<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1998
REGISTRATION NO. 333-44445
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
BIG FLOWER HOLDINGS, INC. DELAWARE
BIG FLOWER TRUST I DELAWARE
(Exact name of Registrant (State or other jurisdiction of incorporation
as specified in its charter) or organization)
<CAPTION>
BIG FLOWER HOLDINGS, INC. 13-376-8322
(Exact name of Registrant (I.R.S. Employer
as specified in its charter) Identification Number)
<CAPTION>
BIG FLOWER TRUST I TO BE APPLIED FOR
</TABLE>
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
(212) 521-1600
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------------------------
MARK A. ANGELSON, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY OF THE BOARD OF DIRECTORS
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
(212) 521-1600
(Address, including zip code, and telephone number, including area code, of
agent for service)
WITH COPIES TO:
ROBERT E. BUCKHOLZ, JR., ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 558-4000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM
REGISTERED AMOUNT TO BE REGISTERED AGGREGATE PRICE PER UNIT AGGREGATE OFFERING PRICE
<S> <C> <C> <C>
Convertible Quarterly Income Preferred
Securities of Big Flower Trust I.......... 2,300,000(4) $50.00(1)(2) $115,000,000(1)(2)
Convertible Subordinated Debentures of Big
Flower Holdings, Inc...................... 2,300,000(3)(4) $50.00(1)(2) $115,000,000(3)
Common Stock, par value $0.01 per share, of
Big Flower Holdings, Inc.(5).............. 3,989,120(4) --(4) --(4)
Preferred Securities Guarantee of Big Flower
Holdings, Inc............................. --(6) --(6) --(6)
Total....................................... -- -- $115,000,000
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT OF
REGISTERED REGISTRATION FEE
<S> <C>
Convertible Quarterly Income Preferred
Securities of Big Flower Trust I.......... $33,925
Convertible Subordinated Debentures of Big
Flower Holdings, Inc...................... --
Common Stock, par value $0.01 per share, of
Big Flower Holdings, Inc.(5).............. --(4)
Preferred Securities Guarantee of Big Flower
Holdings, Inc............................. --(6)
Total....................................... $33,925(7)
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) of the Securities Act.
(2) Exclusive of accrued interest and distributions, if any.
(3) $118,600,000 in aggregate principal amount of 6% Convertible Subordinated
Debentures due October 15, 2027 (the "Debentures") issued by Big Flower
Holdings, Inc. (or the "Company"), a Delaware corporation, were issued and
sold to Big Flower Trust I, a Delaware statutory business trust (the
"Issuer"), in connection with the issuance by the Issuer of 2,300,000 of its
6% Convertible Quarterly Income Preferred Securities (the "Preferred
Securities") and the issuance by the Issuer of 72,000 of its common
securities (the "Common Securities"). Only $115,000,000 aggregate principal
amount of the Debentures are being registered hereby, being the Debentures
distributable in connection with the Preferred Securities. The Debentures
may be distributed, under certain circumstances, to the holders of Preferred
Securities for no additional consideration.
(4) The Preferred Securities are convertible into the Debentures, which are
convertible into common stock, $0.01 par value per share, of the Company
(the "Common Stock"). Each Preferred Security is initially convertible into
1.7344 shares of Common Stock, subject to adjustment under certain
circumstances. Shares of Common Stock issued upon conversion of the
Preferred Securities will be issued without the payment of additional
consideration.
(5) Includes preferred stock purchase rights. Prior to the occurrence of certain
events, these rights will not be exercisable or evidenced separately from
the Common Stock and will be transferred only with the Common Stock. The
value attributable to such preferred stock purchase rights, if any, is
reflected in the market price of the Common Stock.
(6) Includes the obligations of the Company under the Guarantee (as defined
herein) and certain back-up undertakings under (i) the Indenture (as defined
herein) pursuant to which the Debentures were issued, (ii) the Debentures
and (iii) the Amended and Restated Trust Agreement of the Issuer, including
the Company's obligations under such Indenture to pay costs, expenses, debts
and liabilities of the Issuer (other than with respect to the Preferred
Securities and the Common Securities of the Issuer), which in the aggregate
provide a full and unconditional guarantee of amounts due on the Preferred
Securities. No separate consideration will be received for the Guarantee and
such back-up undertakings. The Guarantee is not traded separately.
(7) Previously paid by the Registrant in connection with the initial filing of
this registration statement on January 16, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
2,300,000 PREFERRED SECURITIES
BIG FLOWER TRUST I
6% CONVERTIBLE QUARTERLY INCOME PREFERRED SECURITIES
(CONVERTIBLE QUIPS(SM)* SECURITIES)
(LIQUIDATION PREFERENCE $50 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND CONVERTIBLE INTO COMMON STOCK
OF,
BIG FLOWER HOLDINGS, INC.
-------------
This Prospectus relates to the resale of 6% convertible quarterly income
preferred securities (the "Preferred Securities") which represent undivided
beneficial interests in the assets of Big Flower Trust I, a statutory business
trust created under the laws of the State of Delaware (the "Issuer") and the
shares of common stock, par value $0.01 per share ("Big Flower Common Stock" or
"Common Stock") of Big Flower Holdings, Inc. a Delaware corporation ("Big
Flower" or the "Company") issuable upon conversion of the Preferred Securities.
The Preferred Securities were issued and sold (the "Original Offering") on
October 20, 1997 (the "Original Offering Date") to Goldman, Sachs & Co., Bear,
Stearns & Co. Inc., BT Alex. Brown, Credit Suisse First Boston and J.P. Morgan &
Co. (the "Initial Purchasers") and were simultaneously sold by the Initial
Purchasers in transactions exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), in the United States
to persons reasonably believed by the Initial Purchasers to be qualified
institutional buyers as defined in Rule 144A under the Securities Act, and
outside the United States to non-U.S. persons in offshore transactions in
reliance on Regulation S under the Securities Act. All of the beneficial
interests in the assets of the Issuer represented by common securities of the
Issuer (the "Common Securities") are owned by Big Flower. The Issuer exists for
the sole purpose of issuing the Preferred Securities and the Common Securities
and investing the proceeds from the issuance thereof in 6% Convertible
Subordinated Debentures due October 15, 2027 (the "Debentures") issued by Big
Flower. The Preferred Securities have a preference over the Common Securities
with respect to cash distributions and amounts payable on liquidation,
redemption or otherwise under certain circumstances. See "Description of the
Preferred Securities-- Subordination of Common Securities".
The Preferred Securities and Common Stock issuable upon conversion of the
Preferred Securities (collectively the "Offered Securities") may be offered and
sold from time to time by the holders named herein or by their transferees,
pledgees, donees or their successors (collectively, the "Selling Holders")
pursuant to this Prospectus. The Offered Securities may be sold by the Selling
Holders from time to time directly to purchasers or through agents, underwriters
or dealers. See "Selling Holders" and "Plan of Distribution." If required, the
names of any such agents or underwriters involved in the sale of the Offered
Securities and the applicable agent's commission, dealer's purchase price or
underwriter's discount, if any, will be set forth in an accompanying supplement
to this Prospectus (the "Prospectus Supplement"). The Selling Holders will
receive all of the net proceeds from the sale of the Offered Securities and will
pay all underwriting discounts, selling commissions and transfer taxes, if any,
applicable to any such sale. Big Flower is responsible for payment of all other
expenses incident to the registration of the Offered Securities. The Selling
Holders and any broker-dealers, agents or underwriters that participate in the
distribution of the Offered Securities may be deemed to be "underwriters" within
the meaning of the Securities Act, and any commission received by them and any
profit on the resale of the Offered Securities purchased by them may be deemed
to be underwriting commissions or discounts under the Securities Act. See "Plan
of Distribution" for a description of certain indemnification arrangements.
CONTINUED ON PAGE 3
---------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 23 FOR A DISCUSSION OF CERTAIN FACTORS
TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE OFFERED SECURITIES.
-------------------
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.
- ------------------------
* QUIPS is a servicemark of Goldman, Sachs & Co.
---------------------------
The date of this Prospectus is April 17, 1998.
<PAGE>
[Big Flower Logo]
[Picture of Big Flower]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED
SECURITIES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN
OF DISTRIBUTION".
2
<PAGE>
(CONTINUED FROM PAGE 1)
Each Preferred Security is convertible in the manner described herein at the
option of the holder, at any time into shares of Common Stock, at an initial
rate of 1.7344 shares of Common Stock for each Preferred Security (equivalent to
a conversion price of $28.828 per share of Common Stock), subject to adjustment
in certain circumstances. See "Description of the Preferred
Securities--Conversion Rights" and "Description of Capital Stock." The last
reported sale price of the Common Stock, which is listed under the symbol "BGF"
on the New York Stock Exchange (the "NYSE"), on April 16, 1998 was $29 3/4 per
share.
The Preferred Securities are listed on the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market of the National Association
of Securities Dealers, Inc.
Holders of the Preferred Securities will be entitled to receive preferential
cumulative cash distributions from the Issuer at an annual rate of 6% of the
liquidation preference of $50 per Preferred Security accumulating from the date
of original issuance and payable quarterly in arrears on January 15, April 15,
July 15 and October 15 of each year, commencing January 15, 1998 when, as and if
available for payment by the Property Trustee, except as otherwise described
herein ("Distributions"). The distribution rate and the distribution and other
payment dates for the Preferred Securities will correspond to the interest rate
and interest and other payment dates in the Debentures, which will be the sole
assets of the Issuer. As a result, if principal or interest is not paid on the
Debentures, no amounts will be paid on the Preferred Securities. Big Flower has
the right to defer payment of interest on the Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each deferral period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the stated maturity of the Debentures. Upon the
termination of any such Extension Period and the payment of all amounts then due
on any Interest Payment Date (as defined herein), Big Flower may elect to begin
a new Extension Period subject to the requirements set forth herein. If interest
payments on the Debentures are so deferred, Distributions on the Preferred
Securities will also be deferred, and Big Flower will not be permitted, subject
to certain exceptions set forth herein, to declare or pay any cash distributions
with respect to Big Flower's capital stock or debt securities that rank PARI
PASSU with or junior to the Debentures. During an Extension Period, interest on
the Debentures will continue to accrue (and the amount of Distributions to which
holders of the Preferred Securities are entitled will accumulate at the stated
rate per annum, compounded quarterly) and holders of Preferred Securities will
be required to accrue interest income for United States federal income tax
purposes. See "Description of the Debentures -- Option to Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences -- Interest Income
and Original Issue Discount."
Except as provided below, the Preferred Securities may not be redeemed by
the Issuer prior to October 15, 2000. The Preferred Securities are subject to
redemption, in whole or in part, on or after such date, at redemption prices set
forth herein, upon any permitted redemption by Big Flower of Debentures. See
"Description of the Preferred Securities--Optional Redemption." In addition, the
Preferred Securities are subject to mandatory redemption upon the repayment at
maturity or as a result of acceleration of the Debentures. See "Description of
the Preferred Securities--Mandatory Redemption."
Under certain circumstances following the occurrence of a Special Event (as
herein defined), the Preferred Securities are also subject to (i) exchange, at
the option of the Issuer in the manner described herein, for Debentures (see
"Description of the Preferred Securities--Special Event Exchange or Redemption")
or (ii) redemption, in whole or in part, on or after October 15, 2000, if such
Special Event constitutes a Tax Event (as defined herein). At any time, Big
Flower will have the right to terminate the Issuer and cause the Debentures to
be distributed to the holders of the Preferred Securities in liquidation of the
Issuer. See "Description of the Preferred Securities--Distribution of
Debentures."
Big Flower has, through the Guarantee, the Trust Agreement, the Debentures
and the Indenture (each as defined herein), taken together, fully, irrevocably
and unconditionally guaranteed all of the
3
<PAGE>
Issuer's obligations under the Preferred Securities. See "Description of the
Guarantee," "Summary-- Big Flower Trust I" and "Description of the Debentures,"
respectively. The Guarantee of Big Flower guarantees the payment of
Distributions and payments on liquidation or redemption of the Preferred
Securities, but only in each case to the extent of funds held by the Issuer, as
described herein (the "Guarantee"). See "Description of the Guarantee." If Big
Flower does not make interest payments on the Debentures held by the Issuer, the
Issuer will have insufficient funds to pay Distributions on the Preferred
Securities. The Guarantee does not cover payment of Distributions when the
Issuer does not have sufficient funds to pay such Distributions. In such event,
a holder of Preferred Securities may institute legal proceedings directly
against Big Flower to enforce payment under the Debentures. The obligations of
Big Flower under the Guarantee are subordinate and junior in right of payment to
all future Secured Indebtedness (as defined herein) of Big Flower. Big Flower
has guaranteed the obligations of Big Flower Press Holdings, Inc. ("Big Flower
Press"), a subsidiary of Big Flower, under the New Credit Facility (and pledged
the common stock of Big Flower Press as security therefor)(the "Credit Facility
Guarantee"), which guarantee constitutes Secured Indebtedness to which the
Debentures are subordinated.
The Debentures are subordinate and junior in right of payment to all Secured
Indebtedness of Big Flower. The terms of the Debentures place no limitation on
the amount of Secured Indebtedness that may be incurred by Big Flower or the
amount of indebtedness that may be incurred by its subsidiaries. As of December
31, 1997, Big Flower Press had aggregate liabilities of $875.0 million, all of
which was structurally senior to the Debentures.
In the event of the liquidation of the Issuer, after satisfaction of the
creditors of the Issuer as provided by applicable law, the holders of the
Preferred Securities will be entitled to receive a liquidation preference of $50
per Preferred Security plus accumulated and unpaid Distributions thereon to the
date of payment, which may be in the form of a distribution of such amount in
Debentures, subject to certain exceptions. See "Description of the Preferred
Securities--Liquidation Distribution Upon Termination."
Whenever Big Flower issues shares of Common Stock upon conversion of the
Debentures, Big Flower will, subject to certain conditions, issue, together with
each share of Common Stock, such number (which number may be a fraction) of
Rights (as defined herein) as shall at that time be issuable with a share of
Common Stock pursuant to the Rights Agreement (as defined herein).
The Preferred Securities will be represented by global certificates
registered in the name of The Depository Trust Company ("DTC") or its nominee,
except as set forth below. Beneficial interests in the Preferred Securities will
be shown on, and transfers thereof will be effected only through, records
maintained by participants in DTC. Preferred Securities in certificated form
will not be issued in exchange for the global certificates. See "Description of
the Preferred Securities--Exchanges of Book-Entry Certificates for Certificated
Preferred Securities and--Certain Book-Entry Procedures for Global
Certificates".
4
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
On October 17, 1997, Big Flower became the parent of Big Flower Press and
constitutes a successor registrant of Big Flower Press. References herein to the
"Company" shall include references to Big Flower Press. The following documents
(and the amendments thereto) filed by Big Flower Press (File No. 1-4084) with
the Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), are incorporated herein by reference and are made a part
hereof:
(i) The Company's Registration Statement on Form 8-A, filed with the
Commission on November 14, 1995, describing the Common Stock;
(ii) The Company's Amendment to Registration Statement on Form 8-A/A
filed with the Commission on November 29, 1995, describing the Company's
Preferred Stock Purchase Rights;
(iii) The Company's Current Report on Form 10-K, dated December 31, 1997
and filed with the Commission on March 26, 1998; and
(iv) The Company's Current Report on Form 8-K, dated March 13, 1998,
filed with the Commission on March 27, 1998.
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 hereof and prior to the
termination of the offering made hereby shall be deemed to be incorporated
herein by reference and to be a part hereof on and from the respective date of
filing of such documents.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein do not purport to be complete, and
where reference is made to the particular provisions of such contract or other
document, such provisions are qualified in all respects by reference to all of
the provisions of such contract or other document. Any statement contained
herein or in a document incorporated, or deemed to be incorporated, by reference
in this Prospectus shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or incorporated
herein by reference or in any other subsequently filed document that also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
Copies of all documents incorporated by reference, other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
into such documents), will be provided without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered upon
the written or oral request of such person. Requests for such copies should be
directed to Big Flower Holdings, Inc., 3 East 54th Street, New York, New York
10022, Attention: Irene B. Fisher, Esq., Telephone: (212) 521-1600.
5
<PAGE>
AVAILABLE INFORMATION
Big Flower is subject to the informational requirements of the Exchange Act,
and, in accordance therewith, is required to file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of the reports, proxy statements and other
information can be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549, at prescribed rates. In addition, all reports filed by
the Company via the Commission's Electronic Data Gathering and Retrieval System
(EDGAR) can be obtained from the Commission's Internet web site located at
http://www.sec.gov. The Common Stock of Big Flower, the parent of Big Flower
Press, is traded on the NYSE, and such reports, proxy statements and other
information concerning Big Flower Holdings also can be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005.
Big Flower was incorporated in Delaware in 1997. The Company's principal
executive offices are located at 3 East 54th Street, New York, New York 10022
and its telephone number is (212) 521-1600.
The Prospectus constitutes a part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act. This
Prospectus omits certain of the information contained in the Registration
Statement and reference is hereby made to the Registration Statement and to the
exhibits relating thereto for further information with respect to the Company
and the Common Stock. Any statements contained herein concerning the provisions
of any document are not necessarily complete and, in each instance, reference is
made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. The Registration Statement may be
inspected by anyone without charge at the principal office of the Commission in
Washington, D.C., and copies of all or part of it may be obtained from the
Commission upon payment of the prescribed fees.
No separate financial statements of the Issuer have been included herein.
The Issuer and Big Flower do not consider that such financial statements would
be material to potential investors because the Issuer is a newly organized
special purpose entity, has no operating history or independent operations and
is not engaged in and does not propose to engage in any activity other than
holding as trust assets the Debentures of Big Flower and issuing the Preferred
Securities and Common Securities and Big Flower has fully and unconditionally
guaranteed all of the Issuer's obligations under the Preferred Securities. See
"Big Flower Trust I," "Description of the Preferred Securities," "Description of
the Guarantee" and "Description of the Debentures."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933. DISCUSSIONS CONTAINING SUCH
FORWARD-LOOKING STATEMENTS MAY BE FOUND IN "SUMMARY," AS WELL AS WITHIN THIS
PROSPECTUS GENERALLY. IN ADDITION, WHEN USED IN THIS PROSPECTUS, THE WORDS
"BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO A NUMBER OF
RISKS AND UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY
FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY
FACTORS OUTSIDE THE CONTROL OF THE COMPANY, INCLUDING FLUCTUATIONS IN THE COST
OF PAPER AND OTHER RAW MATERIALS USED BY THE COMPANY, CHANGES IN THE ADVERTISING
AND PRINTING MARKETS, THE FINANCIAL CONDITION OF THE COMPANY'S CUSTOMERS, THE
GENERAL CONDITION OF THE UNITED STATES AND OTHER ECONOMIES, AND THE MATTERS SET
FORTH IN THIS PROSPECTUS GENERALLY. CONSEQUENTLY, SUCH FORWARD-LOOKING
STATEMENTS SHOULD BE REGARDED SOLELY AS THE COMPANY'S CURRENT PLANS, ESTIMATES
AND BELIEFS. THE COMPANY DOES NOT UNDERTAKE AND SPECIFICALLY DECLINES ANY
OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS
TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS
OR TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS.
6
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND TO THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO (THE
"CONSOLIDATED FINANCIAL STATEMENTS") INCORPORATED HEREIN BY REFERENCE. ON
OCTOBER 17, 1997 BIG FLOWER HOLDINGS, INC. BECAME THE PARENT OF BIG FLOWER
PRESS. UNLESS OTHERWISE INDICATED OR THE CONTEXT CLEARLY IMPLIES OTHERWISE, ALL
REFERENCES IN THE PROSPECTUS TO THE "COMPANY" OR "BIG FLOWER" REFER TO BIG
FLOWER HOLDINGS, INC. AND ITS SUBSIDIARIES, INCLUDING BIG FLOWER PRESS. WHERE
INDICATED OR OTHERWISE CLEARLY REQUIRED BY THE CONTEXT, ALL REFERENCES TO THE
COMMON STOCK, CERTIFICATE OF INCORPORATION AND BY-LAWS, BOARD OF DIRECTORS,
AGREEMENTS AND OTHER INCIDENTS OF BIG FLOWER PRESS SHALL BE REFERENCES TO SUCH
MATTERS WITH RESPECT TO BIG FLOWER PRESS PRIOR TO THE REORGANIZATION OF THE
LEGAL STRUCTURE OF BIG FLOWER PRESS PURSUANT TO SECTION 251(G) OF THE DELAWARE
GENERAL CORPORATION LAW REFERRED TO BELOW, AND TO BIG FLOWER HOLDINGS, INC.
THEREAFTER.
THE COMPANY
Big Flower is a leading advertising and marketing services company which
provides integrated advertising solutions through its three principal operating
units as of December 31, 1997: Treasure Chest Advertising Company, Inc. ("TC
Advertising"), Webcraft Technologies, Inc. ("Webcraft") and Big Flower Digital
Services, Inc. ("Digital Services"). As of December 31, 1997 the Company and its
subsidiaries were focused on the advertising insert, direct mail and digital
service sectors of the industry.
- TC ADVERTISING is a leading producer of advertising insert programs for
retailers, and produces TV listing magazines, Sunday comics, Sunday
magazines and special supplements for many of the most widely circulated
U.S. newspapers. In 1997, the Company produced approximately 26 billion
advertising inserts, 1.6 billion Sunday comics, 173 million locally edited
Sunday magazines and 767 million TV listing guides. As the only
advertising insert producer offering a national network of both heatset
and cold web offset production facilities and one of the largest U.S.
consumers of newsprint and ink, TC Advertising can address the diverse
needs of its customers and achieve significant cost and distribution
advantages. The Company believes that the advertising inserts industry
sector generates revenues of $9 billion per year, with approximately 45%
of the dollars spent on the production of inserts and the balance on
distribution of the product.
- WEBCRAFT is a market leader in producing highly customized direct mail and
specialty advertising products such as commercial games and fragrance
samplers. Webcraft derives the majority of its revenues from the
integrated production of personalized advertising mailings, a marketing
medium that has exceeded the annual growth rate for overall advertising
spending for the period 1991-1997. The Company believes that in the
individualized industry sector in which Webcraft operates, customized
direct mail expenditures account for $37.4 billion per year, with
approximately 33% going to the production of direct mail and the remainder
to other services, including agency services, data analysis and
manipulation and creative development.
- DIGITAL SERVICES is a leading provider of outsourced, digital premedia and
content management services to retailers, advertising agencies, and
consumer products companies. Services and technologies offered by Digital
Services include digital photography studios, leading-edge desktop
publishing and client/server software and hardware, turnkey catalog and
advertising insert production, and digital image management systems for
high speed image retrieval. The Company believes that the premedia
industry sector exceeds $5.3 billion annually, and will continue to grow
with the emergence of new distribution technologies such as CD-ROM and the
World Wide Web that use digitized images.
BUSINESS STRATEGY
The Company's strategic objective is to enhance its position as an
integrated provider of a diverse range of advertising and marketing services
across a broad spectrum of media. Through internal growth and acquisitions, Big
Flower aims to broaden its technology and services in a manner that allows its
7
<PAGE>
subsidiaries to interact dynamically to create both new services for existing
customers and new customers for its traditional products.
Marketers aim to reach target customers with the most effective message and
the greatest possible impact. Technological advancements increasingly allow
marketers to understand customer preferences and to differentiate and
individualize advertising messages. Big Flower's strategy is to assist its
customers by providing a broad array of advertising and marketing services which
capitalize on these advancements. Key elements of this strategy include the
following:
PROVIDE INTEGRATED ADVERTISING SOLUTIONS FOR CUSTOMERS. The Company believes
that by combining the products and services of TC Advertising, Webcraft and
Digital Services it can work with customers to develop cost-effective and
comprehensive solutions to their particular advertising and marketing needs. Big
Flower has the expertise to work with customers from inception of an advertising
concept through layout design and production, to targeting and distribution of
the printed product, thereby helping customers achieve their advertising goals
in a cost-effective manner. For example, for a major building and hardware
distributor, TC Advertising and Laser Tech Color, Inc. ("Laser Tech") presented
a comprehensive advertising package, including insert production, digital
photography, page/version creation and desktop proofing that streamlined the
customer's advertising and outsourcing process. This integrated advertising
solution resulted in a multi-year, outsourced facilities management contract for
the Company. The Company believes that by integrating its digital premedia
services, advertising insert capabilities, newspaper publications, geographic
and demographic insert targeting programs, highly customized direct mail and
specialty products and broadcast industry software products, it offers its
customers certain solutions not offered by the Company's competitors.
DEVELOP TARGETED ADVERTISING PROGRAMS. The Company's customers are
increasingly targeting their advertising messages based on more detailed
knowledge of consumers and what they buy. Big Flower has responded to this trend
throughout the Company as follows:
- TC ADVERTISING'S Target Reach system enables the Company to attract new
categories of customers by providing them with tools to utilize the
targeted distribution capabilities of major market newspapers. Advertisers
can customize their advertising to match the demographic characteristics
and other targeting requirements of over 18,000 newspaper delivery zones
in the nation's top 200 designated market areas. In addition, the
underlying software and analysis capabilities of Target Reach have been
found valuable by newspapers, advertising agencies and national
advertisers.
- WEBCRAFT'S highly individualized, multiple component direct mail campaigns
utilize information refined from customers' databases as well as
Webcraft's own expertise in direct mail personalization techniques.
Webcraft's analytical capabilities in database management, telemarketing
and response management allow it to offer a broad array of articulated
services to current and prospective clients.
- DIGITAL SERVICES' constant innovation of new products fulfills the growing
needs of its clients. With the addition of Liquid Pictures and Liquid
Graphics studios located in several of Laser Tech's key locations, Laser
Tech is working closely with clients to produce high impact two- and
three-dimensional illustrations, design implementation, and multi-media
effects. The creation of these services provides reduction in cycle time
as well as an integrated approach to design for print applications. Laser
Tech's image management software and network distribution systems allows
customers to gain efficiency in production and to multiply the use of
images, thereby allowing for greater breadth of advertising message
delivery. Columbine's array of software analysis tools for broadcasters,
rep firms and ad agencies allows them to buy or sell advertising in
electronic media in an efficient manner. For example, its TV Works
software product for TV stations allows sales representatives and managers
to make sophisticated presentations to clients, offering highly specific
demographic targeting. On the agency side, Columbine's MediaLine software
provides a powerful analysis of efficiency in media planning and buying.
8
<PAGE>
MAXIMIZE CROSS-SELLING OPPORTUNITIES. Currently, TC Advertising serves a
large customer base of regional and national retailers and newspapers, while
Webcraft's and Laser Tech's customer base consists mainly of Consumer product
companies, advertising agencies and national retailers. Big Flower has
established employee incentive compensation programs to promote cross-selling of
the entire Big Flower products and services lines. For example, TC Advertising
provides advertising insert programs to Webcraft's direct mail customers, while
Webcraft has begun to deliver targeted direct mail advertising on behalf of TC
Advertising's retail clients. TC Advertising has also begun to provide
Webcraft's commercial games products to its retail customers. In addition,
certain premedia ad design digital photography and content management functions
previously performed by customers of TC Advertising and Webcraft are now
performed by Laser Tech at its facilities or under facilities management
agreements, and some of Laser Tech's customers purchase advertising services
from TC Advertising and Webcraft. Digital Services' operating units, Columbine
and Laser Tech, are also developing joint service strategies for advertising
agencies and TC Advertising's Target Reach software is being promoted to
advertising agencies by Columbine's sales force.
CAPITALIZE ON NATIONAL DIGITAL WORKFLOW PLATFORM. The Company continues to
optimize its nationwide digital communication network to create an Extranet
environment linking TC Advertising's and Laser Tech's facilities, enabling the
Company and its customers to conceive, manipulate, transmit, produce and
distribute their advertising concepts seamlessly on a national scale. This
open-standard platform is continuously refined in response to market
opportunities. At December 31, 1997, the Company's digital network connected
customers and the production centers at all Laser Tech facilities and all
Advertising production facilities. TC Advertising production facilities are
meeting the rapid output requirements of highly-versioned insert advertising
programs, using efficient state of the art, digital page processing systems.
Laser Tech has introduced a proprietary, secure telecommunications service
called VixNet. It is an open architecture, extranet-based system which allows
two-way graphics, text, video and voice communications aimed primarily at
advertisers and agencies. Columbine has announced a plan to build a data
warehousing service for domestic broadcasters. This service is intended to
facilitate the exchange of information between an increasingly large
broadcasting group as well as make a significant contribution to the development
of electronic data interchange between television and broadcasting stations and
advertising agencies.
PURSUE STRATEGIC ACQUISITIONS. Big Flower continues to review opportunities
to extend its businesses and markets in the advertising and marketing services
industry and to build its TC Advertising, Webcraft and Laser Tech business
units. See "Summary--Recent Developments." In addition, Big Flower adds value to
strategic acquisitions by identifying operating synergies, effecting cost
savings and improving efficiency. Since its initial acquisitions of TC
Advertising, Laser Tech and Webcraft, Big Flower
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<PAGE>
has expanded its products and services through a number of strategic
acquisitions that increased the span and scope of each of these industry
sectors, as summarized in the table below:
<TABLE>
<CAPTION>
BUSINESS UNIT BUSINESS ACQUIRED DATE STRATEGIC SIGNIFICANCE
- --------------- --------------------------- --------------- ----------------------------------------------------
<S> <C> <C> <C> <C>
TC Advertising KTB Associates, Inc., and April 1994 - Increased TC Advertising's capacity and broadened
Retail Graphics Holding its customer base in the advertising insert industry
Company sector
PrintCo., Inc. October 1996 - Added significant retail accounts and new production
capacity
Riverside County Publishing October 1997 - Expanded presence in the Western United States
Company
Webcraft Scanforms, Inc. October 1996 - Expanded customer base among leading financial
services and publishing companies
- Added additional high-quality laser personalization
and short-run capabilities
Olwen Direct Mail, Limited September - Established international platform for the Company
1997
- Provided multinational direct mail expertise
- Enhanced database management capabilities
IMPCO Enterprises, Inc. November 1997 - Expanded direct marketing capabilities to include
database services and response management
Laser Tech Pacific Color October 1996 - Enhanced expertise in digital premedia services
Connection, Inc.
- Expanded presence in California
- Added internet production services
- Expanded product lines to include large format
advertising products
Designer Color* December 1996 - Added capability to produce interactive multimedia
Systems, Ltd. systems for electronic catalogs and ordering systems
Digital Dimensions, Inc.* December 1996 - Enhanced digital imaging services platform
- Added capability to provide Web site design and
execution
Gamma One, Inc. October 1997 - Provided strategic Northeast presence
- Enhanced digital image management and facilitated
management capabilities
Troypeak Limited and March 1998 - Added digital premedia services capacity in Europe
Pismo Limited - Expanded the Company's network for image movement
and management to Europe
Columbine Columbine JDS October 1997 - Diversified Big Flower into broadcast media industry
Systems, Inc.
- Provided strategic coordination between digital
moving images and digital still images
- Offered software and technology expertise that can
be leveraged throughout Big Flower
Broadcast Systems Software November 1997 - Expanded Columbine's presence in the United Kingdom
Limited
- Provided PC-based software for television
programming
</TABLE>
* Now known as DCS, Incorporated.
10
<PAGE>
ACQUISITION DEVELOPMENTS
In September 1997, Big Flower Press acquired Olwen Direct Mail, Limited
("Olwen"). In October 1997, the Company acquired Columbine JDS Systems, Inc.
("Columbine"), certain assets and liabilities of Brown Printing Company,
operating as Riverside County Publishing Company ("RCPC") and substantially all
of the assets of Gamma One, Inc. ("Gamma One"). Total consideration for these
acquisitions, including the assumption and/or repayment of debt, transaction
fees and expenses and the net issuance of approximately 1.2 million shares of
common stock and options of Big Flower Holdings, Inc. was approximately $290.0
million. In November 1997, the Company acquired Broadcast Systems Software
Limited ("BSS") and substantially all of the assets of IMPCO Enterprises, Inc.,
a Delaware corporation ("IMPCO"). The consideration paid for BSS and IMPCO was
not material. All of these acquisitions are hereinafter referred to as "the 1997
acquisitions."
In March 1998, Big Flower Holdings acquired all of the issued and
outstanding shares of capital stock of Troypeak Limited ("Troypeak") and Pismo
Limited ("Pismo") from the respective stockholders of Troypeak and Pismo. The
Company paid holdings an aggregate of L13.9 million, (approximately $20.4
million) in cash in consideration for the shares exclusive of debt repaid and
certain expenses.
OLWEN DIRECT MAIL LIMITED
In September 1997, Big Flower Press formed a wholly-owned subsidiary, Big
Flower Limited ("BGF Limited"), and BGF Limited acquired 100% of the capital
stock of Olwen. Headquartered in South London, Olwen provides comprehensive,
full service direct mail production services to more than 150 clients in the
financial services, advertising and publishing industries. Services include all
aspects of direct mail preparation, including prepress, printing,
personalization, finishing, and mailing. In addition, Olwen provides a variety
of higher value-added database management services such as response analysis and
target customer profiling. In addition to its UK headquarters, Olwen also
operates a database management and international direct mail group in Baltimore,
Maryland.
Olwen, Big Flower Press' first acquisition outside of the United States,
will provide international advertising and marketing services to the Company's
multinational customers. Olwen's operations will be coordinated with Webcraft's.
The Company believes that Olwen's highly refined short-run capabilities, which
are necessary to satisfy Europe's differentiated language and culture-specific
markets, will be applicable in several markets throughout the United States. In
addition, Olwen establishes an international presence that the Company will seek
to use as a platform to position the Company to provide advertising and
marketing services across a broader spectrum of media in international markets.
COLUMBINE JDS SYSTEMS, INC.
On October 31, 1997, Big Flower Press acquired Columbine, a Denver, Colorado
based company that is a leading provider of software products and related
services to the cable, satellite and terrestrial broadcast industries in both
the United States and international markets. Columbine's proprietary suite of
software products manages the placement of broadcast advertisements, programming
material and sales information data for television stations, radio stations,
group operators, broadcast and cable networks, cable operators and direct
broadcast satellite providers. Columbine's software also assists advertising
agencies and media representation firms in the buying and selling of advertising
time. Columbine's systems track and time commercials, produce sales analysis and
proposals, offer master control automation and provide program management and
accounting and finance functions. Columbine has begun the introduction of its
Paradigm Integrated Broadcast System ("Paradigm"), a next-generation software
system which integrates and automates all information management activities and
day-to-day operating support for digital, multi-channel broadcasting
environments.
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<PAGE>
In addition, Columbine provides management, consulting services, temporary
personnel, custom software development, on-site training, and 24-hour technical
support to its customers. Columbine is also a value-added reseller of hardware
and software technologies complementary with its products for major technology
providers including IBM, Tektronix, Hewlett Packard and Microsoft. Columbine
operates out of four domestic and three international offices in Denver, New
York City, Memphis, San Francisco, London, Sydney and Hong Kong.
Big Flower Press has formed a wholly-owned subsidiary, Big Flower Digital
Services, Inc. ("Big Flower Digital"). Big Flower Digital is the parent company
of Columbine and Laser Tech. Big Flower Press believes that there are strategic
benefits to coordinating Laser Tech's expertise in the digital management of
still images, use of server technology and capacity of broadband
telecommunications networks with Columbine's expertise in the digital management
of moving images used in advertising and programming services.
RIVERSIDE COUNTY PUBLISHING COMPANY
On October 15, 1997, Big Flower Press acquired RCPC, a California-based
provider of retail advertising insert programs. RCPC became an operating unit of
TC Advertising. RCPC adds significant grocery, drug store, and home improvement
merchant accounts. RCPC's two California locations add capacity to TC
Advertising's nationwide network of offset press facilities, enabling TC
Advertising to provide its customers with a highly cost-efficient and effective
method of producing multiple versions of inserts for their growing demand for
store-specific, targeted advertising.
GAMMA ONE, INC.
On October 31, 1997, Big Flower Press acquired Gamma One, a New
England-based provider of digital premedia services, which became an operating
unit of Laser Tech. Gamma One's Northeast facilities will significantly increase
Laser Tech's presence in the New York and New England markets. Gamma One's
proprietary digital image database management system, strong customer base and
facilities management services will add scope and reach to Laser Tech's
operations.
BROADCAST SYSTEMS SOFTWARE LIMITED
On November 6, 1997, Big Flower Press acquired BSS, a UK-based provider of
specialist software to the broadcast industry. BSS became an operating unit of
Columbine. BSS specializes in software programs that address electronic
operations such as long-term planning, program scheduling, acquisitions, library
management and commercial sales and bookings. The flagship product of BSS, the
Broadcast Master software suite, was the first fully integrated suite of
PC-based software for television programming. BSS' Broadcast Master software
system complements Columbine's systems and offers the Company's domestic and
international customers enhanced resources for the acquisition, analysis and
sale of advertising-supported programming in the terrestrial and satellite band
media markets.
IMPCO ENTERPRISES, INC.
On November 18, 1997, Big Flower Press acquired IMPCO, a privately-owned
marketing services company based in Rochester, New York. IMPCO became a
subsidiary of Webcraft. IMPCO specializes in telemarketing, strategic response
management and database management for the communications, healthcare,
advertising agency and financial services industries. The additions of IMPCO's
database management expertise and response management capabilities are important
steps in the Company's strategy of transforming Webcraft into a fully integrated
direct marketing provider. IMPCO supplements the Company's direct response
capabilities.
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<PAGE>
TROYPEAK LIMITED AND PISMO LIMITED
On March 13, 1998, Big Flower Holdings, Inc. the parent of Big Flower Press
Holdings, Inc. acquired all of the issued and outstanding shares of Troypeak and
Pismo from the respective stockholders of Troypeak and Pismo. Troypeak,
headquartered in London, England, specializes in providing full digital premedia
services, including digital photography, graphic assembly and digital
distribution to advertising agencies and publishers. Pismo is a London-based
provider of design and electronic post-production services to advertising
agencies. The acquired companies will do business as The Fusion Group and will
be operating units of Laser Tech.
RECENT DEVELOPMENTS
On November 28, 1995, TC Advertising entered into a six year $350.0 million
revolving credit facility, which was amended on March 19, 1996 to add a $75.0
million term loan (the "Old Credit Facility"). On June 12, 1997, Big Flower
Press (i) entered into a new credit facility (as amended to date, the "New
Credit Facility") with a group of lenders providing up to $475.0 million of
revolving credit loans and (ii) terminated the Old Credit Facility and repaid
its loans thereunder. The New Credit Facility provides greater borrowing
capacity on more favorable terms, including lower interest rates, and covenant
terms which the Company believes provide greater financial flexibility.
On June 16, 1997, Big Flower Press announced the completion of a secondary
offering of 5,958,524 shares of its common stock. On July 15, 1997, a further
750,000 shares of Big Flower Press' common stock were sold pursuant to the
underwriters' over-allotment option. In the offering (including the
underwriters' over-allotment option), Apollo Big Flower Partners L.P. sold
4,470,922 shares, BT Investment Partners, Inc. sold 1,738,692 shares and certain
other stockholders who acquired their shares in connection with Big Flower Press
acquisitions of their businesses sold 498,910 shares. Each of Apollo Big Flower
Partners L.P. and BT Investment Partners, Inc. sold its entire holding in this
offering. Neither the Company's Chairman of the Board, R. Theodore Ammon, nor
members of senior management sold any shares in the offering.
On June 20, 1997, Big Flower Press completed an offering of $250.0 million
of its 8 7/8% Senior Subordinated Notes due July 1, 2007 (the 'Initial
Outstanding 8 7/8% Private Notes'). On September 25, 1997 all of the Initial
Outstanding 8 7/8% Private Notes were exchanged for a like amount of Big Flower
Press' 8 7/8% Senior Subordinated Notes due July 1, 2007 (the "Initial
Outstanding 8 7/8% Notes"). The form and terms of the Initial Outstanding 8 7/8%
Notes are identical in all material respects to those of the Initial Outstanding
8 7/8% Private Notes, except for certain transfer restrictions and registration
rights relating to the Initial Outstanding 8 7/8% Private Notes.
On June 24, 1997, Big Flower Press commenced a tender offer (the "Tender
Offer") for all of Big Flower Press' outstanding 10 3/4% Senior Subordinated
Notes due 2003 (the "10 3/4% Notes"). The Tender Offer expired on July 23, 1997.
An aggregate principal amount of approximately $126.7 million (representing
substantially all of the then outstanding 10 3/4% Notes) was tendered by holders
of the 10 3/4% Notes and accepted for payment by Big Flower Press, the funding
for which came from borrowings under the New Credit Facility.
On September 18, 1997, Big Flower Press' wholly-owned subsidiary, BGF
Limited, entered into a L27.0 million (approximately $45.0 million) revolving
credit facility (the "UK Facility") and Big Flower Press guaranteed payment of
BGF Limited's obligations thereunder. Proceeds from the UK Facility were used
(i) to fund the acquisition of Olwen (see "Acquisition Developments"), (ii) to
repay certain indebtedness of Olwen, and (iii) for working capital and general
corporate purposes of BGF Limited and Olwen. On March 13, 1998, in connection
with the acquisitions of Troypeak and Pismo, the UK Facility was increased to
L50.0 million (approximately $82.0 million) and is currently extended on a
month-to-month
13
<PAGE>
basis. Big Flower Press intends to renew or replace the UK Facility or amend the
New Credit Facility to allow borrowings in foreign currencies.
On October 17, 1997, the Company completed a reorganization of its legal
structure pursuant to Section 251 (g) of the Delaware General Corporation Law.
Big Flower became the new parent holding company of Big Flower Press, which
became a wholly-owned subsidiary, and the common stock of Big Flower Press was
automatically exchanged for common stock of the new holding company. The purpose
of the reorganization was to facilitate the concurrent offer of the Preferred
Securities. The business operations of Big Flower Press did not change as a
result of implementing the new legal structure. The reorganization was
structured in a manner that did not require action by the stockholders of Big
Flower Press, whose rights, privileges and interests remained the same with
respect to the new parent corporation. The Company's name, charter, by-laws and
board of directors did not change as a result of the reorganization, and the new
holding company has the same board of directors as the Company had immediately
prior to the reorganization. The common stock of the new parent company trades
under the ticker symbol "BGF" on the NYSE.
On October 20, 1997, Big Flower Press completed an offering of a further
$100.0 million of its 8 7/8% Senior Subordinated Notes due July 1, 2007 (the
"Subsequent Outstanding 8 7/8% Private Notes"). The form and terms of the
Subsequent Outstanding 8 7/8% Private Notes are identical in all respects to the
form and terms of the Initial Outstanding 8 7/8% Private Notes. On March 13,
1998, all of the Subsequent Outstanding 8 7/8% Private Notes were exchanged for
a like amount of Big Flower Press' 8 7/8% Senior Subordinated Notes due July 1,
2007 (the "Subsequent Outstanding 8 7/8% Notes" and, together with the Initial
Outstanding 8 7/8% Notes, the "Outstanding 8 7/8% Notes), the form and terms of
which are identical in all respects to the form and terms of the Initial
Outstanding 8 7/8% Notes. On October 20, 1997, the Company also completed the
Original Offering.
The following chart sets forth the organizational structure of Big Flower
Holdings, Inc., after taking into account the 1997 acquisitions, the
acquisitions of Troypeak and Pismo, and the reorganization described above.
[CHART]
14
<PAGE>
BIG FLOWER TRUST I
Big Flower Trust I is a statutory business trust formed under the Delaware
Business Trust Act (the "Trust Act") pursuant to (i) a trust agreement, dated as
of October 14, 1997, executed by Big Flower, as depositor (the "Depositor"), and
the trustees of Big Flower Trust I (the "BF Trustees") and (ii) the filing of a
certificate of trust with the Secretary of State of the State of Delaware on
October 14, 1997. Such trust agreement has been amended and restated in its
entirety (as so amended and restated, the "Trust Agreement"). Big Flower owns
Common Securities in an aggregate liquidation amount equal to approximately 3%
of the total capital of the Issuer. The Issuer exists for the exclusive purposes
of (i) issuing the Preferred Securities representing undivided beneficial
interests in the assets of the Issuer and investing the gross proceeds of the
Preferred Securities in the Debentures; (ii) distributing the Issuer's income;
and (iii) engaging in only those other activities necessary or incidental
thereto. Big Flower Trust I has a term of approximately 30 years, but may
terminate earlier as provided in the Trust Agreement.
Pursuant to the Trust Agreement, the number of BF Trustees is currently
three. Two of the BF Trustees (the "Administrative Trustees") are employees or
officers of or are affiliated with Big Flower. The third trustee is a financial
institution that is unaffiliated with Big Flower, which trustee serves as
institutional trustee under the Trust Agreement (the "Property Trustee"). The
Bank of New York, a New York banking corporation, is the Property Trustee and
will continue as such until removed or replaced by the holder of the Common
Securities. The Bank of New York also acts as trustee (the "Guarantee Trustee")
under the Guarantee and The Bank of New York (Delaware) acts as the Delaware
Trustee for the purposes of the Trust Act, until removed or replaced by the
holder of the Common Securities. See "Description of the Guarantees" and
"Description of the Preferred Securities-- Voting Rights; Amendment of the Trust
Agreement."
The Property Trustee holds title to the Debentures for the benefit of the
holders of the Preferred Securities and the Property Trustee has the power to
exercise all rights, powers and privileges under the Indenture (as defined
herein) as the holder of the Debentures. In addition, the Property Trustee
maintains exclusive control of a segregated non-interest bearing bank account
(the "Property Account") to hold all payments made in respect of the Debentures
for the benefit of the holders of the Preferred Securities. The Property Trustee
makes payments of distributions and payments on liquidation, redemption and
otherwise to the holders of the Preferred Securities out of funds from the
Property Account. The Guarantee Trustee holds the Guarantee for the benefit of
the holders of the Preferred Securities. Big Flower, as the direct or indirect
holder of all the Common Securities, has the right to appoint, remove or replace
any BF Trustee and to increase or decrease the number of BF Trustees; provided,
that the number of BF Trustees shall be at least three, a majority of which
shall be Administrative Trustees. Big Flower will pay all fees and expenses
related to the Issuer and the offering of the Preferred Securities. See
"Description of the Debentures--Expenses of Issuer."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the Trust
Agreement and the Trust Act. See "Description of the Preferred Securities."
The address of the Delaware Trustee in the State of Delaware is The Bank of
New York (Delaware), White Clay Center, Route 273, Newark, Delaware 19711. The
principal place of business of the Issuer is c/o Big Flower Holdings, Inc., 3
East 54th Street, New York, New York 10022.
15
<PAGE>
THE OFFERING
See "Risk Factors" for a discussion of certain factors to be considered in
connection with an investment in the Preferred Securities, including the period
and circumstances during and under which payments on the Preferred Securities
and the Debentures may be deferred and the related federal income tax
consequences.
<TABLE>
<S> <C>
Securities Offered................ The Issuer's 6% Convertible Quarterly Income Preferred
Securities, liquidation preference of $50 per security
(the "Preferred Securities"). The Preferred Securities
offered hereby were originally issued and sold in the
Original Offering to the Initial Purchasers and were
simultaneously sold by the Initial Purchasers in
transactions exempt from the registration requirements
of the Securities Act in the United States to persons
reasonably believed by the Initial Purchasers to be
qualified institutional buyers as defined in Rule 144A
under the Securities Act, and outside the United States
to non-U.S. persons in offshore transactions in reliance
on Regulation S under the Securities Act.
Issuer............................ Big Flower Trust I, a statutory business trust created
under the laws of the State of Delaware.
Distributions..................... Distributions on the Preferred Securities will be
cumulative from the date of original issuance of the
Preferred Securities and will be payable at the annual
rate of 6% of the liquidation preference of $50 per
Preferred Security. Distributions will be made quarterly
in arrears on January 15, April 15, July 15 and October
15, commencing on January 15, 1998 when and to the
extent that funds of the Issuer are available therefor.
The proceeds from the Original Offering were invested in
the Debentures. Interest payment periods on the
Debentures are quarterly, but may be deferred from time
to time by Big Flower for periods of up to 20
consecutive quarters, so long as no Debenture Event of
Default (as defined herein) has occurred and is
continuing. In the event of such a deferral, the Issuer
would be unable to make quarterly Distribution payments
on the Preferred Securities during the period of any
such deferral. During any such deferral period, interest
on the Debentures will continue to accrue (and the
amount of Distributions to which holders of the
Preferred Securities are entitled will accumulate at the
stated rate per annum set forth herein, compounded
quarterly) and holders of Preferred Securities will
continue to be required to accrue interest income for
United States federal income tax purposes. See
"Description of the Debentures-- Option to Extend
Interest Payment Period" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue
Discount."
Distribution Deferral
Provisions...................... Big Flower has the right to defer payment of interest on
the Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarters with
respect to each
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
deferral period (each, an "Extension Period"), provided
that no Extension Period may extend beyond the stated
maturity of the Debentures. Upon the termination of any
such Extension Period and the payment of all amounts
then due on any Interest Payment Date, Big Flower may
elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on
the Debentures are so deferred, Distributions on the
Preferred Securities will also be deferred and Big
Flower will not be permitted, subject to certain
exceptions set forth herein, to declare or pay any cash
distributions with respect to Big Flower capital stock
or debt securities (including guarantees of indebtedness
for borrowed money) that rank PARI PASSU with or junior
to the Debentures.
Liquidation Preference............ $50 per Preferred Security, and all accrued and unpaid
Distributions.
Conversion into Big Flower
Common Stock.................... Each Preferred Security is convertible in the manner
described below at the option of the holder, at any
time, into shares of Big Flower Common Stock at the rate
of 1.7344 shares of Big Flower Common Stock for each
Preferred Security (equivalent to a conversion price of
$28.828 per share of Big Flower Common Stock), subject
to adjustment in certain circumstances. A holder of
Preferred Securities wishing to exercise its conversion
right shall surrender any or all of such Preferred
Securities, together with an irrevocable conversion
notice, to the paying, conversion and exchange agent
acting on behalf of the holders of Preferred Securities
(the "Conversion Agent"), which shall exchange the
Preferred Securities for a portion (equal to the
aggregate liquidation preference of the Preferred
Securities being so converted) of the Debentures held by
the Issuer and immediately convert such Debentures into
Big Flower Common Stock. A holder generally will not
recognize taxable gain or loss upon the exchange through
the Conversion Agent of the Preferred Securities for a
proportionate share of the Debentures, followed
immediately thereafter by the conversion of the
Debentures into Big Flower Common Stock. See "Certain
Federal Income Tax Consequences--Conversion of Preferred
Securities into Big Flower Common Stock." Whenever Big
Flower issues shares of Big Flower Common Stock, subject
to certain conditions, upon conversion of Preferred
Securities, Big Flower will issue, together with each
such share of Big Flower Common Stock, an appropriate
number of rights if Big Flower has a share purchase
rights agreement then in effect. See "Description of
Capital Stock."
Redemption........................ Except as provided below, the Preferred Securities may
not be redeemed by the Issuer prior to October 15, 2000.
From time to time on or after such date, the Preferred
Securities will be subject to redemption, in whole or in
part, at the
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redemption prices set forth herein (together with all
accrued and unpaid Distributions, to the date fixed for
redemption) upon any permitted redemption of Debentures
by Big Flower. The Preferred Securities may not,
however, be redeemed unless and until all accrued and
unpaid Distributions thereon have been paid in full on
all outstanding Preferred Securities through the last
Distribution date prior to and including the date of
redemption. See "Description of the Preferred
Securities-- Optional Redemption" and "Description of
the Debentures-- Optional Redemption."
The Preferred Securities are subject to mandatory
redemption upon the repayment at maturity or as a result
of acceleration of the Debentures. See "Description of
the Preferred Securities-- Trust Agreement Events of
Default; Notice" and "Description of the Preferred
Securities--Mandatory Redemption."
Special Event Exchange or
Redemption...................... Upon the occurrence of a Tax Event (as defined below) or
an Investment Company Event (as defined below), the BF
Trustees shall direct the Conversion Agent to exchange
all outstanding Preferred Securities for Debentures,
provided that, in the case of a Tax Event, the BF
Trustees shall have the right to direct that less than
all of the Preferred Securities be so exchanged if and
for so long as Big Flower shall have elected to pay
Additional Sums (as defined below) such that the amounts
received by the holders of Preferred Securities that
remain outstanding are not reduced thereby and shall not
have revoked any such election or failed to make such
payments. Upon the occurrence of a Tax Event, the
Debentures may be redeemed by Big Flower on or after
October 15, 2000 at 100% of the principal amount
thereof, plus accrued and unpaid interest thereon. In
the event the Debentures are redeemed by Big Flower, the
Preferred Securities will be redeemed by the BF Trustees
at $50 per Preferred Security together with accrued and
unpaid Distributions thereon. See "Description of the
Preferred Securities--Special Event Exchange or
Redemption."
A "Special Event" means a Tax Event or an Investment
Company Event. A "Tax Event" means the receipt by the
Property Trustee, on behalf of the Issuer, of an opinion
of counsel, rendered by a law firm having a national tax
and securities practice (which opinion shall not have
been rescinded by such law firm), to the effect that, as
a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or
therein affecting taxation, or as a result of any
official administrative pronouncement or judicial
decision interpreting or applying such laws or
regulations, which amendment or change is effective or
such
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pronouncement or decision is announced on or after the
date of issuance of the Preferred Securities under the
Trust Agreement, there is more than an insubstantial
risk in each case after the date hereof that (i) the
Issuer is, or will be within 90 days of the date
thereof, subject to United States federal income tax
with respect to income received or accrued on the
Debentures, (ii) interest payable by Big Flower on such
Debentures is not, or within 90 days of the date thereof
will not be, deductible by Big Flower, in whole or in
part, for United States federal income tax purposes; or
(iii) the Issuer is, or will be within 90 days of the
date thereof, subject to more than a DE MINIMIS amount
of other taxes, duties or other governmental charges.
"Investment Company Event" means the receipt by the
Property Trustee, on behalf of the Issuer, of an opinion
of counsel, rendered by a law firm having a recognized
national tax and securities practice (which opinion
shall not have been rescinded by such law firm), to the
effect that, as a result of the occurrence of a change
in law or regulation or a change in interpretation or
application of law or regulation by any legislative
body, court, governmental agency or regulatory authority
(a "Change in 1940 Act Law"), that there is more than an
insubstantial risk that the Issuer is or will be
considered an "investment company" that is required to
be registered under the Investment Company Act of 1940,
as amended (the "Investment Company Act"), which Change
in 1940 Act Law becomes effective on or after the date
of original issuance of the Preferred Securities.
"Additional Sums" means the additional amounts as may be
necessary in order that the amount of Distributions then
due and payable by the Issuer on the outstanding
Preferred Securities and Common Securities of the Issuer
shall not be reduced as a result of any additional
taxes, duties and other governmental charges to which
the Issuer has become subject as a result of a Tax
Event.
Distribution of Debentures........ At any time, Big Flower will have the right to terminate
the Issuer and, after satisfaction of the liabilities of
creditors of the Issuer as provided by applicable law,
cause the Debentures to be distributed to the holders of
the Preferred Securities in liquidation of the Issuer.
See "Description of the Preferred
Securities--Distribution of Debentures."
Guarantee......................... Pursuant to the Guarantee, Big Flower has irrevocably
agreed, on a subordinated basis (as to all Secured
Indebtedness of Big Flower), to guarantee the payment in
full of (a) the Distributions payable by the Issuer on
the Preferred Securities, if and to the extent the
Issuer has funds on hand available therefor, (b) the
redemption price (together with accumulated and unpaid
Distributions) of the Preferred Securities, to the
extent the Issuer has funds on hand available therefor,
and (c) payments on liquidation with respect to the
Preferred Securities (unless
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the Debentures are distributed to the holders of the
Preferred Securities), to the extent that there are
assets of the Issuer available for distribution to
holders of the Preferred Securities. A holder of
Preferred Securities may enforce Big Flower's
obligations under the Guarantee directly against Big
Flower, and Big Flower waives any right to require that
an action be brought against the Issuer or any other
person before proceeding against Big Flower. The
Guarantee constitutes an unsecured obligation of Big
Flower and ranks subordinate and junior in right of
payment to all Secured Indebtedness of Big Flower and
PARI PASSU with any unsecured debt now or hereafter
incurred by Big Flower. See "Risk Factors--Ranking of
Subordinated Obligations Under the Guarantee and the
Debentures" and "--Structural Subordination" and
"Description of the Guarantee."
Voting Rights..................... Holders of Preferred Securities will generally have
limited voting rights relating only to the modification
of the Preferred Securities. Holders of Preferred
Securities will not be entitled to vote to appoint,
remove or replace the BF Trustees, which voting rights
are vested exclusively in the holder of the Common
Securities. The BF Trustees and Big Flower may amend the
Trust Agreement without the consent of holders of
Preferred Securities to ensure that the Issuer will be
classified for United States federal income tax purposes
as a grantor trust even if such action adversely affects
the interests of such holders. See "Description of the
Preferred Securities--Voting Rights; Amendment of the
Trust Agreement."
Debentures........................ The Debentures have a maturity of 30 years from the date
of original issuance and bear interest at the rate of 6%
per annum payable quarterly in arrears. Big Flower has
the right from time to time to select an interest
payment period or periods longer than one quarter
(during which period or periods interest will compound
quarterly), provided that no such deferral of interest
payments will exceed 20 consecutive quarters and
provided further that no such deferral of interest
payments may extend beyond the stated maturity of the
Debentures. Accordingly, Distribution payments on the
Preferred Securities may not be deferred beyond the
stated maturity of the Debentures. If Big Flower defers
interest payments longer than one quarter, subject to
certain exceptions, it will be prohibited from paying
dividends on any of its capital stock and making certain
other restricted payments until quarterly interest
payments are resumed and all accrued and unpaid interest
on the Debentures is brought current. Big Flower will
have the right to make partial payments of such interest
during a deferral of interest payments.
The Debentures are convertible into shares of Big Flower
Common Stock at the option of the holders thereof at a
conversion rate of 1.7344 shares of Big Flower Common
Stock
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for each $50 in principal amount of Debentures
(equivalent to a conversion price of $28.828 per share
of Big Flower Common Stock) subject to certain
adjustments set forth herein. The Issuer has covenanted
not to convert Debentures except pursuant to a notice of
conversion delivered to the Conversion Agent by a holder
of Preferred Securities.
In addition, on and after October 15, 2000, the
Debentures are redeemable at the option of Big Flower at
any time, in whole or in part, at the redemption prices
set forth herein, together with accrued and unpaid
interest to the date fixed for redemption. The
Debentures may not, however, be redeemed unless and
until all accrued and unpaid interest thereon has been
paid in full on all outstanding Debentures through the
last interest payment date prior to and including the
date of redemption. See "Description of the Debentures--
Optional Redemption." The Debentures are also
redeemable, in whole or in part, upon the occurrence and
continuation of a Tax Event. See "Description of the
Preferred Securities--Special Event Exchange or
Redemption."
The payment of the principal of and interest on the
Debentures is subordinated in right of payment to all
future Secured Indebtedness of Big Flower. As of
December 31, 1997, Big Flower Press had aggregate
liabilities of $875.0 million, all of which was
structurally senior to the Debentures. See "Risk
Factors--Ranking of Subordinated Obligations Under the
Guarantee and the Debentures" and "--Structural
Subordination." While the Preferred Securities are
outstanding, the Issuer will not have the right to amend
the Indenture or the terms of the Debentures in a way
that materially adversely affects the holders of the
Preferred Securities or to waive a Debenture Event of
Default without the consent of holders of at least a
majority in aggregate liquidation preference of the
Preferred Securities and, in certain cases, the Common
Securities then outstanding. See "Description of the
Debentures--Modification of Indenture."
Use of Proceeds................... The Selling Holders will receive all of the proceeds
from any sale of the Offered Securities. Neither the
Company nor the Issuer will receive any proceeds from
the sale of Offered Securities.
Shelf Registration Statement...... Under the terms of the registration rights agreement
dated October 20, 1997 between the Issuer, the Company
and the Initial Purchasers (the "Registration Rights
Agreement") the Issuer and Big Flower have agreed to
file with the Commission, within 90 days after October
20, 1997, the closing date of the Original Offering,
(the "Closing Date") and use their best efforts to cause
to become effective within 180 days after October 20,
1997, a shelf registration statement (the "Shelf
Registration Statement") with respect to the resale of
the Preferred Securities, the Debentures, the Guarantee
and the
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Common Stock issuable upon conversion of the Preferred
Securities and the Debentures (the "Registrable
Securities") and to keep the Shelf Registration
Statement effective until two years from the latest date
of issuance of any of the Preferred Securities (or such
earlier date when the holders of such Registrable
Securities are able to sell all Registrable Securities
immediately without restriction pursuant to Rule 144(k)
under the Securities Act or any successor rule thereto
or otherwise) (the "Effectiveness Period"). If the Shelf
Registration Statement has not been filed within 90 days
of the Closing Date or has not been declared effective
within 180 days of the Closing Date, additional
Distributions will accrue on the Preferred Securities
and additional interests will accrue on the Debentures
until such registration statement is declared effective
at an annual rate of 0.25% of the liquidation amount for
the first 90 days and at an annual rate of 0.50% of the
liquidation amount thereafter. See "Description of the
Preferred Securities--Registration Rights Agreement." In
the event that the Shelf Registration Statement ceases
to be effective during the Effectiveness Period for more
than 90 days, whether or not consecutive, during any
12-month period then the interest rate borne by the
Debentures and the distribution rate borne by the
Preferred Securities will each increase by an additional
0.50% per annum from the 91st day of the applicable
12-month period such Shelf Registration Statement ceases
to be effective until such time as the Shelf
Registration Statement again becomes effective. Use of
the prospectus included in such registration statement
is subject to suspension by the Issuer or Big Flower at
certain times under certain circumstances relating to
pending corporate developments affecting the Company and
public filings with the Commission and similar events.
The Shelf Registration Statement is generally intended
to permit the Selling Security holders to resell from
time to time the Registrable Securities that they
purchased in transactions which were exempted from the
registration requirements of the Securities Act.
Purchasers of the Registrable Securities offered
pursuant to this Prospectus will not have any rights
under the Registration Rights Agreement (although all of
the Registrable Securities sold pursuant to this
Registration Statement will be freely tradeable except
by purchasers who are "affiliates" of the Company or the
Issuer or "underwriters" of the Registrable Securities
for purposes of the Securities Act). The Shelf
Registration Statement, of which this Prospectus is a
part, has been filed by the Company and the Issuer with
the Commission in order to meet the Company's and the
Issuer's obligations under the Registration Rights
Agreement. See "Description of the Preferred
Securities--Registration Rights Agreement."
Trading........................... The Preferred Securities are eligible for trading in the
PORTAL market. The common stock of Big Flower is traded
on the New York Stock Exchange.
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RISK FACTORS
PROSPECTIVE PURCHASERS OF THE OFFERED SECURITIES SHOULD CAREFULLY CONSIDER
THE RISK FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION APPEARING IN
THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE PREFERRED SECURITIES.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE DEBENTURES
The obligations of Big Flower under the Guarantee issued by Big Flower for
the benefit of the holders of Preferred Securities are unsecured and rank
subordinate and junior in right of payment to all Secured Indebtedness of Big
Flower and PARI PASSU with any unsecured debt now or hereafter incurred by Big
Flower. The obligations of Big Flower under the Debentures are subordinate and
junior in right of payment to all Secured Indebtedness of Big Flower. The
ability of the Issuer to pay amounts due on the Preferred Securities is solely
dependent upon Big Flower's making payments on the Debentures as and when
required. Neither the Indenture, the Guarantee nor the Trust Agreement places
any limitation on the amount of secured or unsecured debt that may be incurred
by Big Flower and its subsidiaries. See "Description of the Guarantee--Status of
the Guarantee" and "Description of the Debentures-- Subordination."
STRUCTURAL SUBORDINATION
Big Flower is a holding company and its assets consist primarily of
investments in its subsidiaries. The Debentures are obligations exclusively of
Big Flower. Big Flower's ability to service its indebtedness, including the
Debentures, is dependent primarily upon the earnings of its subsidiaries and the
distribution or other payment of such earnings to Big Flower in the form of
dividends, loans or advances, and repayment of loans and advances from Big
Flower. The subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Debentures or to make any funds available therefor, whether by dividends, loans
or other payments. As of December 31, 1997, Big Flower Press would have had, on
a consolidated basis liabilities of $875.0 million, all of which is structurally
senior to the Debentures. The terms of the Outstanding 8 7/8% Notes and the New
Credit Facility restrict the payment of distributions by Big Flower Press to Big
Flower. As of December 31, 1997 on a pro forma basis after giving effect to (a)
the consummation of the Original Offering of the Preferred Securities and the
application of the proceeds thereof, (b) the concurrent Offering by Big Flower
Press of the Outstanding 8 7/8% Notes and the application of the proceeds
thereof and (c) the 1997 acquisitions. Big Flower Press had available for such
distributions $96.8 million under the Outstanding 8 7/8% Notes and $30.2 million
under the New Credit Facility. See "Description of the Preferred Securities."
In addition, creditors of Big Flower's subsidiaries would be entitled to a
claim on the assets of such subsidiaries prior to any claims by Big Flower.
Consequently, in the event of a liquidation or reorganization of any subsidiary,
creditors of such subsidiary are likely to be paid in full before any
distribution is made to Big Flower, except to the extent that Big Flower itself
is recognized as a creditor of such subsidiary, in which case the claims of Big
Flower would still be subordinate to any security interest in the assets of such
subsidiary and any indebtedness of such subsidiary senior to that held by Big
Flower. See "Description of the Preferred Securities--Distributions" and
"Description of the Debentures--Option to Extend Interest Payment Period."
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
Big Flower has the right under the Indenture to defer the payment of
interest on the Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the stated maturity of the
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, Big
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Flower may select a new Extension Period and terminate the payments of all
amounts then due, subject to the requirements described herein. As a consequence
of any such deferral, quarterly Distributions on the Preferred Securities by the
Issuer will be deferred (and the amount of Distributions to which holders of the
Preferred Securities are entitled will accumulate additional Distributions)
during any such Extension Period.
Should an Extension Period occur, a holder of Preferred Securities will
continue to accrue income (in the form of original issue discount ("OID")) in
respect of its pro rata share of the deferred interest allocable to the
Debentures held by the Issuer for United States federal income tax purposes. As
a result, a holder of Preferred Securities will include such income in its gross
income for United States federal income tax purposes in advance of the receipt
of cash and will not receive the cash related to such income from the Issuer if
the holder disposes of the Preferred Securities prior to the record date for the
payment of Distributions. See "Certain Federal Income Tax Consequences--
Interest Income and Original Issue Discount." Moreover, if a holder of Preferred
Securities converts its Preferred Securities into Big Flower Common Stock during
an Extension Period, the holder will not receive any cash related to the
deferred Distribution. Additionally, during the pendency of any Extension
Period, Big Flower will not be permitted, subject to certain exceptions set
forth herein, to declare or pay any cash distribution with respect to Big Flower
capital stock or debt securities (including guarantees of indebtedness for money
borrowed) that rank PARI PASSU with or junior to the Debentures. As of the date
of this Offering Circular, Big Flower has no indebtedness, and Big Flower Press
has not paid cash dividends on its common stock and Big Flower intends to
continue this policy for the foreseeable future. See "Description of the
Preferred Securities--Distributions."
Big Flower has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Debentures.
However, should Big Flower elect to exercise such right in the future, the
market price of the Preferred Securities is likely to be affected. A holder that
disposes of its Preferred Securities during an Extension Period, therefore,
might not receive the same return on its investment as a holder that continues
to hold its Preferred Securities. In addition, as a result of the existence of
Big Flower's right to defer interest payments, the price at which the Preferred
Securities trade (which represent preferred undivided beneficial interests in
the Debentures) may be more volatile than the trading prices of other securities
that are not subject to such deferrals.
SPECIAL EVENT EXCHANGE OR REDEMPTION
Upon certain circumstances following the occurrence and continuation of a
Special Event, the Preferred Securities are also subject to (i) exchange in
whole or, in the case of a Tax Event, in whole or in part, in the manner
described herein, for the Debentures or (ii) redemption, in whole or in part, on
or after October 15, 2000 in the case of a Tax Event. See "Description of the
Preferred Securities--Special Event Exchange or Redemption."
There can be no assurance as to the market prices for Preferred Securities
or Debentures that may be distributed in exchange for Preferred Securities if a
liquidation of the Issuer occurs or if the Preferred Securities are exchanged
for Debentures in connection with a Special Event. Accordingly, the Preferred
Securities that an investor may purchase, whether pursuant to the offer made
hereby or in the secondary market, or the Debentures that a holder of Preferred
Securities may receive on liquidation of the Issuer, may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby. Because holders of Preferred Securities may receive Debentures on
termination of the Issuer or if the Preferred Securities are exchanged for
Debentures in connection with a Special Event, prospective purchasers of
Preferred Securities are also making an investment decision with regard to the
Debentures and should carefully review all the information regarding the
Debentures contained herein. See "Description of the Preferred
Securities--Special Event Exchange or Redemption" and "Description of the
Debentures--General."
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RIGHTS UNDER THE GUARANTEE
The Guarantee guarantees to the holders of the Preferred Securities the
following payments, to the extent not paid by the Issuer: (i) any accumulated
and unpaid Distributions required to be paid on the Preferred Securities, to the
extent that the Issuer has funds on hand available therefor at such time; (ii)
the redemption price with respect to any Preferred Securities called for
redemption, to the extent that the Issuer has funds on hand available therefor
at such time; and (iii) upon a voluntary or involuntary dissolution, winding-up
or liquidation of the Issuer (unless the Debentures are distributed to holders
of the Preferred Securities), the lesser of (a) the aggregate of the liquidation
preference and all accrued and unpaid Distributions to the date of payment to
the extent that the Issuer has funds on hand available therefor at such time and
(b) the amount of assets of the Issuer remaining available for distribution to
holders of the Preferred Securities in liquidation of the Issuer. The Guarantee
will be qualified as an indenture under the Trust Indenture Act of 1939.
As part of the Guarantee, Big Flower will agree that it will honor all
obligations described therein relating to the conversion or exchange of the
Preferred Securities into or for Common Stock or Debentures.
The holders of not less than a majority in aggregate liquidation amount of
the Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power conferred
upon the Guarantee Trustee under the Guarantee. Any holder of Preferred
Securities may institute a proceeding directly against Big Flower to enforce its
rights under the Guarantee without first instituting a proceeding against the
Issuer, the Guarantee Trustee or any other person or entity. If Big Flower were
to default on its obligation to pay amounts payable under the Debentures, the
Issuer would lack funds for the payment of Distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and, in such event, holders
of the Preferred Securities would not be able to rely upon the Guarantee for
payment of such amounts. Instead, in the event a Debenture Event of Default
shall have occurred and be continuing, a holder of Preferred Securities would be
required to rely on its enforcement by the Property Trustee of its rights as
registered holder of the Debenture against Big Flower pursuant to the terms of
the Debenture. If, however, such event is attributable to the failure of Big
Flower to pay interest on or principal of the Debentures on the payment date on
which such payment is due and payable, then a holder of Preferred Securities may
directly institute a proceeding against Big Flower for enforcement of payment to
such holder of the interest on or principal of such Debentures having a
principal amount equal to the aggregate liquidation preference of the Preferred
Securities of such holder (a "Direct Action"). In connection with such Direct
Action, Big Flower will be subrogated to the rights of such holder of Preferred
Securities under the Trust Agreement to the extent of any payment made by Big
Flower to such holder of Preferred Securities in such Direct Action. Except as
set forth herein, holders of Preferred Securities will not be able to exercise
directly any other remedy available to the holders of Debentures or assert
directly any other rights in respect of the Debentures. See "Description of the
Preferred Securities--Enforcement of Certain Rights by Holders of Preferred
Securities," "Description of the Guarantee" and "Description of the
Debentures--Debenture Events of Default." The Trust Agreement provides that each
holder of Preferred Securities by acceptance thereof agrees to the provisions of
the Guarantee and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Trust Agreement Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as the holder of the
Debentures against Big Flower. In addition, the holders of a majority in
aggregate liquidation amount of the Preferred Securities will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Property Trustee or to direct the exercise of any trust or
power conferred upon the Property Trustee under the Trust Agreement, including
the right to direct the
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Property Trustee to exercise the remedies available to it as a holder of the
Debentures. If the Property Trustee fails to enforce its rights as holder of the
Debentures after a request therefor by a holder of Preferred Securities, such
holder may proceed to enforce such rights directly against Big Flower.
Notwithstanding the foregoing, if a Trust Agreement Event of Default occurs that
results from the failure of Big Flower to pay principal of or interest on the
Debentures when due (or in the case of a redemption, on the redemption date),
during the continuance of such an event of default a holder of Preferred
Securities may institute a legal proceeding directly against Big Flower to
obtain payment to such holder of such principal or interest on Debentures having
a principal amount equal to the aggregate liquidation amount of the Preferred
Securities owned of record by such holder. See "Description of the Preferred
Securities--Trust Agreement Events of Default; Notice" and "--Voting Rights;
Amendment of the Trust Agreement."
LIMITED VOTING RIGHTS
Holders of Preferred Securities generally have limited voting rights
primarily in connection with directing the activities of the Property Trustee as
the holder of the Debentures. Holders of Preferred Securities are not entitled
to vote to appoint, remove or replace the BF Trustees (as defined), which voting
rights are vested exclusively in the holder of the Common Securities. The BF
Trustees and Big Flower may amend the Trust Agreement without the consent of
holders of Preferred Securities to ensure that the Issuer will be classified for
United States federal income tax purposes as a grantor trust even if such action
adversely affects the interests of such holders. See "Description of the
Preferred Securities--Voting Rights; Amendment of the Trust Agreement."
POSSIBLE TAX LEGISLATION
Prospective investors should be aware that legislation has been introduced
in the United States Congress in the past that would, if enacted, deny an
interest deduction to issuers of instruments such as the Debentures. No such
legislation is currently pending. There can be no assurance, however, that
similar legislation will not ultimately be enacted into law, or that other
developments will not occur after the date hereof that would adversely affect
the tax treatment of the Debentures and could result in the exchange of the
Debentures for Preferred Securities or, in certain limited circumstances, the
redemption of the Debentures by Big Flower and the distribution of the resulting
cash in redemption of the Preferred Securities. See "Description of the
Preferred Securities--Special Event Exchange or Redemption."
ABSENCE OF PUBLIC MARKET FOR THE PREFERRED SECURITIES
Although the Preferred Securities are approved for trading in the PORTAL
market, there currently is no public market for the Preferred Securities and
there can be no assurance as to the liquidity of the market for the Preferred
Securities, the ability of holders of the Preferred Securities to sell such
securities or the price at which holders would be able to sell. Although the
Issuer and the Company will use their best efforts to maintain the effectiveness
of a Shelf Registration Statement for resales during the periods described
herein, they will be entitled to restrict resales thereunder for limited periods
upon certain events. See "Description of Preferred Securities--Registration
Rights Agreement".
TRADING PRICE OF PREFERRED SECURITIES
There can be no assurance as to the market prices for the Preferred
Securities, the Debentures that may be distributed in exchange for Preferred
Securities if a liquidation of the Issuer occurs or the Common Stock issuable
upon conversion of the Preferred Securities or the Debentures. Accordingly, the
Preferred Securities that an investor may purchase, whether pursuant to the
offer made hereby or in the secondary market, the Debentures that a holder of
the Preferred Securities may receive on liquidation of the Issuer or the Common
Stock issuable upon conversion of the Preferred Securities or the Debentures,
may trade at a discount to the price that the investor paid to purchase the
Preferred Securities offered hereby. In addition, the Preferred Securities may
trade at a price that does not fully reflect the value of accrued but unpaid
interest with respect to the underlying Debentures. A holder
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disposing of Preferred Securities between record dates for payments of
distributions thereon will nevertheless be required for United States Federal
income tax purposes to include accrued but unpaid interest on the Debentures
through the date of disposition in income as ordinary income (i.e., OID), and to
add such amount to the adjusted tax basis in the holder's Preferred Securities.
To the extent the selling price is less than the holder's adjusted tax basis
(which will include, in the form of original issue discount, all accrued but
unpaid interest), a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States Federal income tax purposes. See "Certain Federal Income Tax
Consequences--Sales of Preferred Securities."
LEVEL OF INDEBTEDNESS
At December 31, 1997, Big Flower Press had approximately $592.3 million of
indebtedness, including capitalized lease obligations. Big Flower Press may
borrow an additional amount of up to approximately $153.1 million without
restriction under the New Credit Facility. In addition, subject to the
restrictions in the New Credit Facility and the indenture governing the
Outstanding 8 7/8% Notes (the "Notes Indenture"), Big Flower Press may incur
additional indebtedness from time to time to finance acquisitions or capital
expenditures or for other purposes. In addition, at December 31, 1997, Big
Flower Press had significant commitments under operating leases and
approximately $101.1 million was outstanding under the A/R Securitization (as
defined).
The level of Big Flower Press' (and its new parent company's ) consolidated
indebtedness could have important consequences to holders of the Preferred
Securities and the Debentures, including: (i) a significant portion of Big
Flower Press' cash flow from operations must be dedicated to debt service,
(including debt service on the Outstanding 8 7/8% Notes and the New Credit
Facility) and will not be available for other purposes; (ii) the Company's
ability to obtain additional debt financing in the future for working capital,
capital expenditures or acquisitions may be limited; and (iii) the Company's
level of indebtedness could limit its flexibility in reacting to changes in its
industry and economic conditions generally. Certain of the Company's competitors
currently operate on a less leveraged basis, and have significantly greater
operating and financing flexibility than the Company.
COMPETITION
The advertising and marketing services industry is highly competitive in
most product categories and geographic regions. Competition is largely based on
price, quality and servicing the specialized needs of customers. During recent
periods of economic downturn, excess production capacity in the Company's
business sectors has resulted in more competitive pricing in such sectors.
RAW MATERIALS--PAPER
The cost of paper is a principal factor in TC Advertising's pricing to
certain customers. As TC Advertising is the Company's largest operating unit,
the cost of paper significantly affects the Company's net sales. TC Advertising
is generally able to pass increases in the cost of paper to its customers, while
decreases in paper costs generally result in lower prices to customers.
Volatility in paper costs results in a corresponding volatility in the Company's
net sales, but generally has not affected volume or profits to any significant
extent. To the extent that there are paper cost increases and the Company is not
able to pass such increases to its customers or its customers reduce the size of
their print advertising programs, the Company's results of operations (primarily
those of TC Advertising) could be materially adversely affected.
Capacity in the paper industry has remained relatively stable in recent
years. Increases or decreases in demand for paper have led to corresponding
pricing changes and, in periods of high demand, to limitations on the
availability of certain grades of paper, including grades utilized by the
Company. Any loss of the sources for paper supply or any disruption in such
sources' business or failure by them to meet the Company's product needs on a
timely basis could cause, at a minimum, temporary shortages in needed materials
which could have a material adverse effect on the Company's results of
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<PAGE>
operations. Although the Company actively manages its paper supply and has
established strong relationships with its suppliers, which include many of the
leading paper companies in North America, there can be no assurance that the
Company's sources of supply for its paper will be adequate or, in the event that
such sources are not adequate, that alternative sources can be developed in a
timely manner.
MANAGEMENT OF GROWTH
The Company's primary objective is to be the leading provider of marketing
and advertising services for retailers, national manufacturers and advertising
agencies, among others. One of the key elements of the Company's strategy
includes strategic acquisitions to expand and diversify the Company's products
and services in the advertising and marketing services industry. Since April 1,
1994, the Company has completed 18 acquisitions to increase and diversify its
industry position. The Company continues to seek similar or complementary
businesses and intends to continue its acquisition program in the future. This
program may require significant management time and capital resources. Such
acquisitions are likely to require the incurrence and/or assumption of
indebtedness and other obligations, the issuance of equity securities or some
combination thereof. While the Company anticipates that its acquisitions will be
beneficial, the Company cannot predict if any such transactions will be
consummated, the terms or forms of consideration required in any such
transactions, nor whether the acquired businesses will be successfully
integrated into the Company's operations. Accordingly, no assurance can be made
that such acquisitions will not have a material adverse effect on the Company's
performance.
CERTAIN FINANCIAL AND OPERATING RESTRICTIONS
The New Credit Facility, the Notes Indenture and the other outstanding debt
instruments of Big Flower Press impose certain operating and financial
restrictions on Big Flower Press, affecting, and in certain cases limiting,
among other activities, the ability of Big Flower Press to incur additional
indebtedness or create liens on its assets, pay dividends, sell assets, engage
in mergers or acquisitions or make investments. Failure to comply with any such
restrictions could limit the availability of borrowings or result in a default
under the terms of any such indebtedness, and there can be no assurance that Big
Flower Press will be able to comply with such restrictions. Moreover, these
restrictions could limit the Company's ability to engage in certain business
transactions which the Company may desire to consummate. The Company's inability
to consummate any such transaction could have an adverse effect on the Company's
operations and the ability of the Company and its subsidiaries to make principal
and interest payments on their outstanding debt, including the Debentures.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
The Company is subject to federal, state, local and foreign environmental
laws, regulations and ordinances relating to protection of the environment and
human health and safety, including those concerning the discharge, storage,
handling and disposal of hazardous or toxic waste and materials. Such laws,
regulations and ordinances provide for the imposition of significant fines and
penalties and may impose liability for the costs of cleaning up sites of past
spills, disposals or other releases of hazardous substances. From time to time,
operations of the Company have resulted or may result in noncompliance with or
liability for cleanup pursuant to such laws, regulations and ordinances. In
addition, TC Advertising and Webcraft have been identified as potentially
responsible parties under the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, and under certain analogous
state laws, for several sites to which TC Advertising or Webcraft, among others,
sent waste in the past. While the Company believes that any such noncompliance
or liability under current environmental laws will not have a material adverse
effect on its results of operations and financial condition, there can be no
assurances that such matters will not ultimately have such an effect and nor can
management predict what environmental laws will be enacted in the future, how
existing or future laws or regulations will be enforced, administered or
interpreted, or the amount of future expenditures which may be required in order
to comply with such laws.
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RELIANCE ON KEY PERSONNEL
The efforts of a relatively small number of key management and operating
personnel will largely determine the Company's success. The loss of any of such
personnel could adversely affect the Company. The Company's success also depends
in part upon its ability to hire and retain highly skilled and qualified
operating, marketing, financial and technical personnel. There can be no
assurance that the Company will be able to hire or retain necessary personnel.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
Columbine must continually change and improve its products in response to
changes in operating systems, application and networking software, computer and
communications hardware, programming tools and computer language technology. The
future operating results of the Company may be affected by Columbine's ability
to enhance its current products and to develop and introduce new products on a
timely basis that address the increasingly sophisticated needs of its customers
and that keep pace with technological developments, new competitive product
offerings and emerging industry standards. If Columbine does not respond
adequately to the need to develop and introduce new products or enhancements of
existing products in a timely manner, the Company's business, operating results
and financial condition may be materially adversely affected.
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from any sale of the
Offered Securities. Neither the Company nor the Issuer will receive any proceeds
from the sale of Offered Securities.
ACCOUNTING TREATMENT
The financial statements of the Issuer are reflected in Big Flower's
consolidated financial statements with the $115.0 million of Preferred
Securities shown as "Company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust whose sole assets are the Convertible
Subordinated Debentures of the Company." The notes to the Company's consolidated
financial statements reflect that the sole asset of Big Flower Trust I is $118.6
million principal amount of the Debentures.
CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED DIVIDENDS
(UNAUDITED)
The following table sets forth the Company's ratio of earnings to fixed
charges on a historical basis for each of the five fiscal periods in the period
ended December 31, 1997.
<TABLE>
<CAPTION>
YEAR YEAR SIX MONTHS YEAR 323 DAYS
ENDED ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/95 6/30/95 6/30/94
----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges (1)....................................... --(2) 1.1x 1.5x 1.1x --(2)
<CAPTION>
PREDECESSOR TC
ADVERTISING
------------------------
42 DAYS YEAR
ENDED ENDED
8/11/93 6/30/93
----------- -----------
<S> <C> <C>
Ratio of earnings to fixed
charges (1)....................................... --(2) 1.7x
</TABLE>
- ------------------------------
(1) The ratio of earnings to fixed charges is computed by dividing income before
taxes, interest expense and other fixed charges by the sum of (i) total
fixed charges, including interest expense, amortization of debt issuance
costs and the portion of rent expense that is deemed to represent interest
and (ii) preferred stock dividends, adjusted to a pretax basis, on the
Preferred Securities.
(2) Earnings were inadequate to cover fixed charges by $0.2 million for
Predecessor TC Advertising for the 42 days ended August 11, 1993 and $0.8
million and $13.1 million for Big Flower for the 323 days ended June 30,
1994 and the year ended December 31, 1997, respectively. Adjusted to
eliminate non-cash charges of depreciation and amortization of $28.8 million
and $67.3 million for the 323 days ended June 30, 1994 and the year ended
December 31, 1997, respectively, such earnings would have exceeded fixed
charges by $27.9 million and $54.2 million, respectively.
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<PAGE>
DESCRIPTION OF THE PREFERRED SECURITIES
This summary of certain terms of the Preferred Securities and of certain
provisions of documents described below do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of such documents (including the definitions therein of certain
terms), forms of which are available for inspection at the corporate trust
office of the Property Trustee in New York, New York. Wherever particular
Sections of, or terms defined in, such documents are referred to herein, such
Sections or defined terms are incorporated by reference herein.
GENERAL
Pursuant to the terms of the Trust Agreement, the BF Trustees, on behalf of
the Issuer, issued the Preferred Securities and the Common Securities in the
Original Offering. The Preferred Securities represent preferred undivided
beneficial interests in the assets of the Issuer and the Common Securities
represent common undivided beneficial interests in the assets of the Issuer. All
of the Common Securities are owned by Big Flower. The Preferred Securities rank
PARI PASSU, and payments will be made thereon PRO RATA, with the Common
Securities except as described under "--Subordination of Common Securities."
Legal title to the Debentures is held by the Property Trustee in trust for the
benefit of the holders of the Preferred Securities and Common Securities. The
Trust Agreement does not permit the issuance by the Issuer of any securities
other than the Preferred Securities and the Common Securities or the incurrence
of any indebtedness by the Issuer. The payment of Distributions out of money
held by the Issuer, and payments upon redemption of the Preferred Securities or
liquidation of the Issuer, are guaranteed by Big Flower to the extent described
under "Description of the Guarantee." The Guarantee is held by the Guarantee
Trustee for the benefit of the holders of the Preferred Securities. The
Guarantee does not cover payment of Distributions when the Issuer does not have
sufficient available funds to pay such Distributions. The remedy of a holder of
Preferred Securities in such an event is as described herein in "--Enforcement
of Certain Rights by Holders of Preferred Securities" and in "--Voting Rights;
Amendment of the Trust Agreement."
DISTRIBUTIONS
Distributions on each Preferred Security are payable at the annual rate of
6% of the liquidation preference of $50 per Preferred Security. Distributions
accumulate from the date of original issuance and are payable quarterly in
arrears on January 15, April 15, July 15 and October 15 of each year to holders
of record on the applicable record date, commencing January 15, 1998 when, as
and if available for payment by the Property Trustee, except as otherwise
described below. The amount of Distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. In the event
that any date on which Distributions are payable on the Preferred Securities is
not a Business Day (as defined below), then payment of the Distributions payable
on such date will be made on the next succeeding day that is a Business Day and
without any additional Distributions or other payment in respect of any such
delay (each date on which Distributions are payable in accordance with the
foregoing, a "Distribution Date"). A "Business Day" shall mean any day other
than a Saturday or a Sunday, or a day on which banking institutions in the City
of New York are authorized or required by law or executive order to remain
closed or a day on which the corporate trust office of the Property Trustee or
the Debenture Trustee is closed for business.
So long as no Debenture Event of Default has occurred and is continuing, Big
Flower has the right under the Indenture to defer the payment of interest on the
Debentures at any time or from time to time for a period not exceeding 20
consecutive quarters with respect to each deferral period (each an "Extension
Period"), provided that no Extension Period may extend beyond the stated
maturity of the Debentures. As a consequence of any such election, quarterly
Distributions on the Preferred Securities will be deferred by the Issuer during
any such Extension Period. Distributions to which holders of the Preferred
Securities are entitled will accumulate additional Distributions thereon at the
rate per annum
30
<PAGE>
set forth herein, compounded quarterly from the relevant payment date for such
Distributions. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, Big Flower may not,
and may not cause any of its subsidiaries to, (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of Big Flower's capital stock, or (ii) make any payment of
principal, interest or premium, if any, on, or repay, repurchase or redeem any
debt securities (including guarantees of indebtedness for money borrowed) of Big
Flower that rank PARI PASSU with or junior to the Debentures (other than (a) any
dividend, redemption, liquidation, interest, principal or guarantee payment by
Big Flower where the payment is made by way of securities (including capital
stock) that rank PARI PASSU with or junior to the securities on which such
dividend, redemption, interest, principal or guarantee payment is being made,
(b) payments under the Guarantee, (c) purchases of Common Stock related to the
issuance of Common Stock under any of Big Flower's benefit plans for its
directors, officers or employees, (d) as a result of a reclassification of Big
Flower's capital stock or the exchange or conversion of one series or class of
Big Flower's capital stock for another series or class of Big Flower's capital
stock, and (e) the purchase of fractional interests in shares of Big Flower's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged). Prior to the termination of
any such Extension Period, Big Flower may further extend the interest payment
period, provided that no Extension Period may exceed 20 consecutive quarters or
extend beyond the stated maturity of the Debentures. Upon the termination of any
such Extension Period and the payment of all amounts then due on any Interest
Payment Date, Big Flower may elect to begin a new Extension Period. See
"Description of the Debentures--Option to Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
Big Flower has no current intention to exercise its right to defer payments
of interest by extending the interest payment period on the Debentures.
Distributions with respect to the Preferred Securities must be paid on the
dates payable to the extent that the Issuer has funds available for the payment
of such Distributions in the Property Account. The funds of the Issuer available
for distribution to holders of the Preferred Securities are limited to payments
under the Debentures in which the Issuer invested the proceeds from the issuance
and sale of the Preferred Securities and the Common Securities. See "Description
of the Debentures." If Big Flower does not make interest payments on such
Debentures, the Property Trustee will not have funds available to pay
Distributions on the Preferred Securities. The payment of Distributions (if and
to the extent the Issuer has funds on hand available for the payment of such
Distributions and cash sufficient to make such payments) is guaranteed by Big
Flower on a limited basis as set forth herein under "Description of the
Guarantee."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the register of the Issuer on the relevant record
dates, which shall be the fifteenth day (whether or not a Business Day) next
preceding the relevant distribution date. As long as the Preferred Securities
remain in book-entry form, subject to any applicable laws and regulations and
the provisions of the Trust Agreement, each such payment will be made as
described under "--Certain Book-Entry Procedures for Global Certificates."
CONVERSION RIGHTS
GENERAL
The Preferred Securities are convertible at any time, at the option of the
holder thereof and in the manner described below, into shares of Common Stock at
an initial conversion rate of 1.7344 shares of Common Stock for each Preferred
Security (equivalent to a conversion price of $28.828 per share of Common
Stock), subject to adjustment as described under "--Conversion Price
Adjustments" below. Whenever Big Flower issues shares of Common Stock upon
conversion of Preferred Securities and Big
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<PAGE>
Flower has in effect at such time a share purchase rights agreement under which
holders of Common Stock are issued rights entitling the holders thereof under
certain circumstances to purchase an additional share or shares of Common Stock,
Big Flower will issue, together with each such share of Common Stock, an
appropriate number of such rights. For a description of Big Flower's existing
shareholder rights agreement, see "Description of Capital Stock--Rights."
A holder of Preferred Securities wishing to exercise its conversion right
shall surrender such Preferred Securities together with an irrevocable
conversion notice to the Property Trustee, as conversion agent or to such other
agent appointed for such purpose (the "Conversion Agent"), which shall, on
behalf of such holder, exchange the Preferred Securities for a portion of the
Debentures and immediately convert such Debentures into Common Stock. So long as
a book-entry system for the Preferred Securities is in effect, however, the
procedures for converting the Preferred Stock that are in the form of Global
Certificates into shares of Common Stock will be as described under "--Certain
Book-Entry Procedures for Global Certificates." Big Flower's delivery upon
conversion of the fixed number of shares of Common Stock into which the
Debentures are convertible (together with the cash payment, if any, in lieu of
any fractional share) shall be deemed to satisfy Big Flower's obligation to pay
the principal amount at maturity of the portion of the Debentures so converted
and any unpaid interest accrued on such Debentures at the time of such
conversion. For a discussion of the taxation of such an exchange to holders, see
"Certain Federal Income Tax Consequences--Conversion of Preferred Securities
into Big Flower Common Stock." Holders may obtain copies of the required form of
the conversion notice from the Conversion Agent.
Accrued Distributions will not be paid on Preferred Securities that are
converted, PROVIDED HOWEVER, that holders of Preferred Securities at the close
of business on a Distribution payment record date will be entitled to receive
the Distribution payable on such Preferred Securities on the corresponding
Distribution payment date notwithstanding the conversion of such Preferred
Securities on or subsequent to such Distribution record date but prior to such
Distribution payment date. Except as provided in the immediately preceding
sentence, the Issuer will make no payment or allowance for accumulated and
unpaid Distributions, whether or not in arrears, on converted Preferred
Securities. Big Flower will make no payment or allowance for dividends on the
shares of Common Stock issued upon such conversion. Each conversion will be
deemed to have been effected immediately prior to the close of business on the
day on which proper notice was received by the Conversion Agent.
Shares of Common Stock issued upon conversion of Preferred Securities will
be validly issued, fully paid and non-assessable. No fractional shares of Common
Stock will be issued as a result of conversion, but in lieu thereof such
fractional interest will be paid in cash.
CONVERSION PRICE ADJUSTMENTS
GENERAL. The conversion price will be subject to adjustment in certain
events including, without duplication: (i) the payment of dividends (and other
distributions) payable exclusively in Common Stock on Common Stock; (ii) the
issuance to all holders of Common Stock of rights or warrants entitling holders
of such rights or warrants (for a period not exceeding 45 days) to subscribe for
or purchase Common Stock at less than the then Current Market Price; (iii)
subdivisions and combinations of Common Stock; (iv) the payment of dividends
(and other distributions) to all holders of Common Stock consisting of evidences
of indebtedness of Big Flower, securities or capital stock, cash, or assets
(including securities, but excluding those rights or warrants referred to above
in clause (ii) and dividends and distributions paid exclusively in cash); (v)
the payment of dividends (and other distributions) on Common Stock paid
exclusively in cash, excluding (A) cash dividends that do not exceed the per
share amount of the immediately preceding regular cash dividend (as adjusted to
reflect any of the events referred to in clauses (i) through (vi) of this
sentence), and (B) cash dividends if the annualized per share amount thereof
does not exceed 12.5% of the last sale price of Common Stock, as reported on the
NYSE Consolidated Transactions Tape, on the trading day immediately preceding
the date of declaration of
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<PAGE>
such dividend (such adjustment being limited to the amount in excess of 12.5% of
such Current Market Price); and (vi) payment in respect of a tender or exchange
offer (other than an odd-lot offer) by Big Flower or any subsidiary of Big
Flower for Common Stock at a price per share in excess of 110% of the Current
Market Price of Common Stock on the trading day next succeeding the last date
tenders or exchanges may be made pursuant to such tender or exchange offer (such
adjustment being limited, in respect of the excess over Current Market Price, to
the amount in excess of 110% of such Current Market Price).
If the distribution date for the Rights of Big Flower provided in the Rights
Agreement, as presently constituted or under any similar plan (see "Description
of Capital Stock--Rights and Junior Preferred Stock"), occurs prior to the date
a Preferred Security is converted, holders of the Preferred Securities who
convert such Preferred Securities after the distribution date are not entitled
to receive the Rights that would otherwise be attached (but for the date of
conversion) to the shares of Common Stock received upon such conversion.
However, adjustment of the conversion price shall be made under clause (ii) of
the preceding paragraph as if the Rights were being distributed to the common
stockholders of Big Flower immediately prior to such conversion. If such an
adjustment is made and the Rights are later redeemed, invalidated or terminated,
then a corresponding reversing adjustment shall be made to the conversion price,
on an equitable basis, to take account of such event.
Big Flower from time to time may reduce the conversion price of the
Debentures (and thus the conversion price of the Preferred Securities) by any
amount selected by Big Flower for any period of at least 30 days, in which case
Big Flower shall give at least 15 days' notice of such reduction. Big Flower
may, at its option, make such reductions in the conversion price, in addition to
those set forth above, as the Board of Directors of Big Flower deems advisable
to avoid or diminish any income tax to holders of Common Stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes. See "Certain Federal Income Tax
Consequences-- Adjustment of Conversion Price."
No adjustment of the conversion price will be made upon the issuance of any
shares of Common Stock pursuant to any present or future plan providing for the
reinvestment of dividends or interest payable on securities of Big Flower and
the investment of additional optional amounts in shares of Common Stock under
any such plan, or the issuance of any shares of Common Stock or options or
rights to purchase such shares pursuant to any present or future employee
benefit plan or program of Big Flower or pursuant to any option, warrant, right,
or exercisable, exchangeable or convertible security which does not constitute
an issuance to all holders of Common Stock of rights or warrants entitling
holders of such rights or warrants to subscribe for or purchase Common Stock at
less than the Current Market Price. There shall also be no adjustment of the
conversion price in case of the issuance of any Common Stock (or securities
convertible into or exchangeable for Common Stock), except as specifically
described above. If any action would require adjustment of the conversion price
pursuant to more than one of the anti-dilution provisions, only one adjustment
shall be made and such adjustment shall be the amount of adjustment that has the
highest absolute value to holders of the Preferred Securities. No adjustment in
the conversion price will be required unless such adjustment would require an
increase or decrease of at least 1% of the conversion price, but any adjustment
that would otherwise be required to be made shall be carried forward and taken
into account in any subsequent adjustment.
The term "Current Market Price" of Common Stock for any day means the last
reported sale price, regular way, on such day, or, if no sale takes place on
such day, the average of the reported closing bid and asked prices on such day,
regular way, in either case as reported on the NYSE Consolidated Transactions
Tape, or, if the Common Stock is not listed or admitted to trading on the NYSE
on such day, on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, if the Common Stock is listed on a
national securities exchange, or the Nasdaq National Market, or, if the Common
Stock is not quoted or admitted to trading on such quotation system, on the
principal quotation system on which the Common Stock may be listed or admitted
to trading or quoted, or, if not
33
<PAGE>
listed or admitted to trading or quoted on any national securities exchange or
quotation system, the average of the closing bid and asked prices of the Common
Stock in the over-the-counter market on the day in question as reported by the
National Quotation Bureau Incorporated, or a similar generally accepted
reporting service, or, if not so available in such manner, as furnished by any
NYSE member firm selected from time to time by the Board of Directors of Big
Flower for that purpose or, if not so available in such manner, as otherwise
determined in good faith by the Board of Directors of Big Flower.
MERGER, CONSOLIDATION OR SALE OF ASSETS OF BIG FLOWER. In the event that
Big Flower is a party to any transaction (including, without limitation, a
merger other than a merger that does not result in a reclassification,
conversion, exchange or cancellation of Common Stock), consolidation, sale of
all or substantially all of the assets of Big Flower, recapitalization or
reclassification of Common Stock (other than a change in par value, or from par
value to no par value, or from no par value to par value or as a result of a
subdivision or combination of Common Stock) or any compulsory share exchange
(each of the foregoing being referred to as a "Transaction"), in each case, as a
result of which shares of Common Stock shall be converted into the right to
receive, or shall be exchanged for, (i) in the case of any Transaction other
than a Transaction involving a Common Stock Fundamental Change (as defined
below) (and subject to funds being legally available for such purpose under
applicable law at the time of such conversion), securities, cash or other
property, each Preferred Security shall thereafter be convertible into the kind
and, in the case of a Transaction which does not involve a Fundamental Change
(as defined below), amount of securities, cash and other property receivable
upon the consummation of such Transaction by a holder of that number of shares
of Common Stock into which a Preferred Security was convertible immediately
prior to such Transaction, or (ii) in the case of a Transaction involving a
Common Stock Fundamental Change, common stock, each Preferred Security shall
thereafter be convertible (in the manner described herein) into common stock of
the kind received by holders of Common Stock (but in each case after giving
effect to any adjustment discussed below relating to a Fundamental Change if
such Transaction constitutes a Fundamental Change). The holders of Preferred
Securities will have no voting rights with respect to any Transaction described
in this section.
If any Fundamental Change occurs, then the conversion price in effect will
be adjusted immediately after such Fundamental Change as described below. In
addition, in the event of a Common Stock Fundamental Change, each Preferred
Security shall be convertible solely into common stock of the kind received by
holders of Common Stock as a result of such Common Stock Fundamental Change.
The conversion price in the case of any Transaction involving a Fundamental
Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined below),
the conversion price of the Preferred Securities will thereupon become the
lower of (A) the conversion price in effect immediately prior to such
Non-Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to the preceding paragraphs, and (B) the
result obtained by multiplying the greater of the Applicable Price (as
defined below) or the then applicable Reference Market Price (as defined
below) by a fraction, the numerator of which is $50 and the denominator of
which is (x) the amount of the redemption price per Preferred Security if
the redemption date were the date of such Non-Stock Fundamental Change (or,
for the period commencing on October 20, 1997 and through October 15, 1998,
and the twelve-month periods commencing October 15, 1998 and October 15,
1999, the product of 106, 105.4 and 104.8, respectively, multiplied by $50)
plus (y) any then-accrued and unpaid distributions on one Preferred
Security; and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of the Preferred Securities in effect immediately prior to such Common
Stock Fundamental Change, but after giving effect to any other prior
adjustments effected pursuant to the preceding paragraphs, will thereupon be
adjusted by multiplying such conversion price by a fraction of which the
numerator will be the Purchaser Stock Price (as defined below) and the
denominator will be the Applicable
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<PAGE>
Price; provided, however, that in the event of a Common Stock Fundamental
Change in which (A) 100% of the value of the consideration received by a
holder of Common Stock is common stock of the successor, acquiror, or other
third party (and cash, if any, is paid only with respect to any fractional
interests in such common stock resulting from such Common Stock Fundamental
Change) and (B) all Common Stock will have been exchanged for, converted
into, or acquired for common stock (and cash with respect to fractional
interests) of the successor, acquiror, or other third party, the conversion
price of the Preferred Securities in effect immediately prior to such Common
Stock Fundamental Change will thereupon be adjusted by multiplying such
conversion price by a fraction of which the numerator will be one and the
denominator will be the number of shares of common stock of the successor,
acquiror, or other third party received by a holder of one share of Common
Stock as a result of such Common Stock Fundamental Change.
In the absence of the Fundamental Change provisions, in the case of a
Transaction each Preferred Security would become convertible into the
securities, cash, or property receivable by a holder of the number of shares of
Common Stock into which such Preferred Security was convertible immediately
prior to such Transaction. A failure to apply the Fundamental Change conversion
price adjustments described above could substantially lessen or eliminate the
value of the conversion privilege associated with the Preferred Securities. For
example, if Big Flower were acquired in a cash merger, each Preferred Security
would become convertible solely into cash and would no longer be convertible
into securities whose value would vary depending on the future prospects of Big
Flower and other factors.
The foregoing conversion price adjustments are designed, in certain
circumstances, to reduce the conversion price that would be applicable in
"Fundamental Change" Transactions where all or substantially all the Common
Stock is converted into securities, cash, or property and not more than 50% of
the value received by the holders of Common Stock consists of stock listed or
admitted for listing subject to notice of issuance on the NYSE or a national
securities exchange or quoted on the Nasdaq National Market (a Non-Stock
Fundamental Change, as defined below). Such reduction would result in an
increase in the amount of the securities, cash, or property into which each
Preferred Security is convertible over that which would have been obtained in
the absence of such conversion price adjustments.
In a Non-Stock Fundamental Change Transaction where the initial value
received per share of Common Stock (measured as described in the definition of
Applicable Price below) was lower than the then applicable conversion price of a
Preferred Security but greater than or equal to the "Reference Market Price",
the conversion price will be adjusted as described above with the effect that
each Preferred Security will be convertible into securities, cash or property of
the same type received by the holders of Big Flower Common Stock in the
Transaction but in an amount per Preferred Security that would at the time of
the Transaction have had a value equal to the then applicable redemption price
per Preferred Security set forth below under "--Optional Redemption".
In a Non-Stock Fundamental Change Transaction where the initial value
received per share of Common Stock (measured as described in the definition of
Applicable Price) is lower than both the conversion price of a Preferred
Security in effect prior to any adjustment described above and the Reference
Market Price, the conversion price will be adjusted as described above but
calculated as though such initial value had been the Reference Market Price.
In a Fundamental Change Transaction where all or substantially all the
Common Stock was converted into securities, cash, or property and more than 50%
of the value received by the holders of Common Stock consists of listed or
Nasdaq National Market traded common stock (a Common Stock Fundamental Change,
as defined below), the foregoing adjustments are designed to provide in effect
that (a) where Common Stock is converted partly into such common stock and
partly into other securities, cash, or property, each Preferred Security will be
convertible solely into a number of shares of such common stock determined so
that the initial value of such shares (measured as described in the
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definition of "Purchaser Stock Price" below) equals the value of the shares of
Common Stock into which such Preferred Security was convertible immediately
before the Transaction (measured as aforesaid) and (b) where Common Stock is
converted solely into such common stock, each Preferred Security will be
convertible into the same number of shares of such common stock receivable by a
holder of the number of shares of Common Stock into which such Preferred
Security was convertible immediately before such Transaction.
The term "Applicable Price" means (i) in the case of a Non-Stock Fundamental
Change in which the holders of the Common Stock received only cash, the amount
of cash received by the holder of one share of Common Stock and (ii) in the
event of any other Non-Stock Fundamental Change or any Common Stock Fundamental
Change, the average of the Closing Prices (as defined below) for the Common
Stock during the ten trading days prior to the record date for the determination
of the holders of Common Stock entitled to receive such securities, cash, or
other property in connection with such Non-Stock Fundamental Change or Common
Stock Fundamental Change or, if there is no such record date, the date upon
which the holders of the Common Stock shall have the right to receive such
securities, cash, or other property (such record date or distribution date being
hereinafter referred to as the "Entitlement Date"), in each case as adjusted in
good faith by Big Flower to appropriately reflect any of the events referred to
in clauses (i) through (vi) of the first paragraph under "--Conversion Price
Adjustments--General."
The term "Closing Price" means on any day the reported last sale price on
such day or in case no sale takes place on such day, the average of the reported
closing bid and asked prices in each case on the NYSE Consolidated Transactions
Tape or, if the stock is not listed or admitted to trading on the NYSE, on the
principal national securities exchange on which such stock is listed or admitted
to trading or, if not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices as furnished by any
NYSE member firm selected by the Debenture Trustee for that purpose.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of Big Flower) of the consideration received by holders of Common
Stock consisted of common stock that for each of the ten consecutive trading
days prior to the Entitlement Date has been admitted for listing or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on the Nasdaq National Market; provided, however, that a Fundamental
Change shall not be a Common Stock Fundamental Change unless either (i) Big
Flower continues to exist after the occurrence of such Fundamental Change and
the outstanding Preferred Securities continue to exist as outstanding Preferred
Securities or (ii) not later than the occurrence of such Fundamental Change, the
outstanding Preferred Securities are converted into or exchanged for shares of
convertible preferred stock of an entity succeeding to the business of Big
Flower or a subsidiary thereof, which convertible preferred stock has powers,
preferences, and relative, participating, optional, or other rights, and
qualifications, limitations, and restrictions, substantially similar to those of
the Preferred Securities.
The term "Fundamental Change" means the occurrence of any Transaction or
event in connection with a plan pursuant to which all or substantially all of
the Common Stock was exchanged for, converted into, acquired for, or constitute
solely the right to receive securities, cash, or other property (whether by
means of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization, or otherwise), provided, that
in the case of a plan involving more than one such Transaction or event, for
purposes of adjustment of the conversion price, such Fundamental Change shall be
deemed to have occurred when substantially all of the Common Stock shall be
exchanged for, converted into, or acquired for or constitute solely the right to
receive securities, cash, or other property, but the adjustment shall be based
upon the consideration that a holder of Common Stock received in such
Transaction or event as a result of which more than 50% of the Common Stock
shall have been
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exchanged for, converted into, or acquired for or constitute solely the right to
receive securities, cash, or other property.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for the common stock
received in such Common Stock Fundamental Change for the ten consecutive trading
days prior to and including the Entitlement Date, as adjusted in good faith by
Big Flower to appropriately reflect any of the events referred to in clauses (i)
through (vi) of the first paragraph under "--Conversion Price
Adjustments--General."
The term "Reference Market Price" shall initially mean $15.375 (which is an
amount equal to 66 2/3% of the reported last sales price for Common Stock on the
NYSE Consolidated Tape on October 14, 1997) and in the event of any adjustment
of the conversion price other than as a result of a Non-Stock Fundamental
Change, the Reference Market Price shall also be adjusted so that the ratio of
the Reference Market Price to the conversion price after giving effect to any
such adjustment shall always be the same as the ratio of the initial Reference
Market Price to the initial conversion price of the Preferred Securities.
SPECIAL EVENT EXCHANGE OR REDEMPTION
At any time following the occurrence and the continuation of a Tax Event or
an Investment Company Event, the BF Trustees shall direct the Conversion Agent
to exchange all outstanding Preferred Securities for Debentures, provided, that
in the case of a Tax Event, Big Flower shall have the right to (a) direct that
less than all, or none, of the Preferred Securities be so exchanged if and for
so long as Big Flower shall have elected to pay any Additional Sums such that
the net amounts received by the holders of Preferred Securities not so exchanged
in respect of Distributions and other distributions are not reduced as a result
of such Tax Event, and shall not have revoked any such election or failed to
make such payments or (b) redeem the Preferred Securities in the manner set
forth below.
If a Tax Event shall occur or be continuing, Big Flower shall have the
right, upon not less than 30 nor more than 60 days' notice, to redeem the
Debentures, in whole or in part, for cash upon the later of (i) 90 days
following the occurrence of such Tax Event or (ii) October 15, 2000. Promptly
following such redemption, Preferred Securities and Common Securities with an
aggregate liquidation amount equal to the aggregate principal amount of the
Debentures so redeemed will be redeemed by the Issuer at the liquidation amount
thereof plus accrued and unpaid Distributions thereon to the redemption date on
a pro rata basis. The Common Securities will be redeemed on a pro rata basis
with the Preferred Securities, except that if a Trust Agreement Event of Default
has occurred and is continuing, the Preferred Securities will have a priority
over the Common Securities with respect to the Redemption Price.
Holders of Preferred Securities, by purchasing such Preferred Securities,
will be deemed to have agreed to be bound by these exchange provisions in regard
to the exchange of such Preferred Securities for Debentures on the terms
described above.
DISTRIBUTION OF DEBENTURES
At any time, Big Flower will have the right to terminate the Issuer and,
after satisfaction of the liabilities of creditors of the Issuer as provided by
applicable law, cause the Debentures to be distributed to the holders of the
Preferred Securities in liquidation of the Issuer. Under current United States
federal income tax law and interpretations and assuming, as expected, the Issuer
is not treated as an association taxable as a corporation for United States
federal income tax purposes, a distribution of the Debentures should not be a
taxable event to the Issuer and holders of the Preferred Securities. Should
there be a change in law, a change in legal interpretation, a Special Event or
other circumstances,
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however, the distribution could be a taxable event to holders of the Preferred
Securities. See "Certain Federal Income Tax Consequences--Redemption of
Preferred Securities for Debentures or Cash Upon Liquidation of the Issuer."
After the liquidation date fixed for any distribution of Debentures for
Preferred Securities (i) such Preferred Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the record holder of such Preferred
Securities, will receive a registered global certificate or certificates
representing the Debentures to be delivered upon such distribution and (iii) any
certificates representing such Preferred Securities not held by DTC or its
nominee will be deemed to represent the Debentures having a principal amount
equal to the liquidation amount of such Preferred Securities, and bearing
accrued and unpaid interest in an amount equal to the accrued and unpaid
Distributions on such Preferred Securities until such certificates are presented
to the Property Trustee for transfer or reissuance.
OPTIONAL REDEMPTION
Except as provided under "--Mandatory Redemption" below, the Preferred
Securities may not be redeemed by the Issuer prior to October 15, 2000.
On and after such date, upon any permitted redemption by Big Flower of
Debentures, the Preferred Securities are subject to redemption, in whole or in
part, at the following percentages of the liquidation preference thereof plus
accrued and unpaid Distributions, if any, to the date fixed for redemption if
redeemed during the twelve-month period commencing October 15 in each of the
following years indicated:
<TABLE>
<CAPTION>
REDEMPTION REDEMPTION
YEAR PRICE YEAR PRICE
- ---------------------------------------- ------------ ---------------------------------------- ------------
<S> <C> <C> <C>
2000.................................... 104.2% 2004.................................... 101.8%
2001.................................... 103.6 2005.................................... 101.2
2002.................................... 103.0 2006.................................... 100.6
2003.................................... 102.4 2007 and thereafter..................... 100.0
</TABLE>
The Issuer may not redeem the Preferred Securities in part unless all
accrued and unpaid Distributions have been paid in full on all outstanding
Preferred Securities for all quarterly distribution periods terminating on or
prior to the redemption date. If fewer than all the outstanding Preferred
Securities are to be redeemed, the Preferred Securities to be so redeemed will
be selected as described under "--Form, Transfer, Exchange and Book-Entry
Procedures."
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In the event Big Flower redeems the Debentures in certain circumstances upon
the occurrence of a Tax Event as described under "--Special Event Exchange or
Redemption," the appropriate amount of the Preferred Securities will be redeemed
at 100% of the principal amount thereof together with accrued and unpaid
Distributions to the redemption date.
MANDATORY REDEMPTION
Upon repayment at maturity or as a result of the acceleration of the
Debentures upon the occurrence of a "Debenture Event of Default" described under
"Description of the Debentures--Debenture Events of Default," the Debentures
shall be subject to mandatory redemption, in whole but not in part, by Big
Flower, and the proceeds from such repayment will be applied to redeem Preferred
Securities and Common Securities having an aggregate liquidation amount equal to
the aggregate principal amount of Debentures so repaid or redeemed at a
redemption price equal to the respective liquidation amount of the Preferred
Securities and Common Securities or, in the case of a redemption of the
Debentures, at the redemption price paid with respect to the Debentures, as
described below, together with accrued and unpaid distributions on the Preferred
Securities and Common Securities to the date of redemption. In the case of
acceleration of the Debentures, the Preferred Securities will be redeemed only
when repayment of the Debentures has actually been received by the Issuer. In
addition, as described above under "-- Special Event Exchange or Redemption,"
upon the occurrence of a Special Event, Preferred Securities shall be exchanged
for Debentures unless, in the case of a Tax Event, Big Flower shall have elected
to (a) pay any Additional Sums such that the net amounts of Distributions
received by the holders of any Preferred Securities not so exchanged are not
reduced as a result of such Tax Event and shall not have revoked any such
election or failed to make such payments or (b) redeem the Preferred Securities
as further set forth in "--Special Event Exchange or Redemption."
REDEMPTION PROCEDURES
Preferred Securities redeemed on the date fixed for redemption shall be
redeemed at the redemption price with the applicable proceeds from the
contemporaneous redemption of the Debentures. Redemptions of the Preferred
Securities shall be made and the redemption price shall be payable on the
redemption date only to the extent that the Issuer has funds on hand available
for the payment of such redemption price. See also "--Subordination of Common
Securities."
Notice of any redemption (optional or mandatory) of Preferred Securities
(which notice will be irrevocable) will be given by the Property Trustee to each
record holder of Preferred Securities that are being redeemed not fewer than 30
nor more than 60 days prior to the redemption date. If the Property Trustee
gives a notice of redemption in respect of the Preferred Securities, then, by
12:00 noon, New York City time, on the redemption date, to the extent funds are
available, the Property Trustee will deposit irrevocably with DTC or the
Conversion Agent, as the case may be, funds sufficient to pay the applicable
redemption price and will give DTC or the Conversion Agent, as the case may be,
irrevocable instructions and authority to pay the redemption price to the
holders of such Preferred Securities. See
"--Certain Book-Entry Procedures for Global Certificates." If such Preferred
Securities are no longer in book-entry form, the Property Trustee, to the extent
funds are available, will irrevocably deposit with the Paying Agent funds
sufficient to pay the applicable redemption price and will give the Paying Agent
irrevocable instructions and authority to pay the redemption price to the
holders thereof upon surrender of their certificates evidencing such Preferred
Securities. Notwithstanding the foregoing, Distributions payable on or prior to
the redemption date for any Preferred Securities called for redemption shall be
payable to the holders of such Preferred Securities as of the relevant record
dates for the related distribution dates. If notice of redemption shall have
been given and funds deposited as required, then upon the date of such deposit,
all rights of the holders of such Preferred Securities so called for redemption
will cease, except the right of the holders of such Preferred Securities to
receive the redemption price, but without interest on such redemption price, and
such Preferred Securities will
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<PAGE>
cease to be outstanding. In the event that any date fixed for redemption of
Preferred Securities is not a Business Day, then payment of the redemption price
on such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day. In the event that payment of the
redemption price in respect of Preferred Securities called for redemption is
improperly withheld or refused and not paid either by the Issuer or by Big
Flower pursuant to the Guarantee as described under "Description of the
Guarantee," Distributions on such Preferred Securities will continue to accrue
at the then applicable rate, from the redemption date originally established by
the Issuer to the date such redemption price is actually paid, in which case the
actual payment date will be the date fixed for redemption for purposes of
calculating the redemption price.
Subject to applicable law (including, without limitation, United States
federal securities law), Big Flower or its subsidiaries may at any time and from
time to time purchase outstanding Preferred Securities by tender, in the open
market or by private agreement.
Payment of the redemption price on the Preferred Securities and any
distribution or exchange of Debentures to holders of Preferred Securities shall
be made to the applicable record holders thereof as they appear on the register
for such Preferred Securities on the relevant record date, which shall be the
fifteenth day (whether or not a Business Day) prior to the redemption date or
liquidation date, as applicable.
If less than all of the Preferred Securities and Common Securities issued by
the Issuer are to be redeemed on a redemption date, then the aggregate
liquidation amount of such Preferred Securities and Common Securities to be
redeemed shall be allocated pro rata among the Preferred Securities and the
Common Securities. The particular Preferred Securities to be redeemed shall be
selected not more than 60 days prior to the redemption date by the Property
Trustee from the outstanding Preferred Securities not previously called for
redemption, by lot or by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $50 or an integral multiple of $50 in excess thereof) of the
liquidation amount of the Preferred Securities. The Property Trustee shall
promptly notify the Conversion Agent in writing of the Preferred Securities
selected for redemption and, in the case of any Preferred Securities selected
for partial redemption, the liquidation amount thereof to be redeemed; it being
understood that, in the case of Preferred Securities held by DTC (or any
successor) or its nominee, the distribution of the proceeds of such redemption
will be made in accordance with the procedures of DTC or its nominee. For all
purposes of the Trust Agreement, unless the context otherwise requires, all
provisions relating to the redemption of Preferred Securities shall relate, in
the case of any Preferred Securities redeemed or to be redeemed only in part, to
the portion of the aggregate liquidation amount of Preferred Securities which
has been or is to be redeemed.
Notice of any redemption of Debentures will be mailed at least 30 days but
not more than 60 days before the redemption date to each holder of Debentures to
be redeemed at its registered address. Unless Big Flower defaults in payment of
the redemption price, on and after the redemption date interest ceases to accrue
on such Debentures or portions thereof called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the redemption price of, the Preferred
Securities and Common Securities, as applicable, shall be made PRO RATA based on
the liquidation amount of such Preferred Securities and Common Securities;
provided, however, that if on any distribution date or redemption date a Trust
Agreement Event of Default shall have occurred and be continuing, no payment of
any Distribution on, or redemption price of, any of the Common Securities, and
no other payment on account of the redemption, liquidation or other acquisition
of such Common Securities, shall be made unless
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<PAGE>
payment in full in cash of all accumulated and unpaid Distributions on all of
the outstanding Preferred Securities for all Distribution periods terminating on
or prior thereto, or in the case of payment of the redemption price the full
amount of such redemption price on all of the outstanding Preferred Securities
then called for redemption, shall have been made or provided for, and all funds
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or redemption price of, the Preferred
Securities then due and payable.
In the case of any Trust Agreement Event of Default, Big Flower as holder of
the Common Securities will be deemed to have waived any right to act with
respect to any such Trust Agreement Event of Default until all such Trust
Agreement Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until any such Trust Agreement Events of
Default with respect to the Preferred Securities have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
holders of the Preferred Securities and not on behalf of Big Flower as holder of
the Common Securities, and only the holders of the Preferred Securities will
have the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
In the event of any voluntary or involuntary liquidation, termination,
dissolution or winding up of the Issuer (each, a "Liquidation"), the holders of
the Preferred Securities at that time will be entitled to receive out of the
assets of the Issuer, after satisfaction of liabilities to creditors,
distributions in an amount equal to the aggregate of the stated liquidation
amount of $50 per Preferred Security plus accrued and unpaid Distributions
thereon to the date of payment (the "Liquidation Distribution"), unless, in
connection with such Liquidation, Debentures in an aggregate principal amount
equal to the aggregate stated liquidation amount of, with an interest rate
identical to the distribution rate of, and accrued and unpaid interest equal to
accrued and unpaid Distributions on, the Preferred Securities, have been
distributed on a PRO RATA basis to the holders of Preferred Securities in
exchange for such Preferred Securities. See "--Distribution of Debentures."
If such Liquidation Distribution can be paid only in part because the Issuer
has insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Issuer on the Preferred
Securities shall be paid on a pro rata basis. The holder(s) of the Common
Securities will be entitled to receive Liquidation Distributions upon any such
liquidation pro rata with the holders of the Preferred Securities, except that
if a Debenture Event of Default has occurred and is continuing, the Preferred
Securities shall have a priority over the Common Securities.
Pursuant to the Trust Agreement, the Issuer shall automatically terminate
upon expiration of its term and shall terminate on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of Big Flower; (ii) the
distribution of Debentures to the holders of the Preferred Securities and Common
Securities, if Big Flower, as Depositor, has given written direction to the
Property Trustee to terminate the Issuer (which direction is optional and wholly
within the discretion of Big Flower, as Depositor); (iii) the redemption,
conversion, or exchange of all of the Preferred Securities and Common
Securities; (iv) the entry by a court of competent jurisdiction of an order for
the dissolution of the Issuer; and (v) the occurrence of a Special Event, except
in the case of a Tax Event following which Big Flower has elected to pay any
Additional Sums such that the net amount received by holders of Preferred
Securities in respect of Distributions is not reduced as a result of such Tax
Event and Big Flower has not revoked any such election or failed to make such
payment.
TRUST AGREEMENT EVENTS OF DEFAULT; NOTICE
An event of default under the Indenture (a "Debenture Event of Default")
constitutes an event of default under the Trust Agreement with respect to the
Preferred Securities and the Common Securities (a "Trust Agreement Event of
Default"), whatever the reason for such Debenture Event of Default and
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<PAGE>
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body.
Within ten days after the occurrence of any Trust Agreement Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Trust Agreement Event of Default to the holders of the Preferred
Securities, the Administrative Trustees and Big Flower, as Depositor, unless
such Trust Agreement Event of Default shall have been cured or waived. Big
Flower, as Depositor, and the Administrative Trustees, on behalf of the Issuer,
are required to file annually with the Property Trustee a certificate as to
whether or not they are in compliance with all the conditions and covenants
applicable to them under the Trust Agreement.
If a Trust Agreement Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities upon
termination of the Issuer as described above. See "--Liquidation Distribution
Upon Termination." The existence of a Trust Agreement Event of Default does not
entitle the holders of Preferred Securities to accelerate the maturity thereof.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Trust Agreement Event of Default has occurred and is continuing, then
the holders of Preferred Securities would rely on the enforcement by the
Property Trustee of its rights as a holder of the Debentures against Big Flower.
In addition, the holders of a majority in aggregate liquidation amount of the
Preferred Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee or to
direct the exercise of any trust or power conferred upon the Property Trustee
under the Trust Agreement, including the right to direct the Property Trustee to
exercise the remedies available to it as a holder of the Debentures. If the
Property Trustee fails to enforce its rights as holder of the Debentures after a
request therefor by a holder of Preferred Securities, such holder may proceed to
enforce such rights directly against Big Flower. Notwithstanding the foregoing,
if a Trust Agreement Event of Default has occurred and is continuing and such
event is attributable to the failure of Big Flower to pay interest or principal
on the Debentures on the date such interest or principal is otherwise payable
(or in the case of redemption, on the redemption date), then a holder of
Preferred Securities may directly institute a Direct Action against Big Flower
for enforcement of payment to such holder of the principal of or interest on the
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder on or after the respective due date
specified in the Debentures. In connection with such Direct Action, Big Flower
will be subrogated to the rights of such holder of Preferred Securities under
the Trust Agreement to the extent of any payment made by Big Flower to such
holder of Preferred Securities in such Direct Action. The holders of Preferred
Securities will not be able to exercise directly against Big Flower any other
remedy available to the Property Trustee unless the Property Trustee first fails
to do so.
MERGER OR CONSOLIDATION OF BF TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such BF Trustee shall be a party,
or any corporation succeeding to all or substantially all the corporate trust
business of such BF Trustee, shall be the successor of such BF Trustee under the
Trust Agreement, provided such corporation shall be otherwise qualified and
eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER
The Issuer may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person,
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except as described below. The Issuer may, at the request of Big Flower, with
the consent of the Administrative Trustees and without the consent of the
Property Trustee, the Delaware Trustee or the holders of the Preferred
Securities, merge with or into, consolidate, amalgamate, be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State; provided that (i) such
successor entity either (a) expressly assumes all of the obligations of the
Issuer with respect to the Preferred Securities or (b) substitutes for the
Preferred Securities other securities having substantially the same terms as the
Preferred Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Preferred Securities rank in priority with
respect to Distributions and payments upon liquidation, redemption and
otherwise, (ii) Big Flower expressly appoints a trustee of such successor entity
possessing the same powers and duties as the Property Trustee as the holder of
the Debentures, (iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or other organization on which the Preferred Securities are
then listed, if any, (iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the Preferred Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect, (vi) such successor entity
has a purpose identical to that of the Issuer, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, Big
Flower has received an opinion from independent counsel to the Issuer
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interest in the new entity)
and (b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Issuer nor such successor entity will
be required to register as an investment company under the Investment Company
Act, and (viii) Big Flower or any permitted successor or assignee owns all of
the Common Securities of such successor entity and guarantees the obligations of
such successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Issuer shall not,
except with the consent of holders of 100% in aggregate liquidation amount of
the Preferred Securities, consolidate, amalgamate, merge with or into, be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause the
Issuer or the successor entity to be classified as other than a grantor trust
for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of the Guarantee--Amendments
and Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by Big Flower and the
BF Trustees, without the consent of the holders of the Preferred Securities (i)
to cure any ambiguity, correct or supplement any provisions in the Trust
Agreement that may be inconsistent with any other provision, or to make any
other provisions with respect to matters or questions arising under the Trust
Agreement that shall not be inconsistent with the other provisions of the Trust
Agreement, (ii) to modify, eliminate or add to any provision of the Trust
Agreement to such extent as shall be necessary to ensure that the Issuer will be
classified for United States federal income tax purposes as a grantor trust at
all times that any Preferred Securities and Common Securities are outstanding or
to ensure that the Issuer will not be required to register as an "investment
company" under the Investment Company Act or be classified as other than a
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grantor trust for United States federal income tax purposes or (iii) to maintain
the qualification of the Trust Agreement under the Trust Indenture Act;
PROVIDED, HOWEVER, that in the case of clause (i), such action shall not
adversely affect in any material respect the interests of any holder of
Preferred Securities or Common Securities, and any amendments of the Trust
Agreement shall become effective when notice thereof is given to the holders of
Preferred Securities and Common Securities. The Trust Agreement may be amended
by the BF Trustees and Big Flower with (i) the consent of holders representing
not less than a majority (based upon liquidation amounts) of the outstanding
Preferred Securities and Common Securities, acting as a single class, and (ii)
receipt by the BF Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the BF Trustees in accordance
with such amendment will not affect the Issuer's status as a grantor trust for
United States federal income tax purposes or the Issuer's exemption from the
status of an "investment company" under the Investment Company Act; provided
further that (a) without the consent of each holder of Preferred Securities and
Common Securities, the Trust Agreement may not be amended to (i) change the
amount or timing of any Distribution on the Preferred Securities and Common
Securities or otherwise adversely affect the amount of any Distribution required
to be made in respect of the Preferred Securities and Common Securities as of a
specified date or (ii) restrict the right of a holder of Preferred Securities
and Common Securities to institute suit for the enforcement of any such payment
on or after such date.
If any proposed amendment of the Trust Agreement provides for, or the BF
Trustees otherwise propose to effect, the dissolution, winding-up or termination
of the Issuer, other than pursuant to the terms of the Trust Agreement, then the
holders of the then outstanding Preferred Securities, as a class, will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of the holders of the majority
in aggregate liquidation amount of the Preferred Securities.
The holders of a majority in aggregate liquidation amount of Preferred
Securities will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee or to
direct the exercise of any trust or power conferred upon the Property Trustee
under the Trust Agreement, including the right to direct the Property Trustee to
exercise the remedies available to it as a holder of the Debentures. So long as
any Debentures are held by the Property Trustee, the BF Trustees shall not (i)
direct the time, method and place of conducting any proceeding for any remedy
available to the Debenture Trustee or executing any trust or power conferred on
the Debenture Trustee with respect to such Debentures, (ii) waive any past
default that is waivable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Debentures shall be
due and payable, or (iv) consent to any amendment, modification or termination
of the Indenture or the Debentures where such consent shall be required, without
in each case, obtaining the prior approval of the holders of a majority in
aggregate liquidation amount of all outstanding Preferred Securities (except in
the case of clause (iv), which consent, in the event that no Trust Agreement
Event of Default shall occur and be continuing, shall be of the holders of
Preferred Securities and Common Securities, voting together as a single class);
PROVIDED, HOWEVER, that where a consent under the Indenture would require the
consent of each holder of Debentures affected thereby, no such consent shall be
given by the Property Trustee without the prior written consent of each holder
of the Preferred Securities. The BF Trustees shall not revoke any action
previously authorized or approved by a vote of the holders of the Preferred
Securities except by subsequent vote of the holders of the Preferred Securities.
The Property Trustee shall notify each holder of record of the Preferred
Securities of any notice of default with respect to the Debentures.
A waiver of a Debenture Event of Default will constitute a waiver of the
corresponding Trust Agreement Event of Default.
Any required approval or direction of holders of Preferred Securities may be
given at a separate meeting of holders of Preferred Securities convened for such
purpose, at a meeting of all of the holders of the Preferred Securities and the
Common Securities or pursuant to written consent. The Property
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Trustee will cause a notice of any meeting at which holders of Preferred
Securities are entitled to vote, or of any matter upon which action by written
consent of such holders is to be taken, to be given to each holder of record of
Preferred Securities in the manner set forth in the Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for the Issuer to redeem and cancel the Preferred Securities in accordance with
the Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by Big Flower, the BF Trustees or any
affiliate of any BF Trustee shall, for purposes of such vote or consent, be
treated as if such Preferred Securities were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "--Certain Book-Entry Procedures for
Global Certificates."
Holders of the Preferred Securities will have no rights to appoint or remove
the BF Trustees, who may be appointed, removed or replaced solely by Big Flower,
as the direct or indirect holder of all the Common Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities shall be made to DTC, which
shall credit the relevant accounts at DTC on the applicable distribution dates
or, if the Preferred Securities are not held by DTC, such payments shall be made
by check mailed to the address of the holder entitled thereto as such address
shall appear on the Securities Register. The paying agent (the "Paying Agent")
shall initially be the Property Trustee and any co-paying agent chosen by the
Property Trustee and acceptable to the Administrative Trustees and Big Flower.
The Paying Agent shall be permitted to resign as Paying Agent upon 30 days'
written notice to the Property Trustee and Big Flower. In the event that the
Property Trustee shall no longer be the Paying Agent, the Administrative
Trustees shall appoint a successor (which shall be a bank or trust company
acceptable to the Administrative Trustees and Big Flower) to act as Paying
Agent.
EXCHANGES OF BOOK-ENTRY CERTIFICATES FOR CERTIFICATED PREFERRED SECURITIES
A beneficial interest in a Global Certificate may not be exchanged for a
certificated Preferred Security unless (i) DTC (x) notifies the Issuer and the
Company that it is unwilling or unable to continue as Depositary for the Global
Certificate or (y) has ceased to be a clearing agency registered under the
Exchange Act and in either case the Issuer and the Company thereupon fails to
appoint a successor Depositary, (ii) the Issuer and the Company, at their
option, notify the Property Trustee in writing that they elect to cause the
issuance of the Preferred Securities in certificated form or (iii) there shall
have occurred and be continuing a Trust Agreement Event of Default or any event
which after notice or lapse of time or both would be a Trust Agreement Event of
Default or any event which after notice or lapse of time or both would be a
Trust Agreement Event of Default. In all cases, certificated Preferred
Securities delivered in exchange for any Global Certificate or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the Depositary (in accordance with
its customary procedures). Any such exchange will be effected through the DWAC
system and an appropriate adjustment will be made in the records of the Security
Registrar to reflect a decrease in the principal amount of the relevant Global
Certificate.
CERTAIN BOOK-ENTRY PROCEDURES FOR GLOBAL CERTIFICATES
The description of book-entry procedures in this Prospectus includes
summaries of certain rules and operating procedures of DTC that affect transfers
of interests in the global certificate or certificates issued in connection with
sales of Preferred Securities made pursuant to this Prospectus. All of the
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Preferred Securities were issued as fully registered securities registered in
the name of Cede & Co. (as nominee for DTC). Preferred Securities initially sold
in reliance on Rule 144A under the Securities Act were initially represented by
one or more certificates in registered, global form and Preferred Securities
initially sold in offshore transactions in reliance on Regulation S were
initially represented by one or more certificates in registered, global form.
One or more Global Certificates have been issued for the Preferred Securities
and the Debentures and have been deposited with the Property Trustee as
custodian of DTC.
DTC has advised the Issuer and the Company as follows: DTC 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 Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participants ("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 transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
DTC has advised the Issuer and the Company that its current practice, upon
the issuance of the Global Certificate, is to credit, on its internal system,
the respective principal amount of the individual beneficial interests
represented by such Global Certificate to the accounts with DTC of the
participants through which such interests are to be held. Ownership of
beneficial interests in the Global Certificate will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominees (with respect to interests of participants) and the records
of participants and indirect participants (with respect to interests of persons
other than participants).
As long as DTC, or its nominee, is the registered holder of a Global
Certificate, DTC or such nominee, as the case may be, will be considered the
sole owner and holder of the Preferred Securities represented by such Global
Certificate for all purposes under the Trust Agreement and the Preferred
Securities.
Except in the limited circumstances described above owners of beneficial
interests in a Global Certificate will not be entitled to have any portions of
such Global Certificate registered in their names, will not receive or be
entitled to receive physical delivery of Preferred Securities in definitive form
and will not be considered the owners or holders of the Global Certificate (or
any Preferred Securities represented thereby) under the Trust Agreement or the
Preferred Securities.
Investors may hold their interests in the Global Certificate directly
through DTC, if they are participants in such system, or indirectly through
organizations (including Euroclear and CEDEL) which are participants in such
system. CEDEL and Euroclear will hold interests in the Global Certificate on
behalf of their participants through customers' securities accounts in their
respective names on the books of their respective depositories. The
depositories, in turn, will hold such interests in the Regulation S Global
Certificate in customers' securities accounts in the depositories' names on the
books of DTC. All interests in a Global Certificate, including those held
through Euroclear or CEDEL, will be subject to the procedures and requirements
of DTC. Those interests held through Euroclear and CEDEL will also be subject to
the procedures and requirements of such system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Certificate to such persons may be
limited to that extent. Because DTC can act only on behalf of its participants,
which in turn act on behalf of indirect participants and certain banks, the
ability of a person having beneficial interests in a Global Certificate to
pledge such interest to persons or entities that do not participate in the
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DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
Payments of Distributions on Global Certificates will be made to DTC or its
nominee as the registered owner thereof. Neither the Issuer, the Company, the
Property Trustee nor any of their respective agents will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Certificate or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Issuer and the Company expect that DTC or its nominee, upon receipt of
any payment of Distributions in respect of a Global Certificate representing any
Preferred Securities held by it or its nominee, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global
Certificate for such Preferred Securities as shown on the records of DTC or its
nominee. The Issuer and the Company also expects that payments by participants
to owners of beneficial interests in such Global Certificate held through such
participants will be governed by standing instructions and customary practices,
as is the case with securities held for the accounts of customers registered in
"street name." Such payments will be the responsibility of such participants.
Except for trades involving only Euroclear and CEDEL participants, interests
in the Global Certificates will trade in DTC's settlement system and secondary
market trading activity in such interests will therefore settle in immediately
available funds, subject in all cases to the rules and procedures of DTC and its
participants. Transfers between participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in same-day funds.
Transfers between participants in Euroclear and CEDEL will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Cross-market transfers between DTC participants, on the one hand, and
Euroclear or CEDEL participants, on the other hand, will be effected by DTC in
accordance with DTC's rules on behalf of Euroclear or CEDEL, as the case may be,
by its respective depositary; however, such cross-market transactions will
require delivery of instructions to Euroclear or CEDEL, as the case may be, by
the counterparts in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of such system. Euroclear or
CEDEL, as the case may be, will, if the transaction meets its requirements,
deliver instructions to its respective depository to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
Global Certificate in DTC, and making or receiving payment in accordance with
normal procedures for same-day funds settlement applicable to DTC. Euroclear
participants and CEDEL participants may not deliver instructions directly to the
depositories for Euroclear or CEDEL.
Because of the time zone differences, the securities account of a Euroclear
or CEDEL participant purchasing an interest in a Global Certificate from a DTC
participant will be credited, and any such crediting will be reported to the
relevant Euroclear or CEDEL participant, during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the DTC settlement date. Cash received in Euroclear or
CEDEL as a result of sales of interests in a Global Certificate by or through a
Euroclear or CEDEL participant to a DTC participant will be received with value
on the DTC settlement date but will be available in the relevant Euroclear or
CEDEL cash account only as of the business day for Euroclear or CEDEL following
the DTC settlement date.
DTC has advised the Issuer and the Company that it will take any action
permitted to be taken by a holder of Certificates (including the presentation of
Preferred Securities for exchange as described below and the conversion of
Preferred Securities) only at the direction of one or more participants to whose
account with DTC interests in the Global Certificates are credited and only in
respect of such portion of the aggregate liquidation amount of the Preferred
Securities as to which such participant or participants has or have given such
direction. However, if there is a Trust Agreement Event of Default,
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DTC reserves the right to exchange the Global Certificates for Preferred
Securities in certificated form, and to distribute such Preferred Securities to
its participants.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures in
order to facilitate transfers of beneficial ownership interests in the Global
Certificate among participants of DTC, Euroclear and CEDEL, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Issuer, the Company, the
Property Trustee nor any of their respective agents will have any responsibility
for the performance by DTC, Euroclear and CEDEL, their participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial ownership
interests in Global Certificates.
Redemption notices shall be sent to Cede & Co. as the registered holder of
the Preferred Securities. If less than all of the Preferred Securities are being
redeemed, DTC's current practice is to determine by lot the amount of the
interest of each Direct Participant to be redeemed.
Although voting with respect to the Preferred Securities is limited to the
holders of record of the Preferred Securities, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to Preferred Securities. Under its usual procedures, DTC would mail an
omnibus proxy (the "Omnibus Proxy") to the Property Trustee as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts such Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
Conveyance of notices and other communications by DTC to participants, by
participants to indirect participants, and by participants and indirect
participants to beneficial owners of the Preferred Securities and the voting
rights of participants, indirect participants and beneficial owners of Preferred
Securities will be governed by arrangements among them, subject to any statutory
or regulatory requirements as may be in effect from time to time.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Property Trustee and Big Flower. In the event that a successor securities
depositary is not obtained, definitive Preferred Securities certificates
representing such Preferred Securities are required to be printed and delivered.
Big Flower, at its option, may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary). After a Debenture
Event of Default, the holders of a majority in liquidation amount of Preferred
Securities may determine to discontinue the system of book-entry transfers
through DTC. In any such event, definitive certificates for the Preferred
Securities will be printed and delivered.
TRANSFER AGENT, REGISTRAR AND PAYING, CONVERSION AND EXCHANGE AGENT
The Property Trustee presently acts as transfer agent, registrar and paying,
conversion and exchange agent for the Preferred Securities.
Registration of transfers or exchanges of Preferred Securities will be
effected without charge by or on behalf of the Issuer, but upon payment of any
tax or other governmental charges that may be imposed in connection with any
transfer or exchange. The Issuer will not be required to register or cause to be
registered the transfer of the Preferred Securities after such Preferred
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
Big Flower and certain of its subsidiaries may maintain deposit accounts and
conduct other banking and corporate securities transactions and relationships
with the Property Trustee in the ordinary course of their businesses. The
Property Trustee, other than during the occurrence and continuance of a Trust
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Agreement Event of Default, undertakes to perform only such duties as are
specifically set forth in the Trust Agreement and, after such Trust Agreement
Event of Default, must exercise the same degree of care and skill as a prudent
person would exercise or use in the conduct of his or her own affairs. Subject
to this provision, the Property Trustee is under no obligation to exercise any
of the powers vested in it by the Trust Agreement at the request of any holder
of Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Trust
Agreement Event of Default has occurred and is continuing and the Property
Trustee is required to decide between alternative causes of action, construe
ambiguous provisions in the Trust Agreement or is unsure of the application of
any provision of the Trust Agreement, and the matter is not one on which holders
of Preferred Securities are entitled under the Trust Agreement to vote, then the
Property Trustee shall take such action as is directed by Big Flower and, if not
so directed, shall take such action as it deems advisable and in the best
interests of the holders of the Preferred Securities and the Common Securities
and will have no liability except for its own bad faith, negligence or willful
misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Issuer in such a way that the Issuer will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the Debentures will be
treated as indebtedness of Big Flower for United States federal income tax
purposes. In this connection, Big Flower and the Administrative Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Issuer or the Trust Agreement, that Big Flower and
the Administrative Trustees determine in their discretion to be necessary or
desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
The Issuer may not borrow money or issue debt or mortgage or pledge any of
its assets.
REGISTRATION RIGHTS AGREEMENT
In connection with the Original Offering, Big Flower and the Trust entered
into the Registration Rights Agreement with the Initial Purchasers, pursuant to
which Big Flower and the Trust agreed, at Big Flower's expense, for the benefit
of the holders of the Preferred Securities, the Debentures issuable in respect
of the Preferred Securities, Common Stock issuable upon conversion of the
Preferred Securities and the Debentures and the Guarantee (together, the
"Registrable Securities"), to file with the Commission on or prior to the date
90 days after the Original Offering Date a shelf registration statement (the
"Shelf Registration Statement") on such form as Big Flower deems appropriate
covering resale by holders of all Preferred Securities, the Debentures issuable
in respect of the Preferred Securities, the Common Stock issuable upon
conversion of the Preferred Securities and the Debentures and the Guarantee
(together, the "Registrable Securities"). The Company has agreed to use its best
efforts (i) to cause the Shelf Registration Statement to be declared effective
as promptly as practicable and in no event later than 180 days after the
Original Offering Date and (ii) to keep effective the Shelf Registration
Statement until two years after the latest date of original issuance of the
Preferred Securities (or such earlier date as the holders of Registrable
Securities are able to sell all Registrable Securities immediately without
restriction pursuant to Rule 144(k) under the Securities Act or any successor
rule thereto or otherwise) (such period the "Effectiveness Period"). The Issuer
and Big Flower are permitted to suspend the use of the prospectus (which is a
part of the Shelf Registration Statement) in connection with sales of
Registrable Securities by holders during certain periods of time under certain
circumstances relating to pending corporate developments affecting the Company
and public filings with the Commission and similar events. The Issuer and Big
Flower will provide to each registered holder copies of such prospectus, notify
each registered holder when the Shelf Registration Statement has become
effective, and take certain other actions as are required to permit unrestricted
sales of the Registrable Securities.
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In the Registration Rights Agreement, the Issuer and Big Flower agreed to
indemnify the holders of Registrable Securities against certain liabilities,
including liabilities under the Securities Act, subject to certain customary
limitations, and each holder of Registrable Securities included in the Shelf
Registration Statement will be obligated to indemnify the Issuer and the
Company, any other holder and any underwriters participating in the offering of
Registrable Securities against any liabilities with respect to information
furnished by such holder in writing to the Issuer and the Company (including the
information in a Selling Securityholder's Questionnaire) expressly for use in
the Shelf Registration Statement.
If (i) on or prior to the date 90 days after the Original Offering date a
Shelf Registration Statement has not been filed with the Commission or (ii) on
or prior to the date 180 days after the Original Offering date such Shelf
Registration Statement has not been declared effective (each such event, a
"Registration Default"), additional interest ("Liquidated Damages") will accrue
on the Debentures, and, accordingly, additional distributions will accrue on the
Preferred Securities, from and including the day following such Registration
Default until such date as the Shelf Registration Statement is declared
effective. Liquidated Damages will be paid quarterly in arrears, with the first
quarterly payment due on the first interest or distribution payment date, as
applicable, following the date on which such Liquidated Damages begin to accrue,
and will accrue at a rate per annum equal to an additional one quarter of one
percent (0.25%) of the principal amount or liquidation amount, as applicable, to
and including the 90th day following such Registration Default. In the event
that the Shelf Registration Statement ceases to be effective during the
Effectiveness Period of more than 90 days, whether or not consecutive, during
any 12-month period then the interest rate borne by the Debentures and the
distribution rate borne by the Preferred Securities will each increase by an
additional one-half of one percent (0.50%) per annum from the 91st day of the
applicable 12-month period such Shelf Registration Statement ceases to be
effective until such time as the Shelf Registration Statement again becomes
effective.
This summary of certain provisions of the Registration Rights Agreement does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Registration Rights Agreement, a copy of
the form of which is incorporated by reference herein as an exhibit to the
Registration Statement.
GOVERNING LAW
The Trust Agreement and the Preferred Securities are governed by, and
construed in accordance with, the internal laws of the State of Delaware without
regard to its conflict of laws principles and excluding sections 3540 and 3561
of Title 12 of the Delaware Code Annotated.
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DESCRIPTION OF THE GUARANTEE
The Guarantee was executed and delivered by Big Flower concurrently with the
issuance by the Issuer of the Preferred Securities for the benefit of the
holders from time to time of such Preferred Securities. The Bank of New York
acts as trustee ("Guarantee Trustee") under the Guarantee. This summary of
certain provisions of the Guarantee does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the provisions
of the Guarantee (a copy of which is available at the corporate trust offices of
the Guarantee Trustee in New York, New York). The Guarantee Trustee holds the
Guarantee for the benefit of the holders of the Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, Big Flower
irrevocably agreed to pay in full on a subordinated basis, to the extent set
forth herein, the Guarantee Payments (as defined below) to the holders of the
Preferred Securities, as and when due, regardless of any defense, right of
set-off or counterclaim that the Issuer may have or assert other than the
defense of payment. The following payments with respect to the Preferred
Securities, to the extent not paid by or on behalf of the Issuer (the "Guarantee
Payments"), are subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on the Preferred Securities, to the extent
that the Issuer has funds on hand available therefor at such time, (ii) the
redemption price with respect to any Preferred Securities called for redemption
to the extent that the Issuer has funds on hand available therefor at such time,
or (iii) upon a voluntary or involuntary dissolution, winding up or liquidation
of the Issuer (unless the Debentures are distributed to holders of the Preferred
Securities), the lesser of (a) the Liquidation Distribution, to the extent that
the Issuer has funds on hand available therefor at such time, and (b) the amount
of assets of the Issuer remaining available for distribution to holders of
Preferred Securities. Big Flower's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by Big Flower to the holders
of the Preferred Securities or by causing the Issuer to pay such amounts to such
holders.
The Guarantee is an irrevocable guarantee on a subordinated basis of the
Issuer's obligations under the Preferred Securities, but applies only to the
extent that the Issuer has funds sufficient to make such payments, and is not a
guarantee of collection. If Big Flower does not make interest payments on the
Debentures held by the Issuer, the Issuer will not be able to pay Distributions
on the Preferred Securities and will not have funds legally available therefor.
Big Flower has, through the Guarantee, the Trust Agreement, the Debentures
and the Indenture, taken together, fully, irrevocably and unconditionally
guaranteed all of the Issuer's obligations under the Preferred Securities. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Issuer's obligations under the
Preferred Securities. See "Relationship Among the Preferred Securities, the
Debentures and the Guarantee."
Big Flower has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Issuer with respect to the Common Securities to
the same extent as the Guarantee, except that upon the occurrence and during the
continuation of a Trust Agreement Event of Default, holders of Preferred
Securities shall have priority over holders of Common Securities with respect to
distributions and payments on liquidation, redemption or otherwise.
STATUS OF THE GUARANTEE
The Guarantee constitutes an unsecured obligation of Big Flower and ranks
subordinate and junior in right of payment to all Secured Indebtedness of Big
Flower. Big Flower has entered into the Credit Facility Guarantee. The Credit
Facility Guarantee is secured by a pledge of common stock of Big Flower Press
and constitutes Secured Indebtedness to which the Guarantee is subordinate. The
obligation of Big Flower under the Guarantee ranks PARI PASSU with any unsecured
debt now or hereafter incurred by Big Flower.
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The Guarantee constitutes a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee is held for the benefit of the holders of the Preferred Securities.
The Guarantee will not be discharged except by payment of the Guarantee Payments
in full to the extent not paid by the Issuer or upon distribution of the
Debentures to the holders of the Preferred Securities. The Guarantee does not
place a limitation on the amount of additional indebtedness that may be incurred
by Big Flower or any of its subsidiaries.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority in aggregate liquidation amount of such
outstanding Preferred Securities. The manner of obtaining any such approval will
be as set forth under "Description of the Preferred Securities--Voting Rights;
Amendment of the Trust Agreement." All guarantees and agreements contained in
the Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of Big Flower and shall inure to the benefit of the holders of
the Preferred Securities then outstanding.
CERTAIN COVENANTS OF BIG FLOWER
Big Flower covenanted in the Guarantee that if and so long as (i) the Issuer
is the holder of all the Debentures, (ii) a Tax Event in respect of the Issuer
has occurred and is continuing and (iii) Big Flower has elected, and has not
revoked such election, to pay Additional Sums in respect of the Preferred
Securities and Common Securities, Big Flower, subject to the subordination
provisions hereinafter referenced, will pay to the Issuer such Additional Sums.
Big Flower also covenanted that it will not, and it will not cause any of its
subsidiaries to, (i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any of
Big Flower's capital stock or (ii) make any payment of principal of or, interest
or premium, if any, on or repay or repurchase or redeem any debt securities
(including guarantees of indebtedness for money borrowed) of Big Flower that
rank PARI PASSU with or junior to the Debentures (other than (a) any dividend,
redemption, liquidation, interest, principal or guarantee payment by Big Flower
where the payment is made by way of securities (including capital stock) that
rank PARI PASSU with or junior to the securities on which such dividend,
redemption, interest, principal or guarantee payment is being made, (b)
redemptions or purchases of any Rights pursuant to Big Flower's Rights
Agreement, or any successor to such Rights Agreement and the declaration of a
dividend of such Rights or the issuance of preferred stock under such plans in
the future, (c) payments under the Guarantee, (d) purchases of Common Stock
related to the issuance of Common Stock under any of Big Flower's benefit plans
for its directors, officers or employees, (e) as a result of a reclassification
of Big Flower's capital stock or the exchange or conversion of one series or
class of Big Flower's capital stock for another series or class of Big Flower's
capital stock and (f) the purchase of fractional interests in shares of Big
Flower's capital stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged) if at such time (i)
there shall have occurred any event of which Big Flower has actual knowledge
that (a) with the giving of notice or the lapse of time, or both, would
constitute a Debenture Event of Default and (b) in respect of which Big Flower
shall not have taken reasonable steps to cure, (ii) Big Flower shall be in
default with respect to its payment of any obligations under the Guarantee or
(iii) Big Flower shall have given notice of its selection of an Extension Period
as provided in the Indenture with respect to the Debentures and shall not have
rescinded such notice, or such Extension Period, or any extension thereof, shall
be continuing. Big Flower has also covenanted (i) for so long as Preferred
Securities are outstanding, not to convert Debentures except pursuant to a
notice of conversion delivered to the Conversion Agent by a holder of Preferred
Securities, (ii) to maintain directly or indirectly 100% ownership of the Common
Securities, provided that certain successors which are permitted pursuant to the
Indenture may succeed to Big Flower's ownership of the Common Securities, (iii)
not to voluntarily terminate, wind-up or liquidate the
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Issuer, except (a) in connection with a distribution of the Debentures to the
holders of the Preferred Securities in liquidation of the Issuer or (b) in
connection with certain mergers, consolidations or amalgamations permitted by
the Trust Agreement, (iv) to maintain the reservation for issuance of the number
of shares of Common Stock that would be required from time to time upon the
conversion of all the Debentures then outstanding, (v) to use its reasonable
efforts, consistent with the terms and provisions of the Trust Agreement, to
cause the Issuer to remain classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes and (vi) to deliver shares of Common Stock upon an election by the
holders of the Preferred Securities to convert such Preferred Securities into
Common Stock.
As part of the Guarantee, Big Flower has agreed that it will honor all
obligations described therein relating to the conversion or exchange of the
Preferred Securities into or for Common Stock or Debentures.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of Big
Flower to perform any of its payment or other obligations thereunder. The
holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee, any holder of the
Preferred Securities may institute a legal proceeding directly against Big
Flower to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer, the Guarantee Trustee or any other person
or entity. In addition, any record holder of Preferred Securities shall have the
right, which is absolute and unconditional, to proceed directly against Big
Flower to obtain Guarantee Payments, without first waiting to determine if the
Guarantee Trustee has enforced the Guarantee or instituting a legal proceeding
against the Issuer, the Guarantee Trustee or any other person or entity. Big
Flower has waived any right or remedy to require that any action be brought just
against the Issuer, or any other person or entity before proceeding directly
against Big Flower.
Big Flower, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not Big Flower is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by Big Flower in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the redemption price of the Preferred Securities, upon full payment
of the amounts payable upon liquidation of the Issuer, upon the distribution, if
any, of Common Stock to the holders of Preferred Securities in respect of the
conversion of all such holders' Preferred Securities into Common Stock or upon
distribution of Debentures to the holders of the Preferred Securities in
exchange for all of the Preferred Securities. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Preferred Securities must restore payment of any sums paid under such
Preferred Securities or the Guarantee.
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DESCRIPTION OF THE DEBENTURES
The Debentures were issued under a Subordinated Debt Indenture, dated
October 15, 1997 (the "Indenture") between Big Flower and The Bank of New York
as trustee (the "Debenture Trustee"), copies of which are available for
inspection at the corporate trust office of the Debenture Trustee in New York,
New York. This summary of certain terms and provisions of the Debentures and the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Indenture. Whenever particular defined terms
of the Indenture are referred to herein, such defined terms are incorporated
herein or therein by reference.
GENERAL
The Debentures are unsecured and rank junior and subordinate in right of
payment to all future Secured Indebtedness of Big Flower. The Debentures are
limited in aggregate principal amount to $118,600,000 million, such amount being
the sum of the aggregate stated liquidation amount of the Preferred Securities
and capital contributed by Big Flower in exchange for the Common Securities. The
Indenture does not limit the incurrence or issuance of other secured or
unsecured debt of Big Flower, whether under the Indenture or any existing or
other indenture that Big Flower may enter into in the future or otherwise. See "
- -- Subordination."
Concurrently with the issuance of the Preferred Securities, the Issuer
invested the proceeds thereof and the consideration paid by Big Flower for the
Common Securities in the Debentures. The Debentures are in the principal amount
equal to the aggregate stated liquidation amount of the Preferred Securities
plus Big Flower's concurrent investment in the Common Securities.
The Debentures are not subject to any sinking fund provision. The entire
principal amount of the Debentures will mature, and become due and payable,
together with any accrued and unpaid interest thereon, on October 15, 2027.
INTEREST
The Debentures bear interest at the annual rate of 6% per annum, payable
quarterly in arrears on January 15, April 15, July 15, and October 15, of each
year, commencing on January 15, 1998 (each, an "Interest Payment Date"), to the
person in whose name each Debenture is registered at the close of business on
the Business Day next preceding such Interest Payment Date, subject to certain
exceptions. It is anticipated that, until the liquidation, if any, of the
Issuer, each Debenture will be held in the name of the Property Trustee in trust
for the benefit of the holders of the Preferred Securities and the Common
Securities. The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. In the event that any date
on which interest is payable on the Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next succeeding
day that is a Business Day (and without any interest or other payment in respect
of any such delay). Accrued interest that is not paid on the applicable Interest
Payment Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the stated rate per annum, compounded quarterly. The term
"interest" as used herein shall include quarterly interest payments, interest on
quarterly interest payments not paid on the applicable Interest Payment Date and
Additional Sums, as applicable.
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GLOBAL SECURITIES
If distributed to holders of the Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Issuer as
a result of the occurrence of a Special Event, the Debentures will be issued in
the same form as the Preferred Securities which such Debentures replace. Any
Global Certificate will be replaced by one or more global certificates (each a
"Global Security") registered in the name of the depository or its nominee.
Except under the limited circumstances described below, the Debentures
represented by the Global Security will not be exchangeable for, and will not
otherwise be issuable as, Debentures in definitive form. The Global Securities
described above may not be transferred except by the depository to a nominee of
the depository or by a nominee of the depository to the depository or another
nominee of the depository or to a successor depository or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security are not entitled to receive physical delivery of Debentures in
definitive form and will not be considered the holders thereof for any purpose
under the Indenture, and no Global Security representing Debentures shall be
exchangeable, except for another Global Security of like denomination and tenor
to be registered in the name of the depository or its nominee or to a successor
depository or its nominee. Accordingly, each beneficial owner of Preferred
Securities must rely on the procedures of DTC or 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.
If Debentures are distributed to holders of Preferred Securities in
liquidation of such holders' interests in the Issuer and a Global Security is
issued, DTC will act as securities depository for the Debentures represented by
such Global Security. For a description of DTC and the specific terms of the
depository arrangements, see "Description of the Preferred Securities -- Certain
Book-Entry Procedures for Global Certificates." As of the date of this
Prospectus, the description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the Preferred Securities apply in all material respects to any debt
obligations represented by one or more Global Securities held by DTC. Big Flower
may appoint a successor to DTC or any successor depository in the event DTC or
such depository is unable or unwilling to continue as a depository for the
Global Securities.
None of Big Flower, the Debenture Trustee, any Paying Agent or the
Securities Registrar have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Global Security representing such Debentures or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
A Global Security is exchangeable for Debentures registered in the names of
persons other than DTC or its nominee only if (i) DTC notifies Big Flower that
it is unwilling or unable to continue as a depository for such Global Debenture
and no successor depositary shall have been appointed by Big Flower within 90
days, or if at any time DTC ceases to be a clearing agency registered under the
Exchange Act at a time when DTC is required to be so registered to act as such
depository, (ii) Big Flower in its sole discretion determines that such Global
Security shall be so exchangeable, or (iii) there shall have occurred and be
continuing an Event of Default with respect to such Global Security. Any Global
Security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for definitive certificates registered in such names as DTC shall
direct. It is expected that such instructions will be based upon directions
received by DTC from its Participants with respect to ownership of beneficial
interests in such Global Security. In the event that Debentures are issued in
definitive form, such Debentures will be in denominations of $50 and integral
multiples thereof and may be transferred or exchanged at the offices described
in "--Payment and Paying Agents" below.
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PAYMENT AND PAYING AGENTS
Payments on Debentures represented by a Global Security will be made to DTC,
as the depositary for the Debentures. In the event Debentures are issued in
definitive form, principal of and premium, if any, and any interest on
Debentures will be payable, the transfer of the Debentures will be registrable,
and the Debentures will be exchangeable for Debentures of other denominations of
a like aggregate principal amount at the corporate office of the Debenture
Trustee in the City of New York or at the office of such Paying Agent or Paying
Agents as Big Flower may designate, except that at the option of Big Flower
payment of any interest may be made (i) by check mailed to the address of the
Person entitled thereto as such address shall appear in the Securities Register
or (ii) by wire transfer to an account maintained by the Person entitled thereto
as specified in the Securities Register, provided that proper transfer
instructions have been received by the Regular Record Date. Payment of any
interest on Debentures will be made to the Person in whose name such Debentures
are registered at the close of business on the Regular Record Date for such
interest, except in the case of Defaulted Interest. The Regular Record Date for
the interest payable on any Interest Payment Date shall be the fifteenth day
(whether or not a Business Day) next preceding such Interest Payment Date. Big
Flower may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent.
Any monies deposited with the Debenture Trustee or any Paying Agent, or then
held by Big Flower in trust, for the payment of the principal of and premium, if
any, or interest on any Debentures and remaining unclaimed for two years after
such principal and premium, if any, or interest has become due and payable
shall, at the request of Big Flower, be repaid to Big Flower and the holder of
such Debentures shall thereafter look, as a general unsecured creditor, only to
Big Flower for payment thereof.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Event of Default under the Indenture has occurred and is
continuing, Big Flower has the right under the Indenture to defer the payment of
interest (including any Liquidated Damages) on the Debentures at any time or
from time to time for a period not exceeding 20 consecutive quarters with
respect to each Extension Period, provided that no Extension Period may extend
beyond the stated maturity of the Debentures. At the end of such Extension
Period, Big Flower must pay all interest then accrued and unpaid (together with
interest thereon at the stated annual rate, compounded quarterly, to the extent
permitted by applicable law). During an Extension Period, interest will continue
to accrue and holders of Debentures (or holders of Preferred Securities while
the Preferred Securities are outstanding) will continue to be required to accrue
interest income for United States federal income tax purposes. See "Certain
Federal Income Tax Consequences--Interest Income and Original Issue Discount."
During any such Extension Period, Big Flower may not, and may not cause any
subsidiary to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of Big
Flower's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees of indebtedness for money borrowed) of Big Flower that
rank PARI PASSU with or junior to the Debentures (other than (a) any dividend,
redemption, liquidation, interest, principal or guarantee payment by Big Flower
where the payment is made by way of securities (including capital stock) that
rank PARI PASSU with or junior to the securities on which such dividend,
redemption, interest, principal or guarantee payment is being made, (b)
redemptions or purchases of any Rights pursuant to Big Flower's Rights
Agreement, or any successor to such Rights Agreement, and the declaration of a
dividend of such Rights or the issuance of preferred stock under such plans in
the future, (c) payments under the Guarantee, (d) purchases of Common Stock
related to the issuance of Common Stock under any of Big Flower's benefit plans
for its directors, officers or employees, (e) as a result of a reclassification
of Big Flower's capital stock or the exchange or conversion of one series or
class of Big Flower's capital stock for another series or class of Big Flower's
capital stock, and (f) the purchase of fractional interests in shares of Big
Flower's capital stock pursuant to the conversion or exchange provisions of such
capital stock or
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the security being converted or exchanged). Prior to the termination of any such
Extension Period, Big Flower may further extend the interest payment period,
provided that no Extension Period may exceed 20 consecutive quarters or extend
beyond the stated maturity of the Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, Big Flower may elect to begin a new Extension Period subject to the above
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof. Big Flower shall give the Property Trustee, the
Administrative Trustees and the Debenture Trustee notice of its election to
begin any Extension Period at least one Business Day prior to the earlier of (i)
the record date for the date Distributions on the Preferred Securities (or, if
no Preferred Securities are outstanding, for the date interest on the
Debentures) would have been payable except for the election to begin such
Extension Period and (ii) the date the Property Trustee is (or, if no Preferred
Securities are outstanding, the Debenture Trustee is) required to give notice to
the NYSE or other applicable self-regulatory organization or to holders of such
Preferred Securities (or, if no Preferred Securities are outstanding, to the
holders of such Debentures) of such record date. The Debenture Trustee and the
Property Trustee shall give notice of Big Flower's election to begin an
Extension Period to the holders of the Debentures and the Preferred Securities,
respectively.
MANDATORY REDEMPTION
Upon repayment at maturity or as a result of acceleration upon the
occurrence of a Debenture Event of Default, Big Flower will redeem the
Debentures, in whole but not in part, at a redemption price equal to 100% of the
principal amount thereof, together with any accrued and unpaid interest thereon.
Any payment pursuant to this provision shall be made prior to 12:00 noon, New
York City time, on the date of such repayment or acceleration or at such other
time on such earlier date as the parties thereto shall agree. The Debentures are
not entitled to the benefit of any sinking fund or, except as set forth above or
as a result of acceleration, any other provision for mandatory prepayment.
OPTIONAL REDEMPTION
On and after October 15, 2000, Big Flower will have the right, at any time
and from time to time, to redeem the Debentures, in whole or in part, upon
notice given as provided below, during the twelve month periods beginning on
October 15, in each of the following years and at the indicated redemption
prices (expressed as a percentage of the principal amount of the Debentures
being redeemed), together with any accrued but unpaid interest on the portion
being redeemed.
<TABLE>
<CAPTION>
REDEMPTION REDEMPTION
YEAR PRICE YEAR PRICE
- ----------------------------------------- ------------ ----------------------------------------- ------------
<S> <C> <C> <C>
2000..................................... 104.2% 2004..................................... 101.8%
2001..................................... 103.6 2005..................................... 101.2
2002..................................... 103.0 2006..................................... 100.6
2003..................................... 102.4 2007 and thereafter...................... 100.0
</TABLE>
For so long as the Issuer is the holder of all the outstanding Debentures,
the proceeds of any such redemption will be used by the Issuer to redeem
Preferred Securities and Common Securities in accordance with their terms. Big
Flower may not redeem the Debentures in part unless all accrued and unpaid
interest has been paid in full on all outstanding Debentures. Big Flower may
not, in any case, redeem the Debentures unless all accrued and unpaid interest
thereon has been paid in full on all outstanding Debentures through the last
interest payment date prior to and including the date of redemption. See
"Description of the Preferred Securities--Optional Redemption."
Big Flower also shall have the right to redeem the Debentures at any time
after October 15, 2000 upon the occurrence of a Tax Event as described in
"Description of the Preferred Securities--Special Event Exchange or Redemption."
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REDEMPTION PROCEDURES
Notices of any redemption of the Debentures and the procedures for such
redemption shall be as provided with respect to the Preferred Securities under
"Description of the Preferred Securities-- Redemption Procedures." Notice of any
redemption will be mailed at least 30 days but not more than 60 days before the
redemption date to each holder of Debentures to be redeemed at its registered
address. Unless Big Flower defaults in payment of the redemption price, on and
after the redemption date interest ceases to accrue on such Debentures or
portions thereof called for redemption.
DISTRIBUTION OF DEBENTURES
At any time, Big Flower has the right to terminate the Issuer and cause the
Debentures to be distributed to the holders of the Preferred Securities in
liquidation of the Issuer after satisfaction of liabilities to creditors of the
Issuer as provided by applicable law. If distributed to holders of Preferred
Securities in liquidation, the Debentures will initially be issued in the form
of one or more global securities and DTC, or any successor depositary for the
Preferred Securities, will act as depositary for the Debentures. It is
anticipated that the depositary arrangements for the Debentures would be
substantially identical to those in effect for the Preferred Securities. There
can be no assurance as to the market price of any Debentures that may be
distributed to the holders of Preferred Securities. For a description of DTC and
the terms of the depositary matters, see "Description of the Preferred
Securities--Certain Book-Entry Procedures for Global Certificates."
CONVERSION OF THE DEBENTURES
The Debentures are convertible at the option of the holders of the
Debentures into Common Stock, at any time prior to redemption or maturity,
initially at the rate of 1.7344 shares of Common Stock for each $50 in principal
amount of the Debentures (equivalent to a conversion price of $28.828 per share
of Common Stock), subject to the conversion price adjustments described under
"Description of the Preferred Securities--Conversion Rights." The Issuer
covenanted for so long as the Preferred Securities are outstanding not to
convert the Debentures except pursuant to a notice of conversion delivered to
the Conversion Agent by a holder of Preferred Securities. Upon surrender of such
Preferred Securities to the Conversion Agent for conversion, the Issuer will
distribute the commensurate principal amount of the Debentures to the Conversion
Agent on behalf of the holder of every Preferred Security so converted,
whereupon the Conversion Agent will convert such Debentures into Common Stock on
behalf of such holder. Big Flower's delivery to the holders of the Debentures
(through the Conversion Agent) of the fixed number of shares of Common Stock
into which the Debentures are convertible (together with the cash payment, if
any, in lieu of fractional shares) will be deemed to satisfy Big Flower's
obligation to pay the principal amount of the Debentures, and the accrued and
unpaid interest attributable to the period from the last date to which interest
has been paid or duly provided for.
MODIFICATION OF INDENTURE
From time to time, Big Flower and the Debenture Trustee may, without the
consent of the holders of Debentures, amend, waive or supplement the Indenture
for specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies (provided that any such action does not materially
adversely affect the interest of the holders of the Debentures, or the holders
of the Preferred Securities so long as they remain outstanding) and qualifying,
or maintaining the qualification of, the Indenture under the Trust Indenture
Act. The Indenture contains provisions permitting Big Flower and the Debenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the outstanding Debentures, to modify the Indenture in a
manner affecting the rights of the holders of the Debentures; provided that no
such modification may, without the consent of the holder of each outstanding
Debentures so affected, (i) change the stated maturity of the Debentures, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon (other than deferrals of the payments of interest as
described under "--Option to Extend Interest Payment Period") or impair any
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right to institute suit for the enforcement of any such payment, or change the
subordination provisions of the Indenture or any right to convert any Debentures
in a manner adverse to the holders or (ii) reduce the percentage of principal
amount of the Debentures, the holders of which are required to consent to any
such modification of the Indenture, provided that, so long as any of the
Preferred Securities remain outstanding, no such modification may be made that
adversely affects the holders of such Preferred Securities in any material
respect, and no termination of the Indenture may occur, and no waiver of any
Debenture Event of Default or compliance with any covenant under the Indenture
may be effective, without the prior consent of the holders of at least a
majority in aggregate liquidation amount of the Preferred Securities then
outstanding unless and until the principal of the Debentures and all accrued and
unpaid interest thereon has been paid in full.
Prior to the acceleration of the maturity of any Debentures, the holders of
a majority in aggregate principal amount of the Debentures at the time
outstanding with respect to which a default or an Event of Default shall have
occurred and be continuing (voting as one class) may on behalf of the holders of
all such affected Debentures waive any past default or a Debenture Event of
Default and its consequences, except a default or a Debenture Event of Default
in respect of a covenant or provision of the Indenture or of any Debentures
which cannot be modified or amended without the consent of the holder of each of
the Debentures affected.
DEBENTURE EVENTS OF DEFAULT
The occurrence of any of the following events with respect to the Debentures
constitutes a "Debenture Event of Default" with respect to such Debentures:
(i) failure for 30 days to pay any interest on the Debentures, when due
(subject to the deferral of any due date in the case of an
Extension Period);
(ii) failure to pay any principal of or premium, if any, on the
Debentures when due whether at maturity, upon redemption by
declaration or otherwise;
(iii) failure by Big Flower to deliver shares of Common Stock upon an
appropriate election by holders of the Debentures to convert such
Debentures;
(iv) default for 90 days by Big Flower in the observance or performance
of any other covenant or agreement contained in the Indenture
relating to the Debentures after written notice thereof as provided
in the Indenture; or
(v) certain events of bankruptcy, insolvency or reorganization relating
to Big Flower or Big Flower Press.
If a Debenture Event of Default shall have occurred and be continuing,
either the Debenture Trustee or the holders of not less than 25% in aggregate
principal amount of the Debentures then outstanding may declare the principal of
all Debentures and the interest, if any, accrued thereon to be due and payable
immediately and, should the Debenture Trustee or the holders of the Debentures
fail to make such declaration, the holders of at least 25% in aggregate
liquidation amount of the Preferred Securities then outstanding shall have such
right.
Upon certain conditions, any such declarations may be rescinded and annulled
if all Debenture Events of Default, other than the nonpayment of accelerated
principal, with respect to the Debentures then outstanding shall have been cured
or waived as provided in the Indenture by the holders of a majority in aggregate
principal amount of the Debentures then outstanding and, should the holders of
the Debentures fail to waive such default, the holders of a majority in
aggregate liquidation amount of the Preferred Securities shall have such right.
The Indenture provides that the Debenture Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of the holders of the Debentures, unless
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such holders shall have offered to the Debenture Trustee reasonable indemnity.
Subject to such provisions for indemnity and certain other limitations contained
in the Indenture, the holders of a majority in aggregate principal amount of the
Debentures then outstanding (voting as one class) will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Debenture Trustee, or exercising any trust or power conferred on the
Debenture Trustee, with respect to the Debentures.
The Indenture provides that no holder of the Debentures may institute any
action against Big Flower under the Indenture (except actions for payment of
overdue principal, premium or interest) unless such holder previously shall have
given to the Debenture Trustee written notice of default and continuance thereof
and unless the holders of not less than 25% in aggregate principal amount of the
Debentures then outstanding (voting as one class) shall have requested the
Debenture Trustee to institute such action and shall have offered the Debenture
Trustee reasonable indemnity, the Debenture Trustee shall not have instituted
such action within 60 days of such request and the Debenture Trustee shall not
have received direction inconsistent with such request by the holders of a
majority in aggregate principal amount of the Debentures then outstanding
(voting as one class).
The Indenture requires Big Flower to furnish to the Debenture Trustee
annually a statement as to Big Flower's compliance with all conditions and
covenants under the Indenture. The Indenture provides that the Debenture Trustee
may withhold notice to the holders of the Debentures of any default (except
defaults as to payment of principal, premium or interest on the Debentures) if
it considers such withholding to be in the interest of the holders of the
Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of Big Flower to pay interest or principal
on the Debentures on the date such interest or principal is otherwise payable, a
holder of Preferred Securities may institute a Direct Action for payment after
the respective due date specified in the Debentures. Big Flower may not amend
the Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Preferred Securities.
Notwithstanding any payment made to such holder of Preferred Securities by Big
Flower in connection with a Direct Action, Big Flower shall remain obligated to
pay the principal of or interest on the Debentures held by the Issuer or the
Property Trustee and Big Flower shall be subrogated to the rights of the holder
of such Preferred Securities with respect to payments on the Preferred
Securities to the extent of any payments made by Big Flower to such holder in
any Direct Action.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that Big Flower shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate with
or merge into Big Flower or convey, transfer or lease its properties and assets
substantially or as an entirety to Big Flower, unless (i) in case Big Flower
consolidates with or merges into another Person or conveys, transfers or leases
its properties and assets substantially as an entirety to any Person, the
successor Person is organized under the laws of the United States or any state
or the District of Columbia, and such successor Person expressly assumes Big
Flower's obligations on the Debentures; (ii) immediately after giving effect
thereto, no Debenture Event of Default, and no event which, after notice or
lapse of time or both, would become a Debenture Event of Default, shall have
happened and be continuing; (iii) in the case of the Debentures, such
transaction is permitted under the Trust Agreement and Guarantee and does not
give rise to any breach or violation of the Trust Agreement or Guarantee; and
(iv) certain other conditions as prescribed in the Indenture are met.
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The general provisions of the Indenture do not afford holders of the
Debentures protection in the event of a highly leveraged or other transaction
involving Big Flower that may adversely affect holders of the Debentures.
EXPENSES OF ISSUER
Pursuant to the Indenture, Big Flower will pay all of the costs, expenses or
liabilities of the Issuer, other than obligations of the Issuer to pay to the
holders of any Preferred Securities or Common Securities the amounts due such
holders pursuant to the terms of the Preferred Securities or Common Securities.
DEFEASANCE, COVENANT DEFEASANCE AND DISCHARGE
The Indenture provides that, at the option of Big Flower: (i) Big Flower
will be discharged from any and all obligations in respect of the Debentures
then outstanding (except for certain obligations to register the transfer of or
exchange the Debentures, to replace stolen, lost or mutilated Debentures, to
maintain paying agencies and to maintain the trust described below), or (ii) Big
Flower need not comply with certain restrictive covenants of the Indenture
(including those described under "--Consolidation, Merger, Sale of Assets and
Other Transactions"), in each case if Big Flower irrevocably deposits in trust
with the Debenture Trustee money, and/or securities backed by the full faith and
credit of the United States which, through the payment of the principal thereof
and the interest thereon in accordance with their terms, will provide money in
an amount sufficient to pay all the principal of and premium, if any, and
interest on the Debentures on the stated maturity of such Debentures (which may
include one or more redemption dates designated by Big Flower) in accordance
with the terms thereof. To exercise such option, Big Flower is required, among
other things, to deliver to the Debenture Trustee an opinion of independent
counsel to the effect that the exercise of such option would not cause the
holders of the Debentures to recognize income, gain or loss for United States
Federal income tax purposes as a result of such defeasance, and such holders
will be subject to United States Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
had not occurred, and, in the case of a discharge as described in clause (i) of
the preceding sentence, such opinion is to be accompanied by a private letter
ruling to the same effect received from the Internal Revenue Service, a revenue
ruling to such effect pertaining to a comparable form of transaction published
by the Internal Revenue Service or appropriate evidence that since the date of
the Indenture there has been a change in the applicable Federal income tax law.
In the event Big Flower exercises its option to effect a covenant defeasance
with respect to the Debentures as described in the preceding paragraph and the
Debentures are thereafter declared due and payable because of the occurrence of
any Debenture Event of Default other than an Event of Default caused by failing
to comply with the covenants which are defeased, and the amount of money and
securities on deposit with the Debenture Trustee would be insufficient to pay
amounts due on the Debentures at the time of the acceleration resulting from
such Debenture Event of Default, Big Flower would remain liable for such
amounts.
Big Flower may also obtain a discharge of the Indenture with respect to all
Debentures then outstanding (except for certain obligations to register the
transfer of or exchange such Debentures to replace stolen, lost or mutilated
Debentures, to maintain paying agencies and to maintain the trust described
below) by irrevocably depositing in trust with the Debenture Trustee money,
and/or securities backed by the full faith and credit of the United States
which, through the payment of the principal thereof and the interest thereon in
accordance with their terms, will provide money in an amount sufficient to pay
all the principal of and premium, if any, and interest on the Debentures on the
stated maturities thereof (including one or more redemption dates), provided
that such Debentures are by their terms due and payable, or are to be called for
redemption, within one year.
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For United States Federal income tax purposes any deposit contemplated in
the preceding paragraph would be treated as an exchange of the Debentures
outstanding for other property. Accordingly, holders of the Debentures
outstanding may be required to recognize a gain or loss for United States
Federal income tax purposes upon such exchange. In addition, such holders
thereafter may be required to recognize income from such property which could be
different from the amount that would be includable in the absence of such
deposit. Prospective investors are urged to consult their own tax advisors as to
the specific consequences to them of such deposit.
SUBORDINATION
The Indenture provides (and each holder of the Debentures by acceptance
thereof agrees) that the Debentures are subordinated in right of payment to the
prior payment in full of all Secured Indebtedness (as defined herein) of Big
Flower, whether outstanding on the issue date of the Debentures or thereafter
incurred. No payment on account of principal of, premium, if any, or interest on
the Debentures and no acquisition of, or payment on account of any sinking fund
for, the Debentures may be made unless full payment in cash of all amounts then
due for principal, premium, if any, and interest then due on all Secured
Indebtedness by reason of the maturity thereof (by lapse of time, acceleration
or otherwise) has been made or duly provided for in cash or in a manner
satisfactory to the holders of such Secured Indebtedness. In addition, the
Indenture provides that upon the happening and during the continuation of any
default in payment of the principal of, premium, if any, or interest on, or any
other amounts owing with respect to, any Secured Indebtedness when the same
becomes due and payable or in the event any judicial proceeding shall be pending
with respect to any such default, then, unless and until such default shall have
been cured or waived or shall have ceased to exist, no payment shall be made by
Big Flower with respect to the principal of, premium, if any, or interest on the
Debentures or to acquire any Debentures or on account of any sinking fund
provisions applicable to the Debentures. Big Flower shall give prompt written
notice to the Debenture Trustee of any default in payment of principal of or
interest on any Secured Indebtedness; provided that no failure to give such a
notice shall have any effect whatsoever on the subordination provisions
described herein. In addition, during the continuance of any other event of
default with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be accelerated, upon the occurrence of (a) receipt by the
Debenture Trustee of written notice from the holders of a majority of the
outstanding principal amount of the Designated Senior Indebtedness or their
representative, or (b) if such event of default results from the acceleration of
the Debentures, the date of such acceleration, no such payment may be made by
Big Flower upon or in respect of the Debentures for a period ("Payment Blockage
Period") commencing on the earlier of the date of receipt of such notice or the
date of such acceleration and ending 179 days thereafter (unless such Payment
Blockage Period shall be terminated by written notice to the Debenture Trustee
from the holders of a majority of the outstanding principal amount of such
Designated Senior Indebtedness or their representative who delivered such
notice). Notwithstanding anything herein to the contrary, in no event will a
Payment Blockage Period extend beyond 179 days from the date on which such
Payment Blockage Period was commenced. Not more than one Payment Blockage Period
may be commenced with respect to the Debentures during any period of 360
consecutive days. For all purposes of this paragraph, no event of default which
existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period shall be, or be made, the basis for the
commencement of a second Payment Blockage Period by the holders of such
Designated Senior Indebtedness or their representative whether or not within a
period of 360 consecutive days unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days. As used
herein, "Designated Senior Indebtedness" shall mean (x) all Senior Indebtedness
of Big Flower under, or as a result of its guarantee of, Indebtedness pursuant
to the Credit Agreement and (y) at any time when no Indebtedness described in
preceding clause (x) is outstanding, any issue of Senior Indebtedness with an
aggregate principal amount in excess of $15.0 million that is designated as
"Designated Senior Indebtedness" by written notice from
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Big Flower to the Debenture Trustee. Upon any distribution of its assets in
connection with any dissolution, winding up, liquidation or reorganization of
Big Flower, whether voluntary or involuntary, in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors or
otherwise: (i) all Secured Indebtedness (including without limitation all
interest accruing on or after the filing of any petition in bankruptcy relating
to Big Flower at the relevant contractual rate, whether or not such claim for
post-petition interest is allowed in such proceeding) must be paid in full in
cash before the holders of the Debentures are entitled to any payments or
distributions whatsoever; and (ii) any payment or distribution of Big Flower's
assets of any kind or character, whether in cash, securities or other property,
which would otherwise (but for the subordination provisions) be payable or
deliverable in respect of the Debentures shall be paid or delivered directly to
the holders of such Secured Indebtedness (or their representative or trustee) in
accordance with the priorities then existing among such holders until all
Secured Indebtedness shall have been paid in full in cash before any payment or
distribution is made to the holders of the Debentures. In the event that
notwithstanding the subordination provisions described above, any payment or
distribution of assets of any kind or character is made on the Debentures at a
time when the respective payment is not permitted to be made as a result of the
subordination provisions described above and before all Secured Indebtedness is
paid in full in cash, the Debenture Trustee or the holders of the Debentures
receiving such payment will be required to pay over such payment or distribution
to the holders of such Secured Indebtedness. Subject to the payment in full in
cash of all Secured Indebtedness, the rights of the holders of the Debentures
will be subrogated to the rights of the holders of Secured Indebtedness to
receive payments or distributions applicable to Secured Indebtedness until all
amounts owing on the Debentures are paid in full. As a result of the
subordination provisions, in the event of Big Flower's insolvency, the holders
of the Debentures may recover ratably less than senior creditors of Big Flower.
"Secured Indebtedness" means the principal (including without limitation all
unpaid drawings with respect to letters of credit) of and premium, if any, and
interest (including interest accruing on or after the filing of any petition in
bankruptcy relating to Big Flower at the relevant contractual rate whether or
not such claim for post-petition interest is allowed in such proceeding) on, and
all other amounts owing with respect to, the following, whether outstanding on
the date of execution of the Indenture or thereafter incurred, created or
assumed, to the extent (but only to the extent) the same is secured by a lien,
charge, mortgage or other encumbrance on property or assets of Big Flower or its
subsidiaries: (i) indebtedness of Big Flower for money borrowed (including
purchase money obligations, except indebtedness to trade creditors) or evidenced
by debentures (other than the Debentures), notes, bankers' acceptances or other
corporate debentures or similar instruments; (ii) all capital lease obligations
of Big Flower; (iii) all obligations with respect to letters of credit; (iv) all
obligations with respect to currency hedging agreements, interest rate
protection agreements and other similar agreements; (v) all indebtedness of
others of the type referred to in the preceding clauses (i) through (iv) assumed
by or guaranteed in any manner by Big Flower or in effect guaranteed by Big
Flower; and (vi) renewals, extensions or refundings of any of the indebtedness
referred to in the preceding clauses (i), (ii), (iii), (iv) and (v) and in this
clause (vi). For purposes of the foregoing definition, all indebtedness secured
by a lien, charge, mortgage or other encumbrance on property or assets of Big
Flower or its subsidiaries shall be deemed to be secured for purposes of said
definition, notwithstanding any determination that the amount of indebtedness so
secured exceeds the value of the assets serving as security therefor and
notwithstanding any determination in any bankruptcy or other proceeding that a
portion of such indebtedness shall be treated as unsecured because of any
insufficiency in the value of the collateral securing such indebtedness.
Without limiting the foregoing, in any event all obligations of Big Flower
with respect to (including its guaranties of obligations under) the Credit
Agreement shall constitute Secured Indebtedness.
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INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee is under no obligation to exercise any of the powers
vested in it by the Indenture at the request of any holder of the Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE DEBENTURES
AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Issuer has funds available for the payment of such
Distributions) are irrevocably guaranteed by Big Flower as and to the extent set
forth under "Description of the Guarantee." Taken together, Big Flower's
obligations under the Debentures, the Indenture, the Trust Agreement and the
Guarantee provide, in the aggregate, a full, irrevocable and unconditional
guarantee of payments of Distributions and other amounts due on the Preferred
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only the
combined operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Issuer's obligations under the
Preferred Securities. If and to the extent that Big Flower does not make
payments on the Debentures, the Issuer will not pay Distributions or other
amounts due on the Preferred Securities. The Guarantee does not cover payment of
Distributions when the Issuer does not have sufficient funds to pay such
Distributions. In such event, a holder of Preferred Securities may institute a
Direct Action directly against Big Flower to enforce payment of such
Distributions to such holder after the respective due dates. All obligations of
Big Flower under the Guarantee are subordinate and junior in right of payment to
all future Secured Indebtedness of Big Flower on substantially the same terms as
provided above with respect to the Debentures; and PARI PASSU with any unsecured
debt, now or hereafter incurred by Big Flower.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Debentures, such payments will be sufficient to cover Distributions and other
payments due on the Preferred Securities, primarily because (i) the aggregate
principal amount of the Debentures will be equal to the sum of the aggregate
stated liquidation amount of the Preferred Securities and Common Securities;
(ii) the interest rate and interest and other payment dates on the Debentures
will match the Distribution rate and Distribution and other payment dates for
the Preferred Securities; (iii) Big Flower shall pay for all and any costs,
expenses and liabilities of the Issuer except the Issuer's obligations to
holders of the Preferred Securities under such Preferred Securities; and (iv)
the Trust Agreement further provides that the Issuer will not engage in any
activity that is not consistent with the limited purposes of the Issuer.
Notwithstanding anything to the contrary in the Indenture, Big Flower has
the right to set-off any payment it is otherwise required to make thereunder
with and to the extent Big Flower has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any Preferred Securities may institute a legal proceeding
directly against Big Flower to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Guarantee Trustee, the Issuer
or any other person or entity.
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A default or event of default under any Secured Indebtedness of Big Flower
will not constitute a default under the Indenture or a Debenture Event of
Default. However, in the event of payment defaults under, or acceleration of,
Secured Indebtedness of Big Flower, the subordination provisions of the
Indenture provide that no payments may be made in respect of the Debentures
until such Secured Indebtedness has been paid in full or any payment default
thereunder has been cured or waived. Failure to make required payments on the
Debentures would constitute a Debenture Event of Default.
LIMITED PURPOSE OF ISSUER
The Preferred Securities evidence a beneficial interest in the Issuer, and
the Issuer exists for the sole purpose of issuing the Preferred Securities and
Common Securities and investing the proceeds thereof in the Debentures. A
principal difference between the rights of a holder of Preferred Securities and
a holder of Debentures is that a holder of Debentures is entitled to receive
from Big Flower the principal amount of and interest accrued on Debentures held,
while a holder of Preferred Securities is entitled to receive Distributions from
the Issuer (or from Big Flower under the applicable Guarantee) if and to the
extent the Issuer has funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
the Issuer involving the liquidation of the Debentures, the holders of the
Preferred Securities will be entitled to receive, out of assets held by the
Issuer, the Liquidation Distribution in cash. See "Description of the Preferred
Securities--Liquidation Distribution Upon Termination." Upon any voluntary or
involuntary liquidation or bankruptcy of Big Flower, the Property Trustee, as
holder of the Debentures, would be a subordinated creditor of Big Flower,
subordinated in right of payment to all Secured Indebtedness, but entitled to
receive payment in full of principal and interest before any stockholders of Big
Flower receive payments or distributions. Since Big Flower is the guarantor
under the Guarantee and has agreed to pay for all costs, expenses and
liabilities of the Issuer (other than the Issuer's obligations to the holders of
the Preferred Securities), the positions of a holder of such Preferred
Securities and a holder of such Debentures relative to other creditors and to
stockholders of Big Flower in the event of liquidation or bankruptcy of Big
Flower would be substantially the same.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
At March 16, 1998, the capital stock of Big Flower consisted of 50,000,000
authorized shares of Common Stock, of which 19,434,329 shares were issued and
outstanding, 4,390,407 shares of Common Stock were reserved for issuance under
the Big Flower Holdings, Inc. Restated 1993 Stock Award and Incentive Plan (the
"Stock Option Plan") and 3,989,160 shares of Common Stock were reserved for
issuance upon conversion of the Preferred Securities; and 10,000,000 authorized
shares of preferred stock, of which no shares were issued and outstanding.
250,000 shares of preferred stock were designated as Series A Junior Preferred
Stock ("Series A Preferred Stock"), and reserved for issuance pursuant to the
Company's Rights Plan (as described below). As a result of the reorganization of
the Company's legal structure on October 17, 1997, all of the shares of capital
stock of Big Flower Press which were outstanding on such date were automatically
converted into corresponding shares of Big Flower.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board may from time to time determine. The shares of Common Stock
are neither redeemable nor convertible, and the holders thereof have no
preemptive or subscription rights to purchase any securities of Big Flower. Upon
liquidation, dissolution or winding up of Big Flower, the holders of Common
Stock are entitled to receive the assets of Big Flower which are legally
available for distribution, after payment of all debts, other liabilities and
any liquidation preference of outstanding preferred stock. Each outstanding
share of Common Stock is entitled to one vote on all matters submitted to a vote
of stockholders. There is no cumulative voting.
PREFERRED STOCK
The Board is authorized to issue preferred stock in classes or series and to
fix the designations, preferences, qualifications, limitations, or restrictions
of any class or series with respect to the rate and nature of dividends, the
price and terms and conditions on which shares may be redeemed, the amount
payable in the event of voluntary or involuntary liquidation, the terms and
conditions for conversion or exchange into any other class or series of the
stock, voting rights, if any, and other terms. 250,000 shares of Series A
Preferred Stock are reserved for issuance pursuant to the Company's Rights Plan.
ANTI-TAKEOVER EFFECT OF PROVISIONS OF THE COMPANY'S CERTIFICATE AND BYLAWS
The Certificate and Bylaws contain certain provisions that may be deemed to
have an anti-takeover effect and may delay, deter 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.
Pursuant to the Certificate, the Board is divided into three classes serving
staggered three-year terms. Directors can be removed from office only for cause
and only by the affirmative vote of the holders of 85% of the Common Stock.
Vacancies and newly created directorships on the Board may be filled only by a
majority of the remaining directors, by a sole remaining director or by the
affirmative vote of the holders of 85% of the Common Stock.
The Certificate also provides that any action required or permitted to be
taken by the holders of Common Stock may be taken only at an annual or special
meeting of such holders, and prohibits stockholder action by written consent in
lieu of a meeting. The Bylaws provide that special meetings of holders of Common
Stock may be called only by the Chairman or the President of the Company and
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must be called by Chairman, President or the Secretary of the Company at the
request in writing of a majority of the Board. Holders of Common Stock are not
permitted to call a special meeting or to require that the Board call a special
meeting of stockholders.
The Bylaws may be amended or changed or new Bylaws may be adopted only by
the Board or the affirmative vote of 85% of the outstanding shares of Common
Stock.
The Bylaws establish an advance notice procedure for the nomination, other
than by or at the direction of the Board, of candidates for election as
directors as well as for other stockholder proposals to be considered at annual
meetings of stockholders. In general, notice of intent to nominate a director or
raise business at such meetings must be received by the Company not less than 60
nor more than 90 days prior to the date of the annual meeting, and must contain
certain specified information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the stockholder
submitting the proposal.
Article FIFTH of the Company's Certificate provides for, among other things,
(i) classification of the Company's Board, (ii) removal of the Company's
directors from office only for cause, (iii) amendment of the Bylaws by
stockholders of the Company to require an affirmative vote of the holders of 85%
of the outstanding shares of the Company's Common Stock, (iv) prohibition of
action by written consent of the stockholders of the Company, (v) elimination of
the Company director liability to the maximum extent permitted by the Delaware
General Corporation Law and (vi) amendment of the Rights Agreement to require
action by a majority of Continuing Directors.
A Continuing Director is defined as a person serving as a member of Big
Flower Press Holdings, Inc.'s Board on November 28, 1995 and any person who
subsequently becomes a member of the Board if such person was elected by, or
such person's nomination for election was recommended or approved by, a majority
of the Continuing Directors then in office. The Company's Certificate also
provided that the provisions of Article FIFTH of the Company's Certificate may
only be altered, amended or replaced by either the affirmative vote of the
holders of 85% of the outstanding shares of the Company's Common Stock or by a
majority of Continuing Directors.
RIGHTS PLAN
In 1995 the Board declared a dividend distribution of one right (a "Right")
for each outstanding share of Common Stock payable to stockholders of record at
the close of business on the business day immediately following the date of
consummation of the initial public offering of the Company's Common Stock (the
"Record Date"). Each Right entitles the registered holder to purchase from the
Company a unit consisting of one one-hundredth of a share of Series A Preferred
Stock at an exercise price of $55 per unit. The terms of the Rights are set
forth in a Rights Agreement between the Company and a Rights Agent (the "Rights
Agreement"). The following summary outlines certain provisions of the Rights
Agreement and is qualified by reference to the full text of the form of Rights
Agreement.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate rights certificates (the
"Rights Certificates") will be distributed. The Rights will separate from the
Common Stock, separate Rights Certificates will be issued and a distribution
date (the "Distribution Date") will occur upon the earlier to occur of (i) ten
days following the date of a public announcement that there is an Acquiring
Person (as defined below) (such date, the "Stock Acquisition Date"), or (ii) ten
days following commencement of a tender or exchange offer that would result in
the offeror beneficially owning 15% or more of the then outstanding shares of
Common Stock.
The term "Acquiring Person" means, any person who, together with affiliates
and associates either (a) acquires (after the Record Date) beneficial ownership
of shares of Common Stock representing 15% or more of the Common Stock or (b) is
the beneficial owner of 30% or more of the Common Stock. However, shares of
Common Stock and options to purchase Common Stock issued or granted by the
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Company to a director, officer or employee pursuant to, or upon exercise of
options or rights granted pursuant to, any benefit plan of the Company shall not
be deemed to be beneficially owned by such person for purposes of determining
such person's percentage beneficial ownership of Common Stock.
In the event that a person becomes an Acquiring Person (except pursuant to
an offer for all outstanding shares of Common Stock which the independent
directors determine to be fair to and otherwise in the best interests of the
Company and its stockholders), each holder of a Right will thereafter have the
right to receive, upon exercise, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a calculated value
equal to two times the exercise price of the Right. Notwithstanding the
foregoing, following the occurrence of such event, all Rights that are, or
(under certain circumstances specified in the Rights Amendment) were,
beneficially owned by an Acquiring Person and certain related persons and
transferees will be null and void. However, Rights are not exercisable following
the occurrence of such event until such time as the Rights are no longer
redeemable as set forth below.
The Rights are not exercisable until the Distribution Date and will expire
on the tenth anniversary of their issuance, unless redeemed earlier by the
Board.
At any time prior to the tenth day following the Stock Acquisition Date, the
Company may redeem the Rights, in whole, but not in part, at a price of $0.01
per Right, upon approval of a majority of Continuing Directors.
In general, the Rights Agreement may be amended upon approval of a majority
of the Continuing Directors (i) prior to the Distribution Date in any manner,
and (ii) on or after the Distribution Date in certain respects including (a) to
shorten or lengthen any time period and (b) in a manner not adverse to the
interests of Rights holder. However, amendments extending the redemption period
must be made while the Rights are still redeemable.
The Rights have certain anti-takeover effects and will cause substantial
dilution to a person or group that attempts to acquire the Company on terms not
approved by the Continuing Directors. The Rights should not interfere with any
merger or other business combination approved by a majority of the Continuing
Directors since the Continuing Directors may redeem the Rights as provided
above. Big Flower will either assume the existing Rights Agreement in the
reorganization or enter into a new rights agreement on substantially similar
terms.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Big Flower is subject to the "business combination" statute of the Delaware
General Corporation Law (Section 203). In general, such statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with any "interested stockholder" for a period of three years after the date of
the transaction in which the person became an "interested stockholder", unless
(i) such transaction is approved by the board of directors of such corporation
prior to the date the interested stockholder obtains such status, (ii) upon
consummation of such transaction, the "interested stockholder" beneficially
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned by (a) persons who are directors and
also officers of such corporation and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) the "business combination" is approved by the board of directors of such
corporation and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock of such
corporation which is not owned by the "interested stockholder". A "business
combination" includes mergers, asset sales and other transactions resulting in
financial benefit to the "interested stockholder". An "interested stockholder"
is a person who, together with affiliates and associates, owns
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(or within three years, did own) beneficially 15% or more of a corporation's
voting stock. The statute could prohibit or delay mergers or other takeover or
change in control attempts with respect to Big Flower and, accordingly, may
discourage attempts to acquire Big Flower.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under Big Flower's Certificate, at March 16, 1998 there were 22,186,104
shares of Common Stock authorized but unissued (and not reserved for issuance
upon exercise of options or upon conversion of the Preferred Securities), and
9,750,000 shares of preferred stock authorized but unissued (and not reserved
for issuance of the Series A Preferred Stock), for future issuance without
additional stockholder approval. These additional shares may be utilized for a
variety of corporate purposes, including future offerings to raise additional
capital or to facilitate corporate acquisitions.
The issuance of preferred stock could have the effect of delaying or
preventing a change in control of Big Flower. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock.
One of the effects of the existence of unissued and unreserved Common Stock
or preferred stock may be to enable the Board to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of Big Flower by means of a merger, tender offer,
proxy contest or otherwise, and thereby protect the continuity of management.
Such additional shares also could be used to dilute the stock ownership of
persons seeking to obtain control of the Company.
Big Flower does not currently have any plans to issue additional shares of
Common Stock or preferred stock other than shares of Common Stock which may be
issued upon the exercise of options which have been granted or which may be
granted in the future to directors, officers and employees of the Company.
250,000 shares of Series A Preferred Stock are reserved for issuance pursuant to
the Company's Rights Plan. See "--Rights Plan."
LIMITATION OF DIRECTORS' LIABILITY
The Company's Certificate contains a provision that limits the liability of
the Company's directors for monetary damages for breach of fiduciary duty as a
director to the fullest extent permitted by the Delaware General Corporation
Law. Such limitation does not, however, affect the liability of a director (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or purchases and (iv)
for any transaction from which the director derives an improper personal
benefit. The effect of this provision is to eliminate the rights of the Company
and its stockholders (through stockholder's derivatives suits on behalf of the
Company) to recover monetary damages against a director of the Company for
breach of the fiduciary duty of care as a director (including breaches resulting
from negligent or grossly negligent behavior) except in the situations described
in clauses (i) through (iv) above. This provision does not limit or eliminate
the rights of the Company or any stockholder to seek non-monetary relief such as
an injunction or rescission in the event of a breach of a director's duty of
care. In addition, the directors and officers of the Company have directors' and
officers' liability insurance.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Company's Common Stock is The Bank
of New York.
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DESCRIPTION OF THE NEW CREDIT FACILITY
On June 12, 1997, the Company entered into the New Credit Facility with a
syndicate of banks and Bankers Trust Company as Administrative Agent and
Collateral Agent and Credit Suisse First Boston as Documentation Agent pursuant
to which the Company may borrow, subject to certain conditions, up to $475.0
million on a revolving credit basis, of which up to $25.0 million is available
as swingline loans and up to $45.0 million is available as letters of credit.
The Company's initial borrowing under the New Credit Facility in the amount of
$321.8 million was made on June 12, 1997 and was used to repay the outstanding
borrowings under the Old Credit Facility which was terminated upon closing of
the New Credit Facility. Borrowings under the New Credit Facility are available
for general corporate purposes, permitted acquisitions and investments.
The New Credit Facility provides that the revolving credit facility
terminates and all loans thereunder must be repaid on June 12, 2002. Under the
New Credit Facility, outstanding loans (other than swingline loans) bear
interest at the Applicable Margin described below over, at the Company's option,
(i) Base Rate or (ii) LIBOR. Base Rate is defined as the higher of (x) 1/2 of 1%
in excess of the Federal Funds Rate (as defined in the New Credit Facility) and
(y) the prime lending rate of Bankers Trust Company in effect from time to time.
The Applicable Margin varies depending on the Company's leverage ratio, as
tested on a rolling four quarter basis, and defined generally as the ratio of
debt to earnings, less interest, taxes, depreciation and amortization (the
"Leverage Ratio"). The Applicable Margin for LIBOR loans ranges from 0.50% to
1.75%. For Base Rate loans the Applicable Margin varies from 0.00% to 0.75%.
Swingline loans bear interest at the Applicable Margin over Base Rate and letter
of credit fees are charged at a rate, varying with the Leverage Ratio, from
0.50% to 1.75%.
The Company may voluntarily terminate the banks' commitments under the New
Credit Facility at any time, subject to three Business Day's notice. The New
Credit Facility also provides for mandatory reductions of the banks' commitments
in the event the Company incurs debt or issues preferred stock (other than
certain permitted debt or preferred stock).
The Company's obligations under the New Credit Facility are guaranteed by
each domestic subsidiary of the Company and are secured by a first priority
security interest in all capital stock and intercompany notes owned by the
Company and its subsidiaries, with certain exceptions.
The New Credit Facility contains restrictions that include limitations on
the Company and its subsidiaries with respect to (i) the incurrence, creation
and maintenance of liens (other that permitted liens), (ii) the incurrence and
maintenance of additional debt, subject to certain exceptions and an available
basket amount, (iii) mergers, acquisitions, purchases and sales of assets,
subject to certain exceptions and an available basket amount, (iv) sale and
leaseback transactions, (v) changes in business conducted and (vi) dividends and
other restricted payments (subject to available baskets). In addition, the New
Credit Facility contains a Leverage Ratio requirement of no greater than 4.25 to
1.0 until December 31, 1999 and thereafter no greater than 4.00 to 1.0. The
minimum net interest coverage ratio is 2.25 to 1.0.
The New Credit Facility contains customary events of default, including (i)
failure by the Company to make principal payments or interest and fee payments
within certain grace periods, (ii) inaccuracy of representations and warranties
in any material respects when made, (iii) breach of covenants (in certain cases,
subject to grace periods), (iv) failure by the Company to make payments in
respect of certain indebtedness, (v) bankruptcy, insolvency or similar events
with respect to the Company or its significant subsidiaries, (vi) certain ERISA
defaults, (vii) material judgments that remain unsatisfied or unstayed for
certain time periods or (viii) a change in control (as defined in the New Credit
Facility) of the Company.
Big Flower has guaranteed the obligations of Big Flower Press under the New
Credit Facility (the "Credit Facility Guarantee"). The Credit Facility Guarantee
is secured by a pledge of common stock of Big Flower Press.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain of the material United States federal
income tax consequences of the purchase, ownership, disposition and conversion
of the Preferred Securities is based upon the advice of Sullivan & Cromwell,
special tax counsel to the Issuer and Big Flower. Unless otherwise stated, this
summary deals only with Preferred Securities held as capital assets by holders
who purchase the Preferred Securities upon original issuance. As used herein, a
"U.S. Holder" means a person who is (i) a citizen or resident of the United
States, (ii) a domestic corporation, (iii) an estate the income of which is
subject to United States federal income tax without regard to its source or (iv)
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
This summary does not deal with special classes of holders such as banks,
thrifts, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, tax-exempt investors,
or persons that will hold the Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. Dollar. Further, it
does not include any description of any alternative minimum tax consequences or
the tax laws of any state or local government or of any foreign government that
may be applicable to the Preferred Securities. This summary is based on the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change, possibly on a retroactive
basis.
INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISORS AS TO THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF PREFERRED
SECURITIES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF
ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
CLASSIFICATION OF THE DEBENTURES
Big Flower has taken the position that the Debentures will be classified for
United States federal income tax purposes as indebtedness of Big Flower under
current law and, by acceptance of Preferred Securities, each holder covenants to
treat the Debentures as indebtedness and the Preferred Securities as evidence of
an indirect beneficial ownership interest in the Debentures. No assurance can be
given, however, that such position of Big Flower will not be challenged by the
Internal Revenue Service or, if challenged, that such a challenge will not be
successful. The remainder of this discussion assumes that the Debentures will be
classified as indebtedness of Big Flower for United States federal income tax
purposes.
CLASSIFICATION OF THE ISSUER
The Issuer will not be classified as an association taxable as a corporation
for United States federal income tax purposes. Accordingly, for United States
federal income tax purposes, each holder of Preferred Securities generally will
be considered the owner of an undivided interest in the Debentures, and each
holder will be required to include in its gross income any interest with respect
to its allocable share of those Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under the Indenture, Big Flower has the option to defer the payment of
interest on the Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to each Extension Period,
provided that no Extension Period may extend beyond the stated maturity of the
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Debtenures. Big Flower's option to extend the interest period will cause the
Debentures to be subject to the "original issue discount" ("OID") rules for
federal income tax purposes. Accordingly, regardless of a holder's regular
method of the accounting, a holder will recognize interest income (in the form
of OID) on a daily basis under a constant yield method over the term of the
Debentures (including during any Extension Period), regardless of the receipt of
cash with respect to the period to which such income is attributable and
regardless of whether Big Flower exercises its option to extend any interest
payment period. The amount of OID that will be recognized in any quarter will
approximately equal the amount of income that accrues on the Debentures in that
quarter at the stated interest rate.
As a result, holders of record during an Extension Period will continue to
include interest (in the form of OID) in gross income in advance of the receipt
of cash, and any such holders who dispose of Preferred Securities or convert
Preferred Securities into Common Stock prior to the record date for the payment
of distributions following such Extension Period will include interest in gross
income but will not receive any cash related thereto from the Issuer.
Because income on the Debentures will constitute interest, corporate holders
will not be entitled to a dividends-received deduction with respect to any
income recognized with respect to the Debentures.
REDEMPTION OF PREFERRED SECURITIES FOR DEBENTURES OR CASH UPON LIQUIDATION OF
THE ISSUER
Under certain circumstances, the Debentures may be distributed to holders in
exchange for the Preferred Securities. Under current law, such a distribution to
holders, for United States federal income tax purposes, would be treated as a
nontaxable event to each holder, and each holder would receive an aggregate tax
basis in the Debentures distributed equal to such holder's aggregate tax basis
in its Preferred Securities exchanged therefor. A holder's holding period in the
Debentures so received would include the period during which the Preferred
Securities were held by such holder. If, however, the exchange is caused by a
Tax Event which results in the Issuer being treated as an association taxable as
a corporation, the distribution would likely constitute a taxable event to the
Issuer and holders of the Preferred Securities.
Under certain circumstances described herein (see "Description of the
Preferred Securities-- Special Event Exchange or Redemption"), the Debentures
may be redeemed for cash and the proceeds of such redemption distributed to
holders in redemption of their Preferred Securities. Under current law, such a
redemption would, for United States federal income tax purposes, constitute a
taxable disposition of the redeemed Preferred Securities, and a holder would
recognize gain or loss in the same manner as if it sold such redeemed Preferred
Securities for cash. See "--Sales of Preferred Securities".
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between the amount realized on the sale of the Preferred
Securities and the holder's adjusted tax basis in such Preferred Securities. The
tax basis of a Preferred Security will be increased by the amount of any
interest in the form of OID that is included in income and will be decreased by
the amount of any payment made by Big Flower on the Debentures. In general, such
gain or loss will be a capital gain or loss and will be a long-term capital gain
or loss if the Preferred Securities have been held for more than one year at the
time of sale. Long-term capital gain of an individual U.S. Holder is subject to
a maximum tax rate of 28% in respect of capital assets held for more than one
year. The maximum tax rate is reduced to 20% for capital assets held for more
than 18 months.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Debentures. A holder who disposes of its Preferred Securities between record
dates for payments of distributions thereon will be required to include in
income as ordinary income any accrued but unpaid interest (in the form of OID)
on the Debentures to the date of disposition and to add such amount to its
adjusted tax basis in its pro rata share of the underlying
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Debentures deemed disposed of. To the extent the selling price is less than the
holders adjusted tax basis, such holder will recognize a capital loss. Subject
to certain limited exceptions, capital losses cannot be applied to offset
ordinary income for United States federal income tax purposes.
CONVERSION OF PREFERRED SECURITIES INTO COMMON STOCK
A holder of Preferred Securities generally will not recognize income, gain
or loss upon the conversion of the Preferred Securities into Common Stock
through the Conversion Agent. A holder of Preferred Securities will, however,
recognize gain upon the receipt of cash in lieu of a fractional share of Common
Stock generally equal to the amount of cash received less such holder's tax
basis in such fractional share. Such a holder's tax basis in the Common Stock
received upon conversion should generally be equal to such holder's tax basis in
the Preferred Securities delivered to the Conversion Agent for exchange less the
basis allocated to any fractional share for which cash is received, and such
holder's holding period in the Common Stock received upon conversion should
generally begin on the date such holder acquired the Preferred Securities
delivered to the Conversion Agent for exchange.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Preferred Securities as having received a constructive distribution
from Big Flower in the event the conversion ratio of the Debentures were
adjusted if (i) as a result of such adjustment, the proportionate interest
(measured by the quantum of Common Stock into or for which the Debentures are
convertible or exchangeable) of the holders of the Preferred Securities in the
assets or earnings and profits of Big Flower were increased and (ii) the
adjustment was not made pursuant to a bona fide, reasonable antidilution
formula. An adjustment in the conversion ratio would not be considered made
pursuant to such a formula if the adjustment was made to compensate for certain
taxable distributions with respect to the Common Stock. Thus, under certain
circumstances, a reduction in the conversion price for the holders may result in
deemed dividend income to holders to the extent of the current or accumulated
earnings and profits of Big Flower. Holders of the Preferred Securities would be
required to include their allocable share of such deemed dividend income in
gross income but would not receive any cash related thereto.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership, or a non-resident fiduciary of a foreign estate or trust.
Under present United States federal income tax law:
(a) payments by the Trust or any of its paying agents to any holder of a
Preferred Security who or which is a United States Alien Holder will not be
subject to United States federal withholding tax; PROVIDED, that, (i) the
beneficial owner of the Preferred Security does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of Big Flower entitled to vote, (ii) the beneficial owner
of the Preferred Security is not a controlled foreign corporation that is
related to Big Flower through stock ownership, and (iii) either (A) the
beneficial owner of the Preferred Security certifies to the Trust or its
agent, under penalties of perjury, that it is not a United States holder and
provides its name and address or (B) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "Financial Institution"), and
holds the Preferred Security in such capacity, certifies to the Trust or its
agent, under penalties of perjury, that such statement has been received
from the beneficial owner by it or by a Financial Institution holding such
security for the beneficial owner and furnishes the Trust or its agent with
a copy thereof;
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(b) Dividends paid with respect to Common Stock to a United States Alien
Holder generally will be subject to withholding of United States federal
income tax at a 30% rate (or such lower rate as may be specified by an
applicable income tax treaty), unless the dividend (i) is effectively
connected with the conduct of a trade or business of the United States Alien
Holder within the United States or (ii) if an income tax treaty applies, is
attributable to a United States permanent establishment of the United States
Alien Holder.
(c) except to the extent that an applicable treaty otherwise provides, a
United States Alien Holder generally will be taxed in the same manner as a
United States Holder with respect to interest or dividends if the income is
effectively connected with a United States trade or business of the United
States Alien Holder (effectively connected interest or dividends received by
a corporate United States Alien Holder may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30%
rate or such lower rate as may be specified by an applicable income tax
treaty);
(d) a United States Alien Holder of a Preferred Security or Common Stock
generally will not be subject to United States federal income or withholding
tax on any gain realized upon the sale or other disposition of a Preferred
Security or Common Stock (including the receipt of cash in lieu of
fractional shares upon conversion of Preferred Securities into shares of
Common Stock), unless (i)(A) the gain is effectively connected with the
conduct of a trade or business of the United States Alien Holder in the
United States or (B) if a tax treaty applies, the gain is attributable to a
United States permanent establishment of the United States Alien Holder;
(ii) in the case of United States Alien Holder who is an individual and
holds the Preferred Securities or Common Stock as a capital asset, such
holder is present in the United States for 183 or more days in the taxable
year of the disposition and certain other conditions are met; (iii) the
United States Alien Holder is subject to tax pursuant to the provisions of
United States federal income tax laws applicable to certain United States
expatriates; or (iv)(A) Big Flower is or has been a "U.S. real property
holding corporation" for United States federal income tax purposes at any
time during the five-year period ending on the date of disposition, or, if
shorter, the period during which the United States Alien Holder held the
Preferred Securities or Common Stock and (B) assuming that any class of Big
Flower stock is considered "regularly traded on an established securities
market" at any time during the year of disposition, the United States Alien
Holder meets certain minimum ownership requirements; and
(e) except to the extent that an applicable treaty otherwise provides, a
United States Alien Holder generally will be taxed in the same manner as a
United States Holder with respect to gain on the sale or disposition of
Preferred Securities or Common Stock if the gain is effectively connected
with a United States trade or business of the United States Alien Holder
(effectively connected gain realized by a corporate United States Alien
Holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by
an applicable income tax treaty).
Big Flower does not believe that it is a U.S. real property holding
corporation as of the date hereof, although it has not determined or established
whether it is now or will be a U.S. real property holding corporation.
Under currently effective United States Treasury regulations, dividends paid
to an address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and, under the current interpretation of such
regulations, for purposes of determining the applicability of an income tax
treaty rate. Under recently finalized United States Treasury regulations (the
"Final Withholding Regulations"), which are generally effective with respect to
payments after December 31, 1999, a United States Alien Holder of Common Stock
who wishes to claim the benefit of a treaty rate would be required to satisfy
applicable certification requirements. Under the Final Withholding Regulations,
dividend payments will be subject to information reporting and backup
withholding unless these applicable certification requirements are
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satisfied. The Final Withholding Regulations also will require, in the case of
interest or dividends with respect to Preferred Securities or Common Stock held
by a foreign partnership, that (x) the certification requirements described
above be provided by the partners rather than by the foreign partnership and (y)
the partnership provide certain information, including a United States taxpayer
identification number. A look-through rule will apply in the case of tiered
partnerships.
INFORMATION REPORTING TO HOLDERS
Generally, income on the Preferred Securities will be reported to
noncorporate holders on Forms 1099, which forms will be mailed to holders of
record prior to January 31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, Preferred Securities may be
subject to a "backup" withholding tax of 31% unless the holder complies with
certain identification requirements. Any withheld amounts will generally be
allowed as a credit against the holder's federal income tax, provided the
required information is timely filed with the IRS.
POSSIBLE TAX LEGISLATION
Prospective investors should be aware that legislation has been introduced
in the United States Congress in the past that would, if enacted, deny an
interest deduction to issuers of instruments such as the Debentures. No such
legislation is currently pending. There can be no assurance, however, that
similar legislation will not ultimately be enacted into law, or that other
developments will not occur after the date hereof that would adversely affect
the tax treatment of the Debentures and could result in the exchange of the
Debentures for Preferred Securities or, in certain limited circumstances, the
redemption of the Debentures by Big Flower and the distribution of the resulting
cash in redemption of the Preferred Securities. See "Description of the
Preferred Securities--Special Event Exchange or Redemption."
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SELLING HOLDERS
The Preferred Securities were originally issued by the Issuer and sold by
the Initial Purchasers in a transaction exempt from the registration
requirements of the Securities Act either (i) to persons reasonably believed by
such Initial Purchasers to be "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act) or (ii) upon the terms and conditions set
forth in Regulation S under the Securities Act.
The Registration Statement of which this Prospectus forms a part has been
filed pursuant to Rule 415 under the Securities Act to afford the holders of the
Preferred Securities the opportunity to sell such securities in a public
transaction rather than pursuant to an exemption from the registration and
prospectus delivery requirements of the Securities Act. In order to avail itself
of that opportunity, a holder must notify the Company in writing of its
intention to sell Preferred Securities and request the Company to file a
supplement to this Prospectus or an amendment to the Registration Statement
identifying such holder as a Selling Holder and disclosing such other
information concerning the Selling Holder and the Preferred Securities to be
sold as may then be required by the Securities Act and the rules and regulations
thereunder, as applicable. No offer or sale pursuant to this Prospectus may be
made by any holder until such a request has been made and until any such
supplement has been filed or any such amendment has become effective. The
holders of Preferred Securities who have made such a request and as to whom any
such supplement has been filed or any such amendment has been filed or becomes
effective are referred to herein as "Selling Holders". Since the Preferred
Securities are currently listed on PORTAL, the holder of the Preferred
Securities at the time such request has been made may differ from the holders as
of the date hereof.
The Company will from time to time supplement or amend this Prospectus to
reflect the required information concerning any new or additional Selling
Holders.
The Company has agreed to bear all expenses (other than expenses incurred by
any holder of Preferred Securities, including fees and expenses of counsel and
other advisors retained by such holder), in connection with the registration and
sale of the Preferred Securities covered by this Prospectus.
The following table shows the names of the Selling Holders, the shares of
Preferred Securities owned beneficially by each of them, as of April 10, 1998
(unless otherwise noted), the number of Preferred Securities that may be offered
by each of them pursuant to this Prospectus, the number of shares of Common
Stock issuable upon conversion of Preferred Securities that may be offered by
each of them pursuant to this Prospectus and the number of Preferred Securities
to be beneficially owned by each of them after completion of the offering
pursuant to this Prospectus, assuming all of the shares of Preferred Securities
being offered hereby are sold in the offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
PREFERRED COMMON STOCK NUMBER OF
SECURITIES ISSUABLE UPON PREFERRED
BENEFICIALLY NUMBER OF CONVERSION SECURITIES
OWNED PREFERRED OF PREFERRED BENEFICIALLY
AS OF SECURITIES SECURITIES OWNED
APRIL 10, OFFERED OFFERED AFTER THE
NAME OF SELLING HOLDER 1998(1) HEREBY HEREBY(2) OFFERING
- ----------------------------------------------------------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
Alexandra Global Investment Fund, II, Ltd.................. 35,000 35,000 60,704 0
Alpine Associates.......................................... 35,000 35,000 60,704 0
76,500 76,500 132,681 0
Allstate Insurance Company................................. 30,000 30,000 52,032 0
Bear, Stearns & Co., Inc. ................................. 35,500 35,500 61,571 0
Carrigaholt Capital (Bermuda) L.P.......................... 32,500 32,500 56,368 0
22,500 22,500 39,024 0
Castle Convertible Fund, Inc............................... 5,000 5,000 8,672 0
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF SHARES OF
PREFERRED COMMON STOCK NUMBER OF
SECURITIES ISSUABLE UPON PREFERRED
BENEFICIALLY NUMBER OF CONVERSION SECURITIES
OWNED PREFERRED OF PREFERRED BENEFICIALLY
AS OF SECURITIES SECURITIES OWNED
APRIL 10, OFFERED OFFERED AFTER THE
NAME OF SELLING HOLDER 1998(1) HEREBY HEREBY(2) OFFERING
- ----------------------------------------------------------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
Chrysler Corporation Master Retirement Trust............... 44,800 44,800 77,701 0
Combined Insurance Company of America...................... 14,600 14,600 25,322 0
CPR (USA).................................................. 10,000 10,000 17,344 0
Delta Airlines Master Trust................................ 36,900 36,900 63,999 0
El Pomar Foundation........................................ 4,600 4,600 7,978 0
Falcon Seaboard Investment Company, L.P.................... 5,000 5,000 8,672 0
Fidelity Financial Trust; Fidelity Convertible Securities
Fund..................................................... 167,500 167,500 290,512 0
Froley, Revy Investment Co., Inc. for the account of:
Arkansas PERS............................................ 21,000 21,000 36,422 0
ICI American Holdings Trust.............................. 7,400 7,400 12,834 0
Zeneca Holdings Trust.................................... 7,400 7,400 12,834 0
State of Delaware PERS................................... 18,150 18,150 31,479 0
PRIM Board............................................... 28,200 28,200 48,910 0
State of Oregon/SAIF Corporation......................... 75,000 75,000 130,080 0
Nalco Chemical Corp. Retirement.......................... 3,350 3,350 5,810 0
Forest Alternative Strategies Fund II, LP 1A5F............. 3,100 3,100 5,376 0
Forest Global Convertible Fund Series A-5.................. 6,000 6,000 10,406 0
Forest Alternative Strategies II, LP 2A5 M................. 200 200 346 0
Forest Alternative Strategies Fd II, LP 2A5I............... 400 400 693 0
Golden Rule Insurance Company.............................. 30,000 30,000 52,032 0
Goldman, Sachs & Co........................................ 4,350 4,350 7,544 0
KA Trading LP.............................................. 9,250 9,250 16,043 0
KA Management Ltd.......................................... 15,750 15,750 27,316 0
Laterman & Co. LP.......................................... 4,500 4,500 7,804 0
Laterman Strategies 90's LLC............................... 6,000 6,000 10,406 0
Libertyview Plus Fund...................................... 9,000 9,000 15,609 0
Libertyview Fund LLC....................................... 1,000 1,000 1,734 0
LLT Limited................................................ 300 300 520 0
Lutheran Brotherhood Series Fund, Inc. - High Yield
Portfolio................................................ 11,750 11,750 20,379 0
Lutheran Brotherhood High Yield Fund....................... 8,250 8,250 14,308 0
McMahan Securities Co., L.P................................ 20,000 20,000 34,688 0
Northwestern Mutual Life Ins. Co.(3)....................... 80,000 80,000 138,752 0
OCM Convertible Trust...................................... 66,700 66,700 115,684 0
Offshore Strategies Ltd.................................... 9,500 9,500 16,476 0
Oppenheimer Total Return Fund Inc.......................... 100,000 100,000 173,440 0
Orrington Investments Limited Partnership.................. 3,800 3,800 6,590 0
Orrington International Fund Ltd........................... 2,200 2,200 3,815 0
Pacific Life Insurance Company............................. 15,000 15,000 26,016 0
Paloma Securities L.L.C.................................... 155,000 155,000 268,832 0
Pitney Bowes Retirement Fund............................... 20,000 20,000 34,688 0
Provident Life and Accident Insurance Company.............. 70,000 70,000 121,408 0
Raytheon Company Master Pension Trust...................... 23,200 23,200 40,238 0
State Employees' Retirement Fund of the State of
Delaware................................................. 18,400 18,400 31,912 0
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
PREFERRED COMMON STOCK NUMBER OF
SECURITIES ISSUABLE UPON PREFERRED
BENEFICIALLY NUMBER OF CONVERSION SECURITIES
OWNED PREFERRED OF PREFERRED BENEFICIALLY
AS OF SECURITIES SECURITIES OWNED
APRIL 10, OFFERED OFFERED AFTER THE
NAME OF SELLING HOLDER 1998(1) HEREBY HEREBY(2) OFFERING
- ----------------------------------------------------------- ------------ ----------- -------------- ------------
<S> <C> <C> <C> <C>
State of Connecticut Combined Investment Funds............. 57,000 57,000 98,860 0
The Class 1C Company, Ltd.................................. 42,500 42,500 73,712 0
22,500 22,500 39,024 0
TQA Arbitrage Fund L.P..................................... 17,000 17,000 29,484 0
TQA Leverage Fund L.P...................................... 20,000 20,000 34,688 0
TQA Vantage Plus, Ltd...................................... 14,500 14,500 25,148 0
Vanguard Convertible Securities Fund Inc................... 43,400 43,400 75,272 0
Variable Insurance Products Fund II High Income
Portfolio................................................ 72,500 72,500 125,744 0
------------ ----------- -------------- ------------
Total.............................................. 1,698,950 1,698,950 2,946,642 0
------------ ----------- -------------- ------------
------------ ----------- -------------- ------------
</TABLE>
- ------------------------
(1) For the purposes of this table, a person is deemed to have "beneficial
ownership" of securities over which such person, directly or indirectly
through any contract, arrangement, understanding, relationship or otherwise,
has or shares (x) voting power (which includes the power to vote or to
direct the voting of such securities) or (y) investment power (y) investment
power (which includes the power to dispose or direct the disposition of such
securities). A person is also deemed to be the beneficial owner of
securities: (i) the beneficial ownership of which such person has the right,
at any time within 60 days from April 10, 1998 (or such later date as noted
in the above table), to acquire, including but not limited to any right to
acquire through the exercise of options, warrants or rights, the conversion
of a convertible security or the revocation or automatic termination of a
trust or discretionary account or similar arrangement; (ii) the beneficial
ownership of which such person has the right to acquire (as specified in
(i)) at any time, where such right is acquired for the purpose, or with the
effect, of changing or influencing control of the Company, or in connection
with or as a participant in any transaction having such purposes or effect;
or (iii) with respect to which such person, directly or indirectly, through
the creation or use of a trust, a proxy, power of attorney, pooling
arrangement or any other contract, arrangement or device purports to have
divested himself of beneficial ownership or to have prevented the vesting of
beneficial ownership as part of a scheme to evade the reporting requirements
of Section 13(d) or (g) of the Securities Exchange Act of 1934. Beneficial
ownership is given as of April 10, 1998 unless noted otherwise.
(2) No fractional shares of Common Stock will be issued as a result of
conversion, but, in lieu thereof, such fractional interest will be paid in
cash.
(3) Includes 5,000 shares held in The Northwestern Mutual Life Insurance Company
Group Annuity Separate Account
PLAN OF DISTRIBUTION
The Offered Securities are outstanding securities and are being offered for
sale from time to time pursuant to this Prospectus by the Selling Holders. The
Offered Securities also may be sold pursuant to Rule 144 under the Securities
Act.
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders and any such
underwriters, broker/dealers or agents
78
<PAGE>
that participate in the distribution of Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of such securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more transactions
at fixed prices, at prevailing market prices at the time of sale, at varying
prices determined at the time of sale or at negotiated prices. The sale of the
Offered Securities may be effected in transactions (which may involve crosses or
block transactions) (i) on any national securities exchange or quotation service
on which the Offered Securities may be listed or quoted at the time of sale,
(ii) in the over-the-counter market or (iii) in transactions otherwise than on
such exchanges or in the over-the-counter market. At the time a particular
offering of the Offered Securities is made, a Prospectus Supplement, if
required, will be distributed which will set forth the aggregate amount and type
of Offered Securities being offered and the terms of the offering, including the
name or names of any such underwriters, broker/dealers or agents, any discounts,
commissions and other terms constituting compensation from the Selling Holders
and any discounts, commissions or concessions allowed or reallowed or paid to
broker/dealers.
The Selling Holders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, which provisions may limit the
timing of purchases and sales of any of the Offered Securities by the Selling
Holders. The foregoing may affect the marketability of such securities.
Pursuant to the Registration Rights Agreement, the Company and the Issuer
shall each bear all reasonable fees and expenses customarily borne by issuers in
connection with the offering and sale of the Preferred Securities pursuant to
this Prospectus; provided, however, that the Selling Holders will pay all
underwriting discounts and selling commissions, if any. The Selling Holders will
be indemnified by the Company and the Issuer, jointly and severally against
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith. The Company
and the Issuer will be indemnified by the Selling Holders severally against
certain civil liabilities, including certain liabilities under the Securities
Act, or will be entitled to contribution in connection therewith.
In connection with a particular offering of Preferred Securities pursuant to
this Prospectus, participating underwriters or broker-dealers (if any), or their
respective affiliates, (collectively the "underwriters") may purchase and sell
the Preferred Securities and Common Stock in the open market. These transactions
may include over-allotment and stabilizing transactions and purchases to cover
short positions created by the underwriters in connection with such offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the Preferred
Securities and Common Stock and short positions created by such underwriters
involve the sale by the underwriters of a greater number of Preferred Securities
than they are required to purchase from the Issuer in the offering. Any such
underwriters also may impose a penalty bid, whereby selling concessions allowed
to broker-dealers in respect of the securities sold in the offering may be
reclaimed by the underwriters if such Preferred Securities are repurchased by
the underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Preferred
Securities and Common Stock, which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected in the
over-the-counter market or otherwise.
The Issuer and the Company have agreed with the Selling Holders to use their
best efforts to keep a Shelf Registration Statement, under which the Selling
Holders may resell Preferred Securities from time to time, effective until
October 20, 1999 (or such earlier time as all Preferred Securities have been
sold thereunder or pursuant to Rule 144 under the Securities Act), except during
certain limited circumstances. See "Description of the Preferred
Securities--Registration Rights Agreement".
Prior to the offering contemplated hereby, there has been no public market
for the Preferred Securities. There can be no assurance that an active market
will develop for the Preferred Securities.
79
<PAGE>
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities have been passed upon on behalf of the Issuer by Richards, Layton &
Finger, Wilmington, Delaware, special Delaware Counsel to the Trust. The
validity of the Common Stock issuable upon conversion of the Preferred
Securities, the Debentures and the Guarantees have been passed upon for the
Company by Sullivan & Cromwell, New York, New York. Certain United States
Federal income taxation matters have been passed upon for the Company and the
Issuer by Sullivan & Cromwell, special United States tax counsel to the Company
and the Issuer.
EXPERTS
The consolidated financial statements and related financial statement
schedules incorporated by reference in this Prospectus from the Company's Annual
Report on form 10-K for the year ended December 31, 1997, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are incorporated by reference, and have been so incorporated in reliance upon
the reports of such firm given their authority as experts in accounting and
auditing.
80
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Incorporation of Certain Documents by
Reference.................................... 5
Available Information.......................... 6
Special Note Regarding Forward-Looking
Statements................................... 6
Summary........................................ 7
Big Flower Trust I............................. 15
Risk Factors................................... 23
Use of Proceeds................................ 29
Accounting Treatment........................... 29
Consolidated Ratio of Earnings to Combined
Fixed Charges and Preferred Dividends
(Unaudited).................................. 29
Description of the Preferred Securities........ 30
Governing Law.................................. 50
Description of the Guarantee................... 51
Description of the Debentures.................. 54
Relationship Among the Preferred Securities,
the Debentures and the Guarantee............. 64
Description of Capital Stock................... 66
Description of the New Credit Facility......... 70
Certain Federal Income Tax Consequences........ 71
Selling Holders................................ 76
Plan of Distribution........................... 78
Validity of Securities......................... 80
Experts........................................ 80
</TABLE>
BIG FLOWER TRUST I
6% CONVERTIBLE QUARTERLY INCOME
PREFERRED SECURITIES
("CONVERTIBLE QUIPS")
(LIQUIDATION PREFERENCE $50 PER SHARE)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY,
AND CONVERTIBLE INTO COMMON STOCK OF,
BIG FLOWER HOLDINGS, INC.
---------------
PROSPECTUS
---------------------
APRIL 17, 1998
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of all expenses in connection with
the issuance and distribution of the securities registered hereby. Except for
the SEC registration fee, all amounts provided are estimated.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 33,925
Printing and engraving expenses.................................. $ 350,000
Legal fees and expenses.......................................... $ 30,000
Accounting fees and expenses..................................... $ 75,000
Transfer agent and trustee fees.................................. $ 25,000
Miscellaneous.................................................... $ 51,000
---------
Total............................................................ $ 564,925
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the General Corporation Law of the State of Delaware empowers
a Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. A Delaware corporation may indemnify directors, officers, employees
and other agents of such corporation in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the person to be indemnified has been
adjudged to be liable to the corporation. Where a director, officer, employee or
agent of the corporation is successful on the merits or otherwise in the defense
of any action, suit or proceeding referred to above or in defense of any claim,
issue or matter therein, the corporation must indemnify such person against the
expenses (including attorneys' fees) which he or she actually and reasonably
incurred in connection therewith.
The Bylaws contain provisions that provide for indemnification of officers
and directors and their heirs and distributees to the fullest extent permitted
by, and in the manner permissible under, the General Corporation Law of the
State of Delaware.
As permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware, the Company's Certificate contains a provision eliminating
the personal liability of a director to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, subject to certain
exceptions.
The Company maintains policies insuring its officers and directors against
certain civil liabilities, including liabilities under the Securities Act.
Pursuant to the Registration Rights Agreement, the Company has agreed to
indemnify holders of registrable Notes against certain liabilities. Also
pursuant to the Registration Rights Agreement, the Company and certain
broker-dealers, including certain persons associated with such broker-dealers,
have agreed to indemnify each other against certain liabilities.
II-1
<PAGE>
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.1 Certificate of Trust of Big Flower Trust I.
4.2 Amended and Restated Trust Agreement of Big Flower Trust I, dated as of October 14, 1997, among Big
Flower Holdings, Inc., The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as
Delaware Trustee and Administrative Trustees named herein.(1)
4.3 Indenture for the 6% Convertible Subordinated Debentures, dated as of October 20, 1997, among Big
Flower Holdings, Inc. and The Bank of New York, as Indenture Trustee.(1)
4.4 Form of 6% Preferred Securities.
4.5 Form of 6% Convertible Subordinated Debentures.
4.6 Preferred Securities Guarantee Agreement, dated as of October 20, 1997, between Big Flower Holdings,
Inc., as Guarantor, and The Bank of New York, as Guarantee Trustee.(1)
5.1 Opinion of Sullivan & Cromwell as to the legality of the Preferred Securities, Convertible
Debentures, Guarantee and Common Stock of Big Flower Holdings, Inc. issuable upon conversion of the
Preferred Securities being registered hereby.
5.2 Opinion of Richards, Layton & Finger, special Delaware counsel to Big Flower Trust I, as to the
legality of the Preferred Securities being registered hereby.
8.1 Opinion of Sullivan & Cromwell, special United States tax counsel to Big Flower Holdings, Inc. and
Big Flower Trust I, as to certain tax matters.
10.1 Registration Rights Agreement, dated October 20, 1997, between Big Flower Holdings, Inc. and Goldman,
Sachs & Co., Bear, Stearns & Co., Inc., BT Alex. Brown Inc., Credit Suisse First Boston and J.P.
Morgan & Co., as Initial Purchasers.(1)
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends.
23.1 Consent of Sullivan & Cromwell (Included in Exhibit 8.1).
23.2 Consent of Sullivan & Cromwell (Included in Exhibit 5.1).
23.3 Consent of Deloitte & Touche, LLP.
23.4 Consent of Richards, Layton & Finger (Included in Exhibit 5.2).
*24.1 Power of Attorney (set forth on signature page of the Registration Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Bank of
New York, as Trustee under the 6% Convertible Subordinated Indenture.
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Bank of
New York, as Property Trustee under the Amended and Restated Declaration of Trust.
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Bank of
New York, as Guarantee Trustee under the Guarantee.
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated by reference to Exhibits 4.2(i), 4.2(iv), 4.2(ii) and 4.2(v) to
Big Flower Holdings, Inc.'s and Big Flower Press Holdings, Inc.'s Quarterly
Report on Form 10Q for the quarterly period ended September 30, 1997 (File
#0-29474 and 1-14084) respectively.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424 (b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement
provided, however, that paragraphs (1) (i) and (1) (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by each of the Registrants pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(5) That: for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration
II-3
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Big Flower
Holdings, Inc. has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, April 17, 1998.
<TABLE>
<S> <C> <C>
BIG FLOWER HOLDINGS, INC.
By /S/ R. THEODORE AMMON
-----------------------------------------
R. Theodore Ammon
CHAIRMAN
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ R. THEODORE AMMON Chairman and Director April 17, 1998
- ------------------------------ (Principal Executive
R. Theodore Ammon Officer)
*
- ------------------------------ President, Chief Executive April 17, 1998
Edward T. Reilly Officer and Director
Executive Vice President April 17, 1998
* and Chief Financial
- ------------------------------ Officer (Principal
Richard L. Ritchie Financial and Accounting
Officer)
*
- ------------------------------ Director April 17, 1998
Peter G. Diamandis
*
- ------------------------------ Director April 17, 1998
Robert M. Kimmitt
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Director April 17, 1998
Joan D. Manley
*
- ------------------------------ Director April 17, 1998
Newton N. Minow
</TABLE>
*By: /s/ R. THEODORE AMMON
-------------------------
R. Theodore Ammon
ATTORNEY-IN-FACT
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Big Flower Trust I has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on April 17, 1998.
<TABLE>
<S> <C> <C>
BIG FLOWER TRUST I
By /s/ RICHARD L. RITCHIE
-----------------------------------------
Richard L. Ritchie
ADMINISTRATIVE TRUSTEE
By /s/ MARK A. ANGELSON
-----------------------------------------
Mark A. Angelson
ADMINISTRATIVE TRUSTEE
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.1 Certificate of Trust of Big Flower Trust I.
4.2 Amended and Restated Trust Agreement of Big Flower Trust I, dated as of October 14, 1997, among Big
Flower Holdings, Inc., The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as
Delaware Trustee and Administrative Trustees named herein.(1)
4.3 Indenture for the 6% Convertible Subordinated Debentures, dated as of October 20, 1997, among Big Flower
Holdings, Inc. and The Bank of New York, as Indenture Trustee.(1)
4.4 Form of 6% Preferred Securities.
4.5 Form of 6% Convertible Subordinated Debentures.
4.6 Preferred Securities Guarantee Agreement, dated as of October 20, 1997, between Big Flower Holdings,
Inc., as Guarantor, and The Bank of New York, as Guarantee Trustee.(1)
5.1 Opinion of Sullivan & Cromwell as to the legality of the Preferred Securities, Convertible Debentures,
Guarantee and Common Stock of Big Flower Holdings, Inc. issuable upon conversion of the Preferred
Securities being registered hereby.
5.2 Opinion of Richards, Layton & Finger, special Delaware counsel to Big Flower Trust I, as to the legality
of the Preferred Securities being registered hereby.
8.1 Opinion of Sullivan & Cromwell, special United States tax counsel to Big Flower Holdings, Inc. and Big
Flower Trust I, as to certain tax matters.
10.1 Registration Rights Agreement, dated October 20, 1997, between Big Flower Holdings, Inc. and Goldman,
Sachs & Co., Bear, Stearns & Co., Inc., BT Alex. Brown Inc., Credit Suisse First Boston and J.P. Morgan
& Co., as Initial Purchasers.(1)
12.1 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends.
23.1 Consent of Sullivan & Cromwell (Included in Exhibit 8.1).
23.2 Consent of Sullivan & Cromwell (Included in Exhibit 5.1).
23.3 Consent of Deloitte & Touche, LLP.
23.4 Consent of Richards, Layton & Finger (Included in Exhibit 5.2).
*24.1 Power of Attorney (set forth on signature page of the Registration Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Bank of New
York, as Trustee under the 6% Convertible Subordinated Indenture.
25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Bank of New
York, as Property Trustee under the Amended and Restated Declaration of Trust.
25.3 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The Bank of New
York, as Guarantee Trustee under the Guarantee.
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated by reference to Exhibits 4.2(i), 4.2(iv), 4.2(ii) and 4.2(v) to
Big Flower Holdings, Inc.'s and Big Flower Press Holdings, Inc.'s Quarterly
Report on Form 10Q for the quarterly period ended September 30, 1997 (File
#0-29474 and 1-4084) respectively.
<PAGE>
CERTIFICATE OF TRUST
OF
BIG FLOWER TRUST I
THIS Certificate of Trust of Big Flower Trust I (the "Trust"),
dated October 14, 1997, is being duly executed and filed by The Bank of New
York (Delaware), a Delaware banking corporation, and The Bank of New York, a
New York banking corporation, as trustees, to form a business trust under the
Delaware Business Trust Act (12 DEL. C. Section 3801 ET SEQ.).
1. NAME. The name of the business trust formed hereby is Big
Flower Trust I.
2. DELAWARE TRUSTEE. The name and business address of the trustee
of the Trust in the State of Delaware is The Bank of New York (Delaware),
White Clay Center, Newark, Delaware 19711.
3. EFFECTIVE DATE. This Certificate of Trust shall be effective
upon filing.
IN WITNESS WHEREOF, the undersigned, being the trustees of the
Trust, have executed this Certificate of Trust as of the date first-above
written.
THE BANK OF NEW YORK (DELAWARE)
By: /s/ Joseph G. Ernst
---------------------
Name: JOSEPH G. ERNST
Title: Assistant Vice President
THE BANK OF NEW YORK
By: /s/ Mary La Gumina
---------------------
Name: MARY LA GUMINA
Title: Assistant Vice President
<PAGE>
Exhibit 4.4
THIS PREFERRED SECURITY IS A BOOK-ENTRY PREFERRED SECURITIES
CERTIFICATE WITHIN THE MEANING OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO
AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC") OR A
NOMINEE OF DTC. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN DTC OR ITS NOMINEE
ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST AGREEMENT AND NO
TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED
SECURITY AS A WHOLE BY DTC TO A NOMINEE OF DTC OR BY A NOMINEE OF DTC TO DTC
OR ANOTHER NOMINEE OF DTC) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.
UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (55 WATER STREET, NEW YORK), TO BIG FLOWER TRUST I OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH
OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
Certificate Number Number of Preferred Securities
UP-1 Such number as shall be set forth
on Schedule A hereto up to but not
exceeding 2,300,000
CUSIP No. 089164305
up to $115,000,000
Certificate Evidencing Preferred Securities
of
Big Flower Trust I
6% Convertible Preferred Securities
(liquidation amount $50 per Preferred Security)
Big Flower Trust I, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that CEDE & CO.
(the "Holder") is the registered owner of such number of preferred securities
as shall be set forth on Schedule A hereto up to but not exceeding 2,300,000
preferred securities of the Trust representing an undivided beneficial
interest in the assets of the Trust and designated the Big Flower Trust I 6%
Convertible Preferred Securities (liquidation amount $50 per Preferred
Security) (the "Preferred Securities"). The Preferred Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer as provided in Section 5.4 of the Trust Agreement
(as defined below). The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Securities are
set forth in, and this certificate and the Preferred Securities represented
hereby are issued and shall in all respects be subject to the terms and
provisions of, the Amended and Restated Trust Agreement of the Trust dated as
of October 14, 1997 as the same may be amended from time to time (the "Trust
Agreement") including the designation of the terms of Preferred Securities as
set forth therein. The Holder is entitled to the benefits of the Guarantee
Agreement entered into by Big Flower Holdings, Inc., a
<PAGE>
Delaware corporation, and The Bank of New York, as Guarantee Trustee, dated as
of October 20, 1997 (the "Guarantee"), to the extent provided therein. The
Trust will furnish a copy of the Trust Agreement and the Guarantee to the Holder
without charge upon written request to the Trust at its principal place of
business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust
has executed this certificate this __th day of __________ 199_.
BIG FLOWER TRUST I
By:
---------------------------
Name:
An Administrative Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the
within-mentioned Trust Agreement.
Dated:
The Bank of New York,
as Property Trustee
By:
---------------------------
Authorized Signatory
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
agent to transfer this Preferred Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date: ___________________
Signature: ____________________
(Sign exactly as our name appears on the other side of this Preferred Security
Certificate)
<PAGE>
Signature Guarantee: ________________________________________________
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Securities Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Securities
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.
<PAGE>
SCHEDULE A
The initial liquidation amount of this Global Certificate shall be
$(0) and may be increased or decreased as set forth below up to a maximum
aggregate principle amount of $115,000,000 Preferred Securities. The following
increases or decreases in the liquidation amount of this Global Certificate
have been made:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Amount of
increase in
Liquidation Liquidation
Amount of this Amount of Amount of this Signature of
Global decrease in Global authorized
Certificate Liquidation Certificate officer of
including upon Amount of this following such Trustee or
exercise of over- Global decrease or Securities
Date Made allotment option Certificate increase Custodian
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
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</TABLE>
<PAGE>
Exhibit 4.5
6% Convertible Subordinated Debenture due October 15, 2027
No. _ $115,000,000
Big Flower Holdings, Inc., a corporation organized and existing under the
laws of Delaware (hereinafter called the "Company", which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to CEDE & Co., or registered assigns, the
principal sum of One Hundred Fifteen llion Six Hundred Thousand Dollars
($115,000,000) on October 15, 2027 and to pay interest on said principal sum
from October 20, 1997 or from the most recent interest payment date (each such
date, an "Interest Payment Date") to which interest has been paid or duly
provided for, at the rate of 6% per annum together with subject to deferral as
set forth herein, on January 15, April 15, July 15 and October 15 of each year,
commencing January 15, 1998 until the principal hereof is paid or duly provided
for or made available for payment.
Reference is hereby made to the further provisions of this Debenture set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Debenture
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
By:
----------------------------------
Name: Richard L. Ritchie
Title: Executive Vice President
and Chief Financial Officer
By:
----------------------------------
Name: Irene B. Fisher
Title: Vice President and
Associate General Counsel
CERTIFICATE OF AUTHENTICATION
<PAGE>
Page 2
This is one of the Debentures designated therein referred to in the
within mentioned Indenture.
THE BANK OF NEW YORK,
as Trustee
By:
------------------------------
Authorized Signatory
Dated:
<PAGE>
Page 3
(Reverse of Debenture)
This Debenture is one of a duly authorized issue of Debentures of the
Company (herein called the "Debentures") limited to the aggregate principal
amount of $115,000,000, issued under an Indenture, dated as of October 20, 1997
(herein called the "Indenture"), between the Company and The Bank of New York,
as Trustee (herein called the "Trustee", which term includes any successor
trustee under the Indenture), to which the Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights, limitations of rights, duties and immunities thereunder of the Trustee,
the Company and the Holders of the Debentures, and of the terms upon which the
Debentures are, and are to be, authenticated and delivered. All terms used in
this Debenture that are defined in the Indenture shall have the meanings
assigned to them in the Indenture.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. For periods less than a full month,
interest shall be computed on the actual number of elapsed days over 360 days.
In the event that any date on which interest is payable on this Debenture is not
a Business Day, then a payment of the interest on such date will be made on the
next succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay) with the same force and effect as if made
on the date the payment was originally payable. A "Business Day" shall mean any
day other than a Saturday or a Sunday or a day on which banking institutions in
the City of New York are authorized or required by law or executive order to
remain closed or a day on which the Corporate Trust Office of the Trustee, or
the principal office of the Property Trustee under the Trust Agreement is closed
for business. The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the Person in whose name this Debenture (or one or more Predecessor
Debentures, as defined in the Indenture) is registered at the close of business
on the Regular Record Date, for such interest installment which shall be the
date which is the Business Day next preceding such Interest Payment Date. Any
such interest installment not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this Debenture (or one or more
Predecessor Debentures) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Debentures not less than 10
days prior to such Special
<PAGE>
Page 4
Record Date, or be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Debentures may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in the Indenture.
The Company shall have the right at any time during the term of this
Debenture, from time to time, to extend the interest payment period of such
Debenture for up to 20 consecutive quarters with respect to each deferral period
(each such deferral period an "Extension Period"), during which periods the
Company shall have the right not to make payments of interest on any Interest
Payment Date, and at the end of which the Company shall pay all interest then
accrued and unpaid (together with Additional Interest and Liquidated Damages, if
any, thereon to the extent permitted by applicable law); PROVIDED that during
any such Extension Period, the Company will not, and will not permit any
Subsidiary to (a) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any shares of
the Company's capital stock or (b) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees of indebtedness for money borrowed) of the Company that
rank PARI PASSU with or junior to the Debentures (other than (i) any dividend,
redemption, liquidation, interest, principal or guarantee payment by the Company
where the payment is made by way of securities (including capital stock) that
rank PARI PASSU with or junior to the securities on which such dividend,
redemption, interest, principal or guarantee payment is being made,
(ii) redemptions or purchases of any rights pursuant to the Company's
Shareholders Rights Plan, or any successor to such Shareholders Rights Plan, and
the declaration of a dividend of such rights or the issuance of preferred stock
under such plans in the future, (iii) payments under the Guarantee, (iv)
purchases of Common Stock related to the issuance of Common Stock under any of
the Company's benefit plans for its directors, officers or employees, (v) as a
result of a reclassification of the Company's capital stock or the exchange or
conversion of one series or class of the Company's capital stock for another
series or class of the Company's capital stock and (vi) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged). Prior to the termination of any such Extension Period,
the Company may further extend the interest payment period, PROVIDED that no
Extension Period shall exceed 20 consecutive quarters or extend beyond the
Stated Maturity of this Debenture. Upon the termination of any such Extension
Period and upon the payment of all accrued and unpaid interest and any
<PAGE>
Page 5
Additional Interest then due, the Company may elect to begin a new Extension
Period, subject to the above requirements. No interest shall be due and payable
during an Extension Period except at the end thereof. The Company shall give
the Trustee, the Property Trustee and the Administrative Trustees (as defined in
the Trust Agreement) notice of its selection of an Extension Period at least one
Business Day prior to the earlier of (i) the record date for the date the
distributions on the Preferred Securities (or if no Preferred Securities are
outstanding, for the date interest on the Debentures) would have been payable
except for the election to begin such Extension Period and (ii) the date the
Property Trustee (or if no Preferred Securities are outstanding, the Debenture
Trustee) is required to give notice to the NYSE or other applicable
self-regulatory organizations or to holders of such Preferred Securities (or, if
no Preferred Securities are outstanding, to the holders of such Debentures) of
the record date.
Payment of the principal of (and premium, if any) and interest on this
Debenture will be made to the Depositary Trust Company or its nominee, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts PROVIDED, HOWEVER, that at
the option of the Company payment of interest may be made (i) by check mailed to
the address of the Person entitled thereto as such address shall appear in the
Securities Register or (ii) by wire transfer in immediately available funds at
such place and to such account as may be designated by the Person entitled
thereto as specified in the Securities Register.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and subject in right of payments to the prior payment
in full of all Secured Indebtedness (as defined in the Indenture), and this
Debenture is issued subject to the provisions of the Indenture with respect
thereto. Each Holder of this Debenture, by accepting the same, (a) agrees to
and shall be bound by such provisions, (b) authorizes and directs the Trustee on
his behalf to take such actions as may be necessary or appropriate to effectuate
the subordination so provided and (c) appoints the Trustee his attorney-in-fact
for any and all such purposes. Each Holder hereof, by his acceptance hereof,
waives all notice of the acceptance of the subordination provisions contained
herein and in the Indenture by each holder of Secured Indebtedness, whether now
outstanding or hereafter incurred, and waives reliance by each such holder upon
said provisions.
At any time on or after October 15, 2000, the Company may, at its option,
subject to the terms and conditions of Article 11 of the Indenture, redeem this
Debenture in whole
<PAGE>
Page 6
at any time or in part from time to time, at the Redemption Prices set forth in
Section 11.8 of the Indenture.
In the event of redemption of this Debenture in part only, a new Debenture
or Debentures for the unredeemed portion hereof will be issued in the name of
the Holder hereof upon the cancellation hereof.
If a Special Event shall occur and be continuing, this Debenture shall be
exchangeable for Preferred Securities in accordance with Section 11.9 of the
Indenture or, in certain circumstances, redeemable by the Company in accordance
with Section 11.8 of the Indenture.
Subject to the terms and conditions set forth in Article 13 of the
Indenture, this Debenture is convertible, at the option of the Holder hereof,
into shares of Common Stock.
If an Event of Default shall occur and be continuing, the principal of the
Debentures may be declared due and payable in the manner, with the effect and
subject to the conditions provided in the Indenture.
The Indenture contains provisions for satisfaction, discharge and
defeasance of the entire indebtedness of this Debenture upon compliance by the
Company with certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Debentures to be affected under the
Indenture at any time by the Company and the Trustee with the consent of the
Holders of a majority in principal amount of the Debentures. The Indenture also
contains provisions permitting Holders of specified percentages in principal
amount of the Debentures at the time Outstanding, on behalf of the Holders of
all Debentures, to waive compliance by the Company with certain provisions of
the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver shall be conclusive and binding upon
the Holder of this Debenture and upon all future Holders of this Debenture and
of any Debenture issued upon the registration of transfer hereof or in exchange
therefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Debenture.
As provided in and subject to the provisions of the Indenture, if an Event
of Default occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Debentures may declare the principal amount of all the
<PAGE>
Page 7
Debentures to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), PROVIDED that, if upon an
Event of Default, the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Debentures fail to declare the principal of all the
Debentures to be immediately due and payable, the holders of at least 25% in
aggregate liquidation amount of the Preferred Securities then outstanding shall
have such right by a notice in writing to the Company and the Trustee; and upon
any such declaration such principal amount (or specified amount) of and the
accrued interest (including any Additional Interest) on all the Debentures shall
become immediately due and payable, PROVIDED that the payment of principal and
interest (including any Additional Interest) on such Debentures shall remain
subordinated to the extent provided in Article 12 of the Indenture.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Debenture at the times, place and rate, and in the coin or
currency, herein prescribed.
The holders of the Preferred Securities, the Debentures, the Guarantee and
the shares of Common Stock of the Company issuable upon conversion of the
Securities (collectively, the "Registrable Securities") are entitled to the
benefits of a Registration Rights Agreement, dated as of October 20, 1997, among
Big Flower Trust I, the Company, Big Flower Press Holdings, Inc. and the
Purchasers (the "Registration Rights Agreement"). Pursuant to the Registration
Rights Agreement, the Company has agreed for the benefit of the holders of
Registrable Securities that (i) it will, at its cost, within 90 days after the
date of issuance of the Registrable Securities, file a shelf registration
statement (the "Shelf Registration Statement") with the Commission with respect
to the resales of the Registrable Securities, (ii) it will use its best efforts
to cause such Shelf Registration Statement to be declared effective by the
Commission as promptly as practicable and in no event later than 180 days after
the date of issuance of the Registrable Securities and (iii) the Depositor (as
defined in the Trust Agreement) will use its best efforts to maintain such Shelf
Registration Statement continuously effective under the Securities Act until the
third anniversary of the date of issuance of the Registrable Securities or such
earlier date as is provided in the Registration Rights Agreement (the
"Effectiveness Period".) The Company will be permitted to suspend the use of
the prospectus (which is a part of the Shelf Registration Statement) in
connection with sales of Registrable
<PAGE>
Page 8
Securities by holders during certain periods of time under certain circumstances
relating to pending corporate developments relating to the Company and public
filings with the Commission and similar events.
If (i) on or prior to 90 days following the date of original issuance of
the Registrable Securities, a Shelf Registration Statement has not been filed
with the Commission, or (ii) on or prior to the 180th day following the issuing
of the Registrable Securities, such Shelf Registration Statement is not declared
effective (each such event a "Registration Default"), additional interest
("Liquidated Damages") will accrue on the Debentures and, accordingly,
additional distributions will accrue on the Preferred Securities, from and
including the day following such Registration Default until such time as such
Shelf Registration Statement is filed or such Shelf Registration Statement is
declared effective, as the case may be. Liquidated Damages will be paid
quarterly in arrears (subject to the Company's ability to defer payment of
Liquidated Damages during any Extension Period), with the first quarterly
payment due on the first Interest Payment Date following the date on which such
Liquidated Damages begin to accrue, and will accrue at a rate per annum equal to
an additional 0.25% of the principal amount, to and including the 90th day
following such Registration Default and 0.50% thereof from and after the 91st
day following such Registration Default. In the event that during the
Effectiveness Period the Shelf Registration Statement ceases to be effective, or
the Company suspends the use of the prospectus which is a part thereof, for more
than 90 days, whether or not consecutive, during any 12-month period then the
interest rate borne by the Debentures and the distribution rate borne by the
Preferred Securities will each increase by an additional 0.50% per annum from
the 91st day of the applicable 12-month period such Shelf Registration Statement
ceases to be effective or the Company suspends the use of the prospectus which
is a part thereof, as the case may be, until the earlier of such time as (i) the
Shelf Registration Statement again becomes effective, (ii) the use of the
related prospectuses ceases to be suspended or (iii) the Effectiveness Period
expires.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Debenture is registrable in the Securities Register,
upon surrender of this Debenture for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Debentures, of authorized
<PAGE>
Page 9
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees. No service charge shall be made for any
such registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith.
Prior to due presentment of this Debenture for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Debenture is registered as the owner hereof for
all purposes, whether or not this Debenture be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the contrary.
The Debentures are issuable only in registered form without coupons in
denominations of $50 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Debentures are
exchangeable for a like aggregate principal amount of Debentures of a different
authorized denomination, as requested by the Holder surrendering the same.
The Company and, by its acceptance of this Debenture or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Debenture agree that for United States Federal, state and
local tax purposes it is intended that this Debenture constitute indebtedness.
THE INDENTURE AND THIS DEBENTURE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF
LAW PRINCIPLES THEREOF.
<PAGE>
Exhibit 5.1
[SULLIVAN & CROMWELL LETTERHEAD]
April 15, 1998
Big Flower Trust I,
3 East 54th Street,
New York, New York 10022.
Big Flower Holdings, Inc.,
3 East 54th Street,
New York, New York 10022.
Dear Sirs:
In connection with the registration under the Securities Act of 1933
(the "Act") of (a) 2,300,000 of the 6% Convertible Quarterly Income Preferred
Securities (liquidation amount $50 per preferred security) of Big Flower Trust
I, a Delaware statutory business trust (the "Issuer Trust") (the "Preferred
Securities"), representing preferred undivided beneficial interests in the
assets of the Issuer Trust, issued pursuant to the Amended and Restated Trust
Agreement, dated as of October 14, 1997 (the "Trust Agreement"), among Big
Flower Holdings, Inc. (the "Company"), as Depositor, The Bank of New York, as
Property Trustee (the "Property Trustee"), the Bank of New York (Delaware), as
Delaware Trustee (the "Delaware Trustee"), and Richard L. Ritchie and Mark A.
Angelson as administrative trustees (the "Administrative Trustees"),
(b) $115,000,000 aggregate principal amount of the 6% Convertible Subordinated
Debentures due October 15, 2027
<PAGE>
Big Flower Trust I
Big Flower Holdings, Inc.
(the "Debentures") of the Company issued and sold to the Issuer Trust
pursuant to the Indenture, dated October 20, 1997 (the "Indenture"), between
the Company and the Bank of New York, as Trustee (the "Debenture Trustee"),
(c) the Preferred Securities Guarantee (the "Guarantee") by the Company
pursuant to the Preferred Securities Guarantee Agreement, dated as of October
20, 1997 between the Company and The Bank of New York, as Guarantee Trustee
(the "Guarantee Trustee"), (d) 3,989,120 of the shares of Common Stock (par
value $0.01) (the "Shares") of the Company initially issuable upon conversion
of the Preferred Securities or the Debentures and (e) the related preferred
stock purchase rights (the "Rights") to be issued pursuant to the Rights
Agreement, dated as of November 28, 1995 (the "Rights Agreement"), between
the Company and the Bank of New York, as Rights Agent (the "Rights Agent"),
we, as your special counsel, have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for this opinion. Upon the basis of such
examination, we advise you that, in our opinion:
(1) The Debentures have been duly authorized, executed and delivered
by the Company and constitute valid and legally binding obligations of the
Company, enforceable
-2-
<PAGE>
Big Flower Trust I
Big Flower Holdings, Inc.
against the Company in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(2) The Guarantee Agreement has been duly authorized, executed and
delivered by the Company and the Guarantee constitutes the valid and legally
binding obligation of the Company, enforceable against the Company in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
(3) The Shares of the Company initially issuable upon conversion of
the Preferred Securities or the Debentures, when duly issued upon conversion of
the Preferred Securities or the Debentures, will be validly issued, fully paid
and nonassessable.
(4) Assuming that the Board of Directors of the Company, after fully
informing itself with respect to the Rights Agreement and the Rights and after
giving due consideration to all relevant matters, determined that the execution
and delivery of the Rights Agreement and the
-3-
<PAGE>
Big Flower Trust I
Big Flower Holdings, Inc.
issuance of the Rights thereunder would be in the best interests of the Company
and its stockholders, and assuming further that the Rights Agreement has been
duly authorized, executed and delivered by the Rights Agent, then when the
Shares have been validly issued upon conversion of the Preferred Securities or
the Debentures, the Rights attributable to the Shares will be validly issued.
The foregoing opinion is limited to the Federal laws of the United
States and the laws of the State of New York and the General Corporation Law of
the State of Delaware, and we are expressing no opinion as to the effect of the
laws of any other jurisdiction.
We understand that you have received an opinion regarding the
Preferred Securities from Richards, Layton & Finger, LLP, special Delaware
counsel for the Company and the Issuer Trust. We are expressing no opinion with
respect to the matters contained in such opinion.
In rendering the foregoing opinion, we have relied as to certain
matters on information obtained from public officials, officers of the
Company and other sources believed by us to be responsible, and we have
assumed that (i) the Indenture has been duly authorized, executed and
delivered by the Debenture Trustee, (ii) the Trust Agreement has been duly
authorized, executed and delivered by each of the Property Trustee and the
Delaware
-4-
<PAGE>
Big Flower Trust I
Big Flower Holdings, Inc.
Trustee, (iii) the Guarantee Agreement has been duly authorized, executed and
delivered by the Guarantee Trustee, (iv) the Debentures conform to the
specimen thereof examined by us, (v) the Debenture Trustee's certificate of
authentication on the Debentures has been manually signed by one of the
Debenture Trustee's authorized officers, (vi) the certificates for the shares
of Common Stock issuable upon conversion of the Preferred Securities or the
Debentures will conform to the specimen thereof examined by us and will have
been duly registered and countersigned by the registrar and transfer agent of
the Common Stock, and (vii) the signatures on all documents examined by us
are genuine, assumptions which we have not independently verified.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Validity of
Securities." In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ SULLIVAN & CROMWELL
<PAGE>
Exhibit 5.2
[RICHARDS, LAYTON & FINGER LETTERHEAD]
April 9, 1998
Big Flower Trust I
c/o Big Flower Holdings, Inc.
3 East 54th Street
New York, NY 10022
Re: BIG FLOWER HOLDINGS, INC. AND BIG FLOWER TRUST I
Ladies and Gentlemen:
We have acted as special Delaware counsel for Big Flower
Holdings, Inc., a Delaware corporation (the "Company"), and Big Flower Trust
I, a Delaware business trust (the "Trust"), in connection with the matters
set forth herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals
or copies of the following:
(a) The Certificate of Trust of the Trust dated as of October
14, 1997, as filed with the office of the Secretary of State of the State of
Delaware (the "Secretary of State") on October 14, 1997;
(b) The Trust Agreement of the Trust, dated as of October 14,
1997, as amended by the Amended and Restated Trust Agreement, dated as of
October 14, 1997 (collectively the "Trust Agreement"), among the Company and
the trustees of the Trust named therein;
(c) The Registration Statement (the "Registration Statement") on
Form S-3, including a prospectus with respect to the Trust (the
"Prospectus"), relating to the Preferred Securities of the Trust representing
preferred undivided beneficial interests in the assets of the Trust (each, a
"Preferred Security" and collectively, the "Preferred Securities"), filed by
the Company and the Trust with the Securities and Exchange Commission on or
about April 9, 1998; and
<PAGE>
Big Flower Trust I
April 9, 1998
Page 2
(d) A Certificate of Good Standing for the Trust, dated
April 8, 1998, obtained from the Secretary of State.
Initially, capitalized terms used herein and not otherwise
defined are used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents
other than the documents listed in paragraphs (a) through (d) above. In
particular, we have not reviewed any document (other than the documents
listed in paragraphs (a) through (d) above) that is referred to in or
incorporated by reference into the documents reviewed by us. We have assumed
that there exists no provision in any document that we have not reviewed that
is inconsistent with the opinions stated herein. We have conducted no
independent factual investigation of our own but rather relied solely upon
the foregoing documents, the statements and information set forth therein and
the additional matters recited or assumed herein, all of which we have
assumed to be true, complete and accurate in all materials respects.
With respect to all documents examined by us, we have assumed (i)
the authenticity of all documents submitted to us as authentic originals,
(ii) the conformity with the originals of all documents submitted to us as
copies or forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement and the Certificate of Trust are in full force and effect and have
not been amended, (ii) except to the extent provided in paragraph 1 below,
the due organization or due formation, as the case may be, and valid
existence in good standing of each party to the documents examined by us
under the laws of the jurisdiction governing its creation, organization or
formation, (iii) the legal capacity of natural persons who are parties to the
documents examined by us, (iv) that each of the parties to the documents
examined by us has the power and authority to execute and deliver, and to
perform its obligations under, such documents, (v) the due authorization,
execution and delivery by all parties thereto of all documents examined by
us, (vi) the receipt by each Person to whom a Preferred Security was issued
by the Trust (collectively, the "Preferred Security Holders") of a Preferred
Securities Certificate for such Preferred Security and the payment for such
Preferred Security, in accordance with the Trust Agreement and the
Registration Statement, and (vii) that the Preferred Securities are issued
and sold to the Preferred Security Holders in accordance with the Trust
Agreement and the Registration Statement. We have not participated in the
preparation of the Registration Statement and assume no responsibility for
its contents.
<PAGE>
Big Flower Trust I
April 9, 1998
Page 3
This opinion is limited to the laws of the State of Delaware, and
we have not considered and express no opinion on the laws of any other
jurisdiction, including federal laws and rules and regulations relating
thereto. Our opinions are rendered only with respect to Delaware laws
(excluding securities laws) and rules, regulations and orders thereunder
which are currently in effect.
Based upon the foregoing, and upon our examination of such
questions of law and statutes of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Business Trust Act.
2. The Preferred Securities of the Trust represent valid and,
subject to the qualifications set forth in paragraph 3 below, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the
Trust, are entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. We hereby
consent to the use of our name under the heading "Validity of Securities" in
the Prospectus. In giving the foregoing consents, we do not thereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder. Except as
stated above, without our prior written consent, this opinion may not be
furnished or quoted to, or relied upon by, any other person for any purpose.
Very truly yours,
/s/ RICHARDS, LAYTON & FINGER
WF:sem
<PAGE>
Exhibit 8.1
[LETTERHEAD OF SULLIVAN & CROMWELL]
April 9, 1998
Big Flower Holdings, Inc.,
Big Flower Trust I,
3 East 54th Street,
New York, New York 10022.
Re: 2,300,000 Preferred Securities of Big Flower Trust I
----------------------------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel to Big Flower Holdings, Inc.
and Big Flower Trust I in connection with the Registration Statement on Form
S-3 of Big Flower Trust I and Big Flower Holdings, Inc. (the "Registration
Statement") and hereby confirm to you our opinion as set forth under the
heading "Certain Federal Income Tax Consequences" in the Prospectus included
in the Registration Statement.
We hereby consent to the filing with the Securities and Exchange
Commission of this letter as an exhibit to the Registration Statement and the
reference to us under the heading "Certain Federal Income Tax Consequences."
In giving such consent, we do not thereby admit that we are within the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
/s/ Sullivan & Cromwell
<PAGE>
EXHIBIT 12.1
BIG FLOWER HOLDINGS, INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
DIVIDENDS)
(Dollars in thousands)
<TABLE>
<CAPTION>
PREDECESSOR TC
BIG FLOWER ADVERTISING
--------------------------------------------------------------- ------------------------
SIX MONTHS 323 DAYS 42 DAYS YEAR
YEAR ENDED YEAR ENDED ENDED YEAR ENDED ENDED ENDED ENDED
12/31/97 12/31/96 12/31/95 6/30/95 6/30/94 8/11/93 6/30/93
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FIXED CHARGES AND PREFERRED DIVIDENDS:
Interest expense...................... $ 40,300 $ 36,165 $ 19,076 $ 37,452 $ 19,735 $ 578 $ 6,792
Amortization of deferred financing
costs................................ 1,696 1,802 1,594 3,437 1,936 126 2,435
Capitalized interest.................. 1,463 168 -- 295 260 -- 150
Interest component of rent expense.... 11,169 10,897 5,694 9,414 5,138 756 5,648
Preferred dividends of a subsidiary or
subsidiary trust..................... 1,340 -- 1,068 2,444 1,913 -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total fixed charges and preferred
dividends............................ 55,968 49,032 27,432 53,042 28,982 1,460 15,025
Less: Capitalized interest............ 1,463 168 -- 295 260 -- 150
----------- ----------- ----------- ----------- ----------- ----------- -----------
Adjusted fixed charges and preferred
dividends............................ $ 54,505 $ 48,864 $ 27,432 $ 52,747 $ 28,722 $ 1,460 $ 14,875
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
EARNINGS:
(Loss) income before income taxes and
extraordinary item................... $ (11,626) $ 4,998 $ 12,694 $ 5,268 $ (549) $ (228) $ 10,204
Adjusted fixed charges and preferred
dividends............................ 54,505 48,864 27,432 52,747 28,722 1,460 14,875
----------- ----------- ----------- ----------- ----------- ----------- -----------
Adjusted earnings..................... $ 42,879 $ 53,862 $ 40,126 $ 58,015 $ 28,173 $ 1,232 $ 25,079
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Ratio of earnings to combined fixed
charges and preferred dividends...... 0.8 1.1 1.5 1.1 1.0 0.8 1.7
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-44445 of Big Flower Holdings, Inc. and Big Flower
Trust I of our report dated February 9, 1998 appearing in the Annual Report on
Form 10-K of Big Flower Holdings, Inc. for the year ended December 31, 1997 and
to the reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
April 13, 1998
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
Exhibit 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
-----------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
-----------------------------
BIG FLOWER HOLDINGS, INC.
(Exact name of obligor as specified in its charter)
Delaware 13-3768322
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3 East 54th Street
New York, New York 10022
(Address of principal executive offices) (Zip code)
-----------------------------
Convertible Subordinated Debentures
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 8th day of April, 1998.
THE BANK OF NEW YORK
By: /S/VAN K. BROWN
--------------------------------
Name: VAN K. BROWN
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 7
---------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 5,004,638
Interest-bearing balances .......... 1,271,514
Securities:
Held-to-maturity securities ........ 1,105,782
Available-for-sale securities ...... 3,164,271
Federal funds sold and Securities pur-
chased under agreements to resell...... 5,723,829
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ....................... 34,916,196
LESS: Allowance for loan and
lease losses ................. 581,177
LESS: Allocated transfer risk
reserve....................... 429
Loans and leases, net of unearned
income, allowance, and reserve 34,334,590
Assets held in trading accounts ...... 2,035,284
Premises and fixed assets (including
capitalized leases) ................ 671,664
Other real estate owned .............. 13,306
Investments in unconsolidated
subsidiaries and associated
companies .......................... 210,685
Customers' liability to this bank on
acceptances outstanding ............ 1,463,446
Intangible assets .................... 753,190
Other assets ......................... 1,784,796
-----------
Total assets ......................... $57,536,995
-----------
-----------
LIABILITIES
Deposits:
In domestic offices ................ $27,270,824
Noninterest-bearing ......12,160,977
Interest-bearing .........15,109,847
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ... 14,687,806
Noninterest-bearing .........657,479
Interest-bearing .........14,030,327
Federal funds purchased and Securities
sold under agreements to repurchase. 1,946,099
Demand notes issued to the U.S.
Treasury ........................... 283,793
Trading liabilities .................. 1,553,539
Other borrowed money:
With remaining maturity of one year
or less .......................... 2,245,014
With remaining maturity of more than
one year through three years.......... 0
With remaining maturity of more than
three years ......................... 45,664
Bank's liability on acceptances exe-
cuted and outstanding .............. 1,473,588
Subordinated notes and debentures .... 1,018,940
Other liabilities .................... 2,193,031
-----------
Total liabilities .................... 52,718,298
-----------
EQUITY CAPITAL
Common stock ........................ 1,135,284
Surplus ............................. 731,319
Undivided profits and capital
reserves .......................... 2,943,008
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ 25,428
Cumulative foreign currency transla-
tion adjustments .................. ( 16,342)
-----------
Total equity capital ................ 4,818,697
-----------
Total liabilities and equity
capital ........................... $57,536,995
-----------
-----------
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi
Alan R. Griffith Directors
- --------------------------------------------------------------------------------
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
Exhibit 25.2
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
---------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
---------------------------
BIG FLOWER TRUST I
(Exact name of obligor as specified in its charter)
Delaware To Be Applied For
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3 East 54th Street
New York, New York 10022
(Address of principal executive offices) (Zip code)
---------------------------
Convertible Quarterly Income Preferred Securities
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 8th day of April, 1998.
THE BANK OF NEW YORK
By: /S/ VAN K. BROWN
--------------------------------
Name: VAN K. BROWN
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 7
---------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 5,004,638
Interest-bearing balances .......... 1,271,514
Securities:
Held-to-maturity securities ........ 1,105,782
Available-for-sale securities ...... 3,164,271
Federal funds sold and Securities pur-
chased under agreements to resell...... 5,723,829
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ....................... 34,916,196
LESS: Allowance for loan and
lease losses ................. 581,177
LESS: Allocated transfer risk
reserve....................... 429
Loans and leases, net of unearned
income, allowance, and reserve 34,334,590
Assets held in trading accounts ...... 2,035,284
Premises and fixed assets (including
capitalized leases) ................ 671,664
Other real estate owned .............. 13,306
Investments in unconsolidated
subsidiaries and associated
companies .......................... 210,685
Customers' liability to this bank on
acceptances outstanding ............ 1,463,446
Intangible assets .................... 753,190
Other assets ......................... 1,784,796
-----------
Total assets ......................... $57,536,995
-----------
-----------
LIABILITIES
Deposits:
In domestic offices ................ $27,270,824
Noninterest-bearing ......12,160,977
Interest-bearing .........15,109,847
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ... 14,687,806
Noninterest-bearing .........657,479
Interest-bearing .........14,030,327
Federal funds purchased and Securities
sold under agreements to repurchase. 1,946,099
Demand notes issued to the U.S.
Treasury ........................... 283,793
Trading liabilities .................. 1,553,539
Other borrowed money:
With remaining maturity of one year
or less .......................... 2,245,014
With remaining maturity of more than
one year through three years.......... 0
With remaining maturity of more than
three years ......................... 45,664
Bank's liability on acceptances exe-
cuted and outstanding .............. 1,473,588
Subordinated notes and debentures .... 1,018,940
Other liabilities .................... 2,193,031
-----------
Total liabilities .................... 52,718,298
-----------
EQUITY CAPITAL
Common stock ........................ 1,135,284
Surplus ............................. 731,319
Undivided profits and capital
reserves .......................... 2,943,008
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ 25,428
Cumulative foreign currency transla-
tion adjustments .................. ( 16,342)
-----------
Total equity capital ................ 4,818,697
-----------
Total liabilities and equity
capital ........................... $57,536,995
-----------
-----------
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi
Alan R. Griffith Directors
- --------------------------------------------------------------------------------
<PAGE>
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
Exhibit 25.3
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
-----------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
-----------------------------
BIG FLOWER HOLDINGS, INC.
(Exact name of obligor as specified in its charter)
Delaware 13-3768322
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3 East 54th Street
New York, New York 10022
(Address of principal executive offices) (Zip code)
-----------------------------
Guarantee of Convertible Quarterly Income
Preferred Securities of Big Flower Trust I
(Title of the indenture securities)
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<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
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Name Address
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Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
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<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 8th day of April, 1998.
THE BANK OF NEW YORK
By: /S/ VAN K. BROWN
--------------------------------
Name: VAN K. BROWN
Title: ASSISTANT VICE PRESIDENT
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<PAGE>
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Exhibit 7
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Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 5,004,638
Interest-bearing balances .......... 1,271,514
Securities:
Held-to-maturity securities ........ 1,105,782
Available-for-sale securities ...... 3,164,271
Federal funds sold and Securities pur-
chased under agreements to resell...... 5,723,829
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ....................... 34,916,196
LESS: Allowance for loan and
lease losses ................. 581,177
LESS: Allocated transfer risk
reserve....................... 429
Loans and leases, net of unearned
income, allowance, and reserve 34,334,590
Assets held in trading accounts ...... 2,035,284
Premises and fixed assets (including
capitalized leases) ................ 671,664
Other real estate owned .............. 13,306
Investments in unconsolidated
subsidiaries and associated
companies .......................... 210,685
Customers' liability to this bank on
acceptances outstanding ............ 1,463,446
Intangible assets .................... 753,190
Other assets ......................... 1,784,796
-----------
Total assets ......................... $57,536,995
-----------
-----------
LIABILITIES
Deposits:
In domestic offices ................ $27,270,824
Noninterest-bearing ......12,160,977
Interest-bearing .........15,109,847
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ... 14,687,806
Noninterest-bearing .........657,479
Interest-bearing .........14,030,327
Federal funds purchased and Securities
sold under agreements to repurchase. 1,946,099
Demand notes issued to the U.S.
Treasury ........................... 283,793
Trading liabilities .................. 1,553,539
Other borrowed money:
With remaining maturity of one year
or less .......................... 2,245,014
With remaining maturity of more than
one year through three years.......... 0
With remaining maturity of more than
three years ......................... 45,664
Bank's liability on acceptances exe-
cuted and outstanding .............. 1,473,588
Subordinated notes and debentures .... 1,018,940
Other liabilities .................... 2,193,031
-----------
Total liabilities .................... 52,718,298
-----------
EQUITY CAPITAL
Common stock ........................ 1,135,284
Surplus ............................. 731,319
Undivided profits and capital
reserves .......................... 2,943,008
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ 25,428
Cumulative foreign currency transla-
tion adjustments .................. ( 16,342)
-----------
Total equity capital ................ 4,818,697
-----------
Total liabilities and equity
capital ........................... $57,536,995
-----------
-----------
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi
Alan R. Griffith Directors
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