<PAGE> 1
FILED PURSUANT TO RULE 424(B)(2)
REGISTRATION NO. 333-46807
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 12, 1998)
[WALLACE LOGO]
$200,000,000
WALLACE COMPUTER SERVICES, INC.
SENIOR NOTES
The Company will offer the Notes at a price not to exceed 100% of the
principal amount thereof. The interest rate, issue price, maturity date and
other variable terms of the Notes will be set forth in a Pricing Supplement
to this Prospectus Supplement.
Unless otherwise specified in the Pricing Supplement, interest on the
Notes is payable semiannually in arrears on April 1 and October 1, beginning
April 1, 1999. The Notes may be prepaid at any time prior to maturity at the
option of Wallace Computer Services, Inc., subject to the payment of a
Make-Whole Amount.
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if
this Prospectus Supplement or the related Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
--------------------
<TABLE>
<CAPTION>
PER NOTE TOTAL
<S> <C> <C>
Offering Price 100.00% (1) $200,000,000
Agent's Commission 0.45% (2) $ 900,000
Proceeds to Wallace Computer Services, Inc.
(before expenses) 99.55% $199,100,000
</TABLE>
(1) Notes will be issued at 100% of their principal amount, unless otherwise
specified in the Pricing Supplement.
(2) The Company will pay the Agent a commission of 0.45% of the principal
amount of the Notes sold through it as Agent, subject to adjustment for
certain expenses borne by the Agent.
SALOMON SMITH BARNEY
January 15, 1999
<PAGE> 2
You should rely only on the information contained in or incorporated by
reference in this Prospectus Supplement, the Prospectus and the Pricing
Supplement. We have not authorized anyone to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information contained
in or incorporated by reference in this Prospectus Supplement or the Prospectus
is accurate as of any date other than the date on the front of this Prospectus
Supplement.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PROSPECTUS SUPPLEMENT
<S> <C>
Prospectus Supplement Summary ................................ S-3
Risk Factors ................................................. S-7
Use of Proceeds .............................................. S-9
Capitalization ............................................... S-9
Summary Consolidated Financial Data .......................... S-10
Pro Forma Combined Selected Financial Data ................... S-11
Description of Notes ......................................... S-12
Description of Credit Facility ............................... S-26
Plan of Distribution ......................................... S-27
Legal Matters ................................................ S-27
Experts ...................................................... S-27
PROSPECTUS
Available Information ........................................ 1
Incorporation of Certain Documents by Reference .............. 1
Disclosure Regarding Forward-Looking Statements .............. 1
The Company .................................................. 3
Use of Proceeds .............................................. 4
Ratios of Earnings to Fixed Charges .......................... 5
Description of Debt Securities ............................... 6
Description of Preferred Stock ............................... 12
Description of Common Stock .................................. 13
Plan of Distribution ......................................... 15
Legal Matters ................................................ 16
Experts ...................................................... 16
</TABLE>
S-1
<PAGE> 3
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND THE PRICING SUPPLEMENT
We tell you about the Notes in three separate documents that progressively
provide more detail:
* the accompanying Prospectus, which provides general information, some
of which may not apply to a particular series of securities, including
your Notes;
* this Prospectus Supplement, which describes the specific terms of your
Notes; and
* the Pricing Supplement, which will be delivered to you at a later
date, will contain the interest rate, issue price, maturity and other
variable terms of the Notes.
If the terms of your Notes as described in this Prospectus Supplement
differ from the terms described in the Prospectus, you should rely on the
information in this Prospectus Supplement. If the terms of your Notes described
in the Pricing Supplement differ from the terms described in the Prospectus or
this Prospectus Supplement, you should rely on the information in the Pricing
Supplement.
We include cross-references in this Prospectus Supplement and in the
accompanying Prospectus to captions in these materials where you can find
further related discussions. The Table of Contents in this Prospectus Supplement
provides the pages on which these captions are located.
We make statements in this Prospectus Supplement and the accompanying
Prospectus and the documents we incorporate by reference that are considered
forward-looking statements within the meaning of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements contain words such as
"believes," "expects," "intends," "plans" and other similar expressions. These
statements are not guarantees of our future performance and are subject to
risks, uncertainties and other important factors that could cause our actual
performance or achievements to be materially different from those we project.
These risks, uncertainties and factors include:
* General economic, market or business conditions
* The opportunities (or lack thereof) that may be presented to and
pursued by the Company
* Competitive actions by other companies
* Changes in laws or regulations affecting the Company
* Successful integration of acquisitions made by the Company
* Labor market conditions and raw material costs and their effects on
the Company
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Please see the documents we incorporate by reference
for more information on these factors. These forward-looking statements
represent our expectations, estimates and assumptions only as of the date the
statements are made.
S-2
<PAGE> 4
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights information contained elsewhere in this Prospectus
Supplement and the accompanying Prospectus. This summary is not complete and
does not contain all of the information that you should consider before
investing in the Notes. You should read both the Prospectus Supplement and the
Prospectus carefully.
THE COMPANY
Our company, Wallace Computer Services, Inc. ("Wallace" or the "Company"),
together with its subsidiaries, manufactures and distributes a wide range of
consumable business supplies and information management products, including
paper and electronic business forms, office supplies, labels, and commercial and
promotional printed materials. Our strategy is to utilize information management
tools to offer our products and services through a solutions-based approach
aimed at reducing costs, increasing efficiencies and generating value for our
customers. Our success has largely been attained through our focus on developing
and integrating new technologies into our products and services. Our management
believes we offer one of the broadest ranges of information management products
and services in the industry.
Over the past four years, we have become recognized in the industry as a
leader in total print and integrated supply management. By combining forms,
print and office products management, we serve as a single source for all the
business supplies used by large organizations. Central to our integrated
services is the Wallace Information Network ("W.I.N."), a comprehensive forms
management tool that ties customers into our corporate information system and
centrally organizes and manages a customer's data regarding the manufacture,
storage and distribution of printed materials and consumable supplies. Since its
introduction in 1993, the W.I.N. system has become recognized in the industry as
a benchmark. It continues to be one of the few systems that can bring complete,
current data about every order, shipment and item in inventory to the customer's
desktop for analysis and decision making. As of July 31, 1998, approximately 390
mid-to-large sized organizations utilized W.I.N. as their central information
tool in our integrated supply management services.
Wallace's principal executive offices are located at 2275 Cabot Drive,
Lisle, Illinois 60532 and our telephone number is (630) 588-5000.
PRODUCTS AND SERVICES
Business Forms. We provide stock and custom, paper and electronic products
for businesses, government agencies, and for healthcare, not-for-profit and
educational institutions. Examples of forms that we provide include air freight
package forms, monthly billing statements, mortgage applications, healthcare
forms, credit card statements and point-of-sale transaction forms. Our
value-added services provide substantial benefits to large, paper-intensive
organizations which seek ways to increase efficiency and reduce costs. Our
success is based on our long-term contract commitments, diverse product
offerings, unique services (such as W.I.N.) and extensive distribution network.
Promotional Printing. Through our COLORFORMS division, we produce materials
that serve the targeted marketing and direct response markets. Typical products
include sweepstakes mailings, credit card offers and on-demand, individual
mailings. We provide a full-service, quick response, value-added resource to our
customers, and supply national coverage and state-of-the-art imaging
capabilities and service options, which are designed to increase promotion
response rates and reduce customer costs.
Commercial Printing. Our commercial printing business primarily consists of
high-color, high-quality commercial printing and catalogs and directories.
Typical products include corporate image materials, promotional literature,
product brochures, product documentation literature, retail point-of-sale
materials and health care plan directories. By acquiring Post Printing Company
in October 1996, Moran Printing Company in July 1997 and Graphic Industries,
Inc. ("Graphic") in December 1997, we have significantly expanded our commercial
printing capabilities. Our focus is on fulfilling the total print requirements
of our targeted customer base, the Fortune 1000. We differentiate ourselves from
competitors in the printing industry by utilizing our W.I.N. system capabilities
and distribution expertise to provide a fully integrated service for customers.
Office Products. We manufacture office products such as legal pads,
computer paper, ink jet
S-3
<PAGE> 5
printer cartridges, ribbons and ATM and cash register paper rolls. We also offer
an extensive selection of brand-name and discount brand office supplies and
standardized business forms for the home, school and office markets. In early
1998, we entered into a joint marketing arrangement with Boise Cascade Office
Products, a subsidiary of Boise Cascade Corporation, whereby each company will
introduce the other company to its top 200 customers and allow such company to
market its products and services to those customers. Our TOPS group manufactures
and sells pad products and stock forms to office products retailers and
wholesalers.
Labels. We are one of the only national suppliers with a full range of
label options and integrated services. We produce bar-coded shipping labels,
consumer product labels, airline bag tags, blank stock labels, electronic
article surveillance tags and labeling software, printers and applicators. We
produce both electronic data processing ("EDP") labels and prime labels. EDP
labels usually include some package specific information, such as bar coding,
and are designed to meet the needs of key market segments, including retail,
health care, small package delivery, manufacturing and required regulatory
compliance. Prime labels are high quality promotional and product identification
labels used on items such as shampoo bottles and food packages.
GRAPHIC ACQUISITION
On December 22, 1997, we completed our acquisition of all of the equity of
Graphic for an aggregate price of approximately $315 million. To finance the
acquisition and to refinance $142 million in outstanding debt of Graphic, we
borrowed $437 million. Graphic, headquartered in Atlanta, Georgia, is the
largest sheet-fed commercial printer in the United States (based on number of
sheet-fed presses) and manufactures such products as high color marketing
literature, annual reports and point-of-sale material, primarily for corporate
customers. Graphic will provide us with critical mass in commercial printing,
which will allow us to expand our product offerings and geographic coverage. We
continue to service Graphic's established customer base and have begun to offer
Graphic's capabilities to our large, national customers. We have also begun to
offer our products and services to Graphic's existing customer base.
S-4
<PAGE> 6
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Total Amount of Notes Offered ......... $200,000,000 in principal amount of Notes.
Maturity Date ......................... The Notes will mature on the date set
forth in the Pricing Supplement.
Interest .............................. Payment frequency: every six months on
April 1 and October 1, payable in
arrears.
First payment: April 1, 1999.
Ranking The Notes are senior unsecured
obligations. They hold the same rank as
our current and future unsubordinated,
unsecured indebtedness, and they will
rank ahead of any of our future
subordinated indebtedness. As of July
31, 1998, we had approximately $396
million in senior, unsecured debt
outstanding under our Credit Facility.
Mandatory Redemption and We will not be required to make any
Sinking Fund Payments ............... mandatory redemption payments or to
deposit any amounts into a sinking fund
for the purpose of making payments on
the Notes.
Optional Prepayment ................... We may prepay all or some of the Notes,
at our option at any time, in an amount
not less than 10% of the aggregate
principal amount of the Notes
outstanding in the case of a partial
prepayment, at a redemption price equal
to 100% of the principal amount of the
Notes to be redeemed, plus accrued
interest to the date of redemption, plus
the Make-Whole Amount (as defined
below), if any. See "Description of
Notes" under the heading "Optional
Prepayment" on page S-13.
Certain Covenants ..................... We will issue the Notes under an
indenture with Bank of New York,
National Association. The indenture
will, among other things:
* require us to maintain a specified
minimum consolidated net worth;
* restrict our ability to incur
additional indebtedness;
* restrict our ability to borrow
money secured by a lien;
* restrict our ability to engage in
sale and leaseback transactions
with respect to certain properties;
* restrict our ability to merge with
or into other companies; and
* restrict our ability to enter into
certain transactions with
affiliates.
See "Description of Notes" under the
heading "Certain Covenants" on page
S-14.
</TABLE>
S-5
<PAGE> 7
<TABLE>
<S> <C>
Use of Proceeds ....................... The Company will use the net proceeds of
the Notes to reduce amounts outstanding
under its Credit Facility. See "Use of
Proceeds" on page S-9 and "Description
of Credit Facility" on page S-26.
</TABLE>
S-6
<PAGE> 8
RISK FACTORS
An investment in the Notes involves certain risks. You should consider the
following risk factors before purchasing any of the Notes.
RISKS RELATING TO ACQUISITIONS
Our business strategy includes growth through the acquisition of businesses
complementary to our current business. We have made a number of acquisitions in
the past and believe that we have been successful, and will continue to be
successful, in integrating the acquired assets and businesses into our
operations. There can be no assurance, however, that any acquired assets or
business will be successfully integrated into our operations. While we evaluate
acquisition opportunities on an ongoing basis, we have no current commitments or
agreements with respect to any material acquisition.
RISKS RELATING TO COST AND AVAILABILITY OF PAPER
The cost of paper represents a significant portion of our cost of
materials. Increases in paper costs could have a material adverse effect on our
results of operations and financial condition. We attempt to maintain gross
profit margins when paper prices increase by passing paper price increases on to
our customers. There can be no assurance, however, that we will be able to pass
on increases in the cost of paper in the future. In addition, when paper prices
decrease materially, market forces may require that lower costs be passed on to
customers in the form of lower prices. These price decreases may reduce our
gross profit margins if we are using paper inventory purchased when prices were
higher. Our failure to pass on paper price increases, or to offset paper price
reductions passed on to customers, could have a material adverse effect on our
operating results.
Due to the significance of paper in the manufacture of most of our
products, we are dependent upon the availability of paper. During periods of
tight paper supply, many paper producers allocate shipments of paper based on
the historical purchase levels of customers. As a result of our large volume
paper purchases from several paper producers, we generally have not experienced
difficulty in obtaining adequate quantities of paper, although occasionally we
have experienced minor delays in delivery. Although our management believes that
our large volume paper purchases and strong relationships with vendors will
continue to enable us to receive adequate supplies of paper in the future, there
can be no assurance in this regard.
RISKS RELATING TO COMPETITION
The markets for our products are highly competitive and relatively
fragmented, with a large number of competitors. Some of our competitors are
larger than we are and have greater financial, marketing and technical
resources. We have invested significant resources in computer technology and
distribution facilities in an attempt to differentiate ourselves from certain of
our competitors. There can be no assurance that competitors will not take
actions, including developing new technologies, products and services, which
could adversely affect our sales and operating results.
RISKS RELATING TO DEPENDENCE ON KEY PERSONNEL
Our performance depends in large part on the continued service of our key
sales and management personnel and on our ability to continue to attract, retain
and motivate highly qualified personnel. Competition for such personnel is
intense, and the process of locating key personnel with the combination of
skills and attributes required to execute our strategy is often lengthy. There
can be no assurance that we will be able to attract or retain such personnel in
the future, and the inability to do so could have a material adverse effect upon
our business, operating results or financial condition.
RISKS RELATING TO YEAR 2000
We utilize computer information systems to internally record and track
information, as well as to interact with certain customers, suppliers and other
organizations. Our management has preliminarily assessed risks and costs related
to addressing Year 2000 issues as they pertain to us and our information
systems. Based upon this assessment, we do not believe that the modification of
our systems to address such matters will have a material impact on our financial
position or results of operations. However, there are uncertainties relating to
addressing Year 2000 issues, including the impact of
S-7
<PAGE> 9
outside parties appropriately addressing their Year 2000 issues, actual
implementation of measures to address Year 2000 issues and other factors, some
of which may be beyond our control, and all of which may cause results to be
different than we currently anticipate.
EFFECTIVE SUBORDINATION
We operate a portion of our business through subsidiaries, including
substantially all of our commercial printing operations. The Notes will be
effectively subordinated to all existing and future indebtedness of our
subsidiaries. At July 31, 1998, the aggregate amount of indebtedness of our
subsidiaries to which the holders of the Notes would be effectively subordinated
was approximately $11.5 million. We may, or may cause our subsidiaries to, incur
additional indebtedness in the future, subject to certain limitations contained
in the Indenture and the Credit Facility, and some of that indebtedness may be
secured. See "Description of Notes--Negative Covenants--Limitation on Incurrence
of Indebtedness" and "--Limitation on Secured Indebtedness."
Any right we have to participate in any distribution of the assets of our
subsidiaries upon the liquidation, reorganization or insolvency of a subsidiary
(and the consequent right of the holders of the Notes to participate in the
distribution of those assets) will be subject to the prior claims of the
subsidiary's creditors. As a result, holders of the Notes may recover less
ratably than other creditors of our subsidiaries in the event of their
liquidation, reorganization or insolvency.
ABSENCE OF PUBLIC MARKET
There is currently no public market for the Notes. We cannot assure you of
the liquidity of any market that may develop for the Notes, the ability of
holders to sell the Notes or the price at which holders would be able to sell
the Notes. Future trading prices of the Notes will depend on many factors,
including, among other things, prevailing interest rates, our operating results
and the market for similar securities. Historically, the market for securities
similar to the Notes has been subject to disruptions that have caused
substantial volatility in the prices of such securities. We cannot assure you
that any market for the Notes, if such market develops, will not be subject to
similar disruptions.
S-8
<PAGE> 10
USE OF PROCEEDS
The Company expects the net proceeds from this offering of Notes to be
approximately $199 million after deducting the estimated commissions and
estimated offering expenses payable by the Company. The Company intends to use
the net proceeds of this offering of Notes to reduce amounts outstanding under
the Credit Facility (which had a weighted average interest rate per annum of
5.8% at July 31, 1998 and matures on October 31, 2002). Net proceeds applied to
reduce amounts outstanding under the Credit Facility will be available for
reborrowing thereunder by the Company. See "Description of Credit Facility."
CAPITALIZATION
The following table sets forth the consolidated short-term indebtedness and
total capitalization of the Company as of July 31, 1998 on an actual basis and
as adjusted to give effect to this $200 million offering of Notes and the
application of the net proceeds. See "Use of Proceeds" above. This table should
be read in conjunction with the Company's consolidated financial statements and
notes thereto incorporated by reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
July 31, 1998
---------------------------
Actual Adjusted
------ --------
(dollars in thousands)
<S> <C> <C>
Notes payable and current maturities of long-term debt ................................ $ 37,652 $ 37,652
========= =========
Long-term debt:
Credit Facility ................................................................... 396,000 197,000
Notes ............................................................................. -- 200,000
Other long-term debt .............................................................. 32,224 32,224
--------- ----------
Total long-term debt .......................................................... 428,224 429,224
--------- ----------
Stockholder's equity:
Common stock -- issued shares of 45,764,054 at July 31, 1998 ...................... 45,764 45,764
Additional capital ................................................................ 36,390 36,390
Retained earnings ................................................................. 537,751 537,751
Treasury stock (at cost) -- 2,496,173 shares at July 31, 1998 ..................... (72,432) (72,432)
--------- ---------
Total stockholders' equity ..................................................... 547,473 547,473
--------- ----------
Total capitalization ........................................................... $ 975,697 $ 976,697
========= ==========
</TABLE>
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data for the Company for each of the five years in the period ended July 31,
1998. Such data have been derived from, and should be read in conjunction with,
the audited consolidated financial statements and other financial information
contained in the Company's Annual Report on Form 10-K for the year ended July
31, 1998 incorporated by reference herein. The selected consolidated financial
data for the years ended July 31, 1994 through 1998 have been derived from the
consolidated financial statements of the Company, audited by Arthur Andersen,
LLP, independent certified public accountants. See "Available Information" and
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus.
<TABLE>
<CAPTION>
Year Ended July 31
----------------------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(dollar amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales . . . . . . . . . . . . . . . . . . . . .$588,173 $712,838 $862,287 $906,290 $1,356,052
Total costs and expenses. . . . . . . . . . . . . . 516,543 627,808 745,365 771,196 1,211,304
-------- -------- -------- -------- ----------
Operating income. . . . . . . . . . . . . . . . . . 71,630 85,030 116,922 135,094 144,748
Net interest expense (income) . . . . . . . . . . . (2,226) (2,430) (1,556) 743 21,358
------ -------- -------- -------- ---------
Income before income taxes. . . . . . . . . . . . . 73,856 87,460 118,478 134,351 123,390
Net income. . . . . . . . . . . . . . . . . . . . .$ 47,931 $55,297 $ 72,999 $ 81,282 $74,208
======= ======= =======- ======== =======
Basic earnings per share (1). . . . . . . . . . . . $1.08 $1.23 $1.60 $1.88 $1.72
Diluted earnings per share (1). . . . . . . . . . . N/A $1.23 $1.59 $1.86 $1.71
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents . . . . . . . . . . . . . $17,587 $10,815 $23,618 $14,168 $ 3,501
Total assets. . . . . . . . . . . . . . . . . . . . 538,592 592,702 695,850 720,442 1,257,463
Long-term debt. . . . . . . . . . . . . . . . . . . 23,500 25,600 30,600 24,500 428,224
Stockholders' equity. . . . . . . . . . . . . . . . 410,139 456,118 510,443 493,188 547,473
OTHER DATA:
EBITDA (2). . . . . . . . . . . . . . . . . . . . .$104,636 $122,326 $161,951 $184,299 $212,227
Capital expenditures (excluding acquisitions) . . . 34,228 51,487 59,506 39,225 59,632
Ratio of earnings to fixed charges. . . . . . . . . 22.2x 23.4x 31.2x 26.2x 5.5x
</TABLE>
- --------------------
(1) All per share amounts have been adjusted for the two-for-one stock split
effective July 1996.
(2) EBITDA represents income before income taxes plus net interest and
depreciation and amortization. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than
cash flow from operating activities, which are determined in accordance
with generally accepted accounting principles, it is included herein to
provide additional information with respect to the ability of the Company
to meet its future debt service, capital expenditures and working capital
requirements. In addition, the Company believes that certain investors find
EBITDA to be a useful tool for measuring the ability of the Company to
service its debt. EBITDA is not necessarily a measure of the Company's
ability to fund cash needs.
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<PAGE> 12
PRO FORMA COMBINED SELECTED FINANCIAL DATA
The following table sets forth unaudited pro forma combined selected
financial data for the years ended July 31, 1997 and July 31, 1998, giving
effect to the acquisition of Graphic by the Company under the purchase method of
accounting and reflecting certain assumptions described in the notes to the
unaudited pro forma condensed combined financial statements incorporated by
reference herein. The pro forma combined selected financial data is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have occurred if the
acquisition had been consummated on the dates indicated, nor is it necessarily
indicative of future operating results or financial position. The pro forma
combined selected financial data has been derived from and should be read in
conjunction with the unaudited pro forma condensed combined financial
statements, including the notes thereto, incorporated by reference herein from
the Company's Current Reports on Form 8-K dated November 18, 1997 (as amended by
the Form 8-K/A dated January 16, 1998, the Form 8-K/A filed April 8, 1998 and
the Form 8-K/A dated November 6, 1998) and June 12, 1998 (as amended by the Form
8-K/A dated November 6, 1998).
<TABLE>
<CAPTION>
(Unaudited)
-------------------------------------
Year Ended Year Ended
July 31, 1997 July 31, 1998
------------- -------------
(dollar amounts in thousands,
except per share amounts)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales...................................................................... $1,363,337 $1,473,494
Total costs and expenses....................................................... 1,201,673 1,324,129
---------- ----------
Operating income............................................................... 161,664 149,365
Net interest expense........................................................... 25,765 28,168
---------- ----------
Income before income taxes..................................................... 135,899 121,197
Net income..................................................................... $ 81,540 $ 72,718
========== ==========
Basic earnings per share....................................................... $1.88 $1.68
Diluted earnings per share..................................................... $1.87 $1.68
OTHER DATA:
EBITDA......................................................................... $ 236,572 $ 223,466
Capital expenditures........................................................... 68,112 72,538
Ratio of earnings to fixed charges............................................. 4.7x 4.5x
</TABLE>
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<PAGE> 13
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the word
"Company" refers only to Wallace Computer Services, Inc. and not its
subsidiaries.
The Company will issue the Notes under an Indenture (the "Indenture")
between itself and Bank of New York, National Association, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture
(including the Supplemental Indenture to be entered into in connection with this
offering) and those made part of the Indenture by reference to the Trust
Indenture Act of 1939. References to the Indenture include the Supplemental
Indenture.
The following description is a summary of the material provisions of the
Indenture, but it does not restate the Indenture in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
a holder of these Notes. The Company will supply you with a copy of the
Indenture upon your request.
BRIEF DESCRIPTION OF THE NOTES
These Notes are:
* general, unsecured obligations of the Company;
* equal in right of payment to all existing and future unsubordinated,
unsecured Indebtedness of the Company;
* senior in right of payment to any future subordinated Indebtedness of
the Company; and
* not entitled to the benefit of any sinking fund payments by the
Company.
NO DEFEASANCE
The provisions of the Indenture applicable to the Notes will not permit
legal or covenant defeasance with respect to the Notes and, accordingly, the
discussion in the Prospectus regarding defeasance is not applicable to the
Notes.
PRINCIPAL, MATURITY AND INTEREST
The Company will issue Notes with a maximum aggregate principal amount of
$200 million. The Company will issue Notes in denominations of $300,000 and
multiples of $50,000 in excess thereof. The Notes will mature on the date set
forth in the Pricing Supplement.
Interest on these Notes will accrue at the per annum rate set forth in the
Pricing Supplement and will be payable semi-annually in arrears on April 1 and
October 1, commencing on April 1, 1999. The Company will make each interest
payment to the Holders of record of these Notes on the immediately preceding
March 15 and September 15.
Interest on these Notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture.
The registered Holder of a Note will be treated as its owner for all
purposes.
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OPTIONAL PREPAYMENTS
The Company may, at its option, prepay at any time all, or from time to
time any part of, the Notes, in an amount not less than 10% of the aggregate
principal amount of the Notes then outstanding in the case of a partial
prepayment, at 100% of the principal amount so prepaid, together with interest
accrued thereon to the date of such prepayment, plus the Make-Whole Amount (as
defined below) determined for the prepayment date with respect to such principal
amount. The Company will give each holder of Notes written notice of each
optional prepayment not less than 30 days and not more than 60 days prior to the
date fixed for such prepayment.
In the case of each partial prepayment of the Notes, the principal amount
of the Notes to be prepaid shall be allocated among all of the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore called for prepayment.
In the case of each prepayment of Notes, the principal amount of each Note
to be prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such date
and the applicable Make-Whole Amount, if any. From and after such date, unless
the Company shall fail to pay such principal amount when so due and payable,
together with the interest and the Make-Whole Amount, if any, as aforesaid,
interest on such principal amount shall cease to accrue.
"Called Principal" means, with respect to any Note, the principal of such
Note that is to be prepaid or has become or is declared to be immediately due
and payable as described below under "Events of Default," as the context
requires.
"Discounted Value" means, with respect to the Called Principal of any Note,
the amount obtained by discounting all Remaining Scheduled Payments with respect
to such Called Principal from their respective scheduled due dates to the
Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"Make-Whole Amount" means, with respect to any Note, an amount equal to the
excess, if any, of the Discounted Value of the Remaining Scheduled Payments with
respect to the Called Principal of such Note over the amount of such Called
Principal. The Make-Whole Amount may in no event be less than zero.
"Reinvestment Yield" means, with respect to the Called Principal of any
Note, .50% over the yield to maturity implied by (a) the yields reported, as of
10:00 A.M. (New York City time) on the second business day preceding the
Settlement Date with respect to such Called Principal, on the display designated
as "Page USD" of the Bloomberg Financial Markets Services Screen (or, if not
available, any other national recognized trading screen reporting on-line
intraday trading in the U.S. Treasury securities) for actively traded on-the-run
U.S. Treasury securities having a maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date, or (b) if such yields are
not reported as of such time or the yields reported as of such time are not
ascertainable, the Treasury Constant Maturity Series Yields reported, for the
latest day for which such yields have been so reported as of the second business
day preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15(519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a constant
maturity equal to the Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield will be determined, if necessary, by (i)
converting U.S. Treasury bill quotations to bond-equivalent yields in accordance
with accepted financial practice and (ii) interpolating linearly between (1) the
actively traded on-the-run U.S. Treasury security with the maturity closest to
and greater than such Remaining Average Life and (2) the actively traded
on-the-run U.S. Treasury security with the maturity closest to and less than
such Remaining Average Life.
"Remaining Average Life" means, with respect to the Called Principal of any
Note, the number of years (calculated to the nearest one-twelfth year) that will
elapse between the Settlement Date with respect to such Called Principal and the
scheduled due date of the principal.
"Remaining Scheduled Payments" means, with respect to the Called Principal
of any Note, all payments of such Called Principal and interest thereon that
would be due after the Settlement Date with respect to such Called Principal if
no payment of such Called Principal were made prior to its scheduled due date.
However, if the Settlement Date is not a date
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on which interest payments are due to be made under the terms of the Notes, then
the amount of the next succeeding scheduled interest payment will be reduced by
the amount of interest accrued to the Settlement Date and required to be paid on
the Settlement Date because of the optional prepayment of the Called Principal
or because of an event of acceleration described below under "Events of
Default."
"Settlement Date" means, with respect to the Called Principal of any Note,
the date on which such Called Principal is to be prepaid or has become or is
declared to be immediately due and payable pursuant an event of acceleration
described below under "Events of Default," as the context requires.
REPURCHASE AT OPTION OF HOLDERS
The Company will, within five business days after certain officers of the
Company have actual knowledge of the occurrence of any Change in Control (as
defined below) or Control Event (as defined below), give written notice of such
Change in Control or Control Event to each Holder of the Notes unless notice in
respect of such Change in Control (or the Change in Control contemplated by such
Control Event) has been given pursuant to the next paragraph. If a Change in
Control has occurred, such notice will contain an offer to prepay the Notes as
described below.
The Company will not take any action that consummates or finalizes a Change
in Control unless (i) at least 30 days prior to such action it has given to each
Holder of the Notes written notice containing and constituting an offer to
prepay the Notes, and (ii) contemporaneously with such action, it prepays all of
the Notes required to be prepaid.
The offer to prepay the Notes contemplated above will be an offer to prepay
all, but not less than all, of the Notes held by each Holder on a date specified
in such offer (the "Proposed Prepayment Date"). If such Proposed Prepayment Date
is in connection with an offer contemplated by the first paragraph of this
section, such date shall be not less than 30 days and not more than 120 days
after the date of such offer (if the Proposed Prepayment Date shall not be
specified in such offer, the Proposed Prepayment Date shall be the first
business day after the 45th day after the date of such offer).
A Holder of the Notes may accept an offer to prepay made pursuant to this
provision by causing a notice of such acceptance to be delivered to the Company
not later than 15 days after the receipt by such Holder of such offer. A failure
by a Holder of the Notes to respond within such 15-day period to an offer to
prepay will be deemed to constitute a rejection of such offer by such Holder.
Prepayment of the Notes to be prepaid pursuant to this provision shall be
at 100% of the principal amount of such Notes, together with interest on such
Notes accrued to the date of prepayment, but without any Make-Whole Amount or
other premium.
The obligation of the Company to prepay the Notes pursuant to the offers
described above and accepted in accordance with the provisions described above
is subject to the occurrence of the Change in Control in respect of which such
offers and acceptances shall have been made. In the event that such Change in
Control has not occurred on the Proposed Prepayment Date in respect thereof, the
prepayment will be deferred until, and will be made on, the date on which such
Change in Control occurs. The Company will keep each Holder of the Notes
reasonably and timely informed of (i) any such deferral of the date of
prepayment; (ii) the date on which such Change in Control and such prepayment
are expected to occur; and (iii) any determination by the Company that efforts
to effect such Change in Control have ceased or been abandoned (in which case
the offers and acceptances made pursuant to this provision in respect of such
Change in Control will be deemed rescinded).
"Change in Control" shall be deemed to have occurred if any person (as such
term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act) or
related persons constituting a group (as such term is used in Rule 13d-5 under
the Exchange Act):
(a) becomes the "beneficial owner" (as such term is used in Rule 13d-3
under the Exchange Act), directly or indirectly, of more than 50% of the
total voting power of all classes then outstanding of the Company's voting
capital stock, or
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(b) acquires after the date of the original issuance of the
Notes (i) the power to elect, appoint or cause the election or
appointment of at least a majority of the members of the Board of
Directors through beneficial ownership of the capital stock of the
Company or (ii) all or substantially all of the properties and assets
of the Company.
"Control Event" means:
(a) the execution by the Company or any of its Restricted
Subsidiaries (as defined below) of any agreement or letter of intent
with respect to any proposed transaction or event or series of
transactions or events which, individually or in the aggregate, could
reasonably be expected to result in a Change in Control;
(b) the execution of any written agreement which, when fully
performed by the parties thereto, would result in a Change in Control;
or
(c) the making of any written offer by any person (as such
term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act)
or related persons constituting a group (as such term is used in Rule
13d-5 under the Exchange Act) to the holders of the common stock of the
Company, which offer, if accepted by the requisite number of such
holders, would result in a Change in Control.
CERTAIN COVENANTS
AFFIRMATIVE COVENANTS
Under the Indenture, the Company has agreed to the following affirmative
covenants so long as any of the Notes are outstanding:
Compliance with Law. The Company will, and will cause each of its
Restricted Subsidiaries to, comply with all laws, ordinances or governmental
rules or regulations to which each of them is subject, including, without
limitation, ERISA and all Environmental Laws, and will obtain and maintain in
effect all licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Insurance. The Company will, and will cause each of its Restricted
Subsidiaries to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance) as is customary
in the case of entities of established reputations and of similar size engaged
in the same or similar businesses and similarly situated.
Maintenance of Properties. The Company will, and will cause each of its
Restricted Subsidiaries to, maintain and keep, or cause to be maintained and
kept, their respective properties in good repair, working order and condition
(other than ordinary wear and tear), so that the business carried on in
connection therewith may be properly conducted at all times; provided, however,
that this covenant shall not prevent the Company or any Restricted Subsidiary
from discontinuing the operation and the maintenance of any of its properties if
such discontinuance is desirable in the conduct of its business and the Company
has concluded that such discontinuance would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Payment of Taxes and Claims. The Company will, and will cause each of its
Restricted Subsidiaries to, file all tax returns required to be filed in any
jurisdiction and to pay and discharge all taxes shown to be due and payable on
such returns and all other taxes, assessments, governmental charges, or levies
imposed on them or any of their properties, assets, income or franchises, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent and all claims for which sums have become due and payable
that have or might become a Lien on properties or assets of the Company or any
Restricted Subsidiary; provided, however, that neither the Company nor any
Restricted
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Subsidiary need pay any such tax, governmental charge, levy, assessment or claim
if (a) the amount, applicability or validity thereof is contested by the Company
or such Restricted Subsidiary on a timely basis in good faith and in appropriate
proceedings, and the Company or a Restricted Subsidiary has established adequate
reserves therefor in accordance with GAAP on the books of the Company or such
Subsidiary or (b) the nonpayment of all such taxes and assessments in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
Corporate Existence, Etc. Subject to the provisions set forth under
"Negative Covenants--Consolidation, Merger and Sale of Assets" below, the
Company will at all times preserve and keep in full force and effect its
corporate existence. The Company will at all times preserve and keep in full
force and effect the corporate existence of each of its Restricted Subsidiaries
(unless merged into the Company or a Restricted Subsidiary) and all rights and
franchises of the Company and its Restricted Subsidiaries unless, in the good
faith judgment of the Company, the termination of or failure to preserve and
keep in full force and effect such corporate existence, right or franchise would
not, individually or in the aggregate, have a Material Adverse Effect.
Notes to Rank Pari Passu. The Company will, and will cause each of its
Restricted Subsidiaries to, execute all such documents and take such other
actions in order to assure that at all times the Notes shall rank in right of
payment either pari passu or senior to all other Indebtedness of the Company
except for Indebtedness which is preferred as a result of being secured (but
then only to the extent of such security).
NEGATIVE COVENANTS
Under the Indenture, the Company has agreed to the following negative
covenants so long as any of the Notes are outstanding:
Consolidated Net Worth. The Company will at all times keep and maintain
Consolidated Net Worth at an amount not less than $383,231,100 plus (b) 25% of
Consolidated Net Income computed on a cumulative basis for each of its elapsed
fiscal years ending after July 31, 1998; provided, however, that notwithstanding
that Consolidated Net Income for any such elapsed fiscal year may be a deficit
figure, no reduction as a result thereof shall be made in the amount of
Consolidated Net Worth to be maintained pursuant hereto.
Limitation on Incurrence of Indebtedness. (a) The Company will not, and
will not permit any Restricted Subsidiary to, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable with respect to any
Indebtedness (as defined below), except:
(1) Indebtedness evidenced by the Notes;
(2) additional Indebtedness of the Company or any Restricted
Subsidiary (including, without limitation, all Indebtedness permitted
under "Limitation on Secured Indebtedness" below and all Attributable
Value permitted under "Limitation on Sale and Leaseback Transactions"
below) if at the time of the creation, incurrence, assumption or
guarantee thereof, or otherwise becoming liable thereon, and
immediately after giving effect thereto, to the application of the
proceeds thereof and to the concurrent retirement of any other
Indebtedness of the Company and its Restricted Subsidiaries, (i)
Consolidated Indebtedness shall not exceed 65% of Consolidated Total
Capitalization and (ii) no Default or Event of Default would exist; and
(3) any extension, renewal or refunding of any Indebtedness of
the Company and its Restricted Subsidiaries outstanding on the date of
the original issuance of the Notes (including, without limitation,
Indebtedness outstanding under the Credit Facility) or any other
Indebtedness thereafter created, assumed, guaranteed or otherwise
incurred as permitted by this provision; provided, however, that (i)
any such extension, renewal or refunding shall not increase the
principal amount outstanding at the date of such extension, renewal or
refunding, and (ii) at the time of any such extension, renewal or
refunding, and after giving effect thereto, to the application of the
proceeds thereof and to the concurrent retirement of any other
Indebtedness of the Company and its Restricted Subsidiaries, no Default
or Event of Default would exist.
(b) Without limiting clause (a) above, the Company shall not permit any
Restricted Subsidiary to create, incur, issue, assume, guarantee or otherwise
become or be directly or indirectly liable with respect to any Indebtedness,
unless,
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immediately after giving effect thereto, to the application of the proceeds
thereof and to the concurrent retirement of any other Indebtedness of the
Company and its Restricted Subsidiaries, in each such case, the sum of (x) the
aggregate principal amount of all outstanding Indebtedness secured by Liens
permitted under clause (c) of "Limitation on Secured Indebtedness" below, (y)
the aggregate Attributable Value of sale and leaseback transactions permitted
under clause (b) of "Limitation on Sale and Leaseback Transactions" below and
(z) the aggregate principal amount of all outstanding unsecured Indebtedness
owing by all Restricted Subsidiaries (excluding Indebtedness owing to the
Company or any wholly-owned Restricted Subsidiary) will not exceed 15% of
Consolidated Net Assets. For purposes of this paragraph (b) and paragraph (a),
any Indebtedness (i) which is assumed, extended, renewed or refunded shall be
deemed to have been incurred when assumed, extended, renewed or refunded and
(ii) of a Person outstanding at the time it shall become a Restricted
Subsidiary, or at the time all or substantially all of its assets shall be
acquired by the Company or any Restricted Subsidiary, shall be deemed to have
been incurred at such time.
Limitation on Secured Indebtedness. (a) The Company will not, and will not
permit any Restricted Subsidiary to, create, incur, issue, assume or guarantee
any Indebtedness secured by a Lien of any kind unless such Lien is created or
incurred as permitted by paragraph (b) or (c) below.
(b) The prohibition contained in paragraph (a) above shall not apply to:
(1) Liens existing on the date of original issuance of the Notes;
(2) Liens created or incurred by the Company or any Restricted
Subsidiary upon any property (including, without limitation, Capital
Stock or evidences of Indebtedness issued by any Restricted
Subsidiary), which property is acquired after the date of the original
issuance of the Notes; provided, however, that immediately after the
creation or incurrence of any such Lien, (i) no Default or Event of
Default would exist , (ii) such Lien shall attach solely to the
property acquired, purchased or created after the original issuance of
the Notes, (iii) such Lien shall have been created or incurred within
12 months after the acquisition, purchase or creation, as the case may
be, of such property, (iv) the aggregate amount of all Indebtedness
secured by any such Lien shall not exceed 100% of the cost of
acquisition, purchase or creation, as the case may be, of such
property, and (v) the Indebtedness secured by any such Lien shall be
permitted by clause (a)(2) of "Limitation on Incurrence of
Indebtedness" above;
(3) Liens affecting the property of a Person at the time it
becomes a Restricted Subsidiary or at the time it is merged into or
consolidated with the Company or a Restricted Subsidiary or at the
time all or substantially all of its property is acquired by the
Company or a Restricted Subsidiary, provided, however, that
immediately after the creation or incurrence of any such Lien, (i) no
Default or Event of Default would exist; (ii) such Lien shall extend
solely to the property so acquired; and (iii) the Indebtedness secured
by any such Lien shall have be permitted by clause (a)(2) of
"Limitation on Incurrence of Indebtedness" above;
(4) Liens (including Liens arising from sale and leaseback
transactions) on property existing at the time of acquisition thereof
by the Company or any Restricted Subsidiary, or incurred to secure
payment of all or a part of the purchase price thereof or to secure
Indebtedness incurred prior to, at the time of or within 12 months
after the acquisition thereof for the purpose of financing all or part
of the purchase price thereof; provided, however, that immediately
after the creation or incurrence of any such Lien, (i) no Default or
Event of Default would exist, (ii) such Lien shall extend solely to
the property so acquired and (iii) the Indebtedness secured by such
Lien shall be permitted by clause (a)(2) of "Limitation on Incurrence
of Indebtedness" above;
(5) Liens on any property to secure all or part of the cost of
alteration, repair or improvement thereof or Indebtedness incurred to
provide funds for such purpose in a principal amount not exceeding the
cost of such alterations, repairs or improvements; provided, however,
that immediately after the creation or incurrence of any such Lien,
(i) no Default or Event of Default would exist , (ii) such Lien shall
extend solely to the property altered, repaired or improved, (iii)
such Lien shall have been created or incurred within 12 months of the
date of completion of such alteration, repair or improvement and (iv)
the Indebtedness secured by any such Lien shall be permitted by clause
(a)(2) of "Limitation on Incurrence of Indebtedness" above;
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(6) Liens which secure Indebtedness owing by a wholly-owned
Restricted Subsidiary of the Company to the Company or to another
wholly-owned Restricted Subsidiary of the Company; provided, however,
that immediately after the creation or incurrence of any such Lien, no
Default or Event of Default would exist;
(7) purchase money security Liens on personal property; provided,
however, that immediately after the creation or incurrence of any such
Lien, (i) no Default or Event of Default would exist , (ii) any such
Lien shall attach solely to the personal property acquired or
purchased, (iii) any such Lien shall have been created or incurred
within 12 months of the date of acquisition or purchase, as the case
may be, (iv) the Indebtedness secured by any such Lien shall not
exceed an amount equal to the purchase price of such personal
property, and (v) the Indebtedness secured by any such Lien shall be
permitted by clause (a)(2) of "Limitation on Incurrence of
Indebtedness" above;
(8) Liens (including judgment liens) arising in connection with
legal proceedings, taxes, fees, assessments or other governmental
charges, so long as such proceedings, taxes, fees, assessments or
other governmental charges are being contested in good faith and, in
the case of judgment liens, execution thereon is stayed and any
reserves required in accordance with GAAP have been established;
(9) Liens in favor of the United States of America or any State
thereof, or any department, agency or instrumentality or political
subdivision thereof, to secure partial, progress, advance or other
payments;
(10) carriers', warehousemen's, mechanics', landlords',
materialmens', repairmens' or other similar Liens arising in the
ordinary course of business which are not overdue for a period of more
than 60 days or are being contested in good faith by appropriate
proceedings diligently pursued; provided, however, that (i) any
proceedings commenced for the enforcement of such Liens shall have
been stayed or suspended within 60 days of the commencement thereof
and (ii) provision for the payment of such Liens has been made to the
extent required by GAAP;
(11) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Company or
any Restricted Subsidiary; and
(12) any extension, renewal, replacement or refunding of any Lien
referred to in the foregoing clauses (1) through (11); provided,
however, that immediately after the consummation of any such
extension, renewal, replacement or refunding (i) the aggregate
principal amount of Indebtedness secured thereby shall not exceed the
aggregate principal amount of Indebtedness, plus any premium or fee
payable in connection with any such extension, renewal, replacement or
refunding, so secured at the time of such extension, renewal,
replacement or refunding and, (ii) such Lien shall extend solely to
the same property and (iii) no Default or Event of Default would
exist.
(c) Notwithstanding paragraphs (a) and (b) of this provision, the
Company and its Restricted Subsidiaries may create, incur, issue, assume or
guarantee Indebtedness secured by a Lien; provided, however, that at the time of
such creation, incurrence, issuance, assumption or guarantee, and immediately
after giving effect thereto, to the application of the proceeds thereof and to
the concurrent retirement of any Indebtedness of the Company, (1) the aggregate
amount of all Exempted Debt (including the Exempted Debt then to be created or
incurred) then outstanding shall not exceed 15% of Consolidated Net Assets and
(2) no Default or Event of Default would exist.
Limitation on Sale and Leaseback Transactions. (a) Neither the Company
nor any Restricted Subsidiary will enter into a sale and leaseback transaction
involving any property unless (1) such sale and leaseback transaction occurs
within 120 days from the date of acquisition of such property, the date of the
completion of construction thereof or the date of commencement of full
operations thereof, whichever is later, or (2) the Company or such Restricted
Subsidiary shall apply, or cause to be applied, to the retirement of its secured
Indebtedness, within 120 days after the effective date of the sale and leaseback
transaction, an amount not less than the greater of (i) the net proceeds of the
sale of such property or (ii) the fair market value of such property and,
whether such sale and leaseback transaction is consummated within the
limitations of clause (a)(1) or (a)(2) of this provision, at the time of such
consummation no Default or Event of Default would exist and
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the Attributable Value shall be permitted by clause (a)(2) of "Limitation on
Incurrence of Indebtedness" above. This restriction will not apply to a sale and
leaseback transaction involving the taking back of a lease for a period of less
than three years or between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries.
(b) Notwithstanding the restriction described in paragraph (a) above,
the Company or any Restricted Subsidiary may enter into a sale and leaseback
transaction if at the time of such transaction and immediately after giving
effect thereto, (1) the Attributable Value shall be permitted by clause (a)(2)
of "Limitation on Incurrence of Indebtedness" above, (2) the aggregate amount of
all Exempted Debt (including the Attributable Value then to be created or
incurred) then outstanding shall not exceed 15% of the Consolidated Net Assets
and (3) no Default or Event of Default would exist.
Consolidation, Merger and Sale of Assets. The Company may not
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all of its assets to, another Person unless (i) the successor (if
not the Company) or transferee is a corporation, partnership or trust organized
and validly existing under the laws of the United States of America, any State
or the District of Columbia, and such successor (if not the Company) or
transferee expressly shall assume the Company's obligations on Outstanding Notes
by a supplemental indenture to the Indenture, (ii) immediately after giving
effect to the transaction, (1) no Default or Event of Default shall have
occurred and be continuing and (2) the Company could create or incur $1.00 of
additional Indebtedness under clause (a)(2) of "Limitations on Incurrence of
Indebtedness" above; and (iii) the Company shall deliver to the Trustee an
Officers' Certificate with respect to clauses (i) and (ii) above and an Opinion
of Counsel stating compliance with clause (i) above.
Transactions with Affiliates. The Company will not, and will not permit
any Restricted Subsidiary to, enter into or be a party to any transaction or
arrangement with any Affiliate (other than the Company and its Restricted
Subsidiaries)(including, without limitation, the purchase from, sale to or
exchange of property with, or the rendering of any service by or for, any
Affiliate), except upon fair and reasonable terms no less favorable to the
Company or such Restricted Subsidiary than would obtain in a comparable
arm's-length transaction with a Person other than an Affiliate.
CERTAIN DEFINITIONS
"Affiliate" means, at any time, and with respect to any Person, (a) any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests. As used in this
definition, "Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the context otherwise clearly requires, any reference to an "Affiliate"
is a reference to an Affiliate of the Company.
"Attributable Value" in respect of any sale and leaseback transaction
means, as of the date of any determination thereof, the greater of (a) the fair
market value of the property or assets which is or are the subject of such sale
and leaseback transaction (as reasonably determined in good faith by the Board
of Directors of the Company at or about the time of the consummation of such
sale and leaseback transaction) and (b) the aggregate amount of Rentals due and
to become due (discounted from the respective due dates thereof at the interest
rate implicit in such Rentals and otherwise in accordance with GAAP) under the
lease relating to such sale and leaseback transaction.
"Capital Lease" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Capital Stock" means and includes any and all shares, interests,
participations or other equivalents (however designated) of ownership in a
corporation or other Person.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
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"Consolidated Indebtedness" means all Indebtedness of the Company and
its Restricted Subsidiaries, including, without duplication, Exempted Debt,
determined on a consolidated basis in accordance with GAAP eliminating all
intercompany items.
"Consolidated Net Assets" means the total consolidated assets of the
Company and its Restricted Subsidiaries, less all current liabilities of the
Company and its Restricted Subsidiaries (excluding any Indebtedness for money
borrowed having a maturity of less than 12 months from the date of the most
recent consolidated balance sheet of the Company and its Restricted Subsidiaries
but which by its terms is renewable or extendable beyond 12 months from such
date at the option of the borrower).
"Consolidated Net Income" for any period means the gross revenues of
the Company and its Restricted Subsidiaries for such period less all expenses
and other proper charges (including taxes on income), determined on a
consolidated basis in accordance with GAAP after eliminating earnings or losses
attributable to outstanding Minority Interests, but excluding in any event:
(a) any gains or losses on the sale or other disposition of
investments or fixed or capital assets other than in the ordinary
course of business, and any taxes on such excluded gains and any tax
deductions or credits on account of any such excluded losses;
(b) the proceeds of any life insurance policy;
(c) net earnings and losses of any Restricted Subsidiary
accrued prior to the date it became a Restricted Subsidiary;
(d) net earnings and losses of any Person (other than a
Restricted Subsidiary), substantially all the assets of which have been
acquired in any manner by the Company or any Restricted Subsidiary,
realized by such Person prior to the date of such acquisition;
(e) net earnings and losses of any Person (other than a
Restricted Subsidiary) with which the Company or a Restricted
Subsidiary shall have consolidated or which shall have merged into or
with the Company or a Restricted Subsidiary, realized by such Person
prior to the date of such consolidation or merger;
(f) net earnings of any business entity (other than a
Restricted Subsidiary) in which the Company or any Restricted
Subsidiary has an ownership interest unless such net earnings shall
have actually been received by the Company or such Restricted
Subsidiary in the form of cash distributions;
(g) any portion of the net earnings of any Restricted
Subsidiary which for any reason is unavailable for payment of dividends
to the Company or any other Restricted Subsidiary;
(h) earnings resulting from any reappraisal, revaluation or
write-up of assets;
(i) any deferred or other credit representing any excess of
the equity in any Subsidiary at the date of acquisition thereof over
the amount invested in such Subsidiary;
(j) any gain arising from the acquisition of any
securities of the Company or any Restricted Subsidiary;
(k) any reversal of any contingency reserve, except to the
extent that provision for such contingency reserve shall have been made
from income arising during such period; and
(l) any other extraordinary gain or loss.
"Consolidated Net Worth" means the amount, which at any date of
determination, in conformity with GAAP consistently applied, would be set forth
under the caption "stockholders' equity" (or any like caption) on the
consolidated balance sheet of the Company and its Restricted Subsidiaries.
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"Consolidated Total Capitalization" means, as of the date of any
determination thereof, the sum of Consolidated Indebtedness plus Consolidated
Net Worth.
"Default" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"Environmental Laws" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"Event of Default" is defined under "Events of Default" below.
"Exempted Debt" means the following as of any date of determination:
(i) Indebtedness of the Company secured by Liens incurred after the date of the
issuance of the Notes, other than Indebtedness secured by Liens permitted by
clause (b) under "Limitation on Secured Indebtedness" above, (ii) the
Attributable Value in respect of sale and leaseback transactions entered into by
the Company and its Restricted Subsidiaries after the date of the original
issuance of the Notes, other than sale and leaseback transactions permitted
above by paragraph (a) under "Limitation on Sale and Leaseback Transactions"
above and (iii) Indebtedness of the Company's Restricted Subsidiaries.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Guaranty" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
Indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such Indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment
of such Indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of any other Person to make payment of the
Indebtedness or obligation; or
(d) otherwise to assure the owner of such Indebtedness or
obligation against loss in respect thereof.
In any computation of the Indebtedness or other liabilities of the obligor under
any Guaranty, the Indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"Holder" is defined in the Indenture.
"Indebtedness" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
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(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in
the ordinary course of business but including all liabilities created
or arising under any conditional sale or other title retention
agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of financial letters of
credit or instruments serving a similar function issued or accepted for
its account by banks and other financial institutions (whether or not
representing obligations for borrowed money);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (f) above.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (g) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP. Notwithstanding the foregoing, in no event
shall "Indebtedness" include any obligation or liability of the Company or any
of its Subsidiaries arising in connection with the sale or transfer by the
Company or any of its Subsidiaries to any Person of accounts receivable or any
assets related thereto.
"Lien" means, with respect to any property or assets, any mortgage or
deed of trust, pledge, hypothecation, assignment, security interest, lien or
other security arrangement of any kind or nature whatsoever on or with respect
to such property or assets (including any conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing).
"Minority Interests" means any shares of stock of any class of a
Restricted Subsidiary (other than directors' qualifying shares as required by
law) that are not owned by the Company and/or one or more of its Restricted
Subsidiaries.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets, or properties of the
Company and its Subsidiaries taken as a whole, (b) the ability of the Company to
perform its obligations under the Indenture and the Notes, or (c) the validity
or enforceability of the Indenture or the Notes.
"Outstanding Notes" means, subject to certain exceptions, all Notes
issued under the Indenture, except those theretofore canceled by the Trustee or
delivered to it for cancellation, paid in full or in respect of which substitute
Notes have been authenticated and delivered by the Trustee.
"Person" means any individual, corporation, partnership, joint
venture, association, limited liability company, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Preferred Stock" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"Rentals" means and includes as of the date of any determination
thereof all fixed payments (including as such all payments which the lessee is
obligated to make to the lessor on termination of the lease or surrender of the
property) payable by the Company or a Restricted Subsidiary, as lessee or
sublessee under a lease of real or personal property, but shall be exclusive of
any amounts required to be paid by the Company or a Restricted Subsidiary
(whether or not designated as rents or additional rents) on account of
maintenance, repairs, insurance, taxes and similar charges. Fixed rents under
any so-called "percentage leases" shall be computed solely on the basis of the
minimum rents, if any, required to be paid by the lessee regardless of sales
volume or gross revenues.
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"Restricted Subsidiary" means any Subsidiary of the Company as of the
date of the Indenture and each Subsidiary thereafter created or acquired, unless
expressly excluded by resolution of the Board of Directors of the Company
before, or within 120 days following, such creation or acquisition.
"Subsidiary" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.
"Swaps" means, with respect to any Person, payment obligations with
respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of the Indenture, the amount of the
obligation under any Swap shall be the amount determined in respect thereof as
of the end of the then most recently ended fiscal quarter of such Person, based
on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
"Unrestricted Subsidiary" means any Subsidiary which is not a
Restricted Subsidiary.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture with
respect to the Notes:
(1) default in the payment of any principal or Make-Whole
Amount, if any, on any Note when the same becomes due and payable,
whether at maturity or at a date fixed for payment or by declaration or
otherwise;
(2) default in the payment of any interest on any Note for
more than 10 days after the same becomes due and payable; or
(3) default in the performance or compliance with any term
contained in the covenants described above under "Consolidated Net
Worth," "Limitation on Incurrence of Indebtedness," "Limitation on
Secured Indebtedness," "Limitation on Sale and Leaseback Transactions"
and "Consolidation, Merger and Sale of Assets;" or
(4) default in the performance of or compliance with any term
contained in the Indenture (other than those referred to in clauses
(1), (2) and (3) above and other than a term that has been included in
the Indenture solely for the benefit of a series of debt securities
other than the Notes) and such default is not remedied within 30 days
after the Company receiving written notice of such default from the
Trustee or any holder of a Note; or
(5) (i) default by the Company or any Restricted Subsidiary
(as principal or as guarantor or other surety) in the payment of any
principal of or premium or make-whole amount or interest on any
Indebtedness that is outstanding in an aggregate principal amount of at
least $25,000,000 beyond any period of grace provided with respect
thereto, or (ii) default by the Company or any Restricted Subsidiary in
the performance of or compliance with any term of any evidence of any
Indebtedness in an aggregate outstanding principal amount of at least
$25,000,000 or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such
default or condition such Indebtedness has become, or has been declared
(or one or more Persons are entitled to declare such Indebtedness to
be), due and payable before its stated maturity or before its regularly
scheduled dates of payment; or
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(6) the Company or any Restricted Subsidiary (i) is generally
not paying, or admits in writing its inability to pay, its debts as
they become due, (ii) files, or consents by answer or otherwise to the
filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to
take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an
assignment for the benefit of its creditors, (iv) consents to the
appointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, (v) is adjudicated as insolvent or to be
liquidated, or (vi) takes corporate action for the purpose of any of
the foregoing; or
(7) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Company
or any of its Restricted Subsidiaries, a custodian, receiver, trustee
or other officer with similar powers with respect to it or with respect
to any substantial part of its property, or constituting an order for
relief or approving a petition for relief or reorganization or any
other petition in bankruptcy or for liquidation or to take advantage of
any bankruptcy or insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of the Company or any of its
Restricted Subsidiaries, or any such petition shall be filed against
the Company or any of its Restricted Subsidiaries and such petition
shall not be dismissed within 60 days; or
(8) a final judgment or judgments for the payment of money
aggregating in excess of $25,000,000 (excluding for purposes of such
determination the amount of any insurance proceeds paid by or on behalf
of the Company or any of its Restricted Subsidiaries in respect of such
judgment or judgments or unconditionally acknowledged in writing to be
payable by the insurance carrier that issued the related insurance
policy) are rendered against one or more of the Company and its
Restricted Subsidiaries and which judgments are not, within 60 days
after entry thereof, bonded, discharged or stayed pending appeal, or
are not discharged within 60 days after the expiration of such stay.
No Event of Default with respect to the Notes (except as to certain
events of bankruptcy, insolvency or reorganization with respect to the Company)
necessarily constitutes an Event of Default with respect to any other series of
Debt Securities. The occurrence of an Event of Default may constitute an event
of default under the Company's credit agreements in existence from time to time.
In addition, the occurrence of certain Events of Default or an acceleration
under the Indenture may constitute an event of default under certain other
indebtedness of the Company outstanding from time to time.
In case an Event of Default resulting from the failure to pay any
principal, Make-Whole Amount or interest on a Note has occurred and is
continuing, any Holder or Holders of Notes at the time outstanding affected by
such Event of Default may at any time, at its or their option, by notice or
notices to the Company and the Trustee, declare all the Notes held by it or them
to be immediately due and payable.
If an Event of Default with respect to the Notes occurs and is
continuing, then in every such case the Trustee or the Holders of not less than
51% in aggregate principal amount of the outstanding Notes may, by a notice in
writing to the Company (and to the Trustee if given by the Holders of
Outstanding Notes), declare to be due and payable immediately the principal
amount of and accrued and unpaid interest, if any, on all Notes, plus the
Make-Whole Amount determined in respect of such principal amount. In the case of
an Event of Default resulting from certain events of bankruptcy, insolvency or
reorganization, the principal amount of and accrued and unpaid interest, if any,
on all outstanding Notes, plus the Make-Whole Amount determined in respect of
such principal amount, shall become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder of Outstanding
Notes. At any time after the Trustee or the Holders of Outstanding Notes makes a
declaration of acceleration with respect to the Notes, but before the Trustee
obtains a judgment or decree for payment of the money due, the Holders of 65% in
aggregate principal amount of the Outstanding Notes may rescind and annul such
declaration if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
* all overdue interest, if any, on the Notes,
* the principal of and interest and Make-Whole Amount
on any Note which has become due otherwise than by
the declaration of acceleration,
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<PAGE> 26
* interest on any overdue principal and overdue
interest, and
* all sums which the Trustee has paid or advanced, and
the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel;
and
(2) all Events of Default with respect to the Notes (other
than the non-payment of accelerated principal) have been cured or
waived as provided in the Indenture. For information as to waiver of
defaults, see the discussion set forth below under "-- Modification and
Waiver."
The Indenture provides that the Trustee will not be obligated to
exercise any of its rights or powers under the Indenture at the request of any
Holder of Outstanding Notes, unless the Trustee receives indemnity satisfactory
to it against any loss, liability or expense. No Holder of a Note will have any
right to institute any proceeding, judicial or otherwise:
* with respect to the Indenture,
* for the appointment of a receiver or trustee, or
* for any remedy under the Indenture,
unless:
* the Holder has previously notified the Trustee in writing of a
continuing Event of Default; and
* the Holders of not less than 51% in aggregate principal amount
of the Outstanding Notes have requested, in writing, that the
Trustee institute a proceeding and these Holders have offered
the Trustee reasonable indemnity to do so; and
* the Holders of not less than 51% in aggregate principal amount
of the outstanding Notes have not previously given the Trustee
written directions inconsistent with this request; and
* the Trustee has failed to institute the proceeding for 60
days.
Notwithstanding these limitations, the holder of any Note will have an
absolute and unconditional right to receive payment of the principal of,
Make-Whole Amount, if any, and any interest on such Note on and after the dates
these payments are due, and to institute suit for the enforcement of any
payment.
The Indenture requires the Company, within 105 days after the end of
each of its fiscal years, to furnish to the Trustee a statement as to compliance
with the Indenture.
MODIFICATION AND WAIVER
The Indenture provides that the Company and the Trustee may modify or
amend the Indenture or any of the Notes, without the consent of the Holders of
the Notes, for the following purposes:
(1) to comply with Article V (which governs the Company's
ability to merge or consolidate with, and to be replaced by, a
successor corporation);
(2) to provide for the issuance of, and to establish the form
and terms and conditions of, debt securities permitted by the
Indenture;
(3) to evidence and provide for the acceptance by a successor
Trustee of appointment under the Indenture, and to add to or change any
of the provisions of the Indenture necessary to provide for or
facilitate the administration of the trusts under the Indenture by more
than one Trustee; or
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<PAGE> 27
(4) to comply with requirements of the Securities and Exchange
Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended.
Except as provided above, the Company and the Trustee may not otherwise
modify or amend the Indenture or the Notes unless they have received the consent
of the holders of at least a majority in principal amount of the Outstanding
Notes. In addition, the Company and the Trustee must obtain the consent of the
Holder of each Outstanding Note affected in order to modify or amend the
Indenture in any of the following manners:
* to change the amount of the Notes whose holders must consent
to an amendment, supplement or waiver;
* to reduce the rate or extend the time for payment of interest
(including default interest) on any Note;
* to reduce the principal of or Make-Whole Amount, if any, on,
or change the fixed maturity of, any Note;
* to reduce the principal amount of the Notes payable upon the
acceleration of their maturity;
* to waive a default in the payment of the principal of,
Make-Whole Amount, if any, or interest, if any, on any Note
(except a rescission of acceleration of the Notes by the
holders of at least 65% in aggregate principal amount of the
then Outstanding Notes and a waiver of the payment default
that resulted from such acceleration);
* to make the principal of, Make-Whole Amount, if any, or
interest, if any, on any Note payable in currency other than
that stated in the Note;
* to make any change to certain provisions of the Indenture
relating to, among other things, the right of Holders of the
Notes to receive payment of the principal of, Make-Whole
Amount, if any, and interest, if any, on the Notes and to
institute suit for the enforcement of any of these payments;
or
* to waive a redemption payment with respect to any Note or
change any of the provisions with respect to the redemption of
any Note.
The Holders of a majority in principal amount of the Outstanding Notes
may, on behalf of the Holders of all Notes, waive compliance by the Company with
provisions of the Indenture other than certain specified provisions. The Holders
of not less than a majority in principal amount of the Outstanding Notes may, on
behalf of the Holders of all the Notes, waive any past default under the
Indenture with respect to the Notes and its consequences, except a default in
the payment of the principal of, Make-Whole Amount, if any, or interest, if any,
on any Note or in respect of a covenant or provision which cannot be modified or
amended without the consent of the Holder of each Outstanding Note affected.
However, the Holders of 65% in principal amount of the Outstanding Notes may
rescind an acceleration and its consequences, including any related payment
default that resulted from an acceleration.
The Company will not directly or indirectly pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest, fee or
otherwise, or grant any security, to any Holder of Notes as consideration for or
as inducement to the entering into by any Holder of Notes of any waiver or
amendment of any of the terms and provisions of the Notes or the Indenture
unless such remuneration is currently paid, or security is concurrently granted,
on the same terms, ratably to each Holder of notes then Outstanding even if such
Holder did not consent to such waiver or amendment.
Solely for the purpose of determining whether the Holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under the
Indenture, or have directed the taking of any action provided in the Indenture
or in the Notes to be taken upon the direction of the Holders of a specified
percentage of the aggregate principal amount of Notes then outstanding, Notes
directly or indirectly owned by the Company or any of its Subsidiaries shall be
deemed not to be outstanding.
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<PAGE> 28
THE TRUSTEE
The Bank of New York is the Trustee under the Indenture.
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<PAGE> 29
DESCRIPTION OF CREDIT FACILITY
On October 31, 1997, Wallace entered into a credit agreement with
certain lenders ("Lenders"), and Bank of America NT&SA ("BofA") as agent for the
lenders for an unsecured credit facility in the aggregate principal amount of
$500,000,000 (the "Credit Facility"). At July 31, 1998, $396 million was
outstanding under the Credit Facility bearing a weighted average interest rate
of 5.8%. The Credit Facility consists of a revolving loan facility under which
loans may be borrowed, repaid and reborrowed by Wallace from time to time for
the purpose of providing funds to refinance certain indebtedness and to provide
working capital and for other general corporate purposes. The Credit Facility
matures on October 31, 2002 and has no scheduled amortization.
Borrowings under the Credit Facility bear interest at a floating rate
based upon Wallace's senior unsecured debt rating. In addition, Wallace has a
competitive advance option under the Credit Facility which allows it to request
uncommitted advances from the Lenders at competitive rates on an auction basis.
A facility fee accrues on the total Credit Facility regardless of usage at a
rate ranging from 0.075% to 0.15% per annum, depending upon Wallace's senior
unsecured debt rating. Wallace also must pay BofA underwriting and
administrative fees, reimburse certain expenses and provide certain indemnities,
all of which Wallace believes to be customary for commitments of this type.
The Credit Facility contains certain covenants binding on the Company
and its Subsidiaries, including without limitation, restrictions and limitations
relating to the incurrence of liens, sale of assets, consolidations and mergers,
loans and investments, incurrence of indebtedness, transactions with affiliates,
use of proceeds, contingent obligations, restricted payments, change in
business, accounting changes, permitted securitization and sale-leasebacks. The
Credit Facility also contains certain financial covenants, including, but not
limited to, a minimum interest coverage ratio and a maximum funded debt to
EBITDA ratio.
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<PAGE> 30
PLAN OF DISTRIBUTION
Upon the terms and subject to the conditions set forth in the Purchase
Agreements to be entered into by the Company and prospective purchasers, the
Company intends to sell up to $200,000,000 in Notes.
The Company will sell the Notes to the prospective purchasers for their
own accounts for the purpose of investment and not with a view to, or for sale
in connection with, the distribution thereof.
Salomon Smith Barney, Inc. (the "Agent") has acted as agent to the
Company in the sale of the Notes, for which the Company will pay it a fee of
$900,000, subject to adjustment for certain expenses to be borne by the Agent.
LEGAL MATTERS
Steven L. Carson, Esq., General Counsel to the Company, and Sidley &
Austin, Chicago, Illinois, will pass upon certain legal matters relating to the
issuance and sale of the Notes for the Company. Mr. Carson is the beneficial
owner of approximately 6,459 shares of Common Stock of the Company. Chapman and
Cutler, Chicago, Illinois, will pass upon certain legal matters relating to the
issuance and sale of the Notes for the purchasers.
EXPERTS
Arthur Andersen LLP, independent public accountants, has audited the
consolidated financial statements of the Company as of July 31, 1998 and July
31, 1997 and for the years ended July 31, 1998, July 31, 1997, and July 31, 1996
incorporated by reference in this Prospectus Supplement and elsewhere in the
Registration Statement, as set forth in the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 1998. This audit is indicated in the related
reports of Arthur Andersen LLP. We have incorporated the aforementioned
consolidated financial statements and schedules of the Company into this
Prospectus Supplement, and in doing so, we have relied upon the authority of
Arthur Andersen LLP as experts in giving these reports.
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<PAGE> 31
PROSPECTUS
$300,000,000
[Wallace LOGO]
WALLACE COMPUTER SERVICES, INC.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
Wallace Computer Services, Inc., a Delaware corporation (the "Company"
or "Wallace"), may offer from time to time (i) unsecured debt securities ("Debt
Securities") consisting of debentures, notes and/or other unsecured evidences of
indebtedness in one or more series, (ii) shares of preferred stock, par value
$50.00 per share ("Preferred Stock"), in one or more series, or (iii) shares of
common stock, par value $1.00 per share ("Common Stock") (the Debt Securities,
Preferred Stock and Common Stock are collectively referred to as "Securities"),
or any combination of the foregoing, at an aggregate initial public offering
price not to exceed $300,000,000 (or the equivalent thereof if Debt Securities
are denominated in one or more foreign currencies or foreign currency units), at
prices and on terms to be determined at or prior to the time of sale.
Specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in an accompanying Prospectus Supplement (as
supplemented by any applicable pricing supplement relating thereto, a
"Prospectus Supplement"), together with the terms of the offering of the
Securities, the initial public offering price and the net proceeds to the
Company from the sale thereof. The Prospectus Supplement will set forth, among
other matters, the following with respect to the particular Securities: (i) in
the case of Debt Securities, the specific designation, aggregate principal
amount, ranking, subordination provisions, covenants, authorized denominations,
maturity, rate or method of calculation of interest and dates for payment
thereof, any conversion, redemption, prepayment or sinking fund provisions, the
currency, currencies or currency units in which principal, premium, if any, or
interest, if any, is payable and the initial offering price, (ii) in the case of
Preferred Stock, the designation, number of shares, liquidation preference,
initial public offering price, dividend rate (or method of calculation thereof),
dates on which dividends shall be payable and dates from which dividends shall
accrue, any redemption or sinking fund provisions, any conversion or exchange
rights and (iii) in the case of Common Stock, the number of shares of Common
Stock and the terms of the offering and sale thereof.
--------------------
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.
--------------------
The Company may sell Securities directly to purchasers or through
agents designated from time to time by the Company or to or through underwriters
or a group of underwriters which may be managed by one or more underwriters. If
any agents of the Company or any underwriters are involved in the sale of
Securities in respect of which this Prospectus is being delivered, the names of
such agents or underwriters and any applicable commission or discount will be
set forth in the applicable Prospectus Supplement. The net proceeds to the
Company from the sale of Securities will be the initial public offering price of
such Securities less such discount, in the case of an offering through an
underwriter, or the purchase price
<PAGE> 32
of such Securities less such commission, in the case of an offering through an
agent, and less, in each case, other expenses of the Company associated with the
issuance and distribution of such Securities.
This Prospectus may not be used to consummate sales of Securities
unless accompanied by a Prospectus Supplement.
--------------------
The date of this Prospectus is May 12, 1998.
<PAGE> 33
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The Company has filed
with the Commission a registration statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all
information set forth in the Registration Statement and reference is hereby made
to the Registration Statement and the exhibits thereto for further information
with respect to the Company and the Securities offered hereby. Such reports,
proxy statements, Registration Statement and exhibits and other information
omitted from this Prospectus can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its Northeast Regional Office located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Midwest Regional Office
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at
(http://www.sec.gov). The Company files electronically with the Commission. The
Company's Common Stock is listed on the New York Stock Exchange, and such
reports, proxy statements and other information may also be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report of the Company on Form 10-K for the fiscal year ended
July 31, 1997 (as amended by the Form 10-K/A dated April 8, 1998), the Quarterly
Report of the Company on Form 10-Q for the quarters ended October 31, 1997 and
January 31, 1998, the Current Reports of the Company on Form 8-K dated November
18, 1997 (as amended by the Form 8-K/A dated January 16, 1998 and the Form 8-K/A
dated April 9, 1998) and January 5, 1998 and the registration statement of the
Company on Form 8-A, dated March 14, 1990, are incorporated by reference into
this Prospectus. All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Securities contemplated
hereby shall be deemed to be incorporated by reference into this Prospectus and
to be made a part hereof from the respective dates of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
the Registration Statement and this Prospectus to the extent that a statement
contained herein, in the accompanying Prospectus Supplement or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or this Prospectus.
Copies of the above documents (other than exhibits to such documents
unless such exhibits are specifically incorporated by reference into such
documents) may be obtained upon written or oral request without charge from the
Company, 2275 Cabot Drive, Lisle, Illinois 60532 (telephone number (630)
588-5395), Attention: Investor Relations.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus and the accompanying Prospectus Supplement include
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All statements, other than statements
of historical facts, included in this Prospectus and the Prospectus Supplement
that address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as future
capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, competitive strengths, goals,
expansion and growth of the Company's and its subsidiaries' business and
operations, plans, references to future success and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate in the circumstances. However,
whether actual results and developments will conform with the Company's
expectations and predictions is subject to a number of risks and uncertainties,
including the special considerations discussed in this Prospectus and the
Prospectus Supplement; general economic, market or business conditions; the
opportunities (or lack thereof) that may be presented to and pursued by the
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<PAGE> 34
Company and its subsidiaries; competitive actions by other companies; changes in
laws or regulations; successful integration of acquisitions; labor market
conditions and raw material costs; and other factors, many of which are beyond
the control of the Company and its subsidiaries. Consequently, all of the
forward-looking statements made in this Prospectus and the Prospectus Supplement
are qualified by these cautionary statements, and there can be no assurance that
the actual results or developments anticipated by the Company will be realized
or, even if substantially realized, that they will have the expected
consequences to or effects on the Company and its subsidiaries or their business
or operations.
The following trademarks and service marks of Wallace are mentioned in
this Prospectus or the Prospectus Supplement: "Wallace Information Network(TM),"
"W.I.N.(TM)," "W.I.N. Direct(TM)," "@W.I.N. Direct(TM)," "StatusNow!(TM),"
"Select Services(R)" and "TOPS(R)."
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<PAGE> 35
THE COMPANY
Wallace manufactures and distributes a wide range of consumable
business supplies and information management products, including paper and
electronic business forms, office supplies, labels, and commercial and
promotional printed materials. Wallace's strategy is to utilize information
management tools to offer its products and services through a solutions-based
approach aimed at reducing costs, increasing efficiencies and generating value
for its customers. Wallace's success has largely been attained through its focus
on developing and integrating new technologies into its products and services.
Management believes Wallace offers one of the broadest ranges of information
management products and services in the industry.
Over the past four years, Wallace has become recognized in the industry
as a leader in total print and integrated supply management. By combining forms,
print and office products management, Wallace serves as a single source for all
the business supplies used by large organizations. Central to Wallace's
integrated services is the Wallace Information Network ("W.I.N."), a
comprehensive forms management tool that ties customers into Wallace's corporate
information system and centrally organizes and manages a customer's data
regarding the manufacture, storage and distribution of printed materials and
consumable supplies. Since its introduction in 1993, the W.I.N. system has
become recognized in the industry as a benchmark. It continues to be one of the
few systems that can bring complete, current data about every order, shipment
and item in inventory to the customer's desktop for analysis and decision
making. As of December 31, 1997, more than 300 mid-to-large sized organizations
utilized W.I.N. as their central information tool in Wallace's integrated supply
management services.
WALLACE PRODUCTS AND SERVICES
Wallace's principal products and services include:
Business Forms. The Company provides stock and custom, paper and
electronic products for businesses, government agencies, and for healthcare,
not-for-profit and educational institutions. Examples of forms provided by the
Company include air freight package forms, monthly billing statements, mortgage
applications, healthcare forms, credit card statements and point-of-sale
transaction forms. Wallace's value-added services provide substantial benefits
to large, paper-intensive organizations which seek ways to increase efficiency
and reduce costs. Wallace's success is based on its long-term contract
commitments, diverse product offerings, unique services (such as W.I.N.) and
extensive distribution network.
Promotional Printing. Through its COLORFORMS division, the Company
produces materials that serve the targeted marketing and direct response
markets. Typical products include sweepstakes mailings, credit card offers and
on-demand, individual mailings. The Company provides a full-service, quick
response, value-added resource to its customers, and supplies national coverage
and state-of-the-art imaging capabilities and service options, which are
designed to increase promotion response rates and reduce customer costs.
Commercial Printing. The Company's commercial printing business
primarily consists of high-color, high-quality commercial printing and catalogs
and directories. Typical products include corporate image materials, promotional
literature, product brochures, product documentation literature, retail
point-of-sale materials and health care plan directories. By acquiring Post
Printing Company in the fall of 1996, Moran Printing Company in the summer of
1997 and Graphic Industries, Inc. ("Graphic") in late 1997, Wallace has
significantly expanded its commercial printing capabilities. Wallace's focus is
on fulfilling the total print requirements of its targeted customer base, the
Fortune 1000. The Company differentiates itself from competitors in the printing
industry by utilizing its W.I.N. system capabilities and distribution expertise
to provide a fully integrated service for customers.
Office Products. The Company manufactures office products such as legal
pads, computer paper, ink jet printer cartridges, ribbons and ATM and cash
register paper rolls. Wallace also offers an extensive selection of brand-name
and discount brand office supplies and standardized business forms for the home,
school and office markets. Through an arrangement with United Stationers,
Wallace acts as a contract stationer to customers, enabling the Company to serve
as a full source supplier of office products. Wallace can supply approximately
23,000 office and computer supplies to its customers and can provide nationwide
delivery on a next-day basis. Wallace recently entered into a joint marketing
arrangement with Boise Cascade Office Products whereby each company will
introduce the other company to its top 200
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<PAGE> 36
customers and allow such company to market its products and services to those
customers. Wallace's TOPS group manufactures and sells pad products and stock
forms to office products retailers and wholesalers.
Labels. Wallace is one of the only national suppliers with a full range
of label options and integrated services. The Company produces bar-coded
shipping labels, consumer product labels, airline bag tags, blank stock labels,
electronic article surveillance tags and labeling software, printers and
applicators. Wallace produces both electronic data processing ("EDP") labels and
prime labels. EDP labels usually include some package specific information, such
as bar coding, and are designed to meet the needs of key market segments,
including retail, health care, small package delivery, manufacturing and
required regulatory compliance. Prime labels are high quality promotional and
product identification labels used on items such as shampoo bottles and food
packages.
RECENT DEVELOPMENTS
On December 22, 1997, Wallace completed its acquisition of all of the
equity of Graphic for an aggregate price of approximately $315 million. To
finance the acquisition and to refinance $142 million in outstanding debt of
Graphic, Wallace borrowed $437 million under its $500 million senior unsecured
credit facility. Graphic, headquartered in Atlanta, Georgia, is the largest
sheet-fed commercial printer in the United States (based on number of sheet-fed
presses) and manufactures such products as high color marketing literature,
annual reports and point-of-sale material, primarily for corporate customers.
Graphic will provide Wallace with critical mass in commercial printing, which
will allow Wallace to expand its product offerings and geographic coverage.
Management expects to continue to service Graphic's established customer base
and has begun to offer Graphic's capabilities to Wallace's large, national
customers. Management also intends to offer Wallace's products and services to
Graphic's existing customer base.
The Company is incorporated in Delaware. Its executive offices are
located at 2275 Cabot Drive, Lisle, Illinois 60532 (telephone number (630)
588-5000).
USE OF PROCEEDS
Except as set forth in the Prospectus Supplement for a specific
offering of Securities, the net proceeds from the sale of the Securities will be
applied by the Company for general corporate purposes.
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<PAGE> 37
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges
for the Company and its consolidated subsidiaries for the periods indicated. The
Company to date has not issued Preferred Stock; therefore, the ratios of
earnings to combined fixed charges and preferred stock dividends are the same as
the ratios of earnings to fixed charges set forth below.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended July 31, January 31,
-------------------------------------------- ---------------------
1997 1996 1995 1994 1993 1998 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges 26.2x 31.2x 23.4x 22.2x 20.2x 8.0x 92.7x
</TABLE>
The computation of the ratio of earnings to fixed charges is based on
applicable amounts of the Company and its consolidated subsidiaries. "Earnings"
consist of income before income taxes and fixed charges. "Fixed charges" consist
of interest on indebtedness, amortization of debt discount and expense and an
estimated amount of rental expense that is deemed to be representative of the
interest factor.
-5-
<PAGE> 38
DESCRIPTION OF DEBT SECURITIES
The Debt Securities offered hereby are to be issued under an indenture
(the "Indenture") to be executed by the Company and The Bank of New York, as
trustee (the "Trustee"). A copy of the form of Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Section references used in this Prospectus refer to sections of the Indenture.
The following statements relating to the Debt Securities and the
Indenture are summaries and do not purport to be complete, and are subject to
and are qualified in their entirety by reference to all the provisions of the
Indenture. Certain other specific terms of any series of Debt Securities will be
described in the applicable Prospectus Supplement. To the extent that any
particular terms of the Debt Securities described in a Prospectus Supplement
differ from any of the terms described herein, then such terms described herein
shall be deemed to have been superseded by such Prospectus Supplement.
GENERAL
The terms of each series of Debt Securities will be established by or
pursuant to a resolution of the Board of Directors of the Company and set forth
or determined in the manner provided in an officer's certificate or by a
supplemental indenture. (Indenture Section 2.2) The particular terms of each
series of Debt Securities will be described in a Prospectus Supplement relating
to such series (including any pricing supplement thereto).
The Debt Securities that may be offered under the Indenture are not
limited in aggregate principal amount. The Debt Securities may be issued in one
or more series with the same or various maturities, at par, at a premium, or at
a discount. The applicable Prospectus Supplement (including any pricing
supplement thereto) will set forth the initial offering price, the aggregate
principal amount and the following terms of the Debt Securities in respect of
which this Prospectus is delivered: (1) the title of such Debt Securities; (2)
any subordination provisions pertaining to such Debt Securities; (3) the price
or prices (expressed as a percentage of the principal amount thereof) at which
the Debt Securities will be issued; (4) any limit on the aggregate principal
amount of such Debt Securities; (5) the date or dates on which principal on such
Debt Securities will be payable; (6) the rate or rates (which may be fixed or
variable) per annum or, if applicable, the method used to determine such rate or
rates (including any commodity, commodity index, stock exchange index or
financial index) at which such Debt Securities will bear interest, if any, the
date or dates from which such interest, if any, will accrue, the date or dates
on which such interest, if any, will commence and be payable and any regular
record date for the interest payable on any interest payment date; (7) the place
or places where principal of, premium, if any, and interest, if any, on such
Debt Securities will be payable; (8) the period or periods within which, the
price or prices at which and the terms and conditions upon which the Debt
Securities may be redeemed, in whole or in part, at the option of the Company;
(9) the obligation, if any, of the Company to redeem or purchase the Debt
Securities pursuant to any sinking fund or analogous provisions or at the option
of a Holder thereof; (10) the dates, if any, on which and the price or prices at
which the Debt Securities will be repurchased by the Company at the option of
the Holders thereof and other detailed terms and provisions of such repurchase
obligations; (11) the denominations in which such Debt Securities may be
issuable, if other than denominations of $1,000 and any integral multiple
thereof; (12) whether the Debt Securities are to be issuable in the form of
Certificated Debt Securities (as defined below) or Global Debt Securities (as
defined below); (13) the portion of principal amount of such Debt Securities
that shall be payable upon declaration of acceleration of the maturity date
thereof, if other than the principal amount thereof; (14) the currency of
denomination of such Debt Securities; (15) the designation of the currency,
currencies or currency units in which payment of principal of, premium, if any,
and interest, if any, on such Debt Securities will be made; (16) if payments of
principal of, premium, if any, or interest, if any, on the Debt Securities are
to be made in one or more currencies or currency units other than that or those
in which such Debt Securities are denominated, the manner in which the exchange
rate with respect to such payments will be determined; (17) the manner in which
the amounts of payment of principal of, premium, if any, or interest, if any, on
such Debt Securities will be determined, if such amounts may be determined by
reference to an index based on a currency or currencies other than that in which
the Debt Securities are denominated or designated to be payable or by reference
to a commodity, commodity index, stock exchange index or financial index; (18)
the provisions, if any, relating to any security provided for such Debt
Securities; (19) any addition to or change in the Events of Default described
herein or in the Indenture with respect to such Debt Securities and any change
in the acceleration provisions described herein or in the Indenture with respect
to such Debt Securities; (20) any addition to or change in the covenants
described in the Indenture with respect to such Debt Securities; (21) any other
terms of such Debt Securities, which may modify or delete any provision of the
Indenture insofar as it applies to such series; and (22) any
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<PAGE> 39
depositories, interest rate calculation agents, exchange rate calculation agents
or other agents with respect to the Debt Securities. (Indenture Section 2.2).
Debt Securities may be issued that provide for an amount less than the
stated principal amount thereof to be due and payable upon declaration of
acceleration of the maturity thereof pursuant to the terms of the Indenture
("Discount Securities"). Federal income tax considerations and other special
considerations applicable to any such Discount Securities will be described in
the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is denominated in a
foreign currency or currencies or a foreign currency unit or units, or if the
principal of, premium, if any, or interest, if any, on any series of Debt
Securities is payable in a foreign currency or currencies or a foreign currency
unit or units, the restrictions, elections, general tax considerations, specific
terms and other information with respect to such issue of Debt Securities and
such foreign currency or currencies or foreign currency unit or units will be
set forth in the applicable Prospectus Supplement.
TRANSFER AND EXCHANGE
Each Debt Security will be represented by either one or more global
securities (a "Global Debt Security") registered in the name of The Depository
Trust Company, as depository (the "Depository"), or a nominee of the Depository
(each such Debt Security represented by a Global Debt Security being herein
referred to as a "Book-Entry Debt Security"), or a certificate issued in
definitive registered form (a "Certificated Debt Security"), as set forth in the
applicable Prospectus Supplement. Except as set forth under "-- Global Debt
Securities and Book-Entry System" below, Book-Entry Debt Securities will not be
issuable in certificated form. The information in this section concerning the
Depository and its book-entry system and procedures has been obtained from
sources the Company believes to be reliable, but the Company takes no
responsibility for the accuracy of the information in this section.
Certificated Debt Securities. Certificated Debt Securities may be
transferred or exchanged at the Trustee's office or paying agencies in
accordance with the terms of the Indenture. No service charge will be made for
any transfer or exchange of Certificated Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
The transfer of Certificated Debt Securities and the right to receive
the principal of, premium, if any, and interest, if any, on such Certificated
Debt Securities may be effected only by surrender of the certificate
representing such Certificated Debt Securities and either reissuance by the
Company or the Trustee of such certificate to the new Holder or the issuance by
the Company or the Trustee of a new certificate to the new Holder.
Global Debt Securities and Book-Entry System. Each Global Debt Security
representing Book-Entry Debt Securities will be deposited with, or on behalf of,
the Depository, and registered in the name of the Depository or a nominee of the
Depository. Except as set forth below, Book-Entry Debt Securities will not be
exchangeable for Certificated Debt Securities and will not otherwise be issuable
as Certificated Debt Securities.
The Depository is a limited purpose trust company organized under the
laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depository was created to hold securities for its
participating organizations ("participants") and facilitate the clearance and
settlement of securities transactions between participants through electronic
book-entry changes in accounts of its participants, thereby eliminating the need
for physical movements of certificates. Participants include securities brokers
and dealers, banks, trust companies and clearing corporations, and may include
certain other organizations. Indirect access to the Depository's system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. The procedures that the Depository has indicated it
intends to follow with respect to Book-Entry Debt Securities are set forth
below.
Ownership of beneficial interests in Book-Entry Debt Securities will be
limited to participants or persons that may hold interests through participants.
Upon the issuance of a Global Debt Security, the Depository will credit, on its
book-entry registration and transfer system, the participants' accounts with the
respective principal amounts of the Book-Entry Debt Securities represented by
such Global Debt Security beneficially owned by such participants. The accounts
to be credited
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<PAGE> 40
shall be designated by participants participating in the distribution of such
Book-Entry Debt Securities. Ownership of Book-Entry Debt Securities will be
shown on, and the transfer of such ownership interests will be effected only
through, records maintained by the Depository for the related Global Debt
Security (with respect to interests of participants) and on the records of
participants (with respect to interests of persons holding through
participants). The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to own, transfer or pledge beneficial interests in
Book-Entry Debt Securities.
So long as the Depository for a Global Debt Security, or its nominee,
is the registered owner of such Global Debt Security, the Depository or such
nominee, as the case may be, will be considered the sole owner or Holder of the
Book-Entry Debt Securities represented by such Global Debt Security for all
purposes under the Indenture. Except as set forth below, beneficial owners of
Book-Entry Debt Securities will not be entitled to have such securities
registered in their names, will not receive or be entitled to receive physical
delivery of a certificate in definitive form representing such securities and
will not be considered the owners or Holders thereof under the Indenture.
Accordingly, each person beneficially owning Book-Entry Debt Securities must
rely on the procedures of the Depository for the related Global Debt Security
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a Holder
under the Indenture.
The Company understands, however, that under existing industry
practice, the Depository will authorize the persons on whose behalf it holds a
Global Debt Security to exercise certain rights of Holders of Debt Securities,
and the Indenture provides that the Company, the Trustee and their respective
agents will treat as the Holder of a Debt Security the persons specified in a
written statement of the Depository with respect to such Global Debt Security
for purposes of obtaining any consents or directions required to be given by
Holders of the Debt Securities pursuant to the Indenture. (Indenture Section
2.14.6)
Payments of principal of, premium, if any, and interest, if any, on
Book-Entry Debt Securities will be made to the Depository or its nominee, as the
case may be, as the registered Holder of the related Global Debt Security.
(Indenture Section 2.14.5) None of the Company, the Trustee or any other agent
of the Company or agent of the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in such Global Debt Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. However, the Trustee may maintain physical possession of such Global
Debt Security on behalf of the Depository or its nominee pursuant to an
agreement between the Trustee and the Depository.
If the Depository is at any time unwilling or unable to continue as
Depository or ceases to be a clearing agency registered under the Exchange Act,
and a successor Depository registered as a clearing agency under the Exchange
Act is not appointed by the Company within 90 days, the Company will issue
Certificated Debt Securities in exchange for each Global Debt Security. In
addition, the Company may at any time and in its sole discretion determine not
to have the Book-Entry Debt Securities of any series represented by one or more
Global Debt Securities and, in such event, will issue Certificated Debt
Securities in exchange for the Global Debt Securities of such series. Global
Debt Securities will also be exchangeable by the Holders for Certificated Debt
Securities if an Event of Default with respect to the Book-Entry Debt Securities
represented by such Global Debt Securities has occurred and is continuing. Any
Certificated Debt Securities issued in exchange for a Global Debt Security will
be registered in such name or names as the Depository shall instruct the
Trustee. It is expected that such instructions will be based upon directions
received by the Depository from participants with respect to ownership of
Book-Entry Debt Securities relating to such Global Debt Security.
NO PROTECTION IN THE EVENT OF A CHANGE OF CONTROL
Unless otherwise set forth in the applicable Prospectus Supplement, the
Debt Securities will not contain any provisions which may afford Holders of the
Debt Securities protection in the event of a change in control of the Company or
in the event of a highly leveraged transaction (whether or not such transaction
results in a change in control of the Company) which could adversely affect
Holders of Debt Securities.
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<PAGE> 41
COVENANTS
The applicable Prospectus Supplement will set forth any restrictive
covenants applicable with respect to any issue of Debt Securities.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all of its properties and assets to, any
Person (a "successor Person") unless (i) the Company is the surviving
corporation or the successor Person (if other than the Company) is a
corporation, partnership, trust or other entity organized and existing under the
laws of any United States domestic jurisdiction and expressly assumes the
Company's obligations on the Debt Securities and under the Indenture, (ii)
immediately after giving effect to the transaction, no Event of Default, and no
event which, after notice or lapse of time, or both, would become an Event of
Default shall have occurred and be continuing under the Indenture and (iii)
certain other conditions are met. (Indenture Section 5.1)
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture with
respect to Debt Securities of any series: (a) default in the payment of any
interest on any Debt Security of that series when it becomes due and payable,
and continuance of such default for a period of 30 days (unless the entire
amount of such payment is deposited by the Company with the Trustee or with a
paying agent prior to the expiration of such period of 30 days); (b) default in
the payment of principal of or premium, if any, on any Debt Security of that
series when due and payable; (c) default in the deposit of any sinking fund
payment, when and as due in respect of any Debt Security of that series; (d)
default in the performance or breach of any other covenant or warranty of the
Company in the Indenture (other than a covenant or warranty that has been
included in the Indenture solely for the benefit of a series of Debt Securities
other than that series), which default continues uncured for a period of 60 days
after written notice to the Company by the Trustee or to the Company and the
Trustee by the Holders of not less than a majority in principal amount of the
outstanding Debt Securities of that series as provided in the Indenture; (e)
certain events of bankruptcy, insolvency or reorganization with respect to the
Company; and (f) any other Event of Default provided with respect to Debt
Securities of that series that is described in the applicable Prospectus
Supplement. No Event of Default with respect to a particular series of Debt
Securities (except as to certain events of bankruptcy, insolvency or
reorganization with respect to the Company) necessarily constitutes an Event of
Default with respect to any other series of Debt Securities. (Indenture Section
6.1). The occurrence of an Event of Default may constitute an event of default
under the Company's credit agreements in existence from time to time. In
addition, the occurrence of certain Events of Default or an acceleration under
the Indenture may constitute an event of default under certain other
indebtedness of the Company outstanding from time to time.
Unless otherwise specified in the applicable Prospectus Supplement, if
an Event of Default with respect to Debt Securities of any series at the time
outstanding occurs and is continuing, then in every such case the Trustee or the
Holders of not less than a majority in principal amount of the outstanding Debt
Securities of that series may, by a notice in writing to the Company (and to the
Trustee if given by the Holders), declare to be due and payable immediately the
principal amount (or, if the Debt Securities of that series are Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of and accrued and unpaid interest, if any, on all Debt
Securities of that series. In the case of an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization, the principal amount
(or such specified amount) of and accrued and unpaid interest, if any, on all
outstanding Debt Securities shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder of outstanding Debt Securities. At any time after a declaration of
acceleration with respect to Debt Securities of any series has been made, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of a majority in principal amount of the outstanding
Debt Securities of that series may rescind and annul such acceleration if all
Events of Default, other than the non-payment of accelerated principal and
interest, if any, with respect to Debt Securities of that series, have been
cured or waived as provided in the Indenture. (Indenture Section 6.2) For
information as to waiver of defaults see the discussion set forth below under
"-- Modification and Waiver." Reference is made to the applicable Prospectus
Supplement (i) relating to any series of Debt Securities that are Discount
Securities for the particular provisions relating to acceleration of a portion
of the principal amount of such Discount Securities upon the occurrence of an
Event of Default, or (ii) relating to any series of Debt Securities that are
designated as subordinated debt for the particular provisions
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relating to acceleration of a portion of the principal amount of such
subordinated Debt Securities upon the occurrence of an Event of Default.
The Indenture provides that the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of outstanding Debt Securities, unless the Trustee receives indemnity
satisfactory to it against any loss, liability or expense. (Indenture Section
7.1(e)) Subject to certain rights of the Trustee, the Holders of a majority in
principal amount of the outstanding Debt Securities of any series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Debt Securities of that series. (Indenture
Section 6.12)
No Holder of any Debt Security of any series will have any right to
institute any proceeding, judicial or otherwise, with respect to the Indenture,
or for the appointment of a receiver or trustee, or for any remedy under the
Indenture, unless such Holder shall have previously given to the Trustee written
notice of a continuing Event of Default with respect to Debt Securities of that
series and unless also the Holders of not less than a majority in principal
amount of the outstanding Debt Securities of that series shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the Holders
of a majority in principal amount of the outstanding Debt Securities of that
series a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. (Indenture Section 6.7)
Notwithstanding the foregoing, the Holder of any Debt Security will have an
absolute and unconditional right to receive payment of the principal of,
premium, if any, and any interest on such Debt Security on or after the due
dates expressed in such Debt Security and to institute suit for the enforcement
of any such payment. (Indenture Section 6.8)
The Indenture requires the Company, within 90 days after the end of
each of its fiscal years, to furnish to the Trustee a statement as to compliance
with the Indenture. (Indenture Section 4.3) The Indenture provides that the
Trustee may withhold notice to the Holders of Debt Securities of any series of
any Default or Event of Default (except in payment on any Debt Securities of
such series) with respect to Debt Securities of such series if it in good faith
determines that withholding such notice is in the interest of the Holders of
such Debt Securities. (Indenture Section 7.5)
MODIFICATION AND WAIVER
The Indenture provides that modifications to, and amendments of, the
Indenture or any series of Debt Securities issued thereunder may be made by the
Company and the Trustee without the consent of the Holders for the following
purposes: (i) to cure any ambiguity, omission, defect or inconsistency; (ii) to
comply with Article V (which governs the Company's ability to merge or
consolidate with, and to be replaced by, a successor corporation); (iii) to
provide for uncertificated Debt Securities in addition to or in place of
certificated Debt Securities; (iv) to make any change that does not adversely
affect the rights of any Holder; (v) to provide for the issuance of and
establish the form and terms and conditions of Debt Securities of any series as
permitted by the Indenture; (vi) to evidence and provide for the acceptance of
appointment under the Indenture by a successor Trustee with respect to the Debt
Securities of one or more series and to add to or change any of the provisions
of the Indenture as shall be necessary to provide for or facilitate the
administration of the trusts under the Indenture by more than one Trustee; or
(vii) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act of
1939, as amended. (Indenture Section 9.1)
Other modifications to, and amendments of, the Indenture or any series
of Debt Securities issued thereunder may be made by the Company and the Trustee
with the consent of the Holders of at least a majority in principal amount of
the outstanding Debt Securities of each series affected by such modifications or
amendments. However, no such modification or amendment may, without the consent
of the Holder of each outstanding Debt Security affected thereby: (a) change the
amount of Debt Securities whose Holders must consent to an amendment, supplement
or waiver; (b) reduce the rate of or extend the time for payment of interest
(including default interest) on any Debt Security; (c) reduce the principal of
or premium, if any, on, or change the fixed maturity of, any Debt Security or
reduce the amount of, or postpone the date fixed for, the payment of any sinking
fund or analogous obligation with respect to any series of Debt Securities; (d)
reduce the principal amount of Discount Securities payable upon acceleration of
the maturity thereof; (e) waive a default in the payment of the principal of,
premium, if any, or interest, if any, on any Debt Security (except a rescission
of acceleration of the Debt Securities of any series by the Holders of at least
a majority in aggregate principal amount of the then outstanding Debt Securities
of such series and a waiver of the payment default that resulted from such
acceleration); (f) make the principal of, or premium, if any, or interest, if
any, on any Debt Security payable in currency other than that stated in the Debt
Security;
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(g) make any change to certain provisions of the Indenture relating to, among
other things, the right of Holders of Debt Securities to receive payment of the
principal of, premium, if any, and interest, if any, on such Debt Securities and
to institute suit for the enforcement of any such payment and to waivers or
amendments; or (h) waive a redemption payment with respect to any Debt Security
or change any of the provisions with respect to the redemption of any Debt
Security. (Indenture Section 9.3)
The Holders of at least a majority in principal amount of the
outstanding Debt Securities of any series may on behalf of the Holders of all
Debt Securities of that series waive, insofar as that series is concerned,
compliance by the Company with provisions of the Indenture other than certain
specified provisions. (Indenture Section 9.2) The Holders of not less than a
majority in principal amount of the outstanding Debt Securities of any series
may on behalf of the Holders of all the Debt Securities of such series waive any
past default under the Indenture with respect to such series and its
consequences, except a default in the payment of the principal of, premium, if
any, or interest, if any, on any Debt Security of that series or in respect of a
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Debt Security of such series affected (except
that the Holders of a majority in principal amount of the outstanding Debt
Securities of any series may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
(Indenture Section 6.13)
DEFEASANCE OF DEBT SECURITIES AND CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES
Satisfaction and Discharge of Indenture. The Indenture provides that,
upon satisfaction by the Company of certain conditions, the terms of the
Indenture will cease to be of further effect (except for certain obligations to
register the transfer or exchange of Debt Securities, to replace stolen, lost or
mutilated Debt Securities, to maintain paying agencies, to compensate and
indemnify the Trustee and certain provisions relating to the treatment of funds
held by paying agents) in the event that either (i) all Debt Securities
theretofore authenticated and delivered under the Indenture (other than Debt
Securities that have been destroyed, lost or stolen and that have been replaced
or paid) have been delivered to the Trustee for cancellation; or (ii) all Debt
Securities issued under the Indenture not theretofore delivered to the Trustee
for cancellation (a) have become due and payable, (b) will become due and
payable at their stated maturity within one year, (c) are to be called for
redemption within one year under arrangements satisfactory to the Trustee, at
the expense of the Company, or (d) are deemed paid and discharged pursuant to
the provisions of the Indenture described under "-- Legal Defeasance," below.
The Company must, in order to be discharged from its obligations under the
Indenture as a result of events described in the preceding sentence, (1) deposit
or cause to be deposited with the Trustee trust funds in an amount sufficient
for the purpose of paying and discharging the entire indebtedness on such Debt
Securities not theretofore delivered to the Trustee for cancellation, for
principal and interest to the date of such deposit (in the case of Debt
Securities which have become due and payable on or prior to the date of such
deposit) or to the stated maturity or redemption date, as the case may be; (2)
have paid or caused to be paid all other sums payable by the Company under the
Indenture; and (3) delivered to the Trustee an officer's certificate and an
opinion of counsel, each stating that all conditions precedent provided for in
the Indenture relating to the satisfaction and discharge of the Indenture have
been complied with. (Indenture Section 8.1)
Legal Defeasance. The Indenture provides that, unless otherwise
provided by the terms of the applicable series of Debt Securities, the Company
may be discharged from any and all obligations in respect of the Debt Securities
of any series (except for certain obligations to register the transfer or
exchange of Debt Securities of such series, to replace stolen, lost or mutilated
Debt Securities of such series, and to maintain paying agencies and certain
provisions relating to the treatment of funds held by paying agents) upon the
deposit with the Trustee, in trust, of money and/or United States Government
Obligations or, in the case of Debt Securities denominated in a single currency
other than United States Dollars, Foreign Government Obligations, that, through
the payment of interest and principal in respect thereof in accordance with
their terms, will provide money in an amount sufficient in the opinion of a
nationally recognized firm of independent public accountants to pay and
discharge each installment of principal, premium, if any, and interest, if any,
on and any mandatory sinking fund payments in respect of the Debt Securities of
such series on the stated maturity of such payments in accordance with the terms
of the Indenture and such Debt Securities. Such discharge may occur only if,
among other things, the Company shall have delivered to the Trustee an opinion
of counsel stating that the Company has received from, or there has been
published by, the United States Internal Revenue Service a ruling or, since the
date of execution of the Indenture, there has been a change in the applicable
United States federal income tax law, in either case to the effect that, and
based thereon such opinion shall confirm that, the Holders of the Debt
Securities of such series will not recognize income, gain or loss for United
States federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to United States
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federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if such deposit, defeasance and discharge had
not occurred. (Indenture Section 8.3)
Defeasance of Certain Covenants. The Indenture provides that, unless
otherwise provided by the terms of the applicable series of Debt Securities,
upon compliance with certain conditions, (i) the Company may omit to comply with
the covenants described above under "-- Consolidation, Merger and Sale of
Assets" and certain other covenants set forth in the Indenture and any other
covenants applicable to such Debt Securities, as well as any additional
covenants which may be set forth in the applicable Prospectus Supplement, and
(ii) any omission to comply with such covenants will not constitute a Default or
an Event of Default with respect to, and certain Events of Default will be
inapplicable to, the Debt Securities of such series ("covenant defeasance"). The
conditions include: the deposit with the Trustee of money and/or United States
Government Obligations or, in the case of Debt Securities denominated in a
single currency other than United States Dollars, Foreign Government
Obligations, that, through the payment of interest and principal in respect
thereof in accordance with their terms, will provide money in an amount
sufficient in the opinion of a nationally recognized firm of independent public
accountants to pay and discharge each installment of principal of, premium, if
any, and interest, if any, on and any mandatory sinking fund payments in respect
of the Debt Securities of such series on the stated maturity of such payments in
accordance with the terms of the Indenture and such Debt Securities; and the
delivery to the Trustee of an opinion of counsel to the effect that the Holders
of the Debt Securities of such series will not recognize income, gain or loss
for United States federal income tax purposes as a result of such deposit and
related covenant defeasance and will be subject to United States federal income
tax on the same amounts and in the same manner and at the same times as would
have been the case if such deposit and related covenant defeasance had not
occurred. (Indenture Section 8.4)
Covenant Defeasance and Events of Default. In the event the Company
exercises its option to effect covenant defeasance with respect to any series of
Debt Securities and the Debt Securities of such series are declared due and
payable because of the occurrence of any Event of Default, the amount of money
and/or United States Government Obligations or Foreign Government Obligations on
deposit with the Trustee will be sufficient to pay amounts due on the Debt
Securities of such series at the time of their stated maturity but may not be
sufficient to pay amounts due on the Debt Securities of such series at the time
of the acceleration resulting from such Event of Default. However, the Company
shall remain liable for such payments.
"Foreign Government Obligations" means, with respect to Debt Securities
of any series that are denominated in a currency other than United States
Dollars, (i) direct obligations of the government that issued or caused to be
issued such currency for the payment of which obligations its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by or
acting as an agency or instrumentality of such government the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation by
such government, which, in either case under clauses (i) or (ii), are not
callable or redeemable at the option of the issuer thereof.
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and
construed in accordance with, the internal laws of the State of New York.
(Indenture Section 10.10)
DESCRIPTION OF PREFERRED STOCK
Under the Company's Restated Certificate of Incorporation, as amended
("Certificate of Incorporation"), the Company may issue, in one or more classes
or series, up to 500,000 shares of its Preferred Stock, with such powers,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions as shall be designated in
resolutions adopted by the Board of Directors or a duly authorized committee
thereof. No shares of Preferred Stock are currently outstanding, but 250,000
shares of Preferred Stock are reserved for issuance in connection with the
Series A Rights described under "Description of Common Stock -- Certain
Provisions of the Certificate of Incorporation, By-laws and Rights Agreement."
The Preferred Stock, if and when issued, will be fully paid and nonassessable
and holders thereof will have no preemptive rights.
The specific terms of any Preferred Stock being offered (the "Offered
Preferred Stock") will be described in the Prospectus Supplement relating to
such Offered Preferred Stock. The following summaries of certain provisions of
the Preferred Stock are subject to, and are qualified in their entirety by
reference to, the Certificate of Incorporation and the
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Certificate of Designation relating to the particular class or series of
Preferred Stock. Reference is made to the Prospectus Supplement relating to the
Offered Preferred Stock offered thereby for specific terms, including:
(1) The designation of such Offered Preferred Stock.
(2) The number of shares of such Offered Preferred Stock offered, the
liquidation preference per share and the initial offering price of such
Offered Preferred Stock.
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Offered Preferred Stock.
(4) The date from which dividends on such Offered Preferred Stock shall
accumulate, if applicable.
(5) The procedures for any auction and remarketing, if any, of such Offered
Preferred Stock.
(6) The provision of a sinking fund, if any, for such Offered Preferred
Stock.
(7) The provision for redemption, if applicable, of such Offered Preferred
Stock.
(8) Any listing of such Offered Preferred Stock on any securities exchange.
(9) The terms and conditions, if applicable, upon which such Offered
Preferred Stock will be convertible into or exchangeable for Common
Stock, and whether at the option of the holder thereof or the Company.
(10) Whether such Offered Preferred Stock will rank senior or junior to or
on a parity with any other class or series of Offered Preferred Stock.
(11) The voting rights, if any, of such Offered Preferred Stock.
(12) Any other specific terms, preferences, rights, limitations or
restrictions of such Offered Preferred Stock.
(13) A discussion of Federal income tax considerations applicable to such
Offered Preferred Stock.
Subject to the Certificate of Incorporation and to any limitations
contained in then outstanding Preferred Stock, the Company may issue additional
classes or series of Preferred Stock, at any time or from time to time, with
such powers, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, as the Board of
Directors or any duly authorized committee thereof shall determine, all without
further action of the stockholders, including holders of then outstanding
Preferred Stock, of the Company.
DESCRIPTION OF COMMON STOCK
The Company's Certificate of Incorporation authorizes the issuance of
100,000,000 shares of Common Stock, par value $1.00 per share. As of January 31,
1998, there were approximately 43,409,000 shares of Common Stock outstanding.
The outstanding shares of Common Stock are validly issued, fully paid and
non-assessable, and the shares of Common Stock offered pursuant to this
Prospectus and a related Prospectus Supplement, when issued and sold as
contemplated herein and therein, will be validly issued, fully paid and
non-assessable.
The following summary description of the Common Stock of the Company
does not purport to be complete and is qualified in its entirety by reference to
the Company's Certificate of Incorporation, and to Delaware corporate law.
GENERAL
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are
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entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of outstanding Preferred Stock and certain
covenants contained in documents governing debt of the Company which may limit
the Company's ability to declare or pay dividends. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities and subject to the prior rights of
any outstanding Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. 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.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BY-LAWS AND RIGHTS
AGREEMENT
Certain provisions of the Certificate of Incorporation and By-laws of
the Company and the Rights Agreement dated as of March 14, 1990 (the "Rights
Agreement") between the Company and Harris Trust and Savings Bank, as Rights
Agent, summarized below may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders.
The Certificate of Incorporation or By-laws provide generally (i) that
there shall be three classes of directors serving staggered terms; (ii) that
directors can be removed from office only by the affirmative vote of the holders
of at least 80% of the combined voting power of the then outstanding shares of
stock entitled to vote generally in an election of directors, voting together as
a single class; (iii) that vacancies on the Board of Directors may be filled
only by the remaining directors and not by the stockholders; (iv) that the Board
of Directors may adopt, amend or repeal the By-laws of the Company; and (v) for
an advance notice procedure for the nomination, other than by or at the
direction of the Board of Directors, of candidates for election as directors at
annual meetings of stockholders. In general, notice of intent to nominate a
director at an annual meeting must be received by the Company not less than 90
days prior to the annual meeting and must contain certain information concerning
the person to be nominated and the stockholder submitting the proposal. The
Certificate of Incorporation also provides that any action required or permitted
to be taken by the stockholders of the Company may be effected only at an annual
or special meeting of stockholders, and stockholder action by written consent in
lieu of a meeting is prohibited. The affirmative vote of the holders of at least
80 percent of the combined voting power of the then outstanding shares of stock
of the Company entitled to vote generally in the election of directors, voting
together as a single class, is required to alter, amend or repeal, or adopt any
provision inconsistent with, this provision. In addition, special meetings of
stockholders may be called only by the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors.
Article Ninth of the Certificate of Incorporation of the Company
provides that any merger or other business combination between the Company and
an interested stockholder (a holder of at least 20% of the outstanding Common
Stock) must be approved by the holders of 80% of the outstanding shares of
Common Stock unless the price paid for shares of Common Stock in the merger or
business combination equals or exceeds the higher of (a) the highest price paid
by the interested stockholder for any of its shares of Common Stock, (b) the
fair market value of the shares of Common Stock prior to the first public
announcement of the merger or business combination and (c) the fair market value
of the shares of Common Stock on the date the interested stockholder became an
interested stockholder. The merger or business combination must also meet
certain form of consideration and procedural requirements. The 80% requirement
is not applicable if the merger or business combination is approved by the
disinterested directors of the Company.
Each share of Common Stock has associated with it one preferred share
purchase right (the "Series A Right") permitting the holder to purchase one
two-hundredth of a share of the Company's Series A Preferred Stock at an
exercise price of $115 per share, subject to certain adjustments. The terms of
the Series A Rights are set forth in the Rights Agreement. The Series A Rights
are not exercisable and are transferable only with the related Common Stock
certificates. The Series A Rights become exercisable and separately transferable
ten days following a public announcement that a person or group of affiliated or
associated persons has become the beneficial owner of 20% or more of the
outstanding shares of Common Stock or, if earlier, ten business days (or such
other day as the Board of Directors of the Company may determine) following the
commencement of a tender or exchange offer that would result in a person or
group becoming the beneficial owner of 20% or more of the outstanding shares of
Common Stock. Thereafter, the Series A Rights will trade separately from the
Common Stock. After the Series A Rights become exercisable, if (i) a person
becomes the beneficial owner of 20% or more of the then outstanding shares of
Common Stock, or (ii) the Company is the surviving corporation in a merger or
other
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business combination with the acquiring person, an acquiring person engages in
one or more self-dealing transactions involving the Company or a
reclassification of stock or other transaction occurs that results in the
increase of 1% or more in the percentage of any class of equity securities of
the Company that is owned by any acquiring person, each holder of a Right (other
than the acquiring person or group) will have the right to receive, upon
exercise of such Right, shares of Common Stock, or, in certain circumstances,
cash, property or other securities with a value equal to two times the Series A
Right's then-current exercise price. In addition, after the acquisition of 20%
or more of the outstanding shares of Common Stock by an acquiring person or
group, in the event that (i) the Company is acquired in a merger or other
business combination, or (ii) 50% or more of the assets or earnings power of the
Company is sold or otherwise transferred, each holder of a Right (other than the
acquiring person or group) will have the right to receive, upon exercise of such
Right, shares of common stock of the acquirer then having a current market value
equal to two times the Series A Right's then-current exercise price. At any time
after the acquisition by a person or group of beneficial ownership of 20% or
more of the outstanding shares of Common Stock of the Company and before the
acquisition by a person or group of beneficial ownership of 50% or more of the
outstanding shares of Common Stock of the Company, the Board of Directors may
exchange the Series A Rights (other than the Series A Rights of such person or
group which have become void), in whole or in part, at an exchange ratio of one
share of Common Stock per Series A Right, subject to adjustment. Under certain
circumstances, the Series A Rights may be redeemed at a price of $.01 per Series
A Right. The Series A Rights will expire on March 31, 2000, unless earlier
redeemed by the Company. The Rights Agreement generally provides that a Series A
Right will be issued in connection with each share of Common Stock (i) issued
prior to the earliest of the Distribution Date (as defined in the Rights
Agreement) or the redemption, exchange or expiration of the Series A Rights or
(ii) issued at certain other times pursuant to certain options, warrants or
convertible securities.
The foregoing summary is qualified in its entirety by reference to the
provisions of the Certificate of Incorporation, Bylaws and Rights Agreement.
STATUTORY PROVISIONS
The Company is subject to Section 203 of the Delaware General
Corporation Law ("DGCL"). Section 203 of the DGCL prohibits certain transactions
between a Delaware corporation and an "interested stockholder," which is defined
as a person who, together with any affiliates and/or associates of such person,
beneficially owns, directly or indirectly, 15 percent or more of the outstanding
voting shares of a Delaware corporation. This provision prohibits certain
business combinations (defined broadly to include mergers, consolidations, sales
or other dispositions of assets having an aggregate value in excess of 10
percent of the consolidated assets of the corporation, and certain transactions
that would increase the interested stockholder's proportionate share ownership
in the corporation) between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder acquired its
stock, unless (i) the business combination is approved by the corporation's
board of directors prior to the date the interested stockholder acquired shares;
(ii) the interested stockholder acquired at least 85 percent of the voting stock
of the corporation in the transaction in which it became an interested
stockholder; or (iii) the business combination is approved by a majority of the
board of directors and by the affirmative vote of two-thirds of the votes
entitled to be cast by disinterested stockholders at an annual or special
meeting. A Delaware corporation, pursuant to a provision in its certificate of
incorporation or by-laws, may choose not to be governed by Section 203 of the
DGCL in which case such election becomes effective one year after its adoption.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston
EquiServe, L.P.
PLAN OF DISTRIBUTION
The Company may sell the Securities in and/or outside the United
States: (i) through underwriters or dealers; (ii) directly to a limited number
of purchasers or to a single purchaser; or (iii) through agents. The Prospectus
Supplement with respect to the Securities being offered (the "Offered
Securities") will set forth the terms of the offering of the Offered Securities,
including the name or names of any underwriters or agents, the purchase price of
the Offered Securities and net proceeds to the Company from such sale, any
underwriting discounts and other items constituting underwriters' compensation,
any initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time.
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If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Offered Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more underwriters. The underwriter or underwriters with respect to a
particular underwritten series of Offered Securities, or, if an underwriting
syndicate is used, the managing underwriter or underwriters, will be set forth
on the cover of the applicable Prospectus Supplement. Unless otherwise set forth
in the Prospectus Supplement relating thereto, the obligations of the
underwriters to purchase the Offered Securities will be subject to conditions
precedent and the underwriters will be obligated to purchase all of the Offered
Securities if any are purchased.
If dealers are utilized in the sale of Offered Securities in respect of
which this Prospectus is delivered, and if so specified in the applicable
Prospectus Supplement, the Company will sell such Offered Securities to the
dealers as principals. The dealers may then resell such Offered Securities to
the public at varying prices to be determined by such dealers at the time of
resale. The names of the dealers and the terms of the transaction will be set
forth in the applicable Prospectus Supplement.
Securities may be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer or
sale of the Offered Securities in respect to which this Prospectus is delivered
will be named, and any commissions payable by the Company to such agent will be
set forth, in the Prospectus Supplement.
Underwriters, dealers and agents may be entitled under agreements
entered into with the Company to indemnification by the Company against certain
civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the underwriters, dealers or agents
may be required to make in respect thereof. Underwriters, dealers and agents may
be customers of, may engage in transactions with, or perform services for, the
Company in the ordinary course of business.
LEGAL MATTERS
Certain legal matters with respect to the Securities offered hereby
will be passed upon for the Company by Steven L. Carson, Esq., General Counsel
of the Company. Mr. Carson is the beneficial owner of 1,180 shares of Common
Stock of the Company. Certain legal matters will be passed upon for any agents
or underwriters by counsel for such agents or underwriters identified in the
applicable Prospectus Supplement.
EXPERTS
The consolidated financial statements and schedules of the Company as
of July 31, 1997 and July 31, 1996 and for each of the three years in the period
ended July 31, 1997, as set forth in the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 1997, have been audited by Arthur Andersen
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated financial statements and
schedules are, and audited financial statements to be included in subsequently
filed documents will be, incorporated herein by reference in reliance upon the
reports of such auditors pertaining to such financial statements (to the extent
covered by consents filed with the Commission) given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of Graphic appearing in the
Company's Current Report on Form 8-K/A dated January 16, 1998, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such financial statements
have been incorporated herein by reference in reliance upon such reports given
upon the authority of such firms as experts in accounting and auditing.
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