<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
DIMAC HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 2677 13-4013422
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or Classification Code Number)
organization)
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5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
(404) 256-1123
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------------
MR. EDWARD LAZAROWITZ
CHIEF FINANCIAL OFFICER
DIMAC CORPORATION
5775 PEACHTREE DUNWOODY ROAD
SUITE C-150
ATLANTA, GEORGIA 30342
(404) 256-1123
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
COPY TO:
Frank L. Schiff, Esq.
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
(212) 819-8752
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the information of a holding company and there is compliance
with General Instruction G, check the following box. / /
----------------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH OFFERING AGGREGATE
NOTE OF SECURITIES AMOUNT TO BE PRICE PER OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED NOTE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
15 1/2% Senior Notes
due 2009............................. $30,000,000 100% $30,000,000 $8,340
</TABLE>
(1) In accordance with Rule 457(f)(2), the registration fee is calculated based
on the book value, which has been computed as of November 12, 1998, of the
outstanding 15 1/2% Senior Notes due 2009 of DIMAC Holdings, Inc. to be
cancelled in the exchange transaction hereunder.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS WILL BE AMENDED OR COMPLETED;
DATED NOVEMBER 12, 1998
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PROSPECTUS
DIMAC HOLDINGS, INC.
EXCHANGE OFFER FOR
15 1/2% SENIOR NOTES DUE 2009
</TABLE>
INVESTMENT IN THE NEW NOTES BEING OFFERED INVOLVES CERTAIN RISKS. IT IS
IMPORTANT THAT YOU READ THE SECTION LABELED "RISK FACTORS" BEGINNING ON PAGE 17
FOR A MORE DETAILED DISCUSSION OF THESE RISKS.
TERMS OF THE EXCHANGE OFFER
/ / The Exchange Offer expires at 5:00 p.m., New York City time, on ,
199 , unless extended.
/ / The Exchange Offer is not subject to any conditions other than that the
registered New Notes be freely tradeable and that the interests of
holders of outstanding Old Notes not be materially adversely affected by
consummation of the Exchange Offer.
/ / We will exchange all outstanding Old Notes that are validly tendered and
not validly withdrawn.
/ / You may withdraw tenders of outstanding Old Notes at any time prior to
the expiration of the Exchange Offer.
/ / The exchange of outstanding Old Notes for New Notes will not be a
taxable event for federal income tax purposes.
/ / We will not receive any proceeds from the Exchange Offer.
/ / The terms of the New Notes are substantially identical to the
outstanding Old Notes, except that the New Notes will be freely
tradeable.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................................................... 1
Risk Factors.......................................................... 17
Company History....................................................... 25
The Acquisitions...................................................... 26
The Refinancing....................................................... 26
Use of Proceeds of the New Notes...................................... 27
Capitalization........................................................ 28
The Exchange Offer.................................................... 29
DIMAC Holdings, Inc. Unaudited Pro Forma Consolidated Statements...... 39
Selected Historical Financial Data AmeriComm Holdings, Inc............ 54
Selected Historical Financial Data DIMAC Marketing Corporation........ 56
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 60
Business.............................................................. 70
Management............................................................ 85
Security Ownership.................................................... 89
Certain Relationships and Related Transactions........................ 90
Description of Other Indebtedness..................................... 91
Description of Notes.................................................. 96
Certain United States Federal Tax Considerations...................... 124
Old Notes Registration Rights Agreement............................... 125
Book-Entry; Delivery and Form......................................... 128
Plan of Distribution.................................................. 131
Legal Matters......................................................... 132
Experts............................................................... 132
Index to Financial Statements......................................... F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. This
Prospectus includes specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage you
to read this Prospectus in its entirety.
THE EXCHANGE OFFER
On October 22, 1998, we completed the private offering of our 15 1/2% Senior
Notes due 2009. The Notes were sold for an aggregate purchase price of $30.0
million.
We entered into a Registration Rights Agreement with the purchasers in the
private offering of the Notes in which we agreed, among other things, to deliver
to you this Prospectus and to complete the Exchange Offer under certain
circumstances. In the Exchange Offer, you are entitled to exchange your
outstanding Old Notes for registered New Notes with substantially identical
terms.
You should read the discussion under the heading "The Exchange Offer" and
"Description of Notes" for further information regarding the New Notes.
We believe that, subject to certain conditions, you may resell the New Notes
issued in the Exchange Offer without complying with the registration and
prospectus delivery provisions of the Securities Act of 1933. You should read
the discussion under the heading "The Exchange Offer" for further information
regarding the Exchange Offer and resale of the New Notes.
THE COMPANY
OVERVIEW
DIMAC Corporation acquired AmeriComm Holdings, Inc. and DIMAC Marketing
Corporation on June 26, 1998. Consequently, we had to redeem or repay certain
indebtedness that we assumed when we acquired these two companies.
In the Refinancing, we:
- repaid certain existing indebtedness of AmeriComm Holdings, Inc. and its
subsidiary, AmeriComm Direct Marketing, Inc. (including the repurchase of
all $100.0 million of AmeriComm Direct Marketing Inc.'s outstanding 11 5/8%
Senior Notes due 2002 through a tender offer and consent solicitation);
- repaid the amount of revolving loans outstanding under the senior secured
credit facility; and
- paid fees and expenses related to our Senior Subordinated Notes offering and
the AmeriComm Direct Marketing tender offer and consent solicitation.
WHO WE ARE
We provide a comprehensive range of direct marketing services that
emphasizes cost-effective production of large, complex, highly personalized
direct mail campaigns. Through our nationwide network of 21 production
facilities, we offer direct mail customers a wide variety of formats, printing
and converting capabilities, personalization and customization alternatives and
mailing and distribution services. We mail approximately 1.7 billion direct mail
packages each year. We believe that this makes us one of the largest direct
mailers in the United States.
WHAT WE DO
We offer a complete range of pre- and post-production direct marketing
services such as
- information services (information processing and database management);
- program development services (strategic market planning, creative
development and program evaluation); and
- fulfillment and telemarketing services (fulfillment, telemarketing and
tracking)
to complement and drive our production volume and to attract higher margin
business. In addition, to support our direct marketing products and services, we
offer other printing and converting products such as custom pressure sensitive
labels and custom mailers.
1
<PAGE>
HOW WE HAVE DONE
Our pro forma net sales and pro forma EBITDA for the twelve-month period
ended June 30, 1998 would have been $384.4 million and $56.8 million,
respectively. Our pro forma net sales and pro forma EBITDA give retroactive
effect to the following transactions as if each of these transactions occurred
on January 1, 1997:
- our acquisitions of AmeriComm Holdings and DIMAC Marketing;
- the Refinancing;
- the AmeriComm Holdings Acquisitions of the following companies:
- AmeriComm Direct Marketing, Inc.;
- Cardinal Marketing, Inc. and Cardinal Marketing of New Jersey, Inc.; and
- Label America, Inc.
PRO FORMA INFORMATION. Pro forma information does not indicate actual
results and might not indicate future results. We have presented both historical
and pro forma information throughout this Prospectus, however, because of the
changes to our business during 1998, we believe that the pro forma information
may be more meaningful to you.
DIRECT MAIL INDUSTRY
OVERVIEW
Direct mail advertising is the second largest segment of the direct
marketing industry. Direct mail expenditures increased from $25.4 billion in
1992 to $37.4 billion in 1997. This represents a compound annual rate of 8.0%.
Industry sources forecast that such expenditures will grow to $51.0 billion by
the end of 2002. This represents a compound annual rate of 6.4%.
Direct mail is often regarded as more effective than other forms of mass
advertising, such as television, newspapers, and magazines. Through direct mail,
companies can direct their advertising specifically to a target market and the
response can be measured. This allows a direct mail program to be continually
refined to increase its effectiveness. Companies use direct mail for a variety
of purposes, including:
- attracting new customers;
- enhancing existing customer relationships; and
- exploring market potential for new products and services.
CURRENT MARKET CONDITIONS
The direct mail industry is highly fragmented, with relatively few national
providers capable of offering comprehensive direct mail marketing. We believe
this fragmentation, coupled with continued customer outsourcing and expectations
of single-source, cost-effective direct mail solutions, provides a competitive
advantage for national full service providers such as our company.
INDUSTRY DATA
We obtained the industry data used throughout this Prospectus from industry
publications. We have not independently verified this information.
BUSINESS STRATEGY
Our business strategy is to enhance our competitive position and increase
net sales and profitability through the following initiatives:
EMPHASIZE COMPREHENSIVE DIRECT MAIL SOLUTIONS
An increasingly important factor in clients' selection of a direct mail
service provider is the availability of "one-stop shopping" for all of their
direct mail needs. Because of our comprehensive range of direct mail products
and pre- and post-production services, we are well positioned to offer clients
"one-stop shopping". We believe that as a "single-source" supplier offering
comprehensive solutions, we will save our clients both time and money.
2
<PAGE>
LEVERAGE LARGE SCALE AND NATIONAL PRESENCE TO ATTRACT NEW HIGH VOLUME, NATIONAL
CLIENTS
The size and scope of a direct mail company's operations are increasingly
important factors for large, national accounts in the selection of a direct mail
service provider. We have the capabilities and scale to service national, high
volume accounts requiring access to multiple distribution points. Based on our
previous experience in securing national business from our clients, we believe
that we can further leverage our strong franchise, large scale, wide breadth of
operations and national presence to secure new high-volume, high-margin
business.
REALIZE BENEFITS FROM INTEGRATION
We believe the integration of AmeriComm Holdings and DIMAC Marketing
presents additional margin enhancement opportunities. These include:
- in-sourcing certain product requirements;
- relocating certain production equipment;
- procuring raw materials on a combined basis; and
- sharing certain technological and software capabilities.
PURSUE STRATEGIC ACQUISITIONS
The trend towards consolidation in the highly fragmented direct marketing
industry provides opportunities for continued growth through selected strategic
acquisitions. We intend to pursue potential acquisitions that:
- complement our product offerings;
- increase our production capabilities;
- provide entry into new markets;
- expand our customer base; or
- create new cross-selling opportunities.
3
<PAGE>
ORGANIZATIONAL CHART
The following chart depicts, as of October 31, 1998, the organizational
structure of DIMAC Holdings and DIMAC Corporation and their subsidiaries, the
percentage ownership of each subsidiary by its direct parent, the indebtedness
and capital leases of each of these companies (excluding intercompany
indebtedness) and the equity contribution made to DIMAC Holdings.
[CHART]
- ------------------------
(a) Borrowings of up to $75.0 million were available under our revolving credit
facility for working capital and general corporate purposes.
(b) Net of original issue discount of $2.8 million.
4
<PAGE>
CONTROLLING STOCKHOLDER
The controlling stockholder of DIMAC Holdings is McCown De Leeuw & Co.,
Inc., a private equity investment firm based in Menlo Park, California and New
York City. McCown De Leeuw has significant previous experience in the direct
mail industry. McCown De Leeuw's experience in the direct mail industry results
from its ownership of AmeriComm Holdings from 1989 until June 1998 through
McCown De Leeuw & Company II, L.P. and its affiliates, and its previous
ownership of DIMAC Marketing from November 1993 through February 1996.
5
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
The New Notes....... The forms and terms of the New Notes are identical in all
material respects to those of the Old Notes. The New
Notes, however, will not contain certain transfer restric-
tions, registration rights and liquidated damages
provisions relating to the Old Notes. The Old Notes may be
exchanged for New Notes under the Exchange Offer described
in this Prospectus under the heading "The Exchange Offer"
and "Old Notes Registration Rights Agreement".
The Exchange
Offer............. We are offering to exchange up to $30,000,000 aggregate
principal amount of the New Notes for up to $30,000,000
aggregate principal amount of Old Notes. Old Notes may be
exchanged only in integral multiples of $1,000.
Expiration Date;
Withdrawal of
Tender............ The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 199 , or such later date and time to
which we extend it. The tender of Old Notes pursuant to
the Exchange Offer may be withdrawn at any time prior to
, 199 . The expiration date for the Exchange
Offer will not in any event be extended to a date later
than , 199 . Any Old Notes not accepted for
exchange for any reason will be returned without expense
to the tendering holder promptly after the expiration or
termination of the Exchange Offer.
Certain Conditions
to the Exchange
Offer............. The Exchange Offer is subject to customary conditions,
which we may waive. Please read the section "The Exchange
Offer--Certain Conditions to the Exchange Offer" of this
Prospectus for more information regarding conditions to
the Exchange Offer.
Procedures for
Tendering Old
Notes............. Each holder of Old Notes that wishes to accept the
Exchange Offer must complete, sign and date the Letter of
Transmittal, or a facsimile of the Letter of Transmittal,
according to the instructions contained in this Prospectus
and the Letter of Transmittal. Such holder must also mail
or otherwise deliver the Letter of Transmittal, or a
facsimile of the Letter of Transmittal, together with the
Old Notes and any other required documents to the Exchange
Agent at the address set forth on the cover page of the
Letter of Transmittal. By signing the Letter of
Transmittal, each holder will represent to us that, among
other things:
- any New Notes which the holder receives will be acquired
in the ordinary course of its business;
- the holder has no arrangement or understanding with any
person or entity to participate in the distribution of
the New Notes;
6
<PAGE>
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- if the holder is not a broker-dealer, that it is not
engaged in and does not intend to engage in the
distribution of the New Notes;
- if the holder is a broker-dealer that will receive New
Notes for its own account in exchange for Old Notes that
were acquired as a result of market making activities
that it will deliver a prospectus, as required by law,
in connection with any resale of such New Notes; and
- the holder is not an "affiliate," as defined in Rule 405
of the Securities Act, of DIMAC Holdings or, if the
holder is an affiliate, it will comply with any
applicable registration and prospectus delivery
requirements of the Securities Act.
Each holder whose Old Notes are held through The Depos-
itory Trust Company and who wishes to participate in the
Exchange Offer may do so through The Depository Trust
Company's Automated Tender Offer Program. Under this
program, each tendering participant will agree to be bound
by the Letter of Transmittal as though each holder had
signed the Letter of Transmittal.
Interest on the New
Notes............. Interest on the New Notes will accrue from the date they
are issued at the rate of 15 1/2% each year, and will be
payable quarterly on March 31, June 30, September 30 and
December 31 of each year beginning on , 199 .
Holders of the New Notes will also receive an amount equal
to the accrued interest on the Old Notes on , 199 .
Interest on the Old Notes accepted for exchange will stop
accruing when the New Notes are issued.
Special Procedures
for Beneficial
Owners............ Any beneficial owner whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company
or other nominee, and who wishes to tender such Old Notes
in the Exchange Offer, should contact such registered
holder promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on his own behalf, such
owner must, prior to completing and executing the Letter
of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old
Notes in his name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time and may
not be able to be completed prior to , 199 .
Guaranteed Delivery
Procedure......... Holders of Old Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or who
cannot deliver their Old Notes, the Letter of Transmittal
or any other documents required by the Letter of
Transmittal,
</TABLE>
7
<PAGE>
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prior to , 199 , must tender their Old Notes
according to the guaranteed delivery procedures set forth
in this Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedures".
Registration
Requirements...... Under the Exchange Offer, we will offer holders of the Old
Notes an opportunity to exchange their Old Notes for New
Notes. We will issue the New Notes without legends
restricting their transfer. In the event that applicable
Securities and Exchange Commission interpretations do not
permit us to effect the Exchange Offer or in certain other
circumstances, we have agreed to promptly deliver notice
of this event to the Note holders and to promptly file a
Shelf Registration Statement covering resales of the Old
Notes and to use our reasonable best efforts to cause the
SEC to declare the Shelf Registration Statement effective
under the Securities Act and, subject to certain
exceptions, keep the Shelf Registration Statement
effective during the two year period beginning on the
180th day after any holder demands the filing of an
Exchange Offer registration statement or a shelf
registration. If we fail to consummate the Exchange Offer
or, in the event that we are not in compliance with
certain obligations under the Registration Rights
Agreement, we will be obligated to pay specified
liquidated damages to holders of the Old Notes. Please
read the section in this Prospectus labelled "Old Notes
Registration Rights Agreement" for more information
regarding your rights as a holder of the Old Notes.
Certain Federal Tax
Considerations.... For a discussion of certain federal income tax considera-
tions relating to the exchange of the New Notes for the
Old Notes, see "Certain United States Federal Tax
Considerations" of this Prospectus.
Use of Proceeds..... We will receive no proceeds from the exchange of Old Notes
under the Exchange Offer.
Exchange Agent...... Wilmington Trust Company is the Exchange Agent. The
address and telephone number of the Exchange Agent are set
forth in "The Exchange Offer--Exchange Agent" of this
Prospectus.
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TERMS OF THE NOTES
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes are registered under the
Securities Act. Therefore, the New Notes will not bear legends restricting their
transfer and will not contain the registration rights and liquidated damages
provisions relating to the Old Notes. It is important that you read the sections
"The Exchange Offer" and "Old Notes Registration Rights Agreement" of this
Prospectus for more information regarding the Old Notes and New Notes and your
rights as a holder of these notes.
8
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain of the information contained in this Prospectus, including
information with respect to our plans and strategy for our business and its
financing, are forward-looking statements. For a discussion of important factors
that could cause actual results to differ materially from the forward-looking
statements, see "Risk Factors."
RISK FACTORS
For a discussion of certain factors that you should consider in connection
with your investment in the New Notes to be issued in the Exchange Offer, see
"Risk Factors" immediately following this summary.
OUR HISTORY
We were incorporated under the laws of the State of Delaware in May 1998. We
acquired DIMAC Marketing and AmeriComm Holdings on June 26, 1998.
PRINCIPAL EXECUTIVE OFFICE
Our headquarters are located at 5775 Peachtree Dunwoody Road, Suite C-150,
Atlanta, Georgia 30342 (telephone number 404-256-1123).
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form S-4 with the SEC under the
Securities Act of 1933, as amended, covering the notes to be issued in the
Exchange Offer. This Prospectus does not contain all of the information included
in the Registration Statement. Any statement made in this Prospectus concerning
the contents of any contract, agreement or other document is not necessarily
complete. If we have filed any such contract, agreement or other document as an
exhibit to the Registration Statement, you should read the exhibit for a more
complete understanding of the document or matter involved. Each statement
regarding a contract, agreement or other document is qualified in its entirety
by reference to the actual document.
Following the Exchange Offer, we will be required to file periodic reports
and other information with the SEC under the Securities Exchange Act of 1934.
Our obligation to file periodic reports with the SEC will be suspended if the
New Notes issued in the Exchange Offer are held of record by fewer than 300
holders as of the beginning of any year. However, the indenture governing the
Notes requires us to file financial and other information with the SEC for
public availability. In addition, the Notes Indenture requires us to deliver to
you copies of all reports that we file with the SEC, at no cost to you. We will
also furnish such other reports as we may determine or as the law requires.
You may read and copy the Registration Statement, including the attached
exhibits, and any reports, statements or other information that we file with the
SEC, at the SEC's public reference rooms in Washington, D.C., Chicago, Illinois
and New York, New York. You can request copies of these documents, upon payment
of a duplicating fee, by writing the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. Our SEC
filings will also be posted on the SEC Internet site (http://www.sec.gov).
You should rely only on the information provided in this Prospectus. No
person has been authorized to provide you with different information.
We are not making an offer to exchange Old Notes in any jurisdiction where
the offer is not permitted.
The information in this Prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this Prospectus
is accurate as of any other date.
9
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SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
We are providing the following summary unaudited pro forma consolidated
financial data for our company to give you a better picture of what our business
might have looked like if certain transactions had occurred. The pro forma
information is derived from, and you should read it along with, the "DIMAC
Holdings Unaudited Pro Forma Consolidated Financial Statements" that gives pro
forma effect to
- the following AmeriComm Holdings Acquisitions of:
- AmeriComm Direct Marketing, Inc.;
- Cardinal Marketing, Inc. and Cardinal Marketing of New Jersey, Inc.; and
- Label America, Inc.;
- our acquisitions of AmeriComm Holdings and DIMAC Marketing; and
- the Refinancing.
The pro forma statement of operations and other financial data for the year
ended December 31, 1997 give effect to the above listed transactions as if they
were consummated on January 1, 1997. The pro forma statement of operations and
other financial data for the six months ended June 30, 1998 give effect to the
following transactions, as if they were consummated on January 1, 1997:
- AmeriComm Holdings' acquisition of Cardinal Marketing and Cardinal Marketing
of New Jersey;
- our acquisitions of AmeriComm Holdings and DIMAC Marketing; and
- the Refinancing.
The pro forma balance sheet data gives effect to the Refinancing as if it
were consummated on June 30, 1998. The pro forma financial data does not purport
to represent what the financial position or results of operations of our company
and our subsidiaries would actually have been had the AmeriComm Holdings
Acquisitions, our acquisitions of AmeriComm Holdings and DIMAC Marketing, and
the Refinancing in fact been completed on the assumed dates. Nor does it purport
to project the financial position or results of operations of our company and
our subsidiaries for any future period or date.
It is important that you read the summary unaudited pro forma consolidated
financial information presented below along with "Management's Discussion and
Analysis of Financial Condition and Results of Operations--AmeriComm Holdings,
Inc.," "Management's Discussion and Analysis of Financial Condition and Results
of Operations--DIMAC Marketing Corporation" and the consolidated financial
statements and the related notes for our company, AmeriComm Holdings and DIMAC
Marketing included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1998(A)
------------ ----------- --------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales.............................................................. $ 386,665 $ 189,918 $ 384,366
Cost of products sold.................................................. 257,840 128,367 257,420
------------ ----------- --------------
Gross profit......................................................... 128,825 61,551 126,946
Selling, general and administrative expenses........................... 99,781 48,906 97,342
------------ ----------- --------------
Operating income..................................................... 29,044 12,645 29,604
Interest expense....................................................... 39,103 19,491 39,238
------------ ----------- --------------
Loss from continuing operations before income taxes.................. (10,059) (6,846) (9,634)
Income tax provision (benefit)......................................... (1,004) (1,371) (874)
------------ ----------- --------------
Loss from continuing operations...................................... $ (9,055) $ (5,475) $ (8,760)
------------ ----------- --------------
------------ ----------- --------------
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<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1998(A)
------------ ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(b).............................................................. $ 56,534 $ 26,153 $ 56,782
Depreciation and amortization(c)....................................... 27,490 13,508 27,178
Ratio of total debt to EBITDA.......................................... 5.8x
Ratio of EBITDA to cash interest expense(d)............................ 1.6x
Ratio of earnings to fixed charges(e).................................. -- -- --
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS OF JUNE
30,
1998
-------------
<S> <C>
(IN
BALANCE SHEET DATA (END OF PERIOD): THOUSANDS)
Total assets....................................................................................... $ 514,666
Total debt (including current portion of long-term debt)........................................... 330,505
Stockholder's equity............................................................................... 101,871
</TABLE>
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(a) The pro forma data for the Twelve Months Ended June 30, 1998 was derived
from combining the Unaudited Pro Forma Consolidated Financial Statements
included elsewhere in this Prospectus and represent the pro forma results of
operations from July 1, 1997 to June 30, 1998. Data for the Twelve Months
Ended June 30, 1998 was derived by subtracting the pro forma results of
operations for the six months ended June 30, 1997 from the pro forma results
of operations for the year ended December 31, 1997 and then adding the pro
forma results of operations for the Six Months ended June 30, 1998 to such
pro forma December 31, 1997 results of operations. See "DIMAC Holdings
Unaudited Pro Forma Financial Statements."
(b) EBITDA is defined as operating income plus depreciation (including loss on
disposal of equipment) and amortization. EBITDA is presented because we
believe that it provides additional indications of the financial performance
of our company and provides useful information regarding our ability to
service debt and meet certain debt covenants under the Notes Indenture.
EBITDA does not represent cash flows from operations or investing and
financing activities as defined by generally accepted accounting principles.
EBITDA does not measure whether cash flows will be sufficient to fund all
cash flow needs, including principal and interest payments on debt and
capital lease obligations, capital expenditures or other investing and
financing activities. You should not construe EBITDA as an alternative to
our operating income, net income or cash flows from operating activities (as
determined in accordance with generally accepted accounting principles); nor
should you construe it as an indication of our operating performance or as a
measure of our liquidity. In addition, items excluded from EBITDA, such as
depreciation and amortization, interest and income tax provision (benefit),
are significant components in understanding and assessing our financial
performance. Our definition of EBITDA may be different from the definition
of EBITDA used by other companies. For a complete discussion of our future
prospects related to net income, cash flows from operations and investing
and financing activities, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--AmeriComm Holdings, Inc." and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--DIMAC Marketing Corporation" included elsewhere in this
Prospectus.
(c) Amounts do not include amortization of financing costs and original issue
discount, which is included in interest expense.
(d) Cash interest expense excludes amortization of financing costs and original
issue discount.
11
<PAGE>
(e) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income (loss) from continuing operations before income taxes,
plus fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of financing costs and the estimated interest
portion of rental expenses. For the year ended December 31, 1997, six months
ended June 30, 1998 and the twelve months ended June 30, 1998, earnings were
insufficient to cover fixed charges by $10.1 million, $6.8 million, and $9.6
million, respectively.
12
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF AMERICOMM HOLDINGS, INC.
The following summary historical financial data of AmeriComm Holdings as of
and for each of three fiscal years in the period ended December 31, 1997 has
been derived from AmeriComm Holdings' audited consolidated financial statements
and the related notes. Summary historical financial data as of and for the six
months ended June 30, 1997 and June 26, 1998 has been derived from AmeriComm
Holdings' unaudited consolidated financial statements and, in the opinion of
management, includes all adjustments (consisting of only normal recurring
adjustments) that are necessary for a fair presentation of the operating results
for such interim periods. Results for the interim periods are not necessarily
indicative of the results for the full fiscal year or for any future periods.
It is important that you read the summary historical financial data
presented below along with "Management's Discussion and Analysis of Financial
Condition and Results of Operations--AmeriComm Holdings, Inc." and the
consolidated financial statements of AmeriComm Holdings included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
--------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
JUNE 30, JUNE 26,
1995 1996(A) 1997(B) 1997(B) 1998(C)
--------- ---------- ---------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 71,257 $ 111,342 $ 191,091 $ 86,602 $ 93,081
Cost of products sold................................... 55,708 80,215 133,598 60,808 67,813
--------- ---------- ---------- --------- ---------
Gross profit.......................................... 15,549 31,127 57,493 25,794 25,268
Selling, general and administrative expenses............ 13,410 25,200 44,985 21,575 23,438
--------- ---------- ---------- --------- ---------
Operating income...................................... $ 2,139 $ 5,927 $ 12,508 $ 4,219 $ 1,830
OTHER FINANCIAL DATA:
EBITDA(d)............................................... $ 5,913 $ 12,772 $ 25,277 $ 10,114 $ 9,114
Depreciation and amortization(f)........................ 3,774 6,845 12,769 5,895 7,284
Net cash provided by (used in) operating activities..... (217) 7,147 1,574 3,174 5,245
Net cash provided by (used in) investing activities..... (1,939) (79,838) (38,881) (37,565) (10,407)
Net cash provided by (used in) financing activities..... 2,317 74,225 36,640 33,695 6,548
Ratio of earnings to fixed charges(e)................... -- -- -- -- --
Capital expenditures.................................... 2,308 3,490 4,563 3,313 5,666
BALANCE SHEET DATA (END OF PERIOD):
Working capital......................................... $ 7,182 $ 18,840 $ 26,604 $ 24,064 $ 26,002
Total assets............................................ 38,116 132,498 176,618 173,499 178,113
Long-term debt, less current maturities................. 21,412 102,353 152,943 148,655 162,983
</TABLE>
- ------------------------
(a) Reflects the acquisition of Transkrit Corporation and its subsidiaries on
June 28, 1996. We accounted for this acquisition as a purchase.
(b) Reflects the acquisitions of Label America, Inc. and AmeriComm Direct
Marketing, Inc. on February 21, 1997 and April 24, 1997, respectively. We
accounted for these acquisitions as purchases.
(c) Reflects the acquisitions of Cardinal Marketing, Inc. and Cardinal Marketing
of New Jersey, Inc. on March 16, 1998. We accounted for these acquisitions
as purchases.
(d) EBITDA is defined as operating income plus depreciation (including loss on
disposal of equipment) and amortization. EBITDA is presented because we
believe that EBITDA provides additional indications of the historical
financial performance of Americomm Holdings and provides useful information
regarding our ability to service debt and meet certain debt covenants under
the
13
<PAGE>
Notes Indenture. EBITDA does not represent cash flows from operations or
investing and financing activities as defined by generally accepted
accounting principles. EBITDA does not measure whether cash flows will be
sufficient to fund all cash flow needs, including principal and interest
payments on debt and capital lease obligations, capital expenditures or
other investing and financing activities. EBITDA should not be construed as
an alternative to operating income, net income or cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of operating
performance or as a measure of our liquidity. In addition, items excluded
from EBITDA, such as depreciation and amortization, interest and income tax
provision (benefit), are significant components in understanding and
assessing financial performance. Our definition of EBITDA may be different
from the definition of EBITDA used by other companies. For a complete
discussion of our future prospects related to net income, cash flows from
operations and investing and financing activities, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
AmeriComm Holdings, Inc." included elsewhere in this Prospectus.
(e) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income from continuing operations before income taxes, plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of financing costs and the estimated interest
portion of rental expenses. For the years ended December 31, 1995 through
1997 and the six months ended June 30, 1997 and June 26, 1998, earnings were
insufficient to cover fixed charges by $1.0 million, $2.2 million, $4.5
million, $3.2 million and $7.8 million, respectively.
(f) Amounts do not include amortization of financing costs, which is included in
interest expense.
14
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF DIMAC MARKETING CORPORATION
The following summary historical financial data of DIMAC Marketing as of and
for the fiscal year ended December 31, 1995 and the twelve months ended December
31, 1996 has been derived from DIMAC Marketing's consolidated financial
statements and related notes. The summary historical financial data for the
twelve months ended December 31, 1996 is derived by combining the financial
results of DIMAC Marketing from January 1, 1996 through January 31, 1996 (while
under prior ownership) and the eleven month period from February 1, 1996 through
December 31, 1996 (following the purchase of DIMAC Marketing by Heritage Media),
including purchase accounting adjustments for the Heritage Media purchase (see
the accompanying Notes to the Consolidated Financial Statements of DIMAC
Marketing). The financial data for DIMAC Marketing before and after the Heritage
Media purchase is not comparable in all material respects. The summary pro forma
financial data for the year ended December 31, 1997 is derived from the
historical financial results of DIMAC Marketing from January 1, 1997 through
August 31, 1997 (while under Heritage Media ownership) and the period from
September 1, 1997 through December 31, 1997 (following the News Corporation
purchase of Heritage Media) adjusted to give pro forma effect to the News
Corporation purchase of Heritage Media, including purchase accounting
adjustments, as if it were consummated on January 1, 1997. The summary pro forma
financial data for the year ended December 31, 1997 is not comparable in all
material respects to DIMAC Marketing's historical financial results, and does
not purport to represent what the actual results of operations would have been
had the transaction occurred on such date or to project the results of
operations for any future date or period. Summary historical financial
information as of and for the six months ended June 30, 1997 and June 26, 1998
has been derived from DIMAC Marketing's unaudited condensed consolidated
financial statements and, in the opinion of management, includes all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the operating results for such interim periods. Results for the
interim periods are not necessarily indicative of the results for the full
fiscal year or for any future periods.
It is important that you read the summary historical and pro forma financial
data presented below along with "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- DIMAC Marketing Corporation,"
the consolidated financial statements of DIMAC Marketing and the unaudited pro
forma financial statements of our company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
------------------------------------- SIX MONTHS ENDED
1996 ----------------------
1995 COMBINED 1997 JUNE 30, JUNE 26,
HISTORICAL HISTORICAL PRO FORMA 1997 1998
---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales.................................................. $ 126,518 $ 178,447 $ 177,947 $ 91,421 $ 93,208
Cost of sales.......................................... 82,818 115,635 117,542 60,270 61,806
---------- ---------- ------------- ---------- ----------
Gross profit......................................... 43,700 62,812 60,405 31,151 31,402
Selling, general and administrative expenses........... 30,837(a) 50,821 53,225 29,043 26,615
---------- ---------- ------------- ---------- ----------
Operating income..................................... $ 12,863 $ 11,991 $ 7,180 $ 2,108 $ 4,787
OTHER FINANCIAL DATA:
EBITDA(b).............................................. $ 17,394 $ 24,870 $ 20,240 $ 9,657 $ 11,864
Depreciation and amortization(c)....................... 4,531 12,879 13,060 7,549 7,077
Capital expenditures................................... 3,796 9,504 21,605 11,344 3,166
Net cash provided by (used for) operating activities... 7,485 11,470 (1,396) 1,961
Net cash provided by (used for) investing activities... (33,666) (45,118) (15,083) (6,387)
Net cash provided by (used for) financing activities... 26,181 33,648 16,479 4,426
Ratio of earnings to fixed charges(d).................. 2.1x 1.6x 1.0x -- 1.0x
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
------------------------------------- SIX MONTHS ENDED
1996 ----------------------
1995 COMBINED 1997 JUNE 30, JUNE 26,
HISTORICAL HISTORICAL PRO FORMA 1997 1998
---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit).............................. $ 3,477 $ (2,540) $ 7,558 $ 4,658 $ 14,714
Total assets........................................... 98,918 350,003 260,836 351,705 261,940
Long-term debt, less current maturities................ 61,295 113,715 -- 125,911 146,131
</TABLE>
- ------------------------
(a) Includes nonrecurring merger costs of $2.4 million.
(b) EBITDA is defined as operating income plus depreciation (including loss on
disposal of equipment) and amortization. EBITDA is presented because we
believe that it provides additional indications of the historical financial
performance of DIMAC Marketing and provides useful information regarding our
ability to service debt and meet certain debt covenants under the Notes
Indenture. EBITDA does not represent cash flows from operations or investing
and financing activities as defined by generally accepted accounting
principles. EBITDA does not measure whether cash flows will be sufficient to
fund all cash flow needs, including principal and interest payments on debt
and capital lease obligations, capital expenditures or other investing and
financing activities. EBITDA should not be construed as an alternative to
operating income, net income or cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) and
should not be construed as in indication of operating performance or as a
measure of our liquidity. In addition, items excluded from EBITDA, such as
depreciation amortization, interest and income tax provision (benefit), are
significant components in understanding and assessing financial performance.
Our definition of EBITDA may be different from the definition of EBITDA used
by other companies. For a complete discussion of our future prospects
related to net income, cash flows from operations and investing and
financing activities, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--DIMAC Marketing Corporation" included
elsewhere in this Prospectus.
(c) Amounts do not include amortization of financing costs, which is included in
interest expense.
(d) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income (loss) from continuing operations before income taxes,
plus fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of financing costs and the estimated interest
portion of rental expenses. For the six months ended June 30, 1997, earnings
were insufficient to cover fixed charges by $2.5 million.
16
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER
INFORMATION APPEARING IN THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE
OFFER.
THIS PROSPECTUS INCLUDES "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT INCLUDING,
IN PARTICULAR, THE STATEMENTS ABOUT OUR PLANS, STRATEGIES, AND PROSPECTS UNDER
THE HEADINGS "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS." ALTHOUGH WE
BELIEVE THAT OUR PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN OR SUGGESTED BY
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT ASSURE YOU THAT WE
WILL ACHIEVE SUCH PLANS, INTENTIONS OR EXPECTATIONS. IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD LOOKING
STATEMENTS WE MAKE IN THIS PROSPECTUS ARE SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING
ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE FOLLOWING
CAUTIONARY STATEMENTS.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THESE
NOTES.
We have a significant level of indebtedness. As of June 30, 1998, after
giving pro forma effect to the Refinancing, we would have had outstanding $330.5
million of consolidated indebtedness (excluding trade payables and other
liabilities) and unused revolving commitments of $72.8 million under our senior
secured credit facility. Although the Notes Indenture limits our ability to
borrow additional money, we are allowed to borrow a significant amount of
additional money under certain circumstances. For more information about our
indebtedness, see the "Description of Other Indebtedness-- Senior Secured Credit
Facility" and "--DIMAC Corporation Notes" and "Description of Notes" sections of
this Prospectus.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
these Notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital expenditures,
acquisitions and other general corporate requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, acquisitions and other general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
And, failing to comply with those covenants could result in an event of
default which, if not cured or waived, could have a material adverse
effect on us.
ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MAY
FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to refinance the Notes and to satisfy
our other debt obligations will depend upon our ability to generate cash in the
future. This, to a certain extent is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control. We anticipate that our operating cash flow and amounts available under
our senior secured credit facility will cover our operating expenses and our
debt service requirements in the foreseeable
17
<PAGE>
future. We cannot assure you, however, that our business will generate
sufficient cash flow from operations, that currently anticipated cost savings
and operating improvements will be realized on schedule or that future
borrowings will be available to us under our senior secured credit facility in
an amount sufficient to enable us to pay our indebtedness, including these
Notes, or to fund our other liquidity needs. For example, for the year ended
December 31, 1997 and the six months ended June 30, 1997 and 1998, after giving
effect to the AmeriComm Holdings Acquisitions, our acquisitions of AmeriComm
Holdings and DIMAC Marketing, and the Refinancing (as if they occurred at the
beginning of such periods) and the application of the net proceeds from these
transactions, our earnings would have been insufficient to cover fixed charges
by approximately $10.1 million, $7.3 million and $6.8 million, respectively.
We are not required to pay interest in cash on the Notes until December 31,
2003. After this time, our subsidiaries must provide us with cash to meet our
obligations under the Notes. We may not be have the cash needed at that time.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources of the Company Following the
Transactions."
SUBSTANTIAL RESTRICTIONS AND COVENANTS--RESTRICTIONS AND COVENANTS IN OUR DEBT
AGREEMENTS LIMIT OUR ABILITY TO TAKE CERTAIN ACTIONS.
Our debt agreements governing our Notes and DIMAC Corporation's 12 1/2%
Senior Subordinated Notes contain a number of significant restrictions and
covenants. These covenants limit our ability, among other things to:
- borrow more money;
- incur liens;
- pay dividends or make certain other restricted payments;
- sell certain assets;
- enter into certain transactions with affiliates;
- impose restrictions on the ability of any of our subsidiaries to:
- pay dividends or make certain payments to us;
- merge or consolidate with any other person; or
- sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets; and
- make certain acquisitions.
In addition, our senior secured credit facility contains other more
restrictive covenants, including covenants that require us to maintain certain
financial ratios. If we are unable to comply with these covenants, there would
be a default under our debt agreements. A default under our debt agreements
would also result in a default under our master lease agreement with General
Electric Capital Corporation, relating to the financing of a $3.1 million
equipment line, and our lease agreement with the CIT Group, relating to the
financing of a $2.6 million equipment line. If we were unable to repay the
amounts owed under our debt agreements and our lease agreements, such defaults,
if not waived, could result in acceleration of our indebtedness and our
bankruptcy. See "Description of the Notes--Certain Covenants" and "Description
of Other Indebtedness--Senior Secured Credit Facility" and "--DIMAC
Corporation."
RANKING OF THE NOTES--YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO
ALL SECURED INDEBTEDNESS OF OUR COMPANY.
The Notes will be unsecured senior obligations and will rank equally in
right of payment with all of our unsecured senior indebtedness, including our
guarantee of the senior secured credit facility.
18
<PAGE>
Because of the holding company structure, the Note holders will effectively rank
junior in right of payment to all creditors of DIMAC Corporation and its
subsidiaries, including the lenders under the senior secured credit facilities,
and trade creditors. See "--Structural Subordination." In the event of the
dissolution, bankruptcy, liquidation or reorganization of our company or DIMAC
Corporation, the Note holders may not receive any amounts in respect of the
Notes until after the payment in full of all claims of the creditors of DIMAC
Corporation and its subsidiaries. As of June 30, 1998, on a pro forma basis
after giving effect to the Refinancing, the Notes would have been effectively
subordinated to approximately $312.8 million of aggregate liabilities
(consisting of indebtedness and trade payables) of DIMAC Corporation and its
subsidiaries. See "Capitalization" and "Description of Notes-- Ranking."
STRUCTURAL SUBORDINATION--BECAUSE WE ARE STRUCTURALLY SUBORDINATE TO DIMAC
CORPORATION, WE MUST RELY ON IT TO PROVIDE US WITH CASH TO MEET OUR
OBLIGATIONS UNDER THESE NOTES.
We are a holding company and our only material assets are the capital stock
of DIMAC Corporation. The Notes are an obligation of our company and Note
holders will have no direct recourse to DIMAC Corporation or its assets. Other
than in connection with its ownership of the capital stock of DIMAC Corporation
and the performance of its obligations with respect to the Notes and the senior
secured credit facilities we conduct no business. Consequently, we will depend
on distributions from DIMAC Corporation to meet our debt service obligations,
including any obligations under the Notes. Because of the substantial leverage
of both our company and DIMAC Corporation and the dependence upon the operating
performance of DIMAC Corporation to generate distributions to us, we cannot
assure you that any such distributions will be adequate to fund our obligations
when due. In addition, the senior secured credit agreement, the DIMAC
Corporation Notes Indenture and applicable federal and state law impose
restrictions on the payment of dividends and the making of loans by DIMAC
Corporation to our company. Consequently, we may be unable to gain access to the
cash flow or assets of DIMAC Corporation in amounts sufficient to pay cash
interest on the Notes on and after September 30, 2003, the date on which cash
interest thereon first becomes payable, and principal of the Notes when due or
upon a change of control or the occurrence of any other event requiring the
repayment of principal.
In such event, we may be required to
- refinance the Notes;
- seek additional debt or equity financing;
- cause DIMAC Corporation to refinance all or a portion of DIMAC
Corporation's indebtedness with indebtedness containing covenants
allowing us to gain access to DIMAC Corporation's cash flow or assets;
- cause DIMAC Corporation to obtain modifications of the covenants
restricting our access to cash flow or assets of DIMAC Corporation
contained in DIMAC Corporation's financing documents (including, without
limitation, the credit agreement and the DIMAC Corporation Notes
Indenture);
- merge DIMAC Corporation with our company, which merger would be subject
to compliance with applicable debt covenants and the consents of certain
lenders; or
- pursue a combination of these actions.
The measures we may undertake to gain access to sufficient cash flow to meet
our future debt service requirements under the Notes will depend on general
economic and financial market conditions, as well as the financial condition of
our company and other relevant factors existing at the time.
19
<PAGE>
RISKS RELATING TO THE ACQUISITIONS AND RATIONALIZATION OF OPERATIONS--WE MAY NOT
BE ABLE TO INTEGRATE SUCCESSFULLY THE OPERATIONS OF AMERICOMM HOLDINGS AND
DIMAC MARKETING.
We were recently formed for the purpose of acquiring AmeriComm Holdings and
DIMAC Marketing. The process of integrating these businesses may result in
unforeseen operating difficulties and may require substantial attention from
members of our senior management. We cannot assure you that we will be able to
integrate successfully the operations of these businesses.
We intend to realize cost savings by rationalizing our operations. As a
result of our acquisitions of AmeriComm Holdings and DIMAC Marketing, we expect
to reduce our operating expenses by:
- consolidating redundant facilities;
- rationalizing the functions of overlapping offices and operating units;
- meeting more of our production requirements from within the company; and
- reducing our overhead expenses.
We also expect to increase our profit margin from, among other things:
- improved capacity utilization;
- relocating our production equipment; and
- purchasing raw materials in larger and more cost-effective quantities.
Although we believe that our strategies are reasonable, we cannot assure you
that we will be able to implement our plans on schedule. When implementing these
initiatives, we could encounter unanticipated problems, and we cannot assure you
that we will attain our goal of reducing our operating expenses. Finally, we
note that our plans will require substantial attention from members of our
management, which may limit the amount of time they can devote to our day-to-day
operations.
DEPENDENCE UPON AT&T PROGRAMS--WE ARE RELIANT ON AT&T AS A CUSTOMER. THE LOSS OF
CERTAIN AT&T PROGRAMS COULD HAVE A MATERIAL ADVERSE AFFECT ON US.
AT&T Corp. accounted for approximately 8.6% and 9.0% of our revenue in 1997,
and the first six months of 1998, respectively, on a pro forma basis after
giving effect to the AmeriComm Holdings' Acquisitions, our acquisitions of
AmeriComm Holdings and DIMAC Marketing, and the Refinancing. We service separate
programs at AT&T, each of which is independently managed within AT&T. The number
of separate programs at AT&T that we produce has grown from 31 in 1993 to 37 as
of December 31, 1997. The four largest AT&T programs (not necessarily the same
four programs in each period) comprised approximately 5.7% and 5.4% of our pro
forma revenue in 1997, and the first six months of 1998, respectively. Because
of our dependence on the AT&T programs, the loss of any large (or significant
number of smaller) AT&T programs could have a material adverse effect on
business, financial condition or results of operation.
YEAR 2000 RISKS--ALTHOUGH WE EXPECT TO BE YEAR 2000 COMPLAINT BY THE END OF THE
FIRST QUARTER OF 1999, WE ARE NOT SO AT THIS TIME. YEAR 2000 ISSUES MAY
NEGATIVELY AFFECT US.
We have developed plans to address our exposure in all critical information
technology ("IT") and non-IT systems to computer programs which identify years
with two digits instead of four. Such programs may recognize the year 2000 as
the year 1900. We are also assessing the year 2000 capabilities of our critical
suppliers, customers and key service providers to determine, to the extent
possible, whether our operations will be adversely impacted by such companies.
We primarily rely on packaged software applications which are year 2000
compliant. We have either tested these applications or expect to have done so by
the end of the first quarter of 1999. We are also testing all internally
developed IT software for year 2000 compliance. We anticipate that this process
will be completed by the end of the second quarter of 1999.
20
<PAGE>
We are continuing to assess all critical non-IT systems for year 2000
compliance. Non-IT systems include, among other things, manufacturing equipment,
telephone systems and heating and cooling systems. We are preparing an inventory
of all critical non-IT systems and are contacting manufacturers to determine
year 2000 compliance. We anticipate that this process will be completed by the
end of the first quarter of 1999.
As of June 30, 1998, the costs we have incurred to remedy our year 2000
conversion and the costs which we expect to incur after June 30, 1998 are
immaterial. Our year 2000 remediation effort has not postponed any IT projects
the delay of which would have a material adverse effect on our business
financial condition or results of operations.
We are not entirely year 2000 compliant at this time, but we have targeted
the end of the first quarter of 1999 to have critical business and production
processes ready. Although we are striving to be completely year 2000 compliant,
year 2000 issues may still negatively affect us. Based on our progress to date,
however, we believe that such impact, if any, will not have a material adverse
impact on our business, financial condition or results of operations, however
there can be no such assurances.
Although we have contacted critical suppliers, customers and key service
providers to determine their level of year 2000 compliance, these companies
could adversely impact our operations. The full extent of any such adverse
impact (if any) is impossible to determine. We are attempting to mitigate any
possible adverse impact by identifying alternate suppliers where possible. We
will also increase our inventory of crucial materials in anticipation of
possible disruptions.
We are developing contingency plans for all critical business and production
processes. We anticipate that these plans should be completed by the end of the
second quarter of 1999.
EXPOSURE TO FLUCTUATIONS IN PAPER COSTS AND SUPPLY--AN INTERRUPTION OF PAPER
SUPPLY OR RISING PAPER PRICES COULD HAVE A MATERIAL ADVERSE AFFECT ON US.
Our principal raw material is paper. Paper, which on a pro forma basis
represented approximately 24% of our cost of products sold in 1997, has a
historical pattern of cyclical price change based upon industry capacity versus
market demand. Although supply has historically been available, paper companies
may place customers on allocation, which limits the short term supply available.
In addition, prices during these periods tend to increase, sometimes by
significant amounts. Although we maintain multiple sources of supply in all
grades of paper, the cyclical nature of the paper industry could result in an
interruption of paper supply or escalating paper prices that could adversely
effect us. Historically, we have successfully passed increases in the price of
paper through to our customers. However, we may not be able to do so in the
future. For example, a substantial increase in paper prices could affect the
advertising budgets of our customers and have a material adverse effect on our
business, financial conditions or results of operations.
SEASONALITY AND QUARTERLY FLUCTUATIONS--WE ARE AFFECTED BY A SEASONAL PATTERN.
AN ADVERSE TREND IN NET SALES DURING A DOWN-SEASON COULD HAVE A MATERIAL
ADVERSE AFFECT UPON US.
Our business is affected by a seasonal pattern where we generate a greater
volume of sales and are more profitable in the third and fourth quarters of each
year. We experience this fluctuation because many of our larger customers are
retailers whose businesses are affected by these seasonal patterns. During 1997,
approximately 56% of our combined pro forma EBITDA, after giving effect to the
AmeriComm Holdings Acquisitions and our acquisitions of AmeriComm Holdings and
DIMAC Marketing, occurred in the third and fourth quarters. Accordingly, any
adverse trend in net sales for such period could have a material adverse effect
upon our business, financial condition or results of operations.
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<PAGE>
POSTAL INVESTIGATION--ALTHOUGH WE ARE SEEKING A CONSENSUAL RESOLUTION WITH THE
GOVERNMENT, A POSTAL INVESTIGATION OF US AND ITS RELATED COSTS COULD HAVE A
MATERIAL ADVERSE AFFECT ON US.
In June 1997, the United States Attorney's Office for the Eastern District
of Missouri informed DIMAC Marketing that its St. Louis facility was the subject
of a grand jury investigation based upon information supplied by the United
States Postal Service. The investigation concerns whether violations of civil or
criminal statutes may have occurred in connection with its bulk mailing
practices at this facility. We have been engaged in discussions with the
Government which have included a possible consensual resolution of this matter;
however, as of the date of this Prospectus, no settlement has been reached. It
is our position that our bulk mailing practices complied with applicable laws
and regulations.
During the acquisition of DIMAC Marketing, we entered into an
indemnification agreement with Heritage Media and DIMAC Marketing under which
Heritage Media agreed to indemnify us for certain costs, including settlements,
judgments and related fees, in relation to the investigation. We cannot assure
you, however, that the investigation and its related costs will not have a
material adverse effect on our business, financial condition or results of
operations.
GOVERNMENTAL REGULATION AND POSTAL RATES--A CHANGE IN THE POSTAL RATES OR A
POSTAL STRIKE COULD HAVE A MATERIAL ADVERSE AFFECT ON US.
Certain aspects of the direct marketing industry depend upon the services
provided by the United States Postal Service. For example, any change in the
rate structure or postal rates, including the proposed rate increase scheduled
to take effect in January 1999, could have an adverse effect on the demand for
direct marketing services. A postal strike could also have a material adverse
effect on our business, financial condition or results of operations.
In July 1997, the Postal Service granted DIMAC Marketing's St. Louis
facility a postal privilege that enables the Postal Service to accept our
documentation with regard to counts and specific mail classification weights.
This process allows us to bypass the time-consuming and complex process of
documenting the exact weight of each specific package and saves us substantial
time on large volume jobs. Any withdrawal or adverse modification of this
qualification could have a material adverse effect on our business, financial
condition or results of operations.
FINANCING CHANGE OF CONTROL OFFER--WE MAY NOT HAVE THE ABILITY TO RAISE THE
NECESSARY FUNDS TO PAY FOR THE NOTES SHOULD WE BE REQUIRED TO REPURCHASE.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to make an offer to repurchase the Notes at 101% of their
principal amount plus accrued interest. However, it is possible that we will not
have sufficient funds at the the time of the change of control to make the
required repurchase of Notes or that restrictions in our senior secured credit
facility will not allow such repurchases. For more information, see the section
"Description of Notes--Repurchase Upon a Change of Control." Even if we did have
sufficient funds to carry out such a repurchase, the financial effect of the
repurchase could cause us to default on our other indebtedness. Finally, the
DIMAC Corporation Notes indenture contains similar change of control provisions
and consequences similar to those presented here could occur. See "Description
of Notes--Repurchase Upon a Change of Control" and "Description of Other
Indebtedness--DIMAC Corporation Notes" sections of this Prospectus for more
information.
COMPETITION--INCREASED COMPETITION IN THE FUTURE COULD HAVE A MATERIAL ADVERSE
EFFECT ON US.
The direct marketing industry is fragmented and highly competitive. We
compete with other national and local manufacturers in many product lines. We
are more highly leveraged than some of our principal competitors and,
consequently, we may have less financing and operating flexibility. We could
encounter increased competition in the future. This increased competition could
have a material
22
<PAGE>
adverse effect on our business, financial condition or results of operations.
See "Business-- Competition."
RISKS ASSOCIATED WITH ACQUISITION STRATEGY--WE INTEND TO PURSUE FURTHER
ACQUISITIONS. MANAGING THE GROWTH RESULTING FROM THOSE ACQUISITIONS COULD POSE
DIFFICULTIES WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON US.
We plan to continue to pursue acquisitions which:
- complement existing product offerings;
- increase our production capabilities;
- provide entry into new markets; and
- expand our customer base or create new cross-selling opportunities.
We cannot assure you that we will be able to identify additional
acquisitions. Even if we identify such acquisitions, the anticipated benefits
may fail to materialize. In order to capitalize on future acquisition
opportunities, we may need to obtain additional financing and federal or state
regulatory approvals. We cannot guarantee the availability of additional
acquisition financing and such financing could be substantially limited by terms
of our senior secured credit agreement or our indentures. Our possible future
acquisitions could result in our incurring additional debt, contingent
liabilities and amortization expenses, all of which could materially adversely
affect our financial condition or results of operations. We cannot assure you
that we will be able to obtain the necessary regulatory approvals or the
additional financing. The inability to obtain such regulatory approvals or
financing could have a material adverse effect on our ability to implement our
acquisition strategy.
Managing the growth expected to result from future acquisitions, together
with the process of integrating acquired operations into our existing
operations, may
- result in unforeseen operating difficulties;
- require substantial attention from members of our senior management; and
- require significant financial resources that would otherwise be available
for the ongoing development or expansion of our existing operations.
We cannot assure you that we will succeed in managing future growth.
Moreover, the failure to manage such growth or assimilate any such acquisitions
may have a material adverse effect on our business, financial condition or
results of operation.
HOLDING COMPANY STRUCTURE--OUR STATUS AS A HOLDING COMPANY MAKES US DEPENDENT ON
THE CASH FLOWS OF OUR SUBSIDIARIES TO MEET OUR OBLIGATIONS.
We are a holding company and conduct almost all of our operations through
our subsidiaries. We have no significant assets other than the stock of our
subsidiaries. Accordingly, we are dependent on the cash flows of our
subsidiaries to meet our obligations, including the payment of the principal and
interest on the Notes.
IMPACT OF ENVIRONMENTAL REGULATION--OUR BUSINESS, BY ITS NATURE, EXPOSES US TO
CERTAIN ENVIRONMENTAL HEALTH AND PROTECTION MATTERS INCLUDING POTENTIAL COSTS
AND LIABILITIES.
Our operations and properties are subject to a wide variety of federal,
state and local laws and regulations relating to the environmental protection
and human health and safety including those governing:
- the use, storage, handling, generation, treatment, emission, release,
discharge and disposal of, and exposure to, hazardous and non-hazardous
materials, substances and wastes;
- the remediation of contaminated soil and groundwater; and
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<PAGE>
- the health and safety of employees.
The nature of our operations expose us to the risk of claims related to
environmental protection and health and safety matters, and we may incur
material costs or liabilities because of any of these claims.
In addition, AmeriComm Holdings has been designated as a potentially
responsible party under the 1980 "Superfund" Act relating to the disposal of
hazardous substances at one off-site location. AmeriComm Holdings could be found
liable for the costs of environmental investigation and cleanup at this site.
Based upon our experience to date, which includes the recent settlement of a
similar claim at a second off-site disposal location, we believe, but cannot
guarantee, that the future cost of compliance with existing environmental
protection and health and safety laws and regulations, and liability for known
claims relating to such matters, will not have a material adverse effect on our
business, financial condition or results of operations. However, future events,
such as changes in existing laws and regulations or their interpretation, or
more vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could have a material adverse effect
on our business, financial condition or results of operations. See
"Business--Environmental, Health and Safety Matters."
DEPENDENCE ON KEY MANAGEMENT--OUR SUCCESS WILL CONTINUE TO DEPEND TO A
SIGNIFICANT EXTENT ON OUR EXECUTIVES AND OTHER KEY MANAGEMENT PERSONNEL.
We may not be able to retain our executive officers and key personnel or
attract additional qualified management in the future. In addition, the success
of certain of our acquisitions may depend, in part, on our ability to retain
management personnel and to integrate the operations of the acquired companies.
CONTROLLING STOCKHOLDER--AFFILIATES OF MCCOWN DE LEEUW WILL OWN ENOUGH OF OUR
STOCK TO INDIRECTLY CONTROL OUR AFFAIRS AND THOSE OF OUR SUBSIDIARIES.
Certain affiliates of McCown De Leeuw own a substantial majority of the
voting stock of DIMAC Holdings. By virtue of such stock ownership, they will
directly control the election of the Board of Directors and the direction of the
affairs of DIMAC Holdings and its subsidiaries. See "Security Ownership."
ABSENCE OF PUBLIC MARKET FOR THE NOTES--YOU CANNOT BE SURE THAT AN ACTIVE
TRADING MARKET WILL DEVELOP FOR THESE NOTES.
We do not intend to apply for listing or quotation of the New Notes on any
exchange. Therefore, we do not know the extent to which investor interest will
lead to the development of a trading market or how liquid that market might be.
See "Plan of Distribution" and "Transfer Restrictions."
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. The market for the New Notes may be subjected to similar
disruptions. Any such disruptions may have an adverse effect on the New Note
holders.
ORIGINAL ISSUE DISCOUNT--THE ISSUANCE OF THE NOTES WILL RESULT IN ADDITIONAL
INTEREST INCOME INCLUDABLE IN U.S. HOLDERS' GROSS INCOME FOR FEDERAL INCOME
TAX PURPOSES.
The Notes will be considered to be issued with original issue discount for
U.S. federal income tax purposes. Original issue discount will accrue from the
issue date of the Notes and generally will be includable as interest income in a
U.S. holder's gross income for U.S. federal income tax purposes in advance of
the cash payments to which the income is attributable.
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<PAGE>
COMPANY HISTORY
McCown De Leeuw formed DIMAC Holdings and its wholly-owned subsidiary, DIMAC
Corporation, in May 1998 to combine the businesses of DIMAC Marketing and
AmeriComm Holdings to create a direct mail industry leader.
DIMAC Marketing was founded in 1921 as a commercial printer. In August 1987,
DIMAC Marketing was sold to management and Golder, Thoma & Cressey, a private
equity firm. Golder, Thoma & Cressey and management owned DIMAC Marketing until
November 1993, at which time the business was sold to affiliates of McCown De
Leeuw. Under McCown De Leeuw's ownership, DIMAC Marketing completed an initial
public offering in August 1994 and was ultimately sold to Heritage Media in
February 1996. In August 1997, News Corporation acquired Heritage Media,
including DIMAC Marketing. On June 26, 1998, we bought DIMAC Marketing from
Heritage Media.
Affiliates of McCown De Leeuw have owned AmeriComm Holdings since 1989.
AmeriComm Holdings' predecessor company was formed in 1989 to acquire National
Fiberstok Corporation, a manufacturer of custom file folders. In 1997, National
Fiberstok changed its name to that of a company it acquired, AmeriComm Direct
Marketing, Inc. On June 26, 1998, McCown De Leeuw combined AmeriComm Holdings
with DIMAC Marketing to form DIMAC Corporation.
The following table outlines the recent acquisition history of DIMAC
Marketing and AmeriComm Holdings:
<TABLE>
<CAPTION>
ENTITY
PURCHASER ACQUIRED DATE EXPERTISE
- -------------- ---------------------------------------- ---------------- -------------------------------------
<S> <C> <C> <C>
DIMAC Direct Marketing Group, Inc. May 1994 Strategic and creative services,
MARKETING information processing services
and production.
Palm Coast Data Inc. May 1995 Fulfillment/subscription
management.
The McClure Group Inc. October 1995 Program development services with
an insurance and healthcare
industry specialization.
Wilcox & Associates Inc. March 1996 Transitional marketing services,
primarily for the banking
industry.
MBS/Multimode Inc. May 1996 Database marketing services,
primarily to retail and catalog
industries.
AMERICOMM Transkrit Corporation June 1996 Direct mail, custom mailers and
HOLDINGS custom pressure sensitive labels.
Label America, Inc. February 1997 Custom pressure sensitive labels.
AmeriComm Direct Marketing, Inc. April 1997 Direct marketing products and
services.
Cardinal Marketing, Inc. and Cardinal March 1998 Customer profiling and response
Marketing of New Jersey, Inc. analysis primarily to the
financial services and retail
industries.
</TABLE>
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<PAGE>
AmeriComm Holdings' acquisitions of Label America, Inc., AmeriComm Direct
Marketing, Inc. and Cardinal Marketing, Inc. and Cardinal Marketing of New
Jersey, Inc. (collectively, "Cardinal") are referred to in this Prospectus as
the "AmeriComm Holdings Acquisitions." AmeriComm Holdings' acquisition of
Cardinal is referred to in this Prospectus as the "Cardinal Acquisition."
THE ACQUISITIONS
On June 26, 1998, we acquired:
- AmeriComm Holdings in a merger transaction for aggregate consideration of
approximately $203.8 million (including assumed indebtedness); and
- DIMAC Marketing by purchasing all of its issued and outstanding capital
stock for aggregate consideration of approximately $204.0 million
(including assumed indebtedness).
The total consideration for the acquisitions was $425.8 million including
assumed indebtedness and fees and expenses relating to the acquisitions.
We financed the acquisitions of AmeriComm Holdings and DIMAC Marketing and
related fees and expenses through:
- cash equity capital of $100.0 million provided to us by certain
affiliates of McCown De Leeuw;
- term loans of $150.0 million and revolving loans of $7.6 million (net of
available cash), in each case under our senior secured credit facility;
and
- assumed indebtedness of $168.2 million.
Please read the sections "Security Ownership" and "Description of Other
Indebtedness--Senior Secured Credit Facility" for a more detailed discussion of
how we financed these acquisitions.
THE REFINANCING
The purpose of the Refinancing was to redeem or repay certain indebtedness
assumed in connection with our acquisitions of AmeriComm Holdings and DIMAC
Marketing.
The sources of funds for the Refinancing were:
- the proceeds from DIMAC Corporation's offering of its 12 1/2% Senior
Subordinated Notes Due 2008 in the principal amount of $100.0 million;
- additional equity contributed by us to DIMAC Corporation from:
- $10.0 million of equity provided to us from affiliates of McCown De
Leeuw and other equity investors;
- $29.3 million of net proceeds received by us from the issuance of $30.0
million aggregate principal amount of the Notes; and
- $45.0 million of additional term loans under our senior secured credit
facility.
We used these proceeds:
- to pay off the following existing indebtedness of AmeriComm Holdings and
its subsidiary, AmeriComm Direct Marketing:
- AmeriComm Direct Marketing's 11 5/8% Senior Notes tendered pursuant to
a tender offer and consent solicitation and the associated tender
premium and consent fee;
- AmeriComm Holdings' 12 1/2% Senior Notes and the associated premium;
and
- the existing AmeriComm Direct Marketing credit agreement;
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<PAGE>
- to repay the amount of revolving loans outstanding under our senior
secured credit facility; and
- to pay certain fees and expenses related to DIMAC Corporation's Notes
offering and AmeriComm Direct Marketing's tender offer and consent
solicitation.
USE OF PROCEEDS OF THE NEW NOTES
This Exchange Offer is intended to satisfy our obligations under the
Registration Rights Agreement. We will not receive any proceeds from the
issuance of the New Notes. In consideration for issuing the New Notes as
contemplated in this Prospectus, we will receive, in exchange, Old Notes in like
principal amount. The form and terms of the New Notes are identical in all
material respects to the form and terms of the Old Notes except as otherwise
described in this Prospectus under the heading "The Exchange Offer--Terms of the
Exchange Offer". The Old Notes surrendered in exchange for the New Notes will be
retired and cancelled and will not be reissued. Accordingly, we will not
increase our outstanding debt as a result of the Exchange Offer.
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<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1998:
- our actual capitalization; and
- our capitalization after giving pro forma effect to the Refinancing.
It is important that you read the table presented below along with "DIMAC
Holdings Unaudited Pro Forma Financial Statements," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of our company, DIMAC Marketing and AmeriComm Holdings
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------
<S> <C> <C>
HISTORICAL AS ADJUSTED
----------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Cash..................................................................................... $ 1.7 $ --
----------- -----------
----------- -----------
Debt of our company's subsidiaries (including current maturities):
Existing AmeriComm Direct Marketing credit agreement................................... $ 18.2 $ --
AmeriComm Direct Marketing Senior Notes................................................ 100.0 --
AmeriComm Holdings Senior Notes........................................................ 40.5 --
Capital leases......................................................................... 8.9 8.9
Senior secured credit facility
Revolving loans...................................................................... 6.4 2.2(a)
Term loans........................................................................... 150.0 195.0(b)
DIMAC Corporation Notes................................................................ -- 97.2(c)
----------- -----------
Total debt of our company's subsidiaries........................................... 324.0 303.3
Debt of our company:
Notes.................................................................................. -- 27.2(d)
----------- -----------
Total debt of our company.......................................................... 324.0 330.5
Common stock............................................................................. -- --
Additional paid-in capital............................................................... 100.0 112.8
Accumulated deficit...................................................................... (0.1) (11.0)(e)
----------- -----------
Total stockholder's equity......................................................... 99.9 101.8
----------- -----------
Total capitalization............................................................. $ 423.9 $ 432.3
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(a) Borrowings of up to $72.8 million would have been available under the
revolving credit facility.
(b) Consists of $55.0 million of Term A loans, $80.0 million of Term B loans and
$60.0 million of Term C loans.
(c) Net of original issue discount of $2.8 million.
(d) Net of warrants fair market value of $2.8 million.
(e) Reflects write off of existing deferred financing costs, tender premium and
consent fee associated with the early retirement of the AmeriComm Direct
Marketing Senior Notes and the AmeriComm Holdings Senior Notes, net of tax
benefit.
Interest on our Senior Notes is not payable in cash until December 31, 2003.
After this date, we will rely on our subsidiaries to provide us with cash to
meet our obligations under our Senior Notes.
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<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into a Registration Rights Agreement with the Purchasers of
the Old Notes in which we agreed, under certain circumstances, to file a
registration statement relating to an offer to exchange the Old Notes for New
Notes. We also agreed to use our reasonable best efforts to cause the
Registration Statement to become effective under the Securities Act within 180
days of such filing. The New Notes will have terms substantially identical to
the Old Notes except that the New Notes will not contain terms with respect to
transfer restrictions, registration rights and liquidated damages. The Old Notes
were issued on October 22, 1998.
Under certain circumstances, we will use our reasonable best efforts to
cause the SEC to declare effective a shelf registration statement with respect
to the resale of the Old Notes and keep the statement effective for two years
after the effective date of the shelf registration statement. These
circumstances include:
- if the SEC's applicable interpretations prohibit us from effecting the
Exchange Offer as contemplated by the Registration Statement;
- if certain holders of the Old Notes notify us that they are not eligible
to participate in the exchange offer; or
- if such holders notify us that they would not receive freely tradable New
Notes in exchange for tendered Old Notes pursuant to the exchange offer.
In the event that we fail to comply with certain obligations under the
Registration Rights Agreement, we will be required to pay liquidated damages to
holders of the Old Notes. Please read the section labeled "Registration Rights
Agreement" for more details regarding the Registration Rights Agreement.
Each holder of Old Notes that wishes to exchange such Old Notes for freely
transferable New Notes in the Exchange Offer will be required to make the
following representations:
- any New Notes will be acquired in the ordinary course of its business;
- such holder has no arrangement with any person to participate in the
distribution of the New Notes; and
- such holder is not our "affiliate," as defined in Rule 405 of the
Securities Act, or if it is our affiliate, that it will comply with
applicable registration and prospectus delivery requirements of the
Securities Act.
RESALE OF NEW NOTES
Based on the SEC's interpretations set forth in no-action letters issued to
third-parties, we believe that New Notes issued under the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any New Note holder without compliance with the registration and
prospectus delivery provisions of the Securities Act, if:
- such holder is not an "affiliate" of our company within the meaning of
Rule 405 under the Securities Act.
- such New Notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of such New
Notes.
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<PAGE>
Any holder who tenders in the Exchange Offer with the intention of
participating in any manner in a distribution of the New Notes
- cannot rely on such interpretations by the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute New Notes should be covered by an effective
registration statement containing the selling security holder's information
required by Item 507 of Regulation S-K under the Securities Act. This Prospectus
may be used for an offer to resell, resale or other retransfer of New Notes only
as specifically set forth in this Prospectus. Only broker-dealers who acquired
the Old Notes as a result of market-making activities or other trading
activities may participate in the Exchange Offer. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of the New Notes. Please read the
section labelled "Plan of Distribution" for more details regarding the transfer
of New Notes.
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions set forth in this Prospectus and in the
Letter of Transmittal, we will accept for exchange any Old Notes properly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on
,199 . We will issue $1,000 principal amount of New Notes in exchange for each
$1,000 principal amount of outstanding Old Notes surrendered under the Exchange
Offer. Old Notes may be tendered only in integral multiples of $1,000.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except the New Notes will be registered under the Securities
Act, will not bear legends restricting their transfer and will not provide for
any liquidated damages. The New Notes will evidence the same debt as the Old
Notes. The New Notes will be issued under and entitled to the benefits of the
Notes Indenture, which also authorized the issuance of the Old Notes.
Consequently, both series will be treated as a single class of debt securities
under the Notes Indenture. For a description of the Notes Indenture, see
"Description of Notes" below.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
As of the date of this Prospectus, $30.0 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus and the Letter of Transmittal,
are being sent to all registered holders of Old Notes. There will be no fixed
record date for determining registered holders of Old Notes entitled to
participate in the Exchange Offer.
We intend to conduct the Exchange Offer in accordance with the provisions of
the Registration Rights Agreement, the applicable requirements of the Securities
Act and the Exchange Act and the rules and regulations of the SEC. Old Notes
which are not tendered for exchange in the Exchange Offer will remain
outstanding and continue to accrue interest and will be entitled to the rights
and benefits such holders have under the Notes Indenture and the Registration
Rights Agreement. However, upon successful completion of the Exchange Offer,
holders of Old Notes will no longer be entitled to receive liquidated damages.
We will be deemed to have accepted for exchange properly tendered Old Notes
when we have given oral or written notice of the acceptance to the Exchange
Agent and complied with the provisions of Section 2 of the Registration Rights
Agreement. The Exchange Agent will act as agent for the
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<PAGE>
tendering holders for the purposes of receiving the New Notes from us. We
expressly reserve the right to amend or terminate the Exchange Offer, and not to
accept for exchange any Old Notes not previously accepted for exchange, upon the
occurrence of any of the conditions specified below in the section labeled
"--Certain Conditions to the Exchange Offer."
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes. We
will pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. It is important that you read the
section labeled "--Fees and Expenses" for more details regarding fees and
expenses incurred in the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time on
, 199 , unless in our sole discretion, we extend it.
In order to extend the Exchange Offer, we will notify the Exchange Agent
orally or in writing of any extension. We will mail to the registered holders of
Old Notes notice of the extension prior to 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting any Old Notes;
- to extend the Exchange Offer or to terminate the Exchange Offer if any of
the conditions set forth below under "--Certain Conditions to the
Exchange Offer" have not been satisfied, by giving oral or written notice
of such delay, extension or termination to the Exchange Agent; or
- to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of Old Notes. If we amend the Exchange Offer in a manner
which we determine to constitute a material change, we will promptly disclose
such amendment by means of a prospectus supplement. The supplement will be
distributed to the registered holders of the Old Notes. Depending upon the
significance of the amendment and the manner of disclosure to the registered
holders, we will extend the Exchange Offer if the Exchange Offer would otherwise
expire during such period.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at a rate of 15 1/2% per year, payable
quarterly, on March 31, June 30, September 30 and December 31 of each year,
beginning on , 199 . Holders of New Notes will receive interest on
, 199 from the date of initial issuance of the New Notes, plus an
amount equal to the accrued interest on the Old Notes. Interest on the Old Notes
accepted for exchange will cease to accrue upon issuance of the New Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the Exchange Offer, we will not be required to
accept for exchange, or exchange any New Notes for, any Old Notes. We may
terminate the Exchange Offer as provided in this Prospectus before accepting any
Old Notes for exchange, if in our reasonable judgment:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency relating to the Exchange Offer which,
in our reasonable judgment, might materially impair our ability to
proceed with the Exchange Offer; or
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<PAGE>
- any law, rule or regulation is proposed, adopted or enacted, or any
existing law, rule or regulation is interpreted by the SEC, which, in our
reasonable judgment, might materially impair our ability to proceed with
the Exchange Offer; or
- We have not obtained any governmental approval which, in our reasonable
discretion, we deem necessary for the consummation of the Exchange Offer
as contemplated in this Prospectus.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the Exchange Offer is open. Consequently, we may
delay acceptance of any Old Notes by giving oral or written notice of such
extension to their holders. During any such extensions, all Old Notes previously
tendered will remain subject to the Exchange Offer, and we may accept them for
exchange. We will return any Old Notes that we do not accept for exchange for
any reason without expense to their tendering holder as promptly as practicable
after the expiration or termination of the Exchange Offer.
We expressly reserve the right to amend or terminate the Exchange Offer, and
to reject for exchange any Old Notes not previously accepted for exchange, upon
the occurrence of any of the conditions of the Exchange Offer specified above
under "--Certain Conditions to the Exchange Offer." We will give oral or written
notice of any extension, amendment, non-acceptance or termination to the holders
of the Old Notes as promptly as practicable. In the case of any extension, such
notice will be issued no later than 9:00 a.m., New York City time, on the
business day after the previously scheduled expiration date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances which may give rise to them or waive them in whole or in
part at any time or at various times in our sole discretion. If we fail at any
time to exercise any of the foregoing rights, this failure will not constitute a
waiver of any such right. Each such right will be deemed an ongoing right which
we may assert at any time or at various times.
In addition, we will not accept for exchange any Old Notes tendered, and
will not issue New Notes in exchange for any such Old Notes, if at such time any
stop order will be threatened or in effect with respect to the Registration
Statement of which this Prospectus constitutes a part or the qualification of
the Notes Indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must:
- complete, sign and date the Letter of Transmittal, or facsimile of the
Letter of Transmittal; have the signature on the Letter of Transmittal
guaranteed if the Letter of Transmittal so requires; and mail or deliver
such Letter of Transmittal or facsimile to the Exchange Agent prior to
5:00 p.m., New York City time, on , 199 ; or
- comply with The Depository Trust Company's Automated Tender Offer Program
procedures described below.
In addition, either:
- the Exchange Agent must receive Old Notes along with the Letter of
Transmittal; or
- the Exchange Agent must receive, prior to , 199 , a timely
confirmation of book-entry transfer of such Old Notes, if such procedure
is available, into the Exchange Agent's account at The Depository Trust
Company according to the procedure for book-entry transfer described
below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
32
<PAGE>
To be tendered effectively, the Exchange Agent must receive the Letter of
Transmittal and other required documents at the address set forth below under
"The Exchange Offer--Exchange Agent" prior to 5:00 p.m., New York City time, on
, 199 .
The tender by a holder which is not withdrawn prior to 5:00 p.m., New York
City time on , 199 will constitute an agreement between such holder
and us in accordance with the terms and subject to the conditions set forth in
this Prospectus and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE HOLDER'S ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. HOLDERS SHOULD NOT
SEND THE LETTER OF TRANSMITTAL OR OLD NOTES TO US. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR OTHER NOMINEES
TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct it to tender on the
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Old Notes, either:
- make appropriate arrangements to register ownership of the Old Notes in
such owner's name; or
- obtain a properly-completed bond power from the registered holder of Old
Notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below must be guaranteed by an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of the
recognized signature guarantee programs identified in the Letter of Transmittal,
unless the Old Notes tendered pursuant thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal; or
- for the account of an eligible guarantor institution.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal are required to be guaranteed, the guarantor must be:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States; or
- an eligible guarantor institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed on the Old Notes, such Old Notes must be endorsed
or accompanied by a properly completed bond power. The bond power must be signed
by the registered holder as the registered holder's name appears on the Old
Notes and an eligible guarantor institution must guarantee the signature on the
bond power.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. Unless waived by us, they should also
submit evidence satisfactory to us of their authority to deliver the Letter of
Transmittal.
33
<PAGE>
The Exchange Agent and The Depository Trust Company have confirmed that any
financial institution that is a participant in The Depository Trust Company's
system may use The Depository Trust Company's Automated Tender Offer Program to
tender. Participants in the program may, instead of physically completing and
signing the Letter of Transmittal and delivering it to the Exchange Agent,
transmit their acceptance of the Exchange Offer electronically. They may do so
by causing The Depository Trust Company to transfer the Old Notes to the
Exchange Agent in accordance with its procedures for transfer. The Depository
Trust Company will then send an Agent's Message to the Exchange Agent.
The term "Agent's Message" means a message transmitted by The Depository
Trust Company received by the Exchange Agent and forming part of the book-entry
confirmation, which states that:
- The Depository Trust Company has received an express acknowledgement from
a participant in its Automated Tender Offer Program that is tendering Old
Notes which are the subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of the
Letter of Transmittal (or, in the case of an Agent's Message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable Notice of Guaranteed Delivery); and
- the agreement may be enforced against such participant.
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance of tendered Old Notes
and withdrawal of tendered Old Notes. Our determination will be final and
binding. We reserve the absolute right to reject any Old Notes not properly
tendered or any Old Notes our acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. Our
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as we shall determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
Old Notes, neither we, the Exchange Agent nor any other person will incur any
liability for failure to give such notification. Tenders of Old Notes will not
be deemed made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned to the tendering holder, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In all cases, we will issue New Notes for Old Notes that we have accepted
for exchange under the Exchange Offer only after the Exchange Agent timely
receives:
- Old Notes or a timely Book-Entry Confirmation of such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility; and
- a properly completed and duly executed Letter of Transmittal and all
other required documents.
If we do not accept any tendered Old Notes for exchange for any reason set
forth in the terms and conditions of the Exchange Offer or if Old Notes are
submitted for a greater principal amount than the holder desires to exchange,
the unaccepted or non-exchanged Old Notes will be returned without expense to
their tendering holder. In the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility according
to the procedures described below, such non-exchanged Notes will be credited to
an account maintained with such Book-Entry Transfer Facility. These actions will
occur as promptly as practicable after the expiration or termination of the
Exchange Offer.
34
<PAGE>
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution participating in the Book-Entry Transfer Facility's
system may make book-entry delivery of Old Notes by causing the Book-Entry
Transfer Facility to transfer such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. Although Old Notes may be delivered through
book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal or facsimile of the Letter of Transmittal, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to the Exchange Agent at the address set forth below under
"--Exchange Agent" on or prior to , 199 (or, if the guaranteed delivery
procedures described below are to be complied with, within the time period
provided under such procedures). Please note that delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their Old Notes but whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to
, 199 , may tender if:
- the tender is made through an eligible guarantor institution;
- prior to , 199 , the Exchange Agent receives from such eligible
guarantor institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery):
- setting forth the name and address of the holder, the registered
number(s) of such Old Notes and the principal amount of Old Notes
tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three (3) New York Stock Exchange trading
days after , 199 , the Letter of Transmittal (or facsimile
thereof) together with the Old Notes or a Book-Entry Confirmation, and
any other documents required by the Letter of Transmittal will be
deposited by the eligible guarantor institution with the Exchange
Agent; and
- the Exchange Agent receives such properly completed and executed Letter
of Transmittal (or facsimile thereof), or properly transmitted Agent's
Message as well as all tendered Old Notes in proper form for transfer or
a Book-Entry Confirmation, and all other documents required by the Letter
of Transmittal, within three (3) New York Stock Exchange trading days
after , 199 .
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this Prospectus, holders of Old Notes may
withdraw their tenders at any time prior to 5:00 p.m., New York City time, on
, 199 .
For a withdrawal to be effective:
- the Exchange Agent must receive a written notice of withdrawal at one of
the addresses set forth below under "--Exchange Agent"; or
- holders must comply with the appropriate procedures of The Depository
Trust Company's Automated Tender Offer Program system.
35
<PAGE>
Any such notice of withdrawal must:
- specify the name of the person who tendered the Old Notes to be
withdrawn;
- identify the Old Notes to be withdrawn (including the principal amount of
such Old Notes); and
- where certificates for Old Notes have been transmitted, specify the name
in which such Old Notes were registered, if different from that of the
withdrawing holder.
If certificates for Old Notes have been delivered or otherwise identified to
the Exchange Agent, then, prior to the release of such certificates, the
withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
guarantor institution unless such holder is an eligible guarantor
institution.
If Old Notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Old Notes and otherwise comply with the procedures of such
facility. We will determine all questions as to the validity, form and
eligibility (including time of receipt) of such notices and our determination
shall be final and binding on all parties. We will deem any Old Notes so
withdrawn not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are not exchanged for any reason will be returned to their holder without cost
to the holder (or, in the case of Old Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility according to
the procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering" above at any time on or
prior to , 199 .
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent of the
Exchange Offer. You should direct questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for the Notice of Guaranteed Delivery to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL OR BY BY HAND:
OVERNIGHT COURIER:
Wilmington Trust Company Wilmington Trust Company
Attn: Kristin Long Attn: Corporate Trust Operations
Corporate Trust & Administration Window c/o Harris Trust Company of New York,
1100 North Market Street as Agent
Rodney Square North 75 Water Street
Wilmington, Delaware 19890-0001 New York, New York 10004
BY FACSIMILE:
Wilmington Trust Company
Corporate Trust Administration
Facsimile: (302) 651-1079
Confirm by Telephone: (302) 651-1562
</TABLE>
36
<PAGE>
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the Exchange
Offer and will not make any payments to broker-dealers or others soliciting
acceptances of the Exchange Offer. We will, however, pay the Exchange Agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the Exchange
Offer. The expenses are estimated in the aggregate to be approximately $0.2
million. They include:
- registration fees;
- fees and expenses of the Exchange Agent and Trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of Old
Notes under the Exchange Offer. The tendering holder, however, will be required
to pay any transfer taxes (whether imposed on the registered holder or any other
person) if:
- certificates representing Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of Old Notes
tendered;
- or if tendered Old Notes are registered in the name of any person other
than the person signing the Letter of Transmittal;
- or a transfer tax is imposed for any reason other than the exchange of
Notes under the Exchange Offer, then the tendering holder will be
required to pay any such transfer taxes (whether imposed on the
registered holder or any other persons). If satisfactory evidence of
payment of such taxes is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to that
tendering holder.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be required to pay
any transfer taxes. However, holders who instruct us to register New Notes in
the name of, or request that Old Notes not tendered or not accepted in the
Exchange Offer be returned to, a person other than the registered tendering
holder will be required to pay any applicable transfer tax.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes under
the Exchange Offer will remain subject to the restrictions on transfer of such
Old Notes:
- as set forth in the legend printed on the notes as a consequence of the
issuance of the Old Notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
- otherwise set forth in the Securities Purchase Agreement dated October
22, 1998 between us and the purchasers of the Old Notes that were
distributed in connection with the private offering of the Old Notes.
In general, you may not offer or sell the Old Notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from the
Securities Act and applicable state securities laws. We do not currently
anticipate that we will register the Old Notes under the Securities Act. Based
on SEC
37
<PAGE>
interpretations, New Notes issued pursuant to the Exchange Offer may be offered
for resale, resold or otherwise transferred by their holders (other than any
such holder which is our "affiliate" within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holders acquired the New
Notes in the ordinary course of the holders' business and the holders have no
arrangement or understanding with respect to the distribution of the New Notes
to be acquired in the Exchange Offer. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the New Notes:
- could not rely on the applicable interpretations of the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
38
<PAGE>
DIMAC HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma consolidated financial statements are
based on our historical financial statements and those of DIMAC Marketing and
AmeriComm Holdings included elsewhere in this Prospectus, adjusted to give
effect to our acquisitions of AmeriComm Holdings and DIMAC Marketing and the
Refinancing described in this Prospectus. The financial statements of AmeriComm
Holdings were also adjusted to give pro forma effect to the AmeriComm Holdings
Acquisitions consummated during 1997 and 1998, as if they had occurred on
January 1, 1997. AmeriComm Holdings acquired
- Label America on February 21, 1997;
- AmeriComm Direct Marketing on April 24, 1997; and
- Cardinal on March 16, 1998.
Accordingly, AmeriComm Holdings' historical consolidated statements of
operations include the results of operations of Label America, AmeriComm Direct
Marketing and Cardinal beginning on February 22, 1997, April 25, 1997, and March
17, 1998, respectively.
The Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1997 and six months ended June 30, 1997 give effect to the
AmeriComm Holdings Acquisitions, our acquisitions of AmeriComm Holdings and
DIMAC Marketing, and the Refinancing as if they had occurred on January 1, 1997.
The Unaudited Pro Forma Consolidated Statement of Operations for the six months
ended June 30, 1998 give effect to the AmeriComm Holdings Acquisitions, our
acquisitions of AmeriComm Holdings and DIMAC Marketing, and the Refinancing as
if they had occurred on January 1, 1997. The Unaudited Pro Forma Consolidated
Balance Sheet gives effect to the Refinancing as if it had occurred as of June
30, 1998.
The AmeriComm Holdings Acquisitions, our acquisitions of AmeriComm Holdings
and DIMAC Marketing, and the Refinancing and the related adjustments are
described in the accompanying notes. The pro forma adjustments are based upon
available information and certain assumptions that management believes are
reasonable. The pro forma financial statements do not purport to represent what
our results of operations or financial condition would actually have been had
our acquisitions of AmeriComm Holdings and DIMAC Marketing, and the Refinancing
in fact occurred on such dates or to project our results of operations or
financial condition for any future period or date. The pro forma financial
statements should be read in conjunction with our historical financial
statements and those of DIMAC Marketing, AmeriComm Holdings, Transkrit and
AmeriComm Direct Marketing, Inc. included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The pro forma information with respect to our acquisitions of AmeriComm
Holdings and DIMAC Marketing is based on our historical financial statements,
and those of DIMAC Marketing and AmeriComm Holdings. Our acquisitions of
AmeriComm Holdings and DIMAC Marketing have been accounted for under the
purchase method of accounting. The total purchase price for such acquisitions
has been allocated to the tangible and identifiable intangible assets and
liabilities of the acquired business based upon our preliminary estimates of
their fair value with the remainder allocated to goodwill. The allocation of
purchase price for such acquisitions is subject to revision when additional
information concerning asset and liability valuations is obtained.
The adjustments presented in the unaudited pro forma financial statements
below for our acqusitions of the AmeriComm Holdings and DIMAC Marketing are
referred to as "Acquisitions Adjustments."
39
<PAGE>
DIMAC HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICOMM
AMERICOMM HOLDINGS DIMAC DIMAC
HOLDINGS ACQUISITIONS MARKETING HOLDINGS
HISTORICAL PRO FORMA PRO FORMA ACQUISITIONS REFINANCING PRO FORMA
CONSOLIDATED COMBINED(A) CONSOLIDATED(B) ADJUSTMENTS ADJUSTMENTS CONSOLIDATED
------------ ----------- --------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................. $191,091 $17,627 $177,947 $-- $-- $386,665
Cost of products sold..................... 133,598 11,497 117,542 (5,061)(c) -- 257,840
264(d)
------------ ----------- --------------- ----------- ----------- ------------
Gross profit............................ 57,493 6,130 60,405 4,797 -- 128,825
Selling, general and administrative
expenses................................ 44,985 4,490 53,225 (3,351)(c) -- 99,781
432(d)
------------ ----------- --------------- ----------- ----------- ------------
Operating income........................ 12,508 1,640 7,180 7,716 -- 29,044
Interest expense (income)................. 17,023 1,747 8,908 8,117(f) (1,588)(h) 39,103
4,896(i)
------------ ----------- --------------- ----------- ----------- ------------
Income (loss) from continuing operations
before income taxes................... (4,515) (107) (1,728) (401) (3,308)(j) (10,059)
Income tax provision (benefit)............ (688) 55 706 246(g) (1,323) (1,004)
------------ ----------- --------------- ----------- ----------- ------------
Income (loss) from continuing
operations............................ $ (3,827) $ (162) $ (2,434) $ (647) $(1,985) $ (9,055)
------------ ----------- --------------- ----------- ----------- ------------
------------ ----------- --------------- ----------- ----------- ------------
OTHER DATA:
EBITDA (k)................................ $ 25,277 $ 2,605 $ 20,240 $ 8,412 $-- $ 56,534
Depreciation and amortization (l)......... $ 12,769 $ 965 $ 13,060 $ 696 $-- $ 27,490
Ratio of earnings to fixed charges (m).... --
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
40
<PAGE>
DIMAC HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICOMM AMERICOMM HOLDINGS DIMAC DIMAC
HOLDINGS ACQUISITIONS MARKETING HOLDINGS
HISTORICAL PRO FORMA HISTORICAL ACQUISITIONS REFINANCING PRO FORMA
CONSOLIDATED COMBINED(A) CONSOLIDATED ADJUSTMENTS ADJUSTMENTS CONSOLIDATED
------------ ------------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $86,602 $14,194 $91,421 $-- $-- $ 192,217
Cost of products sold............... 60,808 9,558 60,270 (2,486)(c) -- 128,787
637(d)
------------ ------- ------------ ----------- ----------- ------------
Gross profit...................... 25,794 4,636 31,151 1,849 -- 63,430
Selling, general and administrative
expenses.......................... 21,575 3,397 29,043 (1,653)(c) -- 51,345
(1,017)(d)
------------ ------- ------------ ----------- ----------- ------------
Operating income.................. 4,219 1,239 2,108 4,519 -- 12,085
Interest expense (income)........... 7,402 1,639 4,633 3,822(f) (588)(h) 19,356
2,448(i)
------------ ------- ------------ ----------- ----------- ------------
Income (loss) from continuing
operations before income
taxes........................... (3,183) (400) (2,525) 697 (1,860) (7,271)
Income tax provision (benefit)...... (644) (83) 17 (47)(g) (744)(j) (1,501)
------------ ------- ------------ ----------- ----------- ------------
Income (loss) from continuing
operations...................... $(2,539) $ (317) $(2,542) $ 744 $(1,116) $ (5,770)
------------ ------- ------------ ----------- ----------- ------------
------------ ------- ------------ ----------- ----------- ------------
OTHER DATA:
EBITDA (k).......................... $10,114 $ 1,995 $ 9,657 $ 4,139 $-- $ 25,905
Depreciation and amortization (l)... $ 5,895 $ 756 $ 7,549 $ (380) $-- $ 13,820
Ratio of earnings to fixed charges
(m)............................... --
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
41
<PAGE>
DIMAC HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DIMAC
HOLDINGS
AMERICOMM DIMAC HISTORICAL
HOLDINGS MARKETING CONSOLIDATED
HISTORICAL HISTORICAL OPERATING
CONSOLIDATED CONSOLIDATED PERIOD
FROM FROM FROM
JANUARY 1, AMERICOMM JANUARY 1, JUNE 27,
1998 TO HOLDINGS 1998 TO 1998 TO
JUNE 26, ACQUISITIONS JUNE 26, JUNE 30, ACQUISITIONS
1998 PRO FORMA(A) 1998 1998 ADJUSTMENTS
------------ --------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $ 93,081 $ 770 $ 93,208 $ 2,859 $ --
Cost of products sold......................... 67,813 452 61,806 1,977 (2,555)(c)
(1,126)(d)
------------ ----- ------------- ------ -----------
Gross profit................................ 25,268 318 31,402 882 3,681
Selling, general and administrative expenses.. 23,438 369 26,615 784 (1,849)(c)
(66)(d)
(385)(e)
------------ ----- ------------- ------ -----------
Operating income............................ 1,830 (51) 4,787 98 5,981
Interest expense (income)..................... 9,677 72 4,583 208 3,666(f)
------------ ----- ------------- ------ -----------
Income (loss) from continuing operations
before income taxes....................... (7,847) (123) 204 (110) 2,315
Income tax provision (benefit)................ (2,195) (42) 585 (15) 810(g)
------------ ----- ------------- ------ -----------
Income (loss) from continuing operations.... $ (5,652) $ (81) $ (381) $ (95) $ 1,505
------------ ----- ------------- ------ -----------
------------ ----- ------------- ------ -----------
OTHER DATA:
EBITDA (k).................................... $ 9,114 $ 28 $ 11,864 $ 358 $ 4,789
Depreciation and amortization (l)............. $ 7,284 $ 79 $ 7,077 $ 260 $ (1,192)
Ratio of earnings to fixed charges (m)........
<CAPTION>
DIMAC
HOLDINGS
REFINANCING PRO FORMA
ADJUSTMENTS CONSOLIDATED
------------- ------------
<S> <C> <C>
Net sales..................................... $ -- $ 189,918
Cost of products sold......................... -- 128,367
------------- ------------
Gross profit................................ -- 61,551
Selling, general and administrative expenses.. -- 48,906
------------- ------------
Operating income............................ -- 12,645
Interest expense (income)..................... (1,163)(h) 19,491
2,448(i)
------------- ------------
Income (loss) from continuing operations
before income taxes....................... (1,285) (6,846)
Income tax provision (benefit)................ (514)(j) (1,371)
------------- ------------
Income (loss) from continuing operations.... $ (771) $ (5,475)
------------- ------------
------------- ------------
OTHER DATA:
EBITDA (k).................................... $ -- $ 26,153
Depreciation and amortization (l)............. $ -- $ 13,508
Ratio of earnings to fixed charges (m)........ --
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
42
<PAGE>
DIMAC HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(a) AMERICOMM HOLDINGS ACQUISITIONS PRO FORMA COMBINED
YEAR ENDED DECEMBER 31, 1997
Represents historical results for Label America, AmeriComm Direct Marketing,
Inc., and Cardinal for the period from January 1, 1997 through February 21,
1997, the period from January 1, 1997 through April 24, 1997 and the period
from January 1, 1997 through December 31, 1997, respectively, on a combined
basis, assuming the AmeriComm Holdings Acquisitions had each occurred on
January 1, 1997, adjusted as follows:
<TABLE>
<CAPTION>
AMERICOMM
DIRECT
LABEL AMERICA MARKETING, INC. CARDINAL
HISTORICAL HISTORICAL HISTORICAL AMERICOMM
FROM FROM FROM AMERICOMM HOLDINGS
1/1/97 1/1/97 1/1/97 HOLDINGS ACQUISITIONS
THROUGH THROUGH THROUGH ACQUISITIONS PRO FORMA
2/21/97 4/24/97 12/31/97 ADJUSTMENTS COMBINED
--------------- ----------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 2,313 $ 8,096 $ 7,218 $ -- $ 17,627
Cost of products sold............... 1,716 5,450 4,331 -- 11,497
------ ------ ----------- ------------- -------------
Gross profit.................... 597 2,646 2,887 -- 6,130
Selling, general and administrative
expenses.......................... 639 2,617 1,957 (723)(1) 4,490
------ ------ ----------- ------------- -------------
Operating income................ (42) 29 930 723 1,640
Interest (income) expense........... 44 (39) (95) 1,837(2) 1,747
Income (loss) from continuing
operations before income
taxes......................... (86) 68 1,025 (1,114) (107)
Income tax provision (benefit)...... 1 -- 3 51(3) 55
------ ------ ----------- ------------- -------------
Income (loss) from continuing
operations.................... $ (87) $ 68 $ 1,022 $ (1,165) $ (162)
------ ------ ----------- ------------- -------------
------ ------ ----------- ------------- -------------
OTHER DATA:
EBITDA (j).......................... $ 16 $ 299 $ 1,034 $ 1,256 $ 2,605
Depreciation and amortization (k)... $ 58 $ 270 $ 104 $ 533 $ 965
</TABLE>
----------------------------
(1) Reflects the following:
<TABLE>
<S> <C>
Elimination of compensation expense of former owners that were terminated upon
acquisition by our company............................................................... $ (528)
Elimination of expenses incurred in connection with a phantom stock plan that was
terminated upon acquisition by our company............................................... (608)
Additional amortization of goodwill...................................................... 235
Additional amortization of noncompete agreements......................................... 298
Elimination of non-recurring acquisition expenses incurred in contemplation of the
AmeriComm Holdings Acquisitions.......................................................... (120)
-------------
$ (723)
-------------
-------------
</TABLE>
(2) Reflects additional interest expense associated with borrowings
incurred in connection with the AmeriComm Holdings Acquisitions.
(3) Reflects the net additional income tax provision as a result of the
historical Label America, AmeriComm Direct Marketing, Inc. and Cardinal
results and the AmeriComm Holdings Acquisitions Adjustments, excluding
nondeductible goodwill amortization, at an effective tax rate of 40%.
43
<PAGE>
DIMAC HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
(a) AMERICOMM HOLDINGS ACQUISITIONS PRO FORMA COMBINED (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997
Represents historical results for Label America, AmeriComm Direct Marketing,
Inc., and Cardinal for the period from January 1, 1997 through February 21,
1997, the period from January 1, 1997 through April 24, 1997 and the period
from January 1, 1997 through June 30, 1997, respectively, on a combined
basis assuming the AmeriComm Holdings Acquisitions had occurred on January
1, 1997, adjusted as follows:
<TABLE>
<CAPTION>
AMERICOMM
DIRECT
LABEL AMERICA MARKETING, INC. CARDINAL
HISTORICAL HISTORICAL HISTORICAL AMERICOMM
FROM FROM FROM AMERICOMM HOLDINGS
1/1/97 1/1/97 1/1/97 HOLDINGS ACQUISITIONS
THROUGH THROUGH THROUGH ACQUISITIONS PRO FORMA
2/21/97 4/24/97 6/30/97 ADJUSTMENTS COMBINED
--------------- ----------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 2,313 $ 8,096 $ 3,785 $ -- $ 14,194
Cost of products sold.............. 1,716 5,450 2,392 -- 9,558
------ ------ ----------- ------------- -------------
Gross profit................... 597 2,646 1,393 -- 4,636
Selling, general and administrative
expenses......................... 639 2,617 877 (736)(1) 3,397
------ ------ ----------- ------------- -------------
Operating income............... (42) 29 516 736 1,239
Interest (income) expense.......... 44 (39) (26) 1,660(2) 1,639
------ ------ ----------- ------------- -------------
Income (loss) from continuing
operations before income
taxes........................ (86) 68 542 (924) (400)
Income tax provision (benefit)..... 1 -- -- (84)(3) (83)
------ ------ ----------- ------------- -------------
Income (loss) from continuing
operations................... $ (87) $ 68 $ 542 $ (840) $ (317)
------ ------ ----------- ------------- -------------
------ ------ ----------- ------------- -------------
OTHER DATA:
EBITDA(j).......................... $ 16 $ 299 $ 568 $ 1,112 $ 1,995
Depreciation and amortization(k)... $ 58 $ 270 $ 52 $ 376 $ 756
</TABLE>
----------------------------------
(1) Reflects the following:
<TABLE>
<S> <C>
Elimination of compensation expense of former owners that were terminated upon
acquisition by our company.............................................................. $ (384)
Elimination of expenses incurred in connection with a phantom stock plan that was
terminated upon acquisition by our company.............................................. (608)
Additional amortization of goodwill...................................................... 189
Additional amortization of noncompete agreements......................................... 187
Elimination of acquisition expenses incurred in contemplation of the AmeriComm Holdings
Acquisitions............................................................................ (120)
-------------
$ (736)
-------------
-------------
</TABLE>
(2) Reflects additional interest expense associated with borrowings incurred
in connection with the AmeriComm Holdings Acquisitions.
(3) Reflects the net additional income tax benefit as a result of the
historical Label America, AmeriComm Direct Marketing, Inc. and Cardinal
results and the AmeriComm Holdings Acquisitions Adjustments, excluding
nondeductible goodwill amortization, at an effective tax rate of 40%.
44
<PAGE>
DIMAC HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
(a) AMERICOMM HOLDINGS ACQUISITIONS PRO FORMA (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1998
Represents historical results for Cardinal for the period from January 1,
1998 through March 16, 1998, assuming the Cardinal Acquisition had occurred
on January 1, 1998, adjusted as follows:
<TABLE>
<CAPTION>
CARDINAL
HISTORICAL AMERICOMM
FROM CARDINAL HOLDINGS
1/1/98 TO ACQUISITION ACQUISITIONS
3/16/98 ADJUSTMENTS PRO FORMA
----------- --------------- ---------------
<S> <C> <C> <C>
Net sales........................................................... $ 770 $ -- $ 770
Cost of products sold............................................... 452 -- 452
----- ----- -----
Gross profit.................................................... 318 -- 318
Selling, general and administrative expenses........................ 539 (170)(1) 369
----- ----- -----
Operating income................................................ (221) 170 (51)
Interest (income) expense........................................... (8) 80(2) 72
----- ----- -----
Income (loss) from continuing operations before income taxes.... (213) 90 (123)
Income tax benefit.................................................. -- (42)(3) (42)
----- ----- -----
Income (loss) from continuing operations........................ $ (213) $ 132 $ (81)
----- ----- -----
----- ----- -----
OTHER DATA:
EBITDA(j)........................................................... $ (217) $ 245 $ 28
Depreciation and amortization(k).................................... $ 4 $ 75 $ 79
</TABLE>
----------------------------
(1) Reflects the following:
<TABLE>
<S> <C>
Elimination of compensation expense of former owners that were terminated upon acquisition
by our company............................................................................. $ (185)
Additional amortization of goodwill........................................................ 19
Additional amortization of noncompete agreements........................................... 56
Elimination of non-recurring acquisition expenses incurred in contemplation of the Cardinal
Acquisition................................................................................ (60)
-----
$ (170)
-----
-----
</TABLE>
(2) Reflects additional interest expense associated with borrowings incurred
in connection with the Cardinal Acquisition.
(3) Reflects the net additional income tax benefit as a result of the
historical Cardinal results and the Cardinal Acquisition Adjustments,
excluding nondeductible goodwill amortization, at an effective tax rate
of 40%.
45
<PAGE>
DIMAC HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
(b) Represents DIMAC Marketing's Statement of Operations for the eight months
ended August 31, 1997 (while under Heritage Media ownership) and DIMAC
Marketing's Statement of Operations for the four months ended December 31,
1997 (while under News Corporation ownership) adjusted to give pro forma
effect to the News Corporation purchase of Heritage Media (the "News
Corporation Acquisition"), including purchase accounting adjustments, as if
the News Corporation Acquisition was consummated on January 1, 1997 as
follows:
<TABLE>
<CAPTION>
DIMAC MARKETING
HISTORICAL CONSOLIDATED DIMAC MARKETING
---------------------------- PRO FORMA
EIGHT MONTHS FOUR MONTHS NEWS CORPORATION CONSOLIDATED
ENDED ENDED ACQUISITION YEAR ENDED
8/31/97 12/31/97 ADJUSTMENTS 12/31/97
------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Sales..................................... $ 118,747 $ 59,200 $ -- $ 177,947
Cost of sales............................. 77,820 39,722 -- 117,542
------------- ------------- -------- --------
Gross profit.......................... 40,927 19,478 -- 60,405
Selling, general and administrative
expenses.................................... 37,867 17,083 (1,725)(1) 53,225
------------- ------------- -------- --------
Operating income...................... 3,060 2,395 1,725 7,180
Interest (income) expense................. 6,188 2,248 472(2) 8,908
------------- ------------- -------- --------
Income (loss) from continued
operations before income taxes...... (3,128) 147 1,253 (1,728)
Income tax provision...................... 122 395 189(3) 706
------------- ------------- -------- --------
Income (loss) from continuing
operations.......................... $ (3,250) $ (248) $ 1,064 $ (2,434)
------------- ------------- -------- --------
------------- ------------- -------- --------
OTHER DATA:
EBITDA (j)................................ $ 13,315 $ 6,925 $ -- $ 20,240
Depreciation and amortization (k)......... $ 10,255 $ 4,530 $ (1,725) $ 13,060
</TABLE>
----------------------------
(1) Reflects decrease in goodwill amortization based on $144.0 million of
estimated goodwill over estimated useful life of 40 years.
(2) Reflects additional interest expense associated with intercompany
borrowings from News Corporation.
(3) Reflects the net additional income tax provision as a result of the News
Corporation Acquisition Adjustments, excluding nondeductible goodwill
amortization, at an effective tax rate of 40%.
46
<PAGE>
DIMAC HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
ACQUISITIONS ADJUSTMENTS
(c) Reflects estimated cost savings as a result of our acquisitions of AmeriComm
Holdings and DIMAC Marketing from the closing of certain duplicative
facilities, the production of certain inventory internally that prior to
these acquisitions were outsourced, the elimination of certain overlapping
and duplicative production, selling, general and administrative functions
and reductions or increases in external administrative and operating
expenses, such as insurance, freight, and telecommunications. The estimated
cost savings below reflect personnel terminations that have occurred or that
have been formally communicated to employees, production changes that have
occurred, closings of duplicate facilities that have occurred and reductions
in external administrative and operating expenses that have been negotiated.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
1997 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cost of products sold adjustment:
Related to our acquisitions of AmeriComm Holdings and DIMAC
Marketing:
Closing of duplicative facilities (1)....................... $ (1,419) $ (710) $ (710)
Reduction of salaries and benefits resulting from personnel
terminations (2).......................................... (1,563) (736) (805)
Consolidation of certain insurance programs (3)............. (898) (449) (449)
Reduction of external administrative and operating expenses
(4)....................................................... (302) (151) (151)
Reduction in costs due to production changes that have
occurred (5).............................................. (879) (440) (440)
------------- ------------- -------------
$ (5,061) $ (2,486) $ (2,555)
------------- ------------- -------------
------------- ------------- -------------
Selling, general and administrative expense adjustment:
Related to our acquisitions of AmeriComm Holdings and DIMAC
Marketing:
Closing of duplicative facilities (1)....................... $ (1,153) $ (577) $ (577)
Reduction of salaries and benefits from personnel
terminations (2).......................................... (2,014) (984) (1,180)
Consolidation of certain insurance programs (3)............. (204) (102) (102)
Reduction of external administrative and operating expenses
(4)....................................................... (180) (90) (90)
Management fees (6)......................................... 200 100 100
------------- ------------- -------------
$ (3,351) $ (1,653) $ (1,849)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
----------------------------------
(1) Effective June 1998, we closed one of our facilities enabling us to
consolidate such functions to other facilities. This has resulted in the
elimination of certain fixed facility and payroll costs. We believe that
the facility closing will result in approximately $2.6 million in savings
on an annualized basis ($1.4 million in cost of sales and $1.2 million in
selling, general and administrative expenses).
(2) We have reduced or identified reductions in the number of full-time
employees by approximately 60 persons in a variety of departments. We
believe that such reductions will result in savings of approximately $3.6
million on an annualized basis ($1.6 million in cost of sales and $2.0
million in selling, general and administrative expenses).
(3) We have consolidated the property and casualty insurance policies in
place for DIMAC Marketing and AmeriComm Holdings resulting in savings of
$0.5 million. In addition, we have identified approximately $0.6 million
of savings on an annualized basis, related to the consolidation of
employee benefit insurance programs based upon certain insurance carrier
commitments for a combined reduction of $0.9 million in cost of sales and
$0.2 million in selling, general and administrative expenses.
(4) We have negotiated lower rates for our telecommunications services. In
addition, we have standardized our overnight delivery service at the best
rate used historically by either AmeriComm Holdings or DIMAC Marketing.
We believe that such consolidation of services will result in
approximately $0.5 million of savings on an annualized basis ($0.3
million in cost of sales and $0.2 million in selling, general and
administrative expenses).
47
<PAGE>
DIMAC HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
(5) Prior to the acquisitions of AmeriComm Holdings and DIMAC Marketing,
certain components (i.e. envelopes, mailers and labels) used in the
manufacturing of DIMAC Marketing's and AmeriComm Holdings' products were
purchased from third party envelope, mailer and label manufacturers.
Effective June 1998, we began manufacturing these components internally
as incremental volume. We believe that this will save us $0.9 million on
an annualized basis.
(6) We maintain an Advisory Services Agreement with MDC Management Company
IV, LLC. Effective June 26, 1998, the fees associated with these services
have been increased by approximately $0.2 million.
(d) Reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
1997 JUNE 30, 1997 JUNE 30, 1998
--------------- ------------- -------------
<S> <C> <C> <C>
Increase (decrease) in amortization and depreciation expense based
on the preliminary purchase price allocation made in connection
with the acquisitions of AmeriComm Holdings and DIMAC Marketing:
Cost of products sold adjustment:
Represents increase (decrease) in depreciation expense based
on $78.1 million estimated fair value of property, plant and
equipment overestimated useful lives of 3-40 years.......... $ (191) $ 167 $ (1,126)
Represents increase in amortization expense based on $5.7
million estimated fair market value of resident address
lists (other intangible assets) over estimated useful life
of 4 years.................................................. 455 470 --
------ ------------- -------------
$ 264 $ 637 $ (1,126)
------ ------------- -------------
------ ------------- -------------
Selling, general and amortization expense adjustment:
Represents increase (decrease) in goodwill amortization based
on $260.7 million of estimated goodwill over estimated
useful life of 40 years..................................... $ 1,017 $ (814) $ 347
Represents decrease in amortization expense based on $32.7
million estimated fair value of other intangible assets over
estimated useful lives of 3-7 years......................... (537) (245) (131)
Represents increase (decrease) in depreciation expense based
on $19.5 million estimated fair value of property, plant and
equipment over estimated useful lives 3-40 years............ (48) 42 (282)
------ ------------- -------------
$ 432 $ (1,017) $ (66)
------ ------------- -------------
------ ------------- -------------
</TABLE>
(e) Reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
1997 JUNE 30, 1997 JUNE 30, 1998
------------------- ----------------- -----------------
<S> <C> <C> <C>
Elimination of certain non-recurring expenses previously
incurred in connection with the closing of duplicative
facilities................................................. $ -- $ -- $ (385)
----- ----- -----
----- ----- -----
</TABLE>
48
<PAGE>
DIMAC HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
(f) Reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
1997 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Interest and debt financing associated with borrowings under our
senior secured credit facility in connection with the
acquisitions of AmeriComm Holdings and DIMAC Marketing:
Interest expense associated with Term A loans ($55,000 @ 8.49%,
8.44% and 8.42% at December 31, 1997, June 30, 1997 and June
30, 1998, respectively)....................................... $ 4,670 $ 2,321 $ 2,235
Interest expense associated with Term B loans ($70,000 @ 8.99%,
8.94% and 8.92% at December 31, 1997, June 30, 1997 and June
30, 1998, respectively)....................................... 6,293 3,129 3,037
Interest expense associated with Term C loans ($25,000 @ 9.24%,
9.20% and 9.18% at December 31, 1997, June 30, 1997 and June
30, 1998, respectively)....................................... 2,310 1,149 1,147
Interest expense associated with revolving loans ($12,400 @
8.49%, 8.44% and 8.42% at December 31, 1997, June 30, 1997 and
June 30, 1998, respectively).................................. 1,053 523 507
Additional debt financing amortization associated with our
senior secured credit facility................................ 2,236 999 1,118
Commitment fees associated with our senior secured credit
facility...................................................... 313 157 157
Elimination of historical DIMAC Marketing interest expense
associated with intercompany debt which we did not assume..... (8,758) (4,456) (4,535)
------------- ------------- -------------
$ 8,117 $ 3,822 $ 3,666
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
A change of 0.125% for the interest rate on the term loans and the revolving
loans would have an impact on pro forma interest expense of $0.2 million,
$0.1 million and $0.3 million for the year ended December 31, 1997 and for
the six month periods ended June 30, 1997 and 1998, respectively.
(g) Reflects the additional income tax benefit resulting from the Acquisitions
Adjustments, excluding non-deductible items, at an effective tax rate of
40%.
49
<PAGE>
DIMAC HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
REFINANCING ADJUSTMENTS
(h) Reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
1997 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Interest expense associated with the DIMAC Corporation Notes
($100,000 @ 12.5%).............................................. $ 12,500 $ 6,250 $ 6,250
Amortization of debt discount associated with the Notes........... 273 137 137
Interest expense associated with the additional Term B loans
($10,000 @ 8.99%, 8.94% and 8.92% at December 31, 1997, June 30,
1997 and June 30, 1998, respectively)........................... 899 447 446
Interest expense associated with the additional Term C loans
($35,000 @ 9.24%, 9.20% and 9.18% at December 31, 1997, June 30,
1997 and June 30, 1998, respectively)........................... 3,234 1,608 1,606
Elimination of interest expense on debt repaid in connection with
the Refinancing:
Existing AmeriComm Direct Marketing credit agreement, AmeriComm
Holdings Senior Notes and AmeriComm Direct Marketing Senior
Notes......................................................... (15,406) (6,898) (8,879)
AmeriComm Holdings Acquisitions (June 1998, Cardinal
Acquisition).................................................. (1,837) (1,538) (80)
Revolving loans................................................. (866) (431) (430)
Additional commitment fees associated with the senior secured
credit facility................................................. 51 26 26
Reduction in debt financing amortization in connection with
repayment of the AmeriComm Holdings Senior Notes, the AmeriComm
Direct Marketing Senior Notes and the existing AmeriComm Direct
Marketing credit agreement, offset by additional debt financing
amortization in connection with the DIMAC Corporation Notes and
the Term C loans................................................ (436) (189) (239)
------------- ------------- -------------
$ (1,588) $ (588) $ (1,163)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
(i) Relects the following:
<TABLE>
<S> <C> <C> <C>
Interest expense associated with our Senior Notes... $ 4,650 $ 2,325 $ 2,325
Warrant-related discount amortization............... 245 123 123
Amorization of financing costs associated with our
Senior Notes...................................... 1 -- --
--------- --------- ---------
$ 4,896 $ 2,448 $ 2,448
--------- --------- ---------
--------- --------- ---------
</TABLE>
(j) Reflects the additional income tax expense as a result of the Refinancing
Adjustments at an effective tax rate of 40%.
(k) EBITDA is defined as operating income plus depreciation (including loss on
disposal of equipment) and amortization. EBITDA is presented because we
believe that it provides additional indications of the financial performance
of our company and provides useful information regarding our ability to
service debt and meet certain debt covenants under the Notes Indenture.
EBITDA does not represent cash flows from operations or investing and
financing activities as defined by generally accepted accounting principles.
EBITDA does not measure whether cash flows will be
50
<PAGE>
DIMAC HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
sufficient to fund all cash flow needs, including principal and interest
payments on debt and capital lease obligations, capital expenditures or
other investing and financing activities. You should not construe EBITDA as
an alternative to our operating income, net income or cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles); nor should you construe it as an indication of our
operating performance or as a measure of our liquidity. In addition, items
excluded from EBITDA, such as depreciation and amortization, interest and
income tax provision (benefit), are significant components in understanding
and assessing our financial performance. Our definition of EBITDA may be
different from the definition of EBITDA used by other companies. For a
complete discussion of our future prospects related to net income, cash
flows from operations and investing and financing activities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--AmeriComm Holdings, Inc.," "Management's Discussion and Analysis
of Financial Condition and Results of Operations-- DIMAC Marketing" included
elsewhere in this Prospectus.
(l) Amounts do not include amortization of financing costs, warrant-related
discounts and original issue discount, which is included in interest
expense.
(m) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income (loss) from continuing operations before income taxes,
plus fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of financing costs and the estimated interest
portion of rental expense. For the year ended December 31, 1997 and the six
months ended June 30, 1997 and 1998, earnings were insufficient to cover
fixed charges by $10.1 million, $7.3 million and $6.8 million, respectively.
51
<PAGE>
DIMAC HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
DIMAC DIMAC
HOLDINGS HOLDINGS
HISTORICAL PRO FORMA PRO FORMA
CONSOLIDATED ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
Current assets:
Cash............................................................... $ 1,700 $ (1,700)(a) $ --
Accounts receivable, net........................................... 65,112 -- 65,112
Inventories........................................................ 14,310 -- 14,310
Deferred income taxes and other current assets..................... 12,140 -- 12,140
------------ ----------- ------------
Total current assets........................................... 93,262 (1,700) 91,562
------------ ----------- ------------
Property and equipment, net.......................................... 97,119 -- 97,119
Goodwill and other intangibles, net.................................. 319,740 2,422(b) 322,162
Other assets......................................................... 3,823 3,823
------------ ----------- ------------
Total assets................................................... $ 513,944 $ 722 $ 514,666
------------ ----------- ------------
------------ ----------- ------------
Current liabilities:
Current portion of long-term debt.................................. $ 2,692 $ -- $ 2,692
Outstanding checks................................................. 5,325 -- 5,325
Accounts payable................................................... 9,458 -- 9,458
Accrued expenses and others........................................ 54,250 (484)(a) 53,766
------------ ----------- ------------
Total current liabilities...................................... 71,725 (484) 71,241
------------ ----------- ------------
Noncurrent liabilities............................................... 4,187 -- 4,187
------------ ----------- ------------
Deferred income taxes................................................ 16,790 (7,236)(c) 9,554
------------ ----------- ------------
Long-term debt....................................................... 321,337 9,297(d) 327,813
(2,821)(e)
------------ ----------- ------------
Stockholder's equity:
Common stock....................................................... -- -- --
Additional paid-in capital......................................... 100,000 10,000(a) 112,821
2,821(e)
Accumulated deficit................................................ (95) (10,855)(c) (10,950)
------------ ----------- ------------
99,905 1,966 101,871
------------ ----------- ------------
Total liabilities and stockholder's equity..................... $ 513,944 $ 722 $ 514,666
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
balance sheet.
52
<PAGE>
DIMAC HOLDINGS, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
The Pro Forma Consolidated Balance Sheet reflects the Refinancing as if it
had occurred as of June 30, 1998 as follows:
<TABLE>
<S> <C> <C>
(a) A summary of the sources and uses of proceeds in connection with the Refinancing is as follows:
Sources of Proceeds:
Issuance of the DIMAC Corporation Notes, net of original issue discount of
$2,767.......................................................................... $ 97,233
Additional equity................................................................. 10,000
Issuance of our Notes and warrants to purchase common stock....................... 30,000
Available cash.................................................................... 1,700
Capital leases.................................................................... 8,900
Senior secured credit facility.................................................... 45,000
---------
Total sources of proceeds....................................................... $ 192,833
---------
---------
Uses of Proceeds:
Purchase of AmeriComm Direct Marketing Senior Notes (including tender premium and
consent fee).................................................................... $ 110,980
Repayment of interest accrued on the AmeriComm Direct Marketing Senior Notes...... 484
Purchase of AmeriComm Holdings Senior Notes (including premium)................... 43,074
Repayment of revolving loans...................................................... 4,205
Capital leases.................................................................... 8,900
Repayment of existing AmeriComm Direct Marketing credit agreement................. 18,190
Deferred financing costs.......................................................... 7,000
---------
Total uses of proceeds.......................................................... $ 192,833
---------
---------
(b) Reflects the following:
Deferred financing costs related to the Refinancing............................... $ 7,000
Write off of existing deferred financing costs upon retirement of AmeriComm Direct
Marketing Senior Notes and AmeriComm Holdings Senior Notes...................... (4,578)
---------
$ 2,422
---------
---------
(c) Reflects the following:
Tender premium and consent fee associated with early retirement of the AmeriComm
Direct Marketing Senior Notes and the AmeriComm Holdings Senior Notes........... $ (13,513)
Write off of existing deferred financing costs upon retirement of AmeriComm Direct
Marketing Senior Notes and AmeriComm Holdings Senior Notes...................... (4,578)
Tax benefit from the above adjustments............................................ 7,236
---------
$ (10,855)
---------
---------
Reflects the issuance of the DIMAC Corporation Notes, our Notes and proceeds from borrowings
under our senior secured credit facility, net of repayment of the AmeriComm Direct Marketing
Senior Notes, the AmeriComm Holdings Senior Notes and the Existing AmeriComm Direct Marketing
(d) credit agreement:
Issuance of the DIMAC Corporation Notes, net of original issue discount of
$2,767.......................................................................... $ 97,233
Issuance of our Notes and warrants to purchase common stock....................... 30,000
Proceeds from senior secured credit facility...................................... 45,000
---------
172,233
Less repayment of:
AmeriComm Direct Marketing Senior Notes......................................... (100,000)
AmeriComm Holdings Senior Notes................................................. (40,541)
Revolving loans................................................................. (4,205)
Existing AmeriComm Direct Marketing credit agreement............................ (18,190)
---------
Net adjustment to long-term debt............................................ $ 9,297
---------
---------
(e) Reflects the fair market value of the warrants issued in connection with our Notes.
</TABLE>
53
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
AMERICOMM HOLDINGS, INC.
The following selected historical financial data of AmeriComm Holdings as of
and for each of three fiscal years in the period ended December 31, 1997 has
been derived from AmeriComm Holdings' audited consolidated financial statements
and the notes thereto. The selected historical financial data as of and for each
of the two years in the period ended December 31, 1994 and as of and for the six
months ended June 30, 1997 and June 26, 1998 has been derived from AmeriComm
Holdings' unaudited consolidated financial statements and, in the opinion of
management, includes all adjustments (consisting of only normal recurring
adjustments) that are necessary for a fair presentation of the operating results
for such periods. Results for the interim periods are not necessarily indicative
of the results for the full fiscal year or for any future periods. It is
important that you read the selected historical financial data presented below
along with "Management's Discussion and Analysis of Financial Condition and
Results of Operations--AmeriComm Holdings, Inc." and the consolidated financial
statements of AmeriComm Holdings included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JUNE 30, JUNE 26,
1993 1994 1995 1996(A) 1997(B) 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 64,545 $ 65,998 $ 71,257 $ 111,342 $ 191,091 $ 86,602 $ 93,081
Cost of products sold.......................... 51,384 52,610 55,708 80,215 133,598 60,808 67,813
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................. 13,161 13,388 15,549 31,127 57,493 25,794 25,268
Selling, general and administrative expenses... 12,930 12,428 13,410 25,200 44,985 21,575 23,438
Provision for plant shutdown cost.............. 2,251 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)........................ (2,020) 960 2,139 5,927 12,508 4,219 1,830
Interest expense............................... 2,873 2,975 3,179 8,138 17,023 7,402 9,677
--------- --------- --------- --------- --------- --------- ---------
Loss before income taxes and extraordinary
item......................................... (4,893) (2,015) (1,040) (2,211) (4,515) (3,183) (7,847)
Income tax provision (benefit)................. (1,343) -- (1,900) (627) (688) (644) (2,195)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) before extraordinary item.... (3,550) (2,015) 860 (1,584) (3,827) (2,539) (5,652)
Extraordinary loss on early retirement of debt,
net of income tax benefit of $461............ -- -- -- (798) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).............................. $ (3,550) $ (2,015) $ 860 $ (2,382) $ (3,827) $ (2,539) $ (5,652)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
EBITDA (c)..................................... $ 1,222 $ 4,386 $ 5,913 $ 12,772 $ 25,277 $ 10,114 $ 9,114
Depreciation and amortization (d).............. 3,242 3,426 3,774 6,845 12,769 5,895 7,284
Net cash provided by (used in) operating
activities................................... 1,847 1,203 (217) 7,147 1,574 3,174 5,245
Net cash provided by (used in) investing
activities................................... (1,283) (268) (1,939) (79,838) (38,881) (37,565) (10,407)
Net cash provided by (used in) financing
activities................................... (1,158) (858) 2,317 74,225 36,640 33,695 6,548
Capital expenditures........................... 1,179 940 2,308 3,490 4,563 3,313 5,666
Ratio of earnings to fixed charges (e)......... -- -- -- -- -- -- --
BALANCE SHEET DATA (END OF PERIOD):
Working capital................................ $ 7,190 $ 7,152 $ 7,182 $ 18,840 $ 26,604 $ 24,064 $ 26,002
Total assets................................... 39,607 37,837 38,116 132,498 176,618 173,499 178,113
Long-term debt, less current maturities........ 22,541 21,776 21,412 102,353 152,943 148,655 162,983
</TABLE>
- ------------------------------
(a) Reflects the acquisition of Transkrit on June 28, 1996. The acquisition was
accounted for as a purchase.
(b) Reflects the acquisitions of Label America and AmeriComm Direct Marketing,
Inc. on February 21, 1997 and April 24, 1997, respectively. The acquisitions
were accounted for as purchases.
(c) EBITDA is defined as operating income plus depreciation (including loss on
disposal of equipment) and amortization. EBITDA is presented because we
believe that it provides additional indications of the historical financial
performance of AmeriComm Holdings and provides useful information regarding
our ability to service debt and meet certain debt covenants under the Notes
Indenture. EBITDA does not represent cash flows from
54
<PAGE>
operations or investing and financing activities as defined by generally
accepted accounting principles. EBITDA does not measure whether cash flows
will be sufficient to fund all cash flow needs, including principal and
interest payments on debt and capital lease obligations, capital
expenditures or other investing and financing activities. You should not
construe EBITDA as an alternative to operating income, net income or cash
flows from operating activities (as determined in accordance with generally
accepted accounting principles), nor should you construe it as an indication
of operating performance or as a measure of our liquidity. In addition,
items excluded from EBITDA, such as depreciation and amortization, interest
and income tax provision (benefit), are significant components in
understanding and assessing financial performance. Our definition of EBITDA
may be different from the definition of EBITDA used by other companies. For
a complete discussion of our future prospects related to net income, cash
flows from operations and investing and financing activities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-AmeriComm Holdings, Inc." included elsewhere in this Prospectus.
(d) Amounts do not include amortization of financing costs, which is included in
interest expense.
(e) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as loss before income taxes and extraordinary item, plus fixed
charges. Fixed charges consist of interest expense on all indebtedness,
amortization of financing costs and the estimated interest portion of rental
expenses. For the years ended December 31, 1993 through 1997 and the six
months ended June 30, 1997 and June 26, 1998, earnings were insufficient to
cover fixed charges by $4.9 million, $2.0 million, $1.0 million, $2.2
million, $4.5 million, $3.2 million and $7.8 million, respectively.
55
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
DIMAC MARKETING CORPORATION
The following selected historical financial data of DIMAC Marketing as of
and for each of three fiscal years in the period ended December 31, 1997 has
been derived from DIMAC Marketing's audited consolidated financial statements
and the notes thereto. Selected historical financial data as of and for each of
the two years in the period ended December 31, 1994 and as of and for the six
months ended June 30, 1997 and June 26, 1998 has been derived from DIMAC
Marketing's unaudited consolidated financial statements and, in the opinion of
management, includes all adjustments (consisting of only normal recurring
adjustments) that are necessary for a fair presentation of the operating results
for such periods. Results for the interim periods are not necessarily indicative
of the results for the full fiscal year or for any future periods. The financial
position and results of operations of DIMAC Marketing for the period from
January 1, 1993 to January 31, 1996, the period from February 1, 1996 to August
31, 1997, and the period from September 1, 1997 to June 26, 1998 are not
comparable in all material respects since each period reflects certain purchase
accounting adjustments that are further discussed in the notes to DIMAC
Marketing's consolidated financial statements included elsewhere in this
Prospectus. It is important that you read the selected historical financial data
presented below along with "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- DIMAC Marketing Corporation" and the
consolidated financial statements of DIMAC Marketing included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
EIGHT FOUR
ONE MONTH ELEVEN MONTHS MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
------------------------------- JANUARY 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1993 1994(A) 1995(B) 1996 1996(C)(D) 1997(C) 1997(E)
--------- --------- --------- ----------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales.................................... $ 63,800 $ 100,012 $ 126,518 $ 10,254 $ 168,193 $ 118,747 $ 59,200
Cost of sales............................ 41,899 68,223 82,818 6,900 108,735 77,820 39,722
--------- --------- --------- ----------- ------------- ----------- -------------
Gross profit............................. 21,901 31,789 43,700 3,354 59,458 40,927 19,478
Selling, general and administrative
expenses............................... 15,701 22,224 28,478 3,176 47,645 37,867 17,083
Compensation element of
recapitalization....................... 1,091 -- -- -- -- -- --
Nonrecurring merger costs................ -- -- 2,359 -- -- -- --
--------- --------- --------- ----------- ------------- ----------- -------------
Operating income......................... 5,109 9,565 12,863 178 11,813 3,060 2,395
Interest expense, net.................... 1,417 6,069 5,174 532 7,525 6,188 2,248
--------- --------- --------- ----------- ------------- ----------- -------------
Income (loss) before income taxes and
discontinued operations................ 3,692 3,496 7,689 (354) 4,288 (3,128) 147
Income tax provision (benefit)........... 1,433 1,309 4,193 (131) 3,789 122 395
--------- --------- --------- ----------- ------------- ----------- -------------
Income (loss) before discontinued
operations and extraordinary item...... 2,259 2,187 3,496 (223) 499 (3,250) (248)
Loss from discontinued operations (net of
income tax benefit of $13, $3,523 and
$489).................................. -- -- -- -- (18) (4,669) --
Extraordinary loss on early retirement
debt (net of income tax benefit of
$1,459 and $1,087, respectively)....... -- (3,157) (2,379) -- -- -- --
--------- --------- --------- ----------- ------------- ----------- -------------
Net income (loss)........................ $ 2,259 $ (970) $ 1,117 $ (223) $ 481 $ (7,919) $ (248)
--------- --------- --------- ----------- ------------- ----------- -------------
--------- --------- --------- ----------- ------------- ----------- -------------
OTHER DATA:
EBITDA (f)............................... $ 7,411 $ 12,665 $ 17,394 $ 642 $ 24,228 13,315 $ 6,925
Depreciation and amortization (g)........ 2,302 3,100 4,531 464 12,415 10,255 4,530
Net cash provided by (used for):
Operating activities................... 6,289 6,381 7,485 3,661 7,809 4,323 1,310
Investing activities................... (2,530) (16,760) (33,666) (240) (44,878) (19,944) (7,620)
Financing activities................... (4,208) 8,442 26,181 (3,421) 37,069 15,621 6,310
Capital expenditures..................... 2,530 4,178 3,796 222 9,282 15,885 5,720
Ratio of earnings to fixed charges (h)... 2.5x 1.5x 2.1x -- 1.4x -- 1.1x
BALANCE SHEET DATA (END OF PERIOD):
Working capital.......................... $ 3,655 $ 6,141 $ 3,477 $ 95 $ (2,540) $ 10,582 $ 7,558
Total assets............................. 41,426 64,109 98,918 97,180 350,003 356,108 260,836
Long-term debt, less current
maturities............................. 49,017 36,159 61,925 58,506 113,715 134,879 141,647
<CAPTION>
SIX SIX
MONTHS MONTHS
ENDED ENDED
JUNE 30, JUNE 26,
1997(C) 1998(E)
----------- ---------
STATEMENT OF OPERATIONS DATA:
Sales.................................... $ 91,421 $ 93,208
Cost of sales............................ 60,270 61,806
----------- ---------
Gross profit............................. 31,151 31,402
Selling, general and administrative
expenses............................... 29,043 26,615
Compensation element of
recapitalization....................... -- --
Nonrecurring merger costs................ -- --
----------- ---------
Operating income......................... 2,108 4,787
Interest expense, net.................... 4,633 4,583
----------- ---------
Income (loss) before income taxes and
discontinued operations................ (2,525) 204
Income tax provision (benefit)........... 17 585
----------- ---------
Income (loss) before discontinued
operations and extraordinary item...... (2,542) (381)
Loss from discontinued operations (net of
income tax benefit of $13, $3,523 and
$489).................................. (649) --
Extraordinary loss on early retirement
debt (net of income tax benefit of
$1,459 and $1,087, respectively)....... -- --
----------- ---------
Net income (loss)........................ $ (3,191) $ (381)
----------- ---------
----------- ---------
OTHER DATA:
EBITDA (f)............................... $ 9,657 $ 11,864
Depreciation and amortization (g)........ 7,549 7,077
Net cash provided by (used for):
Operating activities................... (1,396) 1,961
Investing activities................... (15,083) (6,387)
Financing activities................... 16,479 4,426
Capital expenditures..................... 11,344 3,166
Ratio of earnings to fixed charges (h)... -- 1.0x
BALANCE SHEET DATA (END OF PERIOD):
Working capital.......................... $ 4,658 $ 14,714
Total assets............................. 351,705 261,940
Long-term debt, less current
maturities............................. 125,911 146,131
</TABLE>
- ------------------------
(a) Reflects the acquisition of Direct Marketing Group, Inc. in May 1994. The
acquisition was accounted for as a purchase.
(b) Reflects the acquisitions of Palm Coast and McClure in May and October 1995,
respectively. Both acquisitions were accounted for as purchases.
(c) Reflects a new basis of accounting after the acquisition of DIMAC Marketing
by Heritage Media.
(d) Reflects the acquisitions of Wilcox in March 1996 and MBS/Multimode in May
1996. Both were accounted for as purchases.
(e) Reflects a new basis of accounting after the News Corporation Acquisition.
56
<PAGE>
(f) EBITDA is defined as operating operating income income plus depreciation
(including loss on disposal of equipment) and amortization. EBITDA is
presented because we believe that EBITDA provides additional indications of
the historical financial performance of DIMAC Marketing and provides useful
information regarding our ability to service debt and meet certain debt
covenants under the Indenture. EBITDA does not represent cash flows from
operations or investing and financing activities as defined by generally
accepted accounting principles. EBITDA does not measure whether cash flows
will be sufficient to fund all cash flow needs, including principal and
interest payments on debt and capital lease obligations, capital
expenditures or other investing and financing activities. You should not
construe EBITDA as an alternative to operating income, net income or cash
flows from operating activities (as determined in accordance with generally
accepted accounting principles); nor should you construe it as an indication
of operating performance or as a measure of our liquidity. In addition,
items excluded from EBITDA, such as depreciation amortization, interest and
income tax provision (benefit), are significant components in understanding
and assessing financial performance. Our definition of EBITDA may be
different from the definition of EBITDA used by other companies. For a
complete discussion of our future prospects related to net income, cash
flows from operations and investing and financing activities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-DIMAC Marketing" included elsewhere in this Prospectus.
(g) Amounts do not include amortization of financing costs, which is included in
interest expense.
(h) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income (loss) before income taxes and discontinued
operations, plus fixed charges. Fixed charges consist of interest expense on
all indebtedness, amortization of financing costs and the estimated interest
portion of rental expenses. For the one month ended January 31, 1996, the
eight months ended August 31, 1997 and the six months ended June 30, 1997,
earnings were insufficient to cover fixed charges by $0.4 million, $3.1
million and $2.5 million, respectively.
57
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion along with the consolidated
financial statements of AmeriComm Holdings and DIMAC Marketing appearing
elsewhere in this Prospectus. For information regarding the pro forma financial
condition of DIMAC Holdings, please read the section "DIMAC Holdings, Inc.
Unaudited Pro Forma Financial Statements" included in this Prospectus.
The financial results of DIMAC Marketing for all periods prior to January
31, 1996 reflect the operations of DIMAC Marketing under a prior owner. The
consolidated financial statements for the period from February 1, 1996 to
December 31, 1996 reflect the financial results of DIMAC Marketing under a new
basis of accounting that reflects the fair value of assets acquired and
liabilities assumed, the related financing costs, and all debt incurred in
connection with the purchase of DIMAC Marketing by Heritage Media. Accordingly,
the financial information for DIMAC Marketing before and after the Heritage
Media purchase is not directly comparable in all material respects. We derived
information relating to DIMAC Marketing's twelve months ended December 31, 1996
is derived by combining the financial results of DIMAC Marketing for the period
from January 1, 1996 to January 31, 1996 (while under prior ownership) and for
the period from February 1, 1996 to December 31, 1996 (following the Heritage
Media purchase), including purchase accounting adjustments for the Heritage
Media purchase.
The consolidated financial statements for the period from September 1, 1997
to December 31, 1997 reflect the financial results of DIMAC Marketing under a
new basis of accounting that reflects the fair value of assets acquired and
liabilities assumed in connection with the purchase of Heritage Media by News
Corporation. Accordingly, the financial information for DIMAC Marketing before
and after the News Corporation purchase are not directly comparable in all
material respects. We derived the information relating to DIMAC Marketing's
twelve months ended December 31, 1997 by combining the financial results of
DIMAC Marketing for the period from January 1, 1997 to August 31, 1997 (while
under Heritage Media ownership) and for the period from September 1, 1997 to
December 31, 1997 (following the News Corporation purchase), including purchase
accounting adjustments for the News Corporation purchase.
OVERVIEW
On June 26, 1998, DIMAC Holdings through its wholly owned subsidiary, DIMAC
Corporation, completed the acquisitions of AmeriComm Holdings and DIMAC
Marketing for aggregate consideration of $425.8 million (including fees and
expenses relating to these acquisitions and assumed indebtedness). It financed
these acquisitions with $100.0 million of cash equity contributed by affiliates
of McCown De Leeuw, $157.6 million of borrowings under our senior secured credit
facility and $168.2 million of assumed indebtedness.
We refinanced certain of the assumed indebtedness with the proceeds of our
Notes offering, the proceeds of DIMAC Corporation's Notes offering, an
additional equity contribution and $45.0 million of additional term loans under
the senior secured credit facility. As of June 30, 1998, after giving pro forma
effect to the Refinancing, we would have had debt outstanding of $330.5 million,
consisting of approximately $197.2 million out of a total of $270.0 million
senior secured credit facility, $30.0 million aggregate principal amount of our
Notes, $100.0 million aggregate principal amount of DIMAC Corporation Notes and
$8.9 million of capital leases.
58
<PAGE>
The following table sets forth 1997 net sales by product line:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HISTORICAL PRO FORMA
-------------------------- -------------------------------------------
% OF 1997 % OF 1997 % OF 1997
SALES NET SALES % OF 1997 TOTAL
PRODUCTS/ DIMAC AMERICOMM DIRECT MAIL COMPANY
SERVICES MARKETING HOLDINGS NET SALES NET SALES
- ------------------------------------ ----------- ------------- ----------- -----------
1997
NET SALES
-----------------
(DOLLARS IN
MILLIONS)
DIRECT MARKETING
Production services................. 47.6% 45.2% 64.4% 48.6% $ 187.9
Information services................ 14.4 4.5 12.0 9.1 35.1
Program development services........ 15.3 0.0 9.4 7.0 27.3
Fulfillment and telemarketing
services.......................... 22.7 0.7 14.2 10.8 41.7
----- ----- ----- ----- ------
Subtotal........................ 100.0 50.4 100.0 75.5 292.0
OTHER PRINTING AND CONVERTING
Custom pressure sensitive labels.... -- 26.7 -- 13.2 51.0
Custom mailers...................... -- 22.9 -- 11.3 43.7
----- ----- ----- ----- ------
Subtotal........................ -- 49.6 -- 24.5 94.7
----- ----- ----- ----- ------
Total............................... 100.0% 100.0% 100.0% 100.0% $ 386.7
----- ----- ----- ----- ------
----- ----- ----- ----- ------
</TABLE>
The historical results of AmeriComm Holdings and DIMAC Marketing provide a
historical review of each of the two companies' operations without consideration
of the anticipated cost savings described under "DIMAC Corporation Unaudited Pro
Forma Financial Statements."
AMERICOMM HOLDINGS
OVERVIEW
Historically, AmeriComm Holdings has managed its operations by four product
lines: direct mail products, mailer systems, custom pressure sensitive labels
and custom envelopes. Net sales from these product lines are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 JUNE 30, 1997 JUNE 26, 1998
--------- --------- --------- --------------- ---------------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Direct mail products.................................... $ 13.1 $ 13.4 $ 45.6 $ 16.0 $ 27.1
Mailer systems.......................................... -- 26.8 43.7 21.4 20.4
Custom pressure sensitive labels........................ 3.6 21.3 51.0 24.4 23.8
Custom envelopes........................................ 54.6 49.8 50.8 24.8 21.8
--------- --------- --------- ----- -----
$ 71.3 $ 111.3 $ 191.1 $ 86.6 $ 93.1
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
AmeriComm Holdings' net sales in 1994 were $66.0 million. Since then,
AmeriComm Holdings has pursued an acquisition campaign to enhance its product
offerings. For the period ending December 31,
59
<PAGE>
1997, net sales had grown to $191.1 million, an increase over 1994 levels of
189.5%. The following table outlines AmeriComm Holdings' acquisitions since
1994.
<TABLE>
<CAPTION>
ENTITY ACQUIRED DATE EXPERTISE
- ----------------------------------------------- ---------------- -----------------------------------------------
<S> <C> <C>
Transkrit...................................... June 1996 Direct mail, custom mailers, custom pressure
sensitive labels.
Label America, Inc............................. February 1997 Custom pressure sensitive labels.
AmeriComm Direct Marketing, Inc................ April 1997 Direct marketing products and services.
Cardinal....................................... March 1998 Customer profiling and response analysis
primarily to the financial services and retail
industries.
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 26, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
NET SALES for the six month period ended June 26, 1998 increased $6.5
million to $93.1 million, or 7.5%, from the comparable 1997 period. The overall
increase in net sales was due to the acquisitions of AmeriComm Direct Marketing,
Inc. and Cardinal. Specifically, the increase in net sales for direct mail
products was due to the above-mentioned acquisitions. Net sales for mailer
systems decreased $1.0 million to $20.4 million from the comparable 1997 period.
Mailer systems net sales decreased due to an overall decline in core commercial
products net sales as a result of soft market conditions and reduced prices due
to falling paper prices. Net sales for custom pressure sensitive labels
decreased $0.6 million to $23.8 million from the comparable 1997 period. The
decrease for custom pressure sensitive labels was due to the decrease in volume
from a significant customer partially offset by the impact of AmeriComm
Holdings' acquisition of Label America. Net sales for custom envelopes decreased
$3.0 million to $21.8 million from the comparable 1997 period. The decrease in
net sales for custom envelopes has been impacted by a decline in the underlying
paper prices and units shipped reflecting a mildly softer envelope market.
GROSS PROFIT for the six months ended June 26, 1998 decreased $0.5 million
to $25.3 million, or 1.9%, from the comparable 1997 period. Gross profit, as a
percentage of net sales, decreased to 27.2% for the six month period ended June
26, 1998 from 29.8% for the comparable 1997 period. The decrease in gross profit
is primarily due to the reduction in net sales and reduced margins for mailer
systems, custom pressure sensitive labels and custom envelopes product lines.
These decreases were partially offset by the increase in gross profit due to the
increase in net sales for direct mail products and services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the six month period ended
June 26, 1998 increased $1.8 million to $23.4 million, or 8.3%, from the
comparable 1997 period. Selling, general and administrative expenses, as a
percentage of net sales, increased to 25.1% for the six month period ended June
26, 1998 from 24.9% for the comparable 1997 period. The increase in these costs
is attributable to the amortization of certain intangible assets recorded in
conjunction with the above-mentioned acquisitions and a planned increase in
staffing direct mail account executives to execute our direct mail strategy.
INCOME FROM OPERATIONS for the six month period ended June 26, 1998 was $1.8
million or 1.9% of net sales, as compared to $4.2 million or 4.8% for the
comparable 1997 period. The decrease in operating income is due to the decrease
in gross profit and increase in selling, general and administrative expenses,
discussed above.
60
<PAGE>
EBITDA for the six month period ended June 26, 1998 was $9.1 million or 9.8%
of net sales as compared to $10.1 million or 11.7% of net sales for the
comparable 1997 period. The decrease in EBITDA is due to the decrease in
operating income.
INTEREST EXPENSE for the six month period ended June 26, 1998 was $9.7
million or 10.4% of net sales, as compared to $7.4 million or 8.5% of net sales
for the comparable 1997 period. The increase in interest expense is due to the
increased borrowings on the line of credit to finance the Cardinal Acquisition
and to fund the purchase of certain direct mail production equipment and the
issuance of the AmeriComm Holdings Senior Notes on April 24, 1997 to fund
AmeriComm Holdings' acquisition of AmeriComm Direct Marketing, Inc. The weighted
average interest rate for the six month period ended June 26, 1998 and June 30,
1997 was 12.3% and 12.0%, respectively. The increase in the weighted average
interest rate is due to the AmeriComm Holdings Senior Notes borrowings.
INCOME TAX BENEFIT for the six month period ended June 26, 1998 was $2.2
million as compared to $0.6 million for the comparable 1997 period resulting in
effective tax rates of 28% and 20%, respectively. As of December 31, 1997, our
tax net operating loss carryforward was $8.6 million.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES for the year ended December 31, 1997 increased $79.8 million to
$191.1 million, or 71.7% from the comparable 1996 period. The overall increase
in net sales was due to AmeriComm Holdings' acquisitions of Transkrit, Label
America, Inc. and AmeriComm Direct Marketing, Inc. Net sales for mailer systems
products increased 63.1% or $16.9 million from 1996 to 1997 due to the Transkrit
Acquisition. Net sales for direct mail products increased 240.3% or $32.2
million due to AmeriComm Holdings' acquisition of AmeriComm Direct Marketing,
Inc. Net sales for custom pressure sensitive labels increased 139.4% or $29.7
million due to the acquisitions of Label America, Inc. and Transkrit. Net sales
for custom envelopes increased 2.0%, or $1.0 million from 1996 to 1997.
GROSS PROFIT for the year ended December 31, 1997 increased $26.4 million to
$57.5 million, or 84.9%, from the comparable 1996 period. In addition, gross
profit as a percentage of net sales, increased from 27.9% for 1996 to 30.0% for
1997. The increase in gross profit in dollars and as percent of net sales is
mostly attributable to the product lines acquired in AmeriComm Holdings'
acquisitions of Label America, Inc. and AmeriComm Direct Marketing, Inc. in 1997
and Transkrit in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased $19.8 million from
1996 to 1997 due to the acquisitions of Transkrit, Label America, Inc. and
AmeriComm Direct Marketing, Inc. Selling, general and administrative expenses,
as a percent of net sales, increased to 23.5% from 22.6% from the comparable
1996 period. The increase in selling, general and administrative expenses is the
result of the acquisitions of Transkrit, Label America, Inc. and AmeriComm
Direct Marketing, Inc. which historically incur a higher percentage of these
costs.
INCOME FROM OPERATIONS for the year ended December 31, 1997 was $12.5
million, or 6.5% of net sales as compared to $5.9 million or 5.3% of net sales
for the comparable 1996 period. The increase of $6.6 million is the result of
AmeriComm Holdings' acquisitions of Transkrit, Label America, Inc. and AmeriComm
Direct Marketing, Inc. The increase in income from operations as a percent of
net sales from 1996 to 1997 is due to the increase in gross profit from the
acquired product lines reduced, to a lesser extent, by the increase in selling,
general and administrative expenses.
EBITDA, as a percentage of net sales, increased to 13.2% for the year ended
December 31, 1997 from 11.5% for the comparable 1996 period. EBITDA for the year
ended December 31, 1997 increased to $25.3 million from $12.8 million for the
comparable 1996 period due to AmeriComm Holdings' acquisitions of Transkrit,
Label America, Inc. and AmeriComm Direct Marketing, Inc.
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INTEREST EXPENSE for the year ended December 31, 1997 increased $8.9
million, or 109.9%, to $17.0 million from $8.1 million for 1996. The weighted
average interest rate for the year ended December 31, 1997 was 12.5% as compared
to 12.2% for the comparable 1996 period. The increase in the weighted average
interest rate from 1996 to 1997 is due to the issuance of the $100.0 million
AmeriComm Direct Marketing Senior Notes on June 28, 1996.
INCOME TAX EXPENSE (benefit) for the years ended December 31, 1997 and 1996
was $(0.7) million and $(0.6) million, respectively, resulting in effective tax
rates of 15.2% and 28.3%, respectively. The decrease in the effective tax rate
is primarily related to non-deductible amortization and other expenses and
certain minimum state income taxes.
As of December 31, 1997, $7.3 million of cumulative net operating loss
carryforward benefits have been recognized based upon the expected reversals of
temporary differences into taxable income and management's estimate of taxable
income within the period prior to the expiration of the net operating loss
carryforwards. We expect to generate taxable income prior to the expiration of
the net operating loss carryforward. Taxable income of $7.3 million would have
to be realized prior to the year ended December 31, 2011 to ensure realizability
of the net operating loss carryforward prior to their expiration for federal
income tax purposes. The cumulative net operating loss carryforward, generated
from 1989 through 1996, will begin to expire in 2004 and continue through 2011.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES for the year ended December 31, 1996 increased $40.0 million to
$111.3 million, or 56.1%, from the comparable 1995 period. Net sales of custom
envelopes decreased 8.8%, or $4.8 million from 1996 to 1995. While the average
unit price for envelope sales increased 0.8%, the total number of units shipped
decreased 11.2%. The decrease in the number of envelope units shipped is the
result of a managed change in the mix of products sold and, to a lesser extent,
weak industry conditions. AmeriComm Holdings has changed the mix of products
sold in the envelope business toward value-added, higher margin products (see
discussion regarding envelope gross profits below). The increase in mailer
systems, direct mail products and custom pressure sensitive label net sales is
the result of AmeriComm Holdings' acquisition of Transkrit. Net sales for direct
mail products increased 2.3% or $0.3 million from 1995 to 1996. Net sales for
custom pressure sensitive labels increased 491.7% or $17.7 million from 1995 to
1996.
GROSS PROFIT for the year ended December 31, 1996 increased $15.6 million to
$31.1 million, or 100.6%, from the comparable 1995 period. In addition, gross
profit, as a percent of net sales, increased from 21.7% for the year ended
December 31, 1995 to 27.9% for the comparable 1996 period. The increase in gross
profit in absolute dollars and as a percent of net sales is mostly attributable
to the product lines acquired from AmeriComm Holdings' acquisition of Transkrit.
The acquired product lines of mailer systems, direct mail products and custom
pressure sensitive labels generate higher gross profit margins than the
historical product lines of AmeriComm Holdings. Gross profit for custom
envelopes remained relatively unchanged from 1995 to 1996 even though net sales
decreased 8.8%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, as a percentage of net sales,
increased from 18.8% of net sales for the year ended December 31, 1995 to 22.6%
of net sales for the comparable 1996 period. The $11.8 million increase in these
expenses is due to AmeriComm Holdings' acquisition of Transkrit on June 28,
1996. The acquired product lines from the Transkrit acquisition historically
incur a higher percentage of selling, general and administrative expenses as a
percent of net sales.
INCOME FROM OPERATIONS for the year ended December 31, 1996 was $5.9
million, or 5.3% of net sales as compared to $2.1 million or 2.9% of net sales
for the comparable 1995 period. The increase of $3.8 million of income from
operations is the result of AmeriComm Holdings' acquisition of Transkrit. The
increase in income from operations as a percent of revenues from 1995 to 1996 is
due to the
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increase in gross profit from the acquired product lines reduced by, to a lesser
extent, the increase in selling, general and administrative expenses.
EBITDA, as a percentage of net sales, increased to 11.5% for the year ended
December 31, 1996 from 8.3% for the comparable 1995 period. EBITDA for the year
ended December 31, 1996 increased to $12.8 million from $5.9 million for the
comparable 1995 period. The increase in EBITDA from 1995 to 1996 is the result
of AmeriComm Holdings' acquisition of Transkrit.
INTEREST EXPENSE for the year ended December 31, 1996 increased $4.9
million, or 153.1%, to $8.1 million from $3.2 million for the year ended
December 31, 1995 on significantly higher average debt balances for the period
ended December 31, 1996. The weighted average interest rate for the year ended
December 31, 1996 was 11.7% as compared to 13.8% for the comparable 1995 period.
The increase in the average debt balances from 1995 to 1996 is due to the
issuance of $100.0 million of AmeriComm Direct Marketing Senior Notes issued to
purchase Transkrit partially offset by the payoff and termination of the
revolving line of credit, bank long-term debt and subordinated debt outstanding
as of June 28, 1996. The weighted average interest rate decreased from 1995 to
1996 due to the lower borrowing rate of the AmeriComm Direct Marketing Senior
Notes of 11 5/8% versus 1995 long-term debt and subordinated debt stated
interest rates ranging from 10.25% to 14.0%.
INCOME TAX BENEFIT for the years ended December 31, 1996 and 1995 was $0.6
million and $1.9 million, respectively, resulting in an effective tax rate of
28% and 183% respectively. The income tax benefit recorded in 1995 is the result
of benefiting the cumulative net operating losses as of December 31, 1995
previously not recognized.
As of December 31, 1996, $10.9 million of cumulative net operating loss
carryforward benefits have been recognized based upon the expected reversals of
temporary differences into taxable income and management's estimate of taxable
income within the period prior to the expiration of the net operating loss
carryforwards.
DIMAC MARKETING
OVERVIEW
Historically, DIMAC Marketing managed its operations by the following
business units. Sales from these business units are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
JUNE 30, JUNE 26,
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
DIMAC Marketing-St. Louis....................................... $ 82.1 $ 81.6 $ 80.3 $ 42.1 $ 43.9
DIMAC Marketing-East(a)......................................... 16.8 18.0 19.6 9.9 7.5
McClure......................................................... 9.4 37.3 41.6 21.4 20.4
Palm Coast...................................................... 10.9 20.3 22.2 11.4 11.6
MBS/Multimode................................................... -- 11.0 17.4 8.5 9.9
Wilcox.......................................................... -- 10.1 11.3 6.0 7.5
DIMAC Marketing-West............................................ 10.6 10.7 -- -- --
Eliminations.................................................... (3.3) (10.6) (14.5) (7.9) (7.6)
--------- --------- --------- ----- -----
$ 126.5 $ 178.4 $ 177.9 $ 91.4 $ 93.2
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
- ------------------------
(a) Formerly Direct Marketing Group, Inc.
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Until May 1994, DIMAC Marketing's business consisted primarily of an
operations facility in St. Louis. In addition to production, DIMAC Marketing-St.
Louis offered program development services (E.G., creative development and
market planning) and information processing. Sales for 1994 were $100.0 million
and centered primarily around the AT&T account. Since 1994, DIMAC Marketing has
embarked upon a strategy to increase its offerings in St. Louis by acquiring
companies that enhanced its direct mail product offerings and by building a more
diverse client base. For the twelve months ending December 31, 1997, DIMAC
Marketing had $177.9 million in sales, a 77.9% increase over fiscal 1994.
The following table sets forth the acquisitions DIMAC Marketing has
completed since 1994:
<TABLE>
<CAPTION>
ENTITY ACQUIRED DATE EXPERTISE
- -------------------------------------- --------------- --------------------------------------------------------
<S> <C> <C>
Direct Marketing Group, Inc........... May 1994 Strategic and creative services, information processing
services, production.
Palm Coast............................ May 1995 Fulfillment/subscription management.
McClure............................... October 1995 Full complement of program development services with an
insurance and healthcare industry specialization.
Wilcox................................ March 1996 Transitional marketing services, primarily for the
banking industry.
MBS/Multimode......................... May 1996 Database marketing services, primarily to retail and
catalog industries.
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 26, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
SALES for the six months ended June 26, 1998 increased 2.0% to $93.2 million
compared to $91.4 million for the comparable 1997 six month period. Sales growth
in the first six months of 1998 was primarily due to servicing certain new
assignments, primarily at MBS/Multimode. In addition, DIMAC Marketing-East's
revenues decreased and Wilcox's revenues increased in an equal amount,
reflecting the fact that certain agency services were reclassified from DIMAC
Marketing-East to Wilcox effective January 1, 1998.
GROSS PROFIT for the six months ended June 26, 1998 increased 0.6% to $31.4
million compared to $31.2 million for the comparable period in 1997. Gross
profit as a percentage of sales decreased from 34.1% in the first six months of
1997 to 33.7% in the first six months of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the six months ended June
26, 1998 decreased 8.3% to $26.6 million compared to $29.0 million for the
comparable 1997 six month period. As a percent of sales selling, general and
administration expenses decreased from 31.7% in the first six months of 1997 to
28.5% in the first six months of 1998. The decrease in these costs is primarily
attributable to the $1.4 million decrease in amortization of intangible assets.
When DIMAC Marketing was purchased by News Corporation in August 1997, the
recorded goodwill was reduced by approximately $102.2 million and has resulted
in lower amortization charges in the subsequent periods.
OPERATING INCOME for the six months ended June 26, 1998 increased 128.6% to
$4.8 million compared to $2.1 million for the comparable 1997 six month period.
As a percent of sales, income from operations increased from 2.3% in the first
six months of 1997 to 5.1% in the first six months of 1998. The increase in
operating income is primarily due to the closure of the Hayward production
facility in 1997 (which had losses of $1.3 million in the first six-months of
1997) combined with the decrease in selling, general and administrative expenses
discussed above.
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EBITDA for the six months ended June 26, 1998 increased from $9.7 million to
$11.9 million for the comparable 1997 six month period. EBITDA as a percentage
of sales increased from 10.6% in the first six months of 1997 to 12.7% in the
first six months of 1998. The increase in EBITDA is due to the increase in
operating income.
INTEREST EXPENSE for the six months ended June 26, 1998, at $4.6 million,
was relatively stable compared to the comparable 1997 six month period.
INCOME TAX EXPENSE for the six month period ended June 26, 1998 was $0.6
million as compared to $0.0 million for the comparable 1997 period. After giving
consideration to the portion of amortization of intangibles which is
nondeductible for income tax purposes, the effective tax rates for both periods
are relatively consistent.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1996
SALES in 1997 decreased 0.3% to $177.9 million compared to $178.4 million in
1996. The decrease in 1997 sales was primarily attributable to a reduction in
program spending from DIMAC Marketing's most significant customer, AT&T. In
addition, in order to secure a longer term contract and a potential for higher
margin services, DIMAC Marketing implemented a lower pricing grid for the AT&T
account. These decreases were in part offset by increases at McClure, reflecting
the full year effect of new business generated toward the end of 1996 and the
full year effect of DIMAC Marketing's acquisition of MBS/Multimode.
GROSS PROFIT in 1997 decreased 3.8% to $60.4 million compared to $62.8
million in 1996. Gross profit as a percentage of sales declined from 35.2% in
1996 to 33.9% in 1997. This decline resulted primarily from lower pricing and
volumes from AT&T and certain other of DIMAC Marketing's customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES in 1997 increased to $54.9
million compared to $50.8 million in 1996. As a percentage of sales, selling,
general and administrative expenses increased from 28.5% in 1996 to 30.9% in
1997. The addition of sales and client service personnel contributed to the
increase along with higher commission expense. Additionally, general and
administrative expenses grew by 8.1% in 1997 versus 1996 due to a combination of
increased headcount in support functions, salary increases and higher employee
benefit costs.
OPERATING INCOME for the year ended December 31, 1997, was $5.5 million, or
3.1% of sales as compared to $12.0 million or 6.7% of sales for the comparable
1996 period. The decrease in income from operations as a percent of sales from
1997 to 1996 is due to the factors mentioned above.
EBITDA, as a percentage of sales, decreased to 11.4% for the year ended
December 31, 1997 from 13.9% for the comparable 1996 period. EBITDA for the year
ended December 31, 1997, decreased to $20.2 million from $24.9 million for the
comparable 1996 period primarily due to the pricing reduction associated with
the AT&T account, as well as increased selling, general and administrative
expenses.
INTEREST EXPENSE in 1997 increased to $8.4 million, compared to $8.1 million
in 1996.
INCOME TAX EXPENSE for the years ended December 31, 1997, and 1996, was $0.5
million and $3.7 million, respectively. After giving consideration to the
portion of amortization of intangibles which is nondeductible for income tax
purposes, the effective tax rates for both periods are relatively consistent.
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
SALES in 1996 increased 41.0% to $178.4 million compared to $126.5 million
in 1995. Sales growth in 1996 was primarily attributable to the full year effect
of DIMAC Marketing's acquisitions of several
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companies including McClure and Palm Coast Data (which were acquired in 1995 but
had full year effects in 1996) and MBS/Multimode and Wilcox (which were acquired
in 1996). These increases were offset by reductions in AT&T sales volumes at
DIMAC Marketing-St. Louis. AT&T canceled its Universal Card Program and did not
replace it with a similar program.
GROSS PROFIT in 1996 increased 43.7% to $62.8 million compared to $43.7
million in 1995. DIMAC Marketing's gross profit as a percentage of sales
increased from 34.5% in 1995 to 35.2% in 1996, largely as a result of DIMAC
Marketing's acquisitions set forth above, which carried higher gross profit
margins than the base business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased to $50.8 million in
1996 compared to $28.5 million in 1995. As a percentage of sales, selling,
general and administrative expenses increased from 22.5% in 1995 to 28.5% in
1996. This increase was due primarily to the nature of the acquired businesses,
which required greater selling expenses.
OPERATING INCOME for the year ended December 31, 1996, was $12.0 million, or
6.7% of sales as compared to $12.9 million or 10.2% of sales for the comparable
1995 period. The decrease in income from operations as a percent of sales from
1996 to 1995 is due to the factors set forth above.
EBITDA, as a percentage of sales, increased to 13.9% for the year ended
December 31, 1996, from 13.7% for the comparable 1995 period. EBITDA for the
year ended December 31, 1996, increased to $24.9 million from $17.4 million for
the comparable 1995 period. The increase in EBITDA in 1996 as compared to 1995
was attributable to a combination of the favorable impact of DIMAC Marketing's
strategic acquisitions discussed above partially offset by the discontinuation
of an AT&T Universal Card Program.
INTEREST EXPENSE in 1996 increased to $8.1 million, compared to $5.2 million
in 1995. The increase in interest expense is due to increased average borrowings
in 1996 versus 1995 to finance the acquisitions in 1995 and 1996.
INCOME TAX EXPENSE for the years ended December 31, 1996, and 1995, was $3.7
million and $4.2 million, respectively. After giving consideration to the
portion of amortization of intangibles which is nondeductible for income tax
purposes, the effective tax rates for both periods are relatively consistent.
LIQUIDITY AND CAPITAL RESOURCES OF OUR COMPANY FOLLOWING OUR ACQUISITIONS OF
AMERICOMM HOLDINGS AND DIMAC MARKETING AND THE REFINANCING
Following our acquisitions of AmeriComm Holdings and DIMAC Marketing and the
Refinancing, our debt capitalization will consist of $30.0 million aggregate
principal amount of our Notes, $100.0 million aggregate principal amount of
DIMAC Corporation Notes and a committed $270.0 million senior secured credit
facility of which $72.8 million would have been available, on a pro forma basis,
as of June 30, 1998 for liquidity requirements. The borrowings under the senior
secured credit facility and the DIMAC Corporation Notes will increase debt
service costs. The Notes will accrue interest at 15 1/2% per year and will be
payable quarterly commencing December 31, 1998. The Notes will mature on October
22, 2009. The DIMAC Corporation Notes will accrue interest at 12 1/2% per year
and will be payable semi-annually commencing April 1, 1999. The DIMAC
Corporation Notes will mature on October 1, 2008. The Notes Indenture and the
DIMAC Corporation Notes Indenture will limit our ability to incur additional
debt, to pay dividends, to redeem capital stock and to sell certain assets. We
may incur additional indebtedness as long as our Consolidated Coverage Ratio is
greater than certain minimum levels. The senior secured credit facility bears
interest at various interest rates ranging from the Reserve Adjusted Eurodollar
rate plus a margin of 2.75% to 3.50%. Loans under the senior secured credit
facility will mature from June 2004 to December 2006. Interest on our Notes is
not payable in cash until December 31, 2003. Thereafter, we will rely on DIMAC
Corporation to
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provide us with cash to meet our principal and interest payment requirements. We
believe that based on current financial performance and anticipated growth, cash
flow from operations, together with the available sources of funds including
borrowings under the senior secured credit facility, will be adequate to make
required payments of interest on our indebtedness, to fund anticipated capital
expenditures and working capital requirements and to enable us to comply with
the terms of our debt agreements. Actual capital requirements may change,
particularly as a result of acquisitions we may make, although we are not
currently contemplating any acquisitions. We expect that capital expenditures
(exclusive of acquisitions) will be approximately $15.0 to $17.0 million
annually from 1998 and 2003. We believe that these capital expenditures will be
sufficient to maintain high quality equipment and to provide additional
manufacturing capabilities and upgrades. Our future operating performance and
ability to service or refinance our Notes or the DIMAC Corporation Notes and to
extend or refinance the senior secured credit facility will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond our control.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES
AMERICOMM HOLDINGS
Net cash provided by operating activities was $5.2 million, $3.2 million,
$1.6 million and $7.1 million for the six month periods ended June 26, 1998 and
June 30, 1997 and the years ended December 31, 1997 and 1996, respectively. The
increase in cash provided by operating activities for the six month period ended
June 26, 1998 as compared to June 30, 1997 was attributable to a $3.7 million
decrease in working capital, partially offset by an increase of $1.7 million in
net loss before noncash charges. The decrease in net cash provided by operating
activities for the year ended December 31, 1997 as compared to December 31, 1996
was due to the increase in working capital of $12.5 million partially offset by
the decrease of $7.0 million of net loss before noncash charges.
Net cash used in investing activities was $10.4 million, $37.6 million,
$38.9 million and $79.8 million for the six month periods ended June 26, 1998
and June 30, 1997 and the years ended December 31, 1997 and 1996, respectively.
The decrease in net cash used in investing activities for the six month period
ended June 26, 1998 as compared to June 30, 1997 is due to AmeriComm Holdings'
acquisitions of Label America and AmeriComm Direct Marketing during 1997. The
decrease in net cash used in investing activities for the year ended December
31, 1997 as compared to December 31, 1996 is mostly due to AmeriComm Holdings'
acquisition of Label America for $9.5 million and AmeriComm Direct Marketing for
$25.0 million during the year ended December 31, 1997 as compared to AmeriComm
Holdings' acquisition of Transkrit for $79.4 million during the year ended
December 31, 1996.
Capital expenditures, excluding acquisitions (but including purchases under
capital leases), were $5.7 million, $3.3 million and $7.7 million for the six
month periods ended June 26, 1998 and June 30, 1997 and for the year ended
December 31, 1997.
Net cash provided by financing activities was $6.5 million, $33.7 million,
$36.6 million and $74.2 million for the six month periods ended June 26, 1998
and June 30, 1997 and for the years ended December 31, 1997 and 1996,
respectively. The decrease in the net cash provided by financing activities for
the six month period ended June 26, 1998 as compared to June 30, 1997 is mostly
due to the issuance of certain notes totaling $34.5 million during 1997. The
decrease in net cash provided by financing activities for the year ended
December 31, 1997 as compared to December 31, 1996 is mostly due to the issuance
of certain notes during 1996 totaling $100 million.
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DIMAC MARKETING
Net cash provided by operating activities was $2.0 million for the six month
period ended June 26, 1998 and net cash used in operating activities for the six
month period ended June 30, 1997 was $1.4 million. The increase in net cash
provided by operating activities is due primarily to the increase in operating
income as discussed above.
Net cash used in investing activities was $6.4 million and $15.1 million for
the six month periods ended June 26, 1998 and June 30, 1997, respectively. The
decrease in net cash used in investing activities is primarily due to
substantial construction activity on the facility in Central Islip, New York
during the six months ended June 30, 1997.
Net cash provided by financing activities was $4.4 million and $16.5 million
for the six month periods ended June 26, 1998 and June 30, 1997, respectively.
The decrease in net cash provided by financing activities is due to the
reduction of borrowings under revolving credit facilities as a result of the
increase in net cash provided by operating activities as described above and due
to the completion of the Central Islip facility in the fourth quarter of 1997.
As of June 26, 1998, DIMAC Marketing had $143.9 million payable to News
Corporation in the form of intercompany borrowings. As a subsidiary of News
Corporation, funding needs for fluctuations in working capital or investing
activities were satisfied through intercompany borrowings. DIMAC Marketing had
no lines of credit or committed funding sources with external lending
institutions.
Net cash provided by operating activities for the years ended December 31,
1997 and 1996, was $5.6 million and $11.5 million, respectively. The decrease in
net cash provided by operating activities is primarily a result of the decrease
in operating income discussed above, reduced by an improvement in cash provided
by working capital.
Net cash used in investing activities was $27.6 million and $45.1 million
for the years ended December 31, 1997 and 1996, respectively. The decrease in
net cash in investing activities is due to DIMAC Marketing's acquisitions of
Wilcox and MBS/Multimode in 1996, reduced by higher construction expenditures in
1997 on the Central Islip facility.
Net cash provided by financing activities for the years ended December 31,
1997 and 1996, was $21.9 million and $33.6 million, respectively. Concurrent
with the sale of Heritage Media to News Corporation, the existing credit
agreement was paid off with intercompany borrowings from News Corporation.
Capital expenditures, excluding acquisitions (but including purchases under
capital leases), were $3.2 million, $11.3 million and $21.6 million for the six
month periods ended June 26, 1998 and June 30, 1997 and for the year ended
December 31, 1997, respectively.
INFLATION AND PRICE CHANGES
We believe that inflation, exclusive of paper price increases, has not had a
material impact on our results of operations for the three years ended December
31, 1997. We have not engaged in hedges to offset changes in the cost of paper.
YEAR 2000 RISKS
We have developed plans to address our exposure in all critical information
technology ("IT") and non-IT systems to computer programs which identify years
with two digits instead of four. Such programs may recognize the year 2000 as
the year 1900. We are also assessing the year 2000 capabilities of our critical
suppliers, customers and key service providers to determine, to the extent
possible, whether our operations will be adversely impacted by such companies.
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We primarily rely on packaged software applications which are year 2000
compliant. We have either tested these applications or expect to have done so by
the end of the first quarter of 1999. We are also testing all internally
developed IT software for year 2000 compliance. We anticipate that this process
will be completed by the end of the second quarter of 1999.
We are continuing to assess all critical non-IT systems for year 2000
compliance. Non-IT systems include, among other things, manufacturing equipment,
telephone systems and heating and cooling systems. We are preparing an inventory
of all critical non-IT systems and are contacting manufacturers to determine
year 2000 compliance. We anticipate that this process will be completed by the
end of the first quarter of 1999.
As of June 30, 1998, the costs we have incurred to remedy our year 2000
conversion and the costs which we expect to incur after June 30, 1998 are
immaterial. Our year 2000 remediation effort has not postponed any IT projects
the delay of which would have a material adverse effect on our business
financial condition or results of operations.
We are not entirely year 2000 compliant at this time, but we have targeted
the end of the first quarter of 1999 to have critical business and production
process ready. Although we are striving to be completely year 2000 compliant,
year 2000 issues may still negatively affect us. Based on our progress to date,
however, we believe that such impact, if any, will not have a material adverse
impact on our business, financial condition or results of operations.
Although we have contacted critical suppliers, customers and key service
providers to determine their level of year 2000 compliance, these companies
could adversely impact our operations. The full extent of any such adverse
impact (if any) is impossible to determine. We are attempting to mitigate any
possible adverse impact by identifying alternate suppliers where possible. We
will also increase our inventory of crucial materials in anticipation of
possible disruptions.
We are developing contingency plans for all critical business and production
process. We anticipate that these plans should be completed by the end of the
second quarter of 1999.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Our business is affected by a seasonal pattern where we generate a greater
volume of sales and are more profitable in the third and fourth quarters of each
year. We experience this fluctuation because many of our larger customers are
retailers whose businesses are affected by these seasonal patterns. During 1997,
approximately 56% of our combined pro forma EBITDA, after giving effect to the
AmeriComm Holdings Acquisition and our acquisitions of AmeriComm Holdings and
DIMAC Marketing, occurred in the third and fourth quarters. Accordingly, any
adverse trend in net sales for such period could have a material adverse effect
upon our business, financial condition or results of operations.
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BUSINESS
GENERAL
Our company consists of the businesses of DIMAC Marketing and AmeriComm
Holdings. We provide a comprehensive range of direct marketing services that
emphasize cost-effective production of large, complex, highly personalized
direct mail campaigns. Through our nationwide network of 21 production
facilities, we offer our direct mail customers a wide variety of formats,
printing and converting capabilities, personalization and customization
alternatives and mailing and distribution services. We mail approximately 1.7
billion direct mail packages each year, which management believes makes us one
of the largest direct mailers in the United States.
To complement and drive our production volume and to attract higher margin
business, we offer a complete range of pre- and post-production direct marketing
services such as:
- information services (information processing and database management);
- program development services (strategic market planning, creative
development and program evaluation); and
- fulfillment and telemarketing services (fulfillment, telemarketing and
tracking).
In addition, to support our direct marketing products and services, we offer
other printing and converting products such as custom pressure sensitive labels
and custom mailers. For the twelve-month period ended June 30, 1998, on a pro
forma basis after giving effect to our acquisitions of AmeriComm Holdings and
DIMAC Marketing, the Refinancing and the Cardinal Acquisition, we would have had
net sales and EBITDA of $384.4 million and $56.8 million, respectively. See
"DIMAC Holdings Unaudited Pro Forma Financial Statements."
Our ability to provide comprehensive direct mail products and services
affords our clients "one-stop shopping" and the flexibility to tailor campaigns
to reach specific target audiences. We can work with our clients from initial
conception through production, tracking and analysis, including:
- creating a direct mail advertising campaign;
- precisely targeting a specific customer or prospect list;
- producing and distributing the mail packages; and
- tracking and reacting to customer responses.
Clients also benefit from our ability to provide the most timely and
cost-efficient point-of-entry into the United States Postal Service distribution
network facilitated by on-site Postal Service substations located in most of our
production facilities and by our extensive experience with strategic
distribution of mail. In our St. Louis production facility, we have been granted
"Optional Procedures" by the Postal Service, a designation granted to fewer than
1% of all mailers in its postal region. This designation allows us to process
mail more quickly into the postal system resulting in faster delivery and,
consequently, faster response activity for clients. With this broad range of
capabilities, we provide our clients with cost-effective, single-source
solutions for their direct mail requirements.
We primarily target companies that have sophisticated, mid- to high-volume
direct mail requirements. We serve clients in a broad range of industries,
including banking and financial services, telecommunications, publishing,
retail, healthcare, not-for-profit and insurance. Our top 20 clients, which
would have comprised 32.2% of 1997 pro forma net sales after giving effect to
the AmeriComm Holdings Acquisitions, our acquisitions of AmeriComm Holdings and
DIMAC Marketing, and the Refinancing, on average have been purchasing products
or services from us for over eight years.
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DIRECT MAIL INDUSTRY
Direct mail advertising is the second largest segment of the direct
marketing industry. Direct mail expenditures increased from $25.4 billion in
1992 to $37.4 billion in 1997, a compound annual rate of 8.0% and industry
sources forecast that direct main expenditures will grow to $51.0 billion by the
end of 2002, a compound annual rate of 6.4%.
Direct mail is often regarded as more effective than other forms of mass
advertising, such as television, newspapers, and magazines, because it can be
specifically directed to a target market and the responses can be analyzed. This
allows us to refine continually a direct mail program to increase its
effectiveness. Companies use direct mail for a variety of purposes, including
attracting new customers, enhancing existing customer relationships and
exploring market potential for new products and services.
The direct mail industry is highly fragmented, with relatively few national
providers capable of comprehensive direct mail marketing. Management believes
the fragmentation of the direct mail industry coupled with continued customer
outsourcing and expectations of single-source, cost-effective direct mail
solutions provide a competitive advantage for national full service providers
such as ourselves.
RATIONALE FOR THE ACQUISITION; BUSINESS STRATEGY
We believe that the combination of DIMAC Marketing and AmeriComm Holdings
creates a unique platform for increasing the profitability and growth of our
business. These acquisitions combine DIMAC Marketing's strengths in creative
development, database services and high-volume lettershop and mail services with
AmeriComm Holdings' strengths in printing, converting and specialized product
development. We offer a comprehensive range of direct mail products and services
that address all aspects of a client's direct mail campaign from initial
conception through production, tracking and analysis. By providing this
comprehensive range of products and services, we believe we are strategically
positioned to capitalize on customer trends towards outsourcing and our
customers' preference for doing business with fewer suppliers.
The combination of DIMAC Marketing and AmeriComm Holdings will provide us
with immediate cost-savings totaling over $8.0 million. The savings will result
from:
- consolidation of redundant facilities;
- rationalization of duplicative head office and operating unit functions;
- in-sourcing of certain product requirements; and
- reduction of certain overhead expenditures.
Furthermore, we expect to realize additional margin-enhancement by:
- relocating certain production equipment to improve capacity utilization;
- procuring raw materials in more cost-effective quantities; and
- sharing certain technological and software capabilities.
For more informaiton see "DIMAC Holdings Unaudited Pro Forma Consolidated
Statements of Operations."
Our business strategy is to enhance our competitive position and to increase
net sales and profitability through the following initiatives:
EMPHASIZE COMPREHENSIVE DIRECT MAIL SOLUTIONS. The ability to provide
"one-stop shopping" for all of their direct mail needs is an increasingly
important factor in clients' selection of a direct mail service provider. We are
well-positioned to offer clients "one-stop shopping" because of our
comprehensive range of direct mail products and pre- and post-production
services. This range of services allows us to
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cross-sell products and services to customers who previously purchased them from
third parties (such as selling DIMAC Marketing creative development services to
an AmeriComm Holdings printing client). In addition, our broad range of
capabilities allow us to in-source products previously purchased from
third-party suppliers (such as DIMAC Marketing using AmeriComm Holdings-produced
envelopes for a client's direct mail campaign instead of purchasing these
envelopes from a third party). In order to ensure that we continue to offer
comprehensive solutions, we intend to enhance our product and service offerings
by targeted investments in new equipment, new product development and the
acquisition of complementary or niche capabilities. Management believes as a
"single source" supplier offering comprehensive solutions, we will save our
clients both time and money.
LEVERAGE LARGE SCALE AND NATIONAL PRESENCE TO ATTRACT NEW HIGH VOLUME,
NATIONAL CLIENTS. The size and scope of a direct mail company's operations are
increasingly important factors for large, national accounts in the selection of
a direct mail service provider. National accounts often have multiple and
complex campaigns requiring access to multiple distribution points. Few of our
competitors have comparable capabilities and scale to service and support these
national, high volume accounts. Based on our previous experience in securing
national business from companies such as AT&T, The Chase Manhattan Bank and
American Express, we believe that we can further leverage our strong franchise,
large scale, wide breadth of operations and national presence to secure new high
volume, high margin business.
REALIZE BENEFITS FROM INTEGRATION. We believe a number of our initiatives
present additional margin-enhancement opportunities. These initiatives include:
- in-sourcing certain product requirements;
- relocating certain production equipment;
- procuring raw materials on a combined basis; and
- sharing certain technological and software capabilities.
For example, relocating certain DIMAC Marketing offset printing equipment to
an AmeriComm Holdings facility is expected to lower overall costs and enable us
to better coordinate the production of several pieces of a single direct mail
campaign. In addition, DIMAC Marketing expects to capitalize on specialized
AmeriComm Holdings information systems which allow more effective monitoring of
the production process, and, in turn, facilitate higher productivity with lower
waste.
PURSUE STRATEGIC ACQUISITIONS. The trend towards consolidation in the
highly fragmented direct marketing industry provides opportunities for continued
growth through selected strategic acquisitions. We intend to pursue potential
acquisitions that:
- complement our product offerings;
- increase our production capabilities;
- provide entry into new markets;
- expand our customer base; or
- create new cross-selling opportunities.
PRODUCTS AND SERVICES
We offer our customers comprehensive direct marketing services, including
production services, information services, program development services and
fulfillment and telemarketing. We also offer other printing and converting
services, including custom pressure sensitive labels and custom mailers. This
broad array of products and services enables us to control all aspects of a
direct mail campaign
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and provide our customers with a variety of cost- and time-effective solutions
for their direct mail requirements.
The following table sets forth the pro forma 1997 net sales of our principal
product lines after giving effect to the AmeriComm Holdings Acquisitions and our
acquisitions of AmeriComm Holdings and DIMAC Marketing:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
PRO FORMA 1997 PRO FORMA 1997
NET SALES NET SALES PRODUCTS/SERVICES OFFERED
--------------- ----------------- ----------------------------------
<S> <C> <C> <C>
(IN MILLIONS)
DIRECT MARKETING
Production services........................... $ 187.9 48.6% Web and sheet offset printing
Envelope converting
Complex personalization
Bindery services
Lettershop services
Information services.......................... 35.1 9.1 Data entry and file processing
Database management
List rental
Analytical services
Program development services.................. 27.3 7.0 Marketing, strategic, creative
and client services
Transition marketing
Database and decision support
Television production
Targeted list services
Broadcast, print and insert
media
41.7 10.8 Subscription management
Fulfillment and telemarketing services........
Fulfillment services
Remittance processing
Telemarketing
Tracking
------ -----
Subtotal...................................... 292.0 75.5
------ -----
OTHER PRINTING AND CONVERTING
Custom pressure sensitive labels.............. 51.0 13.2 Flexographic custom labels
Thermal/laser labels
Short-run labels
Custom mailers................................ 43.7 11.3 Impact mailers
Non-impact mailers
------ -----
Subtotal...................................... 94.7 24.5
------ -----
TOTAL....................................... $ 386.7 100.0%
------ -----
------ -----
</TABLE>
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DIRECT MARKETING (75.5% OF 1997 PRO FORMA NET SALES)
We provide comprehensive direct marketing services to our clients, including
production services, information services, program development services and
fulfillment and telemarketing services.
[LOGO]
PRODUCTION SERVICES. Our range of production services allows us to provide
a variety of formats and direct mail package designs to meet each customer's
direct mail marketing needs. Pro forma for our acquisitions of AmeriComm
Holdings and DIMAC Marketing, we produce over 3.7 billion direct mail pieces per
year. These pieces (other than those sent to other mailers, such as catalog
binderies, for ultimate mailing), together with pieces received from third
parties, are collated and assembled into the approximately 1.7 billion direct
mail packages we mailed last year. This mailing volume ranks us as one of the
largest direct mail companies in the United States.
PRINTING AND CONVERTING. We print direct mail materials on our own
presses which include multi-color heat-set and non heat-set webs as well as
a broad range of two-, four- and five-color
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sheet-fed presses and Halm envelope presses. Our extensive bindery equipment
allows us to produce a variety of self-mailer and traditional envelope
package formats to fulfill our clients' direct marketing needs.
We are capable of producing and printing a wide variety of envelopes.
Our equipment allows us to print and fold on high-speed web machines or
print envelopes in full color and convert (i.e., fold paper into envelopes)
after printing. Product capabilities range from simple one-color direct mail
envelopes to complex remittance envelopes, film mailers and file-folder
products. Accordingly, we can satisfy almost all of the envelope needs of
our clients.
PERSONALIZATION. We use state-of-the-art personalization technologies,
including a wide range of laser printers and ink-jet systems, to personalize
our clients' direct mail packages. These technologies enables us to
personalize the broadest possible array of direct mail products including
letters, envelopes, labels, order forms, inserts, applications and other
components of direct mail packages to ensure optimal response rates for our
clients.
MAILING. We use a wide range of systems and software, much of it
proprietary, to sort and distribute mail in ways that maximize postage
discounts while minimizing delivery times. Our production operations allow
for high-speed inserting, stamping or metering of multiple sizes and
configurations of direct mail pieces. In most of our production facilities,
an in-house Postal Service substation accepts the mail, which expedites the
mail through the postal system. Our "Optional Procedures" designation in the
St. Louis facility eliminates the need to weigh mail before it enters the
postal system, reducing our cost for this labor-intensive and time-consuming
process.
INFORMATION SERVICES. The goal of our information services division is to
use sophisticated data analysis and manipulation to support direct mail
marketing strategies. Advanced data management capabilities are an integral
element in transforming generic mass-marketing campaigns into complex, targeted,
highly personalized direct mail programs. We use our experience and capabilities
to service our customers in a variety of ways ranging from the development and
implementation of customized databases to processing each customer's direct mail
program for maximum deliverability. In addition, we monitor consumer responses
to measure the effectiveness of the direct mail program against client goals and
can capture this information for future client use.
In general, we provide our information services by developing, managing, or
amending databases for discrete direct mail campaigns and then assisting our
clients in evaluating the effectiveness of the mailing by analyzing response
data according to various criteria.
INFORMATION PROCESSING. Generally, our information processing function
begins with mailing databases. We use several kinds of databases in
developing targeted mailing lists for our clients, including:
SPECIALIZED CLIENT DATABASES provided by the client and based on its
customers, subscribers or other information.
RESIDENTIAL ADDRESS DATABASES, which comprise all deliverable
addresses in a given geographic area. We own a residential address
database comprising approximately 39% of the deliverable addresses in the
continental United States. In addition, through our membership in the
National Association of Advertising Distributors (the "NAAD"), we have
access to the remainder of the U.S. residential addresses. We are the
largest owner of the NAAD database.
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COMPILED NAME DATABASES, which attach names to residential addresses.
We do not own any of these databases and pay fees to database compilers
to use them. In general, these databases are based on the local white
page listings.
We are able to merge different databases and purge them of duplicative
addresses or addressees, as well as to remove from outdated customer
databases addresses or addressees that are no longer valid. These abilities
enable us to minimize postage costs for our clients.
DATABASE MANAGEMENT. We also help our clients analyze response data to
their campaigns. In some situations, we will provide this analysis to our
clients by tracking responses based on data such as coupon use or response
rate in the form of customized reports. In other situations, clients will
use our desktop data access tool, Klondike, which allows clients to perform
ad hoc and complex queries to analyze data, to refine their own direct mail
strategies. Klondike is a relational database designed to hold all
transaction data, generally for retail stores. Since we house the data, it
ties us closely to our clients, and creates cross-selling opportunities. In
addition, this data feeds back into our program development and other
information processing units.
We believe that the most effective direct mail campaigns mix-and-match among
these database sources using relational database technology to create a mailing
list comprising addresses which meet a number of criteria. In addition, we
append other demographic data such as age, gender, income level, car ownership,
and other lifestyle and demographic data to these databases, creating a target
audience that meets the client's needs.
We believe that AmeriComm Holdings and DIMAC Marketing's information
services capabilities are highly complementary. AmeriComm Holdings has focused
on sophisticated manipulation of residential databases by appending demographic
data which allows targeted, address-based mailings, whereas DIMAC Marketing has
focused on individual customer data for clients, which allows for very specific
mailings directed at individuals. Both types of mailings can be effective and
useful to clients, and often the same client will use different strategies in
different situations.
PROGRAM DEVELOPMENT SERVICES. We provide strategic planning and full-scale
direct response agency services to help clients develop their brands and
increase their sales. In the initial stages of a client's direct marketing
program, our marketing professionals analyze a client's business objectives,
formulate strategies, identify target markets defined by demographic,
psychographic, and behavioral criteria, devise compelling, measurable offers,
and develop creative concepts, all in support of our clients' overall marketing
goals. Our creative department refines the marketing messages and designs and
writes the communications to achieve maximum impact. Our research and media
departments play an integral role in this process, providing list and media
recommendations to target high-potential buyers, and formulating statistically
valid testing plans.
Our program development services include strategic market planning, creative
development and program evaluation.
STRATEGIC MARKET PLANNING: In the initial stage of the development of a
customer's direct mail program, our strategic planning professionals analyze
the market situation and business goals, identify a customer's objectives,
establish a program's goals and identify a target market. Depending on our
client needs, we then develop a marketing or communications plan and media
plan, encompassing mail and other media as appropriate.
CREATIVE DEVELOPMENT: Creative services range from developing the
overall strategies and concepts for an entire program to creating the
specific copy, layout and art work for a single direct mail piece. We use
advanced graphic arts technology to create high quality "proofs" that can be
repeatedly and rapidly revised for a highly flexible yet cost-effective
product. Further, we have developed our use of this technology so that the
direct mail piece can be directly transmitted from
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the "proof" stage to the print stage without the cost and time that were
previously required for such revisions, enabling customers to re-define or
re-focus their campaign prior to its launch.
PROGRAM EVALUATION: Our media and research professionals are involved
throughout the design, production and execution of the client's message. At
the start of a program, these professionals assist the identification of
potential consumers through the use of qualitative research such as focus
groups and in-depth interviews, as well as quantitative research such as
customer and product segmentation analyses. These professionals then provide
list and media recommendations that identify the most appropriate target
market. Additionally, these professionals are typically involved in
designing and coordinating a pre-test of a direct mail campaign to measure
its effectiveness.
The range of our services can be illustrated by a program developed for The
Chase Manhattan Bank. In February 1996, Chase appointed us to coordinate
communications with customers of the newly acquired Chemical Bank. We carried
out a detailed impact assessment of the transaction on customers of both banks,
recommended a coherent communication program and developed creative layouts and
art work, which when printed, was mailed to four million Chase and Chemical Bank
customers. We worked closely with marketing executives at Chase and Chemical
Bank to understand their product lines in order to create messages targeted to
particular customers according to their specific combination of accounts and
product needs. In order to ensure accurate targeting, we worked closely with the
information services group to import the customer account databases of Chase and
Chemical Bank and to map the overall communication program to each customer.
Finally, we sent numerous follow-on mailings to ensure a smooth transition for
all customers.
FULFILLMENT AND TELEMARKETING SERVICES. We offer a wide array of
fulfillment and telemarketing services to meet the needs of our clients. We
design and operate customized fulfillment programs for clients that involve
sending samples, literature and coupons to those customers who have responded to
a solicitation. We also provide a broad range of fulfillment and invoice,
subscription and renewal processing services for the publishing industry and
provide inbound and outbound telemarketing services.
FULFILLMENT. We offer fulfillment services primarily from our St. Louis
and Palm Coast locations. In St. Louis, these services include distribution
of premiums (i.e., gifts) and negotiable instruments such as checks and
certificates in as many as ten different languages. In addition, we
specialize in rapid processing, and have the ability to turn around a
project in as little as twelve hours.
In Palm Coast, we provide a full range of fulfillment services to
magazine publishing clients including receiving and opening subscriber mail,
entering transaction data and storing and retrieving that data on a
mainframe system. We also handle over 2.5 million inbound fulfillment calls
annually, ranging from customer inquiries to address changes. In addition,
we have recently developed an internet capability, enabling our clients to
fill orders over the world-wide web, and have developed modeling
capabilities, enabling magazine publishers to anticipate subscriber
attrition, analyze means of reducing subscriber defections and replace lost
subscribers based on historical tendencies.
TELEMARKETING. We provide clients with in-bound and out-bound
telemarketing in support of their marketing programs, including sales
support and customer service applications. Our telemarketing services are
specifically dedicated to consulting, training, developing and managing
telemarketing programs for clients nationwide. We also provide on-site
programs for auditing the effectiveness and efficiencies of existing
telephone and sales programs.
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In 1995, we created American Teledirect ("ATD"), a full-service
telemarketing center located in Houston, Texas. ATD maintains 72 work
stations, and features highly-trained service representatives. ATD's
telephone sales representatives, many of whom are licensed insurance agents,
are equipped to handle customer service calls and to place follow-up calls
to recipients of direct mail solicitations. In addition, we operate a
telemarketing center in Clifton, New Jersey. This facility supports a range
of our direct mail campaigns.
TRACKING. We have complemented our fulfillment and telemarketing
services with a tracking system which enables us to monitor and review the
effectiveness of our direct marketing campaigns via telephone, internet, fax
or mail. We leverage our tracking services as a means of generating
additional long-term revenue by using the tracking results to create new
campaigns and refine existing campaigns.
OTHER PRINTING AND CONVERTING (24.5% OF 1997 PRO FORMA NET SALES)
We also manufacture and sell custom pressure sensitive labels and custom
mailers which complement and support our direct marketing products and services.
These production activities also provide incremental benefits to our direct mail
manufacturing activities through increased raw material purchasing leverage,
graphic pre-press support and printing technology transfer.
CUSTOM PRESSURE SENSITIVE LABELS. We are one of the largest producers of
custom pressure sensitive labels in the United States. The U.S. pressure
sensitive label market is estimated at $3.7 billion in 1997. Its growth has been
driven primarily by the advantages that pressure sensitive labels have over
traditional glue-applied labels, such as reduced wrinkling and superior adhesion
and durability. Pressure sensitive labels have a variety of end-use purposes,
including grocery shelf marking, product identification and distribution bar
coding. Pressure sensitive labels are also widely used as components and
enhancements of direct mail pieces. For example, one of our largest label
customers uses high quality pressure sensitive return address labels as a
premium component of a direct mail package.
Our custom pressure sensitive label products are offered in three
categories--short-run orders, catalog sales and large custom orders. Short-run
orders are typically turned around in a 24-hour time frame and usually include
basic labels with one or two plain colors, a limited number of inks and base
label materials. These are primarily sold to quick printers such as Sir Speedy
Printing, Kwik Copy, Minuteman Press and Kinko's. We also produce labels which
are offered in sales catalogs in combinations of predetermined sizes, colors,
materials, and inks, and are generally processed in less than five days. Large
custom orders can be produced in any quantity, design, color, size or material
that the customer requires. In addition to our flexographic labels, we have
introduced a line of stock thermal and laser labels which are two of the fastest
growing products in the label industry. Thermal and laser labels are used for a
wide variety of applications from baggage tags to labeling of grocery products.
Through our relationship with market leaders such as Winn-Dixie and Sysco and
our innovative products, we have become a recognized participant in the retail
shelf label market.
CUSTOM MAILERS. We compete in the U.S. mailer market, which includes both
impact and non-impact mailers and integrated labels. Impact mailers are
ready-to-mail, multi-part spot carbon or carbonless forms which are widely used
to print account statements, invoices, tax notices and utility bills as well as
a range of other applications, and can be printed without opening or sealing the
envelope. Our technology and unique equipment allow us to manufacture some of
the most complete and the most complex impact mailers in the industry.
Management believes that we have a significant competitive advantage because of
our research and development efforts which have produced a number of patented
products. In addition, many of our custom mailer customers are increasingly
seeking to outsource the personalization of these forms. This desire leads to
opportunities for us to cross-sell our direct mail services including
personalization, printing and lettershop services.
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In addition to multi-part custom impact mailers, we also produce and sell a
proprietary line of single sheet non-impact mailers under the trademark
InfoSeal-Registered Trademark-, which are used in conjunction with laser
printers. Non-impact mailers are laser printer compatible self-mailer forms
which are printed, folded, sealed and mailed for such applications as payroll
checks, direct deposit statements, vendor remittances, invoice statements, and
university grade reports. In addition to marketing non-impact mailer products,
we also market a range of patented folding and sealing machinery. Unlike
competitive products, our InfoSeal-Registered Trademark- technology allows us to
customize our mailers with additional functions and colors, such as windows,
tipped-on cards, personalization, high-color, and blown-on labels. An example of
this is a new line of "ID card" applications, which is a technology that allows
cards to be attached to a one-piece mailer, and then printed with a laser
printer.
Since the early 1990s, the impact mailer market has decreased in size due to
the rapid growth of laser, ink-jet and other non-impact printers which are not
compatible with impact mailers. We expect the non-impact market to continue to
grow more rapidly than impact mailers over the next several years due to their
ease of use and simplicity for a variety of applications. Accordingly, we have
re-focused our product mix on higher growth, non-impact mailers.
Integrated labels are manufactured by combining a custom paper form and a
self-adhesive label. The integrated label system replaces two or more separate
documents, which provides a significant cost advantage to customers, and has a
wide range of applications. We have invested in technology which will allow us
to capitalize on the expected growth of integrated labels. Major customers of
this technology include FAO Schwarz, J. Crew and Rite Aid.
SALES AND MARKETING
DIRECT MARKETING
We market our direct marketing capabilities to customers in a number of
ways. First, each of our divisions typically employs a full complement of sales
professionals whose primary responsibility is to sell the direct marketing
services provided by that division. These account representatives also provide
us with broader opportunities to sell our other direct marketing services. We
expect that these opportunities will increase due to our wider breadth of
capabilities after giving effect to our acquisitions of AmeriComm Holdings and
DIMAC Marketing.
In addition to these significant divisional resources, we have a growing
number of professionals primarily responsible for aggressively pursuing national
accounts that require multiple products and services. These individuals actively
cross-sell all of our direct marketing capabilities, emphasizing the potential
for increased cost effectiveness, reliability and control which result from
supplying multiple services from a single source.
In order to support the divisional and national sales representatives, we
have developed a centralized sales support unit which prices and processes
orders which include a combination of products and services. Once product
specifications have been determined, the unit then monitors and coordinates all
aspects of the execution of the campaign. In addition to relieving the sales
force from certain administrative functions, this unit also acts as a customer
service center which works directly with customers to close sales, provide
updates on the progress of campaigns and respond to customer inquiries. We
currently have one such center but intend to establish one or more additional
units as necessary to ensure a high level of customer service and sales support.
OTHER PRINTING AND CONVERTING
CUSTOM PRESSURE SENSITIVE LABELS. Our label business division sells
approximately 42% of its sales directly to customers using a dedicated sales
force which focuses on larger companies such as Winn-Dixie, Polaroid and USA
Today. The remainder of our pressure sensitive label sales are to independent
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distributors through regional sales managers based in Atlanta, Boston, Chicago,
Dallas, Philadelphia and San Francisco. In addition, the business unit has a
telemarketing team that supports sales of custom pressure sensitive labels.
Our label marketing organization focuses primarily on marketing to
distributors through trade show attendance (approximately 65 per year), trade
publications advertising, and direct mail campaigns.
CUSTOM MAILERS. The custom mailer business unit sells to more than 3,000
accounts in the independent distributor market. Senior sales representatives are
responsible for calling on the largest custom mailer distributors while a
telemarketing team is responsible for calling on smaller distributors. The
telemarketing team also supports the senior sales representatives by following
up with customers on price quotes and securing orders.
Custom mailer marketing activities are centered in a marketing department
which is used jointly by both the mailer and direct mail businesses. The
marketing activity primarily consists of developing and launching new products,
distributing samples, developing education and training programs, supporting
approximately 30 trade shows per year, conducting product seminars, creating and
placing advertising in trade publications, and distributing monthly newsletters.
In addition, over the last several years, we have entered into several
marketing alliances which have resulted in new opportunities. Alliances with
Wallace Computer Services and Xerox have opened up additional channels of
distribution, have led to new customer relationships, and have created
significant potential for our non-impact mailer and ID-card products.
CLIENT BASE
Over time, we have built solid relationships with key customers across all
of our products and services. For our direct mail products and services, we
primarily target companies that have sophisticated, mid- to high-volume direct
mail requirements. In other printing and converting services, we primarily
target larger national accounts and independent distributors.
We provide services to clients in a broad range of industries, including
banking and financial services, telecommunications, publishing, retail,
healthcare, not-for-profit and insurance. We generally enjoy long-standing
relationships with customers including AT&T, American Express, The Chase
Manhattan Bank, NationsBank, Time Warner, Bloomingdales, Macy's, Blue Cross/Blue
Shield and approximately one-half of all of United States public television
stations.
On a combined basis, after giving effect to the AmeriComm Holdings
Acquisitions, our acquisitions of AmeriComm Holdings and DIMAC Marketing, and
the Refinancing, we estimate that our pro forma 1997 net sales were realized
from the following customer industries:
<TABLE>
<CAPTION>
% OF 1997
CUSTOMER INDUSTRY PRO FORMA NET SALES
- ------------------------------------------------------------------------- ---------------------
<S> <C>
Banking and financial services........................................... 20%
Publishing............................................................... 17%
Retail and catalogue..................................................... 15%
Healthcare............................................................... 13%
Telecommunications....................................................... 10%
Not-for-Profit........................................................... 8%
Insurance................................................................ 6%
Other.................................................................... 11%
-----
Total................................................................ 100%
-----
-----
</TABLE>
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Our largest customer, AT&T, which would have comprised 8.6% of 1997 pro
forma net sales after giving pro forma effect to the AmeriComm Holdings
Acquisitions, our acquisitions of AmeriComm Holdings and DIMAC Marketing, and
the Refinancing, has been purchasing products and services for over thirteen
years. Over this thirteen year period, our relationship with AT&T has developed
such that we now produce 37 independently managed campaigns within AT&T. No
other customer accounted for more than approximately 5% of 1997 pro forma net
sales, after giving effect to the AmeriComm Holdings Acquisitions, our
acquisitions of AmeriComm Holdings and DIMAC Marketing, and the Refinancing.
Furthermore, our top 20 clients, which would have comprised 32.2% of 1997 pro
forma net sales, after giving effect to the AmeriComm Holdings Acquisitions, our
acquisitions of AmeriComm Holdings and DIMAC Marketing, and the Refinancing,
have been purchasing products or services from us for over eight years on
average.
COMPETITION
Given our diverse and full-service production capabilities, there are few
true competitors for every service offered. Many of our competitors offer one or
more services that are similar to those we offer, but few offer the same
comprehensive range of direct marketing services.
DIRECT MARKETING
PRODUCTION SERVICES. Competitors range from smaller, single-plant
operations that provide individual products or services (such as printing,
binding or lettershop capabilities), to larger ones which offer a greater
breadth of products or services. Management believes that few other companies
offer the range of direct mail products and services that we offer in our
production services business unit.
Certain production services competitors include Harte-Hanks, North American
Communications, Moore, CCI, Fala Direct, Webcraft, Wallace, World Color,
Quebecor and R.R. Donnelley.
INFORMATION SERVICES. Our information processing services most closely
compete with Advo, Anchor Computer, Direct Tech and Triplex. Our database
processing services compete most directly with Harte-Hanks, Epsilon and Acxiom
(including May & Speh, which Acxiom recently acquired). Few information services
competitors have a breadth of direct mail capabilities comparable to ours.
PROGRAM DEVELOPMENT SERVICES. Our program development services most closely
compete with direct response agencies such as Blau, Wunderman, Ogilvy One, Gray
Direct, Bronner & Schlossberg and Devon Direct. These competitors offer services
that are similar to ours in terms of program development but generally
sub-contract the production, information services and fulfillment and
telemarketing services.
FULFILLMENT AND TELEMARKETING SERVICES. Our fulfillment services most
closely compete with Neodata, CDS and Kable. Our telemarketing services most
closely compete with APAC, Sitel, West Telemarketing, ICT and TeleSpectrum.
OTHER PRINTING AND CONVERTING
CUSTOM PRESSURE SENSITIVE LABELS. We and our competitors sell products
directly to end-use customers or through independent distributors. The major
competitors that sell custom pressure sensitive labels directly to end-users
include Standard Register, Moore and Wallace Computer Services. These companies
generally produce commodity labels in addition to custom pressure sensitive
labels. With respect to custom pressure sensitive labels sold through
independent distributors for resale, major competitors include Discount Labels,
Data Labels, Continental Datalabel, Rittenhouse and Lancer Label. Other
competitors in this channel are typically smaller regional and privately-owned
operators with a single production facility.
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CUSTOM MAILERS. We sell custom mailers to independent distributors for
resale to end-users. Our main competitors in the independent distributor market
include Poser Business Forms, Goodwin Graphics and Perry Printing Company, none
of which have a product breadth similar to ours. Large manufacturers, which
include Wallace Computer Services, Moore and Standard Register, dominate the
direct channel. These manufacturers generally offer a full range of business
form products and supplement their product offering with mailers produced by
third parties including us. Other competitors are smaller companies that have
recently introduced pressure seal self-mailer products to the distributor
channel.
Our ability to produce large and medium-size runs in custom mailers gives us
a capacity and pricing advantage when compared to those competitors who sell to
distributors. This advantage results from distributor demand being heavily
concentrated in smaller run sizes made on narrow web presses.
SUPPLIERS
We have a broad base of high quality, national suppliers. Our primary raw
materials are uncoated, coated and specialty papers, plastic films, inks and
adhesives. Paper products of a variety of types represent our single largest
category of raw materials. We have had long-term relationships with most of
these suppliers, which provides for reliability in supply and competitive
prices. Our top ten suppliers include Fasson, International Paper, Union Camp,
Georgia-Pacific, Schweitzer-Maudit, Shaughnessy-Kniep-Hawe, Appleton Papers,
Boise Cascade, UniSource and Intelligence Print. Fasson is the only supplier
from whom we purchased more than 10% of our total 1997 supplies.
While paper represents a large component of material expense and overall
cost, we mitigate the effects of paper price increases through pricing
conventions and purchasing strategies. Long-term customer contracts under which
we supply our products generally include escalator clauses under which price
changes are passed on to the customer. Another strategy employed is obtaining a
commitment for a specific tonnage of paper at a predetermined price, which is
designed to match the price charged to a customer, thereby eliminating our
exposure to such price fluctuations. Additionally, a significant percentage of
the paper we purchased (e.g., carbonizing bond and pressure sensitive label
stock) is not subject to the same price fluctuations experienced in the more
cyclical uncoated free sheet paper market.
MANUFACTURING
DIRECT MARKETING
PRINTING AND CONVERTING. We print direct mail products on a wide variety of
web and sheet offset presses in six different facilities. These include fourteen
web offset presses, five of which utilize ultraviolet drying units for high
color applications. We also run four high volume heat set web offset presses
which have integrated finishing equipment in line. Finally, we operate 11
sheetfed offset presses, including a state-of-the-art Komori press in our St.
Louis facility.
Envelope converting equipment includes eight high speed web and more than 40
die cut envelope printing and folding machines in three facilities located in
the eastern United States. These plants also include a variety of support
equipment such as programmable die cutters, label affixing units and finished
envelope printers.
We also operate 18 forms collators, including five in our Roanoke, Virginia
plant which are virtually dedicated to direct mail applications. A recently
installed new off-line finishing line will convert offset printed materials into
direct mail pieces, thereby increasing our capacity and flexibility to respond
to requests for short-to-medium run complex self mailers.
PERSONALIZATION. We personalize mail in eight production facilities and
through a number of technologies. These technologies include sheet fed and
continuous laser, inkjet and impact printing and ion
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deposition lasers. In total, we operate in excess of 80 different pieces of
personalization printing equipment.
MAILING. Consistent with the personalization capabilities noted above, we
provide mailing services in eight plants. These services include high speed
letter inserting, stamping or metering of multiple sizes and configurations of
direct mail pieces. We perform bindery operations, which are not typically
required for in-line formats such as self-mailers, in six facilities. These
services include equipment such as folders, bursters and document converters. We
also have the ability to pre-sort commingled mail in our Norfolk, Virginia
facility.
OTHER PRINTING AND CONVERTING
CUSTOM PRESSURE SENSITIVE LABELS. We produce pressure sensitive labels in
four plants located strategically throughout the United States. All of these
plants are equipped with flexographic presses and have unique, customized
letterpress equipment designed to cost-effectively produce labels in small order
quantities with quick turnaround. We operate 26 high-speed flexographic presses,
including two presses purchased in 1997. These presses range in size from 6.5"
to 18" in width and print in two to eight colors. A number of these presses can
produce true process printing and are equipped with in-line hot foil stamping
units. In addition to the high speed printing capability, we have ten smaller
customized presses which can be utilized for shorter runs with fewer colors.
CUSTOM MAILERS. We produce custom mailers in two plants. Our Ft. Smith,
Arkansas plant is dedicated to this product line while our Roanoke, Virginia
plant utilizes its equipment base for both direct mail and mailer products.
Together, these plants include 21 web offset printing presses ranging in width
from 20.5" to 30.5". Printed rolls from these presses are then further converted
in multi-ply mailer sets on one of eighteen high-speed collators or into the
proprietary laser-compatible non-impact mailer on one of five converting lines.
Additional major pieces of equipment include three MICR routing encryption lines
and two integrated label lines, one of which was purchased in 1997.
Both the custom pressure sensitive label and custom mailer product lines are
supported by state of the art pre-press and printing platemaking equipment. The
hardware architecture for our pre-press systems is primarily Macintosh. We
utilize a wide range of popular image manipulation and color separation
software.
FACILITIES
At June 30, 1998, we operated 35 manufacturing, warehouse, sales,
distribution and administrative facilities in the U.S. located in 14 states with
a total floor area of approximately 1,714,000 square feet. Of this total floor
area, approximately 619,000 square feet are owned and approximately 1,095,000
square feet are leased under leases expiring from 1998 through 2011.
EMPLOYEES
As of June 30, 1998, we employed approximately 4,000 people. Approximately
3,000 people work in manufacturing facilities, 525 work in sales/service
functions, 470 work in administration and eight work in corporate functions. As
of June 30, 1998, 108 employees of our 800 employees in our St. Louis facility
were represented by the Graphic Communications International Union ("GCIU"). The
current GCIU contract expires in October 1999. In the summer and fall of 1997,
the GCIU attempted to organize approximately 175 mail plant employees in the St.
Louis facility. The GCIU initiative was defeated in December 1997. A similar
initiative was defeated in 1993, when the GCIU attempted to organize the
information services department in the St. Louis facility. We believe our
relations with employees are good but there can be no assurances that the GCIU
will not attempt to organize other employees in the St. Louis facility or our
other facilities in the future.
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LEGAL PROCEEDINGS
In June 1997, the United States Attorney's Office for the Eastern District
of Missouri informed us that we were the subject of a grand jury investigation
based upon information supplied by the United States Postal Service. The
investigation concerns whether violations of civil or criminal statutes may have
occurred in connection with our bulk mailing practices. We have been engaged in
a dialogue with the Government, which discussions have included a possible
consensual resolution of this matter. However, as of the date of this
Prospectus, no settlement has been reached. It is our position that our bulk
mailing practices comply with applicable laws and regulations. In connection
with our acquisition of DIMAC Marketing, we have entered into an indemnification
agreement with Heritage Media and DIMAC Marketing under which Heritage Media has
agreed to indemnify us for certain costs, including settlements, judgments and
related fees, in relation to the USPS investigation. We cannot assure you,
however, that the investigation and the costs associated with them will not have
a material adverse effect on our business, financial condition or results of
operations.
We are a party to various other litigation matters incidental to the conduct
of our business. We do not believe that the outcome of any such matters in which
we are currently involved will have a material adverse effect on our financial
condition or results of operations.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
Our operations and properties are subject to a wide variety of federal,
state and local laws and regulations relating to environmental protection and
human health and safety, including those governing the use, storage, handling,
generation, treatment, emission, release, discharge and disposal of, and
exposure to, hazardous and non-hazardous materials, substances and wastes, the
cleanup of contaminated soil and groundwater, and the health and safety of
employees. As such, the nature of our operations expose us to the risk of claims
with respect to environmental protection and health and safety matters. We
cannot assure you that material costs or liabilities will not be incurred in
connection with such claims.
In January 1988, the United States Environmental Protection Agency (the
"EPA") notified us that we were potentially liable for costs incurred by the EPA
in connection with the Dixie Caverns County Landfill Superfund Site in Roanoke
County, Virginia. Subsequently, Roanoke County filed suit against the twelve
potentially responsible parties ("PRP's"), which included us, to recover the
funds it expended in cleaning the site at the date of the suit and for any
additional sums it would expend in the future. Under the Comprehensive
Environmental Response, Compensation, and Liability Act, PRPs may be held
strictly, jointly and severally liable for the costs of investigation and
cleanup; however management believes that our potential liability in connection
with this site will not be material, based upon the amount and nature of waste
alleged to be attributable to us, the number of other financially viable PRP's
and the total estimated cleanup costs.
Although liabilities, claims and requirements relating to environmental and
health and safety matters have not materially affected us to date, we cannot
assure you that such matters will not have a material adverse effect on our
business, financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and those of DIMAC Corporation are elected annually by the
respective shareholders to serve during the ensuing year or until a successor is
duly elected and qualified. Our executive officers and those of DIMAC
Corporation are duly elected by the respective Board of Directors to serve until
their respective successors are elected and qualified. The following table sets
forth certain information regarding our directors and executive officers and
those of DIMAC Corporation following our acquisitions of Americomm Holdings and
DIMAC Marketing.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Martin R. Lewis........................................ 69 Chairman of the Board of Directors and Chief
Executive Officer
Timothy Beffa.......................................... 47 Director
David E. De Leeuw...................................... 54 Director
David E. King.......................................... 39 Director
George E. McCown....................................... 63 Director
Benjamin L. McSwiney................................... 48 Director
John D. Weil........................................... 50 Director
James L. Wu............................................ 29 Director, Vice President and Assistant Secretary
Robert M. Miklas....................................... 46 President
Edward D. Lazarowitz................................... 45 Chief Financial Officer
John F. Meneough....................................... 50 Executive Vice President
Jack Resnick........................................... 50 Executive Vice President
Scott P. Ebert......................................... 34 Vice President and Controller
Michael J. Speichinger................................. 31 Vice President and Chief Financial Officer of DIMAC
Marketing
</TABLE>
MARTIN R. LEWIS -- Chairman of the Board of Directors and Chief Executive
Officer of our company since June 1998. Mr. Lewis is the former Chief Executive
Officer of Williamhouse-Regency, Inc., a manufacturer and printer of specialty
paper products. Mr. Lewis led Williamhouse-Regency as a public company from 1961
to 1982. In 1982, through a leveraged recapitalization, he led the management
buyout of Williamhouse-Regency, Inc., and other subsequent refinancings and
recapitalizations. He ran Williamhouse-Regency, Inc. as a highly-leveraged
entity until it was sold to a strategic buyer in 1995. He currently serves as a
director of AmeriComm Direct Marketing.
TIMOTHY BEFFA -- Director of our company and DIMAC Corporation since August,
1998. Mr. Beffa currently serves as President and Chief Executive Officer of
Outsourcing Solutions, Inc. From May 1989 to August 1996, Mr. Beffa served as
President and Chief Operating Officer of DIMAC Marketing Corporation. Mr. Beffa
joined DIMAC Marketing Corporation as Senior Vice President and Chief Financial
Officer. From April 1981 to May 1989, he served as Vice President of Finance for
the International Division of Pet Inc. Prior to April 1981, Mr. Beffa was
employed by Ernst & Young. He currently serves as a director of AmeriComm Direct
Marketing.
DAVID E. DE LEEUW -- Director of our company and DIMAC Corporation since May
1998. Mr. De Leeuw is a managing director of McCown De Leeuw & Co., Inc. Mr. De
Leeuw co-founded McCown De Leeuw & Co., Inc. with George McCown in 1984. He
currently serves as a director of American Residential Investment Trust, Inc.
and Aurora Foods Inc. (both public companies), and other privately held
companies including AmeriComm Direct Marketing.
DAVID E. KING -- Director of our company and DIMAC Corporation since August
1998. Mr. King is a managing director of McCown De Leeuw & Co., Inc. Mr. King
has been associated with McCown
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De Leeuw & Co., Inc. since 1990. He currently serves as director of several
privately held companies including AmeriComm Direct Marketing.
GEORGE E. MCCOWN -- Director of our company and DIMAC Corporation since
August 1998. Mr. McCown is a managing director of McCown De Leeuw & Co., Inc.
Mr. McCown co-founded McCown De Leeuw & Co., Inc. with David De Leeuw in 1984.
He currently serves as Chairman of Building Materials Holding Corporation,
Vice-Chairman of Vans, Inc. and Vice-Chairman of FiberMark, Inc. He also serves
as the director of several privately-held companies.
BENJAMIN L. MCSWINEY -- Director of our company and DIMAC Corporation since
August, 1998. Mr. McSwiney is the former President and Chief Executive Officer
of Bell & Howell Worldwide Mail Handling Systems, a global provider of messaging
solutions including mail inserters and sorters with revenues of $400 million.
Prior to joining Bell & Howell, Mr. McSwiney served as President and Chief
Executive Officer of Duplex Products, a $290 million forms producer, and
WhiteStar Graphics, a holding company with subsidiaries in forms production and
textbook typesetting. Mr. McSwiney also served as Vice President and General
Manager of Williamhouse, a subsidiary of Williamhouse-Regency, Inc., a
manufacturer and printer of specialty paper products. He currently serves as
Executive in Residence at North Carolina State University where he gives
instruction in Strategic Planning and Implementation at both the graduate and
undergraduate levels.
JOHN D. WEIL -- Director of our company and DIMAC Corporation since August,
1998. Mr. Weil joined McCown De Leeuw & Co., Inc. as an operating affiliate to
assist in portfolio management in 1995. From 1991 to 1994, Mr. Weil served as
President and Chief Executive Officer of American Envelope Company. Between 1983
and 1994, Mr. Weil served as a director of the Envelope Manufacturers
Association (the "EMA"), as Chairman of the EMA's Public Affairs Committee and
has served on its Technical, Training, Plant Operations and Finance Committees.
He currently serves as Chairman of the Board of Directors of AmeriComm Direct
Marketing and as a director of FiberMark, Inc., International Data Response
Corporation and Sage Enterprises, Inc.
JAMES L. WU -- Director, Vice President and Assistant Secretary of our
company and DIMAC Corporation since May 1998, Mr. Wu is an associate at McCown
De Leeuw & Co., Inc. Mr. Wu has been associated with McCown De Leeuw & Co., Inc.
since 1992. Previously, he worked as an investment banker with Morgan Stanley &
Co., Inc.
ROBERT M. MIKLAS -- President of our company since June 1998. Prior to
joining us, Mr. Miklas worked for 15 years with the $350 million annual revenue
consumer packaging division of Boise Cascade Corporation and its successive
owner, Sonoco Products Company. He began his 12-year assignment with Boise
Cascade in 1975, attaining positions of increasing responsibility. With the 1987
purchase of the Boise Cascade consumer packaging division by Sonoco, Mr. Miklas
became a division vice president of Sonoco, where he was responsible for merging
common operations of the two companies. As division vice president, Mr. Miklas
was also in charge of business development with a focus on technology and market
development. His most recent assignment before joining us was senior vice
president and one of the three executives in the office of the president of the
Sonoco Graham Company, at the time one of the largest consumer packaging
manufacturers in the U.S.
EDWARD D. LAZAROWITZ -- Chief Financial Officer of our company and DIMAC
Corporation since September 1998. Prior to joining us, Mr. Lazarowitz served as
Senior Vice President of Finance and Chief Financial Officer for eight years
with the direct marketing division of Harte-Hanks, Inc. In addition to his
financial responsibilities, Mr. Lazarowitz was also responsible for the
operations of certain direct marketing businesses, the operations of the
management information systems group and the development of Harte-Hanks' order
management system. From 1988 to December 1990, Mr. Lazarowitz served as Vice
President of Finance and Administration and Chief Financial Officer of Anderson
& Lembke, Inc., a business to business advertising agency. Mr. Lazarowitz began
his career with Price Waterhouse.
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JOHN F. MENEOUGH -- Executive Vice President of our company since May 1998.
Prior to joining Palm Coast Data in 1996 as President and Chief Operating
Officer, Mr. Meneough was chief operating officer for Communications Data
Services ("CDS"), one of the leading providers of fulfillment services in the
country. Mr. Meneough joined CDS in 1980 as an account manager in publisher
services when CDS was serving 85 magazines and 39 million subscribers. He was
named vice president of the magazine division in 1985 and executive vice
president and chief operating officer in 1986, by which time CDS was serving 105
magazines and 90 million subscribers.
JACK RESNICK -- Executive Vice President of our company since May 1998.
Prior to our acquisitions of AmeriComm Holdings and DIMAC Marketing, and the
consummation of the Refinancing, Mr. Resnick was Executive Vice President of
AmeriComm Holdings and served as head of direct mail operations of Americomm
Direct Marketing. Mr. Resnick was President of the Wheeler Group, the direct
marketing division of Pitney Bowes, and has had extensive executive leadership
experience in the direct mail marketing and business forms industry with Wallace
Computer Services, Uarco, and Torrington Product Ventures, where he served as
president and vice chairman.
SCOTT P. EBERT -- Vice President and Controller of our company and DIMAC
Corporation since June 1998. Mr. Ebert has been the Vice President and
Controller of AmeriComm Holdings since May 1993, where his responsibilities
include maintenance of lender and public relations, review of acquisition
opportunities, external and internal financial reporting, integration of
acquired businesses and working capital management. Previously, Mr. Ebert was a
Manager at Arthur Andersen LLP where he began his service in August 1985.
MICHAEL J. SPEICHINGER -- Vice President and Chief Financial Officer of
DIMAC Marketing since July 1998. Mr. Speichinger joined DIMAC Marketing in
September 1996 as Director of Financial Analysis and was promoted to Corporate
Controller of DIMAC Marketing in November 1997. Mr. Speichinger's
responsibilities include financial reporting, budgeting, and forecasting,
capital allocation and project analysis, enhancements to the management
reporting systems and development of revenue and new business forecasting tools.
Prior to joining DIMAC Marketing, Mr. Speichinger was a senior manager with KPMG
Peat Marwick, serving mid-size to Fortune 500 clients out of the St. Louis
office.
DIRECTOR COMPENSATION
Directors who are officers, employees or otherwise affiliates of DIMAC
Corporation or our company do not receive compensation for their services as
directors. Directors of DIMAC Corporation or our company are entitled to
reimbursement of their reasonable out-of-pocket expenses in connection with
their travel to and attendance at meetings of the board of directors or
committees thereof. No determination has yet been made with respect to annual
fees or board attendance fees, if any, to be paid to directors of DIMAC
Corporation or our company who are not also officers, employees or otherwise
affiliates of DIMAC Corporation or our company, respectively.
EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS
AmeriComm Direct Marketing and Robert M. Miklas entered into an agreement
dated June 28, 1996 which sets forth certain terms of the employment of Mr.
Miklas as President and CEO of AmeriComm Direct Marketing and AmeriComm
Holdings. This agreement provides for an annual base salary of $250,000 which
may be increased subject to the approval of the Compensation Committee of the
Board of Directors of AmeriComm Holdings and AmeriComm Direct Marketing. Mr.
Miklas is eligible to receive bonus compensation as determined from time to time
by the Board of Directors of AmeriComm Holdings and AmeriComm Direct Marketing.
In the event that AmeriComm Direct Marketing terminates Mr. Miklas' employment
under certain circumstances, Mr. Miklas shall be entitled to continuation of his
base compensation for a period of one year.
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DIMAC DIRECT and John F. Meneough entered into an agreement dated December
18, 1997 which sets forth certain terms of employment of Mr. Meneough. This
agreement provides for an annual base salary of $200,000 and a guaranteed
minimum bonus of $40,000. In the event that DIMAC DIRECT terminates Mr.
Menough's employment under certain circumstances, Mr. Meneough shall be entitled
to receive an amount equal to his annual base salary plus a pro-rata bonus for
the calendar year in which he is terminated.
AmeriComm Direct Marketing and Jack Resnick entered into an agreement dated
June 28, 1996 which sets forth certain terms of the employment of Mr. Resnick as
Senior Vice President of AmeriComm Direct Marketing and AmeriComm Holdings and
as President and CEO -- Transkrit Division. This agreement provides for an
annual base salary of $225,000 which may be increased subject to the approval of
the Compensation Committee of the Board of Directors of AmeriComm Direct
Marketing and AmeriComm Holdings. Mr. Resnick is eligible to receive bonus
compensation as determined under an agreed-upon plan. In the event that
AmeriComm Direct Marketing terminates Mr. Resnick's employment under certain
circumstances, Mr. Resnick will be entitled to continuation of his base
compensation for a period of one year.
AmeriComm Direct Marketing and Scott Ebert entered into an agreement dated
May 18, 1998 which sets forth certain terms of employment of Mr. Ebert as Vice
President and Controller of AmeriComm Direct Marketing and AmeriComm Holdings.
This agreement provides for an annual base salary of $115,000 which may be
increased pursuant to an agreed-upon plan subject to the approval of the
Compensation Committee of the Board of Directors of AmeriComm Holdings and
AmeriComm Direct Marketing. The agreement also provides for bonus compensation
based upon Mr. Ebert's performance and the overall profitability of AmeriComm
Direct Marketing with a guaranteed minimum bonus of $20,000 for calendar year
1998. In the event that AmeriComm Direct Marketing terminates Mr. Ebert's
employment under certain circumstances, or if Mr. Ebert terminates his
employment with our company, Mr. Ebert shall be entitled to continuation of his
base compensation for a period of nine months.
DIMAC DIRECT and Michael Speichinger entered into an agreement dated
December 18, 1997 which sets forth certain terms of employment of Mr.
Speichinger. This agreement provides for an annual base salary of $90,000 and a
guaranteed minimum bonus of $30,000. In the event that DIMAC DIRECT terminates
Mr. Speichinger's employment under certain circumstances, Mr. Speichinger shall
be entitled to receive an amount equal to his annual base salary plus a pro-rata
bonus for the calendar year in which he is terminated.
STOCK OPTION PLAN
DIMAC Holdings adopted a stock option plan which is administered by the
Compensation Committee of DIMAC Holdings' Board of Directors (or such other
committee of the Holdings Board as it may designate) (the "Holdings Committee").
Under its stock option plan the Holdings Committee may grant options to purchase
up to 16% of DIMAC Holdings common stock, which may be either "incentive stock
options", within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or stock options other than incentive stock options to
executive and other employees, including officers, directors (whether or not
also employees) and consultants of DIMAC Holdings and its subsidiaries and
affiliates designated by the Holdings Committee.
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SECURITY OWNERSHIP
DIMAC HOLDINGS
Our authorized capital stock consists of 2,000,000 shares of voting common
stock, par value $0.001 per share, of which 1,092,000 shares are issued and
outstanding as of October 22, 1998, and 200,000 shares of non-voting common
stock, par value $0.001 per share, of which 8,000 shares were issued and
outstanding as of October 22, 1998.
The following table sets forth as of the date hereof the number and
percentage of shares of common stock beneficially owned by (i) each person known
to DIMAC Holdings to be the beneficial owner of more than 5% of any class of
DIMAC Holdings' equity securities, (ii) each director and each executive officer
of our company, and (iii) all directors and executive officers of DIMAC Holdings
as a group.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
HOLDINGS OF
COMMON STOCK HOLDINGS
BENEFICIALLY COMMON STOCK
OWNED (1) OUTSTANDING
-------------- ------------
<S> <C> <C>
McCown De Leeuw & Co. IV, L.P. (2)................................................. 735,500 66.86%
McCown De Leeuw & Co. IV Associates, L.P. (2)...................................... 735,500 66.86%
Delta Fund LLC (2)................................................................. 735,500 66.86%
State of Michigan Retirement Systems (3)........................................... 150,000 13.64%
First Union Investors, Inc. (4).................................................... 62,000 5.64%
George E. McCown (2)............................................................... 735,500 66.86%
David E. De Leeuw (2).............................................................. 735,500 66.86%
David E. King (2).................................................................. 735,500 66.86%
James L. Wu (2).................................................................... 735,500 66.86%
Martin R. Lewis.................................................................... 30,000 2.73%
Jack Resnick....................................................................... 2,500 *
Timothy Beffa...................................................................... 250 *
Benjamin L. McSwiney............................................................... 250 *
All directors and executive officers as a group.................................... 768,500 69.86%
</TABLE>
- ------------------------
* Represents less than 1.0%.
(1) Common stock is the only class of capital stock of DIMAC Holdings which has
voting rights. Beneficial ownership is determined in accordance with the
rules of the SEC. Shares of capital stock subject to options, warrants and
convertible securities currently exercisable or convertible, or exercisable
or convertible within 60 days, are deemed outstanding for computing the
percentage of the person holding such options but are not deemed outstanding
for computing the percentage of any other person. Except as indicated by
footnote, the persons named in the table above have sole voting and
investment power with respect to all shares of capital stock indicated as
beneficially owned by them.
(2) Includes 709,390 shares of common stock owned by McCown De Leeuw & Co. IV,
L.P., an investment partnership whose general partner is MDC Management
Company IV, LLC ("MDC IV"), 15,078 shares of common stock owned by McCown De
Leeuw & Co. IV Associates, L.P., an investment partnership whose general
partner is MDC IV, and 11,032 shares of common stock owned by Delta Fund
LLC, a California limited liability company. The voting members of Delta
Fund LLC are George E. McCown, David E. De Leeuw, David E. King, Robert B.
Hellman, Jr., Charles Ayres and Steven A. Zuckerman, who are also the only
managing members of MDC IV. Voting and dispositive decisions regarding the
securities are made by a vote or consent of all of the managing members of
MDC IV. Voting and dispositive decisions regarding securities owned by
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Delta Fund LLC are made by a vote or consent of a majority in number of the
voting members of Delta Fund LLC. Messrs. McCown, De Leeuw, King, Hellman,
Ayres and Zuckerman have no direct ownership of any securities and disclaim
beneficial ownership of such shares except, in the case of Delta Fund LLC,
to the extent of their proportionate membership interests. The address of
each of the above referenced entities is c/o McCown De Leeuw & Co., Inc.,
3000 Sand Hill Road, Building 3, Suite 290, Menlo Park, CA 94025.
(3) The Michigan Department of Treasury, Bureau of Investments manages the State
of Michigan Retirement Systems. The managed funds are: the State Police
Retirement Fund, the State Employees' Retirement Fund, the Public School
Employees' Retirement Fund and the Judges' Retirement Fund. The address of
each of these funds is Michigan Department of Treasury, Bureau of
Investments, P.O. Box 15128, Lansing, MI 48901.
(4) Includes 54,000 shares of voting common stock and 8,000 shares of non-voting
common stock.
DIMAC CORPORATION
DIMAC Corporation's authorized capital stock consists of 100 shares of
common stock, par value $0.001 per share, all of which shares are issued and
outstanding, have voting rights and are presently held by DIMAC Holdings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ADVISORY SERVICES AGREEMENT
DIMAC Corporation maintains an Advisory Services Agreement with MDC
Management Company IV, LLC ("MDC IV"), an affiliate. Under the Advisory Services
Agreement, MDC IV provides certain consulting, financial, and managerial
functions to DIMAC Corporation for an annual fee equal to the greater of (i)
$550,000 and (ii) 1.06% of its pro forma EBITDA for the immediately preceding
fiscal year (such EBITDA to be calculated without any deduction of the annual
fee payable to MDC IV for such fiscal year). In no event may the annual fee
exceed $1,000,000 in any year. Despite this, the annual fee for the period prior
to the fiscal year commencing January 1, 1999 will be an amount equal to
$550,000 pro rated by the amount of days the Advisory Services Agreement has
been in effect during the 1998 calendar year. In addition, under the Advisory
Services Agreement, DIMAC Corporation has paid MDC IV a fee equal to $9,900,000
for services rendered in the acquisition of DIMAC Corporation by certain MDC
Entities. The Advisory Services Agreement expires June 26, 2003 and is renewable
annually after this date, unless DIMAC Corporation terminates it for justifiable
cause, as defined in the Advisory Services Agreement. DIMAC Corporation believes
that the fees received for the professional services rendered are at least as
favorable to it as those which could be negotiated with a third party.
AMERICOMM HOLDINGS AGREEMENT AND PLAN OF MERGER
Under an Agreement and Plan of Merger dated as of May 18, 1998, AmeriComm
Holdings, which was majority owned by McCown De Leeuw & Co. II, L.P. and certain
of its affiliates, merged into one of our wholly-owned subsidiaries, which at
the time of such acquisition was wholly-owned by McCown De Leeuw & Co. IV, L.P.
and certain of its affiliates. McCown De Leeuw II, L.P. and McCown De Leeuw IV,
L.P. are affiliates and under common control. The Agreement and Plan of Merger
was the result of arms length negotiations and both we and AmeriComm Holdings
believe that the terms of the Agreement and Plan of Merger were at least as
favorable to each such party as those that could be negotiated with a third
party. In addition, we and AmeriComm Holdings each received an opinion from an
investment bank which stated that, subject to certain assumptions contained
therein, the transaction was fair to the stockholders of such entity from a
financial point of view.
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DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR SECURED CREDIT FACILITY
The following description briefly outlines the provisions of DIMAC
Corporation's senior secured credit facility. We have filed a copy of the senior
secured credit agreement as an exhibit to the registration statement which
includes this Prospectus. To find out how to locate the senior secured credit
agreement, please read the section "Where You Can Find More Information" under
the heading "Prospectus Summary."
The description set forth below is not complete and is qualified in its
entirety by reference to certain agreements setting forth the principal terms
and conditions of our senior secured credit facility.
We and DIMAC Corporation entered into a credit agreement dated as of June
26, 1998 among our company, DIMAC Corporation, the financial institutions party
thereto and Credit Suisse First Boston, New York Branch (as amended,
supplemented, restated or otherwise modified). In connection with such
financing, Credit Suisse First Boston is acting as Administrative Agent.
The senior secured credit facility consists of
- a senior secured term facility providing for term loans in an aggregate
principal amount of $195.0 million, consisting of:
- $55.0 million of Term A loans;
- $80.0 million of Term B loans; and
- $60.0 million of Term C loans;
- a senior secured revolving credit facility providing for revolving loans
and the issuance of letters of credit for our account, in an aggregate
principal and stated amount at any time not to exceed $75.0 million (of
which not more than $5.0 million may be represented by letters of
credit).
The Term A loans mature on June 30, 2004, the Term B loans mature on June
30, 2006 and the Term C loans mature on December 31, 2006. The term loans will
be paid quarterly until final maturity as shown in the following table.
<TABLE>
<CAPTION>
SCHEDULED QUARTERLY SCHEDULED QUARTERLY SCHEDULED QUARTERLY
REPAYMENT OF TERM A REPAYMENT OF TERM B REPAYMENT OF TERM C
QUARTERS ENDING: LOANS LOANS LOANS
- ----------------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
March 31, 2000-June 30, 2001................... 4.00% 0.25% 0.25%
September 30, 2001-December 31, 2001........... 4.25% 0.25% 0.25%
March 31, 2002-December 31, 2002............... 6.125% 0.25% 0.25%
March 31, 2003-December 31, 2003............... 6.75% 0.25% 0.25%
March 31, 2004-June 30, 2004................... 8.00% 0.25% 0.25%
September 30, 2004-June 30, 2005............... 7.50% 0.25%
September 30, 2005-March 31, 2006.............. 16.00% 0.25%
June 30, 2006.................................. 17.50% 0.25%
September 30, 2006-December 31, 2006........... 46.75%
</TABLE>
Revolving loans and letters of credit are fully revolving and available at
any time until June 30, 2004. The amount of available revolving loans will be
reduced by $15.0 million on June 30, 2003.
DIMAC Corporation is required to make mandatory prepayments on the senior
secured credit facility under certain circumstances, including upon certain
asset sales or issuance of debt or equity securities. DIMAC Corporation is also
required to make prepayments on the senior secured credit facility and
permanently reduce commitments under the revolving credit facility in an amount
equal to a percentage of its Consolidated Excess Cash Flow (as such term is
defined in our senior secured credit agreement) and upon receipt of cash
proceeds from property and casualty insurance or condemnation awards. At its
option, loans may be prepaid, and revolving credit commitments or letters of
credit may
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be permanently reduced, in whole or in part at any time without premium or
penalty except for break-funding costs.
DIMAC Corporation's obligations under the senior secured credit facility are
unconditionally and irrevocably guaranteed by its present and future domestic
subsidiaries and by our company. In addition, the senior secured credit facility
is secured by a first priority or equivalent security interest in all of our
capital stock and each of its present and future domestic subsidiaries and the
tangible and intangible assets of DIMAC Corporation and its guarantors.
At DIMAC Corporation's option, the interest rate per year applicable to
loans under the senior secured credit facility will be either a rate (grossed-up
for maximum statutory reserve requirements for eurocurrency liabilities)
determined by reference to the British Bankers' Association Interest Settlement
Rates for deposits in dollars for a period equal to an interest period of one,
two, three or six months (as selected by us) (the "Adjusted Eurodollar Rate") or
the Base Rate, in each case plus a margin. Until the later of:
- six months after June 26, 1998; and
- the day on which the financial statements covering the period ending
September 30, 1998 are delivered to the lenders (the "Margin Date"),
the interest rate per year applicable to revolving loans will be either the
Adjusted Eurodollar Rate plus a margin of 2.75% or the Base Rate plus a margin
of 1.75%.
Until the Margin Date,
- the interest rate per year applicable to Term A loans will be either the
Adjusted Eurodollar Rate plus a margin of 2.75% or the Base Rate plus a
margin of 1.75%;
- the interest rate per year applicable to Term B loans will be either the
Adjusted Eurodollar Rate plus a margin of 3.25% or the Base Rate plus a
margin of 2.25%; and
- the interest rate per year applicable to Term C loans will be either the
Adjusted Eurodollar Rate plus a margin of 3.50% or the Base Rate plus a
margin of 2.50%.
After the Margin Date, the applicable margin will be subject to a grid based
upon our leverage. The Base Rate is the higher of:
- the rate of interest publicly announced by Credit Suisse First Boston as
its prime commercial lending rate in effect at its principal office in
New York City; and
- the federal funds effective rate plus 0.5%.
DIMAC Corporation will pay an annual fee equal to 0.5% on the undrawn
portion of the commitments in respect of the revolving credit facility until the
Margin Date. After the Margin Date the annual fee will be subject to a grid
based upon DIMAC Corporation's leverage. DIMAC Corporation will also pay an
annual fee on the face amount of all outstanding letters of credit equal to the
applicable margin then in effect with respect to loans under the revolving
credit facility bearing interest based upon the Adjusted Eurodollar Rate.
The senior secured credit facility contains a number of significant
covenants that, among other things, restrict DIMAC Corporation's ability as well
as its subsidiaries' ability to:
- dispose of assets;
- incur additional indebtedness;
- repay other indebtedness or amend other debt instruments;
- pay dividends;
- create liens on assets;
- enter into leases or guarantees;
- make capital expenditures;
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- make investments or acquisitions;
- engage in mergers or consolidations; and
- engage in certain transactions with subsidiaries and affiliates and
otherwise restrict corporate activities.
In addition, under the senior secured credit facility, DIMAC Corporation is
required to comply with specified financial ratios and tests, including minimum
interest coverage, minimum fixed charge coverage and maximum leverage ratios and
a limitation on capital expenditures.
The senior secured credit facility also contains provisions that prohibit
any modification of the DIMAC Corporation Notes Indenture or the Notes Indenture
in any manner adverse to the lenders and that will limit DIMAC Corporation's
ability to refinance the notes without the consent of such lenders.
DIMAC CORPORATION NOTES
The following description briefly outlines the terms of DIMAC Corporation's
Senior Subordinated Notes. The description is not complete and is qualified in
its entirety by reference to certain agreements setting forth the principal
terms and conditions of the DIMAC Corporation Notes.
TERMS OF THE DIMAC CORPORATION NOTES
On October 22, 1998, DIMAC Corporation issued $100.0 million aggregate
principal amount of its 12 1/2% Senior Subordinated Notes Due 2008 under an
Indenture, dated as of October 15, 1998, among DIMAC Corporation, its subsidiary
guarantors and Wilmington Trust Company. The terms and conditions of the DIMAC
Corporation Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939.
The DIMAC Corporation Notes are senior subordinated obligations of DIMAC
Corporation and will mature on October 1, 2008. The Senior Subordinated Notes
bear interest at a rate of 12 1/2% per year. Interest on the DIMAC Corporation
Notes will accrue and be payable semiannually on October 1 and April 1 or each
year commencing on April 1, 1999. Interest will be computed on the basis of a
360-day year of twelve 30-day months. Interest on the DIMAC Corporation Notes
will accrue from the most recent date on which interest has been paid or, if no
interest has been paid, from the date of issuance.
OPTIONAL REDEMPTION
Except as set forth below, the DIMAC Corporation Notes are not redeemable at
the option of DIMAC Corporation prior to October 1, 2003. DIMAC Corporation may
redeem its Notes, in whole or in part, at any time on or after October 1, 2003
after complying with certain notice requirements. The redemption price of the
DIMAC Corporaton Notes is equal to the percentages of the principal amount of
the DIMAC Corporaton Notes set forth below, plus accrued and unpaid interest to
the redemption date, if redeemed during the 12-month period beginning October 1
of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2003........................................................................ 106.250%
2004........................................................................ 104.167
2005........................................................................ 102.083
2006 and thereafter......................................................... 100.000
</TABLE>
At any time prior to October 1, 2003, DIMAC Corporation may redeem up to 35%
of the aggregate principal amount of the DIMAC Corporation Notes with the
proceeds of one or more equity offerings. The redemption price would be an
amount equal to 112.5% of the principal amount of the DIMAC Corporaton Notes
plus accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant
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interest payment date). In order for DIMAC Corporation to redeem any of its
Notes following any such equity offering, however:
- at least 65% of the aggregate principal amount of the DIMAC Corporation
Notes issued must remain outstanding after each redemption; and
- each redemption must occur within 60 days of such equity offering.
RANKING
The indebtedness evidenced by the DIMAC Corporaton Notes and the subsidiary
guaranties will be senior subordinated obligations of DIMAC Corporation and the
subsidiary guarantors. The payment of the principal of, premium (if any) and
interest on the DIMAC Corporaton Notes and the payment of any subsidiary
guaranty are subordinated in right of payment, as set forth in the DIMAC
Corporation Notes Indenture, to the prior payment in full in cash or cash
equivalents of all senior indebtedness of DIMAC Corporation or the relevant
subsidiary guarantor. Although the DIMAC Corporation Notes Indenture contains
limitations on the amount of additional indebtedness that DIMAC Corporation and
the subsidiary guarantors may incur, under certain circumstances the amount of
such indebtedness could be substantial and, in any case, such indebtedness may
be senior indebtedness.
Only indebtedness of DIMAC Corporation or a subsidiary guarantor that is
senior indebtedness will rank senior to the DIMAC Corporaton Notes and the
relevant subsidiary guaranty in accordance with the provisions of the DIMAC
Corporation Notes Indenture. The DIMAC Corporaton Notes and each subsidiary
guaranty will rank equally with all other senior subordinated indebtedness of
DIMAC Corporation and the relevant subsidiary guarantor, respectively. Each of
DIMAC Corporation and the subsidiary guarantors agreed in the DIMAC Corporation
Notes Indenture that it will not incur, directly or indirectly, any indebtedness
that is subordinate or junior in ranking in any respect to senior indebtedness
unless such indebtedness is senior subordinated indebtedness or is expressly
subordinated in right of payment to senior subordinated indebtedness.
CHANGE OF CONTROL
Upon the occurrence of a change of control (as defined in DIMAC
Corporation's Notes Indenture), each holder of the DIMAC Corporaton Notes may
require DIMAC Corporation to repurchase all or any part of such holder's DIMAC
Corporation Notes at a purchase price in cash equal to 101% of the principal
amount of the DIMAC Corporation Notes plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
CERTAIN COVENANTS
The DIMAC Corporation Notes Indenture imposes certain affirmative covenants
and other requirements on DIMAC Corporation and its subsidiaries. The DIMAC
Corporation Notes Indenture also contains certain negative covenants that
include, among other things, limitations on:
- the amount of indebtedness DIMAC Corporation and its restricted
subsidiaries may incur;
- certain payments DIMAC Corporation and its restricted subsidiaries may
make;
- restrictions on distributions from restricted subsidiaries;
- sales of assets by DIMAC Corporation and its restricted subsidiaries;
- affiliate transactions;
- the sale of capital stock of DIMAC Corporation's restricted subsidiaries;
- limitatons on the lines of business DIMAC Corporation and its restricted
subsidiaries may engage in; and
- DIMAC Corporation's ability to merge or consolidate or transfer all or
substantially all of its assets.
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EVENTS OF DEFAULT
An event of default is defined in the DIMAC Corporation Notes Indenture as:
- a default in any payment of interest on any DIMAC Corporation Note when
due, continued for 30 days;
- a default in the payment of principal of any DIMAC Corporation Note when
due at its stated maturity, upon optional redemption, upon required
repurchase, upon declaration or otherwise,
- the failure by DIMAC Corporation to comply with its obligations upon a
merger or consolidation;
- the failure by DIMAC Corporation to comply for 30 days after notice with
any of its obligations under the covenants described under the change of
control provisions in the DIMAC Corporation Notes Indenture (other than
the failure to purchase the DIMAC Corporation Notes, which is an
immediate event of default) or under certain other covenants (except for
the covenant related to mergers, consolidations, and transfers of all or
substantially all of the assets of DIMAC Corporation);
- the failure by DIMAC Corporation to comply for 60 days after notice with
its other agreements contained in the DIMAC Corporation Indenture;
- indebtedness of DIMAC Corporation or any restricted subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such indebtedness unpaid or accelerated exceeds $3.0 million
and such failure to pay has not cured or such acceleration rescinded
within a 10-day period;
- certain events of bankruptcy, insolvency or reorganization of DIMAC
Corporation or a significant subsidiary;
- any judgment or decree for the payment of money in excess of $3.0 million
(not adequately covered by insurance as to which a solvent and
unaffiliated insurance company has acknowledged coverage) is rendered
against DIMAC Corporation or a significant subsidiary and such judgment
or decree shall remain undischarged or unstayed for a period of 60 days
after such judgment becomes final and nonappealable; or
- the failure of any subsidiary guaranty to be in full force and effect
(except as contemplated by the terms thereof) or the denial or
disaffirmation by any subsidiary guarantor of its obligations under its
subsidiary guaranty if such default continues for 10 days.
However, a default regarding change of control provisions, certain covenants
and other agreements contained in the DIMAC Corporation Notes Indenture will not
constitute an event of default until the Trustee of the DIMAC Corporation Notes
or the holders of at least 25% in principal amount of the outstanding DIMAC
Corporation Notes notify DIMAC Corporation of the default and DIMAC Corporation
does not cure such default within the time specified after receipt of such
notice.
If an event of default occurs and is continuing, the Trustee of the DIMAC
Corporation Notes or the holders of at least 25% in principal amount of the
outstanding DIMAC Corporation Notes by notice to DIMAC Corporation may declare
the principal of and accrued and unpaid interest on all the DIMAC Corporation
Notes to be due and payable. Upon such a declaration, such principal and accrued
and unpaid interest shall be due and payable immediately. If an event of default
relating to certain events of bankruptcy, insolvency or reorganization of DIMAC
Corporation occurs and is continuing, the principal of and accrued and unpaid
interest on all the DIMAC Corporation Notes will become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any holders. Under certain circumstances, the holders of a majority in principal
amount of the outstanding DIMAC Corporation Notes may rescind any such
acceleration with respect to the DIMAC Corporation Notes and its consequences.
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DESCRIPTION OF NOTES
GENERAL
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions".
DIMAC Holdings issued the Notes under an Indenture, dated as of October 22,
1998, between our company and Wilmington Trust Company, as Trustee. The terms of
the Notes include those stated in the Indenture and those made part of the
Indenture be reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
Indenture. It does not restate that agreement in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
a holder of these Notes. We have filed a copy of the Indenture as an exhibit to
the registration statement which includes this Prospectus. To find out how to
locate the Indenture, please read the section "Where You Can Find More
Information" under the heading "Prospectus Summary". You may also review the
Indenture at the Trustee's offices at 1100 North Market Street, Rodney Square
North, Wilmington, Delaware.
In addition certain of the covenants described below under "--Certain
Covenants" contain references to the DIMAC Corporation Notes Indenture, and
accordingly we urge you to read the relevant sections of the DIMAC Corporation
Notes Indenture. We have filed a copy of the DIMAC Corporation Notes Indenture
as an exhibit to the registration statement which includes this Prospectus.
Principal of, premium, if any, and interest on the Notes, when paid in cash,
will be payable, and the Notes may be exchanged or transferred, at the office or
agency of DIMAC Holdings in the Borough of Manhattan, The City of New York,
except that, at our option, payment of interest may be made by check mailed to
the address of the holders as such address appears in the Note Register. Any Old
Notes that remain outstanding after the completion of the Exchange Offer,
together with the New Notes issued in the Exchange Offer, will be treated as a
single class of securities under the Indenture. Please read the sections "The
Exchange Offer" and "Old Notes Registration Rights Agreement" for more
information regarding the Exchange Offer.
The New Notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple of $1,000. No service
charge will be made for any registrations of transfer or exchange of Notes, but
we may require payment of a sum sufficient to cover any transfer tax or other
similar government charge payable in connection therewith.
TERMS OF THE NOTES
The Notes will be unsecured senior obligations of DIMAC Holdings, limited to
$30.0 million aggregate principal amount at maturity, and will mature on October
22, 2009. Interest will accrue on the Notes at the rate of 15 1/2%per annum (the
"Note Interest Rate"). Interest on the Notes will accrue and be payable
quarterly on March 31, June 30, September 30 and December 31 of each year
beginning December 31, 1998, or if any such day is not a business day, on the
next succeeding business day. With respect to each installment of interest due
on or prior to September 30, 2003, however, instead of paying all of such
installment of interest in cash, DIMAC Holdings may pay all of such installment
(or a portion thereof) by issuing additional Notes in an aggregate principal
amount equal to the amount of interest due on the applicable interest payment
date and not paid in cash. Interest on the Notes will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from the date of issuance of the Old Notes. DIMAC Holdings will pay cash
interest on overdue principal at 1% per annum in excess of the Note Interest
Rate, and it will pay cash interest on overdue installments of cash interest at
such higher rate to the extent lawful. PIK Notes issued in accordance with the
terms of the Indenture shall not constitute unpaid amounts under the Indenture.
Interest on the Notes will be computed on the basis of a 360-day year of twelve
30-day months.
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OPTIONAL REDEMPTION
Except as set forth below, the Notes are not redeemable at the option of
DIMAC Holdings prior to October 22, 2002. DIMAC Holdings may redeem the Notes,
in whole or in part, at any time on or after October 22, 2002, at a redemption
price equal to the percentages of the principal amount thereof set forth below,
plus accrued and unpaid interest to the redemption date, if redeemed during the
12-month period beginning October 22 of the years indicated below.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2002........................................................................ 109.300%
2003........................................................................ 107.750%
2004........................................................................ 106.200%
2005........................................................................ 104.650%
2006........................................................................ 103.100%
2007........................................................................ 101.550%
2008........................................................................ 100.000%
</TABLE>
At any time prior to October 22, 2002, Holdings may, within 30 days of the
consummation of a Qualified Public Equity Offering, redeem all or any of the
Notes with the proceeds of such Qualified Public Equity Offering at a redemption
price of 107.75% of the principal amount thereof plus accrued and unpaid
interest, to the redemption date.
RANKING
The indebtedness evidenced by the Notes will be unsecured senior obligations
of DIMAC Holdings and will rank PARI PASSU in right of payment with all existing
and future senior Indebtedness of DIMAC Holdings and will be senior in right of
payment to all future subordinated obligations of DIMAC Holdings but
subordinated in right of payment to Obligations that are secured (including its
guaranty of Obligations under the Senior Credit Facility) to the extent of such
security interest.
As of June 30, 1998, after giving pro forma effect to the Transactions, the
total Indebtedness of DIMAC Holdings and its subsidiaries would have been
approximately $330.5 million, consisting principally of $27.2 million of
Indebtedness incurred in respect of the Notes, approximately $197.2 million of
Indebtedness incurred under the Senior Credit Agreement and $100.0 million
aggregate principal of Indebtedness incurred in respect of the DIMAC Operating
Notes.
DIMAC Holdings is a holding company with no direct operations and no
significant assets other than the capital stock of DIMAC Operating, which also
has no significant assets other than the capital stock of its subsidiaries.
DIMAC Holdings operates its business through these subsidiaries. DIMAC Holdings
will be dependent on the cash flow of such subsidiaries to meet its obligations,
including the payment of principal and interest on the Notes. Each of DIMAC
Operating and its subsidiaries is a separate legal entity that has no obligation
to pay any amounts due pursuant to the Notes or to make any funds available
therefor, whether by dividend, loans or other payments. Because DIMAC Operating
and its subsidiaries will not guarantee the payment of the principal or interest
on the Notes, any claim or right of DIMAC Holdings (or its creditors, including
the holders of the Notes) to the earnings of the subsidiaries or to receive
assets of DIMAC Operating and such subsidiaries upon their liquidation or
reorganization (and the consequent right of holders of the Notes to participate
in the distribution or realize proceeds from those assets) will be effectively
subordinated to the claims of the creditors of DIMAC Operating and such
subsidiaries (including trade creditors and holders of indebtedness of DIMAC
Operating and such subsidiaries) and the claims of preferred stockholders (if
any) of DIMAC Operating and such subsidiaries, except if and to the extent DIMAC
Holdings itself is a creditor of any of DIMAC Operating or such subsidiaries, in
which case the claims of DIMAC Holdings would still be effectively subordinated
to any security in the assets of DIMAC Operating or any of the subsidiaries
(including pursuant to the Senior Credit Agreement). DIMAC Operating's
obligations under the Senior
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Credit Agreement will be secured by substantially all the assets of DIMAC
Operating and its Subsidiaries which are subsidiary guarantors as well as all of
DIMAC Holdings' equity interest in DIMAC Operating. Although the Indenture
limits the incurrence of Indebtedness of certain of DIMAC Holdings'
subsidiaries, such limitation is subject to a number of significant
qualifications. See "--Certain Covenants--Limitation on Indebtedness." For a
discussion of certain adverse consequences of DIMAC Holdings being a holding
company, see "Risk Factors--Holding Company Structure."
REPURCHASE UPON A CHANGE OF CONTROL
Within 30 days following any Change of Control, DIMAC Holdings shall mail to
the Trustee and each Holder a notice, which shall state that:
(i) a Change of Control has occurred and that DIMAC Holdings will
offer to repurchase the Notes at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued interest, if any to the
date of repurchase. Notes tendered will be accepted for payment;
(ii) the purchase price and the purchase date, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed;
(iii) the circumstances and relevant facts regarding such Change of
Control; and
(iv) the procedures determined by DIMAC Holdings, consistent with the
Indenture, that a holder must follow in order to have its Notes
purchased.
(b) DIMAC Holdings will comply with all applicable laws, including without
limitation, Regulation 14E of the Exchange Act and the rules thereunder and all
other applicable Federal and state securities laws. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this the Indenture, DIMAC Holdings shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the Indenture by virtue thereof.
The occurrence of certain of the events that would constitute a Change of
Control would constitue a default under the Senior Credit Agreement. Future
indebtedness of DIMAC Holdings, DIMAC Operating and its subsidiaries may contain
prohibitions of certain events that would constitute a Change of Control or
require such indebtedness to be repaid or repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require the Company to
repurchase the Notes could cause a default under such indebtedenss, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on DIMAC Holdings. Finally, DIMAC Holdings' ability to pay cash to
the holders upon a repurchase may be limited by DIMAC Holdings and DIMAC
Operating's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. Even if sufficient funds were otherwise available, the terms of the
Senior Credit Agreement generally prohibit the prepayment of the Notes prior to
their scheduled maturity. Consequently, if DIMAC Operating is not able to prepay
amounts then outstanding under the Senior Credit Agreement and any of its other
senior indebtedness containing similar restrictions or obtain requisite consents
or waivers, as described above, DIMAC Holdings will be unable to fulfill its
repurchase obligations if holders of Notes exercise their repurchase rights
following a Change of Control thereby resulting in a default under the
Indenture.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON RESTRICTED PAYMENTS.
(a) DIMAC Holdings shall not,
(i) declare or pay any dividends, either in cash or property, on, or
make any distribution to the holders (as such) in respect of, any class
of Equity Interest in DIMAC Holdings (other
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than dividends or distributions payable in Equity Interests (other than
Disqualified Capital Stock) of DIMAC Holdings);
(ii) except as provided in clause (iv) below, purchase, repurchase,
redeem or otherwise acquire or retire for value any Equity Interests of
DIMAC Holdings or any of its Subsidiaries or any other Affiliate of DIMAC
Holdings; PROVIDED that, during any one fiscal year, as long as no
Default or Event of Default has occurred and is continuing, DIMAC
Holdings may purchase Equity Interests in DIMAC Holdings beneficially
owned by directors, officers and employees of DIMAC Holdings or any of
its Subsidiaries pursuant to the terms of employment contracts or
employee benefit plans of DIMAC Holdings or any of its Subsidiaries in an
aggregate amount that, when added to all amounts expended by any
Restricted Subsidiaries of DIMAC Holdings to purchase, repurchase, redeem
or otherwise acquire or retire for value any Equity Interests of DIMAC
Holdings or any of its Subsidiaries or any other Affiliate of DIMAC
Holdings, does not exceed $2,500,000; PROVIDED, FURTHER, that the
aggregate amount expended by DIMAC Holdings and its Restricted
Subsidiaries on or after the Initial Issue Date to so purchase Equity
Interests in DIMAC Holdings beneficially owned by directors, officers and
employees of DIMAC Holdings or any of its Subsidiaries, shall not exceed
$10,000,000.
(iii) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness of DIMAC Holdings (other than the
Notes); or
(iv) make any Investment other than (A) any guarantee of Indebtedness
by DIMAC Holdings permitted pursuant to the provisions of paragraph (a)
of the section "--Limitation on Additional Indebtedness and Issuance of
Disqualified Capital Stock," (B) any Investment of cash by DIMAC Holdings
in a Wholly-Owned Subsidiary of DIMAC Holdings solely to fund an
Acquisition made by DIMAC Operating or any of its Subsidiaries, which
Acquisition is not prohibited pursuant to the provisions of paragraph (b)
of the section "--Limitation on Acquisitions," (C) any Investments in
Cash Equivalents and (D) an Investment in DIMAC Operating on the Initial
Issue Date of up to $40,000,000 in connection with refinancing
transactions occurring on such date and any further Investment in DIMAC
Operating after the Initial Issue Date but only to the extent that the
amount of such Investment shall have been received through the issuance
of new Equity Interests (other than Disqualified Capital Stock) of DIMAC
Holdings or a new capital contribution to DIMAC Holdings from its
stockholders.
(b) DIMAC Holdings shall cause each of its Restricted Subsidiaries to not
fail to comply with the provisions in the DIMAC Operating Indenture (as in
effect on the Initial Issue Date) limiting certain payments the Restricted
Subsidiaries may make. In addition, and without limiting the foregoing
provisions of this paragraph (b), DIMAC Holdings shall cause DIMAC Operating and
each of its Restricted Subsidiaries to not purchase, repurchase, redeem or
otherwise acquire or retire for value any Equity Interests of DIMAC Holdings or
any of its Subsidiaries or any other Affiliate of DIMAC Holdings; PROVIDED that,
during any one fiscal year, as long as no Default or Event of Default has
occurred and is continuing, DIMAC Operating may purchase Equity Interests in
DIMAC Holdings beneficially owned by directors, officers and employees of DIMAC
Holdings or any of its Subsidiaries pursuant to the terms of employment
contracts or employee benefit plans of DIMAC Holdings or any of its Subsidiaries
in an aggregate amount that, when added to all amounts expended by any
Restricted Subsidiaries of DIMAC Holdings to purchase, repurchase, redeem or
otherwise acquire or retire for value any Equity Interests of DIMAC Holdings or
any of its Subsidiaries or any other Affiliate of DIMAC Holdings, does not
exceed $2,500,000; PROVIDED, FURTHER, that the aggregate amount expended by
DIMAC Holdings and its Restricted Subsidiaries on or after the Initial Issue
Date to so purchase Equity Interests in DIMAC Holdings beneficially owned by
directors, officers and employees of DIMAC Holdings or any of its Subsidiaries,
shall not exceed $10,000,000.
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Not later than the date on which DIMAC Holdings or any of its Restricted
Subsidiaries takes any action expressly permitted pursuant to this section
"--Limitation on Restricted Payments" or the limitation on restricted payments
provisions of the DIMAC Operating Indenture (as in effect on the Initial Issue
Date), DIMAC Holdings shall deliver to the Trustee an Officers' Certificate
stating that such action is permitted and setting forth the basis upon which the
calculations required by this section "--Limitation on Restricted Payments" or
the limitation on restricted payments provisions of the DIMAC Operating
Indenture were computed, which calculations may be based upon DIMAC Holdings'
latest available financial statements.
LIMITATION ON RESTRICTIONS ON DIVIDENDS FROM RESTRICTED SUBSIDIARIES.
DIMAC Holdings shall not, and shall cause each of its Restricted
Subsidiaries to not, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of DIMAC Holdings to:
(a) pay dividends or make any other distributions on its Capital Stock
or any other interest or participation in, or measured by, its profits owned
by, or pay any Indebtedness owed to, DIMAC Holdings or DIMAC Operating,
(b) make loans or advances to DIMAC Holdings or DIMAC Operating,
(c)transfer any of its properties or assets to DIMAC Holdings or DIMAC
Operating, except for
(i) any restrictions existing under or contemplated by this
Indenture, the DIMAC Operating Indenture (as in effect on the Initial
Issue Date) and the Senior Credit Agreement (as in effect on the Initial
Issue Date);
(ii) any restrictions, with respect to a Restricted Subsidiary of
DIMAC Holdings that is not a Restricted Subsidiary of DIMAC Holdings on
the date hereof, in existence at the time such Person becomes a
Restricted Subsidiary of DIMAC Holdings (so long as such restrictions are
not created in anticipation of such Person becoming a Restricted
Subsidiary of DIMAC Holdings);
(iii) with respect to clause (c) above only, any restrictions
existing under Capitalized Lease Obligations or other Indebtedness
secured by Permitted Liens (PROVIDED that, in each case, such prohibition
shall only relate to the assets which are subject to such Capitalized
Lease Obligations or which secure such Indebtedness and the proceeds
therefrom);
(iv) any restrictions existing under any new agreement evidencing
Indebtedness or any agreement that refinances or replaces the agreements
containing the restrictions in the foregoing clauses (i), (ii) and (iii);
PROVIDED, that the terms and conditions of any such restrictions are no
more restrictive than those under or pursuant to the agreements
containing the restrictions referenced in the foregoing clauses (i), (ii)
or (iii); or
(v) any encumbrance or restriction permitted pursuant to the
limitation on restrictions on distributions from restricted subsidiaries
provisions of the DIMAC Operating Indenture (as in effect on the Initial
Issue Date).
LIMITATION ON ADDITIONAL INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED CAPITAL
STOCK.
(a) DIMAC Holdings shall not, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to (collectively, "incur") any Indebtedness (other than PIK Notes) or issue any
Disqualified Capital Stock; PROVIDED that DIMAC Holdings may guarantee
Indebtedness of any of its Restricted Subsidiaries to the extent that the
incurrence of such Indebtedness by such Restricted Subsidiary or such guarantee
by DIMAC Holdings (without duplication) does not violate the provisions of
paragraph (b) of this section "--Limitation on Additional Indebtedness and
Issuance of Disqualified Stock" at the time of such incurrence.
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(b) DIMAC Holdings shall cause each of its Restricted Subsidiaries
(including without limitation, upon the creation or acquisition of such
Restricted Subsidiary) to not fail to comply with the limitation on
indebtedness provisions of the DIMAC Operating Indenture (as in effect on
the Initial Issue Date); PROVIDED, HOWEVER, that for purposes of this
paragraph (b), the Consolidated Coverage Ratio test described in paragraph
(a) of the limitation on indebtedness provisions of the DIMAC Operating
Indenture shall be deemed to be 1.90 to 1.00.
LIMITATION ON ASSET SALES
(a) DIMAC Holdings shall not make any Asset Sale. In addition, DIMAC
Holdings shall cause each of its Restricted Subsidiaries to not, make any Asset
Sale, unless no Default or Event of Default exists and is continuing or is
created by such Asset Sale and:
(i) such Restricted Subsidiary receives consideration at the time of
such Asset Sale at least equal to the fair market value of such assets
(as determined in good faith by the Board of Directors of DIMAC Holdings
and evidenced by a resolution set forth in an Officers' Certificate,
including as to the value of all noncash consideration);
(ii) at least 80% of the consideration therefor received by such
Restricted Subsidiary shall be in the form of cash or Cash Equivalents;
PROVIDED, HOWEVER, that for the purposes of this subsection (a)(ii), the
following are deemed to be cash:
(x) any liabilities of such Restricted Subsidiary (as shown on the
most recent balance sheet or in the notes thereto of such Restricted
Subsidiary) that are assumed by the transferee in connection with the
Asset Sale (other than liabilities that are incurred in connection with
or in anticipation of such Asset Sale); and
(y) securities received by such Restricted Subsidiary from such
transferee that are immediately converted into cash at the face amount or
fair market value thereof by such Restricted Subsidiary; and
(iii) the Net Cash Proceeds of such Asset Sale shall be applied within
360 days of the consummation of such Asset Sale:
(x) to prepay, purchase, defease or otherwise retire any Indebtedness
of DIMAC Operating or its Restricted Subsidiaries (including without
limitation, the DIMAC Operating Notes and any Indebtedness under the
Senior Credit Agreement), in each case, with a permanent reduction in
amounts available to be borrowed or the Indebtedness that may be incurred
under the instrument evidencing such Indebtedness; and/or
(y) to reinvest in Productive Assets. Any Net Cash Proceeds from any
Asset Sale consummated by any Restricted Subsidiary that are not applied
or reinvested as provided in this subsection (a)(iii) of this section
"--Limitation on Asset Sales" shall constitute excess proceeds ("EXCESS
NET CASH PROCEEDS") and shall be held in cash or Cash Equivalents.
(b) When the aggregate amount of Excess Net Cash Proceeds exceeds
$5,000,000, DIMAC Holdings shall promptly make an offer (the "ASSET SALE
OFFER") to all Holders of the Notes to purchase the maximum principal amount
of Notes that may be purchased out of the Excess Net Cash Proceeds, at an
offer price in cash in an amount (the "ASSET SALE OFFER PRICE") equal to
100% of the principal amount of such Notes, plus accrued and unpaid interest
thereon to the Asset Sale Date.
If the aggregate principal amount of Notes surrendered by Holders thereof
exceeds the amount of Excess Net Cash Proceeds, DIMAC Holdings shall select the
Notes to be purchased on a pro rata basis, in such manner as complies with
applicable legal requirements, if any. Upon completion of such Asset Sale Offer,
the amount of Excess Net Cash Proceeds shall be reset at zero.
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Simultaneously with the making of such Asset Sale Offer, DIMAC Holdings
shall provide the Trustee and the Holders with an Officers' Certificate setting
forth the Asset Sale Offer Price, the Asset Sale Date and the calculations used
in determining the amount of Excess Net Cash Proceeds to be applied to the
repurchase of the Notes.
If the date on which the Asset Sale Offer closes (the "ASSET SALE DATE") is
on or after an interest payment record date and on or before the related
interest payment date, any accrued interest will be paid to the person in whose
name a Note is registered at the close of business on such record date, and no
additional interest will be payable to holders who tender Notes pursuant to the
Asset Sale Offer.
Each Asset Sale Offer shall be conducted in compliance with all applicable
laws, including without limitation, Regulation 14E of the Exchange Act and the
rules thereunder and all other applicable Federal and state securities laws. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of this section "--Limitation on Asset Sales," DIMAC
Holdings shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under this section
"--Limitation on Asset Sales" by virtue thereof. Except as provided in the DIMAC
Operating Indenture (as in effect on the Initial Issue Date) or the Senior
Credit Agreement (as in effect on the Initial Issue Date) or as permitted
pursuant to "--Limitation on Restrictions on Dividends from Restricted
Subsidiaries," DIMAC Holdings shall not, and shall not permit any of its
Restricted Subsidiaries to, create or suffer to exist or become effective any
restriction that would impair the ability of DIMAC Holdings to make an Asset
Sale Offer upon an Asset Sale or, if such Asset Sale Offer is made, to pay for
the Notes tendered for purchase.
(c) Notice of any Asset Sale Offer shall be mailed by DIMAC Holdings to
the Trustee and each Holder at its last registered address. The Asset Sale
Offer shall remain open from the time of mailing until twenty (20) Business
Days thereafter, and no longer, unless a longer period is required by law.
The notice shall contain all instructions and materials necessary to enable
such Holders to tender Notes pursuant to the Asset Sale Offer. The notice,
which shall govern the terms of the Asset Sale Offer, shall state:
(i) that the Asset Sale Offer is being made pursuant to this Section
4.10 and that Notes will be accepted for payment either (A) in whole or (B)
in part in integral multiples of $1,000;
(ii) the Asset Sale Offer Price and the Asset Sale Date;
(iii) that any Note not tendered will continue to accrue interest;
(iv) that any Note accepted for payment pursuant to the Asset Sale Offer
shall cease to accrue interest from and after the Asset Sale Date (so long
as DIMAC Holdings does not default in its obligation to promptly pay the
Asset Sale Offer Price);
(v) that Holders electing to have a Note purchased pursuant to the Asset
Sale Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed,
at the address specified in the notice prior to the close of business on the
Business Day preceding the Asset Sale Date;
(vi) that Holders will be entitled to withdraw their election on the
terms and subject to the conditions set forth in the notice;
(vii) that Holders whose Notes are purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered; PROVIDED, HOWEVER, that any portion of a Note
repurchased by DIMAC Holdings and any new Note issued to the Holder in
respect of the unpurchased portion thereof shall be in the principal
amount of $1,000 or an integral multiple thereof.
(d) On the Asset Sale Date, DIMAC Holdings shall (i) accept for payment
the Notes or portions thereof (or an allocable amount thereof) tendered
pursuant to the Asset Sale Offer,
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(ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted and (iii) deliver to the
Trustee the Notes so accepted, together with an Officers' Certificate
stating that the Notes or portions thereof (or an allocable amount thereof)
tendered to DIMAC Holdings are accepted for payment. The Paying Agent shall
promptly mail to each Holder of Notes so accepted payment in an amount equal
to the purchase price of such Notes, and the Trustee shall promptly
authenticate and mail to such Holders new Notes equal in principal amount to
any unpurchased portion of the Notes surrendered. After payment to the
Holders of the purchase price of all Notes or portions thereof so accepted,
the Paying Agent shall deliver promptly to DIMAC Holdings the balance, if
any, of any money so deposited by DIMAC Holdings with the Paying Agent
remaining after such payment to the Holders.
DIMAC Holdings shall make a public announcement of the results of the Asset
Sale Offer as soon as practicable after the Excess Proceeds Payment Date. For
the purposes of this section "--Limitation on Asset Sales," the Trustee shall
act as the Paying Agent.
Notwithstanding any of the foregoing provisions of this section
"--Limitation on Asset Sales" to the contrary, DIMAC Holdings shall not be
required to comply with the provisions of this section "--Limitation on Asset
Sales" to the extent and only to the extent that such compliance would be
prohibited by the terms of the DIMAC Operating Indenture, as amended, replaced,
refinanced, modified or supplemented from time to time, or the Senior Credit
Agreement.
LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) DIMAC Holdings shall not, and shall cause each of its Restricted
Subsidiaries to not, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions that are similar or part of a
common plan (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with, or for the
benefit of, any of their respective Affiliates (each an "AFFILIATE
TRANSACTION"), unless
(i) the terms of such Affiliate Transaction are no less favorable to
DIMAC Holdings or the applicable Restricted Subsidiary, as the case may
be, than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate,
(ii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $1,000,000, the terms of such Affiliate Transaction
have been approved by a majority of the members of the Board of Directors
of DIMAC Holdings and by a majority of the disinterested members of such
Board of Directors, if any (and such majority or majorities, as the case
may be, determines pursuant to a resolution of such Board of Directors
that such Affiliate Transaction satisfies the criterion in clause (i) of
this paragraph (a)); and
(iii) in the event such Affiliate Transaction involves an aggregate
amount in excess of $5,000,000, DIMAC Holdings has received a written
opinion from an independent investment banking firm of nationally
recognized standing that such Affiliate Transaction is fair to DIMAC
Holdings or such Restricted Subsidiary, as the case may be, from a
financial point of view.
(b) The provisions of paragraph (a) of this section "--Limitation
Transactions With Affiliates" will not prohibit
(i) any Restricted Payment (as defined in the DIMAC Operating
Indenture as in effect on the Initial Issue Date) permitted to be paid
pursuant to "--Limitation on Restricted Payments" (and in the case of
Permitted Investments (as defined in the DIMAC Operating Indenture as in
effect on the Initial Issue Date), only those described in clauses (v),
(vi) and (ix) of the definition of Permitted Investments (as set forth in
the DIMAC Operating Indenture as in effect on the Initial Issue Date)),
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(ii) the performance of the obligations of DIMAC Holdings or any of
its Restricted Subsidiaries under any employment contract, collective
bargaining agreement, employee benefit plan, related trust agreement or
any other similar arrangement heretofore or hereafter entered into in the
ordinary course of business,
(iii) payment of compensation to, and indemnity provided on behalf
of, employees, officers, directors or consultants (excluding under the
Advisory Services Agreement) in the ordinary course of business,
(iv) maintenance in the ordinary course of business of benefit
programs or arrangements for employees, officers or directors, including
vacation plans, health and life insurance plans, deferred compensation
plans, and retirement or savings plans and similar plans,
(v) any transaction between DIMAC Holdings or any of its Wholly-Owned
Subsidiaries,
(vi) the payment of fees and expenses under the Advisory Services
Agreement as in effect on the Initial Issue Date,
(vii) payments by DIMAC Operating and any of its Restricted Subsidiaries
pursuant to the Tax Sharing Agreement, or
(viii) the issuance or sale of any Capital Stock (other than
Disqualified Capital Stock) of DIMAC Operating.
LIMITATION ON LIENS.
DIMAC Holdings shall not create or suffer to exist any Liens other than
Permitted Liens upon any assets of DIMAC Holdings (including without limitation,
any shares of Capital Stock of DIMAC Operating).
LIMITATION ON BUSINESS.
DIMAC Holdings shall not conduct or operate any business, perform any
obligations, incur any Indebtedness (other than as permitted under paragraph (a)
of "--Limitation on Additional Indebtedness and Issuance of Disqualified Capital
Stock") or hold any assets; PROVIDED, HOWEVER, that DIMAC Holdings may own 100%
of the Equity Interests of DIMAC Operating, may hold cash or Cash Equivalents,
may perform its obligations pursuant to the Securities Purchase Agreement, this
Indenture, the Notes, the Registration Rights Agreement, the Warrant Agreement
and the Stockholders' Agreement, may issue new shares of common stock, may pay
its Taxes and may maintain its corporate existence. DIMAC Holdings shall cause
each of its Restricted Subsidiaries to not engage in any business other than a
Related Business.
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LIMITATION ON ACQUISITIONS.
(a) DIMAC Holdings shall not make any Acquisition.
(b) DIMAC Holdings shall cause each of its Restricted Subsidiaries to not
make an Acquisition, unless:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of, or would occur after giving effect, on a pro forma basis,
to, the consummation of such Acquisitions; and
(ii) the Acquisition
(A) is effected by way of
(1) merger or consolidation of DIMAC Operating or any of its
Restricted Subsidiaries so long as all of the Capital Stock of such
other Person is acquired,
(2) acquisition by DIMAC Operating or any of its Restricted
Subsidiaries of assets or property that constitute all or
substantially all of a business operating unit of another Person, or
(3) acquisition by DIMAC Operating or any of its Restricted
Subsidiaries of all of the Capital Stock in such other Person and
(B) relates only to acquisitions of Productive Assets and is approved
by the Board of Directors of the acquired Person (if applicable).
LIMITATION ON CAPITAL EXPENDITURES.
DIMAC Holdings shall not make or incur Capital Expenditures in any fiscal
year in an aggregate amount in excess of $250,000.
REPORTS
(a) DIMAC Holdings shall file with the Trustee copies of the reports,
information and other documents (or copies of such portions of any of the
foregoing as the Commission may by rules and regulations prescribe) that DIMAC
Holdings is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act, within 15 days after filing such reports, information and
other documents with the Commission. If DIMAC Holdings is not subject to the
requirements of Section 13 or 15(d) of the Exchange Act, DIMAC Holdings shall
file with the Trustee all such reports, information and other documents as it
would be required to file if it were subject to the requirements of Section 13
or 15(d) of the Exchange Act, within the period applicable to such report,
information or other document pursuant to the Exchange Act. From and after the
time DIMAC Holdings files a registration statement with the Commission with
respect to the Notes, DIMAC Holdings shall file such information with the
Commission; PROVIDED, that DIMAC Holdings shall not be in default of the
provisions of this section "--Reports" for any failure to file reports with the
Commission solely by refusal by the Commission to accept the same for filing.
DIMAC Holdings shall deliver (or cause the Trustee to deliver) copies of all
reports, information and documents required to be filed with the Trustee
pursuant to this section "--Reports" to the Holders at their addresses appearing
in the register of Notes maintained by the Registrar. DIMAC Holdings shall also
comply with the provisions of TIA Section 314(a).
(b) If DIMAC Holdings is required to furnish annual, quarterly or current
reports to its stockholders pursuant to the Exchange Act, DIMAC Holdings shall
cause any annual, quarterly, current or other financial report furnished by it
generally to its stockholders to be filed with the Trustee and mailed to the
Holders by DIMAC Holdings at their addresses appearing in the register of Notes
maintained by the Registrar within 15 days after such reports are furnished to
stockholders. If DIMAC Holdings is not required to furnish annual, quarterly or
current reports to its stockholders pursuant to the Exchange Act, DIMAC Holdings
shall cause the financial statements of DIMAC Holdings and its
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consolidated Subsidiaries, including any notes thereto (and, with respect to
annual reports, an auditors' report by an accounting firm of established
national reputation), and a "Management's Discussion and Analysis of Financial
Condition and Results of Operations," comparable to that which would have been
required to appear in annual or quarterly reports filed under Section 13 or
15(d) of the Exchange Act to be so filed with the Trustee and mailed to the
Holders by DIMAC Holdings promptly, but in any event, within 105 days after the
end of each of the fiscal years of DIMAC Holdings and within 60 days after the
end of each of the first three quarters of each such fiscal year.
(c) So long as is required for an offer or sale of the Notes to qualify for
an exemption under Rule 144A, DIMAC Holdings shall, upon request, provide the
information required by clause (d)(4) thereunder to each Holder and to each
beneficial owner and prospective purchaser of Notes identified by any Holder of
Restricted Securities.
WHEN DIMAC HOLDINGS MAY MERGE, ETC.
DIMAC Holdings shall not consolidate or merge with or into (regardless of
whether DIMAC Holdings is the surviving corporation), or transfer all or
substantially all of its properties or assets (determined on a consolidated
basis for DIMAC Holdings and its Subsidiaries) in one or more related
transactions to, any other Person unless:
(a) DIMAC Holdings is the surviving Person or the Person formed by or surviving
any such consolidation or merger (if other than DIMAC Holdings) or to which such
transfer has been made is a corporation organized and existing under the laws of
the United States, any state thereof or the District of Columbia,
(b) the Person formed by or surviving any such consolidation or merger
(if other than DIMAC Holdings) or the Person to which such transfer has been
made assumes all the Obligations of DIMAC Holdings, pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee,
under the Notes, this Indenture and the Registration Rights Agreement,
(c) immediately after giving effect to such transaction on a PRO FORMA
basis, no Default or Event of Default exists or would occur and
(d) immediately after giving effect to such transaction on a PRO FORMA
basis, the Consolidated Net Worth of such surviving entity must be equal to
or greater than that of DIMAC Holdings immediately prior to giving effect to
such transaction.
DIMAC Holdings shall deliver to the Trustee prior to the consummation of any
proposed transaction an Officers' Certificate to the foregoing effect, an
Opinion of Counsel, stating that all conditions precedent to the proposed
transaction provided for in this Indenture have been complied with, and a
written statement from a firm of independent public accountants of established
national reputation reasonably satisfactory to the Trustee stating that the
proposed transaction complies with clause (d) of this section "--When DIMAC
Holdings May Merge, etc."
For purposes of this section "--When DIMAC Holdings May Merge, etc.," the
transfer of all or substantially all of the properties and assets of one or more
Restricted Subsidiaries of DIMAC Holdings, which properties and assets, if held
by DIMAC Holdings instead of such Restricted Subsidiaries, would constitute all
or substantially all of the properties and assets of DIMAC Holdings on a
consolidated basis, shall be deemed to be the transfer of all or substantially
all of the properties and assets of DIMAC Holdings.
In the event of any transaction (other than a lease) contemplated by this
section "--When DIMAC Holdings May Merge, etc." in which DIMAC Holdings is not
the surviving Person, the successor formed by such consolidation or into or with
which DIMAC Holdings is merged or to which such transfer is made, or formed by
such reorganization, as the case may be, shall succeed to, and be substituted
for, and may exercise every right and power of, DIMAC Holdings and DIMAC
Holdings shall be discharged from its Obligations under this Indenture, the
Notes and the Registration Rights Agreement, with the same effect as if such
successor Person had been named as DIMAC Holdings herein or therein.
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DEFAULTS
An Event of Default is defined in the Indenture as:
(i) a default in the payment of interest on the Notes when due,
continued for 5 days,
(ii) a default in the payment of principal or premium, if any, of any
Note when due at maturity, upon redemption or otherwise,
(iii) the failure by DIMAC Holdings to comply with its obligations under
"--Certain Covenants," "--Repurchase Upon a Change of Control," "--When
DIMAC Holdings May Merge, etc.," certain other covenants contained in the
Indenture and the provisions governing Board of Directors observation rights
in the Securities Purchase Agreement,
(iv) (a) DIMAC Holdings or DIMAC Operating failing to comply with any of
its other agreements or covenants in, or provisions of, the Notes or this
Indenture or with any of its agreements or covenants in the Securities
Purchase Agreement and (b) the Default continues for 30 days after written
notice thereof has been given to DIMAC Holdings by the Trustee or to DIMAC
Holdings and the Trustee by the Holders of at least 25% in aggregate
principal amount of the then outstanding Notes, such notice to state that it
is a "Notice of Default,"
(v) (a) DIMAC Holdings or any of its Restricted Subsidiaries defaulting
in the payment of principal or interest payments under the DIMAC Operating
Notes or the DIMAC Operating Indenture or the Senior Credit Agreement,
regardless of the principal amount of the Indebtedness outstanding
thereunder, (b) DIMAC Holdings or any of its Restricted Subsidiaries
defaulting in the payment of principal or interest payments under any loan
agreement, note, mortgage, indenture or instrument (including, without
limitation, the DIMAC Operating Indenture and the Senior Credit Agreement)
under which there may be issued or by which there may be secured or
evidenced any other Indebtedness of DIMAC Holdings or any of its Restricted
Subsidiaries for borrowed money (or the payment of which is guaranteed by
DIMAC Holdings or any of its Restricted Subsidiaries), whether such
indebtedness or guarantee now exists or shall be created hereafter, and the
principal amount of such indebtedness, together with the principal amount of
any other such indebtedness for which there is a default in the payment of
interest, premium, if any, or principal, aggregates $3,000,000 or more or
(c) an event of default occurs under any loan agreement, note, mortgage,
indenture or instrument which shall represent a default in payment upon
final maturity or otherwise results in the acceleration of such indebtedness
prior to its expressed maturity and the principal amount of such
indebtedness, together with the principal amount of any other such
indebtedness with respect to which there has been a default in payment upon
final maturity or the maturity of which has been so accelerated and has not
been paid, aggregates $3,000,000 or more,
(vi) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against DIMAC
Holdings, DIMAC Operating or any Subsidiary of DIMAC Holdings or DIMAC
Operating and such remains undischarged for a period (during which execution
shall not be effectively stayed) of thirty (30) days, PROVIDED that the
aggregate of all such judgments (which are not adequately covered by
insurance as to which a solvent and unaffiliated insurance company has
acknowledged coverage) exceeds $3,000,000,
(vii) repudiation by DIMAC Holdings of its obligations under the
Indenture or the Notes, or the unenforceability of the Indenture or the
Notes against DIMAC Holdings for any reason,
(viii) the filing by DIMAC Holdings or any of its Subsidiaries (any such
Person, a "Debtor") of a petition commencing a voluntary case under Section
301 of Title 11 of the United States Code, or the commencement by a Debtor
of a case or proceeding under any other Bankruptcy
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Law seeking the adjustment, restructuring, or discharge of the debts of such
Debtor, or the liquidation of such Debtor, including, without limitation,
the making by a Debtor of an assignment for the benefit of creditors; or the
taking of any corporate action by a Debtor in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing,
(ix) the filing against a Debtor of a petition commencing an involuntary
case under Section 303 of Title 11 of the United States Code, with respect
to which case (a) such Debtor consents or fails to timely object to the
entry of, or fails to seek the stay and dismissal of, an order of relief,
(b) an order for relief is entered and is pending and unstayed on the 60th
day after the filing of the petition commencing such case, or if stayed,
such stay is subsequently lifted so that such order for relief is given full
force and effect, or (c) no order for relief is entered, but the court in
which such petition was filed has not entered an order dismissing such
petition by the 60th day after the filing thereof; or the commencement under
any other Bankruptcy Law of a case or proceeding against a Debtor seeking
the adjustment, restructuring, or discharge of the debts of such Debtor, or
the liquidation of such Debtor, which case or proceeding is pending without
having been dismissed on the 60th day after the commencement thereof, or
(x) the entry by a court of competent jurisdiction of a judgment, decree
or order appointing a receiver, liquidator, trustee, custodian or assignee
of a Debtor or of the property of a Debtor, or directing the winding up or
liquidation of the affairs or property of a Debtor, and (a) such Debtor
consents or fails to timely object to the entry of, or fails to seek the
stay and dismissal of, such judgment, decree, or order, or (b) such
judgment, decree or order is in full force and effect and is not stayed on
the 60th day after the entry thereof, or, if stayed, such stay is thereafter
lifted so that such judgment, decree or order is given full force and
effect. DIMAC Holdings shall, upon becoming aware that a Default or Event of
Default has occurred, deliver to the Trustee a statement specifying such
Default or Event of Default and what action DIMAC Holdings is taking or
proposes to take with respect thereto.
If an Event of Default (other than an Event of Default specified in clause
(viii), (ix) or (x) of the preceding paragraph) occurs and is continuing, the
Trustee by written notice to DIMAC Holdings, or the Holders of at least 25% in
principal amount of the then outstanding Notes by written notice to DIMAC
Holdings and the Trustee, may declare the unpaid principal of and any accrued
interest on all the Notes to be due and payable. Upon such declaration the
principal and interest shall be due and payable immediately. If an Event of
Default specified in clause (viii), (ix) or (x) of the preceding paragraph
occurs, all outstanding Notes shall IPSO FACTO become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. At any time after a declaration of acceleration, but before a judgment
or decree for payment of the money due has been obtained by the Trustee, the
Holders of a majority in aggregate principal amount of the Notes outstanding, by
written notice to DIMAC Holdings and the Trustee, may rescind and annul such
declaration and its consequences if:
(a) DIMAC Holdings has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all sums paid or advanced by the Trustee and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel,
(ii) all overdue interest (including any interest accrued subsequent
to an Event of Default specified in clause (viii), (ix) or (x) of the
preceding paragraph) on all Notes,
(iii) the principal of and premium, if any, on any Notes that have
become due otherwise than by such declaration or occurrence of
acceleration and interest thereon at the rate borne by the Notes, and
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(iv) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate borne by the Notes;
(b) all Events of Default, other than the non-payment of principal of
and interest on the Notes that have become due solely by such declaration or
occurrence of acceleration, have been cured or waived; and
(c) the rescission would not conflict with any judgment, order or decree
of any court of competent jurisdiction.
A Holder may pursue a remedy with respect the Indenture or the Notes only
if:
(a) the Holder gives to the Trustee written notice of a continuing Event
of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense;
(d) the Trustee does not comply with the request within 30 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 30-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder may not use the Indenture to prejudice the rights of another Holder
or to obtain a preference or priority over another Holder.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended or supplemented
with the written consent of the Holders of at least a majority of the principal
amount of the then outstanding Notes (including consents obtained in connection
with a tender offer or exchange for the Notes) and, subject to certain
exceptions, any past default or compliance with any provisions may also be
waived with the consent of the Holders of a majority of the aggregate principal
amount of the then outstanding Notes.
Without the consent of each Holder of an outstanding Note affected thereby,
no amendment or supplement may:
(i) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver,
(ii) reduce the rate of or change the time for payment of interest,
including default interest, on any Note,
(iii) reduce the principal of, or the premium (including, without
limitation, redemption premium) on, or change the fixed maturity of any Note
or alter the provisions with respect to payment on redemption of the Notes
or the price at which DIMAC Holdings shall offer to purchase such Notes
pursuant to "--Limitation on Asset Sales" or "--Repurchase Upon a Change of
Control" of the Indenture,
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(iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on, or redemption payment with respect to,
any Note (other than a Default in the payment of an amount due as a result
of an acceleration if the Holder rescinds such acceleration pursuant to the
provisions of the Indenture),
(v) make any Note payable in money other than that stated in the Notes,
(vi) make any change in the provisions relating to waiver of past
defaults and rights of holders to receive payment under the Indenture or in
this "--Amendments, Supplements and Waivers" section with respect to the
requirement for the consent of any affected Holder, or
(vii) make any change adversely affecting the contractual ranking of the
Obligations of DIMAC Holdings under the Notes, this Indenture and the
Registration Rights Agreement.
Without the consent of any Holder, DIMAC Holdings and the Trustee may amend
or supplement the Indenture:
(i) to cure any ambiguity, defect or inconsistency,
(ii) to provide for uncertificated Notes in addition to or in place of
certificated Notes,
(iii) to comply with "--When DIMAC Holdings May Merge, etc." described
above,
(iv) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder or thereunder of any Holder, or
(v) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the TIA.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment or supplement. It is sufficient if
such consent approves the substance of the proposed amendment or supplement.
After a supplemental indenture or amendment becomes effective, DIMAC
Holdings is required to mail to Holders a notice briefly describing such
amendment or supplement. However, the failure to give such notice to all
Holders, or any defect therein, will not impair or affect the validity of the
supplemental indenture, amendment or waiver.
TRANSFER
The registered holder of a Note will be treated as the owner of it for all
purposes. The Notes will be issued in registered form and will be transferable
only upon the surrender of the Notes being transferred for registration of
transfer. DIMAC Holdings may require payment of a sum sufficient to cover any
tax, assessment or other governmental charge payable in connection with certain
transfers and exchanges.
DEFEASANCE
DIMAC Holdings at its option at any time may terminate all of its
obligations under the Notes and the Indenture ("Legal Defeasance"), except for
certain obligations, including, but not limited to, those respecting the
defeasance trust and obligations to register the transfer or exchange of the
Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the Notes. In addition, DIMAC Holdings
at its option at any time may terminate certain of
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its obligations under "--Repurchase Upon a Change of Control," "--Certain
Covenants," "--When DIMAC Holdings May Merge, etc." and certain other covenants
contained in the Indenture (and any omission to comply with such obligations
shall not constitute a Default or Event of Default with respect to the Notes)
("Covenant Defeasance"). In the event that a Covenant Defeasance occurs, the
events described in paragraphs (iii) through (vii) of "--Defaults" will no
longer constitute Events of Default with respect to the Notes.
DIMAC Holdings may exercise its Legal Defeasance option notwithstanding its
prior exercise of its Covenant Defeasance option. If DIMAC Holdings exercises
its Legal Defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto.
In order to exercise either defeasance option, DIMAC Holdings must
irrevocably deposit in trust (the "defeasance trust") with the Trustee cash,
U.S. Government Obligations or a combination thereof in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest (and
Liquidated Damages, if any) on the outstanding Notes on the stated date for
payment thereof or on the redemption date of such principal or installment of
principal of, premium, if any, or interest on such Notes, and the holders of
Notes must have a valid, perfected, exclusive security interest in such trust.
In addition, DIMAC Holdings shall deliver to the Trustee an Opinion of Counsel
to the effect that Holders will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit and defeasance and will be
subject to Federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of Legal Defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest on the Notes when due, then the obligations of DIMAC Holdings under
the Indenture will be revived and no such defeasance will be deemed to have
occurred.
CONCERNING THE TRUSTEE
Wilmington Trust Company is the Trustee under the Indenture and has been
appointed by DIMAC Holdings as Registrar and Paying Agent with regard to the
Notes. Wilmington Trust Company may also act as a depositary of funds for, or
make loans to and perform other services for, DIMAC Holdings or its Affiliates
in the ordinary course of business in the future.
The Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee. The Indenture provides that if an Event of
Default occurs and is continuing, the Trustee will be required, in the exercise
of its power, to use the degree of care and skill of a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense. The
Trustee may resign at any time or may be removed by the Holders of a majority in
principal amount of the then outstanding Notes. DIMAC Holdings may remove the
Trustee if:
(i) the Trustee fails to comply with the eligibility provisions of the
Indenture,
(ii) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law,
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(iii) a Custodian or public officer takes charge of the Trustee or its
property, or (iv) the Trustee becomes incapable of acting.
If the Trustee resigns, is removed or becomes incapable of acting as Trustee
or if a vacancy occurs in the office of the Trustee for any reason, a successor
Trustee shall be appointed in accordance with the provisions of the Indenture.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and the Indenture. The Indenture also
contains certain limitations on the right of the Trustee, as a creditor of DIMAC
Holdings, to obtain payment of claims in certain cases, or to realize on certain
property received by it in respect of any such claims, as security or otherwise.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Restricted Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of DIMAC Holdings or any of its Restricted Subsidiaries or assumed in
connection with the acquisition by DIMAC Holdings or any of its Restricted
Subsidiaries of assets from such Person, which Indebtedness was not incurred in
connection with or in anticipation of such acquisition.
"ACQUISITION" means the acquisition (including by way of a merger or
consolidation or in a series of related transactions) of all or substantially
all of the assets or property of another Person or of Voting Securities of such
Person representing a majority (more than 50%) of the aggregate Voting Power of
the outstanding Voting Securities of such Person by purchase in cash, exchange
of property or securities, or by any other method.
"ADVISORY SERVICES AGREEMENT" means the Advisory Services Agreement dated as
of June 26, 1998 by and between DIMAC Operating and MDC Management Company IV,
LLC, as in effect on the date thereof.
"AFFILIATE" means, with respect to any referenced Person, a Person (i) which
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 5% or more of the combined voting power of the total Voting
Securities of such referenced Person or (iii) of which 5% or more of the
combined voting power of the total Voting Securities directly or indirectly
through one or more intermediaries is beneficially owned or held by such
referenced Person or a Subsidiary of such referenced Person. When used herein
without reference to any Person, Affiliate means an Affiliate of DIMAC Holdings.
For all purposes of this Indenture, McCown De Leeuw & Co., Inc. and its
Affiliates shall be considered an Affiliate of DIMAC Holdings. For purposes of
this definition, "control" when used with respect to any person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of Voting Securities, by agreement or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. Notwithstanding the foregoing, for purposes of the Indenture, Trust
Company of the West and its Affiliates and
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any other Initial Purchaser and its Affiliates shall not be considered
Affiliates of DIMAC Holdings or any of its Subsidiaries.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ASSET ACQUISITION" means (a) an Investment by DIMAC Holdings or any of its
Subsidiaries in any other Person pursuant to which such Person shall become a
Subsidiary of DIMAC Holdings, or shall be merged with or into DIMAC Holdings or
any of its Subsidiaries, or (b) the acquisition by DIMAC Holdings or any of its
Subsidiaries of the assets of any Person (other than a Subsidiary of DIMAC
Holdings) which constitute all or substantially all of the assets of such Person
or comprise any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"ASSET SALE" means any sale, lease, transfer, issuance or other disposition
(or series of related sales, leases, transfers, issuances or dispositions that
are part of a common plan) of shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares), property or other assets (each
referred to for the purposes of this definition as a "disposition") by DIMAC
Holdings or any Restricted Subsidiary (including any disposition by means of a
merger, consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to DIMAC Holdings or by DIMAC Holdings or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of inventory or
Temporary Cash Investments in the ordinary course of business, (iii) a
disposition of obsolete equipment or equipment that is no longer useful in the
conduct of the business of DIMAC Holdings or the applicable Restricted
Subsidiary and that is disposed of in each case in the ordinary course of
business, (iv) the sale of other assets so long as the fair market value of the
assets disposed of pursuant to this clause (v) does not exceed $1,000,000 in the
aggregate in any fiscal year and $5,000,000 in the aggregate prior to the
maturity date of the Notes, (vi) for the purposes of Section 4.10 only, a
disposition subject to the covenant described under Section 4.7 and (vii) the
disposition of all or substantially all of the assets of DIMAC Holdings in the
manner permitted pursuant to the provisions described under Section 5.1, or any
disposition that constitutes a Change of Control pursuant to this Indenture.
"BANKRUPTCY LAW" means title 11, U.S. Code, or any similar Federal, state or
foreign law for the relief of debtors.
"BOARD OF DIRECTORS" means the board of directors or any duly constituted
committee thereof of any corporation or of a corporate general partner of a
partnership and any similar body empowered to direct the affairs of any other
entity.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL EXPENDITURES" means, without duplication, for any Person for any
period, the aggregate of all expenditures including deposits (whether paid in
cash or property or accrued as liabilities and including the aggregate amount of
all principal payments due for the entire term of all Capital Leases that are
required to be capitalized on the balance sheet) made by such Person that, in
conformity with GAAP, are required to be included in the property, plant,
equipment, or similar fixed asset account.
"CAPITAL LEASE" means any lease of any property (whether real, personal or
mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"CAPITAL STOCK" means any and all shares, interests, participations or other
equivalents (however designated) of corporate stock, including without
limitation all common stock and preferred stock.
"CAPITALIZED LEASE OBLIGATION" means, with respect to any Person for any
period, any obligation of such Person to pay rent or other amounts under a
Capital Lease; the amount of such obligation shall be the capitalized amount
thereof determined in accordance with GAAP.
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"CASH EQUIVALENTS" means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("MOODY'S"); (c) commercial paper maturing no more than
one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-2 from S&P or at least P-2 from Moody's; (d)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any United States branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $250,000,000; (e)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (a) above entered into with any bank
meeting the qualifications specified in clause (d) above; and (f) investments in
money market funds which invest substantially all their assets in securities of
the types described in clauses (a) through (e) of this definition.
"CHANGE OF CONTROL" means:
(i) prior to the first Qualified Public Equity Offering of the DIMAC
Holdings or DIMAC Operating, as the case may be, the Permitted Holders cease
to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of majority Voting Power of the
Voting Securities of DIMAC Holdings and DIMAC Operating, whether as a result
of issuance of securities of DIMAC Holdings or DIMAC Operating, as the case
may be, any merger, consolidation, liquidation or dissolution of DIMAC
Holdings or DIMAC Operating, as the case may be, any direct or indirect
transfer of securities by any Permitted Holder or otherwise (for purposes of
this clause (i) and clause (ii) below, the Permitted Holders will be deemed
to beneficially own any Voting Securities of a Person (the "specified
corporation") held by any other Person (the "parent corporation") so long as
the Permitted Holders beneficially own (as so defined), directly or
indirectly, a majority of the Voting Power of the Voting Securities of the
parent corporation);
(ii) following the first Qualified Public Equity Offering of DIMAC
Holdings or DIMAC Operating, as the case may be, any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or
more Permitted Holders, is or becomes the beneficial owner (as defined in
clause (i) above, except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the total Voting Power of
the Voting Securities of DIMAC Holdings or DIMAC Operating, as the case may
be; PROVIDED, HOWEVER, that the Permitted Holders beneficially own (as
defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the total Voting Power of the Voting Securities of
DIMAC Holdings or DIMAC Operating, as the case may be, than such other
person and do not have the right or ability by Voting Power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors of DIMAC Holdings or DIMAC Operating, as the case may be (for
purposes of this clause (ii), such other person shall be deemed to
beneficially own any Voting Securities of a specified corporation held by a
parent corporation, if such other person "beneficially owns" (as defined in
this clause (ii)), directly or indirectly, more than 35% of the Voting Power
of the Voting Securities of such parent corporation and the Permitted
Holders "beneficially own" (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the Voting Power of the
Voting Securities of such parent corporation and do not
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have the right or ability by Voting Power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of such parent
corporation);
(iii) individuals who on the Initial Issue Date constituted the Board of
Directors of DIMAC Holdings or the Board of Directors of DIMAC Operating
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the stockholders of DIMAC Holdings or
DIMAC Operating, as the case may be, was approved by a vote of a majority of
the members of the Board of Directors of DIMAC Holdings or DIMAC Operating,
as the case may be, then still in office who were either members of such
Board of Directors on the Initial Issue Date or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the Board of Directors of DIMAC Holdings or DIMAC Operating,
as the case may be, then in office;
(iv) the merger or consolidation of DIMAC Holdings or DIMAC Operating
with or into another Person or the merger of another Person with or into
DIMAC Holdings or DIMAC Operating, or the sale of all or substantially all
the assets of DIMAC Holdings or DIMAC Operating to another Person (other
than a Person that is controlled by the Permitted Holders), and, in the case
of any such merger or consolidation, the securities of DIMAC Holdings or
DIMAC Operating that are outstanding immediately prior to such transaction
and which represent 100% of the aggregate Voting Power of the Voting
Securities of DIMAC Holdings or DIMAC Operating, as the case may be, are
changed into or exchanged for cash, securities or property, unless pursuant
to such transaction such securities are changed into or exchanged for, in
addition to any other consideration, securities of the surviving corporation
that represent immediately after such transaction, at least a majority of
the aggregate Voting Power of the Voting Securities of the surviving
corporation;
(v) any transaction, as the result of which DIMAC Holdings owns (or has
the exclusive power to vote with respect to), directly or indirectly, less
than 100% of the Capital Stock of DIMAC Operating; or
(vi) at any time after the Initial Issue Date, DIMAC Operating (or any
successor in interest) no longer continues, for Federal income tax purposes,
to be a member of the affiliated group of corporations that includes DIMAC
Holdings as the parent corporation of such affiliated group.
"CHARTER DOCUMENTS" of any Person means the articles of incorporation or
certificate of incorporation and bylaws (or any similar organizational
documents), as amended or restated (or both) to date, of such Person.
"COMMISSION" means the United States Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Exchange Act, the Securities
Act or the TIA, as the case may be, then the body performing such duties at such
time.
"CONSOLIDATED" or "CONSOLIDATED," when used with reference to any accounting
term, means the amount described by such accounting term, determined on a
consolidated basis in accordance with GAAP, after elimination of intercompany
items.
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"CONSOLIDATED NET WORTH" with respect to any Person, means, as at any date
of determination, the sum of (i) the consolidated equity of the common
stockholders of such referent Person and its consolidated Restricted
Subsidiaries determined in accordance with GAAP plus (ii) the respective amounts
reported on such referent Person's most recent balance sheet with respect to any
series of preferred stock (other than Disqualified Capital Stock) that by its
terms is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
referent Person upon issuance of such preferred stock, PROVIDED that the
consolidated net worth of any Person shall exclude the effect of any non-cash
charges relating to the acceleration of stock options or similar securities of
such referent Person or another Person with which such referent Person is merged
or consolidated.
"CORPORATE TRUST OFFICE" shall be at the address of the Trustee specified in
Section 10.2 or such other address as the Trustee may specify by notice to DIMAC
Holdings.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"DEFAULT" means any event that is, or after notice or the passage of time or
both would be, an Event of Default.
"DEPOSITORY" means the Person specified in Section 2.3 as the Depository
with respect to the Notes issuable in global form, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"DIMAC HOLDINGS" means DIMAC Holdings, Inc., a Delaware corporation.
"DIMAC OPERATING" means DIMAC Corporation, a Delaware corporation.
"DIMAC OPERATING INDENTURE" means that certain Indenture, dated as of
October 22, 1998, by and between DIMAC Operating and Wilmington Trust Company,
as Trustee, together with all related documents, including security documents,
as such Indenture and such related documents are in effect on the Initial Issue
Date, without regard to any subsequent amendments, supplements or other
modifications thereto.
"DIMAC OPERATING NOTES" means the 12 1/2% Senior Subordinated Notes due 2008
of DIMAC Operating, issued pursuant to the DIMAC Operating Indenture.
"DISQUALIFIED CAPITAL STOCK" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof, in whole or in part, on or prior to
the maturity date of the Notes.
"DTC" means The Depository Trust Company.
"EQUITY INVESTORS" means the holders of Capital Stock of DIMAC Holdings on
the Initial Issue Date, other than any such holders who, at any time, are
employees of DIMAC Holdings or any of its Subsidiaries.
"EQUITY INTEREST" means (i) with respect to a corporation, any and all
Capital Stock or warrants, options or other rights to acquire Capital Stock (but
excluding any debt security which is convertible into, or exchangeable or
exercisable for, Capital Stock) and (ii) with respect to a partnership, limited
liability company or similar Person, any and all units, interests, rights to
purchase, warrants, options or other equivalents of, or other ownership
interests in any such Person.
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"ERISA" means The Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute or law thereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE OFFER" means the offer that may be made by DIMAC Holdings pursuant
to the Registration Rights Agreement to exchange Series B Notes for Series A
Notes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
and in the rules and regulations of the Commission.
"GAAP" means gaap as in effect on the Initial Issue Date.
"GUARANTY" means, with respect to any Person, any contract, agreement or
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, including without limitation:
(a) agreements to purchase such Indebtedness or any property
constituting security therefor;
(b) agreements to advance or supply funds (i) for the purchase or
payment of such Indebtedness, or (ii) to maintain working capital, equity
capital or other balance sheet conditions;
(c) agreements to purchase property, securities or services primarily
for the purpose of assuring the holder of such Indebtedness of the ability
of the primary obligor to make payment of the Indebtedness;
(d) letters or agreements commonly known as "comfort" or "keepwell"
letters or agreements; or
(e) any other agreements to assure the holder of the Indebtedness of the
primary obligor against loss in respect thereof;
PROVIDED, HOWEVER, that "guaranty" shall not include (i) the endorsement by a
Person in the ordinary course of business of negotiable instruments or documents
for deposit or collection, or (ii) indemnities given by DIMAC Holdings or its
Subsidiaries in brokerage, management and other agreements in the ordinary
course of business substantially consistent with past practices.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"HOLDER" means the Person in whose name a Note is registered in the register
of the Notes.
"INDEBTEDNESS" means, with respect to any Person, the aggregate amount of,
without duplication, the following:
(a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes or other
similar instruments;
(c) all obligations to pay the deferred purchase price of property or
services (except Trade Payables, accrued commissions and other similar
accrued current liabilities in respect of such obligations, in any case, not
overdue, arising in the ordinary course of business);
(d) all Capitalized Lease Obligations;
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(e) all obligations or liabilities of others secured by a lien on any
asset owned by such Person or Persons regardless of whether such obligation
or liability is assumed;
(f) all obligations of such Person or Persons, contingent or otherwise,
in respect of any letters of credit or bankers' acceptances;
(g) all Hedging Obligations; and
(h) all guaranties.
"INDENTURE" means this Indenture as amended or supplemented from time to
time.
"INITIAL ISSUE DATE" means the date upon which the Series A Notes are first
issued.
"INITIAL PURCHASERS" has the meaning given to the term "Purchasers" in the
Securities Purchase Agreement.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct, indirect or
beneficial investment by such Person, whether by means of share purchase, loan,
advance, extension of credit (other than accounts receivable and trade credits
arising in the ordinary course of business), capital contribution or otherwise,
in or to any other Person, the guaranty by such Person of any Indebtedness of
any other Person or the subordination of any claim against any other Person to
other Indebtedness of such other Person.
"ISSUER ORDER" means a written request or order signed in the name of DIMAC
Holdings by its Chairman of the Board, President, Chief Executive Officer or
Senior or Executive Vice President, and by its Chairman of the Board, President,
Chief Executive Officer, Senior or Executive Vice President Treasurer, Secretary
or an Assistant Treasurer or an Assistant Secretary and delivered to the
Trustee.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, Wilmington, Delaware or at a place of
payment are authorized by law, regulation or executive order to remain closed.
"LIEN" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, regardless of whether filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"LIQUIDATED DAMAGES" has the meaning given to such term in the Registration
Rights Agreement.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect upon the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of DIMAC Holdings and its Restricted Subsidiaries taken as a whole or
(b) a material adverse effect on the ability of DIMAC Holdings to perform its
obligations under this Indenture or of any Holder of the Notes to enforce or
collect any of the obligations hereunder or under the Notes. In determining
whether any individual event could reasonably be expected to result in a
Material Adverse Effect, notwithstanding that such event does not of itself have
such effect, a Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of such event and all other then existing events could
reasonably be expected to result in a Material Adverse Effect.
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"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
DIMAC Holdings or any of its Restricted Subsidiaries from such Asset Sale, net
of (a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by DIMAC Holdings or any of its Restricted Subsidiaries,
as the case may be, as a reserve, in accordance with GAAP, against any post
closing adjustments or liabilities associated with such Asset Sale and retained
by DIMAC Holdings or any of its Restricted Subsidiaries, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"NOTES" means, collectively, the Series A Notes and the Series B Notes.
"OBLIGATION" means any principal, premium, interest, penalty, fee,
indemnification, reimbursement, damage and other obligation and liability
payable under the documentation governing any liability.
"OFFICER" means the Chairman of the Board, the President, the Chief
Financial Officer, the Chief Operating Officer, the Treasurer, any Assistant
Treasurer, the Controller, the Secretary, any Assistant Secretary or Senior Vice
President of DIMAC Holdings.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of DIMAC
Holdings by two Officers of DIMAC Holdings, one of whom must be the Chairman of
the Board, President, Chief Executive Officer, Chief Financial Officer,
Treasurer, Controller or a Senior or Executive Vice President of DIMAC Holdings.
"OPINION OF COUNSEL" means an opinion from legal counsel who is reasonably
acceptable to the Trustee. Such counsel may be an employee of or counsel to
DIMAC Holdings, any Subsidiary of DIMAC Holdings or the Trustee.
"PERMITTED HOLDER" means the Equity Investors and their respective
Affiliates.
"PERMITTED LIENS" means with respect to any Person:
(i) Liens incurred or deposits made by such Person under worker's
compensation laws, unemployment insurance laws or similar legislation, or
Liens incurred or good faith deposits made in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which
such Person is a party, or Liens incurred or deposits made to secure public
or statutory obligations of such Person or deposits of cash or United States
government bonds made to secure the performance of statutory obligations,
surety, stay, customs and appeal bonds to which such Person is a party, or
deposits made as security for contested taxes or import duties or for the
payment of rent, in each case in the ordinary course of business;
(ii) Liens imposed by law, such as carriers, warehousemen's,
materialmen's and mechanics' Liens or Liens arising out of judgments or
awards against such Person with respect to which such Person shall then be
prosecuting appeal or other proceedings for review; PROVIDED that, in each
case, such appeal or other proceeding is being made in good faith and with
respect to which reserves or other appropriate provisions are being made in
accordance with GAAP;
(iii) Liens securing the payment of Taxes which are not yet subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings, with respect to which reserves or other appropriate
provisions are being maintained in accordance with GAAP;
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(iv) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business;
(v) minor survey exceptions, encumbrances, easements or reservations of,
or rights of others for, rights of way, sewers, electric lines, telegraph
and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties or Liens incidental to the
conduct of the business of such Person or to the ownership of its properties
which were not incurred in connection with Indebtedness or other extensions
of credit and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of
the business of such Person; and
(v) Liens on shares of Capital Stock of DIMAC Operating or on assets of
DIMAC Operating or any of its Restricted Subsidiaries, in any such case,
securing Indebtedness that was permitted under the terms of this Indenture
to be incurred under the Senior Credit Agreement.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof, or any other entity.
"PIK INTEREST PAYMENT" means the payment of all or a portion of a payment of
interest on the Notes by the issuance of additional Notes in accordance with the
provisions of Section 1 of the Notes.
"PIK NOTE" means any Note issued by DIMAC Holdings in order to make a PIK
Interest Payment.
"PLAN OF LIQUIDATION" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (regardless of whether substantially contemporaneously, in phases
or otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"PRO FORMA" means, with respect to any calculation made or required to be
made pursuant to the terms of this Agreement, a calculation reflecting events
that are directly attributable to a specific transaction, are factually
supportable and are expected to have a continuing effect, in each case as
determined on a basis consistent with the procedures outlined in Article 11 of
Regulation S-X of the Securities Act and as interpreted by the Staff of the
Securities and Exchange Commission prior to December 1996 which would include
cost savings resulting from headcount reductions, closure of facilities and
similar restructuring charges.
"PRODUCTIVE ASSETS" means assets or properties used in the same type of
business engaged in by DIMAC Operating and its Restricted Subsidiaries
immediately prior to the date hereof or in a business reasonably related
thereto.
"PUBLIC EQUITY OFFERING" of any Person, means a sale by such Person of
Equity Interests of such Person in an underwritten (firm commitment) public
offering registered under the Securities Act.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"QUALIFIED PUBLIC EQUITY OFFERING" of any Person, means a Public Equity
Offering of such Person resulting in the listing of such Equity Interest on a
nationally recognized stock exchange or the
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NASDAQ National Market System, pursuant to which such Person receives net
proceeds of at least $30,000,000.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the Initial Issue Date, by and among DIMAC Holdings and the Initial
Purchasers as such agreement may be amended, modified or supplemented from time
to time.
"RELATED BUSINESS" means the business engaged in by DIMAC Operating and its
Subsidiaries on the Initial Issue Date and such other business activities which
are incidental or related thereto.
"RESPONSIBLE OFFICER" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee located at the
Corporate Trust Office (or any successor group of the Trustee) or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the designated officers, and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"RESTRICTED SECURITIES" means Notes that bear or are required to bear the
legends set forth in Exhibit A hereto.
"RESTRICTED SUBSIDIARY" means DIMAC Operating and any other Subsidiary of
DIMAC Holdings that is not an Unrestricted Subsidiary.
"RULE 144A" means Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or under any similar rule or regulation hereafter
adopted by the Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase Agreement
dated as of October 22, 1998 by and among DIMAC Holdings, DIMAC Operating and
the purchasers named on the signature pages thereof.
"SENIOR CREDIT AGREEMENT" means that certain Amended and Restated Credit
Agreement dated as of October 22, 1998 by and among DIMAC Operating, DIMAC
Holdings, the financial institutions listed on the signature pages thereof,
Credit Suisse First Boston, as administrative agent and arranger, UBS AG,
Stamford Branch, as syndication agent and First Union National Bank, as
documentation agent, as, unless the context in which such term is used requires
otherwise, amended, replaced, refinanced, modified or supplemented from time to
time, and all related documents, including guaranties and security documents,
as, unless the context in which such term is used requires otherwise, amended,
replaced, refinanced, modified or supplemented from time to time.
"SERIES A NOTES" means DIMAC Holdings's 15 1/2% Series A Senior Notes due
October 22, 2009, as authenticated and issued under this Indenture.
"SERIES B NOTES" means DIMAC Holdings's 15 1/2% Series B Senior Notes due
October 22, 2009, as authenticated and issued under this Indenture.
"STOCKHOLDERS' AGREEMENT" means the Amended and Restated Stockholders
Agreement dated as of October 22, 1998 by and among DIMAC Holdings and the
stockholders listed on the signature pages thereof, as in effect on the Initial
Issue Date and as supplemented and modified pursuant to the letter dated October
22, 1998 from DIMAC Holdings, McCown De Leeuw & Co. IV, L.P. and McCown De Leeuw
& Co. IV Associates, L.P. to the Initial Purchasers.
"SUBSIDIARY" means, with respect to any Person, (i) a corporation a majority
of whose Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries of such Person, or (ii) a partnership in which such
Person or a
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Subsidiary of such Person is, at the date of determination, a general or limited
partner of such partnership, but, in the case of a limited partner, only if such
Person or its Subsidiary is entitled to receive more than 50% of the assets of
such partnership upon its dissolution, or (iii) any limited liability company or
any other Person (other than a corporation or a partnership) in which such
Person, a Subsidiary of such Person or such Person and one or more Subsidiaries
of such Person, directly or indirectly, at the date of determination, has (a) at
least a majority ownership interest or (b) the power to elect or direct the
election of a majority of the directors or other governing body of such Person.
"TAXES" means all Federal, state, local and foreign taxes, and other
assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto.
"TAX RETURNS" means all Federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns and
any amended Tax Return relating to Taxes.
"TAX SHARING AGREEMENT" means the existing agreement among DIMAC Operating
and DIMAC Holdings and any other tax allocation agreement among DIMAC Operating,
any of its Subsidiaries or any direct or indirect stockholder of DIMAC Operating
with respect to consolidated or combined tax returns including DIMAC Operating
or any of its Subsidiaries.
"TEMPORARY CASH INVESTMENTS" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and undivided profits
aggregating in excess of $250,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) Investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of DIMAC Holdings) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "A-1" (or higher) according to Moody's Investors Service, Inc. or "P-1" (or
higher) according to Standard and Poor's Ratings Group.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. SectionSection
77aaa-77bbbb), as amended, as in effect on the date hereof until such time as
this Indenture is qualified under the TIA, and thereafter as in effect on the
date on which this Indenture is qualified under the TIA, unless the context
requires reference thereto as in effect from time to time.
"TRADE PAYABLES" means, with respect to any Person, accounts payable and
other similar accrued current liabilities in respect of obligations or
indebtedness to trade creditors created, assumed or guaranteed by such Person or
any of its Subsidiaries in the ordinary course of business in connection with
the obtaining of property or services.
"TRUSTEE" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary (other than DIMAC
Operating) of DIMAC Holdings that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors of DIMAC
Holdings in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors of DIMAC Holdings may designate any
Subsidiary of
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DIMAC Holdings (including any newly acquired or new formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of,
DIMAC Holdings or any Restricted Subsidiary of DIMAC Holdings that is not a
Subsidiary of the Subsidiary to be so designated; PROVIDED, HOWEVER, that either
(A) the Subsidiary to be so designated has total assets of $1,000 or less or (B)
if such Subsidiary has assets greater than $1,000, such designation would be
permitted under Section 4.7. The Board of Directors of DIMAC Holdings may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED,
HOWEVER, that immediately after giving effect to such designation (x) DIMAC
Operating could incur $1.00 of additional Indebtedness under paragraph (b) of
Section 4.9 and (y) no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors of DIMAC Holdings
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of
the resolution of the Board of Directors giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations of the United States
of America, or any agency or instrumentality thereof for the payment of which
the full faith and credit of the United States of America is pledged.
"VOTING SECURITIES" means any class of Equity Interests of a Person pursuant
to which the holders thereof have, at the time of determination, the general
voting power ("VOTING POWER") under ordinary circumstances to vote for the
election of directors, managers, trustees or general partners of such Person
(regardless of whether at the time any other class or classes will have or might
have voting power by reason of the happening of any contingency).
"WARRANT AGREEMENT" means the Warrant Agreement dated as of October 22, 1998
by and among DIMAC Holdings and the Initial Purchasers.
"WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, at any time, a
Restricted Subsidiary of such Person, all of the Equity Interests of which
(except director's qualifying shares) are at the time owned directly or
indirectly by such Person.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
In the opinion of White & Case LLP, our special tax counsel, the following
is a description of the principal U.S. federal income tax consequences relating
to the exchange of Old Notes for New Notes. This discussion is based upon the
provisions of the Internal Revenue Code of 1986, as amended, the Treasury
Regulations promulgated under the code and judicial and administrative
interpretations thereof, all as in effect and available as of the date hereof
and all of which are subject to change (possibly retroactively) or different
interpretation. The opinion of White & Case LLP is not binding on the Internal
Revenue Service. We cannot assure you that the Internal Revenue Service will not
challenge one or more of the tax consequences described in this Prospectus. We
have not obtained, nor do we intend to obtain, a ruling from the Internal
Revenue Service with respect to the U.S. federal income tax consequences of the
Exchange Offer. This discussion does not purport to address all aspects of U.S.
federal income taxation that may be relevant to particular holders in light of
their personal circumstances or to holders subject to special treatment under
the Internal Revenue Code (for example, life insurance companies, tax exempt
organizations, financial institutions, dealers or traders in securities or
currencies, holders subject to the alternative minimum tax, holders holding Old
Notes or that will hold New Notes as a part of a position in a straddle or as
part of a hedging, conversion or integrated transaction for U.S. federal income
tax purposes, or holders with a functional currency other than the U.S. dollar).
This discussion does not address the effect of any applicable U.S. federal
estate and gift tax laws or state, local or foreign tax laws. Moreover, this
description addresses only the U.S. federal income tax considerations of an
initial purchaser that purchased Old Notes for their original issue price, holds
such Old Notes as capital assets and will hold the New Notes as capital assets.
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR TO DETERMINE THEIR
PARTICULAR TAX CONSEQUENCES OF THE EXCHANGE OFFER UNDER U.S. FEDERAL AND
APPLICABLE STATE, LOCAL AND OTHER TAX LAWS.
For purposes of this summary, a "U.S. Holder" means a beneficial owner of
Old Notes or New Notes that is for U.S. federal income tax purposes:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any State of the United States (including the
District of Columbia);
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source;
- 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; or
- a person that otherwise is subject to U.S. federal income tax on a net
income basis with respect to the Old Notes.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not constitute a taxable exchange for U.S. federal income tax purposes. A holder
will not recognize gain or loss upon the receipt of New Notes pursuant to the
Exchange Offer and a U.S. Holder will be subject to U.S. federal income tax on
the same amount and in the same manner and at the same times as such U.S. Holder
would have been under the Old Notes. A U.S. Holder's holding period of the New
Notes will include the holding period of the Old Notes exchanged therefor, and
such holder's adjusted basis of the
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New Notes will be the same as the basis of the Old Notes exchanged therefor
immediately before the exchange.
THE DESCRIPTION IS INCLUDED IN THIS PROSPECTUS FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS CONCERNING THE U.S.
FEDERAL TAX CONSEQUENCES OF THE EXCHANGE OFFER WITH RESPECT TO YOUR PARTICULAR
SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
OLD NOTES REGISTRATION RIGHTS AGREEMENT
DIMAC Holdings and TCW/Crescent Mezzanine Partners, L.P., TCW/Crescent
Mezzanine Trust, TCW/Crescent Mezzanine Investment Partners, L.P., TCW Leveraged
Income Trust, L.P., and TCW Shared Opportunity Fund II, L.P. entered into a
Registration Rights Agreement on October 22, 1998. Under the Registration Rights
Agreement, we agreed to:
- file a registration statement for an exchange of the Old Notes for New
Notes under the Securities Act with the Securities and Exchange
Commission within 90 days of a demand by the holders of Old Notes;
- use our reasonable best efforts to ensure that the SEC declares the
registration statement effective under the Securities Act within 180 days
of the demand;
- keep the Exchange Offer registration statement effective until the
consummation of the Exchange Offer; and
- unless a policy of the SEC would not permit the Exchange Offer, commence
the Exchange Offer and use our reasonable best efforts to issue, on or
before 30 days after the effective date of the registration statement,
New Notes in exchange for all Old Notes tendered in the Exchange Offer.
As soon as practicable after the registration statement becomes effective, we
will offer the holders of Old Notes (who are not prohibited by any law or policy
of the SEC from participating in this exchange offer) the opportunity to
exchange their Old Notes for New Notes registered under the Securities Act that
are identical in all material respects to the Old Notes (except that the New
Notes will not contain terms with respect to transfer restrictions, registration
rights and liquidated damages). We will keep this exchange offer open for at
least 30 days (and longer if the law requires) after we mail the exchange offer
notice to the holders of the Old Notes.
Under the following circumstances we will use our reasonable best efforts to
file with the SEC a Shelf Registration Statement to cover resales of the Old
Notes by those holders who satisfy certain conditions relating to the provision
of information in connection with that Shelf Registration Statement:
- if we are not permitted to effect this Exchange Offer because of a change
in law or applicable interpretations of the law by the SEC's staff;
- if any holder is ineligible to participate in the Exchange Offer;
- if before the consummation of the Exchange Offer, either we or the
holders of a majority in aggregate principal amount of Old Notes
determines in our or their reasonable judgment that:
- the New Notes would not, upon receipt, be tradeable by their holders
without restriction under the Securities Act and the Exchange Act, and
without material restrictions under applicable Blue Sky or state
securities laws; or
- the interests of the holders of the Old Notes, taken as a whole, would
be materially adversely affected by the consummation of the Exchange
Offer;
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- if the Exchange Offer is not consummated within 210 days of the date on
which any holder provides a written notice to us demanding the filing of
an Exchange Offer registration statement or a shelf registration; or
- if any holder is not permitted to participate in the Exchange Offer or if
any holder participating in the Exchange Offer receives New Notes that
may not be sold without restriction under state and federal securities
laws and the holder notifies us of this within six months of consummation
of the Exchange Offer.
We will use our reasonable best efforts to have the SEC declare the Exchange
Offer Registration Statement or, if applicable, the Shelf Registration
Statement, effective as promptly as practicable after filing it. We will use our
reasonable best efforts to consummate the Exchange Offer as promptly as
practicable.
A Registration Default will occur if:
- we have filed neither an Exchange Offer registration statement nor an
initial shelf registration with the SEC on or before 90 days after any
holder provides a written notice to us demanding the filing of an
Exchange Offer registration statement or a shelf registration;
- the SEC does not declare the Exchange Offer registration statement or the
initial shelf registration effective on or before 180 days after any
holder provides a written notice to us demanding the filing of an
Exchange Offer registration statement or a shelf registration;
- we have not exchanged New Notes for all Old Notes validly tendered and
not validly withdrawn according to the terms of the Exchange Offer within
30 days after the date on which the SEC declares the Exchange Offer
registration statement effective; or
- we file a shelf registration statement and the SEC declares it effective,
but afterward it becomes ineffective during the 24 month period beginning
on the 180th day after any holder provides a written notice to us
demanding the filing of an Exchange Offer registration statement or a
shelf registration, or a shorter period ending when:
- all Old Notes covered by the shelf registration have been sold; or
- a subsequent shelf registration covering all the Old Notes has been
declared effective under the Securities Act.
If any Registration Default occurs, we will be obligated to pay liquidated
damages to each holder of Old Notes for each weekly period beginning on the date
of default an amount per week per $1,000 principal amount of Old Notes equal to:
- $0.05 for the first 90-day period immediately following the applicable
default date;
- $0.10 for the second 90-day period immediately following the applicable
default date;
- $0.15 for the third 90-day period immediately following the applicable
default date; and
- $0.20 thereafter.
The liquidated damages will, in each case, stop accruing on the date on which
all Registration Defaults are cured (and no others have occurred).
The Registration Rights Agreement also provides that we will make this
Prospectus available after the consummation of the Exchange Offer to any
participating broker-dealer to use in connection with any resale of any New
Notes. The Registration Rights Agreement further obligates us to pay all
expenses connected to the Exchange Offer (including the expense of one counsel
to the holders of the notes in addition to appropriate local counsel) and to
indemnify certain holders of the notes (including participating broker-dealers)
against certain liabilities, including liabilities under the Securities Act. A
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broker-dealer which delivers this Prospectus to purchasers in connection with
such resales will be subject to the relevant civil liability provisions of the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
Each holder of Old Notes who wishes to exchange the Old Notes for New Notes
in the Exchange Offer may be required to make certain representations,
including:
- that any New Notes that such holder will receive will be acquired in the
ordinary course of business;
- that such holder has no arrangements or understanding with any person to
participate in the distribution of the New Notes within the meaning of
the Securities Act or resale of the New Notes in violation of the
Securities Act;
- that such holder is not an "affiliate" of our company (as defined in Rule
405 under the Securities Act), or if such holder is an affiliate, that it
will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable;
- if such holder is not a broker-dealer, that it is not engaged in, and
does not intend to engage in, distribution of the New Notes; and
- if such holder is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, that it will
deliver a prospectus, as required by law, in connection with any resale
of those New Notes.
Holders of the Old Notes may be required to make these representations to us
in order to participate in the Exchange Offer and may be required to deliver
information to be used in connection with the Shelf Registration Statement in
order to have their notes included in the Shelf Registration Statement and
benefit from the provisions regarding liquidated damages set forth in the
preceding paragraphs. A holder who sells Old Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers. Such a holder will also be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder, including certain indemnification obligations.
For so long as the Notes are outstanding, we will continue to provide to
holders of the Notes and to their prospective purchasers the information
required by Rule 144A(d)(4) under the Securities Act.
The description of the Registration Rights Agreement contained in this
section is a summary only. For more information, you may review the provisions
of the Registration Rights Agreement that we filed with the SEC as an exhibit to
the Registration Statement of which this Prospectus is a part.
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BOOK-ENTRY; DELIVERY AND FORM
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTE
Except as set forth below, the New Notes will be represented by one
permanent global registered note in global form, without interest coupons. The
global note will be deposited with, or on behalf of, The Depository Trust
Company and registered in the name of Cede & Co., as nominee of The Depository
Trust Company, or will remain in the custody of the Trustee according to the
FAST Balance Certificate Agreement between The Depository Trust Company and the
Trustee.
We are providing the following descriptions of the operations and procedures
of The Depository Trust Company, Euroclear and Cedel solely as a matter of
convenience. These operations and procedures are solely within the control of
the respective settlement systems and are subject to change by them from time to
time. We do not take any responsibility for these operations or procedures. If
you wish to discuss these matters, we urge you to contact the relevant system or
its participants directly.
The Depository Trust Company has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended; and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
The Depository Trust Company was created to hold securities for its
participants. It facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants. This system eliminates the need for physical
transfer and delivery of certificates. The Depository Trust Company's
participants include:
- securities brokers and dealers;
- banks and trust companies;
- clearing corporations; and
- certain other organizations.
Indirect access to The Depository Trust Company's system is also available
to other entities. These indirect participants include banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly. Investors who are not participants
may beneficially own securities held by or on behalf of The Depository Trust
Company only through participants or indirect participants.
We expect that under the procedures established by The Depository Trust
Company:
- upon deposit of the global note, The Depository Trust Company will credit
the accounts of participants designated by the Exchange Agent with an
interest in the global note; and
- ownership of the Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by The
Depository Trust Company (with respect to the interests of participants)
and the records of participants and the indirect participants (with
respect to the interests of persons other than participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes
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represented by the global note to such persons may be limited. In addition The
Depository Trust Company can act only on behalf of its participants, who in turn
act on behalf of persons who hold interests through participants. Consequently,
the ability of a person having an interest in Notes represented by the global
note to pledge or transfer such interest to persons or entities that do not
participate in The Depository Trust Company's system, or to otherwise take
actions in respect of such interest, may be affected by the lack of a physical
definitive security in respect of such interest.
So long as The Depository Trust Company or its nominee is the registered
owner of the global note, The Depository Trust Company or its nominee, as the
case may be, will be considered the sole owner or holder of the Notes
represented by the global note for all purposes under the Notes Indenture.
Except as provided below, owners of beneficial interests in the global note:
- will not be entitled to have Notes represented by the global note
registered in their names;
- will not receive or be entitled to receive physical delivery of
certificated Notes; and
- will not be considered the owners or holders thereof under the Notes
Indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in the global note
must rely on the procedures of The Depository Trust Company. If the holder is
not a participant or an indirect participant, then it must rely on the
procedures of the participant through which such holder owns its interest in
order to exercise any rights of a Note holder under the Notes Indenture or the
global note. We understand that under existing industry practice, in the event
that we request any action of Note holders, or a holder that is an owner of a
beneficial interest in the global note desires to take any action that The
Depository Trust Company, as the holder of the global note, is entitled to take,
The Depository Trust Company would authorize the participants to take such
action and the participants would authorize holders owning through such
participants to take such action or would otherwise act upon the instruction of
such holders. Neither our company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Notes by The Depository Trust Company, or for maintaining,
supervising or reviewing any records of The Depository Trust Company relating to
such Notes.
Payments with respect to the principal of, and premium, if any, and interest
on, any Notes represented by the global note registered in the name of The
Depository Trust Company or its nominee on the applicable record date will be
payable by the Trustee to, or at the direction of, The Depository Trust Company
or its nominee in its capacity as the registered holder of the global note
representing such Notes under the Notes Indenture. Under the terms of the Notes
Indenture, we and the Trustee may treat the persons in whose names the Notes,
including the global note, are registered as the owners of the Notes for the
purpose of receiving payment on the Notes and for any and all other purposes
whatsoever. Accordingly, neither our company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to owners of
beneficial interests in a global note (including principal, premium, if any, and
interest). Payments by the participants and the indirect participants to the
owners of beneficial interests in a global note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the participants or the indirect participants and The Depository Trust Company.
Transfers between participants in The Depository Trust Company will be
effected in accordance with The Depository Trust Company's procedures, and will
be settled in same-day funds. Transfers between participants in Euroclear or
Cedel will be effected in the ordinary way in accordance with their respective
rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between the participants in The Depository Trust
Company and Euroclear or Cedel participants will be
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effected through The Depository Trust Company in accordance with its rules on
behalf of Euroclear or Cedel by its respective depositary. However, such
cross-market transactions will require delivery of instructions to Euroclear or
Cedel by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or Cedel will, if the transaction meets its settlement requirements,
deliver instructions to its respective depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
global notes in The Depository Trust Company, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
The Depository Trust Company. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in the global note from a participant
in The Depository Trust Company 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 settlement date of The Depository Trust Company. Cash
received in Euroclear or Cedel as a result of sales of interest in the global
note by or through a Euroclear or Cedel participant to a participant in The
Depository Trust Company will be received with value on the settlement date of
The Depository Trust Company but will be available in the relevant Euroclear or
Cedel cash account only as of the business day for Euroclear or Cedel following
The Depository Trust Company's settlement date.
Although The Depository Trust Company, Euroclear and Cedel have agreed to
the foregoing procedures to facilitate transfers of interests in the global note
among participants in The Depository Trust Company, Euroclear and Cedel, they
are under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. Neither our company nor the
Trustee will have any responsibility for the performance by The Depository Trust
Company, Euroclear or Cedel or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED NOTES
Certificated Notes will be issued to each person that The Depository Trust
Company identifies as the beneficial owner of the Notes represented by the
global Note if the following events occur:
- The Depository Trust Company notifies us that it is no longer willing or
able to act as a depositary or The Depository Trust Company ceases to be
registered as a clearing agency under the Exchange Act and a successor
depositary is not appointed within 90 days of such notice or cessation;
or
- we, in our discretion, notify the Trustee in writing that we elect to
cause the issuance of certificated Notes under the Notes Indenture.
Upon any such issuance, the Trustee shall register such certificated Notes in
the name of such person or persons, or any nominee, and deliver the certificated
Notes as instructed.
Neither we nor the Trustee shall be liable for any delay by The Depository
Trust Company or any participant or indirect participant in identifying the
beneficial owners of the related Notes. Each person may conclusively rely on,
and shall be protected in relying on, instructions from The Depository Trust
Company for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).
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PLAN OF DISTRIBUTION
Based on interpretations by the SEC set forth in no-action letters issued to
third parties, we believe that New Notes issued under the Exchange Offer in
exchange for the Old Notes may be transferred by holders other than any holder
which is:
- an "affiliate" within the meaning of Rule 405 under the Securities Act;
- a broker-dealer who acquired Notes directly from us; or
- broker-dealers who acquired Notes as a result of market-making or other
trading activities without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that:
- the holder acquires the New Notes in the ordinary course of that
holders' business; and
- the holders are not engaged in, and do not intend to engage in, and
have no arrangement or understanding with any person to participate in,
a distribution of such New Notes;
provided that broker-dealers receiving New Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to
resales of the New Notes.
To date, the SEC has taken the position that participating broker-dealers
may fulfill their prospectus delivery requirements with respect to transactions
involving an exchange of securities such as this Exchange Offer (other than a
resale of an unsold allotment from the original sale of the Old Notes, with the
prospectus contained in the Exchange Offer registration statement. Pursuant to
the Registration Rights Agreement, we have agreed to permit participating
broker-dealers to use this Prospectus in connection with the resale of New
Notes. We have agreed that, for a period of 90 days after the expiration of the
Exchange Offer, we will make this Prospectus, and any amendment or supplement to
this Prospectus, available to any broker-dealer that requests such documents in
the Letter of Transmittal.
Each holder of the Old Notes who wishes to exchange its Old Notes for New
Notes in the Exchange Offer will be required to make certain representations to
us as set forth in "The Exchange Offer--Purpose and Effect of the Exchange
Offer" of this Prospectus. In addition, each holder who is a broker-dealer and
who receives New Notes for its own account in exchange for Old Notes that were
acquired by it as a result of market-making activities or other trading
activities, will be required to acknowledge that it will deliver a prospectus in
connection with any resale by it of such New Notes.
We will not receive any proceeds from any sale of New Notes by
broker-dealers. Broker-dealers who receive New Notes for their own account
pursuant to the Exchange Offer may sell them from time to time in one or more
transactions in the over-the-counter market:
- in negotiated transactions;
- through the writing of options on the New Notes or a combination of such
methods of resale;
- at market prices prevailing at the time of resale; or
- at prices related to such prevailing market prices or negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any broker-dealer or the purchasers of any New Notes. Any broker-dealer
that resells New Notes it received for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such New
Notes may be deemed to be an "underwriter" within the meaning of the Securities
Act and any profit on any resale of New Notes and any commissions or concessions
received by any such persons may be deemed
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to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the Exchange Offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for DIMAC
Holdings by White & Case LLP, New York, New York.
EXPERTS
The audited consolidated financial statements of DIMAC Holdings, Inc. and
subsidiaries as of June 30, 1998 and for the period from Inception (May 12,
1998) to June 30, 1998, included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included in this Prospectus in reliance upon the authority of said firm as
experts in giving said report.
The audited consolidated financial statements of DIMAC Marketing Corporation
and subsidiaries as of December 31, 1996 and 1997 and for the year ended
December 31, 1995, one month ended January 31, 1996, eleven months ended
December 31, 1996, eight months ended August 31, 1997 and four months ended
December 31, 1997, included in this Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included in this Prospectus in reliance upon the authority of said firm as
experts in giving said reports.
The audited consolidated financial statements of AmeriComm Holdings, Inc.
and subsidiary as of December 31, 1996 and 1997 and for each of the three years
in the period ended December 31, 1997, included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included in this Prospectus in reliance upon the authority of
said firm as experts in giving said report.
The consolidated financial statements of AmeriComm Direct Marketing, Inc. as
of December 31, 1995 and 1996 and for each of the three years in the period
ended December 31, 1996 included in this Prospectus and elsewhere in the
registration statement have been audited by Deloitte & Touche LLP, independent
certified public accountants, as indicated in their report with respect thereto,
and are included in this Prospectus in reliance upon the authority of said firm
as experts in giving said report.
The consolidated financial statements of Transkrit as of December 31, 1994
and 1995 and for each of the years in the two-year period ended December 31,
1995 included in this Prospectus and elsewhere in the registration statement
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as indicated in their report with respect thereto, and are included
in this Prospectus in reliance upon the authority of said firm as experts in
accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
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DIMAC HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Public Accountants................................................................. F-3
Consolidated Balance Sheet as of June 30, 1998........................................................... F-4
Consolidated Statement of Operations for the period from Inception (May 12, 1998) to
June 30, 1998.......................................................................................... F-6
Consolidated Statement of Stockholder's Equity for the period from Inception (May 12, 1998) to June 30,
1998................................................................................................... F-7
Consolidated Statement of Cash Flows for the period from Inception (May 12, 1998) to
June 30, 1998.......................................................................................... F-8
Notes to Consolidated Financial Statements............................................................... F-9
DIMAC MARKETING CORPORATION AND SUBSIDIARIES
(Predecessor to our company)
The unaudited consolidated financial statements for the six month period ended June 30, 1997 reflect the
operations of DIMAC Marketing following its purchase by Heritage Media, but prior to the acquisition of Heritage
Media by News Corporation in August 1997, and the unaudited consolidated financial statements for the six month
period ended June 26, 1998 reflect the operations of DIMAC Marketing following the purchase of Heritage Media by
News Corporation.
Consolidated Balance Sheets as of June 26, 1998 (unaudited).............................................. F-25
Consolidated Statements of Operations for the six-month periods ended June 30, 1997 and June 26, 1998
(unaudited)............................................................................................ F-26
Consolidated Statements of Cash Flows for the six-month periods ended June 30, 1997 and June 26, 1998
(unaudited)............................................................................................ F-27
Notes to Consolidated Financial Statements (unaudited)................................................... F-28
The consolidated financial statements for the four-month period ended December 31, 1997 reflect the financial
results of DIMAC Marketing under a new basis of accounting that reflects the fair value of assets acquired and
liabilities assumed in connection with the purchase of Heritage Media by News Corporation.
Report of Independent Public Accountants................................................................. F-31
Consolidated Balance Sheet as of December 31, 1997....................................................... F-32
Consolidated Statement of Operations for the four-month period ended December 31, 1997................... F-33
Consolidated Statement of Stockholder's Equity for the four-month period ended
December 31, 1997...................................................................................... F-34
Consolidated Statement of Cash Flows for the four-month period ended December 31, 1997................... F-35
Notes to Consolidated Financial Statements............................................................... F-36
The consolidated financial statements for the eleven-month period ended December 31, 1996 and for the
eight-month period ended August 31, 1997 reflect the financial results of DIMAC Marketing under a new basis of
accounting that reflects the fair value of assets acquired and liabilities assumed, the related financing costs, and
all debt incurred in connection with purchase of DIMAC Marketing by Heritage Media.
Report of Independent Public Accountants................................................................. F-44
Consolidated Balance Sheet as of December 31, 1996....................................................... F-45
Consolidated Statements of Operations for the eleven-month period ended December 31, 1996 and for the
eight-month period ended August 31, 1997............................................................... F-46
</TABLE>
F-1
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<TABLE>
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PAGE
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<S> <C>
Consolidated Statements of Stockholder's Equity for the eleven-month period ended December 31, 1996 and
for the eight-month period ended August 31, 1997....................................................... F-47
Consolidated Statements of Cash Flows for the eleven-month period ended December 31, 1996 and for the
eight-month period ended August 31, 1997............................................................... F-48
Notes to Consolidated Financial Statements............................................................... F-49
The consolidated financial statements for all periods prior to January 31, 1996 reflect the operations of DIMAC
Marketing under a prior owner.
Report of Independent Public Accountants................................................................. F-58
Consolidated Statements of Operations for the year ended December 31, 1995 and for the one-month period
ended January 31, 1996................................................................................. F-59
Consolidated Statements of Stockholder's Equity for the year ended December 31, 1995 and for the
one-month period ended January 31, 1996................................................................ F-60
Consolidated Statements of Cash Flows for the year ended December 31, 1995 and for the one-month period
ended January 31, 1996................................................................................. F-61
Notes to Consolidated Financial Statements............................................................... F-62
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
(Predecessor to our company)
Report of Independent Public Accountants................................................................. F-67
Consolidated Balance Sheets as of December 31, 1996 and 1997 and June 26, 1998 (unaudited)............... F-68
Consolidated Statements of Operations for the years ended December 31, 1995, 1996 and 1997 and for the
six-month periods ended June 30, 1997 and June 26, 1998 (unaudited).................................... F-70
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995, 1996 and
1997 and for the six-month period ended June 26, 1998 (unaudited)...................................... F-71
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for the
six-month periods ended June 30, 1997 and June 26, 1998 (unaudited).................................... F-72
Notes to Financial Statements............................................................................ F-74
AMERICOMM DIRECT MARKETING, INC.
(Acquired by AmeriComm Holdings, Inc. on April 24, 1997)
Independent Auditors' Report............................................................................. F-90
Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited)........................... F-91
Statements of Income for the years ended December 31, 1994, 1995 and 1996 and for the three-month periods
ended March 31, 1996 and 1997 (unaudited).............................................................. F-92
Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996.................. F-93
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and for the three-month
periods ended March 31, 1996 and 1997 (unaudited)...................................................... F-94
Notes to Financial Statements............................................................................ F-95
TRANSKRIT CORPORATION AND SUBSIDIARIES
(Acquired by AmeriComm Holdings, Inc. on June 28, 1996)
Independent Auditors' Report............................................................................. F-101
Consolidated Balance Sheets as of December 31, 1994 and 1995............................................. F-102
Consolidated Statements of Income for the years ended December 31, 1994 and 1995 and for the six months
ended June 30, 1995 and June 28, 1996 (unaudited)...................................................... F-104
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1994 and
1995................................................................................................... F-105
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the six
months ended June 30, 1995 and June 28, 1996 (unaudited)............................................... F-106
Notes to Consolidated Financial Statements............................................................... F-107
</TABLE>
F-2
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DIMAC Holdings, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of DIMAC
Holdings, Inc. (a Delaware corporation) and subsidiaries as of June 30, 1998 and
the related consolidated statements of operations, stockholders' equity and cash
flows for the period from Inception (May 12, 1998) to June 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DIMAC Holdings, Inc. and
subsidiaries as of June 30, 1998 and the results of their operations and their
cash flows for the period from Inception (May 12, 1998) to June 30, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 6, 1998
F-3
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DIMAC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
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ASSETS
CURRENT ASSETS:
Cash........................................................................ $ 1,700
Accounts receivable, net of allowance for doubtful accounts of $1,772....... 65,112
Inventories................................................................. 14,310
Deferred income taxes....................................................... 7,133
Other....................................................................... 5,007
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Total current assets...................................................... 93,262
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PROPERTY AND EQUIPMENT:
Land........................................................................ 5,200
Buildings................................................................... 27,176
Machinery and equipment..................................................... 47,728
Office equipment, furniture and fixtures.................................... 11,006
Leasehold improvements...................................................... 2,099
Vehicles.................................................................... 133
Construction in progress.................................................... 3,873
-----------
97,215
Less accumulated depreciation............................................... (96)
-----------
Total property and equipment, net......................................... 97,119
-----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $72............................ 269,446
Other intangible assets, net of accumulated amortization of $116............ 50,294
Other....................................................................... 3,823
-----------
Total other assets........................................................ 323,563
-----------
Total assets............................................................ $ 513,944
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-4
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.............................................. $ 2,692
Outstanding checks............................................................. 5,324
Accounts payable............................................................... 9,458
Accrued employee compensation.................................................. 11,473
Advances from customers........................................................ 13,586
Other accrued expenses......................................................... 29,192
-----------
Total current liabilities.................................................... 71,725
-----------
DEFERRED INCOME TAXES............................................................ 16,790
-----------
NONCURRENT LIABILITIES........................................................... 4,187
-----------
LONG-TERM DEBT................................................................... 321,337
-----------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDER'S EQUITY:
Common stock $.001 par value, 10,000 shares authorized, issued and
outstanding.................................................................. --
Additional paid-in capital..................................................... 100,000
Accumulated deficit............................................................ (95)
-----------
Total stockholder's equity................................................... 99,905
-----------
Total liabilities and stockholder's equity................................... $ 513,944
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-5
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales........................................................................ $ 2,859
Cost of products sold............................................................ 1,977
---------
Gross profit..................................................................... 882
---------
Operating expenses:
Selling........................................................................ 309
General and administrative..................................................... 475
---------
Total operating expenses....................................................... 784
---------
Income from operations........................................................... 98
Interest expense................................................................. 208
---------
Loss before income tax benefit................................................... (110)
Income tax benefit............................................................... (15)
---------
Net loss......................................................................... $ (95)
---------
---------
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-6
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
--------- ---------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, INCEPTION (MAY 12, 1998).................... -- $ -- $ -- $ -- $ --
Issuance of common stock............................. 10,000 -- 100,000 -- 100,000
Net loss............................................. -- -- -- (95) (95)
--------- ---------- ---------- --- ----------
BALANCE, JUNE 30, 1998............................... 10,000 $ -- $ 100,000 $ (95) $ 99,905
--------- ---------- ---------- --- ----------
--------- ---------- ---------- --- ----------
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-7
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................... $ (95)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 284
Deferred income tax benefit................................................ (15)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable...................................................... (2,859)
Inventories.............................................................. 1,885
Accrued expenses and other............................................... 800
-----------
Net cash provided by operating activities.............................. --
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for the purchase of the outstanding stock of AmeriComm Holdings,
Inc., net of cash acquired................................................. (37,387)
Payment for the purchase of the outstanding stock of DIMAC Marketing Corp,
net of cash acquired....................................................... (203,959)
-----------
Net cash used in investing activities.................................. (241,346)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in outstanding checks, net.......................................... 615
Net borrowings on revolving loan facilities.................................. 5,785
Proceeds from issuance of common stock....................................... 100,000
Proceeds from issuance of Term Loans A and B................................. 150,000
Payments of deferred financing costs......................................... (13,354)
-----------
Net cash provided by financing activities.............................. 243,046
-----------
NET INCREASE IN CASH........................................................... 1,700
CASH, INCEPTION (MAY 12, 1998)................................................. --
-----------
CASH, JUNE 30, 1998............................................................ $ 1,700
-----------
-----------
SUPPLEMENTAL DISCLOSURES:
Assets acquired by assuming liabilities...................................... $ 168,200
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-8
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
1. BACKGROUND
DIMAC Holdings, Inc. ("Holdings"), and its wholly owned subsidiary, DIMAC
Corporation ("DIMAC") (collectively or individually, the "Company"), were formed
on May 12, 1998 ("Inception") for the purpose of acquiring DIMAC Marketing
Corporation and its subsidiaries (DIMAC Direct, Inc., Wilcox and Associates, The
McClure Group, Palm Coast Data, Inc. and MBS/Multimode, Inc., collectively
referred to as "DIMAC Marketing"), and AmeriComm Holdings, Inc. and its
subsidiary (AmeriComm Direct Marketing, Inc. or "ADMI", collectively referred to
as "AHI"). On June 26, 1998, the Company acquired the outstanding capital stock
of DIMAC Marketing for $200,000 plus transaction costs and assumed indebtedness
of $4,000. Simultaneous with the DIMAC Marketing acquisition, the Company
acquired the outstanding capital stock of AHI for $35,849 plus transaction costs
and assumed indebtedness of $164,200. The acquisitions were funded through
revolving and term loan facilities with Credit Suisse First Boston (Note 3) and
the issuance of common stock (Note 5).
Both acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the results of operations of DIMAC Marketing and
AHI have been included in the results of operations of the Company since June
27, 1998. The total purchase price for DIMAC Marketing and AHI has been
preliminarily allocated to the tangible and identifiable intangible assets and
liabilities of the acquired companies based on the Company's preliminary
estimates of their fair value with the remainder allocated to goodwill. The
excess of the consideration paid for DIMAC Marketing and AHI over the estimated
fair value of net assets acquired of $160,142 and $100,613, respectively, has
been preliminarily recorded as goodwill and is being amortized on the
straight-line basis over 40 years. The allocation of purchase price for the
acquisitions is subject to revision when additional information concerning asset
and liability valuations is obtained.
INTEGRATION PLAN
In conjunction with the acquisitions of AHI and DIMAC Marketing, management
has approved and committed the Company to a plan to combine and integrate the
operations of AHI and DIMAC Marketing (the "Integration Plan"). The Integration
Plan will result in the elimination of duplicative functions and will
standardize business practices and policies. The Company expects to achieve
approximately $8 million of cost savings on an annual basis beginning by March
1999 as a result of the Integration Plan.
The Integration Plan will result in the elimination of 159 positions during
1998 and 1999 of which 152 employees had been involuntary terminated pursuant to
the Integration Plan as of October 31, 1998. The remaining positions to be
eliminated have been identified and will be eliminated by March 31, 1999. The
employee groups that are primarily affected include executive management,
finance, information systems, sales management and representatives and
manufacturing supervision.
The Integration Plan will also include the closure of two facilities which
will be consolidated into other existing facilities and the consolidation of
insurance and other third-party provided services.
The Company has recorded approximately $6.4 million of liabilities related
to the Integration Plan all of which have been recorded as part of the purchase
price allocation of AHI and DIMAC Marketing. Of this amount, $5.7 million
represented termination benefits and $0.7 million represented other exit costs.
F-9
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
1. BACKGROUND (CONTINUED)
The following presents, on an unaudited pro forma basis, the Company's
summary results of operations for the year ended December 31, 1997 and the six
months ended June 30, 1998 as though the acquisitions of DIMAC Marketing and
AHI, AHI's previous acquisitions of Label America, Inc., AmeriComm Direct
Marketing, Inc., Cardinal Marketing, Inc., and Cardinal Marketing of New Jersey,
Inc., and related transactions occurred on January 1, 1997 (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net sales............................................................. $ 386,665 $ 189,918
Income from operations................................................ 29,044 12,645
Loss before income taxes.............................................. (6,751) (5,561)
Net loss.............................................................. (7,070) (4,704)
</TABLE>
The Company (consisting of the operations of DIMAC Marketing and AHI)
provides a comprehensive range of direct marketing services that emphasize
cost-effective production of large, complex, highly personalized direct mail
campaigns. Through its nationwide network of production facilities, the Company
offers its direct mail customers a wide variety of formats, printing and
converting capabilities, personalization and customization alternatives and
mailing and distribution services. To complement and help drive its production
volume and to obtain the benefits of high margin business, the Company offers a
complete range of pre- and post-production direct marketing services such as
Information Services (information processing and database management), Program
Development Services (strategic market planning, creative development and
program evaluation) and Fulfillment and Telemarketing Services. In addition, to
support its direct marketing products and services, the Company offers other
printing and converting products such as custom pressure sensitive labels and
custom mailers. The Company markets its products and services to customers
throughout the United States primarily through its major facilities in the
following locations: Fort Smith, AR, San Carlos, CA, Denver, CO, Gainsville and
Palm Coast, FL, Austell and Tucker, GA, Louisville, KY, St. Louis, MO, Wilton,
NH, Mountainside, NJ, Central Islip and New York, NY, Philadelphia, PA, Houston,
TX and Norfolk and Roanoke, VA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany transactions and
balances have been eliminated.
FISCAL PERIOD
The Company will end its fiscal year on December 31.
REVENUE RECOGNITION
Revenues are recorded as products are shipped or as services are performed,
except for certain sales for which revenue is recognized when the customer is
billed based on passage of legal title at the date of billing. Such 'bill and
hold' sales are not material to the Company's results of operations.
F-10
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of financial statements as well as during the reporting period. Actual
results could differ from these estimates.
ACCOUNTS RECEIVABLE
The Company provides an allowance for doubtful accounts for the estimated
losses that will be incurred in the collection of receivables. The estimated
losses are based on historical collection experience coupled with a review of
the current status of the existing receivables. Included in accounts receivable
is $9,272 representing unbilled revenues for services performed prior to June
30, 1998.
A summary of changes in the allowance for doubtful accounts is as follows:
<TABLE>
<S> <C>
Balance at Inception................................................................ $ --
Acquired balance from AHI........................................................... 707
Acquired balance from DIMAC Marketing............................................... 1,065
---------
Balance, June 30, 1998.............................................................. $ 1,772
---------
---------
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost or market. Cost of raw materials
are determined using the first-in, first-out (FIFO) method. Costs (net of an
obsolescence reserve) of work in process, finished goods, and customized stock
(consisting of products which have been produced and held for certain customers
under short-term delayed-shipping arrangements) are determined using the average
cost (which approximates FIFO), or FIFO method.
Inventories consist of the following at June 30, 1998:
<TABLE>
<S> <C>
Raw materials...................................................................... $ 8,041
Work in process.................................................................... 2,070
Finished goods..................................................................... 2,617
Customized stock................................................................... 1,582
---------
Balance, June 30, 1998............................................................. $ 14,310
---------
---------
</TABLE>
F-11
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost or at estimated fair value at
date of acquisition (Note 1), if acquired as part of a business combination, and
are depreciated using the straight-line method over the following lives:
<TABLE>
<S> <C>
25 to 40
Buildings.................................................................... years
3 to 11
Machinery and equipment...................................................... years
Office equipment, furniture and fixtures..................................... 3 to 7 years
Vehicles..................................................................... 3 to 5 years
</TABLE>
Leasehold improvements are depreciated over the lesser of the useful lives
of the assets or the lease term.
The Company's policy is to remove the cost and accumulated depreciation of
retirements from the accounts and recognize the related gain or loss upon the
disposition of assets. Depreciation expense for the period from Inception to
June 30, 1998 was $96.
INTANGIBLE ASSETS
The Company continually evaluates the propriety of the carrying amount of
goodwill and other long-lived assets as well as the related depreciation or
amortization periods to determine whether current events and circumstances
warrant adjustments to the carrying values and/or revised estimates of useful
lives. This evaluation is based on the Company's projection of the undiscounted
operating income before depreciation, amortization and interest over the
remaining useful lives of the related goodwill and other long-lived assets. The
projections are based on the historical trend line of actual results since the
commencement of operations and adjusted for expected changes in operating
results. To the extent such projections indicate that the undiscounted operating
income (as defined above) is not expected to be adequate to recover the carrying
amounts of goodwill and other long-lived assets, such carrying amounts are
written down by charges to expense in amounts equal to the excess of the
carrying amount of the related assets over their estimated fair value. The
Company believes that no significant impairment of the the related assets has
occurred and that no reduction of the estimated useful lives is warranted.
GOODWILL Goodwill represents the cost of the acquired businesses in excess
of net identifiable assets and is amortized on a straight-line basis over 40
years.
PATENTS The Company has acquired several patents related to certain
products through the acquisition of DIMAC Marketing and AHI. These patents have
been recorded at their estimated fair value at the date of acquisition. These
amounts are being amortized on a straight-line basis over the life (one to
nineteen years) of the patents. The carrying value of patents at June 30, 1998
was $15,262.
COVENANTS NOT TO COMPETE Covenants not to compete have been recorded at
cost and are being amortized on a straight-line basis over the terms (three to
four years) of the agreements. The carrying values of the covenants not to
compete at June 30, 1998 was $2,167.
F-12
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
RESIDENT ADDRESS LISTS The Company has acquired and maintains national
residential address lists used by its customers in making saturation or targeted
mailings. Resident address lists have been recorded at their estimated fair
value at the date of acquisition. These amounts are being amortized on a
straight-line basis over the life (four years) of the resident address lists.
The carrying value of the resident address lists at June 30, 1998 was $18,214.
TRAINED WORK FORCE The Company acquired a trained work force in connection
with the Acquisition of DIMAC Marketing and AHI that have been recorded at their
estimated fair value at the date of Acquisition. These amounts are being
amortized on a straight-line basis over six years. The carrying value of the
trained work force at June 30, 1998 was $2,752.
DEFERRED FINANCING COSTS Deferred financing costs represent costs incurred
to raise financing and are amortized over the related terms of the borrowings
(Note 3). The carrying value of the deferred financing costs at June 30, 1998
was $11,900.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
for recognition of deferred tax consequences of temporary differences, net
operating losses, and tax credits by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable and debt. The carrying amounts of cash, accounts
receivable, and accounts payable approximate their fair values because of the
short-term maturity of such instruments. The carrying value of long-term debt
approximate its fair value, because interest rates on such debt are periodically
adjusted and approximate current market rates.
F-13
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board recently issued SFAS No. 130
"Reporting Comprehensive Income," which establishes standards for reporting and
disclosure of comprehensive income and its components; SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information," which establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas, and
major customers; SFAS No. 132 "Employers' Disclosures about Pension and Other
Postretirement Benefits," which standardizes the disclosure requirements for
pensions and other postretirement benefits and expands disclosures on changes in
benefit obligations and fair values of plan assets; and SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities," which requires that all
derivatives be recognized as either assets or liabilities in the statement of
financial position at fair value unless specific hedge criteria are met. The
Company is required to adopt the provisions of SFAS 130, 131 and 132 in 1998 and
SFAS 133 in 2000. Adoption of these statements is not expected to significantly
impact the Company's consolidated financial position, results of operations or
cash flows, and any effect will be limited primarily to the form and content of
its disclosures.
F-14
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
3. LONG-TERM DEBT
Long-term debt consists of the following as of June 30, 1998:
<TABLE>
<S> <C>
Term A loans ("Term Loans A") payable with Credit Suisse First Boston, Inc.,
("CSFB") $0 bearing interest at the Eurodollar rate plus 2.25% (7.94% at June
30, 1998) and $75,000 bearing interest at Prime plus 1.25% (9.75% at June 30,
1998). Quarterly principal payments commence March 31, 2000, as defined......... $ 75,000
Term B loans ("Term Loans B") with CSFB $0 bearing interest at the Eurodollar rate
plus 2.75% (8.44% at June 30, 1998) and $75,000 bearing interest at Prime plus
1.75% (10.25% at June 30, 1998). Quarterly principal payments commence March 31,
2000, as defined................................................................ 75,000
Revolving loan facility ("Revolving Loan Facility") with CSFB, principal payable
in full upon the earlier of termination, as defined, or June 30, 2004, $0
bearing interest at the Eurodollar rate plus 2.25% (7.94% at June 30, 1998) and
$6,400 bearing interest at Prime plus 1.25% (9.75% at June 30, 1998)............ 6,400
11.625% senior unsecured notes (the "AmeriComm Senior Notes"), interest payable
semi-annually, maturing June 28, 2001........................................... 100,000
12.5% senior notes (the "AmeriComm Holdings Senior Notes"), including "Payment in
Kind" ("PIK Notes") notes, interest payable quarterly, maturing April 24,
2003............................................................................ 40,541
Revolving loan facility with Heller Financial, Inc. ("Heller"), principal payable
in full upon the earlier of termination, as defined, or June 28, 2001, $17,000
bearing interest at the 30 to 180 day LIBOR plus 2.25% (7.91% at June 30, 1998)
and $1,190 bearing interest at Prime plus 1% (9.5% at June 30, 1998)............ 18,190
Capital lease payable to The CIT Group/Equipment Financing, Inc. ("CIT"), monthly
principal and interest payments of $48 through June 2001 with a balloon payment
of $513 due June 2001, interest at 10.2%........................................ 1,869
Capital leases payable to General Electric Capital Corporation ("GE"), monthly
principal and interest payments of $54 through November 1999, declining to $44
commencing December 1999 through October 2001 with a balloon payment of $1,615
due November 2001, interest at 9.36%............................................ 2,830
Capital leases payable to Leasetec Corporation ("LTC"), monthly principal and
interest payments ranging from $4 to $92 until lease termination on December
2000, interest ranging from 8.25% to 9.75%...................................... 1,250
Other............................................................................. 2,949
---------
324,029
Less current portion.............................................................. 2,692
---------
$ 321,337
---------
---------
</TABLE>
F-15
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
3. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt and capital lease obligations at June 30, 1998
for the remaining six months of 1998 and the fiscal years thereafter are as
follows:
<TABLE>
<S> <C>
1998.............................................................................. $ 1,532
1999.............................................................................. 2,570
2000.............................................................................. 14,481
2001.............................................................................. 34,240
2002.............................................................................. 119,265
2003 and thereafter............................................................... 151,941
---------
$ 324,029
---------
---------
</TABLE>
Concurrent with the consummation of the acquisitions of AHI and DIMAC
Marketing discussed in Note 1, the Company entered into a credit agreement (the
"Credit Agreement") with CSFB. Under the terms of the Credit Agreement, the
Company entered into Term Loans A and B. In addition, the terms of the Credit
Agreement provide for the Revolving Loan Facility whereby the Company can borrow
a maximum of $75,000 reduced by the amount outstanding under any letter of
credits or swing line loans, as defined. The maximum allowable borrowing on the
Revolving Loan Facility is reduced to $60,000 effective June 30, 2003.
Additional borrowings under the Revolving Loan Facility may only be used for
DIMAC Marketing and its subsidiaries working capital needs or for future
acquisitions made by the Company. Borrowings outstanding under the Credit
Agreement are guaranteed by Holdings, and each subsidiary of the Company
excluding AHI and ADMI. In addition, borrowings under the Credit Agreement are
secured by essentially all of the assets of the Company and its subsidiaries
excluding AHI and ADMI. The initial interest rate on Term Loans A and the
Revolving Loan Facility is the Applicable Base Rate (the higher of Prime Rate or
the rate which is 1/2% in excess of the Federal Funds Effective Rate, hereafter
referred to as "ABR") plus 1.25% or the Applicable Eurodollar Rate (British
Bankers' Association Interest Settlement Rate, hereafter referred to "AER") plus
2.25% and can be adjusted downward to the ABR plus 0.50% or AER plus 1.50% based
upon DIMAC's leverage ratio, as defined, commencing no later then December 26,
1998. The initial interest rate on Term Loans B is the ABR plus 1.75% or the AER
plus 2.75% and can be adjusted downward to the ABR plus 1.50% or AER plus 2.50%
based upon DIMAC's leverage ratio, as defined, commencing no later then December
26, 1998. Borrowings under the Credit Agreement are subject to certain financial
covenants that include, among others, limitations on additional indebtedness and
capital expenditures, minimum interest and fixed charge coverage ratios and
maximum leverage ratio, as defined and limitations on the payments of dividends,
as defined. In addition, the Credit Agreement may require prepayments, as
defined. (See Note 9--Subsequent Events).
On June 28, 1996, ADMI issued $100,000 aggregate principal amount of the
AmeriComm Senior Notes due June 15, 2002. Interest is payable semi-annually on
June 15th and December 15th. The AmeriComm Senior Notes are senior obligations
of ADMI and will be PARI PASSU in right of payment to all ADMI future senior
indebtedness. The indenture to the AmeriComm Senior Notes limits the incurrence
of additional debt by ADMI, does not allow ADMI to pay any common stock
dividends and limits ADMI's ability to redeem any capital stock and to sell its
assets, as defined. ADMI may incur
F-16
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
3. LONG-TERM DEBT (CONTINUED)
additional indebtedness, as defined, as long as its fixed charge coverage ratio,
as defined, is greater than certain minimum levels. (See Note 9--Subsequent
Events).
On April 24, 1997, AHI issued $35,000 aggregate principal amount of the
AmeriComm Holdings Senior Notes due April 24, 2003. The AmeriComm Holdings
Senior Notes place certain restrictions on the AHI's and ADMI's ability to incur
additional indebtedness or make future acquisitions. In addition, future
interest and principal payments by AHI are dependent primarily on the operations
of ADMI through payments to AHI as permitted under the AmeriComm Senior Notes.
As a result, AHI may pay a portion or all of any six quarterly interest
installments prior to April 24, 1999 by issuing additional PIK Notes with
interest ranging from 12.5% to 13%. The initial interest installments due each
quarter commencing June 30, 1997 through June 30, 1998 were paid by the issuance
of PIK Notes. The PIK Notes must be redeemed prior to April 24, 2003. Borrowings
under the AmeriComm Holdings Senior Notes are subject to certain covenants which
include, among others, a minimum fixed charge coverage, as defined. (See Note
9--Subsequent Events.)
The Company maintains a revolving loan facility with Heller. The facility
provides borrowings based on the lesser of qualified accounts receivable and
inventories, as defined, or $25,000. Borrowings under the revolving loan
facility are subject to certain financial covenants that include, among others,
minimum fixed charge coverage and total indebtedness to operating cash flow
ratio, as defined. As of June 30, 1998, $6,680 was available on the revolving
loan facility. (See Note 9--Subsequent Events.)
Under the CIT capital lease payable, CIT has a first-perfected security
interest in certain equipment. At the end of the lease term, the Company will
have the option to purchase the equipment for $513. Under the GE capital leases
payable, GE has a first-perfected security interest in certain equipment. At the
end of each lease term, the Company will have the option to purchase the
equipment for an aggregate of $1,615. The CIT and GE capital leases are
cross-defaulted with other loan agreements if such default is not cured within
90 days following the default.
Under the LTC capital lease payable, LTC has a first-perfected security
interest in certain equipment. At the end of the lease term, the Company will
have the option to purchase the equipment for fair market value, as defined.
4. INCOME TAXES
The income tax benefit for the period ended June 30, 1998 represents the
income tax benefit from operating losses. As a result, the income tax benefit
presented consists of deferred tax benefits.
F-17
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
4. INCOME TAXES (CONTINUED)
The reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate for the period from Inception to June 30, 1998 is as
follows:
<TABLE>
<S> <C>
Federal tax benefit at statutory rate................................. $ (37)
State, net of federal benefit......................................... (7)
Non-deductible amortization........................................... 29
---
Actual income tax benefit............................................. $ (15)
---
---
Effective tax rate.................................................... (14%)
---
---
</TABLE>
Significant components of the Company's net deferred tax liabilities as of
June 30, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards................................. $ 4,801
Book basis in property over tax basis............................ (12,674)
Resident address lists........................................... (6,687)
Patents.......................................................... (820)
Inventories...................................................... (356)
Goodwill......................................................... (2,241)
Prepaid pension cost............................................. (1,199)
Trained work force............................................... (1,145)
Covenants not-to-compete......................................... 1,319
Interest paid with in-kind notes................................. 1,821
Employee benefit accruals........................................ 4,155
Liabilities not currently deductible............................. 3,549
Allowance for doubtful accounts.................................. 722
Deferred revenue................................................. (713)
Other, net....................................................... (189)
---------
Net deferred tax liabilities..................................... $ (9,657)
---------
---------
</TABLE>
The net operating loss carryforwards will be used to offset future taxable
income of certain subsidiaries of the Company, subject to their expirations,
beginning in 2004 and continuing through 2013. Any future issuance of stock by
the Company could result in an ownership change, as defined by the Tax Reform
Act of 1986, and could limit utilization of net operating loss carryforwards.
Also, benefits derived from using net operating loss carryforwards to offset any
taxes calculated as alternative minimum tax could be less than the recorded
amount of the net operating loss carryforwards. Although realization is not
assured, management believes all net operating loss carryforwards will be
realized.
F-18
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
5. CAPITAL STOCK
Concurrent with the acquisitions of DIMAC Marketing and AHI (Note 1), the
Company issued 10,000 shares of common stock for an aggregate amount of
$100,000,000.
6. RELATED-PARTY TRANSACTIONS
FEES TO AFFILIATE
Effective July 1, 1998, the Company entered into an Advisory Services
Agreement (the "Agreement") with MDC Management Company IV, L.P. ("MDC") an
affiliate of the Company. Under the Agreement, MDC provides certain consulting,
financial, and managerial functions for a fee. The annual fee for the period
from July 1, 1998 to December 31, 1998 will be $275. Thereafter, the annual fee
will equal the greater of (i) $550 and (ii) 1.06% of the pro forma EBITDA of the
Company for the immediate preceding fiscal year, as defined. No payments shall
be made by the Company to MDC under the Agreement if there is an event of
default, as defined, under certain loan agreements (Note 3). The Agreement
expires July, 2003 and is renewable thereafter, unless terminated by the Company
for justifiable cause, as defined.
For services related to the acquisitions of DIMAC and AHI (Note 1), the
Company paid MDC and its affiliates $11,231 which has been recorded as goodwill.
7. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
The Company has a defined benefit pension plan ("The Employees' Retirement
Plan of National Fiberstok Corporation") covering certain employees. On December
20, 1993, the Company amended the plan, freezing future participation by any new
employee of the Company effective December 31, 1993. Effective December 31,
1994, the Company again amended the plan, freezing future accrual of benefits
for all participants. In conjunction with this amendment, all participants of
the plan were retroactively vested.
The funded status of the plan as of June 30, 1998 is as follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Accumulated projected benefit obligation......................................... $ 18,355
Plan assets at fair value........................................................ 19,963
---------
Plan assets greater than projected benefit obligation.............................. $ 1,608
---------
---------
</TABLE>
The weighted average discount rate used to measure the accumulated projected
benefit obligation was 7%. The expected long-term rates of return on assets was
9%.
The company has another defined benefit pension plan ("The Transkrit
Corporation Employees' Pension Plan") covering certain employees. Effective
April 30, 1997, the company amended the plan, freezing future benefits for
participants at certain locations. In conjunction with this amendment, the
participants with frozen future benefits were retroactively vested. Normal
retirement age is 65, but a
F-19
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
provision is made for early retirement. Benefits are based on the employee's
compensation level and years of service.
The funded status of the plan as of June 30, 1998 is as follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Accumulated projected benefit obligation, including vested benefits of $2,576....... $ 2,720
---------
---------
Projected benefit obligation........................................................ $ 4,503
Plan assets at fair value........................................................... 6,052
---------
Plan assets greater than projected benefit obligation............................... $ 1,549
---------
---------
</TABLE>
The weighted average discount rate used to measure the accumulated projected
benefit obligation was 7%. The expected long-term rates of return on assets was
9%.
MULTI-EMPLOYER PENSION PLAN
The Company is also a member of a multi-employer pension plan covering 108
union employees. The plan is not administered by the Company and contributions
are determined in accordance with provisions of a negotiated labor contract. The
Company's share of the actuarial present value of accumulated plan benefits and
net assets available for benefits is not available.
DEFINED CONTRIBUTION PLANS
The Company sponsors several voluntary 401(k) savings plans covering all
eligible, non-union, employees at certain locations. The plans include
provisions which allow employees to make pretax contributions ranging from 1% to
20% of the employee's wages. Maximum pretax contributions are capped at percents
ranging from 6% to 15% of wages, depending on the location. The Company matches
between 10% and 100% of employee contributions up to 6% to 10% of eligible
employee's wages, which varies by location. Company matching contributions vest,
at periods ranging from immediately to six years.
F-20
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has certain non-cancelable operating leases for office and plant
facilities and office equipment. Minimum annual rental payments remaining under
non-cancelable operating leases as of June 30, 1998 for the remaining six months
of 1998 and the fiscal years thereafter are as follows:
<TABLE>
<S> <C>
1998............................................................................... $ 3,084
1999............................................................................... 5,130
2000............................................................................... 4,127
2001............................................................................... 3,083
2002............................................................................... 2,737
2003 and thereafter................................................................ 7,053
---------
$ 25,214
---------
---------
</TABLE>
ENVIRONMENTAL LIABILITIES
In January 1988 the Company was notified by the United States Environmental
Protection Agency ("EPA") that it was potentially liable for costs incurred by
the EPA in responding to the Dixie Caverns County Landfill in Roanoke County,
Virginia. Subsequently, Roanoke County filed suit against the twelve potentially
responsible parties ("PRP's"), which included the Company, to recover the funds
it had expended in cleaning the site at the date of the suit and for any
additional sums it would expend in the future. While under the Comprehensive
Environmental Response, Compensation and Liability Act, PRPs may be held jointly
and severally liable for the costs of cleanup. Management believes that the
Company's potential liability in connection with this site will not be material,
based upon the amount and nature of the waste alleged to be attributable to it,
the number of other financially viable PRP's and the total estimated cleanup
costs.
LEGAL PROCEEDINGS
In June 1997 the Company was informed by the United States Attorney's Office
for the Eastern District of Missouri that it was the subject of a grand jury
investigation based upon information supplied by the United States Postal
Service. The investigation concerns whether violations of civil or criminal
statutes may have occurred in connection with the Company's bulk mailing
practices. The Company has been engaged in a dialogue with the Government, which
discussions have included a possible consensual resolution of this matter;
however as of the date hereof, no settlement has been reached. It is the
Company's position that its bulk mailing practices comply with applicable laws
and regulations. In connection with the DIMAC Marketing Acquisition, Heritage,
the Company and DIMAC Marketing entered into an indemnification agreement
pursuant to which Heritage has agreed to indemnify the Company for certain
costs, including settlements, judgments and related fees, in relation to the
USPS investigation. There can be no assurance, however, that the investigation
and the costs associated therewith will not have a material adverse effect on
the Company's business, financial condition or results of operations.
F-21
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is a party to various other litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any
such matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company.
9. SUBSEQUENT EVENTS
CAPITAL STOCK
Effective August 31, 1998, Holdings' board of directors approved a
one-for-one hundred reverse stock split of the Holdings' voting common stock and
increased the total authorized capital stock of Holdings to 2,000,000 shares of
voting common stock and 200,000 shares of non-voting common stock.
Effective October 22, 1998, the board of directors adopted the DIMAC
Holdings, Inc. 1998 Stock Option Plan (the "Plan") for directors, certain
employees and consultants of the Company. The Plan allows for 119,242 shares of
Holdings' common stock to be granted. The options vest based on time and based
upon the profitability of the Company or in the event of a change in control of
the Company, as defined. No options have been granted as of November 6, 1998.
Holdings has reserved 119,242 shares of common stock for the exercise of these
options.
The Company accounts for its stock option plan in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock Based Compensation" for disclosure
purposes. In accordance with the disclosure requirements of SFAS No. 123, the
Company will be required to calculate pro forma compensation cost of all stock
options granted using an option pricing model.
AMENDMENTS TO SENIOR SECURED CREDIT AGREEMENT
On July 29, 1998, the Company and CSFB amended the Credit Agreement creating
a tranche C term loans ("Term Loans C"); whereby, effective with the amendment,
Term Loans A was reduced by $20,000 to $55,000, Term Loans B was reduced by
$5,000 to $70,000 and Term Loans C had an outstanding balance of $25,000. In
addition, under the terms of the amendment, an additional $25,000 of Term Loans
C is available. The initial interest rate on Term Loans C is the ABR plus 2.00%
or the AER plus 3.00% and can be adjusted downward to the ABR plus 1.75% or to
the AER plus 2.75% based upon the Company's leverage ratio, as defined,
commencing no later than December 26, 1998.
Concurrent with the issuance of the $100,000 Senior Subordinated Notes, the
Company and CSFB entered into the Amended and Restated Credit Agreement,
whereby, the initial interest rate on Term Loans A and the Revolving Loan
Facility is the ABR plus 1.75% or the AER plus 2.75% and can be adjusted
downward to the ABR plus 1.00% or the AER plus 2.00% based upon DIMAC's leverage
ratio, as defined. The initial interest rate on Term Loans B is the ABR plus
2.25% or the AER plus 3.25% and can be adjusted downward to the ABR plus 2.00%
or the AER plus 3.00% based upon DIMAC's leverage ratio, as defined. The initial
interest rate on Term Loans C is ABR plus 2.50% or AER plus 3.50% and can be
adjusted downward to the ABR plus 2.25% or the AER plus 3.25% based upon DIMAC's
leverage ratio, as defined.
F-22
<PAGE>
DIMAC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
9. SUBSEQUENT EVENTS (CONTINUED)
SENIOR NOTES AND SENIOR SUBORDINATED NOTES
On October 22, 1998, DIMAC completed the offering (the "Offering") of
$100,000 aggregate principal amount of 12.5% senior subordinated notes (the
"Notes") due 2008. Net proceeds from the Offering were $97.2 million, net of
original issue discount of $2.8 million. Interest on the Notes is payable
semi-annually. The Notes represent senior obligations of the Company and rank
PARI PASSU in right of payment to all existing subsidiaries of the Company and
future senior indebtedness. The Notes are guaranteed by each of the existing
subsidiaries of the Company.
Concurrently with the Offering, the Company and its subsidiaries, as
applicable, entered into certain transactions. The Company issued 100,000 shares
of common stock for an aggregate amount of $10,000. The Company also issued
$30,000 aggregate principal amount of its 15.5% Senior Notes due 2009 (the
"Holdings Notes") and made a $10,000 and $35,000 draw down on Term Loans B and
C, respectively. In addition to the issuance of the Holding Notes, Holdings
issued warrants to the Holdings Notes holders to purchase 28,205 shares of
common stock at an exercise price of $.01 per share. Holdings has reserved
28,205 shares of common stock for the exercise of these warrants. The Company
repaid the AmeriComm Senior Notes, the AmeriComm Holdings Senior Notes and all
amounts due under the revolving loan facility with Heller (Note 3). Subsequent
to the Offering, the revolving loan facility with Heller was terminated.
The Company will rely upon its subsidiaries to provide it with cash to meet
its obligations under the Holdings Notes.
STOCKHOLDERS' AGREEMENT
Certain officers and key employees of the Company purchased and own an
aggregate of 32,500 shares of common stock. The stock was purchased at a price
of $100 per share, the fair value at the date of such purchases.
Certain stockholders are subject to the terms of a stockholders' agreement.
This agreement restricts the stockholders' ability to sell, transfer, and assign
the common stock, with the Company having the first right of purchase. The
holders of the stock may be required to sell their shares of common stock to the
Company under certain conditions. In addition, upon expiration of a
stockholder's employment with the Company, the Company has the option to buy
back the stockholder's common stock at a specified price based on a stated
return of 5% per annum over the cost of the shares of the Company.
F-23
<PAGE>
DIMAC MARKETING CORPORATION AND SUBSIDIARIES
The unaudited consolidated financial statements for the six month period
ended June 30, 1997 reflect the operations of DIMAC Marketing Corporation
following its purchase by Heritage, but prior to the acquisition of Heritage by
News Corporation in August 1997, and the unaudited consolidated financial
statements for the six month period ended June 26, 1998 reflect the operations
of DIMAC Marketing following the purchase of Heritage by News Corporation.
F-24
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 26,
DECEMBER 31, 1998
1997 (UNAUDITED)
------------ ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ -- $ --
Accounts receivable, net of allowance for doubtful accounts of $972 and
$1,065....................................................................... 35,916 37,977
Inventories.................................................................... 3,452 2,284
Income taxes receivable -- Parent Company...................................... 3,816 6,016
Deferred income taxes.......................................................... 8,376 4,206
Other current assets........................................................... 1,560 1,502
------------ --------
Total current assets......................................................... 53,120 51,985
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS................................... 45,119 44,792
INTANGIBLE ASSETS................................................................ 162,597 162,022
------------ --------
$ 260,836 $ 258,799
------------ --------
------------ --------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 7,815 $ 5,072
Advances from customers........................................................ 10,087 13,586
Accrued liabilities............................................................ 25,878 19,981
Current maturities of long-term capital lease obligations...................... 1,782 1,773
------------ --------
Total current liabilities.................................................... 45,562 40,412
LONG-TERM CAPITAL LEASE OBLIGATIONS.............................................. 2,822 2,225
DEFERRED LEASE LIABILITY......................................................... 2,004 1,955
DEFERRED INCOME TAXES............................................................ 14,071 13,130
PAYABLE TO PARENT COMPANY........................................................ 138,825 143,906
------------ --------
Total liabilities............................................................ 203,284 201,628
------------ --------
STOCKHOLDER'S EQUITY:
Series preferred stock, $.01 par value; 10,000,000 shares authorized; none
issued....................................................................... -- --
Common stock, $.01 par value; 20,000,000 shares authorized; issued 1,000....... -- --
Additional paid-in capital..................................................... 57,800 57,800
Retained deficit............................................................... (248) (629)
------------ --------
Total stockholder's equity................................................... 57,552 57,171
------------ --------
$ 260,836 $ 258,799
------------ --------
------------ --------
</TABLE>
F-25
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
THE SIX MONTHS ENDED JUNE 26, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, JUNE 26,
1997 1998
(UNAUDITED) (UNAUDITED)
--------------- ---------------
SALES.......................................................................... $ 91,421 $ 93,208
COST OF SALES.................................................................. 60,270 61,806
------- -------
Gross profit............................................................... 31,151 31,402
------- -------
OPERATING EXPENSES:
Sales expenses............................................................... 10,390 10,180
General and administrative expenses.......................................... 13,472 12,639
Amortization of intangibles.................................................. 5,181 3,796
------- -------
29,043 26,615
------- -------
Operating income......................................................... 2,108 4,787
------- -------
INTEREST EXPENSE............................................................... 4,633 4,583
------- -------
Income (loss) before income taxes and discontinued operations............ (2,525) 204
INCOME TAX PROVISION........................................................... 17 585
------- -------
Loss before discontinued operations...................................... (2,542) (381)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued joint venture (net of income tax benefit
of $489)................................................................... (649) --
------- -------
Net loss................................................................. $ (3,191) $ (381)
------- -------
------- -------
</TABLE>
F-26
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
THE SIX MONTHS ENDED JUNE 26, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 26,
1997 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.............................................................................. $ (3,191) $ (381)
Adjustments to reconcile net loss to net cash provided by operating activities-
Loss from discontinued operations................................................... 649 --
Depreciation and amortization expense............................................... 7,549 7,077
Deferred taxes...................................................................... 361 1,029
Changes in net assets and liabilities-
Accounts receivable............................................................... (718) (2,061)
Inventories....................................................................... (187) 1,168
Other current assets.............................................................. (561) 58
Accounts payable.................................................................. (1,641) (2,743)
Advances from customers........................................................... (1,394) 3,499
Accrued liabilities............................................................... (1,833) (5,685)
Income taxes payable.............................................................. (430) --
----------- -----------
Net cash (used in) provided by operating activities............................. (1,396) 1,961
----------- -----------
INVESTING ACTIVITIES:
Payments for contingent consideration and other intangibles........................... (3,739) (3,221)
Purchase of property, equipment and leasehold improvements............................ (11,344) (3,166)
----------- -----------
Net cash used in investing activities........................................... (15,083) (6,387)
----------- -----------
FINANCING ACTIVITIES:
Payments on capital lease obligations................................................. (1,020) (655)
Net borrowings under revolving credit facilities...................................... 46,566 --
Net borrowings from Parent Company.................................................... (29,067) 5,081
----------- -----------
Net cash provided by financing activities....................................... 16,479 4,426
----------- -----------
Net change in cash and cash equivalents......................................... -- --
CASH AND CASH EQUIVALENTS, beginning of period.......................................... -- --
----------- -----------
CASH AND CASH EQUIVALENTS, end of period................................................ $ -- $ --
----------- -----------
----------- -----------
</TABLE>
F-27
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION:
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements for the six month period
ended June 30, 1997 reflect the operations of DIMAC Marketing Corporation
following its purchase by Heritage, but prior to the acquisition of Heritage by
News Corporation in August 1997. The unaudited consolidated financial statements
for the six month period ended June 26, 1998 reflect the operations of DIMAC
Marketing Corporation following the purchase of Heritage by News Corporation. As
a result of the change in basis of accounting between the six month periods
ended June 30, 1997 and June 26, 1998, the operating results may not be
comparable or indicative of future periods.
In the opinion of management, the unaudited financial statements contain all
the normal and recurring adjustments necessary to present fairly the financial
position of the Company as of June 26, 1998 and the results of the Company's
operations and its cash flows for the six months ended June 30, 1997 and June
26, 1998 in conformity with generally accepted accounting principles. The
results of operations for the six month period ended June 26, 1998 are not
necessarily indicative of the results to be expected for the year.
2. INVENTORIES:
The composition of inventories at June 26, 1998, is as follows:
<TABLE>
<S> <C>
Raw materials....................................................... $766
Work-in-process..................................................... 284
Finished goods...................................................... 25
Postage............................................................. 1,209
---------
Total $2,284
---------
---------
</TABLE>
3. NEW ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board recently issued SFAS No. 130
"Reporting Comprehensive Income," which establishes standards for reporting and
disclosure of comprehensive income and its components; SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information," which establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas, and
major customers; SFAS No. 132 "Employers' Disclosures about Pension and Other
Postretirement Benefits," which standardizes the disclosure requirements for
pensions and other postretirement benefits and expands disclosures on changes in
benefit obligations and fair values of plan assets; and SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities," which requires that all
derivatives be recognized as either assets or liabilities in the statement of
financial position at fair value unless specific hedge criteria are met. The
Company is required to adopt the provisions of SFAS 130, 131 and 132 in 1998 and
SFAS 133 in 2000. Adoption of these statements is not expected to significantly
impact the Company's consolidated financial position, results of operations or
cash flows, and any effect will be limited primarily to the form and content of
its disclosures.
F-28
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES
In June 1997 the Company was informed by the United States Attorney's Office
for the Eastern District of Missouri that it was the subject of a grand jury
investigation based upon information supplied by the United States Postal
Service. The investigation concerns whether violations of civil or criminal
statutes may have occurred in connection with the Company's bulk mailing
practices. The Company has been engaged in a dialogue with the Government, which
discussions have included a possible consensual resolution of this matter,
however, as of the date hereof, no settlement has been reached. It is the
Company's position that its bulk mailing practices comply with applicable laws
and regulations. In connection with the DIMAC Marketing Acquisition, Heritage,
the Company and DIMAC Marketing entered into an indemnification agreement
pursuant to which Heritage has agreed to indemnify the Company for certain
costs, including settlements, judgments and related fees, in relation to the
USPS investigation. There can be no assurance, however, that the investigation
and the costs associated therewith will not have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company is a party to various other litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any
such matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company.
F-29
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
The consolidated financial statements for the four month period ended
December 31, 1997 reflect the financial results of DIMAC Marketing Corporation
under a new basis of accounting that reflects the fair value of assets acquired
and liabilities assumed in connection with the purchase of Heritage by News
Corporation.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DIMAC Marketing Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheet of DIMAC
Marketing Corporation and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the four months ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
DIMAC Marketing Corporation and Subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their cash flows for the four
months ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
July 2, 1998
F-31
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ --
Accounts receivable, net of allowance for doubtful accounts of $972............. 35,916
Inventories..................................................................... 3,452
Income taxes receivable -- Parent Company....................................... 3,816
Deferred income taxes........................................................... 8,376
Other current assets............................................................ 1,560
---------
Total current assets.......................................................... 53,120
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.................................... 45,119
INTANGIBLE ASSETS................................................................. 162,597
---------
$ 260,836
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 7,815
Advances from customers......................................................... 10,087
Accrued liabilities............................................................. 25,878
Current maturities of long-term capital lease obligations....................... 1,782
---------
Total current liabilities..................................................... 45,562
LONG-TERM CAPITAL LEASE OBLIGATIONS............................................... 2,822
DEFERRED LEASE LIABILITY.......................................................... 2,004
DEFERRED INCOME TAXES............................................................. 14,071
PAYABLE TO PARENT COMPANY......................................................... 138,825
---------
Total liabilities............................................................. 203,284
---------
STOCKHOLDER'S EQUITY:
Series preferred stock, $.01 par value; 10,000,000 shares authorized; none
issued........................................................................ --
Common stock, $.01 par value; 20,000,000 shares authorized; issued 1,000........ --
Additional paid-in capital...................................................... 57,800
Retained deficit................................................................ (248)
---------
Total stockholder's equity.................................................... 57,552
---------
$ 260,836
---------
---------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-32
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
SALES.............................................................................. $ 59,200
COST OF SALES...................................................................... 39,722
---------
Gross profit................................................................... 19,478
---------
OPERATING EXPENSES:
Sales expenses................................................................... 6,404
General and administrative expenses.............................................. 8,011
Amortization of intangibles...................................................... 2,668
---------
17,083
---------
Operating income............................................................... 2,395
INTEREST EXPENSE................................................................... 2,248
---------
Income before income taxes..................................................... 147
INCOME TAX PROVISION............................................................... 395
---------
Net loss....................................................................... $ (248)
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-33
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL
COMMON COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 1, 1997............................. 1,000 $ -- $ 57,800 $ -- $ 57,800
Net loss............................................... -- -- -- (248) (248)
----- ----------- ----------- ----- ---------
BALANCE AT DECEMBER 31, 1997............................. 1,000 $ -- $ 57,800 $ (248) $ 57,552
----- ----------- ----------- ----- ---------
----- ----------- ----------- ----- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-34
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss......................................................................... $ (248)
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization expense.......................................... 4,530
Deferred income tax benefit.................................................... 289
Changes in net assets and liabilities-
Accounts receivable.......................................................... 234
Inventories.................................................................. 349
Other current assets......................................................... 507
Accounts payable............................................................. 665
Advances from customers...................................................... 171
Accrued liabilities.......................................................... (5,187)
---------
Net cash provided by operating activities.................................. 1,310
---------
INVESTING ACTIVITIES:
Payments for contingent consideration and other intangibles...................... (1,900)
Purchase of property, equipment and leasehold improvements....................... (5,720)
---------
Net cash used in investing activities...................................... (7,620)
---------
FINANCING ACTIVITIES:
Payments of capital lease obligations............................................ (432)
Net borrowings from Parent Company............................................... 6,742
---------
Net cash provided by financing activities.................................. 6,310
---------
Net change in cash and cash equivalents.................................... --
CASH AND CASH EQUIVALENTS, beginning of period..................................... --
---------
CASH AND CASH EQUIVALENTS, end of period........................................... $ --
---------
---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.................................................................... $ 2,321
---------
---------
Income taxes paid................................................................ $ --
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-35
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
DIMAC Marketing Corporation (DIMAC or the Company) is one of the largest
full-service, vertically integrated direct marketing services companies in the
United States. DIMAC creates and implements comprehensive, custom-tailored
marketing programs that enable clients nationwide to focus their marketing
expenditures on a highly targeted potential customer base. As a full-service,
vertically integrated firm, DIMAC provides every component of a complete direct
marketing program, including customized market research, strategic and creative
planning, creation and management of relational data bases, telemarketing, media
buying, production services, fulfillment services and subsequent program
analysis.
The consolidated financial statements include the accounts of DIMAC and its
wholly owned subsidiary DIMAC DIRECT Inc. (DIMAC DIRECT) (including its wholly
owned subsidiaries Palm Coast Data Inc., The McClure Group Inc., Wilcox &
Associates Inc. and MBS/Multimode Inc.). DIMAC's operations are located in St.
Louis, New York, Palm Coast, Philadelphia, Houston, Los Angeles and Boston. All
significant intercompany balances and transactions have been eliminated.
In August 1997, all of the common stock of Heritage Media Corporation
(Heritage), the parent company of DIMAC, was acquired by News America
Corporation Ltd. (News Corp.) in a cash purchase transaction. The acquisition by
News Corp. has been accounted for as a purchase and the purchase price allocated
to DIMAC of approximately $190,000 has been pushed down to the Company. Goodwill
of approximately $145,000 resulting from this acquisition is being amortized on
a straight-line basis over 40 years.
The consolidated financial statements as of December 31, 1997 and for the
four months then ended include an amount due to News Corp. of $138,825, and
intercompany interest expense to News Corp. of $2,123. Intercompany interest is
charged at 8.5%, calculated monthly.
CASH AND CASH EQUIVALENTS
All highly liquid debt investments purchased with a maturity of three months
or less are classified as cash equivalents.
ACCOUNTS RECEIVABLE
The Company provides an allowance for doubtful accounts for the estimated
losses that will be incurred in the collection of receivables. The estimated
losses are based on historical collection experience coupled with a review of
the current status of the existing receivables. Included in receivables is
$13,336 representing unbilled revenues for services performed prior to December
31, 1997.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market, and include appropriate elements of material, labor and overhead.
F-36
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost.
Property and equipment are depreciated using the straight-line method over the
respective asset's estimated useful life. Leasehold improvements are amortized
using the straight-line method over the lesser of the respective asset's
estimated useful life or the lease term.
The Company continually evaluates the propriety of the carrying amounts of
property and equipment and the estimated useful lives used for depreciation.
INTANGIBLE ASSETS
The cost of acquired companies is allocated first to identifiable assets and
liabilities based on estimated fair market values. The excess of cost over
identifiable assets and liabilities is recorded as goodwill with amortization
over 40 years. Costs allocated to identifiable intangible assets are amortized
over the remaining estimated useful lives of the assets as determined by
underlying contract terms or independent appraisals.
The Company continually reevaluates the propriety of the carrying amount of
goodwill as well as the related amortization period to determine whether current
events and circumstances warrant adjustments to the carrying values or revised
estimates of useful lives. This evaluation is based on the Company's projection
of the undiscounted operating income before depreciation, amortization and
interest over the remaining lives of the amortization periods of related
goodwill. The projections are based on the historical trend line of actual
results since the commencement of operations and adjusted for expected changes
in operating results. To the extent such projections indicate that the
undiscounted operating income (as defined above) is not expected to be adequate
to recover the carrying amounts of goodwill, such carrying amounts are written
down by charges to expense in amounts equal to the excess of the carrying amount
of intangible assets over the related fair value of the assets. The Company
believes that no significant impairment of the goodwill and other intangibles
has occurred and that no reduction of the estimated useful lives is warranted.
REVENUE RECOGNITION
The Company performs work in accordance with individual client projects.
Revenues are recognized as services are performed on projects and the Company
can determine the completion stage of those projects, to the extent that revenue
is billable to the clients at that stage of completion.
FAIR VALUE OF FINANCIAL INSTRUMENTS
A financial instrument is defined as cash or a contract that imposes on one
entity a contractual obligation to deliver cash or another financial instrument
to a second entity, and conveys to that second entity a contractual right to
receive cash or another financial instrument from the first entity. The carrying
amount of accounts receivable, accounts payable and accrued liabilities
approximates fair value due to the short-term maturity of these instruments.
F-37
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
Income tax expense is reported as the total of current year income tax
liability and the change in deferred taxes which are provided for temporary
differences. Deferred income taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
current enacted tax rates.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. INVENTORIES:
Inventories consist of the following:
<TABLE>
<S> <C>
Raw materials....................................................... $ 1,000
Work-in-process..................................................... 1,062
Finished goods...................................................... 38
Postage............................................................. 1,352
---------
$ 3,452
---------
---------
</TABLE>
3. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
The estimated useful lives and the amounts of property, equipment and
leasehold improvements are as follows:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS
-----------
<S> <C> <C>
Land -- $ 3,790
Buildings and leasehold improvements................................... 10-40 16,497
Machinery and equipment................................................ 3-11 19,266
Furniture and fixtures................................................. 5-7 4,125
Data processing software............................................... 3-5 2,778
---------
46,456
Less--Accumulated depreciation......................................... 1,862
---------
44,594
Construction-in-process................................................ 525
---------
$ 45,119
---------
---------
</TABLE>
F-38
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS
-----------
<S> <C> <C>
Goodwill............................................................. 40 $ 147,203
Customer list........................................................ 8-11 14,493
Other intangibles.................................................... 5-8 3,569
----------
165,265
Less--Accumulated amortization....................................... 2,668
----------
$ 162,597
----------
----------
</TABLE>
5. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
<TABLE>
<S> <C>
Accruals related to discontinued operations........................ $ 2,626
Compensation....................................................... 3,967
Accrued production costs........................................... 4,323
Other.............................................................. 14,962
---------
$ 25,878
---------
---------
</TABLE>
6. CAPITAL LEASE OBLIGATIONS AND LONG-TERM DEBT:
Maturities of capital leases at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES
---------
<S> <C>
1998................................................................................. $ 2,578
1999................................................................................. 1,568
2000................................................................................. 716
2001................................................................................. 196
2002................................................................................. 91
Thereafter........................................................................... --
---------
Total payments..................................................................... 5,149
Less--Amounts representing interest.................................................. 545
---------
Present value of minimum lease payments............................................ 4,604
Less--Current portion................................................................ 1,782
---------
$ 2,822
---------
---------
</TABLE>
F-39
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes, and the amounts used for income tax purposes.
The components of the income tax provision are as follows:
<TABLE>
<S> <C>
Current:
Federal............................................................ $ --
State.............................................................. --
---------
--
---------
Deferred:
Federal............................................................ 343
State.............................................................. 52
---------
395
---------
$ 395
---------
---------
</TABLE>
Differences between the amount of the income tax provision recorded and the
amount computed by applying the federal income tax statutory rate to income
before income taxes are explained as follows:
<TABLE>
<S> <C>
Provision at statutory rates......................................... $ 51
State and local taxes................................................ 9
Nondeductible expenses (primarily goodwill).......................... 335
---------
Income tax provision............................................... $ 395
---------
---------
</TABLE>
Significant components of the Company's deferred income tax liabilities and
assets are as follows:
<TABLE>
<S> <C>
Deferred income tax liabilities:
Other intangibles (excluding goodwill).......................... $ (8,618)
Tax over book depreciation and amortization..................... (5,016)
Deferred revenue................................................ (437)
---------
(14,071)
---------
Deferred income tax assets:
Accrued liabilities............................................. 7,879
Other........................................................... 497
---------
8,376
---------
Net deferred tax liability.................................... $ (5,695)
---------
---------
</TABLE>
F-40
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. EMPLOYEE BENEFIT PLAN:
The Company has defined contribution plans which provide retirement benefits
to substantially all employees not covered by collective bargaining agreements.
The Company matches a portion of employee contributions to the plans. Company
contributions to these plans charged to expense were $369 for the four month
period ended December 31, 1997.
9. LEASE COMMITMENTS:
Equipment acquired under capital leases is included in property, equipment
and leasehold improvements, and the related obligations are in capital lease
obligations (see Note 6). Related amortization is included in depreciation.
Total rental expense for office and warehouse space, including short-term
rentals and rentals under noncancelable operating leases (primarily office and
warehouse space and production equipment), was $1,916 for the four month period
ended December 31, 1997.
The Company's landlord granted lease incentives to the Company in 1990,
amounting to approximately $1,700, as an inducement to enter into the lease of
the St. Louis facility. Rent payments on the St. Louis facility, net of the
lease incentive, are scheduled to increase periodically and are recognized as
expense on a straight-line basis over the life of the lease. The difference
between rent payments made and rental expense is recorded as deferred lease
liability.
The future minimum rental commitments required under noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1998............................................................................... $ 3,776
1999............................................................................... 3,387
2000............................................................................... 2,772
2001............................................................................... 2,501
2002............................................................................... 2,386
Thereafter......................................................................... 6,596
---------
$ 21,418
---------
---------
</TABLE>
10. TRANSACTIONS WITH MAJOR CUSTOMERS:
The Company provides creative, media, printing, mailing services and
magazine subscription fulfillment to companies in diversified industries. The
Company performs periodic credit evaluations of its customers' financial
condition, and requires advance payments for postage and other services.
Transactions with one customer, which is a Fortune 50 company involved in
the communication industry, accounted for 15% of sales for the four month period
ended December 31, 1997. Accounts receivable from this customer amounted to
$4,325 as of December 31, 1997.
F-41
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
11. COMMITMENTS AND CONTINGENCIES:
The Company has contingent payment obligations based on the attainment of
certain financial performance targets of businesses acquired in prior years. For
the four months ended December 31, 1997, total contingent consideration paid
related to all acquisitions was $1,900. Contingent payment obligations are
accounted for as additional goodwill and are payable through December 1999.
In June 1997 the Company was informed by the United States Attorney's Office
for the Eastern District of Missouri that it was the subject of a grand jury
investigation based upon information supplied by the United States Postal
Service. The investigation concerns whether violations of civil or criminal
statutes may have occurred in connection with the Company's bulk mailing
practices. The Company has been engaged in a dialogue with the Government, which
discussions have included a possible consensual resolution of this matter,
however, as of the date hereof, no settlement has been reached. It is the
Company's position that its bulk mailing practices comply with applicable laws
and regulations. In connection with the DIMAC Marketing Acquisition, Heritage,
the Company and DIMAC Marketing entered into an indemnification agreement
pursuant to which Heritage has agreed to indemnify the Company for certain
costs, including settlements, judgments and related fees, in relation to the
USPS investigation. There can be no assurance, however, that the investigation
and the costs associated therewith will not have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company is a party to various other litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any
such matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company.
12. SUBSEQUENT EVENTS:
On June 26, 1998, News Corp. sold their interest in the Company, including
the payable to Parent Company, to McCown De Leeuw & Co. for $204,000, including
$4,000 of assumed indebtedness.
F-42
<PAGE>
DIMAC MARKETING CORPORATION AND SUBSIDIARIES
The consolidated financial statements for the eleven month period ended
December 31, 1996 and for the eight month period ended August 31, 1997 reflect
the financial results of DIMAC Marketing Corporation under a new basis of
accounting that reflects the fair value of assets acquired and liabilities
assumed, the related financing costs, and all debt incurred in connection with
purchase of DIMAC Marketing Corporation by Heritage.
F-43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DIMAC Marketing Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheet of DIMAC
Marketing Corporation and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the eleven months ended December 31, 1996 and the eight months ended August 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
DIMAC Marketing Corporation and Subsidiaries as of December 31, 1996, and the
consolidated results of their operations and their cash flows for the eleven
months ended December 31, 1996 and the eight months ended August 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
July 2, 1998
F-44
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ --
Accounts receivable, net of allowance for doubtful accounts of $862............. 37,033
Inventories..................................................................... 4,419
Deferred income taxes........................................................... 1,932
Other current assets............................................................ 1,690
---------
Total current assets.......................................................... 45,074
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.................................... 34,124
INTANGIBLE ASSETS................................................................. 270,805
---------
$ 350,003
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 10,675
Advances from customers......................................................... 9,602
Accrued liabilities............................................................. 19,867
Income taxes payable............................................................ 430
Current maturities of long-term capital lease obligations....................... 2,040
Current maturities of long-term debt............................................ 5,000
---------
Total current liabilities..................................................... 47,614
LONG-TERM CAPITAL LEASE OBLIGATIONS............................................... 3,613
LONG-TERM DEBT.................................................................... 76,000
DEFERRED LEASE LIABILITY.......................................................... 2,104
DEFERRED INCOME TAXES............................................................. 11,089
PAYABLE TO PARENT COMPANY......................................................... 34,102
---------
Total liabilities............................................................. 174,522
---------
STOCKHOLDER'S EQUITY:
Series preferred stock, $.01 par value; 10,000,000 shares authorized; none
issued........................................................................ --
Common stock, $.01 par value; 20,000,000 shares authorized; issued 1,000........ --
Additional paid-in capital...................................................... 175,000
Retained earnings............................................................... 481
---------
Total stockholder's equity.................................................... 175,481
---------
$ 350,003
---------
---------
</TABLE>
The accompanying notes an integral part of this sheet.
F-45
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1996 AND
THE EIGHT MONTHS ENDED AUGUST 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
SALES.................................................................................. $ 168,193 $ 118,747
COST OF SALES.......................................................................... 108,735 77,820
------------ ----------
Gross profit....................................................................... 59,458 40,927
------------ ----------
OPERATING EXPENSES:
Sales expenses....................................................................... 17,859 13,767
General and administrative expenses.................................................. 20,688 17,151
Amortization of intangibles.......................................................... 9,098 6,949
------------ ----------
47,645 37,867
------------ ----------
Operating income................................................................... 11,813 3,060
------------ ----------
INTEREST EXPENSE....................................................................... 7,525 6,188
------------ ----------
Income (loss) before income taxes and discontinued operations...................... 4,288 (3,128)
INCOME TAX PROVISION................................................................... 3,789 122
------------ ----------
Net income (loss) before discontinued operations................................... 499 (3,250)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued joint venture (net of income tax benefit of $13
and $581).......................................................................... (18) (770)
Loss on disposal of discontinued joint venture, including provision for operating
losses during phase-out period (net of income tax benefit of $2,942)............... -- (3,899)
------------ ----------
Net income (loss).................................................................. $ 481 $ (7,919)
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-46
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1996 AND
THE EIGHT MONTHS ENDED AUGUST 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL RETAINED
COMMON COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT) TOTAL
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1996............................ 1,000 $ -- $ 175,000 $ -- $ 175,000
Net income........................................... -- -- -- 481 481
----- ----- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996........................... 1,000 -- 175,000 481 175,481
Net loss............................................. -- -- -- (7,919) (7,919)
----- ----- ---------- ---------- ----------
BALANCE AT AUGUST 31, 1997............................. 1,000 $ -- $ 175,000 $ (7,438) $ 167,562
----- ----- ---------- ---------- ----------
----- ----- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1996 AND
THE EIGHT MONTHS ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
AUGUST 31,
DECEMBER 31, 1996 1997
----------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................................... $ 481 $ (7,919)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities--
Loss from discontinued operations......................................... 18 770
Loss on disposal of discontinued operations............................... -- 3,899
Depreciation and amortization............................................. 12,827 10,414
Deferred income tax benefit............................................... 2,480 1,884
Other..................................................................... 25 --
Changes in net assets and liabilities, net of acquisitions--
Accounts receivable..................................................... (7,750) (733)
Inventories............................................................. 66 340
Other current assets.................................................... 522 (541)
Accounts payable........................................................ (428) (3,445)
Advances from customers................................................. 1,872 314
Accrued liabilities..................................................... (3,584) (660)
Income taxes............................................................ 1,280 --
-------- --------------
Net cash provided by operating activities............................. 7,809 4,323
-------- --------------
INVESTING ACTIVITIES:
Net assets of acquired businesses........................................... (28,678) --
Proceeds from sale of fixed assets.......................................... 58 --
Payments for contingent consideration and other intangibles................. (6,976) (4,059)
Purchase of property, equipment and leasehold improvements.................. (9,282) (15,885)
-------- --------------
Net cash used in investing activities................................. (44,878) (19,944)
-------- --------------
FINANCING ACTIVITIES:
Payments to extinguish credit agreement..................................... -- (50,000)
Payments to capital lease obligations....................................... (1,653) (1,360)
Net borrowings (payments) under revolving credit facilities................. 31,000 (31,000)
Net borrowings from Parent Company.......................................... 7,722 97,981
-------- --------------
Net cash provided by financing activities............................. 37,069 15,621
-------- --------------
Net change in cash and cash equivalents............................... -- --
CASH AND CASH EQUIVALENTS, beginning of period................................ -- --
-------- --------------
CASH AND CASH EQUIVALENTS, end of period...................................... $ -- $ --
-------- --------------
-------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................................... $ 7,314 $ 6,321
-------- --------------
-------- --------------
Income taxes paid........................................................... $ 730 $ 59
-------- --------------
-------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
DIMAC Marketing Corporation (DIMAC or the Company) is one of the largest
full-service, vertically integrated direct marketing services companies in the
United States. DIMAC creates and implements comprehensive, custom-tailored
marketing programs that enable clients nationwide to focus their marketing
expenditures on a highly targeted potential customer base. As a full-service,
vertically integrated firm, DIMAC provides every component of a complete direct
marketing program, including customized market research, strategic and creative
planning, creation and management of relational data bases, telemarketing, media
buying, production services, fulfillment services and subsequent program
analysis.
The consolidated financial statements include the accounts of DIMAC and its
wholly owned subsidiary DIMAC DIRECT Inc. (DIMAC DIRECT) (including its wholly
owned subsidiaries Palm Coast Data Inc., The McClure Group Inc., Wilcox &
Associates Inc., MBS/Multimode Inc. and the accounts of KCET/DIMAC Communication
LLC, in which DIMAC DIRECT has a 60% interest). DIMAC's operations are located
in St. Louis, San Francisco, New York, Palm Coast, Philadelphia, Houston, Los
Angeles and Boston. All significant intercompany balances and transactions have
been eliminated.
On February 21, 1996, all of the common stock of the Company was acquired by
Heritage Media Corporation (Heritage), effective February 1, 1996, for cash of
approximately $190,000. The acquisition has been accounted for as a purchase and
the purchase accounting has been pushed down to the Company. Goodwill resulting
from this transaction of approximately $220,000 is being amortized on a
straight-line basis over 40 years.
The consolidated financial statements include an amount due to Heritage of
$34,102 as of December 31, 1996 and intercompany interest expense of $1,439 and
$922 for the eleven months ended December 31, 1996 and the eight months ended
August 31, 1997, respectively.
CASH AND CASH EQUIVALENTS
All highly liquid debt investments purchased with a maturity of three months
or less are classified as cash equivalents.
ACCOUNTS RECEIVABLE
The Company provides an allowance for doubtful accounts for the estimated
losses that will be incurred in the collection of receivables. The estimated
losses are based on historical collection experience coupled with a review of
the current status of the existing receivables. Receivables include $7,587
representing unbilled revenues for services performed prior to December 31,
1996.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market, and include appropriate elements of material, labor and overhead.
F-49
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost.
Property and equipment are depreciated using the straight-line method over the
respective asset's estimated useful life. Leasehold improvements are amortized
using the straight-line method over the lesser of the respective asset's
estimated useful life or the lease term.
The Company continually evaluates the propriety of the carrying amounts of
property and equipment and the estimated useful lives used for depreciation.
INTANGIBLE ASSETS
The cost of acquired companies is allocated first to identifiable assets and
liabilities based on estimated fair market values. The excess of cost over
identifiable assets and liabilities is recorded as goodwill with amortization
over periods ranging from 25 to 40 years. Costs allocated to identifiable
intangible assets are amortized over the remaining estimated useful lives of the
assets as determined by underlying contract terms or independent appraisals.
The Company continually reevaluates the propriety of the carrying amount of
goodwill as well as the related amortization period to determine whether current
events and circumstances warrant adjustments to the carrying values or revised
estimates of useful lives. This evaluation is based on the Company's projection
of the undiscounted operating income before depreciation, amortization and
interest over the remaining lives of the amortization periods of related
goodwill. The projections are based on the historical trend line of actual
results since the commencement of operations and adjusted for expected changes
in operating results. To the extent such projections indicate that the
undiscounted operating income (as defined above) is not expected to be adequate
to recover the carrying amounts of goodwill, such carrying amounts are written
down by charges to expense in amounts equal to the excess of the carrying amount
of intangible assets over the related fair value of the assets. The Company
believes that no significant impairment of the goodwill and other intangibles
has occurred, and that no reduction of the estimated useful lives is warranted.
REVENUE RECOGNITION
The Company performs work in accordance with individual client projects.
Revenues are recognized as services are performed on projects and the Company
can determine the completion stage of those projects, to the extent that revenue
is billable to the clients at that stage of completion.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company discloses estimated fair values for its financial instruments. A
financial instrument is defined as cash or a contract that imposes on one entity
a contractual obligation to deliver cash or another financial instrument to a
second entity, and conveys to that second entity a contractual right to receive
cash or another financial instrument from the first entity. The carrying amount
of accounts receivable, accounts payable and accrued liabilities approximates
fair value due to the short-term maturity of these instruments. The carrying
amount of long-term debt approximates fair value due to the variable interest
rates attached to the debt.
F-50
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This standard
requires that long-lived assets, certain intangibles and goodwill related to
those assets to be held and used, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. This standard also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The Company adopted this statement in
fiscal 1996. See Note 3 for the estimated loss on disposal of the Company's
investment in joint venture operations. The Company determined that no
additional impairment loss needs to be recognized.
INCOME TAXES
Income tax expense is reported as the total of current year income tax
liability and the change in deferred taxes which are provided for temporary
differences. Deferred income taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
current enacted tax rates.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. ACQUISITIONS:
On February 28, 1996, DIMAC DIRECT acquired substantially all of the assets
of Wilcox & Associates, Inc. (Wilcox). Wilcox was a subchapter S corporation
with marketing offices in New York and San Francisco primarily providing direct
response services to financial institutions. The purchase price for the
acquisition was $3,905 plus certain contingent payment obligations based on the
attainment of certain financial performance targets by the newly formed Wilcox &
Associates subsidiary over the next four years. Goodwill resulting from the
purchase price allocation of $3,214 is being amortized over 25 years. Future
contingent payment obligations, if any, will be accounted for as additional
goodwill as the payments are made. The acquisition was accounted for as a
purchase and the Company has included the financial results of Wilcox beginning
March 1, 1996.
On April 30,1996, DIMAC DIRECT acquired substantially all of the assets of
MBS/Multimode, Inc. (MBS). MBS was a subchapter S corporation located in Long
Island, New York, providing database marketing services primarily to the retail
industry. The purchase price for the acquisition was $24,714. Goodwill resulting
from the purchase price allocation of $22,767 is being amortized over 25 years.
The acquisition was accounted for as a purchase and the Company has included the
financial results of MBS beginning May 1, 1996.
F-51
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. ACQUISITIONS: (CONTINUED)
In addition to the two contingent payment obligations described above, DIMAC
has similar obligations related to acquisitions of companies completed in prior
years based on attainment of certain financial performance targets by the
acquired entities. Total contingent consideration paid related to all
acquisitions was $4,451 for the eleven months ended December 31, 1996 and $3,968
for the eight months ended August 31, 1997. These contingent payment obligations
have been accounted for as additional goodwill and extend for various periods
through December 1999.
Pro forma information relating to the acquisitions has not been presented as
their impact on the financial statements is insignificant.
3. DISCONTINUED JOINT VENTURE:
In September 1996, DIMAC DIRECT and Community Television of Southern
California (CTSC), a public television station, formed a joint venture to
provide videotape distribution and fund-raising services for public television
stations and not-for-profit clients. DIMAC DIRECT has a 60% interest in the
joint venture and contributed a license agreement purchased for $2,000. Certain
contingent payment obligations are due based on the attainment of certain
financial performance targets over the next for years.
During 1997, the Company adopted a plan to discontinue the joint venture.
Accordingly, the Company's interest in the joint venture is reported as a
discontinued operation for all periods presented.
The estimated loss on disposal of the Company's investment in the joint
venture is $3,899 (net of income tax benefit of $2,942), consisting of an
estimated loss on disposal of the investment of $3,461 and a provision of $438
for anticipated losses until disposal. Net revenues of the joint venture were
$4,074 and $6,317 for the eleven months ended December 31, 1996 and the eight
months ended August 31, 1997, respectively.
4. INVENTORIES:
Inventories as of December 31, 1996, consist of the following:
<TABLE>
<S> <C>
Raw materials....................................................... $ 1,323
Work-in-process..................................................... 1,101
Finished goods...................................................... 885
Postage............................................................. 1,110
---------
$ 4,419
---------
---------
</TABLE>
F-52
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
The estimated useful lives and the amounts of property, equipment and
leasehold improvements as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS
-------------
<S> <C> <C>
Land.................................................................. -- $ 414
Buildings and leasehold improvements.................................. 10-40 4,300
Machinery and equipment............................................... 3-11 20,734
Furniture and fixtures................................................ 5-7 4,610
Data processing software.............................................. 3-5 2,503
---------
32,561
Less-Accumulated depreciation......................................... 2,972
---------
29,589
Construction-in-process............................................... 4,535
---------
$ 34,124
---------
---------
</TABLE>
6. INTANGIBLE ASSETS:
Intangible assets as of December 31, 1996, consist of the following:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS
-------------
<S> <C> <C>
Goodwill............................................................. 25-40 $ 252,884
Customer list........................................................ 8-11 18,324
Other intangibles.................................................... 5-8 8,914
----------
280,122
Less--Accumulated amortization....................................... 9,317
----------
$ 270,805
----------
----------
</TABLE>
7. ACCRUED LIABILITIES:
Accrued liabilities as of December 31, 1996, consist of the following:
<TABLE>
<S> <C>
Compensation....................................................... $ 5,497
Accrued production costs........................................... 2,591
Other.............................................................. 11,779
---------
$ 19,867
---------
---------
</TABLE>
8. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
On February 21, 1996, the Company entered into a $175,000 bank credit
facility (the DIMAC Credit Agreement) with a group of banks. The DIMAC Credit
Agreement was comprised of a $50,000
F-53
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS: (CONTINUED)
term loan and a $125,000 reducing revolving credit facility. Loans under the
DIMAC Credit Agreement accrued interest at rates based on the agent bank's base
rate or a Eurodollar rate plus a margin depending on DIMAC's total leverage
ratio (as defined). At December 31, 1996, $50,000 of the term loan and $31,000
of the revolver were outstanding at the Eurodollar rate of 6.7%. Loans under the
DIMAC Credit Agreement were guaranteed by Heritage and DIMAC subsidiaries and
were secured by a pledge of the capital stock of DIMAC and its subsidiaries.
Maturities of long-term debt and capital leases at December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
CAPITAL
DEBT LEASES
--------- ---------
<S> <C> <C>
1997..................................................................... $ 5,000 $ 2,528
1998..................................................................... 8,750 2,321
1999..................................................................... 8,750 1,206
2000..................................................................... 10,000 458
2001..................................................................... 10,000 73
Thereafter............................................................... 38,500 --
--------- ---------
Total payments..................................................... 81,000 6,586
Less-Amounts representing interest....................................... 933
---------
Present value of minimum lease payments............................ 5,653
Less-Current portion..................................................... 5,000 2,040
--------- ---------
$ 76,000 $ 3,613
--------- ---------
--------- ---------
</TABLE>
9. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes, and the amounts used for income tax purposes.
The components of the income tax provision attributable to continuing
operations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ -----------
<S> <C> <C>
Current:
Federal.......................................................... $ 1,074 $ --
State............................................................ 235 --
------------ -----
1,309 --
------------ -----
Deferred:
Federal.......................................................... 2,354 106
State............................................................ 126 16
------------ -----
2,480 122
------------ -----
$ 3,789 $ 122
------------ -----
------------ -----
</TABLE>
F-54
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
9. INCOME TAXES: (CONTINUED)
Differences between the amount of the income tax provision (benefit)
recorded and the amount computed by applying the federal income tax statutory
rate to income (loss) before income taxes and discontinued operations are
explained as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ -----------
<S> <C> <C>
Provision (benefit) at statutory rates............................. $ 1,458 $ (1,063)
State and local taxes.............................................. 189 (138)
Nondeductible expenses (primarily goodwill)........................ 2,142 1,323
------------ -----------
Income tax provision......................................... $ 3,789 $ 122
------------ -----------
------------ -----------
</TABLE>
Significant components of the Company's deferred income tax liabilities and
assets as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
Deferred income tax liabilities:
Other intangibles (excluding goodwill)........................... $ (7,615)
Tax over book depreciation and amortization...................... (3,267)
Deferred revenue................................................. (1,767)
Other............................................................ (316)
---------
(12,965)
---------
Deferred income tax assets:
Accrued liabilities.............................................. 3,073
Alternative minimum tax credit carryforwards..................... 425
Other............................................................ 310
---------
3,808
---------
Net deferred tax liability......................................... $ (9,157)
---------
---------
</TABLE>
10. EMPLOYEE BENEFIT PLAN:
The Company has defined contribution plans which provide retirement benefits
to substantially all employees not covered by collective bargaining agreements.
The Company matches a portion of employee contributions to the plans. Company
contributions to these plans charged to expense were $598 and $764 for the
eleven month period ended December 31, 1996, and the eight month period ended
August 31, 1997, respectively.
11. LEASE COMMITMENTS:
Equipment acquired under capital leases is included in property, equipment
and leasehold improvements, and the related obligations are in capital lease
obligations (see Note 8). Related amortization is included in depreciation.
Total rental expense for office and warehouse space, including short-term
rentals and rentals under noncancelable operating leases (primarily office and
warehouse space and production equipment), was
F-55
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
11. LEASE COMMITMENTS: (CONTINUED)
$6,049 and $4,008 for the eleven month period ended December 31, 1996, and the
eight month period ended August 31, 1997, respectively.
The Company's landlord granted lease incentives to the Company in 1990,
amounting to approximately $1,700, as an inducement to enter into the lease of
the St. Louis facility. Rental payments on the St. Louis facility, which are
scheduled to increase periodically, net of the lease incentive, are recognized
as expense on a straight-line basis over the life of the lease. The difference
between rental payments made and rental expense is recorded as a deferred lease
liability.
The future minimum rental commitments required under noncancelable operating
leases as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997............................................................................... $ 5,058
1998............................................................................... 4,692
1999............................................................................... 4,261
2000............................................................................... 3,608
2001............................................................................... 3,082
Thereafter......................................................................... 9,141
---------
................................................................................... $ 29,842
---------
---------
</TABLE>
12. TRANSACTIONS WITH MAJOR CUSTOMERS:
The Company provides creative, media, printing, mailing services and
magazine subscription fulfillment to companies in diversified industries. The
Company performs periodic credit evaluations of its customers' financial
condition, and requires advance payments for postage and other services.
Transactions with one customer, which is a Fortune 50 company involved in
the communication industry, accounted for 24% and 21 % of sales for the eleven
month period ended December 31, 1996, and the eight month period ended August
31, 1997, respectively. Accounts receivable from this customer amounted to
$5,838 as of December 31, 1996.
13. COMMITMENTS AND CONTINGENCIES:
During the normal course of business, the Company is involved in various
lawsuits which, in the opinion of management, are not expected to have a
material effect on either the financial position or operating results of the
Company.
14. ACQUISITION OF PARENT COMPANY:
In August 1997, the common stock of Heritage Media Corporation was acquired
by News America Corporation Ltd.
F-56
<PAGE>
DMAC MARKETING CORPORATION
AND SUBSIDIARIES.
The consolidated financial statements for all periods prior to January 31,
1996 reflect the operations of DIMAC Marketing Corporation under prior
ownership.
F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DIMAC Marketing Corporation and Subsidiaries:
We have audited the accompanying consolidated statements of operations,
stockholder's equity and cash flows of DIMAC Marketing Corporation and
Subsidiaries for the year ended December 31, 1995 and the one month ended
January 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of DIMAC Marketing Corporation and Subsidiaries for the year
ended December 31, 1995 and the one month ended January 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
July 2, 1998
F-58
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE ONE MONTH ENDED JANUARY 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996
------------ -----------
<S> <C> <C>
SALES................................................................................. $ 126,518 $ 10,254
COST OF SALES......................................................................... 82,818 6,900
------------ -----------
Gross profit...................................................................... 43,700 3,354
------------ -----------
OPERATING EXPENSES:
Sales expenses...................................................................... 13,057 1,322
General and administrative expenses................................................. 13,846 1,673
Amortization of intangibles......................................................... 1,575 181
Nonrecurring merger costs........................................................... 2,359 --
------------ -----------
30,837 3,176
------------ -----------
Operating income.................................................................. 12,863 178
------------ -----------
INTEREST EXPENSE...................................................................... 5,174 532
------------ -----------
Income (loss) before income taxes and extraordinary item.......................... 7,689 (354)
INCOME TAX PROVISION (BENEFIT)........................................................ 4,193 (131)
------------ -----------
Income (loss) before extraordinary item........................................... 3,496 (223)
EXTRAORDINARY ITEM, net of income tax benefit of $1,087............................... (2,379) --
------------ -----------
Net income (loss)................................................................. $ 1,117 $ (223)
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-59
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE ONE MONTH ENDED JANUARY 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
TREASURY COMMON COMMON PAID -IN RETAINED TREASURY
STOCK STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
----------- ------------ ----------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994............ (5,631,418) 12,122,823 $ 121 $ 19,182 $ 12,313 $ (32,871) $ (1,255)
Net income.............................. -- -- -- -- 1,117 -- 1,117
----------- ------------ ----- ----------- ---------- ---------- ---------
BALANCE AT DECEMBER 31, 1995............ (5,631,418) 12,122,823 121 19,182 13,430 (32,871) (138)
Net loss................................ -- -- -- -- (223) -- (223)
----------- ------------ ----- ----------- ---------- ---------- ---------
BALANCE AT JANUARY 31, 1996............. (5,631,418) 12,122,823 $ 121 $ 19,182 (13,207) $ (32,871) $ (361)
----------- ------------ ----- ----------- ---------- ---------- ---------
----------- ------------ ----- ----------- ---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements
F-60
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE ONE MONTH ENDED JANUARY 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................................................... $ 1,117 $ (223)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities-
Depreciation and amortization expense............................................. 4,841 502
Extraordinary item................................................................ 2,379 --
Deferred income tax benefit....................................................... 601 --
Other............................................................................. 45 (8)
Changes in net assets and liabilities, net of acquisitions
Accounts receivable............................................................. 2,438 2,985
Inventories..................................................................... (84) (1,717)
Other current assets............................................................ (292) 208
Accounts payable................................................................ (704) (3,362)
Advances from customers......................................................... (4,947) 5,552
Accrued liabilities............................................................. 1,445 (276)
Income taxes.................................................................... 646 --
------------ -----------
Net cash provided by operating activities..................................... 7,485 3,661
------------ -----------
INVESTING ACTIVITIES:
Net assets of acquired businesses................................................... (27,649) --
Proceeds from sale of fixed assets.................................................. 66 --
Payments for contingent consideration and other intangibles......................... (2,287) (18)
Purchase of property, equipment and leasehold improvements.......................... (3,796) (222)
------------ -----------
Net cash used in investing activities......................................... (33,666) (240)
------------ -----------
FINANCING ACTIVITIES:
Payments of long-term debt (4,663) (46)
Payments for extinguishment of debt................................................. (26,133) --
Net payments under revolving credit facilities...................................... (7,828) (3,375)
Debt issuance fees.................................................................. (2,341) --
Proceeds from note payable to bank.................................................. 67,146 --
------------ -----------
Net cash provided by (used in) financing activities........................... 26,181 (3,421)
------------ -----------
Net change in cash and cash equivalents....................................... -- --
CASH AND CASH EQUIVALENTS, beginning of period........................................ -- --
------------ -----------
CASH AND CASH EQUIVALENTS, end of period.............................................. $ -- $ --
------------ -----------
------------ -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid....................................................................... $ 5,227 $ 557
------------ -----------
------------ -----------
Income taxes paid................................................................... $ 2,818 --
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-61
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
DIMAC Marketing Corporation (DIMAC or the Company) is one of the largest
full-service, vertically integrated direct marketing services companies in the
United States. DIMAC creates and implements comprehensive, custom-tailored
marketing programs that enable clients nationwide to focus their marketing
expenditures on a highly targeted potential customer base. As a full-service,
vertically integrated firm, DIMAC provides every component of a complete direct
marketing program, including customized market research, strategic and creative
planning, creation and management of relational data bases, telemarketing, media
buying, production services, fulfillment services and subsequent program
analysis.
The consolidated financial statements include the accounts of DIMAC and its
wholly owned subsidiary DIMAC DIRECT Inc. (DIMAC DIRECT) (including its wholly
owned subsidiaries Palm Coast Data Inc. and The McClure Group Inc.) whose
operations are located in St. Louis, San Francisco, New York, Palm Coast,
Philadelphia, Houston, Los Angeles and Boston. All significant intercompany
balances and transactions have been eliminated.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost.
Property and equipment are depreciated using the straight-line method over the
respective asset's estimated useful life. Leasehold improvements are amortized
using the straight-line method over the lesser of the respective asset's
estimated useful life or the lease term.
The Company continually evaluates the propriety of the carrying amounts of
property and equipment and the estimated useful lives used for depreciation.
INTANGIBLE ASSETS
The cost of acquired companies is allocated first to identifiable assets and
liabilities based on estimated fair market values. The excess of cost over
identifiable assets and liabilities is recorded as goodwill with amortization
over periods ranging from 25 to 40 years. Costs allocated to identifiable
intangible assets are amortized over the remaining estimated useful lives of the
assets as determined by underlying contract terms or independent appraisals.
The Company continually reevaluates the propriety of the carrying amount of
goodwill as well as the related amortization period to determine whether current
events and circumstances warrant adjustments to the carrying values or revised
estimates of useful lives. This evaluation is based on the Company's projection
of the undiscounted operating income before depreciation, amortization and
interest over the remaining lives of the amortization periods of related
goodwill. The projections are based on the historical trend line of actual
results since the commencement of operations and adjusted for expected changes
in operating results. To the extent such projections indicate that the
undiscounted operating income (as defined above) is not expected to be adequate
to recover the carrying amounts of goodwill, such carrying amounts are written
down by charges to expense in amounts equal to the excess of the carrying amount
of intangible assets over the related fair value of the assets. The Company
F-62
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
believes that no significant impairment of the goodwill and other intangibles
has occurred, and that no reduction of the estimated useful lives is warranted.
REVENUE RECOGNITION
The Company performs work in accordance with individual client projects.
Revenues are recognized as services are performed on projects and the Company
can determine the completion stage of those projects, to the extent that revenue
is billable to the clients at that stage of completion.
COMPENSATORY STOCK OPTIONS
Certain employees and nonemployee directors of the Company have been granted
options to purchase shares of the Company's voting common stock. Differences
between the stock option exercise price and the estimated market value at the
date of grant are considered unearned compensation and are amortized over the
option vesting period of three years.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The Company
adopted this statement in the first quarter of 1996 with no impact on the
financial statements.
INCOME TAXES
Income tax expense is reported as the total of current year income tax
liability and the change in deferred taxes which are provided for temporary
differences. Deferred income taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
current enacted tax rates.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. ACQUISITIONS:
On May 1, 1995, DIMAC DIRECT Inc. acquired substantially all of the assets
of Palm Coast Data, Ltd. (PCD). PCD was a limited partnership providing direct
marketing data services to the publishing industry. PCD had a marketing office
and production facility in Palm Coast, Florida. The purchase price for the
acquisition was $13,030 plus certain contingent payment obligations based on the
attainment of certain financial performance targets by the newly formed Palm
Coast subsidiary over the next three years. Goodwill resulting from the purchase
price allocation of $5,878 is being amortized
F-63
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. ACQUISITIONS: (CONTINUED)
over 25 years. The acquisition was accounted for as a purchase, and the Company
has included the financial results of PCD beginning May 1, 1995. Future
contingent payment obligations, if any, will be accounted for as additional
goodwill as the payments are made.
On October 2, 1995, the Company acquired the assets of certain affiliated
corporations operating under various business and trade names including "The
McClure Group" (McClure). The McClure Group consisted of seven Subchapter S
corporations and operated as an independent full-service, multimedia marketing
agency headquartered in Valley Forge, Pennsylvania, with primary offices in
northern Florida and Houston. The purchase price for the acquisition was $16,448
plus certain contingent payment obligations based on certain financial and
operational performance targets by the newly formed McClure Group subsidiary
over the next four years. Goodwill resulting from the purchase price allocation
of $15,629 is being amortized over 25 years. The acquisition was accounted for
as a purchase, and the Company has included the financial results of McClure
beginning October 2, 1995. Future contingent payment obligations, if any, will
be accounted for as additional goodwill as the payments are made.
The unaudited pro forma consolidated financial data presented below gives
pro forma effect to the PCD acquisition and the McClure acquisition as if such
transactions had occurred as of January 1, 1995. The unaudited pro forma results
have been prepared for comparative purposes only and do not necessarily reflect
the results of operations of the Company that actually would have occurred had
the acquisitions been consummated as of January 1, 1995, nor do they give effect
to any transactions other than the acquisitions.
<TABLE>
<CAPTION>
1995
PRO FORMA
(UNAUDITED)
-----------
<S> <C>
Sales............................................................................ $ 153,727
-----------
-----------
Income before extraordinary item................................................. $ 4,154
Extraordinary item, net of tax benefit........................................... (2,379)
-----------
Net income..................................................................... $ 1,775
-----------
-----------
</TABLE>
3. NONRECURRING MERGER COSTS:
Nonrecurring merger costs of $2,359 for the year ended December 31, 1995,
were incurred for investment banking, legal and other professional fees arising
from the sale of the Company to Heritage Media Corporation.
4. EXTRAORDINARY ITEM:
On March 31,1995, the Company completed a $75,000 financing commitment from
a group of banks. Under this financing commitment, a five year, $40,000 term
loan was established to refinance the existing revolver loan and to redeem the
remaining $25,000, 12 % Series B Senior Notes. The debt extinguishment resulted
in an extraordinary charge of $2,379 consisting of the premium paid on the
$25,000 principal amount of the Series B Senior Notes of $1,133 plus the
write-off of the unamortized
F-64
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. EXTRAORDINARY ITEM: (CONTINUED)
debt issuance costs associated with the redeemed Series B Senior Notes and
refinanced credit facility of $2,333 less tax benefit of $1,087.
5. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes, and the amounts used for income tax purposes.
The components of the income tax provision (benefit) attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1995 1996
------------ -----------
<S> <C> <C>
Current:
Federal.......................................................... $ 2,887 $ --
State............................................................ 705 --
------------ -----
3,592 --
------------ -----
Deferred:
Federal.......................................................... 480 (114)
State............................................................ 121 (17)
------------ -----
601 (131)
------------ -----
$ 4,193 $ (131)
------------ -----
------------ -----
</TABLE>
Differences between the amount of the income tax provision (benefit)
recorded and the amount computed by applying the federal income tax statutory
rate to income (loss) before income taxes and extraordinary item are explained
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JANUARY 31, 1996
----------------- -----------------
<S> <C> <C>
Provision (benefit) at statutory rates................... $ 2,614 $ (120)
State and local taxes.................................... 630 (25)
Nondeductible expenses (primarily goodwill).............. 77 14
Nonrecurring merger costs................................ 677 --
Other.................................................... 195 --
------- -----
Income tax provision (benefit)......................... $ 4,193 $ (131)
------- -----
------- -----
</TABLE>
6. EMPLOYEE BENEFIT PLAN:
The Company has defined contribution plans which provide retirement benefits
to substantially all employees not covered by collective bargaining agreements.
The Company matches a portion of employee contributions to the plans. Company
contributions to these plans charged to expense were $303 for the year ended
December 31, 1995, and $89 for the one month ended January 31, 1996.
F-65
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. LEASE COMMITMENTS:
Equipment acquired under capital leases is included in property, equipment
and leasehold improvements, and the related obligations are in capital lease
obligations. Related amortization is included in depreciation.
Total rental expense for office and warehouse space, including short-term
rentals and rentals under noncancelable operating leases (primarily office and
warehouse space and production equipment), was $6,094 for the year ended
December 31, 1995, and $630 for the one month ended January 31, 1996.
The future minimum rental commitments required under noncancelable operating
leases as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------------------------------------- ---------
<S> <C>
1996................................................................................................... $ 6,415
1997................................................................................................... 4,538
2008................................................................................................... 3,781
2009................................................................................................... 2,944
2000................................................................................................... 2,522
Thereafter............................................................................................. 9,447
---------
$ 29,647
---------
---------
</TABLE>
8. TRANSACTIONS WITH MAJOR CUSTOMERS:
The Company provides creative, media, printing, mailing services and
magazine subscription fulfillment to companies in diversified industries. The
Company performs periodic credit evaluations of its customers' financial
condition, and requires advance payments for postage and other services.
Transactions with one customer, which is a Fortune 50 company involved in
the communication industry, accounted for 39% of sales for the year ended
December 31, 1995, and 25% of sales for the one month ended January 31, 1996.
9. COMMITMENTS AND CONTINGENCIES:
During the normal course of business, the Company is involved in various
lawsuits which, in the opinion of management, are not expected to have a
material effect on either the financial position or operating results of the
Company.
10. SUBSEQUENT EVENT:
In February 1996, the common stock of the Company was acquired by Heritage
Media Corporation for cash of approximately $190,000. Under terms of the merger,
each share of the Company's common stock was purchased for $28.00.
F-66
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AmeriComm Holdings, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of AmeriComm
Holdings, Inc. (a Delaware corporation, formerly known as DEC International,
Inc.) and subsidiary as of December 31, 1996 and 1997 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AmeriComm Holdings, Inc. and
subsidiary as of December 31, 1996 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 27, 1998
(except with respect to
the matters discussed in
Note 10, as to which the
date is June 26, 1998)
F-67
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 26,
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 1,979,493 $ 1,313,618 $ 2,553,406
Accounts receivable, net of allowance for doubtful accounts of
$611,170, $963,130, and $706,575 respectively............... 17,384,354 27,943,109 24,450,910
Income taxes receivable....................................... 547,944 497,565 486,408
Inventories................................................... 11,261,155 13,330,921 13,910,371
Deferred income taxes......................................... 304,599 508,664 802,238
Other......................................................... 1,835,674 3,037,262 3,059,245
-------------- -------------- --------------
Total current assets........................................ 33,313,219 46,631,139 45,262,578
-------------- -------------- --------------
PROPERTY AND EQUIPMENT:
Land.......................................................... 1,852,686 1,852,686 1,852,686
Buildings..................................................... 12,020,573 12,149,009 12,174,183
Machinery and equipment....................................... 36,970,991 45,571,274 48,624,016
Office equipment, furniture, and fixtures..................... 2,993,039 5,375,241 6,599,299
Leasehold improvements........................................ 1,045,565 1,201,024 1,376,971
Vehicles...................................................... 166,677 219,703 228,416
Construction in progress...................................... 1,809,007 1,708,944 3,389,387
-------------- -------------- --------------
56,858,538 68,077,881 74,244,958
Less accumulated depreciation and amortization................ (9,491,356) (16,884,196) (21,477,598)
-------------- -------------- --------------
Net property and equipment.................................. 47,367,182 51,193,685 52,767,360
-------------- -------------- --------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $1,290,028,
$2,253,195 and $2,548,766, respectively..................... 25,079,097 46,172,983 49,639,925
Patents, net of accumulated amortization of $1,038,940,
$3,119,740 and $4,160,140, respectively..................... 18,405,060 16,324,260 15,283,860
Resident address lists, net of accumulated amortization of $0,
$971,471 and $1,684,286, respectively....................... 0 6,314,552 5,601,737
Deferred financing costs, net of accumulated amortization of
$478,283, $1,544,515 and $2,096,785, respectively........... 5,260,429 5,130,124 4,577,854
Covenants not to compete, net of accumulated amortization of
$5,703,213 $6,050,824 and $6,160,778, respectively.......... 487,304 1,840,000 2,172,810
Prepaid pension cost.......................................... 1,931,101 2,078,067 1,997,767
Other......................................................... 655,056 932,815 1,027,081
-------------- -------------- --------------
Total other assets.......................................... 51,818,047 78,792,801 80,301,034
-------------- -------------- --------------
Total assets................................................ $ 132,498,448 $ 176,617,625 $ 178,330,972
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-68
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 26,
1998
1996 1997 (UNAUDITED)
-------------- -------------- --------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt............................. $ 446,037 $ 864,487 $ 919,673
Bank overdraft................................................ 1,505,703 4,624,033 3,577,183
Accounts payable.............................................. 4,337,366 4,898,701 6,070,751
Accrued employee compensation................................. 2,873,080 4,872,591 3,168,975
Other accrued expenses........................................ 5,310,772 4,767,493 5,343,708
-------------- -------------- --------------
Total current liabilities................................... 14,472,958 20,027,305 19,080,290
-------------- -------------- --------------
NONCURRENT LIABILITIES.......................................... 4,426,790 6,501,250 4,745,507
-------------- -------------- --------------
LONG-TERM DEBT:
11.625% senior unsecured notes................................ 100,000,000 100,000,000 100,000,000
12.5% Senior Notes............................................ 0 37,697,372 40,198,501
Revolving loan facility....................................... 0 10,761,083 18,804,833
Other......................................................... 2,352,881 4,484,145 3,979,976
-------------- -------------- --------------
Total long-term debt........................................ 102,352,881 152,942,600 162,983,310
-------------- -------------- --------------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
9% REDEEMABLE CUMULATIVE PREFERRED STOCK:
$.0001 par value; 250,000 shares authorized, 10,000 and 0
shares issued and outstanding, respectively, liquidation
value of $10,900,000, $0 and $0, respectively............... 9,421,537 0 0
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock:
Class A, $.0001 par value, 4,000,000 shares authorized,
2,541,419, 2,752,287 and 2,752,287 shares issued and
2,457,125, 2,690,467 and 2,690,467 shares outstanding,
respectively.............................................. 254 275 275
Class B, $.0001 par value, 300,000 shares authorized, no
shares issued or outstanding.............................. 0 0 0
Additional paid-in capital.................................... 13,460,969 13,957,185 13,957,185
Warrants outstanding.......................................... 320,000 347,465 347,465
Accumulated deficit........................................... (11,566,520) (16,285,167) (21,937,416)
Treasury stock, at cost (84,294, 61,820 and 61,820 shares of
Class A common stock, respectively)......................... (390,421) (286,345) (286,345)
Notes receivable due from stockholders........................ 0 (586,943) (559,299)
-------------- -------------- --------------
Total stockholders' equity (deficit)........................ 1,824,282 (2,853,530) (8,478,135)
-------------- -------------- --------------
Total liabilities and stockholders' equity (deficit)........ $ 132,498,448 $ 176,617,625 $ 178,330,972
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-69
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
AND THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------- JUNE 30, JUNE 26,
1995 1996 1997 1997 1998
------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
NET SALES......................... $ 71,257,112 $ 111,342,230 $ 191,090,864 $ 86,601,909 $ 93,081,183
COST OF PRODUCTS SOLD............. 55,708,018 80,215,498 133,598,403 60,807,691 67,813,463
------------- -------------- -------------- ------------- -------------
Gross profit.............. 15,549,094 31,126,732 57,492,461 25,794,218 25,267,720
------------- -------------- -------------- ------------- -------------
OPERATING EXPENSES:
Selling......................... 6,760,438 10,716,599 18,194,512 9,807,124 9,818,593
General and administrative...... 4,833,618 11,949,210 23,399,281 10,118,669 11,698,435
Amortization:
Goodwill...................... 236,113 459,560 963,167 474,083 613,397
Patents....................... 0 1,038,940 2,080,800 1,039,211 1,040,400
Covenants not to compete...... 1,439,607 1,035,472 347,611 136,177 267,190
Other......................... 140,000 0 0 0 0
------------- -------------- -------------- ------------- -------------
Total operating expenses.... 13,409,776 25,199,781 44,985,371 21,575,264 23,438,015
------------- -------------- -------------- ------------- -------------
INCOME FROM OPERATIONS............ 2,139,318 5,926,951 12,507,090 4,218,954 1,829,705
INTEREST EXPENSE.................. 3,179,328 8,138,110 17,022,604 7,402,444 9,677,101
------------- -------------- -------------- ------------- -------------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM.............. (1,040,010) (2,211,159) (4,515,514) (3,183,490) (7,847,396)
INCOME TAX BENEFIT................ (1,900,000) (626,739) (688,330) (644,123) (2,195,147)
------------- -------------- -------------- ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM............................ 859,990 (1,584,420) (3,827,184) (2,539,367) (5,652,249)
EXTRAORDINARY LOSS ON RETIREMENT
OF DEBT, NET OF TAX BENEFIT OF
$460,864........................ 0 (797,903) 0 0 0
------------- -------------- -------------- ------------- -------------
NET INCOME (LOSS)................. 859,990 (2,382,323) (3,827,184) (2,539,367) (5,652,249)
REDEEMABLE CUMULATIVE PREFERRED
STOCK ACCRETION AND DIVIDENDS... 0 488,000 864,000 864,000 0
------------- -------------- -------------- ------------- -------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCK.................... $ 859,990 $ (2,870,323) $ (4,691,184) $ (3,403,367) $ (5,652,249)
------------- -------------- -------------- ------------- -------------
------------- -------------- -------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-70
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
AND THE SIX-MONTH PERIOD ENDED JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
SHARES PAR VALUE ADDITIONAL
-------------------------- -------------------------- PAID-IN WARRANTS
CLASS A CLASS B CLASS A CLASS B CAPITAL OUTSTANDING
--------- --------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994........... 2,512,551 0 $ 251 $ 0 $13,434,703 $1,132,902
Warrant accretion.................. 0 0 0 0 0 164,390
Net income attributable to common
stock............................ 0 0 0 0 0 0
- --
--------- ----- ----------- ------------
BALANCE, December 31, 1995........... 2,512,551 0 251 0 13,434,703 1,297,292
Purchase of outstanding warrants... 0 0 0 0 0 (1,297,292)
Issuance of warrants to purchase
132,240 shares of Class A common
stock............................ 0 0 0 0 0 320,000
Purchase of 84,294 shares of Class
A common stock for treasury...... 0 0 0 0 0 0
Issuance of 28,868 shares of Class
A common stock upon exercise of
options.......................... 28,868 0 3 0 26,266 0
Net loss attributable to common
stock............................ 0 0 0 0 0 0
- --
--------- ----- ----------- ------------
BALANCE, December 31, 1996........... 2,541,419 0 254 0 13,460,969 320,000
Issuance of 210,868 shares of Class
A common stock................... 210,868 0 21 0 499,979 0
Issuance of warrants to purchase
11,349 shares of Class A common
stock............................ 0 0 0 0 0 27,465
Purchase of stockholder notes
receivable....................... 0 0 0 0 0 0
Accrued interest on stockholder
notes receivable................. 0 0 0 0 0 0
Acceptance of notes receivable from
stockholders..................... 0 0 0 0 0 0
Issuance of 22,474 shares of Class
A common stock from treasury..... 0 0 0 0 (3,763) 0
Net loss attributable to common
stock............................ 0 0 0 0 0 0
- --
--------- ----- ----------- ------------
BALANCE, December 31, 1997........... 2,752,287 0 275 0 13,957,185 347,465
Net loss attributable to common
stock............................ 0 0 0 0 0 0
Payment by stockholders on notes
receivable....................... 0 0 0 0 0 0
Accrued interest on stockholder
notes receivable................. 0 0 0 0 0 0
- --
--------- ----- ----------- ------------
BALANCE, June 26, 1998 (unaudited)... 2,752,287 0 $ 275 $ 0 $13,957,185 $ 347,465
- --
- --
--------- ----- ----------- ------------
--------- ----- ----------- ------------
<CAPTION>
NOTES
RECEIVABLE
ACCUMULATED DUE FROM TREASURY
DEFICIT STOCKHOLDERS STOCK TOTAL
------------- ------------- --------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994........... $(8,750,627) $ 0 $ 0 $ 5,817,229
Warrant accretion.................. (164,390) 0 0 0
Net income attributable to common
stock............................ 859,990 0 0 859,990
------------- ------------- --------- -----------
BALANCE, December 31, 1995........... (8,055,027) 0 0 6,677,219
Purchase of outstanding warrants... (641,170) 0 0 (1,938,462)
Issuance of warrants to purchase
132,240 shares of Class A common
stock............................ 0 0 0 320,000
Purchase of 84,294 shares of Class
A common stock for treasury...... 0 0 (390,421) (390,421)
Issuance of 28,868 shares of Class
A common stock upon exercise of
options.......................... 0 0 0 26,269
Net loss attributable to common
stock............................ (2,870,323) 0 0 (2,870,323)
------------- ------------- --------- -----------
BALANCE, December 31, 1996........... (11,566,520) 0 (390,421) 1,824,282
Issuance of 210,868 shares of Class
A common stock................... 0 0 0 500,000
Issuance of warrants to purchase
11,349 shares of Class A common
stock............................ (27,465) 0 0 0
Purchase of stockholder notes
receivable....................... 0 (493,132) 0 (493,132)
Accrued interest on stockholder
notes receivable................. 0 (15,745) 0 (15,745)
Acceptance of notes receivable from
stockholders..................... 0 (78,066) 0 (78,066)
Issuance of 22,474 shares of Class
A common stock from treasury..... 0 0 104,076 100,313
Net loss attributable to common
stock............................ (4,691,182) 0 0 (4,691,182)
------------- ------------- --------- -----------
BALANCE, December 31, 1997........... (16,285,167) (586,943) (286,345) (2,853,530)
Net loss attributable to common
stock............................ (5,652,249) 0 0 (5,652,249)
Payment by stockholders on notes
receivable....................... 0 40,742 0 40,742
Accrued interest on stockholder
notes receivable................. 0 (13,098) 0 (13,098)
------------- ------------- --------- -----------
BALANCE, June 26, 1998 (unaudited)... $(21,937,416) $ (559,299) $(286,345) $(8,478,135)
------------- ------------- --------- -----------
------------- ------------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-71
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
AND THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 26,
---------------------------------- ---------- ----------
1995 1996 1997 1997 1998
--------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 859,990 $(2,382,323) $(3,827,182) $(2,539,367) $(5,652,249)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Extraordinary loss on early retirement of
debt, net of income tax benefit............. 0 797,903 0 0 0
Depreciation and amortization................. 4,004,992 7,409,137 13,145,739 6,077,147 7,809,672
Deferred income tax benefit................... (1,900,000) (626,739) (894,649) (644,123) (2,195,147)
Interest paid with in-kind notes.............. 0 0 3,074,676 802,357 2,465,930
Net (gain) loss on disposal of property and
equipment................................... (173,646) (294,000) 440,898 321,852 23,959
Amortization of prepaid pension asset......... (180,310) (45,865) (149,699) 75,369 80,300
Imputed interest.............................. 130,172 72,757 106,422 0 35,199
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable......................... 216,782 2,045,704 (5,747,677) (1,395,456) 3,946,791
Income taxes receivable..................... 0 0 717,202 626,789 11,157
Inventories................................. 141,682 1,017,197 (610,123) (335,123) (475,978)
Other assets................................ (7,436) (226,946) (948,166) (400,951) (444,790)
Accounts payable............................ (2,143,754) 534,704 (1,560,048) 145,429 1,045,421
Accrued expenses and other.................. (1,165,768) (1,153,699) (2,173,188) 440,450 (1,551,580)
--------- ----------- ---------- ---------- ----------
Net cash (used in) provided by operating
activities.............................. (217,296) 7,147,830 1,574,205 3,174,373 5,098,685
--------- ----------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............. (2,308,105) (3,490,447) (4,562,731) (3,313,136) (5,666,368)
Proceeds from sale of property and equipment.... 369,194 423,428 106,123 172,147 12,509
Proceeds from investment securities............. 0 2,620,000 0 0 0
Payment for the purchase of the outstanding
stock of Transkrit Corporation, net of cash
acquired...................................... 0 (79,390,682) 0 0 0
Payment for the purchase of the outstanding
stock of AmeriComm Direct Marketing, Inc., net
of cash acquired.............................. 0 0 (24,954,538) (24,955,131) 0
Payment for the purchase of the outstanding
stock of Label America, Inc., net of cash
acquired...................................... 0 0 (9,469,418) (9,469,322) 0
Payment for the purchase of the outstanding
stock of Cardinal Marketing, Inc. and Cardinal
Marketing of New Jersey, Inc., net of cash
acquired...................................... 0 0 0 0 (4,752,955)
--------- ----------- ---------- ---------- ----------
Net cash used in investing activities..... (1,938,911) (79,837,701) (38,880,564) (37,565,442) (10,406,814)
--------- ----------- ---------- ---------- ----------
</TABLE>
F-72
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
AND THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 26,
---------------------------------- ---------- ----------
1995 1996 1997 1997 1998
--------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdraft, net...... 2,354,437 (2,758,170) 3,118,330 (737,563) (1,046,850)
Payments on term loans.......................... (50,000) (16,900,000) 0 0 0
Dividends paid on redeemable cumulative
preferred stock............................... 0 (450,000) (285,000) (285,000) 0
Payment on officer note......................... 0 (61,647) 0 0 0
Purchase of outstanding warrants................ 0 (1,938,462) 0 0 0
Proceeds from issuance of Class A common
stock......................................... 0 26,269 500,000 0 0
Purchase of Class A common stock for treasury... 0 (390,421) 0 0 0
Redemption of redeemable cumulative preferred
stock......................................... 0 0 (10,000,000) (10,000,000) 0
Purchase of stockholder notes receivable........ 0 0 (493,132) (492,637) 0
Proceeds from issuance of treasury stock........ 0 0 22,247 0 0
Payments on capital leases...................... (37,130) (216,888) (546,767) (235,437) (448,983)
Net borrowings (payments) on revolving loan
facilities.................................... 50,000 (7,050,000) 10,761,083 11,782,166 8,043,750
Increase in deferred financing costs............ 0 (5,738,712) (936,277) (836,255) 0
Proceeds from issuance of notes................. 0 100,000,000 34,500,000 34,500,000 0
Proceeds from issuance of redeemable cumulative
preferred stock and warrants, net of issuance
costs......................................... 0 9,702,973 0 0 0
--------- ----------- ---------- ---------- ----------
Net cash provided by financing
activities.............................. 2,317,307 74,224,942 36,640,484 33,695,274 6,547,917
--------- ----------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... 161,100 1,535,071 (665,875) (695,795) 1,239,788
CASH AND CASH EQUIVALENTS, beginning of year...... 283,322 444,422 1,979,493 1,979,493 1,313,618
--------- ----------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year............ $ 444,422 $ 1,979,493 $1,313,618 $1,283,698 $2,553,406
--------- ----------- ---------- ---------- ----------
--------- ----------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.......................... $2,821,000 $ 7,744,000 $12,835,000 $6,162,553 $6,699,000
--------- ----------- ---------- ---------- ----------
--------- ----------- ---------- ---------- ----------
Cash paid for income taxes...................... $ 0 $ 0 $ 107,000 $ 67,022 $ 55,000
--------- ----------- ---------- ---------- ----------
--------- ----------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations incurred.............. $ 0 $ 2,799,000 $3,085,000 $ 0 $ 0
--------- ----------- ---------- ---------- ----------
--------- ----------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-73
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
1. BACKGROUND
AmeriComm Holdings, Inc. ("AHI," formerly known as DEC International, Inc.)
and its wholly owned subsidiary, AmeriComm Direct Marketing, Inc. ("AmeriComm,"
formerly known as National Fiberstok Corporation) (collectively or individually,
the "Company"), is a leading provider of products and services focused primarily
on the direct marketing industry. The Company's principal strategy is to offer a
comprehensive line of direct marketing products and services while continuing to
participate in the rapidly growing markets for custom pressure sensitive labels
and nonimpact self-mailers. The Company markets its products to customers
throughout the United States through operations in Norfolk, Roanoke, and Salem,
Virginia; Austell, and Tucker, Georgia; Louisville, Kentucky; Gainesville,
Florida; Wilton, New Hampshire; Sparks, Nevada; San Carlos, California; Fort
Smith, Arkansas; Mountainside, New Jersey; and Denver, Colorado.
On June 28, 1996, the Company acquired all of the issued and outstanding
capital stock of Transkrit for $86,500,000 plus transaction costs. Subsequent to
the acquisition, Transkrit and all of its subsidiaries were merged into the
Company. The Transkrit acquisition has been accounted for using the purchase
method of accounting, and accordingly, the results of operations of Transkrit
have been included in the results of operations of the Company since June 29,
1996. The purchase price was allocated to assets and liabilities based on their
estimated fair value as of the date of the acquisition. The excess of the
consideration paid over the estimated fair value of net assets acquired of
$17,542,000 has been recorded as goodwill and is being amortized on the
straight-line basis over 40 years.
On February 21, 1997, the Company acquired all of the issued and outstanding
capital stock of Label America, Inc. ("LAI") for $8,500,000, less outstanding
indebtedness, plus transaction costs. Additional consideration of $700,000 was
paid to the principal stockholder for a noncompete agreement. Upon consummation
of the acquisition, LAI was merged into the Company. The LAI acquisition has
been accounted for using the purchase method of accounting, and accordingly, the
results of operations of LAI have been included in the results of operations of
the Company since February 22, 1997. The excess of the consideration paid over
the estimated fair value of net assets acquired of $6,636,000 has been recorded
as goodwill and is being amortized on the straight-line basis over 40 years.
On April 24, 1997, the Company acquired all of the issued and outstanding
stock of AmeriComm Direct Marketing, Inc. ("ADMI") for $23,635,000 plus
transaction costs. Additional consideration of $1,000,000 was paid to the
principal stockholder for a noncompete agreement. Upon consummation of the
acquisition, ADMI was merged into the Company. The ADMI acquisition has been
accounted for using the purchase method of accounting, and accordingly, the
results of operations of ADMI have been included in the results of operations of
the Company since April 25, 1997. The excess of the consideration paid over the
estimated fair value of net assets acquired of $15,273,000 has been recorded as
goodwill and is being amortized on the straight-line basis over 40 years.
The following presents, on an unaudited pro forma basis, the Company's
results of operations for the years ended December 31, 1995, 1996, and 1997 as
though the acquisition of Transkrit and related
F-74
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
1. BACKGROUND (CONTINUED)
transactions had occurred on January 1, 1995 and the acquisitions of LAI and
ADMI and related transactions had occurred on January 1, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................ $ 168,760 $ 202,033 $ 201,500
Operating income......................................... 12,347 11,740 13,171
Net income (loss) before extraordinary item.............. 2,364 (539) (4,842)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
AHI and its subsidiary. All significant intercompany transactions and balances
have been eliminated.
REVENUE RECOGNITION
Sales are recorded as products are shipped, except for certain sales for
which revenue is recognized when the customer is billed based on passage of
legal title at the date of billing. Such "bill and hold" sales are not material
to the Company's results of operations.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as during the reporting period.
Actual results could differ from these estimates.
CASH EQUIVALENTS
For purposes of the reporting of cash flows, the Company considers all
highly liquid debt instruments with a maturity at date of purchase of three
months or less to be cash equivalents.
The Company does not believe it is exposed to any significant credit risk on
money market funds with commercial banks because its policy is to make such
deposits only with highly rated institutions.
F-75
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
ACCOUNTS RECEIVABLE
A summary of changes in the allowance for doubtful accounts for the years
ended December 31, 1995, 1996, and 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year............................... $ 141,841 $ 171,950 $ 611,170
Acquired balance from Transkrit (Note 1)................. 0 495,154 0
Acquired balance from ADMI (Note 1)...................... 0 0 209,789
Acquired balance from LAI (Note 1)....................... 0 0 47,176
Provisions............................................... 78,089 215,455 385,282
Recoveries............................................... 18,679 75,028 40,148
Write-offs............................................... (66,659) (346,417) (330,435)
---------- ---------- ----------
Balance, end of year..................................... $ 171,950 $ 611,170 $ 963,130
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost or market. Costs of raw
materials are determined using the first-in, first-out ("FIFO") method. Costs
(net of an obsolescence reserve) of work in process, finished goods, and
customized stock (consisting of products which have been produced and held for
certain customers under short-term delayed-shipping arrangements) are determined
using the average cost (which approximates FIFO) or FIFO method.
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------- ------------- JUNE 26,
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials................................... $ 5,837,794 $ 7,351,264 $ 7,409,275
Work in process................................. 1,288,685 1,585,171 1,399,235
Finished goods.................................. 2,834,589 3,350,315 3,520,247
Customized stock................................ 1,300,087 1,044,171 1,581,614
------------- ------------- -------------
$ 11,261,155 $ 13,330,921 $ 13,910,371
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-76
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost or at estimated fair value at
date of acquisition (Note 1), if acquired as part of a business combination, and
are depreciated using the straight-line method over the following lives:
<TABLE>
<S> <C>
25 to 30
Buildings.................................................... years
Machinery and equipment...................................... 3 to 7 years
Office equipment, furniture and fixtures..................... 3 to 7 years
Vehicles..................................................... 3 to 5 years
</TABLE>
Leasehold improvements are depreciated over the lesser of the useful lives
of the assets or the lease term.
The Company's policy is to remove the cost and accumulated depreciation of
retirements from the accounts and recognize the related gain or loss upon the
disposition of assets. Depreciation expense in 1995, 1996, and 1997 was
approximately $2,020,000, $4,313,000, and $7,717,000, respectively.
GOODWILL
Goodwill represents the cost of acquired businesses in excess of net
identifiable assets and is amortized over 15 to 40 years using the straight-line
method. The recoverability of goodwill is periodically reviewed by management
based on current and anticipated conditions. The amount of goodwill considered
realizable, however, could be reduced in the near term if changes occur in
anticipated conditions. Based on a review of projected undiscounted cash flow
from operations and other pertinent information, management is of the opinion
that there has been no diminution in the value assigned to goodwill.
PATENTS
The Company has been granted several patents related to certain products
manufactured by the Company. Patents acquired through the acquisition of
Transkrit were recorded at their estimated fair value at date of acquisition.
These amounts are being amortized on a straight-line basis over the life (4 to
12 years) of the patents.
COVENANTS NOT TO COMPETE
Covenants not to compete have been recorded at cost and are being amortized
on a straight-line basis over the terms (three to five years) of the agreements.
RESIDENT ADDRESS LISTS
The Company has purchased and maintains national residential address lists
used by its customers in making saturation or targeted mailings. Resident
address lists acquired through the acquisition of ADMI were recorded at their
estimated fair value at the date of acquisition. These amounts are being
amortized on a straight-line basis over the life (six years) of the resident
address lists. Amortization
F-77
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
expense for 1997 of $971,471 is included in costs of products sold in the
accompanying consolidated statement of operations.
DEFERRED FINANCING COSTS
Deferred financing costs represent costs incurred to raise financing and are
amortized over the related terms of the borrowings (Note 3).
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
for recognition of deferred tax consequences of temporary differences, net
operating losses, and tax credits by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts, and to the tax bases of existing assets and liabilities.
CONCENTRATION OF RISK
During 1995, 1996, and 1997, the Company's ten largest customers accounted
for 25%, 18%, and 16%, respectively, of total Company sales. No individual
customer accounted for more than 6% of sales in any year. In management's
opinion, a loss of any one individual customer would not have a material impact
on the Company's financial position or results of operations.
The Company's largest purchased raw material is paper. While the Company
utilizes multiple paper suppliers, two suppliers provided 67%, 30%, and 41% of
its requirements in 1995, 1996, and 1997, respectively. Further, the supply and
price of paper are cyclical in nature. As a result, the Company is subject to
the risk that pricing may significantly impact results of operations and that it
may be unable to purchase sufficient quantities of paper to meet production
requirements during times of tight supply. While the Company believes that it
could obtain other suppliers of paper, paper industry conditions may have a
material effect on the Company's results of operations.
VACATION POLICY
In 1995, the Company revised its vacation policy for certain locations,
whereby employees must take vacation earned during the year prior to January 1
or forfeit the balance. As a result of this change in policy, a vacation accrual
is no longer required as of December 31, 1995 and approximately $575,000 of
accrued vacation was reversed and is reflected as a reduction in cost of
products sold in 1995.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable, and debt. The carrying amounts of cash, accounts
receivable, and accounts payable approximate their fair values because of the
short-term maturity of such instruments. The fair value of the senior unsecured
notes (Note 3) at December 31, 1996 and 1997 was approximately $106,000,000 and
was estimated using a quote from a broker. At December 31, 1996 and 1997, the
carrying value of the other
F-78
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
long-term debt approximated its fair value, because interest rates on such debt
are periodically adjusted or approximated current market rates.
INTERIM UNAUDITED DATA FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 26, 1998
In the opinion of management, the unaudited financial statements contain all
the normal and recurring adjustments necessary to present fairly the financial
position of the Company as of June 26, 1998 and the results of the Company's
operations and its cash flows for the six months ended June 30, 1997 and June
26, 1998 in conformity with generally accepted accounting principles. The
results of operations for the six month period ended June 26, 1998 are not
necessarily indicative of the results to be expected for the year.
F-79
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
3. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
11.625% senior unsecured notes, interest payable semiannually commencing December
15, 1996....................................................................... $ 100,000,000 $ 100,000,000
12.5% senior notes, including PIK notes, interest payable quarterly commencing
June 30, 1997, net of unamortized discount of $377,304......................... 0 37,697,372
Revolving loan facility with Heller Financial, Inc., principal payable in full
upon the earlier of termination, as defined, or June 28, 2001, bearing interest
at the 30 to 180 day London Interbank Offered Rate plus 2.25% or Prime plus 1%
(8.35% and 9.5% at December 31, 1997, respectively)............................ 0 10,761,083
Capital lease payable to The CIT Group/Equipment Financing, Inc. (CIT), monthly
principal and interest payments of $48,250 commencing July 1996 through June
2001 with a balloon payment of $513,485 due June 2001, interest at 10.2%....... 2,405,831 2,056,883
Capital leases payable to General Electric Capital Corporation (GE), monthly
principal and interest payments of $53,867 commencing December 1997 through
November 1999, declining to $44,073 commencing December 31, 1999 through
October 2001 with a balloon payment of $1,615,077 due November 2001, interest
at 9.36%....................................................................... 0 3,025,154
Other............................................................................ 393,087 266,595
-------------- --------------
102,798,918 153,807,087
Less current portion............................................................. (446,037) (864,487)
-------------- --------------
$ 102,352,881 $ 152,942,600
-------------- --------------
-------------- --------------
</TABLE>
Maturities of long-term debt and capital lease obligations at December
31,1997 are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 864,487
1999............................................................. 985,265
2000............................................................. 819,774
2001............................................................. 13,440,189
2002 and thereafter.............................................. 138,074,676
-----------
$154,184,391
-----------
-----------
</TABLE>
Prior to the issuance of the 11.625% senior unsecured notes (the "Senior
Notes"), the Company maintained agreements under which the Company had certain
term loans and a revolving line-of-credit
F-80
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
3. LONG-TERM DEBT (CONTINUED)
facility (the "Line"). As additional consideration for the term loans and the
Line, the Company issued stock warrants to purchase 413,457 and 254,435 shares
of Class A and Class B common stock, respectively (Note 6). Concurrent with the
issuance of the Senior Notes on June 28, 1996 discussed below, the Company
repaid the term loans and the Line, purchased the outstanding warrants, and paid
a prepayment penalty, all of which aggregated to approximately $25,100,000. As a
result of the early retirement of debt, the Company incurred an extraordinary
loss of $797,903, net of income tax benefit of $460,864, during 1996.
Subsequently, the agreements were terminated.
Concurrent with the consummation of the Transkrit acquisition discussed in
Note 1, AmeriComm issued $100,000,000 aggregate principal amount of Senior Notes
due June 15, 2002. Interest is payable semiannually commencing December 31,
1996. The Senior Notes are senior obligations of AmeriComm and will be PARI
PASSU in right of payment to all future senior indebtedness. The indenture to
the Senior Notes limits the incurrence of additional debt by AmeriComm, does not
allow AmeriComm to pay any common stock dividends, and limits AmeriComm's
ability to redeem capital stock and to sell its assets, as defined. AmeriComm
may incur additional indebtedness, as defined, as long as its fixed charge
coverage ratio, as defined, is greater than certain minimum levels.
Concurrent with the ADMI acquisition on April 24, 1997 as discussed in Note
1, AHI issued $35,000,000 aggregate principal amount of 12.5% senior notes
("Notes") due April 24, 2003. As inducement for accepting the Notes, the holders
of the Notes were issued 210,868 shares of Class A common stock (Note 6). The
common stock was valued at its fair value of $500,000 and recorded as a discount
to the face value of the Notes. The proceeds from the Notes were used to
purchase the outstanding 9% redeemable cumulative preferred stock (the
"Preferred Stock") (Note 5), pay transaction costs, and fund the ADMI
acquisition. The effective interest rate on the Notes, after considering the
above discount, is 12.74%.
The Notes place certain restrictions on the Company's ability to incur
additional indebtedness or make future acquisitions. In addition, future
interest and principal payments by AHI are dependent primarily on the operations
of AmeriComm through payments to AHI as permitted under the Senior Notes. As a
result, the Company may pay a portion or all of any six quarterly interest
installments prior to April 24, 1999 by issuing additional notes ("PIK Notes")
with interest rates ranging from 12.5% to 13%. The initial interest installments
due June 30, 1997, September 30, 1997, and December 31, 1997 were paid by the
issuance of PIK Notes at 12.5% interest. The PIK Notes must be redeemed prior to
April 24, 2003. Borrowings under the Notes are subject to a financial covenant
with which the Company was in compliance as of December 31, 1997.
Concurrent with the consummation of the Transkrit acquisition discussed in
Note 1, the Company entered into a revolving loan facility with Heller. The
facility provides borrowings based on the lesser of qualified accounts
receivable and inventories, as defined, or $25,000,000. Borrowings under the
revolving loan facility are subject to certain financial covenants that include,
among others, minimum fixed-charge coverage and total indebtedness to operating
cash flow ratio, as defined. The Company was in compliance with each covenant as
of December 31, 1997. As of December 31, 1997, $14,238,917 was available on the
revolving loan facility.
F-81
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
3. LONG-TERM DEBT (CONTINUED)
Under the CIT capital lease payable, CIT has a first-perfected security
interest in certain equipment. At the end of the lease term, the Company will
have the option to purchase the equipment for $513,485. Under the GE capital
leases payable, GE has a first-perfected security interest in certain equipment.
At the end of each lease term, the Company will have the option to purchase the
equipment for an aggregate of $1,615,077. The capital leases are cross-defaulted
with other loan agreements if such default is not cured within 90 days following
the default.
Interest expense on long-term debt and capital leases in 1995, 1996, and
1997 was approximately $3,179,000, $8,138,000, and $17,023,000, respectively,
including $231,000, $564,000, and $1,067,000, respectively, of deferred finance
cost amortization.
4. INCOME TAXES
The income tax benefits for the years ended December 31, 1995, 1996, and
1997 represent the income tax benefit from operating losses. For the years ended
December 31, 1995 and 1996, income tax benefits presented consist of deferred
tax benefits. For the year ended December 31, 1997, the income tax benefit
presented consists of a deferred tax benefit of $894,649 and a current tax
provision of $206,319.
The reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate for the 1995, 1996 and 1997 benefit for income taxes
is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR DECEMBER 31,
-----------------------------------------
1995 1996 1997
------------- ----------- -------------
<S> <C> <C> <C>
Federal tax benefit at statutory rate.................................. $ (353,600) $ (751,794) $ (1,535,275)
State, net of federal benefit.......................................... (34,000) (59,378) 206,669
Change in valuation allowance.......................................... (1,485,000) 0 0
Nondeductible amortization............................................. 0 164,139 367,460
Nondeductible expenses................................................. 0 42,854 69,920
Other, net............................................................. (27,400) (22,560) 202,896
------------- ----------- -------------
Actual income tax benefit.............................................. $ (1,900,000) $ (626,739) $ (688,330)
------------- ----------- -------------
------------- ----------- -------------
Effective tax rate..................................................... 183% 29% 15%
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
F-82
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
Significant components of the Company's net deferred tax liabilities as of
December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards.................................................. $ 4,127,000 $ 3,038,000
Book basis in property over tax basis............................................. (6,703,000) (6,932,000)
Resident address lists............................................................ 0 (2,400,000)
Patents........................................................................... (1,457,000) (998,000)
Inventories....................................................................... (712,000) (497,000)
Goodwill.......................................................................... (185,000) (261,000)
Prepaid pension cost.............................................................. (692,000) (774,000)
Covenant not-to-compete........................................................... 1,556,000 1,413,000
Interest paid with in-kind notes.................................................. 0 1,169,000
Employee benefit accruals......................................................... 903,000 917,000
Liabilities not currently deductible.............................................. 548,000 402,000
Allowance for doubtful accounts................................................... 155,000 309,000
Other, net........................................................................ 2,377 (159,954)
------------- -------------
Net deferred tax liabilities...................................................... $ (2,457,623) $ (4,773,954)
------------- -------------
------------- -------------
</TABLE>
The net operating loss carryforwards will be used to offset future taxable
income, subject to their expirations, beginning in 2004 and continuing through
2012. Any future issuance of stock by the Company could result in an ownership
change, as defined by the Tax Reform Act of 1986, and could limit utilization of
net operating loss carryforwards. Also, benefits derived from using net
operating loss carryforwards to offset any taxes calculated as alternative
minimum tax could be less than the recorded amount of the net operating loss
carryforwards. Although realization is not assured, management believes all net
operating loss carryforwards will be realized.
5. 9% REDEEMABLE CUMULATIVE PREFERRED STOCK
On June 28, 1996, the Company issued 10,000 shares of 9% redeemable
cumulative preferred stock and warrants (Note 6) to the preferred shareholders
for $10,000,000, less issuance costs. The Preferred Stock had no voting rights
and was recorded at fair value on the date of the issuance, less transaction
costs. The excess of the liquidation preference over the carrying value was
being accreted over the life of the Preferred Stock resulting in charges of
approximately $38,000 and $19,000 for the year ended December 31, 1996 and 1997,
respectively. Dividends of $450,000 and $285,000 were paid in 1996 and 1997,
respectively.
In conjunction with the issuance of the Notes, the Preferred Stock was
redeemed for $10,000,000. As a result of the redemption of the Preferred Stock,
the Company incurred a charge of approximately $560,000 for the excess of the
liquidation value over the carrying value which was reflected in the
consolidated statements of operations as additional dividends.
F-83
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
6. CAPITAL STOCK AND WARRANTS
Each share of Class B common stock is convertible into one share of Class A
common stock at the option of the holder. All dividends declared by the board of
directors are shared ratably by Class A and B stockholders. Upon liquidation,
the Class A and B stockholders would share ratably in any proceeds. Class B
common stock is nonvoting.
In conjunction with a certain credit agreements existing prior to June 28,
1996, the Company issued warrants to purchase 413,457, and 254,435 shares of
Class A and Class B common stock, respectively, at an exercise price of $.01
(Note 3). The warrants were valued at their fair value, as determined by the
board of directors on the date of grant. The difference between the fair market
value of the warrants at the issue date and the estimated redemption value was
accreted as a direct charge to accumulated deficit. In conjunction with the
issuance of the Senior Notes on June 28, 1996 (Note 3), the Company purchased
the outstanding warrants for $1,938,402 and recorded a charge of $641,170 to
accumulated deficit.
In conjunction with the issuance of 10,000 shares of Preferred Stock (Note
5), the Company issued warrants to the preferred shareholders to purchase
132,240 shares of Class A common stock. The warrants were valued at their fair
value, as determined by the board of directors on the date of the grant, and
recorded as a discount to the Preferred Stock. In conjunction with the issuance
of the Notes (Note 3), the Company issued additional warrants to purchase 11,349
shares of Class A common stock. The warrants were valued at their fair value, as
determined by the board of directors, on the date of the grant and were recorded
as a charge to accumulated deficit. The 143,589 warrants may be exercised at any
time through June 30, 2004 at $.01 per share, subject to adjustment pursuant to
the terms of the warrant agreement. The Company has reserved 143,589 shares of
its Class A common stock for the exercise of these warrants.
During 1997, the Company purchased aggregate principle and interest 6%
nonrecourse notes from MDC Management Company II, L.P. ("MDC"), an affiliate,
for $493,132. The holders of these notes are shareholders of the Company, and
accordingly, the notes and all accrued interest have been recorded as an
increase to stockholders' deficit.
Effective June 28, 1996, the board of directors adopted the AmeriComm
Holdings, Inc. 1996 Stock Option Plan. During 1996 and 1997, the board of
directors granted options to purchase 244,889 and 39,265 shares, respectively,
of Class A common stock at an exercise price ranging from $2.62 to $5.38 per
share, the estimated fair value at the date of grant, to certain employees and
directors of the Company. As of December 31, 1997, there are 255,286 options
outstanding. The options vest based on time and based upon the profitability and
the liquidation value of the Company if it is sold to a third party. During 1996
and 1997, 28,868 and 0 options vested and were exercised, respectively.
Effective January 28, 1997, the board of directors adopted the AmeriComm
Holdings, Inc. 1997 Stock Option Plan for Directors. During 1997, the board of
directors granted options to purchase 10,350 shares of Class A common stock at
an exercise price of $5.38 per share, the estimated fair value at the date of
grant, to certain directors of the Company. The options vest based on time or in
the event of a change in control of the Company, as defined. As of December 31,
1997, 2,898 options were vested and are exercisable.
F-84
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
6. CAPITAL STOCK AND WARRANTS (CONTINUED)
The Company accounts for its stock option plans in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," under which no compensation was recognized during 1996 and 1997.
In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," for disclosure
purposes. In accordance with the disclosure requirements of SFAS No. 123, the
Company is required to calculate pro forma compensation cost of all stock
options granted using an option pricing model. Accordingly, the fair value of
the stock option grants has been estimated as of the grant dates under the
minimum value method using the following weighted average assumptions for 1996
and 1997: a risk-free interest rate of approximately 6.4%, dividend yield of 0%,
volatility of 0%, and expected life of 4.5 years. Using these assumptions, the
fair value of the stock options at the dates of grant was $0. As a result, there
is no pro forma compensation expense.
7. RELATED-PARTY TRANSACTIONS
FEES TO AFFILIATE
The Company maintains an Advisory Services Agreement (the "Agreement") with
MDC. Under the Agreement, MDC provides certain consulting, financial, and
managerial functions for a $250,000 annual fee through June 28, 1996 and a
$350,000 annual fee thereafter. In 1995, 1996, and 1997, $187,500, $862,000 (of
which $562,000 was accrued as of December 31, 1995), and $350,000, respectively,
were paid. No payments shall be made by the Company to MDC under the Agreement
if there is an event of default, as defined, under the revolving loan facility,
Senior Notes, or the Notes (Note 3). As of December 31, 1997, there are no such
events of default. The Agreement expires December 31, 2000 and is renewable
thereafter, unless terminated by the Company for justifiable cause, as defined.
During 1996, for services related to the acquisition of Transkrit (Note 1)
and the issuance of the Senior Notes (Note 3), the Company paid MDC $500,000, of
which $350,000 has been recorded as deferred financing costs. In addition, for
services related to the acquisition of ADMI in 1997 (Note 1) and the issuance of
the Senior Notes (Note 3), the Company paid MDC $652,000, of which $100,000 has
been recorded as deferred financing costs.
STOCKHOLDERS' AGREEMENT
Certain officers and former officers of the Company purchased and own as of
December 31, 1996 and 1997, an aggregate of 236,947 and 259,421, respectively,
shares of Class A common stock, representing 10% of the voting common stock of
the Company for 1996 and 1997. The stock was purchased at a price ranging from
$4.33 to $4.63 per share, the fair value at the date of such purchases. Such
stock was purchased through a cash payment and the acceptance of 6% nonrecourse
notes by MDC in 1996 and prior and by the Company in 1997 (Note 6).
All stockholders are subject to the terms of a stockholders' agreement. This
agreement restricts the stockholders' ability to sell, transfer, and assign the
common stock, with the Company having the first right of purchase. The holders
of the stock may be forced to sell the shares to the Company under certain
conditions. In addition, on expiration of a stockholder's employment with the
Company, the
F-85
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
7. RELATED-PARTY TRANSACTIONS (CONTINUED)
Company has the option to buy back the stockholder's common stock at a specified
price primarily based on either the cost of the shares or the book value of the
Company.
8. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
The Company has a defined benefit pension plan ("The Employees' Retirement
Plan of National Fiberstok Corporation") covering certain employees. On December
20, 1993, the Company amended the plan, freezing future participation to any new
employees of the Company effective December 31, 1993. Effective December 31,
1994, the Company again amended the plan, freezing future accrual of benefits
for all participants. In conjunction with this agreement, all participants of
the plan were retroactively vested.
The funded status of the plan as of December 31, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated projected benefit obligation........................................ $ (16,991,377) $ (18,292,100)
Plan assets at fair value....................................................... 17,320,422 19,510,900
-------------- --------------
Plan assets greater than projected benefit obligation............................. 329,045 1,218,800
Unrecognized net loss from past experience........................................ 784,056 209,300
-------------- --------------
Prepaid pension cost.............................................................. $ 1,113,101 $ 1,428,100
-------------- --------------
-------------- --------------
</TABLE>
The weighted average discount rates used to measure the accumulated
projected benefit obligation were 7.5% and 7.25 % for 1996 and 1997,
respectively. The expected long-term rates of return on assets were 8.75% and 9
% for 1996 and 1997, respectively.
Net periodic pension costs for 1995, 1996, and 1997 include the following:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Service cost-benefits earned during the period....................... $ 0 $ 0 $ 0
Interest cost on projected benefit obligation........................ 1,230,610 1,266,209 1,242,200
Actual return on plan assets......................................... (1,772,831) (1,252,658) (1,556,899)
Net amortization on plan assets...................................... 361,915 (204,216) 0
------------- ------------- -------------
$ (180,306) $ (190,665) $ (314,699)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The Company has another defined benefit pension plan ("The Transkrit
Corporation Employees' Pension Plan") covering certain employees. Effective
April 30, 1997, the Company amended the plan, freezing future benefits for
participants at certain locations. In conjunction with this agreement, the
participants with frozen future benefits were retroactively vested. Normal
retirement age is 65, but a provision is made for early retirement. Benefits are
based on the employee's compensation level and years of service. The Company
makes annual contributions to the plan equal to the maximum amount that can be
deducted for income tax purposes.
F-86
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
The 1996 and 1997 projected benefit obligation was computed using the
projected unit credit method, assuming a discount rate on benefit obligations of
7.5% and 7.25% in 1996 and 1997, respectively. The expected long-term rate of
return on plan assets is 9% for 1996 and 1997 and, annual salary increases is 4%
over the remaining service lives of the employees in the plan for 1996 and 1997.
The funded status of the plan as of December 31, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated projected benefit obligation, including vested benefits of $2,144,000
and $2,679,000, respectively.................................................... $ (2,243,000) $ (2,817,000)
------------- -------------
------------- -------------
Projected benefit obligation........................................................ $ (3,924,000) $ (4,470,000)
Plan assets at fair value........................................................... 5,137,000 5,631,000
------------- -------------
Plan assets greater than projected benefit obligation............................... 1,213,000 1,161,000
Unrecognized net gain............................................................... (395,000) (508,000)
------------- -------------
Prepaid pension cost................................................................ $ 818,000 $ 653,000
------------- -------------
------------- -------------
</TABLE>
Net periodic pension costs for 1996 and 1997 include the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Service cost-benefits earned during the period.......................................... $ 230,000 $ 415,000
Interest cost on projected benefit obligation........................................... 143,000 287,000
Actual return on plan assets............................................................ (227,000) (444,000)
Recognition of curtailment gain......................................................... 0 (93,000)
Net amortization on plan assets......................................................... 52,000 0
----------- -----------
$ 198,000 $ 165,000
----------- -----------
----------- -----------
</TABLE>
DEFERRED COMPENSATION PLANS
The Company has unfunded deferred compensation plans that provide retirement
benefits to certain current and former employees. The plans provide retirement
benefits generally based on the service provided by the employees to the
Company. Benefits are vested as service is provided. The Company provides for
these plans during the related service lives of the participants at amounts
sufficient to accrue the present value of benefits earned to their retirement
dates. Effective December 31, 1994, the Company froze future benefit accruals
under certain of these deferred compensation agreements. Included in the
accompanying consolidated balance sheets are liabilities of $587,000 and
$592,000 for these plans as of December 31, 1996 and 1997, respectively.
DEFINED CONTRIBUTION PLANS
The Company sponsors several voluntary 401(k) savings plans covering all
eligible employees at certain locations. The plans include provisions which
allow employees to make pretax contributions ranging from 1% to 15% of the
employee's wages. Maximum pretax contributions are capped at 10%
F-87
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
or 15% of the employee's wages, depending on the location. The Company matches
between 15% and 60% of employee contributions up to 4% to 6% of the eligible
employee's wages, which varies by location. The Company recorded an expense of
approximately $283,000, $421,000, and $979,000 in 1995, 1996, and 1997,
respectively, as a result of contributions to the plan.
Effective January 1, 1998, the Company consolidated its various 401(k)
savings plans into a single plan. Substantially all of the benefits available to
participants of the plan have been standardized as of January 1, 1998, with the
exception of the Company's matching contribution, which varies by location.
POSTRETIREMENT BENEFITS
The Company provides certain health care and life insurance benefits for
certain retired individuals. The Company accounts for these benefits in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." The plan was frozen in 1993, and all eligible participants
in the plan are retired. The accrued postretirement benefit obligation at
December 31, 1996 and 1997 was $711,000 and $478,000, respectively.
Assumptions used in the computation of postretirement benefit expense and
the related obligation are as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Discount rate used to determine accumulated postretirement benefit obligation..................... 8% 7.75%
Initial health care cost trend rate............................................................... 13% 13%
Ultimate health care cost trend rate.............................................................. 5% 5%
Year ultimate health care cost trend rate reached................................................. 2009 2009
</TABLE>
If the health care trend rates increased 1% for all future years, the
accumulated postretirement benefit obligation as of December 31, 1997 would have
increased by 4%. The effect of such a change on the interest cost for 1997 would
have been an increase of approximately $17,000.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has certain noncancelable operating leases for office and plant
facilities and office equipment. The total rental expense was $351,000,
$826,000, and $1,669,000 in 1995, 1996, and 1997, respectively. Minimum annual
rental payments remaining under noncancelable operating leases as of December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................... $1,338,000
1999............................................................... 854,000
2000............................................................... 674,000
2001............................................................... 444,000
2002............................................................... 273,000
---------
$3,583,000
---------
---------
</TABLE>
F-88
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
ENVIRONMENTAL LIABILITY
In January 1988 the Company was notified by the United States Environmental
Protection Agency ("EPA") that it was potentially liable for costs incurred by
the EPA in responding to the Dixie Caverns County Landfill in Roanoke County,
Virginia. Subsequently, Roanoke County filed suit against the twelve potentially
responsible parties ("PRP's"); which included the Company, to recover the funds
it has expended in cleaning the site at the date of the suit and for any
additional sums it would expend in the future. While under the Comprehensive
Environmental Response, Compensation and Liability Act, PRPs may be held jointly
and severally liable for the costs of cleanup. Management believes that the
Company's potential liability in connection with this site will not be material,
based upon the amount and nature of the waste alleged to be attributable to it,
the number of other financially viable PRP's and the total estimated clean up
costs.
LITIGATION
The Company is party to various litigation matters incidental to the conduct
of its business. The Company does not believe that the outcome of any of the
matters in which it is currently involved will have a material adverse effect on
the financial condition or results of operations of the Company.
10. SUBSEQUENT EVENTS
PURCHASE OF CARDINAL MARKETING, INC. AND CARDINAL MARKETING OF NEW JERSEY, INC.
On March 16, 1998, the Company acquired all of the issued and outstanding
capital stock of Cardinal Marketing, Inc. and Cardinal Marketing of New Jersey,
Inc. (collectively referred to as "Cardinal") for $4,000,000 plus transaction
costs, which was funded through borrowings on its revolving loan facility.
Additional consideration of $600,000 will be paid to the stockholders of
Cardinal for noncompete agreements, of which $200,000 was paid on March 16, 1998
and the remaining $400,000 will be paid in two equal annual installments
commencing March 16, 1999. Upon consummation of this acquisition, Cardinal was
merged into the Company.
SALE OF AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
On May 12, 1998, McCown De Leeuw & Co. IV, L.P. ("MDC IV"), an affiliated
fund of the Company's majority shareholder, formed DIMAC Holdings Inc.,
("Holdings"). Holdings then formed a wholly owned subsidiary, DIMAC Corporation
("DIMAC"). In addition, DIMAC formed a wholly owned subsidiary, DMAC Merger
Corp. ("DMC"). On June 26, 1998, DMC acquired all of the issued and outstanding
capital stock of the Company for $203.8 million plus transaction costs,
including assumed indebtedness of $164.2 million. DMC then merged into the
Company.
F-89
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
AmeriComm Direct Marketing, Inc.
We have audited the accompanying balance sheets of AmeriComm Direct
Marketing, Inc. as of December 31, 1995 and 1996, and the related statements of
income, stockholders' equity and of cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of AmeriComm Direct Marketing, Inc. as of
December 31, 1995 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Louisville, Kentucky
February 21, 1997
F-90
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND MARCH 31, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31,
-------------------- 1997
1995 1996 (UNAUDITED)
--------- --------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 770 $ 3,836 $ 4,373
Debt security................................................................ 1,073
Receivables:
Trade (net of allowance for doubtful accounts of $211, $169 and $202,
respectively)............................................................ 3,520 4,266 3,594
Other...................................................................... 106 132 119
Postage permits, meters and deposits......................................... 642 383 690
Supply inventory............................................................. 445 340 251
Deferred tax assets.......................................................... 242 -- --
Other........................................................................ 107 125 148
--------- --------- -----------
Total current assets....................................................... 6,905 9,082 9,175
PROPERTY AND EQUIPMENT--net.................................................... 1,920 2,066 2,153
INVESTMENT IN EQUITY SECURITIES................................................ 707 1,072 1,048
OTHER ASSETS................................................................... 552 364 304
--------- --------- -----------
TOTAL.......................................................................... $ 10,084 $ 12,584 $ 12,680
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $ 1,340 $ 1,900 $ 1,572
Accrued expenses............................................................. 807 1,135 1,009
Customer postage advances.................................................... 702 499 690
Current maturities of:
Obligations under capital leases........................................... 45 26 19
Notes payable.............................................................. 134 133 133
--------- --------- -----------
Total current liabilities................................................ 3,028 3,693 3,423
--------- --------- -----------
LONG-TERM DEBT:
Obligations under capital leases............................................. 29 -- --
Notes payable................................................................ 268 138 105
--------- --------- -----------
Total long-term debt....................................................... 297 138 105
--------- --------- -----------
Total liabilities.......................................................... 3,325 3,831 3,528
--------- --------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par; 3 shares authorized.................................... 5 5 5
Retained earnings............................................................ 6,754 8,748 9,147
--------- --------- -----------
Total stockholders' equity................................................. 6,759 8,753 9,152
--------- --------- -----------
TOTAL........................................................................ $ 10,084 $ 12,584 $ 12,680
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-91
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES..................................................... $ 17,441 $ 21,013 $ 26,485 $ 5,714 $ 6,524
COST OF SALES................................................ 13,103 14,937 18,140 4,002 4,421
--------- --------- --------- --------- ---------
GROSS PROFIT................................................. 4,338 6,076 8,345 1,712 2,103
SELLING EXPENSES............................................. 1,620 2,129 2,439 515 606
GENERAL AND ADMINISTRATIVE EXPENSES.......................... 1,995 2,319 3,376 665 866
--------- --------- --------- --------- ---------
OPERATING INCOME............................................. 723 1,628 2,530 532 631
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSES):
Consulting and other fees.................................. 809 1,325 21 21 --
Interest expense........................................... (62) (50) (45) (14) (6)
Other...................................................... 66 (18) 140 20 (26)
--------- --------- --------- --------- ---------
Net other income (expense)............................... 813 1,257 116 27 (32)
--------- --------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES..................... 1,536 2,885 2,646 559 599
PROVISION FOR INCOME TAXES................................... 445 1,100 390 390 --
--------- --------- --------- --------- ---------
NET INCOME................................................... $ 1,091 $ 1,785 $ 2,256 $ 169 $ 599
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-92
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
NUMBER OF RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994............................................... 1 $ 5 $ 3,878 $ 3,883
Net income........................................................... -- 1,091 1,091
----- ----- ----------- ---------
BALANCE, DECEMBER 31, 1994............................................. 1 5 4,969 4,974
Net income........................................................... -- 1,785 1,785
----- ----- ----------- ---------
BALANCE, DECEMBER 31, 1995............................................. 1 5 6,754 6,759
Distributions to stockholder......................................... -- (262) (262)
Net income........................................................... -- 2,2562 2,256
----- ----- ----------- ---------
BALANCE, DECEMBER 31, 1996............................................. 1 $ 5 $ 8,748 $ 8,753
----- ----- ----------- ---------
----- ----- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-93
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 1,091 $ 1,785 $ 2,256 $ 599 $ 169
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred taxes................................................. (194) (61) 390 -- 390
(Gain) loss on sales of property and equipment................. 10 (4) 5 50 --
Depreciation and amortization.................................. 729 605 754 172 159
Changes in assets and liabilities:
Receivables.................................................... (221) (459) (772) 685 (391)
Postage permits, meters and deposits........................... (109) (167) 259 (307) (87)
Supply inventory............................................... 2 (172) 105 89 22
Other current assets........................................... 17 32 (18) (23) (34)
Other assets................................................... 119 (359) 3
Accounts payable............................................... (82) 879 560 (328) 62
Accrued expenses............................................... (244) (181) 328 (126) (116)
Customer postage advances...................................... (22) 156 (203) 191 214
--------- --------- --------- --------- ---------
Net cash provided by operating activities.................... 1,096 2,054 3,667 1,002 388
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of debt security........................................ -- -- 1,073 -- 1,073
Proceeds from the sales of property and equipment................ 88 8 1 0 0
Purchases of equipment........................................... (552) (797) (869) (249) (425)
Purchases of investments......................................... (332) (1,423) (365) 24 (45)
--------- --------- --------- --------- ---------
Net cash used in investing activities............................ (796) (2,212) (160) (225) 603
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments:
Notes payable.................................................. (256) (100) (131) (33) (31)
Obligations under capital leases............................... (91) (94) (48) (7) (14)
Proceeds from issuance of notes payable.......................... 400 135 -- -- --
Distributions to stockholder..................................... -- -- (262) (200) --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities.............. 53 (59) (441) (240) (45)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 353 (217) 3,066 537 946
CASH AND CASH EQUIVALENTS:
Beginning of period............................................ 634 987 770 3,836 770
--------- --------- --------- --------- ---------
End of period.................................................. $ 987 $ 770 $ 3,836 $ 4,373 $ 1,716
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL INFORMATION:
Cash paid for interest......................................... $ 100 $ 50 $ 45
--------- --------- ---------
--------- --------- ---------
Cash paid for income taxes..................................... $ 663 $ 1,277
--------- ---------
--------- ---------
Acquisition of property and equipment financed by capital lease
obligations.................................................. $ 121
---------
---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-94
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--AmeriComm Direct Marketing, Inc. (Company) provides direct
mail services, including database management and printing, to a widely dispersed
customer base concentrated primarily in the retail and advertising industries
and the not-for-profit sector. Credit sales are generally made on an
uncollateralized basis.
The Company conducts its operations primarily in Virginia, New Jersey,
Kentucky and Colorado. The Company began its New Jersey operations in 1995. In
connection therewith, the Company acquired certain assets for a purchase price
of approximately $430.
Prior to January 1, 1996, the Company's operations were conducted through
four wholly-owned subsidiary corporations. Effective January 1, 1996, the
Company elected to be treated as a Subchapter S Corporation for income tax
purposes. Concurrent with this election, the Company merged its wholly-owned
subsidiaries into the parent company and dissolved the related corporations. The
1994 and 1995 financial statements include the accounts of AmeriComm Direct
Marketing, Inc. and its wholly-owned subsidiaries, with all significant
intercompany transactions eliminated.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash in banks
and securities having original maturities when acquired of ninety days or less.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Beginning balance........................................ $ 59,246 $ 176,285 $ 211,571
Provisions............................................... 144,858 128,184 215,550
Recoveries............................................... (792) (2,400) (10,859)
Write-offs............................................... (27,027) (90,498) (246,893)
---------- ---------- ----------
Ending balance........................................... $ 176,285 $ 211,571 $ 169,369
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
INVESTMENTS--All equity securities are classified as available for sale and
are reported at fair value which approximates cost. The debt security is
classified as held-to-maturity and is reported at amortized cost.
SUPPLY INVENTORY--Supply inventory is stated at the lower of cost (first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is provided on the straight-line method over the estimated useful
lives of the respective assets, which range from three to seven years. Leasehold
improvements and equipment under capital leases are amortized over the life of
the leases or the estimated useful life of the improvements or lease, whichever
is shorter. Repairs and maintenance are charged to operations when incurred and
are approximately $510, $570, and $600 in 1994, 1995, and 1996, respectively.
RESIDENT ADDRESS LISTS--Resident address lists, which are included in other
assets, are stated at cost and are amortized using the straight-line method over
ten years.
F-95
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS--In 1996, the Company adopted Statement of Financial
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of," which establishes accounting standards for
the impairment of property and equipment and resident address lists, whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. There was no effect of the standard on the Company's
financial statements.
USE OF ESTIMATES--Financial statements prepared in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
RECLASSIFICATIONS--Certain reclassifications were made to the 1994 and 1995
financial statements to conform with the 1996 presentation, primarily to record
brokered sales revenues and operating expenses at gross amounts.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Building and leasehold improvements........................................ $ 351 $ 480
Equipment.................................................................. 4,888 5,349
Equipment under capital lease.............................................. 208 208
--------- ---------
Total...................................................................... 5,447 6,037
Less accumulated depreciation and amortization............................. 3,527 3,971
--------- ---------
Net........................................................................ $ 1,920 $ 2,066
--------- ---------
--------- ---------
</TABLE>
3. INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Debt security: U.S. Treasury Bill, due 1/12/96, 7.10%...................... $ 1,073
---------
---------
Equity securities:
Investment in Gibraltar Bank common stock................................ $ 384 $ 384
Investment with McCown De Leeuw & Co., III, L.P.......................... 323 688
--------- ---------
Total equity securities.................................................... $ 707 $ 1,072
--------- ---------
--------- ---------
</TABLE>
At December 31, 1996, the Company has a five year commitment to invest up to
$1,000 with McCown De Leeuw & Co., III, L.P. (Partnership). At December 31,
1996, the Company had invested $688 in the Partnership. The balance is due
within 60 days of request from the Partnership. The
F-96
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
Partnership's objective is to invest in equity securities of companies with the
potential for increased shareholder value.
4. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Resident address lists, net of accumulated amortization of $25 and $62, in
1995 and 1996, respectively................................................. $ 350 $ 313
Net deferred non-current tax assets........................................... 148 --
Rental property............................................................... 50 50
Other......................................................................... 4 1
--------- ---------
Total......................................................................... $ 552 $ 364
--------- ---------
--------- ---------
</TABLE>
5. DEBT
At December 31,1996, the Company had no borrowings outstanding under a
$1,000 line of credit that expires on May 3, 1997, which bears interest at a
rate of prime (8.25% at December 31, 1996). Amounts, if any, outstanding under
the line of credit are secured by accounts receivable.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Note payable to bank, interest at prime (8.25% at December 31, 1996) plus
1/2%........................................................................ $ 268 $ 168
Note payable to bank, interest at 8.4%........................................ 134 103
--------- ---------
Total......................................................................... 402 271
Less current maturities....................................................... 134 133
--------- ---------
Long-term maturities.......................................................... $ 268 $ 138
--------- ---------
--------- ---------
</TABLE>
The notes payable to bank are secured by certain property and equipment. The
Company is required to comply with covenants under the note agreements including
a restriction on the sale of the Company's assets other than in the normal
course of business. The Company was in compliance with its covenants at December
31, 1996.
F-97
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
5. DEBT (CONTINUED)
At December 31, 1996, maturities of long-term debt were as follows:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
1997.................................................................................. $ 133
1998.................................................................................. 103
1999.................................................................................. 35
---------
Total................................................................................. $ 271
---------
---------
</TABLE>
The carrying amount of debt approximates its fair value.
6. LEASES
The Company leases operating facilities, office space and equipment under
long-term noncancelable operating leases with various renewal terms and a
capital lease. Rent expense under operating leases was approximately $480, $580,
and $920 in 1994, 1995, and 1996, respectively.
Future minimum lease payments under the capital lease and noncancelable
operating leases consist of the following at December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
----------- -----------
<S> <C> <C>
1997......................................................................................... $ 27 $ 976
1998......................................................................................... -- 979
1999......................................................................................... -- 509
2000......................................................................................... -- 214
--- -----------
Total minimum lease payments................................................................. 27 $ 2,678
-----------
-----------
Less amounts representing interest and executory costs....................................... 1
---
Present value of net minimum lease payments.................................................. 26
Less current maturities...................................................................... 26
---
Long-term maturities......................................................................... $ --
---
---
</TABLE>
The Company is also the lessor of a building and land under a noncancelable
operating lease for a period of five and one half years. At the end of the lease
term, the lessee is required to purchase, and the Company is required to sell,
the leased property for $450 in cash. The Company may not encumber the property
during the term of the lease in an amount in excess of $450. The rental income
from such lease was $60 for 1994, 1995 and 1996. Remaining annual rentals are
$60 in 1997 and $20 in 1998.
F-98
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
7. INCOME TAXES
The provision for income taxes includes the following components:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current............................................................. $ 639 $ 1,161
Deferred............................................................ (194) (61) $ 390
--------- --------- ---------
Provision for income taxes.......................................... $ 445 $ 1,100 $ 390
--------- --------- ---------
--------- --------- ---------
</TABLE>
Due to the election of Subchapter S Corporation status in 1996, deferred tax
assets of $390 were eliminated from the Company's balance sheet, resulting in an
income tax expense of $390.
The tax effects of the significant temporary differences, which comprise the
deferred tax assets and liabilities at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Deferred current tax assets:
Accrued vacation.................................................................... $ 86
Allowance for doubtful accounts..................................................... 99
Accrued health self-insurance....................................................... 44
Phantom stock agreements............................................................ 13
---------
Total deferred current tax assets..................................................... $ 242
---------
---------
Deferred non-current tax asset--
Rental property treated as an installment sale for tax purposes..................... $ 198
Deferred long-term tax liability--Depreciation........................................ (50)
---------
Net deferred non-current tax asset, included in other assets.......................... $ 148
---------
---------
</TABLE>
The Company's income tax expense for the years ended December 31, 1994 and
1995, differed from amounts computed by applying the U.S. Federal income tax
rate of 34% to the Company's income before income taxes as a result of the
following:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Statutory income tax expense................................................. $ 522 $ 981
Increase in (reduction of) income tax expense resulting from:
State and other tax expense................................................ 68 110
Other, net................................................................. (145) 9
--------- ---------
Reported income tax expense.................................................. $ 445 $ 1,100
--------- ---------
--------- ---------
</TABLE>
F-99
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
8. BENEFIT PLAN
On January 6, 1995, the Company established a defined contribution savings
plan under the provisions of Section 401(k) of the Internal Revenue Code that
provides benefits to substantially all employees. The Company's contribution,
which is based upon management discretion, was approximately $95 and $150 in
1995 and 1996, respectively.
Prior to January 6, 1995, the Company sponsored a defined contribution plan
that covered substantially all employees. The Company's annual contribution to
the Plan, in an amount up to 25% of the Company's income before income taxes,
was determined by its Board of Directors. Profit sharing contribution expense
recorded in 1994 was approximately $60.
9. PHANTOM STOCK AGREEMENTS
The Company has entered into Phantom Stock Agreements (Agreements) with
certain executives of the Company. The Agreements allow the executives to earn
additional amounts based on the performance of the Company. Compensation under
the Agreements is based on the difference between the executives' interest in
the value of the Company, as defined in the Agreements, and the executives'
basis in their interests. Amounts are deferred until termination of the
executive or sale of the Company. Compensation expense recorded under these
Agreements was approximately $20, $10, and $120 in 1994, 1995, and 1996,
respectively.
10. SELF-INSURANCE HEALTH CARE PLAN
The Company maintains a self-insurance program for that portion of
employees' health care costs not covered by the Company's stop loss insurance
policy, which sets the maximum cash outlays for annual claims for each employee
or employee's dependents at $30 and for aggregate annual claims up to $450 at
December 31, 1996. Health care costs recorded in 1994, 1995, and 1996 were
approximately $295, $215, and $400, respectively.
11. SALE OF COMPANY
On February 20, 1997, the Company and National Fiberstok Corporation (now
known as AmeriComm Direct Marketing, Inc.) entered into a Stock Purchase
Agreement (Agreement) whereby National Fiberstok Corporation will acquire all of
the outstanding common stock of the Company for cash. The Agreement stipulates
that prior to closing, the Company's cash balances, as determined under the
Agreement, investment in equity securities and certain other assets of the
Company will be distributed by, or assigned by, the Company to the stockholders
of the Company. The Agreement also stipulates that on or prior to the closing,
the Company will satisfy certain liabilities of the Company. The Agreement can
be terminated any time prior to the closing by written mutual consent of
National Fiberstok Corporation and the Company.
F-100
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TRANSKRIT Corporation:
We have audited the accompanying consolidated balance sheets of TRANSKRIT
Corporation and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TRANSKRIT
Corporation and subsidiaries as of December 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the years in the two-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Roanoke, Virginia
May 24, 1996
F-101
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 759 $ 280
Accounts receivable, less allowance of $704 in 1994 and $495 in 1995..................... 11,432 11,923
Inventories.............................................................................. 5,089 4,118
Prepaid expenses and other current assets................................................ 1,560 1,407
Deferred income taxes.................................................................... 662 1,649
Notes and other receivables from affiliates, net......................................... -- 5,528
Investment securities.................................................................... -- 2,508
--------- ---------
Total current assets................................................................... 19,502 27,413
Investment securities.................................................................... 2,299 --
Property, plant and equipment, net....................................................... 25,822 23,735
Goodwill and other intangible assets, net................................................ 9,026 8,436
Notes receivable from affiliates......................................................... 7,711 --
Deferred income taxes.................................................................... 7,994 7,117
Other assets............................................................................. 348 341
--------- ---------
Total assets........................................................................... $ 72,702 $ 67,042
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-102
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................................................ $ 45 $ 2
Bank overdraft........................................................................... 1,494 1,455
Accounts payable......................................................................... 3,216 2,218
Accrued relocation expenses.............................................................. 754 --
Other accrued expenses................................................................... 4,493 4,120
Income taxes payable to parent........................................................... 1,096 --
Income taxes payable..................................................................... 283 133
Deferred gain from sale of real estate................................................... -- 358
--------- ---------
Total current liabilities.............................................................. 11,381 8,286
--------- ---------
Long-term debt, excluding current portion.................................................. 7,944 2,036
Deferred gain from sale of real estate..................................................... 2,426 --
Compensation liability..................................................................... 1,573 3,735
Other liabilities.......................................................................... 205 256
--------- ---------
Total liabilities...................................................................... 23,529 14,313
--------- ---------
Shareholders' equity:
Common stock, $1 par value:
Authorized shares, 10,000; issued and outstanding shares, 8,709 in 1994 and 8,897 in
1995................................................................................. 9 9
Class B common stock, $1 par value:
Authorized shares, 10,000; issued and outstanding shares, none......................... -- --
Additional paid-in capital............................................................... 11,622 12,122
Notes receivable from shareholder........................................................ (500) (1,000)
Retained earnings........................................................................ 38,042 41,598
--------- ---------
Total shareholders' equity............................................................. 49,173 52,729
Commitments and contingencies
--------- ---------
Total liabilities and shareholders' equity............................................. $ 72,702 $ 67,042
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial staements.
F-103
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
-------------------- ----------------------------
1994 1995 JUNE 30, 1995 JUNE 28, 1996
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Net sales..................................................... $ 98,124 $ 97,681 $ 46,966 $ 48,004
Cost of products sold......................................... 64,851 64,223 31,646 30,685
--------- --------- ------------- -------------
Gross profit.................................................. 33,273 33,458 15,320 17,319
Operating expenses:
Selling, general and administrative expenses................ 30,700 29,412 14,888 14,381
Relocation expenses......................................... 413 657 542 --
--------- --------- ------------- -------------
Operating income (loss)....................................... 2,160 3,389 (110) 2,938
Other income (expense):
Interest expense to parent, net............................. (820) -- -- --
Other interest expense...................................... (102) (399) (265) (25)
Interest income............................................. 209 1,096 543 466
Gain on disposal of product lines........................... 2,829 389 395 --
Gain on disposal of property, plant and equipment........... 23 169 424 306
Other, net.................................................. 207 313 144 --
--------- --------- ------------- -------------
Other income (expense), net................................... 2,346 1,568 1,241 747
--------- --------- ------------- -------------
Income before income taxes.................................... 4,506 4,957 1,131 3,685
Income taxes.................................................. 1,799 1,380 445 1,062
--------- --------- ------------- -------------
Net income.................................................... $ 2,707 $ 3,577 $ 686 $ 2,623
--------- --------- ------------- -------------
--------- --------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-104
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
ADDITIONAL RECEIVABLE
COMMON PAID-IN FROM RETAINED
STOCK CAPITAL SHAREHOLDER EARNINGS TOTAL
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993........................... $ 8 $ 2,580 $ -- $ 35,512 $ 38,100
Net income.............................................. -- -- -- 2,707 2,707
Dividends paid ($20.90 per share)....................... -- -- -- (177) (177)
Capital contributions................................... -- 8,543 -- -- 8,543
Issuance of common stock (239 shares)................... 1 499 (500) -- --
----------- ----------- ----------- --------- ---------
Balances at December 31, 1994........................... 9 11,622 (500) 38,042 49,173
Net income.............................................. -- -- -- 3,577 3,577
Issuance of common stock (188 shares)................... -- 500 (500) -- --
Other deductions........................................ -- -- -- (21) (21)
----------- ----------- ----------- --------- ---------
Balances at December 31, 1995........................... $ 9 $ 12,122 $ (1,000) $ 41,598 $ 52,729
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-105
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
-------------------- ----------------------
<S> <C> <C> <C> <C>
JUNE 30, JUNE 28,
1994 1995 1995 1996
--------- --------- --------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 2,707 $ 3,577 $ 686 $ 2,623
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property, plant and equipment...... 6,163 5,434 2,632 2,487
Amortization of goodwill and other intangible assets................ 613 590 295 285
Loss on disposal of product line fixed assets....................... 131 -- -- --
Gain on disposal of property, plant and equipment................... (23) (169) (424) (282)
Deferred income taxes............................................... (8,041) (110) (142) 2,002
Accrued interest receivable on investment securities................ (191) (209) (105) (112)
(Increase) decrease in:
Accounts receivable, net.......................................... (1) (491) 1,092 1,407
Inventories....................................................... 705 971 (389) (572)
Prepaid expenses and other assets................................. (686) 160 325 501
Other receivables from affiliates, net............................ -- (425) 19 425
Increase (decrease) in:
Accounts payable and accrued expenses............................. (1,022) (2,125) (1,705) 1,249
Income taxes payable.............................................. 1,007 (1,246) (153) (1,549)
Due to parent..................................................... (422) -- -- --
Compensation liability............................................ 1,072 2,162 557 (2,735)
Other liabilities................................................. 205 51 -- (13)
--------- --------- --------- -----------
Net cash provided by operating activities............................... 2,217 8,170 2,688 5,716
--------- --------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................ (7,187) (4,172) (2,907) (1,792)
Proceeds from disposal of property, plant and equipment............... 338 327 260 7
Proceeds from disposal of product line fixed assets................... 369 -- -- --
Collections of notes receivable from affiliates....................... -- 1,207 1,207 5,103
--------- --------- --------- -----------
Net cash provided by (used in) investing activities..................... (6,480) (2,638) (1,440) 3,318
--------- --------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdraft, net............................ (607) (39) (171) 426
Capital contribution.................................................. 8,543 -- -- --
Proceeds from long-term debt.......................................... 17,486 18,188 9,404 5,236
Principal payments on long-term debt.................................. (10,242) (24,139) (10,841) (7,274)
Principal payments on long-term advances from parent.................. (10,973) -- -- --
Other deductions...................................................... -- (21) (21) (10)
Dividends paid........................................................ (177) -- -- --
--------- --------- --------- -----------
Net cash provided by (used in) financing activities..................... 4,030 (6,011) (1,629) (1,622)
--------- --------- --------- -----------
Net increase (decrease) in cash and cash equivalents.................... (233) (479) (381) 7,412
Cash and cash equivalents at beginning of the period.................... 992 759 759 280
--------- --------- --------- -----------
Cash and cash equivalents at end of the period.......................... $ 759 $ 280 $ 378 $ 7,692
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-106
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(1) OWNERSHIP AND CORPORATE REORGANIZATION
TRANSKRIT Corporation (the "Company") is headquartered in Roanoke, Virginia
and is a national manufacturer of business forms, labels and other printed
products for the trade. The Company has been operating in the United States
since 1938. Effective December 22, 1994, upon the acquisition of Maclean Hunter,
Ltd. (MHL), a Canadian corporation, by Rogers Communications, Inc. (Rogers), a
Canadian corporation, the Company became an 89.2 percent owned subsidiary of
Rogers. Prior to December 22, 1994, the Company was an 89.2 percent owned
subsidiary of Maclean Hunter, Inc. (MHI), a wholly-owned subsidiary of MHL. As
of December 31, 1995, Rogers owns 87.3 percent of the Company's outstanding
common shares. The Company's financial statements have been presented on a
historical cost basis and do not reflect a basis adjustment for the purchase
method of accounting. The parent company did not incur any expenses on behalf of
the Company. Accordingly, the consolidated statements of income of the Company
reflect all of its costs of doing business.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION
The Company's results have been consolidated with its subsidiaries, Label
Art, Inc. (Label Art), InfoSeal-Registered Trademark- International, Inc.,
Putnam Graphic Innovations, Inc., and Government Forms and Systems, Inc. All
significant related intercompany balances and transactions have been eliminated
in consolidation.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with a maturity at date of purchase
of three months or less to be cash equivalents.
The Company does not believe it is exposed to any significant credit risk on
money market funds with commercial banks because its policy is to make such
deposits only with highly rated institutions.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out method.
INVESTMENT SECURITIES
Investment securities at December 31, 1994 and 1995 consist of zero-coupon
municipal debt securities which are classified as held-to-maturity. Management
determines the appropriate classification of debt securities at the time of
purchase. Debt securities are classified as held-to-maturity when the Company
has the positive intent and the ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost. Interest income on securities
classified as held-to-maturity is recognized when earned.
F-107
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation of property, plant and equipment is
calculated using both straight-line and accelerated methods over the estimated
useful lives of the assets. Estimated useful lives are 25 to 33 years for
buildings, 8 years for building improvements, 3 to 8 years for machinery and
equipment and 5 to 7 years for furniture and fixtures. Leasehold improvements
are amortized over the shorter of the lease term or estimated life of the asset.
Maintenance, repairs and minor replacements are charged to expense as incurred;
major renewals and betterments are capitalized. The cost and related accumulated
depreciation or amortization on property, plant and equipment are eliminated
from the accounts upon disposal, and any resulting gain or loss is included in
the determination of net income.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, which represents the excess of purchase price over fair value of
assets acquired, is amortized on a straight-line basis over 15 to 40 years and
relates to the acquisitions of subsidiaries. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
Other intangible assets include various noncompete agreements which are
amortized over the lives of the agreements (5 to 10 years) using the
straight-line method.
REVENUE RECOGNITION
Sales and cost of products sold are recognized primarily upon shipment of
products.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. For the years ended
December 31, 1994 and 1995, research and development costs charged to expense
were approximately $50,000 and $30,000, respectively.
INCOME TAXES
The Company computes its provision for income taxes on a stand-alone basis.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
F-108
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
ADVERTISING COSTS
Advertising costs consist of various marketing expenses, including
advertisements, and are expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements to place them on a comparable basis.
UNAUDITED INTERIM INFORMATION
The financial information with respect to the six months ended June 30, 1995
and June 28, 1996 is unaudited. In the opinion of management, such information
contains all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of such periods.
The results of operations for the six months ended June 28, 1996 are not
necessarily indicative of the results to be expected for the full year.
(3) ALLOWANCE FOR ACCOUNTS RECEIVABLE
A summary of the changes in the allowance for accounts receivable follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Balances, beginning of period................................................ $ 782 $ 704
Provisions................................................................... 134 (3)
Recoveries................................................................... 6 6
Write-offs................................................................... (218) (212)
--------- ---------
Balances, end of Period...................................................... $ 704 $ 495
--------- ---------
--------- ---------
</TABLE>
F-109
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(4) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies................................................. $ 2,341 $ 1,880
Work in process............................................................ 560 843
Finished products.......................................................... 2,188 1,395
--------- ---------
$ 5,089 $ 4,118
--------- ---------
--------- ---------
</TABLE>
If the first-in, first-out method of inventory accounting had been used,
inventories would have been approximately $1,692,000 and $3,094,000 higher than
reported at December 31, 1994 and 1995, respectively. During the years ended
December 31, 1994 and 1995, the Company liquidated a portion of its LIFO
inventory resulting in a liquidation loss of approximately $15,000, net of
income tax effect, in 1994 and a liquidation gain of approximately $245,000, net
of income tax effect, in 1995.
(5) INVESTMENT SECURITIES
The following is a summary of held-to-maturity securities (in thousands):
<TABLE>
<CAPTION>
GROSS ESTIMATED
UNREALIZED FAIR
COST GAINS VALUE
--------- ------------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1994
Debt securities................................................................. $ 2,299 $ 111 $ 2,410
--------- ----- -----------
--------- ----- -----------
DECEMBER 31, 1995
Debt securities................................................................. $ 2,508 $ 69 $ 2,577
--------- ----- -----------
--------- ----- -----------
</TABLE>
The above securities mature in July 1996.
F-110
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Land........................................................................................ $ 1,285 $ 1,285
Buildings and improvements.................................................................. 12,411 12,479
Machinery and equipment..................................................................... 45,479 41,564
Furniture and fixtures...................................................................... 2,506 2,395
Leasehold improvements...................................................................... 2,326 2,629
Construction in progress.................................................................... 1,492 1,946
--------- ---------
65,499 62,298
Less accumulated depreciation and amortization.............................................. 39,677 38,563
--------- ---------
Property, plant and equipment, net.......................................................... $ 25,822 $ 23,735
--------- ---------
--------- ---------
</TABLE>
(7) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets, net of accumulated amortization,
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Goodwill.................................................................................... $ 9,783 $ 9,783
Noncompete agreements....................................................................... 1,161 1,161
--------- ---------
10,944 10,944
Less accumulated amortization............................................................... 1,918 2,508
--------- ---------
Goodwill and other intangible assets, net................................................... $ 9,026 $ 8,436
--------- ---------
--------- ---------
</TABLE>
F-111
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(8) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Note payable to financial institution.......................................................... $ 7,943 $ 2,036
Other.......................................................................................... 46 2
--------- ---------
7,989 2,038
Less current portion........................................................................... 45 2
--------- ---------
Long-term debt, excluding current portion...................................................... $ 7,944 $ 2,036
--------- ---------
--------- ---------
</TABLE>
The note payable to financial institution represents an unsecured revolving
credit arrangement with First Union National Bank of Virginia (the "Bank") in
the original amount of $17,500,000 that reduced to $16,250,000 on December 31,
1995, reduces further to $15,000,000 on December 31, 1996, and has a maturity
date of January 31, 1997. Interest is based upon the 30-day London Interbank
Offered Rate (LIBOR) plus .95 percent (6.92 percent at December 31, 1995) due
and payable every 30 days in arrears. The Company is required to provide the
Bank with certain financial information on a quarterly basis and has agreed to
certain financial covenants which are also reported to the Bank quarterly. At
December 31, 1995, the Company was in violation of a debt covenant. The Bank has
waived this specific event of default through January 31, 1997, the maturity
date of the note payable.
Interest paid for the years ended December 31, 1994 and 1995 was $920,000
and $424,000, respectively.
(9) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The adoption of
this statement did not have a significant effect on the Company's consolidated
financial statements.
F-112
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(9) INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal................................................................. $ 8,125 $ 1,408
State................................................................... 1,715 82
--------- ---------
9,840 1,490
--------- ---------
Deferred:
Federal................................................................. (6,614) (134)
State................................................................... (1,427) 24
--------- ---------
(8,041) (110)
--------- ---------
Total income taxes........................................................ $ 1,799 $ 1,380
--------- ---------
--------- ---------
</TABLE>
The Company's income tax expense for the years ended December 31, 1994 and
1995, differed from amounts computed by applying the U.S. Federal income tax
rate of 34 percent to the Company's income before income taxes as a result of
the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Computed expected income tax expense...................................... $ 1,532 $ 1,685
Increase in (reduction of) income tax expense resulting from:
Decrease in beginning-of-the-year balance of the valuation allowance for
deferred tax assets................................................... (1,174) --
Expiration of state investment tax credit carryforwards................. 1,174 --
State tax expense, net of federal impact................................ 232 242
Adjustment of current tax liability..................................... (64) (520)
Tax-exempt interest income.............................................. (65) (71)
Goodwill amortization................................................... 43 43
Nondeductible meals and entertainment................................... 52 44
Other, net.............................................................. 69 (43)
--------- ---------
Reported income tax expense............................................... $ 1,799 $ 1,380
--------- ---------
--------- ---------
</TABLE>
F-113
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(9) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Tax basis of InfoSeal-Registered Trademark- intangible assets in excess
of book basis.......................................................... $ 6,617 $ 6,073
Deferred gain from sale of real estate................................... 949 143
Tax basis of receivables from affiliate in excess of book basis.......... -- 541
Equity share plan accruals and other compensation plans.................. 694 1,604
Relocation accrual....................................................... 291 --
Accounts receivable allowance............................................ 160 124
Inventories, due to additional costs inventoried for tax purposes........ 71 67
Vacation accrual......................................................... 114 160
Pension and welfare plans................................................ 11 34
Other.................................................................... 138 138
--------- ---------
Total gross deferred tax assets............................................ 9,045 8,884
Less valuation allowance................................................... -- --
--------- ---------
Net deferred tax assets.................................................... 9,045 8,884
--------- ---------
Deferred tax liabilities:
Depreciation............................................................. $ (270) $ (109)
Pension and welfare plans................................................ (118) (9)
Other.................................................................... (1) --
--------- ---------
Total gross deferred tax liabilities....................................... (389) (118)
--------- ---------
Net deferred tax asset, including current net asset of $622 in 1994 and
$1,649 in 1995........................................................... $ 8,656 $ 8,766
--------- ---------
--------- ---------
</TABLE>
Based on the Company's historical and current pretax earnings, management
believes that it is more likely than not that the recorded deferred tax assets
will be realized.
Income taxes paid, net of refunds received, for the years ended December 31,
1994 and 1995 were $8,833,000 and $2,736,000, respectively.
(10) PENSION AND OTHER EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN
The Company maintains a noncontributory defined benefit pension plan
covering all eligible employees. Normal retirement age is 65, but a provision is
made for early retirement. Benefits are based on the employee's compensation and
years of service. The Company makes annual contributions
F-114
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(10) PENSION AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
to the plan equal to the maximum amount that can be deducted for income tax
purposes. Plan assets consist principally of equity and debt securities.
The 1994 and 1995 projected benefit obligation was computed using the
"projected unit credit method," assuming a discount rate on benefit obligations
of 8 and 7.25 percent, respectively, an expected long-term rate of return on
plan assets of 9 percent and annual salary increases of 5 and 4 percent,
respectively, over the average remaining service lives of employees in the
plans.
The following sets forth the funded status of the plan and amounts
recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of $2,832 and $2,011,
respectively............................................................................. $ 2,895 $ 2,147
--------- ---------
--------- ---------
Projected benefit obligations................................................................ (4,993) (3,854)
Plan assets at fair value.................................................................... 5,802 5,107
--------- ---------
Projected benefit obligation less than plan assets........................................... 809 1,253
Unrecognized net gain........................................................................ (253) (945)
Unrecognized prior service cost.............................................................. 113 105
Unrecognized net asset at January 1, 1986 being amortized over 15 years...................... (558) (465)
--------- ---------
(Accrued) prepaid pension costs included in other noncurrent (liabilities) assets............ $ 111 $ (52)
--------- ---------
--------- ---------
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Service cost............................................................. $ 494 $ 406
Interest cost on projected benefit obligation............................ 350 334
Return on assets......................................................... 386 (1,435)
Net amortization and deferral............................................ (1,145) 858
--------- ---------
Net pension cost......................................................... $ 85 $ 163
--------- ---------
--------- ---------
</TABLE>
DEFINED CONTRIBUTION PLAN
The Company has a salary reduction plan covering all eligible employees
under Section 401(k) of the Internal Revenue Code. The Plan includes a provision
which allows employees to make pretax
F-115
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(10) PENSION AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
contributions. The Company matches between 15 to 45 percent of employee
contributions up to 4 to 6 percent of the employee's salary. The Company
recognized contribution expense of $303,000 and $260,000 for the years ended
December 31, 1994 and 1995, respectively.
HEALTH AND WELFARE
The Company's independently administered self-insurance program provides
health insurance coverage for employees and their dependents on a
cost-reimbursement basis. Under the program, the Company is obligated for claims
payments. A stop loss insurance contract executed with an insurance carrier
covers claims in excess of $100,000 per covered individual per year. During the
years ended December 31, 1994 and 1995, total claims expense of $3,348,000 and
$2,658,000, respectively, was incurred, which represents claims processed,
premium expenses, administration fees and an estimate for claims incurred but
not reported.
The Company is also self-insured for workers' compensation. Workers'
compensation expense was $687,000 and $556,000 for the years ended December 31,
1994 and 1995, respectively.
(11) COMPENSATION PLANS
EQUITY SHARE PLAN
The Company's Label Art subsidiary has an Equity Share Plan which awards
shares simulating equity ownership to key employees. These equity shares do not
represent common stock or any rights associated with stock ownership of Label
Art. The units vest immediately to the employees and the value of a share is
determined annually based on Label Art's operating performance or net worth, as
defined in the plan. At December 31, 1994 and 1995, there were 345,944 shares
outstanding. Provisions of approximately $1,271,000 and $2,138,000 were charged
against income related to this plan for the years ended December 31, 1994 and
1995, respectively. As of December 31, 1994 and 1995, the compensation liability
included $1,358,000 and $3,224,000, respectively, related to this plan.
CLASS B COMMON STOCK INCENTIVE PLAN
The Company has a long-term incentive plan which provides for a cash payment
at retirement, death or disability based on the difference between (a) the entry
level price per Class B common share adjusted for cumulative earnings per share
and (b) the price per share paid to Class B shareholders in connection with a
1980 redemption of Class B common shares compounded at 6 percent per annum.
Provision of $5,000 was charged against income related to this plan for the year
ended December 31, 1995. For the year ended December 31, 1994, there were no
charges to income for this plan. As of December 31, 1994 and 1995, the
compensation liability included $215,000 and $220,000, respectively, related to
this plan.
F-116
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(11) COMPENSATION PLANS (CONTINUED)
STOCK CREDITS
At December 31, 1995, there were 220.5 stock credits outstanding to the
Company's President. This executive is entitled to receive additional stock
credits, if employed by the Company, on March 1, 1997. These stock credits do
not represent common stock or any rights associated with stock ownership of the
Company. The calculation of stock credits is determined by dividing 500,000 by
the product of the preceding fiscal year's earnings per share, as adjusted,
multiplied by 13.
Upon death, disability or other termination of employment, other than for
cause, the Company shall redeem the stock credits and pay the executive or his
heirs additional compensation equal to the appreciation in the value of the
stock credits, if any. This is calculated by the product of the executive's
outstanding stock credits and the most recent fiscal year's earnings per share,
as adjusted, multiplied by 13 less the cumulative value of the stock credits at
the time they were awarded to the executive.
In addition, the executive shall be entitled to receive additional
compensation in lieu of dividends that would have been paid to the executive had
he owned a number of common shares equal to the number of stock credits credited
to his account.
The interest of the executive in and the right to redeem stock credits
cannot be assigned or pledged by the executive. Provisions of $5,000 and
$319,000 were charged against income related to the appreciation of the value of
the stock credits and additional compensation in lieu of dividends for the years
ended December 31, 1994 and 1995, respectively. As of December 31, 1995, the
compensation liability included $291,000 related to stock credits.
STOCK PURCHASE AGREEMENT
Under the Stock Purchase Agreement described in note 21, the Company is
required to satisfy all liabilities related to the above compensation
arrangements prior to the closing date of the transaction described in note 21.
(12) LEASES
The Company rents facilities and equipment under noncancelable operating
lease agreements. Total rental expense for all operating leases was $666,000 and
$1,399,000 for the years ended December 31, 1994 and 1995, respectively.
F-117
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(12) LEASES (CONTINUED)
Future minimum lease payments under all noncancelable operating leases at
December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1996................................................................................. $ 577
1997................................................................................. 523
1998................................................................................. 311
1999................................................................................. 122
2000................................................................................. 59
---------
$ 1,592
---------
---------
</TABLE>
(13) CORPORATE RELOCATION EXPENSES
On May 27, 1993, the Board of Directors decided to relocate corporate
facilities from Brewster, New York to Roanoke, Virginia. As a result, the
Company has taken a charge to operations of approximately $413,000 and $657,000
for the years ended December 31, 1994 and 1995, respectively. The relocation
charge for the six months ended June 30, 1995 was approximately $542,000. The
initial phase of this relocation occurred on February 18, 1994 and was
substantially completed by the end of the first quarter, 1995. This process
contributed to the voluntary severance of approximately 163 employees. Included
in relocation charges to operations are $413,000 and $514,000 in 1994 and 1995,
respectively, which relates to severance for employees who elected not to
relocate to Roanoke, Virginia. The remaining relocation charges relate to moving
and other expenses incurred by the Company and its employees to relocate from
Brewster, New York.
(14) RELATED PARTY TRANSACTIONS
In accordance with the terms of certain agreements with MHI and MHL, which
expired on December 22, 1994, the Company charged interest on advances made to
MHI, paid interest on advances from MHI and reimbursed MHL for management
advisory services rendered to the Company. Net interest expense paid to MHI was
$820,000 in 1994. The rate of interest charged on advances to MHI was based on
independent quotes of 30-day commercial paper. The Company paid MHI the current
prime rate less 1 percent for advances to the Company for 1994. There were no
amounts due to/from MHI as of December 31, 1994.
The Company paid $564,000 to MHL for the cost of management services in
1994. The 1994 expense includes $286,000 related to a one-time charge related to
the acquisitions of MHL by Rogers.
Pursuant to the terms of certain agreements with Rogers, the Company was
charged an amount for management advisory services by Rogers on a monthly basis
through December 31, 1995 based on the greater of $25,000 or a percentage of net
sales, as defined. During 1995, the Company incurred $300,000 for the cost of
management services, of which $25,000 payable to Rogers has been netted against
other receivables from affiliates at December 31, 1995. The cost of management
services was
F-118
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(14) RELATED PARTY TRANSACTIONS (CONTINUED)
$150,000 and $448,000 for the six months ended June 30, 1995 and June 28, 1996,
respectively. There were no amounts directly due to/from Rogers as of December
31, 1994.
On December 22, 1994, the Company sold certain real property located in
Brewster, New York and Miami, Florida to affiliated real estate subsidiaries
(Rogers Realty Corporation of New York and Rogers Realty Corporation of Florida)
which are indirectly owned by Rogers. As a result of these transactions, the
Company recorded notes receivable of $7.7 million and deferred gains of $2.4
million which are not reflected on the 1994 consolidated statement of cash
flows. These properties were leased by the Company on a month-to-month basis
pursuant to sale and leaseback arrangements with these affiliates of Rogers. For
the six months ended June 30, 1995 and the year ended December 31, 1995, total
rent expense incurred on these related party leases totaled $399,000 and
$765,000, respectively. Effective December 31, 1995, these lease arrangements
were terminated.
On March 31, 1995, Rogers Realty Corporation of Florida sold its real
property in Miami, Florida to an unrelated party. Consequently, the Company was
paid in full for its outstanding note receivable of $1.2 million and all accrued
interest thereon. As a result, the deferred gain on the sale of $667,000,
recorded in 1994 when such real property was sold to Rogers Realty Corporation
of Florida, has been recognized as income for the six months ended June 30, 1995
and the year ended December 31, 1995. Total interest income recorded on these
related party notes receivable totaled $765,000, $399,000 and $244,000 for the
year ended December 31, 1995 and the six months ended June 30, 1995 and June 28,
1996, respectively.
During 1995, Rogers Realty Corporation of New York entered into a sales
agreement with an unrelated party to purchase the Brewster, New York real
property. In order to refurbish the facility to improve its marketability, the
Company advanced $504,000 to Rogers Realty Corporation of New York during 1995
to pay for building improvements and environmental remediation costs and has
recorded these advances as a receivable from the affiliate as of December 31,
1995. Based on the estimated net proceeds of approximately $5.6 million expected
from the pending sale of the Brewster facility, the Company has determined that
a portion of the aggregate receivable from this affiliate will not be collected.
Accordingly, the deferred gain determined as of December 22, 1994 and the
aggregate receivable have been reduced by approximately $1.4 million as of
December 31, 1995. This has not been reflected on the consolidated statements of
cash flows.
Effective December 22, 1994, the Company formed a new operating subsidiary,
InfoSeal-Registered Trademark- International, Inc.
(InfoSeal-Registered Trademark-), that is 99 percent owned by the Company. The
Company transferred principally all of the tangible and intangible assets of its
InfoSeal-Registered Trademark- business to InfoSeal-Registered Trademark-. The
transfer of assets to InfoSeal-Registered Trademark- and sale of real property
to affiliated entities described above resulted in a taxable event under the
Internal Revenue Code.
As of December 31, 1994 and 1995, prepaid expenses and other current assets
includes $62,000 and $47,000, respectively, due from officers and employees, and
other noncurrent assets includes notes and accrued interest receivable from
officers in the amount of $107,000 and $235,000, respectively, of
F-119
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(14) RELATED PARTY TRANSACTIONS (CONTINUED)
which $15,000 and $77,000, respectively, represents accrued interest receivable
on notes receivable from shareholder (see note 15).
(15) SHAREHOLDERS' EQUITY
On July 11, 1994, the Company sold 239 common shares to the Company's
President and accepted a $500,000 note receivable in return. On March 1, 1995,
the Company sold 188 shares to the same Company executive and accepted a
$500,000 note receivable. These notes receivable are due and payable upon death,
disability or termination of employment, bear interest compounded semiannually
on June 30 and December 31 at an annual rate equal to the greater of 6 percent
or the applicable federal rate on each semiannual date per the Internal Revenue
Code and are recorded as a reduction of shareholders' equity. These transactions
are not reflected on the accompanying consolidated statements of cash flows.
Included in interest income for the years ended December 31, 1994 and 1995 was
$15,000 and $62,000, respectively, related to these notes.
The Company's President, if employed by the Company, has the option of
purchasing additional common shares for $500,000 during the three-year period
commencing March 1, 1998. The amount of shares that can be purchased during the
three-year period will be calculated based on a defined formula. This option
will terminate upon the closing of the transaction described in note 21.
The Company has a Stock Redemption Agreement with its two minority
shareholders who own a total of 12.7 percent of the Company's outstanding common
stock. Under this agreement, the redemption price per share is calculated by the
average consolidated earnings per share of the two preceding fiscal years, as
adjusted, prior to the date of redemption multiplied by 13. Upon death,
disability or termination, the minority shareholders must sell to the Company,
and the Company must purchase, any and all option shares outstanding. The Stock
Redemption Agreement will terminate upon the closing of the transaction
described in note 21.
(16) DISPOSAL OF PRODUCT LINES
On December 2, 1994, the Company sold certain assets of its Flat Division
product line to The Reynolds and Reynolds Company ("Reynolds") resulting in a
net gain of $2,829,000 in 1994. In 1995, the Company recognized additional costs
of $16,000 relating to the disposal of its Flat Division. The asset purchase
agreement provided, among other things, that the Company covenant not to compete
with Reynolds in the pegboard, one-write accounting system and HCFA medical
claim form businesses for a period of five years from the date of sale.
On April 19, 1995, the Company sold certain assets of its Tax Forms Business
product line to Taylor Corporation ("Taylor") resulting in a net gain of
$405,000. The asset purchase agreement provided, among other things, that the
Company covenant not to compete with Taylor in the manufacturing or imprinting,
and sale or distribution of generic or custom tax forms in the U.S. for a period
of
F-120
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(16) DISPOSAL OF PRODUCT LINES (CONTINUED)
five years from the date of sale. In addition, on April 19, 1995, the Company
entered into a manufacturing agreement with Taylor whereby Taylor will purchase
no less than 75 percent of its tax form mailer requirements for a period of five
years up to an agreed-upon maximum dollar value.
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires the Company to disclose estimated fair
values of its financial instruments. SFAS 107 defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments: The carrying amounts reported in the
consolidated balance sheet for cash, notes receivable and long-term debt
approximate fair value. The fair value of long-term debt is estimated by
discounting the future cash flows of each instrument at rates currently offered
to the Company for similar debt instruments of comparable maturities by the
Company's bank. The fair values of investment securities (see note 5) are based
on dealer quotes at the reporting date for those or similar investments.
(18) CONTINGENCIES
In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims. Such matters are subject to many uncertainties, and
outcomes are not predictable with assurance. There are no legal proceedings,
lawsuits or other claims pending against or involving the Company which, in the
opinion of management, will have a material adverse impact upon the consolidated
financial position, results of operations or liquidity of the Company.
(19) BUSINESS AND CREDIT CONCENTRATIONS
The Company provides credit, in the normal course of business, to industry
dealers and distributors. Concentration of credit risk with respect to trade
receivables is limited due to the Company's large number of customers. The
Company also performs ongoing credit evaluations of its customers. Management
believes that credit risks at December 31, 1994 and 1995 have been adequately
provided for in the consolidated financial statements.
The Company's raw materials are readily available, and the Company is not
dependent on a single supplier or only a few suppliers.
(20) NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS 121 requires
companies to review long-lived assets and certain identifiable
F-121
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(20) NEW ACCOUNTING STANDARD (CONTINUED)
intangibles to be held, used or disposed of, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company adopted this statement effective January 1, 1996.
The adoption of this statement did not have a significant effect on the
Company's consolidated financial statements.
(21) SUBSEQUENT EVENT (UNAUDITED)
On April 25, 1996, Rogers and AmeriComm Direct Marketing, Inc. (formerly
known as National Fiberstok Corporation) signed a letter of intent whereby
AmeriComm Direct Marketing, Inc. would acquire the Company. It is the further
intention of both parties and the Company's two minority shareholders, to enter
into a Stock Purchase Agreement (the "Agreement") which contemplates a
transaction in which AmeriComm Direct Marketing, Inc. will purchase from the
Sellers, and the Sellers will sell to AmeriComm Direct Marketing, Inc., all of
the outstanding capital stock of the Company in return for cash. In addition,
the Agreement stipulates that on or prior to the closing date of the
transaction, the Company shall satisfy all liabilities under and terminate each
of the compensation arrangements described in note 11.
F-122
<PAGE>
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- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or to represent anything not contained in this Prospectus. You must
not rely on any unauthorized information. This Prospectus does not offer to sell
or to buy any of the securities in any jurisdiction where it is unlawful. The
information in this Prospectus is current as of , 199 .
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 17
Company History................................. 25
The Acquisitions................................ 26
The Refinancing................................. 26
Use of Proceeds of the New Notes................ 27
Capitalization.................................. 28
The Exchange Offer.............................. 29
Report of Independent Public Accountants........ 39
DIMAC Holdings, Inc. Unaudited Pro Forma
Consolidated Statements of Operations......... 39
Selected Historical Financial Data AmeriComm
Holdings, Inc................................. 54
Selected Historical Financial Data DIMAC
Marketing Corporation......................... 56
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 60
Business........................................ 70
Management...................................... 85
Security Ownership.............................. 89
Certain Relationships and Related
Transactions.................................. 90
Description of Other Indebtedness............... 91
Description of Notes............................ 96
Certain United States Federal Income Tax
Considerations................................ 124
Old Notes Registration Rights Agreement......... 125
Book-Entry; Delivery and Form................... 128
Plan of Distribution............................ 131
Legal Matters................................... 132
Experts......................................... 132
Index to Financial Statements................... F-1
</TABLE>
Until , 199 (25 days after the date of this Prospectus) all
dealers that buy, sell or trade these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
DIMAC
Holdings, Inc.
Offer to Exchange
15 1/2% Series B
Senior Notes
due 2009
for all outstanding
15 1/2% Senior Notes
due 2009
--------------
PROSPECTUS
--------------
, 199
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The information below briefly outlines the provisions of Section 102(b)(7)
of the General Corporation Law of the State of Delaware, Article Eight of our
Certificate of Incorporation and Article IV of our By-Laws. For more
information, you may review the provisions of our Certificate of Incorporation
and By-Laws that we filed with the SEC. To find out how to locate our
Certificate of Incorporation and By-Laws, please read the section labelled
"Where You Can Find More Information" under the heading "Prospectus Summary."
ELIMINATION OF LIABILITY
Section 102(b)(7) of Delaware's corporation law gives each Delaware
corporation the power to eliminate or limit its directors' personal liability to
the corporation or its stockholders for monetary damages for certain breaches of
fiduciary duty as a director, except:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions in bad faith, or involving intentional misconduct
or a knowing violation of the law;
- under Section 174 of Delaware's corporation law (providing for liability
of directors for the unlawful payment of dividends or unlawful stock
purchases or redemptions); or
- for any transaction from which a director derived an improper personal
benefit.
You should know that our Certificate of Incorporation eliminates the
personal liability of our directors to the fullest extent permitted by Section
102(b)(7) of Delaware's corporation law.
INDEMNIFICATION
Section 145 of Delaware's corporation law grants each Delaware corporation
the power to indemnify its directors and officers against liability for certain
of their acts.
Our By-Laws provide, among other things, that under certain circumstances we
are required or permitted to indemnify any officer or director of our company
(or such person's estate):
- who was or is a party (or is threatened to be made a party) to a
threatened, pending or completed action, suit or other proceeding,
- whether or not the action, suit or other proceeding was or is in the
right of our company, and
- regardless of whether the suit or other proceeding was or is civil,
criminal, administrative or investigative in nature,
- by reason of the fact that he or she is or was one of our directors or
officers, or is or was serving at our request as a director or officer of
another corporation, partnership or other enterprise.
Unless otherwise permitted by applicable laws, our By-Laws require us to
make a case-specific determination, in accordance with applicable laws, that
indemnification is proper in the circumstances. Our By-Laws only require us to
indemnify an officer or director if he or she acted in good faith and in a
manner he or she reasonably believed to be consistent with our best interests.
Moreover, with respect to any criminal action or proceeding, one of our officers
or directors is only entitled to indemnification if he or she had no reasonable
cause to believe his or her conduct was unlawful. We are not required
II-1
<PAGE>
to indemnify, or advance expenses to, any person in connection with any action,
suit or other proceeding (including any counterclaim) initiated by or on his or
her behalf.
You should know, however, that in the event that an officer or director of
our company is entitled to indemnification under our By-Laws, we may be required
to indemnify him or her against expenses (including, for example, attorneys'
fees, judgments, penalties, fines and settlement amounts actually and reasonably
incurred and not recovered related to such officer or director's investigation,
preparation to defend or defense of such action, suit, or other proceeding). You
should also know that, to the extent permitted our By-Laws, our By-Laws
authorize us to pay any such expenses in advance of the final disposition of the
action, suit or other proceeding in question. Our By-Laws also authorize us to
make, to the extent permitted by law, such advance payments even if the officer
or director in question is alleged to have failed to meet the "good faith"
standard of conduct discussed above, or is alleged to have committed conduct
which, if true, would prevent us from indemnifying such officer or director.
Before making any advance payment, our By-Laws require us to receive an
undertaking by or on behalf of the director or officer in question to repay the
advance if it is ultimately determined that he or she is not entitled to
indemnification.
Finally, our By-Laws authorize us, to the extent permitted by law, to
purchase and maintain insurance for any person who may be entitled to
indemnification thereunder.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Securities Purchase Agreement, dated as of October 22, 1998, by and among DIMAC Holdings, Inc., DIMAC
Corporation and the Purchasers listed on the signature pages thereto (Incorporated by reference to
Exhibit 10.8 to DIMAC Corporation's Form S-4 (File Number ) (the "DIMAC Corporation S-4")).
2.1* Agreement and Plan of Merger, dated as of May 18, 1998, by and among DIMAC Holdings (formerly DMAC
Holdings, Inc.), DMAC Merger Corp. and AmeriComm Holdings, Inc. (Incorporated by reference to Exhibit
2.2 to the DIMAC Corporation S-4).
2.2 Certificate of Merger, dated June 26, 1998, of DMAC Merger Corp. with and into AmeriComm Holdings, Inc.
(Incorporated by reference to Exhibit 2.3 to the DIMAC Corporation S-4).
2.3* Stock Purchase Agreement, dated as of May 17, 1998, by and between, Heritage Media Corporation and DIMAC
Corporation (formerly DMAC Acquisition Corp.) (Incorporated by reference to Exhibit 2.1 to the DIMAC
Corporation S-4).
3.1 Certificate of Incorporation of DIMAC Holdings, filed with the Secretary of State of the State of
Delaware.
3.2 By-Laws of DIMAC Holdings, Inc.
4.1 Indenture, dated as of October 22, 1998, by and between DIMAC Holdings, Inc. and Wilmington Trust
Company.
4.2 Specimen Certificate of the 15 1/2% Senior Note Due 2009 and 15 1/2% Series B Note Due 2009 (included in
Exhibit 4.1 hereto).
4.3 Registration Rights Agreement, dated as of October 22, 1998, by and among DIMAC Holdings, Inc. and the
Purchasers listed on the signature pages thereto.
</TABLE>
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* To be filed by amendment.
II-2
<PAGE>
<TABLE>
<C> <S>
5.1 Opinion of White & Case LLP regarding the legality of the New Notes.
8.1 Opinion of White & Case LLP regarding certain tax matters.
10.1 Employment Agreement, dated June 28, 1996, between Robert M. Miklas and AmeriComm Direct Marketing, Inc.
(Incorporated by reference to Exhibit 10.1 to the DIMAC Corporation S-4).
10.2 Employment Agreement, dated December 18, 1997, between John F. Meneough and DIMAC DIRECT, Inc.
(Incorporated by reference to Exhibit 10.2 to the DIMAC Corporation S-4).
10.3 Employment Agreement, dated June 28, 1996, between Jack Resnick and AmeriComm Direct Marketing, Inc.
(Incorporated by reference to Exhibit 10.3 to the DIMAC Corporation S-4).
10.4* Employment Agreement, dated June 15, 1995, between Scott Ebert and National Fiberstok Corporation
(Incorporated by reference to Exhibit 10.4 to the DIMAC Corporation S-4).
10.5 Employment Agreement, dated May 19, 1998, between Scott Ebert and AmeriComm Direct Marketing, Inc.
(Incorporated by reference to Exhibit 10.5 to the DIMAC Corporation S-4).
10.6 Employment Agreement, dated December 18, 1997, between Michael Speichinger and DIMAC DIRECT, Inc.
(Incorporated by reference to Exhibit 10.6 to the DIMAC Corporation S-4).
10.7* Amended and Restated Credit Agreement, dated as of October 22, 1998, by and among DIMAC Corporation, as
Borrower, the Lenders listed therein, Credit Suisse First Boston, as Administrative Agent and Arranger,
Warburg Dillon Read LLC, as Syndication Agent and First Union National Bank, as Documentation Agent
(Incorporated by reference to Exhibit 10.7 to the DIMAC Corporation S-4).
10.8* Tax Sharing Agreement, dated as of October 18, 1998, between DIMAC Holdings, Inc., DIMAC Corporation,
DIMAC Marketing Corporation, AmeriComm Holdings, Inc., DIMAC DIRECT, Inc., the McClure Group Inc.,
MBS/Multimode Inc., Wilcox & Associates Inc., Palm Coast Data Inc. and AmeriComm Direct Marketing, Inc.
(Incorporated by reference to Exhibit 10.12 to the DIMAC Corporation S-4).
10.9 Amended and Restated Stockholders Agreement, dated as of October 22, 1998, by and among DIMAC Holdings,
McCown De Leeuw & Co. IV, L.P., Delta Fund LLC, McCown De Leeuw & Co. IV Associates, L.P., Management
Stockholders and Non-Management Stockholders.
10.10* DIMAC Holdings, Inc. 1998 Stock Option Plan (Incorporated by reference to Exhibit 10.11 to the DIMAC
Corporation S-4).
10.11 Warrant Agreement, dated as of October 22, 1998, by and among DIMAC Holdings, Inc. and the Purchasers
listed on the signature pages thereto.
10.12 Indenture, dated as of October 15, 1998, between DIMAC Corporation, the subsidiary guarantors named
therein and Wilmington Trust Company (Incorporated by reference to Exhibit 4.1 to the DIMAC Corporation
S-4).
12.1 Statement re computation of ratios.
</TABLE>
<TABLE>
<C> <S>
21.1 Subsidiaries of DIMAC Holdings, Inc.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of White & Case LLP (included in Exhibit 5.1 hereto).
</TABLE>
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* To be filed by amendment.
II-3
<PAGE>
<TABLE>
<C> <S>
23.6 Consent of White & Case LLP (included in Exhibit 8.1 hereto).
24.1 Power of Attorney (see pages II-5 and II-6).
25.1 Statement of eligibility of trustee.
99.1 Form of Letter of Transmittal for New Notes.
99.2 Form of Notice of Guaranteed Delivery for New Notes.
99.3 Letter to Brokers.
99.4 Letter to Clients.
99.5 Instructions to Registered Holder and/or Book Entry Transfer Participant from
Beneficial Owner.
99.6 Guidelines for Certificate of Taxpayer Identification Number on substitute Form W-9.
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) We hereby undertake that insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Act") may be
permitted to directors, officers and controlling persons of DIMAC Holdings
pursuant to the foregoing provisions, or otherwise, we have 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.
Should a claim of indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by a director, officer or controlling
person of DIMAC Holdings in the successful defense of any action, suit or
proceeding) be asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(b) We hereby undertake to respond to requests for information that is
incorporated by reference into this Prospectus pursuant to Item 4, 10(b), 11, or
13 of this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this Registration Statement through the date of responding to
the request.
(c) We hereby undertake to supply by means of a post-effective amendment all
information concerning the Acquisitions and the Refinancing that was not the
subject of and included in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, Georgia, on November 12, 1998.
<TABLE>
<S> <C> <C>
DIMAC HOLDINGS, INC.
By: /s/ MARTIN R. LEWIS
-----------------------------------------
Martin R. Lewis
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes David E. De Leeuw, Martin R. Lewis and James Wu and each of
them, as attorney-in-fact, to sign on such person's behalf, individually and in
each capacity stated below, and to file any amendments, including post effective
amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 12, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board
/s/ MARTIN R. LEWIS and Chief Executive
- ------------------------------ Officer
Martin R. Lewis (Principal Executive
Officer)
Chief Financial Officer
/s/ EDWARD D. LAZAROWITZ (Principal Financial
- ------------------------------ Officer and
Edward D. Lazarowitz Principal Accounting
Officer)
/s/ JAMES WU
- ------------------------------ Director
James Wu
/s/ TIMOTHY BEFFA
- ------------------------------ Director
Timothy Beffa
/s/ DAVID E. DE LEEUW
- ------------------------------ Director
David E. De Leeuw
/s/ DAVID E. KING
- ------------------------------ Director
David E. King
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ GEORGE E. MCCOWN
- ------------------------------ Director
George E. McCown
- ------------------------------ Director
Benjamin McSwiney
/s/ JOHN D. WEIL
- ------------------------------ Director
John D. Weil
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
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<C> <S>
1.1* Securities Purchase Agreement, dated as of October 22, 1998, by and among DIMAC Holdings, Inc., DIMAC
Corporation and the Purchasers listed on the signature pages thereto (Incorporated by reference to
Exhibit 10.8 to DIMAC Corporation's Form S-4 (File Number ) (the "DIMAC Corporation S-4")).
2.1* Agreement and Plan of Merger, dated as of May 18, 1998, by and among DIMAC Holdings (formerly DMAC
Holdings, Inc.), DMAC Merger Corp. and AmeriComm Holdings, Inc. (Incorporated by reference to Exhibit
2.2 to the DIMAC Corporation S-4).
2.2 Certificate of Merger, dated June 26, 1998, of DMAC Merger Corp. with and into AmeriComm Holdings, Inc.
(Incorporated by reference to Exhibit 2.3 to the DIMAC Corporation S-4).
2.3* Stock Purchase Agreement, dated as of May 17, 1998, by and between, Heritage Media Corporation and DIMAC
Corporation (formerly DMAC Acquisition Corp.) (Incorporated by reference to Exhibit 2.1 to the DIMAC
Corporation S-4).
3.1 Certificate of Incorporation of DIMAC Holdings, filed with the Secretary of State of the State of
Delaware.
3.2 By-Laws of DIMAC Holdings, Inc.
4.1 Indenture, dated as of October 22, 1998, by and between DIMAC Holdings, Inc. and Wilmington Trust
Company.
4.2 Specimen Certificate of the 15 1/2% Senior Note Due 2009 and 15 1/2% Series B Note Due 2009 (included in
Exhibit 4.1 hereto).
4.3 Registration Rights Agreement, dated as of October 22, 1998, by and among DIMAC Holdings, Inc. and the
Purchasers listed on the signature pages thereto.
5.1 Opinion of White & Case LLP regarding the legality of the New Notes.
8.1 Opinion of White & Case LLP regarding certain tax matters.
10.1 Employment Agreement, dated June 28, 1996, between Robert M. Miklas and AmeriComm Direct Marketing, Inc.
(Incorporated by reference to Exhibit 10.1 to the DIMAC Corporation S-4).
10.2 Employment Agreement, dated December 18, 1997, between John F. Meneough and DIMAC DIRECT, Inc.
(Incorporated by reference to Exhibit 10.2 to the DIMAC Corporation S-4).
10.3 Employment Agreement, dated June 28, 1996, between Jack Resnick and AmeriComm Direct Marketing, Inc.
(Incorporated by reference to Exhibit 10.3 to the DIMAC Corporation S-4).
10.4* Employment Agreement, dated June 15, 1995, between Scott Ebert and National Fiberstok Corporation
(Incorporated by reference to Exhibit 10.4 to the DIMAC Corporation S-4).
10.5 Employment Agreement, dated May 19, 1998, between Scott Ebert and AmeriComm Direct Marketing, Inc.
(Incorporated by reference to Exhibit 10.5 to the DIMAC Corporation S-4).
10.6 Employment Agreement, dated December 18, 1997, between Michael Speichinger and DIMAC DIRECT, Inc.
(Incorporated by reference to Exhibit 10.6 to the DIMAC Corporation S-4).
10.7* Amended and Restated Credit Agreement, dated as of October 22, 1998, by and among DIMAC Corporation, as
Borrower, the Lenders listed therein, Credit Suisse First Boston, as Administrative Agent and Arranger,
Warburg Dillon Read LLC, as Syndication Agent and First Union National Bank, as Documentation Agent
(Incorporated by reference to Exhibit 10.7 to the DIMAC Corporation S-4).
</TABLE>
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* To be filed by amendment.
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<TABLE>
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10.8* Tax Sharing Agreement, dated as of October 18, 1998, between DIMAC Holdings, Inc., DIMAC Corporation,
DIMAC Marketing Corporation, AmeriComm Holdings, Inc., DIMAC DIRECT, Inc., the McClure Group Inc.,
MBS/Multimode Inc., Wilcox & Associates Inc., Palm Coast Data Inc. and AmeriComm Direct Marketing, Inc.
(Incorporated by reference to Exhibit 10.12 to the DIMAC Corporation S-4).
10.9 Amended and Restated Stockholders Agreement, dated as of October 22, 1998, by and among DIMAC Holdings,
McCown De Leeuw & Co. IV, L.P., Delta Fund LLC, McCown De Leeuw & Co. IV Associates, L.P., Management
Stockholders and Non-Management Stockholders.
10.10* DIMAC Holdings, Inc. 1998 Stock Option Plan (Incorporated by reference to Exhibit 10.11 to the DIMAC
Corporation S-4).
10.11 Warrant Agreement, dated as of October 22, 1998, by and among DIMAC Holdings, Inc. and the Purchasers
listed on the signature pages thereto.
10.12 Indenture, dated as of October 15, 1998, between DIMAC Corporation, the subsidiary guarantors named
therein and Wilmington Trust Company (Incorporated by reference to Exhibit 4.1 to the DIMAC Corporation
S-4).
12.1 Statement re computation of ratios.
21.1 Subsidiaries of DIMAC Holdings, Inc.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of White & Case LLP (included in Exhibit 5.1 hereto).
23.6 Consent of White & Case LLP (included in Exhibit 8.1 hereto).
24.1 Power of Attorney (see pages II-5 and II-6).
25.1 Statement of eligibility of trustee.
99.1 Form of Letter of Transmittal for New Notes.
99.2 Form of Notice of Guaranteed Delivery for New Notes.
99.3 Letter to Brokers.
99.4 Letter to Clients.
99.5 Instructions to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner.
99.6 Guidelines for Certificate of Taxpayer Identification Number on substitute Form W-9.
</TABLE>
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* To be filed by amendment.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DIMAC HOLDINGS, INC.
--------------------
DIMAC Holdings, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is DIMAC Holdings, Inc. (the
"Corporation"). The Corporation was originally incorporated as DMAC Holdings,
Inc. in the State of Delaware on the 12th day of May, 1998 pursuant to a
Certificate of Incorporation filed with the Secretary of State of the State of
Delaware on that date.
2. This Amended and Restated Certificate of Incorporation restates and
amends the Certificate of Incorporation of the Corporation filed with the
Secretary of State of the State of Delaware on May 12, 1998, as amended on
September 2, 1998. This Amended and Restated Certificate of Incorporation has
been adopted by the Corporation and by its stockholders pursuant to Sections 242
and 245 of the General Corporation Law of the State of Delaware.
3. On September 16, 1998, Directors of the Corporation duly adopted
resolutions authorizing the following amendment and restatement of the
Certificate of Incorporation of the Corporation, declaring such amendment and
restatement to be advisable and in the best interests of the Corporation and its
stockholders and authorizing the appropriate officers to solicit written
consents of the stockholders of the Corporation in accordance with the
<PAGE>
provisions of Section 228 of the General Corporation Law of the State of
Delaware. Thereafter, pursuant to resolutions of the Board of Directors, in
lieu of a meeting and vote of stockholders, a majority of the stockholders
representing a majority of the issued and outstanding shares of capital stock of
the Corporation adopted the following amendment and restatement of the
Certificate of Incorporation of the Corporation and the nonconsenting
stockholders were promptly notified of such adoption in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
4. The text of the Certificate of Incorporation, as hereby restated and
amended to read in its entirety is as follows:
FIRST: The name of the Corporation is
DIMAC Holdings, Inc.
SECOND: The registered office of the Corporation in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801,
County of New Castle.
The name of its registered agent in the State of Delaware at such address
is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage, directly or
indirectly, in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware as from
time to time in effect.
FOURTH: The total number of shares which the Corporation shall have the
authority to issue is 2,200,000 shares of capital stock as follows: 2,000,000
shares of Voting Common Stock, par value $.001 per share (the "Voting Common
Stock"), 200,000 shares of Non-Voting Stock, par value $.001 per share (the
"Non-Voting Common Stock"), and together
2
<PAGE>
with the Voting Common Stock, the "Common Stock"). Each share of Voting Common
Stock is hereafter referred to as a "Voting Common Share" and collectively as
"Voting Common Shares". Each share of Non-Voting Common Stock is hereafter
referred to as a "Non-Voting Common Share" and collectively as "Non-Voting
Common Shares". The Voting Common Shares and Non-Voting Common Shares are
hereafter collectively referred to as "Common Shares". The voting powers, or
conversion rights thereof, of each of the above classes of capital stock are as
follows:
1. VOTING RIGHTS.
Except as may be otherwise required by law, all voting rights shall be
vested in the Voting Common Shares and each holder of Voting Common Shares shall
have one vote in respect of each Voting Common Share held by such holder on all
matters to be voted upon by the stockholders of the Corporation. The holders of
the Non-Voting Shares will have no right to vote on any matters to be voted on
by the stockholders of the Corporation.
2. CONVERSION.
(a) CONVERSION OF NON-VOTING COMMON SHARES.
(i) In connection with the occurrence (or the expected occurrence) of any
Conversion Event, each holder of Non-Voting Common Shares shall be entitled to
convert into an equal number of shares of Voting Common Stock any or all of the
shares of such holder's Non-Voting Common Stock being distributed, disposed of
or sold by such holder in connection with such Conversion Event.
(ii) For purposes of this Section 2(a), a "Conversion Event" shall mean (a)
any public offering or public sale of the Common Stock of the Corporation
(including a public offering registered under the 1933 Act or a public sale
pursuant to Rule 144 of the Securities and Exchange Commission or any similar
rule then in force), (b) any sale of the securities of the
3
<PAGE>
Corporation to a person or group of persons (within the meaning of the 1934
Act), if, after such sale, such person or group of persons in the aggregate
would own or control securities which possess in the aggregate the ordinary
voting power to elect a majority of the Corporation's directors, PROVIDED that
such sale has been approved by the Corporation's Board of Directors or a
committee thereof, (c) a merger, consolidation or similar transaction involving
the Corporation if, after such transaction, a person or group of persons (within
the meaning of the 1934 Act) would own or control securities which possess in
the aggregate the ordinary voting power to elect a majority of the surviving
corporation's directors, PROVIDED that such transaction has been approved by the
Corporation's Board of Directors or a committee thereof, and (d) a sale of the
securities of the Corporation by the MDC Entities (as such term is defined
below) pursuant to the provisions of Section 2.3 or 2.4 of the Stockholders
Agreement, dated as of September 11, 1998, by and among the Corporation and the
stockholders party thereto. Notwithstanding anything in the foregoing to the
contrary, no sale which would otherwise constitute a Conversion Event pursuant
to clauses (b), (c) or (d) above shall constitute a Conversion Event if such
sale is to the MDC Entities and their Related Persons. For purposes of this
paragraph, the term (1) "person" shall include any natural person and any
corporation, partnership, joint venture, trust, unincorporated organization and
any other entity or organization, (2) "MDC Entities" shall mean, collectively,
McCown De Leeuw & Co. IV, L.P., McCown De Leeuw & Co. IV Associates, L.P. and
Delta Fund LLC, (3) "Related Person" shall mean with respect to any person which
is a partnership, any partnership with the same controlling general partner as
such person and any of the partners of such person which receive capital stock
of the Corporation upon a distribution to any such partners by any such person,
and with respect to any person which is a corporation or limited liability
company, any Affiliate of such person so long as such Affiliate is a
partnership, a corporation, a limited liability company or a trust and (4)
"Affiliate" shall mean, with respect to any person, any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person.
4
<PAGE>
(iii) Each holder of Non-Voting Common Shares shall be entitled to convert
shares of Non-Voting Common Stock into an equal number of shares of Voting
Common Stock in connection with any Conversion Event if such holder reasonably
believes that such Conversion Event shall be consummated, and a written request
for conversion from any holder of Non-Voting Common Stock to the Corporation
stating such holder's reasonable belief that a Conversion Event shall occur
shall be conclusive and shall obligate the Corporation to effect such conversion
in a timely manner so as to enable each such holder to participate in a
Conversion Event. The Corporation shall not cancel the shares of Non-Voting
Common Stock so converted before the tenth day following such Conversion Event
and shall reserve such shares until such tenth day for reissuance in compliance
with the next sentence. If any Non-Voting Common Shares are converted into
Voting Common Stock in connection with a Conversion Event and such shares of
Voting Common Stock are not actually distributed, disposed of or sold in such
Conversion Event, such shares of Voting Common Stock shall be promptly converted
back into the same number of shares of Non-Voting Common Stock.
(b) CONVERSION PROCEDURE.
(i) Unless otherwise provided herein, each conversion of Non-Voting Common
Shares into Voting Common Shares will be effected by the surrender of the
certificate or certificates representing the Non-Voting Common Shares to be
converted at the principal office of the Corporation at any time during normal
business hours, together with a written notice by the holder of such Common
Shares stating that such holder desires to convert such Non-Voting Common
Shares, or a stated number of such Non-Voting Common Shares, represented by such
certificate(s) into shares of the Voting Common Shares. Unless otherwise
provided herein, each conversion of Common Shares will be deemed to have been
effected as of the close of business on the date on which such certificate(s)
have been surrendered and such notice has been received, and at such time the
rights of the holder of the converted Non-Voting Common Shares as such holder
will cease and the person or persons in whose name or names the
5
<PAGE>
certificate(s) for Voting Common Shares are to be issued upon such conversion
will be deemed to have become the holder or holders of record of the Voting
Common Shares represented thereby.
(ii) Promptly after the surrender of certificates and the receipt of
written notice, the Corporation will issue and deliver in accordance with the
surrendering holder's instructions (a) the certificate(s) for the Voting Common
Shares issuable upon such conversion and (b) a certificate representing any
Non-Voting Common Shares that was represented by the certificate(s) delivered to
the Corporation in connection with such conversion but that was not converted.
(iii) The issuance of certificates for Voting Common Shares upon
conversion of Non-Voting Common Shares and for Non-Voting Common Shares upon
conversion of Voting Common Shares will be made without charge to the holders of
such shares for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such conversion and the related issuance of
Voting Common Shares or Non-Voting Common Shares, as the case may be.
(iv) The Corporation will not close its books against the transfer of
Common Shares in any manner which would interfere with the timely conversion of
any Common Shares.
FIFTH: The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Eric S. Klee 1155 Avenue of the Americas
New York, New York 10036
SIXTH: The business of the Corporation shall be managed under the
direction of the Board of Directors except as otherwise provided by law. The
number of Directors of the Corporation shall be fixed from time to time by, or
in the manner provided in, the By-Laws.
6
<PAGE>
Election of Directors need not be by written ballot unless the By-Laws of the
Corporation shall so provide.
SEVENTH: The Board of Directors may make, alter or repeal the By- Laws of
the Corporation except as otherwise provided in the By-Laws adopted by the
Corporation's stockholders.
EIGHTH: The Directors of the Corporation shall be protected from personal
liability, through indemnification or otherwise, to the fullest extent permitted
under the General Corporation Law of the State of Delaware as from time to time
in effect.
1. A Director of the Corporation shall under no circumstances have any
personal liability to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a Director except for those breaches and acts or
omissions with respect to which the General Corporation Law of the State of
Delaware, as from time to time amended, expressly provides that this provision
shall not eliminate or limit such personal liability of Directors. Neither the
modification or repeal of this paragraph 1 of Article EIGHTH nor any amendment
to said General Corporation Law that does not have retroactive application shall
limit the right of Directors hereunder to exculpation from personal liability
for any act or omission occurring prior to such amendment, modification or
repeal.
2. The Corporation shall indemnify each Director and Officer of the
Corporation to the fullest extent permitted by applicable law, except as may be
otherwise provided in the Corporation's By-Laws, and in furtherance hereof the
Board of Directors is expressly authorized to amend the Corporation's By-Laws
from time to time to give full effect hereto, notwithstanding possible self
interest of the Directors in the action being taken. Neither the modification
or repeal of this paragraph 2 of Article EIGHTH nor any amendment to the General
Corporation Law of the State of Delaware that does not have retroactive
application
7
<PAGE>
shall limit the right of Directors and Officers to indemnification hereunder
with respect to any act or omission occurring prior to such modification,
amendment or repeal.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
8
<PAGE>
IN WITNESS WHEREOF, said DIMAC Holdings, Inc. has caused this Amended and
Restated Certificate of Incorporation of DIMAC Holdings, Inc. to be executed by
its officer thereunto duly authorized this 12th day of October, 1998.
DIMAC HOLDINGS, INC.
By: /s/ James Wu
--------------------------------
Name: James Wu
Title:Assistant Secretary
9
<PAGE>
BY-LAWS
OF
DMAC HOLDINGS, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I
STOCKHOLDERS...................................................................................................4
Section 1. Annual Meeting.................................................................................4
Section 2. Special Meetings...............................................................................4
Section 3. Notice of Meetings.............................................................................4
Section 4. Quorum.........................................................................................4
Section 5. Organization of Meetings.......................................................................5
Section 6. Voting.........................................................................................5
Section 7. Inspectors of Election.........................................................................5
Section 8. Action by Consent..............................................................................5
ARTICLE II
DIRECTORS......................................................................................................6
Section 1. Number, Quorum, Term, Vacancies, Removal.......................................................6
Section 2. Meetings, Notice...............................................................................6
Section 3. Committees.....................................................................................7
Section 4. Action by Consent..............................................................................7
Section 5. Compensation...................................................................................7
ARTICLE III
OFFICERS.......................................................................................................7
Section 1. Titles and Election............................................................................7
Section 2. Terms of Office................................................................................7
Section 3. Removal........................................................................................8
Section 4. Resignations...................................................................................8
Section 5. Vacancies......................................................................................8
Section 6. Chairman of the Board..........................................................................8
Section 7. President......................................................................................8
Section 8. Vice Presidents................................................................................8
Section 9. Secretary......................................................................................8
Section 10. Treasurer......................................................................................9
Section 11. Duties of Officers may be Delegated............................................................9
ARTICLE IV
INDEMNIFICATION................................................................................................9
Section 1. Actions by Others..............................................................................9
Section 2. Actions by or in the Right of the Corporation..................................................9
<PAGE>
Section 3. Successful Defense............................................................................10
Section 4. Specific Authorization........................................................................10
Section 5. Advance of Expenses...........................................................................10
Section 6. Right of Indemnity not Exclusive..............................................................10
Section 7. Insurance.....................................................................................11
Section 8. Invalidity of any Provisions of this Article..................................................11
ARTICLE V
CAPITAL STOCK.................................................................................................11
Section 1. Certificates..................................................................................11
Section 2. Transfer......................................................................................11
Section 3. Record Dates..................................................................................11
Section 4. Lost Certificates.............................................................................12
ARTICLE VI
CHECKS, NOTES, ETC............................................................................................12
Section 1. Checks, Notes, Etc............................................................................12
ARTICLE VII
MISCELLANEOUS PROVISIONS......................................................................................12
Section 1. Offices.......................................................................................12
Section 2. Fiscal Year...................................................................................12
Section 3. Corporate Seal................................................................................12
Section 4. Books.........................................................................................13
Section 5. Voting of Stock...............................................................................13
ARTICLE VIII
AMENDMENTS....................................................................................................13
</TABLE>
<PAGE>
BY-LAWS
OF
DMAC HOLDINGS, INC.
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held either within or without the State of Delaware, at
such place as the Board of Directors may designate in the call or in a waiver of
notice thereof, on the first Monday in May of each year beginning with the year
1999 (or if such day be a legal holiday, then on the next succeeding day not a
holiday) at 10 a.m., for the purpose of electing directors and for the
transaction of such other business as may properly be brought before the
meeting.
Section 2. Special Meetings. Special Meetings of the stockholders may
be called by the Board of Directors or by the President, and shall be called by
the President or by the Secretary upon the written request of the holders of
record of at least twenty-five per cent (25%) of the shares of stock of the
Corporation, issued and outstanding and entitled to vote, at such times and at
such place either within or without the State of Delaware as may be stated in
the call or in a waiver of notice thereof.
Section 3. Notice of Meetings. Notice of the time, place and purpose of
every meeting of stockholders shall be delivered personally or mailed not less
than ten days nor more than sixty days previous thereto to each stockholder of
record entitled to vote, at his post office address appearing upon the records
of the Corporation or at such other address as shall be furnished in writing by
him to the Corporation for such purpose. Such further notice shall be given as
may be required by law or by these By-Laws. Any meeting may be held without
notice if all stockholders entitled to vote are present in person or by proxy,
or if notice is waived in writing, either before or after the meeting, by those
not present.
Section 4. Quorum. The holders of record of at least a majority of the
shares of the stock of the Corporation, issued and outstanding and entitled to
vote, present in person or by proxy, shall, except as otherwise provided by law
or by these By-Laws, constitute a quorum at all meetings of the stockholders; if
there be no such quorum, the holders of a majority of such shares so present or
represented may adjourn the meeting from time to time until a quorum shall have
been obtained.
Section 5. Organization of Meetings. Meetings of the stockholders shall
be
<PAGE>
presided over by the Chairman of the Board, if there be one, or if he is not
present by the President, or if he is not present, by a chairman to be chosen at
the meeting. The Secretary of the Corporation, or in his absence an Assistant
Secretary, shall act as Secretary of the meeting, if present.
Section 6. Voting. At each meeting of stockholders, except as otherwise
provided by statute or the Certificate of Incorporation, every holder of record
of stock entitled to vote shall be entitled to one vote in person or by proxy
for each share of such stock standing in his name on the records of the
Corporation. Elections of directors shall be determined by a plurality of the
votes cast thereat and, except as otherwise provided by statute, the Certificate
of Incorporation, or these By-Laws, all other action shall be determined by a
majority of the votes cast at such meeting. Each proxy to vote shall be in
writing and signed by the stockholder or by his duly authorized attorney.
At all elections of directors, the voting shall be by ballot or in such
other manner as may be determined by the stockholders present in person or by
proxy entitled to vote at such election. With respect to any other matter
presented to the stockholders for their consideration at a meeting, any
stockholder entitled to vote may, on any question, demand a vote by ballot.
A complete list of the stockholders entitled to vote at each such
meeting, arranged in alphabetical order, with the address of each, and the
number of shares registered in the name of each stockholder, shall be prepared
by the Secretary and shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 7. Inspectors of Election. The Board of Directors in advance of
any meeting of stockholders may appoint one or more Inspectors of Election to
act at the meeting or any adjournment thereof. If Inspectors of Election are not
so appointed, the chairman of the meeting may, and on the request of any
stockholder entitled to vote, shall appoint one or more Inspectors of Election.
Each Inspector of Election, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of Inspector of
Election at such meeting with strict impartiality and according to the best of
his ability. If appointed, Inspectors of Election shall take charge of the polls
and, when the vote is completed, shall make a certificate of the result of the
vote taken and of such other facts as may be required by law.
Section 8. Action by Consent. Any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, if, prior to such action, a written consent or
consents thereto, setting forth such action, is signed by the holders of record
of shares of the stock of the Corporation, issued and outstanding and entitled
to vote thereon, having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon
<PAGE>
were present and voted.
ARTICLE II
DIRECTORS
Section 1. Number, Quorum, Term, Vacancies, Removal. The Board of
Directors of the Corporation shall consist of at least two but no more than five
persons. The number of directors may be changed by a resolution passed by a
majority of the whole Board or by a vote of the holders of record of at least a
majority of the shares of stock of the Corporation, issued and outstanding and
entitled to vote.
A majority of the members of the Board of Directors then holding office
(but not less than one-third of the total number of directors nor less than two
directors) shall constitute a quorum for the transaction of business, but if at
any meeting of the Board there shall be less than a quorum present, a majority
of those present may adjourn the meeting from time to time until a quorum shall
have been obtained.
Directors shall hold office until the next annual election and until
their successors shall have been elected and shall have qualified, unless sooner
displaced.
Whenever any vacancy shall have occurred in the Board of Directors, by
reason of death, resignation, or otherwise, other than removal of a director
with or without cause by a vote of the stockholders, it shall be filled by a
majority of the remaining directors, though less than a quorum (except as
otherwise provided by law), or by the stockholders, and the person so chosen
shall hold office until the next annual election and until his successor is duly
elected and has qualified.
Any one or more of the directors of the Corporation may be removed
either with or without cause at any time by a vote of the holders of record of
at least a majority of the shares of stock of the Corporation, issued and
outstanding and entitled to vote, and thereupon the term of the director or
directors who shall have been so removed shall forthwith terminate and there
shall be a vacancy or vacancies in the Board of Directors, to be filled by a
vote of the stockholders as provided in these By- Laws.
Section 2. Meetings, Notice. Meetings of the Board of Directors shall
be held at such place either within or without the State of Delaware, as may
from time to time be fixed by resolution of the Board, or as may be specified in
the call or in a waiver of notice thereof. Regular meetings of the Board of
Directors shall be held at such times as may from time to time be fixed by
resolution of the Board, and special meetings may be held at any time upon the
call of two directors, the Chairman of the Board, if one be elected, or the
President, by oral, telegraphic or written notice, duly served on or sent or
mailed to each director not less than two days before such meeting. A meeting of
the Board may be held without notice immediately after the annual meeting of
stockholders at the same place at which such meeting was held. Notice
<PAGE>
need not be given of regular meetings of the Board. Any meeting may be held
without notice, if all directors are present, or if notice is waived in writing,
either before or after the meeting, by those not present. Any member of the
Board of Directors, or any committee thereof, may participate in a meeting by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other and
participation in a meeting by such means shall constitute presence in person at
such meeting.
Section 3. Committees. The Board of Directors may, in its discretion,
by resolution passed by a majority of the whole Board, designate from among its
members one or more committees which shall consist of two or more directors. The
Board may designate one or more directors as alternate members of any such
committee, who may replace any absent or disqualified member at any meeting of
the committee. Such committees shall have and may exercise such powers as shall
be conferred or authorized by the resolution appointing them. A majority of any
such committee may determine its action and fix the time and place of its
meetings, unless the Board of Directors shall otherwise provide. The Board shall
have power at any time to change the membership of any such committee, to fill
vacancies in it, or to dissolve it.
Section 4. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting, if prior to such action a written consent or
consents thereto is signed by all members of the Board, or of such committee as
the case may be, and such written consent or consents is filed with the minutes
of proceedings of the Board or committee.
Section 5. Compensation. The Board of Directors may determine, from
time to time, the amount of compensation which shall be paid to its members. The
Board of Directors shall also have power, in its discretion, to allow a fixed
sum and expenses for attendance at each regular or special meeting of the Board,
or of any committee of the Board; in addition the Board of Directors shall also
have power, in its discretion, to provide for and pay to directors rendering
services to the Corporation not ordinarily rendered by directors, as such,
special compensation appropriate to the value of such services, as determined by
the Board from time to time.
ARTICLE III
OFFICERS
Section 1. Titles and Election. The officers of the Corporation, who
shall be chosen by the Board of Directors at its first meeting after each annual
meeting of stockholders, shall be a President, a Treasurer and a Secretary. The
Board of Directors from time to time may elect a Chairman of the Board, one or
more Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other
officers and agents as it shall deem necessary, and may define their powers and
duties. Any number of offices may be held by the same person.
Section 2. Terms of Office. The officer shall hold office until their
successors are
<PAGE>
chosen and qualify.
Section 3. Removal. Any officer may be removed, either with or without
cause, at any time, by the affirmative vote of a majority of the Board of
Directors.
Section 4. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the Secretary. Such resignation
shall take effect at the time specified therein, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 5. Vacancies. If the office of any officer or agent becomes
vacant by reason of death, resignation, retirement, disqualification, removal
from office or otherwise, the directors may choose a successor, who shall hold
office for the unexpired term in respect of which such vacancy occurred.
Section 6. Chairman of the Board. The Chairman of the Board of
Directors, if one be elected, shall preside at all meetings of the Board of
Directors and of the stockholders, and he shall have and perform such other
duties as from time to time may be assigned to him by the Board of Directors.
Section 7. President. The President shall be the Chief Executive
Officer of the Corporation and, in the absence of the Chairman, shall preside at
all meetings of the Board of Directors, and of the stockholders. He shall
exercise the powers and perform the duties usual to the chief executive officer
and, subject to the control of the Board of Directors, shall have general
management and control of the affairs and business of the Corporation; he shall
appoint and discharge employees and agents of the Corporation (other than
officers elected by the Board of Directors) and fix their compensation; and he
shall see that all orders and resolutions of the Board of Directors are carried
into effect. He shall have the power to execute bonds, mortgages and other
contracts, agreements and instruments of the Corporation, and shall do and
perform such other duties as from time to time may be assigned to him by the
Board of Directors.
Section 8. Vice Presidents. If chosen, the Vice Presidents, in the
order of their seniority, shall, in the absence or disability of the President,
exercise all of the powers and duties of the President. Such Vice Presidents
shall have the power to execute bonds, notes, mortgages and other contracts,
agreements and instruments of the Corporation, and shall do and perform such
other duties incident to the office of Vice President and as the Board of
Directors, or the President shall direct.
Section 9. Secretary. The Secretary shall attend all sessions of the
Board and all meetings of the stockholders and record all votes and the minutes
of proceedings in a book to be kept for that purpose. He shall give, or cause to
be given, notice of all meetings of the stockholders and of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors. The Secretary shall affix the corporate seal to any instrument
requiring it, and when so affixed, it shall be attested by the signature of the
Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer
who may affix the seal to any
<PAGE>
such instrument in the event of the absence or disability of the Secretary. The
Secretary shall have and be the custodian of the stock records and all other
books, records and papers of the Corporation (other than financial) and shall
see that all books, reports, statements, certificates and other documents and
records required by law are properly kept and filed.
Section 10. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys, and other valuable effects in the name and to the credit of
the Corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board, taking proper vouchers for such disbursements, and shall render to
the directors whenever they may require it, an account of all his transactions
as Treasurer and of the financial condition of the Corporation.
Section 11. Duties of Officers may be Delegated. In case of the absence
or disability of any officer of the Corporation, or for any other reason that
the Board may deem sufficient, the Board may delegate, for the time being, the
powers or duties, or any of them, of such officer to any other officer, or to
any director.
ARTICLE IV
INDEMNIFICATION
Section 1. Actions by Others. The Corporation (1) shall 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 he is or was a director or
an officer of the Corporation and (2) except as otherwise required by Section 3
of this Article, may 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 he
is or was an employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, agent of or
participant in another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts actually and reasonably incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a manner he 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 his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he 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 reasonable cause to
believe that his conduct was unlawful.
<PAGE>
Section 2. Actions by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, agent of or participant in another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless and only to the extent that the Delaware
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
Section 3. Successful Defense. To the extent that a person who is or
was a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1 or Section 2 of this Article, or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Section 4. Specific Authorization. Any indemnification under Section 1
or Section 2 of this Article (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
said Sections 1 and 2. Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 5. Advance of Expenses. Expenses incurred by any person who may
have a right of indemnification under this Article in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
Board of Directors in the specific case upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount unless
it shall ultimately be determined that he is entitled to be indemnified by the
Corporation pursuant to this Article.
Section 6. Right of Indemnity not Exclusive. The indemnification
provided by this Article shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled under any by-law, agreement,
vote of stockholders or
<PAGE>
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
Section 7. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of or participant in another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article, Section 145 of the General Corporation Law of the State of Delaware or
otherwise.
Section 8. Invalidity of any Provisions of this Article. The invalidity
or unenforceability of any provision of this Article shall not affect the
validity or enforceability of the remaining provisions of this Article.
ARTICLE V
CAPITAL STOCK
Section 1. Certificates. The interest of each stockholder of the
Corporation shall be evidenced by certificates for shares of stock in such form
as the Board of Directors may from time to time prescribe. The certificates of
stock shall be signed by the President or a Vice President and by the Secretary,
or the Treasurer, or an Assistant Secretary, or an Assistant Treasurer, and
countersigned and registered in such manner, if any, as the Board of Directors
may by resolution prescribe. Where any such certificate is countersigned by a
transfer agent other than the Corporation or its employee, or registered by a
registrar other than the Corporation or its employee, the signature of any such
officer may be a facsimile signature. In case any officer or officers who shall
have signed, or whose facsimile signature or signatures shall have been used on,
any such certificate or certificates shall cease to be such officer or officers
of the Corporation, whether because of death, resignation or otherwise, before
such certificate or certificates shall have been delivered by the Corporation,
such certificate or certificates may nevertheless be adopted by the Corporation
and be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures shall
have been used thereon had not ceased to be such officer or officers of the
Corporation.
Section 2. Transfer. The shares of stock of the Corporation shall be
transferred only upon the books of the Corporation by the holder thereof in
person or by his attorney, upon surrender for cancellation of certificates for
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the authenticity
of the signature as the Corporation or its agents may reasonably require.
<PAGE>
Section 3. Record Dates. The Board of Directors may fix in advance a
date, not less than ten nor more than sixty days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or the
date for the distribution or allotment of any rights, or the date when any
change, conversion or exchange of capital stock shall go into effect, as a
record date for the determination of the stockholders entitled to notice of, and
to vote at, any such meeting, or entitled to receive payment of any such
dividend, or to receive any distribution or allotment of such rights, or to
exercise the rights in respect of any such change, conversion or exchange of
capital stock, and in such case only such stockholders as shall be stockholders
of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting, or to receive payment of such dividend, or to receive such
distribution or allotment or rights or to exercise such rights, as the case may
be, notwithstanding any transfer of any stock on the books of the Corporation
after any such record date fixed as aforesaid.
Section 4. Lost Certificates. In the event that any certificate of
stock is lost, stolen, destroyed or mutilated, the Board of Directors may
authorize the issuance of a new certificate of the same tenor and for the same
number of shares in lieu thereof. The Board may in its discretion, before the
issuance of such new certificate, require the owner of the lost, stolen,
destroyed or mutilated certificate, or the legal representative of the owner to
make an affidavit or affirmation setting forth such facts as to the loss,
destruction or mutilation as it deems necessary, and to give the Corporation a
bond in such reasonable sum as it directs to indemnify the Corporation.
ARTICLE VI
CHECKS, NOTES, ETC.
Section 1. Checks, Notes, Etc. All checks and drafts on the
Corporation's bank accounts and all bills of exchange and promissory notes, and
all acceptances, obligations and other instruments for the payment of money, may
be signed by the President or any Vice President and may also be signed by such
other officer or officers, agent or agents, as shall be thereunto authorized
from time to time by the Board of Directors.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Offices. The registered office of the Corporation shall be
located at the office of The Corporation Trust Company, in the City of
Wilmington, County of New Castle, in the State of Delaware and said Corporation
shall be the registered agent of this Corporation in charge thereof. The
Corporation may have other offices either within or without the State of
Delaware at such places as shall be determined from time to time by the Board of
Directors or the business of the Corporation may require.
<PAGE>
Section 2. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 3. Corporate Seal. The seal of the Corporation shall be
circular in form and contain the name of the Corporation, and the year and state
of its incorporation. Such seal may be altered from time to time at the
discretion of the Board of Directors.
Section 4. Books. There shall be kept at such office of the Corporation
as the Board of Directors shall determine, within or without the State of
Delaware, correct books and records of account of all its business and
transactions, minutes of the proceedings of its stockholders, Board of Directors
and committees, and the stock book, containing the names and addresses of the
stockholders, the number of shares held by them, respectively, and the dates
when they respectively became the owners of record thereof, and in which the
transfer of stock shall be registered, and such other books and records as the
Board of Directors may from time to time determine.
Section 5. Voting of Stock. Unless otherwise specifically authorized by
the Board of Directors, all stock owned by the Corporation, other than stock of
the Corporation, shall be voted, in person or by proxy, by the President or any
Vice President of the Corporation on behalf of the Corporation.
ARTICLE VIII
AMENDMENTS
Section 1. Amendments. The vote of the holders of at least a majority
of the shares of stock of the Corporation, issued and outstanding and entitled
to vote, shall be necessary at any meeting of stockholders to amend or repeal
these By-Laws or to adopt new by-laws. These By-Laws may also be amended or
repealed, or new by-laws adopted, at any meeting of the Board of Directors by
the vote of at least a majority of the entire Board; provided that any by-law
adopted by the Board may be amended or repealed by the stockholders in the
manner set forth above.
Any proposal to amend or repeal these By-Laws or to adopt new by-laws
shall be stated in the notice of the meeting of the Board of Directors or the
stockholders, or in the waiver of notice thereof, as the case may be, unless all
of the directors or the holders of record of all of the shares of stock of the
Corporation, issued and outstanding and entitled to vote, are present at such
meeting.
<PAGE>
Exhibit 4.1
DIMAC Holdings, Inc.
as issuer
151/2% Senior Notes due October 22, 2009
______________________________________________
INDENTURE
Dated as of October 22, 1998
______________________________________________
Wilmington Trust Company,
Trustee
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Indenture
Act Section Section
- --------------- ---------
310(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
310(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
310(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
310(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
310(a)(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
310(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10
310(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
311(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
311(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
312(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
312(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
313(b)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
313(b)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
313(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
313(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3; 4.4
314(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
314(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
314(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4
314(c)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
314(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
314(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5
314(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5
315(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
315(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
315(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence). . . . . . . . . . . . . . . . . . . . . . . . . 2.9
316(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
316(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
316(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
316(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2
316(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4
317(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
317(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
318(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
318(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . .1
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2 Other Definitions. . . . . . . . . . . . . . . . . . . . 12
Section 1.3 Incorporation by Reference of Trust Indenture Act. . . . 13
Section 1.4 Rules of Construction. . . . . . . . . . . . . . . . . . 13
ARTICLE II THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.1 Form and Dating. . . . . . . . . . . . . . . . . . . . . 14
Section 2.2 Execution and Authentication . . . . . . . . . . . . . . 14
Section 2.3 Registrar, Paying Agent and Depository . . . . . . . . . 15
Section 2.4 Paying Agent to Hold Money in Trust. . . . . . . . . . . 16
Section 2.5 Holder Lists . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.6 Transfer and Exchange. . . . . . . . . . . . . . . . . . 16
Section 2.7 Replacement Notes. . . . . . . . . . . . . . . . . . . . 19
Section 2.8 Outstanding Notes. . . . . . . . . . . . . . . . . . . . 19
Section 2.9 Treasury Notes . . . . . . . . . . . . . . . . . . . . . 20
Section 2.10 Temporary Notes. . . . . . . . . . . . . . . . . . . . . 20
Section 2.11 Cancellation . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.12 Defaulted Interest . . . . . . . . . . . . . . . . . . . 21
Section 2.13 Legends. . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.14 Deposit of Moneys. . . . . . . . . . . . . . . . . . . . 22
ARTICLE III REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.1 Notices to Trustee . . . . . . . . . . . . . . . . . . . 22
Section 3.2 Selection of Notes to Be Redeemed. . . . . . . . . . . . 22
Section 3.3 Notice of Redemption . . . . . . . . . . . . . . . . . . 22
Section 3.4 Effect of Notice of Redemption.. . . . . . . . . . . . . 23
Section 3.5 Deposit of Redemption Price. . . . . . . . . . . . . . . 23
Section 3.6 Notes Redeemed in Part.. . . . . . . . . . . . . . . . . 24
Section 3.7 Optional Redemption. . . . . . . . . . . . . . . . . . . 24
ARTICLE IV COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.1 Payment of Notes.. . . . . . . . . . . . . . . . . . . . 24
Section 4.2 Maintenance of Office or Agency. . . . . . . . . . . . . 24
Section 4.3 Reports. . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.4 Compliance Certificate . . . . . . . . . . . . . . . . . 26
Section 4.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.6 Stay, Extension and Usury Laws . . . . . . . . . . . . . 27
Section 4.7 Limitation on Restricted Payments. . . . . . . . . . . . 27
Section 4.8 Limitation on Restrictions on Dividends
from Restricted Subsidiaries . . . . . . . . . . . . . . 28
Section 4.9 Limitation on Additional Indebtedness and
Issuance of Disqualified Capital Stock . . . . . . . . . 29
Section 4.10 Limitation on Asset Sales. . . . . . . . . . . . . . . . 29
Section 4.11 Limitation on Transactions With Affiliates . . . . . . . 31
Section 4.12 Limitation on Liens. . . . . . . . . . . . . . . . . . . 32
Section 4.13 Corporate Existence. . . . . . . . . . . . . . . . . . . 32
Section 4.14 Repurchase Upon a Change of Control. . . . . . . . . . . 32
Section 4.15 Maintenance of Properties. . . . . . . . . . . . . . . . 34
Section 4.16 Maintenance of Insurance . . . . . . . . . . . . . . . . 34
-i-
<PAGE>
Section 4.17 Investment Company Act . . . . . . . . . . . . . . . . . 34
Section 4.18 Ownership of Subsidiaries. . . . . . . . . . . . . . . . 34
Section 4.19 Limitation on Business . . . . . . . . . . . . . . . . . 34
Section 4.20 Employee Plans . . . . . . . . . . . . . . . . . . . . . 35
Section 4.21 Compliance with Laws; Maintenance of Licenses. . . . . . 35
Section 4.22 Available Cash . . . . . . . . . . . . . . . . . . . . . 35
Section 4.23 Fiscal Years . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.24 Limitation on Acquisitions . . . . . . . . . . . . . . . 35
Section 4.25 Limitation on Capital Expenditures . . . . . . . . . . . 36
Section 4.26 Inspection of Properties and Records.. . . . . . . . . . 36
ARTICLE V SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.1 When DIMAC Holdings May Merge, etc.. . . . . . . . . . . 36
Section 5.2 Successor Substituted. . . . . . . . . . . . . . . . . . 37
ARTICLE VI DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.1 Events of Default. . . . . . . . . . . . . . . . . . . . 37
Section 6.2 Acceleration . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.3 Other Remedies . . . . . . . . . . . . . . . . . . . . . 40
Section 6.4 Waiver of Past Defaults. . . . . . . . . . . . . . . . . 40
Section 6.5 Control by Majority. . . . . . . . . . . . . . . . . . . 40
Section 6.6 Limitation on Suits. . . . . . . . . . . . . . . . . . . 40
Section 6.7 Rights of Holders to Receive Payment . . . . . . . . . . 41
Section 6.8 Collection Suit by Trustee . . . . . . . . . . . . . . . 41
Section 6.9 Trustee May File Proofs of Claim . . . . . . . . . . . . 41
Section 6.10 Priorities . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.11 Undertaking for Costs. . . . . . . . . . . . . . . . . . 42
Section 6.12 Premium on Acceleration. . . . . . . . . . . . . . . . . 42
ARTICLE VII TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.1 Duties of Trustee. . . . . . . . . . . . . . . . . . . . 43
Section 7.2 Rights of Trustee. . . . . . . . . . . . . . . . . . . . 44
Section 7.3 Individual Rights of Trustee . . . . . . . . . . . . . . 44
Section 7.4 Trustee's Disclaimer . . . . . . . . . . . . . . . . . . 44
Section 7.5 Notice of Defaults . . . . . . . . . . . . . . . . . . . 45
Section 7.6 Reports by Trustee to Holders. . . . . . . . . . . . . . 45
Section 7.7 Compensation and Indemnity . . . . . . . . . . . . . . . 45
Section 7.8 Replacement of Trustee . . . . . . . . . . . . . . . . . 46
Section 7.9 Successor Trustee by Merger, etc.. . . . . . . . . . . . 47
Section 7.10 Eligibility; Disqualification. . . . . . . . . . . . . . 47
Section 7.11 Preferential Collection of Claims Against DIMAC
Holdings . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII DISCHARGE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . 47
Section 8.1 Discharge; Option to Effect Legal or Covenant
Defeasance . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.2 Legal Defeasance and Discharge . . . . . . . . . . . . . 47
Section 8.3 Covenant Defeasance. . . . . . . . . . . . . . . . . . . 48
Section 8.4 Conditions to Legal or Covenant Defeasance . . . . . . . 48
Section 8.5 Deposits to be Held in Trust; Other Miscellaneous
Provisions.. . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.6 Repayment to DIMAC Holdings. . . . . . . . . . . . . . . 50
Section 8.7 Reinstatement. . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE IX AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 9.1 Without Consent of Holders . . . . . . . . . . . . . . . 50
Section 9.2 With Consent of Holders. . . . . . . . . . . . . . . . . 51
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Section 9.3 Compliance with Trust Indenture Act. . . . . . . . . . . 52
Section 9.4 Revocation and Effect of Consents. . . . . . . . . . . . 52
Section 9.5 Notation on or Exchange of Notes . . . . . . . . . . . . 52
Section 9.6 Trustee to Sign Amendments, etc. . . . . . . . . . . . . 53
ARTICLE X MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.1 Trust Indenture Act Controls . . . . . . . . . . . . . . 53
Section 10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.3 Communication by Holders with Other Holders. . . . . . . 54
Section 10.4 Certificate and Opinion as to Conditions Precedent . . . 54
Section 10.5 Statements Required in Certificate or Opinion. . . . . . 54
Section 10.6 Rules by Trustee and Agents. . . . . . . . . . . . . . . 55
Section 10.7 Legal Holidays . . . . . . . . . . . . . . . . . . . . . 55
Section 10.8 No Recourse Against Others . . . . . . . . . . . . . . . 55
Section 10.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . 55
Section 10.10 No Adverse Interpretation of Other Agreements. . . . . . 56
Section 10.11 Successors . . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.12 Severability . . . . . . . . . . . . . . . . . . . . . . 56
Section 10.13 Counterpart Originals. . . . . . . . . . . . . . . . . . 56
Section 10.14 Table of Contents, Headings, etc.. . . . . . . . . . . . 56
EXHIBIT A - Form of Note . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B - Certificate to Be Delivered upon Exchange or Registration of
Transfer of Notes. . . . . . . . . . . . . . . . . . . . . . . . B-1
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This Indenture, dated as of October 22, 1998, is entered into by and
between DIMAC Holdings, Inc., a Delaware corporation ("DIMAC Holdings"), and
Wilmington Trust Company, a Delaware banking corporation, as trustee (the
"TRUSTEE").
DIMAC Holdings and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders (as defined below) of
DIMAC Holdings's 151/2% Senior Notes due October 22, 2009.
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1 DEFINITIONS.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Restricted Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of DIMAC Holdings or any of its Restricted Subsidiaries or assumed in
connection with the acquisition by DIMAC Holdings or any of its Restricted
Subsidiaries of assets from such Person, which Indebtedness was not incurred in
connection with or in anticipation of such acquisition.
"ACQUISITION" means the acquisition (including by way of a merger or
consolidation or in a series of related transactions) of all or substantially
all of the assets or property of another Person or of Voting Securities of such
Person representing a majority (more than 50%) of the aggregate Voting Power of
the outstanding Voting Securities of such Person by purchase in cash, exchange
of property or securities, or by any other method.
"ADVISORY SERVICES AGREEMENT" means the Advisory Services Agreement dated
as of June 26, 1998 by and between DIMAC Operating and MDC Management Company
IV, LLC, as in effect on the date thereof.
"AFFILIATE" means, with respect to any referenced Person, a Person (i)
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 5% or more of the combined voting power of the total Voting
Securities of such referenced Person or (iii) of which 5% or more of the
combined voting power of the total Voting Securities directly or indirectly
through one or more intermediaries is beneficially owned or held by such
referenced Person or a Subsidiary of such referenced Person. When used herein
without reference to any Person, Affiliate means an Affiliate of DIMAC Holdings.
For all purposes of this Indenture, McCown De Leeuw & Co., Inc. and its
Affiliates shall be considered an Affiliate of DIMAC Holdings. For purposes of
this definition, "control" when used with respect to any person means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of Voting Securities, by agreement or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. Notwithstanding the foregoing, for purposes of this Indenture, Trust
Company of the West and its Affiliates and any other Initial Purchaser and its
Affiliates shall not be considered Affiliates of DIMAC Holdings or any of its
Subsidiaries.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"ASSET ACQUISITION" means (a) an Investment by DIMAC Holdings or any of its
Subsidiaries in any other Person pursuant to which such Person shall become a
Subsidiary of DIMAC Holdings, or shall be merged with or into DIMAC Holdings or
any of its Subsidiaries, or (b) the acquisition by DIMAC Holdings or any of its
Subsidiaries of the assets of any Person (other than a Subsidiary of DIMAC
Holdings) which
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constitute all or substantially all of the assets of such Person or comprise any
division or line of business of such Person or any other properties or assets of
such Person other than in the ordinary course of business.
"ASSET SALE" means any sale, lease, transfer, issuance or other disposition
(or series of related sales, leases, transfers, issuances or dispositions that
are part of a common plan) of shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares), property or other assets (each
referred to for the purposes of this definition as a "disposition") by DIMAC
Holdings or any Restricted Subsidiary (including any disposition by means of a
merger, consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to DIMAC Holdings or by DIMAC Holdings or a Restricted
Subsidiary to a Wholly Owned Subsidiary, (ii) a disposition of inventory or
Temporary Cash Investments in the ordinary course of business, (iii) a
disposition of obsolete equipment or equipment that is no longer useful in the
conduct of the business of DIMAC Holdings or the applicable Restricted
Subsidiary and that is disposed of in each case in the ordinary course of
business, (iv) the sale of other assets so long as the fair market value of the
assets disposed of pursuant to this clause (iv) does not exceed $1,000,000 in
the aggregate in any fiscal year and $5,000,000 in the aggregate prior to the
maturity date of the Notes, (v) for the purposes of Section 4.10 only, a
disposition subject to the covenant described under Section 4.7 and (vi) the
disposition of all or substantially all of the assets of DIMAC Holdings in the
manner permitted pursuant to the provisions described under Section 5.1, or any
disposition that constitutes a Change of Control pursuant to this Indenture.
"BANKRUPTCY LAW" means title 11, U.S. Code, or any similar Federal, state
or foreign law for the relief of debtors.
"BOARD OF DIRECTORS" means the board of directors or any duly constituted
committee thereof of any corporation or of a corporate general partner of a
partnership and any similar body empowered to direct the affairs of any other
entity.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL EXPENDITURES" means, without duplication, for any Person for any
period, the aggregate of all expenditures including deposits (whether paid in
cash or property or accrued as liabilities and including the aggregate amount of
all principal payments due for the entire term of all Capital Leases that are
required to be capitalized on the balance sheet) made by such Person that, in
conformity with GAAP, are required to be included in the property, plant,
equipment, or similar fixed asset account.
"CAPITAL LEASE" means any lease of any property (whether real, personal or
mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"CAPITAL STOCK" means any and all shares, interests, participations or
other equivalents (however designated) of corporate stock, including without
limitation all common stock and preferred stock.
"CAPITALIZED LEASE OBLIGATION" means, with respect to any Person for any
period, any obligation of such Person to pay rent or other amounts under a
Capital Lease; the amount of such obligation shall be the capitalized amount
thereof determined in accordance with GAAP.
"CASH EQUIVALENTS" means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("MOODY'S"); (c) commercial paper maturing no
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more than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-2 from S&P or at least P-2 from
Moody's; (d) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia or any United States branch of a foreign bank having at the date of
acquisition thereof combined capital and surplus of not less than $250,000,000;
(e) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (a) above entered into
with any bank meeting the qualifications specified in clause (d) above; and (f)
investments in money market funds which invest substantially all their assets in
securities of the types described in clauses (a) through (e) of this definition.
"CHANGE OF CONTROL" means:
(i) prior to the first Qualified Public Equity Offering of the
DIMAC Holdings or DIMAC Operating, as the case may be, the Permitted
Holders cease to be the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of majority Voting
Power of the Voting Securities of DIMAC Holdings and DIMAC Operating,
whether as a result of issuance of securities of DIMAC Holdings or DIMAC
Operating, as the case may be, any merger, consolidation, liquidation or
dissolution of DIMAC Holdings or DIMAC Operating, as the case may be, any
direct or indirect transfer of securities by any Permitted Holder or
otherwise (for purposes of this clause (i) and clause (ii) below, the
Permitted Holders will be deemed to beneficially own any Voting Securities
of a Person (the "specified corporation") held by any other Person (the
"parent corporation") so long as the Permitted Holders beneficially own (as
so defined), directly or indirectly, a majority of the Voting Power of the
Voting Securities of the parent corporation);
(ii) following the first Qualified Public Equity Offering of
DIMAC Holdings or DIMAC Operating, as the case may be, any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other
than one or more Permitted Holders, is or becomes the beneficial owner (as
defined in clause (i) above, except that a Person shall be deemed to have
"beneficial ownership" of all shares that any such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total
Voting Power of the Voting Securities of DIMAC Holdings or DIMAC Operating,
as the case may be; PROVIDED, HOWEVER, that the Permitted Holders
beneficially own (as defined in clause (i) above), directly or indirectly,
in the aggregate a lesser percentage of the total Voting Power of the
Voting Securities of DIMAC Holdings or DIMAC Operating, as the case may be,
than such other person and do not have the right or ability by Voting
Power, contract or otherwise to elect or designate for election a majority
of the Board of Directors of DIMAC Holdings or DIMAC Operating, as the case
may be (for purposes of this clause (ii), such other person shall be deemed
to beneficially own any Voting Securities of a specified corporation held
by a parent corporation, if such other person "beneficially owns" (as
defined in this clause (ii)), directly or indirectly, more than 35% of the
Voting Power of the Voting Securities of such parent corporation and the
Permitted Holders "beneficially own" (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the Voting
Power of the Voting Securities of such parent corporation and do not have
the right or ability by Voting Power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of such parent
corporation);
(iii) individuals who on the Initial Issue Date constituted the
Board of Directors of DIMAC Holdings or the Board of Directors of DIMAC
Operating (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of DIMAC
Holdings or DIMAC Operating, as the case may be, was approved by a vote of
a majority of the members of the Board of Directors of DIMAC Holdings or
DIMAC Operating, as the case may be, then still in office who were either
members of such Board of Directors on the Initial Issue Date or whose
election or nomination for election was previously so approved) cease for
any reason
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to constitute a majority of the Board of Directors of DIMAC Holdings or
DIMAC Operating, as the case may be, then in office;
(iv) the merger or consolidation of DIMAC Holdings or DIMAC
Operating with or into another Person or the merger of another Person with
or into DIMAC Holdings or DIMAC Operating, or the sale of all or
substantially all the assets of DIMAC Holdings or DIMAC Operating to
another Person (other than a Person that is controlled by the Permitted
Holders), and, in the case of any such merger or consolidation, the
securities of DIMAC Holdings or DIMAC Operating that are outstanding
immediately prior to such transaction and which represent 100% of the
aggregate Voting Power of the Voting Securities of DIMAC Holdings or DIMAC
Operating, as the case may be, are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such securities
are changed into or exchanged for, in addition to any other consideration,
securities of the surviving corporation that represent immediately after
such transaction, at least a majority of the aggregate Voting Power of the
Voting Securities of the surviving corporation;
(v) any transaction, as the result of which DIMAC Holdings owns
(or has the exclusive power to vote with respect to), directly or
indirectly, less than 100% of the Capital Stock of DIMAC Operating; or
(vi) at any time after the Initial Issue Date, DIMAC Operating
(or any successor in interest) no longer continues, for Federal income tax
purposes, to be a member of the affiliated group of corporations that
includes DIMAC Holdings as the parent corporation of such affiliated group.
"CHARTER DOCUMENTS" of any Person means the articles of incorporation or
certificate of incorporation and bylaws (or any similar organizational
documents), as amended or restated (or both) to date, of such Person.
"COMMISSION" means the United States Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Exchange Act, the Securities
Act or the TIA, as the case may be, then the body performing such duties at such
time.
"CONSOLIDATED" or "CONSOLIDATED," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"CONSOLIDATED NET WORTH" with respect to any Person, means, as at any date
of determination, the sum of (i) the consolidated equity of the common
stockholders of such referent Person and its consolidated Restricted
Subsidiaries determined in accordance with GAAP plus (ii) the respective amounts
reported on such referent Person's most recent balance sheet with respect to any
series of preferred stock (other than Disqualified Capital Stock) that by its
terms is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
referent Person upon issuance of such preferred stock, PROVIDED that the
consolidated net worth of any Person shall exclude the effect of any non-cash
charges relating to the acceleration of stock options or similar securities of
such referent Person or another Person with which such referent Person is merged
or consolidated.
"CORPORATE TRUST OFFICE" shall be at the address of the Trustee specified
in Section 10.2 or such other address as the Trustee may specify by notice to
DIMAC Holdings.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
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"DEFAULT" means any event that is, or after notice or the passage of time
or both would be, an Event of Default.
"DEPOSITORY" means the Person specified in Section 2.3 as the Depository
with respect to the Notes issuable in global form, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"DIMAC HOLDINGS" means DIMAC Holdings, Inc., a Delaware corporation.
"DIMAC OPERATING" means DIMAC Corporation, a Delaware corporation.
"DIMAC OPERATING INDENTURE" means that certain Indenture, dated as of
October 22, 1998, by and between DIMAC Operating and Wilmington Trust Company,
as Trustee, together with all related documents, including security documents,
as such Indenture and such related documents are in effect on the Initial Issue
Date, without regard to any subsequent amendments, supplements or other
modifications thereto.
"DIMAC OPERATING NOTES" means the 121/2% Senior Subordinated Notes due 2008
of DIMAC Operating, issued pursuant to the DIMAC Operating Indenture.
"DISQUALIFIED CAPITAL STOCK" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof, in whole or in part, on or prior to
the maturity date of the Notes.
"DTC" means The Depository Trust Company.
"EQUITY INVESTORS" means the holders of Capital Stock of DIMAC Holdings on
the Initial Issue Date, other than any such holders who, at any time, are
employees of DIMAC Holdings or any of its Subsidiaries.
"EQUITY INTEREST" means (i) with respect to a corporation, any and all
Capital Stock or warrants, options or other rights to acquire Capital Stock (but
excluding any debt security which is convertible into, or exchangeable or
exercisable for, Capital Stock) and (ii) with respect to a partnership, limited
liability company or similar Person, any and all units, interests, rights to
purchase, warrants, options or other equivalents of, or other ownership
interests in any such Person.
"ERISA" means The Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute or law thereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE OFFER" means the offer that may be made by DIMAC Holdings
pursuant to the Registration Rights Agreement to exchange Series B Notes for
Series A Notes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
and in the rules and regulations of the Commission.
"GAAP" means gaap as in effect on the Initial Issue Date.
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"GUARANTY" means, with respect to any Person, any contract, agreement or
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, including without limitation:
(a) agreements to purchase such Indebtedness or any property
constituting security therefor;
(b) agreements to advance or supply funds (i) for the purchase
or payment of such Indebtedness, or (ii) to maintain working capital,
equity capital or other balance sheet conditions;
(c) agreements to purchase property, securities or services
primarily for the purpose of assuring the holder of such Indebtedness of
the ability of the primary obligor to make payment of the Indebtedness;
(d) letters or agreements commonly known as "comfort" or
"keepwell" letters or agreements; or
(e) any other agreements to assure the holder of the
Indebtedness of the primary obligor against loss in respect thereof;
PROVIDED, HOWEVER, that "guaranty" shall not include (i) the endorsement by a
Person in the ordinary course of business of negotiable instruments or documents
for deposit or collection, or (ii) indemnities given by DIMAC Holdings or its
Subsidiaries in brokerage, management and other agreements in the ordinary
course of business substantially consistent with past practices.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"HOLDER" means the Person in whose name a Note is registered in the
register of the Notes.
"INDEBTEDNESS" means, with respect to any Person, the aggregate amount of,
without duplication, the following:
(a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes or
other similar instruments;
(c) all obligations to pay the deferred purchase price of
property or services (except Trade Payables, accrued commissions and other
similar accrued current liabilities in respect of such obligations, in any
case, not overdue, arising in the ordinary course of business);
(d) all Capitalized Lease Obligations;
(e) all obligations or liabilities of others secured by a lien
on any asset owned by such Person or Persons regardless of whether such
obligation or liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers' acceptances;
(g) all Hedging Obligations; and
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(h) all guaranties.
"INDENTURE" means this Indenture as amended or supplemented from time to
time.
"INITIAL ISSUE DATE" means the date upon which the Series A Notes are first
issued.
"INITIAL PURCHASERS" has the meaning given to the term "Purchasers" in the
Securities Purchase Agreement.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct, indirect or
beneficial investment by such Person, whether by means of share purchase, loan,
advance, extension of credit (other than accounts receivable and trade credits
arising in the ordinary course of business), capital contribution or otherwise,
in or to any other Person, the guaranty by such Person of any Indebtedness of
any other Person or the subordination of any claim against any other Person to
other Indebtedness of such other Person.
"ISSUER ORDER" means a written request or order signed in the name of DIMAC
Holdings by its Chairman of the Board, President, Chief Executive Officer or
Senior or Executive Vice President, and by its Chairman of the Board, President,
Chief Executive Officer, Senior or Executive Vice President Treasurer,
Secretary or an Assistant Treasurer or an Assistant Secretary and delivered to
the Trustee.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, Wilmington, Delaware or at a place of
payment are authorized by law, regulation or executive order to remain closed.
"LIEN" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, regardless of whether filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"LIQUIDATED DAMAGES" has the meaning given to such term in the Registration
Rights Agreement.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect upon the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of DIMAC Holdings and its Restricted Subsidiaries taken as a whole or
(b) a material adverse effect on the ability of DIMAC Holdings to perform its
obligations under this Indenture or of any Holder of the Notes to enforce or
collect any of the obligations hereunder or under the Notes. In determining
whether any individual event could reasonably be expected to result in a
Material Adverse Effect, notwithstanding that such event does not of itself have
such effect, a Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of such event and all other then existing events could
reasonably be expected to result in a Material Adverse Effect.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents, including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
DIMAC Holdings or any of its Restricted Subsidiaries from such Asset Sale, net
of (a) reasonable
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out-of-pocket expenses and fees relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements, (c) repayment of Indebtedness that is required to be
repaid in connection with such Asset Sale and (d) appropriate amounts to be
provided by DIMAC Holdings or any of its Restricted Subsidiaries, as the case
may be, as a reserve, in accordance with GAAP, against any post closing
adjustments or liabilities associated with such Asset Sale and retained by DIMAC
Holdings or any of its Restricted Subsidiaries, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"NOTES" means, collectively, the Series A Notes and the Series B Notes.
"OBLIGATION" means any principal, premium, interest, penalty, fee,
indemnification, reimbursement, damage and other obligation and liability
payable under the documentation governing any liability.
"OFFICER" means the Chairman of the Board, the President, the Chief
Financial Officer, the Chief Operating Officer, the Treasurer, any Assistant
Treasurer, the Controller, the Secretary, any Assistant Secretary or Senior Vice
President of DIMAC Holdings.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of DIMAC
Holdings by two Officers of DIMAC Holdings, one of whom must be the Chairman of
the Board, President, Chief Executive Officer, Chief Financial Officer,
Treasurer, Controller or a Senior or Executive Vice President of DIMAC Holdings.
"OPINION OF COUNSEL" means an opinion from legal counsel who is reasonably
acceptable to the Trustee. Such counsel may be an employee of or counsel to
DIMAC Holdings, any Subsidiary of DIMAC Holdings or the Trustee.
"PERMITTED HOLDER" means the Equity Investors and their respective
Affiliates.
"PERMITTED LIENS" means with respect to any Person:
(i) Liens incurred or deposits made by such Person under worker's
compensation laws, unemployment insurance laws or similar legislation, or
Liens incurred or good faith deposits made in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or Liens incurred or deposits made to
secure public or statutory obligations of such Person or deposits of cash
or United States government bonds made to secure the performance of
statutory obligations, surety, stay, customs and appeal bonds to which such
Person is a party, or deposits made as security for contested taxes or
import duties or for the payment of rent, in each case in the ordinary
course of business;
(ii) Liens imposed by law, such as carriers, warehousemen's,
materialmen's and mechanics' Liens or Liens arising out of judgments or
awards against such Person with respect to which such Person shall then be
prosecuting appeal or other proceedings for review; PROVIDED that, in each
case, such appeal or other proceeding is being made in good faith and with
respect to which reserves or other appropriate provisions are being made in
accordance with GAAP;
(iii) Liens securing the payment of Taxes which are not yet subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings, with respect to which reserves or other
appropriate provisions are being maintained in accordance with GAAP;
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(iv) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business;
(v) minor survey exceptions, encumbrances, easements or reservations
of, or rights of others for, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of real properties or Liens incidental to
the conduct of the business of such Person or to the ownership of its
properties which were not incurred in connection with Indebtedness or other
extensions of credit and which do not in the aggregate materially adversely
affect the value of said properties or materially impair their use in the
operation of the business of such Person; and
(v) Liens on shares of Capital Stock of DIMAC Operating or on assets
of DIMAC Operating or any of its Restricted Subsidiaries, in any such case,
securing Indebtedness that was permitted under the terms of this Indenture
to be incurred under the Senior Credit Agreement.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof, or any other entity.
"PIK INTEREST PAYMENT" means the payment of all or a portion of a payment
of interest on the Notes by the issuance of additional Notes in accordance with
the provisions of Section 1 of the Notes.
"PIK NOTE" means any Note issued by DIMAC Holdings in order to make a PIK
Interest Payment.
"PLAN OF LIQUIDATION" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (regardless of whether substantially contemporaneously, in phases
or otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"PRO FORMA" means, with respect to any calculation made or required to be
made pursuant to the terms of this Agreement, a calculation reflecting events
that are directly attributable to a specific transaction, are factually
supportable and are expected to have a continuing effect, in each case as
determined on a basis consistent with the procedures outlined in Article 11 of
Regulation S-X of the Securities Act and as interpreted by the Staff of the
Securities and Exchange Commission prior to December 1996 which would include
cost savings resulting from headcount reductions, closure of facilities and
similar restructuring charges.
"PRODUCTIVE ASSETS" means assets or properties used in the same type of
business engaged in by DIMAC Operating and its Restricted Subsidiaries
immediately prior to the date hereof or in a business reasonably related
thereto.
"PUBLIC EQUITY OFFERING" of any Person, means a sale by such Person of
Equity Interests of such Person in an underwritten (firm commitment) public
offering registered under the Securities Act.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
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"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"QUALIFIED PUBLIC EQUITY OFFERING" of any Person, means a Public Equity
Offering of such Person resulting in the listing of such Equity Interest on a
nationally recognized stock exchange or the NASDAQ National Market System,
pursuant to which such Person receives net proceeds of at least $30,000,000.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the Initial Issue Date, by and among DIMAC Holdings and the Initial
Purchasers as such agreement may be amended, modified or supplemented from time
to time.
"RELATED BUSINESS" means the business engaged in by DIMAC Operating and its
Subsidiaries on the Initial Issue Date and such other business activities which
are incidental or related thereto.
"RESPONSIBLE OFFICER" when used with respect to the Trustee, means any
officer within the corporate trust department of the Trustee located at the
Corporate Trust Office (or any successor group of the Trustee) or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the designated officers, and also means, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"RESTRICTED SECURITIES" means Notes that bear or are required to bear the
legends set forth in Exhibit A hereto.
"RESTRICTED SUBSIDIARY" means DIMAC Operating and any other Subsidiary of
DIMAC Holdings that is not an Unrestricted Subsidiary.
"RULE 144A" means Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or under any similar rule or regulation hereafter
adopted by the Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES PURCHASE AGREEMENT" means the Securities Purchase Agreement
dated as of October 22, 1998 by and among DIMAC Holdings, DIMAC Operating and
the purchasers named on the signature pages thereof.
"SENIOR CREDIT AGREEMENT" means that certain Amended and Restated Credit
Agreement dated as of October 22, 1998 by and among DIMAC Operating, DIMAC
Holdings, the financial institutions listed on the signature pages thereof,
Credit Suisse First Boston, as administrative agent and arranger, UBS AG,
Stamford Branch, as syndication agent and First Union National Bank, as
documentation agent, as, unless the context in which such term is used requires
otherwise, amended, replaced, refinanced, modified or supplemented from time to
time, and all related documents, including guaranties and security documents,
as, unless the context in which such term is used requires otherwise, amended,
replaced, refinanced, modified or supplemented from time to time.
"SERIES A NOTES" means DIMAC Holdings's 151/2% Series A Senior Notes due
October 22, 2009, as authenticated and issued under this Indenture.
"SERIES B NOTES" means DIMAC Holdings's 151/2% Series B Senior Notes due
October 22, 2009, as authenticated and issued under this Indenture.
"STOCKHOLDERS' AGREEMENT" means the Amended and Restated Stockholders
Agreement dated as of October 22, 1998 by and among DIMAC Holdings and the
stockholders listed on the signature pages thereof, as in effect on the Initial
Issue Date and as supplemented and modified pursuant to the letter dated October
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22, 1998 from DIMAC Holdings, McCown De Leeuw & Co. IV, L.P. and McCown De Leeuw
& Co. IV Associates, L.P. to the Initial Purchasers.
"SUBSIDIARY" means, with respect to any Person, (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is, at the date of determination, directly or indirectly,
owned by such Person, by one or more Subsidiaries of such Person or by such
Person and one or more Subsidiaries of such Person or (ii) a partnership in
which such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership, but, in the
case of a limited partner, only if such Person or its Subsidiary is entitled to
receive more than 50% of the assets of such partnership upon its dissolution, or
(iii) any limited liability company or any other Person (other than a
corporation or a partnership) in which such Person, a Subsidiary of such Person
or such Person and one or more Subsidiaries of such Person, directly or
indirectly, at the date of determination, has (a) at least a majority ownership
interest or (b) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.
"TAXES" means all Federal, state, local and foreign taxes, and other
assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto.
"TAX RETURNS" means all Federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns and
any amended Tax Return relating to Taxes.
"TAX SHARING AGREEMENT" means the existing agreement among DIMAC Operating
and DIMAC Holdings and any other tax allocation agreement among DIMAC Operating,
any of its Subsidiaries or any direct or indirect stockholder of DIMAC Operating
with respect to consolidated or combined tax returns including DIMAC Operating
or any of its Subsidiaries.
"TEMPORARY CASH INVESTMENTS" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and undivided profits
aggregating in excess of $250,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described in
clause (ii) above, (iv) Investments in commercial paper, maturing not more than
180 days after the date of acquisition, issued by a corporation (other than an
Affiliate of DIMAC Holdings) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "A-1" (or higher) according to Moody's Investors Service, Inc. or "P-1" (or
higher) according to Standard and Poor's Ratings Group.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb), as amended, as in effect on the date hereof until such time as
this Indenture is qualified under the TIA, and thereafter as in effect on the
date on which this Indenture is qualified under the TIA, unless the context
requires reference thereto as in effect from time to time.
"TRADE PAYABLES" means, with respect to any Person, accounts payable and
other similar accrued current liabilities in respect of obligations or
indebtedness to trade creditors created, assumed or guaranteed
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by such Person or any of its Subsidiaries in the ordinary course of business in
connection with the obtaining of property or services.
"TRUSTEE" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary (other than DIMAC
Operating) of DIMAC Holdings that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors of DIMAC
Holdings in the manner provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors of DIMAC Holdings may designate any
Subsidiary of DIMAC Holdings (including any newly acquired or new formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on
any property of, DIMAC Holdings or any Restricted Subsidiary of DIMAC Holdings
that is not a Subsidiary of the Subsidiary to be so designated; PROVIDED,
HOWEVER, that either (A) the Subsidiary to be so designated has total assets of
$1,000 or less or (B) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under Section 4.7. The Board of Directors of
DIMAC Holdings may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect to such
designation (x) DIMAC Operating could incur $1.00 of additional Indebtedness
under paragraph (b) of Section 4.9 and (y) no Default or Event of Default shall
have occurred and be continuing. Any such designation by the Board of Directors
of DIMAC Holdings shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" means direct obligations of the United States
of America, or any agency or instrumentality thereof for the payment of which
the full faith and credit of the United States of America is pledged.
"VOTING SECURITIES" means any class of Equity Interests of a Person
pursuant to which the holders thereof have, at the time of determination, the
general voting power ("VOTING POWER") under ordinary circumstances to vote for
the election of directors, managers, trustees or general partners of such Person
(regardless of whether at the time any other class or classes will have or might
have voting power by reason of the happening of any contingency).
"WARRANT AGREEMENT" means the Warrant Agreement dated as of October 22,
1998 by and among DIMAC Holdings and the Initial Purchasers.
"WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, at any time, a
Restricted Subsidiary of such Person, all of the Equity Interests of which
(except director's qualifying shares) are at the time owned directly or
indirectly by such Person.
Section 1.2 OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Defined
Term in Section
---- ----------
<S> <C>
"AFFILIATE TRANSACTION. . . . . . . . . . . . . . . . . . . 4.11
"ASSET SALE DATE. . . . . . . . . . . . . . . . . . . . . . 4.10
"ASSET SALE OFFER . . . . . . . . . . . . . . . . . . . . . 4.10
"ASSET SALE OFFER PRICE . . . . . . . . . . . . . . . . . . 4.10
"CHANGE OF CONTROL OFFER. . . . . . . . . . . . . . . . . . 4.14
"CHANGE OF CONTROL PAYMENT. . . . . . . . . . . . . . . . . 4.14
</TABLE>
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<TABLE>
<S> <C>
"CHANGE OF CONTROL PAYMENT DATE . . . . . . . . . . . . . . 4.14
"COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . . 8.3
"DEFINITIVE NOTES . . . . . . . . . . . . . . . . . . . . . 2.1
"EVENT OF DEFAULT . . . . . . . . . . . . . . . . . . . . . 6.1
"EXCESS NET CASH PROCEEDS . . . . . . . . . . . . . . . . . 4.10
"GLOBAL NOTES . . . . . . . . . . . . . . . . . . . . . . . 2.1
"LEGAL DEFEASANCE . . . . . . . . . . . . . . . . . . . . . 8.2
"PAYING AGENT . . . . . . . . . . . . . . . . . . . . . . . 2.3
"PURCHASE AMOUNT. . . . . . . . . . . . . . . . . . . . . . 4.10
"REGISTRAR. . . . . . . . . . . . . . . . . . . . . . . . . 2.3
"RESTRICTED PAYMENTS. . . . . . . . . . . . . . . . . . . . 4.7
</TABLE>
Section 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"INDENTURE SECURITIES" means the Notes;
"INDENTURE SECURITY HOLDER" means a Holder of a Note;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee;
"OBLIGOR" on the Notes means DIMAC Holdings and any successor obligor upon
the Notes.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute, or defined by Commission rule under the TIA
have the meanings so assigned to them.
Section 1.4 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural
include the singular;
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(e) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or
other subdivision, and the terms "Article," "Section," "Exhibit" and
"Schedule," unless otherwise specified or indicated by the context in which
used, mean the corresponding Article or Section of, or the corresponding
Exhibit or Schedule to, this Indenture; and
(f) references to agreements and other instruments include
subsequent amendments, supplements and waivers to such agreements or
instruments but only to the extent not prohibited by this Indenture.
(g) provisions apply to successive events and transactions.
ARTICLE II
THE NOTES
Section 2.1 FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A attached hereto, the terms of which are
incorporated in and made a part of this Indenture. The Notes may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which DIMAC Holdings is subject or usage. Each Note shall be
dated the date of its authentication. The Notes shall be issued in
denominations of $1,000 and integral multiples thereof; PROVIDED, HOWEVER, that
PIK Notes may be issued in any denomination.
The Notes will be issued (i) in global form (the "GLOBAL NOTES"),
substantially in the form of Exhibit A attached hereto (including the text
referred to in footnotes 1 and 2 thereto) and (ii) under certain circumstances,
in definitive form (the "DEFINITIVE NOTES"), substantially in the form of
Exhibit A attached hereto (excluding the text referred to in footnotes 1 and 2
thereto). Each Global Note shall represent the aggregate amount of outstanding
Notes from time to time endorsed thereon; PROVIDED, that the aggregate amount of
outstanding Notes represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and redemptions. Any
endorsement of a Global Note to reflect the amount of any increase or decrease
in the amount of outstanding Notes represented thereby shall be made by the
Trustee, in accordance with instructions given by the Holder thereof, as
required by Section 2.6.
Section 2.2 EXECUTION AND AUTHENTICATION.
The Notes shall be executed on behalf of DIMAC Holdings, by manual or
facsimile signature, by its Chairman of the Board, its President or one of its
Vice Presidents and attested by another Officer by manual or facsimile
signature. If an Officer whose signature is on a Note no longer holds that
office at the time the Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature of the Trustee shall be conclusive evidence that the
Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Notes shall be substantially as
set forth in Exhibit A attached hereto.
The Trustee shall authenticate Notes for original issue up to $30,000,000
aggregate principal amount. In addition, the Trustee shall authenticate PIK
Notes from time upon an Issuer Order. The aggregate principal amount of Notes
outstanding at any time may not exceed $30,000,000 plus the aggregate principal
amount of PIK Notes issued pursuant to Section 1 of the Notes, except as
provided in Section 2.7.
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The Trustee may appoint an authenticating agent acceptable to DIMAC
Holdings to authenticate Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Notes whenever the Trustee
may do so. Each reference in this Indenture to authenticating by the Trustee
includes authenticating by such agent. An authenticating agent has the same
rights as an Agent to deal with DIMAC Holdings or an Affiliate of DIMAC
Holdings.
Unless otherwise required by applicable law, DIMAC Holdings, the Trustee
and any agent of DIMAC Holdings or the Trustee shall treat the Person in whose
name any Note is registered as the owner of such Note for the purpose of
receiving payment of principal of and (subject to the provisions of this
Indenture and the Notes with respect to record dates) interest on such Note and
for all other purposes whatsoever, regardless of whether such Note is overdue,
and neither DIMAC Holdings, the Trustee nor any agent of DIMAC Holdings or the
Trustee shall be affected by notice to the contrary.
Section 2.3 REGISTRAR, PAYING AGENT AND DEPOSITORY.
DIMAC Holdings shall maintain (i) an office or agency where Notes may be
presented for registration of transfer or for exchange ("REGISTRAR") and (ii) an
office or agency where Notes may be presented for payment ("PAYING AGENT").
DIMAC Holdings initially appoints the Trustee as Registrar and Paying Agent.
The Registrar shall keep a register of the Notes and of their transfer and
exchange. DIMAC Holdings may appoint one or more co-registrars and one or more
additional paying agents. The term "Registrar" includes any co-registrar and
the term "Paying Agent" includes any additional paying agent. DIMAC Holdings
may change any Paying Agent or Registrar without notice to any Holder. DIMAC
Holdings shall notify the Trustee of the name and address of any Agent not a
party to this Indenture. If DIMAC Holdings fails to appoint or maintain another
entity as Registrar or Paying Agent, the Trustee shall act as such. DIMAC
Holdings or any of its Subsidiaries may act as Paying Agent or Registrar, except
that for purposes of Articles III and VIII and Sections 4.1, 4.10 and 4.14,
neither DIMAC Holdings nor any of its Subsidiaries shall act as Paying Agent.
The Paying Agent shall comply with all withholding tax, information
reporting and backup withholding tax requirements under the United States
Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury
Regulations issued thereunder in respect of any payment on, or in respect of, a
Note (including, without limitation, the collection of Internal Revenue Service
("IRS") Forms 1001, 4224, W-8 or W-9 (or any successor form), as the case may
be, and the filing of IRS Forms 1042 and 1042-S with respect thereto).
DIMAC Holdings shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent.
To the extent DIMAC Holdings makes such payments directly to the Holders of
the Notes, DIMAC Holdings shall simultaneously notify the Trustee thereof in
writing.
The Paying Agent shall comply with all applicable backup withholding tax
and information reporting requirements under U.S. Internal Revenue Code of 1986,
as amended, and the Treasury regulations issued thereunder in respect of any
payment on, or in respect of, a Note.
DIMAC Holdings initially appoints DTC to act as Depository with respect to
the Global Notes. The Trustee shall act as custodian for the Depository with
respect to the Global Notes.
Section 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.
DIMAC Holdings shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
the Holders or the Trustee all money held by the Paying
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Agent for the payment of principal, premium, if any, or interest on the Notes
and shall notify the Trustee in writing of any default by DIMAC Holdings in
making any such payment. While any such default continues, the Trustee may
require a Paying Agent (if other than DIMAC Holdings or a Subsidiary thereof) to
pay all money held by it to the Trustee and account for such disbursed money.
DIMAC Holdings at any time may require a Paying Agent to pay all money held by
it to the Trustee and account for such disbursed money. Upon payment over to
the Trustee, the Paying Agent (if other than DIMAC Holdings or a Subsidiary of
DIMAC Holdings) shall have no further liability for the money delivered to the
Trustee. If DIMAC Holdings or a Subsidiary of DIMAC Holdings acts as Paying
Agent (subject to Section 2.3), it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent.
Section 2.5 HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, DIMAC Holdings shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders,
including the aggregate principal amount of Notes held by each such Holder, and
DIMAC Holdings shall otherwise comply with TIA Section 312(a).
Section 2.6 TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES. When Definitive
Notes are presented by a Holder to the Registrar with a request (1) to
register the transfer of the Definitive Notes or (2) to exchange such
Definitive Notes for an equal principal amount of Definitive Notes of other
authorized denominations, the Registrar shall register the transfer or make
the exchange as requested if its requirements for such transactions are
met; PROVIDED, that the Definitive Notes so presented (A) have been duly
endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar duly executed by such Holder or by his
attorney, duly authorized in writing; and (B) in the case of a Restricted
Security, such request shall be accompanied by the following additional
documents:
(i) if such Restricted Security is being delivered to the
Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification to that effect (in substantially the
form of Exhibit B attached hereto); or
(ii) if such Restricted Security is being transferred to a
QIB in accordance with Rule 144A or pursuant to an effective
registration statement under the Securities Act, a certification to
that effect (in substantially the form of Exhibit B attached hereto);
or
(iii) if such Restricted Security is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act, a certification to that effect (in substantially
the form of Exhibit B attached hereto) and an opinion of counsel
reasonably acceptable to DIMAC Holdings and the Registrar to the
effect that such transfer is in compliance with the Securities Act.
(b) TRANSFER OF A DEFINITIVE NOTE FOR A BENEFICIAL INTEREST IN A
GLOBAL NOTE. A Definitive Note may be exchanged for a beneficial interest
in a Global Note only upon receipt by the Trustee of a Definitive Note,
duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Trustee, together with:
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(i) written instructions directing the Trustee to make an
endorsement on the appropriate Global Note to reflect an increase in
the aggregate principal amount of the Notes represented by such Global
Note, and
(ii) if such Definitive Note is a Restricted Security, a
certification (in substantially the form of Exhibit B attached hereto)
and, if applicable, a legal opinion, in each case similar to that
required pursuant to clauses (i), (ii) or (iii) of Section 2.6(a), as
applicable;
in which case the Trustee shall cancel such Definitive Note and cause the
aggregate principal amount of Notes represented by the appropriate Global
Note to be increased accordingly. If no Global Note is then outstanding,
DIMAC Holdings shall issue and the Trustee shall authenticate a new Global
Note in the appropriate principal amount.
(c) TRANSFER AND EXCHANGE OF GLOBAL NOTES. The transfer and
exchange of Global Notes or beneficial interests therein shall be effected
through the Depository in accordance with this Indenture and the procedures
of the Depository therefor, which shall include restrictions on transfer
comparable to those set forth herein to the extent required by the
Securities Act.
(d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL NOTE FOR A
DEFINITIVE NOTE. Upon receipt by the Trustee of written transfer
instructions (or such other form of instructions as is customary for the
Depository), from the Depository (or its nominee) on behalf of any Person
having a beneficial interest in a Global Note, the Trustee shall, in
accordance with the standing instructions and procedures existing between
the Depository and the Trustee, cause the aggregate principal amount of
Global Notes to be reduced accordingly and, following such reduction, DIMAC
Holdings shall execute and the Trustee shall authenticate and deliver to
the transferee a Definitive Note in the appropriate principal amount;
PROVIDED, that in the case of a Restricted Security, such instructions
shall be accompanied by the following additional documents:
(i) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial owner, a
certification to that effect (in substantially the form of Exhibit B
attached hereto); or
(ii) if such beneficial interest is being transferred to a
QIB in accordance with Rule 144A or pursuant to an effective
registration statement under the Securities Act, a certification to
that effect (in substantially the form of Exhibit B attached hereto);
or
(iii) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act, a certification to that effect (in substantially
the form of Exhibit B attached hereto) and an opinion of counsel
reasonably acceptable to DIMAC Holdings and to the Registrar to the
effect that such transfer is in compliance with the Securities Act.
Definitive Notes issued in exchange for a beneficial interest in a Global
Note shall be registered in such names and in such authorized denominations
as the Depository shall instruct the Trustee.
(e) TRANSFER AND EXCHANGE OF GLOBAL NOTES. Notwithstanding any
other provision of this Indenture, the Global Note may not be transferred
as a whole 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 by the Depository or any such nominee to a successor
Depository or a nominee of such successor Depository; PROVIDED, that if:
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(i) the Depository notifies DIMAC Holdings that the
Depository is unwilling or unable to continue as Depository and a
successor Depository is not appointed by DIMAC Holdings within 90 days
after delivery of such notice; or
(ii) DIMAC Holdings, at its sole discretion, notifies the
Trustee in writing that it elects to cause the issuance of Definitive
Notes under this Indenture,
then DIMAC Holdings shall execute and the Trustee shall authenticate and
deliver, Definitive Notes in an aggregate principal amount equal to the
aggregate principal amount of the Global Note in exchange for such Global
Note.
(f) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such
time as all beneficial interests in the Global Note have either been
exchanged for Definitive Notes, redeemed, repurchased or cancelled, the
Global Note shall be returned to (or retained by) and cancelled by the
Trustee. At any time prior to such cancellation, if any beneficial
interest in the Global Note is exchanged for Definitive Notes, redeemed,
repurchased or cancelled, the aggregate principal amount of Notes
represented by such Global Note shall be reduced accordingly and an
endorsement shall be made on such Global Note by the Trustee to reflect
such reduction.
(g) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES. To
permit registrations of transfers and exchanges, DIMAC Holdings shall
execute and the Trustee shall authenticate Definitive Notes and Global
Notes at the Registrar's request. All Definitive Notes and Global Notes
issued upon any registration of transfer or exchange of Definitive Notes or
Global Notes shall be legal, valid and binding obligations of DIMAC
Holdings, evidencing the same debt, and entitled to the same benefits under
this Indenture, as the Definitive Notes or Global Notes surrendered upon
such registration of transfer or exchange.
No service charge shall be made to a Holder for any registration of
transfer or exchange, but DIMAC Holdings may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange (without transfer to another
person) pursuant to Sections 2.10, 3.7, 4.10, 4.14 and 9.5).
DIMAC Holdings shall not be required to (i) issue, register the
transfer of or exchange Notes during a period beginning at the opening of
business 15 days before the day of any selection of Notes for redemption
under Section 3.2 and ending at the close of business on the day of
selection; or (ii) register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion
of any Note being redeemed in part; or (iii) register the transfer of or
exchange a Note between a record date and the next succeeding interest
payment date.
Prior to due presentment for the registration of a transfer of any
Note, the Trustee, any Agent and DIMAC Holdings may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for all purposes, and neither the Trustee, any Agent nor DIMAC
Holdings shall be affected by notice to the contrary.
Any Holder of a Global Note shall, by acceptance of such Global Note,
agree that transfers of beneficial interests in such Global Note may be
effected only through a book-entry system maintained by the Depository (or
its agent), and that ownership of a beneficial interest in such Global Note
shall be required to be reflected in a book entry.
(h) EXCHANGE OF SERIES A NOTES FOR SERIES B NOTES. The Series A
Notes may be exchanged for Series B Notes pursuant to the terms of the
Exchange Offer. The Trustee and Registrar shall make the exchange as
follows:
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DIMAC Holdings shall present the Trustee with an Officers' Certificate
certifying the following:
(i) upon issuance of the Series B Notes, the transactions
contemplated by the Exchange Offer have been consummated; and
(ii) the principal amount of Series A Notes properly
tendered in the Exchange Offer that are represented by a Global Note
and the principal amount of Series A Notes properly tendered in the
Exchange Offer that are represented by Definitive Notes; the name of
each Holder of such Definitive Notes; the principal amount properly
tendered in the Exchange Offer by each such Holder; and the name and
address to which Definitive Notes for Series B Notes shall be
registered and sent for each such Holder.
The Trustee, upon receipt of (i) such Officers' Certificate, (ii) an
Opinion of Counsel (x) to the effect that the Series B Notes have been
registered under Section 5 of the Securities Act and this Indenture has
been qualified under the TIA and (y) with respect to the matters set forth
in Section 5(p) of the Registration Rights Agreement and (iii) an Issuer
Order, shall authenticate (A) a Global Note for Series B Notes in aggregate
principal amount equal to the aggregate principal amount of Series A Notes
represented by a Global Note indicated in such Officers' Certificate as
having been properly tendered and (B) Definitive Notes representing Series
B Notes registered in the names of, and in the principal amounts indicated
in such Officers' Certificate.
The Trustee shall make available for delivery such Definitive Notes
for Series B Notes to the Holders thereof as indicated in such Officers'
Certificate.
Section 2.7 REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or DIMAC Holdings and
the Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Note, DIMAC Holdings shall issue and the Trustee shall authenticate
a replacement Note if the Trustee's requirements for replacements of Notes are
met. If required by the Trustee or DIMAC Holdings, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and
DIMAC Holdings to protect DIMAC Holdings, the Trustee, any Agent or any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. DIMAC Holdings or the Trustee may charge for its expenses in
replacing a Note.
Every replacement Note is an obligation of DIMAC Holdings and shall be
entitled to all of the benefits of this Indenture equally and proportionately
with all other Notes duly issued hereunder.
Section 2.8 OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section 2.8 as not outstanding.
If a Note is replaced pursuant to Section 2.7, the replaced Note ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section 4.1,
it ceases to be outstanding and interest on it ceases to accrue.
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Subject to Section 2.9, a Note does not cease to be outstanding because
DIMAC Holdings or an Affiliate of DIMAC Holdings holds the Note.
If on a redemption date or the date of maturity of a Note, the Paying Agent
holds cash, U.S. Government Obligations, or a combination thereof, sufficient to
pay all of the principal, premium, if any, and interest due on the Notes payable
on that date, then on and after that date, such Notes shall cease to be
outstanding, and interest on such Notes shall cease to accrue.
Section 2.9 TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by DIMAC
Holdings or any Affiliate of DIMAC Holdings shall be considered as though not
outstanding, except that for purposes of determining whether the Trustee shall
be protected in relying on any such direction, waiver or consent, only Notes
that a Responsible Officer of the Trustee knows to be so owned shall be
considered as not outstanding.
Section 2.10 TEMPORARY NOTES.
Pending the preparation of Definitive Notes, DIMAC Holdings may execute,
and upon an Issuer Order the Trustee shall authenticate and deliver, temporary
Notes that are printed, lithographed, typewritten, mimeographed or otherwise
reproduced, in any authorized denomination, substantially of the tenor of the
Definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as conclusively evidenced by their execution
of such Notes.
If temporary Notes are issued, DIMAC Holdings shall cause Definitive Notes
to be prepared without unreasonable delay. The Definitive Notes shall be
printed, lithographed or engraved, or provided by any combination thereof, or in
any other manner permitted by the rules and regulations of any principal
national securities exchange, if any, on which the Notes are listed, all as
determined by the Officers executing such Definitive Notes. After the
preparation of Definitive Notes, the temporary Notes shall be exchangeable for
Definitive Notes upon surrender of the temporary Notes at the office or agency
maintained by DIMAC Holdings for such purpose pursuant to Section 4.2, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes, DIMAC Holdings shall execute, and the Trustee shall
authenticate and make available for delivery, in exchange therefor the same
aggregate principal amount of Definitive Notes of authorized denominations.
Until so exchanged, the temporary Notes shall in all respects be entitled to the
same benefits under this Indenture as Definitive Notes.
Section 2.11 CANCELLATION.
DIMAC Holdings at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment and
not previously received by the Trustee. The Trustee and no one else shall
cancel all Notes surrendered for registration of transfer, exchange, payment,
replacement or cancellation and shall retain or destroy cancelled Notes in
accordance with its normal practices (subject to the record retention
requirement of the Exchange Act) unless DIMAC Holdings directs them to be
returned to it. DIMAC Holdings may not issue new Notes to replace Notes that
have been redeemed or paid or that have been delivered to the Trustee for
cancellation. All such Notes shall be cancelled by the Trustee and returned to
DIMAC Holdings pursuant to a written order signed by one Officer of DIMAC
Holdings.
Section 2.12 DEFAULTED INTEREST.
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If DIMAC Holdings defaults in a payment of interest on the Notes, it shall
pay the defaulted interest in any lawful manner plus, to the extent lawful,
interest payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, which date shall be at the earliest practicable
date but in all events at least ten Business Days prior to the payment date, in
each case at the rate provided in the Notes and in Section 4.1. DIMAC Holdings
shall, with the consent of the Trustee, fix or cause to be fixed each such
special record date and payment date. At least 30 days before the special
record date, DIMAC Holdings (or the Trustee, in the name of and at the expense
of DIMAC Holdings, upon 15 days written notice to the Trustee) shall mail to the
Holders a notice that states the special record date, the related payment date
and the amount of such interest to be paid.
Section 2.13 LEGENDS.
(a) Except as permitted by subsections (b) or (c) of this
Section 2.13, each Note shall bear legends relating to restrictions on
transfer pursuant to the securities laws in substantially the form set
forth on Exhibit A attached hereto.
(b) Upon any sale or transfer of a Restricted Security
(including any Restricted Security represented by a Global Note) pursuant
to Rule 144 under the Securities Act or pursuant to an effective
registration statement under the Securities Act:
(i) in the case of any Restricted Security that is a
Definitive Note, the Registrar shall permit the Holder thereof to
exchange such Restricted Security for a Definitive Note that does not
bear the legends required by subsection (a) above; and
(ii) in the case of any Restricted Security represented by
a Global Note, such Restricted Security shall not be required to bear
the legends required by subsection (a) above, but shall continue to be
subject to the provisions of Section 2.6(c); PROVIDED, that with
respect to any request for an exchange of a Restricted Security that
is represented by a Global Note for a Definitive Note that does not
bear the legends required by subsection (a) above, which request is
made in reliance upon Rule 144, the Holder thereof shall certify in
writing to the Registrar that such request is being made pursuant to
Rule 144.
(c) DIMAC Holdings shall issue and the Trustee shall
authenticate Series B Notes in exchange for Series A Notes accepted for
exchange in the Exchange Offer. The Series B Notes shall not bear the
legends required by subsection (a) above unless the Holder of such Series A
Notes is either:
(i) a broker-dealer who purchased such Series A Notes
directly from DIMAC Holdings to resell pursuant to Rule 144A or any
other available exemption under the Securities Act,
(ii) a Person participating in the distribution of the
Series A Notes, or
(iii) a Person who is an affiliate (as defined in Rule
144A) of DIMAC Holdings.
(d) DIMAC Holdings will cause each Note to bear on its face a
legend that satisfies the requirements of U.S. Treasury Regulations Section
1.1275-3(b) stating that such Note was issued with original issue discount
("OID") and detailing (i) the issue price, (ii) the amount of OID per
$1,000 of principal amount, (iii) the issue date and (iv) the yield to
maturity, or, alternatively, detailing the name and either the address or
telephone number of a representative of DIMAC
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Holdings who will, beginning no later than ten days after the issue date,
be able to promptly supply the appropriate information in response to a
Holder's request.
Section 2.14 DEPOSIT OF MONEYS.
Subject to Section 3.5, prior to 10:00 a.m. New York City time on each date
on which the principal of, premium, if any, and interest on the Notes are due,
DIMAC Holdings shall deposit with the Trustee or Paying Agent in immediately
available funds money sufficient to make cash payments, if any, due on such date
in a timely manner which permits the Trustee or such Paying Agent to remit
payment to the Holders on such date.
ARTICLE III
REDEMPTION
Section 3.1 NOTICES TO TRUSTEE.
If DIMAC Holdings elects to redeem Notes pursuant to Section 3.7, it shall
furnish to the Trustee, at least 30 days but not more than 60 days before a
redemption date, an Officers' Certificate setting forth (i) the paragraph of the
Notes and/or the section of this Indenture pursuant to which the redemption
shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed and (iv) the redemption price.
Section 3.2 SELECTION OF NOTES TO BE REDEEMED.
If less than all the Notes are to be redeemed pursuant to Section 3.7, the
Trustee shall select the Notes to be redeemed in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, PRO RATA, by lot or by
such method as the Trustee deems to be fair and reasonable.
The Trustee shall promptly notify DIMAC Holdings in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
Section 3.3 NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date, DIMAC
Holdings shall mail a notice of redemption by first class mail to each Holder
whose Notes are to be redeemed at such Holder's registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part only, the portion of
the principal amount of such Note to be redeemed and that, after the
redemption date, upon cancellation of the original Note, a new Note or
Notes in principal amount equal to the unredeemed portion shall be issued;
(d) the name and address of the Paying Agent;
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(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless DIMAC Holdings defaults in making such
redemption payment, interest on Notes or portions of Notes called for
redemption ceases to accrue on and after the redemption date;
(g) the paragraph of the Notes and/or the section of this
Indenture pursuant to which the Notes called for redemption are being
redeemed; and
(h) the CUSIP number of the Notes to be redeemed.
At DIMAC Holdings's request, the Trustee shall give the notice of
redemption in the name of DIMAC Holdings and at DIMAC Holdings's expense;
PROVIDED that DIMAC Holdings shall deliver to the Trustee, at least 45 days
(unless a shorter period is acceptable to the Trustee) prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph.
Section 3.4 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption has been mailed to the Holders in accordance with
Section 3.3, Notes called for redemption become due and payable on the
redemption date at the redemption price. At any time prior to the mailing of a
notice of redemption to the Holders pursuant to Section 3.3, DIMAC Holdings may
withdraw, revoke or rescind any notice of redemption delivered to the Trustee
without any continuing obligation to redeem the Notes as contemplated by such
notice of redemption.
Section 3.5 DEPOSIT OF REDEMPTION PRICE.
At or before 12:00 p.m. New York City time immediately prior to the
redemption date, DIMAC Holdings shall deposit with the Trustee (to the extent
not already held by the Trustee) or with the Paying Agent money in immediately
available funds sufficient to pay the redemption price of and accrued interest
on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall
return to DIMAC Holdings any money deposited with the Trustee or the Paying
Agent by DIMAC Holdings in excess of the amounts necessary to pay the redemption
price of, and accrued interest on, all Notes to be redeemed.
Interest on the Notes to be redeemed shall cease to accrue on the
applicable redemption date, regardless of whether such Notes are presented for
payment, if DIMAC Holdings makes or deposits the redemption payment in
accordance with this Section 3.5. If any Note called for redemption shall not
be paid upon surrender for redemption because of the failure of DIMAC Holdings
to comply with the preceding paragraph, interest shall be paid on the unpaid
principal, from the redemption date until such principal is paid, and to the
extent lawful on any interest not paid on such unpaid principal, in each case at
the rate provided in the Notes.
Section 3.6 NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, DIMAC Holdings shall
issue and the Trustee shall authenticate for the Holder at the expense of DIMAC
Holdings a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
Section 3.7 OPTIONAL REDEMPTION.
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(a) If, on or before October 22, 2002, there is a Qualified
Public Equity Offering of DIMAC Holdings, DIMAC Holdings may, within thirty
(30) days of the consummation of such Qualified Public Equity Offering,
redeem all or any of the Notes, in whole or in part, at a redemption price
equal to 107.75% of the aggregate principal amount of Notes being redeemed
plus accrued and unpaid interest thereon to the redemption date.
(b) Except as provided in Section 3.7(a), the Notes are not
redeemable at DIMAC Holdings's option prior to October 22, 2002.
Thereafter, DIMAC Holdings may redeem the Notes, or a portion thereof, in
accordance with the terms and conditions provided herein and in the Notes.
ARTICLE IV
COVENANTS
Section 4.1 PAYMENT OF NOTES.
DIMAC Holdings shall pay the principal and premium, if any, of, and
interest on, the Notes on the dates and in the manner provided in the Notes.
Principal, premium, if any, and interest shall be considered paid on the date
due if the Paying Agent, other than DIMAC Holdings or a Subsidiary of DIMAC
Holdings, holds on or before that date money deposited by DIMAC Holdings in
immediately available funds (or PIK Notes, in the case of a PIK Interest
Payment) and designated for and sufficient to pay all principal, premium, if
any, and interest then due. Such Paying Agent shall return to DIMAC Holdings,
no later than three Business Days following the date of payment, any money that
exceeds such amount of principal, premium, if any, and interest then due and
payable on the Notes. DIMAC Holdings shall pay any and all amounts, including,
without limitation, Liquidated Damages, if any, on the dates and in the manner
required under the Registration Rights Agreement.
To the extent lawful, DIMAC Holdings shall pay interest (including interest
accruing after the commencement of any proceeding under any Bankruptcy Law) on
all due and unpaid amounts outstanding under the Notes (including overdue
installments of principal or interest) at a rate equal to 161/2% per annum,
compounded quarterly. PIK Notes issued pursuant to Section 1 of the Notes shall
not constitute due and unpaid amounts outstanding under the Notes.
Section 4.2 MAINTENANCE OF OFFICE OR AGENCY.
DIMAC Holdings shall maintain an office or agency (which may be an office
of the Trustee, Registrar or co-registrar) in the Borough of Manhattan, the City
of New York, where Notes may be surrendered for registration of transfer or
exchange and where notices and demands to or upon DIMAC Holdings in respect of
the Notes and this Indenture may be served. DIMAC Holdings shall give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time DIMAC Holdings shall fail to maintain
any such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee.
DIMAC Holdings may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations;
PROVIDED, that no such designation or rescission shall in any manner relieve
DIMAC Holdings of its obligation to maintain an office or agency for such
purposes. DIMAC Holdings shall give prompt written notice to the Trustee of any
such designation or rescission and of any change in the location of any such
other office or agency.
DIMAC Holdings hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of DIMAC Holdings in accordance with Section 2.3.
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Section 4.3 REPORTS.
(a) DIMAC Holdings shall file with the Trustee copies of the
reports, information and other documents (or copies of such portions of any
of the foregoing as the Commission may by rules and regulations prescribe)
that DIMAC Holdings is required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act, within 15 days after filing such
reports, information and other documents with the Commission. If DIMAC
Holdings is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, DIMAC Holdings shall file with the Trustee all such reports,
information and other documents as it would be required to file if it were
subject to the requirements of Section 13 or 15(d) of the Exchange Act,
within the period applicable to such report, information or other document
pursuant to the Exchange Act. From and after the time DIMAC Holdings files
a registration statement with the Commission with respect to the Notes,
DIMAC Holdings shall file such information with the Commission; PROVIDED,
that DIMAC Holdings shall not be in default of the provisions of this
Section 4.3 for any failure to file reports with the Commission solely by
refusal by the Commission to accept the same for filing. DIMAC Holdings
shall deliver (or cause the Trustee to deliver) copies of all reports,
information and documents required to be filed with the Trustee pursuant to
this Section 4.3 to the Holders at their addresses appearing in the
register of Notes maintained by the Registrar. DIMAC Holdings shall also
comply with the provisions of TIA Section 314(a).
(b) If DIMAC Holdings is required to furnish annual, quarterly
or current reports to its stockholders pursuant to the Exchange Act, DIMAC
Holdings shall cause any annual, quarterly, current or other financial
report furnished by it generally to its stockholders to be filed with the
Trustee and mailed to the Holders by DIMAC Holdings at their addresses
appearing in the register of Notes maintained by the Registrar within 15
days after such reports are furnished to stockholders. If DIMAC Holdings
is not required to furnish annual, quarterly or current reports to its
stockholders pursuant to the Exchange Act, DIMAC Holdings shall cause the
financial statements of DIMAC Holdings and its consolidated Subsidiaries,
including any notes thereto (and, with respect to annual reports, an
auditors' report by an accounting firm of established national reputation),
and a "Management's Discussion and Analysis of Financial Condition and
Results of Operations," comparable to that which would have been required
to appear in annual or quarterly reports filed under Section 13 or 15(d) of
the Exchange Act to be so filed with the Trustee and mailed to the Holders
by DIMAC Holdings promptly, but in any event, within 105 days after the end
of each of the fiscal years of DIMAC Holdings and within 60 days after the
end of each of the first three quarters of each such fiscal year.
(c) So long as is required for an offer or sale of the Notes to
qualify for an exemption under Rule 144A, DIMAC Holdings shall, upon
request, provide the information required by clause (d)(4) thereunder to
each Holder and to each beneficial owner and prospective purchaser of Notes
identified by any Holder of Restricted Securities.
Section 4.4 COMPLIANCE CERTIFICATE.
(a) DIMAC Holdings shall deliver to the Trustee, within
forty-five (45) days after the end of each fiscal quarter and within ninety
(90) days after the end of each fiscal year, an Officers' Certificate
(provided that one of the signatories to such Officers' Certificate shall
be DIMAC Holdings's principal executive officer, principal financial
officer or principal accounting officer) stating that a review of the
activities of DIMAC Holdings and its Subsidiaries during the preceding
fiscal quarter or fiscal year, as the case may be, has been made under the
supervision of the signing Officers with a view to determine whether each
has kept, observed, performed and fulfilled its obligations under this
Indenture and the Notes, and further stating, as to each such Officer
signing
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such certificate, that to his knowledge, each of DIMAC Holdings and its
Subsidiaries has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions
hereof or thereof (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he may
have knowledge and what action each is taking or proposes to take with
respect thereto) and that to his knowledge, no event has occurred and
remains in existence by reason of which payments of interest, principal or
premium on the Notes are prohibited or if such event has occurred, a
description of the event. The Officers' Certificate shall set forth all
financial calculations for such fiscal quarter or fiscal year necessary to
demonstrate compliance with the covenants contained in this Section IV.
(b) The year-end financial statements delivered pursuant to
Section 4.3 shall be accompanied by a written statement of the independent
public accountants of DIMAC Holdings (which shall be a firm of established
national reputation reasonably satisfactory to the Trustee) that in making
the examination necessary for certification of such financial statements
nothing has come to their attention which would lead them to believe that
either DIMAC Holdings or any of its Subsidiaries has violated any
provisions of this Indenture or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being understood
that such accountants shall not be liable directly or indirectly to any
Person for any failure to obtain knowledge of any such violation.
(c) So long as any of the Notes are outstanding, DIMAC Holdings
shall deliver to the Trustee forthwith upon any Officer becoming aware of
(i) any Default or Event of Default or (ii) any event of default under any
mortgage, indenture or instrument referred to in Section 6.1(a)(v), an
Officers' Certificate specifying such Default, Event of Default or other
event of default and what action DIMAC Holdings is taking or proposes to
take with respect thereto.
Section 4.5 TAXES.
DIMAC Holdings shall, and shall cause each of its Subsidiaries to, (a) file
timely all material Tax Returns required to be filed by DIMAC Holdings and each
of its Subsidiaries, respectively and (b) pay or discharge or cause to be paid
or discharged, before the same shall become delinquent, (i) all material Taxes
levied or imposed upon DIMAC Holdings and each of its Subsidiaries or upon the
income, profits or property of DIMAC Holdings and each of its Subsidiaries and
(ii) all lawful material claims, whether for labor, materials, supplies,
services or anything else, which, if unpaid, would or may by law become a Lien,
upon the property of DIMAC Holdings or any of its Subsidiaries; PROVIDED,
HOWEVER, that none of DIMAC Holdings and its Subsidiaries shall be required to
pay or discharge or cause to be paid or discharged any such Tax, the
applicability or validity of which is being contested in good faith by
appropriate proceedings which will prevent the forfeiture or sale of any
property of DIMAC Holdings or any of its Subsidiaries and for which disputed
amounts reserves have been established in accordance with GAAP, in an amount
which DIMAC Holdings believes in good faith is adequate.
Section 4.6 STAY, EXTENSION AND USURY LAWS.
DIMAC Holdings covenants (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension, usury or other law,
wherever enacted, now or at any time hereafter in force, that would prohibit or
forgive the payment of all or any portion of the principal of or interest on the
Notes, or that may affect the covenants or the performance of this Indenture,
and DIMAC Holdings (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law and covenants that it shall not,
by resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee but shall suffer and permit the execution of every
such power as though no such law has been enacted.
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Section 4.7 LIMITATION ON RESTRICTED PAYMENTS.
(a) DIMAC Holdings shall not,
(i) declare or pay any dividends, either in cash or
property, on, or make any distribution to the holders (as such) in
respect of, any class of Equity Interest in DIMAC Holdings (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Capital Stock) of DIMAC Holdings);
(ii) except as provided in clause (iv) below, purchase,
repurchase, redeem or otherwise acquire or retire for value any Equity
Interests of DIMAC Holdings or any of its Subsidiaries or any other
Affiliate of DIMAC Holdings; PROVIDED that, during any one fiscal
year, as long as no Default or Event of Default has occurred and is
continuing, DIMAC Holdings may purchase Equity Interests in DIMAC
Holdings beneficially owned by directors, officers and employees of
DIMAC Holdings or any of its Subsidiaries pursuant to the terms of
employment contracts or employee benefit plans of DIMAC Holdings or
any of its Subsidiaries in an aggregate amount that, when added to all
amounts expended by any Restricted Subsidiaries of DIMAC Holdings to
purchase, repurchase, redeem or otherwise acquire or retire for value
any Equity Interests of DIMAC Holdings or any of its Subsidiaries or
any other Affiliate of DIMAC Holdings, does not exceed $2,500,000;
PROVIDED, FURTHER, that the aggregate amount expended by DIMAC
Holdings and its Restricted Subsidiaries on or after the Initial Issue
Date to so purchase Equity Interests in DIMAC Holdings beneficially
owned by directors, officers and employees of DIMAC Holdings or any of
its Subsidiaries, shall not exceed $10,000,000.
(iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness of DIMAC Holdings (other
than the Notes); or
(iv) make any Investment other than (A) any guarantee of
Indebtedness by DIMAC Holdings permitted pursuant to the provisions of
Section 4.9(a), (B) any Investment of cash by DIMAC Holdings in a
Wholly-Owned Subsidiary of DIMAC Holdings solely to fund an
Acquisition made by DIMAC Operating or any of its Subsidiaries, which
Acquisition is not prohibited pursuant to the provisions of Section
4.24(b), (C) any Investments in Cash Equivalents and (D) an Investment
in DIMAC Operating on the Initial Issue Date of up to $40,000,000 in
connection with refinancing transactions occurring on such date and
any further Investment in DIMAC Operating after the Initial Issue Date
but only to the extent that the amount of such Investment shall have
been received through the issuance of new Equity Interests (other than
Disqualified Capital Stock) of DIMAC Holdings or a new capital
contribution to DIMAC Holdings from its stockholders.
(b) DIMAC Holdings shall cause each of its Restricted
Subsidiaries to not fail to comply with the provisions of Section 4.04 of
the DIMAC Operating Indenture (as in effect on the Initial Issue Date). In
addition, and without limiting the foregoing provisions of this Section
4.7(b), DIMAC Holdings shall cause DIMAC Operating and each of its
Restricted Subsidiaries to not purchase, repurchase, redeem or otherwise
acquire or retire for value any Equity Interests of DIMAC Holdings or any
of its Subsidiaries or any other Affiliate of DIMAC Holdings; PROVIDED
that, during any one fiscal year, as long as no Default or Event of Default
has occurred and is continuing, DIMAC Operating may purchase Equity
Interests in DIMAC Holdings beneficially owned by directors, officers and
employees of DIMAC Holdings or any of its Subsidiaries pursuant to the
terms of employment contracts or employee benefit plans of DIMAC Holdings
or any of its Subsidiaries in an aggregate amount that, when added to all
amounts expended by any Restricted
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Subsidiaries of DIMAC Holdings to purchase, repurchase, redeem or otherwise
acquire or retire for value any Equity Interests of DIMAC Holdings or any
of its Subsidiaries or any other Affiliate of DIMAC Holdings, does not
exceed $2,500,000; PROVIDED, FURTHER, that the aggregate amount expended by
DIMAC Holdings and its Restricted Subsidiaries on or after the Initial
Issue Date to so purchase Equity Interests in DIMAC Holdings beneficially
owned by directors, officers and employees of DIMAC Holdings or any of its
Subsidiaries, shall not exceed $10,000,000.
Not later than the date on which DIMAC Holdings or any of its
Restricted Subsidiaries takes any action expressly permitted pursuant to
this Section 4.7 or Section 4.04 of the DIMAC Operating Indenture (as in
effect on the Initial Issue Date), DIMAC Holdings shall deliver to the
Trustee an Officers' Certificate stating that such action is permitted and
setting forth the basis upon which the calculations required by this
Section 4.7 or Section 4.04 of the DIMAC Operating Indenture were computed,
which calculations may be based upon DIMAC Holdings's latest available
financial statements.
Section 4.8 LIMITATION ON RESTRICTIONS ON DIVIDENDS FROM RESTRICTED
SUBSIDIARIES.
DIMAC Holdings shall not, and shall cause each of its Restricted
Subsidiaries to not, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of DIMAC Holdings to (a) pay dividends or
make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits owned by, or pay any Indebtedness
owed to, DIMAC Holdings or DIMAC Operating, (b) make loans or advances to DIMAC
Holdings or DIMAC Operating, (c) transfer any of its properties or assets to
DIMAC Holdings or DIMAC Operating, except for (i) any restrictions existing
under or contemplated by this Indenture, the DIMAC Operating Indenture (as in
effect on the Initial Issue Date) and the Senior Credit Agreement (as in effect
on the Initial Issue Date); (ii) any restrictions, with respect to a Restricted
Subsidiary of DIMAC Holdings that is not a Restricted Subsidiary of DIMAC
Holdings on the date hereof, in existence at the time such Person becomes a
Restricted Subsidiary of DIMAC Holdings (so long as such restrictions are not
created in anticipation of such Person becoming a Restricted Subsidiary of DIMAC
Holdings); (iii) with respect to clause (c) above only, any restrictions
existing under Capitalized Lease Obligations or other Indebtedness secured by
Permitted Liens (PROVIDED that, in each case, such prohibition shall only relate
to the assets which are subject to such Capitalized Lease Obligations or which
secure such Indebtedness and the proceeds therefrom); (iv) any restrictions
existing under any new agreement evidencing Indebtedness or any agreement that
refinances or replaces the agreements containing the restrictions in the
foregoing clauses (i), (ii) and (iii); PROVIDED, that the terms and conditions
of any such restrictions are no more restrictive than those under or pursuant to
the agreements containing the restrictions referenced in the foregoing clauses
(i), (ii) or (iii); or (v) any encumbrance or restriction permitted pursuant to
Section 4.05 of the DIMAC Operating Indenture (as in effect on the Initial Issue
Date).
Section 4.9 LIMITATION ON ADDITIONAL INDEBTEDNESS AND ISSUANCE OF
DISQUALIFIED CAPITAL STOCK.
(a) DIMAC Holdings shall not, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or indirectly
liable with respect to (collectively, "INCUR") any Indebtedness (other than
PIK Notes) or issue any Disqualified Capital Stock; PROVIDED that DIMAC
Holdings may guarantee Indebtedness of any of its Restricted Subsidiaries
to the extent that the incurrence of such Indebtedness by such Restricted
Subsidiary or such guarantee by DIMAC Holdings (without duplication) does
not violate the provisions of Section 4.9(b) at the time of such
incurrence.
(b) DIMAC Holdings shall cause each of its Restricted
Subsidiaries (including without limitation, upon the creation or
acquisition of such Restricted Subsidiary) to not fail to comply with the
provisions of Section 4.03 of the DIMAC Operating Indenture (as in effect
on the Initial Issue
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Date); PROVIDED, HOWEVER, that for purposes of this Section 4.9(b), the
Consolidated Coverage Ratio test described in Section 4.03(a) of the DIMAC
Operating Indenture shall be deemed to be 1.90 to 1.00.
Section 4.10 LIMITATION ON ASSET SALES.
(a) DIMAC Holdings shall not make any Asset Sale. In addition,
DIMAC Holdings shall cause each of its Restricted Subsidiaries to not, make
any Asset Sale, unless no Default or Event of Default exists and is
continuing or is created by such Asset Sale and:
(i) such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the fair market value of
such assets (as determined in good faith by the Board of Directors of
DIMAC Holdings and evidenced by a resolution set forth in an Officers'
Certificate, including as to the value of all noncash consideration);
(ii) at least 80% of the consideration therefor received
by such Restricted Subsidiary shall be in the form of cash or Cash
Equivalents; PROVIDED, HOWEVER, that for the purposes of this
subsection (a)(ii), the following are deemed to be cash: (x) any
liabilities of such Restricted Subsidiary (as shown on the most recent
balance sheet or in the notes thereto of such Restricted Subsidiary)
that are assumed by the transferee in connection with the Asset Sale
(other than liabilities that are incurred in connection with or in
anticipation of such Asset Sale); and (y) securities received by such
Restricted Subsidiary from such transferee that are immediately
converted into cash at the face amount or fair market value thereof by
such Restricted Subsidiary; and
(iii) the Net Cash Proceeds of such Asset Sale shall be
applied within 360 days of the consummation of such Asset Sale: (x) to
prepay, purchase, defease or otherwise retire any Indebtedness of
DIMAC Operating or its Restricted Subsidiaries (including without
limitation, the DIMAC Operating Notes and any Indebtedness under the
Senior Credit Agreement), in each case, with a permanent reduction in
amounts available to be borrowed or the Indebtedness that may be
incurred under the instrument evidencing such Indebtedness and/or (y)
to reinvest in Productive Assets. Any Net Cash Proceeds from any
Asset Sale consummated by any Restricted Subsidiary that are not
applied or reinvested as provided in this subsection (a)(iii) of this
Section 4.10 shall constitute excess proceeds ("EXCESS NET CASH
PROCEEDS") and shall be held in cash or Cash Equivalents.
(b) When the aggregate amount of Excess Net Cash Proceeds
exceeds $5,000,000, DIMAC Holdings shall promptly make an offer (the "ASSET
SALE OFFER") to all Holders of the Notes to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Net Cash Proceeds,
at an offer price in cash in an amount (the "ASSET SALE OFFER PRICE") equal
to 100% of the principal amount of such Notes, plus accrued and unpaid
interest thereon to the Asset Sale Date.
If the aggregate principal amount of Notes surrendered by Holders
thereof exceeds the amount of Excess Net Cash Proceeds, DIMAC Holdings
shall select the Notes to be purchased on a pro rata basis, in such manner
as complies with applicable legal requirements, if any. Upon completion of
such Asset Sale Offer, the amount of Excess Net Cash Proceeds shall be
reset at zero.
Simultaneously with the making of such Asset Sale Offer, DIMAC
Holdings shall provide the Trustee and the Holders with an Officers'
Certificate setting forth the Asset Sale Offer Price, the Asset Sale Date
and the calculations used in determining the amount of Excess Net Cash
Proceeds to be applied to the repurchase of the Notes.
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If the date on which the Asset Sale Offer closes (the "ASSET SALE
DATE") is on or after an interest payment record date and on or before the
related interest payment date, any accrued interest will be paid to the
person in whose name a Note is registered at the close of business on such
record date, and no additional interest will be payable to holders who
tender Notes pursuant to the Asset Sale Offer.
Each Asset Sale Offer shall be conducted in compliance with all
applicable laws, including without limitation, Regulation 14E of the
Exchange Act and the rules thereunder and all other applicable Federal and
state securities laws. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of this Section 4.10,
DIMAC Holdings shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under
this Section 4.10 by virtue thereof. Except as provided in the DIMAC
Operating Indenture (as in effect on the Initial Issue Date) or the Senior
Credit Agreement (as in effect on the Initial Issue Date) or as permitted
pursuant to Section 4.8, DIMAC Holdings shall not, and shall not permit any
of its Restricted Subsidiaries to, create or suffer to exist or become
effective any restriction that would impair the ability of DIMAC Holdings
to make an Asset Sale Offer upon an Asset Sale or, if such Asset Sale Offer
is made, to pay for the Notes tendered for purchase.
(c) Notice of any Asset Sale Offer shall be mailed by DIMAC
Holdings to the Trustee and each Holder at its last registered address.
The Asset Sale Offer shall remain open from the time of mailing until
twenty (20) Business Days thereafter, and no longer, unless a longer period
is required by law. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Notes pursuant to the
Asset Sale Offer. The notice, which shall govern the terms of the Asset
Sale Offer, shall state:
(i) that the Asset Sale Offer is being made pursuant to
this Section 4.10 and that Notes will be accepted for payment either
(A) in whole or (B) in part in integral multiples of $1,000;
(ii) the Asset Sale Offer Price and the Asset Sale Date;
(iii) that any Note not tendered will continue to accrue
interest;
(iv) that any Note accepted for payment pursuant to the
Asset Sale Offer shall cease to accrue interest from and after the
Asset Sale Date (so long as DIMAC Holdings does not default in its
obligation to promptly pay the Asset Sale Offer Price);
(v) that Holders electing to have a Note purchased pursuant
to the Asset Sale Offer will be required to surrender the Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, at the address specified in the notice prior to
the close of business on the Business Day preceding the Asset Sale
Date;
(vi) that Holders will be entitled to withdraw their
election on the terms and subject to the conditions set forth in the
notice;
(vii) that Holders whose Notes are purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered; PROVIDED, HOWEVER, that any portion
of a Note repurchased by DIMAC Holdings and any new Note issued to the
Holder in respect of the unpurchased portion thereof shall be in the
principal amount of $1,000 or an integral multiple thereof.
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(d) On the Asset Sale Date, DIMAC Holdings shall (i) accept for
payment the Notes or portions thereof (or an allocable amount thereof)
tendered pursuant to the Asset Sale Offer, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Notes or portions
thereof so accepted and (iii) deliver to the Trustee the Notes so accepted,
together with an Officers' Certificate stating that the Notes or portions
thereof (or an allocable amount thereof) tendered to DIMAC Holdings are
accepted for payment. The Paying Agent shall promptly mail to each Holder
of Notes so accepted payment in an amount equal to the purchase price of
such Notes, and the Trustee shall promptly authenticate and mail to such
Holders new Notes equal in principal amount to any unpurchased portion of
the Notes surrendered. After payment to the Holders of the purchase price
of all Notes or portions thereof so accepted, the Paying Agent shall
deliver promptly to DIMAC Holdings the balance, if any, of any money so
deposited by DIMAC Holdings with the Paying Agent remaining after such
payment to the Holders.
DIMAC Holdings shall make a public announcement of the results of the
Asset Sale Offer as soon as practicable after the Excess Proceeds Payment
Date. For the purposes of this Section 4.10, the Trustee shall act as the
Paying Agent.
Notwithstanding any of the foregoing provisions of this Section 4.10
to the contrary, DIMAC Holdings shall not be required to comply with the
provisions of this Section 4.10 to the extent and only to the extent that
such compliance would be prohibited by the terms of the DIMAC Operating
Indenture, as amended, replaced, refinanced, modified or supplemented from
time to time, or the Senior Credit Agreement.
Section 4.11 LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) DIMAC Holdings shall not, and shall cause each of its
Restricted Subsidiaries to not, directly or indirectly, enter into or
permit to exist any transaction or series of related transactions that are
similar or part of a common plan (including, without limitation, the
purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of their respective Affiliates
(each an "AFFILIATE TRANSACTION"), unless (i) the terms of such Affiliate
Transaction are no less favorable to DIMAC Holdings or the applicable
Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's-length dealings with a
Person who is not such an Affiliate, (ii) in the event such Affiliate
Transaction involves an aggregate amount in excess of $1,000,000, the terms
of such Affiliate Transaction have been approved by a majority of the
members of the Board of Directors of DIMAC Holdings and by a majority of
the disinterested members of such Board of Directors, if any (and such
majority or majorities, as the case may be, determines pursuant to a
resolution of such Board of Directors that such Affiliate Transaction
satisfies the criterion in clause (i) of this paragraph (a)); and (iii) in
the event such Affiliate Transaction involves an aggregate amount in excess
of $5,000,000, DIMAC Holdings has received a written opinion from an
independent investment banking firm of nationally recognized standing that
such Affiliate Transaction is fair to DIMAC Holdings or such Restricted
Subsidiary, as the case may be, from a financial point of view.
(b) The provisions of paragraph (a) of this Section 4.11 will
not prohibit (i) any Restricted Payment (as defined in the DIMAC Operating
Indenture as in effect on the Initial Issue Date) permitted to be paid
pursuant to Section 4.7 (and in the case of Permitted Investments (as
defined in the DIMAC Operating Indenture as in effect on the Initial Issue
Date), only those described in clauses (v), (vi) and (ix) of the definition
of Permitted Investments (as set forth in the DIMAC Operating Indenture as
in effect on the Initial Issue Date)), (ii) the performance of the
obligations of DIMAC Holdings or any of its Restricted Subsidiaries under
any employment contract, collective bargaining agreement, employee benefit
plan, related trust agreement or any other similar arrangement heretofore
or hereafter entered into in the ordinary course of business, (iii) payment
of
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compensation to, and indemnity provided on behalf of, employees, officers,
directors or consultants (excluding under the Advisory Services Agreement)
in the ordinary course of business, (iv) maintenance in the ordinary course
of business of benefit programs or arrangements for employees, officers or
directors, including vacation plans, health and life insurance plans,
deferred compensation plans, and retirement or savings plans and similar
plans, (v) any transaction between DIMAC Holdings or any of its
Wholly-Owned Subsidiaries, (vi) the payment of fees and expenses under the
Advisory Services Agreement as in effect on the Initial Issue Date or
(vii) payments by DIMAC Operating and any of its Restricted Subsidiaries
pursuant to the Tax Sharing Agreement (viii) the issuance or sale of any
Capital Stock (other than Disqualified Capital Stock) of DIMAC Operating.
Section 4.12 LIMITATION ON LIENS.
DIMAC Holdings shall not create or suffer to exist any Liens other than
Permitted Liens upon any assets of DIMAC Holdings (including without limitation,
any shares of Capital Stock of DIMAC Operating).
Section 4.13 CORPORATE EXISTENCE.
Subject to Article V, DIMAC Holdings shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its corporate
existence, and the corporate, partnership or other existence of each of its
Restricted Subsidiaries, in accordance with their respective organizational
documents (as the same may be amended from time to time) and (ii) its (and its
Restricted Subsidiaries') rights (charter and statutory), licenses and
franchises; PROVIDED, that DIMAC Holdings shall not be required to preserve any
such right, license or franchise, or the corporate, partnership or other
existence of any Restricted Subsidiary, if the Board of Directors of DIMAC
Holdings on behalf of DIMAC Holdings shall determine in good faith that the
preservation thereof is no longer desirable in the conduct of the business of
DIMAC Holdings and its Restricted Subsidiaries taken as a whole and that the
loss thereof is not adverse in any material respect to the Holders.
Section 4.14 REPURCHASE UPON A CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, DIMAC Holdings
shall notify the Trustee in writing thereof and shall make an offer to
purchase all of the Notes then outstanding as described below (the "Change
of Control Offer") at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase (the "Change of Control Payment").
(b) The Change of Control Offer shall be made in compliance with
all applicable laws, including without limitation, Regulation 14E of the
Exchange Act and the rules thereunder and all other applicable Federal and
state securities laws. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of this Section 4.14,
DIMAC Holdings shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under
this Section 4.14 by virtue thereof.
(c) Within 30 days following any Change of Control, DIMAC
Holdings shall commence the Change of Control Offer by mailing to the
Trustee and each Holder a notice, which shall govern the terms of the
Change of Control Offer, and shall state that:
(i) the Change of Control Offer is being made pursuant to
this Section 4.14 and that all Notes tendered will be accepted for
payment;
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(ii) the purchase price and the purchase date, which shall
be a Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed (the "Change of Control Payment Date");
(iii) that any Note not tendered for payment pursuant to
the Change of Control Offer shall continue to accrue interest in
accordance with the terms thereof;
(iv) that, unless DIMAC Holdings defaults in the payment of
the Change of Control Payment, all Notes accepted for payment pursuant
to the Change of Control Offer shall cease to accrue interest on the
Change of Control Payment Date;
(v) that any Holder electing to have Notes purchased
pursuant to a Change of Control Offer shall be required to surrender
such Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes completed, to the Paying Agent
at the address specified in the notice prior to the close of business
on the third Business Day preceding the Change of Control Payment
Date;
(vi) that any Holder shall be entitled to withdraw such
election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Notes
such Holder delivered for purchase, and a statement that such Holder
is withdrawing his election to have such Notes purchased;
(vii) that a Holder whose Notes are being purchased only
in part shall be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which unpurchased
portion must be equal to $1,000 in principal amount or an integral
multiple thereof;
(viii) the instructions that Holders must follow in order
to tender their Notes; and
(ix) the circumstances and relevant facts regarding such
Change of Control.
(d) On the Change of Control Payment Date, DIMAC Holdings shall,
to the extent lawful, (i) accept for payment the Notes or portions thereof
tendered pursuant to the Change of Control Offer, (ii) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of
all Notes or portions thereof so tendered and not withdrawn, and (iii)
deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating that the Notes or portions
thereof tendered to DIMAC Holdings are accepted for payment. The Paying
Agent shall promptly mail to each Holder of Notes so accepted payment in an
amount equal to the purchase price for such Notes, and the Trustee shall
authenticate and mail to each Holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered, if any, PROVIDED, that
each such new Note will be in principal amount of $1,000 or an integral
multiple thereof.
(e) DIMAC Holdings shall make a public announcement of the
results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date. For the purposes of this Section 4.14,
the Trustee shall act as the Paying Agent.
(f) DIMAC Holdings shall not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with
the requirements set forth in this Section 4.14 and purchases all Notes
validly tendered and not withdrawn under such Change of Control Offer.
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Section 4.15 MAINTENANCE OF PROPERTIES.
DIMAC Holdings shall, and shall cause each of its Restricted Subsidiaries
to maintain its properties and assets in normal working order and condition as
on the date of this Indenture (reasonable wear and tear excepted) and make all
necessary repairs, renewals, replacements, additions, betterments and
improvements thereto, as shall be reasonably necessary for the proper conduct of
the business of DIMAC Holdings and its Restricted Subsidiaries taken as a whole;
PROVIDED, that nothing herein shall prevent DIMAC Holdings or any of its
Restricted Subsidiaries from discontinuing any maintenance of any such
properties if DIMAC Holdings determines that such discontinuance is desirable in
the conduct of the business of DIMAC Holdings and its Restricted Subsidiaries
taken as a whole.
Section 4.16 MAINTENANCE OF INSURANCE.
DIMAC Holdings shall, and shall cause each of its Restricted Subsidiaries
to, maintain liability, casualty and other insurance with a reputable insurer or
insurers in such amounts and against such risks as is carried by responsible
companies engaged in similar businesses and owning similar assets.
Section 4.17 INVESTMENT COMPANY ACT.
DIMAC Holdings shall not, and shall cause each of its Subsidiaries to not,
become an investment company subject to registration under the Investment
Company Act of 1940, as amended.
Section 4.18 OWNERSHIP OF SUBSIDIARIES.
DIMAC Holdings shall at all times own, directly or indirectly, 100% of the
Equity Interests of DIMAC Operating.
Section 4.19 LIMITATION ON BUSINESS.
DIMAC Holdings shall not conduct or operate any business, perform any
obligations, incur any Indebtedness (other than as permitted under Section
4.9(a)) or hold any assets; PROVIDED, HOWEVER, that DIMAC Holdings may own 100%
of the Equity Interests of DIMAC Operating, may hold cash or Cash Equivalents,
may perform its obligations pursuant to the Securities Purchase Agreement, this
Indenture, the Notes, the Registration Rights Agreement, the Warrant Agreement
and the Stockholders' Agreement, may issue new shares of common stock, may pay
its Taxes and may maintain its corporate existence. DIMAC Holdings shall cause
each of its Restricted Subsidiaries to not engage in any business other than a
Related Business.
Section 4.20 EMPLOYEE PLANS.
DIMAC Holdings shall not, and shall cause each of its Subsidiaries to not,
directly or indirectly, (i) terminate any employee pension benefit plan subject
to Title IV of ERISA if as a result of such termination DIMAC Holdings and its
Subsidiaries, collectively, would incur a liability with respect to such plan in
excess of $5,000,000 in the aggregate, or (ii) make a complete or partial
withdrawal (within the meaning of Section 4201 of ERISA) from any multiemployer
plan if as a result of such withdrawal (within the meaning of Section 4201 of
ERISA), DIMAC Holdings and its Subsidiaries, collectively, would incur a
liability with respect to such plan in excess of $5,000,000 in the aggregate.
As used in this Section 4.20, the terms "employee pension benefit plan" and
"multiemployer plan" shall have the meanings assigned to such terms in Section 3
of ERISA.
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Section 4.21 COMPLIANCE WITH LAWS; MAINTENANCE OF LICENSES.
DIMAC Holdings shall, and shall cause each of its Subsidiaries to, comply
with all statutes, ordinances, governmental rules and regulations, judgments,
orders and decrees (including all Environmental Laws) to which any of them is
subject, and maintain, obtain and keep in effect all licenses, permits,
franchises and other governmental authorizations necessary to the ownership or
operation of their respective properties or the conduct of their respective
businesses, except to the extent that the failure to so comply or maintain,
obtain and keep in effect could not, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
Section 4.22 AVAILABLE CASH.
DIMAC Holdings shall not expend any cash, except for (i) the payment of the
principal of (and premium, if any, on) the Notes, installments of interest on
the Notes and any other amount required by the terms hereof or of the Notes to
be paid in respect of the Notes, whether upon redemption, repurchase or
otherwise, (ii) the payment of Taxes in compliance with the provisions of
Section 4.5, (iii) Capital Expenditures in compliance with the provisions of
Section 4.25, (iv) the payment of fees and expenses relating to filing of a
registration statement with respect to the Notes pursuant to the Registration
Rights Agreement and complying with the provisions of Section 4.3, (v) the
payment of expenses incurred in the ordinary course of business, not to exceed
an aggregate of $500,000 in any one fiscal year and (vi) the making of any
payments expressly permitted pursuant to Section 4.7(a).
Section 4.23 FISCAL YEARS.
At all times, DIMAC Holdings shall maintain, and shall cause each of its
Restricted Subsidiaries to maintain, its fiscal year ending on December 31st.
Section 4.24 LIMITATION ON ACQUISITIONS.
(a) DIMAC Holdings shall not make any Acquisition.
(b) DIMAC Holdings shall cause each of its Restricted
Subsidiaries to not make an Acquisition, unless:
(i) no Default or Event of Default shall have occurred and
be continuing at the time of, or would occur after giving effect, on a
pro forma basis, to, the consummation of such Acquisition; and
(ii) the Acquisition (A) is effected by way of (1) merger
or consolidation of DIMAC Operating or any of its Restricted
Subsidiaries so long as all of the Capital Stock of such other Person
is acquired, (2) acquisition by DIMAC Operating or any of its
Restricted Subsidiaries of assets or property that constitute all or
substantially all of a business operating unit of another Person, or
(3) acquisition by DIMAC Operating or any of its Restricted
Subsidiaries of all of the Capital Stock in such other Person and (B)
relates only to acquisitions of Productive Assets and is approved by
the Board of Directors of the acquired Person (if applicable).
Section 4.25 LIMITATION ON CAPITAL EXPENDITURES.
DIMAC Holdings shall not make or incur Capital Expenditures in any fiscal
year in an aggregate amount in excess of $250,000.
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Section 4.26 INSPECTION OF PROPERTIES AND RECORDS.
DIMAC Holdings shall allow, and shall cause each of its Subsidiaries to
allow, each Initial Purchaser and each Holder of at least $20,000,000 aggregate
principal amount of Notes (or such Persons as any of them may designate)
(individually and collectively, "INSPECTORS"), subject to appropriate agreements
as to confidentiality, (i) to visit and inspect any of the properties of DIMAC
Holdings or any of its Subsidiaries, (ii) to examine all their books of account,
records, reports and other papers and to make copies and extracts therefrom,
(iii) to discuss their respective affairs, finances and accounts with their
respective officers and employees, and (iv) to discuss the financial condition
of DIMAC Holdings and its Subsidiaries with their independent accountants upon
reasonable notice to DIMAC Holdings of its intention to do so and so long as
DIMAC Holdings shall be given the reasonable opportunity to participate in such
discussions (and by this provision DIMAC Holdings authorizes said accountants to
have such discussions with the Inspectors). All such visits, examinations and
discussions set forth in the preceding sentence shall be upon prior notice at
such reasonable times and as often as may be reasonably requested. If a Default
of an Event of Default shall have occurred and be continuing, DIMAC Holdings
shall pay or reimburse all Inspectors for expenses which such Inspectors may
reasonably incur in connection with any such visitations or inspections.
ARTICLE V
SUCCESSORS
Section 5.1 WHEN DIMAC HOLDINGS MAY MERGE, ETC.
DIMAC Holdings shall not consolidate or merge with or into (regardless of
whether DIMAC Holdings is the surviving corporation), or transfer all or
substantially all of its properties or assets (determined on a consolidated
basis for DIMAC Holdings and its Subsidiaries) in one or more related
transactions to, any other Person unless:
(a) DIMAC Holdings is the surviving Person or the Person formed
by or surviving any such consolidation or merger (if other than DIMAC
Holdings) or to which such transfer has been made is a corporation
organized and existing under the laws of the United States, any state
thereof or the District of Columbia,
(b) the Person formed by or surviving any such consolidation or
merger (if other than DIMAC Holdings) or the Person to which such transfer
has been made assumes all the Obligations of DIMAC Holdings, pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee,
under the Notes, this Indenture and the Registration Rights Agreement,
(c) immediately after giving effect to such transaction on a PRO
FORMA basis, no Default or Event of Default exists or would occur and
(d) immediately after giving effect to such transaction on a PRO
FORMA basis, the Consolidated Net Worth of such surviving entity must be
equal to or greater than that of DIMAC Holdings immediately prior to giving
effect to such transaction.
DIMAC Holdings shall deliver to the Trustee prior to the consummation of
any proposed transaction an Officers' Certificate to the foregoing effect, an
Opinion of Counsel, stating that all conditions precedent to the proposed
transaction provided for in this Indenture have been complied with, and a
written statement from a firm of independent public accountants of established
national reputation reasonably satisfactory to the Trustee stating that the
proposed transaction complies with clause (d) of this Section 5.1.
For purposes of this Section 5.1, the transfer of all or substantially all
of the properties and assets of one or more Restricted Subsidiaries of DIMAC
Holdings, which properties and assets, if held by DIMAC
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Holdings instead of such Restricted Subsidiaries, would constitute all or
substantially all of the properties and assets of DIMAC Holdings on a
consolidated basis, shall be deemed to be the transfer of all or substantially
all of the properties and assets of DIMAC Holdings.
Section 5.2 SUCCESSOR SUBSTITUTED.
In the event of any transaction (other than a lease) contemplated by
Section 5.1 in which DIMAC Holdings is not the surviving Person, the successor
formed by such consolidation or into or with which DIMAC Holdings is merged or
to which such transfer is made, or formed by such reorganization, as the case
may be, shall succeed to, and be substituted for, and may exercise every right
and power of, DIMAC Holdings and DIMAC Holdings shall be discharged from its
Obligations under this Indenture, the Notes and the Registration Rights
Agreement, with the same effect as if such successor Person had been named as
DIMAC Holdings herein or therein.
Section 5.3 PLAN OF LIQUIDATION.
DIMAC Holdings shall not in a single transaction or through a series of
related transactions, adopt a Plan of Liquidation.
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.1 EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT" occurs if:
(i) DIMAC Holdings defaults in the payment of interest on
any Note or any other amount payable hereunder when the same becomes
due and payable and the Default continues for a period of five (5)
days (it being understood that the issuance of PIK Notes in accordance
with the provisions of Section 1 of the Notes shall not constitute any
Event of Default under this clause (i));
(ii) DIMAC Holdings defaults in the payment of the principal
of or premium, if any, on any Note when the same becomes due and
payable at maturity, upon redemption or otherwise (including, without
limitation, the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or an Asset Sale Offer);
(iii) DIMAC Holdings defaults in the performance of or
breaches the provisions of Sections 4.7, 4.8, 4.9, 4.10, 4.11, 4.12,
4.14, 4.18, 4.20, 4.22, 4.23, 4.24, 4.25, 4.26, or Article V or the
provisions of Section 1.14 of the Securities Purchase Agreement;
(iv) if (i) DIMAC Holdings or DIMAC Operating fails to
comply with any of its other agreements or covenants in, or provisions
of, the Notes or this Indenture or with any of its agreements or
covenants in the Securities Purchase Agreement and (ii) the Default
continues for 30 days after written notice thereof has been given to
DIMAC Holdings by the Trustee or to DIMAC Holdings and the Trustee by
the Holders of at least 25% in aggregate principal amount of the then
outstanding Notes, such notice to state that it is a "Notice of
Default;"
(v) if (i) DIMAC Holdings or any of its Restricted
Subsidiaries defaults in the payment of principal or interest payments
under the DIMAC Operating Notes or the DIMAC Operating Indenture or
the Senior Credit Agreement, regardless of the principal amount of
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the Indebtedness outstanding thereunder, (ii) DIMAC Holdings or any of
its Restricted Subsidiaries defaults in the payment of principal or
interest payments under any loan agreement, note, mortgage, indenture
or instrument (including without limitation the DIMAC Operating
Indenture and the Senior Credit Agreement) under which there may be
issued or by which there may be secured or evidenced any other
Indebtedness of DIMAC Holdings or any of its Restricted Subsidiaries
for borrowed money (or the payment of which is guaranteed by DIMAC
Holdings or any of its Restricted Subsidiaries), whether such
indebtedness or guarantee now exists or shall be created hereafter,
and the principal amount of such indebtedness, together with the
principal amount of any other such indebtedness for which there is a
default in the payment of interest, premium, if any, or principal,
aggregates $3,000,000 or more or (iii) an event of default occurs
under any loan agreement, note, mortgage, indenture or instrument
which shall represent a default in payment upon final maturity or
otherwise results in the acceleration of such indebtedness prior to
its expressed maturity and the principal amount of such indebtedness,
together with the principal amount of any other such indebtedness with
respect to which there has been a default in payment upon final
maturity or the maturity of which has been so accelerated and has not
been paid, aggregates $3,000,000 or more;
(vi) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent jurisdiction
against DIMAC Holdings, DIMAC Operating or any Subsidiary of DIMAC
Holdings or DIMAC Operating and such remains undischarged for a period
(during which execution shall not be effectively stayed) of thirty
(30) days, PROVIDED that the aggregate of all such judgments (which
are not adequately covered by insurance as to which a solvent and
unaffiliated insurance company has acknowledged coverage) exceeds
$3,000,000;
(vii) repudiation by DIMAC Holdings of its obligations
under this Indenture or the Notes, or the unenforceability of this
Indenture or the Notes against DIMAC Holdings for any reason;
(viii) the filing by DIMAC Holdings or any of its
Subsidiaries (any such Person, a "DEBTOR") of a petition commencing a
voluntary case under Section 301 of Title 11 of the United States
Code, or the commencement by a Debtor of a case or proceeding under
any other Bankruptcy Law seeking the adjustment, restructuring, or
discharge of the debts of such Debtor, or the liquidation of such
Debtor, including without limitation the making by a Debtor of an
assignment for the benefit of creditors; or the taking of any
corporate action by a Debtor in furtherance of or to facilitate,
conditionally or otherwise, any of the foregoing;
(ix) the filing against a Debtor of a petition commencing
an involuntary case under Section 303 of Title 11 of the United States
Code, with respect to which case (a) such Debtor consents or fails to
timely object to the entry of, or fails to seek the stay and dismissal
of, an order of relief, (b) an order for relief is entered and is
pending and unstayed on the 60th day after the filing of the petition
commencing such case, or if stayed, such stay is subsequently lifted
so that such order for relief is given full force and effect, or (c)
no order for relief is entered, but the court in which such petition
was filed has not entered an order dismissing such petition by the
60th day after the filing thereof; or the commencement under any other
Bankruptcy Law of a case or proceeding against a Debtor seeking the
adjustment, restructuring, or discharge of the debts of such Debtor,
or the liquidation of such Debtor, which case or proceeding is pending
without having been dismissed on the 60th day after the commencement
thereof; or
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(x) the entry by a court of competent jurisdiction of a
judgment, decree or order appointing a receiver, liquidator, trustee,
custodian or assignee of a Debtor or of the property of a Debtor, or
directing the winding up or liquidation of the affairs or property of
a Debtor, and (a) such Debtor consents or fails to timely object to
the entry of, or fails to seek the stay and dismissal of, such
judgment, decree, or order, or (b) such judgment, decree or order is
in full force and effect and is not stayed on the 60th day after the
entry thereof, or, if stayed, such stay is thereafter lifted so that
such judgment, decree or order is given full force and effect.
(b) DIMAC Holdings shall, upon becoming aware that a Default or
Event of Default has occurred, deliver to the Trustee a statement
specifying such Default or Event of Default and what action DIMAC Holdings
is taking or proposes to take with respect thereto.
Section 6.2 ACCELERATION.
If an Event of Default (other than an Event of Default specified in clause
(viii), (ix) or (x) of Section 6.1(a)) occurs and is continuing, the Trustee by
written notice to DIMAC Holdings, or the Holders of at least 25% in principal
amount of the then outstanding Notes by written notice to DIMAC Holdings and the
Trustee, may declare the unpaid principal of and any accrued interest on all the
Notes to be due and payable. Upon such declaration the principal and interest
shall be due and payable immediately. If an Event of Default specified in
clause (viii), (ix) or (x) of Section 6.1(a) occurs, all outstanding Notes shall
IPSO FACTO become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder. At any time after a
declaration of acceleration, but before a judgment or decree for payment of the
money due has been obtained by the Trustee, the Holders of a majority in
aggregate principal amount of the Notes outstanding, by written notice to DIMAC
Holdings and the Trustee, may rescind and annul such declaration and its
consequences if (a) DIMAC Holdings has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, (ii) all overdue interest (including any interest
accrued subsequent to an Event of Default specified in clause (viii), (ix) or
(x) of Section 6.1(a)) on all Notes, (iii) the principal of and premium, if any,
on any Notes that have become due otherwise than by such declaration or
occurrence of acceleration and interest thereon at the rate borne by the Notes,
and (iv) to the extent that payment of such interest is lawful, interest upon
overdue interest at the rate borne by the Notes; (b) all Events of Default,
other than the non-payment of principal of and interest on the Notes that have
become due solely by such declaration or occurrence of acceleration, have been
cured or waived; and (c) the rescission would not conflict with any judgment,
order or decree of any court of competent jurisdiction.
Section 6.3 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy (under this Indenture or otherwise) to collect the payment of
principal or interest on the Notes to enforce the performance of any provision
of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies are cumulative
to the extent permitted by law.
Section 6.4 WAIVER OF PAST DEFAULTS.
Holders of a majority of the aggregate principal amount of the then
outstanding Notes by written notice to the Trustee may on behalf of the Holders
of all of the Notes (a) waive any existing Default or Event
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of Default and its consequences under this Indenture except a continuing Default
or Event of Default in the payment of the principal of, or interest on, any Note
or a Default or an Event of Default with respect to any covenant or provision
which cannot be modified or amended without the consent of the Holder of each
outstanding Note affected, and/or (b) rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived. Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 6.5 CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
it. However, the Trustee may refuse to follow any direction that conflicts with
law or this Indenture, that the Trustee determines may be unduly prejudicial to
the rights of other Holders, or that may involve the Trustee in personal
liability.
Section 6.6 LIMITATION ON SUITS.
A Holder may pursue a remedy with respect to this Indenture or the Notes
only if:
(a) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 30 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(e) during such 30-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
Section 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal and interest on the Note, on or
after the respective due dates expressed in the Note, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of the Holder.
Section 6.8 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.1(a)(i) or 6.1(a)(ii) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against DIMAC Holdings for the whole amount
of principal and interest remaining unpaid on the Notes and interest on overdue
principal (and premium, if any) and, to the extent lawful, interest or overdue
interest and such further amount
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as shall be sufficient to cover the costs and expenses of collection, including
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
Section 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to DIMAC Holdings, its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7. To the
extent that the payment of any such compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.7 out of the estate in any such proceeding, shall be
denied for any reason, payment of the same shall be secured by a Lien on, and
shall be paid out of, any and all distributions, dividends, money, securities
and other properties that the Holders of the Notes may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article VI, it shall pay
out the money in the following order:
FIRST: to the Trustee, its agents and attorneys for amounts due under
Section 7.7, including payment of all compensation, expense and liabilities
incurred, and all advances made, by the Trustee and the costs and expenses
of collection;
SECOND: to Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for principal
and interest, respectively;
THIRD: without duplication, to Holders for any other Obligations
owing to the Holders under the Notes, this Indenture or the Registration
Rights Agreement; and
FOURTH: to DIMAC Holdings or to such party as a court of competent
jurisdiction shall direct.
The Trustee, upon written notice to DIMAC Holdings, may fix a record date
and payment date for any payment to Holders.
Section 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may
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assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.6, or a suit
by Holders of more than 10% in principal amount of the then outstanding Notes.
Section 6.12 PREMIUM ON ACCELERATION.
In the event of an acceleration of the Notes upon an Event of Default
occurring by reason of any willful action (or deliberate inaction) taken (or not
taken) by or on behalf of DIMAC Holdings with the intention of avoiding payment
of the premium that DIMAC Holdings would have had to pay if DIMAC Holdings had
elected to redeem the Notes and such acceleration is not rescinded or annulled,
the Holders shall be entitled to receive, in addition to any other payments to
which they may be entitled, a premium equal to the percentages of principal set
forth below if the declaration date of the acceleration occurs during the twelve
month period commencing on October 22 of the year set forth below:
<TABLE>
<CAPTION>
Year % of Principal Amount
---- ---------------------
<S> <C>
1998 115.500
1999 113.950
2000 112.400
2001 110.850
2002 109.300
2003 107.750
2004 106.200
2005 104.650
2006 103.100
2007 101.550
2008 100.000
</TABLE>
ARTICLE VII
TRUSTEE
Section 7.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) Except during the continuance of an Event of Default:
(i) The duties of the Trustee shall be determined solely by
the express provisions of this Indenture, and the Trustee need perform
only those duties that are specifically set forth in this Indenture,
and no others, and no implied covenants or obligations shall be read
into this Indenture against the Trustee.
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(ii) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether they conform to the
requirements of this Indenture (but need not confirm the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of paragraph
(d) of this Section 7.1.
(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts.
(iii) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5.
(d) Regardless of whether therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is
subject to paragraphs (a), (b), (c) and (e) of this Section 7.1.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee may
refuse to perform any duty or exercise any right or power unless it
receives security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with DIMAC
Holdings. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
Section 7.2 RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any document believed by it to be
genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The
Trustee shall not be liable for any action it takes or omits to take in
good faith in reliance on such Officers' Certificate or Opinion of Counsel.
The Trustee may consult with counsel of its selection and the advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within
its rights or powers conferred upon it by this Indenture.
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(e) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from DIMAC Holdings shall be
sufficient if signed by an Officer of DIMAC Holdings, on behalf of DIMAC
Holdings.
(f) Except with respect to Section 4.1, the Trustee shall have
no duty to inquire as to the performance of DIMAC Holdings's covenants in
Article IV. In addition, the Trustee shall not be deemed to have knowledge
of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 6.1(a)(i), 6.1(a)(ii) and 4.1, or (ii) any
Default or Event of Default of which the Trustee shall have received
written notification or a Responsible Officer of the Trustee shall have
obtained actual knowledge.
Section 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Notes and may otherwise deal with DIMAC Holdings or an Affiliate of
DIMAC Holdings with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. However, the Trustee is subject to
Sections 7.10 and 7.11.
Section 7.4 TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for DIMAC Holdings's use of the proceeds from the Notes or any money
paid to DIMAC Holdings or upon DIMAC Holdings's direction under any provision
hereof, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
Section 7.5 NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if the
Trustee has actual knowledge thereof (within the meaning of Section 7.2(f)), the
Trustee shall mail to the Holders a notice of the Default or Event of Default
within 90 days after it occurs. Except in the case of a Default or Event of
Default in the payment of principal of, premium, if any, or interest on any
Note, the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interest of the Holders of the Notes.
Section 7.6 REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, the Trustee shall mail to the Holders a brief report
dated as of such reporting date that complies with TIA Section 313(a) (but if
no event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c).
Commencing at the time this Indenture is qualified under the TIA, a copy of
each report at the time of its mailing to the Holders shall be filed with the
Commission and each stock exchange on which the Notes are listed. DIMAC
Holdings shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
Section 7.7 COMPENSATION AND INDEMNITY.
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DIMAC Holdings shall pay to the Trustee from time to time such compensation
as shall be agreed to in writing by DIMAC Holdings and the Trustee for its
acceptance of this Indenture and services hereunder. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. DIMAC Holdings shall reimburse the Trustee promptly upon request for all
reasonable disbursements, advances and expenses incurred or made by it in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel, except such disbursements, advances and expenses as may be attributable
to its negligence or bad faith.
DIMAC Holdings shall indemnify the Trustee and any predecessor against any
and all losses, liabilities, damages, claims or expenses incurred by the Trustee
without negligence or bad faith on its part arising out of or in connection with
the acceptance or administration of its duties under this Indenture (including
the costs and expenses of enforcing this Indenture against DIMAC Holdings and
defending itself against any claim (regardless of whether asserted by DIMAC
Holdings or any Holder or any other person) or liability in connection with the
exercise or performance of any of its powers or duties hereunder), except as set
forth below. The Trustee shall notify DIMAC Holdings promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify DIMAC Holdings
shall not relieve DIMAC Holdings of its obligations hereunder. DIMAC Holdings
shall defend the claim and the Trustee shall cooperate in the defense. In the
event that a conflict of interest or conflicting defenses would arise in
connection with the representation of DIMAC Holdings and the Trustee by the same
counsel, the Trustee may have separate counsel and DIMAC Holdings shall pay the
reasonable fees and expenses of such counsel. DIMAC Holdings need not pay for
any settlement made without its consent, which consent shall not be unreasonably
withheld.
The obligations of DIMAC Holdings under this Section 7.7 shall survive the
satisfaction and discharge of this Indenture.
DIMAC Holdings need not reimburse any expense or indemnify against any loss
or liability incurred by the Trustee through its own negligence or bad faith.
To secure DIMAC Holdings's payment obligations in this Section 7.7, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal of (and
premium, if any) and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(a)(viii), (ix) or (x) occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The provisions of this Section 7.7 shall survive the termination of this
Indenture.
Section 7.8 REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.8 and upon DIMAC Holdings's receipt of
notice from the successor Trustee of such appointment.
The Trustee may resign at any time and be discharged from the trust hereby
created by so notifying DIMAC Holdings. The Holders of a majority in principal
amount of the then outstanding Notes may remove the Trustee by so notifying the
Trustee and DIMAC Holdings. DIMAC Holdings may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
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(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, DIMAC Holdings shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by DIMAC Holdings.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, DIMAC Holdings or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee after written request by any Holder who has been a Holder
for at least six months fails to comply with Section 7.10, such Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to DIMAC Holdings. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to the
Holders. The retiring Trustee shall promptly transfer all property held by it
as Trustee to the successor Trustee, PROVIDED that all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.7. Notwithstanding replacement of the Trustee pursuant to this Section 7.8,
DIMAC Holdings's obligations under Section 7.7 shall continue for the benefit of
the retiring Trustee, and DIMAC Holdings shall pay to any such replaced or
removed Trustee all amounts owed under Section 7.7 upon such replacement or
removal.
Section 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation or
banking association, the successor corporation without any further act shall be
the successor Trustee.
Section 7.10 ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that shall (a) be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof or of the District of Columbia authorized under
such laws to exercise corporate trustee power, (b) be subject to supervision or
examination by Federal or state or the District of Columbia authority, and (c)
have a combined capital and surplus of at least $100,000,000 as set forth in its
most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Sections 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee is subject to
TIA Section 310(b); PROVIDED, HOWEVER, that there shall be excluded from the
operations of TIA Section 310(b)(1) any indenture or indentures under which
other securities, or certificates of interest or participation in other
securities, of DIMAC Holdings are outstanding, if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met.
Section 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST DIMAC HOLDINGS.
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The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
The provisions of TIA Section 311 shall apply to DIMAC Holdings, as obligor on
the Notes.
ARTICLE VIII
DISCHARGE; LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1 DISCHARGE; OPTION TO EFFECT LEGAL OR COVENANT DEFEASANCE.
This Indenture shall cease to be of further effect (except that DIMAC
Holdings's obligations under Section 7.7 and the Trustee's and the Paying
Agent's obligations under Sections 8.6 and 8.7 shall survive) when all
outstanding Notes theretofore authenticated and issued have been delivered
(other than destroyed, lost or stolen Notes that have been replaced or paid) to
the Trustee for cancellation and DIMAC Holdings has paid all sums payable
hereunder. In addition, DIMAC Holdings may elect at any time to have Section
8.2 or Section 8.3, at DIMAC Holdings's option, of this Indenture applied to all
outstanding Notes upon compliance with the conditions set forth below in this
Article VIII.
Section 8.2 LEGAL DEFEASANCE AND DISCHARGE.
Upon DIMAC Holdings's exercise under Section 8.1 of the option applicable
to this Section 8.2, except as set forth below, DIMAC Holdings shall be deemed
to have been discharged from its obligations with respect to all outstanding
Notes on the date the conditions set forth below are satisfied (hereinafter,
"Legal Defeasance"). Following such Legal Defeasance, (a) DIMAC Holdings shall
be deemed to have paid and discharged the entire indebtedness outstanding
hereunder, and this Indenture shall cease to be of further effect as to all
outstanding Notes, and (b) DIMAC Holdings shall be deemed to have satisfied all
other of its obligations under the Notes and this Indenture (and the Trustee, on
demand of and at the expense of DIMAC Holdings, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder:
(a) the rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest (and Liquidated Damages, if
any) on such Notes when such payments are due from the trust described in
Section 8.5;
(b) DIMAC Holdings's obligations under Sections 2.4, 2.6, 2.7,
2.10, 4.2, 8.5, 8.6 and 8.7; and
(c) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and DIMAC Holdings's obligations in connection therewith.
Section 8.3 COVENANT DEFEASANCE.
Upon DIMAC Holdings's exercise under Section 8.1 of the option applicable
to this Section 8.3, DIMAC Holdings shall be released from its obligations under
the covenants contained in Sections 4.3, 4.4, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12,
4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21, 4.22, 4.23, 4.24, 4.25, 4.26 and
Article V on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed
not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder. Following such Covenant Defeasance, (a) DIMAC
Holdings need not comply with, and shall not have any liability in respect of,
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such
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covenant to any other provision herein or in any other document, but, except as
specified above, the remainder of this Indenture and the Notes shall be
unaffected thereby, and (b) Sections 6.1(a)(iii) through 6.1(a)(vii) shall not
constitute Events of Default with respect to the Notes.
Section 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either Section
8.2 or 8.3 to the outstanding Notes:
(a) DIMAC Holdings shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 who shall agree to comply with the provisions
of this Article VIII applicable to it), in trust, for the benefit of the
Holders, cash, U.S. Government Obligations, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest (and Liquidated Damages, if any) on such
outstanding Notes on the stated date for payment thereof or on the
redemption date of such principal or installment of principal of, premium,
if any, or interest on such Notes, and the holders of Notes must have a
valid, perfected, exclusive security interest in such trust;
(b) in the case of Legal Defeasance, DIMAC Holdings shall have
delivered to the Trustee an Opinion of Counsel confirming that (i) DIMAC
Holdings has received from, or there has been published by, the Internal
Revenue Service a ruling or (ii) since the date of this Indenture, there
has been a change in the applicable Federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders will not recognize income, gain or loss for Federal
income tax purposes as a result of such Legal Defeasance and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(c) in the case of Covenant Defeasance, DIMAC Holdings shall
have delivered to the Trustee an Opinion of Counsel confirming that the
Holders will not recognize income, gain or loss for Federal income tax
purposes as a result of such Covenant Defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
(e) such Legal Defeasance or Covenant Defeasance will not result
in a breach or violation of, or constitute a default under any material
agreement or instrument to which DIMAC Holdings or any of its Subsidiaries
is a party or by which DIMAC Holdings or any of its Subsidiaries is bound;
(f) DIMAC Holdings shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by DIMAC
Holdings with the intent of preferring the Holders over the other creditors
of DIMAC Holdings with the intent of defeating, hindering, delaying or
defrauding other creditors of DIMAC Holdings; and
(g) DIMAC Holdings shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that the
conditions precedent provided for in, in the case of the Officers'
Certificate, (a) through (f) and, in the case of the Opinion of Counsel,
clauses (a) (with respect to the validity and perfection of the security
interest), (b), (c) and (e) of this Section 8.4, have been complied with.
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(h) In the event all or any portion of the Notes are to be
redeemed through such irrevocable trust, DIMAC Holdings must make
arrangements satisfactory to the Trustee, at the time of such deposit, for
the giving of notice of such redemption or redemptions by the Trustee in
the name and at the expense of DIMAC Holdings.
Section 8.5 DEPOSITS TO BE HELD IN TRUST; OTHER MISCELLANEOUS
PROVISIONS.
Subject to Section 8.6, all cash and U.S. Government Obligations (including
the proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this Section 8.5, the "Paying Agent") pursuant to
Section 8.4 in respect of the outstanding Notes shall be held in trust and
applied by the Paying Agent, in accordance with the provisions of such Notes and
this Indenture, to the payment, either directly or through any other Paying
Agent as the Trustee may determine, to the Holders of such Notes of all sums due
and to become due thereon in respect of principal, premium, if any, and interest
(and Liquidated Damages, if any).
DIMAC Holdings shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 8.4 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of outstanding Notes.
Section 8.6 REPAYMENT TO DIMAC HOLDINGS.
(a) The Trustee or the Paying Agent shall deliver or pay to
DIMAC Holdings from time to time upon the request of DIMAC Holdings any
cash or U.S. Government Obligations held by it as provided in Section 8.4
which in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 8.4(a)), are in
excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
(b) Any cash and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee or any Paying Agent, or then
held by DIMAC Holdings, in trust for the payment of the principal of,
premium, if any, or interest (and Liquidated Damages, if any) on any Note
and remaining unclaimed for two years after such principal, and premium, if
any, or interest has become due and payable shall be paid to DIMAC Holdings
on its request; and the Holder of such Note shall thereafter look only to
DIMAC Holdings for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money shall thereupon cease;
PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense of DIMAC Holdings
cause to be published once, in the NEW YORK TIMES and THE WALL STREET
JOURNAL (national edition), notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of
such money then remaining will be repaid to DIMAC Holdings.
Section 8.7 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any cash or U.S.
Government Obligations in accordance with Section 8.2 or 8.3, as the case may
be, of this Indenture by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, or if any event occurs at any time in the period ending on the 91st
day after the date of deposit pursuant to Section 8.2 or 8.3 which event would
constitute an Event of Default under Section 6.1(a)(viii), (ix) or (x) had Legal
Defeasance or Covenant Defeasance, as the case may be, not occurred, then DIMAC
Holdings's
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obligations under this Indenture and the Notes shall be revived and reinstated
as though no deposit had occurred pursuant to Section 8.2 or 8.3 until such time
as the Trustee or Paying Agent is permitted to apply such money in accordance
with Section 8.2 or 8.3, as the case may be; PROVIDED, HOWEVER, that, if DIMAC
Holdings makes any payment of principal of, premium, if any, or interest (and
Liquidated Damages, if any) on any Note following the reinstatement of its
obligations, DIMAC Holdings shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the cash or U.S. Government Obligations
held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS
Section 9.1 WITHOUT CONSENT OF HOLDERS.
(a) DIMAC Holdings and the Trustee may amend or supplement this
Indenture and the Notes without the consent of any Holder:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Notes in addition to or
in place of certificated Notes;
(iii) to comply with Article V;
(iv) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights hereunder or thereunder of any
Holder; or
(v) to comply with requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the
TIA.
Upon the request of DIMAC Holdings, accompanied by a resolution of the
Board of Directors of DIMAC Holdings authorizing the execution of any such
supplemental indenture or amendment, and upon receipt by the Trustee of the
documents described in Section 9.6 required or requested by the Trustee, the
Trustee shall join with DIMAC Holdings in the execution of any supplemental
indenture or amendment authorized or permitted by the terms of this Indenture
and shall make any further appropriate agreements and stipulations which may be
therein contained, but the Trustee shall not be obligated to enter into such
supplemental indenture or amendment that affects its own rights, duties or
immunities under this Indenture or otherwise.
Section 9.2 WITH CONSENT OF HOLDERS.
(a) Subject to Sections 6.4 and 6.7, DIMAC Holdings and the
Trustee, as applicable, may amend, or waive any provision of, this
Indenture or the Notes, with the written consent of the Holders of at least
a majority of the principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes).
(b) Upon the request of DIMAC Holdings, accompanied by a
resolution of the Board of Directors of DIMAC Holdings authorizing the
execution of any such supplemental indenture or amendment, and upon filing
with the Trustee of evidence satisfactory to the Trustee of the consent of
the Holders as aforesaid, and upon receipt by the Trustee of the documents
described in Section 9.6, the Trustee shall join with DIMAC Holdings in the
execution of such supplemental indenture or amendment unless such
supplemental indenture or amendment affects the Trustee's own rights,
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duties or immunities under this Indenture or otherwise, in which case the
Trustee may in its discretion, but shall not be obligated to, enter into
such supplemental indenture.
(c) It shall not be necessary for the consent of the Holders
under this Section 9.2 to approve the particular form of any proposed
supplemental indenture or amendment, but it shall be sufficient if such
consent approves the substance thereof.
(d) After a supplemental indenture or amendment under this
Section 9.2 becomes effective, DIMAC Holdings shall mail to the Holders of
each Note affected thereby a notice briefly describing the amendment or
waiver. Any failure of DIMAC Holdings to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture, amendment or waiver.
(e) Notwithstanding any other provision hereof, without the
consent of each Holder affected, an amendment or waiver under this Section
9.2 may not (with respect to any Notes held by a non-consenting Holder):
(i) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(ii) reduce the rate of or change the time for payment of
interest, including default interest, on any Note;
(iii) reduce the principal of, or the premium (including,
without limitation, redemption premium) on, or change the fixed
maturity of any Note or alter the provisions with respect to payment
on redemption of the Notes or the price at which DIMAC Holdings shall
offer to purchase such Notes pursuant to Section 4.10 or 4.14;
(iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on, or redemption payment
with respect to, any Note (other than a Default in the payment of an
amount due as a result of an acceleration if the Holder rescinds such
acceleration pursuant to Section 6.2);
(v) make any Note payable in money other than that stated
in the Notes;
(vi) make any change in Section 6.4 or 6.7 or in this
Section 9.2 with respect to the requirement for the consent of any
affected Holder; or
(vii) make any change adversely affecting the contractual
ranking of the Obligations of DIMAC Holdings under the Notes, this
Indenture and the Registration Rights Agreement.
Section 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.
If, at the time of an amendment to this Indenture or the Notes, this
Indenture shall be qualified under the TIA, every amendment to this Indenture or
the Notes shall be set forth in a supplemental indenture that complies with the
TIA as then in effect.
Section 9.4 REVOCATION AND EFFECT OF CONSENTS.
Until a supplemental indenture, an amendment or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder and
every subsequent Holder of a Note or portion of
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a Note that evidences the same debt as the consenting Holder's Note, even if
notation of the consent is not made on any Note. A supplemental indenture,
amendment or waiver becomes effective in accordance with its terms and
thereafter binds every Holder.
DIMAC Holdings may, but shall not be obligated to, fix a record date for
determining which Holders must consent to such supplemental indenture, amendment
or waiver. If DIMAC Holdings fixes a record date, the record date shall be
fixed at (i) the later of 30 days prior to the first solicitation of such
consent or the date of the most recent list of Holders furnished to the Trustee
prior to such solicitation pursuant to Section 2.5, or (ii) such other date as
DIMAC Holdings shall designate.
Section 9.5 NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about a supplemental
indenture, amendment or waiver on any Note thereafter authenticated. DIMAC
Holdings in exchange for all Notes may issue and the Trustee shall authenticate
new Notes that reflect the amendment or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment or waiver.
Section 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture authorized
pursuant to this Article IX if the amendment does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment or supplemental indenture, the Trustee shall be entitled to receive,
if requested, an indemnity reasonably satisfactory to it and to receive and,
subject to Section 7.1, shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel as conclusive evidence that such amendment
or supplemental indenture is authorized or permitted by this Indenture, that it
is not inconsistent herewith, and that it shall be valid and binding upon DIMAC
Holdings in accordance with its terms. DIMAC Holdings may not sign an amendment
or supplemental indenture until the Board of Directors of DIMAC Holdings
approves it.
ARTICLE X
MISCELLANEOUS
Section 10.1 TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA Section 318(c), the imposed duties shall control.
Section 10.2 NOTICES.
Any notice or communication by DIMAC Holdings or the Trustee to the others
is duly given if in writing and delivered in Person or mailed by first-class
mail (registered or certified, return receipt requested), telecopier or
overnight air courier guaranteeing next day delivery, to the others' addresses:
If to DIMAC Holdings:
DIMAC Holdings, Inc.
5775 Peachtree Dunwoody Road, Suite C-150
Atlanta, Georgia 30342
Attention: Chief Financial Officer
Telecopier No.: (404) 705-9929
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If to the Trustee:
Wilmington Trust Company
1100 North Market Street
Attention: Corporate Trust Administration
Telecopier No.: (302) 651-8882
DIMAC Holdings or the Trustee by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; upon receipt, if deposited in the mail, postage prepaid; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
All notices and communications to the Trustee shall be deemed to have been duly
given only if actually received by the Trustee.
Any notice or communication to a Holder shall be mailed by first-class
mail, to his address shown on the register kept by the Registrar. Failure to
mail a notice or communication to a Holder or any defect in it shall not affect
its sufficiency with respect to other Holders.
If a notice communication is mailed in the manner provided above within the
time prescribed, it is duly given, regardless of whether the addressee receives
it.
If DIMAC Holdings mails a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.
Section 10.3 COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. DIMAC Holdings,
the Trustee, the Registrar and any other person shall have the protection of TIA
Section 312(c).
Section 10.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by DIMAC Holdings to the Trustee to take
any action under this Indenture, DIMAC Holdings shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.5) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 10.5) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been complied with.
Section 10.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall include:
53
<PAGE>
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to regardless of whether such covenant or condition
has been complied with; and
(d) a statement as to regardless of whether, in the opinion of
such Person, such condition or covenant has been complied with,
PROVIDED that with respect to matters of fact, an Opinion of Counsel may rely
upon an Officers' Certificate or a certificate of a public official.
Section 10.6 RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 10.7 LEGAL HOLIDAYS.
If a payment date is a Legal Holiday at a place of payment, payment may be
made at that place on the next succeeding day that is not a Legal Holiday, and
no interest shall accrue for the intervening period.
Section 10.8 NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator, stockholder or controlling
person of DIMAC Holdings, as such, shall have any liability for any obligations
of DIMAC Holdings under the Notes, this Indenture or the Registration Rights
Agreement or for any claim based on, in respect of, or by reason of such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release shall be part of the
consideration for the issuance of the Notes. Notwithstanding the foregoing,
nothing in this provision shall be construed as a waiver or release of any
claims under the Federal securities laws.
Section 10.9 GOVERNING LAW.
THIS INDENTURE SHALL BE CONSTRUED, INTERPRETED AND THE RIGHTS OF THE
PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW. DIMAC HOLDINGS HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS INDENTURE, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
COURTS. DIMAC HOLDINGS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING
54
<PAGE>
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. DIMAC
HOLDINGS IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO
UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO DIMAC HOLDINGS AT ITS ADDRESS
SET FORTH HEREIN, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST DIMAC HOLDINGS IN ANY OTHER JURISDICTION.
Section 10.10 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of DIMAC Holdings or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
Section 10.11 SUCCESSORS.
All agreements of DIMAC Holdings in this Indenture and the Notes shall bind
their respective successors. All agreements of the Trustee in this Indenture
shall bind its successor.
Section 10.12 SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
Section 10.13 COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 10.14 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof and shall in no way modify or
restrict any of the terms or provisions hereof.
(SIGNATURE PAGES FOLLOW.)
55
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Indenture as of the date first written above.
DIMAC HOLDINGS, INC.
By: /s/ Martin R. Lewis
----------------------------------
Name: Martin R. Lewis
Title: Chief Executive Officer
Attest:
James Wu
-----------------------
Name: James Wu
Title: Vice President
TRUSTEE:
WILMINGTON TRUST COMPANY,
as Trustee
By: /s/ Donald G. MacKelcan
------------------------------------
Name: Donald G. MacKelcan
Title: Assistant Vice President
<PAGE>
EXHIBIT A
(Face of Security)
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TRUST
COMPANY (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 BY THE
DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TO DIMAC HOLDINGS OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DEPOSITORY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DEPOSITORY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.(1)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE WHICH IS TWO YEARS (OR SUCH
SHORTER PERIOD THAT MAY HEREAFTER BE PROVIDED UNDER RULE 144(K) AS PERMITTING
RESALES BY NON-AFFILIATES OF RESTRICTED SECURITIES WITHOUT RESTRICTION) AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH DIMAC
HOLDINGS OR ANY AFFILIATE OF DIMAC HOLDINGS WAS THE OWNER OF THIS NOTE (OR ANY
PREDECESSOR OF SUCH NOTE) ONLY (A) TO DIMAC HOLDINGS, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO
OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT THAT IS PURCHASING THE NOTE FOR ITS OWN ACCOUNT, OR FOR
THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO DIMAC HOLDINGS'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN
THE FORM APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRUSTEE.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID") FOR PURPOSES OF
SECTIONS 1271 ET. SEQ. OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE
ISSUE DATE OF THIS NOTE IS OCTOBER 22, 1998. FOR INFORMATION REGARDING THE
ISSUE PRICE, AMOUNT OF OID PER $1,000 OF PRINCIPAL AMOUNT AND YIELD TO MATURITY
FOR PURPOSES OF THE OID RULES, PLEASE CONTACT THE CHIEF FINANCIAL OFFICER OF THE
ISSUER AT 5775 PEACHTREE DUNWOODY ROAD, SUITE C-150, ATLANTA, GA, TELECOPY NO.
(404) 705-9929.
DIMAC HOLDINGS, INC.
151/2% Senior Note due October 22, 2009
No. $ __________________
CUSIP NO.
DIMAC Holdings, Inc., a Delaware corporation ("DIMAC Holdings"), as
obligor, for value received promises to pay to __________________ or registered
assigns, the principal sum of ___________________ Dollars on October 22, 2009.
Interest Payment Dates: March 31, June 30, September 30 and December 31 and
on the maturity date.
Record Dates: March 15, June 15, September 15 and December 15 (regardless
of whether a Business Day).
Reference is hereby made to the further provisions hereof set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
IN WITNESS WHEREOF, DIMAC Holdings has caused this 151/2% Senior Note due
October 22, 2009 to be signed manually or by facsimile by its duly authorized
officers.
DIMAC HOLDINGS, INC.
Dated:
Attest: By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Trustee's Certificate of Authentication:
This is one of the 151/2% Senior Notes due October 22, 2009 referred to in the
within-mentioned Indenture.
WILMINGTON TRUST COMPANY, as Trustee
By:
--------------------------
AUTHORIZED SIGNATORY
______________________________
(1) This paragraph should be included only if the Note is issued in global
form.
<PAGE>
(Back of Security)
DIMAC HOLDINGS, INC.
151/2% Senior Note due October 22, 2009
1. INTEREST. DIMAC Holdings, Inc., a Delaware corporation ("DIMAC
HOLDINGS"), promises to pay interest in cash on the principal amount of this
151/2% Senior Note due October 22, 2009 (this "Note") at 151/2% per annum from
October 22, 1998 until maturity. DIMAC Holdings will pay interest on this Note
quarterly on March 31, June 30, September 30 and December 31 of each year, or if
any such day is not a Business Day, on the next succeeding Business Day (each an
"INTEREST PAYMENT DATE") to the registered Holder of hereof at the close of
business on the March 15, June 15, September 15 or December 15, next preceding
the Interest Payment Date, even if this Note is cancelled after such record date
and on or before such Interest Payment Date; PROVIDED, that the first Interest
Payment Date shall be December 31, 1998. Notwithstanding the foregoing, with
respect to any installment of interest on this Note due on an Interest Payment
Date that occurs on or prior to September 30, 2003, in lieu of paying all of
such installment of interest in cash, DIMAC Holdings may pay all of such
installment (or a portion thereof) by issuing to each such Holder of record an
additional Note in an aggregate principal amount equal to the amount of interest
due to such Holder on the applicable Interest Payment Date and not paid in cash.
Interest on this Note will accrue from the most recent date on which interest
has been paid or, if no interest has been paid, from the date of issuance
hereof. DIMAC Holdings shall pay interest (including post-petition interest in
any proceeding under Bankruptcy Law) on all due and unpaid amounts outstanding
under the Notes (including overdue installments of principal, premium, if any,
or interest), from time to time on demand at a rate equal to 161/2% per annum,
compounded quarterly, to the extent lawful. PIK Notes issued in accordance with
the terms hereof shall not constitute unpaid amounts hereunder. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Holder hereof must surrender this Note to a
Paying Agent to collect principal payments. Except as provided in Section 1
hereof, DIMAC Holdings shall pay principal and interest in money of the United
States that at the time of payment is legal tender for payment of public and
private debts. This Note is payable, as to principal and interest, at the
offices of a Paying Agent. DIMAC Holdings, however, may pay interest by mailing
a check and/or an additional Note on or before the applicable due date to the
Holder at the Holder's registered address.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee shall act as
Paying Agent and Registrar. DIMAC Holdings may change any Paying Agent,
Registrar or co-registrar without notice to any Holder. Subject to certain
exceptions, DIMAC Holdings or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. DIMAC Holdings has issued this Note under an Indenture
dated as of October 22, 1998 (the "INDENTURE") between DIMAC Holdings and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"TIA") (15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of the
Indenture until such time as the Indenture is qualified under the TIA and
thereafter as in effect on the date the Indenture is so qualified. The Notes
are subject to all such terms, and the Holder hereof is referred to the
Indenture and such Act for a statement of such terms. The terms of the
Indenture shall govern any inconsistencies between the Indenture and the Notes.
Terms not otherwise defined herein shall have the meanings assigned in the
Indenture. The Notes are general senior obligations of DIMAC Holdings. The
Notes are limited to $30,000,000 in aggregate principal amount plus the
aggregate principal amount of any additional Notes issued in accordance with
Section 1 hereof in lieu of a portion of any cash interest payments.
5. REDEMPTION.
(a) The Notes are not redeemable at DIMAC Holdings's option prior to
October 22, 2002. DIMAC Holdings may redeem all or any of the Notes, in whole
or in part, at any time on or after October 22, 2002, at a redemption price
equal to the percentages of the principal amount thereof set forth below, plus
accrued and unpaid interest to the redemption date, if redeemed during the
12-month period beginning October 22 of the years indicated below.
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2002 109.300%
2003 107.750%
2004 106.200%
2005 104.650%
2006 103.10%
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2007 101.550%
2008 100.0%
</TABLE>
(b) If, on or before October 22, 2002, there is a Qualified Public Equity
Offering of DIMAC Holdings, DIMAC Holdings may, within thirty (30) days of the
consummation of such Qualified Public Equity Offering, redeem all or any of the
Notes, in whole or in part, at a redemption price equal to 107.75% of the
aggregate principal amount of Notes being redeemed plus accrued and unpaid
interest thereon to the redemption date.
(c) There shall be no mandatory redemption of the Notes.
6. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least
thirty (30) days but not more than sixty (60) days before a Redemption Date by
first class mail to each Holder whose Notes are to be redeemed at such Holder's
registered address; PROVIDED, HOWEVER, that notice of redemption pursuant to
Section 5(b) hereof shall be mailed within ten (10) days after the consummation
of the Qualified Public Equity Offering referenced therein. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. If, on or prior to the Redemption Date, DIMAC Holdings deposits in a
segregated account or otherwise sets aside funds sufficient to pay the
Redemption Price of the Notes called for redemption, then, on and after the
Redemption Date, interest ceases to accrue on Notes or portions thereof called
for redemption, unless DIMAC Holdings defaults in paying the redemption price.
7. OFFERS TO REPURCHASE. Following the occurrence of any Change of
Control, DIMAC Holdings will be required to offer to purchase all outstanding
Notes upon the terms set forth in the Indenture. Following the occurrence of an
Asset Sale, DIMAC Holdings will be required to apply the Excess Net Cash
Proceeds therefrom to an offer to purchase outstanding Notes upon the terms set
forth in the Indenture.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and
DIMAC Holdings may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Registrar and DIMAC Holdings need not exchange
or register the transfer (i) of any Note or portion of a Note selected for
redemption or (ii) of any Notes for a period of 15 days before a selection of
Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
9. PERSONS DEEMED OWNERS. Unless otherwise required by applicable law,
the registered Holder of a Note shall be treated as its owner for all purposes,
subject to the provisions of the Indenture with respect to the record dates for
the payment of interest.
10. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture
or the Notes may be amended with the written consent of the Holders of at least
a majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes), and any
existing Default or Event of Default (except certain payment defaults) may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes). Without the consent of any Holders, the
Indenture and the Notes may be amended or supplemented to cure any ambiguity,
defect or inconsistency, to provide for assumption of DIMAC Holdings's
obligations to the Holders in the case of a merger or consolidation, to provide
for uncertificated Notes in addition to or in place of certificated Notes, to
make any change that would provide any additional rights or benefits to the
Holders of the Notes, or that does not adversely affect the legal rights under
the Indenture of any Holder or to comply with requirements of the Commission in
order to effect or maintain the qualification of the Indenture under the TIA.
11. DEFAULTS AND REMEDIES. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare by written notice to DIMAC Holdings and
the Trustee all the Notes to be due and payable immediately, except that in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes become due and payable immediately without
further action or notice. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
DIMAC Holdings must furnish an annual compliance certificate to the Trustee.
A-4
<PAGE>
12. TRUSTEE DEALINGS WITH DIMAC HOLDINGS. The Trustee under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for DIMAC Holdings or its Affiliates, and
may otherwise deal with DIMAC Holdings or its Affiliates, as if it were not the
Trustee.
13. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator, stockholder or controlling person of DIMAC Holdings, as such,
shall have any liability for any obligations of DIMAC Holdings under the Notes,
the Indenture or the Registration Rights Agreement or for any claim based on, in
respect of, or by reason of such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes. Notwithstanding
the foregoing, nothing in this provision shall be construed as a waiver or
release of any claims under the Federal securities laws.
14. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
15. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
16. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, DIMAC Holdings has
caused CUSIP numbers to be printed on the Notes and has directed the Trustee to
use CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
17. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW EXCEPT SECTION 5-1401
OF THE NEW YORK GENERAL OBLIGATION LAW. TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, DIMAC HOLDINGS HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE NOTES, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. DIMAC HOLDINGS
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND
ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEEDING AGAINST DIMAC HOLDINGS IN ANY
OTHER JURISDICTION.
[18. HOLDERS' COMPLIANCE WITH REGISTRATION RIGHTS AGREEMENT. Each Holder
of a Note, by his acceptance thereof, acknowledges and agrees to the provisions
of the Registration Rights Agreement, dated as of October 22, 1998, among DIMAC
Holdings and the parties named on the signature page thereof (the "REGISTRATION
RIGHTS AGREEMENT"), including but not limited to the obligations of the Holders
with respect to a registration and the indemnification of DIMAC Holdings and the
Purchasers (as defined therein) to the extent provided therein.](2)
DIMAC Holdings shall furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to: DIMAC Holdings, Inc., 5775 Peachtree Dunwoody Road,
Suite C-150, Atlanta, Georgia 30342 Attention: Chief Financial Officer.
_________________________
(2) This paragraph should only be included in the Series A Notes.
A-5
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to:
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ______________________________ as agent to transfer this
Note on the books of DIMAC Holdings. The agent may substitute another to act
for him.
- --------------------------------------------------------------------------------
Date:
-------------------
Your Signature:
---------------------------------------
(Sign exactly as your name appears on
the face of this Note)
Tax Identification Number:
----------------------------
Signature Guaranty*
_______________
* NOTICE: The signature must be guaranteed by an institution which is
a member of one of the following recognized signature
guarantee programs:
(1) The Securities Transfer Agent Medallian Program
(STAMP);
(2) The New York Stock Exchange Medallian Program (MSP);
(3) The Stock Exchange Medallian Program (SEMP).
A-6
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by
DIMAC Holdings pursuant to Section 4.10 or Section 4.14 of the Indenture, as the
case may be, state the amount you elect to have purchased (if all, write "ALL"):
$___________________
Date:
--------------
Your Signature:
---------------------------------------
(Sign exactly as your name appears on
the face of this Note)
Signature Guaranty*
_______________
* NOTICE: The signature must be guaranteed by an institution which is
a member of one of the following recognized signature
guarantee programs:
(1) The Securities Transfer Agent Medallian Program
(STAMP);
(2) The New York Stock Exchange Medallian Program (MSP);
(3) The Stock Exchange Medallian Program (SEMP).
A-7
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTES (3)
The following exchanges of a part of this Global Note for Definitive
Notes have been made:
<TABLE>
<CAPTION>
Principal Amount of this Global
Amount of decrease in Principal Amount of increase in Principal Note following such decrease
Date of Exchange Amount of this Global Note Amount of this Global Note (or increase)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<CAPTION>
Signature of authorized
officer of Trustee
- -----------------------
<C>
</TABLE>
_______________
(3) This should only be included if the Note is issued in global form.
A-8
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF NOTES
Re: [Series A] [Series B] 151/2% Senior Notes due October 22, 2009 (the
"NOTES") of DIMAC Holdings, Inc.
This Certificate relates to $_________________________ principal amount of
Notes held in */ / book-entry or */ / definitive form by _______________________
(the "TRANSFEROR").
The Transferor, by written order, has requested the Trustee:
/ / to deliver in exchange for its beneficial interest in the Global Note held
by the depository, a Note or Notes in definitive, registered form of
authorized denominations and an aggregate principal amount equal to its
beneficial interest in such Global Note (or the portion thereof indicated
above); or
/ / to exchange or register the transfer of a Note or Notes. In connection
with such request and in respect of each such Note, the Transferor does
hereby certify that Transferor is familiar with the Indenture relating to
the above captioned Notes and, the transfer of this Note does not require
registration under the Securities Act of 1933, as amended (the "SECURITIES
ACT") because such Note:
/ / is being acquired for the Transferor's own account, without transfer;
/ / is being transferred pursuant to an effective registration statement;
/ / is being transferred to a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act), in reliance on such Rule 144A;
/ / is being transferred pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act;**
/ / is being transferred pursuant to Rule 144 under the Securities Act;**
or
/ / is being transferred pursuant to another exemption from the
registration requirements of the Securities Act (explain: ____________
_________________________________________________________________).**
[INSERT NAME OF TRANSFEROR]
By:
-------------------------------
Date:
------------------------
* Check applicable box.
** If this box is checked, this certificate must be accompanied by an
opinion of counsel to the effect that such transfer is in compliance
with the Securities Act.
B-2
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Exhibit 4.3
DIMAC HOLDINGS, INC.
$30,000,000 15 1/2% Senior Notes due October 22, 2009
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made
and entered into as of October 22, 1998, by and among DIMAC Holdings, Inc., a
Delaware corporation (the "Issuer"), and each of the purchasers listed on the
signature pages hereto (each a "Purchaser," and collectively, the "Purchasers").
This Agreement is made pursuant to the Securities Purchase
Agreement (as defined below), pursuant to which the Issuer is issuing and
selling to the Purchasers $30,000,000 aggregate principal amount of its 15 1/2%
Senior Notes due October 22, 2009, Series A (the "Notes"). As an inducement to
the Purchasers to enter into the Securities Purchase Agreement, the Issuer
agrees with the Purchasers, for the benefit of the holders of the Securities (as
defined below) (including, without limitation, the Purchasers), as follows:
Section 1. Definitions. Capitalized terms used but not defined herein
have the respective meanings given to such terms in the Securities Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
"Advice" has the meaning given to such term in Section 5 hereof.
"Agreement" means this Registration Rights Agreement.
"Applicable Period" has the meaning given to such term in Section 2(f)
hereof.
"Business Day" means any day other than (i) Saturday or Sunday, or (ii)
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to be closed.
"Demand Date" means the date on which the any Holder provides a written
notice to the Issuer demanding the filing of an Exchange Offer Registration
Statement or a Shelf Registration.
"DIMAC Operating" means DIMAC Corporation, a Delaware corporation.
"Effectiveness Date" means the 180th day following the Demand Date.
"Effectiveness Period" has the meaning given to such term in Section
3(a) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Exchange Offer" has the meaning given to such term in Section 2(a)
hereof.
"Exchange Offer Registration Statement" has the meaning given to such
term in Section 2(a) hereof.
"Exchange Securities" means 15 1/2% Senior Notes due October 22, 2009,
Series B, of the Issuer, identical in all respects to the Notes, except for
references to series, registration rights and restrictive legends.
"Filing Date" means the 90th day following the Demand Date.
<PAGE>
"Holder" means each holder of Registrable Securities.
"Indemnified Party" has the meaning given to such term in Section 7(c)
hereof.
"Indemnifying Party" has the meaning given to such term in Section 7(c)
hereof.
"Indenture" means the Indenture, dated the date hereof, between the
Issuer and Wilmington Trust Company, a Delaware banking corporation, as trustee,
pursuant to which the Notes are being issued, as amended or supplemented from
time to time, in accordance with the terms thereof.
"Initial Shelf Registration" has the meaning given to such term in
Section 3(a) hereof.
"Issuer" has the meaning given to such term in the introductory
paragraph hereof.
"Losses" means all losses, claims, damages, liabilities, costs
(including, without limitation, costs of preparation and reasonable attorneys'
fees) and expenses (including, without limitation, costs and expenses incurred
in connection with investigating, preparing, pursuing or defending against any
of the foregoing).
"NASD" means the National Association of Securities Dealers, Inc.
"Notes" has the meaning given to such term in the introductory
paragraph hereof.
"Participating Broker-Dealer" has the meaning given to such term in
Section 2(f) hereof.
"Person" means an individual, trustee, corporation, partnership, joint
stock company, joint venture, trust, unincorporated organization or government
or any agency or political subdivision thereof, union, business association,
firm or other entity.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Securities covered by
such Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Purchasers" has the meaning given to such term in the introductory
paragraph hereof.
"Registrable Securities" means (i) Notes and (ii) Exchange Securities
received in the Exchange Offer that may not be sold without restriction under
federal or state securities law.
"Registration Default" has the meaning given to such term in Section
4(a) hereof.
"Registration Default Date" has the meaning given to such term in
Section 4(a) hereof.
"Registration Statement" means any registration statement of the Issuer
that covers any of the Securities pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.
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<PAGE>
"Rule 144" means Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC.
"Rule 144A" means Rule 144A under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
"Rule 415" means Rule 415 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Notes and the Exchange Securities, collectively.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated as of October 22, 1998 by and among the Issuer, DIMAC Operating and the
Purchasers, as amended or supplemented from time to time.
"Shelf Notice" has the meaning given to such term in Section 2(h)
hereof.
"Shelf Registration" means the Initial Shelf Registration and any
Subsequent Shelf Registration.
"Special Counsel" means counsel chosen by the holders of a majority in
aggregate principal amount of Securities.
"Subsequent Shelf Registration" has the meaning given to such term in
Section 3(b) hereof.
"TIA" means the Trust Indenture Act of 1939, as amended.
"Trustee" means the trustee under the Indenture and, if any, the
trustee under any indenture governing the Exchange Securities.
"Underwritten Registration" or "Underwritten Offering" means a
registration in which securities of the Issuer are sold to an underwriter for
reoffering to the public.
"Weekly Liquidated Damages Amount"means, with respect to any
Registration Default, an amount per week per $1,000 principal amount of
Registrable Securities equal to (i) $0.05 for the first 90-day period
immediately following the applicable Registration Default Date, (ii) $0.10 for
the second 90-day period immediately following the applicable Registration
Default Date, (iii) $0.15 for the third 90-day period immediately following the
applicable Registration Default Date, and (iv) $0.20 thereafter.
Section 2. Exchange Offer.
(a) The Issuer shall (i) prepare and file with the SEC
promptly after the Demand Date, but in no event later than the Filing
Date, a registration statement (the "Exchange Offer Registration
Statement") on an appropriate form under the Securities Act with
respect to a proposed offer (the "Exchange Offer") to the Holders to
issue and deliver to such Holders, in exchange for the Notes, a like
aggregate principal amount of Exchange Securities, (ii) use its
reasonable best efforts to cause the Exchange Offer Registration
Statement to become effective as
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<PAGE>
promptly as practicable after the filing thereof, but in
no event later than the Effectiveness Date, (iii) keep the Exchange
Offer Registration Statement effective until the consummation of the
Exchange Offer pursuant to its terms, and (iv) unless the Exchange
Offer would not be permitted by a policy of the SEC, commence the
Exchange Offer and use its reasonable best efforts to issue, on or
prior to 30 days after the date on which the Exchange Offer
Registration Statement is declared effective, Exchange Securities in
exchange for all Notes tendered prior thereto in the Exchange Offer.
The Exchange Offer shall not be subject to any conditions, other than
that the Exchange Offer does not violate any applicable law or any
applicable interpretation of the staff of the SEC.
(b) The Exchange Securities shall be issued under, and
entitled to the benefits of, the Indenture or a trust indenture that is
identical to the Indenture (other than such changes as are necessary to
comply with any requirements of the SEC to effect or maintain the
qualification thereof under the TIA).
(c) In connection with the Exchange Offer, the Issuer shall:
(i) mail to each Holder a copy of the Prospectus
forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal that is an
exhibit to the Exchange Offer Registration Statement and any
related documents;
(ii) keep the Exchange Offer open for not less than
30 days after the date notice thereof is mailed to the Holders
(or longer if required by Applicable Law);
(iii) utilize the services of a depository for the
Exchange Offer with an address in the Borough of Manhattan,
The City of New York;
(iv) permit Holders to withdraw tendered Notes at any
time prior to the close of business, New York time, on the
last Business Day on which the Exchange Offer shall remain
open; and
(v) otherwise comply with all laws applicable to the
Exchange Offer.
(d) As soon as practicable after the close of the Exchange
Offer, the Issuer shall:
(i) accept for exchange all Notes validly
tendered and not validly withdrawn
pursuant to the Exchange Offer;
(ii) deliver to the Trustee for cancellation all
Notes so accepted for exchange;
and
(iii) cause the Trustee promptly to authenticate and
deliver to each Holder of Notes, Exchange Securities equal in
aggregate principal amount to the Notes of such Holder so
accepted for exchange.
(e) Interest on each Exchange Security will accrue from the
last interest payment date on which interest was paid on the Notes
surrendered in exchange therefor or, if no interest has been paid on
the Notes, from the date of original issue of the Notes. Each Exchange
Security shall bear interest at the rate set forth thereon; provided,
that interest with respect to the period prior to the issuance thereof
shall accrue at the rate or rates borne by the Notes from time to time
during such period.
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<PAGE>
(f) The Issuer shall include within the Prospectus contained
in the Exchange Offer Registration Statement a section entitled "Plan
of Distribution," containing a summary statement of the positions taken
or policies made by the staff of the SEC with respect to the potential
"underwriter" status of any broker-dealer that is the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act) of Exchange
Securities received by such broker-dealer in the Exchange Offer (a
"Participating Broker-Dealer"). Such "Plan of Distribution" section
shall also allow the use of the Prospectus by all Persons subject to
the prospectus delivery requirements of the Securities Act, including
(without limitation) all Participating Brokers-Dealers, and include a
statement describing the means by which Participating Broker-Dealers
may resell the Exchange Securities. The Issuer shall use its reasonable
best efforts to keep the Exchange Offer Registration Statement
effective and to amend and supplement the Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirement
of the Securities Act for such period of time as such Persons must
comply with such requirements in order to resell the Exchange
Securities (the "Applicable Period")).
(g) The Issuer may require each Holder participating in the
Exchange Offer to represent to the Issuer that at the time of the
consummation of the Exchange Offer (i) any Exchange Securities received
by such Holder in the Exchange Offer will be acquired in the ordinary
course of its business, (ii) such Holder will have no arrangement or
understanding with any Person to participate in the distribution of the
Exchange Securities within the meaning of the Securities Act or resale
of the Exchange Securities in violation of the Securities Act, (iii) if
such Holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in, the distribution of the Exchange Securities,
(iv) if such Holder is a broker-dealer that will receive Exchange
Securities for its own account in exchange for Notes that were acquired
as a result of market-making or other trading activities, that it will
deliver a prospectus, as required by law, in connection with any resale
of such Exchange Securities and (v) if such Holder is an affiliate of
the Issuer, that it will comply with the registration and prospectus
delivery requirements of the Securities Act applicable to it.
(h) If (i) prior to the consummation of the Exchange Offer,
either the Issuer or the Holders of a majority in aggregate principal
amount of Registrable Securities determines in its or their reasonable
judgment that (A) the Exchange Securities would not, upon receipt, be
tradeable by the Holders thereof without restriction under the
Securities Act and the Exchange Act and without material restrictions
under applicable Blue Sky or state securities laws, or (B) the
interests of the Holders under this Agreement, taken as a whole, would
be materially adversely affected by the consummation of the Exchange
Offer, (ii) applicable interpretations of the staff of the SEC would
not permit the consummation of the Exchange Offer prior to the
Effectiveness Date, (iii) the Exchange Offer is not consummated within
210 days of the Demand Date for any reason or (iv) in the case of any
Holder not permitted to participate in the Exchange Offer or of any
Holder participating in the Exchange Offer that receives Exchange
Securities that may not be sold without restriction under state and
federal securities laws and, in either case contemplated by this clause
(iv), such Holder notifies the Issuer within six months of consummation
of the Exchange Offer, then the Issuer shall promptly deliver to the
Holders (or in the case of any occurrence of the event described in
clause (iv) of this Section 2(h), to any such Holder) and the Trustee
notice thereof (the "Shelf Notice") and shall as promptly as possible
thereafter file an Initial Shelf Registration pursuant to Section 3
hereof.
Section 3. Shelf Registration. If a Shelf Notice is required to be
delivered pursuant to Section 2(h)(i), (ii) or (iii) hereof, then this Section 3
shall apply to all Registrable Securities. Otherwise, upon consummation of the
Exchange Offer in accordance with Section 2 hereof, the provisions of this
Section 3 shall apply solely with respect to (i) Notes held by any Holder
thereof not permitted to participate in the Exchange Offer and (ii) Exchange
Securities that are not freely tradeable as contemplated by Section
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<PAGE>
2(h)(iv) hereof; provided, in each case, that such Holder has notified the
Issuer within six months of the Exchange Offer as required by Section 2(h)(iv)
hereof.
(a) Initial Shelf Registration. The Issuer shall use its
reasonable best efforts to prepare and file with the SEC a Registration
Statement for an offering to be made on a continuous basis pursuant to
Rule 415 covering all of the Registrable Securities (the "Initial Shelf
Registration"). If the Issuer has not yet filed an Exchange Offer
Registration Statement, the Issuer shall file with the SEC the Initial
Shelf Registration on or prior to the Filing Date. Otherwise, the
Issuer shall use its reasonable best efforts to file the Initial Shelf
Registration within 20 days of the delivery of the Shelf Notice. The
Initial Shelf Registration shall be on Form S-1 or another appropriate
form permitting registration of such Registrable Securities for resale
by such Holders in the manner or manners designated by them (including,
without limitation, one or more underwritten offerings). The Issuer
shall (i) not permit any securities other than the Registrable
Securities to be included in any Shelf Registration, and (ii) use its
reasonable best efforts to cause the Initial Shelf Registration to be
declared effective under the Securities Act as promptly as practicable
after the filing thereof and to keep the Initial Shelf Registration
continuously effective under the Securities Act until the date that is
24 months from the Effectiveness Date (subject to extension pursuant to
the last paragraph of Section 5 hereof) (the "Effectiveness Period"),
or such shorter period ending when (i) all Registrable Securities
covered by the Initial Shelf Registration have been sold or (ii) a
Subsequent Shelf Registration covering all of the Registrable
Securities has been declared effective under the Securities Act.
(b) Subsequent Shelf Registrations. If any Shelf Registration
ceases to be effective for any reason at any time during the
Effectiveness Period (other than because of the sale of all of the
Registrable Securities registered thereunder), the Issuer shall use its
reasonable best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof, and in any event shall within 30
days of such cessation of effectiveness amend the Shelf Registration in
a manner reasonably expected to obtain the withdrawal of the order
suspending the effectiveness thereof, or file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the
Registrable Securities (a "Subsequent Shelf Registration"). If a
Subsequent Shelf Registration is filed, the Issuer shall use its
reasonable best efforts to cause the Subsequent Shelf Registration to
be declared effective as soon as practicable after such filing and to
keep such Subsequent Shelf Registration continuously effective for a
period equal to the number of days in the Effectiveness Period less the
aggregate number of days during which the Initial Shelf Registration,
and any Subsequent Shelf Registration, was previously effective.
Section 4. Liquidated Damages.
(a) The Issuer acknowledges and agrees that the Holders will
suffer damages, and that it would not be feasible to ascertain the
extent of such damages with precision, if the Issuer fails to fulfill
its obligations hereunder. Accordingly, in the event of such failure,
the Issuer agrees to pay liquidated damages to each Holder under the
circumstances and to the extent set forth below:
(i) if neither the Exchange Offer Registration
Statement nor the Initial Shelf Registration has been filed
with the SEC on or prior to the Filing Date; or
(ii) if neither the Exchange Offer Registration
Statement nor the Initial Shelf Registration is declared
effective by the SEC on or prior to the Effectiveness Date; or
(iii) if the Issuer has not exchanged Exchange
Securities for all Notes validly tendered and not validly
withdrawn in accordance with the terms of the Exchange Offer
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<PAGE>
within 30 days after the date on which an Exchange Offer
Registration Statement is declared effective by the SEC; or
(iv) if a Shelf Registration is filed and declared
effective by the SEC but thereafter ceases to be effective
during the Effectiveness Period without subsequently being
succeeded by a Subsequent Shelf Registration filed and
declared effective within 30 days;
(each of the foregoing a "Registration Default," and the date on which
the Registration Default occurs being referred to herein as a
"Registration Default Date").
Upon the occurrence of any Registration Default, the Issuer
shall pay, or cause to be paid, in addition to amounts otherwise due
under the Indenture and the Registrable Securities, as liquidated
damages, and not as a penalty, to each Holder for each weekly period
beginning on the Registration Default Date an amount equal to the
Weekly Liquidated Damages Amount per $1,000 principal amount of
Registrable Securities held by such Holder; provided, that such
liquidated damages will, in each case, cease to accrue (subject to the
occurrence of another Registration Default) on the date on which all
Registration Defaults have been cured. A Registration Default under
clause (i) above shall be cured on the date that either the Exchange
Offer Registration Statement or the Initial Shelf Registration is filed
with the SEC; a Registration Default under clause (ii) above shall be
cured on the date that either the Exchange Offer Registration Statement
or the Initial Shelf Registration is declared effective by the SEC; a
Registration Default under clause (iii) above shall be cured on the
earlier of the date (A) the Exchange Offer is consummated with respect
to all Notes validly tendered and not validly withdrawn or (B) the
Issuer delivers a Shelf Notice to the Holders; and a Registration
Default under clause (iv) above shall be cured on the date on which the
Subsequent Shelf Registration is declared effective.
(b) The Issuer shall notify the Trustee within five Business
Days after each Registration Default Date. The Issuer shall pay the
liquidated damages due on the Registrable Securities by either (i)
depositing with the Trustee, in trust, for the benefit of the Holders
thereof, by 12:00 noon, New York City time, on or before the applicable
semi-annual interest payment date for the Registrable Securities,
immediately available funds in sums sufficient to pay the liquidated
damages then due or (ii) issuing PIK Notes in the amount of the
liquidated damages due on the Registrable Securities. The liquidated
damages amount due shall be payable on each interest payment date to
the Holder entitled to receive the interest payment to be made on such
date as set forth in the Indenture.
Section 5. Registration Procedures. In connection with the registration
of any Securities pursuant to Section 2 or Section 3 hereof, the Issuer shall
effect such registrations to permit the sale of such Securities in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Issuer shall:
(a) Prepare and file with the SEC, as soon as practicable
after the Demand Date but in any event on or prior to the Filing Date,
a Registration Statement or Registration Statements as prescribed by
Section 2 or Section 3 hereof, and use its best efforts to cause each
such Registration Statement to become effective and remain effective
as provided herein; provided, that, if (i) such filing is pursuant to
Section 3 hereof or (ii) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, before filing any Registration Statement or
Prospectus or any amendments or supplements thereto, the Issuer shall,
if requested, furnish to and afford the Holders of the Registrable
Securities covered by such Registration Statement, their Special
Counsel, each Participating Broker-Dealer, the managing underwriters,
if any, and their counsel, a reasonable
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<PAGE>
opportunity to review and make available for inspection by such Persons
copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto) proposed to
be filed, such financial and other information and books and records of
the Issuer and its Subsidiaries, and use its reasonable best efforts to
cause the officers, directors and employees of the Issuer and its
Subsidiaries and counsel and independent certified public accountants
of the the Issuer and its Subsidiaries, to respond to such inquiries,
as shall be reasonably necessary, in the opinion of respective counsel
to such Holders, Participating Broker- Dealer and underwriters, to
conduct a reasonable investigation within the meaning of the Securities
Act. The Issuer may require each Holder to agree to keep confidential
any non-public information relating to the Issuer received by such
Holder and not disclose such information (other than to an Affiliate or
prospective purchaser who agrees to respect the confidentiality
provisions of this Section 5(a)) until such information has been made
generally available to the public unless the release of such
information is required by law or necessary to respond to inquiries of
regulatory authorities (including the National Association of Insurance
Commissioners, or similar organizations or their successors). The
Issuer shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto in respect of which the Holders must
be afforded an opportunity to review prior to the filing of such
document, if the Holders of a majority in aggregate principal amount of
the Registrable Securities covered by such Registration Statement,
their Special Counsel, any Participating Broker-Dealer or the managing
underwriters, if any, or their counsel shall reasonably object.
(b) Provide an indenture trustee for the Registrable
Securities or the Exchange Securities, as the case may be, and use its
reasonable best efforts to cause the Indenture (or other indenture
relating to the Registrable Securities) to be qualified under the TIA
not later than the effective date of the first Registration Statement;
and in connection therewith, to effect such changes to such indenture
as may be required for such indenture to be so qualified in accordance
with the terms of the TIA; and execute, and use its reasonable best
efforts to cause such trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable such indenture to be so
qualified in a timely manner.
(c) Prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep such Registration Statement continuously effective
for the time periods required hereby; cause the related Prospectus to
be supplemented by any Prospectus supplement required by Applicable
Law, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) under the Securities Act; and comply
in all material respects with the provisions of the Securities Act and
the Exchange Act applicable thereto with respect to the disposition of
all securities covered by such Registration Statement, as so amended,
or in such Prospectus, as so supplemented, in accordance with the
intended methods of distribution set forth in such Registration
Statement or Prospectus as so amended.
(d) Furnish to such selling Holders and Participating
Broker-Dealers who so request (i) upon the Issuer's receipt, a copy of
the order of the SEC declaring such Registration Statement
and any post-effective amendment thereto effective, (ii) such
reasonable number of copies of such Registration Statement and of each
amendment and supplement thereto (in each case including any documents
incorporated therein by reference and all exhibits), (iii) such
reasonable number of copies of the Prospectus included in such
Registration Statement (including each preliminary Prospectus), and
such reasonable number of copies of the final Prospectus as filed by
the Issuer pursuant to Rule 424(b) under the Securities Act, in
conformity with the requirements of the Securities Act, and (iv) such
other documents (including any amendments required to be filed pursuant
to clause (c) of this Section 5), as any such Person may reasonably
request. The Issuer hereby consents to the use of the Prospectus by
each of the selling Holders of Registrable Securities
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<PAGE>
or each such Participating Broker-Dealer, as the case may be, and the
underwriters or agents, if any, and dealers (if any), in connection
with the offering and sale of the Registrable Securities covered by,
or the sale by Participating Broker-Dealers of the Exchange Securities
pursuant to, such Prospectus and any amendment thereto.
(e) If (A) a Shelf Registration is filed pursuant to Section 3
hereof or (B) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
notify the selling Holders of Registrable Securities, their Special
Counsel, each Participating Broker-Dealer and the managing
underwriters, if any, promptly (but in any event within two Business
Days), and confirm such notice in writing, (i) when a Prospectus has
been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective under the
Securities Act, (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of any Prospectus or the
initiation of any proceedings for that purpose, (iii) if, at any time
when a Prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Securities, the
representations and warranties of the Issuer contained in any agreement
(including any underwriting agreement) contemplated by Section 5(n)
below cease to be true and correct in any material respect, (iv) of the
receipt by the Issuer of any notification with respect to the
suspension of the qualification or exemption from qualification of a
Registration Statement or any of the Registrable Securities or the
Exchange Securities to be sold by any Participating Broker-Dealer for
offer or sale in any jurisdiction, or the contemplation, initiation or
threatening of any proceeding for such purpose, (v) of the happening of
any event that makes any statement made in such Registration Statement
or related Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or
that requires the making of any changes in such Registration Statement,
Prospectus or documents so that it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (vi) of the Issuer's reasonable determination that a
post-effective amendment to a Registration Statement would be
appropriate.
(f) Use its reasonable best efforts to register or qualify,
and, if applicable, to cooperate with the selling Holders of
Registrable Securities, the underwriters, if any, and their respective
counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of, Securities to be
included in a Registration Statement for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United
States as any selling Holder, Participating Broker-Dealer or the
managing underwriters reasonably request in writing; and, if Securities
are offered other than through an Underwritten Offering, the Issuer
shall cause its counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this
Section 5(f) at the expense of the Issuer; keep each such registration
or qualification (or exemption therefrom) effective during the period
such Registration Statement is required to be kept effective and do any
and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Securities covered by the
applicable Registration Statement, provided, however, that the Issuer
shall not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified, (ii) to take action
that would subject it to general service of process in any
jurisdiction where it is not so subject or (iii) subject it to
taxation in respect of doing business in any such jurisdiction where
it is not then subject.
(g) Use its reasonable best efforts to prevent the issuance of
any order suspending the effectiveness of a Registration Statement or
of any order preventing or suspending the use of a
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Prospectus or suspending the qualification (or exemption from
qualification) of any of the Securities for sale in any jurisdiction,
and, if any such order is issued, to use its reasonable best efforts
to obtain the withdrawal of any such order at the earliest possible
time.
(h) If (A) a Shelf Registration is filed pursuant to Section 3
hereof or (B) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period, and
if requested by the managing underwriters, if any, or the Holders of a
majority in aggregate principal amount of the Registrable Securities,
(i) promptly incorporate in a Prospectus or post-effective amendment
such information as the managing underwriters, if any, or such Holders
reasonably request to be included therein required to comply with any
Applicable Law and (ii) make all required filings of such Prospectus or
such post-effective amendment as soon as practicable after the Issuer
has received notification of such matters required by Applicable Law to
be incorporated in such Prospectus or post-effective amendment.
(i) If (A) a Shelf Registration is filed pursuant to Section 3
hereof or (B) a Prospectus contained in an Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be
delivered under the Securities Act by any Participating Broker-Dealer
who seeks to sell Exchange Securities during the Applicable Period,
cooperate with the selling Holders and the managing underwriters, if
any, to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates
shall not bear any restrictive legends and shall be in a form eligible
for deposit with The Depository Trust Company ("DTC"); and enable such
Registrable Securities to be in such denominations and registered in
such names as the managing underwriters, if any, or Holders may
request.
(j) If (i) a Shelf Registration is filed pursuant to
Section 3 hereof or (ii) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is
required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Securities
during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 6(e)(v) or 6(e)(vi) above, as promptly as
practicable prepare a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or
any document incorporated or deemed to be incorporated therein by
reference, or file any other required document so that, as
thereafter delivered to the purchasers of the Registrable Securities
being sold thereunder or to the purchasers of the Exchange
Securities to whom such Prospectus will be delivered by a
Participating Broker-Dealer, such Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its reasonable best efforts to cause the Securities
covered by a Registration Statement to be rated with the appropriate
rating agencies, if appropriate, if so requested by the Holders of a
majority in aggregate principal amount of Securities covered by such
Registration Statement or the managing underwriters, if any.
(l) Prior to the effective date of the first Registration
Statement relating to the Securities, (i) provide the applicable
trustee with printed certificates for the Securities in a form eligible
for deposit with DTC and (ii) provide a CUSIP number for each of the
Securities.
(m) Use its reasonable best efforts to cause all Securities
covered by such Registration Statement to be listed on each securities
exchange, if any, on which similar debt securities issued by the Issuer
are then listed.
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(n) If a Shelf Registration is filed pursuant to Section 3
hereof, enter into such agreements (including an underwriting agreement
in form, scope and substance as is customary in underwritten offerings
of debt securities similar to the Notes) and take all such other
actions in connection therewith (including those reasonably requested
by the managing underwriters, if any, or the Holders of a majority in
aggregate principal amount of the Registrable Securities being sold) in
order to expedite or facilitate the registration or the disposition of
such Registrable Securities, and in such connection, regardless of
whether an underwriting agreement is entered into and regardless of
whether the registration is an Underwritten Registration, (i) make such
representations and warranties to the Holders and the underwriters, if
any, with respect to the business of the Issuer and its subsidiaries,
and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each
case, in form, substance and scope as are customarily made by issuers
to underwriters in underwritten offerings of debt securities similar to
the Notes, and confirm the same if and when reasonably requested; (ii)
obtain opinions of counsel to the Issuer and updates thereof (which
counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the Holders of a
majority in aggregate principal amount of the Registrable Securities
being sold), addressed to each selling Holder and each of the
underwriters, if any, covering the matters customarily covered in
opinions requested in underwritten offerings of debt securities similar
to the Notes; (iii) obtain "cold comfort" letters and updates thereof
(which letters and updates (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters) from the
independent certified public accountants of the Issuer (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Issuer or of any business acquired by the Issuer for
which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each of the
underwriters and each selling Holder, such letters to be in customary
form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings of debt
securities similar to the Notes, and such other matters as reasonably
requested by underwriters; and (iv) deliver such documents and
certificates as may be reasonably requested by the Holders of a
majority in principal amount of the Registrable Securities being sold
and the managing underwriters, if any, to evidence the continued
validity of the representations and warranties of the Issuer and its
subsidiaries made pursuant to clause (i) above and to evidence
compliance with any conditions contained in the underwriting agreement
or other similar agreement entered into by the Issuer.
(o) Comply with all applicable rules and regulations of the
SEC and make generally available to its security holders earnings
statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 45 days after the
end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing on the first
day of the fiscal quarter following each fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment
or best efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the
first fiscal quarter of the Issuer after the effective date of a
Registration Statement, which statements shall cover said 12-month
periods.
(p) Upon consummation of an Exchange Offer, obtain an opinion
of counsel to the Issuer (in form, scope and substance reasonably
satisfactory to the Purchasers), addressed to all Holders participating
in the Exchange Offer to the effect that (i) the Issuer has duly
authorized, executed and delivered the Exchange Securities and the
Indenture and (ii) the Exchange Securities and the Indenture constitute
legal, valid and binding obligations of the Issuer, enforceable against
the Issuer in accordance with their respective terms, except as such
enforcement may be subject to (x) applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting
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creditors' rights and remedies generally and (y) general principles of
equity (regardless of whether such enforcement is sought in a
proceeding in equity or at law).
(q) If an Exchange Offer is to be consummated, upon delivery
of the Registrable Securities by such Holders to the Issuer (or to such
other Person as directed by the Issuer) in exchange for the Exchange
Securities, the Issuer shall mark, or caused to be marked, on such
Registrable Securities that such Registrable Securities are being
cancelled in exchange for the Exchange Securities; in no event shall
such Registrable Securities be marked as paid or otherwise satisfied.
(r) Cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be
made with the NASD.
(s) Use its reasonable best efforts to take all other steps
necessary to effect the registration of the Registrable Securities
covered by a Registration Statement contemplated hereby.
The Issuer may require each seller of Registrable
Securities or Participating Broker-Dealer as to which any registration
is being effected to furnish to the Issuer such information regarding
such seller or Participating Broker-Dealer and the distribution of such
Registrable Securities or Exchange Securities as the Issuer may, from
time to time, reasonably request in writing. The Issuer may exclude
from such registration the Registrable Securities of any seller or
Exchange Securities of any Participating Broker-Dealer who unreasonably
fails to furnish such information.
Each Holder and each Participating Broker-Dealer
agrees by acquisition of such Registrable Securities or Exchange
Securities of any Participating Broker-Dealer that, upon receipt of
written notice from the Issuer of the happening of any event of the
kind described in Section 5(e)(ii), 5(e)(iv), 5(e)(v) or 5(e)(vi)
hereof, such Holder will forthwith discontinue disposition (in the
jurisdictions specified in a notice of a 5(e)(iv) event, and elsewhere
in a notice of a 5(e)(ii), 5(e)(v) or 5(e)(vi) event) of such
Securities covered by such Registration Statement or Prospectus until
such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 5(j) hereof, or until it is advised
in writing (the "Advice") by the Issuer that offers or sales in a
particular jurisdiction may be resumed or that the use of the
applicable Prospectus may be resumed, as the case may be, and has
received copies of any amendments or supplements thereto. If the Issuer
shall give such notice, each of the Effectiveness Period and the
Applicable Period shall be extended by the number of days during such
periods from and including the date of the giving of such notice to
and including the date when each seller of such Securities covered by
such Registration Statement shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(j) hereof
or (y) the Advice.
Section 6. Registration Expenses.
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuer shall be borne by the
Issuer, regardless of whether the Exchange Offer or a Shelf
Registration is filed or becomes effective, including, without
limitation:
(i) all registration and filing fees (including,
without limitation, (A) fees with respect to filings required
to be made with the NASD and (B) fees and expenses of
compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of
counsel in connection with Blue Sky qualifications of the
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Registrable Securities or Exchange Securities and
determination of the eligibility of the Registrable Securities
or Exchange Securities for investment under the laws of such
jurisdictions (x) where the Holders are located, in the case
of the Exchange Securities, or (y) as provided in Section 5(f)
hereof, in the case of Registrable Securities or Exchange
Securities to be sold by a Participating Broker-Dealer during
the Applicable Period);
(ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable
Securities or Exchange Securities in a form eligible for
deposit with DTC and of printing Prospectuses if the printing
of Prospectuses is requested by the managing underwriters, if
any, or, in respect of Registrable Securities or Exchange
Securities to be sold by a Participating Broker-Dealer during
the Applicable Period, by the Holders of a majority in
aggregate principal amount of the Registrable Securities
included in any Registration Statement or of such Exchange
Securities, as the case may be);
(iii) messenger, telephone, duplication, word
processing and delivery expenses incurred by the Issuer in the
performance of its obligations hereunder;
(iv) fees and disbursements of counsel for the
Issuer;
(v) fees and disbursements of all independent
certified public accountants referred to in Section 5(n)(iii)
hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or
incident to such performance);
(vi) fees and expenses of any "qualified independent
underwriter" or other independent appraiser participating in
an offering pursuant to Rule 2720(c) of the NASD Conduct
Rules, but only where the need for such a "qualified
independent underwriter" arises due to a relationship with the
Issuer;
(vii) Securities Act liability insurance, if the
Issuer so desires such insurance;
(viii) fees and expenses of all other Persons
retained by the Issuer; internal expenses of the Issuer
(including, without limitation, all salaries and expenses of
officers and employees of the Issuer performing legal or
accounting duties); and the expense of any annual audit; and
(ix) rating agency fees and the fees and expenses
incurred in connection with the listing of the Securities to
be registered on any securities exchange.
(b) The Issuer shall reimburse the Holders for the reasonable
fees and disbursements of not more than one counsel (in addition to
appropriate local counsel) chosen by the Holders of a majority in
aggregate principal amount of the Registrable Securities to be included
in any Registration Statement and other reasonable and necessary
out-of-pocket expenses of the Holders incurred in connection with the
registration of the Registrable Securities. The Issuer shall pay all
documentary, stamp, transfer or other transactional taxes attributable
to the issuance or delivery of the Exchange Securities in exchange for
the Notes.
Section 7. Indemnification.
(a) Indemnification by the Issuer. The Issuer shall, without
limitation as to time, indemnify and hold harmless each Holder and each
Participating Broker-Dealer, each Person who controls each such Holder
(within the meaning of Section 15 of the Securities Act or Section
20(a) of the Exchange Act) and the officers, directors, partners,
employees, representatives and
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agents of each such Holder, Participating Broker-Dealer and
controlling person, to the fullest extent lawful, from and against any
and all Losses, as incurred, directly or indirectly caused by, related
to, based upon, arising out of or in connection with any untrue or
alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of prospectus, or in any
amendment or supplement thereto, or in any preliminary prospectus, or
any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except insofar as such Losses are based upon
information relating to such Holder or Participating Broker-Dealer and
furnished in writing to the Issuer by such Holder or Participating
Broker-Dealer expressly for use therein. The Issuer shall also
indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution,
their officers, directors, agents and employees and each Person who
controls such Persons (within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act) to the same
extent as provided above with respect to the indemnification of the
Holders or the Participating Broker-Dealer.
(b) Indemnification by Holder of Registrable Securities. In
connection with any Registration Statement, Prospectus or form of
prospectus, any amendment or supplement thereto, or any preliminary
prospectus in which a Holder is participating, such Holder shall
furnish to the Issuer in writing such information as the Issuer
reasonably requests for use in connection with any Registration
Statement, Prospectus or form of prospectus, any amendment or
supplement thereto, or any preliminary prospectus and shall, without
limitation as to time, indemnify and hold harmless the Issuer, its
directors, officers, agents and employees, each Person, if any, who
controls the Issuer (within the meaning of Section 15 of the Securities
Act and Section 20(a) of the Exchange Act), and the directors,
officers, agents or employees of such controlling persons, to the
fullest extent lawful, from and against all Losses arising out of or
based upon any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, Prospectus or form of
prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading to the extent, but only to the
extent, that such untrue statement or alleged untrue statement of a
material fact or omission or alleged omission of a material fact is
contained in or omitted from any information so furnished in writing by
such Holder to the Issuer expressly for use therein. In no event shall
the liability of any selling Holder be greater in amount than the
dollar amount of the proceeds (net of payment of all expenses)
received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including a governmental investigation) (a "Proceeding")
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party shall
promptly notify the party or parties from which such indemnity is
sought (the "Indemnifying Parties") in writing; provided, that the
failure to so notify the Indemnifying Parties shall not relieve the
Indemnifying Parties from any obligation or liability except to the
extent (but only to the extent) that it shall be finally determined by
a court of competent jurisdiction (which determination is not subject
to appeal) that the Indemnifying Parties have been prejudiced
materially by such failure.
The Indemnifying Party shall have the right,
exercisable by giving written notice to an Indemnified Party, within 20
Business Days after receipt of written notice from such Indemnified
Party of such Proceeding, to assume, at its expense, the defense of any
such Proceeding, provided, that an Indemnified Party shall have the
right to employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party or parties
unless: (1) the Indemnifying
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Party has agreed to pay such fees and expenses; or (2) the
Indemnifying Party shall have failed promptly to assume the defense of
such Proceeding or shall have failed to employ counsel reasonably
satisfactory to such Indemnified Party; or (3) the named parties to
any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party or any of its
affiliates or controlling persons, and such Indemnified Party shall
have been advised by counsel that there may be one or more defenses
available to such Indemnified Party that are in addition to, or in
conflict with, those defenses available to the Indemnifying Party or
such affiliate or controlling person (in which case, if such
Indemnified Party notifies the Indemnifying Parties in writing that it
elects to employ separate counsel at the expense of the Indemnifying
Parties, the Indemnifying Parties shall not have the right to assume
the defense thereof and the reasonable fees and expenses of such
counsel shall be at the expense of the Indemnifying Party; it being
understood, however, that, the Indemnifying Party shall not, in
connection with any one such Proceeding or separate but substantially
similar or related Proceedings in the same jurisdiction, arising out
of the same general allegations or circumstances, be liable for the
fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such
Indemnified Party).
No Indemnifying Party shall be liable for any
settlement of any such Proceeding effected without its written consent,
but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such Proceeding, each Indemnifying
Party jointly and severally agrees, subject to the exceptions and
limitations set forth above, to indemnify and hold harmless each
Indemnified Party from and against any and all Losses by reason of such
settlement or judgment. The Indemnifying Party shall not consent to the
entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to each Indemnified Party of a release, in form and substance
reasonably satisfactory to the Indemnified Party, from all liability in
respect of such Proceeding for which such Indemnified Party would be
entitled to indemnification hereunder (regardless of whether any
Indemnified Party is a party thereto).
(d) Contribution. If the indemnification provided for in this
Section 7 is unavailable to an Indemnified Party or is insufficient to
hold such Indemnified Party harmless for any Losses in respect of which
this Section 7 would otherwise apply by its terms (other than by reason
of exceptions provided in this Section 7), then each applicable
Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall have a joint and several obligation to contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses,
in such proportion as is appropriate to reflect the relative benefits
received by the Indemnifying Party, on the one hand, and such
Indemnified Party, on the other hand, from the offering of the Notes,
or (ii) if the allocation provided by clause (i) above is not permitted
by Applicable Law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the
relative fault of the Indemnifying Party, on the one hand, and such
Indemnified Party, on the other hand, in connection with the actions,
statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
Indemnifying Party, on the one hand, and Indemnified Party, on the
other hand, shall be determined by reference to, among other things,
whether any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to
information supplied by such Indemnifying Party or Indemnified Party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent any such statement or omission. The
amount paid or payable by an Indemnified Party as a result of any
Losses shall be deemed to include any legal or other fees or expenses
incurred by such party in connection with any Proceeding, to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in Section 7(a) or 7(b) hereof was
available to such party.
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The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined
by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of this
Section 7(d), an Indemnifying Party that is a selling Holder shall not
be required to contribute, in the aggregate, any amount in excess of
such Holder's Maximum Contribution Amount. A selling Holder's "Maximum
Contribution Amount" shall equal the excess of (i) the aggregate
proceeds received by such Holder pursuant to the sale of such
Registrable Securities over (ii) the aggregate amount of damages that
such Holder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section 7 are in addition to any liability that the Indemnifying Parties may
have to the Indemnified Parties.
Section 8. Rule 144 and Rule 144A. The Issuer covenants that it shall
(a) file the reports required to be filed by it (if so required) under the
Securities Act and the Exchange Act in a timely manner and, if at any time any
the Issuer is not required to file such reports, it will, upon the request of
any Holder, make publicly available other information necessary to permit sales
pursuant to Rule 144 and Rule 144A and (b) take such further action as any
Holder may reasonably request, all to the extent required from time to time to
enable such Holder to sell Registrable Securities without registration under the
Securities Act pursuant to the exemptions provided by Rule 144 and Rule 144A.
Upon the request of any Holder, the Issuer shall deliver to such Holder a
written statement as to whether it has complied with such information and
requirements.
Section 9. Underwritten Registrations. If any of the Registrable
Securities covered by any Shelf Registration are to be sold in an Underwritten
Offering, the investment banker or investment bankers and manager or managers
that will manage the offering will be selected by the Holders of a majority in
aggregate principal amount of such Registrable Securities included in such
offering, subject to the consent of the Issuer (which shall not be withheld or
delayed unreasonably), and Holders participating in such offering shall be
responsible for all underwriting commission and discounts in connection
therewith. No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Registrable Securities on
the basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
Section 10. Miscellaneous.
(a) Remedies. In the event of a breach by the Issuer of any of
its obligations under this Agreement, each Holder, in addition to being
entitled to exercise all rights provided herein, in the Indenture or,
in the case of the Purchasers, in the Securities Purchase Agreement, or
granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Issuer
agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of any of the provisions of
this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Issuer has not entered
into, as of the date hereof, and shall not enter into, after the date
of this Agreement, any agreement with respect to
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any of its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the
provisions hereof.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified
or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Issuer has obtained the
written consent of Holders of at least a majority of the then
outstanding aggregate principal amount of Registrable Securities;
provided, that Section 5(a) and Section 7 hereof shall not be amended,
modified or supplemented, and waivers or consents to departures from
this proviso may not be given, unless the Issuer has obtained the
written consent of each Holder affected thereby. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof
with respect to a matter that relates exclusively to the rights of
Holders whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Securities being sold by
such Holders pursuant to such Registration Statement, provided that the
provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the
immediately preceding sentence.
(d) Notices. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee)
provided for or permitted hereunder shall be made in writing by
hand-delivery, certified first-class mail, return receipt requested,
next-day air courier or facsimile:
(i) if to a Holder, at the most current address given
by such Holder to the Issuer in accordance with the provisions
of this Section 10(d), which address initially is, with
respect to each Holder, the address of such Holder maintained
by the Registrar under the Indenture, with a copy to Skadden,
Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Los
Angeles, California 90071, telecopy number (213) 687-5600,
Attention: Rod A. Guerra, Esq.; and
(ii) if to the Issuer, to DIMAC Holdings, 5775
Peachtree Dunwoody Road, Suite C-150, Atlanta, Georgia 30342,
Telecopy No. (404) 705-9929, Attention: Chief Financial
Officer, with a copy to McCown De Leeuw & Co., 65 E. 55th
Street, New York, New York 10022, Telecopy No. (212) 355-6283,
Attention: David King, with a copy to White & Case LLP, 1155
Avenue of the Americas, New York, New York 10036, Telecopy No.
(212) 354-8113, Attention: Frank L. Schiff, Esq.
and thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 10(d).
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if
mailed; one Business Day after being timely delivered to a next-day air
courier; and when receipt is acknowledged by the addressee, if
telecopied. Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the
Trustee under the Indenture at the address specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of
the parties, including, without limitation and without the need for an
express assignment, subsequent Holders.
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(f) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and
all of which taken together shall constitute one and the same
agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(h) Governing Law; Submission to Jurisdiction; etc. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW. THE ISSUER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF
MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE
BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS.
THE ISSUER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY
DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. THE ISSUER IRREVOCABLY CONSENTS, TO
THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO
THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO THE ISSUER AT ITS ADDRESS SET FORTH
HEREIN, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST THE ISSUER IN ANY OTHER JURISDICTION.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way
be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.
(j) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement, and is intended to be
a complete and exclusive statement of the agreement and understanding
of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with
respect to the registration rights granted by the Issuer in respect of
securities sold pursuant to the Securities Purchase Agreement. This
Agreement supersedes all prior agreements and understandings between
the parties with respect to such subject matter.
18
<PAGE>
(k) Attorneys' Fees. In any Proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the
courts, shall be entitled to recover reasonable attorneys' fees in
addition to its costs and expenses and any other available remedy.
(l) Securities Held by the Issuer or its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities
held by the Issuer or its affiliates (as such term is defined in Rule
405 under the Securities Act) (other than Holders deemed to be such
affiliates solely by reason of their holdings of such Registrable
Securities) shall not be counted in determining whether such consent or
approval was given by the holders of such required percentage.
(Signature Page Follows)
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
Very truly yours,
DIMAC HOLDINGS, INC.
By: /s/ Martin R. Lewis
--------------------------
Name: Martin R. Lewis
-------------------------
Title: Chief Executive Officer
------------------------
<PAGE>
Accepted and Agreed to:
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT PARTNERS, L.P.
By: TCW/CRESCENT MEZZANINE, L.L.C.,
its general partner or managing owner
By: /s/ Jean-Marc Chapus
--------------------------------
Name: Jean-Marc Chapus
-----------------------------
Title: Managing Director
-----------------------------
By: /s/ John C. Rocchio
--------------------------------
Name: John C. Rocchio
------------------------------
Title: Managing Director
-----------------------------
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW ADVISORS (BERMUDA), LIMITED,
as General Partner
By: /s/ Jean-Marc Chapus
---------------------------------
Name: Jean-Marc Chapus
-------------------------------
Title: Managing Director
------------------------------
By: TCW INVESTMENT MANAGEMENT
COMPANY, as Investment Advisor
By: /s/ John C. Rocchio
---------------------------------
Name: John C. Rocchio
-------------------------------
Title: Managing Director
------------------------------
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW INVESTMENT MANAGEMENT
COMPANY, its investment advisor
By: /s/ Jean-Marc Chapus
---------------------------------
Name: Jean-Marc Chapus
-------------------------------
Title: Managing Director
------------------------------
By: /s/ John C. Rocchio
----------------------------------
Name: John C. Rocchio
--------------------------------
Title: Managing Director
-------------------------------
<PAGE>
Exhibit 5.1
__________, 199_
DIMAC Holdings, Inc.
5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
Ladies and Gentlemen:
We have acted as special counsel to DIMAC Holdings, Inc. (the "Company")
in connection with the Registration Statement on Form S-4 (the "Registration
Statement") to be filed with the Securities and Exchange Commission in
connection with the registration under the Securities Act of 1933, as amended,
of $30 million aggregate principal amount of 15 1/2% Series B Senior Notes
due 2009 of the Company (the "New Notes") to be offered and issued by the
Company under an Indenture dated as of October 22, 1998 by and among the
Company, DIMAC Corporation and Wilmington Trust Company, as Trustee.
Upon the basis of the foregoing, we are of the opinion that, upon
issuance thereof in the manner described in the Registration Statement, the
New Notes will be valid and binding obligations of the Company, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization and by general equitable principles (regardless of whether the
issue of enforceability is considered in a proceeding in equity or at law).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus which is part of the Registration Statement.
Very truly yours,
/s/ White & Case LLP
<PAGE>
Exhibit 8.1
__________ ___, 199_
DIMAC Holdings, Inc.
5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
Ladies and Gentlemen:
We have acted as your special tax counsel in connection with the
transactions described in the Registration Statement on Form S-4 (Registration
No.___________) (the "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), on _______________, 1998 by DIMAC Holdings,
Inc., a Delaware corporation (the "Company"), and described in the Company's
Offer to Exchange 15 1/2% Series B Senior Notes due 2009 (the "New Notes") for
all outstanding 15 1/2% Senior Notes due 2009 (the "Old Notes") set forth in the
Prospectus (the "Prospectus") contained within the Registration Statement.
Capitalized terms used but not otherwise defined herein shall have the meaning
ascribed thereto in the Registration Statement.
Our opinion is based on an examination of the Registration
Statement, the Prospectus, and such other documents, corporate records and
materials as we have deemed necessary or appropriate for the purposes of this
opinion. We assume that all transactions relating to the exchange pursuant to
the Exchange Offer will be carried out in accordance with the terms of the
governing documents without any amendments thereto or waiver of any terms
thereof, and that such documents represent the entire agreement of the parties
thereto. We understand the relevant facts to be as follows:
The Old Notes were originally issued and sold on October 22, 1998 in
a transaction not registered under the Securities Act, in reliance upon the
exemptions provided in Rule 144A under the Securities Act. Accordingly, the Old
Notes are generally subject to substantial transfer restrictions unless such
notes are registered pursuant to the Securities Act or unless an applicable
exemption from the registration requirements of the Securities Act is available.
Pursuant to a Registration Rights Agreement, dated as of October 22, 1998 (the
"Registration Rights Agreement"), between the Company and the purchasers listed
on the signature pages thereto (the "Purchasers"), with respect to the Old
Notes, the Company agreed to file, no later than 90 days after the date on which
any holder of Old Notes notifies the Company of its demand for registration, a
registration statement relating to the Exchange Offer, pursuant to which holders
of the Old Notes would be offered an opportunity to exchange their Old Notes for
the New Notes which would be issued without legends restricting the transfer
thereof. The
<PAGE>
DIMAC Corporation
Page 2
Company has agreed to use its reasonable best efforts to cause such filing to
become effective within 180 days after the date on which the Company receives
written notice of any holder's demand for registration of the Old Notes.
Alternatively, under certain circumstances, the Company agreed to file a Shelf
Registration Statement covering resales of the Old Notes and to use its
reasonable best efforts to cause such Shelf Registration Statement to be
declared effective under the Securities Act. Failure of the Company to comply
with the requirements of the Registration Rights Agreement could result in the
Company becoming obligated to pay liquidated damages to holders of the Old Notes
per week per $1,000 principal amount of Old Notes equal to (i) $0.05 for the
first 90-day period immediately following the applicable registration default,
(ii) $0.10 for the second 90-day period immediately following the applicable
registration default, (iii) $0.15 for the third 90-day period immediately
following the applicable registration default, and (iv) $0.20 thereafter. The
New Notes will not be subject to such liquidated damages. In general, the New
Notes will be freely transferable after the Exchange Offer without further
registration under the Securities Act. Except as noted above, the terms of the
New Notes are identical to those of the Old Notes.
Based on the foregoing and subject to the assumptions,
qualifications and limitations contained herein, we hereby confirm that the
statements set forth in the Prospectus under the heading "Certain United States
Federal Tax Considerations" constitute our opinion with respect to the principal
United States Federal income tax consequences of the exchange pursuant to the
Exchange Offer by certain holders who hold such notes as capital assets. The
possibility exists that contrary positions may be taken by the Internal Revenue
Service and that a court may agree with such contrary position.
The foregoing opinion is specific to the transactions and the
documents referred to herein, and is based upon the facts known to us as of the
date hereof.
The foregoing opinion is predicated upon the Internal Revenue Code,
the Treasury Regulations thereunder, the administrative and judicial
interpretations of the Internal Revenue Code and the Treasury Regulations, in
each case as in effect and available on the date hereof. Any change in
applicable law or in any of the facts or other assumptions upon which we have
relied, may adversely affect such opinion.
We hereby consent to the filing with the Securities and Exchange
Commission of this opinion as an exhibit to the Company's Registration Statement
on Form S-4 relating to the exchange of the Old Notes for the New Notes and to
the reference to our firm under the heading "Certain United States Federal Tax
Considerations" in the Prospectus. 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 Securities Act.
Very truly yours
/s/ White & Case LLP
<PAGE>
Exhibit 10.9
================================================================================
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
Dated as of October 22, 1998
By and Among
THE MDC ENTITIES,
DIMAC HOLDINGS, INC.,
THE MANAGEMENT STOCKHOLDERS
and
THE NON-MANAGEMENT STOCKHOLDERS
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
TRANSFER OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.2 PERMITTED TRANSFERS. . . . . . . . . . . . . . . . . . . . 5
Section 2.3 SALES BY MDC SUBJECT TO TAG-ALONG RIGHTS . . . . . . . . . 6
Section 2.4 GRANT TO MDC OF BRING-ALONG RIGHTS . . . . . . . . . . . . 8
Section 2.5 CALL UPON TERMINATION OF MANAGEMENT STOCKHOLDER'S EMPLOYMENT 9
Section 2.6 REGISTRATION RIGHTS AND RELATED MATTERS. . . . . . . . . . 11
ARTICLE III
BOARD OF DIRECTORS OF THE COMPANY . . . . . . . . . . . . . . . . . . . 15
Section 3.1 BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. . . . . . . . . . . 15
Section 4.1 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS . . . . 15
ARTICLE V
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.1 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . 17
Section 5.2 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.3 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.4 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.5 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . 18
Section 5.6 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.7 SUBMISSION TO JURISDICTION . . . . . . . . . . . . . . . . 18
Section 5.8 BENEFITS ONLY TO PARTIES . . . . . . . . . . . . . . . . . 19
Section 5.9 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.10 PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.11 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . 20
(i)
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "AGREEMENT"), dated as of
October 22, 1998, by and among DIMAC Holdings, Inc., a Delaware corporation (the
"COMPANY"), McCown De Leeuw & Co. IV, L.P., a California limited partnership,
Delta Fund LLC, a California limited liability company, and McCown De Leeuw &
Co. IV Associates, L.P., a California limited partnership (each individually, an
"MDC ENTITY", collectively the "MDC ENTITIES" and collectively with their
Related Persons (as defined below), "MDC"), the individuals listed on Schedule A
attached hereto under the heading "MANAGEMENT STOCKHOLDERS" (each individually,
a "MANAGEMENT STOCKHOLDER" and, collectively, the "MANAGEMENT STOCKHOLDERS," it
being understood that any other member of the management of the Company or its
Subsidiaries who becomes a stockholder of the Company through the receipt of
Call Shares (as defined below) shall be a Management Stockholder and each of the
Persons listed on Schedule A hereto under the heading "NON-MANAGEMENT
STOCKHOLDERS" (each, individually a "NON-MANAGEMENT STOCKHOLDER" and,
collectively, the "NON-MANAGEMENT STOCKHOLDERS") (each of the Management
Stockholders, MDC and the Non-Management Stockholders is hereinafter referred to
as a "STOCKHOLDER," it being understood and agreed that any holder of Common
Stock of the Company (including through the exercise of any option or warrant)
during the term of this Agreement shall become a party to this Agreement and
shall be referred to within the term "STOCKHOLDER").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, MDC, the Management Stockholders and the Non-Management
Stockholders own shares of voting and non-voting common stock, $0.001 par value,
of the Company (the "COMMON STOCK"); and
WHEREAS, the Stockholders each desire to grant to the others certain rights
in connection with the shares of Common Stock now or hereafter owned by them
(collectively, with any shares of Common Stock hereafter issued by the Company
during the term of this Agreement, including pursuant to the exercise of
warrants, the "SHARES") as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
<PAGE>
(a) "AFFILIATE" shall mean, with respect to any Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person, (ii) directly or indirectly
through one or more intermediaries beneficially owning or holding 10% or more of
the combined voting power of the total Voting Securities of such referenced
Person or (iii) of which 10% or more of the combined voting power of the total
Voting Securities directly or indirectly through one or more intermediaries is
beneficially owned or held by such referenced Person or a Subsidiary of such
referenced Person. For all purposes of this Agreement, MDC and its Affiliates
shall be considered an Affiliate of the Company. For purposes of this
definition, "CONTROL" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of Voting Securities, by agreement or
otherwise; and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing. Notwithstanding the foregoing, for
purposes of this Agreement, none of the TCW Entities nor the Michigan Fund shall
be considered Affiliates of the Company or any of its Subsidiaries.
(b) "BUSINESS DAY" shall mean any day except a Saturday, a Sunday or other
day on which commercial banks are required or authorized to close in New York,
New York.
(c) "CALL SHARES" shall mean shares of the Common Stock received upon the
exercise of class A options granted to employees of the Company (or the
Company's Subsidiaries) pursuant to the Management Equity Incentive Plan.
(d) "GRANT DATE" shall mean (i) with respect to any Vested Stock Option,
the date upon which such Vested Stock Option was granted to the Management
Stockholder and (ii) with respect to any Call Share, the date upon which the
Vested Stock Option in respect of such Call Share was granted to the Management
Stockholder.
(e) "IPO" shall mean an initial public offering of the Common Stock.
(f) "MANAGEMENT EQUITY INCENTIVE PLAN" shall mean the Company's 1998 Stock
Option Plan or like stock incentive plan as amended from time to time.
(g) "NON-MDC STOCKHOLDERS" shall mean all Stockholders other than MDC.
(h) "PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a limited liability company, a trust, an unincorporated
organization or a government or agency or political subdivision thereof.
(i) "PURCHASERS" has the meaning given to such term in the Securities
Purchase Agreement dated as of October 22, 1998 by and among the Company, DIMAC
Corporation, a Delaware corporation, and the purchasers listed on the signature
pages thereto.
2
<PAGE>
(j) "RELATED PERSONS" shall mean with respect to any MDC Entity, any
partnership with the same controlling general partner as such MDC Entity and any
of the partners of such MDC Entity or the general partner of such MDC Entity
which receive Shares upon a distribution to any such partners by any such MDC
Entity.
(k) "SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, or any similar Federal statute, and the rules and regulations of
the Securities and Exchange Commission promulgated thereunder, all as the same
shall be in effect at the time.
(l) "SUBSIDIARY" shall mean, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of capital stock or other equity interests entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors or other managing authority thereof is at the time owned or
controlled, directly or indirectly, by such Person and its Subsidiaries.
(m) "TCW ENTITIES" means Trust Company of the West and its Affiliates and
any of the Purchasers and their Affiliates and any Person to whom any shares of
Common Stock or Warrants that were held by any of the Purchasers may be
transferred in accordance with the terms of the Stockholders Agreement.
(n) "TRANSACTION VALUE" means the sum of (a) the cash purchase price
(including any installment payments), (b) the value of any equity securities
issued by the purchaser in connection with such transaction, (c) the face value
of any promissory note or other debt instrument issued by the purchaser in
connection with such transaction and (d) the amount of any liabilities assumed
by the purchaser in connection with such transaction (other than ordinary course
of business trade payables).
(o) "VESTED STOCK OPTIONS" shall mean vested class A stock options for the
Common Stock granted to certain key employees of the Company (or the Company's
Subsidiaries) pursuant to the Management Equity Incentive Plan.
(p) "VOTING SECURITIES" means any class of equity interests of a Person
pursuant to which the holders thereof have, at the time of determination, the
general voting power under ordinary circumstances to vote for the election of
directors, managers, trustees or general partners of such Person (regardless of
whether at the time any other class or classes will have or might have voting
power by reason of the happening of any contingency).
3
<PAGE>
ARTICLE II
TRANSFER OF SHARES
Section 2.1 RESTRICTIONS. (a) No Stockholder shall sell, assign, pledge,
or in any manner, transfer any of the Shares or any right or interest therein,
to any Person (each such action, a "TRANSFER") except as permitted by this
Agreement.
(b) From and after the date hereof, all share certificates representing
Shares held by any of the Stockholders shall bear a legend which shall state as
follows:
The shares represented by this certificate are subject to certain
restrictions against transfer set forth in an Amended and Restated
Stockholders Agreement dated as of October 22, 1998, as may be amended from
time to time. A copy of such Stockholders Agreement has been filed in the
registered office of the Company in the State of Delaware, where the same
may be inspected daily during business hours.
(c) In addition to the legend required by Section 2.1(b) above, all share
certificates representing Shares held by any of the Stockholders shall bear a
legend which shall state as follows:
The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and such
shares may not be offered, sold, pledged or otherwise transferred except
(1) pursuant to an exemption from, or in a transaction not subject to, the
registration requirements under the Securities Act or (2) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any State of the United
States.
(d) In addition to the legends required by Sections 2.1(b) and (c) above,
all share certificates representing Call Shares shall bear a legend which shall
state as follows:
The shares represented by this certificate are also subject to the
Management Call as described in Section 2.5 of the Stockholders Agreement
referred to above.
Any Call Shares transferred by a Management Stockholder in a Permitted Transfer
described in Section 2.2(a)(i) or (ii) shall remain Call Shares of the
transferee and certificates representing such shares shall bear the legend
required by this Section 2.1(d). Any Call Shares transferred by a Management
Stockholder in a Permitted Transfer described in any other clause of Section 2.2
shall not remain Call Shares of the transferee and certificates representing
such shares shall not bear the legend required by this Section 2.1(d).
(e) Promptly upon execution and delivery of this Agreement, each
Stockholder shall deliver to the Secretary of the Company all certificates then
held by such
4
<PAGE>
Stockholder representing Shares which do not have such legends affixed thereto
as are required by Section 2.1 above. The Company shall cause such legends to
be affixed promptly to each of such certificates and such certificates to be
returned promptly to the registered holder thereof. The Company agrees that it
will not cause or permit the Transfer of any Shares to be made on its books
unless the Transfer is permitted by this Agreement and has been made in
accordance with the terms hereof.
(f) No Transfer of Shares permitted or not otherwise prohibited by the
terms and conditions of this Agreement shall be valid unless the transferee
thereof enters into a written agreement, in form and substance reasonably
satisfactory to the Company, to the effect that said assignee agrees to be bound
by all of the terms and conditions set forth in this Agreement, including those
regarding Shares and the purchase options with respect thereto; PROVIDED,
HOWEVER, that the conditions set forth in this Section 2.1 shall not apply to
any sale of Shares pursuant to an effective registration statement under the
Securities Act or, provided such sale is not to an Affiliate of the selling
Stockholder, pursuant to Rule 144 promulgated under the Securities Act.
Section 2.2 PERMITTED TRANSFERS. (a) Notwithstanding anything to the
contrary contained herein, a Stockholder may at any time effect any of the
following Transfers (each a "PERMITTED TRANSFER" and each transferee, a
"PERMITTED TRANSFEREE"):
(i) A Stockholder's Transfer of any or all Shares owned by such
Stockholder following such Stockholder's death by will or intestacy to such
Stockholder's legal representative, heir or legatee.
(ii) A Stockholder's Transfer of any or all Shares owned by such
Stockholder as a gift or gifts during such Stockholder's lifetime to such
Stockholder's spouse, children, step-children, grandchildren, parents or a
trust or other legal entity for the benefit of any Stockholder or any of
the foregoing.
(iii) With respect to the MDC Entities, a Transfer of any or all
Shares owned by them to any of their Related Persons.
(iv) A Transfer by a Stockholder which is made pursuant to Section
2.3 hereof.
(v) A Transfer by a Stockholder which is made pursuant to Section
2.4, 2.5 or 2.6 hereof.
(vi) A Transfer by a Stockholder to the Company.
(vii) A Transfer by MDC to any Person on or before October 31, 1998;
PROVIDED that after giving effect to such Transfer, MDC owns at least 60%
of the issued and outstanding Common Stock.
(viii) Following an IPO, a Transfer by a Stockholder holding Call
Shares as follows: (a) during the period from the date of the IPO until
the first anniversary thereof a number
5
<PAGE>
of Call Shares equal to one-third (33.33%) of the aggregate number of Call
Shares and Vested Stock Options held by such Stockholder at the date of the
IPO and (b) during the period from the date of the IPO until the second
anniversary of the IPO, a number of Call Shares equal to two-thirds
(66.67%) of the aggregate number of Call Shares and Vested Stock Options
held by such Stockholder at the date of the IPO.
(ix) The transfer by the State Treasurer of the State of Michigan,
Custodian of the Michigan Public School Employees' Retirement System; State
Employees' Retirement System; Michigan State Police Retirement System; and
Michigan Judges Retirement System (the "MICHIGAN FUND") to any successor or
additional trustee or custodian of the assets of the Michigan Fund as may
be appointed, and qualified under the applicable laws of the State of
Michigan.
(x) With respect to any Stockholder which is an entity, a Transfer
of any or all Shares owned by it to any of its Affiliates so long as such
Affiliate is an entity.
(xi) A Transfer by the TCW Entities to any Person of any Shares
issued to such TCW Entities pursuant to the exercise of warrants.
(b) In any such Transfer referred to above in Section 2.2(a) (other than
events in which this Agreement shall terminate in accordance with the provisions
of Section 5.9 hereof), the Permitted Transferee shall receive and hold such
Shares subject to the provisions of this Agreement as if such Permitted
Transferee were an original signatory hereto and shall be deemed to be a party
to this Agreement.
Section 2.3 SALES BY MDC SUBJECT TO TAG-ALONG RIGHTS. (a) In the event
that MDC proposes to effect a Transfer (other than a Permitted Transfer
described in Section 2.2(a) (iii), (v) or (vii) above) of any of the Common
Stock owned by it (the "MDC STOCK"), then MDC shall promptly give written notice
(the "MDC NOTICE") to the Company and the other Stockholders at least twenty
days prior to the closing of such Transfer. The MDC Notice shall be accompanied
by a copy of any agreement or term sheet relating to the Transfer (if available)
and describe in reasonable detail the proposed Transfer including, without
limitation, the name of, and the number of shares of MDC Stock to be purchased
by, the transferee, the purchase price of each share of MDC Stock to be sold,
any additional consideration, the terms and conditions of payment offered by the
transferee, any other significant terms of such sale and the date such proposed
sale is expected to be consummated (the "TAG-ALONG SALE DATE"), the aggregate
number of Shares of Common Stock held of record by MDC as of the close of
business on the day immediately preceding the date of the MDC Notice, the
Participant's (as defined below) pro-rata portion (as defined below) and
confirmation that the transferee has been informed of the "Tag-Along Rights"
provided for herein and has agreed to purchase shares from any Participant in
accordance with the terms hereof, it being understood that if such proposed
Transfer by MDC is in (i) an IPO or (ii) a public offering pursuant to a
registration statement filed under Section 2.6, the subsequent provisions of
this Section 2.3 shall not apply.
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(b) Each Stockholder shall have the right, exercisable upon irrevocable
written notice to MDC (the "TAG-ALONG NOTICE") no less than ten days prior to
the proposed Transfer, to participate in such sale of MDC Stock on the same
terms and conditions as set forth in the MDC Notice, including, without
limitation, the making of all representations, warranties, indemnifications
(including participating in any escrow arrangements) and similar agreements on a
ratable basis (based upon the number of Shares participating in such Transfer)
which obligations will be limited to the net proceeds received by such
Stockholder in such sale, and to sell all or any portion of the number of the
Shares owned by it as determined in accordance with the calculation set forth
below. Each Stockholder other than MDC electing to participate in the sale
described in the MDC Notice (each a "PARTICIPANT") shall indicate in its
Tag-Along Notice to MDC the maximum number of its Shares it desires to sell in
such sale (which number may be in excess of the number of shares set forth in
the MDC Notice). Each such Participant shall be entitled to sell a "PRO RATA
PORTION" (as such term is hereinafter defined) of such maximum number. To the
extent one or more of the Stockholders exercise such right of participation in
accordance with the terms and conditions set forth in this Section 2.3, the
number of shares of MDC Stock that MDC may sell in the transaction shall be
correspondingly reduced. For purposes of this Section 2.3, "PRO RATA PORTION"
shall mean for each Participant a fraction the numerator of which is the number
of Shares of MDC Stock proposed to be sold in the MDC Notice and the denominator
of which is the sum of (A) the total number of Shares owned by MDC immediately
prior to the sale proposed in the MDC Notice and (B) the total number of Shares
desired to be sold by all of the Participants electing to participate in the
sale (including any Shares that may be issued pursuant to any warrant or other
right). Not later than five days prior to the date scheduled for such sale, MDC
shall provide notice to each Participant of the "PRO RATA PORTION" of Shares to
be sold by such Participant in such sale.
(c) The Tag-Along Notice given by any Participant shall constitute such
Participant's irrevocable agreement to sell the Shares specified in the
Tag-Along Notice on the terms and conditions applicable to the proposed
Transfer; PROVIDED, HOWEVER, that in the event that there is any material change
in the material terms and conditions of such proposed Transfer applicable to the
Participant (including, but not limited to, any decrease in the purchase price
that occurs other than pursuant to an adjustment mechanism set forth in the
agreement relating to the proposed Transfer) after such Participant gives its
Tag-Along Notice, then, notwithstanding anything herein to the contrary, the
Participant shall have the right to withdraw from participation in the proposed
Transfer with respect to all of its Shares affected thereby. If the transferee
does not consummate the purchase of all of the Shares requested to be included
in the proposed Transfer by any Participant on the same terms and conditions
applicable to MDC (except as otherwise provided herein), then MDC shall not
consummate the proposed Transfer of any of its shares of Common Stock to such
transferee, unless the shares of MDC and the Participants are reduced or limited
PRO RATA in proportion to the respective number of shares of Common Stock
actually sold in any such proposed Transfer and all other terms and conditions
of the proposed Transfer are the same for MDC and the Participant, subject to
the provisos set forth in Section 2.4(b).
(d) If a Tag-Along Notice from any Participant is not received by MDC
prior to the ten day period specified above, MDC shall have the right to
consummate the proposed
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Transfer without the participation of such Participant, but only on terms and
conditions which are no more favorable in any material respect to MDC (and in
any event, at no greater a purchase price, except as the purchase price may be
adjusted pursuant to the agreement regarding the relevant sale or other
disposition) than as stated in the MDC Notice and only if such proposed Transfer
occurs on a date within ninety (90) days of the Tag-Along Sale Date. If such
proposed Transfer does not occur within such ninety (90) day period, the shares
of Common Stock that were to be subject to such proposed Transfer thereafter
shall continue to be subject to all of the restrictions contained in this
Agreement.
(e) Any Participant shall effect its participation in the sale by
delivering on the date scheduled for such sale to MDC for delivery to the
prospective transferee one or more certificates, in proper form for transfer,
which represent the number of Shares which such Participant is entitled to sell
in accordance with this Section 2.3. Such certificate or certificates that any
Participant delivers to MDC shall be delivered on such date to such transferee
in consummation of the sale of the Shares pursuant to the terms and conditions
specified in the MDC Notice, and MDC shall concurrently therewith remit to each
such Participant that portion of the sale proceeds to which such Participant is
entitled by reason of its participation in such sale. MDC's sale of Shares in
any sale proposed in an MDC Notice shall be effected on substantially the terms
and conditions set forth in such MDC Notice.
(f) The exercise or non-exercise of the rights of the Stockholders
hereunder to participate in one or more sales of Shares made by MDC shall not
adversely affect their rights to participate in subsequent sales of Shares
subject to this Section 2.3.
(g) In no event shall MDC receive special consideration or a control
premium in connection with any sale contemplated by this Section 2.3; PROVIDED,
HOWEVER, that it is understood that MDC shall be entitled to receive a
reasonable transaction fee, not to exceed 2% of Transaction Value, payable upon
the closing of any sale contemplated by this Section 2.3 if MDC provides
services in connection with such sale that would customarily be provided by a
third party financial advisor.
Section 2.4 GRANT TO MDC OF BRING-ALONG RIGHTS. (a) Each time the
stockholders of the Company meet, or act by written consent in lieu of meeting,
for the purpose of approving a "Sale of the Business" (as such term is
hereinafter defined), each Stockholder agrees to vote all of its Shares, and to
sell all of its Shares, as directed by MDC. In order to effect the foregoing
covenant, each Stockholder (other than the Michigan Fund and the TCW Entities)
hereby grants to MDC with respect to all of such Stockholder's Shares an
irrevocable proxy (which is deemed to be coupled with an interest) for the term
of this Agreement with respect to any stockholder vote or action by written
consent to effect the Sale of the Business. As used herein, "SALE OF THE
BUSINESS" shall mean any transaction or series of transactions (whether
structured as a stock sale, merger, consolidation, reorganization, asset sale or
otherwise) negotiated on an arm's-length basis, which results in the sale or
transfer of all or substantially all of the assets or all of the shares of
capital stock of the Company to an unaffiliated bona fide third party in which
all consideration payable to holders of the Common Stock is distributed pro rata
pursuant to share ownership.
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(b) In furtherance of its covenants in Section 2.4(a), each Stockholder
hereby agrees to cooperate fully with MDC and the purchaser in any such Sale of
the Business and, to execute and deliver all documents (including purchase
agreements) and instruments as MDC and the purchaser request to effect such Sale
of the Business, including, without limitation, the making of all
representations, warranties and indemnifications (including participating in any
escrow arrangements) and similar arrangements on a ratable basis (based upon the
number of Shares owned by the Stockholders as if all such Shares and options or
warrants to purchase Shares were converted into Common Stock) which obligations
will be limited to the net proceeds received by such Stockholder in such Sale of
the Business, but excluding employment agreements and covenants not to compete
(the determination of whether or not to enter into any such agreements being in
the sole and absolute discretion of each Stockholder). MDC agrees that upon
such Sale of the Business each Stockholder will receive its PRO RATA share of
the consideration (including consideration for non-competes, consulting
agreements or similar arrangements) paid by the purchaser determined on the
basis of such Stockholder's Share ownership.
(c) Prior to any Sale of the Business, if MDC elects to exercise the
rights afforded under this Section 2.4, MDC shall provide the Stockholders with
written notice (the "DRAG-ALONG NOTICE") not less than ten days prior to the
proposed date of the Sale of the Business. The Drag-Along Notice shall set
forth: (i) the name and address of the third party; (ii) the proposed amount and
form of consideration to be paid per share and the terms and conditions of
payment offered by the third party; (iii) the aggregate number of Shares held of
record by MDC as of the date of the Drag-Along Notice; (iv) the proposed date of
the Sale of the Business; and (v) confirmation that the proposed third party has
agreed to purchase each Stockholder's Shares in accordance with the terms
hereof.
(d) Each Stockholder shall effect its participation in the Sale of the
Business by delivering to MDC on the date of the Sale of the Business for
delivery to the third party one or more certificates, in proper form for
transfer, which represent the number of Shares which such Stockholder is
required to sell in accordance with this Section 2.4. Such certificate or
certificates that any Stockholder delivers to MDC shall be delivered on such
date to such third party in consummation of the Sale of the Business pursuant to
the terms and conditions specified in the Drag Along Notice, and MDC shall
concurrently therewith remit to each Stockholder that portion of the sale
proceeds to which such Stockholder is entitled by reason of its participation in
such Sale of the Business.
(e) In no event shall MDC receive special consideration or a control
premium in connection with a sale contemplated by this Section 2.4; PROVIDED,
HOWEVER, that it is understood that MDC shall be entitled to receive a
reasonable transaction fee, not to exceed 2% of Transaction Value, payable upon
the closing of any such sale contemplated by this Section 2.4 if MDC provides
services in connection with such sale that would customarily be provided by a
third party financial advisor.
Section 2.5 CALL UPON TERMINATION OF MANAGEMENT STOCKHOLDER'S EMPLOYMENT.
(a) If a Management Stockholder's active employment with the Company (and/or,
if applicable, its
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Subsidiaries) is voluntarily or involuntarily terminated for any reason
whatsoever (including, without limitation, termination by the Company and/or its
Subsidiaries with or without cause) at any time on or before the date which is
five years from the Grant Date of any Vested Stock Options or Call Shares, the
Company shall, on the terms and conditions of this Section 2.5, have the right
(the "MANAGEMENT CALL"), at the option of the Company, to purchase, at the Call
Share Repurchase Price or Vested Option Repurchase Price (each as defined
below), as the case may be, determined in accordance with Section 2.5(b) hereof,
all, or any portion, of such Call Shares and/or such Vested Stock Options then
held by such Management Stockholder (including, if applicable, such Shares held
by any Permitted Transferee of such Management Stockholder). Notwithstanding
the foregoing, the Company shall not have such option if (i) the termination of
employment results from the death or permanent disability of the Management
Stockholder or (ii) the termination of employment results from the retirement of
the Management Stockholder from the Company or any of its Subsidiaries at age 65
or over; PROVIDED that, in the case of any such termination resulting from
permanent disability or retirement, the Management Stockholder enters into an
agreement, in form and substance satisfactory to the Company, within 15 days of
the date of such termination, not to compete, directly or indirectly, with the
Company and/or any of its Subsidiaries for a period of five (5) years from the
date of such termination in any geographic area where the Company and/or its
Subsidiaries then or during such five-year period conducts business.
The Company shall have a period of 60 days from the date of such
termination in which to give notice in writing to the Management Stockholder of
the exercise of such option. The closing of the purchase shall take place at
the principal office of the Company on the tenth business day after the giving
of notice of the exercise of the option to purchase. The Call Share Repurchase
Price or the Vested Option Repurchase Price, as the case may be, shall be paid
by delivery to the Management Stockholder holding the Call Shares or Vested
Stock Options (including, if applicable, such Shares held by any Permitted
Transferee of such Management Stockholder) of a check or checks in the
appropriate amount payable to the order of such Management Stockholder or
Permitted Transferee, as the case may be, against delivery of certificates or
other instruments representing the Call Shares or Vested Stock Options, as the
case may be, so purchased, appropriately endorsed by such Management Stockholder
or Permitted Transferee, as the case may be, or his duly authorized
representative. For purposes of this Agreement, a Management Stockholder shall
be deemed to have a "permanent disability" when the Board of Directors of the
Company shall, in good faith, so determine. In connection with such closing,
such Management Stockholder (including, if applicable, such Shares held by any
Permitted Transferee of such Management Stockholder) shall warrant to the
Company good and marketable title to the purchased Call Shares or Vested Stock
Options, as the case may be, free and clear of all claims, liens, charges,
encumbrances and security interests of any nature whatsoever except those under
this Agreement.
(b) The offering price for each Call Share (the "CALL SHARE REPURCHASE
PRICE") shall be as follows:
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DATE OF NOTICE OF EXERCISE REPURCHASE PRICE
Grant Date through and including the first 105% multiplied by the
anniversary of the Grant Date exercise price of such
Call Share
From the first anniversary of the Grant (105%)2 multiplied by the
Date through and including the second exercise price of such
anniversary of the Grant Date Call Share
From the second anniversary of the Grant (105%)3 multiplied by the
Date through and including the third exercise price of such
anniversary of the Grant Date Call Share
From the third anniversary of the Grant (105%)4 multiplied by the
Date through and including the fourth exercise price of such
anniversary of the Grant Date Call Share
From the fourth anniversary of the Grant (105%)5 multiplied by the
Date through and including the fifth exercise price of such
anniversary of the Grant Date Call Share
The offering price for each Vested Stock Option (the "VESTED OPTION
REPURCHASE PRICE") shall be an amount equal to the Call Share Repurchase Price
determined pursuant to this Section 2.5(b) as if such Vested Stock Option was
exercised immediately prior to the giving of notice by the Company of the
exercise of the option to purchase LESS the exercise price of such Vested Stock
Option.
Section 2.6 REGISTRATION RIGHTS AND RELATED MATTERS. (a) If the Company
intends (other than in connection with an IPO) to register Shares on Form S-1,
Form S-2 or Form S-3 or any corresponding form applicable at the time under the
Securities Act as then in effect (or any similar statute then in effect), the
Company will give written notice to each Stockholder of its intention to do so,
at least 15 days prior to the time of the filing of any registration statement
or qualification papers, and at the written request of any Stockholder given
within 10 days after receipt of any such notice (which request shall specify the
number of Shares intended to be sold or disposed of by such Stockholder and
shall describe the nature of any proposed sale or other disposition thereof
which may include a distribution over a reasonable period of time), the Company
will use its reasonable best efforts to cause such Shares to be registered or
qualified to the extent required (in the opinion of the Company's counsel) to
permit the sale or other disposition thereof (in accordance with the methods
described by such Stockholder) (such right of each Stockholder to participate in
the proposed offering, a "PIGGY-BACK RIGHT"). The number of Shares that any
Stockholder intends to sell shall be subject to underwriters' cutbacks resulting
from the underwriters' conclusion that the inclusion of all of the Shares
requested to be included in the proposed offering would materially adversely
affect the distribution of Shares in such offering or the market price of Common
Stock if such Common Stock is publicly traded. Such underwriters' cutbacks
shall be made on a pro rata basis by multiplying the number of Shares
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that each Stockholder desires to sell in the proposed offering by a fraction the
numerator of which shall be the number of Stockholders' Shares that the
underwriters deem appropriate to sell in the proposed offering and the
denominator of which shall be the total number of Shares that all of the
Stockholders initially desire to sell in the proposed offering.
(b) Notwithstanding any other provisions hereof, the Company shall ensure
that (i) any registration statement relating to a Stockholder's exercise of its
piggy-back rights complies in all material respects with the Securities Act and
(ii) any such registration statement does not, when it becomes effective,
contain an untrue statement or omission.
(c) All out-of-pocket expenses, disbursements and fees in connection with
any action to be taken under this Section 2.6 shall be borne by the Company,
including the reasonable fees and expenses of one counsel for all participating
Stockholders, provided that the foregoing expenses shall in no event include the
underwriters' discount in connection with an offering.
(d) In the event of any registration under the provisions of this Section
2.6, the Company, to the extent permitted by law, will indemnify any Stockholder
participating in such registration, its respective officers and directors, if
any, and each Person, if any, who controls such Stockholder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act,
against all losses, claims, damages and liabilities caused by any untrue
statement of a material fact contained in the registration statement or
prospectus (and as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading and will reimburse such Stockholder, its
officers and directors and any Person, if any, who controls such Stockholder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any legal or other expenses reasonably incurred by such
Stockholder, officer, director or Person in connection with investigating or
defending any such losses, claims, damages and liabilities, except insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission contained in information furnished in writing to the Company by such
Stockholder participating in such registration or by underwriters expressly for
use therein. The obligation of the Company under this Section 2.6 to register
securities for any of the Stockholders shall be subject to the condition that
each such Stockholder and the underwriters involved in the offering shall
furnish to the Company in writing such information as shall be reasonably
requested by the Company for use in connection with the preparation of any such
registration statement or prospectus and, to the extent permitted by law, shall
indemnify the Company, its directors and officers, any other underwriter, the
other Stockholders participating in such registration and each Person, if any,
who controls the Company, any other underwriter or such other Stockholders,
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, against all losses, claims, damages and liabilities caused by any
untrue statement or omission contained in information so furnished in writing to
the Company by such Stockholder or such underwriter expressly for use therein;
provided that the liability of any such Stockholder for such losses, claims,
damages and liabilities shall not exceed the net proceeds received by such
Stockholder in any such offering.
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(e) In case any action, claim or proceeding shall be brought against any
Person entitled to indemnification hereunder, such indemnified party shall
promptly notify each indemnifying party in writing, and such indemnifying party
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to such indemnified party and payment of all fees and expenses
incurred in connection with the defense thereof. The failure to so notify such
indemnifying party shall not affect any obligation it may have to any
indemnified party under this Agreement or otherwise except to the extent that
(as finally determined by a court of competent jurisdiction (which determination
is not subject to review or appeal)) such failure materially and adversely
prejudiced such indemnifying party. Each indemnified party shall have the right
to employ separate counsel in such action, claim or proceeding and participate
in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of each indemnified party unless (i) such indemnifying party has
agreed to pay such expenses; (ii) such indemnifying party has failed promptly to
assume the defense and employ counsel reasonably satisfactory to such
indemnified party, or (iii) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such indemnified party
and such indemnifying party or an affiliate or controlling person of such
indemnifying party, and such indemnified party shall have been advised in
writing by counsel that either (x) there may be one or more legal defenses
available to it which are different from or in addition to those available to
such indemnifying party or such affiliate or controlling person or (y) a
conflict of interest may exist if such counsel represents such indemnified party
and such indemnifying party or its affiliate or controlling person; PROVIDED,
HOWEVER, that such indemnifying party shall not, in connection with any one such
action or proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be responsible hereunder for the fees and expenses of more
than one separate firm of attorneys (in addition to any local counsel), which
counsel shall be designated by such indemnified party.
No indemnified party shall be liable for any settlement effected without
its written consent. Each indemnifying party agrees, jointly and severally,
that it will not, without the indemnified party's prior written consent, consent
to entry of any judgment or settle or compromise any pending or threatened
claim, action or proceeding in respect of which indemnification or contribution
may be sought hereunder unless the foregoing contains an unconditional release,
in form and substance reasonably satisfactory to the indemnified parties, of the
indemnified parties from all liability and obligation arising therefrom.
(f) The indemnifying party's liability to any such indemnified party
hereunder shall not be extinguished solely because any other indemnified party
is not entitled to indemnify hereunder.
(g) The indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party, and will survive the transfer of securities.
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(h) If the indemnification provided for in this Section 2.6 from the
indemnifying party is unavailable, or insufficient to hold harmless, to any
indemnified party hereunder in respect of any losses, claims, damages or
liabilities referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party under this Section 2.6 as a
result of the losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or legal or administrative
action or proceeding. The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 2.6(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to herein. Notwithstanding the
provisions of this subsection (h), a Stockholder shall not be required to
contribute any amount in excess of the amount by which (i) the amount (net of
payment of all expenses) at which the securities that were sold by such
Stockholder and distributed to the public were offered to the public exceeds
(ii) the amount of any damages which such Stockholder has otherwise been
required to pay by reason of such untrue statement or omission.
No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section 2.6 are
in addition to any liability that the indemnifying parties may have to the
indemnified parties.
(i) As expeditiously as possible after the effectiveness of any
registration statement pursuant to this Section 2.6 and prior to such date as
shall be certified to the Company as the date upon which the Transfer
contemplated by such registration statement will be effected by any
participating Stockholder, the Company will deliver in exchange for certificates
representing Shares so registered bearing the legends set forth in Section 2.1,
certificates therefor not bearing such legends as shall be required to effect
such Transfer. In the event that the proposed Transfer is not made as
contemplated by any such participating Stockholder, by acceptance thereof such
Stockholder shall be deemed to have agreed that it will deliver such
certificates not bearing such legends to the Company in exchange for new
certificates bearing the legends set forth in Section 2.1 if the Company shall
request and the Company agrees that it will make such exchange.
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(j) The registration rights provided in this Section 2.6 shall terminate
after an IPO as to any Stockholder which can immediately sell all of its Shares
in a single sale pursuant to Rule 144 under the Securities Act.
(k) Each of the Stockholders agrees that in connection with any public
offering, such Stockholder will not, without the prior written consent of the
Company, directly or indirectly, offer to sell, sell, contract to sell
(including, without limitation, any short sale), grant any option for the sale
of, acquire any option to dispose of, or otherwise dispose of any Shares for a
period of 180 days following the date of the consummation of such public
offering.
(l) So long as the Company shall not have registered any of its securities
pursuant to Section 12 of the Securities Exchange Act of 1934 (the "EXCHANGE
ACT") or filed a registration statement pursuant to the requirements of the
Securities Act, the Company shall, at any time and from time to time, upon the
request of any holder of Shares and upon the request of any Person designated by
such holder as a prospective purchaser of any Shares, furnish in writing to such
holder or such prospective purchaser, as the case may be, a statement as of a
date not earlier than 12 months prior to the date of such request of the nature
of the business of the Company and the products and services it offers and
copies of the most recent balance sheet and profit and loss and retained
earnings statements of the Company, together with similar financial statements
for such part of the two preceding fiscal years as the Company shall have been
in operation, all such financial statements to be audited to the extent audited
statements are reasonably available, and all other information required by Rule
144A under the Securities Act; PROVIDED THAT, in any event the most recent
financial statements so furnished shall include a balance sheet as of a date
less than 16 months prior to the date of such request, statements of profit and
loss and retained earnings for the 12 months preceding the date of such balance
sheet, and, if such balance sheet is not as of a date less than 6 months prior
to the date of such request, additional statements of profit and loss and
retained earnings for the period from the date of such balance sheet to a date
less than 6 months prior to the date of such request. If the Company shall have
registered any of its securities pursuant to the requirements of Section 12 of
the Exchange Act or filed a registration statement pursuant to the requirements
of the Securities Act, the Company shall timely file the reports required to be
filed by it under the Securities Act and the Exchange Act (including but not
limited to the reports under Sections 13 and 15(d) of the Exchange Act referred
to in subparagraph (c) of Rule 144 adopted by the Commission under the
Securities Act) and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, it will,
upon the request of any holder of Shares, make publicly available other
information) and will take such further action as any holder of Shares may
reasonably request, all to the extent required from time to time to enable such
holder to sell Shares without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 and Rule 144A under the
Securities Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Shares, the Company will deliver to such holder a
written statement as to whether it has complied with the requirements of this
Section 2.6(h).
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ARTICLE III
BOARD OF DIRECTORS OF THE COMPANY
Section 3.1 BOARD OF DIRECTORS. (a) As long as MDC controls the voting
power (through proxy or otherwise) of at least 50% of the Voting Stock, each
Stockholder agrees to vote all of the Shares held by such Stockholder so as to
elect and maintain a Board, a majority of which members consist of persons
designated by MDC and initially the board should be composed of the following:
David D. De Leeuw, Martin R. Lewis and James L. Wu.
(b) As long as MDC controls the voting power (through proxy or otherwise)
of at least 50% of the Voting Stock, in the event that any director designated
by MDC for any reason ceases to serve as a director during his term of office,
the resulting vacancy on the Board shall be filled by a director designated by
MDC.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Section 4.1 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. (a) Each
Stockholder represents and warrants, severally and not jointly, that: (i) such
Stockholder is acquiring, or has acquired, the shares of Common Stock for
investment for such Stockholder's own account and not with a view to, or for the
resale in connection with, the distribution or other disposition thereof; (ii)
such Stockholder will not, during the term of this Agreement, directly or
indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of any shares of Common Stock except in accordance with this Agreement;
(iii) such Stockholder (A) has either (1) preexisting personal or business
relationships with the Company, or any of its respective officers, directors or
any of its respective Affiliates or (2) such knowledge and experience in
financial and business matters such that such Stockholder is capable of
evaluating the merits and risks relating to the purchase of shares of Common
Stock under this Agreement, or such Stockholder has been advised by a
representative possessing such knowledge and experience who is unaffiliated with
or who is not compensated, directly or indirectly, by the Company or any of its
Affiliates, or (B) is a Trust, the beneficiary of which is a Person meeting the
requirements of (1) and/or (2) of clause (iii)(A) above; (iv) such Stockholder
has been given an opportunity which such Stockholder deems adequate to obtain
information and documents relating to the Company and to ask questions of and
receive answers from representatives of the Company concerning such
Stockholder's investment in the Common Stock of the Company; (v) such
Stockholder's financial condition is such that such Stockholder can afford to
bear the economic risk of holding the Common Stock for an indefinite period of
time; such Stockholder has adequate means of providing for such Stockholder's
current needs and contingencies and has no need for such Stockholder's
investment in the Common Stock to be liquid; and (vi) such Stockholder can
afford to suffer a complete loss of such Stockholder's investment in the Common
Stock.
(b) Each Stockholder further acknowledges that such Stockholder has been
advised by the Company that: (i) the offer and sale of the Common Stock has not
been registered
16
<PAGE>
under the Securities Act, but is intended to be exempt from registration
pursuant to Section 4(2) of the Securities Act and the rules promulgated
thereunder by the Securities and Exchange Commission, and that the Shares cannot
be sold, pledged, assigned or otherwise disposed of unless the same is
subsequently registered under the Securities Act or an exemption from such
registration is available; (ii) it is anticipated that there will not be any
public market for the Shares in the foreseeable future; (iii) a restrictive
legend in the form set forth in Section 2.1 shall be placed on the certificates
representing the Shares; and (iv) a notation shall be made in the appropriate
records of the Company indicating that the Shares are subject to restrictions on
transfer and if the Company should at some time in the future engage the
services of a stock transfer agent, appropriate stop transfer restrictions will
be issued to such transfer agent with respect to the Shares.
(c) Each Stockholder further represents and warrants that (i) such
Stockholder has full right, power and authority to execute, deliver and perform
this Agreement; (ii) all actions necessary or required to be taken by or on the
part of such Stockholder to execute, deliver and perform this Agreement and to
consummate the transactions contemplated by this Agreement have been duly
authorized and approved by all necessary or required action of such Stockholder
and have been validly taken; and (iii) this Agreement has been duly executed and
delivered by such Stockholder and is a valid and binding agreement of such
Stockholder enforceable in accordance with its terms, except to the extent that
its enforceability may be subject to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity.
ARTICLE V
MISCELLANEOUS
Section 5.1 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior arrangements or understandings (whether written or
oral) with respect thereto.
Section 5.2 CAPTIONS. The Article and Section captions used herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 5.3 COUNTERPARTS. For the convenience of the parties, any number
of counterparts of this Agreement may be executed by the parties hereto and each
such executed counterpart shall be deemed to be an original instrument.
Section 5.4 NOTICES. All notices, consents, requests, instructions,
approvals and other communications provided for herein and all legal process in
regard hereto shall be validly given, made or served, if in writing and
delivered by personal delivery, overnight courier, telecopier or registered or
certified mail, return-receipt requested and postage prepaid addressed as
follows:
17
<PAGE>
If to the Company, to:
DIMAC Holdings, Inc.
c/o McCown De Leeuw & Co., Inc.
65 East 55th Street
36th Floor
New York, New York 10022
Attention: David De Leeuw
Tel.: (212) 355-5500
Fax: (212) 355-6283
with copies to:
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: Frank L. Schiff, Esq.
Tel.: (212) 819-8752
Fax: (212) 354-8113
If to the MDC Entities, to:
McCown De Leeuw & Co., Inc.
65 East 55th Street
36th Floor
New York, New York 10022
Attention: David De Leeuw
Tel.: (212) 355-5500
Fax: (212) 355-6283
if to any of the Non-Management or Management Stockholders, to the
addresses set forth opposite each of their names on Schedule A attached
hereto,
or to such other address as any such party hereto may, from time to time,
designate in writing to all other parties hereto, and any such communication
shall be deemed to be given, made or served as of the date so delivered or, in
the case of any communication delivered by mail, as of the date so received.
Section 5.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the Company, the Stockholders and their respective
heirs, devisees, legal representatives, successors, permitted assigns and other
permitted transferees. The rights of a Stockholder under this Agreement may not
be assigned or otherwise conveyed by any Stockholder except in connection with a
Transfer of Shares which is in compliance with this Agreement; PROVIDED,
HOWEVER, the rights of MDC under Sections 2.3, 2.4 and 3.1 are not assignable
other than as a result of a Permitted Transfer described in Section 2.2(a)(iii).
18
<PAGE>
Section 5.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO SUCH STATE'S CHOICE OF LAW PROVISIONS.
Section 5.7 SUBMISSION TO JURISDICTION. (a) Each of the parties hereto
(other than the Michigan Fund) hereby irrevocably acknowledges and consents that
any legal action or proceeding brought with respect to any of the obligations
arising under or relating to this Agreement may be brought in the courts of the
State of New York or in the United States District Court for the Southern
District of New York, as the party bringing such action or proceeding may elect,
and each of the parties hereto (other than the Michigan Fund) hereby irrevocably
submits to and accepts with regard to any such action or proceeding, for itself
and in respect of its property, generally and unconditionally, the jurisdiction
of the aforesaid courts. Subject to Section 5.7(b), the foregoing shall not
limit the rights of any party to serve process in any other manner permitted by
law. The foregoing consents to jurisdiction shall not constitute general
consents to service of process in the State of New York for any purpose except
as provided above and shall not be deemed to confer rights on any Person other
than the respective parties to this Agreement.
(b) Each of the parties hereto (other than the Michigan Fund) hereby
waives any right it may have under the laws of any jurisdiction to commence by
publication any legal action or proceeding with respect to this Agreement. To
the fullest extent permitted by applicable law, each of the parties hereto
(other than the Michigan Fund) hereby irrevocably waives the objection which it
may now or hereafter have to the laying of the venue of any suit, action or
proceeding arising out of or relating to this Agreement in any of the courts
referred to in Section 5.7(a) and hereby further irrevocably waives any claim
that any such court is not a convenient forum for any such suit, action or
proceeding.
(c) The parties hereto agree that any judgment obtained by any party
hereto or its successors or assigns in any action, suit or proceeding referred
to above may, in the discretion of such party (or its successors or assigns), be
enforced in any jurisdiction, to the extent permitted by applicable law.
(d) The parties hereto agree that the remedy at law for any breach of this
Agreement may be inadequate and that should any dispute arise concerning the
sale or disposition of any Shares or the voting thereof or any other similar
matter hereunder, this Agreement shall be enforceable in a court of equity by an
injunction or a decree of specific performance. Such remedies shall, however, be
cumulative and nonexclusive, and shall be in addition to any other remedies
which the parties hereto may have.
Section 5.8 BENEFITS ONLY TO PARTIES. Nothing expressed by or mentioned
in this Agreement is intended or shall be construed to give any Person, other
than the parties hereto and their respective successors or permitted assigns,
any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision herein contained, this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
19
<PAGE>
benefit of the parties hereto and their respective successors and permitted
assigns, and for the benefit of no other Person.
Section 5.9 TERMINATION. This Agreement shall terminate upon the
happening of any one of the following events:
(a) the voluntary or involuntary dissolution of the Company;
(b) the Sale of the Business as provided in Section 2.4; and
(c) the consummation of an IPO, except that (i) the rights of the
Stockholders under Section 2.6 shall survive such termination (ii) the rights of
the Management Stockholders and obligations of MDC under Section 2.3 shall
survive such termination, and (iii) the restrictions under Section 2.1 and
2.2(a)(viii) of this Agreement in respect of Stockholders transferring Call
Shares following an IPO and any rights of the Company to repurchase Call Shares
and/or Vested Stock Options pursuant to Section 2.5 shall survive such
termination for a period of two years following the IPO;
PROVIDED, HOWEVER, the provisions of Section 5.11 shall survive any termination
of this Agreement.
Section 5.10 PUBLICITY. Except as otherwise required by applicable laws
or regulations, none of the parties hereto shall issue or cause to be issued any
press release or make or cause to be made any other public statement in each
case relating to or connected with or arising out of this Agreement or the
matters contained herein, without obtaining the prior approval of the Company to
the contents and the manner of presentation and publication thereof.
Section 5.11 CONFIDENTIALITY. Each of the parties hereto hereby agrees
that it shall keep (and shall cause its directors, officers, employees,
representatives and outside advisors and its affiliates to keep) all non-public
information relating to the Company (including any such information received
prior to the date hereof) confidential except information which (i) becomes
known to such Stockholder from a source, other than the Company, its respective
directors, officers, employees, representatives or outside advisors, which
source is not obligated to the Company to keep such information confidential or
(ii) becomes generally available to the public through no breach of this
Agreement by any party hereto. Each of the parties hereto agrees that such
non-public information (a) shall be communicated only to those of its directors,
officers, employees, representatives, outside advisors and affiliates who need
to know such non-public information and (b) will not be used by such party or
its directors, officers, employees, representatives, outside advisors or
affiliates either to compete with the Company or to conduct itself in a manner
inconsistent with the antitrust laws of the United States or any state.
Notwithstanding the foregoing, a party hereto may disclose non-public
information if required to do so by law or a court of competent jurisdiction or
by any governmental agency; PROVIDED, HOWEVER, that prompt notice of such
required disclosure be given to the Company prior to the making of such
disclosure so that the Company may seek a protective order or other appropriate
remedy; PROVIDED FURTHER, that such party shall not be required to give such
disclosure to the Company if such disclosure is required by any regulatory
agency in the ordinary course of
20
<PAGE>
business. In the event that such protective order or other remedy is not
obtained, the party hereto required to disclose the non-public information will
disclose only that portion which such party is advised by counsel is legally
required to be disclosed and will request that confidential treatment be
accorded such portion of the non-public information. In addition,
notwithstanding the foregoing, the TCW Entities may disclose any information
regarding the Company to any prospective purchasers of securities of the Company
so long as such prospective purchasers agree to maintain the confidentiality of
such information at least to the extent provided for in this paragraph.
Section 5.12 FEE; EXPENSES. The parties hereto acknowledge that MDC
Management Company IV, LLC, an Affiliate of MDC, or its respective successors or
assigns, (i) have received from the Company or its Subsidiaries an aggregate
transaction fee equal to $9,900,000 and (ii) shall receive an ongoing management
fee, adjusted annually, equal to the greater of $550,000 per annum and 1.06% of
pro forma EBITDA of the Company, for the preceding fiscal year, PROVIDED that in
no event shall such ongoing management fee exceed $1,000,000 in any year, in
each case plus reimbursement for its out-of-pocket expenses.
Section 5.13 AMENDMENTS; WAIVERS. No provision of this Agreement may be
amended, modified or waived without approval of the holders of 66-2/3% of the
then outstanding shares of Common Stock held by Persons party hereto; provided
that no amendment or waiver of a provision of this Agreement which adversely
affects the rights of any of the Non-MDC Stockholders may be made without such
Non-MDC Stockholders' consent with the Non-MDC Stockholders being considered as
a group with the determination by the holders of a majority of the outstanding
Shares and Vested Stock Options held by the Non-MDC Stockholders being binding
on all Non-MDC Stockholders; provided further that no amendment or waiver of a
provision of this Agreement which adversely and disproportionately affects the
rights of any of the Management Stockholders may be made without such Management
Stockholders' consent with the Management Stockholders being considered as a
group with the determination by the holders of a majority of the outstanding
Shares and Vested Stock Options held by the Management Stockholders being
binding on all Management Stockholders; provided further that no amendment of
Sections 2.2(a)(viii) and 2.5 which adversely affects the rights, or
obligations, of any of the Management Stockholders may be made without such
Management Stockholder's consent; provided further that (x) no amendment which
adversely and disproportionately affects the rights of the TCW Entities may be
made without the TCW Entities' consent with the TCW Entities being considered as
a group with the determination by the holders of a majority of the outstanding
Shares held by the TCW Entities being binding on all TCW Entities, and (y) no
amendment of Section 2.3 or 2.6 which adversely affects the rights of the TCW
Entities may be made without the TCW Entities' consent with the TCW Entities
being considered as a group with the determination by the holders of a majority
of the outstanding Shares held by the TCW Entities being binding on all TCW
Entities.
21
<PAGE>
Section 5.14 SEVERABILITY. In case any of the provisions contained
herein shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision or provisions are not
contained herein.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
DIMAC HOLDINGS, INC.
By /s/ James Wu
-----------------------------
Name: James Wu
Title: Assistant Secretary
MCCOWN DE LEEUW & CO. IV, L.P.,
By: MDC Management Co. IV, LLC,
its General Partner
By /s/ Tyler T. Zachem
-----------------------------
Name: Tyler T. Zachem
Title: Member
DELTA FUND LLC
By /s/ Tyler T. Zachem
-----------------------------
Name: Tyler T. Zachem
Title: Member
MCCOWN DE LEEUW & CO. IV ASSOCIATES, L.P.
By: MDC Management Co. IV, LLC,
its General Partner
By /s/ Tyler T. Zachem
-----------------------------
Name: Tyler T. Zachem
Title: Member
<PAGE>
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT
PARTNERS, L.P.
By: TCW/Crescent Mezzanine, L.L.C.,
its general partner or managing owner
By /s/ Jean-Marc Chapus
--------------------------------------
Name: Jean-Marc Chapus
Title: Managing Director
By /s/ John C. Rocchio
--------------------------------------
Name: John C. Rocchio
Title: Managing Director
<PAGE>
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Investment Management
Company, its investment advisor
By /s/ Jean-Marc Chapus
--------------------------------------
Name: Jean-Marc Chapus
Title: Managing Director
By /s/ John C. Rocchio
--------------------------------------
Name: John C. Rocchio
Title: Managing Director
<PAGE>
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisors (Bermuda), Limited,
as general partner
By /s/ Jean-Marc Chapus
--------------------------------------
Name: Jean-Marc Chapus
Title: Managing Director
By: TCW Investment Management
Company, as investment advisor
By /s/ John C. Rocchio
--------------------------------------
Name: John C. Rocchio
Title: Managing Director
<PAGE>
FIRST UNION INVESTORS, INC.
By /s/ James C. Cook
--------------------------------------
Name: James C. Cook
Title: Senior Vice President
<PAGE>
DIMAC EQUITY INVESTORS, L.L.C.
By: Merchant GP, Inc., as managing member
By /s/ John M. Carroll
--------------------------------------
Name: John M. Carroll
Title: Vice President
<PAGE>
DIMAC HOLDINGS, INC.
WARRANT AGREEMENT
This Warrant Agreement dated as of October 22, 1998 (this "Agreement") is
entered into by and among DIMAC Holdings, Inc., a Delaware corporation ("DIMAC
Holdings"), and the purchasers party hereto (each, a "Purchaser" and
collectively, the "Purchasers"). All capitalized terms used but not defined
herein shall have the respective meanings ascribed to such terms in the
Securities Purchase Agreement (as hereinafter defined).
WHEREAS, pursuant to a Securities Purchase Agreement dated as of the date
hereof (the "Securities Purchase Agreement") by and among DIMAC Holdings, DIMAC
Corporation, a Delaware corporation, and the Purchasers, DIMAC Holdings proposes
to issue to the Purchasers certain Warrants, as hereinafter described (the
"Warrants"), to purchase an aggregate of 28,205 shares (subject to adjustment)
of Common Stock (the "Common Stock"), $0.001 par value, of DIMAC Holdings (the
shares of Common Stock and other securities issuable upon exercise of the
Warrants being referred to herein as the "Warrant Shares");
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
Section 1. Warrant Certificates. DIMAC Holdings will issue and deliver a
certificate or certificates evidencing the Warrants (the "Warrant Certificates")
pursuant to the terms of the Securities Purchase Agreement. Such Warrant
Certificates shall be substantially in the form set forth as Exhibit A attached
hereto. Warrant Certificates shall be dated the date of issuance by DIMAC
Holdings.
Section 2. Execution of Warrant Certificates. Warrant Certificates shall
be signed on behalf of DIMAC Holdings by its Chairman of the Board, Chief
Executive Officer, President or a Vice President. Each such signature upon
the Warrant Certificates may be in the form of a facsimile signature of the
present or any future Chairman of the Board, Chief Executive Officer,
President or Vice President, and may be imprinted or otherwise reproduced on
the Warrant Certificates and for that purpose DIMAC Holdings may adopt and
use the facsimile signature of any person who shall have been Chairman of the
Board, Chief Executive Officer, President or Vice President, notwithstanding
the fact that at the time the Warrant Certificates shall be delivered or
disposed of he shall have ceased to hold such office. Each Warrant
Certificate shall also be signed on behalf of DIMAC Holdings by a manual or
facsimile signature of its Secretary or an Assistant Secretary.
Section 3. Registration. DIMAC Holdings shall number and register the
Warrant Certificates and the Warrant Shares in registers (the "Warrant Register"
and the "Warrant Shares Register," respectively) as they are issued. DIMAC
Holdings may deem and treat the registered holder(s) from time to time of the
Warrant Certificates (the "Holders") as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes and shall not be affected by any notice to the
contrary. The Warrants shall be registered initially in such name or names as
the Purchasers shall designate.
Section 4. Restrictions on Transfer; Registration of Transfers. Prior to any
proposed transfer of the Warrants or the Warrant Shares, unless such transfer is
made pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), the transferring Holder will, if
requested by DIMAC Holdings, deliver to DIMAC Holdings an opinion of counsel,
reasonably satisfactory in form and substance to DIMAC Holdings, to the effect
that the Warrants or Warrant Shares, as applicable, may be sold or otherwise
transferred without registration
<PAGE>
under the Securities Act; provided, however, that with respect to transfers by a
Holder to its Affiliate or Affiliates, no such opinion shall be required. A
transfer made by a Holder which is a state-sponsored employee benefit plan to a
successor trust or fiduciary pursuant to a statutory reconstitution shall be
expressly permitted and no opinions of counsel shall be required in connection
therewith. Upon original issuance thereof, and until such time as the same shall
have been registered under the Securities Act or sold pursuant to Rule 144
promulgated thereunder (or any similar rule or regulation), each Warrant
Certificate shall bear the legend included on the first page of Exhibit A,
unless in the opinion of such counsel, such legend is no longer required by the
Securities Act or by the Stockholders Agreement, as applicable.
Subject to the conditions to transfer contained in the Stockholders
Agreement, DIMAC Holdings shall from time to time register the transfer of any
outstanding Warrant Certificates in the Warrant Register to be maintained by
DIMAC Holdings upon surrender thereof accompanied by a written instrument or
instruments of transfer in form reasonably satisfactory to DIMAC Holdings, duly
executed by the registered Holder or Holders thereof or by the duly appointed
legal representative thereof or by a duly authorized attorney. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee Holder(s) and the surrendered Warrant Certificate shall be canceled
and disposed of by DIMAC Holdings. Any attempted transfer in violation of the
Stockholders Agreement shall be null and void ab initio.
Notwithstanding any contrary provision of Section 5 of the Securities
Purchase Agreement, so long as any Warrants remain outstanding and so long as
DIMAC Holdings shall not have registered any of its securities pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended, or filed a
registration statement pursuant to the requirements of the Securities Act, upon
written request, DIMAC Holdings will deliver to each Holder the financial
statements, reports and compliance certificates specified by Sections 5.2 and
5.3 of the Securities Purchase Agreement, regardless of whether any Notes (as
defined in the Securities Purchase Agreement) remain unpaid and outstanding.
Section 5. Warrants; Exercise of Warrants.
(a) Subject to the terms of this Agreement, each Holder shall have the
right, which may be exercised commencing on the date of issuance of the
Warrants and until 5:00 p.m., New York time, on October 22, 2009 (the
"Expiration Date"), to receive from DIMAC Holdings the number of fully paid
and nonassessable Warrant Shares (and such other consideration) which the
Holder may at the time be entitled to receive on exercise of such Warrants
and payment of the Exercise Price then in effect for such Warrant Shares.
Each Warrant not exercised prior to 5:00 p.m., New York time, on the
Expiration Date shall become void and all rights thereunder and all rights
in respect thereof under this Agreement shall cease as of such time. No
adjustments as to dividends will be made upon exercise of the Warrants,
except as otherwise expressly provided herein.
(b) In the event that Holders would have any obligation to sell their
Warrant Shares under the terms of the Stockholders Agreement if they were
holders of Common Stock, the Warrants shall be deemed exercised and the
Holders shall sell their Warrant Shares as required by the terms of the
Stockholders Agreement. If a Holder shall fail to comply with the terms of
this Agreement or the Stockholders Agreement in connection with the
surrender of Warrants or the sale of Warrant Shares as contemplated by the
Stockholders Agreement such Holder shall receive only the consideration
(without interest) which such Holder would have received had such Holder
complied with such terms and the Warrants shall cease to have any other
rights.
<PAGE>
(c) The price at which each Warrant shall be exercisable (the "Exercise
Price") shall initially be $0.01 per share, subject to adjustment pursuant
to the terms hereof.
(d) A Warrant may be exercised upon surrender to DIMAC Holdings at its
office designated for such purpose (as provided for in Section hereof) of
the Warrant Certificate or Certificates to be exercised with the form of
election to purchase attached thereto duly filled in and signed, and upon
payment to DIMAC Holdings of the Exercise Price for the number of Warrant
Shares in respect of which such Warrants are then exercised. Payment of the
aggregate Exercise Price shall be made in cash or by certified or official
bank check payable to the order of DIMAC Holdings.
(e) Subject to the provisions of Section hereof, upon such surrender of
Warrant Certificates and payment of the Exercise Price, DIMAC Holdings
shall issue and cause to be delivered, as promptly as practicable, to or
upon the written order of the Holder and in such name or names as such
Holder may designate a certificate or certificates for the number of full
Warrant Shares issuable upon the exercise of such Warrants (and such other
consideration as may be deliverable upon exercise of such Warrants)
together with cash for fractional Warrant Shares as provided in Section
hereof. The certificate or certificates for such Warrant Shares shall be
deemed to have been issued and the person so named therein shall be deemed
to have become a holder of record of such Warrant Shares as of the date of
the surrender of such Warrants and payment of the Exercise Price,
irrespective of the date of delivery of such certificate or certificates
for Warrant Shares. DIMAC Holdings shall register the Warrant Shares in the
Warrant Shares Register, as provided in Section hereof, and shall from time
to time register the transfer of any outstanding Warrant Shares in the
Warrant Shares Register.
(f) Subject to the subsection (b) of this Section , each Warrant shall be
exercisable, at the election of the Holder thereof, either in full or from
time to time in part and, in the event that a Warrant Certificate is
exercised in respect of fewer than all of the Warrant Shares issuable on
such exercise at any time prior to the date of expiration of the Warrants,
a new certificate evidencing the remaining Warrant or Warrants will be
issued and delivered pursuant to the provisions of this Section and of
Section hereof.
(g) All Warrant Certificates surrendered upon exercise of Warrants shall
be cancelled and disposed of by DIMAC Holdings. DIMAC Holdings shall keep
copies of this Agreement and any notices given or received hereunder
available for inspection by the Holders during normal business hours at its
office.
(h) In addition to and without limiting the rights of the Holder under the
terms hereof, at a Holder's option, a Warrant Certificate may be exercised
by being exchanged in whole or in part at any time or from time to time
prior to the Expiration Date for a number of shares of Common Stock having
an aggregate Specified Value (as defined in subsection (g) of Section
hereof) on the date of such exercise equal to the difference between (x)
the Specified Value of the number of Warrant Shares in respect of which
such Warrant Certificate is then exercised and (y) the aggregate Exercise
Price for such shares in effect at such time. The following equation
illustrates how many Warrant Shares would then be issued upon exercise
pursuant to this subsection:
X = {(SV)(N) - (PSP)(N)} OVER {SV}
<PAGE>
where:
SV = Specified Value per Warrant Share at date of exercise.
PSP = Per share Exercise Price at date of exercise.
N = Number of Warrant Shares in respect of which the Warrant
Certificate is being exercised by exchange.
X = Number of Warrant Shares issued upon exercise by exchange.
Upon any such exercise, the number of Warrant Shares purchasable upon
exercise of such Warrant Certificate shall be reduced by the number of
Warrant Shares so exchanged and, if a balance of purchasable Warrant Shares
remain after such exercise, DIMAC Holdings shall execute and deliver to the
holder hereof a new Warrant for such balance of Warrant Shares.
No payment of any cash or other consideration to DIMAC Holdings shall
be required from the Holder of a Warrant in connection with any exercise of
thereof by exchange pursuant to this subsection. Such exchange shall be
effective upon the date of receipt by DIMAC Holdings of the original
Warrant surrendered for cancellation and a written request from the Holder
thereof that the exchange pursuant to this subsection be made, or at such
later date as may be specified in such request. No fractional shares
arising out of the above formula for determining the number of Warrant
Shares issuable in such exchange shall be issued, and DIMAC Holdings shall
in lieu thereof make payment to the Holder of cash in the amount of such
fraction multiplied by the Specified Value of a Warrant Share on the date
of the exchange.
Section 6. Payment of Taxes. DIMAC Holdings will pay all documentary stamp
taxes and other governmental charges (excluding all foreign, federal or state
income, franchise, property, estate, inheritance, gift or similar taxes) in
connection with the issuance or delivery of the Warrants hereunder, as well as
all such taxes attributable to the initial issuance or delivery of Warrant
Shares upon the exercise of Warrants and payment of the Exercise Price. DIMAC
Holdings shall not, however, be required to pay any tax that may be payable in
respect of any subsequent transfer of the Warrants or any transfer involved in
the issuance and delivery of Warrant Shares in a name other than that in which
the Warrants to which such issuance relates were registered, and, if any such
tax would otherwise be payable by DIMAC Holdings, no such issuance or delivery
shall be made unless and until the person requesting such issuance has paid to
DIMAC Holdings the amount of any such tax, or it is established to the
reasonable satisfaction of DIMAC Holdings that any such tax has been paid.
Section 7. Mutilated or Missing Warrant Certificates. If a mutilated Warrant
Certificate is surrendered to DIMAC Holdings, or if the Holder of a Warrant
Certificate claims and submits an affidavit or other evidence satisfactory to
DIMAC Holdings to the effect that the Warrant Certificate has been lost,
destroyed or wrongfully taken, DIMAC Holdings shall issue a replacement Warrant
Certificate. If required by DIMAC Holdings such Holder must provide an indemnity
bond, or other form of indemnity, sufficient in the judgment of DIMAC Holdings
to protect DIMAC Holdings from any loss which it may suffer if a Warrant
Certificate is replaced. If any Purchaser or any other institutional Holder (or
nominee thereof) is the owner of any such lost, stolen or destroyed Warrant
Certificate, then the affidavit of an authorized officer of such owner, setting
forth the fact of loss, theft or destruction and of its ownership of the Warrant
Certificate at the time of such loss, theft or destruction shall be accepted as
satisfactory evidence thereof and no further indemnity shall be required as a
condition to the execution and delivery of a new Warrant Certificate other than
the unsecured written agreement of such owner to indemnify DIMAC Holdings or, at
the option of such Purchaser or other institutional Holder, an indemnity bond in
the amount of the Specified Value of
<PAGE>
the Warrant Shares for which such Warrant Certificate was exercisable.
Section 8. Reservation of Warrant Shares. DIMAC Holdings shall at all times
reserve and keep available, free from preemptive rights (except as otherwise
provided herein), out of the aggregate of its authorized but unissued Common
Stock or its authorized and issued Common Stock held in its treasury, for the
purpose of enabling it to satisfy any obligation to issue Warrant Shares upon
exercise of Warrants, the maximum number of shares of Common Stock which may
then be deliverable upon the exercise of all outstanding Warrants, but such
shares of Common Stock shall be subject to the terms and conditions of the
Stockholders Agreement.
DIMAC Holdings or, if appointed, the transfer agent for the Common Stock
and each transfer agent for any shares of DIMAC Holdings' capital stock issuable
upon the exercise of any of the Warrants (collectively, the "Transfer Agent")
will be irrevocably authorized and directed at all times to reserve such number
of authorized shares as shall be required for such purpose. DIMAC Holdings shall
keep a copy of this Agreement on file with any such Transfer Agent. DIMAC
Holdings will supply any such Transfer Agent with duly executed certificates for
such purposes and will provide or otherwise make available all other
consideration that may be deliverable upon exercise of the Warrants. DIMAC
Holdings will furnish any such Transfer Agent a copy of all notices of
adjustments and certificates related thereto, transmitted to each Holder
pursuant to Section hereof.
Before taking any action which would cause an adjustment pursuant to
Section hereof to reduce the Exercise Price below the then par value (if any) of
the Warrant Shares, DIMAC Holdings shall take any corporate action which may, in
the opinion of its counsel, be necessary in order that DIMAC Holdings may
validly and legally issue fully paid and nonassessable Warrant Shares at the
Exercise Price as so adjusted.
DIMAC Holdings covenants that all Warrant Shares and other capital stock
issued upon exercise of Warrants will, upon payment of the Exercise Price
therefor and issue thereof, be validly authorized and issued, fully paid,
nonassessable, free of preemptive rights (except as may be granted by this
Agreement) and free, subject to Section hereof, from all taxes, liens, charges
and security interests with respect to the issue thereof, but such Warrant
Shares shall be subject to the terms and conditions of the Stockholders
Agreement.
Section 9. Adjustment of Exercise Price and Warrant Number. The number of
shares of Common Stock issuable upon the exercise of each Warrant (the "Warrant
Number") is initially one. The Warrant Number is subject to adjustment from time
to time upon the occurrence of the events enumerated in, or as otherwise
provided in, this Section .
(a) Adjustment for Change in Capital Stock. If DIMAC Holdings:
(i) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(ii) subdivides or reclassifies its outstanding shares of Common Stock
into a greater number of shares;
(iii) combines or reclassifies its outstanding shares of Common Stock
into a smaller number of shares;
(iv) makes a distribution on Common Stock in shares of its capital
stock other
<PAGE>
than Common Stock; or
(v) issues by reclassification of its Common Stock any shares of its
capital stock (other than reclassifications arising solely as a result
of a change in the par value or no par value of the Common Stock);
then the Warrant Number in effect immediately prior to such action shall be
proportionately adjusted so that the Holder of any Warrant thereafter
exercised may receive the aggregate number and kind of shares of capital
stock of DIMAC Holdings which it would have owned immediately following
such action if such Warrant had been exercised immediately prior to such
action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or
reclassification.
Such adjustment shall be made successively whenever any event listed
above shall occur. If the occurrence of any event listed above results in
an adjustment under subsection (b) or (c) of this Section , no further
adjustment shall be made under this subsection (a).
DIMAC Holdings shall not issue shares of Common Stock as a dividend or
distribution on any class of capital stock other than Common Stock, unless
the Holders also receive such dividend or distribution on a ratable basis
or the appropriate adjustment to the Warrant Number is made under this
Section .
(b) Adjustment for Rights Issue. If DIMAC Holdings distributes (and
receives no consideration therefor) any rights, options or warrants
(whether or not immediately exercisable) to all holders of any class of its
Common Stock entitling them to purchase shares of Common Stock at a price
per share less than the Specified Value per share on the record date
relating to such distribution, the Warrant Number shall be adjusted in
accordance with the following formula:
W'=~W `TIMES` {O `+` N} OVER {O `+ `{{N `TIMES` P} OVER M}}
where:
W' = the adjusted Warrant Number.
W = the Warrant Number immediately prior to the record date
for any such distribution.
O = the number of shares of Common Stock outstanding on the
record date for any such distribution.
N = the number of additional shares of Common Stock issuable
upon exercise of such rights, options or warrants.
P = the exercise price per share of such rights, options or
warrants.
M = the Specified Value per share of Common Stock on the record
date for any such distribution.
<PAGE>
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after
the record date for the determination of stockholders entitled to receive
the rights, options or warrants. If at the end of the period during which
such rights, options or warrants are exercisable, not all rights, options
or warrants shall have been exercised, the adjusted Warrant Number shall be
immediately readjusted to what it would have been if "N" in the above
formula had been the number of shares actually issued.
(c) Adjustment for Other Distributions. If DIMAC Holdings distributes to
all holders of any class of its Common Stock (i) any evidences of
indebtedness of DIMAC Holdings or any of its subsidiaries, (ii) any assets
of DIMAC Holdings or any of its subsidiaries, or (iii) any rights, options
or warrants to acquire any of the foregoing or to acquire any other
securities of DIMAC Holdings, the Warrant Number shall be adjusted in
accordance with the following formula:
W'=~W `TIMES` {M OVER {M`-`F}}
where:
W' = the adjusted Warrant Number.
W = the Warrant Number immediately prior to the record date
mentioned below.
M = the Specified Value per share of Common Stock on the record
date mentioned below.
F = the fair market value on the record date mentioned below of
the shares, the indebtedness, assets, rights, options or
warrants distributable to the holder of one share of Common
Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
distribution. If an adjustment is made pursuant to this subsection (c) as a
result of the issuance of rights, options or warrants and at the end of the
period during which any such rights, options or warrants are exercisable,
not all such rights, options or warrants shall have been exercised, the
adjusted Warrant Number shall be immediately readjusted as if "F" in the
above formula was the fair market value on the record date of the
indebtedness or assets actually distributed upon exercise of such rights,
options or warrants divided by the number of shares of Common Stock
outstanding on the record date.
This subsection does not apply to any transaction described in
subsection (a) of this Section or to rights, options or warrants referred
to in subsection (b) of this Section .
(d) Adjustment for Common Stock Issue. If DIMAC Holdings issues shares of
Common Stock for a consideration per share less than the Specified Value
per share on the date DIMAC Holdings fixes the offering price of such
additional shares, the Warrant Number shall be adjusted in accordance with
the following formula:
<PAGE>
W'=~W `TIMES` {A OVER {O `+ `{P OVER M}}}
where:
W' = the adjusted Warrant Number.
W = the Warrant Number immediately prior to any such issuance.
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares of Common
Stock.
P = the aggregate consideration received for the issuance of
such additional shares of Common Stock.
M = the Specified Value per share of Common Stock on the date of
issuance of such additional shares.
A = the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares of Common
Stock.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
This subsection (d) does not apply to any of the transactions
described in subsection (a) of this Section or the issuances described
below:
(i) The issuance of Common Stock upon the conversion, exercise or
exchange of any Convertible Securities (as defined below), including
the Warrants, outstanding on the date hereof or for which an
adjustment has been made pursuant to this Section ; or
(ii) (A) The grant of rights to purchase shares of Common Stock
representing, in the aggregate (taking into account all such grants
since October 22, 1998), up to 5% of the outstanding shares of Common
Stock, and the issuance of such shares of Common Stock upon exercise
of such rights, to directors or members of management of DIMAC
Holdings and its subsidiaries pursuant to management incentive plans,
stock option and stock purchase plans or agreements adopted by the
board of directors of DIMAC Holdings and (B) following the acquisition
by DIMAC Holdings of any of the rights or shares referred to in clause
(A) the reissuance of any such acquired rights and the issuance of
shares of Common Stock upon exercise thereof.
(e) Adjustment for Convertible Securities Issue. If DIMAC Holdings issues
any options, warrants or other securities convertible into or exchangeable
or exercisable for Common Stock ("Convertible Securities") (other than
securities issued in transactions described in subsection (b) or (c) of
this Section ) for a consideration per share of Common Stock initially
deliverable upon conversion, exchange or exercise of such securities less
than the Specified Value per share on the date of issuance of such
securities, the Warrant Number shall be adjusted in accordance with the
following formula:
W'=~W `TIMES` {O `+` D} OVER {O `+ `{P OVER M}}
<PAGE>
where:
W' = the adjusted Warrant Number.
W = the Warrant Number immediately prior to any such issuance.
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such securities.
P = the sum of the aggregate consideration received for the
issuance of such securities and the aggregate minimum
consideration receivable by DIMAC Holdings for issuance of
Common Stock upon conversion or in exchange for, or upon
exercise of, such securities.
M = the Specified Value per share of Common Stock on the date
of issuance of such securities.
D = the maximum number of shares of Common Stock deliverable
upon conversion or in exchange for or upon exercise of such
securities at the initial conversion, exchange or exercise
rate.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
If all of the Common Stock deliverable upon conversion, exchange or
exercise of such securities has not been issued when the conversion,
exchange or exercise rights of such securities have expired or been
terminated, then the adjusted Warrant Number shall promptly be readjusted
to the adjusted Warrant Number which would then be in effect had the
adjustment upon the issuance of such securities been made on the basis of
the actual number of shares of Common Stock issued upon conversion,
exchange or exercise of such securities. If the aggregate minimum
consideration receivable by DIMAC Holdings for issuance of Common Stock
upon conversion or in exchange for, or upon exercise of, such securities
shall be increased by virtue of provisions therein contained or upon the
arrival of a specified date or the happening of a specified event, then the
Warrant Number shall promptly be readjusted to the Warrant Number which
would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of such increased minimum consideration.
This subsection (e) does not apply to the issuance of the Warrants or
to any of the transactions described in paragraph (b) of this Section or
excluded from the provisions of paragraph (d) of this Section .
(f) Adjustment for Tender Offer. If DIMAC Holdings or any subsidiary of
DIMAC Holdings consummates a tender offer for any Common Stock and
purchases shares pursuant to such tender offer for an aggregate
consideration having a fair market value (as determined reasonably and in
good faith by the board of directors of DIMAC Holdings and described in a
board resolution) as of the last time (the "Expiration Time") that tenders
may be made pursuant to such tender offer (as it shall have been amended)
that, together with (i) the aggregate of the cash plus the fair market
value (as determined reasonably and in good faith by the board of directors
of DIMAC Holdings and described in a board resolution) of the consideration
paid in respect of any other tender offer by DIMAC Holdings or any
subsidiaries of DIMAC Holdings for any Common Stock consummated within the
12 months
<PAGE>
preceding the Expiration Time and in respect of which no adjustment
pursuant to this subsection (f) has been made previously and (ii) the
aggregate amount of any distributions to all holders of Common Stock made
exclusively in cash within 12 months preceding the Expiration Time exceeds
5.0% of the product of the Specified Value per share immediately prior to
the Expiration Time times the number of shares of Common Stock outstanding
(including any tendered shares) at the Expiration Time, the Warrant Number
shall be adjusted in accordance with the following formula:
W'=~W `TIMES` {M `TIMES` (O `-` N)} OVER {(M `TIMES`O)`-F}
where:
W' = the adjusted Warrant Number.
W = the Warrant Number immediately prior to the Expiration Time.
M = the Specified Value per share of Common Stock immediately
prior to the Expiration Time.
O = the number of shares of Common Stock outstanding (including
any tendered shares) at the Expiration Time.
F = the fair market value of the aggregate consideration paid
for all shares of Common Stock purchased pursuant to the
tender offer.
N = the number of shares of Common Stock accepted for payment
in such tender offer.
If the number of shares accepted for payment in such tender offer or
the aggregate consideration payable therefor have not been finally
determined by the opening of business on the day following the Expiration
Time, the adjustment required by this subsection (f) shall, pending such
final determination, be made based upon the preliminary announced results
of such tender offer, and, after such final determination shall have been
made, the adjustment required by this subsection (f) shall be based upon
the number of shares accepted for payment in such tender offer and the
aggregate consideration payable therefor as so finally determined.
(g) "Specified Value" per share of Common Stock or of any other security
(herein collectively referred to as a "Security") at any date shall be:
(i) if the Security is not registered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (1) the value of the
Security determined in good faith by the board of directors of DIMAC
Holdings and certified in a board resolution, based on the most
recently completed arm's-length transaction between DIMAC Holdings and
a person other than an Affiliate of DIMAC Holdings in which such
determination is necessary and the closing of which occurs on such
date or shall
<PAGE>
have occurred within the six months preceding such date, (2) if no
such transaction shall have occurred on such date or within such
six-month period, the value of the Security most recently determined
as of a date within the six months preceding such date by an
Independent Financial Expert or (3) if neither clause (1) nor (2) is
applicable, the value of the Security as mutually agreed by DIMAC
Holdings and Holders of at least a majority of the Warrants
outstanding; provided, however, that if DIMAC Holdings and such
Holders are unable to mutually agree upon such value, DIMAC Holdings
shall select an Independent Financial Expert who shall determine the
value of such Security;
(ii) if the Security is registered under the Exchange Act, the average
of the daily market prices for each business day during the period
commencing 10 business days before such date and ending on the date
one day prior to such date or, if the Security has been registered
under the Exchange Act for less than 30 consecutive business days
before such date, then the average of the daily market prices (as
hereinafter defined) for all of the business days before such date for
which daily market prices are available. If the market price is not
determinable for at least 15 business days in such period, the
Specified Value of the Security shall be determined as if the Security
was not registered under the Exchange Act; or
(iii) if the Security is registered under the Exchange Act and is
being sold in a firm commitment underwritten public offering
registered under the Securities Act, the public offering price of
such Security set forth on the cover page of the prospectus relating
to such offering.
The "market price" for any Security on each business day means: (A) if
such Security is listed or admitted to trading on any securities exchange,
the closing price, regular way, on such day on the principal exchange on
which such Security is traded, or if no sale takes place on such day, the
average of the closing bid and asked prices on such day or (B) if such
Security is not then listed or admitted to trading on any securities
exchange, the last reported sale price on such day, or if there is no such
last reported sale price on such day, the average of the closing bid and
the asked prices on such day, as reported by a reputable quotation source
designated by DIMAC Holdings. If there are no such prices on a business
day, then the market price shall not be determinable for such business day.
In the case of Common Stock, if more than one class of Common Stock is
outstanding, the "Specified Value" shall be the highest of the Specified
Values per share of such classes of Common Stock.
"Independent Financial Expert" shall mean a nationally recognized
investment banking firm selected by DIMAC Holdings (i) that does not (and
whose directors, officers, employees and Affiliates do not) have a direct
or indirect financial interest in DIMAC Holdings or any of its Affiliates,
(ii) that has not been, and, at the time it is called upon to serve as an
Independent Financial Expert under this Agreement is not (and none of whose
directors, officers, employees or Affiliates is) a promoter, director or
officer of DIMAC Holdings, (iii) that has not been retained by DIMAC
Holdings or any of its Affiliates for any purpose, other than to perform an
equity valuation, within the preceding twelve months, and (iv) that, in the
reasonable judgment of the board of directors of DIMAC Holdings, is
otherwise qualified to serve as an independent financial advisor. Any such
person may receive customary compensation and indemnification by DIMAC
Holdings for opinions or services it provides as an Independent Financial
Expert.
<PAGE>
(h) Consideration Received. For purposes of any computation respecting
consideration received pursuant to subsections (d) and (e) of this
Section , the following shall apply:
(1) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash (without any
deduction being made for any commissions, discounts or other expenses
incurred by DIMAC Holdings for any underwriting of the issue or
otherwise in connection therewith);
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof
(irrespective of the accounting treatment thereof) as determined in
good faith by the board of directors of DIMAC Holdings; and
(3) in the case of the issuance of options, warrants or other
securities convertible into or exchangeable or exercisable for shares
of Common Stock, the aggregate consideration received therefor shall
be deemed to be the consideration received by DIMAC Holdings for the
issuance of such securities plus the additional minimum consideration,
if any, to be received by DIMAC Holdings upon the conversion, exchange
or exercise thereof (the consideration in each case to be determined
in the same manner as provided in clauses (1) and (2) of this
subsection).
(i) When De Minimis Adjustment May Be Deferred. No adjustment in the
Warrant Number need be made unless the adjustment would require an increase
or decrease of at least 0.5% in the Warrant Number. Any adjustment that is
not made shall be carried forward and taken into account in any subsequent
adjustment, provided that no such adjustment shall be deferred beyond the
date on which a Warrant is exercised.
All calculations under this Section shall be made to the nearest
1/100th of a share.
(j) Adjustment to Exercise Price. Upon each adjustment to the Warrant
Number pursuant to this Section , the Exercise Price shall be adjusted so
that it is equal to the Exercise Price in effect immediately prior to such
adjustment multiplied by a fraction, the numerator of which is the Warrant
Number in effect immediately prior to such adjustment, and the denominator
of which is the Warrant Number in effect immediately after such adjustment.
(k) When No Adjustment Required. If an adjustment is made upon the
establishment of a record date for a distribution subject to subsection
(a), (b) or (c) of this Section and such distribution is subsequently
cancelled, the Warrant Number and Exercise Price then in effect shall be
readjusted, effective as of the date when the board of directors of DIMAC
Holdings determines to cancel such distribution, to that which would have
been in effect if such record date had not been fixed.
To the extent the Warrants become convertible into cash, no adjustment
need be made thereafter as to the amount of cash into which such Warrants
are exercisable. Interest will not accrue on the cash.
(l) Notice of Adjustment. Whenever the Warrant Number or Exercise Price is
adjusted,
<PAGE>
DIMAC Holdings shall provide the notices required by Section hereof.
(m) Voluntary Reduction. DIMAC Holdings from time to time may reduce the
Exercise Price by any amount for any period of time (including, without
limitation, permanently) if the period is at least 20 days and if the
reduction is irrevocable during the period.
Whenever the Exercise Price is reduced, DIMAC Holdings shall mail to
the Holders a notice of the reduction. DIMAC Holdings shall mail the notice
at least 15 days before the date the reduced Exercise Price takes effect.
The notice shall state the reduced Exercise Price and the period it will be
in effect.
A reduction of the Exercise Price under this subsection (m) (other
than a permanent reduction) does not change or adjust the Exercise Price
otherwise in effect for purposes of subsections (a), (b), (c), (d), (e), or
(f) of this Section .
(n) Reorganizations. In case of any capital reorganization, other than in
the cases referred to in subsections (a), (b), (c), (d), (e) or (f) of this
Section , or the consolidation or merger of DIMAC Holdings with or into
another corporation (other than a merger or consolidation in which DIMAC
Holdings is the continuing corporation and which does not result in any
reclassification of the outstanding shares of Common Stock into shares of
other stock or other securities or property), or the sale of the property
of DIMAC Holdings as an entirety or substantially as an entirety
(collectively, such actions being hereinafter referred to as
"Reorganizations"), there shall thereafter be deliverable upon exercise of
any Warrant (in lieu of the number of shares of Common Stock theretofore
deliverable) the number of shares of stock or other securities or property
to which a holder of the number of shares of Common Stock that would
otherwise have been deliverable upon the exercise of such Warrant would
have been entitled upon such Reorganization if such Warrant had been
exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the
board of directors of DIMAC Holdings, whose determination shall be
described in a duly adopted resolution certified by DIMAC Holdings'
Secretary or Assistant Secretary, shall be made in the application of the
provisions herein set forth with respect to the rights and interests of
Holders so that the provisions set forth herein shall thereafter be
applicable, as nearly as possible, in relation to any shares or other
property thereafter deliverable upon exercise of Warrants.
DIMAC Holdings shall not effect any such Reorganization unless prior
to or simultaneously with the consummation thereof the successor
corporation (if other than DIMAC Holdings) resulting from such
Reorganization or the corporation purchasing or leasing such assets or
other appropriate corporation or entity shall expressly assume, by a
supplemental Warrant Agreement or other acknowledgment executed and
delivered to the Holder(s), the obligation to deliver to each such Holder
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to purchase, and all
other obligations and liabilities under this Agreement.
<PAGE>
(o) Form of Warrants. Irrespective of any adjustments in the Exercise
Price or the number or kind of shares purchasable upon the exercise of the
Warrants, Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
(p) Other Dilutive Events. In case any event shall occur as to which the
provisions of this Section are not strictly applicable but the failure to
make any adjustment would not fairly protect the purchase rights
represented by the Warrants in accordance with the essential intent and
principles of such sections, then, in each such case, DIMAC Holdings shall
make a good faith adjustment to the Exercise Price and Warrant Number into
which each Warrant is exercisable in accordance with the intent of this
Section and, upon the written request of the Holders of a majority of the
Warrants, shall appoint a firm of independent certified public accountants
of recognized national standing (which may be the regular auditors of DIMAC
Holdings), which shall give their opinion upon the adjustment, if any, on a
basis consistent with the essential intent and principles established in
this Section , necessary to preserve, without dilution, the purchase rights
represented by these Warrants. Upon receipt of such opinion, DIMAC Holdings
shall promptly mail a copy thereof to the Holder of each Warrant and shall
make the adjustments described therein.
(q) Miscellaneous. For purpose of this Section the term "shares of Common
Stock" shall mean (i) shares of any class of stock designated as Common
Stock of DIMAC Holdings as of the date of this Agreement, (ii) shares of
any other class of stock resulting from successive changes or
reclassification of such shares consisting solely of changes in par value,
or from par value to no par value, or from no par value to par value and
(iii) shares of Common Stock of DIMAC Holdings or options, warrants or
rights to purchase Common Stock of DIMAC Holdings or securities convertible
into or exchangeable for shares of Common Stock of DIMAC Holdings
outstanding on the date hereof and shares of Common Stock of DIMAC Holdings
issued upon exercise, conversion or exchange of such securities. In the
event that at any time, as a result of an adjustment made pursuant to this
Section , the Holders of Warrants shall become entitled to purchase any
securities of DIMAC Holdings other than, or in addition to, shares of
Common Stock, thereafter the number or amount of such other securities so
purchasable upon exercise of each Warrant shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained
in subsections (a) through (p) of this Section , inclusive, and the
provisions of Sections , , and hereof with respect to the Warrant Shares or
the Common Stock shall apply on like terms to any such other securities.
Section 10. Fractional Interests. DIMAC Holdings shall not be required to
issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the same
holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section ,
be issuable on the exercise of any Warrants (or specified portion thereof),
DIMAC Holdings shall, pay an amount in cash equal to the fair market value of
the Warrant Share so issuable (as determined in good faith by the board of
directors of DIMAC Holdings), multiplied by such fraction.
Section 11. Notices to Holders. Upon any adjustment pursuant to Section
hereof, DIMAC Holdings shall promptly thereafter (i) cause to be filed with
DIMAC Holdings a certificate of an officer of DIMAC Holdings setting forth the
Warrant Number and Exercise Price after such adjustment and setting forth in
reasonable detail the method of calculation and the facts upon which
<PAGE>
such calculations are based, and (ii) cause to be given to each of the Holders
at its address appearing on the Warrant Register written notice of such
adjustments. Where appropriate, such notice may be given in advance and included
as a part of the notice required to be mailed under the other provisions of this
Section.
In case:
(a) DIMAC Holdings shall authorize the issuance to all holders of shares
of Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants;
(b) DIMAC Holdings shall authorize the distribution to all holders of
shares of Common Stock of assets, including cash, evidences of its
indebtedness, or other securities;
(c) of any consolidation or merger to which DIMAC Holdings is a party and
for which approval of any stockholders of DIMAC Holdings is required, or of
the conveyance or transfer of the properties and assets of DIMAC Holdings
substantially as an entirety, or of any reclassification or change of
Common Stock issuable upon exercise of the Warrants (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), or a tender offer
or exchange offer for shares of Common Stock;
(d) of the voluntary or involuntary dissolution, liquidation or winding up
of DIMAC Holdings;
(e) DIMAC Holdings proposes to take any action that would require an
adjustment to the Warrant Number or the Exercise Price pursuant to Section
hereof; or
(f) DIMAC Holdings proposes to take any action that would give rise to the
Holders' preemptive rights as specified in the Stockholders Agreement or
elsewhere.
then DIMAC Holdings shall cause to be given to each of the Holders at its
address appearing on the Warrant Register, at least 20 days prior to the
applicable record date hereinafter specified, or the date of the event in the
case of events for which there is no record date, in accordance with the
provisions of Section hereof, a written notice stating (i) the date as of which
the holders of record of shares of Common Stock to be entitled to receive any
such rights, options, warrants or distribution are to be determined, or (ii) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock, or (iii) the date on which any such consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up is expected
to become effective or consummated, and the date as of which it is expected that
holders of record of shares of Common Stock shall be entitled to exchange such
shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section or any defect therein shall not affect the legality or validity of any
distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or the vote upon any action.
Nothing contained in this Agreement or in any Warrant Certificate shall be
construed as conferring upon the Holders (prior to the exercise of such
Warrants) the right to vote or to consent or to receive notice as stockholder in
respect of the meetings of stockholders or the election of members of the board
of directors of DIMAC Holdings or any other matter, or any rights whatsoever
<PAGE>
as stockholders of DIMAC Holdings; provided, however, that nothing in the
foregoing provision is intended to detract from any rights explicitly granted to
any Holder hereunder.
Section 12. Notices to DIMAC Holdings and Holders. All notices and other
communications provided for or permitted hereunder shall be made by
hand-delivery, first-class mail, telex, telecopier, or overnight air courier
guaranteeing next day delivery:
(a) if to Purchasers, TCW/Crescent Mezzanine, L.L.C., 11100 Santa Monica
Boulevard, Suite 2000, Los Angeles, CA 90025, Telecopy No.: 310-235-5967,
Attention: John C. Rocchio, with a copy to Skadden, Arps, Slate, Meagher &
Flom, 300 South Grand Avenue, Suite 3400, Los Angeles, California 90071,
Telecopy number (213) 687-5600, Attention: Rodrigo A. Guerra, Jr., Esq.;
and
(b) if to DIMAC Holdings, 5775 Peachtree Dunwoody Road, Suite C150,
Atlanta, GA 30342, Telecopy No. 404-705-9929, Attention: Chief Financial
Officer, with a copy to McCown De Leeuw & Co., 65 E. 55th Street., New
York, New York 10022, Telecopy No. (212) 355-6283, Attention: James L. Wu,
with a copy to White & Case LLP, 1155 Avenue of the Americas, New York, New
York 10036, Telecopy No. (212) 354-8113, Attention: Frank L. Schiff, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed (so long as a
fax copy is sent and receipt acknowledged within two business days after
mailing); when answered back if telexed; when receipt acknowledged, if
telecopied; and the next business day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery. The parties may
change the addresses to which notices are to be given by giving five days' prior
written notice of such change in accordance herewith.
Section 13. Certain Supplements and Amendments. DIMAC Holdings may from time
to time supplement or amend this Agreement without the approval of any Holders
in order to cure any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions in regard to matters or questions
arising hereunder which DIMAC Holdings may deem necessary or desirable; provided
that any such supplement or amendment shall not in any way adversely affect the
interests of the Holders.
Section 14. Successors. All the covenants and provisions of this Agreement by
or for the benefit of DIMAC Holdings shall bind and inure to the benefit of its
respective successors and assigns hereunder.
Section 15. Termination. This Agreement shall terminate if all Warrants have
been exercised pursuant to this Agreement.
Section 16. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT AND
ALL ISSUES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO PRINCIPLES
OF CONFLICTS OF LAW EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW); PROVIDED THAT DETERMINATIONS RELATING TO CORPORATE LAW SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, DIMAC HOLDINGS
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT
<PAGE>
SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT
SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE
WARRANTS, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. DIMAC
HOLDINGS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO
UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER OF A
WARRANT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST DIMAC HOLDINGS IN ANY OTHER
JURISDICTION.
Section 17. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than DIMAC Holdings and the
Holders any legal or equitable right, remedy or claim under this Agreement; but
this Agreement shall be for the sole and exclusive benefit of DIMAC Holdings and
the Holders.
Section 18. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 19. Amendments and Waivers. Subject to Section hereof, DIMAC
Holdings agrees it will not solicit, request or negotiate for or with respect
to any proposed waiver or amendment of any of the provisions of this
Agreement or any Warrant unless each Holder (irrespective of the amount of
Warrants then owned by it) shall substantially concurrently be informed
thereof by DIMAC Holdings and shall be afforded the opportunity of
considering the same and shall be supplied by DIMAC Holdings with sufficient
information (including any offer of remuneration) to enable it to make an
informed decision with respect thereto which information shall be the same as
that supplied to each other Holder. DIMAC Holdings will not directly or
indirectly, pay or cause to be paid any remuneration whether by way of
supplement or additional interest fee or otherwise, to any Holder as
consideration for or as an inducement to the entering into by any Holder of
any waiver or amendment of any of the terms and provisions of this Agreement
or any Warrant unless such remunerations is concurrently paid on the same
terms, ratably to each Holder whether or not such Holder signs such waiver or
consent, provided that the foregoing is not intended to preclude the adoption
of any amendment or the giving of any waiver by the Holders of a majority of
the Warrants to the extent permitted by the other provisions of this Section.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
DIMAC HOLDINGS, INC.
By: /s/ Martin R. Lewis
----------------------------------
Name: Martin R. Lewis
Title: Chief Executive Officer
----------------------------------
<PAGE>
Purchasers:
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT PARTNERS, L.P.
By: TCW/CRESCENT MEZZANINE, L.L.C.,
its general partner or managing owner
By: /s/ Jean-Marc Chapus
----------------------------------
Name: Jean-Marc Chapus
----------------------------------
Title: Managing Director
----------------------------------
By: /s/ John C. Rocchio
----------------------------------
Name: John C. Rocchio
----------------------------------
Title: Managing Director
----------------------------------
Initial Bank Account and Wire Instructions:
- -------------------------------------------
Bank of New York
700 South Flower Street
2nd Floor
Los Angeles, CA 90017
ABA: 021-000-018
BNF: IOC 565
BBI: A/C#355-744
Account Name: Mezzanine Master Wire Account
Attention: Yolanda Pena (213) 630-6437
Address for Notices:
- --------------------
TCW/Crescent Mezzanine, LLC
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attn: John C. Rocchio
Telecopy No.: (310) 235-596
<PAGE>
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW ADVISORS (BERMUDA), LIMITED,
as General Partner
By: /s/ Jean-Marc Chapus
----------------------------------
Name: Jean-Marc Chapus
Title: Managing Director
By: TCW INVESTMENT MANAGEMENT COMPANY,
as Investment Advisor
By: /s/ John C. Rocchio
----------------------------------
Name: John C. Rocchio
Title: Managing Director
Initial Bank Account and Wire Instructions:
- -------------------------------------------
Bank of New York
700 South Flower Street
2nd Floor
Los Angeles, CA 90017
ABA: 021-000-018
BNF: IOC 565
BBI: A/C#355-744
Account Name: Mezzanine Master Wire Account
Attention: Yolanda Pena (213) 630-6437
Address for Notices:
- --------------------
TCW/Crescent Mezzanine, LLC
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attn: John C. Rocchio
Telecopy No.: (310) 235-5967
<PAGE>
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW INVESTMENT MANAGEMENT COMPANY,
its investment advisor
By: /s/ Jean-Marc Chapus
----------------------------------
Name: Jean-Marc Chapus
----------------------------------
Title: Managing Director
----------------------------------
By: /s/ John C. Rocchio
----------------------------------
Name: John C. Rocchio
----------------------------------
Title: Managing Director
----------------------------------
Initial Bank Account and Wire Instructions:
- -------------------------------------------
Bank of New York
700 South Flower Street
2nd Floor
Los Angeles, CA 90017
ABA: 021-000-018
BNF: IOC 565
BBI: A/C#355-744
Account Name: Mezzanine Master Wire Account
Attention: Yolanda Pena (213) 630-6437
Address for Notices:
- --------------------
TCW/Crescent Mezzanine, LLC
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attn: John C. Rocchio
Telecopy No.: (310) 235-5967
<PAGE>
EXHIBIT A [Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON OCTOBER
22, 1998, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR
SALE OR OTHERWISE DISTRIBUTED EXCEPT IN CONJUNCTION WITH AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, OR IN
COMPLIANCE WITH RULE 144 OR PURSUANT TO ANOTHER EXEMPTION THEREFROM. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A WARRANT AGREEMENT,
THE STOCKHOLDERS AGREEMENT (AS DEFINED BELOW) AND A SECURITIES PURCHASE
AGREEMENT, EACH DATED AS OF OCTOBER 22, 1998, AMONG THE ISSUER OF SUCH
SECURITIES ("DIMAC HOLDINGS"), THE PURCHASERS REFERRED TO THEREIN AND THE OTHER
PARTIES THERETO. THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO THE CONDITIONS
SPECIFIED IN SUCH AGREEMENTS AND DIMAC HOLDINGS RESERVES THE RIGHT TO REFUSE THE
TRANSFER OF THIS CERTIFICATE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
RESPECT TO SUCH TRANSFER. A COPY OF SUCH AGREEMENTS WILL BE FURNISHED WITHOUT
CHARGE BY DIMAC HOLDINGS TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
THE SHARES ISSUABLE UPON EXERCISE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE PREFERENCES, POWERS, QUALIFICATIONS AND RIGHTS OF
EACH CLASS AND SERIES AS SET FORTH IN DIMAC HOLDINGS' CERTIFICATE OF
INCORPORATION. DIMAC HOLDINGS WILL FURNISH A COPY OF THE CERTIFICATE OF
INCORPORATION TO THE HOLDER OF THIS CERTIFICATE UPON WRITTEN REQUEST.
No. _____ ______ Warrants
Warrant Certificate
DIMAC HOLDINGS, INC.
This Warrant Certificate certifies that ___________________________, or
registered assigns, is the registered holder of the number of Warrants (the
"Warrants") set forth above to purchase Common Stock, $0.001 par value (the
"Common Stock"), of DIMAC Holdings, Inc., a Delaware corporation ("DIMAC
Holdings"). Each Warrant entitles the holder upon exercise to receive from DIMAC
Holdings one fully paid and nonassessable share of Common Stock (a "Warrant
Share"), at the initial exercise price (the "Exercise Price") of $.01, payable
in lawful money of the United States of America, upon surrender of this Warrant
Certificate and payment of the Exercise Price at the office of DIMAC Holdings
designated for such purpose, but only subject to the conditions set forth herein
and in the Warrant Agreement referred to hereinafter. The Exercise Price and
number of Warrant Shares issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events, as set forth in the Warrant
Agreement. Each Warrant is exercisable at any time prior to 5:00 p.m., New York
time, on October 22, 2209.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants, and are issued or to be issued pursuant to a
Warrant Agreement dated as of October 22, 1998 (the "Warrant Agreement"), duly
executed and delivered by DIMAC Holdings, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of DIMAC Holdings and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to DIMAC Holdings. Capitalized terms used and not
defined herein shall have the meaning ascribed thereto in the Warrant Agreement.
The holder hereof may exercise the Warrants evidenced hereby under and
pursuant to the terms and conditions of the Warrant Agreement by surrendering
this Warrant Certificate, with the form of election to purchase
<PAGE>
set forth hereon (and by this reference made a part hereof) properly completed
and executed, and, to the extent the Warrants are not being exchanged pursuant
to the Warrant exchange provisions of Section 5 of the Warrant Agreement,
together with payment of the Exercise Price in cash or by certified or bank
check at the office of DIMAC Holdings designated for such purpose. In the event
that upon any exercise of Warrants evidenced hereby the number of Warrants
exercised shall be less than the total number of Warrants evidenced hereby,
there shall be issued by DIMAC Holdings to the holder hereof or its registered
assignee a new Warrant Certificate evidencing the number of Warrants not
exercised.
The Warrant Agreement provides that upon the occurrence of certain events
the number of Warrant Shares issuable upon exercise of a Warrant and the
Exercise Price set forth on the face hereof may, subject to certain conditions,
be adjusted.
The holder hereof will have certain registration rights and other rights
and obligations with respect to the Warrant Shares as provided in the Amended
and Restated Stockholders Agreement dated as of October 22, 1998 by and among
DIMAC Holdings and the persons party thereto, as supplemented and modified
pursuant to the letter dated October 22, 1998 from DIMAC Holdings, McCown De
Leeuw & Co. IV, L.P. and McCown De Leeuw & Co. IV Associates, L.P. to the
Purchasers (such Amended and Restated Stockholders Agreement as so supplemented
and modified, being referred to herein as the "Stockholders Agreement"). Copies
of the Stockholders Agreement may be obtained by the holder hereof upon written
request to DIMAC Holdings.
Warrant Certificates, when surrendered at the office of DIMAC Holdings by
the registered holder thereof in person or by legal representative or attorney
duly authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Subject to the terms and conditions of the Warrant Agreement, upon due
presentation for registration of transfer of this Warrant Certificate at the
office of DIMAC Holdings a new Warrant Certificate or Warrant Certificates of
like tenor and evidencing in the aggregate a like number of Warrants shall be
issued to the transferee(s) in exchange for this Warrant Certificate, subject to
the limitations provided in the Warrant Agreement, without charge except for any
tax or other governmental charge imposed in connection therewith.
DIMAC Holdings may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof, and for all other
purposes, and DIMAC Holdings shall not be affected by any notice to the
contrary. Neither the Warrants nor this Warrant Certificate entitles any holder
hereof to any rights of a stockholder of DIMAC Holdings.
IN WITNESS WHEREOF, DIMAC Holdings has caused this Warrant Certificate to
be signed by its Chairman of the Board, Chief Executive Officer, President or
Vice President and by its Secretary or Assistant Secretary.
Dated: October 22, 1998
DIMAC HOLDINGS, INC.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
<PAGE>
FORM OF ELECTION TO PURCHASE
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to:
(Check Applicable Box)
- receive shares of Common Stock and herewith tenders
--------------
payment for such shares to the order of DIMAC Holdings, Inc. in the
amount of $ in accordance with the terms hereof.
------------
- exchange Warrants for shares of Common Stock and herewith tenders
Warrants to purchase shares of Common Stock as payment
---------------
for such number of shares of Common Stock as determined in accordance
with the Warrant exchange procedures of Section 5 of the Warrant
Agreement.
The undersigned requests that a certificate for such shares be registered
in the name of , whose address is
-----------------------------------
and that such shares be delivered to
- -------------------------------
, whose address is
- ----------------------------
If said number of shares is less than all of the shares of Common Stock
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such shares be registered in the name of
, whose address is ,
- ---------------------------- -------------------------------
and that such Warrant Certificate be delivered to ,
----------------------------
whose address is
Signature(s):
------------------------
NOTE: The above signature(s) must correspond with
the name written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatever. If this Warrant is held of
record by two or more joint owners, all such
owners must sign.
Date:
--------------------
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon assignment of Warrant Certificate)
FOR VALUE RECEIVED, hereby sells, assigns and
----------------------------
transfers unto whose address is
----------------------------
and whose social security number or other
- ---------------------------------
identifying number is , the within Warrant Certificate,
-------------------------
together with all right, title and interest therein and to the Warrants
represented thereby, and does hereby irrevocably constitute and appoint
, attorney, to transfer said Warrant Certificate on
- ----------------------------
the books of the within-named corporation, with full power of substitution in
the premises.
Signature(s):
------------------------
NOTE: The above signature(s) must correspond with
the name written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatever. If this Warrant is held of
record by two or more joint owners, all such
owners must sign.
Date:
--------------------
<PAGE>
Exhibit 12.1
AmeriComm Direct Marketing, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months Six months
Year Ended December 31, ended ended
-------------------------------------------------------- June 30, June 26,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $ (4,893) $ (2,015) $ (1,040) $ (2,211) $ (4,515) $ (3,183) $ (7,847)
-------- -------- -------- -------- -------- -------- --------
Fixed charges:
Interest on indebtedness 2,873 2,975 3,179 8,138 17,023 7,402 9,677
Portion of rents representative
of interest expense 263 214 117 275 556 224 265
-------- -------- -------- -------- -------- -------- --------
Total fixed charges 3,136 3,189 3,296 8,413 17,579 7,626 9,942
-------- -------- -------- -------- -------- -------- --------
Ratio computation:
Earnings (4,893) (2,015) (1,040) (2,211) (4,515) (3,183) (7,847)
Fixed charges 3,136 3,189 3,296 8,413 17,579 7,626 9,942
-------- -------- -------- -------- -------- -------- --------
Earnings before fixed charges (1,757) 1,174 2,256 6,202 13,064 4,443 2,095
Fixed charges 3,136 3,189 3,296 8,413 17,579 7,626 9,942
-------- -------- -------- -------- -------- -------- --------
Ratio of earnings (deficiency)
to fixed charges (4,893) (2,015) (1,040) (2,211) (4,515) (3,183) (7,847)
</TABLE>
DIMAC Marketing Corporation, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Eleven Eight Four Six Six
One Month months months months months months
Year Ended December 31, ended ended ended ended ended ended
---------------------------- January 31, December 31, August 31, December 31, June 30, June 26,
1993 1994 1995 1996 1996 1997 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes $ 3,692 $ 3,496 $ 7,689 $ (354) $ 4,288 $(3,128) $ 147 $(2,525) $ 204
------- ------- ------- ------- ------- ------- ------- ------- -------
Fixed charges:
Interest on indebtedness 1,417 6,069 5,174 532 7,525 6,188 2,248 4,633 4,583
Portion of rents
representative of
interest expense 972 1,459 2,031 210 2,016 1,336 639 1,027 920
------- ------- ------- ------- ------- ------- ------- ------- -------
Total fixed charges 2,389 7,528 7,205 742 9,541 7,524 2,887 5,660 5,503
------- ------- ------- ------- ------- ------- ------- ------- -------
Ratio computation:
Earnings 3,692 3,496 7,689 (354) 4,288 (3,128) 147 (2,525) 204
Fixed charges 2,389 7,528 7,205 742 9,541 7,524 2,887 5,660 5,503
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings before
fixed charges 6,081 11,024 14,894 388 13,829 4,396 3,034 3,135 5,707
Fixed charges 2,389 7,528 7,205 742 9,541 7,524 2,887 5,660 5,503
------- ------- ------- ------- ------- ------- ------- ------- -------
Ratio of earnings
(deficiency) to
fixed charges 2.55 1.46 2.07 (354) 1.45 (3,128) 1.05 (2,525) 1.04
</TABLE>
DIMAC Holdings
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
--------------------------------------------------
Year Six Months Six Months
Ended Ended Ended
December 31, 1997 June 30, 1997 June 30, 1998
----------------- ------------- -------------
<S> <C> <C> <C>
Income (loss) before
income taxes $(10,059) $ (7,271) $ (6,846)
-------- -------- --------
Fixed charges:
Interest on indebtness 39,103 19,356 19,491
Portion of rents
representative of
interest expense 1,195 1,251 1,185
-------- -------- --------
Total fixed charges 40,298 20,607 20,676
-------- -------- --------
Ratio computation:
Earnings (10,059) (7,271) (6,846)
Fixed charges 40,298 20,607 20,676
-------- -------- --------
Earnings before fixed
charges 30,239 13,336 13,830
Fixed charges 40,298 20,607 20,676
-------- -------- --------
Ratio of earnings
(deficiency) to fixed
charges (10,059) (7,271) (6,846)
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF DIMAC HOLDINGS, INC.
DIMAC Corporation
DIMAC Marketing Corporation
DIMAC DIRECT, Inc.
Palm Coast Data Inc.
The McClure Group Inc.
Wilcox & Associates Inc.
MBS/Multimode Inc.
AmeriComm Holdings, Inc.
AmeriComm Direct Marketing, Inc.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated November 6, 1998 on the audited consolidated financial
statements of DIMAC Holdings, Inc. and subsidiaries, our report dated
February 27, 1998 (except with respect to the matters discussed in Note 10,
as to which the date is June 26, 1998) on the audited consolidated financial
statements of AmeriComm Holdings, Inc. and subsidiary and to all references to
our Firm included in or made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 10, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated July 2, 1998 on the audited consolidated financial statements
of DIMAC Marketing Corporation and subsidiaries and to all references to our
Firm included in or made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
November 10, 1998
<PAGE>
Exhibit 23.3
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
We consent to the use in this Registration Statement of DIMAC Holdings, Inc. on
Form S-4 of our report dated February 21, 1997, on the financial statements
of AmeriComm Direct Marketing, Inc. as of December 31, 1995 and 1996, and for
each of the three years in the period ended December 31, 1996, appearing in
the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Louisville, Kentucky
November 10, 1998
<PAGE>
Exhibit 23.4
[KPMG PEAT MARWICK LETTERHEAD]
ACCOUNTANTS' CONSENT
The Board of Directors
DIMAC Holdings, Inc.:
We consent to the use of our report, on the consolidated financial statements
of TRANSKRIT Corporation, included herein and to the reference to our firm
under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Roanoke, Virginia
November 10, 1998
<PAGE>
Exhibit 25.1
Registration No.
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
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)
---
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
DIMAC HOLDINGS, INC.
(Exact name of obligor as specified in its charter)
Delaware 13-4013422
(State of incorporation) (I.R.S. employer identification no.)
5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
(Address of principal executive offices) (Zip Code)
15-1/2% Senior Notes Due 2009
(Title of the indenture securities)
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ITEM 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.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust
powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section
321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 11th day
of November, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Patricia A. Evans By: /s/ Emmett R. Harmon
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Assistant Secretary Name: Emmett R. Harmon
Title: Vice President
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EXHIBIT A
AMENDED CHARTER
Wilmington Trust Company
Wilmington, Delaware
As existing on May 9, 1987
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Amended Charter
or
Act of Incorporation
of
Wilmington Trust Company
Wilmington Trust Company, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "Wilmington Trust Company" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
First: - The name of this corporation is Wilmington Trust Company.
Second: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is Wilmington
Trust Company whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
Third: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity and to make and use a common seal, and alter
the seal at pleasure, to hold, purchase, convey, mortgage or
otherwise deal in real and personal estate and property, and
to appoint such officers and agents as the business of the
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Corporation shall require, to make by-laws not inconsistent
with the Constitution or laws of the United States or of
this State, to discount bills, notes or other evidences of
debt, to receive deposits of money, or securities for money,
to buy gold and silver bullion and foreign coins, to buy and
sell bills of exchange, and generally to use, exercise and
enjoy all the powers, rights, privileges and franchises
incident to a corporation which are proper or necessary for
the transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property
of every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other
persons and individuals, and from all corporations whether
state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage,
bond or other instrument issued by any state, municipality,
body politic, corporation, association or person, either
alone or in conjunction with any other person or persons,
corporation or corporations.
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust;
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to become surety for any person, or persons, for the
faithful performance of any trust, office, duty,
contract or agreement, either by itself or in
conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation,
judgment, suit, order, or decree to be entered in any
court of record within the State of Delaware or
elsewhere, or which may now or hereafter be required by
any law, judge, officer or court in the State of
Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of interest,
dividends and income upon and from any of the bonds,
mortgages, debentures, notes, shares of capital stock,
securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages,
debentures, notes, shares of capital stock, securities,
obligations, contracts, evidences of indebtedness and other
property, any and all the rights, powers and privileges of
individual owners thereof, including the right to vote
thereon; to invest and deal in and with any of the moneys of
the Corporation upon such securities and in such manner as
it may think fit and proper, and from time to time to vary
or realize such investments; to issue bonds and secure the
same by pledges or deeds of
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trust or mortgages of or upon the whole or any part of
the property held or owned by the Corporation, and to
sell and pledge such bonds, as and when the Board of
Directors shall determine, and in the promotion of its
said corporate business of investment and to the extent
authorized by law, to lease, purchase, hold, sell,
assign, transfer, pledge, mortgage and convey real and
personal property of any name and nature and any estate
or interest therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or transferable
instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell, convey or otherwise dispose of, real and personal
property, of every class and description, in any State,
District, Territory or Colony of the United States, and in
any foreign country or place.
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the
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clauses of this paragraph shall be regarded as independent
objects, purposes and powers.
Fourth: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article Fourth, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions
of such series, including, but without limiting the generality of
the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same
or other class of stock and whether such dividends shall be
cumulative or non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
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(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article Fourth), if any, shall
have been met and after the Corporation shall have complied with all
the requirements, if any, with respect to the setting aside of sums
as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article
Fourth), and subject further to any conditions which may be fixed in
accordance with the provisions of section (b) of this Article
Fourth, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to
time by the Board of Directors.
(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article Fourth), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to receive all of the
remaining assets of the Corporation, tangible and
intangible, of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares
of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article Fourth, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted
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upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case,
be as fixed from time to time by the Board of Directors in the
resolution or resolutions adopted pursuant to authority granted in
section (b) of this Article Fourth and the consent, by class or
series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other
series of Preferred Stock whether or not the powers, preferences and
rights of such other series shall be fixed by the Board of Directors
as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution
or resolutions as to any series of Preferred Stock adopted pursuant
to section (b) of this Article Fourth that the consent of the
holders of a majority (or such greater proportion as shall be
therein fixed) of the outstanding shares of such series voting
thereon shall be required for the issuance of any or all other
series of Preferred Stock.
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the
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affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote thereon.
Fifth: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting, directors
of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of
the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting. Any vacancies in the Board
of Directors for any reason, and any newly created directorships
resulting from any increase in the directors, may be filled by the
Board of Directors, acting by a majority of the directors then in
office, although less than a quorum, and any directors so chosen
shall hold office until the next annual election of directors. At
such election, the stockholders shall elect a successor to such
director to hold office until the next election of the class for
which such director shall have been chosen and until his successor
shall be elected and qualified. No decrease in the number of
directors shall shorten the term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the By-Laws of the Corporation),
any director or the entire Board of Directors of the Corporation may
be removed at any time without cause, but only by the affirmative
vote of the holders of two-thirds or more of the outstanding shares
of capital stock of the Corporation entitled to vote generally in
the election of directors (considered for this purpose as one class)
cast at a meeting of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to
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the Secretary of the Corporation not later than the close of the
seventh day following the day on which notice of the meeting was
mailed to stockholders. Notice of nominations which are proposed by
the Board of Directors shall be given by the Chairman on behalf of
the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
Sixth: - The Directors shall choose such officers, agent and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
Seventh: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
Eighth: - This Act shall be deemed and taken to be a private Act.
Ninth: - This Corporation is to have perpetual existence.
Tenth: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
Eleventh: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
Twelfth: - The Corporation may transact business in any part of the
world.
19
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Thirteenth: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class).
Fourteenth: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
Fifteenth: - (a) In addition to any affirmative vote required by
law, and except as otherwise expressly provided in sections (b) and
(c) of this Article Fifteenth:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair
market value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the
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outstanding shares of any class of equity or convertible
securities of the Corporation or any Subsidiary which is
directly or indirectly owned by any Interested Stockholder,
or any Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article Fifteenth shall mean any transaction which is
referred to any one or more of clauses (A) through (E) of
paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article Fifteenth
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article Fifteenth:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on such business
combination, or immediately prior to the consummation of any such
transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
<PAGE>
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
(6) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect in December 31, 1981) is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article Fifteenth on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to any
business combination or the consideration received for the
issuance or transfer of securities by the Corporation, or
any Subsidiary has an aggregate fair market value of
$1,000,000 or more.
(e) Nothing contained in this Article Fifteenth shall be
construed to relieve
<PAGE>
any Interested Stockholder from any fiduciary obligation
imposed by law.
Sixteenth: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter or repeal any provision of
Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter
or Act of Incorporation.
Seventeenth: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification."
<PAGE>
EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
As existing on January 16, 1997
<PAGE>
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
Stockholders' Meetings
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
Directors
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its members, or
<PAGE>
at the call of the Chairman of the Board of Directors or the President.
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
<PAGE>
ARTICLE III
Committees
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not
more than nine members who shall be selected by the Board of Directors from its
own members and who shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of
the Board of Directors when it is not in session to transact all business for
and in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee
shall be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend
all investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as the
Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time for that purpose, and
any provisions of these By-Laws (other than this Section) and any resolutions
which are contrary to the provisions of this Section or to the provisions of any
such implementary Resolutions shall be suspended during such a disaster period
until it shall be determined by any interim Executive Committee acting under
this section that it shall be to the
<PAGE>
advantage of the Company to resume the conduct and management of its affairs and
business under all of the other provisions of these By-Laws.
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more
than thirteen members who shall be selected by the Board of Directors, a
majority of whom shall be members of the Board of Directors and who shall hold
office during the pleasure of the Board.
(B) The Trust Committee shall have general supervision
over the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members or at the call of its chairman. A
majority of its members shall be necessary to constitute a quorum for the
transaction of business.
(D) Minutes of each meeting of the Trust Committee shall
be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five
members who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general supervision
over the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of examination
of the Company made by any governmental agency or such independent auditor
employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever
the majority of its members shall deem it to be proper for the transaction of
its business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
<PAGE>
(A) The Compensation Committee shall be composed of not
more than five (5) members who shall be selected by the Board of Directors from
its own members who are not officers of the Company and who shall hold office
during the pleasure of the Board.
(B) The Compensation Committee shall in general advise
upon all matters of policy concerning the Company brought to its attention by
the management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called
at any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be
elected by the Board of Directors as an associate director, to serve during the
pleasure of the Board.
(B) An associate director shall be entitled to attend
all directors meetings and participate in the discussion of all matters brought
to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of
any Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absence or disqualified member.
ARTICLE IV
Officers
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of Directors shall preside at all meetings of the Board of Directors at
which the Chairman of the
<PAGE>
Board shall not be present and shall have such further authority and powers and
shall perform such duties as the Board of Directors or the Chairman of the Board
may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be
<PAGE>
prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
Stock and Stock Certificates
Section 1. Shares of stock shall be transferrable on the books of
the Company and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 2. Certificate of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of any dividend, or to any allotment or
rights, or to exercise any rights in respect of any change, conversion or
exchange of capital stock, or in connection with obtaining the consent of
stockholders for any purpose, which record date shall not be more than 60 nor
less than 10 days proceeding the date of any meeting of stockholders or the date
for the payment of any
<PAGE>
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining such consent.
ARTICLE VI
Seal
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words "Wilmington
Trust Company" within the inner circle the words
"Wilmington, Delaware."
ARTICLE VII
Fiscal Year
Section 1. The fiscal year of the Company shall be the calendar
year.
<PAGE>
ARTICLE VIII
Execution of Instruments of the Company
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
ARTICLE IX
Compensation of Directors and Members of Committees
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
Indemnification
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered
<PAGE>
and expenses reasonably incurred by such person. The Corporation shall indemnify
a person in connection with a proceeding initiated by such person only if the
proceeding was authorized by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director officer in his capacity as a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
(C) If a claim for indemnification or payment of
expenses, under this Article X is not paid in full within ninety days after a
written claim therefor has been received by the Corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification of payment of
expenses under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing
provisions of this Article X shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE XI
Amendments to the By-Laws
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
<PAGE>
EXHIBIT C
Section 321(b) Consent
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: November 11, 1998 By: /s/ Emmett R. Harmon
---------------------
Name: Emmett R. Harmon
Title: Vice President
<PAGE>
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and
savings banks with state publication requirements. It has not
been approved by any state banking authorities. Refer to your
appropriate state banking authorities for your state
publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
---------------------------- -------------
Name of Bank City
in the State of DELAWARE , at the close of business on June 30, 1998.
ASSETS
<TABLE>
<CAPTION>
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins ............ 232,976
Interest-bearing balances ...................................... 0
Held-to-maturity securities ................................................ 195,579
Available-for-sale securities .............................................. 1,416,957
Federal funds sold and securities purchased under agreements to resell ..... 150,100
Loans and lease financing receivables:
Loans and leases, net of unearned income ....................... 3,978,706
LESS: Allowance for loan and lease losses ..................... 63,164
LESS: Allocated transfer risk reserve ......................... 0
Loans and leases, net of unearned income, allowance, and reserve 3,915,542
Assets held in trading accounts ............................................ 0
Premises and fixed assets (including capitalized leases) ................... 135,596
Other real estate owned .................................................... 1,696
Investments in unconsolidated subsidiaries and associated companies ........ 1,066
Customers' liability to this bank on acceptances outstanding ............... 0
Intangible assets .......................................................... 55,759
Other assets ............................................................... 103,586
Total assets ............................................................... 6,208,857
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE>
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices ...................................................... 4,568,934
Noninterest-bearing .......................................... 838,655
Interest-bearing ............................................. 3,730,279
Federal funds purchased and Securities sold under agreements to repurchase 418,382
Demand notes issued to the U.S. Treasury ................................. 99,350
Trading liabilities (from Schedule RC-D) ................................. 0
Other borrowed money: .................................................... //////
With original maturity of one year or less ................... 524,000
With original maturity of more than one year ................. 43,000
Bank's liability on acceptances executed and outstanding ................. 0
Subordinated notes and debentures ........................................ 0
Other liabilities (from Schedule RC-G) ................................... 91,728
Total liabilities ........................................................ 5,745,394
EQUITY CAPITAL
Perpetual preferred stock and related surplus............................. 0
Common Stock.............................................................. 500
Surplus (exclude all surplus related to preferred stock).................. 62,118
Undivided profits and capital reserves.................................... 394,325
Net unrealized holding gains (losses) on available-for-sale securities.... 6,520
Total equity capital...................................................... 463,463
Total liabilities, limited-life preferred stock, and equity capital....... 6,208,857
</TABLE>
<PAGE>
Exhibit 99.1
Letter of Transmittal
for
Tender of 15 1/2% Senior Notes due 2009
in Exchange for
15 1/2% Series B Senior Notes due 2009
DIMAC HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON _________, 199_, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
Deliver to the Exchange Agent:
WILMINGTON TRUST COMPANY
By Registered or Certified By Hand:
Mail or by Overnight Courier:
Wilmington Trust Company Wilmington Trust Company
Attn: Kristin Long Attn: Corporate Trust Operations
Corporate Trust & c/o Harris Trust Company
Administration Window of New York, as Agent
1100 North Market Street 75 Water Street
Rodney Square North New York, NY 10004
Wilmington, DE 19890-0001
By Facsimile:
Wilmington Trust Company
Corporate Trust Administration
Facsimile:
(302) 651-1079
Confirm by Telephone:
(302)651-8869
Kristin Long
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
<PAGE>
The undersigned hereby acknowledges receipt and review of the Prospectus
dated _______ __, 199_ (the "Prospectus") of DIMAC Holdings, Inc. (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
together describe the Company's offer (the "Exchange Offer") to exchange its
15 1/2% Series B Senior Notes due October 22, 2009 (the "New Notes"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which the Prospectus is a part,
for a like principal amount of its issued and outstanding 15 1/2% Senior Notes
due October 22, 2009 (the "Old Notes"). Capitalized terms used but not defined
herein have the respective meaning given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to
extend the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean the latest time and date in which the Exchange Offer is
extended. The Company shall notify the holders of the Old Notes of any extension
by oral or written notice prior to 9:00 A.M., New York City time, on the next
business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a Holder (as defined) of Old
Notes either if original Old Notes are to be forwarded herewith or if delivery
of Old Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer-Book-Entry Transfer." Holders
of Old Notes whose Old Notes are not immediately available, or who are unable to
deliver their Old Notes and all other documents required by this Letter of
Transmittal to the Exchange Agent on or prior to the Expiration Date, or who are
unable to complete the procedure for book-entry transfer on a timely basis, must
tender their Old Notes according to the guaranteed delivery procedures set forth
in the Prospectus under the caption "The Exchange Offer-Guaranteed Delivery
Procedures." See Instruction 2. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space below is inadequate, list the registered numbers and principal amounts
on a separate signed schedule and affix the list to this Letter of Transmittal.
<PAGE>
DESCRIPTION OF OLD NOTES TENDERED
<TABLE>
<CAPTION>
Name(s) and Address(es) of Registered Aggregate Principal
Registered Holder(s) Numbers* Principal Amount
Exactly as Name(s) Appear(s) Amount Tendered**
on Old Notes Represented
(Please fill in, if blank) by Note(s)
<S> <C> <C> <C>
Total.......................
</TABLE>
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, any tendering Holder of Old Notes will be
deemed to have tendered the entire aggregate principal amount represented
by such Old Notes. All tenders must be in integral multiples of $1,000.
<PAGE>
|_| CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY
ELIGIBLE INSTITUTIONS ONLY):
Name of Tendering Institution:
Account Number:
Transaction Code Number:
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR
USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Old Notes:
Date of Execution of Notice of Guaranteed Delivery:
Window Ticket Number (if available):
Name of Eligible Institution that Guaranteed Delivery:
Account Number (if delivered by book-entry transfer):
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes, it acknowledges that the Old Notes were
acquired as a result of market-making activities or other trading activities and
that it will deliver a prospectus in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
<PAGE>
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Old Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned hereby exchanges, assigns and transfers to the
Company all right, title and interest in and to the Old Notes tendered for
exchange hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent, the agent and attorney-in-fact of the undersigned (with full
knowledge that the Exchange Agent also acts as the agent of the Company in
connection with the Exchange Offer) with respect to the tendered Old Notes with
full power of substitution to (i) deliver such Old Notes, or transfer ownership
of such Old Notes on the account books maintained by the Book-Entry Transfer
Facility, to the Company and deliver all accompanying evidences of transfer and
authenticity, and (ii) present such Old Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of beneficial
ownership of such Old Notes, all in accordance with the terms of the Exchange
Offer. The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and to acquire the New Notes issuable upon the exchange of such
tendered Old Notes, and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim, when the same are accepted
for exchange by the Company.
The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission") that the New Notes issued in exchange for the Old Notes pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such Holders' business and such Holders are not engaging
in and do not intend to engage in a distribution of the New Notes and have no
arrangement or understanding with any person to participate in a distribution of
such New Notes. The undersigned hereby further represent(s) to the Company that
(i) any New Notes acquired in exchange for Old Notes tendered hereby are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not the undersigned, (ii) neither the undersigned nor any such
other person is engaging in or intends to engage in a distribution of the New
Notes, (iii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes, (iv) neither the Holder nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company or,
if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable, and (v) if
the undersigned is a broker-dealer, such person has acquired the Old Notes as a
result of market-making activities or other trading activities.
If the undersigned or the person receiving the New Notes is a
broker-dealer that is receiving New Notes for its own account in exchange for
Old Notes that were acquired as a result of market-making activities or other
trading activities, the undersigned acknowledges that it or such other person
will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that the undersigned or such other person is an
"underwriter" within the meaning of the Securities Act. The undersigned
acknowledges that if the undersigned is participating in the Exchange Offer for
the purpose of distributing the New Notes (i) the undersigned cannot rely on the
position of the staff of the Commission in certain no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes, in which case the registration
statement must contain the selling security holder information required by Item
507 or Item 508, as applicable, of Regulation S-K of the Commission, and (ii)
failure to comply with such requirements in such instance could result in the
undersigned incurring liability under the Securities Act for which the
undersigned is not indemnified by the Company.
<PAGE>
If the undersigned or the person receiving the New Notes is an "affiliate"
(as defined in Rule 405 under the Securities Act), the undersigned represents to
the Company that the undersigned understands and acknowledges that the New Notes
may not be offered for resale, resold or otherwise transferred by the
undersigned or such other person without registration under the Securities Act
or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered hereby, including the transfer of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Old Notes when, as and if the Company
gives oral or written notice thereof to the Exchange Agent. Any tendered Old
Notes that are not accepted for exchange pursuant to the Exchange Offer for any
reason will be returned, without expense, to the undersigned at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Old Notes pursuant to the procedures described under the caption "The
Exchange Offer-Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the New Notes issued in exchange for the Old Notes accepted for exchange
and return any Old Notes not tendered or not exchanged, in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail or deliver the New Notes issued in exchange for the
Old Notes accepted for exchange and any Old Notes not tendered or not exchanged
(and accompanying documents, as appropriate) to the undersigned at the address
shown below the undersigned's signature(s). In the event that both "Special
Issuance Instructions" and "Special Delivery Instructions" are completed, please
issue the New Notes issued in exchange for the Old Notes accepted for exchange
in the name(s) of, and return any Old Notes not tendered or not exchanged to,
the person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Old Notes from the name of the registered
holder(s) thereof if the Company does not accept for exchange any of the Old
Notes so tendered for exchange.
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS (SEE Instructions 5 and 6)
To be completed ONLY (i) if Old Notes in a principal amount not tendered,
or New Notes issued in exchange for Old Notes accepted for exchange, are to be
issued in the name of someone other than the undersigned, or (ii) if Old Notes
tendered by book-entry transfer which are not exchanged are to be returned by
credit to an account maintained at the Book-Entry Transfer Facility. Issue New
Notes and/or Old Notes to:
Name(s):
(Please Type or Print)
Address:
(Include Zip Code)
(Tax Identification or Social Security No.)
(Complete Substitute Form W-9)
|_| Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility set forth below:
(Book-Entry Transfer Facility
Account Number, if applicable)
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)
Date
Date
Area Code and Telephone Number:
The above lines must be signed by the registered Holder(s) of Old Notes as
name(s) appear(s) on the Old Notes or on a security position listing, or by
person(s) authorized to become registered Holder(s) by a properly completed bond
power from the registered Holder(s), a copy of which must be transmitted with
this Letter of Transmittal. If Old Notes to which this Letter of Transmittal
relate are held of record by two or more joint Holders, then all such Holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then such person must
(i) set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority to so
act. See Instruction 5 regarding the completion of this Letter of Transmittal,
printed below.
Name(s):
(Please Type or Print)
<PAGE>
Capacity:
Address:
(Include Zip Code)
<PAGE>
MEDALLION SIGNATURE GUARANTEE
(If Required by Instruction 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
(Authorized Signature)
(Title)
(Name of Firm)
(Address, Include Zip Code)
(Area Code and Telephone Number)
Dated: , 19
SPECIAL DELIVERY INSTRUCTIONS
(SEE Instructions 5 and 6)
To be completed ONLY if Old Notes in a principal amount not tendered, or New
Notes issued in exchange for Old Notes accepted for exchange, are to be mailed
or delivered to someone other than the undersigned, or to the undersigned at an
address other than that shown below the undersigned's signature.
Mail or deliver New Notes and/or Old Notes to:
Name:
(Please Type or Print)
Address:
(Include Zip Code)
(Tax Identification or Social Security No.)
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and
Conditions of the Exchange Offer
1. Delivery of this Letter of Transmittal and Old Notes or Book-Entry
Confirmations. All physically delivered Old Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. The method of delivery of the tendered Old Notes, this Letter
of Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and, except as otherwise provided below, the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. Instead of delivery by mail, it is recommended that the Holder
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or Old Notes should be sent to the Company.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Old
Notes and (a) whose Old Notes are not immediately available, or (b) who cannot
deliver their Old Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date or (c) who
are unable to complete the procedure for book-entry transfer on a timely basis,
must tender their Old Notes according to the guaranteed delivery procedures set
forth in the Prospectus. Pursuant to such procedures: (i) such tender must be
made by or through a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or a trust company having an office or correspondent in the
United States (an "Eligible Institution"); (ii) prior to the Expiration Date,
the Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
Holder of the Old Notes, the registration number(s) of such Old Notes and the
principal amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three (3) New York Stock Exchange, Inc.
("NYSE") trading days after the Expiration Date, this Letter of Transmittal (or
facsimile hereof) together with the Old Notes (or a Book-Entry Confirmation) in
proper form for transfer, must be received by the Exchange Agent within three
(3) NYSE trading days after the Expiration Date; and (iii) the certificates for
all physically tendered shares of Old Notes, in proper form for transfer, or
Book-Entry Confirmation, as the case may be, and all other documents required by
this Letter are received by the Exchange Agent within three (3) NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
Any Holder of Old Notes who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice
of Guaranteed Delivery will be sent to Holders who wish to tender their Old
Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer-Guaranteed Delivery Procedures" section of the
Prospectus.
3. Tender by Holder. Only a Holder of Old Notes may tender such Old Notes
in the Exchange Offer. Any beneficial Holder of Old Notes who is not the
registered Holder and who wishes to tender should arrange with the registered
Holder to execute and deliver this Letter of Transmittal on his behalf or must,
prior to completing and executing this Letter of Transmittal and delivering his
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in such Holder's name or obtain a properly completed bond power from the
registered Holder.
4. Partial Tenders. Tenders of Old Notes will be accepted only in integral
multiples of $1,000. If less than the entire principal amount of any Old Notes
is tendered, the tendering Holder should fill in the principal amount tendered
in the fourth column of the box entitled "Description of Old Notes Tendered"
above. The entire principal amount of Old Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Old Notes is not tendered, then Old Notes for the
principal amount of Old Notes not tendered and New Notes
<PAGE>
issued in exchange for any Old Notes accepted will be sent to the Holder at his
or her registered address, unless a different address is provided in the
appropriate box on this Letter of Transmittal, promptly after the Old Notes are
accepted for exchange.
5. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Medallion Guarantee of Signatures. If this Letter of Transmittal (or facsimile
hereof) is signed by the record Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever. If this Letter
of Transmittal is signed by a participant in the Book-Entry Transfer Facility,
the signature must correspond with the name as it appears on the security
position listing as the Holder of the Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Old Notes listed and tendered hereby and the New
Notes issued in exchange therefor are to be issued (or any untendered principal
amount of Old Notes are to be reissued) to the registered Holder, the said
Holder need not and should not endorse any tendered Old Notes, nor provide a
separate bond power. In any other case, such Holder must either properly endorse
the Old Notes tendered or transmit a properly completed separate bond power with
this Letter of Transmittal, with the signatures on the endorsement or bond power
guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers, in each case
signed as the name of the registered Holder or Holders appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Old Notes tendered herewith (or by a
participant in the Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of the tendered Old Notes) and the issuance of New
Notes (and any Old Notes not tendered or not accepted) are to be issued directly
to such registered holder(s) (or, if signed by a participant in the Book-Entry
Transfer Facility, any New Notes or Old Notes not tendered or not accepted are
to be deposited to such participant's account at such Book-Entry Transfer
Facility) and neither the box entitled "Special Delivery Instructions" nor the
box entitled "Special Registration Instructions" has been completed, or (ii)
such Old Notes are tendered for the account of an Eligible Institution. In all
other cases, all signatures on this Letter of Transmittal must be guaranteed by
an Eligible Institution.
6. Special Registration and Delivery Instructions. Tendering holders
should indicate, in the applicable box or boxes, the name and address (or
account at the Book-Entry Transfer Facility) to which New Notes or substitute
Old Notes for principal amounts not tendered or not accepted for exchange are to
be issued or sent, if different from the name and address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the
taxpayer identification or social security number of the person named must also
be indicated.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, New Notes or Old Notes for principal amounts not tendered or accepted
for exchange are to be delivered to, or are to be registered or issued in the
name of, any person other than the registered Holder of the Old Notes tendered
hereby, or if tendered Old Notes are registered in the name of any person other
than the person signing this Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with this Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such
<PAGE>
tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. Tax Identification Number. Federal income tax law requires that a
holder of any Old Notes which are accepted for exchange must provide the Company
(as payor) with its correct taxpayer identification number ("TIN"), which, in
the case of a holder who is an individual is his or her social security number.
If the Company is not provided with the correct TIN, the Holder may be subject
to a $50 penalty imposed by Internal Revenue Service. (If withholding results in
an over-payment of taxes, a refund may be obtained.) Certain holders (including,
among others, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Old Notes are registered in more than one name or are not in the name of
the actual owner, see the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for information on which TIN to
report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of tendered Old Notes
will be determined by the Company, in its sole discretion, which determination
will be final and binding. The Company reserves the right to reject any and all
Old Notes not validly tendered or any Old Notes, the Company's acceptance of
which would, in the opinion of the Company or its counsel, be unlawful. The
Company also reserves the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Old Notes as to any ineligibility of any
holder who seeks to tender Old Notes in the Exchange Offer. The interpretation
of the terms and conditions of the Exchange Offer (includes this Letter of
Transmittal and the instructions hereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes,
but shall not incur any liability for failure to give such notification.
10. Waiver of Conditions. The Company reserves the absolute right to
waive, in whole or part, any of the conditions to the Exchange Offer set forth
in the Prospectus.
11. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Old Notes on transmittal of this Letter of Transmittal will
be accepted.
12. Mutilated, Lost, Stolen or Destroyed Old Notes. Any Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
13. Requests for Assistance or Additional Copies. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
14. Acceptance of Tendered Old Notes and Issuance of New Notes; Return of
Old Notes. Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes as soon as
practicable after the Expiration Date and will issue New Notes therefor as soon
as practicable thereafter. For purposes of
<PAGE>
the Exchange Offer, the Company shall be deemed to have accepted tendered Old
Notes when, as and if the Company has given written and oral notice thereof to
the Exchange Agent. If any tendered Old Notes are not exchanged pursuant to the
Exchange Offer for any reason, such unexchanged Old Notes will be returned,
without expense, to the undersigned at the address shown above (or credited to
the undersigned's account at the Book-Entry Transfer Facility designated above)
or at a different address as may be indicated under the box entitled "Special
Delivery Instructions."
15. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer-Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
HEREOF (TOGETHER WITH THE OLD NOTES WHICH MUST BE DELIVERED BY BOOK-ENTRY
TRANSFER OR IN ORIGINAL HARD COPY FORM) OR THE NOTICE OF GUARANTEED DELIVERY
MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION TIME.
(TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5))
PAYER'S NAME: WILMINGTON TRUST COMPANY
SUBSTITUTE OR
Form W-9 Social Security Employer
Number Identification Number
Department of the Treasury Part I-Taxpayer Identification No.-For all Internal
Revenue Service accounts, enter your taxpayer identification Payer's Request for
number in the appropriate box. For most Taxpayer Identification individuals and
sole proprietors, this is your Number social security number. For other
entities, it is
your Employer Identification Number. If you do not
have a number, see How to Obtain a TIN in the
enclosed Guidelines. Note: If the account is in
more than one name, see Employer Identification
Number the chart on page 2 of the enclosed
Guidelines to determine what number to enter.
Part II-For Payees Exempt From Backup Withholding
(see enclosed Guidelines) Certification-Under
penalties of perjury, I certify that:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me), and either (a) I
have mailed or delivered an application to receive
a taxpayer identification number to the
appropriate Internal Revenue Service Center or
Social Security Administration Office or (b) I
intend to mail or deliver an application in the
near future. I understand that if I do not provide
a taxpayer identification number within sixty (60)
days, 31% of all reportable payments made to me
thereafter will be withheld until I provide a
number;
(2) I am not subject to backup withholding either
because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
backup withholding; and
(3) Any other information provided on this form is
true, correct and complete.
SIGNATURE Date
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU WITH RESPECT TO THE NEW NOTES. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
for
Tender of 15 1/2% Senior Notes due 2009
in Exchange for
15 1/2% Series B Senior Notes due 2009
DIMAC HOLDINGS, INC.
This form or one substantially equivalent hereto must be used by a holder
to accept the Exchange Offer of DIMAC Holdings, Inc., a Delaware corporation
(the "Company"), who wishes to tender 15 1/2% Senior Notes due 2009 (the "Old
Notes") to the Exchange Agent pursuant to the guaranteed delivery procedures
described in "The Exchange Offer-Guaranteed Delivery Procedures" of the
Company's Prospectus, dated _______ __, 199_ (the "Prospectus") and in
Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender Old Notes pursuant to such guaranteed delivery procedures must ensure
that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date (as defined below) of the Exchange Offer. Capitalized terms used
but not defined herein have the meanings ascribed to them in the Prospectus or
the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
___________, 199_, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED
IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
WILMINGTON TRUST COMPANY
By Registered or Certified By Hand:
Mail or by Overnight Courier:
Wilmington Trust Company Wilmington Trust Company
Attn: Kristin Long Attn: Corporate Trust Operations
Corporate Trust & c/o Harris Trust Company
Administration Window of New York, as Agent
1100 North Market Street 75 Water Street
Rodney Square North New York, NY 10004
Wilmington, DE 19890-0001
By Facsimile:
Wilimington Trust Company
Corporate Trust Administration
Facsimile:
(302) 651-1079
Confirm by Telephone:
(302) 651-1562
Kristin Long
-----------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE BOX ON
THE LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Old Notes listed below:
Certificate Number(s) Aggregate Aggregate
(If Known) of Old Notes or Principal Principal
Account Number at the Amount Amount
Book-Entry Facility Represented Tendered
PLEASE SIGN AND COMPLETE
Signatures of Registered Holder(s) or
Authorized Signatory:
Date:
Address:
Name(s) of Registered Holder(s):
Area Code and Telephone No.:
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Please print name(s) and address(es)
Names(s):
- --
- --
- --
Capacity:
<PAGE>
Address(es):
- --
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934,
guarantees deposit with the Exchange Agent of the Letter of Transmittal (or
facsimile thereof), together with the Old Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility described in
the Prospectus under the caption "The Exchange Offer-Guaranteed Delivery
Procedures" and in the Letter of Transmittal and any other required documents,
all by 5:00 p.m., New York City time, within three New York Stock Exchange
trading days following the Expiration Date.
Name of Firm:
(Authorized Signature)
Address:
Name:
(Include Zip Code)
Area Code and Tel. Number: Title:
(Please Type or Print)
Date: _______________________ , 19__
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY A PROPERLY COMPLETED AND DULY EXECUTED LETTER
OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other
than the registered holder(s) of any Old Notes listed or a participant of
the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must
be accompanied by appropriate bond powers, signed as the name of the
registered holder(s) appears on the Old Notes or signed as the name of the
participant shown on the Book-Entry Transfer Facility's security position
listing.
If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a
corporation, or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing and submit with the
Letter of Transmittal evidence satisfactory to the Company of such
person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
<PAGE>
Exhibit 99.3
Letter to Brokers
for
Tender of 15 1/2% Senior Notes due 2009
in Exchange for
15 1/2% Series B Senior Notes due 2009
DIMAC HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
___________, 199_, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY
TIME PRIOR TO THE EXPIRATION DATE.
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer
by DIMAC Holdings, Inc. (the "Company"), a Delaware corporation, to exchange its
15 1/2% Series B Senior Notes due 2009, (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of its issued and outstanding 15 1/2% Senior Notes
due 2009 (the "Old Notes") upon the terms and subject to the conditions set
forth in the Company's Prospectus, dated _______ __, 199_, and the related
Letter of Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated _______ __, 199_;
2. Letter of Transmittal (together with accompanying Substitute Form W-9
Guidelines);
3. Notice of Guaranteed Delivery; and
4. Letter which may be sent to your clients for whose account you hold Old
Notes in your name or in the name of your nominee, with space provided for
obtaining such client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the
Exchange Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
undersigned, (ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
within the meaning of the Securities Act of such New Notes, (iii) if the
undersigned is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, neither the undersigned
nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the undersigned nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if the undersigned is an "affiliate," that the
undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Old Notes, it represents that such
Old Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
The enclosed Letter to Clients contains an authorization by the beneficial
owners of the Old Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company
will pay or cause to be paid any transfer taxes payable on the transfer of Old
Notes to it, except as otherwise provided in Instruction 7 of the enclosed
Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
WILMINGTON TRUST COMPANY
<PAGE>
Exhibit 99.4
Letter to Clients
for
Tender of 15 1/2% Senior Notes due 2009
in Exchange for
15 1/2% Series B Senior Notes due 2009
DIMAC HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
____________, 199_, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY
TIME PRIOR TO THE EXPIRATION DATE.
To Our Clients:
We are enclosing herewith a Prospectus, dated _______ __, 199_, of DIMAC
Holdings, Inc. (the "Company"), a Delaware corporation, and a related Letter of
Transmittal (which together constitute the "Exchange Offer") relating to the
offer by the Company, to exchange its 15 1/2% Series B Senior Notes due 2009
(the "New Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), for a like principal amount of its issued and
outstanding 15 1/2% Senior Notes due 2009 (the "Old Notes"), upon the terms and
subject to the conditions set forth in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
We are the holder of record of Old Notes held by us for your own account.
A tender of such Old Notes can be made only by us as the record holder and
pursuant to your instructions. The Letter of Transmittal is furnished to you for
your information only and cannot be used by you to tender Old Notes held by us
for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes held by us for your account pursuant to the terms and conditions of
the Exchange Offer. We also request that you confirm that we may on your behalf
make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
undersigned, (ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
within the meaning of the Securities Act of such New Notes, (iii) if the
undersigned is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, neither the undersigned
nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the undersigned nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if the undersigned is an "affiliate," that the
undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Old Notes, it represents that such
Old Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Very truly yours,
WILMINGTON TRUST COMPANY
<PAGE>
Exhibit 99.5
Instruction to Registered Holder and/or Book
Entry Transfer Participant from Beneficial Owner
for
Tender of 15 1/2% Senior Notes due 2009
in Exchange for
15 1/2% Series B Senior Notes due 2009
DIMAC HOLDINGS, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
____________, 199_, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY
TIME PRIOR TO THE EXPIRATION DATE.
To Registered Holder and/or Participant
of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
_______ _, 199_ (the "Prospectus") of DIMAC Holdings, Inc., a Delaware
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange its 15 1/2% Series B Senior Notes due 2009 (the
"New Notes") for all of its outstanding 15 1/2% Senior Notes due 2009 (the "Old
Notes"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus or the Letter of Transmittal.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$ of the 15 1/2% Senior Notes due 2009.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
|_| To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of old notes to be tendered (if
any)): $___________________
|_| Not to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including, but not limited to, the representations, that (i)
the New Notes acquired pursuant to the Exchange Offer are being acquired in the
ordinary course of business of the undersigned, (ii) neither the undersigned nor
any such other person has an arrangement or understanding with any person to
participate in the distribution within the meaning of the Securities Act of
1933, as amended (the "Securities Act") of such New Notes, (iii) if the
undersigned is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, neither the undersigned
nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the undersigned nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if the undersigned is an "affiliate," that the
undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Old Notes, it represents that such
Old Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale
<PAGE>
of such New Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
SIGN HERE
Name of beneficial owner(s):
Signature(s):
Name(s) (please print):
Address:
Telephone Number:
Taxpayer Identification or Social Security Number:
Date:
<PAGE>
Exhibit 99.6
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER --
Social Security numbers have nine digits separated by two hyphens: I.E.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: I.E. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GIVE THE
GIVE THE SOCIAL EMPLOYER
SECURITY IDENTIFICATION
FOR THIS TYPE OF ACCOUNT NUMBER OF: FOR THIS TYPE OF ACCOUNT NUMBER OF:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 6. A valid trust, estate, or Legal entity (Do not furnish the
pension trust taxpayer identification number of the
personal representative or trustee
unless the legal entity itself is not
designated in the account title).(4)
2. Two or more individuals The actual owner of the 7. Corporate account The corporation
(joint account) account or, if combined
funds, the first
individual on the
account(1)
3. Custodian account of a The minor(2) 8. Association, club, religious, The organization
minor (Uniform Gift to charitable, educational or
Minors Act) other tax-exempt organization
account
4. a. The usual revocable The grantor-trustee(1) 9. Partnership account The partnership
savings trust account
(grantor is also trustee)
The actual owner(1) 10. A broker or registered The broker or nominee
nominee
b. So-called trust account
that is not a legal or valid
trust under State law
5. Sole proprietorship account The owner(3) 11. Account with the Department The public entity
of Agriculture in the name of
a public entity (such as a
State or local government,
School district or prison) that
receives agricultural program
payments
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number
or employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name listed, the number
will be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
HOW TO OBTAIN A TIN
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card for
individuals, or Form SS-4, Application for Employer Identification Number (for
business and other entities), or Form W-7, Application for IRS Individual
Taxpayer Identification Number (for certain resident aliens), at the local
office of the Social Security Administration or the Internal Revenue Service and
apply for a number.
If you return the Substitute Form W-9 with the "Awaiting TIN" box checked in
Part 3, you must provide the payer with a Certificate of Awaiting Taxpayer
Identification Number and, within 60 days, a TIN. If you do not provide the TIN
by the date of payment, 31% of all reportable payments will be withheld. If
your certified TIN is received within the 60-day period and you were not subject
to backup withholding during that period, the amounts withheld will be refunded
to you. If no certified TIN is provided to the payer within 60 days, the
amounts withheld will be paid to the IRS.
AS SOON AS YOU RECEIVE YOUR TIN, COMPLETE ANOTHER SUBSTITUTE FORM W-9, INCLUDE
YOUR TIN, SIGN AND DATE THE FORM, AND GIVE IT TO THE PAYER.
For interest, dividends and broker transactions, you must sign the certification
or backup withholding will apply. If you are subject to backup withholding and
you are merely providing your correct TIN to a payer, you must cross out item 2
in the certification before signing the form.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments by the
payer include the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(b)(7) if the
account satisfies the requirements of Section 401(f)(2).
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States
or any political subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
- An international organization or any agency or instrumentality
thereof.
- A registered dealer in securities or commodities registered in the
U.S., the District of Columbia or a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section
1441.
- Payments to partnerships not engaged in a trade or business in the
U.S. and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid
in money.
Payments made by certain foreign organizations.
- Section 404(K) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You
are subject to information reporting if this interest is $600 or more
and is paid in the course of the payer's trade or business and backup
withholding if you have not provided your correct TIN to the payer.
Payments of tax-exempt interest (including exempt interest dividends
under section 852).
- Payments described in section 6049(b) (5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid by you.
Exempt payees described above should file Substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TIN,
WRITE "EXEMPT" ON THE FACE OF THE FORM IN PART 2, SIGN AND DATE THE FORM, AND
RETURN IT TO THE PAYER.
Certain payments, other than interest, dividends and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A and 6050N and the regulations thereunder.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend, interest
or other payments to give their correct TIN to payers who must report the
payments to the IRS. The IRS uses the numbers for identification purposes and
to help verify the accuracy of tax returns. The IRS may also provide this
information to the Department of Justice for civil and criminal litigation and
to cities, states and the District of Columbia to carry out their tax laws.
Payers must be given the TIN whether or not recipients are required to file tax
returns. Payers must generally withhold 31% of taxable interest, dividend and
certain other payments to a payee who does not furnish a taxpayer identification
number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TIN. -- If you fail to furnish your correct
TIN to a payer, you are subject to a penalty of $50 for each such failure unless
your failure is due to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
(4) MISUSE OF TINS. -- If the payer discloses or uses TIN's in violation of
Federal law, the payer may be subject to civil and criminal penalties.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
