary items represent gains or losses related to debt
extinguishment. In 1992, a Plan of Reorganization of a subsidiary of the
Company was approved by the court. As a result, certain of that subsidiary's
obligations were discharged, and the Company recognized a gain on
extinguishment of debt of $113.9 million. In connection with certain
refinancings, the Company recognized a net gain of $7.7 million in 1993 and
a loss of $13.1 million in 1994 on extinguishment of debt. In 1992, the
Company incurred a charge of $14.8 million, which was classified as a
cumulative effect of accounting changes relating to the adoption of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and Statement of Financial Accounting Standards No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions."
(3) The pro forma net income per common share was calculated reflecting the
37,962,500 shares which were issued prior to the Offerings but subsequent to
December 31, 1996. If effect were given to the issuance of the shares of
Common Stock in the Offerings and the Bonus Shares and to the net interest
expense reduction related to the use of proceeds used to reduce debt and
additional debt to pay the cash portion of the Management Bonuses, the pro
forma net income per common share would increase by $.01 for the year end
December 31, 1996 and would be the same for the three month period ended
March 31, 1997. See "The Company" and Notes 2 and 11 of "Notes to the
Combined Financial Statements."
(4) See Note (4) to "Summary Combined Financial and Operating Data."
(5) During 1994, the Company was converted into a limited liability company. In
connection with such conversion, the Company's preferred stock and dividends
in arrears thereon were redeemed for approximately $61.6 million. For the
years ended December 31, 1992 and 1993, Members' deficit refers to
Stockholders' deficit.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
HISTORICAL COMBINED FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company's principal business is publishing newspapers in the United
States, where its publications are primarily small metropolitan and suburban
daily newspapers and suburban and community non-daily newspapers. The Company's
revenues are derived from advertising, paid circulation and commercial printing
and other.
The Company currently owns and operates 18 daily newspapers and 118
non-daily publications strategically clustered in five geographic areas:
Connecticut; Ohio; Philadelphia and its surrounding areas; the greater St. Louis
area; and central New England. The Company has total paid daily circulation of
556,000, total paid Sunday circulation of 541,000, and total non-daily
distribution of 2.7 million.
The Company's objective is to continue its growth in revenues, EBITDA,
EBITDA Margin and net income. The principal elements of the Company's strategy
are to: (i) expand advertising revenues and readership; (ii) grow by
acquisition; (iii) capture synergies from geographic clustering; and (iv)
implement consistent operating policies and standards. Since 1993, the Company
has successfully completed seven strategic acquisitions, acquiring six daily
newspapers, 52 non-daily publications and one commercial printing company which
prints several of the non-daily publications acquired.
The Company believes that small metropolitan and suburban daily newspapers
and suburban and community non-daily newspapers are generally effective in
addressing the needs of local readers and advertisers under widely varying
economic conditions. The Company believes that because its newspapers rely on a
broad base of local retail and local classified advertising rather than more
volatile national and major account advertising, its advertising revenues tend
to be relatively stable.
As part of the Company's strategy, the Company focuses on increasing
advertising and circulation revenues and expanding readership at its existing
and newly acquired properties. The Company has also developed certain operating
policies and standards which it believes have resulted in significant
improvements in the cash flow and profitability of its existing and acquired
newspapers, including: (i) focusing on local content; (ii) maintaining and
improving product quality; (iii) enhancing distribution and customer service;
(iv) facilitating marketing and promotion; (v) implementing financial controls;
and (vi) promoting community involvement. See "Business--Strategy."
SOURCES OF REVENUES
The Company's revenues are derived from advertising (73.2% of 1996
revenues), paid circulation (22.7%) and commercial printing and other (4.1%).
The Company has a broad and diverse advertiser base, of which no advertiser
accounted for more than 2.0% of the Company's 1996 advertising revenues.
Substantially all of the Company's advertising revenues in 1996 were derived
from local retailers (58.3%) and classified advertisers (37.6%). Changes in
advertising rates are driven primarily by results achieved for advertisers,
local economic conditions and competition. The Company generally seeks to
increase advertising rates annually and has generally done so at the majority of
its newspapers for each of the past five years.
Circulation revenues are derived from home delivery sales to subscribers and
single copy sales made through retail outlets and vending machines. In 1996,
71.5% of circulation revenues were derived from subscription sales and 28.5%
were derived from single copy sales. Single copy rates currently range from $.35
to $.50 per daily copy and from $.50 to $1.75 per Sunday copy. The Company
implements creative and
22
<PAGE>
interactive programs and promotions to increase readership and circulation,
through both subscription and single copy sales. Circulation has generally
declined throughout the newspaper industry in recent years, and the Company's
newspapers have generally experienced this trend, even as operating performance
has improved. The Company seeks to maximize the overall operating performance of
its newspapers rather than maximizing circulation, and does not view circulation
as a primary indicator of operating performance.
OPERATING EXPENSES
Operating expenses (excluding depreciation and amortization) represented
66.0% of the Company's revenues in 1996. The Company's primary expenses are:
salaries and employee benefits (31.8% of 1996 revenues); newsprint, ink and
printing charges (14.3%); selling, general and administrative expenses (8.8%),
which include insurance, telecommunication services, bad debt expense, promotion
expense and agency commissions; and other expenses (11.1%), which include, among
other items, costs related to newspaper delivery, editorial expenses such as
correspondents, wire services, syndicated columnists, supplies and production
costs other than newsprint, ink and printing charges, such as printing plates
and composing charges. The Company is focused on minimizing expenses and has
successfully reduced operating expenses (excluding non-cash charges) as a
percentage of revenues in each of the past six years.
Salaries and employee benefits are the Company's largest operating expense.
The Company has been able to control salaries and employee benefit expenses as a
result of efficiencies realized from implementing new technology as well as its
focus on synergies from its strategy of clustering operations. In 1996, salaries
and employee benefits increased .9% due to acquisitions, but decreased as a
percentage of revenues. For operations owned for the full twelve months in both
1995 and 1996, salaries and employee benefit expenses declined by 5.1%.
Newsprint represents the single largest raw material expense of the Company
and, after salaries and employee benefit expenses, is its most significant
operating expense. Newsprint expense increased significantly in 1995 on an
industry-wide basis, peaking at $770 per metric ton in the first quarter of 1996
(based on average East Coast transaction prices), as reported by the trade
publication PULP AND PAPER WEEKLY. Prices began to decrease in the second
quarter of 1996 and, by December 1996, had decreased to $510 per metric ton
(based on East Coast transaction prices). In December 1996, newsprint suppliers
announced a newsprint price increase to take effect in February 1997; this
increase was delayed. The initial announcements indicated the increase would be
$75 per metric ton. The Company has been informed by its suppliers that they
will implement some portion of the announced price increase. The Company
believes that if any price increase is sustained in the industry, the Company
will also be impacted by such increase. The Company is unable to predict
whether, or to what extent, any increase will be sustained. The Company has in
the past implemented programs to reduce newsprint consumption to offset
newsprint price increases. For example, in 1995 the Company began reducing web
widths at a majority of its newspapers, which has resulted in reduced page sizes
and produced a corresponding decrease in newsprint consumption by approximately
8%. As part of its effort to control expenses, the Company actively manages its
newsprint inventory based on anticipated changes in newsprint prices and adjusts
advertising and circulation rates to offset, in part, the effects of changes in
newsprint prices. See "Risk Factors--Price and Availability of Newsprint" and
"Business--Raw Materials."
23
<PAGE>
RESULTS OF OPERATIONS
The following table presents selected combined financial information for the
years ended December 31, 1994, 1995 and 1996 and for the three months ended
March 31, 1996 and 1997 and the approximate percentage of revenues represented
thereby:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------------------------------------------- ------------------------
% OF % OF % OF % OF
1994 REVENUES 1995 REVENUES 1996 REVENUES 1996 REVENUES
--------- ------------- --------- ------------- --------- ------------- --------- -------------
(IN THOUSANDS, EXCEPT NUMBER OF NEWSPAPERS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Advertising....... $ 224,071 74.7% $ 249,534 73.6% $ 256,971 73.2% $ 58,668 71.4%
Circulation....... 65,204 21.7 73,797 21.8 79,776 22.7 19,739 24.0
--------- ----- --------- ----- --------- ----- --------- -----
Newspaper
revenues.......... 289,275 96.4 323,331 95.4 336,747 95.9 78,407 95.4
Commercial printing
and other......... 10,875 3.6 15,626 4.6 14,373 4.1 3,802 4.6
--------- ----- --------- ----- --------- ----- --------- -----
300,150 100.0 338,957 100.0 351,120 100.0 82,209 100.0
Operating expenses:
Salaries and
employee
benefits........ 105,607 35.2 110,651 32.6 111,626 31.8 28,129 34.2
Newsprint, ink and
printing
charges......... 36,481 12.2 48,243 14.2 50,110 14.3 13,190 16.1
Selling, general
and
administrative... 25,312 8.4 28,678 8.5 30,993 8.8 7,619 9.3
Depreciation and
amortization.... 18,605 6.2 19,178 5.7 20,525 5.8 4,956 6.0
Other............. 34,187 11.4 38,743 11.4 38,976 11.1 9,625 11.7
--------- ----- --------- ----- --------- ----- --------- -----
220,192 73.4 245,493 72.4 252,230 71.8 63,519 77.3
--------- ----- --------- ----- --------- ----- --------- -----
Operating income.... 79,958 26.6 93,464 27.6 98,890 28.2 18,690 22.7
Net interest and
other expense..... (42,049) (14.0) (64,028) (18.9) (56,472) (16.1) (15,743) (19.1)
--------- ----- --------- ----- --------- ----- --------- -----
Income before
provision for
income taxes and
extraordinary
item.............. 37,909 12.6 29,436 8.7 42,418 12.1 2,947 3.6
Provision for income
taxes............. 4,126 1.4 2,653 .8 14,309 4.1 994 1.2
--------- ----- --------- ----- --------- ----- --------- -----
Income before
extraordinary
items............. 33,783 11.2 26,783 7.9 28,109 8.0 1,953 2.4
Extraordinary item:
Loss on
extinguishment
of debt......... (13,100) (4.4) -- -- -- -- -- --
--------- ----- --------- ----- --------- ----- --------- -----
Net income.......... $ 20,683 6.8% $ 26,783 7.9% $ 28,109 8.0% $ 1,953 2.4%
--------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- -----
OTHER DATA:
EBITDA(1)........... $ 98,563 32.8% $ 112,642 33.2% $ 119,415 34.0% $ 23,646 28.8%
Net cash provided by
operating
activities........ $ 46,268 $ 26,778 $ 60,065 $ 8,532
Net cash used in
investing
activities........ 22,614 50,557 25,700 1,613
Net cash (used in)
provided by
financing
activities........ (33,361) 24,384 (34,441) (9,804)
Number of daily
newspapers, end of
period............ 16 17 18 17
Number of non-daily
publications, end
of period......... 68 114 118 114
<CAPTION>
% OF
1997 REVENUES
--------- -------------
<S> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues:
Advertising....... $ 60,419 72.8%
Circulation....... 19,830 23.9
--------- -----
Newspaper
revenues.......... 80,249 96.7
Commercial printing
and other......... 2,791 3.3
--------- -----
83,040 100.0
Operating expenses:
Salaries and
employee
benefits........ 28,663 34.5
Newsprint, ink and
printing
charges......... 9,130 11.0
Selling, general
and
administrative... 7,641 9.2
Depreciation and
amortization.... 5,418 6.5
Other............. 9,543 11.5
--------- -----
60,395 72.7
--------- -----
Operating income.... 22,645 27.3
Net interest and
other expense..... (12,989) (15.6)
--------- -----
Income before
provision for
income taxes and
extraordinary
item.............. 9,656 11.7
Provision for income
taxes............. 3,932 4.8
--------- -----
Income before
extraordinary
items............. 5,724 6.9
Extraordinary item:
Loss on
extinguishment
of debt......... -- --
--------- -----
Net income.......... $ 5,724 6.9%
--------- -----
--------- -----
OTHER DATA:
EBITDA(1)........... $ 28,063 33.8%
Net cash provided by
operating
activities........ $ 14,439
Net cash used in
investing
activities........ 1,193
Net cash (used in)
provided by
financing
activities........ (15,713)
Number of daily
newspapers, end of
period............ 18
Number of non-daily
publications, end
of period......... 118
</TABLE>
- ------------------------
(1) See Note (4) to "Summary Combined Financial and Operating Data."
The Company's revenues increased from $260.8 million in 1992 to $351.1
million in 1996. EBITDA has grown from $75.9 million to $119.4 million over the
same period. Growth in revenues and EBITDA was mainly attributable to
acquisitions consummated since 1993, expansion in advertising and circulation
revenues and the Company's continued focus on expense controls. During 1992 and
1993, the Company
24
<PAGE>
evaluated its intangible assets based on facts and circumstances existing at the
time. The Company's evaluation considered the outlook for the newspaper
properties it owned, its capital structure and the industry conditions existing
at the time. As a result of this evaluation, the Company reduced its intangible
assets by $119.6 million and $242.0 million in 1992 and 1993, respectively.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
The Company's results for the three months ended March 31, 1997 discussed
below include the results of the TAUNTON DAILY GAZETTE (the "Taunton
acquisition") from its acquisition date of December 13, 1996.
REVENUES. In the three months ended March 31, 1997, revenues increased
$831,000, or 1.0% to $83.0 million from $82.2 million in the first quarter of
1996. Newspaper revenues increased $1.8 million, or 2.4%, to $80.2 million in
the first quarter of 1997 from $78.4 million in the first quarter of 1996
primarily due to an increase in advertising revenues. Advertising revenues
increased $1.7 million, or 3.0%, to $60.4 million in the first quarter of 1997,
from $58.7 million in the first quarter of 1996 primarily due to volume
increases and the Taunton acquisition. Circulation revenues increased
approximately $100,000, to $19.8 million in the first quarter of 1997 from $19.7
million in the first quarter of 1996. Commercial printing and other revenues
decreased approximately $1.0 million or 26.6%, from $3.8 million in the first
quarter of 1996 to $2.8 million in the first quarter of 1997, reflecting the
continued highly competitive conditions in the commercial printing industry.
Commercial printing and other represented 3.4% of the Company's revenues in the
first quarter of 1997 compared to 4.6% in the first quarter of 1996.
SALARIES AND EMPLOYEE BENEFIT EXPENSES. In the first quarter of 1997,
salaries and employee benefit expenses accounted for 34.5% of the Company's
revenues, as compared to 34.2% in the first quarter of 1996. Salaries and
employee benefit expenses increased approximately $534,000, or 1.9%, to $28.7
million in the first quarter of 1997 from $28.1 million in the first quarter of
1996 due to the Taunton acquisition.
NEWSPRINT, INK AND PRINTING CHARGES. In the first quarter of 1997,
newsprint, ink and printing charges accounted for 11.0% of the Company's
revenues, as compared to 16.0% in the first quarter of 1996. Newsprint, ink and
printing charges decreased $4.1 million, or 30.8%, in the first quarter of 1997
to $9.1 million from $13.2 million in the first quarter of 1996, primarily as a
result of a decrease in the average price per ton of newsprint in the first
quarter of 1997 as compared to the first quarter of 1996, which accounted for
approximately $3.0 million of this decrease. The Company reduced the width of
several of its newspapers after March 31, 1996, which resulted in savings of
approximately $200,000 in the first quarter of 1997, as compared to the first
quarter of 1996. See "Business--Raw Materials." The other significant decrease
related to a reduction in commercial printing jobs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In the first quarter of 1997,
selling, general and administrative expenses accounted for 9.2% of the Company's
revenues, as compared to 9.3% in the first quarter of 1996. Selling, general and
administrative expenses for the first quarter of 1997 were basically flat
compared with the first quarter of 1996, at approximately $7.6 million in both
periods.
DEPRECIATION AND AMORTIZATION EXPENSE. In the first quarter of 1997,
depreciation and amortization expense accounted for 6.5% of the Company's
revenues, as compared to 6.0% in the first quarter of 1996. Depreciation and
amortization expense increased approximately $462,000, or 9.3%, to $5.4 million
in the first quarter of 1997 from $5.0 million in the first quarter of 1996;
this was primarily due to an increase in amortization expense primarily due to
the amortization of intangible assets, most of which related to the Taunton
acquisition.
OTHER EXPENSES. In the first quarter of 1997, other expenses accounted for
11.5% of the Company's revenues, as compared to 11.7% in the first quarter of
1996. Other expenses were basically flat for the first quarter of 1997 as
compared to the first quarter of 1996, decreasing $81,000.
25
<PAGE>
OPERATING INCOME. Operating income increased 21.2% to $22.6 million in the
first quarter of 1997 from $18.7 million in the first quarter of 1996. As a
percentage of revenues, operating income increased from 22.7% in the first
quarter of 1996 to 27.3% in the first quarter of 1997.
NET INTEREST EXPENSE. Net interest expense was approximately $12.9 million
in the first quarter of 1997, a decrease of 16.4% from net interest expense of
$15.5 million in the first quarter of 1996. The decrease of $2.5 million
reflects a decrease in average borrowing rates and an approximately $44.0
million decrease in average debt outstanding during the first quarter of 1997.
PROVISION FOR INCOME TAXES. The Company reported effective tax rates of
33.7% and 40.7% for the quarters ended March 31, 1996 and 1997, respectively. In
1996, the effective tax rate was lower than the combined federal and state
statutory rates primarily due to the recognition of tax benefits which had been
offset by a valuation allowance in previous years. See Note 5 of "Notes to
Combined Financial Statements (Unaudited)." In the first quarter of 1997, the
effective tax rate substantially approximates the combined federal and state
statutory rates. The Company intends to implement various tax strategies in the
second half of 1997 which the Company expects will result in an effective tax
rate of approximately 37% for 1998.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. In 1996, revenues increased $12.1 million, or 3.6%, to $351.1
million from $339.0 million in 1995, primarily as a result of acquisitions.
Revenues in 1995 reflect the results of operations since the 1995 acquisitions
of New England Acquisition Corp. (42 non-daily publications and one commercial
printing company), THE HERALD and THE MIDDLETOWN PRESS, as compared to the full
12 months of results for each of these acquired companies in 1996. Newspaper
revenues for operations owned during the full 12 months in both periods were
basically flat, at $304.2 million in 1995 and $304.0 million in 1996.
Advertising revenues increased $7.5 million, or 3.0%, to $257.0 million in 1996
from $249.5 million in 1995. For newspapers operated during the full 12 months
in both periods, advertising revenues declined 1.0% to $231.7 million in 1996
from $234.1 million in 1995. In 1996, advertising revenues were negatively
impacted by record-breaking snowfalls in the first quarter in the eastern United
States and the soft retail environment in such areas. Circulation revenues
increased $6.0 million, or 8.1%, to $79.8 million in 1996 from $73.8 million in
1995. For newspapers operated during the full 12 months in both periods,
circulation revenues increased $2.2 million or 3.3%, from $70.1 million in 1995
to $72.3 million in 1996, as a result of increased subscription and single copy
rates. Commercial printing and other revenues decreased $1.2 million or 8.0%,
from $15.6 million in 1995 to $14.4 million in 1996, reflecting highly
competitive conditions in the commercial printing industry offset, in part, by a
full year of revenues in 1996 attributable to the commercial printing business
acquired in 1995. Commercial printing and other revenues represented 4.1% of the
Company's revenues in 1996.
SALARIES AND EMPLOYEE BENEFIT EXPENSES. In 1996, salaries and employee
benefit expenses accounted for 31.8% of the Company's revenues, as compared to
32.6% in 1995. Salaries and employee benefit expenses increased $1.0 million to
$111.6 million in 1996 from $110.6 million in 1995, primarily as a result of the
1995 acquisitions, which added approximately 450 full-time and 240 part-time
employees. For operations owned during the full 12 months in both periods,
salaries and employee benefit expenses decreased $5.2 million or 5.1% in 1996 as
compared to 1995, due to a reduction in the number of employees resulting from
operating efficiencies.
NEWSPRINT, INK AND PRINTING CHARGES. In 1996, newsprint, ink and printing
charges accounted for 14.3% of the Company's revenues, as compared to 14.2% in
1995. Newsprint, ink and printing charges increased $1.9 million, or 3.9%, in
1996 to $50.1 million from $48.2 million in 1995, as a result of the 1995
acquisitions. For operations owned during the full 12 months in both periods,
newsprint, ink and printing charges were basically flat, at $43.5 million in
1995 and $43.4 million in 1996, primarily due to an increase of approximately
3.0% in newsprint expense (excluding paper consumed in the Company's commercial
printing operations) offset by a decrease in commercial printing expense. The
3.0% increase in newsprint
26
<PAGE>
expense is a result of a 13.0% increase in the average price of newsprint offset
by a decrease in volume. The consumption decrease was primarily related to
web-width reductions at a majority of the Company's newspapers which reduced
page sizes and produced a corresponding decrease in newsprint consumption of
approximately 8%. The Company also reduced fringe circulation, as it is the
Company's belief that such circulation does not provide adequate response for
advertisers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In 1996, selling, general,
and administrative expenses accounted for 8.8% of the Company's revenues, as
compared to 8.5% in 1995. Selling, general and administrative expenses increased
$2.3 million, or 8.1%, to $31.0 million in 1996 from $28.7 million in 1995,
primarily due to acquisitions. For operations owned during the full 12 months in
both periods, selling, general and administrative expenses increased $413,000 or
1.5%, from $26.7 million to $27.1 million.
DEPRECIATION AND AMORTIZATION EXPENSE. In 1996, depreciation and
amortization expense accounted for 5.8% of the Company's revenues, as compared
to 5.7% in 1995. Depreciation and amortization expense increased $1.3 million,
or 7.0%, to $20.5 million in 1996 from $19.2 million in 1995, primarily as a
result of acquisitions made during the period.
OTHER EXPENSES. In 1996, other expenses accounted for 11.1% of the
Company's revenues, as compared to 11.4% in 1995. Other expenses increased
$233,000, or .6%, to $39.0 million in 1996 from $38.8 million in 1995. For
operations owned during the full 12 months in both periods, other expenses
decreased $2.5 million, or 7.1%, from $35.1 million to $32.6 million primarily
as a result of cost controls related to the Company's clustering strategy.
OPERATING INCOME. Operating income increased 5.8% to $98.9 million in 1996
from $93.5 million in 1995. As a percentage of revenues, operating income
increased from 27.6% in 1995 to 28.2% in 1996 primarily for the reasons
discussed above.
NET INTEREST EXPENSE. Net interest expense was $56.3 million in 1996, an
11.1% decrease from $63.3 million in 1995. The decrease of $7.0 million
reflected a decrease in average borrowing rates and a decrease in average debt
outstanding during 1996 of approximately $18.0 million.
PROVISION FOR INCOME TAXES. The Company reported effective tax rates of
9.0% in 1995 and 33.7% in 1996, which were lower than the combined federal and
state statutory rates. In both years, this was primarily due to the recognition
of tax benefits which had been offset by a valuation allowance in previous
years. See Note 7 of "Notes to Combined Financial Statements." The Company
expects to report an effective tax rate which is higher than those effective
rates previously reported, but lower than the combined federal and state
statutory rates as a result of the various tax strategies which the Company
intends to implement.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. In 1995, revenues increased $38.8 million, or 12.9%, to $339.0
million from $300.2 million in 1994, primarily as a result of acquisitions and
advertising and circulation rate increases. Revenues in 1994 reflect the results
of operations since the 1994 acquisition of THE BRISTOL PRESS, as compared to
the full 12 months of results for this company in 1995. Revenues in 1995 reflect
the results of operations since the 1995 acquisitions of New England Acquisition
Corp., THE HERALD and THE MIDDLETOWN PRESS. Newspaper revenues for operations
owned during the full 12 months in both periods, increased $13.0 million, or
4.6% from $283.7 million to $296.7 million. Advertising revenues increased $25.4
million, or 11.4%, to $249.5 million in 1995 from $224.1 million in 1994
primarily due to the results of acquisitions and rate increases. For newspapers
operated during the full 12 months in both periods, advertising revenues
increased $9.1 million, or 4.2%, due to an increase in rates of approximately
6.7% offset by a volume decrease of approximately 2.5%. Circulation revenues
increased $8.6 million, or 13.2%, to $73.8 million in 1995 from $65.2 million in
1994. For newspapers operated during the full 12 months in both periods,
circulation
27
<PAGE>
revenues increased $3.9 million, or 6.1%, from $63.8 in 1994 to $67.7 million in
1995 as a result of increased prices and the introduction in the first quarter
of 1994 of Sunday editions for the two newspapers acquired in 1993, THE TIMES
HERALD and THE REGISTER CITIZEN.
SALARIES AND EMPLOYEE BENEFIT EXPENSES. In 1995, salaries and employee
benefit expenses accounted for 32.6% of the Company's revenues, as compared to
35.2% in 1994. Salaries and employee benefit expenses increased $5.0 million, or
4.8%, to $110.6 million in 1995 from $105.6 million in 1994 as a result of
acquisitions during both periods. The acquisitions in 1994 and 1995 increased
the number of employees by approximately 525 full-time and 260 part-time. For
operations owned during the full 12 months in both periods, salaries and
employee benefit expenses decreased $3.6 million, or 3.4%, in 1995 as compared
to 1994, due to a reduction in the number of employees resulting from operating
efficiencies.
NEWSPRINT, INK AND PRINTING CHARGES. In 1995, newsprint, ink and printing
charges accounted for 14.2% of the Company's revenues, as compared to 12.2% in
1994. Newsprint, ink and printing charges increased $11.7 million, or 32.2%, to
$48.2 million in 1995 from $36.5 million in 1994, as a result of higher average
newsprint prices and increased paper expense related to the commercial printing
operation acquired in May 1995, partially offset by decreased consumption. For
operations owned during the full 12 months in both periods, newsprint, ink and
printing charges increased $6.3 million, or 17.7%, from $36.1 million in 1994 to
$42.4 million in 1995 resulting from an approximately 33.0% increase in the
price per ton of newsprint partially offset by a decrease in consumption of
approximately 6.0% and a decrease in commercial printing expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In 1995, selling, general and
administrative expenses accounted for 8.5% of the Company's revenues, as
compared to 8.4% in 1994. Selling, general and administrative expenses increased
$3.4 million, or 13.3%, to $28.7 million in 1995 from $25.3 million in 1994, due
to acquisitions. For operations owned during the full 12 months in both periods,
selling, general and administrative expenses increased $1.1 million, or 4.8%,
from $24.8 million to $25.9 million.
DEPRECIATION AND AMORTIZATION EXPENSE. In 1995, depreciation and
amortization expense accounted for 5.7% of the Company's revenues, as compared
to 6.2% in 1994. Depreciation and amortization expense increased approximately
$573,000, or 3.1%, to $19.2 million in 1995 from $18.6 million in 1994,
primarily as a result of acquisitions made during the period.
OTHER EXPENSES. In 1995, other expenses accounted for 11.4% of the
Company's revenues, which was the same as in 1994. Other expenses increased $4.5
million, or 13.3%, to $38.7 million in 1995 from $34.2 million in 1994,
primarily due to acquisitions. For operations owned during the full 12 months in
both periods, other expenses increased $1.1 million, or 3.3%, from $32.9 million
to $34.0 million due, in part, to increased distribution expenses.
OPERATING INCOME. Operating income increased 16.9% to $93.5 million in 1995
from $80.0 million in 1994. As a percentage of revenues, operating income
increased from 26.6% in 1994 to 27.6% in 1995 primarily for reasons discussed
above.
NET INTEREST EXPENSE. Net interest expense was $63.3 million in 1995, a
52.7% increase over net interest expense of $41.5 million in 1994. The increase
of $21.8 million reflected approximately $70.2 million higher average debt
outstanding in 1995 related to the redemption of preferred stock, acquisitions,
and an increase in average borrowing rates.
PROVISION FOR INCOME TAXES. The Company reported effective tax rates of
10.8% in 1994 and 9.0% in 1995, which were lower than the combined federal and
state statutory rates. In both years, this was primarily a result of the
reversal of certain temporary differences as well as the use of federal and
state net operating loss carryforwards. The related deferred tax benefits had
been offset by a valuation allowance in previous years. See Note 7 of "Notes to
Combined Financial Statements."
28
<PAGE>
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly financial data
for each of the past nine quarters ended March 31, 1997. Operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
1995 1996 1997
------------------------------------------ ------------------------------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR 2ND QTR 3RD QTR 4TH QTR 1ST QTR
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $ 73,101 $ 85,690 $ 87,002 $ 93,164 $ 82,209 $ 90,367 $ 86,630 $ 91,914 $ 83,040
Operating income......... 17,257 25,825 23,026 27,356 18,690 25,926 24,479 29,795 22,645
Net income............... 2,415 9,639 6,387 8,342 1,953 7,967 6,855 11,334 5,724
EBITDA(1)................ 21,690 30,447 27,962 32,543 23,646 31,228 29,416 35,125 28,063
EBITDA Margin............ 29.7% 35.5% 32.1% 34.9% 28.8% 34.6% 34.0% 38.2% 33.8%
</TABLE>
- ------------------------
(1) See Note (4) to "Summary Combined Financial and Operating Data."
Newspaper companies tend to follow a distinct and recurring seasonal
pattern. The first quarter of the year (January-March) tends to be the weakest
quarter because advertising volume is then at its lowest level. Correspondingly,
the fourth quarter (October-December) tends to be the strongest quarter as it
includes heavy holiday season advertising. The timing of acquisitions has also
affected quarterly operating results. In addition, advertising and circulation
revenues for the Company were adversely affected in 1996 by record-breaking
snowfalls in the eastern United States and the soft local retail environments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have historically generated strong positive cash
flow. The Company believes cash flow from operations will be sufficient to fund
its operations, capital expenditures and long-term debt obligations. The Company
believes that cash flow from operations and future borrowings, if available, and
its ability to issue Common Stock as consideration for future acquisitions, will
provide it with the flexibility to fund its acquisition strategy while
continuing to meet its operating needs, capital expenditures and long-term debt
obligations. See "Business--Legal Proceedings" and "Business-- Environmental
Matters."
CASH FLOWS FROM OPERATIONS. Net cash provided by operating activities
totaled $14.4 million in the quarter ended March 31, 1997 as compared to $8.5
million in the quarter ended March 31, 1996. This increase of $5.9 million was
due primarily to the increase in net income and a net increase in payables. Net
cash provided by operating activities totaled $60.1 million in 1996 as compared
to $26.8 million in 1995. This increase of $33.3 million was related primarily
to a decrease in newsprint inventory and a net increase in payables.
CASH FLOWS FROM INVESTING ACTIVITIES. Capital expenditures totaled
approximately $1.5 million in the quarter ended March 31, 1997 and $1.6 million
in the quarter ended March 31, 1996. The Company's capital expenditure programs
(excluding acquisitions) totaled $7.7 million in 1996, $4.9 million in 1995 and
$8.3 million in 1994. The Company has a capital expenditure program (excluding
acquisitions) of approximately $9.0 million planned for 1997, which will include
spending on technology, including prepress and business systems; computer
hardware; other machinery and equipment; plant and properties; and vehicles and
other assets. The Company believes its capital expenditure program is sufficient
to maintain its current level and quality of operations. The Company reviews its
capital expenditure program periodically and modifies it as required to meet
current needs. It is expected that the 1997 capital expenditure program will be
funded from operating cash flow. The success of the Company's operations in
Philadelphia and surrounding areas may necessitate the construction of a
centralized production facility within the next two to three years. Costs for
this facility are estimated to be $25.0 million overall. The Company expects to
fund this construction project with cash flow from operations and borrowings.
29
<PAGE>
The Company has been able to maintain a low ratio of capital expenditures to
depreciation and amortization expenses due to its: (i) maintenance program for
existing presses and facilities; (ii) ability to transfer redundant presses,
mechanical and computer equipment and other capital items among the Company's
locations; and (iii) strategy of evaluating acquisitions partially based on the
condition of the facilities and production equipment. In 1996, the Company had
capital expenditures of $7.7 million and depreciation and amortization of $20.5
million.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash used in financing activities
was $15.7 million in the quarter ended March 31, 1997 and $9.8 million in the
quarter ended March 31, 1996. Long-term debt repayments of $16.5 million were
made from cash flow during the quarter ended March 31, 1997. Net cash (used in)
provided by financing activities was ($34.4) million during 1996 and $24.4
million during 1995. Long-term debt reflects debt repayments totaling
approximately $55.7 million from cash flow during 1996, offset by borrowings
under the Revolver for the December 1996 acquisition of the TAUNTON DAILY
GAZETTE. As of December 31, 1996, the Company had $653.9 million of outstanding
debt which is due and payable in installments through 2003. Of the Company's
outstanding indebtedness at December 31, 1996, $119.0 million was outstanding
under the Revolver. As of December 31, 1996, the Company had $26.0 million
unused and available under the Revolver. Borrowings under the Revolver are to be
repaid by 2003 and at December 31, 1996, interest was calculated at 2.0% above
LIBOR for substantially all borrowings under the Revolver.
As of March 31, 1997, after giving effect to the Offerings, the use of
proceeds therefrom and the payment of the Management Bonuses, the Company would
have had outstanding indebtedness of $516.1 million.
The Company manages its exposure to interest rate fluctuations for its
variable rate debt by entering into interest rate protection agreements. The
Company is required under its Credit Agreement to have interest rate protection
for a minimum of 50.0% of its outstanding balance under the Credit Agreement.
During 1996, the Company entered into interest rate swap and collar agreements.
During 1996, the Company's weighted average effective interest rate on its
outstanding balance was 8.4%. This takes into account the interest rate
protection agreements in effect during 1996. The Company has similar interest
rate protection agreements in place for 1997.
The following sets forth the material terms of the Company's credit
agreement (as the Company expects it will be amended and restated, the "Credit
Agreement").
Substantially concurrent with the completion of the Offerings, the Company
will enter into the amended and restated Credit Agreement with the banks and
other financial institutions signatories thereto (collectively, the "Banks") and
The Chase Manhattan Bank, as agent for the Banks. The Credit Agreement provides
for the $398.0 million Term Loan and the $235.0 million Revolver. See
"Underwriters." The Term Loan matures on December 31, 2002, and the Revolver
matures on December 31, 2003.
The aggregate annual maturities of long-term debt payable under the Term
Loan are as follows:
<TABLE>
<S> <C>
1997........................................................ $33,105,000(1)
1998........................................................ 57,060,000
1999........................................................ 65,730,000
2000........................................................ 74,650,000
2001........................................................ 83,340,000
Thereafter.................................................. 84,110,000
</TABLE>
- ------------------------
(1) Does not include $13,535,000 of principal payments scheduled and paid in
March 1997 prior to the execution of the Credit Agreement.
The Revolver has a step-down of availability of $40.0 million on each of
December 31, 2000, 2001 and 2002. The final $115.0 million of availability
expires and, if outstanding, is due on December 31, 2003.
30
<PAGE>
Generally, the Company may repay drawdowns on the Revolver without penalty
or premium. Prepayments are required in the event of certain dispositions,
equity issuances and incurrences of subordinated indebtedness. In addition,
commencing in the year 2000, the Credit Agreement requires a mandatory
prepayment of the debt equal to 50% of the prior year's Excess Cash Flow (as
defined in the Credit Agreement).
The Senior Facilities are secured by substantially all of the assets of the
Company and the common stock and assets of the Company's subsidiaries.
The amounts outstanding under the Senior Facilities bear interest at (i)
1/4% to 0% above the higher of the Prime Rate or 1/2% above the Federal Funds
Rate or (ii) 1 1/2% to 1/2% above LIBOR. The interest rate spreads are dependent
upon the debt to twelve months trailing cash flow ratio (as defined in the
Credit Agreement) and reduce as such ratio declines.
An annual commitment fee of 3/8% to 1/4% is incurred on the unused portion
of the commitment under the Revolver. The commitment fee spreads are dependent
upon the debt to twelve months trailing cash flow ratio and reduce as such ratio
declines.
The Credit Agreement requires the Company to maintain interest rate
protection for at least 50% of the outstanding debt in order to manage interest
rate risk. The Credit Agreement contains certain financial covenants, including,
but not limited to, a minimum fixed charge coverage test, a minimum interest
coverage test and a total debt to cash flow ratio test. In addition, the Credit
Agreement contains other customary affirmative and negative covenants relating
to (among other things) limitations on other indebtedness, liens, investments,
restricted payments, dividends, redemption of stock, mergers and acquisitions,
certain changes in control, sales of assets, capital expenditures,
sale-leasebacks, insurance, mortgages, transactions with affiliates and conduct
of business, with customary exceptions and baskets. The Credit Agreement
contains customary events of default, including failure to make payments when
due, defaults under other agreements or instruments of indebtedness,
noncompliance with covenants, breaches of representations and warranties,
bankruptcy, receivership, judgments in excess of specified amounts, impairment
of security interests in collateral and certain changes of control. See Notes 4
and 11 of "Notes to Combined Financial Statements."
MANAGEMENT BONUS PLAN
In recognition of certain management employees' prior services to the
Company, the Company intends to adopt a bonus plan (the "Management Bonus Plan")
to pay one-time special bonuses (each, a "Management Bonus" and collectively,
the "Management Bonuses"), upon pricing of the Offerings. The Management Bonuses
are expected to be comprised of 1,100,000 shares of Common Stock (the "Bonus
Shares"), at the Price to Public, and a cash portion that the Company expects
will be used to satisfy recipients' tax obligations arising from the Management
Bonuses. Each Management Bonus is expected to be comprised of approximately 45%
cash and 55% Common Stock. If the Price to Public is $16, the Management Bonuses
are expected to total $32.0 million, comprised of $17.6 million in shares of
Common Stock and $14.4 million in cash. The Management Bonuses will be paid to
37 employees of the Company, none of whom is an affiliate of Warburg, Pincus.
Assuming a Price to Public of $16, Mr. Jelenic, Ms. Clifton, Messrs. Rush and
Mailman and Ms. Dresser, the chief executive officer and four other most highly
compensated executive officers of the Company (see "Management--Executive
Compensation"), will receive Management Bonuses with a total value of
approximately $11.7 million, $5.9 million, $1.3 million, $1.3 million and $1.3
million, respectively.
The Company expects to incur a charge to pre-tax earnings of approximately
$35.0 million in the second quarter of 1997. The Management Bonuses are expected
to account for approximately $32.0 million of such charge, assuming a Price to
Public of $16. The charge relating to Management Bonuses will depend on the
Price to Public. For each dollar change in the Price to Public, the pre-tax
charge will change by $2.0 million. The discontinuation of the StarShare Plan
will account for approximately $3.0 million of such charge. See "Risk
Factors--Charge to Second Quarter Earnings,"
31
<PAGE>
"Management--Compensation Pursuant to Plans--Management Bonus Plan,"
"Management--Executive Compensation" and "Certain Transactions."
RECENT ACQUISITIONS
During 1995 and 1996, the Company acquired four newspaper properties
including three daily newspapers and 48 non-daily publications. Management based
their acquisition decisions on the target's cash flow potential, fit with the
Company's clustering approach, position within applicable circulation area,
potential to increase revenues, state of plant and equipment, and potential for
expense reduction. The Company obtained appraisals for the subscription lists
for two of these acquisitions, and the remaining assets of such acquired
properties were valued based on internal valuations of the Company. The assets
of the other two acquisitions were valued based on internal valuations of the
Company. The following sets forth these acquisitions: (i) on December 13, 1996,
the Company acquired for approximately $18.0 million certain assets and
liabilities of the TAUNTON DAILY GAZETTE; (ii) on May 5, 1995, the Company
acquired for $31.0 million certain assets and liabilities of New England
Acquisition Corp. (42 non-daily publications and one commercial printing
company); (iii) on June 21, 1995, the Company acquired the stock of THE HERALD
(New Britain) for $11.0 million plus the assumption of certain noncurrent
liabilities; (iv) on August 31, 1995, the Company acquired for $5.5 million
certain assets and liabilities of THE MIDDLETOWN PRESS. The cost of each of
these acquisitions was funded through a combination of borrowings and available
cash.
INFLATION
The Company's results of operations and financial condition have not been
significantly affected by inflation. Subject to normal competitive conditions,
the Company generally has been able to pass along rising costs through increased
advertising and circulation rates.
32
<PAGE>
BUSINESS
GENERAL
The Company is a leading U.S. newspaper publisher, with total paid daily
circulation of approximately 556,000 and total non-daily distribution of
approximately 2.7 million. The Company owns and operates 18 daily newspapers and
118 non-daily publications strategically clustered in five geographic areas:
Connecticut; Ohio; Philadelphia and its surrounding areas; the greater St. Louis
area; and central New England. The Company's newspapers are characterized by an
intense focus on coverage of local news and sports and offer compelling graphic
design in colorful, reader-friendly packages.
Since 1993, the Company has successfully completed seven strategic
acquisitions, acquiring six daily newspapers, 52 non-daily publications and one
commercial printing company. The Company has generally increased the revenues
and significantly increased the cash flow and profitability of its acquired
newspapers. For the fiscal year ended December 31, 1996, the Company generated
revenues of $351.1 million, EBITDA of $119.4 million, net income of $28.1
million and pro forma net income, as adjusted, of $36.3 million. In 1996, the
Company's EBITDA as a percentage of revenues was approximately 34%, representing
the sixth consecutive year of improvement in its EBITDA Margin. From 1992
through 1996, the Company recorded compound annual growth in revenues and EBITDA
of approximately 8% and 12%, respectively. The Company has achieved this growth
through a combination of expanding revenues in existing geographic areas,
strategic acquisitions and implementing cost controls and ongoing expense
reduction efforts at existing and acquired newspapers.
The majority of the Company's daily newspapers have been published for more
than 100 years and are established franchises with strong identities in the
communities they serve. For example, the NEW HAVEN REGISTER, the Company's
largest newspaper based on daily circulation, has roots in the New Haven,
Connecticut area dating back to 1755. In many cases, the Company's daily
newspapers are the only general circulation daily newspapers published in their
respective communities. The Company's non-daily publications serve well defined
suburban circulation areas and include the JOURNALS, the largest group of weekly
newspapers in the United States based on total distribution.
The Company manages its newspapers to best serve the needs of its local
readers and advertisers. The editorial content of its newspapers is tailored to
the specific interests of each community served and includes coverage of local
youth, high school, college and professional sports, as well as local business,
politics, entertainment, and culture. The Company maintains high product quality
standards, using extensive process color and compelling graphic design to
attract new readers and to more fully engage existing readers. The Company's
newspapers typically are produced using advanced prepress pagination technology
and are printed on efficient, high-speed presses.
The Company's revenues are derived from advertising (approximately 73% of
1996 revenues), paid circulation, including single copy sales and prepaid
subscriptions (23%), and commercial printing and other (4%). The Company's
advertiser base is predominantly local. The Company's newspapers seek to produce
desirable results for local advertisers by targeting readers based on certain
geographic and demographic characteristics. The Company seeks to increase
readership, and thereby generate traffic for its advertisers, by focusing on
high product quality, local content and creative and interactive promotions. The
Company promotes single copy sales of its newspapers because it believes that
such sales have higher readership than subscription sales and that single copy
readers tend to be more active consumers of goods and services, as indicated by
a recent NAA study. Single copy sales also tend to generate higher profits than
subscription sales, as single copy sales generally have higher per unit prices
and lower associated distribution costs. Subscription sales, which provide
readers with the convenience of home delivery, are an important component of the
Company's circulation base. The Company also publishes numerous special sections
and niche and special interest publications. Such publications tend to increase
readership within targeted demographic groups and geographic areas. The Company
believes that as a result of these strategies, its newspapers represent an
attractive and cost-effective medium for its readers and advertisers.
33
<PAGE>
The Company's advertising revenues in 1996 were derived primarily from a
broad group of local retailers (approximately 58%) and classified advertisers
(approximately 38%). No advertiser accounted for more than 2% of the Company's
1996 advertising revenues. The Company believes that because its newspapers rely
on a broad base of local retail and local classified advertising rather than
more volatile national and major account advertising, its advertising revenues
tend to be relatively stable.
Substantially all of the Company's operations relate to newspaper
publishing. In addition to its daily newspapers and non-daily publications, the
Company owns other businesses that complement and enhance its publishing
operations, consisting of three commercial printing operations as well as a
company which develops application software for the newspaper industry.
INDUSTRY OVERVIEW
Newspaper publishing is one of the oldest and largest segments of the media
industry. Newspapers are an important medium for local advertising, accounting
for approximately 22% of all media advertising expenditures in 1996 according to
preliminary information provided by the NAA. The newspaper industry in the
United States is comprised of the following segments: national and major
metropolitan dailies; small metropolitan and suburban dailies; and suburban and
community non-dailies. The Company is in the business of operating small
metropolitan and suburban daily newspapers and suburban and community non-daily
newspapers.
In many communities, the local newspaper provides a combination of social
and economic linkages which make it attractive for readers and advertisers
alike. The Company believes that small metropolitan and suburban dailies as well
as suburban and community non-dailies and similar publications are generally
effective in addressing the needs of local readers and advertisers under widely
varying economic conditions, and thereby provide relatively stable revenues and
cash flow. The Company believes that because small metropolitan and suburban
daily newspapers rely on a broad base of local retail and local classified
advertising rather than more volatile national and major account advertising,
their advertising revenues tend to be relatively stable. In addition, the
Company believes such newspapers tend to publish information which is of
particular interest to the local reader and which national and major
metropolitan newspapers, television and radio generally do not report to the
same extent. Most small metropolitan and suburban daily newspapers are the only
daily local newspaper in the communities they serve. Further, the Company
believes that relatively few daily newspapers have been established in recent
years due to the high cost of starting a daily newspaper operation and building
a franchise identity.
Free circulation "total market coverage" publications ("TMC") and shoppers
are often published primarily to supplement the circulation and penetration of
daily newspapers and, to some extent, non-daily newspapers. These publications
provide nearly 100% penetration in their areas of distribution when combined
with the circulation of the newspaper serving such geographic area and generally
derive revenues solely from advertising. These publications typically have
limited or no news or editorial content.
The newspaper industry has recently begun to offer on-line versions of
newspapers which many publishers, including the Company, believe will provide
the opportunity for newspaper companies to broaden their presence within areas
served, to leverage franchise identity and to build advertising revenues. Since
1995, the Company has published an on-line version of the NEW HAVEN REGISTER.
The Company currently plans to establish an on-line editorial presence and a
full on-line classified advertising service for each of its daily newspapers and
the JOURNALS by the end of 1997. The Company has to date developed and
maintained, and believes it can significantly expand, its on-line presence with
minimal capital expenditures.
STRATEGY
The Company's objective is to continue its growth in revenues, cash flow,
profitability and net income. The principal elements of the Company's strategy
are to: (i) expand advertising revenues and readership; (ii) grow by
acquisition; (iii) capture synergies from geographic clustering; and (iv)
implement consistent operating policies and standards.
34
<PAGE>
- EXPAND ADVERTISING REVENUES AND READERSHIP. The Company focuses on
increasing advertising and circulation revenues and expanding readership
at its existing and newly acquired properties. More specifically, the
Company seeks to:
INCREASE ADVERTISING REVENUES. Much attention and effort is devoted to
increasing the advertising revenues of individual newspapers through a
combination of special promotions, market research, presentations and
sales training, as well as cross-selling opportunities within geographic
clusters. The Company seeks to attract new advertisers and increase the
level of advertising from existing accounts. Its sales strategies
primarily involve programs designed to expand advertisers' reach and
penetration in desirable geographic areas or to target specific
demographic groups. These programs emphasize the cross-selling of
advertising into the Company's other newspapers located within the same
geographic cluster; the publication of special sections and niche and
special interest publications which allow advertisers to target specific
demographic groups; the development of new advertising positions such as
front-page "skyboxes"; and the expansion of advertising positions which
allow the use of full color.
EXPAND READERSHIP. The Company continually seeks to improve its
publications in order to attract new readers and to more fully engage
existing readers. These quality enhancements have included, among others:
converting from afternoon to morning publication; upgrading and expanding
printing facilities and printing presses; increasing the use of color and
color photographs, including their use on all section front pages, and in
many cases, on additional pages within the newspaper; continually
improving graphic design and, when appropriate, implementing complete
redesigns; adding reader services such as mutual fund listings, complete
listings of stock market quotations and highlighting local stocks of
interest; introducing color weather maps and complete entertainment
sections; introducing new editions zoned to particular geographic areas
and the selective opening of news bureaus to support the zoned editions;
developing Newspaper in Education programs which bring newspapers into
the classroom; and developing creative and interactive promotional
campaigns, often in partnership with its local advertisers.
LAUNCH NEW PRODUCTS. The Company focuses on introducing new products to
increase readership and advertising revenues at each of its existing
properties. New products have historically included both paid and
non-paid circulation publications. New paid publications include Sunday
editions of daily newspapers and new non-daily newspapers. Other new
products include more frequent publication of non-daily newspapers; zoned
editions of daily newspapers; niche publications covering subjects of
interest to residents of particular geographic areas and members of
particular demographic groups; special interest publications covering
subjects such as children and parenting, employment, health, seniors and
real estate; and shoppers.
EXPAND ON-LINE PRESENCE. The Company seeks to increase its overall
readership in the geographic areas it serves, leverage its franchise
identity and build advertising revenues through expanding its on-line
presence. Since 1995, the Company has published an electronic version of
the NEW HAVEN REGISTER, which the Company believes has become an
important source of news and information about Connecticut on the
Internet (http://www.ctcentral.com). The Company currently plans to
establish an on-line editorial presence and a full on-line classified
advertising service for each of its daily newspapers and the JOURNALS by
the end of 1997. The Company has to date developed, and believes it can
significantly expand, its on-line presence with minimal capital
expenditures.
- GROW BY ACQUISITION. Since 1993, the Company has completed seven strategic
acquisitions and has generally increased the revenues and significantly
increased the cash flow and profitability of its acquired newspapers. The
Company seeks to acquire properties at attractive prices on favorable
purchase terms and which satisfy several of the following criteria: (i)
established publication with loyal readership; (ii) leading position
within a well-defined circulation area; (iii) potential for increases in
advertising and circulation revenues; (iv) well-equipped plants; (v)
potential for
35
<PAGE>
expense reduction; and (vi) synergies with the Company's existing
geographic clusters or with other potential acquisitions. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Recent Acquisitions."
Following the acquisition of a publication, the Company seeks to implement
product improvements and expense reductions quickly and efficiently.
Typically, improvements are aimed at increasing readership, enhancing
advertising and circulation revenues and increasing profitability. Such
improvements have historically included: (i) increased coverage of local
news and sports; (ii) product redesigns; (iii) increased paging, sections
and use of color and color photographs; (iv) the addition of daily
business sections with full stock market price listings, color weather
maps, Sunday editions, zoned editions and morning publication; and (v)
creative and interactive promotional campaigns. The Company also seeks to
reduce expenses by implementing operating policies and standards, many of
which are similar to those in use at existing properties.
The Company seeks to acquire publications located within its existing
geographic clusters. However, the Company may acquire publications not
located within existing clusters, but which, in turn, could form the bases
of new clusters. The Company believes that there are sufficient potential
acquisition candidates to justify the continued pursuit of its acquisition
strategy. However, the Company is unable to predict the number or timing
of future acquisition opportunities or whether such opportunities will
meet the Company's acquisition criteria set forth in clauses (i) through
(vi) in the second preceding paragraph.
Historically, the Company has financed acquisitions through cash on hand
and/or borrowings and anticipates that it will finance future acquisitions
through cash on hand, borrowings and/or issuances of capital stock. The
Credit Agreement contains certain restrictions on sources of financing for
acquisitions. In addition, the financial covenants contained in the Credit
Agreement may limit the Company's ability to make acquisitions. The
Company does not currently have pending any agreements, negotiations or
understandings with respect to material acquisitions pending consummation
of the Offerings or otherwise. See "Risk Factors--Acquisition Strategy"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Liquidity and Capital Resources."
- CAPTURE SYNERGIES FROM GEOGRAPHIC CLUSTERING. The Company's strategy of
clustering newspapers and other operations has resulted in significant
synergies and cost savings within each cluster, including cross-selling of
advertising, centralized news-gathering and consolidation of certain
production functions, primarily printing. Such synergies and cost savings
have resulted in the cost effective introduction of new products and
services, improved printing quality, expanded paging and improved
distribution.
- IMPLEMENT CONSISTENT OPERATING POLICIES AND STANDARDS. The Company has
developed certain operating policies and standards which it believes have
resulted in significant improvements in the cash flow and profitability of
existing and acquired newspapers. These policies and standards include,
among others:
FOCUS ON LOCAL CONTENT. Each newspaper has a strong focus on coverage of
local news and sports, tailored to the communities it serves.
Substantially all of the Company's daily newspapers publish a minimum of
24 pages in a minimum of four sections, and each section has a process
color front page. The editorial content emphasizes key issues and topics
of interest to the local community, and includes coverage of local youth,
high school, college and professional sports, as well as local business,
politics, entertainment and culture. The newspapers typically include
complete listings of stock market quotations and stocks of local
interest, color weather maps, entertainment sections, and in many cases,
are zoned to serve more fully particular geographic segments of their
circulation areas.
36
<PAGE>
MAINTAIN AND IMPROVE PRODUCT QUALITY. The Company focuses on optimizing
its production resources to reduce costs and increase quality, with an
emphasis on capturing production synergies within each cluster of
operations. The Company maintains high standards of product quality
through offset printing, extensive use of process color and design
excellence. The Company's newspapers are typically produced using
advanced prepress pagination technology, which allows design flexibility
as well as high quality reproduction of color graphics. The Company
believes that its product quality, combined with its emphasis on local
content, attract new readers and increase effectiveness for advertisers.
ENHANCE DISTRIBUTION AND CUSTOMER SERVICE. Substantially all of the
Company's daily newspapers have morning distribution. The Company
implements comprehensive customer service and quality control programs to
ensure that its newspapers are delivered complete, on time and in good
condition. The Company promotes single copy sales because it believes
that such sales have higher readership than subscription sales and that
single copy readers tend to be more active consumers of goods and
services, as indicated by a recent NAA study. In addition, the Company
tracks rates of newspaper returns and customer service calls through
formal reports, which are reviewed weekly in an effort to optimize the
number of newspapers available for sale and to improve delivery and
customer service. The Company further implements carrier retention
programs to enhance delivery of its newspapers and utilizes distribution
methods which make its newspapers readily available to customers.
FACILITATE MARKETING AND PROMOTION. The Company's marketing programs
include third party market research; sophisticated value-added sales
presentations; special section and niche and special interest publication
development; and creative and interactive promotional campaigns designed
to encourage strong reader involvement and generate traffic for
advertisers. In many cases, the Company develops campaigns in partnership
with local advertisers which seek to increase traffic for the advertiser
and readership of the Company's newspapers.
IMPLEMENT FINANCIAL CONTROLS. For each of its operations, the Company's
corporate management team utilizes a detailed annual budgeting process,
reviews complete monthly financial statements and maintains strict cost
controls. The Company also strives to maintain low overhead expenses and
centrally purchases, among other things, newsprint, ink, office equipment
and supplies, production equipment and telecommunication services.
PROMOTE COMMUNITY INVOLVEMENT. The Company believes that each of its
newspapers is an integral part of the communities it serves. Local
management often participates on the boards of directors of local
institutions; newspaper staff identify and address community issues; and,
in many cases, management and employees also champion local service
organizations, both editorially and through direct personal involvement.
OVERVIEW OF OPERATIONS
The Company's operations are currently clustered in five geographic areas:
CONNECTICUT. The Company owns the NEW HAVEN REGISTER, an approximately
100,000 circulation daily newspaper, four suburban daily newspapers, 51
non-daily publications and one commercial printing company. The suburban daily
newspapers in this cluster are THE HERALD (New Britain), THE BRISTOL PRESS, THE
REGISTER CITIZEN (Torrington) and THE MIDDLETOWN PRESS. The five daily
newspapers have aggregate daily and Sunday circulation of approximately 172,000
and 186,000, respectively. The 51 suburban and community non-daily publications
have aggregate distribution of approximately 675,000. Combined, the Company's
Connecticut daily newspapers and non-daily publications serve a state-wide
audience with concentrations in the northwest (Litchfield County) through
Hartford and its suburban areas to the greater New Haven area and the
Connecticut shoreline from New Haven northeast to New London. The Connecticut
cluster accounted for approximately 35% of the Company's 1996 revenues.
37
<PAGE>
The following table sets forth information regarding the Company's
publications in Connecticut:
<TABLE>
<CAPTION>
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- -------------------------- ----------------- ------------- --------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NEW HAVEN REGISTER........ 1755 1989 New Haven 100,102 116,936
THE HERALD................ 1881 1995 New Britain 28,061 56,370(4)
THE BRISTOL PRESS......... 1871 1994 Bristol 18,238 --(4)
THE REGISTER CITIZEN...... 1889 1993 Torrington 13,601 12,871
THE MIDDLETOWN PRESS...... 1884 1995 Middletown 12,111 --(4)
Shore Line Newspapers
13 publications......... 1877 1995 Guilford 131,867
Elm City Newspapers
8 publications.......... 1931 1995 Milford 48,865
Imprint Newspapers
15 publications......... 1931 1995 Bristol 142,563
Foothills Trader
3 publications.......... 1965 1995 Torrington 50,000
CONNECTICUT'S COUNTY
KIDS.................... 1989 1996 Westport 40,000
EAST HARTFORD GAZETTE..... 1885 1995 East Hartford 20,000
THOMASTON EXPRESS......... 1874 1994 Thomaston 1,401
TMC (9 publications)...... 240,314
------------- ------------- -------
TOTALS.................... 172,113 186,177 675,010
------------- ------------- -------
------------- ------------- -------
</TABLE>
- ------------------------
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1996, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid (60,156) and free (614,854)
distribution. Paid and free non-daily distribution for Shore Line and Elm
City Newspapers reflects the monthly average for September 1996. All other
non-daily distribution reflects average distribution for December 1996.
(4) In August 1996, the Company commenced publication of a Sunday newspaper, THE
HERALD PRESS, serving readers of THE HERALD, THE BRISTOL PRESS and THE
MIDDLETOWN PRESS.
The NEW HAVEN REGISTER is the Company's largest newspaper based on daily
circulation and is the second largest daily circulation newspaper in
Connecticut. The NEW HAVEN REGISTER serves a primary circulation area comprised
of the majority of New Haven County and portions of Middlesex and New London
Counties. This area (including portions of Fairfield County which are served by
related non-daily publications) has a population of 773,215 and had population
growth of approximately 7% from 1980 to 1996. Such area has an average household
income of $65,031, which is 22% above the national average of $53,176, and a
retail environment of approximately 6,800 stores. This area features a number of
large and well established institutions, including Yale University and Yale-New
Haven Hospital. As a result of its proximity to the large media markets of New
York City, Boston and Hartford, New Haven has only one locally licensed
television station (which serves a state-wide, rather than a local, audience)
and a fragmented radio market. Consequently, the Company believes that the NEW
HAVEN REGISTER is a powerful local news and advertising franchise for the
greater New Haven area.
THE HERALD, THE BRISTOL PRESS and THE MIDDLETOWN PRESS serve contiguous
areas between New Haven and Hartford. THE BRISTOL PRESS serves an area which has
a population of 319,807 and had population growth of approximately 5% from 1980
to 1996. This area has an average household income of $73,517, which is 38%
above the national average. THE MIDDLETOWN PRESS serves an area which has a
population of 99,333 and had population growth of approximately 15% from 1980 to
1996. This area has an average household income of $62,258, which is 17% above
the national average. THE HERALD serves an area which has a population of
106,347 and had population growth of approximately 1% from 1980 to 1996. This
area
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<PAGE>
has an average household income of $52,910. THE REGISTER CITIZEN serves an area
which has a population of 243,424 and had population growth of approximately 12%
from 1980 to 1996. This area has an average household income of $71,175, which
is 34% above the national average.
The Connecticut publications benefit from considerable cross-selling of
advertising as well as from news-gathering and production synergies. The NEW
HAVEN REGISTER gathers state-wide news for all of the Company's Connecticut
newspapers; the newspapers cross-sell advertising through a one-order, one-bill
system; and THE HERALD and THE MIDDLETOWN PRESS are printed at one facility, as
are THE REGISTER CITIZEN and THE BRISTOL PRESS. Moreover, in August 1996, in
order to take advantage of the contiguous nature of the geographic areas served
by THE HERALD, THE BRISTOL PRESS and THE MIDDLETOWN PRESS, the Company started a
Sunday newspaper, THE HERALD PRESS, serving readers of these three dailies with
three zoned editions and having Sunday circulation of approximately 56,370.
OHIO. The Company owns three daily newspapers and a commercial printing
operation in Ohio. The daily newspapers are THE NEWS-HERALD (Lake County), THE
MORNING JOURNAL (Lorain) and THE TIMES REPORTER (Dover-New Philadelphia). The
Ohio newspapers have aggregate daily and Sunday circulation of approximately
117,000 and 137,000, respectively. The Ohio cluster accounted for approximately
19% of the Company's 1996 revenues.
The following table sets forth information regarding the Company's
publications in Ohio:
<TABLE>
<CAPTION>
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ------------------------------ ----------------- ------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
THE NEWS-HERALD............... 1878 1987 Lake County 51,752 64,349
THE MORNING JOURNAL........... 1921 1987 Lorain 41,272 46,136
THE TIMES REPORTER............ 1903 1987 Dover-New 24,316 26,513
Philadelphia
TMC (3 publications).......... 54,651
------------- ------------- ------
TOTALS........................ 117,340 136,998 54,651
------------- ------------- ------
------------- ------------- ------
</TABLE>
- ------------------------
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1996, according
to ABC Fas-Fax Report.
(3) Non-daily distribution is solely free distribution and reflects average
distribution for December 1996.
THE NEWS-HERALD and THE MORNING JOURNAL serve areas located directly east
and west of Cleveland, respectively. THE NEWS-HERALD, which is one of Ohio's
largest suburban newspapers, serves communities located in Lake and Geauga
Counties, two of Ohio's four most affluent counties. Lake and Geauga Counties
have populations of 222,797 and 83,173, respectively, and had population growth
of approximately 5% and 12%, respectively, from 1980 to 1996. Lake and Geauga
Counties have average household incomes of $55,321 and $82,042, respectively.
THE MORNING JOURNAL serves an area which has a population of 148,382 and had
population growth of approximately 2% from 1980 to 1996. This area has an
average household income of $47,977. THE TIMES REPORTER serves the rural
communities of Dover and New Philadelphia, which are located 75 miles south of
Cleveland. THE TIMES REPORTER serves an area which has a population of 103,433
and had population growth of approximately 5% from 1980 to 1996. This area has
an average household income of $37,447. The Company believes that each of its
three Ohio newspapers benefits from a fragmented local media environment. The
Company further believes that THE NEWS-HERALD and THE MORNING JOURNAL compete
effectively with Cleveland's major metropolitan newspaper due to their focus on
coverage of local news and sports. The Company's Ohio cluster benefits from a
variety of synergistic opportunities, including the cross-selling of advertising
and editorial coverage.
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<PAGE>
PHILADELPHIA AND SURROUNDING AREAS. The Company owns four daily newspapers
and 11 non-daily publications serving areas surrounding Philadelphia,
Pennsylvania. These publications include, in Pennsylvania, the DAILY LOCAL NEWS
(West Chester), THE TIMES HERALD (Norristown), THE PHOENIX (Phoenixville) and a
group of non-daily newspapers serving Philadelphia's affluent Main Line; and, in
New Jersey, THE TRENTONIAN (Trenton). The four daily newspapers have aggregate
daily and Sunday circulation of approximately 126,000 and 103,000, respectively.
This cluster's non-daily distribution totals approximately 165,000. This cluster
accounted for approximately 17% of the Company's 1996 revenues.
The following table sets forth information regarding the Company's
publications in Philadelphia and surrounding areas:
<TABLE>
<CAPTION>
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED (1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- -------------------------- ----------------- ------------- ------------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
DAILY LOCAL NEWS.......... 1872 1986 West Chester, PA 34,457 32,582
THE TIMES HERALD.......... 1799 1993 Norristown, PA 25,365 21,583
THE PHOENIX............... 1888 1986 Phoenixville, PA 4,681
THE TRENTONIAN............ 1945 1985 Trenton, NJ 61,678 48,468
Suburban Philadelphia
7 publications.......... 1885 1986 Suburban 92,100
Philadelphia
TMC (4 publications)...... 72,717
------------- ------------- -------
TOTALS.................... 126,181 102,633 164,817
------------- ------------- -------
------------- ------------- -------
</TABLE>
- ------------------------
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1996, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid (11,025) and free (153,792)
distribution. Non-daily distribution reflects average distribution for
December 1996.
The Company's Pennsylvania publications are all located within 30 miles of
Philadelphia. These newspapers serve geographic areas with highly desirable
demographics: The DAILY LOCAL NEWS serves an area which has a population of
386,951 and had population growth of approximately 29% from 1980 to 1996. This
area has an average household income of $80,100, which is 51% above the national
average. THE TIMES HERALD serves an area which has a population of 170,108 and
had population growth of approximately 3% from 1980 to 1996. This area has an
average household income of $76,456, which is 44% above the national average.
THE PHOENIX serves an area which has a population of 99,564 and had population
growth of approximately 14% from 1980 to 1996. This area has an average
household income of $82,722, which is 56% above the national average. The
Company's weekly newspaper group in suburban Philadelphia serves an area which
has a population of 316,585 and had population growth of approximately 17% from
1980 to 1996. This area has an average household income of $98,770, which is 86%
above the national average. Each of the Company's Pennsylvania properties is
located within 20 miles of the area's largest retail complex, the King of
Prussia Plaza and Court, which is the largest mall on the East Coast of the
United States in terms of total square footage. THE TRENTONIAN is published in
Trenton, the capital of New Jersey, located 40 miles north of Philadelphia and
75 miles south of New York City. THE TRENTONIAN serves an area which has a
population of 295,088 and had population growth of approximately 8% from 1980 to
1996. This area has an average household income of $65,780, which is 24% above
the national average. THE TRENTONIAN's tabloid format and emphasis on local
sports allows it to compete effectively with the other local daily newspaper in
Trenton. The Company believes that its newspapers in this cluster compete
effectively in the areas they serve with Philadelphia's major metropolitan
newspapers and radio stations due to their focus on local news and sports. The
Company's Philadelphia cluster cross-sells advertising. The nature of the
cluster has allowed for the implementation of significant cost saving programs.
For example, THE TIMES HERALD and several non-daily suburban publications share
printing
40
<PAGE>
facilities, as do the DAILY LOCAL NEWS and THE PHOENIX. THE TRENTONIAN's
television guide is printed at the DAILY LOCAL NEWS facility. All of these
publications share certain news-gathering resources.
GREATER ST. LOUIS AREA. The Company owns the JOURNALS, the largest group of
suburban and community non-daily newspapers in the United States (in terms of
total distribution), one daily newspaper and a commercial printing operation in
the greater St. Louis area. The JOURNALS are a group of 40 newspapers which are
distributed two to three times each week in the St. Louis suburban areas,
including communities in Illinois, with total weekly distribution of
approximately 1.6 million. The Company's daily newspaper in this cluster, THE
TELEGRAPH (Alton, IL), has daily and Sunday circulation of approximately 30,000
and 32,000, respectively. This cluster accounted for approximately 16% of the
Company's 1996 revenues.
The following table sets forth information regarding the Company's
publications in the greater St. Louis area:
<TABLE>
<CAPTION>
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- --------------------------- -------------- ------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Suburban Newspapers of
Greater St. Louis (73
editions of 40
JOURNALS)................ 1922 1984 St. Louis, MO 1,616,592
THE TELEGRAPH.............. 1836 1985 Alton, IL 29,812 32,143
TMC (2 publications)....... 32,000
------ ------ --------------
TOTALS..................... 29,812 32,143 1,648,592
------ ------ --------------
------ ------ --------------
</TABLE>
- ------------------------
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1996, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid (9,263) and free (1,639,329)
distribution and reflects September 1996 net distribution.
The JOURNALs have total distribution of approximately 949,000 mid-week and
approximately 638,000 on Sunday, for total weekly distribution of approximately
1.6 million. The JOURNALS reach approximately 90% of the homes in the greater
St. Louis area. The JOURNALS serve an area which has a population of
approximately 2.4 million and had population growth of approximately 5% from
1980 to 1996. This area has an average household income of $57,585. According to
EDITOR & PUBLISHER magazine, St. Louis is the 17th largest metropolitan area in
the United States. The JOURNALS have received national recognition and have been
studied by domestic and foreign publishers as a model of successful neighborhood
newspapers. Due to St. Louis' character as a city of neighborhoods--92
municipalities comprise St. Louis County alone, the Company believes the
JOURNALS offer local retailers a cost-effective way to reach targeted
demographic groups, which enables the JOURNALS to compete effectively with the
major metropolitan daily and other weekly newspapers in the area. The Company
believes that the area's largest radio station competes primarily for major
accounts rather than small advertisers and, thus, is not a significant direct
competitor. The Company believes that the JOURNALS' targeted, highly localized
approach places the JOURNALS in a strong competitive position. THE TELEGRAPH
serves a community located in southeast Illinois, within the greater St. Louis
area and which is connected by a new bridge to St. Louis. THE TELEGRAPH serves
an area which has a population of 120,628, which is essentially unchanged since
1980. This area has an average household income of $41,784.
Suburban and community non-daily newspapers, such as the JOURNALS, have
several advantages over national and major metropolitan daily newspapers,
including an intrinsically lower cost structure, the ability to publish only on
what are for dailies the most profitable days (i.e. one midweek day and one
weekend day) and the ability to avoid expensive wire services and syndicated
feature material. Moreover, suburban and community non-daily newspapers provide
an alternative outlet for local merchants and
41
<PAGE>
advertisers to advertise in their own local areas at costs lower than those of
national and major metropolitan newspapers. Thus, the JOURNALS have a broader
advertiser base and do not rely to the same degree as national and major
metropolitan daily newspapers on major accounts for advertising revenue.
CENTRAL NEW ENGLAND. The Company owns five daily and 11 non-daily
publications in the central New England area. The Company's publications in this
cluster include THE HERALD NEWS (Fall River, MA), the TAUNTON DAILY GAZETTE
(Taunton, MA), THE RECORD (Troy, NY), THE CALL (Woonsocket, RI), THE TIMES
(Pawtucket, RI) and a group of weekly newspapers serving the Narragansett, Rhode
Island area. The five daily newspapers have aggregate daily circulation of
approximately 111,000 and aggregate Sunday circulation of approximately 83,000.
The non-daily publications in this cluster have total distribution of
approximately 153,000. The central New England cluster accounted for
approximately 13% of the Company's 1996 revenues.
The following table sets forth information regarding the Company's
publications in central New England.
<TABLE>
<CAPTION>
YEAR YEAR DAILY SUNDAY NON-DAILY
PUBLICATION ORIGINATED(1) ACQUIRED LOCATION CIRCULATION(2) CIRCULATION(2) DISTRIBUTION(3)
- ---------------------------- --------------- ------------- ----------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
THE HERALD NEWS............. 1872 1985 Fall River, MA 30,319 32,558
TAUNTON DAILY GAZETTE....... 1848 1996 Taunton, MA 15,270
THE RECORD.................. 1896 1987 Troy, NY 27,216 31,003
THE CALL.................... 1892 1984 Woonsocket, RI 19,807 19,485
THE TIMES................... 1885 1984 Pawtucket, RI 18,098
Southern Rhode Island
Newspapers
5 non-daily publications.. 1854 1995 Wakefield, RI 30,436
THE CUMBERLAND SHOPPER...... 1996 1996 Pawtucket and 10,000
Woonsocket, RI
TMC (5 publications)........ 112,600
------------- ------ -------
TOTALS...................... 110,710 83,046 153,036
------------- ------ -------
------------- ------ -------
</TABLE>
(1) For merged properties and newspaper groups, the year given reflects the date
of origination for the earliest publication.
(2) Circulation averages for the six months ended September 30, 1996, according
to ABC Fas-Fax Report.
(3) Non-daily distribution includes both paid (30,436) and free (122,600)
distribution. Paid and free non-daily distribution for Southern Rhode Island
Newspapers (except THE COVENTRY COURIER) reflects the June 30, 1996 CAC
Audit report. The other non-daily distribution figures reflect average
distribution for December 1996.
THE HERALD NEWS and the TAUNTON DAILY GAZETTE are situated 14 miles apart.
Each is approximately 50 miles south of Boston, Massachusetts and 20 miles east
of Providence, Rhode Island. The region's largest shopping mall, located in
Taunton, contains one million square feet of retail space and approximately 150
stores. THE HERALD NEWS serves an area which has a population of 163,500 and had
population growth of approximately 1% from 1980 to 1996. This area has an
average household income of $43,854. The TAUNTON DAILY GAZETTE serves an area
which has a population of 112,108 and had population growth of approximately 13%
from 1980 to 1996. This area has an average household income of $50,685. THE
CALL serves an area which has a population of 171,676 and had population growth
of approximately 9% from 1980 to 1996. This area has an average household income
of $54,799. THE TIMES serves an area which has a population of 184,025 and had
population growth of approximately 4% from 1980 to 1996. This area has an
average household income of $48,698. Southern Rhode Island Newspapers serve an
area which has a population of 151,484 and had population growth of
approximately 24% from 1980 to 1996. This area has an average household income
of $68,087, which is 28% above the national average. THE RECORD (Troy, NY)
serves an area which has a population of 182,484 and had population growth of
approximately 5% from 1980 to 1996. This area has an average household income of
$47,455. No local television stations exist in the communities which the central
New England newspapers serve. Further, the Company believes that its central New
England properties benefit from fragmented local radio markets. As a result, the
Company
42
<PAGE>
believes that each of its newspapers is a significant media outlet in its
respective community, thereby making these newspapers attractive vehicles for
area advertisers. The central New England newspapers benefit from advertising
cross-selling; moreover, the Company's Massachusetts and Rhode Island newspapers
benefit from significant production and editorial synergies. For example, THE
TIMES and THE HERALD NEWS are printed at the same facility. Moreover, THE TIMES,
THE CALL and the group of paid suburban and community non-daily newspapers
serving southern Rhode Island all share certain news gathering resources. The
Company believes that significant synergistic opportunities may be available
between the TAUNTON DAILY GAZETTE, the Company's most recent acquisition, and
THE HERALD NEWS.
ADVERTISING
Substantially all the Company's advertising revenues are derived from a
diverse group of local retailers and classified advertisers. The Company
believes that because its newspapers rely on a broad base of local retail and
local classified advertising rather than more volatile national and major
account advertising, its advertising revenues tend to be relatively stable.
Local advertising is more stable than national advertising because a community's
need for local services provides a stable base of local businesses and because
local advertisers generally have fewer effective advertising vehicles from which
to choose. Advertising revenues accounted for approximately 73% of the Company's
total revenues for 1996. The Company's advertising rate structures vary among
its publications and are a function of various factors, including results
achieved for advertisers, local market conditions and competition, as well as
circulation, readership, demographics and type of advertising (whether
classified or display). In 1996, local and regional advertising accounted for
the largest share of the Company's advertising revenues (42%), followed by
classified advertising (38%), pre-printed inserts (16%), legal advertising (2%)
and national advertising (2%). The Company's advertising revenues are not
reliant upon any one company or industry, but rather are supported by a variety
of companies and industries, including realtors, car dealerships, grocery stores
and other local businesses. No advertiser accounted for more than 2% of the
Company's total 1996 advertising revenues. The Company's corporate management
works with its local newspaper management to approve advertising rates and to
establish goals for each year during a detailed budget process. Local management
is given little latitude for discounting from the approved rates. Corporate
management also works with local advertising staff to develop marketing kits,
presentations and third-party research studies. A portion of the compensation
for the Company's publishers is based upon increasing advertising revenues. The
Company stresses the timely collection of receivables, and sales compensation
depends in part upon performance relative to goals and timely collection of
advertising receivables. Additionally, corporate management facilitates the
sharing of advertising resources and information across the Company's
publications. See "Risk Factors--Dependence on Local Economies."
CIRCULATION
Substantially all of the Company's circulation revenues are derived from
home delivery sales of publications to subscribers and single copy sales made
through retailers and vending racks. Circulation accounted for approximately 23%
of the Company's total revenues in 1996. Approximately 71% of 1996 circulation
revenues were derived from subscription sales and approximately 29% from single
copy sales. Single copy sales rates currently range from $.35 to $.50 cents per
daily copy and $.50 cents to $1.75 per Sunday copy. The Company promotes single
copy sales of its newspapers because it believes that such sales have higher
readership than subscription sales and that single copy readers tend to be more
active consumers of goods and services, as indicated by a recent NAA study.
Single copy sales also tend to generate a higher profit than subscription sales,
as single copy sales generally have higher per unit prices and lower associated
distribution costs. In 1996, the Company had total daily circulation of
approximately 556,000, Sunday circulation of approximately 541,000 and non-daily
distribution of approximately 2.7 million, most of which is distributed free of
charge. The Company's corporate management works with its local newspaper
management to establish subscription and single copy rates. In addition, the
Company tracks rates of newspaper returns and customer service calls through
formal reports which are reviewed weekly in an effort to optimize the number of
newspapers available for sale and to improve delivery and customer service. The
Company also implements creative and interactive programs and promotions to
43
<PAGE>
increase readership, through both subscription and single copy sales.
Circulation has generally declined throughout the newspaper industry in recent
years, and the Company's newspapers have generally experienced this trend, even
as overall operating performance of its newspapers has improved. The Company
seeks to maximize the overall operating performance rather than maximizing
circulation of its individual newspapers.
OTHER OPERATIONS
The Company owns and operates three commercial printing facilities: Imprint
Printing in North Haven, Connecticut; Midwest Offset in New Philadelphia, Ohio;
and Mississippi Valley Offset in St. Louis, Missouri. These operations also
print certain of the Company's publications. The commercial printing operations
accounted for approximately 4% of the Company's 1996 revenues. The Company also
owns Integrated Newspaper Systems, Inc., a company which develops application
software for the newspaper industry.
EMPLOYEE RELATIONS
The Company employs approximately 4,250 employees (including approximately
1,370 part-time employees) in 10 states and has agreements with 16 local
collective bargaining agents representing, in the aggregate, approximately 380
full-time and 210 part-time employees. Of such 4,250 employees, approximately
100 hold positions in management/administration, approximately 875 hold
positions in editorial, approximately 800 hold positions in advertising and
approximately 2,475 hold positions in production/operations. Other than a
one-day strike by employees at THE TIMES HERALD of Norristown, Pennsylvania
occurring immediately after the Company's acquisition of such newspaper in
September 1993, the Company has not experienced any strikes or general work
stoppages in the past five years. The Company is in the process of negotiating
collective bargaining agreements with respect to approximately 120 full-time and
90 part-time employees. In the next 12 months, contracts with seven collective
bargaining units, representing, in the aggregate, 107 of the Company's
employees, are scheduled for renegotiation. The Company believes that its
relations with its employees are satisfactory.
RAW MATERIALS
The basic raw material for newspapers is newsprint. The Company's newsprint
consumption (excluding paper consumed in the Company's commercial printing
operations) totaled approximately $41 million in 1996, which was approximately
12% of the Company's newspaper revenues. In 1996, the Company consumed
approximately 61,000 metric tons of newsprint. The Company has no long-term
contracts to purchase newsprint. Generally, the Company has in the past and
currently purchases all of its newsprint from two suppliers, although in the
future the Company may purchase newsprint from other suppliers. The Company
believes that concentrating its newsprint purchases in this way provides a more
secure newsprint supply and lower per unit newsprint prices. The Company also
believes that it purchases newsprint at price levels lower than those which are
available to individually owned small metropolitan and suburban daily newspapers
and suburban and community non-daily publications and consistent with price
levels generally available to the largest newsprint purchasers. The available
sources of newsprint have been, and the Company believes will continue to be,
adequate to supply the Company's needs. The inability of the Company to obtain
an adequate supply of newsprint in the future could have a material adverse
effect on the financial condition and results of operations of the Company.
Historically, the price of newsprint has been cyclical and volatile. In 1995 and
1996, the Company's average cost of newsprint reflected increases of
approximately 34% and 13%, compared to the previous year, respectively. In
December 1996, newsprint suppliers announced a newsprint price increase planned
to take effect in February 1997; this increase was delayed. The initial
announcements indicated that the increase would be $75 per metric ton. The
Company has been informed by its suppliers that they will implement some portion
of the announced price increase. The Company believes that if any price increase
is sustained in the industry, the Company will also be impacted by such
increase. The Company is unable to predict whether, or to what extent, any
increase will be sustained. The Company seeks to manage the effects of increases
in prices of newsprint through a combination of, among other things, technology
improvements, including web width reductions, inventory management and
advertising and circulation price increases. The Company also has reduced fringe
circulation in response to increased newsprint prices, as it is the
44
<PAGE>
Company's experience that such circulation does not provide adequate response
for advertisers. See "Risk Factors--Price and Availability of Newsprint" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SEASONALITY
Newspaper companies tend to follow a distinct and recurring seasonal
pattern. The first quarter of the year (January-March) tends to be the weakest
quarter because advertising volume is then at its lowest level. Correspondingly,
the fourth quarter (October-December) tends to be the strongest quarter as it
includes heavy holiday season advertising. See "Risk Factors--Fluctuation of
Quarterly Results" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results."
COMPETITION
While many of the Company's small metropolitan and suburban daily newspapers
are the only daily newspapers of general circulation published in their
respective communities, they compete within their own geographic areas with
other daily newspapers of general circulation published in adjacent or nearby
cities and towns. Competition for advertising expenditures and paid circulation
comes from local, regional and national newspapers, shoppers, television, radio,
direct mail, on-line services and other forms of communication and advertising
media. Since 1995, the Company has been developing on-line publications based on
its newspapers and is seeking to attract advertising for its on-line
publications. The Company has published an on-line version of the NEW HAVEN
REGISTER since 1995. The Company intends to establish an on-line editorial
presence and a full on-line classified advertising service for each of its daily
newspapers and the JOURNALS by the end of 1997. Competition for newspaper
advertising expenditures is largely based upon advertiser results, readership,
advertising rates, demographics and circulation levels, while competition for
circulation and readership is based largely upon the content of the newspaper,
its price and the effectiveness of its distribution. The Company's non-daily
publications, including shoppers and real estate guides, primarily compete with
direct mail advertising, shared mail packages and other private advertising
delivery services. As with daily newspapers, competition for advertising
expenditures for suburban and community non-daily publications is largely based
upon advertiser results, readership, advertising rates, demographics and
circulation levels. The Company believes that, because of the relative
competitive position of its suburban and community non-daily publications in the
communities which they serve, such publications generally have been able to
compete effectively with other forms of media advertising. Commercial printing,
a highly competitive business, is largely driven by price and quality. See "Risk
Factors--Newspaper Industry Competition."
LEGAL PROCEEDINGS
The Company is involved in a number of litigation matters which have arisen
in the ordinary course of business. The Company believes that the outcome of
these legal proceedings will not have a material adverse effect on the Company's
financial condition or results of operations. See "Risk Factors--Potential
Litigation Exposure."
ENVIRONMENTAL MATTERS
As is the case with other newspaper and similar publication companies, the
Company is subject to a wide range of federal, state and local environmental
laws and regulations pertaining to air and water quality, storage tanks, and the
management and disposal of wastes at its facilities. To the best of the
Company's knowledge, its operations are in material compliance with applicable
environmental laws and regulations as currently interpreted. The Company
believes that continued compliance with these laws and regulations will not have
a material adverse effect on the Company's financial condition or results of
operations. The Company is in the process of developing a remediation plan for
possible groundwater contamination which has been detected at one of its
facilities. The Company is assessing the potential remediation costs. The
Company believes that the remediation of any such groundwater contamination will
not have a material adverse effect on its financial condition or results of
operations. See "Risk Factors--Environmental Matters."
45
<PAGE>
PROPERTIES AND FACILITIES
The Company owns and operates 69 facilities used in the course of producing
and publishing its daily and non-daily publications. Approximately 38 of the
Company's facilities are leased for terms ranging from one to five years. These
leased facilities range in size from approximately 250 to 22,000 square feet.
The location and approximate size of the principal physical properties used by
the Company at December 31, 1996, as well as the expiration date of the leases
relating to such properties which the Company leases, are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE AREA IN SQUARE FEET
--------------------------------------
<S> <C> <C> <C>
LEASE EXPIRATION
LOCATION OWNED SQUARE FEET LEASED SQUARE FEET DATE
- --------------------------------- ------------------ ------------------ --------------------
New Haven, CT.................... 205,000(1)(3)
New Britain, CT.................. 44,899(1)(3)
Bristol, CT...................... 40,000(1)(4)
Torrington, CT................... 36,120(1)(3)
Middletown, CT................... 30,000(1)(4)
North Haven, CT.................. 24,000(3) 10,000(5) 12/31/97
Guilford, CT..................... 18,400(1)
West Hartford, CT................ 14,200(1)
Milford, CT...................... 11,745(1)
Willoughby, OH................... 113,400(1)(3)
Lorain, OH....................... 68,770(1)(3)
New Philadelphia, OH............. 85,567(1)(3)
Trenton, NJ...................... 54,642(1)(3) 18,889(2) 11/30/2000
West Chester, PA................. 34,000(1)(3)
Norristown, PA................... 40,000(1)(3)
Phoenixville, PA................. 10,696(1)(4)
Wayne, PA........................ 11,980(1)(4)
Fall River, MA................... 57,571(1)(3)
Taunton, MA...................... 21,100(1)(4)
Troy, NY......................... 50,000(1)(4)
Woonsocket, RI................... 49,338(1)(3)
Pawtucket, RI.................... 41,096(1)(4)
Wakefield, RI.................... 11,750(1)(4)
St. Louis, MO.................... 69,415(1)(3) 22,043(1) 12/31/2000
Woodson Terrace, MO.............. 5,000(1) 02/09/99
St. Charles, MO.................. 4,298(1) 06/30/99
Collinsville, IL................. 14,587(1)
Granite City, IL................. 17,550(1)
Belleville, IL................... 8,400(1)
Alton, IL........................ 48,000(1)(3)
</TABLE>
- ------------------------
(1) Offices
(2) Corporate headquarters
(3) Printing plant
(4) Production facility
(5) Warehouse
The Company believes that all of its properties are in generally good
condition, are well maintained and are adequate for their current operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
REGULATION
Paid circulation newspapers which are delivered by second class mail are
required to obtain permits from, and file an annual statement of ownership and
circulation with, the United States Postal Service. There is no significant
regulation with respect to acquisition of newspapers, other than filings under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if certain
threshold requirements under such Act are satisfied.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the directors,
executive officers and other senior management of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert M. Jelenic.................................... 46 Chairman, President, Chief Executive Officer and
Director
Jean B. Clifton...................................... 36 Executive Vice President, Chief Financial Officer,
Treasurer, Secretary and Director
Allen J. Mailman..................................... 50 Vice President, Technology
Trish K. Dresser..................................... 38 Vice President, Marketing and Promotion
William J. Higginson................................. 41 Vice President, Production
William J. Rush...................................... 60 Vice President of the Company and Publisher and Chief
Executive Officer, NEW HAVEN REGISTER
John Collins......................................... 44 Vice President, Budgets and Planning
Diane B. Pardee...................................... 37 Vice President, Corporate Communications
Douglas M. Karp...................................... 41 Director
Sidney Lapidus....................................... 59 Director
John L. Vogelstein................................... 62 Director
</TABLE>
Following completion of the Offerings, the Company intends to elect two
additional persons, each of whom will be independent directors, to the Board of
Directors.
ROBERT M. JELENIC is the Chairman, President and Chief Executive Officer of
the Company. He has been President and Chief Executive Officer since the
inception of the Company in 1990 and has been a director of the Company and its
predecessors for more than the past five years. A Chartered Accountant, Mr.
Jelenic began his business career with Arthur Andersen in Toronto, Canada. Mr.
Jelenic has 21 years of senior management experience in the newspaper industry,
including 12 years with the Toronto Sun Publishing Corp. Mr. Jelenic is a
director of the NAA.
JEAN B. CLIFTON is Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company, positions she has held since the
inception of the Company, and has been a director of the Company and its
predecessors for more than the past five years. Prior to joining the Company,
Ms. Clifton, a Certified Public Accountant, had been employed by Arthur Young &
Co. (a predecessor to Ernst & Young LLP). She has 11 years of senior management
experience in the newspaper industry. Ms. Clifton is a member of the Postal
Affairs Committee and the Employee Benefits Committee of the NAA.
ALLEN J. MAILMAN is Vice President of Technology of the Company, a position
he has held since March 1994. From the Company's inception in 1990 to March
1994, Mr. Mailman was Corporate Director of Information Services of the Company.
He has 22 years of management experience in the newspaper industry, including 14
years with Newhouse Publications.
TRISH K. DRESSER is Vice President of Marketing and Promotion of the
Company, a position she has held since June 1995. From the Company's inception
in 1990 until June 1995, Ms. Dresser was Corporate Director of Promotions of the
Company. She has 12 years of experience in the newspaper industry, including
five years with the Toronto Sun Publishing Corp.
WILLIAM J. HIGGINSON is Vice President of Production of the Company, a
position he has held since July 1995. From January 1994 to July 1995, he was
Corporate Production Director of the Company and, from 1991 to January 1994, was
Production Director of the NEW HAVEN REGISTER. Mr. Higginson has 24 years of
experience in the newspaper industry.
47
<PAGE>
WILLIAM J. RUSH is Vice President of the Company, a position he has held
since January 1996, and Publisher and Chief Executive Officer of the NEW HAVEN
REGISTER, a position he has held since 1990. Mr. Rush, with 39 years of
experience in the newspaper industry, has held, at various times, the top
executive position at seven newspapers in three states.
JOHN COLLINS is Vice President of Budgets and Planning of the Company, a
position he has held since April 1996. From June 1995 to April 1996, Mr. Collins
was Vice President, Finance of the Company and, from December 1991 to June 1995,
was Chief Financial Officer of the NEW HAVEN REGISTER. He has 19 years of
experience in the newspaper industry, including 10 years with Times Mirror
Corporation.
DIANE B. PARDEE is Vice President of Corporate Communications of the
Company, a position she has held since August 1996. Prior to her present
position, she was Director of Corporate Communications of the Company from
September 1993 to August 1996, Director of Public Affairs for the Business
Committee for the Arts, Inc. from April 1992 to June 1993 and prior to that, she
was Editor-in-Chief of UNIQUE HOMES magazine.
DOUGLAS M. KARP has been a director of the Company since March 1997. Mr.
Karp has been a General Partner of Warburg, Pincus & Co. ("WP") and a Member and
Managing Director of E.M. Warburg, Pincus & Co., LLC ("EMWP") and its
predecessors since 1991. He is a director of LCI International, Inc., TresCom
International, Inc., TV Filme, Inc. and several privately held companies.
SIDNEY LAPIDUS has been a director of the Company and its predecessors for
more than the past five years. Mr. Lapidus has been a General Partner of WP and
a Member and Managing Director of EMWP and its predecessors since 1982, where he
has been employed since 1967. He is a director of Caribiner International, Inc.,
Grubb & Ellis Company, Knoll, Inc., Pacific Greystone Corporation, Panavision
Inc. and several privately held companies.
JOHN L. VOGELSTEIN has been a director of the Company and its predecessors
for more than the past five years. Mr. Vogelstein is a General Partner of WP and
a Member, Vice Chairman and President of EMWP, where he has been employed since
1967. Mr. Vogelstein is a director of ADVO Inc., Aegis Group plc., Golden Books
Family Entertainment, Inc., Knoll, Inc., LCI International, Inc., Mattel, Inc.,
Value Health, Inc., Vanstar Corporation and several privately held companies.
Prior to completion of the Offerings, the Board of Directors will be divided
into three classes serving staggered three-year terms. At each annual meeting of
stockholders of the Company, successors to the class of directors whose term
expires at such meeting will be elected to serve for three-year terms and until
their successors are elected and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
After the completion of the Offerings, the Board of Directors of the Company
will have two standing committees: an Audit Committee and a Compensation
Committee.
The Audit Committee will have general responsibility for supervising
financial controls, as well as responsibility for accounting and audit
activities of the Company. The Audit Committee will annually review the
qualifications of the Company's independent certified public accountants, make
recommendations to the Board of Directors as to their selection and review the
planning, fees and results of their audit. The Audit Committee will consist
solely of independent directors as and when elected. The Compensation Committee
will be responsible for reviewing and approving the amount and type of
consideration to be paid to senior management and for administering the 1997
Plan and will consist solely of non-employee directors. See "--Compensation
Pursuant to Plans--1997 Stock Incentive Plan."
48
<PAGE>
DIRECTORS' ANNUAL COMPENSATION
The Company will reimburse its directors for all reasonable expenses
incurred in connection with their attendance at Board of Directors meetings.
Following the completion of the Offerings, independent directors will receive an
annual fee of $10,000, a fee of $1,000 for each Board of Directors meeting
attended in person and a fee of $500 for each Board of Directors meeting
attended by telephone conference call. Under the 1997 Plan, the Company will
grant independent directors during the term of their directorships non-qualified
options to purchase 10,000 shares of Common Stock annually on terms and
conditions specified by the committee administering such plan. As of the date
hereof, there are three non-employee directors of the Company, each of whom is
affiliated with Warburg, Pincus. See "-- Compensation Pursuant to Plans--1997
Stock Incentive Plan."
49
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid by
the Company to its Chief Executive Officer and to each of its four most highly
compensated executive officers (other than the Chief Executive Officer) whose
total compensation exceeded $100,000 for the year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION(1) COMPENSATION
----------------------- ----------------
<S> <C> <C> <C> <C> <C>
NAME AND LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) PAYOUTS($)(2) COMPENSATION(3)
- -------------------------------------------- --------- ---------- ----------- ---------------- ----------------
Robert M. Jelenic,.......................... 1996 $ 800,000 $ 200,000 $ 326,667 $ 24,000
Chairman, President, Chief Executive 1995 775,000 200,000 252,000 4,500
Officer and Director 1994 750,000 150,000 0 4,500
Jean B. Clifton,............................ 1996 425,000 125,000 143,850 12,750
Executive Vice President, Chief 1995 405,000 125,000 110,250 4,500
Financial Officer, Treasurer, 1994 390,000 100,000 0 4,500
Secretary and Director
William J. Rush,............................ 1996 265,000 15,000 76,050 7,950
Vice President of the Company and 1995 245,000 15,000 58,050 4,500
Publisher and Chief Executive 1994 235,000 12,500 0 4,500
Officer, NEW HAVEN REGISTER
Allen J. Mailman,........................... 1996 180,000 7,500 48,250 5,400
Vice President of Technology 1995 165,000 10,000 36,450 4,500
1994 159,167 5,000 0 4,500
Trish K. Dresser,........................... 1996 165,000 7,500 25,933 4,950
Vice President of Marketing and Promotion 1995 142,500 12,000 19,800 4,275
1994 122,000 2,500 0 3,660
</TABLE>
- ------------------------
(1) All other annual compensation has been omitted because such compensation
(which related only to perquisites and personal benefits) did not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus reported for
each listed executive officer.
(2) Prior to the Offerings, the Company maintained a bonus plan (the "StarShare
Plan"), which commenced in January 1992 and in which key employees were
eligible to participate. Each participant received award units (the
"StarShare Units") based on target percentages of his or her base salary.
Each StarShare Unit represented a proportionate share of an aggregate
amount. Such amount was based on certain performance measures related to the
Company's compound annual growth in cash flow and revenue and reduction in
debt and/or equity redemption over a three-year performance period. See Note
(2) to Long-Term Incentive Plan Award Table. In general, StarShare Units
granted under the StarShare Plan vested at the end of the third anniversary
of the grant. Following the applicable vesting period, the values of the
StarShare Units were paid to the participants in three annual installments,
with interest paid on the second and third payments at the applicable
treasury note rate from the first applicable payment date. The Company
presently intends to discontinue the StarShare Plan prior to completion of
the Offerings, and StarShare Units will not be convertible into or
exercisable for shares of Common Stock following completion of the
Offerings.
(3) These amounts represent the Company's matching contributions under the
Company's 401(k) Plan and Supplemental 401(k) Plan.
50
<PAGE>
LONG-TERM INCENTIVE PLAN AWARD
The following table sets forth the awards under the StarShare Plan in 1996:
<TABLE>
<CAPTION>
NUMBER OF ESTIMATED FUTURE PAYOUTS UNDER
SHARES, PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
UNITS OR OTHER PERIOD -----------------------------------------
OTHER RIGHTS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT(1) ($ OR #) ($ OR #) ($ OR #)(2)
- ------------------------------------------ ------------- ----------------- --------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Robert M. Jelenic,........................ 32,000 March 15, 1999 $ 0 $ 320,000 $ 1,200,000
Chairman, President, Chief Executive
Officer and Director
Jean B. Clifton,.......................... 14,875 March 15, 1999 0 148,750 557,813
Executive Vice President, Chief
Financial Officer, Treasurer,
Secretary and Director
William J. Rush,.......................... 7,950 March 15, 1999 0 79,500 298,125
Vice President of the Company and
Publisher and Chief Executive Officer,
NEW HAVEN REGISTER
Allen J. Mailman,......................... 5,400 March 15, 1999 0 54,000 202,500
Vice President of Technology
Trish K. Dresser,......................... 4,950 March 15, 1999 0 49,500 185,625
Vice President of Marketing and
Promotion
</TABLE>
- ------------------------
(1) See Note (2) to Summary Compensation Table.
(2) To achieve maximum payout the Company's compound annual growth rate of
EBITDA for the three-year performance period must exceed 20% (without taking
into account acquisitions) and the Company's debt reduction and/or equity
redemption over such period must exceed $400 million.
51
<PAGE>
COMPENSATION PURSUANT TO PLANS
MANAGEMENT BONUS PLAN
In recognition of certain management employees' prior services to the
Company, the Company intends to adopt the Management Bonus Plan to pay the
Management Bonuses, upon pricing of the Offerings. The Management Bonuses are
expected to be comprised of 1,100,000 shares of Common Stock valued at the Price
to Public, and a cash portion that the Company expects will be used to satisfy
recipients' tax obligations arising from the Management Bonuses. Each Management
Bonus will consist of approximately 45% cash and 55% Common Stock. If the Price
to Public is $16, the Management Bonuses will total $32 million, comprised of
$17.6 million in shares of Common Stock and $14.4 million in cash. The
Management Bonuses will be paid to 37 employees of the Company, none of whom is
an affiliate of Warburg, Pincus. Assuming a Price to Public of $16, Mr. Jelenic,
Ms. Clifton, Messrs. Rush and Mailman and Ms. Dresser, the chief executive
officer and four other most highly compensated executive officers of the Company
(see "--Executive Compensation"), will receive Management Bonuses with a total
value of approximately $11.7 million, $5.9 million, $1.3 million, $1.3 million
and $1.3 million, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Management Bonus Plan" and
"Certain Transactions."
1997 STOCK INCENTIVE PLAN
Prior to completion of the Offerings, the Board of Directors adopted and the
stockholders approved the Company's 1997 Plan. Set forth below is a discussion
of the material terms of the 1997 Plan.
Subject to adjustment as provided in the 1997 Plan, the 1997 Plan authorizes
the granting of up to 4,843,750 shares of Common Stock through (i) incentive
stock options ("ISOs") and non-qualified stock options ("NQOs") (in each case,
with or without related stock appreciation rights ("SARs")), to acquire Common
Stock, (ii) awards of restricted shares of Common Stock ("Restricted Stock"),
and (iii) performance units ("Performance Units") (collectively, "Awards") to
such directors, officers and other employees of, and consultants to, the Company
and its subsidiaries and affiliates as may be designated by the Compensation
Committee or such other committee of the Board as the Board may designate (the
"Committee"). All directors, officers, employees of, and consultants to the
Company, its subsidiaries and affiliates who are responsible for or contribute
to the management, growth and profitability of the business of the Company, its
subsidiaries and affiliates are eligible to receive Awards under the 1997 Plan;
provided, that (i) consultants are not eligible to receive grants of incentive
stock options and (ii) directors are eligible to receive only NQOs, as described
below, and Restricted Stock. Approximately 180 persons will be eligible to be
granted Awards under the 1997 Plan. No participant in the 1997 Plan may be
granted Awards covering in excess of 700,000 shares of Common Stock in any
fiscal year. The aggregate number of shares available for Awards and the
per-participant limitation are 4,843,750 and 2,000,000, respectively, subject to
adjustment for changes in capitalization, such as stock dividends or stock
splits. It is expected that Mr. Jelenic, Ms. Clifton, Messrs. Rush and Mailman
and Ms. Dresser will receive options to purchase 322,917, 161,458, 26,237,
28,255 and 28,255 shares of Common Stock, respectively, at an exercise price per
share equal to the Price to Public and options to purchase 322,917, 161,458,
26,237, 28,255 and 28,255 shares of Common Stock, respectively, at an exercise
price per share equal to 150% of the Price to Public.
The Committee will administer the 1997 Plan, approve the eligible
participants who will receive Awards, determine the form and terms of the Awards
and have the power to fix vesting periods. Subject to certain limitations, the
Committee may from time to time delegate some of its authority under the 1997
Plan.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
provides that publicly traded companies may not deduct compensation paid to the
chief executive officer or any of the four most highly compensated other
officers ("Covered Employees") to the extent it exceeds $1,000,000 in any one
tax year, unless the payments are made based upon the attainment of objective
performance goals
52
<PAGE>
that are established by a committee of the Board, comprised solely of two or
more outside directors of the Company, based upon business criteria and other
material terms approved by stockholders. This limitation will apply to the
Company following completion of the Offerings but does not apply to the
Management Bonuses. The 1997 Plan is designed so that options and SARs granted
with a fair market value exercise price, and awards of Common Stock designated
as "Performance Awards" (as described below), that are made to Covered Employees
will be considered performance-based and hence fully deductible. However, the
Committee will have the discretion to grant awards to Covered Employees that
will not qualify for the exemption from Section 162(m). Moreover, in certain
cases such as death or disability (as described below), Performance Awards may
become payable even though the performance goals are not met, in which event the
Performance Awards will not be exempt from Section 162(m) and the Company might
lose part or all of its tax deduction.
Under the terms of the 1997 Plan, the Committee may from time to time grant
options to purchase shares of Common Stock at a price (generally payable in cash
and/or shares of Common Stock) determined by the Committee which in the case of
ISOs may not be less than the Fair Market Value (as defined in the 1997 Plan) of
the shares of Common Stock, as determined by the mean between the highest and
lowest sales prices on the New York Stock Exchange or such other exchange on
which the Common Stock is listed on the date the option is granted. Generally,
options may not be exercised later than ten years after the date of grant. The
Committee may also grant SARs related to the options granted under the 1997
Plan. A SAR would entitle the holder thereof to receive, upon exercise, the
appreciation from the option price to the fair market value of the shares of
Common Stock on the date of exercise, such appreciation being payable in cash
and/or in shares of Common Stock as determined by the Committee. Exercise of a
SAR cancels the related option to the extent of such exercise, and the shares of
Common Stock related thereto are not available for future grants under the 1997
Plan.
The Committee will determine the times at which an option may be exercised.
Except as otherwise determined and as set forth below, an option may only be
exercised during employment or generally during the three months following
termination of employment for any reason other than death, permanent disability,
retirement or cause. Upon termination of employment for cause, an option may no
longer be exercised. Stock options generally may be exercised during the period
of one year after death if the optionee is still in the employ of the Company or
any of its subsidiaries or affiliates at the time of death, to the extent
exercisable at the time of termination by death. After termination of an
optionee's employment with the Company or any of its subsidiaries or affiliates
on account of permanent disability, stock options generally may be exercised
during the period of three years after the date of termination to the extent
exercisable at the time of termination; provided, that in the event of death
prior to expiration of the option term following termination of employment for
permanent disability, options generally may be exercised during the period of
one year following the date of death, to the extent exercisable at the time of
death. After an optionee retires from the Company or any of its subsidiaries or
affiliates, the optionee's stock options generally may thereafter be exercised
to the extent to which they were exercisable at the time of the optionee's
retirement and may be exercised at any time during the one-year period following
retirement (or such shorter period as the Committee determines); provided, that
in the event of death prior to the expiration of the option, options generally
may be exercised during the period of one year following the date of death.
The 1997 Plan provides that the Committee may establish option exercise
procedures for purposes of permitting an optionee to defer receipt of
compensation beyond the date of the option exercise.
Under the 1997 Plan, the Committee may also make awards of Restricted Stock.
The Committee may condition the grant or vesting of such awards on the
attainment of certain performance goals and/or upon the participant's continued
service with the Company or any of its subsidiaries or affiliates. During the
period (the "Restricted Period") commencing with the grant of Restricted Stock
and ending on attainment of the applicable performance goals or satisfaction of
the requisite period of service, the participant is not permitted to sell,
transfer, assign or otherwise dispose of the Restricted Stock. The participant
generally
53
<PAGE>
has the right during the Restricted Period to vote the Restricted Stock and to
receive cash dividends paid thereon. However, the Committee may determine that
such cash dividends be deferred and reinvested in additional Restricted Stock
and that dividends payable in Common Stock be paid in Restricted Stock. Upon
termination of employment prior to the end of the Restricted Period, the
Restricted Stock will be forfeited, although the Committee may waive any
remaining restrictions upon termination of employment due to retirement or
involuntary termination of employment other than for cause.
The Committee may award performance units ("Performance Units"). The
Committee may condition the vesting of such Performance Units on the attainment
of specified levels of one or more performance goals described below and/or upon
the continued service of the participant. The Performance Units may not be sold,
assigned or otherwise transferred during the period (the "Performance Cycle")
over which the Performance Units are to be earned. Upon termination of
employment prior to the end of the Performance Cycle, the Performance Units will
be forfeited, although the Committee may waive any remaining payment
limitations, except as described in the immediately following paragraph, upon
termination of employment due to retirement or involuntary termination other
than for cause. Subject to the Committee's approval, a participant may,
generally prior to commencement of the Performance Cycle, elect to defer receipt
of cash or shares in settlement of the Performance Units. At the end of the
Performance Cycle, the Committee will determine which Performance Units have
been earned and will cause to be delivered to the participant a number of shares
equal to the number of Performance Units deemed by the Committee to have been
earned or cash equal to the fair market value of such shares.
The Committee may designate an award of Restricted Stock or Performance
Units to a Covered Employee as a qualified performance-based award ("Performance
Award") and condition the vesting of such awards upon the attainment of
specified levels of one or more of the following performance goals: earnings per
share and/or return on equity. The Committee will not have the power to waive
achievement of such goals, except upon the death or disability of the
participant.
The 1997 Plan provides that the Committee may establish procedures for the
distribution of shares distributable pursuant to Performance Units for purposes
of permitting an awardee to defer compensation.
At the time any Award under the 1997 Plan is granted, the Committee may
grant the participant the right to receive a cash payment in an amount specified
by the Committee, to be paid when the award results in compensation income to
the participant and to help the participant pay the resulting taxes.
The 1997 Plan also provides that each director of the Company who is not
otherwise an employee of the Company or any of its subsidiaries or affiliates
and is not an officer, director or employee of EMWP or Warburg, Pincus will
receive, during the term of his directorship, an annual grant of non-qualified
options to purchase 10,000 shares of Common Stock on terms and conditions
specified by the Committee.
The 1997 Plan provides for the use of authorized but unissued shares or
treasury shares. To the extent that treasury shares are not used, authorized but
unissued shares of Common Stock of the Company have been reserved for issuance
upon exercise of options or distribution of Awards granted under the 1997 Plan.
No Awards may be granted under the 1997 Plan after , 2007, but
Awards theretofore granted may extend beyond that date. The 1997 Plan may be
amended or discontinued by the Board of Directors at any time, but no
termination may impair the rights of any holders of options or awards granted
prior thereto without such holder's consent. Subject to certain limitations, the
Committee may amend to the terms of any Award retroactively or prospectively,
but the 1997 Plan does not permit the Committee to cause a Performance Award to
fail to be exempt from Section 162(m) or impair the rights of any holder without
the holder's consent. The Committee has the power to interpret the 1997 Plan and
to make all other determinations necessary or advisable for its administration.
Except as otherwise described herein, benefits under the 1997 Plan to the
Chief Executive Officer and the other executive officers named in the Executive
Compensation Table above, to the current executive
54
<PAGE>
officers of the Company and to the other employees of the Company are not
currently determinable because the 1997 Plan is discretionary.
PENSION PLAN
Mr. Rush participates in the Journal News, Inc. Retirement Plan (the "JNI
Retirement Plan"), which is a noncontributory defined benefit pension plan
covering substantially all non-union employees of certain of the Company's
subsidiaries. The JNI Retirement Plan provides for normal retirement benefits on
the later of the date on which the participant attains age 65 or the fifth
anniversary of such participant's becoming a JNI Retirement Plan participant.
Annual normal retirement benefits are based on career average pay and generally
consists of the sum of the following: (i) for each year after 1993, 1% of the
participant's "covered compensation" plus 1.5% of compensation in excess of
"covered compensation," (ii) if the participant also participated in the
predecessor pension plan, 1.5% of the participant's average annual compensation
for 1988-1993, times years of service through October 31, 1993, minus 1.25% of
the participant's Social Security benefit, times years of service through
October 31, 1993 (up to 40) and (iii) for the period from November 1, 1993
through December 31, 1993, 1% of compensation for such period, up to $3,786,
plus 1.5% of the compensation for such period in excess of $3,786. "Covered
compensation" is the average of the taxable Social Security wage bases for the
35 years ending in the year of retirement. As of December 31, 1996, Mr. Rush had
10 years of credited service. Mr. Rush's annual normal retirement benefit based
upon 15 years of credited service is projected to be $71,862.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee during 1996. Officers'
compensation was determined by Messrs. Jelenic and Vogelstein. Upon completion
of the Offerings, the Board of Directors will form a Compensation Committee
which will be responsible for reviewing and approving the amount and type of
consideration to be paid to senior management and for administering the 1997
Plan. See "-- Compensation Pursuant to Plans--1997 Stock Incentive Plan." The
members of the Company's Compensation Committee of the Board of Directors will
be Messrs. Karp and Vogelstein. See "Certain Transactions."
55
<PAGE>
CERTAIN TRANSACTIONS
On December 21, 1994, the Company issued approximately $55.0 million of
Senior Subordinated Notes and $55.0 million of Subordinated Notes to Warburg,
Pincus. The Company repaid the Senior Subordinated Notes in full during 1995.
The Company believes that the terms of such Senior Subordinated Notes and such
Subordinated Notes were at least as favorable as those which would have been
obtainable by the Company from an unaffiliated source. The Company repaid $27.5
million principal amount of Subordinated Notes during 1995. The Company intends
to repay the remaining outstanding principal amount of and accrued and unpaid
interest on the Subordinated Notes from the net proceeds to the Company of the
Offerings. See "Use of Proceeds" and Note 4 of "Notes to Combined Financial
Statements."
On December 21, 1994, the Company redeemed all of its issued and outstanding
Senior Preferred Stock held by Warburg, Pincus for its face value of
approximately $18.0 million plus dividends in arrears of approximately $20.0
million. In addition, the Company redeemed all of its issued and outstanding
Serial Preferred Stock held by Warburg, Pincus for its face value of
approximately $23.0 million. The Company believes that the terms of such Senior
Preferred Stock were at least as favorable as those which would have been
obtainable by the Company from an unaffiliated source.
A predecessor (the "Predecessor") of the Company and each of the
stockholders of two subsidiaries (collectively, the "Exchange Subsidiaries") of
the Company entered into an Exchange Agreement (the "Exchange Agreement") dated
as of December 21, 1994. Pursuant to the Exchange Agreement, the Predecessor, a
limited liability company, issued to Warburg, Pincus an aggregate of 997,410
Class A Membership Interests and 997,410 Class B Membership Interests in the
Predecessor in exchange for the stock of the Exchange Subsidiaries held by
Warburg, Pincus.
Warburg, Pincus has agreed with the Company that, following completion of
the Offerings and with respect to any matter brought to a stockholder vote,
Warburg, Pincus will vote in its own discretion shares representing no more than
50% of the voting power of the Company's shares entitled to vote on the
applicable matter. The shares owned by Warburg, Pincus which represent in excess
of such 50% will be voted in the same proportion as the shares voted by the
other stockholders on the applicable matter.
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement"), Warburg, Pincus and the Individuals are entitled to certain
registration rights with respect to their respective shares of capital stock of
the Company. See "Description of Capital Stock--Registration Rights."
In recognition of certain management employees' prior services to the
Company, the Company intends to pay the Management Bonuses pursuant to the
Management Bonus Plan. The Company has agreed to file a registration statement
covering the Bonus Shares following completion of the Offerings. See
"Management--Compensation Pursuant to Plans--Management Bonus Plan."
In addition, it is expected that Mr. Jelenic, Ms. Clifton, Messrs. Rush and
Mailman and Ms. Dresser will be granted options to purchase 322,917, 161,458,
26,237, 28,255 and 28,255 shares of Common Stock, respectively, at an exercise
price per share equal to the Price to Public and options to purchase 322,917,
161,458, 26,237, 28,255, and 28,255 shares of Common Stock, respectively, at an
exercise price per share equal to 150% of the Price to Public. See
"Management--Compensation Pursuant to Plans--1997 Stock Incentive Plan."
56
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with regard to the
beneficial ownership of the Common Stock as of March 31, 1997 and as adjusted to
reflect the sale of the shares of Common Stock offered in the Offerings, by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director and each executive
officer listed in the summary compensation table and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
THE OFFERINGS(1)(2) OFFERINGS(1)(2)(3)
------------------------- -------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Warburg, Pincus Capital Company, L.P.(4)(5)
466 Lexington Avenue
New York, NY 10017...................................... 24,248,774 63.9% 24,248,774 50.1%
Warburg, Pincus Capital Partners, L.P.(4)(5)
466 Lexington Avenue
New York, NY 10017...................................... 1,529,054 4.0 1,529,054 3.2
Warburg, Pincus Investors, L.P.(4)(5)
466 Lexington Avenue
New York, NY 10017...................................... 12,086,349 31.8 12,086,349 24.9
Douglas M. Karp(4)(5)..................................... 37,864,177 99.7 37,864,177 78.2
Sidney Lapidus(4)(5)...................................... 37,864,177 99.7 37,864,177 78.2
John L. Vogelstein(4)(5).................................. 37,864,177 99.7 37,864,177 78.2
Robert M. Jelenic(6)...................................... 0 0.0 403,333 0.8
Jean B. Clifton(6)........................................ 0 0.0 201,667 0.4
William J. Rush(6)........................................ 0 0.0 45,833 0.1
Allen J. Mailman(6)....................................... 0 0.0 45,833 0.1
Trish K. Dresser(6)....................................... 0 0.0 45,833 0.1
Directors and executive
officers as a group
(8 persons)............................................. 37,864,177 99.7 38,606,676 79.7
</TABLE>
- ------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of Common Stock subject
to options and warrants held by that person that are currently exercisable
or exercisable within 60 days of the date of this Prospectus are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person. Except
as otherwise indicated, the persons in this table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Based upon 37,962,500 shares of Common Stock outstanding prior to the
Offerings and 48,437,500 shares of Common Stock outstanding after completion
of the Offerings, including the Bonus Shares.
(3) Assumes no exercise of the Underwriters' over-allotment option. In the event
such option is exercised, WPCP will beneficially own 122,804 shares or 0.3%
of the Common Stock after the Offerings.
(4) The sole general partner of WPCP, Warburg, Pincus Capital Company, L.P.
("WPCC") and Warburg, Pincus Investors, L.P. ("Investors") is WP, a New York
general partnership. EMWP manages WPCP, WPCC and Investors. The members of
EMWP are substantially the same as the partners of WP. Lionel I. Pincus is
the Managing Partner of WP and the Managing Member of EMWP and may be deemed
to control both WP and EMWP. WP has a 20% interest in the profits of WPCP,
WPCC and
57
<PAGE>
Investors as the general partner. Douglas M. Karp and Sidney Lapidus,
directors of the Company, are Managing Directors of EMWP and General
Partners of WP. John L. Vogelstein, a director of the Company, is a Member,
Vice Chairman and President of EMWP and a General Partner of WP. As such,
Messrs. Karp, Lapidus and Vogelstein may be deemed to have an indirect
pecuniary interest (within the meaning of Rule 16a-1 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") ) in an indeterminate
portion of the shares beneficially owned by WPCP, WPCC, Investors and WP.
See Note 5 below.
(5) All of the shares indicated as owned by Messrs. Karp, Lapidus and Vogelstein
are owned directly by WPCC, WPCP or Investors and are included because of
their affiliation with WPCC, WPCP and Investors. Messrs. Karp, Lapidus and
Vogelstein disclaim "beneficial ownership" of these shares within the
meaning of Rule 13d-3 under the Exchange Act. The address of Messrs. Karp,
Lapidus and Vogelstein is c/o E.M. Warburg, Pincus & Co., LLC, 466 Lexington
Avenue, New York, New York 10017. See Note 4 above.
(6) All shares indicated as owned by such person on this table represent Bonus
Shares and, thus, assume the issuance of the Bonus Shares.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Certificate and By-laws is a summary and is qualified in its
entirety by the provisions of the Certificate and By-laws, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part.
Upon completion of the Offerings and assuming issuance of the Bonus Shares,
the authorized capital stock of the Company will consist of (i) 300,000,000
shares of Common Stock, par value $.01 per share, of which 48,437,500 shares
will be outstanding, and (ii) 1,000,000 shares of Preferred Stock, of which no
shares will be outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in all matters to
be voted on by the stockholders of the Company and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Warburg, Pincus has agreed with the Company
that, following completion of the Offerings and with respect to any matter
brought to a stockholder vote, Warburg, Pincus will vote in its own discretion
shares representing no more than 50% of the voting power of the Company's shares
entitled to vote on the applicable matter. The shares owned by Warburg, Pincus
which represent in excess of such 50% will be voted in the same proportion as
the shares voted by the other stockholders on the applicable matter. See "Risk
Factors--Influence by Existing Stockholder."
Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of the
Company's liabilities and the liquidation preference, if any, of any outstanding
Preferred Stock. Holders of shares of Common Stock have no preemptive,
subscription, redemption or conversion rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are, and the shares offered by the Company in the
Offerings will be, when issued and paid for, fully paid and non-assessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future.
At present, there is no established trading market for the Common Stock. The
Common Stock has been approved for listing on the New York Stock Exchange,
subject to official notice of issuance.
PREFERRED STOCK
The Board of Directors is authorized to issue from time to time 1,000,000
shares of Preferred Stock in one or more series, and to fix the rights,
designations, powers, preferences, qualifications, limitations and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series, all without stockholder approval. The
ability to issue Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring or making a proposal to acquire, the Company or a majority of the
outstanding stock of the Company. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of holders of
Preferred Stock that may be issued in the future. The Company has no present
plans to issue any shares of Preferred Stock. See "Risk Factors--Anti-Takeover
Effect of Certain Certificate of Incorporation and By-laws Provisions."
LIMITATIONS ON DIRECTORS' LIABILITY
The Certificate and By-laws limit the liability of directors to the maximum
extent permitted by Delaware law. Delaware law currently provides that directors
of the Company will not be personally liable for monetary damages for breach of
their fiduciary duties as directors or officers, except liability for (i) breach
of the directors' and officers' duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption and (iv) any
transaction from which directors or officers derive an improper personal
benefit. Delaware law does not permit a
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<PAGE>
corporation to eliminate a director's duty of care, and this provision of the
Certificate has no effect on the availability of equitable remedies, such as
injunction or rescission, based upon a director's breach of the duty of care.
These provisions will not limit liability under state or federal securities
laws. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 ("Section 203") of
the Delaware General Corporation Law (the "DGCL"). Under Section 203, certain
"business combinations" (as defined herein) between a Delaware corporation whose
stock generally is publicly traded or held of record by more than 2,000
stockholders and an "interested stockholder" (as defined herein) are prohibited
for a three-year period following the date that such a stockholder became an
interested stockholder, unless (i) the corporation has elected in its
certificate of incorporation not to be governed by Section 203 (the Company did
not make such an election), (ii) the business combination was approved by the
board of directors of the corporation before the other party to the business
combination became an interested stockholder, (iii) upon consummation of the
transaction that made it an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
commencement of the transaction (excluding voting stock owned by directors who
are also officers or stock held in employee benefit plans in which the employees
do not have the right to determine confidentially whether such stock will be
tendered in a tender or exchange offer) or (iv) the business combination was
approved by the board of directors of the corporation and ratified by two-thirds
of the voting stock which the interested stockholder did not own. The three-year
prohibition also does not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term business combination is defined generally to include mergers
or consolidations between a Delaware corporation and an interested stockholder,
transactions with an interested stockholder involving the assets or stock of the
corporation or its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock. The term interested
stockholder is defined generally as a stockholder who, together with affiliates
and associates, owns (or, within three years prior, did own) 15% or more of a
Delaware corporation's voting stock. Section 203 could prohibit or delay a
merger, takeover or other change in control of the Company and therefore could
discourage attempts to acquire the Company or a majority of the outstanding
stock of the Company.
REGISTRATION RIGHTS
Under the terms of the Registration Rights Agreement, if the Company
proposes to register any of its securities under the Securities Act, Warburg,
Pincus is entitled to notice of such registration and to include its Registrable
Shares (as defined therein) in such registration, subject to the right of an
underwriter participating in the offering to limit the number of shares included
in such registration. In addition, Warburg, Pincus has the right, so long as it
owns at least 10% of the then outstanding shares of Common Stock, to require the
Company to register any or all of its Registrable Shares on two occasions.
Moreover, pursuant to the Registration Rights Agreement, the Individuals are
entitled, under certain circumstances, to registration of their shares of Common
Stock in connection with the exercise by Warburg, Pincus of its registration
rights. All expenses relating to the filing of such registration statements,
excluding underwriting discounts and selling commissions attributable to the
Registrable Shares and the fees and expenses of the holder's own counsel, will
be paid by the Company. The Company is required to use its best efforts to
effect such registrations, subject to certain conditions and limitations.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Common Stock is The Bank of New
York.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to completion of the Offerings, there has been no public market for
the Common Stock. Sales of substantial amounts of Common Stock in the public
market or the perception that such sales may occur, could have an adverse effect
on the price of the Common Stock.
Upon completion of the Offerings and assuming issuance of the Bonus Shares,
the Company will have outstanding 48,437,500 shares of Common Stock. All the
shares of Common Stock sold in the Offerings will be eligible for immediate
resale, except to the extent acquired by "affiliates" of the Company, as such
term is defined in Rule 144, or subject to a lock-up agreement as described
below. Following the completion of the Offerings, the Company expects to file
with the Commission a Registration Statement covering the Bonus Shares and the
shares of Common Stock underlying grants available under the 1997 Plan.
The remaining 37,962,500 shares of Common Stock outstanding upon completion
of the Offerings will be "restricted securities" as that term is defined in Rule
144. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rule 144 or Rule 701
under the Securities Act. Sales of restricted securities in the public market,
or the availability of such shares for sale, could have an adverse effect on the
price of the Common Stock.
The Company, all of its directors, executive officers, the other recipients
of Bonus Shares and Warburg, Pincus have agreed that they will enter into
contractual lock-up agreements providing that they will not offer, sell,
contract to sell or sell any option or consent to purchase, purchase any option
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exchangeable for Common Stock or enter into any
swap or similar agreement that transfers, in whole or in part, the economic risk
of ownership of the Common Stock, whether any of the foregoing transactions are
to be settled by delivery of Common Stock or other such securities, in cash or
otherwise, for a period of 180 days after the date of this Prospectus without
the prior written consent of Morgan Stanley & Co. Incorporated, except (i) in
the case of the Company, upon exercise of outstanding stock options and except
for the issuance of options pursuant to the 1997 Plan and (ii) in the case of
WPCP, the shares of Common Stock to be sold pursuant to the Underwriters'
over-allotment option. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rule 144 or Rule 701, or otherwise, shares subject to lock-up agreements will
not be saleable until such agreements expire. Taking into account the lock-up
agreements, the number of shares that will be available for sale in the public
market, subject to the restrictions of Rule 144, will be as follows: (i)
9,375,000 shares will be eligible for immediate sale as of the date of this
Prospectus and (ii) 39,062,500 shares will be eligible for sale beginning 180
days after the date hereof.
Following the expiration of the lock-up agreements, the Bonus Shares and
1,937,500 shares subject to options which are expected to be issued pursuant to
the 1997 Plan will also be available for sale in the public market pursuant to
Rule 701 under the Securities Act. Rule 701 permits resales of such shares in
reliance upon Rule 144, but without compliance with certain restrictions,
including the holding period requirement, of Rule 144. In general, under Rule
144 as currently in effect, beginning 90 days after the date of this Prospectus,
a person (or persons whose shares are aggregated) who has beneficially owned
restricted securities for the applicable holding period (including the holding
period of any prior owner except an affiliate) would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
(i) 1% of the then outstanding shares of Common Stock (approximately 484,375
shares of Common Stock immediately after completion of the Offerings and
assuming issuance of the Bonus Shares or (ii) the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the filing of a
Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Effective April
29, 1997, the manner of sale restrictions of Rule 144 will be eliminated and the
holding period under Rule 144 will be reduced by one year. In addition, Warburg,
Pincus and the Individuals have rights under certain circumstances to require
the Company to register a total of 37,962,500 shares of Common Stock after
expiration of lock-up agreements. See "Description of Capital
Stock--Registration Rights."
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date of this Prospectus (the "Underwriting Agreement"), the Company
has agreed to sell an aggregate of 9,375,000 shares of Common Stock and the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Bear, Stearns & Co. Inc. and Chase Securities Inc. are serving as
U.S. Representatives, have severally agreed to purchase, and the International
Underwriters named below, for whom Morgan Stanley & Co. International Limited,
Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch
International, Bear, Stearns International Limited and Chase Manhattan
International Limited are serving as International Representatives, have
severally agreed to purchase, the respective number of shares of Common Stock
set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..................................................................
Donaldson, Lufkin & Jenrette Securities Corporation................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................................................
Bear, Stearns & Co. Inc............................................................................
Chase Securities Inc...............................................................................
Subtotal......................................................................................... 7,500,000
----------
International Underwriters:
Morgan Stanley & Co. International Limited.........................................................
Donaldson, Lufkin & Jenrette Securities Corporation................................................
Merrill Lynch International........................................................................
Bear, Stearns International Limited................................................................
Chase Manhattan International Limited..............................................................
Subtotal......................................................................................... 1,875,000
----------
Total.......................................................................................... 9,375,000
----------
----------
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by counsel and to certain other conditions. The Underwriters are
obligated to take and pay for all the shares of Common Stock offered in the
Offerings (other than those covered by the Underwriters' over-allotment option),
if any such shares are taken.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented and agreed that, with
certain exceptions, (i) it is not purchasing any U.S. Shares (as defined herein)
being sold by it for the account of anyone other than a United States or
Canadian Person (as defined herein) and (ii) it has not offered or sold, and
will not offer or sell, directly or indirectly, any U.S. Shares or distribute
any prospectus relating to the U.S. Shares outside the United States or Canada
or to anyone other than a United States or Canadian Person. Pursuant to the
Agreement Between U.S. Underwriters and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions, (i) it is not purchasing any International Shares (as defined
herein) being sold by it for the account of any United States or Canadian Person
and (ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any International Shares or distribute any prospectus relating to
the International Shares within the United States or Canada or to any United
States or Canadian Person. With respect to any Underwriter that is a U.S.
Underwriter and an International
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Underwriter, the foregoing representations and agreements (i) made by it in its
capacity as a U.S. Underwriter shall apply only to shares purchased by it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter shall apply only to shares purchased by it in its
capacity as an International Underwriter. The foregoing limitations do not apply
to stabilization transactions or to certain other transactions specified in the
Agreement Between U.S. Underwriters and International Underwriters. As used
herein, "United States or Canadian Person" means any national or resident of the
United States or Canada or any corporation, pension, profit-sharing, or other
trust or other entity organized under the laws of the United States or Canada or
of any political subdivision thereof (other than a branch located outside the
United States and Canada of any United States or Canadian Person) and includes
any United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
U.S. Underwriters and the International Underwriters under the Underwriting
Agreement are referred to herein as the "U.S. Shares" and the "International
Shares," respectively.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and International
Underwriters of any number of shares of Common Stock to be purchased pursuant to
the Underwriting Agreement as may be mutually agreed. The per share price of any
shares so sold shall be the Price to Public set forth on the cover page hereof,
in United States dollars, less an amount not greater than the per share amount
of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each U.S. Underwriter has represented that it has not offered or
sold, and has agreed not to offer or sell, any shares of Common Stock, directly
or indirectly, in Canada in contravention of the securities laws of Canada or
any province or territory thereof and has represented that any offer of shares
of Common Stock in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send any
dealer who purchases from it any shares of Common Stock a notice stating in
substance that, by purchasing such shares of Common Stock, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any of such shares of Common Stock in Canada or
to, or for the benefit of, any resident of Canada in contravention of the
securities laws of Canada or any province or territory thereof and that any
offer of shares of Common Stock in Canada will be made only pursuant to an
exemption from the requirement to file a prospectus in the province or territory
of Canada in which such offer is made, and that such dealer will deliver to any
other dealer to whom it sells any of such shares of Common Stock a notice to the
foregoing effect.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, each International Underwriter has represented and agreed that (i)
it has not offered or sold and during the period of six months from the closing
date of the Offerings will not offer or sell any shares of Common Stock in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing, or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances which
have not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations (1995)
(the "Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Common Stock offered hereby
in, from, or otherwise involving the United Kingdom; and (iii) it has only
issued or passed on and will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the issue of the shares
of Common Stock if that person is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995,
or is a person to whom such document may otherwise lawfully be issued or passed
on.
The Underwriters propose to offer part of the shares of Common Stock
directly to the public at the Price to Public set forth on the cover page hereof
and part to certain dealers at a price which represents a concession not in
excess of $ per share below the public offering price. The Underwriters
may
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<PAGE>
allow, and such dealers may reallow, a concession not in excess of $ per
share to other Underwriters or to certain dealers.
Pursuant to the Underwriting Agreement, WPCP has granted the U.S.
Underwriters an option, excercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 1,406,250 additional shares of
Common Stock at the Price to Public on the cover page hereof, less Underwriting
Discounts and Commissions. The U.S. Underwriters may exercise such option to
purchase solely for the purpose of covering over-allotments, if any, made in
connection with the Offerings. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such U.S. Underwriter's name in the preceding table
bears to the total number of shares of Common Stock offered by the U.S.
Underwriters hereby.
The Company, all of its executive officers and directors, other recipients
of Bonus Shares and Warburg, Pincus have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, they
will not (i) offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right,
or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for the shares Common Stock (in the case of Warburg,
Pincus, whether such shares or any such securities are now owned by Warburg,
Pincus or acquired after the date of the Prospectus) or (ii) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the shares of Common Stock, whether any
such transaction described in clause (i) or (ii) above is to be settled by
delivery of the shares Common Stock or such other securities, in cash or
otherwise, for a period of 180 days after the date of this Prospectus, other
than the sale to the Underwriters of any shares of Common Stock pursuant to the
Underwriting Agreements.
The Company, Warburg, Pincus and the Underwriters have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.
Certain affiliates of Chase Securities Inc. have limited partnership
interests in WPCP (less than 3%), Investors (less than 1%) and WPCC (less than
3%). In addition, The Chase Manhattan Bank, an affiliate of Chase Securities
Inc., is Agent on, and a lender under, the Credit Agreement, and receives
customary fees for its service as such. The Chase Manhattan Bank also engages in
various general financing and banking transactions with the Company and its
affiliates.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
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PRICING OF THE OFFERINGS
Prior to completion of the Offerings, there has been no public market for
the Common Stock. The initial public offering price has been determined by
negotiations between the Company and the Representatives of the Underwriters.
Among the factors considered in determining the initial public offering price
were the information set forth in this Prospectus and otherwise available to the
Representatives, the future prospects of the Company and the newspaper industry
in general, revenues, earnings, and certain other financial and operating
information of the Company in recent periods and the price-earnings ratios,
market prices of securities, profitability and certain financial and operating
information of companies engaged in activities similar to those of the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered in the Offerings will be
passed upon for the Company by Wachtell, Lipton, Rosen & Katz, New York, New
York. Certain legal matters in connection with the Offerings will be passed upon
for the Underwriters by Willkie Farr & Gallagher, New York, New York.
EXPERTS
The balance sheet of Journal Register Company at March 11, 1997 and the
combined financial statements (including the schedule) of Journal Register
Company, LLC and Affiliates at December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement. The financial statements referred to above are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
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ADDITIONAL INFORMATION
The Company has filed with the Commission under the Securities Act a
Registration Statement (the "Registration Statement") on Form S-1 with respect
to the Common Stock offered in the Offerings. This Prospectus does not contain
all of the information set forth in the Registration Statement in accordance
with the rules and regulations of the Commission. For further information
pertaining to the Company and the Common Stock offered in the Offerings,
reference is made to the Registration Statement, including the exhibits thereto
and the financial statements, notes and schedule filed as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices in
New York (Seven World Trade Center, 13th Floor, New York, New York 10048) and
Chicago (Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661). Copies of such material can be obtained from the public reference
section of the Commission at prescribed rates by writing to the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such materials can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 or on the Internet at
http://www.sec.gov.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Forward-looking statements are statements other than historical information
or statements of current condition. Some forward-looking statements may be
identified by use of terms such as "believes," "anticipates," "intends" or
"expects." The forward-looking statements contained in this Prospectus are
generally located in the material set forth under the headings "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," but may be found in other
locations as well. These forward-looking statements relate to the plans and
objectives of the Company for future operations. In light of the risks and
uncertainties inherent in all future projections, the inclusion of
forward-looking statements in this Prospectus should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved. Many factors could cause the Company's actual
results to differ materially from those in the forward-looking statements,
including, among other things: (i) a decline in general economic conditions,
(ii) the unavailability or material increase in price of newsprint, (iii) an
adverse judgment in pending or future litigation, (iv) increased competitive
pressure from current competitors and future market entrants, and (v) sales of
substantial amounts of the Common Stock in the public markets following the
Offerings, or the perception that such sales could occur. The foregoing review
of important factors should not be construed as exhaustive and should be read in
conjunction with other cautionary statements that are included in this
Prospectus. The Company undertakes no obligation to release publicly the results
of any future revisions it may make to forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
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INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
Journal Register Company
Report of Independent Auditors....................................................... F-2
Balance Sheet as of March 11, 1997................................................... F-3
Note to Balance Sheet................................................................ F-4
Journal Register Company, LLC and Affiliates
Report of Independent Auditors....................................................... F-5
Combined Balance Sheets as of December 31, 1995 and 1996............................. F-6
Combined Statements of Income for each of the three years in the period ended
December 31, 1996.................................................................. F-7
Combined Statements of Members' Deficit for each of the three years ended in the
period ended December 31, 1996..................................................... F-8
Combined Statements of Cash Flows for each of the three years in the period ended
December 31, 1996.................................................................. F-9
Notes to Combined Financial Statements............................................... F-10
Combined Balance Sheets as of December 31, 1996 and March 31, 1997 (unaudited)....... F-22
Combined Statements of Income for the three months ended March 31, 1996 and 1997
(unaudited)........................................................................ F-23
Combined Statements of Cash Flows for the three months ended March 31, 1996 and 1997
(unaudited)........................................................................ F-24
Notes to Combined Financial Statements (unaudited)................................... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Journal Register Company
We have audited the accompanying balance sheet of Journal Register Company as of
March 11, 1997. The balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in acccordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Journal Register Company at March
11, 1997 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 12, 1997
F-2
<PAGE>
JOURNAL REGISTER COMPANY
BALANCE SHEET
MARCH 11, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash................................................................................. $ 100
---------
---------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par, 500 shares authorized, none issued and outstanding........ $ --
Common stock, $.01 par, 500 shares authorized, 100 shares issued and outstanding..... 1
Additional paid-in capital........................................................... 99
---------
Total stockholders' equity........................................................... $ 100
---------
---------
</TABLE>
See accompanying note.
F-3
<PAGE>
JOURNAL REGISTER COMPANY
NOTE TO BALANCE SHEET
MARCH 11, 1997
ORGANIZATION AND BASIS OF PRESENTATION
Journal Register Company (the "Company") was incorporated on March 11, 1997. In
conjunction with the formation of the Company, a company under common control
named Journal Register Company, was renamed Journal Register Newspapers, Inc.
The Company intends to file with the Securities and Exchange Commission a
Registration Statement on Form S-1 for the sale of shares of common stock of the
Company. Prior to the issuance of shares pursuant to the Registration Statement,
certain companies under common control with the Company will be combined with
the Company. Substantially all of the membership interests and equity securities
of these companies are owned by entities controlled by affiliates of E.M.
Warburg, Pincus & Co., LLC. Since the companies are under common control, this
transaction will be accounted for similar to a pooling of interests.
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Journal Register Company, LLC and Affiliates
We have audited the accompanying combined balance sheets of Journal Register
Company, LLC and Affiliates as of December 31, 1996 and 1995, and the related
combined statements of income and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Journal
Register Company, LLC and Affiliates at December 31, 1996 and 1995, and the
combined results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 5, 1997
F-5
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996
PRO FORMA
DECEMBER 31, UNAUDITED
-------------------------------- STOCKHOLDERS'
1995 1996 EQUITY
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 8,622,605 $ 8,546,396
Accounts receivable, less allowance for doubtful accounts
of $2,874,271 in 1995 and $4,172,936 in 1996............. 43,383,073 44,063,981
Inventories................................................ 16,631,351 6,204,002
Deferred income taxes...................................... -- 2,950,798
Other current assets....................................... 4,819,139 4,270,098
--------------- ---------------
Total current assets......................................... 73,456,168 66,035,275
Property, plant and equipment:
Land....................................................... 7,253,772 7,260,008
Buildings and improvements................................. 58,565,573 59,001,100
Machinery and equipment.................................... 129,799,039 135,936,921
--------------- ---------------
195,618,384 202,198,029
Less accumulated depreciation.............................. (96,582,342) (110,484,723)
--------------- ---------------
Property, plant and equipment, net........................... 99,036,042 91,713,306
Deferred income taxes........................................ -- 222,316
Intangible and other assets, net of accumulated amortization
of $10,952,402 in 1995 and $17,610,762 in 1996............. 133,941,759 148,014,311
--------------- ---------------
$ 306,433,969 $ 305,985,208
--------------- ---------------
--------------- ---------------
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Current maturities of long-term debt....................... $ 58,252,361 $ 54,173,894
Accounts payable........................................... 9,822,674 7,200,381
Income taxes payable....................................... 2,137,919 1,195,534
Accrued interest........................................... 9,565,772 7,498,261
Deferred subscription revenue.............................. 6,220,345 5,878,837
Other accrued expenses and current liabilities............. 16,835,692 15,946,505
--------------- ---------------
Total current liabilities.................................... 102,834,763 91,893,412
Senior debt, less current maturities......................... 599,780,000 566,390,000
Subordinated notes and accrued interest due to members....... 30,290,310 33,319,341
Deferred income taxes........................................ 1,662,602 --
Accrued retiree benefits and other liabilities............... 12,830,257 11,602,809
Income taxes payable......................................... 10,802,709 26,437,689
Commitments and contingencies (NOTE 8)
Members' deficit:
Common stock, $.01 par, 300,000,000 shares authorized and
37,962,500 shares issued and outstanding................. -- -- $ 379,625
Membership interests....................................... 2,104,200 2,104,200 --
Additional paid-in capital................................. 222,167,335 222,167,335 223,891,910
Accumulated deficit........................................ (676,038,207) (647,929,578) (647,929,578)
--------------- --------------- ---------------
Net members' deficit......................................... (451,766,672) (423,658,043) (423,658,043)
--------------- --------------- ---------------
$ 306,433,969 $ 305,985,208
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
-------------- -------------- --------------
Revenues:
Advertising................................................... $ 224,071,191 $ 249,533,751 $ 256,971,648
Circulation................................................... 65,204,313 73,797,189 79,775,654
-------------- -------------- --------------
Newspaper revenues.............................................. 289,275,504 323,330,940 336,747,302
Commercial printing and other................................... 10,875,057 15,626,106 14,372,773
-------------- -------------- --------------
300,150,561 338,957,046 351,120,075
Operating expenses:
Salaries and employee benefits................................ 105,606,718 110,651,094 111,626,137
Newsprint, ink and printing charges........................... 36,481,069 48,243,571 50,110,087
Selling, general and administrative........................... 25,312,179 28,678,214 30,992,643
Depreciation and amortization................................. 18,605,116 19,177,764 20,525,352
Other......................................................... 34,187,475 38,742,660 38,976,064
-------------- -------------- --------------
220,192,557 245,493,303 252,230,283
-------------- -------------- --------------
Operating income................................................ 79,958,004 93,463,743 98,889,792
Other income (expense):
Interest expense.............................................. (41,791,327) (63,468,099) (56,409,520)
Interest income............................................... 330,117 158,212 106,805
Other......................................................... (587,971) (717,961) (169,154)
-------------- -------------- --------------
Income before provision for income taxes and extraordinary
item.......................................................... 37,908,823 29,435,895 42,417,923
Provision for income taxes...................................... 4,126,326 2,653,294 14,309,294
-------------- -------------- --------------
Income before extraordinary item................................ 33,782,497 26,782,601 28,108,629
Extraordinary item:
Loss on extinguishment of debt................................ 13,099,981 -- --
-------------- -------------- --------------
Net income...................................................... $ 20,682,516 $ 26,782,601 $ 28,108,629
-------------- -------------- --------------
-------------- -------------- --------------
Pro forma-unaudited
Historical net income......................................... $ 28,108,629
--------------
--------------
Pro forma net income per common share......................... $ .74
--------------
--------------
Pro forma common shares outstanding........................... 37,962,500
--------------
--------------
</TABLE>
See accompanying notes.
F-7
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED STATEMENTS OF MEMBERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED MEMBERSHIP ADDITIONAL ACCUMULATED
STOCK INTEREST PAID-IN-CAPITAL DEFICIT TOTAL
---------- ----------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993.............. $ 411,875 $2,104,200 $283,352,872 $ (723,503,324) $ (437,634,377)
Net income................................ 20,682,516 20,682,516
Redemption of Preferred Stock............. (411,875) -- (61,185,537) -- (61,597,412)
Balance at December 31, 1994.............. -- 2,104,200 222,167,335 (702,820,808) (478,549,273)
Net income................................ 26,782,601 26,782,601
---------- ----------- -------------- -------------- --------------
Balance at December 31, 1995.............. -- 2,104,200 222,167,335 (676,038,207) (451,766,672)
Net income................................ 28,108,629 28,108,629
---------- ----------- -------------- -------------- --------------
Balance at December 31, 1996.............. -- $2,104,200 $222,167,335 $ 647,929,578 $ (423,658,043)
---------- ----------- -------------- -------------- --------------
---------- ----------- -------------- -------------- --------------
</TABLE>
See accompanying notes.
F-8
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1994 1995 1996
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 20,682,516 $ 26,782,601 $ 28,108,629
Adjustments to reconcile net income to net cash provided by
operating activities:
Loss on debt extinguishment...................................... 13,099,981 -- --
Provision for losses on accounts receivable...................... 1,926,668 2,871,631 3,914,496
Depreciation and amortization.................................... 18,605,116 19,177,764 20,525,352
Net (gain) loss on disposal of property, plant and equipment..... 82,817 263,465 (110,197)
Increase in income taxes payable................................. 1,103,527 497,516 14,692,595
(Decrease) increase in accrued interest.......................... (3,104,305) 8,760,434 (2,067,511)
(Decrease) in deferred income taxes.............................. (21,641) (482,695) (4,835,716)
(Increase) in accounts receivable................................ (7,623,838) (6,947,008) (3,971,885)
Decrease (increase) in inventories............................... (3,248,860) (7,209,388) 10,475,816
(Decrease) increase in accounts payable.......................... 7,157,704 (5,320,331) (2,663,768)
(Decrease) increase in deferred subscription revenue............. 2,084,094 182,721 (401,370)
(Decrease) in accrued retiree benefits and other liabilities..... (663,135) (1,802,611) (1,227,448)
(Increase) decrease in other assets, net of increase (decrease)
in other liabilities........................................... (3,812,587) (9,996,494) (2,374,167)
------------- ------------- -------------
Net cash provided by operating activities.......................... 46,268,057 26,777,605 60,064,826
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment......................... (8,325,764) (4,859,023) (7,674,504)
Net proceeds from sale of property, plant and equipment............ 211,941 40,715 236,643
Purchase of newspaper properties................................... (14,500,000) (45,738,379) (18,262,205)
------------- ------------- -------------
Net cash used in investing activities.............................. (22,613,823) (50,556,687) (25,700,066)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt:
Senior Facilities................................................ 559,000,000 133,000,000 7,000,000
Deferred loan costs.............................................. (10,462,253) -- --
Accretion on Subordinated Notes.................................. 6,981,454 2,745,390 3,029,031
Repayments of:
Senior debt...................................................... (527,282,676) (29,000,000) (44,470,000)
Subordinated Notes............................................... -- (82,361,724) --
Redemption of preferred stock:
Preferred stock.................................................. (41,187,500) -- --
Preferred stock dividends........................................ (20,409,912) -- --
------------- ------------- -------------
Net cash (used in) provided by financing activities................ (33,360,887) 24,383,666 (34,440,969)
------------- ------------- -------------
(Decrease) increase in cash and cash equivalents................... (9,706,653) 604,584 (76,209)
Cash and cash equivalents, beginning of year....................... 17,724,674 8,018,021 8,622,605
------------- ------------- -------------
Cash and cash equivalents, end of year............................. $ 8,018,021 $ 8,622,605 $ 8,546,396
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest......................................................... $ 37,119,772 $ 51,672,881 $ 54,244,177
Income taxes..................................................... 3,044,440 1,940,148 4,452,415
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES
Issuance of additional Subordinated Notes.......................... $ 6,981,454 $ 2,745,390 $ 3,029,031
</TABLE>
See accompanying notes.
F-9
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements include Journal Register Company, LLC
("JRC, LLC") and all of its wholly owned affiliates, INS Holdings, Inc. ("INSI")
and Journal Register Company (now known as Journal Register Newspapers, Inc.)
("JRC"). The Company is used to refer to the combination of JRC, INSI and JRC,
LLC.
JRC, LLC was organized in New York in December 1994 for the purpose of
acquiring and operating newspaper companies; it commenced operations in December
1994. Effective December 21, 1994, the stockholders of Journal News, Inc.
("JNI") and Journal Company, Inc. ("JCI"), affiliates of the Company
(collectively the "Companies"), entered into an exchange agreement (the
"Exchange Agreement") with the Company, whereby JRC, LLC issued 2 million
membership interests, representing all the issued and outstanding membership
interests in JRC, LLC, to the stockholders of the Companies in exchange for all
of the issued and outstanding common stock of the Companies. Since the combined
Companies were under common control, this transaction was accounted for in a
manner similar to a pooling of interests and the accompanying combined financial
statements include the accounts and operations of JNI and JCI for all periods
presented. Affiliates of E.M. Warburg, Pincus and Co., LLC (collectively
"Warburg, Pincus") own substantially all of the membership interests of JRC,
LLC.
JRC is jointly owned by the operating subsidiaries of JRC, LLC and manages
the newspaper subsidiaries of JRC, LLC on an expense reimbursement basis. INSI,
which is owned by Warburg, Pincus, is a company that develops application
software for the newspaper industry and provides services to the Company's
subsidiaries and unrelated companies. (See Note 11, Subsequent Events
(unaudited).)
The Company primarily publishes small metropolitan and suburban daily and
suburban and community non-daily newspapers serving markets in Connecticut,
Ohio, Philadelphia and its surrounding areas, the greater St. Louis area and
central New England and has commercial printing operations in Connecticut, Ohio
and Missouri.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of JRC, LLC and all
of its wholly owned affiliates, JRC and INSI. All significant intercompany
accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Such estimates would include the allowance for doubtful
accounts and valuation allowance for deferred income taxes. Actual results could
differ from those estimates.
COMBINED STATEMENTS OF CASH FLOWS
For purposes of the accompanying combined statements of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. The carrying value of cash
equivalents approximates fair value due to the short-term maturity of these
instruments.
F-10
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA EARNINGS PER SHARE
The pro forma net income per common share was calculated based upon the
37,962,500 shares which will be issued prior to the proposed offerings but
subsequent to December 31, 1996. If effect were given to the 9,375,000 shares
that will be issued in the proposed offerings for which the proceeds will be
used to repay debt and the additional 1,100,000 shares to be issued to
management as part of special bonuses (see Footnote 11, Subsequent Events
(unaudited)), the shares outstanding would be 48,437,500 and net income would
increase to $36,298,026, resulting in net income per common share of $.75 or an
increase of $.01. The net income of $36,298,026 reflects net interest expense
reduction ($12.4 million, or $8.2 million net of tax) resulting from the use of
proceeds to reduce debt and additional debt required to pay the special
management bonuses. The interest expense reduction includes savings net of tax
of $1.5 million associated with the lower interest rate based on the pro forma
reduction in outstanding borrowings used to calculate the Company's interest
rate (see Note 4, "Long-Term Debt").
INVENTORIES
Inventories, consisting of newsprint, ink and supplies, are stated at the
lower of cost (primarily first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Maintenance and repairs
are charged to expense as incurred; costs of major additions and betterments are
capitalized.
Depreciation is provided for financial reporting purposes primarily by the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................... 5 to 30
years
Machinery and equipment....................................... 3 to 20
years
</TABLE>
INTANGIBLE ASSETS AND OTHER ASSETS
Intangible assets recorded in connection with the acquisition of newspapers
generally consist of the values assigned to subscriber lists and the excess of
cost over the value of identifiable net assets of the companies acquired. These
assets are carried at the lower of amortized cost or the amount expected to be
recovered by projected future operations after considering attributable general
and administration expense and interest on debt allocated to the various
newspapers. If, in the opinion of management, an impairment in value occurs, any
necessary write-downs are charged to expense.
The balance of intangible assets at December 31, 1996 was comprised of
subscriber lists and excess cost over the value of identifiable net assets of
companies acquired. These assets are being amortized over a period of 4 to 40
years and are amortized by the straight-line method.
In the beginning of 1996, the Company adopted SFAS No. 121 "ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF." The adoption of SFAS No. 121 did not materially impact the financial
statements. In accordance with SFAS No. 121 the Company reviews the
recoverability of intangibles and other long-lived assets whenever events and
circumstances indicate that
F-11
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the carrying amount may not be recoverable. The carrying amount of the
long-lived assets is reduced by the difference between the carrying amount and
estimated fair value.
Other assets consist principally of capitalized costs associated with the
Term Loan and the Revolver (as defined in Note 4, Long-Term Debt) that are being
amortized over the terms of such loans.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities
and are measured using the currently enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
Each of JCI, JNI, JRC, INSI and JRC, LLC files its own federal income tax
returns on a consolidated or separate basis as appropriate.
DEFERRED SUBSCRIPTION REVENUE
Deferred subscription revenue arises from subscription payments made in
advance of newspaper delivery. Revenue is recognized in the period in which it
is earned.
INTEREST RATE PROTECTION AGREEMENTS
The Company enters into Interest Rate Protection Agreements ("IRPA") to
modify the interest characteristics of its outstanding debt. Each IRPA is
designated for all or a portion of the principal balance and term of a specific
debt obligation. These agreements involve the exchange of amounts based on a
fixed interest rate for amounts based on variable interest rates over the life
of the agreement without an exchange of the notional amount upon which the
payments are based. The differential to be paid or received as interest rates
change is accrued and recognized as an adjustment of interest expense related to
the debt (the accrual accounting method). The related amount payable to or
receivable from counterparties is included in accrued interest. The fair values
of IRPAs are not recognized in the financial statements. Gains and losses on
terminations of IRPAs would be deferred as an adjustment to the carrying amount
of the outstanding debt and amortized as an adjustment to interest expense
related to the debt over the remaining term of the original contract life of the
IRPAs. In the event of the early extinguishment of a designated debt obligation,
any realized or unrealized gain or loss from the IRPA would be recognized in
income coincident with the extinguishment. Any IRPAs that were not designated
with outstanding debt or notional amounts (or durations) of IRPAs in excess of
the principal amounts (or maturities) of the underlying debt obligations would
be recorded as an asset or liability at fair value, with changes in fair value
recorded in other income (expense).
CONCENTRATION OF RISK
Certain employees of the Company's newspapers are employed under collective
bargaining agreements.
F-12
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. INTANGIBLE AND OTHER ASSETS
Intangible and other assets as of December 31, net of accumulated
amortization, are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Excess of cost over the value of identifiable net assets and
subscriber lists........................................... $ 114,888,103 $ 125,846,862
Prepaid pension cost......................................... 5,984,261 7,152,779
Other........................................................ 13,069,395 15,014,670
-------------- --------------
$ 133,941,759 $ 148,014,311
-------------- --------------
-------------- --------------
</TABLE>
4. LONG-TERM DEBT
The Company's long-term debt as of December 31 was comprised of the
following:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Senior Secured Term Loans.................................... $ 546,000,000 $ 501,530,000
Senior Secured Revolving Credit Facility..................... 112,000,000 119,000,000
Subordinated Notes and accrued interest due to members....... 30,290,310 33,319,341
Other debt................................................... 965,216 975,742
-------------- --------------
689,255,526 654,825,083
Less current portion......................................... (58,252,361) (54,173,894)
-------------- --------------
$ 631,003,165 $ 600,651,189
-------------- --------------
-------------- --------------
</TABLE>
Effective December 21, 1994 (the "Effective Date") JRC, LLC entered into a
definitive credit agreement (as amended the "Credit Agreement") to obtain Senior
Secured Term Loans (the "Term Loan") and a Senior Secured Revolving Credit
Facility (the "Revolver"). At December 31, 1996, JRC, LLC had approximately
$501.5 million outstanding under the Term Loan and $119.0 million outstanding
under the Revolver. JRC, LLC had $26.0 million unused and available under the
Revolver at December 31, 1996. The Term Loan matures on December 31, 2002 and
the Revolver matures on December 31, 2003. (See Note 11, Subsequent Events
(unaudited).)
During 1996, the Company had net borrowings under the Revolver of $7.0
million. The Company borrowed approximately $18.0 million under the Revolver to
fund the acquisition of the TAUNTON DAILY GAZETTE (see Note 9, Acquisitions)
which was offset by $11.0 million of net paydowns of the Revolver.
The aggregate annual maturities of long-term debt payable under the Term
Loan are as follows:
<TABLE>
<S> <C>
1997.......................................................... $54,140,000
1998.......................................................... 70,060,000
1999.......................................................... 80,980,000
2000.......................................................... 91,900,000
2001.......................................................... 102,590,000
Thereafter.................................................... 101,860,000
</TABLE>
The Revolver has a step-down of availability of $25.0 million on each of
December 31, 2000, 2001 and 2002. The final $70.0 million of availability
expires and, if outstanding, is due on December 31, 2003.
F-13
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. LONG-TERM DEBT (CONTINUED)
In addition, commencing in the year 2000, the Credit Agreement requires a
mandatory prepayment of the debt equal to 75.0% of Excess Cash Flows, as defined
in the Credit Agreement.
The Senior Facilities are secured by substantially all of the assets of the
Company and the common stock and assets of the Company's subsidiaries. The
Senior Facilities require compliance with certain covenants, which require,
among other things, maintenance of certain financial ratios, and restrict the
Company's ability to declare dividends, redeem stock, incur additional
indebtedness, create liens, sell assets, consummate mergers and make capital
expenditures, investments and acquisitions.
The amounts outstanding under the Senior Facilities bear interest at (i)
1 1/8% to 0% above the higher of the Prime Rate or 1/2% above the Federal Funds
Rate (collectively the "Base Rate") or (ii) 2 3/8% to 1% above the London
Interbank Offered Rate ("LIBOR"). The interest rate spreads are dependent upon
the debt to twelve months trailing cash flow ratio (as defined in the Credit
Agreement) and reduce as such ratio declines. As of December 31, 1996, the
Company was paying interest at 2% above LIBOR. As of December 31, 1994 and 1995
the Company was paying 2 3/8% above LIBOR. At December 31, 1996 the Company had
outstanding $615.5 million of LIBOR loans and $5 million of Base Rate loans. The
average all-in interest rates on the Senior Facilities were approximately 6.5%,
9.1% and 8.4% for the years ended December 31, 1994, 1995 and 1996,
respectively. The average all-in interest rates reflect the effects of "IRPAs".
An annual commitment fee of 1/2% is incurred on the unused portion of the
commitment under the Revolver.
The Credit Agreement requires the Companies to maintain interest rate
protection for at least fifty percent of the outstanding debt in order to manage
interest rate risk. In accordance with this requirement, the Companies
participated in various interest rate protection agreements whereby the
Companies have assumed a fixed rate of interest and a counterparty has assumed
the variable rate (the "SWAPs"). The aggregate notional principal amount of such
SWAPs is $445.0 million. The Companies have also entered into interest rate
collar agreements with an aggregate notional principal amount of $141.0 million.
The agreements are with major financial institutions which are expected to fully
perform under the terms of the agreements thereby mitigating the credit risk
from the transactions. The notional amounts of such IRPAs are used to measure
interest to be paid or received with respect to such IRPAs and do not represent
the amount of exposure to credit risk. Pursuant to the SWAP agreements, the
Company agrees to exchange with certain banks at specific dates the difference
between fixed rate in the SWAP agreements and LIBOR floating rate applied to the
notional principal amount. Under the collar agreements, the Company assumes the
fixed rate position on an agreed upon ceiling rate and receives payment if the
LIBOR exceeds such fixed rate. Alternatively, the Company assumes the LIBOR
fixed rate position and makes payments to the banks if LIBOR is below the fixed
floor rate. No payments are made if the LIBOR remains between the fixed ceiling
and fixed floor rates.
Interest rate protection agreements relating to the Company's borrowings
include the SWAP agreements with notional principal amounts of $300.0 million
and $145.0 million, maturing on January 30, 1999 and January 30, 1997,
respectively; and with fixed rates of approximately 6.22% and 5.14%,
respectively. Interest rate protection agreements also include collars with
aggregate notional principal amounts of $141.0 million and ceiling interest
rates ranging from 7.29% through 7.41% and floor interest rates of 5.48%. The
collars expire on various dates between April 30, 1998 and June 30, 1998. If the
F-14
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. LONG-TERM DEBT (CONTINUED)
SWAPs were marked to market at December 31, 1996, they would result in a net
loss of approximately $1.3 million. If the collars were marked to market at
December 31, 1996 they would result in a net loss of approximately $195,000. The
fair value as of December 31, 1996 of the IRPAs was obtained from the Company's
bank.
As of December 31, 1996, the Company has a contract for a collar with a
notional principal amount of $145.0 million. The collar replaces the $145.0
million SWAP, identified above, that expired on January 30, 1997. The collar is
effective January 30, 1997 and expires April 30, 1998, and has a ceiling rate of
7.31% and floor rate of 5.48%. The notional principal amount of the collar
amortizes at the end of each quarter in $17.5 million increments. If the $145.0
million collar was marked to market at December 31, 1996 it would result in a
$188,000 loss.
The estimated fair value of the Term Loan and Revolver approximates their
carrying value since the interest rates are variable.
In connection with the refinancings in 1994, the Company recognized a net
loss of approximately $13.1 million on the early extinguishment of debt which
was classified as an extraordinary item.
As of December 31, 1995 and 1996, affiliates of Warburg, Pincus owned
approximately $30.3 million and $33.3 million, respectively, of the Company's
Subordinated Notes. The Subordinated Notes bear interest at 10.0% per annum.
5. PENSION PLANS
The Company and its affiliates have separate defined benefit pension plans,
certain of which are successors to prior plans. The benefits are based on years
of service and primarily on the employee's career average pay. The Company's
funding policy is to contribute annually an amount that can be deducted for
federal income tax purposes under a different actuarial cost method and
different assumptions from those used for financial reporting. Assets of the
plans consist principally of short-term investments, equity securities and
corporate and U.S. Government obligations.
F-15
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
5. PENSION PLANS (CONTINUED)
The following table sets forth the plans' funded status and the amount
recognized in the Company's combined balance sheet as of December 31:
<TABLE>
<CAPTION>
1995 1996
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
------------- ------------- ------------- -------------
Actuarial present value of benefit obligation:
Vested benefit obligation......................... $ 41,814,000 $ 10,185,000 $ 43,197,000 $ 10,234,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Accumulated benefit obligation.................... $ 42,458,000 $ 10,418,000 $ 44,209,000 $ 10,462,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Projected benefit obligation........................ $ 42,907,000 $ 10,745,000 $ 44,489,000 $ 10,641,000
Fair value of plan assets........................... 55,777,489 8,646,188 60,027,445 9,027,442
------------- ------------- ------------- -------------
Plan assets in excess of (less than) projected
benefit obligation................................ 12,870,489 (2,098,812) 15,538,445 (1,613,558)
Unrecognized net transition (asset) obligation being
amortized over 15 years........................... (324,042) 856,148 (274,820) 716,721
Adjustment required to recognize minimum
liability......................................... -- (546,151) -- (399,756)
Unrecognized net (gain) loss........................ (2,877,298) 218,477 (4,833,514) (112,682)
Unrecognized prior service cost..................... (3,684,888) (387,395) (3,277,332) (426,321)
------------- ------------- ------------- -------------
Prepaid (accrued) pension cost...................... $ 5,984,261 $ (1,957,733) $ 7,152,779 $ (1,835,596)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Assumptions used in determining the funded status of the pension plans are
as follows:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Discount rate........................................................ 7.50% 7.75%
Average rate of increase in compensation levels...................... 3.0 3.0
Expected long-term rate of return on assets.......................... 9.0 9.0
Mortality rates...................................................... 71GAT 83GAM
Unloaded
</TABLE>
Components of net periodic pension income include:
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Service cost..................................... $ 1,146,853 $ 954,671 $ 1,366,184
Interest cost.................................... 2,919,187 3,126,405 3,864,310
Expected return on plan assets................... (4,398,713) (4,631,255) (5,704,717)
Net amortization................................. (261,625) (363,963) (280,076)
Other............................................ 55,298 92,964 --
------------- ------------- -------------
Net periodic pension income...................... $ (539,000) $ (821,178) $ (754,299)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Net amortization consists of amortization of net assets or obligations at
transition, subsequent plan amendments and of subsequent net gains and losses.
F-16
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
5. PENSION PLANS (CONTINUED)
The Company also has defined contribution pension plans covering certain
employees. Contributions to these plans are based on a percentage of
participants' salaries and amounted to approximately $497,000, $438,000 and
$417,000 in 1994, 1995, and 1996, respectively.
The Company contributes to various multi-employer union administered pension
plans. Contributions to these plans amounted to approximately $133,000, $98,000
and $71,000 in 1994, 1995 and 1996, respectively.
6. POSTRETIREMENT BENEFITS
The following table sets forth the postretirement medical plans' funded
status as of December 31:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................................ $ 7,111,000 $ 6,807,000
Fully eligible active plan participants............................................. 113,200 126,800
Other active plan participants...................................................... 178,600 169,400
------------ ------------
7,402,800 7,103,200
Plan assets at fair value............................................................. -- --
------------ ------------
Accumulated postretirement benefit obligation in excess of plan assets................ 7,402,800 7,103,200
Unrecognized net gain................................................................. 226,502 321,420
Unrecognized prior service cost....................................................... 768,600 785,900
------------ ------------
Accrued postretirement benefit obligation............................................. $ 8,397,902 $ 8,210,520
------------ ------------
------------ ------------
</TABLE>
Net periodic postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ----------- ----------
<S> <C> <C> <C>
Service cost--benefits earned during the period............................. $ 11,500 $ 11,000 $ 10,800
Interest cost on accumulated postretirement benefit obligation.............. 495,600 460,600 525,300
Other....................................................................... 1,773 (127,700) (96,100)
---------- ----------- ----------
$ 508,873 $ 343,900 $ 440,000
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
Future benefit costs were estimated assuming medical costs would increase at
a 10% annual rate during 1996 and decreasing 1.0% per year to a 6.5% annual
increase in the year 2000 and beyond. The discount rate used to estimate the
accumulated postretirement obligation was 8.75%, 7.5% and 7.75% at December 31,
1994, 1995 and 1996, respectively. If the assumed trend rate were to change by
1.0% the accumulated postretirement benefit obligation would change by
approximately $352,000 and the net periodic postretirement benefit costs would
change by approximately $33,400.
F-17
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Current tax expense:
Federal............................................................. $ 600,192 $ 23,299 $ 9,812,276
State............................................................... 3,547,775 2,414,365 9,332,734
------------ ------------ -------------
Total current......................................................... 4,147,967 2,437,664 19,145,010
Deferred tax expense (benefit):
Federal............................................................. -- -- (4,321,652)
State............................................................... (21,641) 215,630 (514,064)
------------ ------------ -------------
Total deferred........................................................ (21,641) 215,630 (4,835,716)
------------ ------------ -------------
Total provision for taxes............................................. $ 4,126,326 $ 2,653,294 $ 14,309,294
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to income tax expense is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Tax at U.S. statutory rates........................................ $ 13,315,827 $ 10,302,563 $ 14,846,273
State taxes, net of federal effect................................. 2,291,992 1,709,497 5,732,136
Reduction in valuation allowance................................... (11,811,378) (9,892,560) (6,632,116)
Other.............................................................. 329,885 533,794 363,001
-------------- ------------- -------------
$ 4,126,326 $ 2,653,294 $ 14,309,294
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
The reduction in the valuation allowance in 1996 reflects the recognition of
approximately $4,332,000 in deferred tax benefits expected to be realized in
future years, as well as the reversal of certain temporary differences. The
decrease in the valuation allowance in 1994 and 1995 reflects the use of
approximately $20.7 million and $6.1 million respectively, of federal net
operating loss carryforwards, as well as the reversal of certain temporary
differences in each of these years.
State net operating loss carryforwards were utilized as follows: $4.4
million in 1994, $5.5 million in 1995 and $300,000 in 1996.
At December 31, 1996, certain subsidiaries have remaining net operating loss
carryforwards available ranging from approximately $20,000 to $73.8 million in
various state and local jurisdictions. Substantial portions of the related
deferred tax assets are offset by valuation allowances. The carryforwards at
December 31, 1996 expire in various years through 2011.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-18
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets as
of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment................................ $ 15,491,049 $ 14,986,274
Other........................................................ -- 394,159
------------- -------------
Total deferred tax liabilities................................. 15,491,049 15,380,433
Deferred tax assets:
Intangible assets............................................ 10,848,566 7,865,686
Retiree benefits............................................. 1,554,823 1,015,199
Net operating loss carryforwards............................. 2,778,381 2,791,250
Deferred interest expense.................................... 5,766,896 5,467,656
Other........................................................ 2,913,590 3,763,363
------------- -------------
Total deferred tax assets...................................... 23,862,256 20,903,154
Valuation allowance............................................ 10,033,809 2,349,607
------------- -------------
Net deferred tax assets........................................ 13,828,447 18,553,547
------------- -------------
Net deferred tax (assets) liabilities.......................... $ 1,662,602 $ (3,173,114)
------------- -------------
------------- -------------
</TABLE>
The Company's valuation allowances for deferred tax assets decreased by
approximately $8.6 million in 1995 and $7.7 million in 1996.
The Company's federal income tax returns, which consist of filings for three
separate consolidated groups and two individual entities, have not been examined
by the Internal Revenue Service.
8. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under noncancellable operating
leases which expire over the next five years. These leases contain several
renewal options for periods up to five years. The Company's future minimum lease
payments under operating leases at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................ $1,315,955
1998............................................................ 1,238,355
1999............................................................ 1,185,287
2000............................................................ 1,112,328
2001............................................................ 244,822
</TABLE>
Total rent expense was $1.3 million, $1.4 million and $1.4 million for the
years ended December 31, 1994, 1995 and 1996, respectively.
The Company is involved in certain litigation matters which have arisen in
the ordinary course of business. In the opinion of management, the outcome of
these legal proceedings should not have a material adverse impact on the
Company's financial position or results of operations.
F-19
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
9. ACQUISITIONS
On December 13, 1996, the Company acquired for approximately $18.0 million
certain assets and liabilities of a daily newspaper, published in Taunton,
Massachusetts. The Company applied the purchase method of accounting for this
transaction. Accordingly, the total acquisition cost was preliminarily allocated
to the assets and liabilities of the TAUNTON DAILY GAZETTE based on their
relative estimated fair values on the effective date of the acquisition of $1.8
million and $500,000, respectively. Intangible assets of approximately $17.0
million were recorded for the subscriber list and excess of the purchase price
over the value of identifiable net assets and are being amortized on a
straight-line basis over four to 40 years.
On May 5, 1995, the Company acquired for $31.0 million certain assets and
liabilities of a group of newspapers, which include 42 publications and a
commercial printing company, located in Connecticut and Rhode Island
(collectively, the "New England Acquisition Corp."). The Company applied the
purchase method of accounting for this transaction. Accordingly, the total
acquisition cost was allocated to the assets and liabilities of the New England
Acquisition Corp. based on their relative estimated fair values on the effective
date of the acquisition of approximately $5.0 million and $2.1 million,
respectively.
On June 21, 1995, the Company acquired the stock of the THE HERALD (New
Britain) for $11.0 million plus the assumption of certain noncurrent
liabilities. THE HERALD publishes a daily newspaper in Connecticut. The Company
applied the purchase method of accounting for this transaction. The estimated
fair values of identifiable net assets and liabilities on the effective date of
the acquisition were $2.5 million and $7.5 million, respectively.
On August 31, 1995, the Company acquired for $5.5 million certain assets and
liabilities of the THE MIDDLETOWN PRESS, a daily newspaper published in
Middletown, Connecticut. The Company applied the purchase method of accounting
for this transaction. The estimated fair values of identifiable assets and
liabilities on the effective date of the acquisition were $4.1 million and
$500,000, respectively.
Intangible assets of $45.9 million related to the aforementioned 1995
acquisitions were recorded for the subscriber lists and excess of the purchase
price over the value of identifiable net assets and are being amortized on a
straight-line basis over 4 to 40 years.
F-20
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
10. MEMBERSHIP INTERESTS
Membership Interests and Capital Stock of JRC, LLC and Affiliates at
December 31, 1994, 1995 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
MEMBERSHIP INTERESTS/SHARES ADDITIONAL
PAR ---------------------------------------- MEMBERSHIP PAID-IN
VALUE AUTHORIZED ISSUED OUTSTANDING INTEREST CAPITAL
--------- ---------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Journal Register Company, LLC:
Class A Membership Interest........... $ 1.00 1,000,000 1,000,000 1,000,000 $ 1,000,000
Class B Membership Interest........... $ 1.00 1,000,000 1,000,000 1,000,000 1,000,000
Additional paid-in capital............ -- $ 216,982,319
------------ --------------
2,000,000 216,982,319
INS Holdings, Inc.:
Common stock voting................... $ .10 2,000 2,000 2,000 200 --
Common stock non-voting............... $ .10 1,000,000 1,000,000 1,000,000 100,000 --
Preferred Stock, Class A.............. $ 1.00 4,000 4,000 4,000 4,000
Additional paid-in capital............ -- 5,185,016
------------ --------------
104,200 5,185,016
------------ --------------
$ 2,104,200 $ 222,167,335
------------ --------------
------------ --------------
</TABLE>
In connection with the Exchange Agreement mentioned in Note 1 to the
combined financial statements, on December 21, 1994 the Company exchanged 2
million of its membership interests, representing all the issued and outstanding
membership interests of the Company, for all the issued and outstanding shares
of common stock of each of JNI and JCI.
JCI redeemed all of the issued and outstanding shares of its Senior
Preferred Stock on December 21, 1994 (the "Redemption Date") for its face value
of $18.2 million plus dividends in arrears of approximately $20.4 million. In
addition, JCI redeemed all of the issued and outstanding shares of its Serial
Preferred Stock on the Redemption Date for its face value of $23.0 million.
11. SUBSEQUENT EVENTS (UNAUDITED)
On March 11, 1997, Journal Register Company was incorporated. In conjunction
with the formation of Journal Register Company, a company under common control
named Journal Register Company (see Note 1, Organization and Basis of
Presentation), was renamed Journal Register Newspapers, Inc. Journal Register
Company intends to file with the Securities and Exchange Commission a
Registration Statement on Form S-1 for the sale of shares of common stock. Prior
to the issuance of shares pursuant to the Registration Statement, certain
entities (INS Holdings, Inc., Journal Register Newspapers, Inc. and JRC, LLC)
under common control with the Company will be combined with Journal Register
Company. Substantially all of the membership interests and equity securities of
these entities are owned by Warburg, Pincus. Since the companies are under
common control, this transaction will be accounted for similar to a pooling of
interests.
The Company intends to adopt a bonus plan to pay special bonuses to certain
employees totalling approximately $32 million assuming a price to public in the
proposed offerings pursuant to the Registration Statement described above of
$16.00. The Company expects to incur a charge to pre-tax earnings of
approximately $35 million in the second quarter of 1997. The Company expects
that the bonus plan will account for approximately $32 million of such charge;
however, the amount of such charge will depend on the price to public. The
discontinuation of the Company's long-term incentive plan will account for
approximately $3 million of such charge. The charge of $35 million was not
reflected in the pro forma information since it represents a one-time charge in
conjunction with the offering. In addition, the Company intends to adopt a stock
incentive plan. Such plan will be accounted for in accordance with APB Opinion
No. 25.
In connection with the aforementioned public offering, the Company expects
to amend the terms of, and restate, the Credit Agreement.
F-21
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
MARCH 31,
1997
PRO FORMA
DECEMBER 31, MARCH 31, STOCKHOLDERS'
1996 1997 EQUITY
-------------- -------------- ---------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Assets
Current assets:
Cash and cash equivalents.................................... $ 8,546,396 $ 6,079,172
Accounts receivable, less allowance
for doubtful accounts of $4,172,936 at December 31, 1996
and $4,760,334 at March 31, 1997........................... 44,063,981 41,914,883
Inventories.................................................. 6,204,002 6,285,690
Deferred income taxes........................................ 2,950,798 2,849,718
Other current assets......................................... 4,270,098 4,859,362
-------------- --------------
Total current assets........................................... 66,035,275 61,988,825
Property, plant and equipment:
Land......................................................... 7,260,008 7,249,658
Buildings and improvements................................... 59,001,100 59,379,943
Machinery and equipment...................................... 135,936,921 136,791,411
-------------- --------------
202,198,029 203,421,012
Less accumulated depreciation................................ 110,484,723 114,090,020
-------------- --------------
Property, plant and equipment, net............................. 91,713,306 89,330,992
Deferred income taxes.......................................... 222,316 --
Intangible and other assets, net of accumulated amortization of
$17,610,762 at December 31, 1996 and $19,315,541 at March 31,
1997......................................................... 148,014,311 147,955,077
-------------- --------------
$ 305,985,208 $ 299,274,894
-------------- --------------
-------------- --------------
Liabilities and Members' Deficit
Current liabilities:
Current maturities of long-term debt......................... $ 54,173,894 $ 58,154,621
Accounts payable............................................. 7,200,381 7,690,234
Income taxes payable......................................... 1,195,534 476,397
Accrued interest............................................. 7,498,261 7,270,155
Deferred subscription revenue................................ 5,878,837 5,601,342
Other accrued expenses and current liabilities............... 15,946,505 17,136,606
-------------- --------------
Total current liabilities...................................... 91,893,412 96,329,355
Senior debt, less current maturities........................... 566,390,000 545,875,000
Subordinated notes and accrued interest due to members......... 33,319,341 34,140,914
Deferred income taxes.......................................... -- 687,404
Accrued retiree benefits and other liabilities................. 11,602,809 11,130,451
Income taxes payable........................................... 26,437,689 29,045,701
Commitments and contingencies
Members' deficit:
Common stock, $.01 par value, 300,000,000 shares authorized
and 37,962,500 shares issued and outstanding............... $ 379,625
Membership interests......................................... 2,104,200 2,104,200 --
Additional paid-in capital................................... 222,167,335 222,167,335 223,891,910
Accumulated deficit.......................................... (647,929,578) (642,205,466) (642,205,466)
-------------- -------------- ---------------
Net members' deficit........................................... (423,658,043) (417,933,931) $ (417,933,931)
-------------- -------------- ---------------
---------------
$ 305,985,208 $ 299,274,894
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-22
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Revenues:
Advertising...................................................................... $ 58,668,448 $ 60,419,663
Circulation...................................................................... 19,739,034 19,829,684
------------- -------------
Newspaper revenues................................................................. 78,407,482 80,249,347
Commercial printing and other...................................................... 3,801,960 2,791,049
------------- -------------
82,209,442 83,040,396
Operating expenses:
Salaries and employee benefits................................................... 28,129,000 28,662,953
Newsprint, ink and printing charges.............................................. 13,190,394 9,130,050
Selling, general and administrative.............................................. 7,619,237 7,641,156
Depreciation and amortization.................................................... 4,956,489 5,418,231
Other............................................................................ 9,624,345 9,543,316
------------- -------------
63,519,465 60,395,706
Operating income................................................................... 18,689,977 22,644,690
Other income (expense):
Interest expense................................................................. (15,494,084) (12,960,201)
Interest Income.................................................................. 15,915 13,130
Other............................................................................ (265,150) (41,507)
------------- -------------
(15,743,319) (12,988,578)
------------- -------------
Income before provision for income taxes........................................... 2,946,658 9,656,112
Provision for income taxes......................................................... 993,908 3,932,000
------------- -------------
Net income......................................................................... $ 1,952,750 $ 5,724,112
------------- -------------
------------- -------------
Pro forma
Historical net income............................................................ $ 5,724,112
Pro forma net income per common share............................................ $ .15
-------------
-------------
Pro forma common shares outstanding.............................................. 37,962,500
-------------
-------------
</TABLE>
See accompanying notes.
F-23
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income...................................................................... $ 1,952,750 $ 5,724,112
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................. 4,956,489 5,418,231
Provision for losses on accounts receivable................................... 776,724 524,428
(Gain) loss on sale of property, plant and equipment.......................... 14,929 (139,400)
Increase (decrease) in deferred income tax provision.......................... (347,365) 1,010,800
Decrease in accounts receivable............................................... 1,773,124 1,624,670
(Increase) decrease in inventories............................................ 995,600 (81,688)
Increase (decrease) in accounts payable....................................... (1,871,181) 489,853
Increase in income taxes payable.............................................. 23,127 1,888,875
(Decrease) in accrued interest................................................ (1,313,141) (228,106)
(Decrease) increase in deferred subscription revenue.......................... 15,249 (277,495)
(Decrease) in accrued retirees benefits and other liabilities................. (394,092) (472,358)
Decrease (increase) in other assets, net of increase (decrease) in other
liabilities................................................................. 1,949,789 (1,042,799)
-------------- --------------
Net cash provided by operating activities....................................... 8,532,002 14,439,123
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of machinery and equipment................................... 2,807 337,875
Additions to property, plant and equipment...................................... (1,615,967) (1,530,795)
-------------- --------------
Net cash used in investing activities........................................... (1,613,160) (1,192,920)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of:
Senior bank debt.............................................................. 16,000,000 --
Accretion of subordinated notes............................................... 750,857 821,573
Repayment of Senior bank debt................................................... (26,555,000) (16,535,000)
-------------- --------------
Net cash used in financing activities......................................... (9,804,143) (15,713,427)
Net decrease in cash and cash equivalents......................................... (2,885,301) (2,467,224)
Cash and cash equivalents, beginning of the period................................ 8,622,605 8,546,396
-------------- --------------
Cash and cash equivalents, end of the period...................................... $ 5,737,304 $ 6,079,172
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest...................................................................... $ 15,788,363 $ 12,305,090
Income taxes.................................................................. 1,318,146 1,032,325
SUPPLEMENTAL DISCLOSURE OF NON CASH FINANCING ACTIVITIES
Issuance of additional Subordinated Notes....................................... $ 750,857 $ 821,573
</TABLE>
See accompanying notes.
F-24
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. UNAUDITED COMBINED FINANCIAL STATEMENTS
The combined financial statements are unaudited and are subject to year-end
adjustments. However, in the opinion of management, all known adjustments (which
consist primarily of normal recurring accruals) have been made and present
fairly the combined operating results for the unaudited periods. Because of the
seasonal nature of the Company's business, results for interim periods are not
indicative of results to be expected for the fiscal year. These financial
statements should be read in conjunction with the audited financial statements
contained herein.
2. BASIS OF PRESENTATION
The accompanying unaudited combined financial statements include Journal
Register Company, LLC ("JRC, LLC") and all of its wholly owned affiliates, INS
Holdings, Inc. ("INSI") and Journal Register Company (now known as Journal
Register Newspapers, Inc.) ("JRC"). The Company is used to refer to the
combination of JRC, INSI and JRC, LLC.
JRC, LLC was organized in New York in December 1994 for the purpose of
acquiring and operating newspaper companies; it commenced operations in December
1994. Effective December 21, 1994, the stockholders of Journal News, Inc.
("JNI") and Journal Company, Inc. ("JCI"), affiliates of the Company
(collectively the "Companies"), entered into an exchange agreement (the
"Exchange Agreement") with the Company, whereby JRC, LLC issued 2 million
membership interests, representing all the issued and outstanding membership
interests in JRC, LLC, to the stockholders of the Companies in exchange for all
of the issued and outstanding common stock of the Company. Since the combined
Companies were under common control, this transaction was accounted for in a
manner similar to a pooling of interests and the accompanying combined financial
statements include the accounts and operations of JNI and JCI for all periods
presented. Affiliates of E.M. Warburg, Pincus and Co., LLC (collectively
"Warburg, Pincus") own substancially all of the membership interests of JRC,
LLC.
JRC is jointly owned by the operating subsidiaries of JRC, LLC and manages
the newspaper subsidiaries of JRC, LLC on an expense reimbursement basis. INSI,
which is owned by Warburg, Pincus, is a company that develops application
software for the newspaper industry and provides services to the Company's
subsidiaries and unrelated companies. (See Note 6, Subsequent Events).
The Company primarily publishes small metropolitan and suburban daily and
suburban and community non-daily newspapers serving markets in Connecticut,
Ohio, Philadelphia and its surrounding areas, the greater St. Louis area and
central New England and has commercial printing operations in Connecticut, Ohio
and Missouri.
3. PRO FORMA STOCKHOLDERS' EQUITY
Pro forma stockholders' equity reflects 37,962,500 of unregistered shares of
common stock to be issued to the existing shareholders in exchange for their
membership interests.
4. PRO FORMA EARNINGS PER SHARE
The pro forma net income per common share was calculated based upon the
37,962,500 shares which will be issued prior to the proposed offerings but
subsequent to December 31, 1996. If effect were given to the 9,375,000 shares
issued in the proposed offerings for which the proceeds will be used to repay
debt and
F-25
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
4. PRO FORMA EARNINGS PER SHARE (CONTINUED)
the additional 1,100,000 shares to be issued to management as part of special
bonuses (see Footnote 6, Subsequent Events), the shares would be 48,437,500 and
net income would increase to $7,434,563, resulting in net income per common
share of $.15. The net income of $7,434,563 reflects net interest expense
reduction ($2.9 million and $1.7 million net of tax) resulting from the use of
proceeds to reduce debt and additional debt required to pay the special
management bonuses. The interest expense reduction includes savings net of tax
effect of $200,000 associated with the lower interest rate based on the pro
forma reduction in outstanding borrowings used to calculate the Company's
interest rate spread.
5. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
Current tax expense:
Federal............................................................................ $ 670,873 $ 2,112,159
State.............................................................................. 670,400 809,041
------------ -------------
Total Current........................................................................ 1,341,273 2,921,200
------------ -------------
------------ -------------
Deferred tax expense (benefit):
Federal............................................................................ (310,438) 974,841
State.............................................................................. (36,927) 35,959
Total Deferred....................................................................... (347,365) 1,010,800
------------ -------------
Total provision for taxes............................................................ $ 993,908 $ 3,932,000
------------ -------------
------------ -------------
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to income tax expense is as follows:
<TABLE>
<CAPTION>
1996 1997
------------ -------------
<S> <C> <C>
Tax at U.S. statutory rate........................................................... $ 1,031,330 $ 3,379,639
State taxes, net of federal effect................................................... 411,757 549,250
Reduction in valuation allowance..................................................... (476,406) --
Other................................................................................ 27,227 3,111
------------ -------------
$ 993,908 $ 3,932,000
------------ -------------
------------ -------------
</TABLE>
6. SUBSEQUENT EVENTS
On March 11, 1997, Journal Register Company was incorporated. In conjunction
with the formation of Journal Register Company, a company under common control
named Journal Register Company (see Note 1, Organization and Basis of
Presentation), was renamed Journal Register Newspapers, Inc. Journal Register
Company intends to file with the Securities and Exchange Commission a
Registration Statement on Form S-1 for the sale of shares of common stock. Prior
to the issuance of shares pursuant to the Registration Statement, certain
entities (INS Holdings, Inc., Journal Register Newspapers, Inc. and JRC, LLC)
under common control with the Company will be combined with Journal Register
Company. Substantially all of the membership interests and equity securities of
these entities are owned by Warburg,
F-26
<PAGE>
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
6. SUBSEQUENT EVENTS (CONTINUED)
Pincus. Since the companies are under common control, this transaction will be
accounted for similar to a pooling of interests.
The Company intends to adopt a bonus plan to pay special bonuses to certain
employees totaling approximately $32 million assuming a price to public in the
proposed offerings pursuant to the Registration Statement described above of
$16.00. The Company expects to incur a charge to pre-tax earnings of
approximately $35 million in the second quarter of 1997. The Company expects
that the bonus plan will account for approximately $32 million of such charge;
however, the amount of such charge will depend on the price to public. The
discontinuation of the Company's long-term incentive plan will account for
approximately $3 million of such charge. The charge of $35 million was not
reflected in the pro forma information since it represents a one-time charge in
conjunction with the offering. In addition, the Company intends to adopt a stock
incentive plan. Such plan will be accounted for in accordance with APB Opinion
No. 25.
In connection with the aforementioned public offering, the Company expects
to amend the terms of, and restate, the Credit Agreement.
F-27
<PAGE>
(This page intentionally left blank.)
<PAGE>
[Design showing Titles of certain newspapers of Journal Register Company.]
<PAGE>
[LOGO]
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[Alternate Cover Page]
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED APRIL 21, 1997
9,375,000 SHARES
[LOGO]
COMMON STOCK
-----------------
OF THE 9,375,000 SHARES OF COMMON STOCK BEING OFFERED, 1,875,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 7,500,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE
BEING SOLD BY THE COMPANY. PRIOR TO THE OFFERINGS, THERE HAS BEEN NO
PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY
ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE
WILL BE BETWEEN $15.00 AND $17.00. SEE "UNDERWRITERS" FOR A
DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.
-------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "JRC."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE................................................ $ $ $
TOTAL(3)................................................. $ $ $
</TABLE>
- ---------
(1) THE COMPANY AND CERTAIN AFFILIATES OF E.M. WARBURG, PINCUS & CO., LLC
(COLLECTIVELY, "WARBURG, PINCUS") HAVE AGREED TO INDEMNIFY THE UNDERWRITERS
AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. WARBURG, PINCUS CURRENTLY OWNS SUBSTANTIALLY ALL OF
THE EQUITY SECURITIES OF THE COMPANY. UPON COMPLETION OF THE OFFERINGS AND
ASSUMING ISSUANCE OF THE BONUS SHARES DESCRIBED HEREIN, WARBURG, PINCUS
WILL OWN APPROXIMATELY 78.2% OF THE SHARES OF COMMON STOCK THEN
OUTSTANDING. IT IS PROBABLE THAT, FOLLOWING COMPLETION OF THE OFFERINGS,
WARBURG, PINCUS WILL CONTINUE TO BE ABLE TO ELECT THE COMPANY'S BOARD OF
DIRECTORS AND TAKE, OR BLOCK, OTHER CORPORATE ACTIONS REQUIRING STOCKHOLDER
APPROVAL, AS WELL AS DICTATE THE DIRECTION AND POLICIES OF THE COMPANY. SEE
"RISK FACTORS--INFLUENCE BY EXISTING STOCKHOLDER." UPON COMPLETION OF THE
OFFERINGS AND ASSUMING ISSUANCE OF THE BONUS SHARES DESCRIBED HEREIN,
OFFICERS AND DIRECTORS OF THE COMPANY (OTHER THAN DIRECTORS WHO ARE
AFFILIATED WITH WARBURG, PINCUS) WILL OWN, IN THE AGGREGATE, APPROXIMATELY
1.5% OF THE SHARES OF COMMON STOCK THEN OUTSTANDING.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
APPROXIMATELY $34.6 MILLION OF THE PROCEEDS TO COMPANY WILL BE USED TO REPAY
INDEBTEDNESS OWED TO WARBURG, PINCUS.
(3) WARBURG, PINCUS CAPITAL PARTNERS, L.P. ("WPCP"), AN AFFILIATE OF E.M.
WARBURG, PINCUS & CO., LLC HAS GRANTED TO THE UNDERWRITERS AN OPTION,
EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN
AGGREGATE OF 1,406,250 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO
PUBLIC LESS UNDERWRITING DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF
COVERING OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION
IN FULL, THE TOTAL PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS,
PROCEEDS TO COMPANY AND PROCEEDS TO WPCP WILL BE $ , $ ,
$ , AND $ , RESPECTIVELY. SEE "UNDERWRITERS" AND SEE NOTE
(1) ABOVE.
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY WILLKIE FARR & GALLAGHER, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1997 AT THE OFFICE
OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
-----------------
MORGAN STANLEY & CO.
INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
CHASE MANHATTAN INTERNATIONAL LIMITED
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses incurred in connection
with the shares of Common Stock being registered hereby, other than underwriting
discounts and commissions:
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 55,540
NASD Filing Fee.................................................... 17,750
New York Stock Exchange Listing Fee................................ *
Printing and Engraving Expenses.................................... *
Legal Fees and Expenses............................................ *
Accounting Fees and Expenses....................................... *
Transfer Agent and Registrar Fees and Expenses..................... *
Blue Sky Fees and Expenses (including legal fees).................. *
Miscellaneous...................................................... *
---------
Total.............................................................. $ *
---------
---------
</TABLE>
- ------------------------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL and Article VIII of the Company's Certificate of
Incorporation (the "Certificate") provide for indemnification of the Company's
directors and officers to the maximum extent permitted by Delaware law, which
may include liabilities under the Securities Act.
Section 9 of the Underwriting Agreement provides for indemnification by the
Underwriters of directors, officers and controlling persons of the Company
against certain liabilities, including liabilities under the Securities Act,
under certain limited circumstances.
The Registration Rights Agreement provides for indemnification by Warburg,
Pincus of the Company and its directors and officers against certain liabilities
under certain circumstances.
As permitted by the DGCL, the Certificate provides that directors of the
Company will not be personally liable for monetary damages for breach of their
fiduciary duties as a director, except liability for (i) breach of a director's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
the law, (iii) the unlawful payment of a dividend or unlawful stock purchase or
redemption and (iv) any transaction from which directors derive an improper
personal benefit.
An insurance policy obtained by the Registrant provides for indemnification
of officers and directors of the Registrant and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities sold by
the Company within the past three years which were not registered under the
Securities Act:
On December 21, 1994, the Company issued approximately $55 million of Senior
Subordinated Notes and $55 million of Subordinated Notes to Warburg, Pincus.
II-1
<PAGE>
Pursuant to the terms of an Exchange Agreement, dated as of December 21,
1994, by and among the Predecessor and each of the stockholders of the Exchange
Subsidiaries, the Predecessor, a limited liability company, issued to:
(i) WPCC 638,756 Class A Membership Interests and 638,756 Class B
Membership Interests in the Predecessor in exchange for WPCC's stock in the
Subsidiaries;
(ii) WPCP 40,278 Class A Membership Interests and 40,278 Class B
Membership Interests in the Predecessor in exchange for WPCP's stock in the
Subsidiaries;
(iii) Investors 318,376 Class A Membership Interests and 318,376 Class B
Membership Interests in the Predecessor in exchange for Investors' stock in
the Subsidiaries; and
(iv) Five individuals (collectively, the "Individuals") 2,590 Class A
Membership Interests and 2,590 Class B Membership Interests in the
Predecessor in exchange for the Individuals' stock in the Subsidiaries.
In connection with the Predecessor's conversion into the Registrant, a
Delaware corporation, the Registrant issued to:
(i) WPCC 24,248,774 shares of common stock of the Registrant in exchange
for WPCC's Membership Interests in the Predecessor;
(ii) WPCP 1,529,054 shares of common stock of the Registrant in exchange
for WPCP's Membership Interests in the Predecessor;
(iii) Investors 12,086,349 shares of common stock of the Registrant in
exchange for Investors' Membership Interests in the Predecessor; and
(iv) the Individuals 98,323 shares of common stock of the Registrant in
exchange for the Individuals' Membership Interests in the Predecessor.
The sales described in this Item 15 were made in reliance upon the exemption
from registration set forth in Section 4(2) of the Securities Act relating to
sales by an issuer not involving any public offering. The foregoing transactions
did not involve a distribution or public offering. No underwriters were engaged
in connection with the foregoing issuances of securities and no commissions or
discounts were paid.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Company
3.2 By-laws of the Company
4.1 Specimen of Common Stock Certificate*
5.1 Opinion of Wachtell, Lipton, Rosen & Katz regarding the legality of the Common
Stock*
10.1 Amended and Restated Credit Agreement (the "Credit Agreement"), dated as of
, 1997, among the Company, each of the banks and other financial
institutions that is a signatory thereto or which, pursuant to Section 11.06(b)
thereof, becomes a "Bank" thereunder (collectively, the "Banks") and The Chase
Manhattan Bank (National Association), as agent for the Banks.*
10.2 Form of 1997 Stock Incentive Plan
10.3 Form of Management Bonus Plan*
10.4 Supplemental 401(k) Plan
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.5 Form of Voting Agreement by and among Journal Register Company, Warburg, Pincus
Capital Company, L.P., Warburg, Pincus Capital Partners, L.P. and Warburg, Pincus
Investors, L.P.
10.6 Form of Registration Rights Agreement by and among Journal Register Company,
Warburg, Pincus Capital Company, L.P., Warburg, Pincus Capital Partners, L.P. and
Warburg, Pincus Investors, L.P.*
11.1 Computation of earnings per share
21.1 Subsidiaries of the Registrant**
23.1 Consent of Ernst & Young LLP
23.2 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1)*
24.1 Powers of Attorney (included on Signature Page)**
27.1 Financial Data Schedule*
</TABLE>
- ------------------------
* To be filed by Amendment
** Previously filed
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that:
The Registrant will provide to the Underwriters at the closing specified in
the Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(b) The undersigned Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant as described in Item 14 above, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Trenton, State of New
Jersey, on the 21st day of April, 1997.
JOURNAL REGISTER COMPANY
By: /s/ JEAN B. CLIFTON
------------------------------------------
Name: Jean B. Clifton
Title: Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ -------------------------------------- -----------------
<C> <S> <C>
* Chairman, President, Chief Executive April 21, 1997
------------------------------------------- Officer and Director (Principal
Robert M. Jelenic Executive Officer)
Executive Vice President, Chief
* Financial Officer and Director April 21, 1997
------------------------------------------- (Principal Accounting Officer and
Jean B. Clifton Principal Financial Officer)
*
------------------------------------------- Director April 21, 1997
Douglas M. Karp
*
------------------------------------------- Director April 21, 1997
Sidney Lapidus
*
------------------------------------------- Director April 21, 1997
John L. Vogelstein
/s/ JEAN B. CLIFTON
-------------------------------------------
*By Jean B. Clifton, as Attorney-in-Fact
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
The Board of Directors of
Journal Register Company, LLC
We have audited the combined financial statements of Journal Register
Company, LLC and Affiliates (the "Company") as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31, 1996, and have
issued our report thereon dated March 5, 1996 (included elsewhere in this
Registration Statement). Our audits also included the combined financial
statement schedule listed in Item 16(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the combined financial statement schedule referred to above,
when considered in relation to the basic combined financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
MetroPark, New Jersey
March 5, 1997
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
<TABLE>
<CAPTION>
BALANCE AT CHARGE TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD ADJUSTMENTS(2) EXPENSES DEDUCTIONS(1) PERIOD
------------ --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts.................... $ 2,874 $ 3,914 $ 2,615 $ 4,173
Valuation allowance for deferred tax assets........ $ 10,034 $ 7,684 $ 2,350
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts.................... $ 1,974 $ 2,871 $ 1,971 $ 2,874
Valuation allowance for deferred tax assets........ $ 18,637 $ 1,957 $ 10,560 $ 10,034
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts.................... $ 1,653 $ 1,926 $ 1,605 $ 1,974
Valuation allowance for deferred tax assets........ $ 23,103 $ 4,466 $ 18,637
</TABLE>
- ------------------------
(1) Write-off of uncollectible accounts for the allowance for doubtful accounts
and reduction of the valuation allowance for deferred tax assets.
(2) Valuation allowance related to 1995 acquisitions.
<PAGE>
Exhibit 1.1
9,375,000 Shares
JOURNAL REGISTER COMPANY
COMMON STOCK, PAR VALUE $.01 PER SHARE
UNDERWRITING AGREEMENT
______ __, 1997
<PAGE>
______ __, 1997
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Bear, Stearns & Co. Inc.
Chase Securities Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Merrill Lynch International
Bear, Stearns International Limited
Chase Manhattan International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Journal Register Company, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as defined below)
9,375,000 shares of its common stock, par value $.01 per share
(the "Firm Shares").
It is understood that, subject to the conditions hereinafter
stated, 7,500,000 Firm Shares (the "U.S. Firm Shares") will be sold to
the several U.S. Underwriters named in Schedule I hereto (the "U.S.
Underwriters") in connection with the offering and sale of such U.S. Firm Shares
in the United States and Canada to United States and Canadian Persons (as such
terms are defined in the Agreement Between U.S. and International
<PAGE>
Underwriters of even date herewith), and 1,875,000 Firm Shares (the
"International Shares") will be sold to the several International Underwriters
named in Schedule II hereto (the "International Underwriters") in connection
with the offering and sale of such International Shares outside the United
States and Canada to persons other than United States and Canadian Persons.
Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Merrill Lynch, Pierce Fenner & Smith Incorporated, Bear, Stearns &
Co. Inc. and Chase Securities Inc. shall act as representatives (the "U.S.
Representatives") of the several U.S. Underwriters, and Morgan Stanley & Co.
International Limited, Donaldson, Lufkin & Jenrette Securities Corporation,
Merrill Lynch International, Bear, Stearns International Limited and Chase
Manhattan International Limited shall act as representatives (the "International
Representatives") of the several International Underwriters. The U.S.
Underwriters and the International Underwriters are hereinafter collectively
referred to as the "Underwriters".
Warburg, Pincus Capital Company, L.P. ("WPCC"), Warburg, Pincus
Capital Partners, L.P. ("WPCP"), and Warburg, Pincus Investors, L.P.
("Investors") are collectively referred to as the "Warburg Entities".
WPCP proposes to sell to the several U.S. Underwriters an aggregate of
not more than an additional 1,406,250 shares of common stock, par value $.01
per share of the Company (the "Additional Shares") if and to the extent
that the U.S. Representatives shall have determined to exercise, on behalf
of the U.S. Underwriters, the right to purchase such shares of common stock
granted to the U.S. Underwriters in Section 3 hereof. The Firm Shares and
the Additional Shares are hereinafter collectively referred to as the
"Shares." The shares of common stock, par value $.01 per share, of the
Company to be outstanding after giving effect to the sales contemplated
hereby are hereinafter referred to as the "Common Stock." The Company and
the Warburg Entities are hereinafter sometimes collectively referred to as
the "Sellers."
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement relating
2
<PAGE>
to the Shares. The registration statement contains two prospectuses to be used
in connection with the offering and sale of the Shares: the U.S. prospectus, to
be used in connection with the offering and sale of Shares in the United States
and Canada to United States and Canadian Persons, and the international
prospectus, to be used in connection with the offering and sale of Shares
outside the United States and Canada to persons other than United States and
Canadian Persons. The international prospectus is identical to the U.S.
prospectus except for the outside front cover page. The registration statement
as amended at the time it becomes effective, including the information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Securities Act of 1933, as amended (the
"Securities Act"), is hereinafter referred to as the "Registration Statement";
the U.S. prospectus and the international prospectus in the respective forms
first used to confirm sales of Shares are hereinafter collectively referred to
as the "Prospectus." If the Company has filed an abbreviated registration
statement to register additional shares of Common Stock pursuant to Rule 462(b)
under the Securities Act (the "Rule 462 Registration Statement"), then any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462 Registration Statement.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.(3) The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or to the
Company's knowledge threatened by the Commission.
(b) (i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a
____________________
(3) If the Company is instituting a Directed Share Program in connection with
the offering, additional provisions will be required throughout the
document.
3
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material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set
forth in this paragraph 1(b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not reasonably be expected
to result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not reasonably
be expected to result in a material adverse change, in the condition,
financial or otherwise, or in the
4
<PAGE>
earnings, business or operations of the Company and its subsidiaries, taken
as a whole; all of the issued shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued, are fully
paid and non-assessable and are owned directly by the Company or a wholly
owned subsidiary of the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock (including the Shares to be sold
by the Warburg Entities hereunder) outstanding prior to the issuance of the
Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms of
this Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any preemptive or
similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and sale
of the Shares.
(j) There has not occurred any material adverse change, or any
development which would reasonably be
5
<PAGE>
expected to result in a material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent
to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act, complied
when so filed in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries (i) are in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct their respective businesses and (iii) are in compliance
with all terms and conditions of any such permit, license or approval,
except where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the
6
<PAGE>
aggregate, be reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
(o) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement.
(p) The Company and its subsidiaries have good title in fee
simple to all real property (which to the Company's knowledge is
marketable) and own all personal property owned by them which is material
to the business of the Company and its subsidiaries, taken as a whole, in
each case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as have not resulted in
and would not reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole, and do not materially interfere with the use made and proposed to
be made of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its subsidiaries
are held by them under valid, subsisting and enforceable leases except to
an extent and with such exceptions as are not material and do not materially
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries, in each case except as
described in or contemplated by the Prospectus and except as have not
resulted in, and would not reasonably be expected to result in, a
material adverse change, in the condition, financial or otherwise, or in
the earnings, business or operations of the Company and its subsidiaries,
taken as a whole.
(q) The Company and its subsidiaries own or possess, have
adequate licenses or other rights to use or can acquire on reasonable
terms, all material patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures),
7
<PAGE>
trademarks, service marks and trade names currently employed by them or
necessary to conduct their business in the manner described in the
Prospectus, and neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights of
others with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would reasonably be expected to result in any material adverse change in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
(r) No labor dispute with the employees of the Company or any of
its subsidiaries exists, or, to the knowledge of the Company, is imminent,
except as described in or contemplated by the Prospectus, and except as has
not resulted in, and would not reasonably be expected to result in a
material adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries, taken
as a whole; and the Company is not aware of any existing, threatened or
imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that would reasonably be expected
to result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole.
(s) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are reasonably adequate for, and customary in,
the businesses in which they are engaged.
(t) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, except as described in the Prospectus or as has not resulted
in, and would not reasonably be expected to result in a material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole. Neither the Company nor any such subsidiary has received any notice
of proceedings relating to the revocation or modification of any such
8
<PAGE>
certificate, authorization or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would reasonably
be expected to result in a material adverse change in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, except as described in or
contemplated by the Prospectus.
(u) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(v) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of
Cuba or with any person or affiliate located in Cuba.
(w) The merger of Journal Register Company, LLC with and into
the Company, with the surviving entity being a Delaware corporation, and
the contribution of Integrated Newspaper Systems, Inc. to the Company have
each been consummated.
(x) The Common Stock has been approved for listing on the New
York Stock Exchange, subject to official notice of issuance.
(y) All of the information contained in the Registration
Statement and the Prospectus relating to the year of origination, year of
acquisition, or circulation of the Company's publications has been obtained
either from the books and records of the Company, in which event all of
such information is true and correct in all material respects, or from
published surveys which the Company reasonably believes are a reliable
estimate of the matters set forth therein.
9
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF WARBURG ENTITIES. Each of
the Warburg Entities represents and warrants to and agrees with each of the
Underwriters that:
(a) Such Warburg Entity has been duly organized, and is validly
existing as a limited partnership in good standing under the laws of the
State of Delaware has the power and authority to own its property and to
conduct its business and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing would
not have a material adverse effect on it or materially impair its ability
to consummate the transactions contemplated hereby.
(b) To the knowledge of such Warburg Entity, all the
representations of the Company set forth in Section 1 are true and correct.
(c) This Agreement has been duly authorized, executed and
delivered by such Warburg Entity.
(d) The execution and delivery by such Warburg Entity of, and
performance by it of its obligations under, this Agreement, will not
contravene any provision of applicable law or the certificate of limited
partnership or agreement of limited partnership of such Warburg Entity or
any agreement or other instrument binding upon it, or any judgment, order
or decree of any governmental body, agency or court having jurisdiction
over it, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by it of its obligations under this Agreement, except such as
may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(e) Such Warburg Entity has, and on the Option Closing Date (as
defined below) will have, good, valid and marketable title to the Shares to
be sold by it and the legal right and power, and all authorization and
approval required by law, to enter into this Agreement and to sell,
10
<PAGE>
transfer and deliver the Shares to be sold by it pursuant to this
Agreement.
(f) Delivery of the Shares to be sold by such Warburg Entity
pursuant to this Agreement will pass title to such Shares free and clear
of any security interests, claims, liens, equities and other encumbrances.
(g) The Registration Statement, when such Registration Statement
became effective, did not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact with
respect to the Warburg Entities or omit to state a material fact with
respect to the Warburg Entities required to be stated therein or necessary
to make the statements therein not misleading, and the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact with respect to the Warburg
Entities or omit to state a material fact with respect to the Warburg
Entities necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees
to sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedules I and II
hereto opposite its name at U.S. $____(4) a share (the "Purchase Price").
On the basis of the representations and warranties
contained in this Agreement, and subject to its terms and conditions, WPCP
agrees to sell to the U.S. Underwriters the Additional Shares,
and the U.S. Underwriters shall have a one-time right to purchase, severally and
not jointly, up to 1,406,250 Additional Shares from WPCP, up to
_____________________
(4) Insert offering price less underwriting fee, management fee and selling
concession.
(5) Three blanks should total 15% of Firm Shares.
11
<PAGE>
at the Purchase Price. If the U.S. Representatives, on behalf of the
U.S. Underwriters, elect to exercise such option, the U.S. Representatives shall
so notify the Company and the Warburg Entities in writing not later than 30 days
after the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the U.S. Underwriters and the date on which
such Additional Shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 5 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representative may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule I
hereto opposite the name of such U.S. Underwriter bears to the total number of
U.S. Firm Shares.
Each of the Company and the Warburg Entities hereby agrees
that, without the prior written consent of Morgan Stanley & Co. Incorporated
on behalf of the Underwriters, it will not, during the period ending 180 days
after the date of the Prospectus, (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(in the case of the Warburg Entities, whether such shares or any such
securities are now owned by the Warburg Entities or are hereafter acquired)
or (ii) enter into any swap or other agreement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is
to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (A) the Shares to be
sold hereunder, (B) the issuance by the Company of shares of Common Stock
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof of which the Underwriters have been advised in
writing, or (C) the issuance by the Company of
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<PAGE>
the Bonus Shares (as such term is defined in the Prospectus) to persons who have
executed lock-up agreements in the form of Exhibit A.
4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable. The Sellers
are further advised by you that the Shares are to be offered to the public
initially at U.S. $____ a share (the "Public Offering Price") and to certain
dealers selected by you at a price that represents a concession not in excess of
U.S. $____ a share under the Public Offering Price, and that any Underwriter may
allow, and such dealers may reallow, a concession, not in excess of U.S. $____ a
share, to any Underwriter or to certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares shall be
made to the Company in Federal or other funds immediately available in New York
City at the office of Willkie Farr & Gallagher, One Citicorp Center, 153 East
53rd Street, New York, New York 10022, against delivery of such Firm Shares for
the respective accounts of the several Underwriters at 10:00 A.M., New York
City time, on _____ __, 1997,(6) or at such other time on the same or such
other date, not later than _____ ___, 1997,(7) as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to
as the "Closing Date."
Payment for any Additional Shares shall be made in Federal or
other funds immediately available in New York City at the office of Willkie Farr
& Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022
at 10:00 A.M., New York City time, on the date specified in the notice described
in Section 3 or at such other time on the same or on such other
_____________________
(6) Insert date 3 business days or, in the event the offering is priced after
4:30 P.M. Eastern Time, 4 business days after date of Underwriting
Agreement.
(7) Insert date 5 business days after the date inserted in accordance with the
previous note.
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<PAGE>
date, in any event not later than ___________, 1997(8), as shall be designated
in writing by the U.S. Representatives. The time and date of such payment are
hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be
in definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Sellers to sell the Shares to the Underwriters and the
several obligations of the Underwriters to purchase and pay for the Shares on
the Closing Date are subject to the condition that the Registration Statement
shall have become effective not later than 5:00 p.m. (New York City time) on the
date hereof.
The several obligations of the Underwriters are
subject to the following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating accorded
any of the Company's securities which are rated as of the date of this
Agreement, if any, by any "nationally recognized statistical rating
____________________
(8) Insert date 10 business days after the expiration of the greenshoe option.
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<PAGE>
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any
development which would reasonably be expected to result in a change,
in the condition, financial or otherwise, or in the earnings, business
or operations of the Company and its subsidiaries, taken as a whole,
from that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement) that, in
your judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(b) The Underwriters shall have received:
(i) on the Closing Date a certificate, dated the Closing
Date and signed by an executive officer of the Company, to the effect
set forth in clause (a)(i) above and to the effect that the
representations and warranties of the Company contained in this
Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied by it
hereunder on or before the Closing Date; and
(ii) on each of the Closing Date and the Option Closing Date
a certificate, dated as of such date and signed by the general partner
of each of the Warburg Entities, to the effect that the
representations and warranties of such Warburg Entity contained in
this Agreement are true and correct as of such date and that such
Warburg Entity has complied with all of the agreements and satisfied
all of the conditions on its part to be performed or satisfied by it
hereunder on or before such date.
The officer signing and delivering such
certificate may rely upon his or her knowledge after inquiry of
relevant employees and counsel as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Wachtell, Lipton, Rosen & Katz, outside counsel for the Company,
dated the Closing Date, in
15
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form and substance reasonably satisfactory to counsel for the Underwriters,
to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not reasonably be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole;
(ii) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus;
(iii) the shares of Common Stock (including the Shares
to be sold by the Warburg Entities) outstanding prior to the issuance
of the Shares to be sold by the Company have been duly authorized and
are validly issued, fully paid and non-assessable;
(iv) the Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights;
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene (A) any provision of applicable law or the
certificate of incorporation or by-laws of the Company, (B) any
agreement or other instrument either (x) filed as an exhibit to the
Registration Statement or (y) which is
16
<PAGE>
known to such counsel and which is binding upon the Company or any of
its subsidiaries that is material to the Company and its subsidiaries,
taken as a whole, or (C) any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Company or any subsidiary which is either (x) described in the
Registration Statement, or (y) known to such counsel, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares by the U.S.
Underwriters;
(vii) the statements (A) in the Prospectus under the
captions "Risk Factors -- Influence by Existing Stockholder," "Risk
Factors -- Anti-Takeover Effect of Certain Certificate of
Incorporation and By-Laws Provisions," "Risk Factors -- Shares
Eligible for Future Sale," "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity
and Capital Resources," "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Management
Bonus Plan," "Management -- Compensation Pursuant to
Plans -- Long-Term Incentive Plan Award" "Management -- Compensation
Pursuant to Plans -- Management Bonus Plan," "Management --
Compensation Pursuant to Plans -- 1997 Stock Incentive Plan,"
"Management -- Compensation Pursuant to Plans -- Pension Plan,"
"Certain Transactions," "Description of Capital Stock," "Shares
Eligible for Future Sale" and "Underwriters" and (B) in the
Registration Statement in Items 14 and 15, in each case insofar as
such statements constitute summaries of the legal matters, legal
documents or legal proceedings referred to therein, fairly present
the information called for by applicable law with respect to such
legal matters, legal documents and legal proceedings and fairly
summarize the matters referred to therein within the context of such
applicable law;
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<PAGE>
(viii) such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required;
(ix) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended;
(x) such counsel is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
supporting notes and schedules and other financial and statistical
data included therein as to which such counsel need not express any
opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder; and
(xi) The merger of Journal Register Company, LLC with and
into the Company, with the surviving entity being a Delaware
corporation, and the contribution of Integrated Newspaper Systems,
Inc. to the Company have been consummated as described in the
Prospectus.
In addition, such counsel shall state that nothing has come to
their attention that leads them to believe that the Registration Statement
at the time the Registration Statement became effective (other than the
financial statements and supporting notes and schedules and other financial
and statistical data contained therein, as to which such counsel need not
comment) contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading, or that
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the Prospectus (other than the financial statements and supporting notes
and schedules and other financial and statistical data contained therein,
as to which such counsel need not comment) contains any untrue statement of
a material fact or omits to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. In rendering such opinion, such counsel may
state that their opinion and belief is based upon their participation in
the preparation of the Registration Statement and Prospectus and review and
discussion of the contents thereof, but are without independent check or
verification.
In their opinion, counsel shall expressly authorize Willkie Farr
& Gallagher to rely on said opinion.
With respect to paragraph (c) above, Wachtell, Lipton, Rosen &
Katz may rely with respect to factual matters to the extent Wachtell,
Lipton, Rosen & Katz deems appropriate, upon the representations and
certifications of the Company contained herein and in other documents and
instruments; provided that copies of any such other documents and
instruments shall be delivered to you and shall be in form and substance
satisfactory to your counsel.
(d) The Underwriters shall have received on the Closing Date an
opinion of Seyfarth, Shaw, Fairweather & Geraldson, outside counsel for
the Company, dated the Closing Date, in form and substance reasonably
satisfactory to counsel for the Underwriters, to the effect that:
(i) each Significant Subsidiary (as such term is defined in
Regulation S-X of the Securities Act) of the Company has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not reasonably
be expected to result in a material adverse change, in the condition,
financial or
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otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole; and
(ii) all of the issued shares of capital stock of each
Significant Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly by the Company or a wholly owned subsidiary of the Company,
free and clear of all liens, encumbrances, equities or claims.
In their opinion, counsel shall expressly authorize Willkie Farr
& Gallagher to rely on said opinion.
With respect to paragraph (d) above, Seyfarth, Shaw,
Fairweather & Geraldson may rely with respect to factual matters to the
extent such counsel deems appropriate, upon the representations and
certifications of the Company contained herein and in other documents
and instruments; provided that copies of any such other documents and
instruments shall be delivered to
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you and shall be in form and substance satisfactory to your counsel.
(e) The Underwriters shall have received on the Closing Date an
opinion of Kelley Drye & Warren LLP, special counsel to the Warburg
Entities, dated the Closing Date, in form and substance reasonably
satisfactory to counsel for the Underwriters, to the effect that:
(i) Each of the Warburg Entities has been duly organized,
and is validly existing as a limited partnership in good standing
under the laws of the jurisdiction of its formation, has the power and
authority to own its property and to conduct its business and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on it or materially impair its ability
to consummate the transactions contemplated hereby;
(ii) this Agreement has been duly authorized, executed and
delivered by each of the Warburg Entities;
(iii) the execution and delivery by each of the Warburg
Entities of, and performance by each of the Warburg Entities of its
obligations under, this Agreement will not contravene any provision of
applicable law or the certificate of limited partnership or agreement
of limited partnership of such Warburg Entity or, to the best of
such counsel's knowledge, any agreement or other instrument binding
upon such Warburg Entity or, to the best of such counsel's knowledge,
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over such Warburg Entity, and no consent, approval,
authorization or order of, or qualification with, any governmental body
or agency is required for the performance by each of the Warburg
Entities of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Additional Shares;
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(iv) Based solely on a review of the Company's transfer
ledger, which was certified by the Company as being true, correct
and complete, and a review of the relevant stock certificates, each of
the Warburg Entities has valid title to the Shares to be sold by such
Warburg Entity; each of the Warburg Entities and has the legal right
and power, and all authorization and approval required by law, to
enter into this Agreement and to sell, transfer and deliver the Shares
to be sold by such Warburg Entity pursuant to this Agreement; and
(v) delivery of the shares to be sold by each of the
Warburg Entities pursuant to this Agreement will pass title to such
Shares free and clear of any security interests, claims, liens,
equities and other encumbrances, assuming that each U.S. Underwriter
purchases the shares in good faith without notice of any adverse
claim.
In their opinion, counsel shall expressly authorize Willkie Farr
& Gallagher to rely on said opinion.
With respect to paragraph (e) above, Kelley Drye & Warren LLP may
rely with respect to factual matters and to the extent such counsel deems
appropriate, upon the
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representations and certifications of the Warburg Entities contained herein
and in other documents and instruments; provided that copies of any such
other documents and instruments shall be delivered to you and shall be in
form and substance satisfactory to your counsel.
(f) The Underwriters shall have received on the Closing Date an
opinion of Willkie Farr & Gallagher, counsel for the Underwriters, dated
the Closing Date, covering the matters referred to in subparagraphs (iv),
(v), (vii) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and (x) of paragraph (c)
above.
In addition, such counsel shall state that nothing has come to
their attention that leads them to believe that the Registration Statement
at the time the Registration Statement became effective (other than the
financial statements and supporting notes and schedules and other financial
and statistical data contained therein, as to which such counsel need not
comment) contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading, or that the Prospectus
(other than the financial statements and supporting notes and schedules and
other financial and statistical data contained therein, as to which such
counsel need not comment) contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. In rendering such opinion, such counsel may state that their
opinion and belief is based upon their participation in the preparation of
the Registration Statement and Prospectus and review and discussion of the
contents thereof, but are without independent check or verification.
The opinion of Wachtell, Lipton, Rosen & Katz described in
paragraph (c) above, the opinion of Seyfarth, Shaw, Fairweather &
Geraldson (d) above and the opinion of Kelley Drye & Warren LLP in
paragraph (e) above shall be (and each shall state that it is)
rendered to the Underwriters at the request of the Company.
(g) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the
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date hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Underwriters, from Ernst & Young LLP, independent public
accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus; provided that the letter delivered on
the Closing Date shall use a "cut-off date" not earlier than the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and all of the executive officers and
directors of the Company, all of the people listed on Exhibit B, who are
the only people who will receive Bonus Shares (as such term is defined in
the Prospectus), and each of the Warburg Entities relating to sales and
certain other dispositions of shares of Common Stock or certain other
securities, shall have been delivered to you on or before the date hereof,
and shall be in full force and effect on the Closing Date.
(i) The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the
due authorization and issuance of the Additional Shares and other documents
customarily required by the Underwriters related to the issuance of the
Additional Shares as are customarily requested in connection with such an
option.
7. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, eleven signed copies of
the Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 A.M. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
paragraph (c) below, as
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<PAGE>
many copies of the Prospectus and any supplements and amendments thereto or
to the Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement
or the Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor, in cooperation with you, to qualify the Shares
for offer and sale under the securities or Blue Sky laws of such
jurisdictions as you shall reasonably request; provided that the Company
shall not be required to qualify as a foreign corporation or file a general
consent to service of process in any such jurisdiction.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an
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earning statement covering the twelve-month period ending June 30, 1998
that satisfies the provisions of Section 11(a) of the Securities Act and
the rules and regulations of the Commission thereunder.
(f) To issue Bonus Shares only to persons who have delivered a
lock-up agreement to you in the form of Exhibit A.
8. EXPENSES. Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, the Company
agrees to pay or cause to be paid all expenses incident to the performance of
its obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Company's counsel and the Company's accountants in
connection with the registration and delivery of the Shares under the Securities
Act and all other fees or expenses in connection with the preparation and filing
of the Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
cost of printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under state securities laws and
all expenses in connection with the qualification of the Shares for offer and
sale under state securities laws or Blue Sky laws as provided in Section 7(d)
hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky or Legal Investment memorandum, (iv) all filing
fees and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the National
Association of Securities Dealers, Inc., (v) all fees and expenses in connection
with the preparation and filing of the registration statement on Form 8-A
relating to the Common Stock and all costs and expenses incident to listing the
Shares on the New York Stock Exchange and other national securities exchanges
and foreign stock exchanges, (vi) the cost of printing certificates representing
the Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating
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<PAGE>
to investor presentations on any "road show" undertaken in connection with the
marketing of the offering of the Shares, including, without limitation, expenses
associated with the production of road show slides and graphics, fees and
expenses of any consultants engaged in connection with the road show
presentations with the prior approval of the Company, travel and lodging
expenses of the representatives and officers of the Company and any such
consultants, and the costs of any aircraft chartered in connection with the road
show, and (ix) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as specifically
provided in this Section, Section 9 entitled "Indemnity and Contribution," and
the last paragraph of Section 11 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them, any advertising
expenses connected with any offers they may make and expenses associated with
the preparation of prospectus memorabilia.
The Warburg Entities agree to pay or cause to be paid (i) all
taxes, if any, on the transfer and sale, if any, of the Additional Shares and
(ii) all costs and expenses incident to the performance of the obligations of
the Warburg Entities under this Agreement, including, but, not limited to, all
expenses incident to the delivery of the Shares to be sold by the Warburg
Entities and the fees and expenses of counsel for the Warburg Entities.
The provisions of this Section shall not supersede or otherwise
affect any agreement that the Sellers may otherwise have for the allocation of
such expenses among themselves.
9. INDEMNITY AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred by or
on behalf of each such person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration
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Statement or any amendment thereof, any preliminary prospectus or the
Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading (in the
case of any preliminary prospectus or the Prospectus, in light of the
circumstances under which it was made), except insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein; provided, however, that
the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendment or supplement thereto) was not sent or given by or
on behalf of such Underwriter to such person, if required by law to have
been so delivered, at or prior to the written confirmation of the sale of
the Shares sold by the Company to such person, and if the Prospectus (as so
amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities.
(b) The Warburg Entities agree to indemnify and hold harmless
each Underwriter, each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, or is under common control with, or is controlled by, any
Underwriter, and the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement
of a material fact with respect to the Warburg Entities contained in the
Registration Statement or any amendment thereof, any preliminary prospectus
or the Prospectus (as
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<PAGE>
amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to
state therein a material fact with respect to the Warburg Entities required
to be stated therein or necessary to make the statements therein not
misleading (in the case of any preliminary prospectus or the Prospectus, in
light of the circumstances under which it was made), except insofar as such
losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein; provided,
however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such losses, claims, damages or
liabilities purchased Shares, or any person controlling such Underwriter,
if a copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendment or supplement thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required by
law to have been so delivered, at or prior to the written confirmation of
the sale of the Shares sold by the Company to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities. The liability
of the Warburg Entities under the indemnity agreement contained in this
paragraph or for breach of their representations and warranties contained
in Section 2 hereof shall be limited to an amount equal to the net
proceeds, if any, received by the Warburg Entities from the offering of the
Shares sold by the Warburg Entities. In addition, the Warburg Entities
shall not be liable under the indemnity agreement contained in this
paragraph unless and until you, as Managers of the offering, have made
written demand on the Company for payment under this paragraph and the
amount specified in such demand is not paid in full by the Company within
60 days after receipt of the demand by the Company.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, the Warburg Entities and each person, if
any, who controls the Company or the Warburg Entities within the meaning of
either Section 15 of the Securities Act or Section 20 of the
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Exchange Act to the same extent as the foregoing indemnity from the Company
to such Underwriter, but only with reference to information relating to
such Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a), (b) or (c) of this
Section 9, such person (the "indemnified party") shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party")
in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the indemnifying
party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
It is understood that the indemnifying party shall not, in respect of the
legal expenses of any indemnified party in connection with any proceeding
or related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel)
for all such indemnified parties and that all such fees and expenses shall
be reimbursed as they are incurred. Such firm shall be designated in
writing by Morgan Stanley & Co. Incorporated, in the case of parties
indemnified pursuant to paragraph (a) or (b) of this Section 9, and by the
Company, in the case of parties indemnified pursuant to paragraph (c) of
this Section 9. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if
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there be a final judgment for the plaintiff, the indemnifying party agrees
to indemnify the indemnified party from and against any loss or liability
by reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this
paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i)
such settlement is entered into more than 60 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with
such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which
any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in paragraph
(a), (b) or (c) of this Section 9 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under such paragraph, in
lieu of indemnifying such indemnified party thereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party or parties on
the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as
any
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other relevant equitable considerations. The relative benefits received by
the Sellers on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the
Shares (before deducting expenses) received by each Seller and the total
underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover of the Prospectus, bear to
the aggregate Public Offering Price of the Shares. The relative fault of
the Sellers on the one hand and the Underwriters on the other hand shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Sellers or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The Underwriters' respective obligations to contribute
pursuant to this Section 9 are several in proportion to the respective
number of Shares they have purchased hereunder, and not joint.
(f) The Sellers and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 9 were
determined by PRO RATA allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in paragraph
(e) of this Section 9. The amount paid or payable by an indemnified party
as a result of the losses, claims, damages and liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 9, (i) no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission and (ii) the Warburg Entities shall not be
required to contribute an amount in excess of
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the amount by which the net proceeds of the offering received by Warburg
Entities exceeds the amount of any damages that Warburg Entities have
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The remedies provided for in this
Section 9 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any indemnified party at law or in
equity.
(g) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of the
Company and the Warburg Entities contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of
this Agreement, (ii) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Warburg Entities
or any person controlling the Warburg Entities or by or on behalf of the
Company, its officers or directors or any person controlling the Company
and (iii) acceptance of and payment for any of the Shares.
10. TERMINATION. This Agreement shall be subject to termination
by notice given by you to the Company, if (a) after the execution and delivery
of this Agreement and prior to the Closing Date: (i) trading generally shall
have been suspended or materially limited on or by, as the case may be, any of
the New York Stock Exchange, the American Stock Exchange, the National
Association of Securities Dealers, Inc., the Chicago Board of Options Exchange,
the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of
any securities of the Company shall have been suspended on any exchange or in
any over-the-counter market, (iii) a general moratorium on commercial banking
activities in the State of New York shall have been declared by either Federal
or New York State authorities or (iv) there shall have occurred any outbreak or
escalation of hostilities or any change in financial markets or any calamity or
crisis that, in your judgment, is material and adverse and (b) in the case of
any of the events specified in clauses (a)(i) through (iv), such event, singly
or together with any other such event, makes it, in
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your judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
11. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
If, on the Closing Date or the Option Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase
Shares that it has or they have agreed to purchase hereunder on such date, and
the aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I or Schedule
II bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 11 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. If, on
the Option Closing Date, any U.S. Underwriter or U.S. Underwriters shall fail or
refuse to purchase Additional Shares and the aggregate number of Additional
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Additional Shares to be purchased, the non-defaulting U.S.
Underwriters shall have the option to (i) terminate their
34
<PAGE>
obligation hereunder to purchase Additional Shares or (ii) purchase not less
than the number of Additional Shares that such non-defaulting U.S. Underwriters
would have been obligated to purchase in the absence of such default. Any
action taken under this paragraph shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
If this Agreement shall be terminated by the Underwriters, or any
of them, because of any failure or refusal on the part of any Seller to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason any Seller shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
[Signature Page Follows]
35
<PAGE>
14. HEADINGS. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
Very truly yours,
JOURNAL REGISTER COMPANY
By: ______________________
Name: Robert M. Jelenic
Title: President and Chief
Executive Officer
WARBURG, PINCUS CAPITAL COMPANY, L.P.
By: Warburg, Pincus & Co.
Its: General Partner
By: ___________________
Name:
Title: Partner
WARBURG, PINCUS CAPITAL PARTNERS, L.P.
By: Warburg, Pincus & Co.
Its: General Partner
By: ___________________
Name:
Title: Partner
WARBURG, PINCUS INVESTORS, L.P.
By: Warburg, Pincus & Co.
Its: General Partner
By: ___________________
Name:
Title: Partner
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
BEAR, STEARNS & CO. INC.
CHASE SECURITIES INC.
Acting severally on behalf
of themselves and the
36
<PAGE>
several Underwriters named
in Schedule I hereto.
By: Morgan Stanley & Co.
Incorporated
By: ___________________
Name:
Title:
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
CHASE MANHATTAN INTERNATIONAL LIMITED
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co. International Limited
By: ____________________
Name:
Title:
37
<PAGE>
SCHEDULE I
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
Bear, Stearns & Co. Inc.
Chase Securities Inc.
____________
Total U.S. Firm Shares...........
============
<PAGE>
Schedule II
INTERNATIONAL UNDERWRITERS
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
Morgan Stanley & Co. International Limited
Donaldson, Lufkin & Jenrette Securities
Corporation
Merrill Lynch International
Bear, Stearns International Limited
Chase Manhattan International Limited
_____________
Total International Firm Shares
=============
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
____________, 1997
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
Bear, Stearns & Co. Inc.
Chase Securities Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Merrill Lynch International
Bear, Stearns International Limited
Chase Manhattan International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") and Morgan Stanley & Co. International Limited ("MSIL")
propose to enter into an Underwriting Agreement (the "Underwriting Agreement")
with Journal Register Company, a Delaware corporation (the "Company"), Warburg,
Pincus Capital Company, L.P., Warburg, Pincus Capital Partners, L.P., and
Warburg, Pincus Investors, L.P., providing for the public offering (the "Public
Offering") by the several Underwriters, including Morgan Stanley and MSIL (the
"Underwriters") of up to ___ shares (the "Shares") of the common stock, par
value $.01 per share of the Company (the "Common Stock").
<PAGE>
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
(2) enter into any swap or other agreement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to the sale of any Shares to
the Underwriters pursuant to the Underwriting Agreement. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the Prospectus, make any
demand for or exercise any right with respect to, the registration of any shares
of Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock.
Whether or not the Public Offering actually occurs depends on a
number of factors, including market conditions. The Public Offering or purchase
of Shares with respect thereto will only be made pursuant to an Underwriting
Agreement, the terms of which are subject to negotiations between the Company
and the Underwriters.
Very truly yours,
-----------------------------------
(Name)
-----------------------------------
(Address)
2
<PAGE>
EXHIBIT B
RECIPIENTS OF BONUS SHARES
3
<PAGE>
Exhibit 3.1
FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
JOURNAL REGISTER COMPANY
I, the undersigned, for the purpose of amending and restating the
certificate of incorporation of Journal Register Company under the General
Corporation Law of the State of Delaware, (the "DGCL"), do hereby certify that
Journal Register Company has duly adopted the following Amended and Restated
Certificate of Incorporation pursuant to Section 242 of the DGCL:
ARTICLE I
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
Journal Register Company
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle,
19801. The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
ARTICLE IV
Section 1. The Corporation shall be authorized to issue 301,000,000
shares of capital stock, of which 300,000,000 shares shall be shares of Common
Stock, $.01 par value ("Common
<PAGE>
Stock"), and 1,000,000 shares shall be shares of Preferred Stock, $.01 par
value ("Preferred Stock").
Section 2. Shares of Preferred Stock may be issued from time to time
in one or more series. The Board (as defined below) is hereby authorized to fix
the voting rights, if any, designations, powers, preferences and the relative,
participation, optional or other rights, if any, and the qualifications,
limitations or restrictions thereof, of any unissued series of Preferred Stock;
and to fix the number of shares constituting such series, and to increase or
decrease the number of shares of any such series (but not below the number of
shares thereof then outstanding).
Section 3. Except as otherwise provided by law or by the resolution
or resolutions adopted by the Board designating the rights, powers and
preferences of any series of Preferred Stock, the Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes. Each share of Common Stock shall have one vote, and the Common Stock
shall vote together as a single class.
Section 4. No stockholder action may be taken except at an annual or
special meeting of stockholders of the Corporation, and stockholders may not
take any action by written consent in lieu of a meeting.
ARTICLE V
Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by law,
the Board of Directors of the Corporation (the "Board") is expressly authorized
and empowered to make, alter and repeal the By-Laws of the Corporation by a
majority vote at any regular or special meeting of the Board or by written
consent, subject to the power of the stockholders of the Corporation to alter or
repeal any By-Laws made by the Board.
2
<PAGE>
ARTICLE VII
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
ARTICLE VIII
Section 1. Elimination of Certain Liability of Directors. A director
of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended.
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
Section 2. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee
3
<PAGE>
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, to the fullest extent permitted by law, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, amounts paid or to be paid in settlement,
and excise taxes or penalties arising under the Employee Retirement Income
Security Act of 1974) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure
to the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in paragraph (b) hereof, the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board. The right to indemnification
conferred in this Section shall be a contract right and shall include the
right to be paid by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition; provided, however, that,
if the General Corporation Law of the State of Delaware requires, the payment
of such expenses incurred by a director or officer in his or her capacity as
a director or officer (and not in any other capacity in which service was or
is rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that
such director or officer is not entitled to be indemnified under this Section
or otherwise. The Corporation may, by action of the Board, provide
indemnification to employees and agents of the Corporation with the same
scope and effect as the foregoing indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph
(a) of this Section is not paid in full by the Corporation within thirty days
after a written claim has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any proceeding
in
4
<PAGE>
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct which make it permissible under the General
Corporation Law of the State of Delaware for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification
of the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the General Corporation Law of
the State of Delaware, nor an actual determination by the Corporation
(including its Board, independent legal counsel, or its stockholders) that
the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met
the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
ARTICLE IX
The name and mailing address of the incorporator is Sean Carney, c/o
E.M. Warburg, Pincus & Co., LLC, 466 Lexington Avenue, New York, New York 10017.
5
<PAGE>
IN WITNESS WHEREOF, said Journal Register Company has caused this
certificate to be signed by its President and attested by its Secretary,
this _____ day of April, 1997.
By:
----------------------------------
President
Attest:
----------------------------------
Secretary
6
<PAGE>
Exhibit 3.2
FORM of AMENDED AND RESTATED
BY-LAWS
of
JOURNAL REGISTER COMPANY
Incorporated under the Laws of the State of Delaware
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. Delaware Office. The principal office of the
Corporation in the State of Delaware shall be located in the City of
Wilmington, County of New Castle, and the name and address of its registered
agent is The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware.
SECTION 1.2. Other Offices. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time
to time require.
SECTION 1.3. Books and Records. The books and records of the
Corporation may be kept outside the State of Delaware at such place or places
as may from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. Annual Meeting. The annual meeting of the
stockholders of the Corporation shall be held on such date and at such
place and time as may be fixed by resolution of the Board of Directors.
SECTION 2.2. Special Meeting. Subject to the rights of the holders
of any series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation ("Preferred Stock") with respect
to such series of Preferred Stock, special meetings of the stockholders may be
called only by the Chairman of the Board or by the
<PAGE>
Board of Directors pursuant to a resolution adopted by a majority of the
total number of directors which the Corporation would have if there were no
vacancies (the "Whole Board").
SECTION 2.3. Place of Meeting. The Board of Directors or the
Chairman of the Board, as the case may be, may designate the place of meeting
for any annual meeting or for of Directors or the Chairman of the Board. If no
designation is so made, the place of meeting shall be the principal office of
the Corporation.
SECTION 2.4. Notice of Meeting. Written or printed notice, stating
the place, day and hour of the meeting and the purpose or purposes for which
the meeting is called, shall be delivered by the Corporation not less than
ten (10) days nor more than sixty (60) days before the date of the meeting,
either personally or by mail, to each stockholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail with postage thereon prepaid, addressed to
the stockholder at his address as it appears on the stock transfer books of the
Corporation. Such further notice shall be given as may be required by law.
Only such business shall be conducted at a special meeting of stockholders as
shall have been brought before the meeting pursuant to the Corporation's notice
of meeting. Meetings may be held without notice if all stockholders entitled
to vote are present, or if notice is waived by those not present in accordance
with Section 6.4 of these By-Laws. Any previously scheduled meeting of the
stockholders may be postponed, and (unless the Certificate of Incorporation
otherwise provides) any special meeting of the stockholders may be cancelled,
by resolution of the Board of Directors upon public notice given prior to the
date previously scheduled for such meeting of stockholders.
SECTION 2.5. Quorum and Adjournment. Except as otherwise provided
by law or by the Certificate of Incorporation, the holders of a majority of
the outstanding shares of the Corporation entitled to vote generally in the
election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that
when specified business is to be voted on by a class or series of stock
voting as a class, the holders of a majority of the shares of such class or
series shall constitute a quorum of such class or series for the transaction
of such business. The Chairman of the meeting or a majority of the shares so
represented may adjourn the meeting from
2
<PAGE>
time to time, whether or not there is such a quorum. No notice of the time
and place of adjourned meetings need be given except as required by law. The
stockholders present at a duly called meeting at which a quorum is present
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.6. Proxies. At all meetings of stockholders, a
stockholder may vote by proxy executed in writing (or in such manner
prescribed by the General Corporation Law of the State of Delaware) by the
stockholder, or by his duly authorized attorney in fact.
SECTION 2.7. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons
for election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual
meeting of stockholders (a) pursuant to the Corporation's notice of meeting,
(b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of the stockholder's notice provided for in this By-Law, who is
entitled to vote at the meeting and who complies with the notice procedures
set forth in this By-Law.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this By-Law, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on
the 60th day nor earlier than the close of business on the 90th day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more than
30 days before or more than 60 days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close
of business on the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such annual
meeting or the 10th day following the day on which public announcement of the
date of such meeting is first made by the Corporation. In no event shall the
public announcement of an adjournment
3
<PAGE>
of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); (b) as to any other business that
the stockholder proposes to bring before the meeting, a brief description of
the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal
is made (i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and
number of shares of the Corporation which are owned beneficially and of
record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this By-Law to the contrary, in the event that the number
of directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all
of the nominees `for director or specifying the size of the increased Board
of Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-Law shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary
at the principal executive offices of the Corporation not later than the
close of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at
a special meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting
4
<PAGE>
(a) by or at the direction of the Board of Directors or (b) provided that the
Board of Directors has determined that directors shall be elected at such
meeting, by any stockholder of the Corporation who is a stockholder of record
at the time of giving of notice provided for in this By-Law, who shall be
entitled to vote at the meeting and who complies with the notice procedures
set forth in this By-Law. In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to
the Board of Directors, any such stockholder may nominate a person or persons
(as the case may be), for election to such position(s) as specified in the
Corporation's notice of meeting, if the stockholder's notice required by
paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and not later than the
close of business on the later of the 60th day prior to such special meeting
or the 10th day following the day on which public announcement is first made
of the date of the special meeting and of the nominees proposed by the Board
of Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
(C) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this By-Law shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-Law. Except as otherwise provided by
law, the Certificate of Incorporation or these By-Laws, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or
any business proposed to be brought before the meeting was made or proposed,
as the case may be, in accordance with the procedures set forth in this
By-Law and, if any proposed nomination or business is not in compliance with
this By-Law, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and
5
<PAGE>
regulations thereunder with respect to the matters set forth in this By-Law.
Nothing in this By-Law shall be deemed to affect any rights (i) of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the
holders of any series of Preferred Stock to elect directors under specified
circumstances.
SECTION 2.8. Procedure for Election of Directors; Required Vote.
Election of directors at all meetings of the stockholders at which directors
are to be elected shall be by ballot, and, subject to the rights of the
holders of any series of Preferred Stock to elect directors under specified
circumstances, a plurality of the votes cast thereat shall elect directors.
Except as otherwise provided by law, the Certificate of Incorporation, or
these By-Laws, in all matters other than the election of directors, the
affirmative vote of a majority of the shares present in person or represented
by proxy at the meeting and entitled to vote on the matter shall be the act
of the stockholders.
SECTION 2.9. Inspectors of Elections; Opening and Closing the
Polls. The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve
the Corporation in other capacities, including, without limitation, as
officers, employees, agents or representatives, to act at the meetings of
stockholders and make a written report thereof. One or more persons may be
designated as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate has been appointed to act or is able to act at
a meeting of stockholders, the Chairman of the meeting shall appoint one or
more inspectors to act at the meeting. Each inspector, before discharging
his or her duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
or her ability. The inspectors shall have the duties prescribed by law.
The Chairman of the meeting shall fix and announce at the meeting
the date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting.
SECTION 2.10. No Stockholder Action by Written Consent. Subject to
the rights of the holders of any series of Preferred Stock with respect to
such series of Preferred Stock, any action required or permitted to be taken
by the stockholders of the Corporation must be taken at an annual or
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special meeting of stockholders of the Corporation and may not be taken by
any consent in writing by such stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. General Powers. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors.
In addition to the powers and authorities by these By-Laws expressly conferred
upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation or by these By-Laws required to be
exercised or done by the stockholders.
SECTION 3.2. Number, Tenure and Qualifications. Subject to the
rights of the holders of any series of Preferred Stock to elect directors under
specified circumstances, the number of directors shall be fixed from time to
time exclusively pursuant to a resolution adopted by a majority of the Whole
Board. The directors, other than those who may be elected by the holders of
any series of Preferred Stock under specified circumstances, shall be divided,
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number as is reasonably possible, with each
director to hold office until his or her successor shall have been duly
elected and qualified. At each annual meeting of stockholders, (i) directors
elected to succeed those directors whose terms then expire shall be elected
for a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until his
or her successor shall have been duly elected and qualified, and (ii) if
authorized by a resolution of the Board of Directors, directors may be elected
to fill any vacancy on the Board of Directors, regardless of how such vacancy
shall have been created.
SECTION 3.3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this By-Law immediately
after, and at the same place as, the Annual Meeting of Stockholders. The
Board of Directors may, by resolution, provide the time and place for the
holding of additional regular meetings without other notice than such
resolution.
SECTION 3.4. Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the
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Board of Directors then in office. The person or persons authorized to call
special meetings of the Board of Directors may fix the place and time of the
meetings.
SECTION 3.5. Notice. Notice of any special meeting of directors
shall be given to each director at his business or residence in writing by hand
delivery, first-class or overnight mail or courier service, telegram or
facsimile transmission, or orally by telephone. If mailed by first-class mail,
such notice shall be deemed adequately delivered when deposited in the United
States mails so addressed, with postage thereon prepaid, at least five days
before such meeting. If by telegram, overnight mail or courier service, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph company or the notice is delivered to the overnight mail or
courier service company at least twenty-four hours before such meeting. If by
facsimile transmission, such notice shall be deemed adequately delivered when
the notice is transmitted at least twelve hours before such meeting. If by
telephone or by hand delivery, the notice shall be given at least twelve hours
prior to the time set for the meeting. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice of such meeting, except for amendments to these
By-Laws, as provided under Section 8.1. A meeting may be held at any time
without notice if all the directors are present or if those not present waive
notice of the meeting in accordance with Section 6.4 of these By-Laws.
SECTION 3.6. Action by Consent of Board of Directors. Any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
SECTION 3.7. Conference Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.8. Quorum. Subject to Section 3.9, a whole number of
directors equal to at least a majority of the Whole Board shall constitute a
quorum for the transaction of
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business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority
of the directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors. The directors present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
SECTION 3.9. Vacancies. Subject to applicable law and the rights of
the holders of any series of Preferred Stock with respect to such series of
Preferred Stock, and unless the Board of Directors otherwise determines,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
office of the class to which they have been elected expires and until such
director's successor shall have been duly elected and qualified. No decrease
in the number of authorized directors constituting the Whole Board shall
shorten the term of any incumbent director.
SECTION 3.10. Executive and Other Committees. The Board of Directors
may, by resolution adopted by a majority of the Whole Board, designate an
Executive Committee to exercise, subject to applicable provisions of law, all
the powers of the Board in the management of the business and affairs of the
Corporation when the Board is not in session, including without limitation the
power to declare dividends, to authorize the issuance of the Corporation's
capital stock and to adopt a certificate of ownership and merger pursuant to
Section 253 of the General Corporation Law of the State of Delaware, and may, by
resolution similarly adopted, designate one or more other committees. The
Executive Committee and each such other committee shall consist of two or more
directors of the Corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, other than the
Executive Committee (the powers of which are expressly provided for herein),
may to the extent permitted by law exercise such powers and shall have such
responsibilities as shall be specified in
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the designating resolution. In the absence or disqualification of any member
of such committee or committees, the member or members thereof present at
any meeting and not disqualified from voting, whether or not constituting a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member. Each
committee shall keep written minutes of its proceedings and shall report
such proceedings to the Board when required.
A majority of any committee may determine its action and fix the
time and place of its meetings, unless the Board shall otherwise provide.
Notice of such meetings shall be given to each member of the committee in the
manner provided for in Section 3.5 of these By-Laws. The Board shall have
power at any time to fill vacancies in, to change the membership of, or to
dissolve any such committee. Nothing herein shall be deemed to prevent the
Board from appointing one or more committees consisting in whole or in part
of persons who are not directors of the Corporation; provided, however, that
no such committee shall have or may exercise any authority of the Board.
SECTION 3.11. Removal. Subject to the rights of the holders of any
series of Preferred Stock with respect to such series of Preferred Stock, any
director, or the entire Board of Directors, may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of at
least 80% of the voting power of all of the then-outstanding shares of Voting
Stock, voting together as a single class.
SECTION 3.12. Records. The Board of Directors shall cause to be kept
a record containing the minutes of the proceedings of the meetings of the Board
and of the stockholders, appropriate stock books and registers and such books
of records and accounts as may be necessary for the proper conduct of the
business of the Corporation.
ARTICLE IV
OFFICERS
SECTION 4.1. Elected Officers. The elected officers of the
Corporation shall be a Chairman of the Board of Directors, a President, one or
more Vice-Presidents, a Secretary, a Treasurer, and such other officers
(including, without limitation, a Chief Financial Officer) as the Board of
Directors from time to time may deem proper. The Chairman of
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the Board shall be chosen from among the directors. All officers elected by
the Board of Directors shall each have such powers and duties as generally
pertain to their respective offices, subject to the specific provisions of
this ARTICLE IV. Such officers shall also have such powers and duties as from
time to time may be conferred by the Board of Directors or by any committee
thereof. The Board of Directors or any committee thereof may from time to
time elect, or the Chairman of the Board or President may appoint, such other
officers (including one or more Assistant Vice Presidents, Assistant
Secretaries, Assistant Treasurers, and Assistant Controllers) and such agents,
as may be necessary or desirable for the conduct of the business of the
Corporation. Such other officers and agents shall have such duties and shall
hold their offices for such terms as shall be provided in these By-Laws or as
may be prescribed by the Board of Directors or such committee or by the
Chairman of the Board or President, as the case may be.
SECTION 4.2. Election and Term of Office. The elected officers of
the Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held after the annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Each officer
shall hold office until his or her successor shall have been duly elected and
shall have qualified or until his death or until he shall resign, but any
officer may be removed from office at any time by the affirmative vote of a
majority of the Whole Board or, except in the case of an officer or agent
elected by the Board of Directors, by the Chairman of the Board or President.
Such removal shall be without prejudice to the contractual rights, if any, of
the person so removed.
SECTION 4.3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors. The
Chairman of the Board shall be responsible for the general management of the
affairs of the Corporation and shall perform all duties incidental to his or her
office which may be required by law and all such other duties as are properly
required of him by the Board of Directors. He or she shall make reports to the
Board of Directors and the stockholders, and shall see that all orders and
resolutions of the Board of Directors and of any committee thereof are carried
into effect. The Chairman of the Board may also serve as President, if so
elected by the Board of Directors.
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SECTION 4.4. President. The President shall have such power and
perform such duties as may from time to time be assigned to him by the Board of
Directors, the Chief Executive Officer (if such position is held by one other
than the President) or prescribed by these By-laws.
SECTION 4.5. Vice-Presidents. Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him or her by the
Board of Directors.
SECTION 4.6. Chief Financial Officer. The Chief Financial Officer
(if any) shall be a Vice President and act in an executive financial capacity.
He or she shall assist the Chairman of the Board and the President in the
general supervision of the Corporation's financial policies and affairs.
SECTION 4.7. Treasurer. The Treasurer shall perform such duties and
have such powers as are usually incident to the office of the Treasurer or which
may be assigned to him by the Board of Directors.
SECTION 4.8. Secretary. The Secretary shall keep or cause to be kept
in one or more books provided for that purpose, the minutes of all meetings of
the Board of Directors, the committees of the Board of Directors and the
stockholders; he or she shall see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law; he or she shall be
custodian of the records and the seal of the Corporation and affix and attest
the seal to all stock certificates of the Corporation (unless the seal of the
Corporation on such certificates shall be a facsimile, as hereinafter provided)
and affix and attest the seal to all other documents to be executed on behalf of
the Corporation under its seal; and he or she shall see that the books, reports,
statements, certificates and other documents and records required by law to be
kept and filed are properly kept and filed; and in general, he or she shall
perform all the duties incident to the office of Secretary and such other duties
as from time to time may be assigned to him by the Board of Directors, the
Chairman of the Board of Directors or the President.
SECTION 4.9. Removal. Any officer elected, or agent appointed, by
the Board of Directors may be removed by the affirmative vote of a majority of
the Whole Board whenever, in their judgment, the best interests of the
Corporation would be served thereby. Any officer or agent appointed by the
Chairman of the Board or the President may be removed by him whenever, in his
judgment, the best interests of the
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Corporation would be served thereby. No elected officer shall have any
contractual rights against the Corporation for compensation by virtue of such
election beyond the date of the election of his or her successor, his or her
death, his or her resignation or his or her removal, whichever event shall
first occur, except as otherwise provided in an employment contract or under
an employee deferred compensation plan.
SECTION 4.10. Vacancies. A newly created elected office and a
vacancy in any elected office because of death, resignation, or removal may
be filled by the Board of Directors for the unexpired portion of the term at
any meeting of the Board of Directors. Any vacancy in an office appointed by
the Chairman of the Board or the President because of death, resignation, or
removal may be filled by the Chairman of the Board or the President.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1. Stock Certificates and Transfers. The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares
of stock in such form as the appropriate officers of the Corporation may from
time to time prescribe. The shares of the stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof in person
or by his attorney, upon surrender for cancellation of certificates for at
least the same number of shares, with an assignment and power of transfer
endorsed thereon or attached thereto, duly executed, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require.
The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution
prescribe, which resolution may permit all or any of the signatures on such
certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
SECTION 5.2. Lost, Stolen or Destroyed Certificates. No certificate
for shares of stock in the Corporation
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shall be issued in place of any certificate alleged to have been lost,
destroyed or stolen, except on production of such evidence of such loss,
destruction or theft and on delivery to the Corporation of a bond of
indemnity in such amount, upon such terms and secured by such surety, as the
Board of Directors or any financial officer may in its or his discretion
require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of January and end on the thirty-first day of December
of each year.
SECTION 6.2. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by law and the
Certificate of Incorporation.
SECTION 6.3. Seal. The corporate seal shall have inscribed thereon
the words "Corporate Seal", the year of incorporation and around the margin
thereof the words "Journal Register Company -- Delaware."
SECTION 6.4. Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions
of the General Corporation Law of the State of Delaware or these By-Laws, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of the
stockholders or the Board of Directors or committee thereof need be specified
in any waiver of notice of such meeting.
SECTION 6.5. Audits. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors,
and it shall be the duty of the Board of Directors to cause such audit to be
done annually.
SECTION 6.6. Resignations. Any director or any officer, whether
elected or appointed, may resign at any time by giving written notice of such
resignation to the Chairman
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of the Board, the President, or the Secretary, and such resignation shall be
deemed to be effective as of the close of business on the date said notice is
received by the Chairman of the Board, the President, or the Secretary, or at
such later time as is specified therein. No formal action shall be required
of the Board of Directors or the stockholders to make any such resignation
effective.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
SECTION 7.1. Contracts. Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of
the Corporation by such officer or officers of the Corporation as the Board
of Directors may from time to time direct. Such authority may be general or
confined to specific instances as the Board may determine. The Chairman of
the Board, the President or any Vice President may execute bonds, contracts,
deeds, leases and other instruments to be made or executed for or on behalf
of the Corporation. Subject to any restrictions imposed by the Board of
Directors or the Chairman of the Board, the President or any Vice President
of the Corporation may delegate contractual powers to others under his
jurisdiction, it being understood, however, that any such delegation of power
shall not relieve such officer of responsibility with respect to the exercise
of such delegated power.
SECTION 7.2. Proxies. Unless otherwise provided by resolution
adopted by the Board of Directors, the Chairman of the Board, the President
or any Vice President may from time to time appoint an attorney or attorneys
or agent or agents of the Corporation, in the name and on behalf of the
Corporation, to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, any of
whose stock or other securities may be held by the Corporation, at meetings
of the holders of the stock or other securities of such other corporation, or
to consent in writing, in the name of the Corporation as such holder, to any
action by such other corporation, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and
may execute or cause to be executed in the name and on behalf of the
Corporation and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in the
premises.
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ARTICLE VIII
AMENDMENTS
SECTION 8.1. Amendments. These By-Laws may be altered, amended, or
repealed at any meeting of the Board of Directors or of the stockholders,
provided notice of the proposed change was given in the notice of the meeting
and, in the case of a meeting of the Board of Directors, in a notice given
not less than two days prior to the meeting.
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EXHIBIT 10.2
JOURNAL REGISTER COMPANY
1997 STOCK INCENTIVE PLAN
SECTION 1. Purpose; Definitions
The purpose of the Plan is to give the Corporation a competitive advantage
in attracting, retaining and motivating officers, employees and consultants and
to provide the Corporation and its subsidiaries with a stock plan providing
incentives more directly linked to the profitability of the Corporation's
businesses and increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "Affiliate" means a corporation or other entity controlled by the
Corporation and designated by the Committee from time to time as such.
b. "Award" means a Stock Appreciation Right, Stock Option, Restricted
Stock or Performance Units.
c. "Award Cycle" shall mean a period of consecutive fiscal years or
portions thereof designated by the Committee over which Performance Units are to
be earned.
d. "Board" means the Board of Directors of the Corporation.
e. "Cause" means (1) conviction of a participant for committing a felony
under federal law or the law of the state in which such action occurred, (2)
dishonesty in the course of fulfilling a participant's employment duties or (3)
willful and deliberate failure on the part of a participant to perform his
employment duties in any material respect, or such other events as shall be
determined by the Committee. The Committee shall have the sole discretion to
determine whether "Cause" exists, and its determination shall be final.
f. "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
g. "Commission" means the Securities and Exchange Commission or any
successor agency.
h. "Committee" means the Committee referred to in Section 2.
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i. "Common Stock" means common stock, par value $.01 per share, of the
Corporation.
j. "Corporation" means Journal Register Company, a Delaware corporation.
k. "Covered Employee" means a participant designated prior to the grant of
shares of Restricted Stock or Performance Units by the Committee who is or may
be a "covered employee" within the meaning of Section 162(m)(3) of the Code in
the year in which Restricted Stock or Performance Units are expected to be
taxable to such participant.
l. "Disability" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
m. "Early Retirement" means retirement from active employment with the
Corporation or a subsidiary or Affiliate thereof pursuant to the early
retirement provisions of the applicable pension plan of such employer.
n. "EMWP" means E.M. Warburg, Pincus & Co., LLC, a Delaware limited
liability company.
o. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
p. "Fair Market Value" means, as of any given date, the mean between the
highest and lowest reported sales prices of the Common Stock on the New York
Stock Exchange Composite Tape or, if not listed on such exchange, on any other
national securities exchange on which the Common Stock is listed or on NASDAQ.
If there is no regular public trading market for such Common Stock, the Fair
Market Value of the Common Stock shall be determined by the Committee in good
faith.
q. "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422 of
the Code.
r. "Non-Employee Director" means a member of the Board who qualifies as a
Non-Employee Director as defined in Rule 16b-3(b)(3), as promulgated by the
Commission under the Exchange Act, or any successor definition adopted by the
Commission.
s. "NonQualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
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t. "Normal Retirement" means retirement from active employment with the
Corporation or a subsidiary or Affiliate thereof at or after age 65.
u. "Qualified Performance-Based Award" means an Award of Restricted
Stock or Performance Units designated as such by the Committee at the time of
grant, based upon a determination that (i) the recipient is or may be a
"covered employee" within the meaning of Section 162(m)(3) of the Code in the
year in which the Company would expect to be able to claim a tax deduction
with respect to such Restricted Stock or Performance Units and (ii) the
Committee wishes such Award to qualify for the Section 162(m) Exemption.
v. "Performance Goals" means the performance goals established by the
Committee in connection with the grant of Restricted Stock or Performance Units.
In the case of Qualified Performance-Based Awards, (i) such goals shall be based
on the attainment of specified levels of one or both of the following measures:
earnings per share or return on equity, and (ii) such Performance Goals shall be
set by the Committee within the time period prescribed by Section 162(m) of the
Code and related regulations.
w. "Performance Units" means an award made pursuant to Section 8.
x. "Plan" means the Journal Register Company 1997 Stock Incentive Plan, as
set forth herein and as hereinafter amended from time to time.
y. "Restricted Stock" means an award granted under Section 7.
z. "Retirement" means Normal or Early Retirement.
aa. (i)"Rule 16b-3" means Rule 16b-3, as promulgated by the Commission
under Section 16(b) of the Exchange Act, as amended from time to time.
bb. "Section 16 Event" is an event that, in the view of counsel to a
holder of an Award hereunder, may result in liability of such holder under
Section 16 of the Exchange Act.
cc. "Section 162(m) Exemption" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in Section
162(m)(4)(C) of the Code.
dd. "Stock Appreciation Right" means a right granted under Section 6.
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ee. "Stock Option" means an option granted under Section 5.
ff. "Termination of Employment" means the termination of the participant's
employment with the Corporation and any subsidiary or Affiliate thereof. A
participant employed by a subsidiary or an Affiliate of the Corporation shall
also be deemed to incur a Termination of Employment if the subsidiary or
Affiliate ceases to be such a subsidiary or an Affiliate, as the case may be,
and the participant does not immediately thereafter become an employee of the
Corporation or another subsidiary or Affiliate of the Corporation. Temporary
absences from employment because of illness, vacation or leave of absence and
transfers among the Corporation and its subsidiaries and Affiliates shall not be
considered Terminations of Employment.
gg. "Warburg, Pincus" means EMWP together with its affiliates.
hh. "WPCC" means Warburg, Pincus Capital Company, L.P., a Delaware limited
partnership.
ii. "WPCP" means Warburg, Pincus Capital Partners, L.P., a Delaware
limited partnership.
jj. "WPI" means Warburg, Pincus Investors, L.P., a Delaware limited
partnership.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
SECTION 2. Administration
The Plan shall be administered by the Compensation Committee or such other
committee of the Board as the Board may from time to time designate (the
"Committee"), which shall be composed of not less than two Non-Employee
Directors, each of whom shall be an "outside director" for purposes of Section
162(m)(4) of the Code, and shall be appointed by and serve at the pleasure of
the Board.
The Committee shall have plenary authority to grant Awards pursuant to the
terms of the Plan to officers and employees of the Company and its subsidiaries
and Affiliates.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
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(a) To select the officers and employees to whom Awards may from time to
time be granted;
(b) To determine whether and to what extent Incentive Stock Options,
NonQualified Stock Options, Stock Appreciation Rights, Restricted Stock and
Performance Units or any combination thereof are to be granted hereunder;
(c) To determine the number of shares of Common Stock to be covered by
each Award granted hereunder;
(d) To determine the terms and conditions of any Award granted hereunder
(including, but not limited to, the option price (subject to Section 5(a)), any
vesting condition, restriction or limitation (which may be related to the
performance of the participant, the Corporation or any subsidiary or Affiliate)
and any vesting acceleration or forfeiture waiver regarding any Award and the
shares of Common Stock relating thereto, based on such factors as the Committee
shall determine;
(e) To modify, amend or adjust the terms and conditions of any Award, at
any time or from time to time, including but not limited to Performance Goals;
provided, however, that the Committee may not adjust upwards the amount payable
with respect to a Qualified Performance-Based Award or waive or alter the
Performance Goals associated therewith;
(f) To determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to an Award shall be deferred; and
(g) To determine under what circumstances an Award may be settled in cash
or Common Stock under Sections 5(j), 6(b)(ii) and 8(b)(v).
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall
from time to time deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may (i) delegate to an officer of the Company
the authority to make decisions pursuant to Section 5 and (ii) authorize any one
or more of their members or any officer of the Company to execute and deliver
documents on behalf of the Committee.
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Any determination made by the Committee or pursuant to delegated authority
pursuant to the provisions of the Plan with respect to any Award shall be made
in the sole discretion of the Committee or such delegate at the time of the
grant of the Award or, unless in contravention of any express term of the Plan,
at any time thereafter. All decisions made by the Committee or any
appropriately delegated officer pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Corporation and Plan
participants.
Any authority granted to the Committee may also be exercised by the full
Board, except to the extent that the grant or exercise of such authority would
cause any Award or transaction to become subject to (or lose an exemption under)
the short-swing profit recovery provisions of Section 16 of the Exchange Act or
cause an award designated as a Qualified Performance-Based Award not to qualify
for, or to cease to qualify for, the Section 162(m) Exemption. To the extent
that any permitted action taken by the Board conflicts with action taken by the
Committee, the Board action shall control.
SECTION 3. Common Stock Subject to Plan
The total number of shares of Common Stock reserved and available for
grant under the Plan shall be 4,843,750, subject to the second paragraph of
this Section 3. No participant may be granted Awards covering in excess of
700,000 shares of Common Stock in any fiscal year or in excess of 2,000,000
shares of Common Stock over the term of the Plan, in each case, subject to
the second paragraph of this Section 3. Shares subject to an Award under the
Plan may be authorized and unissued shares or may be treasury shares.
If any shares of Restricted Stock are forfeited, or if any Stock Option
(and related Stock Appreciation Right, if any) terminates without being
exercised, or if any Stock Appreciation Right is exercised for cash, shares
subject to such Awards shall again be available for distribution in connection
with Awards under the Plan.
In the event of any change in corporate capitalization, such as a stock
split or a corporate transaction, such as any merger, consolidation, separation,
including a spin-off, or other distribution of stock or property of the
Corporation, any reorganization (whether or not such reorganization comes within
the definition of such term in Section 368 of the Code) or any partial or
complete liquidation of the Corporation, the Committee or Board may make such
substitution or adjustments in the aggregate number and kind of shares reserved
for issuance under the Plan, in the number, kind and option price of shares
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subject to outstanding Stock Options and Stock Appreciation Rights, in the
number and kind of shares subject to other outstanding Awards granted under the
Plan and/or such other equitable substitution or adjustments as it may determine
to be appropriate in its sole discretion; provided, however, that the number of
shares subject to any Award shall always be a whole number. Such adjusted
option price shall also be used to determine the amount payable by the
Corporation upon the exercise of any Stock Appreciation Right associated with
any Stock Option.
SECTION 4. Eligibility
Directors, officers, employees and consultants of the Corporation, its
subsidiaries and Affiliates who are responsible for or contribute to the
management, growth and profitability of the business of the Corporation, its
subsidiaries and Affiliates are eligible to be granted Awards under the Plan;
provided, that, consultants shall not be eligible for grants of Incentive Stock
Options.
SECTION 5. Stock Options
Stock Options may be granted alone or in addition to other Awards granted
under the Plan and may be of two types: Incentive Stock Options and
NonQualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, NonQualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights); provided, however, that
grants hereunder are subject to the aggregate limit on grants to individual
participants set forth in Section 3. Incentive Stock Options may be granted
only to employees of the Corporation and its subsidiaries (within the meaning of
Section 424(f) of the Code). To the extent that any Stock Option is not
designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a NonQualified Stock
Option.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is intended to be an agreement for an Incentive Stock Option or a
NonQualified Stock Option. The grant of a Stock Option shall occur on the date
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the Committee by resolution selects an individual to be a participant in any
grant of a Stock Option, determines the number of shares of Common Stock to be
subject to such Stock Option to be granted to such individual and specifies the
terms and provisions of the Stock Option. The Corporation shall notify a
participant of any grant of a Stock Option, and a written option agreement or
agreements shall be duly executed and delivered by the Corporation to the
participant. Such agreement or agreements shall become effective upon execution
by the Corporation and the participant.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered nor
shall any discretion or authority granted under the Plan be exercised so as to
disqualify the Plan under Section 422 of the Code or, without the consent of the
optionee affected, to disqualify any Incentive Stock Option under such Section
422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock purchasable
under a Stock Option shall be determined by the Committee and set forth in the
option agreement, and with respect to Incentive Stock Options, shall not be less
than the Fair Market Value of the Common Stock subject to the Stock Option on
the date of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than 10 years
after the date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option
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is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Corporation specifying
the number of shares of Common Stock subject to the Stock Option to be
purchased.
Such notice shall be accompanied by payment in full of the purchase price
by certified or bank check or such other instrument as the Company may accept.
If approved by the Committee, payment, in full or in part, may also be made in
the form of unrestricted Common Stock already owned by the optionee of the same
class as the Common Stock subject to the Stock Option (based on the Fair Market
Value of the Common Stock on the date the Stock Option is exercised); provided,
however, that, in the case of an Incentive Stock Option the right to make a
payment in the form of already owned shares of Common Stock of the same class as
the Common Stock subject to the Stock Option may be authorized only at the time
the Stock Option is granted and provided, further, that such already owned
shares have been held by the optionee for at least six months at the time of
exercise.
In the discretion of the Committee, payment for any shares subject to a
Stock Option may also be made by delivering a properly executed exercise notice
to the Corporation, together with a copy of irrevocable instructions to a broker
to deliver promptly to the Corporation the amount of sale or loan proceeds
necessary to pay the purchase price, and, if requested, by the amount of any
federal, state, local or foreign withholding taxes. To facilitate the
foregoing, the Corporation may enter into agreements for coordinated procedures
with one or more brokerage firms.
In addition, in the discretion of the Committee, payment for any shares
subject to a Stock Option may also be made by instructing the Committee to
withhold a number of such shares having a Fair Market Value on the date of
exercise equal to the aggregate exercise price of such Stock Option.
No shares of Common Stock shall be issued until full payment therefor has
been made. Except as otherwise provided in Section 5(l) below, an optionee
shall have all of the rights of a shareholder of the Corporation holding the
class or series of
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Common Stock that is subject to such Stock Option (including,
if applicable, the right to vote the shares and the right to receive dividends),
when the optionee has given written notice of exercise, has paid in full for
such shares and, if requested, has given the representation described in Section
13(a).
(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of descent
and distribution; or (ii) in the case of a NonQualified Stock Option, as
otherwise expressly permitted under the applicable option agreement including,
if so permitted, pursuant to a gift to such optionee's family, whether directly
or indirectly or by means of a trust or partnership or otherwise. All Stock
Options shall be exercisable, subject to the terms of this Plan, only by the
optionee, the guardian or legal representative of the optionee, or any person to
whom such option is transferred pursuant to the preceding sentence, it being
understood that the term "holder" and "optionee" include such guardian, legal
representative and other transferee.
(f) Termination by Death. Unless otherwise determined by the Committee,
if an optionee's employment terminates by reason of death, any Stock Option held
by such optionee may thereafter be exercised, to the extent then exercisable, or
on such accelerated basis as the Committee may determine, for a period of one
year (or such other period as the Committee may specify in the option agreement)
from the date of such death or until the expiration of the stated term of such
Stock Option, whichever period is the shorter.
(g) Termination by Reason of Disability. Unless otherwise determined by
the Committee, if an optionee's employment terminates by reason of Disability,
any Stock Option held by such optionee may thereafter be exercised by the
optionee, to the extent it was exercisable at the time of termination, or on
such accelerated basis as the Committee may determine, for a period of three
years (or such shorter period as the Committee may specify in the option
agreement) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter; provided, however, that if the optionee dies within such period, any
unexercised Stock Option held by such optionee shall, notwithstanding the
expiration of such period, continue to be exercisable to the extent to which it
was exercisable at the time of death for a period of 12 months from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of termination of employment by
reason of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise
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periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a NonQualified Stock
Option.
(h) Termination by Reason of Retirement. Unless otherwise determined by
the Committee, if an optionee's employment terminates by reason of Retirement,
any Stock Option held by such optionee may thereafter be exercised by the
optionee, to the extent it was exercisable at the time of such Retirement, or on
such accelerated basis as the Committee may determine, for a period of one year
(or such other period as the Committee may specify in the option agreement) from
the date of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter; provided, however,
that if the optionee dies within such period any unexercised Stock Option held
by such optionee shall, notwithstanding the expiration of such period, continue
to be exercisable to the extent to which it was exercisable at the time of death
for a period of 12 months from the date of such death or until the expiration of
the stated term of such Stock Option, whichever period is the shorter. In the
event of termination of employment by reason of Retirement, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will thereafter
be treated as a NonQualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee: (A)
if an optionee incurs a Termination of Employment for Cause, all Stock Options
held by such optionee shall thereupon terminate; and (B) if an optionee incurs a
Termination of Employment for any reason other than death, Disability or
Retirement or for Cause, any Stock Option held by such optionee, to the extent
then exercisable, or on such accelerated basis as the Committee may determine,
may be exercised for the lesser of three months from the date of such
Termination of Employment or the balance of such Stock Option's term; provided,
however, that if the optionee dies within such three-month period, any
unexercised Stock Option held by such optionee shall, notwithstanding the
expiration of such three-month period, continue to be exercisable to the extent
to which it was exercisable at the time of death for a period of 12 months from
the date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of Termination of
Employment, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a NonQualified Stock Option.
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(j) Cashing Out of Stock Option. On receipt of written notice of
exercise, the Committee may elect to cash out all or part of the portion of the
shares of Common Stock for which a Stock Option is being exercised by paying the
optionee an amount, in cash or Common Stock, equal to the excess of the Fair
Market Value of the Common Stock over the option price times the number of
shares of Common Stock for which the Option is being exercised on the effective
date of such cash-out.
(k) Deferral of Option Shares. The Committee may from time to time
establish procedures pursuant to which an optionee may elect to defer, until a
time or times later than the exercise of an Option, receipt of all or a portion
of the Shares subject to such Option and/or to receive cash at such later time
or times in lieu of such deferred Shares, all on such terms and conditions as
the Committee shall determine. If any such deferrals are permitted, then
notwithstanding Section 5(d) above, an optionee who elects such deferral shall
not have any rights as a stockholder with respect to such deferred Shares unless
and until Shares are actually delivered to the optionee with respect thereto,
except to the extent otherwise determined by the Committee.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a NonQualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an optionee in accordance
with Section 6(b) by surrendering the applicable portion of the related Stock
Option in accordance with procedures established by the Committee. Upon such
exercise and surrender, the optionee shall be entitled to receive an amount
determined in the manner prescribed in Section 6(b). Stock Options which have
been so surrendered shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
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(i) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate are
exercisable in accordance with the provisions of Section 5 and this Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall
be entitled to receive an amount in cash, shares of Common Stock or both, in
value equal to the excess of the Fair Market Value of one share of Common
Stock over the option price per share specified in the related Stock Option
multiplied by the number of shares in respect of which the Stock Appreciation
Right shall have been exercised, with the Committee having the right to
determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only to permitted
transferees of the underlying Stock Option in accordance with Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or
part thereof to which such Stock Appreciation Right is related shall be deemed
to have been exercised for the purpose of the limitation set forth in Section 3
on the number of shares of Common Stock to be issued under the Plan, but only to
the extent of the number of shares covered by the Stock Appreciation Right at
the time of exercise based on the value of the Stock Appreciation Right at such
time.
SECTION 7. Restricted Stock
(a) Administration. Shares of Restricted Stock may be awarded either
alone or in addition to other Awards granted under the Plan. The Committee
shall determine the directors, officers, employees and consultants to whom and
the time or times at which grants of Restricted Stock will be awarded, the
number of shares to be awarded to any participant (subject to the aggregate
limit on grants to individual participants set forth in Section 3), the
conditions for vesting, the time or times within which such Awards may be
subject to forfeiture and any other terms and conditions of the Awards, in
addition to those contained in Section 7(c).
(b) Awards and Certificates. Shares of Restricted Stock shall be
evidenced in such manner as the Committee may deem appropriate, including
book-entry registration or issuance of one or more stock certificates. Any
certificate issued in respect of shares of Restricted Stock shall be registered
in the
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name of such participant and shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such Award,
substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the Journal Register Company 1997 Stock
Incentive Plan and a Restricted Stock Agreement. Copies of such
Plan and Agreement are on file at the offices of Journal Register
Company, State Street Square, 50 West State Street,
Trenton, New Jersey 08608-1298."
The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(i) The Committee may, prior to or at the time of grant, designate an
Award of Restricted Stock as a Qualified Performance-Based Award, in which event
it shall condition the grant or vesting, as applicable, of such Restricted Stock
upon the attainment of Performance Goals. If the Committee does not designate
an Award of Restricted Stock as a Qualified Performance-Based Award, it may also
condition the grant or vesting thereof upon the attainment of Performance Goals.
Regardless of whether an Award of Restricted Stock is a Qualified
Performance-Based Award, the Committee may also condition the grant or vesting
thereof upon the continued service of the participant. The conditions for grant
or vesting and the other provisions of Restricted Stock Awards (including
without limitation any applicable Performance Goals) need not be the same with
respect to each recipient. The Committee may at any time, in its sole
discretion, accelerate or waive, in whole or in part, any of the foregoing
restrictions; provided, however, that in the case of Restricted Stock that is a
Qualified Performance-Based Award, the applicable Performance Goals have been
satisfied.
(ii) Subject to the provisions of the Plan and the Restricted Stock
Agreement referred to in Section 7(c)(vi), during the period, if any, set by the
Committee,
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commencing with the date of such Award for which such participant's
continued service is required (the "Restriction Period"), and until the later of
(i) the expiration of the Restriction Period and (ii) the date the applicable
Performance Goals (if any) are satisfied, the participant shall not be permitted
to sell, assign, transfer, pledge or otherwise encumber shares of Restricted
Stock; provided that the foregoing shall not prevent a participant from pledging
Restricted Stock as security for a loan, the sole purpose of which is to provide
funds to pay the option price for Stock Options.
(iii) Except as provided in this paragraph (iii) and Sections 7(c)(i)
and 7(c)(ii) and the Restricted Stock Agreement, the participant shall have,
with respect to the shares of Restricted Stock, all of the rights of a
stockholder of the Corporation holding the class or series of Common Stock that
is the subject of the Restricted Stock, including, if applicable, the right to
vote the shares and the right to receive any cash dividends. If so determined
by the Committee in the applicable Restricted Stock Agreement and subject to
Section 13(e) of the Plan, (A) cash dividends on the class or series of Common
Stock that is the subject of the Restricted Stock Award shall be automatically
deferred and reinvested in additional Restricted Stock, held subject to the
vesting of the underlying Restricted Stock, or held subject to meeting
Performance Goals applicable only to dividends, and (B) dividends payable in
Common Stock shall be paid in the form of Restricted Stock of the same class as
the Common Stock with which such dividend was paid, held subject to the vesting
of the underlying Restricted Stock, or held subject to meeting Performance Goals
applicable only to dividends.
(iv) Except to the extent otherwise provided in the applicable Restricted
Stock Agreement and Sections 7(c)(i), 7(c)(ii) and 7(c)(v), upon a participant's
Termination of Employment for any reason during the Restriction Period or before
the applicable Performance Goals are satisfied, all shares still subject to
restriction shall be forfeited by the participant.
(v) In the event that a participant retires or such participant's
employment is involuntarily terminated (other than for Cause), the Committee
shall have the discretion to waive, in whole or in part, any or all remaining
restrictions (other than, in the case of Restricted Stock with respect to which
a participant is a Covered Employee, satisfaction of the applicable Performance
Goals
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unless the participant's employment is terminated by reason of death or
Disability) with respect to any or all of such participant's shares of
Restricted Stock.
(vi) If and when any applicable Performance Goals are satisfied and the
Restriction Period expires without a prior forfeiture of the Restricted Stock,
unlegended certificates for such shares shall be delivered to the participant
upon surrender of the legended certificates.
(vii) Each Award shall be confirmed by, and be subject to, the terms of
a Restricted Stock Agreement.
SECTION 8. Performance Units
(a) Administration. Performance Units may be awarded either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the officers, employees and consultants to whom and the time or times at which
Performance Units shall be awarded, the number of Performance Units to be
awarded to any participant (subject to the aggregate limit on grants to
individual participants set forth in Section 3), the duration of the Award Cycle
and any other terms and conditions of the Award, in addition to those contained
in Section 8(b).
(b) Terms and Conditions. Performance Units Awards shall be subject to
the following terms and conditions:
(i) The Committee may, prior to or at the time of the grant, designate
Performance Units as Qualified Performance-Based Awards, in which event it shall
condition the settlement thereof upon the attainment of Performance Goals. If
the Committee does not designate Performance Units as Performance-Based Awards,
it may also condition the settlement thereof upon the attainment of Performance
Goals. Regardless of whether Performance Units are Qualified Performance-Based
Awards, the Committee may also condition the settlement thereof upon the
continued service of the participant. The provisions of such Awards (including
without limitation any applicable Performance Goals) need not be the same with
respect to each recipient. Subject to the provisions of the Plan and the
Performance Units Agreement referred to in Section 8(b)(vi), Performance Units
may not be sold, assigned, transferred, pledged or otherwise encumbered during
the Award Cycle.
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(ii) Except to the extent otherwise provided in the applicable Performance
Unit Agreement and Section 8(b)(iii), upon a participant's Termination of
Employment for any reason during the Award Cycle or before any applicable
Performance Goals are satisfied, all rights to receive cash or stock in
settlement of the Performance Units shall be forfeited by the participant.
(iii) In the event that a participant's employment is terminated (other
than for Cause), or in the event a participant retires, the Committee shall have
the discretion to waive, in whole or in part, any or all remaining payment
limitations (other than, in the case of Performance Units that are Qualified
Performance-Based Awards, satisfaction of the applicable Performance Goals
unless the participant's employment is terminated by reason of death or
Disability) with respect to any or all of such participant's Performance Units.
(iv) A participant may elect to further defer receipt of cash or shares in
settlement of Performance Units for a specified period or until a specified
event, subject in each case to the Committee's approval and to such terms as are
determined by the Committee (the "Elective Deferral Period"). Subject to any
exceptions adopted by the Committee, such election must generally be made prior
to commencement of the Award Cycle for the Performance Units in question.
(v) At the expiration of the Award Cycle, the Committee shall evaluate the
Company's performance in light of any Performance Goals for such Award, and
shall determine the number of Performance Units granted to the participant which
have been earned, and the Committee shall then cause to be delivered (A) a
number of shares of Common Stock equal to the number of Performance Units
determined by the Committee to have been earned, or (B) cash equal to the Fair
Market Value of such number of shares of Common Stock to the participant, as the
Committee shall elect (subject to any deferral pursuant to Section 8(b)(iv)).
(vi) Each Award shall be confirmed by, and be subject to, the terms of a
Performance Unit Agreement.
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SECTION 9. Tax Offset Bonuses
At the time an Award is made hereunder or at any time thereafter, the
Committee may grant to the participant receiving such Award the right to receive
a cash payment in an amount specified by the Committee, to be paid at such time
or times (if ever) as the Award results in compensation income to the
participant, for the purpose of assisting the participant to pay the resulting
taxes, all as determined by the Committee and on such other terms and conditions
as the Committee shall determine.
SECTION 10. Term, Amendment and Termination
The Plan will terminate 10 years after the effective date of the Plan.
Under the Plan, Awards outstanding as of such date shall not be affected or
impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the rights of an
optionee under a Stock Option or a recipient of a Stock Appreciation Right,
Restricted Stock Award or Performance Unit Award theretofore granted without the
optionee's or recipient's consent, except such an amendment made to cause the
Plan to qualify for any exemption provided by Rule 16b-3. In addition, no such
amendment shall be made without the approval of the Corporation's shareholders
to the extent such approval is required by law or agreement.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
cause a Qualified Performance-Based Award to cease to qualify for the Section
162(m) Exemption or impair the rights of any holder without the holder's consent
except such an amendment made to cause the Plan or Award to qualify for any
exemption provided by Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
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SECTION 11. Unfunded Status of Plan
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation
of trusts or other arrangements to meet the obligations created under the Plan
to deliver Common Stock or make payments; provided, however, that unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 12. General Provisions
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Corporation in writing
that such person is acquiring the shares without a view to the distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or agreements made pursuant
thereto, the Corporation shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such
shares on the New York Stock Exchange, Inc., or such other securities exchange
as may at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of the
Corporation under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the Committee
shall, in its absolute discretion upon the advice of counsel, deem necessary or
advisable; and
(3) Obtaining any other consent, approval, or permit from any state or
federal governmental agency which the Committee shall, in its absolute
discretion after receiving the advice of counsel, determine to be necessary or
advisable.
(b) Nothing contained in the Plan shall prevent the Corporation or any
subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
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(c) Adoption of the Plan shall not confer upon any employee any right to
continued employment, nor shall it interfere in any way with the right of the
Corporation or any subsidiary or Affiliate to terminate the employment of any
employee at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for federal income tax purposes with
respect to any Award under the Plan, the participant shall pay to the
Corporation, or make arrangements satisfactory to the Corporation regarding the
payment of, any federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Corporation, withholding obligations may be settled with Common Stock,
including Common Stock that is part of the Award that gives rise to the
withholding requirement. The obligations of the Corporation under the Plan
shall be conditional on such payment or arrangements, and the Corporation and
its Affiliates shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the participant. The Committee
may establish such procedures as it deems appropriate, including making
irrevocable elections, for the settlement of withholding obligations with Common
Stock.
(e) Reinvestment of dividends in additional Restricted Stock at the time
of any dividend payment shall only be permissible if sufficient shares of Common
Stock are available under Section 3 for such reinvestment (taking into account
then outstanding Stock Options and other Awards).
(f) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts payable in the
event of the participant's death are to be paid or by whom any rights of the
participant, after the participant's death, may be exercised.
(g) In the case of a grant of an Award to any employee of a subsidiary of
the Corporation, the Corporation may, if the Committee so directs, issue or
transfer the shares of Common Stock, if any, covered by the Award to the
subsidiary, for such lawful consideration as the Committee may specify, upon the
condition or understanding that the subsidiary will transfer the shares of
Common Stock to the employee in accordance with the terms of the Award specified
by the Committee pursuant to the provisions of the Plan.
(h) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the
20
<PAGE>
laws of the State of Delaware, without reference to principles of conflict of
laws.
SECTION 13. Effective Date of Plan
The Plan shall be effective as of the date it is approved by at least a
majority of the outstanding shares of Common Stock of the Corporation.
SECTION 14. Director Stock Options
(a) Each director of the Corporation who is not otherwise an employee of
the Corporation or any of its subsidiaries or Affiliates and is not an officer,
director, or employee of EMWP, WPCC, WPCP or WPI shall, on the first Tuesday
following his or her first election as a director of the Corporation, and
thereafter on the day after each Annual Meeting of Stockholders during such
director's term, automatically be granted NonQualified Stock Options to purchase
10,000 shares of Common Stock on terms and conditions specified by the
Committee.
(b) An automatic director Stock Option shall be granted hereunder only if
as of each date of grant the director (i) is not otherwise an employee of the
Corporation or any of its subsidiaries or Affiliates, (ii) is not an officer,
director or employee of EMWP, WPCC, WPCP or WPI, (iii) has not been an employee
of the Corporation or any of its subsidiaries or Affiliates for any part of the
preceding fiscal year, and (iv) has served on the Board continuously since the
commencement of his term.
(c) Each holder of a Stock Option granted pursuant to this Section 15
shall also have the rights specified in Section 5(k).
(d) In the event that the number of shares of Common Stock available for
future grant under the Plan is insufficient to make all automatic grants
required to be made on such date, then all non-employee directors entitled to a
grant on such date shall share ratably in the number of options on shares
available for grant under the Plan.
(e) Except as expressly provided in this Section 15, any Stock Option
granted hereunder shall be subject to the terms and conditions of the Plan as if
the grant were made pursuant to Section 5 hereof.
21
<PAGE>
Exhibit 10.4
JOURNAL REGISTER COMPANY
401(K) EXCESS/DEFERRED COMPENSATION PLAN
1. Purpose. This plan is established, effective January 1, 1996, for the
purpose of providing certain employees of Journal Register Company ("JRC")
with benefits which would otherwise be reduced by reason of the restrictive
provisions of law applicable to the JRC 401(k) Plan (the "401(k) Plan"). To
fulfill this purpose, Eligible Employees will be provided with supplemental
benefits to compensate for loss of benefits that would otherwise have been
payable under the 401(k) Plan were it not for limitation on benefits payable
under such plan imposed by restrictions on participants'
elective contributions under sections 402(g) and 401(a)(17) of the Internal
Revenue Code and on annual additions under section 415 of the Code. This
program is to be unfunded and is maintained for the purpose of providing
deferred compensation for a select group of management employees.
2. Definitions.
(a) "JRC" shall mean the Journal Register Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Eligible Employee" shall mean an employee of JRC who becomes
eligible for a benefit under this program in accordance with Section 3.
(d) "401(k) Plan" shall mean the Journal Register Company 401(k) Plan,
as it may from time to time be amended.
(e) "Excess Salary Reduction Amount" shall mean for each calendar year
the amount by which an Eligible Employee elects to defer compensation in the
form determined by JRC and as further set forth herein. No change in any
participant's election to defer compensation under this plan shall be
effective with respect to this plan until the calendar year following the
year in which the change is made, and the participant's Excess Salary
Reduction Amount for the year in which the change is made shall not be
affected. Each participant's Excess Salary Reduction Amount may not exceed
30% of his taxable compensation for the year minus the dollar amount deferred
by the participant under 401(k) Plan for such year. JRC shall establish such
further terms and conditions of elections to defer compensation as it may
deem necessary.
<PAGE>
3. Eligibility and Participation. With respect to a calendar year, each
employee of JRC who is a Vice-President of the Company and who has been
designated by the Board of Directors of JRC shall be eligible to participate
in this plan. Each Eligible Employee shall become a participant as of the
date he or she completes such documentation as may be required by JRC as a
condition of participation.
4. Determination of Benefit.
(a) Account. JRC shall establish an account on behalf of each
participant. Such account shall reflect the value of deferred benefits and
shall be a bookkeeping entry only.
(b) Credit for Deferred Salary. As soon as practicable following the
first day of each calendar quarter, JRC shall credit to each participant's
account that portion of his or her Excess Salary Reduction Amount
attributable to compensation paid in the immediately preceding calendar
quarter.
(c) Credit for Matching Contribution. As soon as practicable following
the first day of each calendar quarter, JRC shall credit to each
participant's account an amount equal to 50% of the first 6% of compensation
credited under Paragraph 4(b) for the preceding calendar quarter, or such
other amount as may be set by JRC from time to time.
(d) Credit for Earnings. At least once per year, or at such more
frequent intervals as JRC shall determine, each participant's account shall
be credited or debited on a reasonable and consistent basis with an increase
or decrease equal to the product of (1) the overall rate of return under the
401(k) Plan for the same time period, and (2) the average of the amount in
the participant's account on the first day and the last day of the period.
However, if JRC elects to set aside any fund for the purpose of providing
benefits under this plan, JRC may elect to credit or debit each participant's
account by the actual return on such fund for any period. JRC may allow each
participant to direct the investment of any fund set aside by JRC for the
purpose of providing such participant's benefits hereunder, or to direct the
deemed investment of such participant's accounts (irrespective of whether JRC
sets aside its own fund to provide benefits), in which case the account of
each participant who so directs the investment or deemed investment shall be
credited or debited by the gain or loss that would have been actually
produced by investment pursuant to the participant's directions.
2
<PAGE>
5. Payment of Benefits.
(a) Benefit Commencement. Benefits hereunder shall become payable by
reason of the participant's death, retirement or other separation from
service, and, except as provided in Paragraph 5(b) with respect to a
participant's death, such payment shall commence no later than thirty days
after the participant's separation from service. Benefits may be paid prior
to separation from service in the event of termination of the plan under
Section 7 or in the case of a proven financial hardship or unforeseen
emergency, including but not limited to:
(1) medical expenses described in section 213(d) of the Code
incurred by the participant, the participant's spouse, or any child or
dependent of the participant (as defined in section 152 of the Code);
(2) the purchase of a principal residence for the participant;
(3) the payment of tuition for the education of the participant,
the participant's spouse, or any child or dependent of the participant;
(4) the need to prevent the eviction of the participant from his
or her principal residence or foreclosure on the mortgage of the
participant's principal residence; or
(5) any other event deemed to create an immediate and heavy
financial need of the participant as may be determined in the sole discretion
of the Board of Directors of JRC.
In no event shall a member of the Board of Directors who may be a
participant take part in any decision concerning distribution of his or her
account. No amount shall be payable in the case of such a hardship if there
exists any amount which may be withdrawn (whether or not on account of
hardship) from the 401(k) Plan.
(b) Form and Amount of Distribution. At the time the participant
separates from service, he shall elect whether such benefits shall be paid in
a single sum, or in five annual cash installments or sixty monthly cash
installments as nearly equal as possible. JRC shall pay the participant the
amount credited to his account in the manner the participant elected;
provided, however, that, if the amount credited to the participant's account
on the date of the termination of the participant's employment does not
exceed $3,500, JRC shall distribute such amount as a single sum. The
participant's account shall be credited for earnings pursuant to Paragraph
4(d) for so long as
3
<PAGE>
there exists any unpaid balance. In the event of the participant's death
prior to total distribution of his account, the balance remaining to his
credit shall be paid in a single sum to the beneficiary or beneficiaries
entitled to any death benefit under the 401(k) Plan as soon as practicable
and, unless such beneficiary or beneficiaries cannot be determined or
located, not later than 30 days following the participant's death.
6. Source of Funds. This plan shall be unfunded, and payment of
benefits hereunder shall be made from the general assets of JRC. Any such
asset which may be set aside, earmarked or identified as being intended for
the provision of benefits hereunder shall remain an asset of JRC and shall be
subject to the claims of its general creditors. Each participant shall be a
general creditor of JRC to the extent of the value of his or her benefit
accrued hereunder, but he or she shall have no right, title, or interest in
any specific asset that JRC may set aside or designate as intended to be
applied to the payment of benefits under this plan.
7. Amendment and Termination. JRC reserves the right to amend this
plan at any time and from time to time in any fashion, and to terminate it at
will. However, to the extent that JRC has the assets with which to pay such
benefits, JRC guarantees to the participant (and to persons becoming entitled
to benefits under this plan by reason of the death of the participant) the
payment of benefits contemplated hereunder, subject to the terms and
conditions set forth herein.
8. Nonalienation of Benefits. Except as hereinafter provided with
respect to marital disputes, none of the benefits or rights of a participant
or any beneficiary of a participant under this plan shall be subject to the
claim of any creditor, and in particular, to the fullest extent permitted by
law, all such benefits and rights shall be free from attachment, garnishment
or any other legal or equitable process available to any creditor of the
participant and the beneficiary. Neither the participant nor the beneficiary
shall have the right to alienate, anticipate, commute, pledge, encumber, or
assign any of the benefit or payments which her or she may expect to receive,
contingently or otherwise, under this plan, except the right to designate a
beneficiary to receive death benefits provided hereunder. In cases of martial
dispute, JRC will observe the terms of the plan unless and until ordered to
do otherwise by a state or Federal court. As a condition of participation, a
participant agrees to hold JRC harmless from any harm that arises out of
JRC's obeying the final order of any state or Federal court, whether such
order effects a judgment of such court or is issued to enforce a judgment or
order of another court.
4
<PAGE>
9. Administration. The records to be maintained for the purpose of
the plan shall be maintained by the officers and employees of JRC at its
expense. All expenses of administering the plan shall be paid by JRC and
shall not affect the participants' right to or amount of benefits.
10. No Contract of Employment. Nothing contained herein shall be
construed as conferring upon any person the right to be employed or continue
in the employ of JRC.
11. Applicable Law. This plan shall be construed under the laws of
the State of New Jersey.
IN WITNESS WHEREOF, the foregoing Plan has been adopted pursuant to a
Directors' resolution adopted December __, 1995.
5
<PAGE>
Exhibit 10.5
FORM OF VOTING AGREEMENT
This Voting Agreement ("Agreement") is entered into as of this
_______ day of _______, 1997 by and among Warburg, Pincus Capital Company,
L.P. ("Capital Company"), Warburg, Pincus Capital Partners, L.P. ("Capital
Partners"), Warburg, Pincus Investors, L.P. ("Investors" and together with
Capital Company and Capital Partners, "Warburg, Pincus") and Journal Register
Company, a Delaware corporation (the "Company").
W I T N E S S E T H
WHEREAS, Warburg, Pincus owns in the aggregate 37,864,177 shares of
common stock, par value $.01 per share, of the Company, such stock
representing in excess of 50% of the voting power of the Company's voting
stock;
WHEREAS, the parties hereto have been advised by the Company's
independent public accountants that pooling of interests accounting treatment
is generally unavailable for a transaction involving a company that within
two years prior to the transaction had a stockholder that controlled more
than 50% of the voting power of such company; and
WHEREAS, the parties have been further advised by the Company's
independent public accountants that upon execution of this Agreement,
Warburg, Pincus will be deemed to have divested itself of voting power in
excess of the 50% limitation for the purposes of the pooling of interest
accounting rules referred to above;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each party, the parties hereto, intending to be legally
bound, agree as follows:
1. VOTING
At any time when a matter is brought to the vote of the Company's
stockholders and Warburg, Pincus beneficially owns shares of the Company
voting stock representing more than
<PAGE>
50% of the voting power of the Company's shares entitled to vote on
such matter (the "Limit"), then:
(a) Warburg, Pincus may vote shares up to the Limit in its
discretion; and
(b) Warburg, Pincus shall vote shares beneficially owned by it in
excess of the Limit in the same proportion as the shares voted by holders
other than Warburg, Pincus are voted on such matter.
2. AMENDMENT OR TERMINATION
Except as set forth in paragraph 3 below, this Agreement may not be
amended or terminated without the concurrence of a majority of the votes of
the shares of the Company's voting stock voting on the matter at a meeting
duly called other than shares of Company's voting stock beneficially owned by
Capital Company, Capital Partners or Investors.
3. ADDITIONAL RIGHT TO TERMINATION
This Agreement shall also be terminated by Warburg, Pincus on the
one hand, or the Company, on the other hand, if either shall have received an
opinion from a certified public accounting firm contrary to the advice
referred to in the third "Whereas" clause hereto and such opinion is
delivered to all the parties hereto.
4. COUNTERPARTS
This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5. NOTICES
All notices, requests, demands and other communications under this
Agreement shall be in writing, shall be given by one of the methods specified
below, and shall be deemed to have been duly given (i) on the date of service
if served per-
2
<PAGE>
sonally on the party to whom notice is to be given, (ii) on the second
business day after delivery to an overnight courier service, provided receipt
of delivery has been confirmed, or (iii) upon receipt by the transmitting
party of confirmation or answer-back if delivery is by telex or telefax.
If to Capital Company, Capital Partners or Investors:
c/o Warburg, Pincus & Co.
466 Lexington Avenue
New York, New York 10017
Attention: Douglas M. Karp
Telephone: (212) 878-0600
Facsimile: (212) 878-9351
If to the Company:
Journal Register Company
State Street Square
50 West State Street
Trenton, New Jersey 08608-1298
Attention: Robert M. Jelenic
Telephone: (609) 396-2200
Facsimile: (609) 396-8731
6. GOVERNING LAW
This Agreement shall be construed in accordance with, and governed
by, the laws of the State of Delaware, without regard to the principles of
conflicts of laws thereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
it as of the date set forth above.
WARBURG, PINCUS CAPITAL
COMPANY, L.P.
By:
-----------------------------
Name:
Title:
WARBURG, PINCUS CAPITAL
PARTNERS, L.P.
By:
-----------------------------
Name:
Title:
WARBURG, PINCUS INVESTORS, L.P.
By:-----------------------------
Name:
Title:
JOURNAL REGISTER COMPANY
By:
-----------------------------
Name:
Title:
4
<PAGE>
EXHIBIT 11.1
JOURNAL REGISTER COMPANY, LLC AND AFFILIATES
STATEMENT OF COMPUTATION OF PRO FORMA AND SUPPLEMENTAL EARNINGS PER SHARE
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
Net income as reported........................................................ $ 28,108,629 $ 5,724,112
----------------- --------------
----------------- --------------
Weighted average shares outstanding reflecting the issuance of shares
subsequent to December 31, 1996 but prior to the Offerings................... 37,962,500 37,962,500
----------------- --------------
----------------- --------------
Pro forma net income per common share......................................... $ .74 $ .15
----------------- --------------
----------------- --------------
Supplemental--
Net income as reported........................................................ $ 28,108,629 $ 5,724,112
Pro forma adjustments (other than taxes) for the interest expense reduction
related to debt repayment from Offerings proceeds and increase in interest
expense related to debt for the special bonuses.............................. 12,352,031 2,884,402
----------------- --------------
Pro forma income before income taxes.......................................... 40,460,660 8,608,514
Pro forma provision for income taxes.......................................... 4,162,634 1,173,951
----------------- --------------
Pro forma net income.......................................................... $ 36,298,026 $ 7,434,563
----------------- --------------
----------------- --------------
Supplemental net income per common share...................................... $ .75 $ .15
----------------- --------------
----------------- --------------
Supplemental shares outstanding reflect shares issued through the Offerings
for which proceeds were used to repay debt and management shares related to
the special bonuses.......................................................... 48,437,500 48,437,500
----------------- --------------
----------------- --------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 5, 1997 and March 12, 1997 in Amendment No. 1
to the Registration Statement (Form S-1 No. 333-23425) and related Prospectus of
Journal Register Company for the registration of 9,375,000 shares of its common
stock.
/S/ ERNST & YOUNG LLP
MetroPark, New Jersey
April 18, 1997
