<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1998
REGISTRATION NOS. 333-45235
AND 333-45235-01 THROUGH 07
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
AMENDMENT NO. 2 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
PERRY-JUDD'S INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2752 51-0365965
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
PERRY GRAPHIC COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2752 51-0365772
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
575 WEST MADISON STREET
WATERLOO, WI 53594
(920) 478-3551
(Address, including zip code, and telephone number, including area code, of
above registrants' principal executive offices)
</TABLE>
JUDD'S, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 2752 51-1051630
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
SHENANDOAH VALLEY PRESS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
VIRGINIA 2752 52-1016758
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
MOUNT JACKSON PRESS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
VIRGINIA 2752 62-1238824
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
1 SHENANDOAH VALLEY ROAD
STRASBURG, VA 22657
(540) 465-3731
</TABLE>
(Address, including zip code, and telephone number, including area code, of
above registrants' principal executive offices)
PORT CITY PRESS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 2752 52-0736485
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
1323 GREENWOOD ROAD
BALTIMORE, MD 21208
(410) 486-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
</TABLE>
JUDD'S ONLINE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7371 54-1895254
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
303 SOUTH LONDON STREET
WINCHESTER, VA 22601
(540) 467-6727
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
</TABLE>
JUDD & DETWEILER, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
WASHINGTON, D.C. 6519 53-0091660
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
1500 ECKINGTON PLACE
WASHINGT, D.C. 20002
(202) 636-9490
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
</TABLE>
(CONTINUED ON NEXT PAGE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CRAIG A. HUTCHISON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PERRY-JUDD'S INCORPORATED
575 WEST MADISON STREET
WATERLOO, WI 53594
(920) 478-3551
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPY TO:
KENNETH R. BENDER, ESQ.
Brobeck, Phleger & Harrison LLP
550 S. Hope Street
Los Angeles, CA 90071-2604
(213) 489-4060
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box / /.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(2) OFFERING PRICE(2) FEE(2)
<S> <C> <C> <C> <C>
10 5/8% Senior Subordinated Notes due
2007................................ $115,000,000(1) -- $115,000,000 $33,925
</TABLE>
(1) Includes an unconditional guarantee of the Notes by each subsidiary of
Perry-Judd's Incorporated.
(2) Pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended, the
registration fee has been estimated based on the book value of the
securities to be received by Registrant in exchange for the securities to be
issued hereunder in the Exchange Offer described herein.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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>
SUBJECT TO COMPLETION, DATED , 1998.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
10 5/8% SENIOR SUBORDINATED NOTES DUE 2007
UNCONDITIONALLY GUARANTEED ON A
SENIOR SUBORDINATED BASIS BY THE
SUBSIDIARIES OF THE COMPANY
($115,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 5/8% SENIOR SUBORDINATED NOTES DUE 2007
UNCONDITIONALLY GUARANTEED ON A
SENIOR SUBORDINATED BASIS BY THE
SUBSIDIARIES OF THE COMPANY
OF
[LOGO]
---------------------
The Exchange Offer will expire at 5:00 p.m. New York City time, on
, 1998, unless extended.
------------------------
Perry-Judd's Incorporated, a Delaware corporation (the "Company" or
"Perry-Judd's") hereby offers, upon the terms and conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange its 10 5/8% Senior Subordinated Notes due 2007 (the
"Exchange Notes"), in an offering that has been registered under the Securities
Act of 1933, as amended (the "Securities Act") pursuant to a Registration
Statement on Form S-4 of which this prospectus is a part, for an equal principal
amount of its outstanding 10 5/8% Senior Subordinated Notes due 2007 (the
"Outstanding Notes") of which an aggregate of $115,000,000 in principal amount
is outstanding as of the date hereof (the "Exchange Offer"). The Exchange Notes
and the Outstanding Notes are sometimes referred to collectively herein as the
"Senior Notes." The form and terms of the Exchange Notes will be the same as the
form and term of the Outstanding Notes except that the Outstanding Notes will
not bear legends restricting the transfer thereof. The Exchange Notes will be
obligations of the Company entitled to the benefits of the Indenture, dated as
of December 16, 1997 (the "Indenture"), relating to the Senior Notes, and will
be fully and unconditionally guaranteed, on a senior subordinated basis, jointly
and severally, by all existing and future subsidiaries of the Company. See
"Description of Exchange Notes." Following the completion of the Exchange Offer,
none of the Senior Notes will be entitled to any rights under the Registration
Rights Agreement dated December 16, 1997, including but not limited to the
contingent increase in the interest rate provided for therein. See "The Exchange
Offer."
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH ANY INVESTMENT IN THE SENIOR NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE .
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
The Company will accept for exchange any and all Outstanding Notes that are
validly tendered on or prior to 5:00 p.m., New York City time on the date the
Exchange Offer expires, which will be July , 1998 unless the Exchange Offer is
extended by the Company (but in no event be a date later than July , 1998)
(the "Expiration Date"). Tenders of Outstanding Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time on the Expiration Date. The Exchange
Offer is not conditioned upon any minimum principal amount of Outstanding Notes
being tendered for exchange. The Company has not entered into any arrangement or
understanding with any person to distribute the Exchange Notes to be received in
the Exchange Offer.
The Outstanding Notes initially sold to Qualified Institutional Buyers (as
defined in Rule 144A) in reliance on Rule 144A under the Securities Act ("Rule
144A") were initially represented by two permanent global Notes in definitive,
fully registered form, registered in the name of a nominee of The Depositary
Trust Company ("DTC"), which were deposited with U.S. Trust of California, N.A.,
the Trustee under the Indenture (the "Trustee"), as custodian. The Exchange
Notes exchanged for the Outstanding Notes that are represented by the global Old
Notes will continue to be represented by the permanent global Old Notes (the
"Global Notes") in definitive, fully registered form, registered in the name of
a nominee of DTC and deposited with the Trustee as custodian, unless the
beneficial holders thereof request otherwise. See "Description of the Exchange
Notes-- Book Entry; Delivery and Form." Outstanding Notes may be tendered only
in denominations of $1,000 and any integral multiple thereof.
Interest on the Exchange Notes will be payable semi-annually in arrears on
December 15 and June 15 of each year (each an "Interest Payment Date"),
commencing on the first such date following their date of issuance. Interest on
the Exchange Notes will accrue from the last Interest Payment Date on which
interest was paid on the Outstanding Notes that are accepted for exchange or, if
no interest has been paid on the Outstanding Notes, from December 16, 1997, as
the case may be, and interest on the Outstanding Notes exchanged for Exchange
Notes in the Exchange Offer will cease to be payable upon issuance of the
Exchange Notes. Untendered Outstanding Notes that are not exchanged for Exchange
Notes pursuant to the Exchange Offer will remain outstanding and bear interest
at a rate of 10 5/8% per annum after the Expiration Date. The Exchange Notes
will be fully and unconditionally guaranteed on a senior subordinated basis,
jointly and severally, by all present and future subsidiaries of Perry-Judd's.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i) a
broker-dealer who acquires such Exchange Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person 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 the holder is acquiring the Exchange Notes in the ordinary course of such
holder's business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes. Holders of Outstanding Notes wishing to accept the Exchange
Offer must represent to the Company that such conditions have been met. Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer may be an "underwriter" within the meaning of the Securities Act
and must acknowledge that it acquired the Exchange Notes 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 Exchange Notes. The Letter of
Transmittal states that by so acknowledging 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. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Outstanding Notes where
such Outstanding Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus available to any broker-dealer for use in
connection with any such resale for a period of 180 days from the date of this
Prospectus, or such shorter period as will terminate when all Outstanding Notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for Exchange Notes
and resold by such broker-dealers. See "Plan of Distribution".
Prior to the Exchange Offer, there has been no public market for the Senior
Notes. The Company does not intend to list the Exchange Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the Exchange Notes
will develop. To the extent that a market for the Exchange Notes develops, the
market value of the Exchange Notes will depend on market conditions (such as
yields on alternative investments) general economic conditions, the
2
<PAGE>
Company's financial condition and other conditions. Such conditions might cause
the Exchange Notes, to the extent that they are actively traded, to trade at a
significant discount from the face value. See "Risk Factors-- Lack of Public
Market for Securities."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OUTSTANDING NOTES IN ANY JURISDICTION
IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
3
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN "SAFE HARBOR" PROVISIONS FOR CERTAIN FORWARD-LOOKING STATEMENTS HAVE
BEEN ENACTED UNDER THE SECURITIES ACT AND THE SECURITIES EXCHANGE ACT OF 1934
(THE "EXCHANGE ACT"). SUCH PROVISIONS APPLY ONLY TO OFFERINGS OF SECURITIES
OTHER THAN INITIAL PUBLIC OFFERINGS. THE EXCHANGE OFFER CONSTITUTES THE
COMPANY'S INITIAL PUBLIC OFFERING OF SECURITIES. ALTHOUGH THE EXCHANGE OFFER IS
THE COMPANY'S INITIAL PUBLIC OFFERING AND THE "SAFE HARBOR" PROVISIONS DO NOT
APPLY, THE COMPANY DESIRES INVESTORS TO BE AWARE THAT ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION, CERTAIN STATEMENTS UNDER THE SECTION HEADINGS "SUMMARY," "THE
COMPANY," "THE ACQUISITION," "PERRY-JUDD'S INCORPORATED MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," "JUDD'S,
INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING THE
COMPANY'S FINANCIAL POSITION AND BUSINESS STRATEGY, CONSTITUTE FORWARD-LOOKING
STATEMENTS (ALTHOUGH THEY DO NOT FALL UNDER THE SAFE HARBOR PROVISIONS REFERRED
TO ABOVE). IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED
BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY", "WILL", "EXPECT",
"INTEND", "ESTIMATE", "ANTICIPATE", "BELIEVE", OR "CONTINUE" OR THE NEGATIVE
THEREOF OR VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE
DISCLOSED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK
FACTORS." TO THE EXTENT PERMISSIBLE UNDER APPLICABLE LAW, ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS
ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
PERRY-JUDD'S INCORPORATED, 575 WEST MADISON STREET, WATERLOO, WISCONSIN 53594,
ATTENTION: CHIEF FINANCIAL OFFICER (TELEPHONE NUMBER: (920) 478-3551). IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY [TEN
DAYS PRIOR TO EXPIRATION DATE], 1998. COPIES OF SUCH DOCUMENTS ARE ALSO
AVAILABLE AS DESCRIBED UNDER THE SECTION "AVAILABLE INFORMATION" HEREIN.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE
ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THIS PROSPECTUS, NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR
BOTH TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF
TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
4
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
WITHOUT LIMITATION THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO (THE "COMPANY CONSOLIDATED FINANCIAL STATEMENTS"), THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO OF JUDD'S, INCORPORATED (THE "JUDD'S
CONSOLIDATED FINANCIAL STATEMENTS") AND THE "UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL DATA" AND NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED OR THE CONTEXT CLEARLY IMPLIES OTHERWISE,
ALL REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" REFER TO PERRY-JUDD'S
INCORPORATED (FORMERLY KNOWN AS PPC HOLDINGS, INC.) AND ITS SUBSIDIARIES
(INCLUDING, JUDD'S, INCORPORATED), ALL REFERENCES TO "PERRY" REFER TO PERRY
GRAPHIC COMMUNICATIONS, INC. AND ALL REFERENCES TO "JUDD'S" REFER TO JUDD'S,
INCORPORATED AND ITS SUBSIDIARIES.
THE COMPANY
The Company is a leading multi-regional printer of magazines, catalogs,
technical books and other commercial products. Its four printing facilities are
strategically located in the Midwest and Mid-Atlantic regions, with each plant
having state-of-the-art, integrated prepress, press, binding and distribution
capabilities. The Company services regional and national customers through sales
offices in twelve cities nationwide. Management believes both Perry and Judd's
have established reputations for high quality products and superior customer
service which have resulted in long-standing customer and supplier
relationships. The Company manages the total prepress, print and distribution
process to provide value-added solutions that reduce customer costs or assist
customers in increasing revenues. For the year ended December 31, 1997, on a pro
forma basis after giving effect to the Transactions and the Sale/Leaseback, the
Company had net sales and EBITDA (as defined) of $285.7 million and $26.2
million, respectively, and a net loss of $5.2 million. For the three months
ended March 31, 1998, the Company had net sales and EBITDA (as defined) of $76.9
million and $7.5 million, respectively, and a net loss of $0.5 million.
The Company specializes in three significant sectors of the printing
industry: Magazines, Catalogs and Technical Books.
MAGAZINES. The Company believes it is the seventh largest printer of
magazines in the United States, offering a full array of value-added services
specifically tailored to its magazine customers. The Company's customers include
some of the nation's leading publishers such as Time Inc., Newsweek, The
McGraw-Hill Companies, The Economist and the Washington Post Company. Magazines
printed by the Company include well known monthly and weekly publications such
as TIME, LIFE, SPORTS ILLUSTRATED, PEOPLE, IN STYLE, BUSINESS WEEK, THE
ECONOMIST, NEWSWEEK, KIPLINGER'S PERSONAL FINANCE and THE WASHINGTON POST
MAGAZINE. Substantially all of the Company's magazine printing is performed
under contracts with terms ranging from one to six years. The Company's success
in attracting and maintaining customers is enhanced by its sophisticated
prepress and printing capabilities and its ability to facilitate targeted
marketing and distribution through the use of its geo-demographic selective
binding, ink-jet addressing and customized list processing services. The Company
also provides specialized tabloid-size magazine printing and binding
capabilities used for titles such as COMPUTERWORLD and AMNEWS. The Company's
magazine business generated combined net sales of $152.3 million, or 53% of
total combined net sales for 1997.
CATALOGS. The Company believes it is the eighth largest catalog printer in
the U.S., producing catalogs for customers which include J.C. Penney, Hecht's,
Black Box and Doubleday Book & Music Club. Sophisticated prepress, press,
binding and distribution capabilities ensure that high quality catalogs reach
the consumer in a timely and cost-efficient manner. In addition, the Company can
provide specialized digest-size catalog printing and binding capabilities. The
Company's catalog business generated combined net sales of $79.6 million, or 28%
of total combined net sales for 1997.
5
<PAGE>
TECHNICAL BOOKS. The Company prints a variety of information-intensive
professional and technical journals, reference books and business directories.
The Company also offers data conversion and composition, database management and
multimedia publishing services to its technical book customers. In this segment,
the Company has over 350 customers including the American Medical Association,
Arbitron Rating Company, Dun & Bradstreet, Insurance Institute, Matthew Bender,
The McGraw-Hill Companies, Morningstar Inc. and Standard & Poor's. The Company's
technical books business generated combined net sales of $34.3 million, or 12%
of total combined net sales for 1997.
The Company also produces a variety of specialty commercial products such as
magazine inserts, calendars and general advertising products. These commercial
products enable the Company to optimize capacity utilization by supplementing
its magazine and catalog business. These products generated combined net sales
of $19.5 million, or 7% of total combined net sales for 1997.
ACQUISITION RATIONALE
As the commercial printing industry continues to consolidate and customer
needs become more complex and sophisticated, the Company believes that prospects
for future success and growth in the industry will depend in large part on
having sufficient financial, technological and distribution capabilities to
address the evolving needs of its customer base. The Company believes that the
acquisition of Judd's will contribute significantly to the Company's competitive
position in the industry and will position it as the sixth largest magazine and
catalog printer in the U.S. (on a total combined net sales basis).
The Company believes that there are significant opportunities and synergies
in acquiring Judd's, including a broadening of the Company's customer base, the
establishment of a physical presence in the Mid-Atlantic region, the enhancement
of the Company's technological capabilities and expansion into new segments of
the commercial printing market. Both Perry and Judd's have long-established
traditions of superior customer service, which the Company believes will help
ensure consistent quality of service to the Company's existing and future
customers and will help to facilitate the integration of the two companies. In
addition, by consolidating administrative operations and managing the production
capacity of the two companies, the Company expects to achieve greater production
efficiencies and a reduction of its costs of sales.
RECENT TRANSACTIONS
As of October 17, 1997, Perry-Judd's (under its corporate name at that time,
PPC Holdings, Inc.) and a wholly-owned subsidiary (the "Acquisition Subsidiary")
entered into a Plan and Agreement of Merger (the "Merger Agreement") with
Judd's. Pursuant to the Merger Agreement, on December 16, 1997 Perry-Judd's
acquired all of the outstanding capital stock of Judd's, and Judd's became a
wholly-owned subsidiary of Perry-Judd's (the "Acquisition"). The aggregate
merger consideration was $102.0 million, which included the repayment of
outstanding indebtedness of Judd's as of December 16, 1997 and a preliminary
working capital adjustment, and is subject to a final, post-closing working
capital adjustment as set forth in the Merger Agreement. The Acquisition was
effected by the merger of the Acquisition Subsidiary with and into Judd's.
Simultaneously with the closing of the Acquisition, PPC Holdings, Inc. was
renamed Perry-Judd's Incorporated. See "Description of the Acquisition."
The Company financed the Acquisition and the repayment of certain existing
indebtedness with (i) borrowings by certain of its subsidiaries under an amended
and restated credit agreement (the "Amended and Restated Credit Agreement"),
including $30.0 million of borrowings under a senior secured term loan facility
(the "Term Loan Facility"), (ii) the gross proceeds of $115.0 million from the
sale of Outstanding Notes, (iii) $9.5 million of preferred stock resulting from
the conversion of a $6.5 million promissory note plus accrued interest thereon
held by Ropamil Limited Partnership ("Ropamil"), an affiliate of Robert E.
Milhous and Paul B. Milhous (the "Note Conversion") and (iv) $4.0 million of
proceeds from the sale of common stock of Perry-Judd's to certain existing
stockholders (the "Equity
6
<PAGE>
Investment"). Each of the Acquisition, the Amended and Restated Credit
Agreement, the Offering, the Note Conversion and the Equity Investment closed
simultaneously on December 16, 1997, and are sometimes referred to herein
collectively as the "Transactions." See "Description of Amended and Restated
Credit Agreement" and "Description of Note Conversion."
In addition, on December 16, 1997, Perry and Judd's, collectively as tenant,
entered into a sale/ leaseback transaction with a third party with respect to
all real property owned by Perry and its subsidiaries (the "Sale/Leaseback").
Net proceeds of approximately $17.6 million from the Sale/Leaseback were used to
repay certain outstanding indebtedness under the Existing Credit Agreement (as
defined). See "Description of Sale/Leaseback."
RECENT DEVELOPMENTS
The Company has recently executed a letter of intent to enter into a sale
and leaseback transaction for certain real property held by Judd's and its
subsidiaries, including two printing plants in Virginia and one in Baltimore,
Maryland. If consummated, this sale and leaseback would generate approximately
$22 million in net proceeds to the Company. The initial annual lease expense
expected under the operating lease resulting from the proposed sale and
leaseback transaction would be $2.1 million, with 10.0% escalations scheduled at
the start of the sixth and eleventh years of the proposed 15 year term. The
consummation of the proposed sale and leaseback is contingent upon satisfactory
appraisal of the properties, inspection and environmental reports and other due
diligence efforts to be completed by the potential buyer, among other
conditions, and there can be no assurance that this transaction will be
consummated on the terms described above, if at all.
The Company is also contemplating the reorganization of its corporate
structure by consolidating its magazine and catalog business into a single
entity to better integrate its operations and to simplify administration and
corporate governance. As contemplated, the reorganization would involve the
merger of the Company's wholly-owned subsidiary Perry-Graphics Communications,
Inc. ("Perry") into Judd's, Incorporated ("Judd's"), also a wholly-owned
subsidiary of the Company, and the subsequent merger into Judd's of its
wholly-owned subsidiaries Shenandoah Valley Press, Inc., Mount Jackson Press,
Inc. and Judd & Detweiler, Inc. Following the reorganization, the Company
anticipates that Judd's will be reincorporated under the laws of the State of
Delaware. After the reorganization, the Notes would continue to be fully and
unconditionally guaranteed on a senior subordinated basis, jointly and
severally, by each of the Company's remaining subsidiaries, Judd's, Port City
Press, Inc. and Judd's Online, Inc. As contemplated, the reorganization would be
permitted under the terms of the Indenture.
The following chart sets forth the organizational structure of the Company
as of the date of this Prospectus. The direct and indirect subsidiaries of
Perry-Judd's shown below are referred to herein collectively as the
"Subsidiaries." In the event the Company completes the contemplated
reorganization described in the preceding paragraph, the Company's
organizational structure would be simplified as described therein.
The Perry-Judd's Incorporated
Organization Structure Chart
7
<PAGE>
------------------------
Perry-Judd's is a Delaware corporation with its principal executive offices
at 575 West Madison Street, Waterloo, Wisconsin 53594. Perry-Judd's telephone
number is (920) 478-3551.
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer................ The Company is offering to exchange $1,000 in principal
amount (and any integral multiple thereof) of Exchange
Notes for each $1,000 in principal amount (and any
integral multiple thereof) of Outstanding Notes that are
validly tendered pursuant to the Exchange Offer. The
Company will issue the Exchange Notes promptly after the
Expiration Date. As of the date of this Prospectus,
$115,000,000 in aggregate principal amount of
Outstanding Notes are outstanding. The Company has not
entered into any arrangement or understanding with any
person to distribute the Exchange Notes to be received
in the Exchange Offer.
Resale............................ The Company believes that the Exchange Notes issued
pursuant to the Exchange Offer generally will be freely
transferable by the holders thereof without registration
or any prospectus delivery requirement under the
Securities Act, except that a "dealer" or any of the
Company's affiliates, as such terms are defined under
the Securities Act, that exchanges Outstanding Notes
held for its own account may be required to deliver
copies of this Prospectus in connection with any resale
of the Exchange Notes issued in exchange for such
Outstanding Notes. See The Exchange Offer--General and
Plan of Distribution.
Expiration Date................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1998, unless extended, in
which case the term Expiration Date means the latest
date and time to which the Exchange Offer is extended by
the Company (but in no event later than July , 1998).
The Company will accept for exchange any and all
Outstanding Notes that are validly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time,
on the Expiration Date.
Accrued Interest on the New Notes
and the Outstanding Notes....... Each New Note will bear interest from the last Interest
Payment Date on which interest was paid on the
Outstanding Notes, or, if interest has not yet been paid
on the Outstanding Notes, from December 16, 1997, the
date of issuance (the "Issue Date"). Such interest will
be paid with the first interest payment on the Exchange
Notes. Accordingly, interest, which has accrued since
the last Interest Payment Date or December 16, 1997, as
the case may be, on the Outstanding Notes accepted for
exchange will cease to be payable upon issuance of the
Exchange Notes. Untendered Outstanding Notes that are
not exchanged for Exchange Notes pursuant to the
Exchange Offer will bear
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
interest at a rate of 10 5/8% per annum after the
Expiration Date.
Termination....................... The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the Exchange
Offer could be materially impaired due to any legal or
governmental action, any new law, statute, rule or
regulation or any interpretation by the staff of the
Commission of any existing law, statute, rule or
regulation. Holders of Outstanding Notes will have
certain rights against the Company under the
Registration Rights Agreement should the Company fail to
consummate the Exchange Offer. See "The Exchange
Offer--Termination." No federal or state regulatory
requirements must be complied with or approvals obtained
in connection with the Exchange Offer, other than
applicable requirements under federal and state
securities laws.
Procedures for Tendering Old
Notes........................... Each holder of Outstanding Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Outstanding Notes and
any other required documentation to Fleet National Bank,
as Exchange Agent (the "Exchange Agent"), at the address
set forth herein and therein, or effect a tender of
Outstanding Notes pursuant to the procedure for
book-entry transfer as provided for herein. By executing
the Letter of Transmittal, each holder will represent to
the Company that, among other things, the Exchange Notes
acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not
such person is the holder, that neither the holder nor
any such other person has an arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes and, except as
otherwise disclosed in writing to the Company, that
neither the holder nor any such other person is an
"affiliate", as defined in Rule 405 under the Securities
Act, of the Company.
Special Procedures for Beneficial
Owners.......................... Any beneficial owner whose Outstanding Notes are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to
tender such Outstanding 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 such owner's own behalf, such owner
must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Outstanding
Notes, either make appropriate arrangements to register
ownership of the Outstanding Notes in such owner's name
or obtain a properly completed bond power from the
registered holder. The transfer
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
of record ownership may take considerable time and may
not be able to be completed prior to the Expiration
Date.
Guaranteed Delivery Procedures.... Holders of Outstanding Notes who wish to tender their
Outstanding Notes and whose Outstanding Notes are not
immediately available or who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any
other documents required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date must
tender their Outstanding Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights................. Tenders of Outstanding Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Outstanding Notes
and Delivery of Exchange
Notes........................... Subject to certain conditions (as summarized above in
"Termination" and described more fully in "The Exchange
Offer--Termination"), the Company will accept for
exchange any and all Outstanding Notes that are validly
tendered in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date. See
"The Exchange Offer--General."
Certain Federal Income Tax
Considerations.................. The exchange pursuant to the Exchange Offer will
generally not be a taxable event for federal income tax
purposes. For a discussion of certain federal income tax
considerations relating to the exchange of the
Outstanding Notes for the Exchange Notes, see "Certain
Federal Income Tax Considerations."
Exchange Agent.................... The Trustee is also the Exchange Agent. The mailing
address of the Exchange Agent is U.S. Trust Company of
California, N.A., c/o United States Trust Company of New
York, P. O. Box 841, Peter Cooper Station, New York, New
York 10276-0841. The address for deliveries by overnight
courier is: U.S. Trust Company of California, N.A., c/o
United States Trust Company of New York, 770 Broadway,
13th Floor, New York, New York 10003, Attention:
Corporate Trust Municipal Operations. Hand deliveries
should be made to U.S. Trust Company of California,
N.A., c/o United States Trust Company of New York, 111
Broadway, Lower Level, New York, New York 10006-1906,
Attention: Corporate Trust Operations. For information
with respect to the Exchange Offer, the telephone number
for the Exchange Agent is (800) 225-2398 and the
facsimile number for the Exchange Agent is (212)
420-6504, Attention: Customer Service.
Use of Proceeds................... There will be no cash proceeds payable to the Company
from the issuance of the Exchange Notes pursuant to the
Exchange Offer. Of the approximately $111.5 million of
net proceeds received by the Company from the sale of
the Outstanding Notes, approximately $102.0 million was
used to pay the aggregate merger consideration in the
Acquisition,
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
approximately $6.5 million was used to pay expenses
related to the Acquisition and the other Transactions
and the remaining $3.0 million was used for general
corporate purposes. See "Use of Proceeds."
</TABLE>
SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to an aggregate principal amount of $115,000,000
of the Outstanding Notes. The form and terms of the Exchange Notes will be the
same as the form and terms of the Outstanding Notes except that the Exchange
Notes will not bear legends restricting the transfer thereof. The New Notes will
be obligations of the Company entitled to the benefits of the Indenture. See
"Description of the Exchange Notes."
<TABLE>
<S> <C>
Exchange Notes Offered............ $115,000,000 aggregate principal amount of 10 5/8%
Senior Subordinated Notes due 2007.
Maturity Date..................... December 15, 2007.
Interest Payment Dates............ June 15 and December 15, commencing December 15, 1998.
Optional Redemption............... The Exchange Notes will be redeemable, in whole or in
part, at the option of the Company on or after December
15, 2002, at the redemption prices set forth herein,
plus accrued interest to the date of redemption. In
addition, at any time on or prior to December 15, 2000,
the Company, at its option, may redeem up to 35% of the
aggregate principal amount of the Notes originally
issued with the net cash proceeds of one or more Public
Equity Offerings (as defined), at a redemption price
equal to 110.625% of the principal amount thereof, plus
accrued interest to the date of redemption; PROVIDED
that at least 65% of the aggregate principal amount of
Notes originally issued remains outstanding immediately
following such redemption. See "Description of Exchange
Notes--Redemption."
Ranking........................... The Exchange Notes will be general unsecured obligations
of the Company and will be subordinated in right of
payment to all existing and future Senior Indebtedness
(as defined) of the Company. The Exchange Notes will
rank PARI PASSU in right of payment with any future
senior subordinated indebtedness of the Company and will
rank senior in right of payment to all other
subordinated indebtedness of the Company. On December
31, 1997, the Company had no Senior Indebtedness
outstanding (excluding guarantees of Guarantor Senior
Indebtedness). See the Company Consolidated Financial
Statements.
Guarantees........................ The Exchange Notes will be fully and unconditionally
guaranteed (the "Guarantees") on a senior subordinated
basis, jointly and severally, by each of the Company's
existing or future subsidiaries (the "Subsidiary
Guarantors"). The Guarantees will be general unsecured
obligations of the Subsidiary Guarantors and will be
subordinated in right of payment to all existing and
future Guarantor Senior Indebtedness (as defined), which
will include any guarantee by such Subsidiary Guarantors
of the Company's indebtedness under the Amended and
Restated Credit Agreement. The Guarantees will rank PARI
PASSU in right
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
of payment with any future senior subordinated
indebtedness of the Subsidiary Guarantors and will rank
senior in right of payment to all other subordinated
obligations of the Subsidiary Guarantors. On December
31, 1997, the Subsidiary Guarantors had $30.0 million of
Guarantor Senior Indebtedness outstanding, and undrawn
capacity of $45.0 million under the revolving credit
facility under the Amended and Restated Credit Agreement
(the "Revolving Credit Facility"), which, if drawn,
would constitute outstanding Guarantor Senior
Indebtedness. There can be no assurance, however, that
sufficient funds will be available at the time of any
Change of Control to make any such repurchase. See
"Description of Exchange Notes--Guarantees."
Change of Control................. Upon a Change of Control (as defined), each holder of
the Exchange Notes will have the right to require the
Company to repurchase such holder's Exchange Notes at a
price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest to the repurchase date.
See "Description of Exchange Notes--Change of Control."
Offer to Repurchase............... The Company will be obligated to offer to repurchase the
Exchange Notes at 100% of the principal amount thereof
plus accrued and unpaid interest to the date of
repurchase in the event of certain Asset Sales (as
defined). There can be no assurance, however, that
sufficient funds will be available at the time of any
such Asset Sale to make any such repurchase. See
"Description of Exchange Notes--Covenants--Limitation on
Asset Sales."
Certain Covenants................. The Indenture governing the Exchange Notes (the
"Indenture") will contain certain covenants that limit
the ability of the Company and its subsidiaries to,
among other things, incur additional indebtedness, pay
dividends or make certain other restricted payments,
consummate certain asset sales, enter into certain
transactions with affiliates, incur liens, incur
indebtedness that is subordinate to Senior Indebtedness
but senior in right of payment to the Exchange Notes,
impose restrictions on the ability of a subsidiary to
pay dividends or make certain payments to the Company
and its subsidiaries, merge or consolidate with any
other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the
assets of the Company. These restrictions and
qualifications are subject to a number of important
qualifications and exceptions.
</TABLE>
For additional information regarding the Exchange Notes, see "Description of
Exchange Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Notes.
COMPANY STRENGTHS
SUPERIOR QUALITY AND CUSTOMER SERVICE. Perry and Judd's have each
established a reputation for providing superior quality and customer service.
The Company offers high value services that address
12
<PAGE>
customers' specific needs and is committed to meeting those needs through
responsive and flexible service. To ensure continual process improvement, the
Company has invested in training and manages its operations using a total
quality management approach. The Company's commitment to provide timely,
cost-effective, high quality printing solutions combined with the Company's
distinctive service orientation differentiates it from its competitors. As
evidence of its consistent focus on quality, in March 1997 the Company was
awarded Business Week's annual "Quality Achiever" award for the fourth time in
the past six years.
LONG-STANDING CUSTOMER RELATIONSHIPS. The Company has provided printing
services for customers such as Time Inc., J.C. Penney, Newsweek, and Kiplinger's
for over 15 years, The McGraw-Hill Companies for over 30 years and the American
Medical Association for 40 years. On a combined basis, the Company's customer
base included over 130 magazine publishers and 110 catalog merchants, with no
title comprising more than 5% of total combined net sales for 1997. The top ten
customers have been with the Company for an average of over 15 years and
accounted for approximately 35% of total combined net sales for 1997. The
Company believes its combination of outstanding performance and commitment to
responsive customer service have enabled the Company to build loyalty with its
customer base that allows it to grow its business relationships. These
relationships provide a strong foundation for growth in the business.
TECHNOLOGICALLY-ADVANCED EQUIPMENT. The Company is committed to providing
advanced production capabilities which deliver value-added solutions to its
customers. Since the beginning of 1993, the Company has invested over $100
million (on a combined basis) in capital expenditures to upgrade and expand its
equipment base. Management believes that these investments, including
high-speed, high-yield press equipment, cost-effective binding equipment and
computer-to-plate technology, have enabled the Company to remain at the
forefront of technology, retain and expand relationships with existing
customers, increase capacity, lower production costs, improve quality, speed and
flexibility and attract new business.
STRATEGIC LOCATIONS. The Company's four printing plants are strategically
located to service major population centers throughout the U.S., enabling the
Company to provide rapid, cost-efficient national and regional distribution. The
location of the Company's plants, combined with its distribution volume, allows
the Company to ship directly to U.S. Postal Service sectional center facilities,
which lowers its customers' postage rates and provides for quicker delivery of
magazines and catalogs to consumers. The proximity of the Company's facilities
to a majority of the U.S. population and central distribution routes provides
significant distribution economies to its customers and a competitive advantage
to the Company.
EXPERIENCED MANAGEMENT TEAM AND PRINCIPAL STOCKHOLDERS. The Company's
executive officers and key management employees have spent the majority of their
careers in printing and publishing and have an average of over 20 years of
experience in the industry. Management's expertise and in-depth knowledge of the
Company's markets are further complemented by the experience of Robert E.
Milhous and Paul B. Milhous, the principal stockholders of the Company. Prior to
their ownership of Perry, the Milhouses owned Treasure Chest Advertising
Company, Inc., which grew from a start-up in 1967 to the sixth largest
commercial printer in the U.S., having net sales in excess of $550 million
before its sale to Big Flower Press, Inc. in 1993.
BUSINESS STRATEGY
The Company's strategic objective is to grow revenues and profits by
leveraging its competitive strengths as an integrated provider of high quality
products and value-added services in its targeted business sectors. Key elements
in this strategy include the Company's ability to capitalize on opportunities
presented by the combination of Perry and Judd's and to pursue complementary
acquisitions:
CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. The Company intends to take
advantage of the considerable cross-selling opportunities presented by the
combination of Perry's and Judd's respective customer bases, product lines and
geographical locations. The Company expects to increase product penetration of
its existing customer base by capturing work that previously exceeded Perry's
and Judd's stand-alone capacities and particular areas of expertise. For
example, with the addition of Judd's medium- and short-run printing
capabilities, the Company will be well-positioned to serve the needs of many of
Perry's larger,
13
<PAGE>
long-run customers who are developing or acquiring additional shorter-run
targeted specialty magazines and catalogs. In addition, the Company can now
offer its customers a choice of Mid-Atlantic and Midwestern production
locations.
REALIZE OPERATIONAL SYNERGIES. The Company believes it can achieve
production rationalization from the integration of Perry's long-run and Judd's
medium- and short-run printing capabilities. By allocating production among the
various facilities, the Company can better absorb increased volumes and manage
available capacity, thereby optimizing labor and equipment utilization while
reducing printing and distribution costs. In addition, Judd's Mount Jackson,
Virginia facility, currently used for back-issue storage, provides the Company
with a ready-made expansion facility.
CAPTURE OVERHEAD COST AND VOLUME PURCHASING EFFICIENCIES. The Company
expects to consolidate overhead functions of Perry and Judd's resulting in
savings from the elimination of redundant administrative operations. In
addition, the Company believes the combined volume requirements for paper, other
raw materials and production supplies should allow it to negotiate improved
terms from vendors. Management also believes the combined Company can obtain
better pricing from equipment manufacturers.
DEVELOP NEW MEDIA SERVICES. The Company is among the printing industry's
leaders in offering innovative on-line and multimedia products and services. The
Company's New Media Services group develops and manages interactive web-sites
for both publishing and direct-marketing customers who desire to complement
ink-on-paper products with on-line products and services. The Company has also
successfully marketed its New Media Services to non-publishing customers. The
Company has implemented web-site advertising and electronic commerce programs
for its customers and believes multimedia and on-line products and services
present the Company with significant growth opportunities and further
differentiate it from its competitors.
GROW THROUGH COMPLEMENTARY ACQUISITIONS. The Company plans to capitalize on
the printing industry's fragmentation by pursuing selective complementary
acquisitions to broaden its geographic presence, extend its product offerings,
and expand production capacity within the magazine and catalog sectors.
Management believes such acquisitions can offer significant cost savings
realized through the combined purchasing of raw materials, reduction of overhead
costs and productivity gains captured by the Company's ability to integrate
newly acquired facilities with the Company's existing business. The Company
intends to utilize its borrowing capacity under the Amended and Restated Credit
Agreement (availability of $45 million at December 31, 1997) and, if available
on satisfactory terms, future debt and equity offerings as its primary financing
sources for such acquisitions.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary financial data for Perry-Judd's (formerly PPC Holdings, Inc.)
set forth below have been derived from Perry-Judd's Incorporated Consolidated
Financial Statements for the 248 day period ended December 31, 1995, the years
ended December 31, 1996 and 1997, and the 117 day period ended April 27, 1995
for the Company's predecessor, Perry Printing Corporation, which was acquired by
the Company as of April 28, 1995, all of which have been audited by Deloitte &
Touche LLP, independent auditors, whose report is included elsewhere in this
Prospectus. The summary financial data for Perry-Judd's Incorporated for the
three months ended March 31, 1998 and 1997 have been derived from the Company's
unaudited condensed consolidated interim financial statements included elsewhere
in this Prospectus. The summary financial data for Judd's, Incorporated have
been derived from Judd's Consolidated Financial Statements for the years ended
December 31, 1995 and 1996, which have been audited by Stoy, Malone & Company,
P.C., independent auditors, whose report for the years ended December 31, 1995
and 1996 is included elsewhere in this Prospectus, and from Judd's Consolidated
Financial Statements for the 349 day period ended December 15, 1997, which have
been audited by Deloitte & Touche LLP, independent auditors, whose report for
such period is included elsewhere in the Prospectus.
The summary unaudited pro forma condensed combined financial data set forth
below have been derived from the unaudited pro forma condensed combined
statements of operations for the year ended December 31, 1997, which are
included elsewhere in this Prospectus.
The unaudited pro forma financial data set forth below and elsewhere in this
Prospectus do not purport to represent the actual results that would have been
achieved had the Transactions and the Sale/ Leaseback been consummated on the
dates or for the periods indicated, and do not purport to indicate results of
operations or financial condition as of any future date or for any future
period. The following information should be read in conjunction with "Unaudited
Pro Forma Condensed Combined Financial Statements," "Perry-Judd's Incorporated
Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Judd's, Incorporated Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Company Consolidated
Financial Statements and the Judd's Consolidated Financial Statements included
elsewhere in this Prospectus.
15
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PERRY-JUDD'S INCORPORATED AND PREDECESSOR
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR(1) PERRY-JUDD'S INCORPORATED
-------------------------------------------------- -------------------------------------
248 DAYS
YEAR ENDED DECEMBER 31, 117 DAYS ENDED YEAR ENDED YEAR ENDED
------------------------------------- ENDED APRIL DECEMBER DECEMBER DECEMBER
1992 1993 1994 27, 1995 31, 1995 31, 1996 31, 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 107,271 $ 105,915 $ 116,967 $ 45,920 $ 115,647 $ 138,511 $ 153,815
Depreciation and
amortization of
intangibles.............. 9,353 10,070 9,899 3,049 4,000 6,449 7,238
Income from operations..... 5,162 5,354 4,591 2,281 5,263 6,508 6,828
Interest expense(2)........ 247 433 980 470 4,503 5,946 6,431
Net income (loss).......... 3,052 2,771 2,643 1,062 (885) (1,084) (2,658)
BALANCE SHEET DATA:
Working capital............ $ 12,700 $ 11,208 $ 15,794 $ 12,845 $ 11,888 $ 7,306 $ 32,890
Net property, plant and
equipment................ 57,953 63,659 58,461 65,302 65,863 65,044 121,808
Total assets............... 80,434 86,007 87,354 98,384 119,032 104,281 233,354
Total long-term debt....... -- -- -- -- 65,829 59,711 145,271
Minority interests(3)...... -- -- -- -- 9,012 6,772 6,935
Shareholders' equity....... 62,795 66,493 65,718 68,565 16,616 15,532 26,374
OTHER DATA:
EBITDA(4).................. $ 14,518 $ 15,431 $ 14,444 $ 5,330 $ 9,267 $ 12,906 $ 13,866
Rents and operating lease
expense.................. 92 91 145 46 2,500 4,292 5,099
Net cash provided by (used)
in operating
activities............... 13,979 14,978 7,069 7,950 (3,145) 11,651 (1,288)
Net cash provided (used) in
investing activities..... (10,434) (15,806) (3,810) (9,958) (76,994) (5,044) (86,511)
Net cash provided (used) in
financing activities..... (3,670) 927 (3,417) 1,784 81,830 (6,118) 89,395
CAPITAL EXPENDITURES:
Purchased(5)............... $ 10,451 $ 15,889 $ 5,577 10,047 -- $ 5,186 $ 3,232
Capital investments under
operating leases......... -- -- -- -- 4,076 3,256 11,635(6)
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------
1997 1998
----------- -----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Net sales.................. $ 33,777 $ 76,946
Depreciation and
amortization of
intangibles.............. 1,715 3,484
Income from operations..... 768 4,147
Interest expense(2)........ 1,430 3,864
Net income (loss).......... (775) (459)
BALANCE SHEET DATA:
Working capital............ $ 6,105 $ 30,808
Net property, plant and
equipment................ 64,105 123,286
Total assets............... 98,757 228,820
Total long-term debt....... 56,896 142,165
Minority interests(3)...... 6,813 6,975
Shareholders' equity....... 14,755 25,915
OTHER DATA:
EBITDA(4).................. $ 2,426 $ 7,523
Rents and operating lease
expense.................. 1,295 2,974
Net cash provided by (used)
in operating
activities............... 1,311 1,613
Net cash provided (used) in
investing activities..... (675) (4,574)
Net cash provided (used) in
financing activities..... (2,815) (523)
CAPITAL EXPENDITURES:
Purchased(5)............... $ 675 $ 4,574
Capital investments under
operating leases......... -- --
</TABLE>
JUDD'S, INCORPORATED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
349 DAYS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------------- DECEMBER 15,
1992 1993 1994 1995 1996 1997
----------- ----------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $ 105,725 $ 113,957 $ 118,783 $ 141,222 $ 152,563 $ 131,938
Depreciation and amortization of intangibles..... 5,366 5,042 7,341 8,094 7,961 8,432
Income from operations........................... 4,752 3,415 2,427 5,679 6,137 6,037
Interest expense(2).............................. 901 1,131 2,817 3,327 3,066 3,384
Net income (loss)................................ 2,143 2,035 (311) 1,841 1,993 1,437
BALANCE SHEET DATA:
Working capital.................................. $ 13,215 $ 32,057 $ 17,201 $ 19,208 $ 9,678 $ 17,748
Net property, plant and equipment................ 27,343 42,485 50,195 51,203 49,352 46,093
Total assets..................................... 53,384 92,285 86,833 90,846 86,555 82,963
Total long-term debt............................. 12,019 45,348 42,097 44,423 34,811 44,389
Minority interests............................... 220 205 197 187 176 156
Shareholders' equity............................. 27,512 27,636 27,274 27,727 29,776 20,052
OTHER DATA:
EBITDA(4)........................................ $ 9,891 $ 8,759 $ 9,630 $ 13,895 $ 14,187 $ 14,013
Rents and operating lease expense................ 2,720 2,712 2,940 2,846 2,864 3,530
Net cash provided by operating activities........ 5,687 8,335 5,354 5,811 18,906 13,959
Net cash (used) in investing activities.......... (4,069) (37,484) (2,639) (7,541) (5,785) (6,070)
Net cash provided (used) in financing
activities..................................... (2,193) 30,226 (4,033) 366 (10,405) (2,207)
CAPITAL EXPENDITURES:
Purchased(5)..................................... $ 4,323 $ 17,313 $ 14,688 $ 7,746 $ 5,954 $ 6,164
Capital investments under operating leases(7).... -- -- 418 579 8,040 --
</TABLE>
16
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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA(8)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................................................... $ 285,753
Depreciation and amortization of intangibles................................................ 13,824
Income from operations...................................................................... 12,611
Interest expense(2)......................................................................... 15,238
Net loss.................................................................................... (5,210)
OTHER DATA:
EBITDA(4)................................................................................... $ 26,233
Rents and operating lease expense........................................................... 10,729
CAPITAL EXPENDITURES:
Purchased(5)................................................................................ $ 9,396
Capital investments under operating leases.................................................. 11,635
</TABLE>
- ------------------------------
(1) Effective April 28, 1995, the Company acquired certain assets and assumed
certain liabilities of Perry Printing Corporation and North Star Print
Group (collectively, the "Predecessor"). Prior to April 28, 1995, the
Company had no operating activity and substantially no assets. See Note 1
to the Company Consolidated Financial Statements.
(2) Includes interest on debt, but excludes amortization of deferred financing
costs, dividends and accretion on preferred stock.
(3) Represents preferred stock of Perry. See Note 5 to Company Consolidated
Financial Statements.
(4) "EBITDA" represents earnings before interest, income taxes, depreciation
and amortization, and gains and losses on dispositions of assets. While
EBITDA should not be construed as a substitute for operating income or loss
or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements. EBITDA
is not necessarily a measure of the Company's ability to fund its cash
needs, and items excluded from EBITDA (such as depreciation and
amortization) are significant to an understanding of the Company's
financial results. In addition, EBITDA as presented by the Company may not
be directly comparable to similarly-titled measures presented by other
companies. See the Company Consolidated Statements of Cash Flows, the
Judd's Consolidated Statements of Cash Flows and the Unaudited Pro Forma
Condensed Combined Statements of Operations and the related notes thereto
included in this Prospectus.
(5) Includes the recorded book value of assets obtained under capital leases.
(6) Represents operating leases for digital prepress, press and binding
equipment. Prior to 1997, advance payments on substantial leased assets
were paid directly by the Company. Beginning in 1997, advance payments were
made directly to the manufacturer by the lessor.
(7) Represents operating leases. In 1996, Judd's placed into service a new
press and related equipment.
(8) For a description of purchase accounting and pro forma adjustments, see the
notes to the Unaudited Pro Forma Condensed Combined Statements of
Operations included elsewhere herein.
17
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE EXCHANGE NOTES SHOULD CONSIDER CAREFULLY THE
RISK FACTORS SET FORTH BELOW, AS WELL AS THE MORE DETAILED INFORMATION CONTAINED
ELSEWHERE IN THIS PROSPECTUS, BEFORE MAKING A DECISION TO INVEST IN THE EXCHANGE
NOTES.
HIGH LEVEL OF INDEBTEDNESS
In connection with the Acquisition, the Company has incurred a significant
amount of indebtedness and will be highly leveraged. As of December 31, 1997,
the Company's indebtedness was $145.3 million and accounts payable were $17.7
million. The Company may also borrow an additional $45.0 million under the
Revolving Credit Facility. As of December 31, 1997 the Company's total debt
(including long term debt and minority interest) was $152.2 million and total
capitalization was 178.6 million, resulting in a total debt to total
capitalization ratio of 85%. Also, the Company's ratio of earnings to fixed
charges would have been 0.7 to 1.0 for the year ended December 31, 1997 on a pro
forma basis after giving effect to the Transactions and the Sale/Leaseback. In
addition, subject to the restrictions in the Amended and Restated Credit
Agreement and the Indenture, the Company may incur additional senior
indebtedness to finance acquisitions and capital expenditures and for other
general corporate purposes. Also, as of December 31, 1997, the Company had
significant commitments under operating leases, including the impact of the
Sale/ Leaseback.
The level of the Company's indebtedness could have important consequences to
holders of the Senior Notes, including: (i) a substantial portion of the
Company's cash flow from operations (estimated at 17.3 million for 1998,
assuming current levels of indebtedness and interest rates) must be dedicated to
debt service and will not be available for other purposes; (ii) the Company's
future ability to obtain additional debt financing for working capital, capital
expenditures or acquisitions may be limited; (iii) the Company's level of
indebtedness could limit its flexibility in reacting to changes in the printing
industry and economic conditions generally, which could limit its ability to
withstand competitive pressures or take advantage of business opportunities;
(iv) the Company's borrowings under the Amended and Restated Credit Agreement
will be at variable rates of interest, which could cause the Company to be
vulnerable to increases in interest rates; and (v) all of the indebtedness
incurred in connection with the Amended and Restated Credit Agreement will
become due prior to the time the principal payments on the Notes will become
due. Certain of the Company's competitors currently operate on a less leveraged
basis and are likely to have significantly greater operating and financing
flexibility than the Company.
ABILITY TO SERVICE DEBT
The Company's ability to pay interest on the Senior Notes and to satisfy its
other debt obligations will depend upon its future operating performance, which
will be affected by prevailing economic conditions and financial, business and
other factors, certain of which are beyond its control. The Company anticipates
that its operating cash flow, together with available borrowings under the
Amended and Restated Credit Agreement, will be sufficient to meet its operating
expenses, capital expenditure requirements and working capital needs and to
service its debt requirements as they become due. However, if the Company is
unable to service its indebtedness, it will be forced to adopt an alternative
strategy that may include actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness or
seeking additional equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms, if at all, that they would
enable the Company to continue to meet its debt service obligations or that they
would be permitted under the terms of the Amended and Restated Credit Agreement
or Indenture. See "Perry-Judd's Incorporated Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Description of Amended and Restated Credit Agreement" and
"Description of Exchange Notes."
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<PAGE>
SUBORDINATION OF THE NOTES AND THE GUARANTEES
The Senior Notes will be fully and unconditionally guaranteed, on a senior
subordinated basis, jointly and severally, by all existing and future
subsidiaries of Perry-Judd's. The Guarantees will be subordinated in right of
payment to all senior indebtedness of the Company and the Subsidiary Guarantors.
In the event of bankruptcy, liquidation or reorganization of the Company, the
assets of the Company or the Subsidiary Guarantors will be available to pay
obligations on the Senior Notes only after all senior indebtedness of the
Company or the Subsidiary Guarantors, as the case may be, has been paid in full,
and there may not be sufficient assets remaining to pay amounts due on any or
all of the Notes then outstanding. As of December 31, 1997, the Company and its
subsidiaries had $30.0 million of senior indebtedness outstanding and undrawn
capacity of $45.0 million under the Revolving Credit Facility which, if drawn,
would constitute outstanding Senior Indebtedness of the Company. Additional
senior indebtedness may be incurred by the Company and the Subsidiary Guarantors
from time to time, subject to certain restrictions. The Indenture generally
provides that a Restricted Subsidiary (as defined) may incur indebtedness only
if such Subsidiary agrees to guarantee the Senior Notes on a senior subordinated
basis. The holders of the Senior Notes will have no direct claim against the
Subsidiary Guarantors other than claims created by the Guarantees, which may
themselves be subject to legal challenge in the event of the bankruptcy or
insolvency of a Subsidiary Guarantor. If such a challenge were upheld, the
Guarantees would be invalidated and unenforceable. To the extent that the
Guarantees are held to be unenforceable or have been released pursuant to the
terms of the Indenture, the rights of holders of the Senior Notes to participate
in any distribution of assets of any Subsidiary Guarantor upon liquidation,
bankruptcy or reorganization may, as is the case with other unsecured creditors
of the Company, be subject to prior claims against such Subsidiary Guarantor.
HOLDING COMPANY STRUCTURE
The Company is a holding company, the principal assets of which consist of
equity interests in its subsidiaries. The Senior Notes are a direct obligation
of the Company, which derives all of its revenues from the operations of its
subsidiaries. As a result, the Company will be dependent on the earnings and
cash flow of, and dividends and distributions or advances from, its subsidiaries
to provide the funds necessary to meet its debt service obligations, including
the payment of principal of and interest on the Notes. Accordingly, the
Company's ability to pay interest on the Senior Notes and otherwise to meet its
liquidity requirements may be limited as a result of its dependence upon the
distribution of earnings and advances of funds by its subsidiaries. The payment
of dividends from the subsidiaries to the Company and the payment of any
interest on or the repayment of any principal of any loans or advances made by
the Company to any of its subsidiaries may be subject to statutory restrictions
under corporate law limiting the payment of dividends and are contingent upon
the earnings of such subsidiaries. The Company's subsidiaries are guarantors of
the indebtedness incurred under the Amended and Restated Credit Agreement. The
Notes will not be secured by liens against any of the Company's and its
subsidiaries' assets, while the indebtedness incurred under the Amended and
Restated Credit Agreement will be secured by liens against substantially all of
the Company's and its subsidiaries' assets.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture will restrict, among other things, the Company's and its
subsidiaries' ability to incur additional indebtedness, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, incur liens, incur indebtedness that is
subordinate to Senior Indebtedness but senior in right of payment to the Senior
Notes, impose restrictions on the ability of a subsidiary to pay dividends or
make certain payments to the Company and its subsidiaries, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of the Company. In addition,
the Amended and Restated Credit Agreement contains other and more restrictive
covenants and will prohibit the Company and its subsidiaries from prepaying
other indebtedness (including the Senior Notes). The Amended and Restated Credit
19
<PAGE>
Agreement also requires the Company to maintain specified financial ratios and
satisfy certain financial condition tests. The Company's ability to meet those
tests and ratios can be affected by events beyond its control, and there can be
no assurance it will meet those ratios and tests. A breach of any of these
covenants could result in a default under the Amended and Restated Credit
Agreement and/or the Indenture. Upon the occurrence of an event of default under
the Amended and Restated Credit Agreement, the lenders could elect to declare
all amounts outstanding under the Amended and Restated Credit Agreement,
together with accrued interest, to be immediately due and payable. If the
Company were unable to repay those amounts, the lenders could proceed against
the collateral granted to them to secure that indebtedness. If the Senior
Indebtedness were to be accelerated, there can be no assurance that the assets
of the Company would be sufficient to repay in full that indebtedness and the
other indebtedness of the Company, including the Senior Notes. The Company's
obligations under the Amended and Restated Credit Agreement will be secured by a
security interest in substantially all the assets of the Company and its
subsidiaries, including all of their cash and other tangible and intangible
assets, and all real property. In addition, Perry-Judd's and Judd's pledged as
security all of their shares of capital stock in each of their subsidiaries. See
"Description of Amended and Restated Credit Agreement" and "Description of
Exchange Notes--Certain Covenants."
INTEGRATION OF ACQUISITIONS
Although the Company believes that it has developed comprehensive plans to
integrate Judd's, no assurance can be given that the integration of Judd's or
future acquisitions will be successful or that the anticipated strategic
benefits of the Acquisition or of future acquisitions will be realized. There
can be no assurance that the Company will be able to successfully integrate such
operations or future acquisitions with those of the Company, and failure to do
so could have a material adverse effect on the Company's financial position,
results of operations and cash flows. See "Description of the Acquisition."
The Company intends to manage the operations of Judd's as an integrated
entity; however, there can be no assurance that the Company will be able to
realize expected operating and economic efficiencies following the Acquisition.
The operations of Judd's vary in scope and type from the Company's current
operations. Additionally, although the Company does not currently have any
agreement or understanding with respect to any specific acquisition plans other
than the Acquisition, the need to focus management's attention on integration of
new operations, as well as other factors, may limit the Company's ability to
successfully pursue acquisitions or other opportunities related to its business
for the foreseeable future. There can be no assurance that the Company will be
able to find or initiate negotiations with suitable acquisition candidates, that
any future acquisitions will be consummated or that any newly acquired companies
will be successfully integrated into the Company's operations. Also, successful
integration of operations will be subject to numerous contingencies, some of
which are beyond management's control, which include general and regional
economic conditions and competition.
COMPETITION
The commercial printing industry in the U.S. is highly competitive in most
product categories and geographic regions. Competition is largely based on
price, quality, range of services offered, distribution capabilities, ability to
service the specialized needs of customers, availability of printing time on
appropriate equipment and use of state-of-the-art technology. The Company
competes for commercial business not only with large national printers, but also
with smaller regional printers. In certain circumstances, due primarily to
factors such as freight rates and customer preference for local services,
printers with better access to certain regions of the country may have a
competitive advantage in such regions. In addition, many of the Company's
competitors have substantially greater financial, marketing, distribution,
management and other resources than the Company, and as the industry experiences
continued consolidation, the Company's competitors may further enhance such
resources. The Company also believes that excess capacity in the industry,
especially during periods of economic downturn, would result in downward pricing
pressure and intensified competition in the printing industry. Given these
factors, there can be no
20
<PAGE>
assurance that the Company will be able to continue to compete successfully
against existing or new competitors, and the failure to do so may have a
material adverse effect on the Company's financial condition and results of
operations. See "Business--Competition."
TECHNOLOGICAL CHANGE
Technology in the printing industry has evolved and continues to evolve. The
Company has invested over $100 million (on a combined basis) in capital
expenditures for printing facilities and equipment since 1993. As technology
continues to evolve and as its customers' needs become more specialized and
sophisticated in the future, the Company will likely be required to invest
significant additional capital in new and improved technology in order to
maintain and enhance the quality and competitiveness of, and to expand, its
products and services. If the Company is unable to acquire new and improved
technology, facilities and equipment or to develop and introduce enhanced or new
products and services, the Company's financial condition, results of operations
and cash flows could be materially adversely affected. See "Business--Markets,
Products and Customers" and "--Production and Distribution."
RAW MATERIALS--PAPER
The cost of paper is a principal factor in the Company's manufacturing costs
and pricing to certain customers and consequently the cost of paper
significantly affects the Company's net sales. The Company is generally able to
pass increases in the cost of paper to its customers, while declines in paper
costs generally result in lower prices to customers. Fluctuations in paper costs
result in corresponding fluctuations in the Company's net sales, but generally
have not affected volume or profits to any significant extent. However, sharp
increases in paper prices and related reduction in print advertising programs
are more likely to adversely affect volumes and profits. To the extent that
there are future paper cost increases and the Company is not able to pass such
increases to its customers or its customers reduce their demand for the
Company's products and services, the Company's financial condition and results
of operations could be materially adversely affected.
Capacity in the paper industry has remained relatively stable in recent
years. Increases or decreases in demand for paper have led to corresponding
pricing changes and, in periods of high demand, to limitations on the
availability of certain grades of paper, including grades utilized by the
Company. Any loss of the sources for paper supply or any disruption in such
sources' business or failure to meet the Company's product needs on a timely
basis could cause, at a minimum, temporary shortages in needed materials which
could have a material adverse effect on the Company's results of operations.
Although the Company actively manages its paper supply and believes it has
established strong relationships with its suppliers, there can be no assurance
that the Company's sources of supply for its paper will be adequate or, in the
event that such sources are not adequate, that alternative sources can be
developed in a timely manner. If the Company is unable to secure sufficient
supplies of paper of appropriate quality, its financial condition, results of
operations and cash flows could be materially adversely affected. See
"Business--Raw Materials."
CERTAIN CUSTOMER RELATIONSHIPS
The Company currently provides products and services to certain customers
without a written contractual arrangement. While the Company believes that its
relationship with each of these customers is good, there can be no assurance
that such customers will continue to do business with the Company at current
levels, if at all. In addition, provisions in the Company's contracts with
certain of its customers (each a former Judd's customer) require that such
customers consent in writing to the transfer of the contract to the Company from
Judd's pursuant to the Acquisition. Although the Company believes that all such
consents will be obtained, there can be no assurance such customers will not
withhold their consents and choose to terminate their contracts with the
Company.
21
<PAGE>
LIMITED INDEMNITY
Under the terms of the Merger Agreement, the Company is entitled to
indemnification from the former stockholders of Judd's for breaches of the
representations, warranties and covenants of Judd's set forth in the Merger
Agreement. The former stockholders are only liable for indemnification claims by
the Company up to an aggregate amount of $9.75 million held in an escrow account
and subject to release to the stockholders in three equal annual installments
(less the amount of any claims asserted by the Company). Certain of the escrowed
funds are available only for breaches of a specified representation. In
addition, the former stockholders' obligation to indemnify the Company expires
as to many of the representations and warranties on the first anniversary
following the consummation of the Merger. Accordingly, in the event that a
breach of one or more representations, warranties or covenants results in a loss
or liability to the Company in excess of the available indemnity amount for such
breach, or occurs after such indemnity obligation terminates, the Company will
bear the full amount of such loss or liability, and there can be no assurance
that such loss or liability may not have a material adverse effect on the
Company's financial condition and results of operations. See "Description of the
Acquisition."
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION
The Company is subject to regulation under various federal, state and local
laws relating to the environment and to employee health and safety. These
environmental regulations relate to the generation, storage, transportation,
handling, disposal and emission into the environment of various substances.
Permits are required for operation of the Company's business, and these permits
are subject to renewal, modification and, in certain circumstances, revocation.
The Company is also subject to regulation under various federal, state and local
laws which allow regulatory authorities to compel (or seek reimbursement for)
cleanup of environmental contamination at the Company's own sites and at
facilities where its waste is or has been disposed. The Company has internal
controls and personnel dedicated to compliance with all applicable environmental
and employee health and safety laws. The Company expects to incur ongoing
capital and operating costs and administrative expenses to maintain compliance
with applicable environmental laws. The Company cannot predict the environmental
or employee health and safety legislation or regulations that may be enacted in
the future or how existing or future laws or regulations will be administered or
interpreted. Compliance with new laws or regulations, as well as more vigorous
enforcement policies of the regulatory agencies or stricter interpretation of
existing laws, may require additional expenditures by the Company, some or all
of which may be material. See "Business--Regulatory Compliance."
RELIANCE ON KEY PERSONNEL
The Company's success will continue to depend to a significant extent on its
executive officers and other key management personnel. There can be no assurance
that the Company will be able to retain its executive officers and key personnel
or attract additional qualified management in the future. In addition, the
success of any acquisitions by the Company (including the Acquisition) may
depend, in part, on the Company's ability to retain management personnel of the
acquired companies. There can be no assurance that the Company will be able to
retain such management personnel. See "Management."
CONTROL BY PRINCIPAL STOCKHOLDERS
Robert E. Milhous and Paul B. Milhous, the Chairman and Vice Chairman,
respectively, of Perry-Judd's will own beneficially an aggregate of 95% of the
outstanding capital stock of Perry-Judd's immediately following the
Transactions. Accordingly, these stockholders have the ability, acting together,
to control fundamental corporate transactions requiring stockholder approval,
including without limitation approval of merger transactions involving the
Company and sales of all or substantially all of the Company's assets. See
"Principal Stockholders" and "Management."
22
<PAGE>
PURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon a Change of Control the Company will be required to offer to purchase
all outstanding Senior Notes at 101% of the principal amount thereof plus
accrued and unpaid interest to the repurchase date. A Change of Control will
likely trigger an event of default under the Amended and Restated Credit
Agreement which will permit the lenders thereunder to accelerate the debt under
the Amended and Restated Credit Agreement. However, there can be no assurance
that sufficient funds will be available at the time of any Change of Control to
make any required repurchases of Senior Notes tendered, or that, if applicable,
restrictions in the Amended and Restated Credit Agreement will allow the Company
to make such required repurchases. See "Description of Exchange Notes--Change of
Control."
FRAUDULENT CONVEYANCE RISKS
In the event of a subsequent bankruptcy proceeding or a lawsuit by or on
behalf of creditors of the Company or any Subsidiary Guarantor, the incurrence
by the Company of the indebtedness evidenced by the Senior Notes and the
Guarantees would be subject to review under relevant U.S. federal and state
fraudulent conveyance statutes ("Fraudulent Conveyance Statutes"). Under these
statutes, if at the time the Senior Notes and the Guarantees were issued and the
proceeds applied, (i) the Company issued the Senior Notes and the Guarantees and
applied the proceeds with the intent of hindering, delaying or defrauding
creditors or (ii) the Company received less than a reasonable equivalent value
or fair consideration for issuing the notes and the Guarantees and, after so
applying the proceeds, the Company or any Subsidiary Guarantor (a) was insolvent
or rendered insolvent by reason of such transactions, (b) was engaged in a
business or transaction for which its assets constituted unreasonably small
capital or (c) intended to incur, or believed that it would incur, debts beyond
its ability to pay as they matured (as the foregoing terms are defined in or
interpreted under Fraudulent Conveyance Statutes), such court could subordinate
all or part of the Senior Notes to existing and future indebtedness of the
Company, recover any payments made on the Senior Notes or take other actions
detrimental to the holders of the Senior Notes, including, under certain
circumstances, invalidating the Senior Notes.
Based upon the financial and other information currently available to it,
the Company believes that the indebtedness and obligations evidenced by the
Senior Notes and the Guarantees will be incurred and proceeds of the Senior
Notes will be used for proper purposes and in good faith. The Company believes
that at the time of, and after giving effect to, the incurrence of the
indebtedness and obligations evidence by the Senior Notes, it will be solvent
and will have sufficient capital to carry on its business and that it will pay
its debts as they mature. No assurance can be given, however, that a court would
concur with such beliefs and positions.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, a company or a guarantor will
be considered insolvent for these purposes if it is unable to pay its debts as
they become due in the usual course of its business or the sum of its debts is
greater than all the Company's property at a fair valuation or if the present
fair salable value of its assets is less than the amount that will be required
to pay its probable liability on its existing debts as they become absolute and
mature. In rendering their respective opinions on the validity of the Senior
Notes, counsel for the Company and counsel for the Initial Purchaser will
express no opinion as to the effect of Fraudulent Conveyance Statutes or
affecting the enforcement of creditors' rights generally.
LACK OF PUBLIC MARKET FOR SECURITIES; TRANSFER RESTRICTIONS
There has previously been no public market for the Senior Notes. The Company
does not intend to list the Exchange Notes on any securities exchange or to seek
approval for quotation through any automated quotation system. There can be no
assurance that an active trading market in the Exchange Notes will be developed
or maintained. To the extent that a market for the Exchange Notes does develop,
they may trade at a discount from their face value, depending upon prevailing
interest rates, the market for similar securities and other factors, including
general economic conditions and the financial condition, performance and
prospects of the Company.
23
<PAGE>
CONSEQUENCES OF FAILURE TO EXCHANGE
Untendered Outstanding Notes that are not exchanged for New Notes pursuant
to the Exchange Offer will remain subject to the existing restrictions on
transfer of such Outstanding Notes. Additionally, holders of any Outstanding
Notes not tendered in the Exchange Offer will not have any rights under the
Registration Rights Agreement to cause the Company to register the Outstanding
Notes.
DESCRIPTION OF THE ACQUISITION
As the commercial printing industry continues to consolidate and customer
needs become more complex and sophisticated, the Company believes that its
prospects for future success and growth will depend in large part on having
sufficient financial, technological and distribution capabilities to address the
evolving needs of its customer base. The Company believes that the acquisition
of Judd's will contribute significantly to the Company's competitive position in
the industry and will position it as the sixth largest magazine and catalog
printer in the U.S. (based on combined net sales for 1997).
The Company believes that there are significant opportunities and synergies
in acquiring Judd's, including a broadening of the Company's customer base, the
establishment of a physical presence in the Mid-Atlantic region, the enhancement
of the Company's technological capabilities and expansion into new segments of
the commercial printing market. Both Perry and Judd's have long-established
traditions of superior customer service, which the Company believes will help
ensure consistent quality of service to the Company's existing and future
customers and will help to facilitate the integration of the two companies. In
addition, by consolidating administrative operations and managing the production
capacity of the two companies, the Company expects to achieve greater production
efficiencies and a reduction of its costs of sales.
TERMS OF THE ACQUISITION
As of October 17, 1997, Perry-Judd's (under its corporate name at that time,
PPC Holdings, Inc.) and a wholly-owned subsidiary entered into a Merger
Agreement for the acquisition of Judd's. Pursuant to the Merger Agreement on
December 16, 1997, Perry-Judd's acquired Judd's in exchange for aggregate merger
consideration of $102.0 million, which included the repayment of outstanding
indebtedness of Judd's as of the closing date and a preliminary working capital
adjustment, and is subject to a final, post-closing working capital adjustment
as set forth in the Merger Agreement. The Acquisition was effected by the merger
of the Acquisition Subsidiary with and into Judd's, which became a wholly-owned
subsidiary of Perry-Judd's. Simultaneously with the closing of the Acquisition,
PPC Holdings, Inc. was renamed Perry-Judd's, Incorporated.
An aggregate of $10.45 million of the merger consideration was deposited in
escrow upon the closing of the Acquisition for the following purposes: (i)
$700,000 (the "Adjustment Escrow Fund") to be disbursed to the Company or the
former stockholders of Judd's upon the final, post-closing determination of the
working capital adjustment as provided in the Merger Agreement (the "Adjustment
Amount"); (ii) $4.75 million (the "Indemnity Escrow Fund") to be applied to (A)
any Adjustment Amount in favor of the Company to the extent in excess of
$500,000, and (B) claims for indemnification for breaches of representations,
warranties and covenants of Judd's; and (iii) $5.0 million (the "Additional
Escrow Fund") to be applied, in addition to the Indemnity Escrow Fund, to claims
for indemnification for breach of the representation and warranty with respect
to capitalization. The escrowed amounts are subject to partial release to the
former stockholders of Judd's (subject to any claims asserted by the Company) in
three equal annual installments commencing on the first anniversary of the
closing date. Except for breaches of representations and warranties with respect
to capitalization, tax and environmental matters, for which the indemnification
obligation continues for a period of three years, the indemnity obligation for
losses arising from breaches of representations and warranties made by Judd's in
the Merger Agreement terminates as to any unclaimed loss on the first
anniversary of the closing date.
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<PAGE>
The above summary of certain material provisions of the Merger Agreement is
subject to, and is qualified in its entirety by reference to, all of the
provisions of the Merger Agreement.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Outstanding Notes in like principal amount, the terms of which are identical to
the Exchange Notes except that (i) the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) the Exchange Notes registered
hereunder will not be entitled to any rights under the Registration Rights
Agreement dated December 16, 1997, including but not limited to the contingent
increase in the interest rate provided for therein. The Outstanding Notes
surrendered in exchange for the Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, the issuance of the Exchange Notes will not
result in any increase in the indebtedness of the Company.
The net proceeds received by the Company from the sale of the Outstanding
Notes (after deducting the discount to the Initial Purchasers and other expenses
in connection with such sale and the related Transactions) of approximately
$111.5 million were used as follows: (i) approximately $102.0 million to pay the
purchase price for the Acquisition, (ii) approximately $6.5 million to pay
expenses related to the Acquisition and the other Transactions and (iii)
approximately $3.0 million for general corporate purposes.
THE EXCHANGE OFFER
GENERAL
In connection with the sale of the Outstanding Notes, the Company entered
into the Registration Rights Agreement, which requires the Company to file with
the Commission a registration statement (the "Exchange Offer Registration
Statement") under the Securities Act with respect to an issue of notes of the
Company with terms identical to the Outstanding Notes (except with respect to
restrictions on transfer) and to use its best efforts to cause such registration
statement to become effective under the Securities Act and, upon the
effectiveness of such registration statement, to offer to the holders of the
Outstanding Notes the opportunity, for a period of 20 business days from the
date the notice of the Exchange Offer is mailed to holders of the Outstanding
Notes, to exchange their Outstanding Notes for a like principal amount of
Exchange Notes. The Exchange Offer is being made pursuant to the Registration
Rights Agreement to satisfy the Company's obligations thereunder. The Company
has not entered into any arrangement or understanding with any person to
distribute the Exchange Notes to be received in the Exchange Offer.
Under existing interpretations of the staff of the Commission, the Exchange
Notes would, in general, be freely transferable after the Exchange Offer without
further registration under the Securities Act by holders thereof (other than (i)
a broker-dealer who acquires such Exchange Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person 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 Exchange Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangements with any person to participate in
the distribution of such Exchange Notes. Eligible holders wishing to accept the
Exchange Offer must represent to the Company that such conditions have been met.
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the Exchange Offer may be an "underwriter" within the meaning of the Securities
Act and must acknowledge that it acquired the Exchange Notes 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 Exchange Notes.
In the event that applicable interpretations of the staff of the Commission
would not permit the Company to effect the Exchange Offer or, if for any other
reason the Exchange Offer is not consummated on or prior to July 29, 1998, the
Company has agreed to use its best efforts to cause to become effective a
25
<PAGE>
shelf registration statement (the "Shelf Registration Statement") with respect
to the resale of the Outstanding Notes and to keep the Shelf Registration
Statement effective until two years after the date of the initial sale of the
Outstanding Notes or until all the Outstanding Notes covered by the Shelf
Registration Statement have been sold pursuant to such Shelf Registration
Statement.
TERMS OF THE EXCHANGE OFFER
Each holder of Outstanding Notes who wishes to exchange Outstanding Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations, including that (i) any Exchange Notes to be received by such
holder will be acquired in the ordinary course of its business, (ii) that at the
time of the consummation of the Exchange Offer such holder will have no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes in violation of
the provisions of the Securities Act, (iii) that such holder is not an affiliate
(as defined in Rule 405 under the Securities Act) of the Company or any
Subsidiary Guarantor, (iv) 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
Notes and (v) if such holder is a broker-dealer (a "Participating
Broker-Dealer") that will receive Exchange Notes for its own account in exchange
for Outstanding Notes that were acquired as a result of market-making activities
or other trading activities, that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sales of Outstanding Notes) with the
prospectus contained in the Exchange Offer Registration Statement. Under the
Registration Rights Agreement, the Company is required to allow Participating
Broker-Dealers (and other persons, if any, subject to similar prospectus
delivery requirements) to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes,
provided, however, the Company shall not be required to amend or supplement such
prospectus for a period exceeding 180 days after the consummation of the
Exchange Offer. In addition, under the Registration Rights Agreement,
Outstanding Notes held by (i) the Initial Purchaser which may have the status of
an unsold allotment in an initial distribution or (ii) holders who are otherwise
not entitled to participate in the Exchange Offer may, upon request of such
holders to the Company prior to the consummation of the Exchange Offer, be
exchanged, simultaneously with the exchange of Outstanding Notes in the Exchange
Offer, for unregistered notes ("Private Exchange Notes") identical to the
Exchange Notes, except for transfer restrictions thereon.
In the event an exchange offer is consummated on or before July 29, 1998,
the Company will not be required to file a Shelf Registration Statement to
register any Outstanding Notes, and the interest rate on such Outstanding Notes
will remain at its initial level of 10 5/8% per annum. The Exchange Offer shall
be deemed to have been consummated upon the Company's having exchanged, pursuant
to the Exchange Offer, Exchange Notes for all Outstanding Notes that have been
properly tendered and not withdrawn by the Expiration Date. In such event,
holders of Outstanding Notes not participating in the Exchange Offer who are
seeking liquidity in their investment would have to rely on exemptions to
registration requirements under the securities laws, including the Securities
Act. Following the Exchange Offer, holders of Private Exchange Notes and holders
of Exchange Notes that may not be sold without restriction under state and
federal securities laws (other than solely due to the holder's status as an
affiliate of the Company) shall continue to have certain rights to require the
Company to register such notes as set forth in the Registration Rights
Agreement. If the Company fails to register such notes in accordance with the
Registration Rights Agreement, the Company must pay, as liquidated damages,
additional interest on such notes as set forth in the Registration Rights
Agreement ("Additional Interest") until its registration obligations thereunder
are satisfied.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all
Outstanding Notes validly tendered prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 in principal amount of
26
<PAGE>
Exchange Notes (and any integral multiple thereof) in exchange for an equal
principal amount of Outstanding Notes tendered and accepted in the Exchange
Offer. Holders may tender some or all of their Outstanding Notes pursuant to the
Exchange Offer in any denomination of $1,000 or in integral multiples thereof.
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Outstanding Notes 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
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangement with any person to participate in the distribution of such
Exchange Notes. Any holder of Outstanding Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
cannot rely on such interpretation by the staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Outstanding
Notes, where such Outstanding 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 such Exchange
Notes.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Outstanding Notes except that the Exchange Notes will not bear
legends restricting the transfer thereof. The Exchange Notes will evidence the
same debt as the Outstanding Notes. The Exchange Notes will be issued under and
entitled to the benefits of the Note Indenture.
As of the date of this Prospectus, $115,000,000 aggregate principal amount
of the Outstanding Notes are outstanding and there are two registered holders
thereof. In connection with the issuance of the Outstanding Notes, the Company
arranged for the Outstanding Notes to be eligible for trading in the Private
Offering, Resale and Trading through Automated Linkages (PORTAL) Market, the
National Association of Securities Dealers' screen based, automated market
trading of securities eligible for resale under Rule 144A and to be issued and
transferable in book-entry form through the facilities of DTC. The Exchange
Notes will also be issuable and transferable in book-entry form through DTC.
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of , 1998 (the "Record
Date").
The Company shall be deemed to have accepted validly tendered Outstanding
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. See "Exchange Agent." The Exchange Agent will act as agent
for the tendering holders of Outstanding Notes for the purpose of receiving
Exchange Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Outstanding Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders of Outstanding Notes who tender 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
Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "Fees and Expenses."
Holders of Outstanding Notes do not have any appraisal or dissenters' rights
under the Delaware Corporations Code or the Note Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the provisions of the Registration Rights Agreement
27
<PAGE>
and the applicable requirements of the Securities Act and the rules and
regulations of the Commission thereunder. Outstanding Notes that are not
tendered for exchange in the Exchange Offer will remain outstanding and continue
to accrue interest, but will not be entitled to any rights or benefits under the
Registration Rights Agreement.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m. New York City time, on
, 1998 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date to which the Exchange Offer is extended (but in no event later than
, 1998).
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
holders of Outstanding Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Outstanding
Notes, to extend the Exchange Offer or to terminate the Exchange Offer and to
refuse to accept Outstanding Notes not previously accepted, if any of the
conditions set forth herein under "Termination" shall have occurred and shall
not have been waived by the Company (if permitted to be waived by the Company),
by giving oral or written notice of such delay, extension or termination to the
Exchange Agent, and (ii) to amend the terms of the Exchange Offer in any manner
deemed by it to be advantageous to the holders of the Outstanding Notes. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by oral or written notice thereof. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Outstanding Notes of such amendment.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from the last Interest Payment Date on
which interest was paid on the Outstanding Notes, or if interest has not yet
been paid on the Outstanding Notes, from December 16, 1997. Such interest will
be paid with the first interest payment on the Exchange Notes. Interest on the
Outstanding Notes accepted for exchange will cease to accrue upon issuance of
the Exchange Notes.
The Exchange Notes will bear interest at a rate of 10 5/8% per annum.
Interest on the Exchange Notes will be payable semi-annually, in arrears, on
each Interest Payment Date following the consummation of the Exchange Offer.
Untendered Outstanding Notes that are not exchanged for Exchange Notes pursuant
to the Exchange Offer will bear interest at a rate of 10 5/8% per annum after
the Expiration Date.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the
Outstanding Notes (unless the book-entry transfer procedures described below are
used) and any other required documents, to the Exchange Agent for receipt prior
to 5:00 p.m., New York City time, on the Expiration Date.
28
<PAGE>
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Outstanding Notes by causing
DTC to transfer such Outstanding Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer.
The tender by a holder of Outstanding Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.
The method of delivery of Outstanding Notes and the Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the holders. Instead of delivery by mail, it is recommended that holders
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure timely delivery. No Letter of Transmittal should be sent to
the Company.
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Outstanding 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 or any person whose Outstanding Notes are held of
record by DTC who desires to deliver such Outstanding Notes by book-entry
transfer at DTC.
Any beneficial holder whose Outstanding Notes are registered in the name of
such holder's broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on such holder's behalf. If such
beneficial holder wishes to tender on such holder's own behalf, such beneficial
holder must, prior to completing and executing the Letter of Transmittal and
delivering such holder's Outstanding Notes, either make appropriate arrangements
to register ownership of the Outstanding Notes in such holder's name or obtain a
properly completed bond power from the registered holder. The transfer of record
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by 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" within the meaning of Rule 17Ad-15
under the Exchange Act (an "Eligible Institution") that is a participant in a
recognized medallion signature guarantee program unless the Outstanding Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Outstanding Notes listed therein, such Outstanding Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Outstanding Notes on behalf of the registered holder, in either
case signed as the name of the registered holder or holders appears on the
Outstanding Notes.
If the Letter of Transmittal or any Outstanding 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, and unless waived by the
Company, submit evidence satisfactory to the Company of their authority to so
act with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Outstanding Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
29
<PAGE>
Outstanding Notes not properly tendered or any Outstanding Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the absolute right to waive any
irregularities or conditions of tender as to particular Outstanding Notes. The
Company's 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 Outstanding Notes must be cured within such time as
the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Outstanding Notes nor shall any of
them incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such irregularities
have been cured or waived. Any Outstanding 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 without cost by the Exchange
Agent to the tendering holder of such Outstanding Notes unless otherwise
provided in the Letter of Transmittal as soon as practicable following the
Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Outstanding Notes that remain outstanding
subsequent to the Expiration Date, or, as set forth under "Termination," to
terminate the Exchange Offer and (b) to the extent permitted by applicable law,
purchase Outstanding Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers may differ
from the terms of the Exchange Offer.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose Outstanding
Notes are not immediately available, or (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date, or if such holder cannot
complete the procedure for book-entry transfer on a timely basis, may effect a
tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
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 Outstanding Notes, the certificate number
or numbers of such Outstanding Notes and the principal amount of Outstanding
Notes tendered, stating that the tender is being made thereby, and guaranteeing
that, within three business days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof), together with the certificate(s)
representing the Outstanding Notes (unless the book-entry transfer procedures
are to be used) to be tendered in proper form for transfer and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing all tendered Outstanding
Notes in proper form for transfer (or confirmation of a book-entry transfer into
the Exchange Agent's account at DTC of Outstanding Notes delivered
electronically) and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three business days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
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<PAGE>
To withdraw a tender of Outstanding Notes in the Exchange Offer, a written
or facsimile transmission notice of withdrawal 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. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Outstanding Notes to be withdrawn (the
"Depositor"), (ii) identify the Outstanding Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Outstanding Notes),
(iii) be signed by the Depositor in the same manner as the original signature on
the Letter of Transmittal by which such Outstanding Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to permit the Trustee with respect to the Outstanding Notes
to register the transfer of such Outstanding Notes into the name of the
Depositor withdrawing the tender and (iv) specify the name in which any such
Outstanding Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Outstanding Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer, and no Exchange Notes will be issued with respect thereto
unless the Outstanding Notes so withdrawn are validly retendered. Any
Outstanding Notes that have been tendered but which are not accepted for
exchange will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Outstanding Notes may be retendered by
following one of the procedures described above under "Procedures for Tendering"
at any time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or Exchange Notes for any Outstanding Notes
not theretofore accepted for exchange, and may terminate or amend the Exchange
Offer as provided herein before the acceptance of such Outstanding Notes if: (i)
any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the Exchange Offer, which, in the
Company's judgment, might materially impair the Company's ability to proceed
with the Exchange Offer or (ii) any law, statute, rule or regulation is
proposed, adopted or enacted, or any existing law, statute, rule or regulation
is interpreted by the staff of the Commission in a manner, which, in the
Company's judgment, might materially impair the Company's ability to proceed
with the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Outstanding Notes and
return any Outstanding Notes that have been tendered to the holders thereof,
(ii) extend the Exchange Offer and retain all Outstanding Notes tendered prior
to the expiration of the Exchange Offer, subject to the rights of such holders
of tendered Outstanding Notes to withdraw their tendered Outstanding Notes, or
(iii) waive such termination event with respect to the Exchange Offer and accept
all properly tendered Outstanding Notes that have not been withdrawn. If such
waiver constitutes a material change in the Exchange Offer, the Company will
disclose such change by means of a supplement to this Prospectus that will be
distributed to each registered holder of Outstanding Notes, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders of the Outstanding Notes, if the Exchange Offer would
otherwise expire during such period.
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<PAGE>
EXCHANGE AGENT
U.S. Bank of California, N.A. has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C> <C>
BY HAND: BY OVERNIGHT COURIER: BY MAIL:
U.S. Trust of California, N.A. U.S. Trust Company of U.S. Trust Company
c/o United States Trust California, N.A. of California, N.A.
Company of New York c/o United States Trust Company c/o United States Trust
111 Broadway, Lower Level of New York Company of New York
New York, NY 10006-1906 770 Broadway, 13th Floor P. O. Box 841
Attention: Corporate Trust New York, NY 10003 Peter Cooper Station
Operations Attention: Corporate Trust New York, NY 10276-0841
Municipal Operations
Confirm by telephone: (800) 225-2398
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or by telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable customary fees for its services and will reimburse the
Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Outstanding Notes and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Outstanding Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Outstanding Notes 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 Outstanding Notes
tendered, or if tendered Outstanding Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Outstanding 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 the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, which is face value, as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Company upon the consummation of the Exchange
Offer. The expenses of the Exchange Offer will be amortized by the Company over
the term of the Exchange Notes under generally accepted accounting principles.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997, on a pro forma combined basis after giving effect to the
Transactions and the Sale/Leaseback and the application of the proceeds
therefrom. The table should be read in conjunction with the Company's
Consolidated Financial Statements contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1997
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Long-term debt (including current portion):
Term Loan Facility.................................................... $ 30,000
Senior Subordinated Notes............................................. 115,000
Capital lease obligations............................................. 271
--------
Total long-term debt................................................ 145,271
Minority interests (1).................................................. 6,935
Shareholders' equity:
Series A Stock (2).................................................... 9,562
Common stock and paid in capital...................................... 21,501
Retained earnings (accumulated deficit)............................... (4,689)
--------
Total shareholders' equity.......................................... 26,374
--------
Total capitalization.............................................. $ 178,580
--------
--------
</TABLE>
- ------------------------
(1) Represents preferred stock of Perry. See Note 5 to Company Consolidated
Financial Statements.
(2) Series A Stock resulting from the Note Conversion and all stock dividends
through December 31, 1997.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited pro forma condensed combined statements of
operations are based on and should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto and the Judd's Consolidated
Financial Statements and notes thereto which are included elsewhere in this
Prospectus. The unaudited pro forma information has been prepared to illustrate
the effect of (a) the Acquisition, (b) the Offering, (c) borrowings under the
Amended and Restated Credit Agreement, (d) the Equity Investment, (e) the Note
Conversion and (f) the Sale/Leaseback.
The unaudited pro forma condensed combined statements of operations for the
year ended December 31, 1997 assume that the Transactions and the Sale/Leaseback
were consummated as of the first day of the period presented.
The unaudited pro forma condensed combined financial data does not purport
to represent what the Company's financial condition or results of operations
actually would have been if the Transactions and the Sale/Leaseback had occurred
on the date or for the periods indicated or what such results will be for any
future date or future periods. The unaudited pro forma adjustments are based on
preliminary estimates which are derived from available information and applying
certain assumptions and adjustments described in the notes for the unaudited pro
forma condensed combined financial statements, and should be read in conjunction
therewith. The following information should be read in conjunction with
"Perry-Judd's Incorporated Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Judd's, Incorporated Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company Consolidated Financial Statements and the Judd's Consolidated Financial
Statements included elsewhere in this Prospectus.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERRY-JUDD'S JUDD'S, PRO FORMA PRO FORMA
INCORPORATED(A) INCORPORATED(B) ADJUSTMENTS COMBINED
--------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES............................................. $ 153,815 $ 131,938 $ 285,753
--------------- --------------- ----------- -----------
OPERATING EXPENSES:
Costs of production................................. 124,071 99,396 $ 1,787(1) 225,254
Selling, general and administrative................. 15,678 18,073 313(1) 34,064
Depreciation........................................ 6,828 8,241 (3,242)(2) 11,827
Amortization of intangibles......................... 410 191 1,396(2) 1,997
--------------- --------------- ----------- -----------
146,987 125,901 254 273,142
--------------- --------------- ----------- -----------
INCOME FROM OPERATIONS................................ 6,828 6,037 (254) 12,611
--------------- --------------- ----------- -----------
OTHER (INCOME) EXPENSES:
Interest expense.................................... 6,431 3,384 5,423(3) 15,238
Interest income..................................... -- (411) 411(4) --
Amortization of deferred financing costs............ 904 35 716(3) 1,655
Loss (gain) on disposition of assets................ 906 (27) (224)(5) 655
Other, net.......................................... 200 456 (454)(6) 202
--------------- --------------- ----------- -----------
Total other expenses.............................. 8,441 3,437 5,872 17,750
--------------- --------------- ----------- -----------
Income (loss) before income taxes..................... (1,613) 2,600 (6,126) (5,139)
Provision (benefit) for income taxes.................. 20 1,143 (2,137)(7) (974)
--------------- --------------- ----------- -----------
Income (loss) before dividends on preferred stock..... (1,633) 1,457 (3,989) (4,165)
Dividends on preferred stock.......................... 1,025 20 -- 1,045
--------------- --------------- ----------- -----------
Net income (loss)..................................... $ (2,658) $ 1,437 $ (3,989) $ (5,210)
--------------- --------------- ----------- -----------
--------------- --------------- ----------- -----------
Other Data:
EBITDA(8)............................................. $ 13,866 $ 14,013 $ (1,646) $ 26,233
Rents and operating lease expense..................... 5,099 3,530 2,100(1) 10,729
Capital expenditures:
Purchased(9)........................................ 3,232 6,164 9,396
Capital investments under operating leases.......... 11,635 -- 11,635
Ratio of earnings to fixed charges(10) --
Deficiency.......................................... $ 6,609
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Statements of Operations
35
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(A) Includes consolidated results of Judd's, Incorporated for the sixteen
days ended December 31, 1997.
(B) Consolidated results of Judd's, Incorporated for the 349 days ended
December 15, 1997.
(1) Reflects increased operating lease expense related to the
Sale/Leaseback.
(2) Reflects adjustments to depreciation and amortization of property, plant
and equipment and intangible assets as if the Acquisition was completed at the
beginning of the respective period as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Depreciation:
Property, plant and equipment acquired............................................................ $ 5,332
Eliminate depreciation recorded for property, plant and equipment................................. (8,241)
Eliminate depreciation on Sale/Leaseback assets................................................... (333)
------------
$ (3,242)
------------
------------
Amortization:
Excess purchase price over net assets acquired allocated to goodwill.............................. $ 783
Acquisition costs................................................................................. 613
------------
$ 1,396
------------
------------
</TABLE>
Property, plant and equipment is depreciated over useful lives ranging from
5 to 40 years. The excess purchase price over net assets acquired allocated to
goodwill is amortized over 35 years and acquisition costs are amortized over
five (5) years.
(3) Reflects adjustments to interest expense and amortization of deferred
financing costs as if the Offering, Term Loan Facility and Revolving Credit
Facility were completed at the beginning of the respective period as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Additional Interest Expense for:
Senior Subordinated Notes at 10.625%.............................................................. $ 11,683
Term Loan Facility at 8.5%........................................................................ 2,438
Revolving Credit Facility at 8.0%................................................................. --
Unused Revolving Credit Facility at 0.5%.......................................................... 215
Less interest expense on retired debt............................................................. (8,913)
------------
$ 5,423
------------
------------
Amortization of Deferred Financing Costs:
Related to new debt............................................................................... $ 882
Less amortization of deferred financing costs of retired debt..................................... (166)
------------
$ 716
------------
------------
</TABLE>
36
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED (CONTINUED)
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
Deferred financing costs were approximately $6.8 million related to the
Offering, Term Loan Facility and Revolving Credit Facility amortized over
approximately 7 1/2 years.
(4) Reflects the elimination of Judd's interest income.
(5) Reflects amortization of deferred gain on Sale/Leaseback on a
straight-line basis over the 20-year term of the Lease.
(6) Reflects the elimination of transaction costs incurred and expensed by
Judd's solely in connection with the Acquisition.
(7) Reflects the tax effect of the Pro Forma Adjustments (after factoring
out permanent differences) using a tax rate of 40%.
(8) "EBITDA" represents earnings before interest, income taxes, depreciation
and amortization, and gains and losses on dispositions of assets. While EBITDA
should not be construed as a substitute for operating income or loss or a better
indicator of liquidity than cash flow from operating activities, which are
determined in accordance with generally accepted accounting principles, it is
included herein to provide additional information with respect to the ability of
the Company to meet its future debt service, capital expenditure and working
capital requirements. EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs, and items excluded from EBITDA (such as
depreciation and amortization) are significant to an understanding of the
Company's financial results. In addition, EBITDA as presented by the Company may
not be directly comparable to similarly-titled measures presented by other
companies. See the Company Consolidated Statements of Cash Flows and the related
notes thereto included in this Prospectus.
(9) Includes the recorded book value of assets obtained under capital
leases.
(10) For purposes of this computation, fixed charges consist of interest
expense, amortization of deferred financing costs, capitalized interest,
one-third of rental and operating lease expense (representative of that portion
attributable to interest) and preferred stock dividends payable in cash.
Earnings consist of income (loss) before income taxes plus fixed charges
(excluding preferred stock dividends).
37
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected financial data for Perry-Judd's Incorporated (formerly PPC
Holdings, Inc.) set forth below have been derived from the Consolidated
Financial Statements of Perry-Judd's Incorporated for the 248 day period ended
December 31, 1995, the years ended December 31, 1996 and 1997, and the 117 day
period ended April 27, 1995 for the Company's predecessor, Perry Printing, which
was acquired by the Company as of April 28, 1995, all of which have been audited
by Deloitte & Touche LLP, independent auditors, whose report is included
elsewhere in this Prospectus. The selected financial data for Perry Judd's
Incorporated for the three months ended March 31, 1998 and 1997 have been
derived from the Company's unaudited condensed consolidated interim financial
statements included elsewhere in this Prospectus. The selected financial data
for Judd's, Incorporated for 1995 and 1996 have been derived from Judd's
Consolidated Financial Statements for the years ended December 31, 1995 and
1996, which have been audited by Stoy, Malone & Company, P.C., independent
auditors, whose report for the years ended December 31, 1995 and 1996 is
included elsewhere in this Prospectus, and from Judd's Consolidated Financial
Statements for the 349 day period ended December 15, 1997, which have been
audited by Deloitte & Touche LLP, independent auditors, whose report for such
period is included elsewhere in this Prospectus.
The selected unaudited pro forma condensed combined financial data set forth
below have been derived from the unaudited pro forma condensed combined
statements of operations for the year ended December 31, 1997, which are
included elsewhere in this Prospectus.
The unaudited pro forma financial data set forth below and elsewhere in this
Prospectus do not purport to represent the actual results that would have been
achieved had the Transactions been consummated on the dates or for the periods
indicated, and do not purport to indicate results of operations or financial
condition as of any future date or for any future period. The following
information should be read in conjunction with "Unaudited Pro Forma Condensed
Combined Financial Data," "Perry-Judd's Incorporated Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Judd's,
Incorporated Management's Discussion and Analysis of Financial Condition and
Results of Operations," the Company Consolidated Financial Statements and the
Judd's Consolidated Financial Statements included elsewhere in this Prospectus.
38
<PAGE>
PERRY-JUDD'S INCORPORATED AND PREDECESSOR
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR (1) PERRY-JUDD'S INCORPORATED
------------------------------------------ -------------------------------------
117 DAYS 248 DAYS THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED YEAR ENDED ENDED MARCH 31,
------------------------------- APRIL 27, DECEMBER DECEMBER DECEMBER --------------------
1992 1993 1994 1995 31, 1995 31, 1996 31, 1997 1997 1998
--------- --------- --------- --------- ----------- ----------- ----------- --------- ---------
STATEMENT OF
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......... $ 107,271 $ 105,915 $ 116,967 $ 45,920 $ 115,647 $ 138,511 $ 153,815 $ 33,777 $ 76,946
Depreciation and
amortization of
intangibles...... 9,353 10,070 9,899 3,049 4,000 6,449 7,238 1,715 3,484
Income from
operations....... 5,162 5,354 4,591 2,281 5,263 6,508 6,828 768 4,147
Interest
expense(2)....... 247 433 980 470 4,503 5,946 6,431 1,430 3,864
Net income
(loss)........... 3,052 2,771 2,643 1,062 (885) (1,084) (2,658) (775) (459)
BALANCE SHEET DATA:
Working capital.... $ 12,700 $ 11,208 $ 15,794 $ 12,845 $ 11,888 $ 7,306 $ 32,890 $ 6,105 $ 30,808
Net property, plant
and equipment.... 57,953 63,659 58,461 65,302 65,863 65,044 121,808 64,105 123,286
Total assets....... 80,434 86,007 87,354 98,384 119,032 104,281 233,354 98,757 228,820
Total long-term
debt............. -- -- -- -- 65,829 59,711 145,271 56,896 142,165
Minority
interests(3)..... -- -- -- -- 9,012 6,772 6,935 6,813 6,975
Shareholders'
equity........... 62,795 66,493 65,718 68,565 16,616 15,532 26,374 14,755 25,915
OTHER DATA:
Earnings to fixed
charges(4)
Ratio.............. 18.8x 11.6x 5.3x 4.6x -- -- -- -- --
Deficiency......... -- -- -- -- $ 1,011 $ 1,474 $ 3,050 $ 1,226 $ 450
EBITDA(5)............ $ 14,518 $ 15,431 $ 14,444 $ 5,330 $ 9,267 $ 12,906 $ 13,866 $ 2,426 $ 7,523
Rents and operating
lease expense...... 92 91 145 46 2,500 4,292 5,099 1,295 2,974
Net cash provided by
(used in) operating
activities......... 13,979 14,978 7,069 7,950 (3,145) 11,651 (1,288) 1,311 1,613
Net cash provided by
(used in) investing
activities......... (10,434) (15,806) (3,810) (9,958) (76,994) (5,044) (86,511) (675) (4,574)
Net cash provided by
(used in) financing
activities......... (3,670) 927 (3,417) 1,784 81,830 (6,118) 89,395 (2,815) (523)
CAPITAL EXPENDITURES:
Purchased(6)....... $ 10,451 $ 15,889 $ 5,577 $ 10,047 -- $ 5,186 $ 3,232 $ 675 $ 4,574
Capital investments
under operating
leases........... -- -- -- -- 4,076 3,256 11,635(7) -- --
</TABLE>
39
<PAGE>
JUDD'S, INCORPORATED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
349 DAYS
ENDED
YEAR ENDED DECEMBER 31, DECEMBER 15,
------------------------------------------------------------- ------------
1992 1993 1994 1995 1996 1997
----------- ----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................................... $ 105,725 $ 113,957 $ 118,783 $ 141,222 $ 152,563 $ 131,938
Depreciation and amortization of
intangibles................................. 5,366 5,042 7,341 8,094 7,961 8,432
Income from operations........................ 4,752 3,415 2,427 5,679 6,137 6,037
Interest expense(2)........................... 901 1,131 2,817 3,327 3,066 3,384
Net income (loss)............................. 2,143 2,035 (311) 1,841 1,993 1,437
BALANCE SHEET DATA:
Working capital............................... $ 13,215 $ 32,057 $ 17,201 $ 19,208 $ 9,678 $ 17,748
Net property, plant and equipment............. 27,343 42,485 50,195 51,203 49,352 46,093
Total assets.................................. 53,384 92,285 86,833 90,846 86,555 82,963
Total long-term debt.......................... 12,019 45,348 42,097 44,423 34,811 44,389
Minority interests............................ 220 205 197 187 176 156
Shareholders' equity.......................... 27,512 27,636 27,274 27,727 29,776 20,052
OTHER DATA:
Earnings to fixed charges(4)
Ratio......................................... 3.2x 2.1x -- 1.8x 1.7x 1.6x
Deficiency.................................... -- -- $ 932 -- -- --
EBITDA(5)....................................... $ 9,891 $ 8,759 $ 9,630 $ 13,895 $ 14,187 $ 14,013
Rents and operating lease expense............... 2,720 2,712 2,940 2,846 2,864 3,530
Net cash provided by (used in) operating
activities.................................... 5,687 8,335 5,354 5,811 18,906 13,959
Net cash provided by (used in) investing
activities.................................... (4,069) (37,484) (2,639) (7,541) (5,785) (6,070)
Net cash provided by (used in) financing
activities.................................... (2,193) 30,226 (4,033) 366 (10,405) (2,207)
CAPITAL EXPENDITURES:
Purchased(6).................................. $ 4,323 $ 17,313 $ 14,688 $ 7,746 $ 5,954 $ 6,164
Capital investments under operating
leases(8)................................... -- -- 418 579 8,040 --
</TABLE>
40
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA (9)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................................................................... $ 285,753
Depreciation and amortization of intangibles................................................. 13,824
Income from operations....................................................................... 12,611
Interest expense(2).......................................................................... 15,238
Net loss..................................................................................... (5,210)
OTHER DATA:
Ratio of earnings to fixed charges(4)........................................................ --
EBITDA(5).................................................................................... $ 26,233
Rents and operating lease expense............................................................ 10,729
CAPITAL EXPENDITURES:
Purchased(6)............................................................................... $ 9,396
Capital investments under operating leases................................................. 11,635
</TABLE>
- ------------------------
(1) Effective April 28, 1995, the Company acquired certain assets and assumed
certain liabilities of Perry Printing Corporation and North Star Print
Group (collectively "Predecessor"). Prior to April 28, 1995, the Company
had no operating activity and substantially no assets. See Note 1 to the
Company Consolidated Financial Statements.
(2) Includes interest on debt, but excludes amortization of deferred financing
costs, dividends and accretion on preferred stock.
(3) Represents preferred stock of Perry. See Note 5 to the Company's
Consolidated Financial Statements.
(4) For purposes of this computation, fixed charges consist of interest
expense, amortization of deferred financing costs, capitalized interest,
one-third of rental and operating lease expense (representative of that
portion attributable to interest) and preferred stock dividends payable in
cash. Earnings consist of income (loss) before income taxes plus fixed
charges (excluding preferred stock dividends).
(5) "EBITDA" represents earnings before interest, income taxes, depreciation
and amortization, and gains and losses on dispositions of assets. While
EBITDA should not be construed as a substitute for operating income or loss
or a better indicator of liquidity than cash flow from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements. EBITDA
is not necessarily a measure of the Company's ability to fund its cash
needs, and items excluded from EBITDA (such as depreciation and
amortization) are significant to an understanding of the Company's
financial results. In addition, EBITDA as presented by the Company may not
be directly comparable to similarly-titled measures presented by other
companies. See the Company Consolidated Statements of Cash Flows and the
related notes thereto included in this Prospectus.
(6) Includes the recorded book value of assets obtained under capital leases.
(7) Represents operating leases for digital prepress, press and binding
equipment. Prior to 1997, advance payments on substantial leased assets
were paid directly by the Company. Beginning in 1997, advance payments were
made directly to the manufacturer by the lessor.
(8) Represents operating leases. In 1996, Judd's placed into service new press
and related equipment.
(9) For a description of purchase accounting and pro forma adjustments, see the
notes to the Unaudited Pro Forma Condensed Combined Statements of
Operations included elsewhere herein.
41
<PAGE>
PERRY-JUDD'S INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
GENERAL
Perry-Judd's Incorporated (formerly PPC Holdings, Inc.), through its
operating subsidiaries is a full service heatset web offset printer focusing
principally on the magazine and catalog commercial printing markets. Management
believes the Company was the tenth largest commercial printer of magazines and
catalogs in the U.S. prior to the acquisition of Judd's Inc. in December 1997.
Management believes the combined Company, renamed Perry-Judd's Incorporated upon
the Acquisition, is the seventh largest printer of magazines and eighth largest
printer of catalogs in the U.S.
The pro forma results of operations for the year ended December 31, 1997 are
based on the Company's unaudited pro forma condensed combined statements of
operations contained elsewhere herein, which have been prepared to illustrate
the effect of (a) the Acquisition, (b) the Offering, (c) borrowings under the
Amended and Restated Credit Agreement, (d) the Equity Investment, (e) the Note
Conversion and (f) the Sale/Leaseback as if they were consummated as of January
1, 1997. The pro forma results represent the combination of the historical
consolidated results of Perry-Judd's for the year ended December 31, 1997
(including the 16 days of consolidated results of Judd's from December 16
through 31, 1997) and the historical consolidated results of Judd's for the 349
day period ended December 15, 1997, subject to certain adjustments.
In order to present full-year data for PPC Holdings, Inc. for 1995 for
purposes of comparison with 1996, the consolidated financial data for 1995
contained herein represents the combination of the historical results of
operations for PPC Holdings, Inc. for the 248 day period ended December 31, 1995
and the 117 day period ended April 27, 1995 for PPC Holdings, Inc.'s
predecessor, Perry Printing, with certain pro forma adjustments as described
below:
a) Depreciation and interest expense for Perry Printing have been
eliminated for the 117 day period ended April 27, 1995 and actual expenses
incurred during the 248 day period ended December 31, 1995 have been
annualized for depreciation, amortization of intangibles and interest
expense.
b) The April 28, 1995 sale and leaseback of certain production
equipment was adjusted to reflect such transaction as having occurred on
January 1, 1995.
The Company's net sales are derived principally from the sale of printing
services and materials to its customer base, including prepress, press, binding
and distribution services. The Company serves both national and regional
publication and catalog customers, including Time Inc., The McGraw-Hill
Companies and J.C. Penney. Net sales represent gross sales less postage,
discounts and credits. The Company's net sales include sales by the Company to
its customers of paper purchased. The price of paper, the primary raw material
used by the Company, is volatile and may cause significant swings in net sales.
The Company is generally able to pass on to its customers increases in the price
of paper, ink, labor, electricity and other fixed and variable costs.
Operating expenses consist primarily of the cost of paper and ink, salaries
and employee benefits, depreciation and amortization and selling, general and
administrative expenses. Perry-Judd's strives to provide high-quality, timely
services to its customers within a low cost structure by increasing productivity
and efficiency through investment in state-of-the-art production technologies
and matching costs to revenues.
42
<PAGE>
As of October 17, 1997, PPC Holdings, Inc. and a wholly-owned subsidiary
entered into a Merger Agreement for the acquisition of Judd's. Pursuant to the
Merger Agreement, on December 16, 1997, PPC Holdings, Inc. acquired all of the
outstanding capital stock of Judd's in exchange for aggregate merger
consideration of $102.0 million, which included the repayment of outstanding
indebtedness of Judd's as of the closing date and a preliminary working capital
adjustment, and is subject to a working capital adjustment as set forth in the
Merger Agreement. This acquisition was accounted for as a purchase with the
results of operations included in Perry-Judd's consolidated results of
operations for the 16 day period ended December 31, 1997.
The following table sets forth certain consolidated financial data of
Perry-Judd's in dollars and as a percentage of net sales for the years ended
December 31, 1995 (pro forma), 1996, 1997 and for the year ended December 31,
1997 (pro forma) and for the three months ended March 31, 1997 and 1998,
respectively:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
-------------------------------------------------------------------------------------- MARCH 31,
1995 1997 --------------------
(PRO FORMA) 1996 1997 (PRO FORMA) 1997
-------------------- -------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....... $ 161,567 100.0% $ 138,511 100.0% $ 153,815 100.0% $ 285,753 100.0% $ 33,777 100.0%
Costs of
production.... 136,522 84.5 113,185 81.7 124,071 80.7 225,254 78.8 27,906 82.6
Selling, general
and
administrative.. 11,247 7.0 12,369 8.9 15,678 10.2 34,064 11.9 3,388 10.0
Depreciation.... 5,469 3.4 5,869 4.3 6,828 4.4 11,827 4.1 1,615 4.8
Amortization of
intangibles... 531 0.3 580 0.4 410 0.3 1,997 0.7 100 0.3
Income from
operations.... 7,797 4.8 6,508 4.7 6,828 4.4 12,611 4.4 768 2.2
EBITDA.......... 13,738 8.5 12,906 9.3 13,866 9.0 26,233 9.2 2,426 7.2
Rents and
operating
lease
expense....... 3,342 2.1 4,292 3.1 5,099 3.3 10,729 3.8 1,295 3.8
Interest
expense....... 6,761 4.2 5,946 4.3 6,431 4.2 15,238 5.3 1,430 4.2
<CAPTION>
1998
--------------------
<S> <C> <C>
Net sales....... $ 76,946 100.0%
Costs of
production.... 61,546 80.0
Selling, general
and
administrative.. 7,769 10.1
Depreciation.... 3,078 4.0
Amortization of
intangibles... 406 0.5
Income from
operations.... 4,147 5.4
EBITDA.......... 7,523 9.8
Rents and
operating
lease
expense....... 2,974 3.9
Interest
expense....... 3,864 5.0
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31, 1997
Net sales increased $43.1 million or 127.5% to $76.9 million for the three
months ended March 31, 1998 from $33.8 million for the three months ended March
31, 1997. The increase resulted from Judd's sales included for the first three
months of 1998 and substantially higher volume of production units from new and
existing customers. Paper costs were 28% of net sales for the three months ended
March 31, 1998 and the three months ended March 31, 1997.
Costs of production increased $33.6 million or 120.4% to $61.5 million for
the three months ended March 31, 1998 from $27.9 for the three months ended
March 31, 1997, principally from Judd's production included for the first three
months of 1998 and overall increased volume of production. Costs of production
as a percent of net sales were 80.0% for the three months ended March 31, 1998
as compared to 82.6% experienced the three months ended March 31, 1997,
principally as a result of the benefits from higher production volume and
improved operating efficiencies gained from capital investments.
Selling, general and administrative expenses increased $4.4 million or
129.4% to $7.8 million for the three months ended March 31, 1998 compared to
$3.4 million for the three months ended March 31, 1997. Selling, general and
administrative expenses remained constant as a percent of net sales at 10.1% in
the 1997 period and the 1998 period. All of the $4.4 million increase related to
both the Judd's operation for the first three months of 1998.
43
<PAGE>
Depreciation expense increased $1.5 million or 93.8% to $3.1 million for the
three months ended March 31, 1998 from $1.6 million for the three months ended
March 31, 1997 as a result of including Judd's depreciation for the first three
months of 1998.
Income from operations increased $3.3 million to $4.1 million for the three
months ended March 31, 1998 from $0.8 million for the three months ended March
31, 1997, due to the factors discussed in the preceding paragraphs.
Interest expense increased $2.4 million to $3.9 million for the three months
ended March 31, 1998 from $1.4 million for the three months ended March 31, 1997
as a result of an increased level of debt incurred from the Judd's acquisition
on December 16, 1997.
RESULTS OF OPERATION
PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
Pro forma net sales of the Company for the year ended December 31, 1997 of
$285.7 million represent the net sales of the two companies for 1997, combined
as described above.
Pro forma costs of production for the year ended December 31, 1997 of $225.3
million represent the combined costs of production of the two companies,
adjusted to reflect the increased operating lease expense related to the
Sale/Leaseback.
Pro forma selling, general and administrative expenses for the year ended
December 31, 1997 of $34.1 million represent the combined selling, general and
administrative expenses for the two companies, adjusted to reflect the increased
operating lease expense with respect to the Company's corporate headquarters
related to the Sale/Leaseback.
Pro forma depreciation expenses of $11.8 million for the year ended December
31, 1997 represent the combined depreciation expense of the two companies,
adjusted to reflect the effects of the revised asset basis and estimated useful
lives of assets acquired, and eliminating depreciation on assets subject to the
Sale/Leaseback.
Pro forma income from operations of $12.6 million for the year ended
December 31, 1997 represents the combined income from operations of the two
companies, adjusted for the net effect of the adjustments described above.
Pro forma rents and operating lease expenses of $10.7 million for the year
ended December 31, 1997 represent the combined rents and operating lease
expenses of the two companies, adjusted to reflect the increased operating lease
expense related to the Sale/Leaseback.
Pro forma EBITDA of $26.2 million for the year ended December 31, 1997
represents the combined EBITDA of the two companies, adjusted to reflect the
Sale/Leaseback and the elimination of transaction costs incurred and expensed by
Judd's solely in connection with the Acquisition.
Pro forma interest expense of $15.2 million for the year ended December 31,
1997 represents the combined interest expense of the two companies, adjusted as
if the Offering, the Term Loan Facility and the Revolving Credit Facility were
completed at January 1, 1997.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 WITH THE YEAR ENDED DECEMBER 31,
1996.
Net sales increased $15.3 million or 11.0% to $153.8 million for the year
ended December 31, 1997 from $138.5 million for the year ended December 31,
1996. The increase resulted from Judd's sales included for the last 16 days of
1997 and substantially higher volume of production units from new and existing
customers offset by lower paper billings, as a greater percentage of paper was
customer supplied, and softness in the pricing of catalog and other commercial
printing sales. Paper costs were 28% of net
44
<PAGE>
sales for the year ended December 31, 1997 compared to 32% of net sales for the
year ended December 31, 1996.
Costs of production increased $10.9 million or 9.6% to $124.1 million for
the year ended December 31, 1997 from $113.2 million for the year ended December
31, 1996, principally from Judd's production included for the last 16 days of
1997 and overall increased volume of production offset by lower paper costs
related to the reduced percentage of paper purchased for customer requirements.
Costs of production as a percent of net sales were 80.7% for the year ended
December 31, 1997 as compared to 81.7% experienced for the year ended December
31, 1996, principally as a result of the benefits from higher volume of
production and improved operating efficiencies gained from capital investments.
Selling, general and administrative expenses increased $3.3 million or 26.6%
to $15.7 million for the year ended December 31, 1997 compared to $12.4 million
for the year ended December 31, 1996. Selling, general and administrative
expenses also increased as a percent of net sales from 8.9% in the 1996 period
to 10.2% in the 1997 period. Selling expenses increased as a result of higher
volume while general and administrative expenses increased due to staff
additions related to acquisition activities. Approximately half of the $3.3
million increase related to the Judd's operations for the 16 day period ending
December 31, 1997.
Depreciation expense increased $1.0 million or 16.9% to $6.8 million for the
year ended December 31, 1997 from $5.9 million for the year ended December 31,
1996 as a result of additional fixed assets placed in service during the year
ended December 31, 1997 and Judd's depreciation for the last 16 days of 1997.
Income from operations increased $0.3 million or 4.6% to $6.8 million for
the year ended December 31, 1997 from $6.5 million for the year ended December
31, 1996, due to the factors discussed in the preceding paragraphs.
Rents and operating lease expense increased $0.8 million or 18.6% to $5.1
million from $4.3 million for the year ended December 31, 1997 versus the year
ended December 31, 1996 and was attributable to new capital equipment
investments in the prepress and bindery areas.
EBITDA increased $1.0 million or 7.8% to $13.9 million for the year ended
December 31, 1997 from $12.9 million for the year ended December 31, 1996 as a
result of higher production volumes and the operating benefits of new capital
equipment investments. EBITDA decreased as a percent of net sales from 9.3% to
9.0% principally as a result of higher rents and operating lease expense.
Interest expense increased $0.5 million or 8.5% to $6.4 million for the year
ended December 31, 1997 from $5.9 million for the year ended December 31, 1996
as a result of increased level of debt incurred from the Judd's acquisition on
December 16, 1997.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 WITH THE YEAR ENDED DECEMBER 31,
1995 (PRO FORMA).
Net sales decreased $23.1 million or 14.3% to $138.5 million for 1996 from
$161.6 million for 1995. The decrease resulted from lower volume of production
and lower paper prices. Perry-Judd's experienced lower demand in 1996 versus
1995 due to the significant increase in paper prices during 1995 and substantial
postal rate increases in February 1996. Paper costs were 32% of net sales in
1996 and 33% of net sales in 1995.
Costs of production decreased $23.3 million or 17.1% to $113.2 million for
1996 from $136.5 million for 1995 and decreased as a percent of net sales from
84.5% to 81.7%, principally attributable to lower average cost of paper, lower
subcontracting costs, company-wide cost containment actions and improved
operating efficiencies. The cost containment actions included hiring and wage
and salary freezes for most of 1996, as well as lower limits on discretionary
expense spending.
45
<PAGE>
Selling, general and administrative expenses increased $1.1 million or 10.0%
to $12.4 million for 1996 compared to $11.3 million for 1995. Selling, general
and administrative expenses also increased as a percent of net sales from 7.0%
in 1995 to 8.9% in 1996 due to increased payroll costs incurred to intensify
selling efforts and fill vacant corporate administrative positions that were
necessary to operate the business.
Depreciation expense increased $0.4 million or 7.3% to $5.9 million for 1996
from $5.5 million for 1995 as a result of additional fixed assets placed in
service during 1996.
Income from operations decreased $1.3 million or 16.5% to $6.5 million for
1996 from $7.8 million for 1995 due to the factors discussed in the preceding
paragraphs.
Rents and operating lease expense increased to $4.3 million for 1996 from
$3.3 million for 1995 as a result of new equipment funded under operating lease
arrangements.
EBITDA decreased $0.8 million or 5.8% to $12.9 million for the year ended
December 31, 1996 from $13.7 million for the year ended December 31, 1995 but
increased as a percent of net sales from 8.5% to 9.3%. The $0.8 million decrease
was attributable to increased lease expense and lower volume of production. The
increase in EBITDA as a percent of net sales was affected by a lower net sales
base resulting from reduced paper sales.
Interest expense decreased $0.9 million or 13.2% to $5.9 million for 1996
from $6.8 million for 1995 as a result of lower average borrowings and lower
average interest rates. Lower average borrowings occurred because of lower paper
costs resulting in lower average working capital requirements.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its capital and operating requirements
with a combination of cash flow from operations, borrowings and external
operating leases. For the three months ended March 31, 1998 and 1997, EBITDA was
$7.5 million and $2.4 million, respectively, and EBITDA was $13.9 million, $12.9
million and $13.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
Working capital was $30.8 million at March 31, 1998 and $32.9 million, $7.3
million and $11.9 million, at December 31, 1997, 1996 and 1995, respectively.
The use of cash balances to fund capital expenditures during the quarter was
primarily responsible for the $2.1 million decrease in working capital at the
end of the first quarter of 1998 versus the end of 1997. The Judd's acquisition
on December 16, 1997 and a reduction of $5.1 million in current portion of
long-term debt were primarily responsible for the increased levels of working
capital at the end of 1997 versus the end of 1996. Lower costs of paper and
improved inventory controls caused the reduced level of working capital at the
end of 1996 versus the end of 1995.
Capital expenditures for purchased assets and asset acquisitions funded
under operating leases were as follows for the periods indicated (dollars in
millions):
<TABLE>
<CAPTION>
117 DAYS 248 DAYS YEAR ENDED YEAR ENDED THREE MONTHS
ENDED APRIL 27, ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED MARCH 31,
ASSETS 1995 1995 1996 1997 1998
- ---------------------- ----------------- --------------------- --------------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Purchased............. $ 10.0 -- $ 5.2 $ 3.2 $ 4.6
Funded under operating
leases.............. -- $ 4.1 3.3 11.6 --
</TABLE>
These capital expenditures reflect the purchase and lease of additional
prepress, press and bindery equipment. The purchased capital investments have
been funded by internally generated funds and by borrowings under the Existing
Credit Agreement. These capital expenditures have increased or will increase the
Company's capacity and are part of the Company's objective to maintain modern,
efficient plants and technologically advanced equipment. Capital expenditures
for fiscal 1998 (on a combined basis)
46
<PAGE>
are estimated to be approximately $30 million to be used primarily for
additional printing equipment. The Company expects to fund a majority of these
capital expenditures through operating leases.
Since the inception of operations on April 28, 1995, the Company has funded
the majority of its needs for production equipment through operating leases. In
April 1995, the Company successfully negotiated a sale and leaseback of three
presses and other printing equipment with a carrying value of approximately
$22.5 million. Simultaneously with the consummation of the Acquisition,
Perry-Judd's completed the sale and leaseback of all of its real property which
included two printing plants, three warehouses and the corporate headquarters in
Waterloo. The Sale/Leaseback generated net proceeds of approximately $17.6
million, which was used to prepay term debt outstanding under the Existing
Credit Agreement.
Rents and operating lease expense was approximately $3.0 million and $1.3
million for the three months ended March 31, 1998 and 1997, respectively and
$3.3 million, $4.3 million and $5.1 million for the years ended December 31,
1995, 1996 and 1997, respectively. The initial annual lease expense expected to
be incurred under the operating lease resulting from the Sale/Leaseback will be
approximately $1.9 million with 10.0% escalations scheduled at the start of the
sixth, eleventh and sixteenth years of the 20 year term.
At December 31, 1997, Perry-Judd's had net operating loss carryforwards for
federal income tax purposes of $10.6 million available to reduce future taxable
income, expiring in 2010 and 2012. Also, Perry-Judd's has alternative minimum
tax carryover credits of $3.0 million as of December 31, 1997 which do not
expire and may be applied against regular tax in the future, in the event
regular tax expense exceeds alternative minimum tax.
Concurrently with the consummation of the Transactions, the Company amended
and restated its existing term loan and revolving credit facility to provide
Perry, Shenandoah Valley and Port City with a $45 million Revolving Credit
Facility (based upon a borrowing base) and a $30 million Term Loan Facility. The
scheduled amortization of the Term Loan Facility will be payable in monthly
installments. In addition to the scheduled amortization, the Term Loan Facility
will be amortized by 75% of the annual excess cash flow with payments to be
applied in inverse order. The Amended and Restated Credit Agreement has an
initial term of five years with renewals thereafter upon the mutual agreement of
all parties.
Outstanding loans under the Amended and Restated Credit Agreement for the
Revolving Credit Facility will accrue interest at a variable rate per annum
equal to, at the option of the Company, either 0.75% above Bankers Trust
Company's prime rate, or 2.25% above the Eurodollar rate. Outstanding loans
under the Term Loan Facility will accrue interest at a variable rate per annum
equal to, at the option of the Company, either 1.25% above Bankers Trust
Company's prime rate, or 2.50% above the Eurodollar rate. The Company will also
pay a 2.25% per annum fee based on the average aggregate face amount of any
outstanding letter of credit and a 0.50% commitment fee on the average daily
amount of the unutilized commitment under the Revolving Credit Facility.
The Company plans to fund the majority of its major new capital expenditures
through operating leases for the foreseeable future. The Company believes that
the net proceeds from the Transactions, cash generated from operations and
available borrowings under the Amended and Restated Credit Agreement will be
sufficient to fund planned capital expenditures, working capital requirements,
operating leases and interest and principal payments for the foreseeable future.
The Company experiences seasonal fluctuations, with generally higher sales
and working capital in the second half of the fiscal year. The Revolving Credit
Facility has an aggregate commitment of $45.0 million, all of which
approximately is currently available for future working capital and other
general corporate purposes.
The Company has recently executed a letter of intent to enter a sale and
leaseback transaction for certain real property held by Judd's and its
subsidiaries, including two printing plants in Virginia and one in Baltimore,
Maryland. If consummated, this sale and leaseback would generate approximately
$22.0 million in net proceeds which would be available for general corporate
purposes. The initial annual lease expense
47
<PAGE>
expected under the operating lease resulting from the proposed sale and
leaseback transaction would be $2.1 million with 10.0% escalations scheduled at
the start of the sixth and eleventh year of the proposed 15 year term. The
consummation of the proposed sale and leaseback transaction is contingent upon
satisfactory appraisal of the properties, inspection and environmental reports
and other due diligence efforts to be completed by the potential buyer, among
other conditions, and there can be no assurance that this sale and leaseback
transaction will be consummated on the terms described above if at all.
YEAR 2000
The year 2000 issue is the result of computer programs having been written
using two digits rather than four to define the applicable year. Consequently,
any date-sensitive computer processing logic may recognize a date using "00" for
the year as the year 1900 rather than the year 2000. If not remedied, this could
result in erroneous warning messages, system failure or miscalculations which
could potentially disrupt operations or cause less than optimum operating
efficiencies.
Perry-Judd's business software applications have been reviewed for their
ability to operate correctly in the year 2000 and beyond. It has been determined
that some software package version upgrades and modification of some existing
internally developed programs will be required so that the computer systems will
properly utilize dates beyond December 31, 1999. The Company believes that with
minor modification and with the version upgrades, the year 2000 issue can be
mitigated. However, if such modifications and conversions are not made, or are
not completed in a timely fashion, the year 2000 issue could have a material
impact on the operations of the Company.
The Company has initiated communications with its significant suppliers and
customers to determine the extent to which the Company is vulnerable to those
third parties' failure to remedy their own year 2000 issue. There can be no
guarantee that the systems of other companies on which Perry-Judd's systems rely
will be converted in a timely fashion, or that a failure to convert by another
company would not have a material adverse effect on the Company. The Company has
determined that it has no exposure to contingencies related to the year 2000
issue for the printing services it has sold.
The Company will utilize both internal and external resources to modify
internally developed programs and upgrade package software where indicated. The
Company plans to complete the year 2000 project no later than mid-1999. The
indicated software upgrades and version changes are being provided by the
software developers as part of the normal software support contracts for those
products. These costs will be expensed as incurred in 1998 and are not expected
to have a material effect on the results of operations.
The costs of the project and the date on which the Company plans to complete
the year 2000 efforts are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party software developer modification
plans and other factors. However, there can be no guarantee that these estimates
will be accurate and actual results could potentially differ materially from
those estimates.
48
<PAGE>
JUDD'S, INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Judd's
Consolidated Financial Statements and notes thereto included elsewhere in this
Prospectus.
GENERAL
Judd's is a full service heatset web offset printer focusing principally on
the magazine and technical book commercial printing markets. The Company
believes Judd's is the eleventh largest printer of magazines and catalogs in the
U.S.
Judd's net sales are derived principally from the sale of printing services
and materials to its customer base, including prepress, press, services and
distribution services. Net sales represent gross sales less postage, discounts
and credits. Judd's net sales include sales to its customers of paper purchased
by Judd's. The price of paper, the primary raw material used by Judd's, is
volatile and may cause significant swings in net sales. Judd's is generally able
to pass increases in the price of paper, ink, labor, electricity and other fixed
and variable costs to its customers.
Operating expenses consist primarily of the cost of paper and ink, salaries
and employee benefits, depreciation and amortization and selling, general and
administrative expenses. Judd's strives to provide high-quality, timely services
to its customers within a low cost structure by increasing productivity and
efficiency through investment in state-of-the-art production technologies and
matching costs to revenues.
The following table sets forth certain consolidated financial data of Judd's
for the years ended December 31, 1995 and 1996 and the 349 day period ended
December 15, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 349 DAY PERIOD ENDED
------------------------------------------
1995 1996 DECEMBER 15, 1997
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................................. $ 141,222 100.0% $ 152,563 100.0% $ 131,938 100.0%
Costs of production.................................... 108,880 77.1 119,039 78.0 99,396 75.3
Selling, general and administrative.................... 18,569 13.1 19,426 12.7 18,073 13.7
Depreciation........................................... 7,929 5.6 7,797 5.1 8,241 6.2
Amortization of intangibles............................ 165 0.1 164 0.1 191 0.1
Income from operations................................. 5,679 4.0 6,137 4.0 6,037 4.6
EBITDA................................................. 13,895 9.8 14,187 9.3 14,013 10.6
Rents and operating lease expense...................... 2,846 2.0 2,864 1.9 3,530 2.7
Interest expense....................................... 3,327 2.4 3,066 2.0 3,384 2.6
Interest income........................................ 825 0.6 306 0.2 411 0.3
</TABLE>
RESULTS OF OPERATIONS
COMPARISON OF THE 349 DAY PERIOD ENDED DECEMBER 31, 1997 WITH THE YEAR ENDED
DECEMBER 31, 1996
Net sales decreased to $131.9 million for the 349 day period ended December
15, 1997 from $152.6 million for the year ended December 31, 1996, a decrease of
$20.7 million or 13.6%. The decrease was primarily due to the bankruptcy of Best
Products in late 1996, which had accounted for $11.6 million in sales for 1996
($7.8 million of which was a pass-through of material expense). Judd's also
outsourced work in early 1997 during the computer-to-plate conversion process at
the Shenandoah Valley facility. Paper costs decreased to $32.0 million, or 24.3%
of net sales during the 349 day period ended December 15, 1997, from $44.4
million, or 29.1% of net sales for the year ended December 31, 1996.
Additionally, 3.9% of the net sales decrease is attributable to the shorter
period reflected in 1997 versus the full year 1996.
49
<PAGE>
Costs of production decreased to $99.4 million for the 349 day period ended
December 15, 1997 from $119.0 million for the year ended December 31, 1996, a
decrease of $19.6 million or 16.5%. The decrease is primarily attributable to
the loss of the Best Products business, which had accounted for $7.8 million in
material expense for 1996, and a decrease in paper prices in 1997. Costs of
production decreased as a percent of net sales to 75.3% from 78.0%.
Selling, general and administrative expense was $18.1 million, or 13.7% of
net sales for the 349 day period ended December 15, 1997 compared to $19.4
million, or 12.7% of net sales for the year ended December 31, 1996. The
increase as a percent of net sales is attributable to higher paper costs in 1996
over 1997.
Depreciation increased to $8.2 million for the 349 day period ended December
15, 1997 from $7.8 million for the year ended December 31, 1996, an increase of
$0.4 million or 5.1%, resulting from the addition of new capital investments at
Shenandoah Valley and Port City.
Income from operations decreased to $6.0 million for the 349 day period
ended December 15, 1997 from $6.1 million for the year ended December 31, 1996,
a decrease of $0.1 million or 1.6%, and increased as a percent of net sales to
4.6% from 4.0%. The decrease relates to the loss of the Best Products account
and the start-up costs incurred during the conversion to computer-to-plate
technology at Shenandoah Valley, while the increase in percent to net sales is
largely a result of higher paper costs in 1996 over 1997.
Rents and operating lease expense increased to $3.5 million for the 349 day
period ended December 15, 1997 from $2.9 million for the year ended December 31,
1996 due to the addition of a new web press and related equipment at the
Shenandoah Valley facility.
EBITDA decreased to $14.0 million for the 349 day period ended December 15,
1997 from $14.2 million for the year ended December 31, 1996, a decrease of $0.2
million or 1.4%, and increased as a percent of net sales to 10.6% from 9.3%, due
to increased operational efficiency, and to the smaller impact that material
expense has had on net sales in 1997 than in 1996.
Interest expense net of interest income increased to $3.0 million for the
349 day period ended December 15, 1997 from $2.8 million for the year ended
December 31, 1996 as a result of higher debt levels in 1997 versus 1996.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 WITH THE YEAR ENDED DECEMBER 31,
1995
Net sales increased by $11.4 million, or 8.0% from $141.2 million to $152.6
million. Judd's experienced high sales volumes in 1996 with accounts that were
new to Judd's for 1995, such as Black Box, the U.S. Chamber of Commerce, Retired
Officers and the American Society of Mechanical Engineers. Paper costs increased
to $44.4 million, or 29.1% of net sales in 1996, from $41.5 million, or 29.4% of
net sales in 1995.
Costs of production increased to $119.0 million for 1996 from $108.9 million
for 1995, an increase of $10.1 million or 9.3%, and increased slightly as a
percent of net sales to 78.0% from 77.1%. The higher expense is the result of
the aforementioned increase in sales.
Selling, general and administrative expense was $19.4 million, or 12.7% of
net sales for 1996 compared to $18.6 million, or 13.1% of net sales for 1995.
The 4.3% increase was due to the expansion of the Information and Customer
Services departments at Shenandoah Valley and additions to the sales force and
creation of a New Media Services group at Port City.
Depreciation decreased to $7.8 million in 1996 from $7.9 million for 1995, a
decrease of $0.1 million or 1.3%.
Income from operations increased to $6.1 million for 1996 from $5.7 million
for 1995 an increase of $0.4 million or 7.0%, and remained constant as a percent
of net sales at 4.0%. The increase in income resulted from the higher sales
volume at Shenandoah Valley.
50
<PAGE>
Rents and lease expense in the costs of production category increased to
$2.9 million for 1996 from $2.8 million for 1995.
EBITDA increased to $14.2 million for 1996 from $13.9 million for 1995, an
increase of $0.3 million or 2.2%, but decreased as a percent of net sales to
9.3% from 9.8%, as the higher sales volume was offset partly by personnel
additions to New Media Services and sales force additions at Port City.
Interest expense net of interest income increased to $2.8 million for 1996
from $2.5 million for 1995, an increase of $0.3 million or 12.0%. Judd's had a
higher debt level in 1995 than in 1996, but this was more than offset by an
unrealized holding gain on marketable securities of $0.7 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Judd's historically has funded its liquidity and capital investment needs
with internally-generated funds and external borrowings. EBITDA was $13.9
million and $14.2 million for the fiscal years 1995 and 1996, respectively, and
was $14.0 million for the 349 day period ended December 15, 1997.
Working capital was $19.2 million and $9.7 million at December 31, 1995 and
1996, respectively, and was $17.7 million at December 15, 1997.
Capital expenditures totaled $7.7 million and $6.0 million for the fiscal
years 1995 and 1996, respectively, and were $6.2 million for the 349-day period
ended December 15, 1997, respectively. Since 1993, Judd's has undergone a major
capital expenditure and re-equipping program, investing approximately $60.0
million in enhanced short cutoff press capabilities and perfect binding and
pre-press technologies. In 1996 Shenandoah Valley entered into an operating
lease agreement for a new web press at the Shenandoah Valley facility and
related equipment with a value of $8.0 million.
51
<PAGE>
BUSINESS
The Company is a leading multi-regional printer of magazines, catalogs,
technical books and other commercial products. Its four printing facilities are
strategically located in the Midwest and Mid-Atlantic regions, with each plant
having state-of-the-art, integrated prepress, press, binding and distribution
capabilities. The Company services regional and national customers through sales
offices in twelve cities nationwide. Management believes both Perry and Judd's
have established reputations for high quality products and superior customer
service which have resulted in long-standing customer and supplier
relationships. The Company manages the total prepress, print and distribution
process to provide value-added solutions that reduce customer costs or assist
customers in increasing revenues. Pro forma for the Transactions (as defined),
the combined Company had net sales and EBITDA (as defined) of $285.7 million and
$26.2 million, respectively, and a net loss of $5.2 million for the year ended
December 31, 1997. For the three months ended March 31, 1998, the Company had
net sales and EBITDA (as defined) of $76.9 million and $7.5 million,
respectively, and a net loss of $0.5 million.
COMPANY STRENGTHS
SUPERIOR QUALITY AND CUSTOMER SERVICE. Perry and Judd's have each
established a reputation for providing superior quality and customer service.
The Company offers high value services that address customers' specific needs
and is committed to meeting those needs through responsive and flexible service.
To ensure continual process improvement, the Company has invested in training
and manages its operations using a total quality management approach. The
Company's commitment to provide timely, cost-effective, high quality printing
solutions combined with the Company's distinctive service orientation
differentiates it from its competitors. As evidence of its consistent focus on
quality, in March 1997 the Company was awarded Business Week's annual "Quality
Achiever" award for the fourth time in the past six years.
LONG-STANDING CUSTOMER RELATIONSHIPS. The Company has provided printing
services for customers such as Time Inc., J.C. Penney, Newsweek, and Kiplinger's
for over 15 years, The McGraw-Hill Companies for over 30 years and the American
Medical Association for 40 years. On a combined basis, the Company's customer
base included over 130 magazine publishers and 110 catalog merchants, with no
title comprising more than 5% of total combined net sales for 1997. The top ten
customers have been with the Company for an average of over 15 years and
accounted for approximately 35% of total combined net sales for 1997. The
Company believes its combination of outstanding performance and commitment to
responsive customer service have enabled the Company to build loyalty with its
customer base that allows it to grow its business relationships. These
relationships provide a strong foundation for growth in the business.
TECHNOLOGICALLY-ADVANCED EQUIPMENT. The Company is committed to providing
advanced production capabilities which deliver value-added solutions to its
customers. Since the beginning of 1993, the Company has invested over $100
million (on a combined basis) in capital expenditures to upgrade and expand its
equipment base. Management believes that these investments, including
high-speed, high-yield press equipment, cost-effective binding equipment and
computer-to-plate technology, have enabled the Company to remain at the
forefront of technology, retain and expand relationships with existing
customers, increase capacity, lower production costs, improve quality, speed and
flexibility and attract new business.
STRATEGIC LOCATIONS. The Company's four printing plants are strategically
located to service major population centers throughout the U.S., enabling the
Company to provide rapid, cost-efficient national and regional distribution. The
location of the Company's plants, combined with its distribution volume, allows
the Company to ship directly to U.S. Postal Service sectional center facilities,
which lowers its customers' postage rates and provides for quicker delivery of
magazines and catalogs to consumers. The proximity of the Company's facilities
to a majority of the U.S. population and central distribution routes provides
significant distribution economies to its customers and a competitive advantage
to the Company.
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<PAGE>
EXPERIENCED MANAGEMENT TEAM AND PRINCIPAL STOCKHOLDERS. The Company's
executive officers and key management employees have spent the majority of their
careers in printing and publishing and have an average of over 20 years of
experience in the industry. Management's expertise and in-depth knowledge of the
Company's markets are further complemented by the experience of Robert E.
Milhous and Paul B. Milhous, the principal stockholders of the Company. Prior to
their ownership of Perry, the Milhouses owned Treasure Chest Advertising
Company, Inc., which grew from a start-up in 1967 to the sixth largest
commercial printer in the U.S., having net sales in excess of $550 million
before its sale to Big Flower Press, Inc. in 1993.
BUSINESS STRATEGY
The Company's strategic objective is to grow revenues and profits by
leveraging its competitive strengths as an integrated provider of high quality
products and value-added services in its targeted business sectors. Key elements
in this strategy include the Company's ability to capitalize on opportunities
presented by the combination of Perry and Judd's and to pursue complementary
acquisitions:
CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. The Company intends to take
advantage of the considerable cross-selling opportunities presented by the
combination of Perry's and Judd's respective customer bases, product lines and
geographical locations. The Company expects to increase product penetration of
its existing customer base by capturing work that previously exceeded Perry's
and Judd's stand-alone capacities and particular areas of expertise. For
example, with the addition of Judd's medium- and short-run printing
capabilities, the Company will be well-positioned to serve the needs of many of
Perry's larger, long-run customers who are developing or acquiring additional
shorter-run targeted specialty magazines and catalogs. In addition, the Company
can now offer its customers a choice of Mid-Atlantic and Midwestern production
locations.
REALIZE OPERATIONAL SYNERGIES. The Company believes it can achieve
production rationalization from the integration of Perry's long-run and Judd's
medium- and short-run printing capabilities. By allocating production among the
various facilities, the Company can better absorb increased volumes and manage
available capacity, thereby optimizing labor and equipment utilization while
reducing printing and distribution costs. In addition, Judd's Mount Jackson,
Virginia facility, currently used for back-issue storage, provides the Company
with a ready-made expansion facility.
CAPTURE OVERHEAD COST AND VOLUME PURCHASING EFFICIENCIES. The Company
expects to consolidate overhead functions of Perry and Judd's resulting in
savings from the elimination of redundant administrative operations. In
addition, the Company believes the combined volume requirements for paper, other
raw materials and production supplies should allow it to negotiate improved
terms from vendors. Management also believes the combined Company can obtain
better pricing from equipment manufacturers.
DEVELOP NEW MEDIA SERVICES. The Company is among the printing industry's
leaders in offering innovative on-line and multimedia products and services. The
Company's New Media Services group develops and manages interactive web-sites
for both publishing and direct-marketing customers who desire to complement
ink-on-paper products with on-line products and services. The Company has also
successfully marketed its New Media Services to non-publishing customers. The
Company has implemented web-site advertising and electronic commerce programs
for its customers and believes multimedia and on-line products and services
present the Company with significant growth opportunities and further
differentiate it from its competitors.
GROW THROUGH COMPLEMENTARY ACQUISITIONS. The Company plans to capitalize on
the printing industry's fragmentation by pursuing selective complementary
acquisitions to broaden its geographic presence, extend its product offerings,
and expand production capacity within the magazine and catalog sectors.
Management believes such acquisitions can offer significant cost savings
realized through the combined
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<PAGE>
purchasing of raw materials, reduction of overhead costs and productivity gains
captured by the Company's ability to integrate newly acquired facilities with
the Company's existing business. The Company intends to utilize its borrowing
capacity under the Amended and Restated Credit Agreement (availability of $45
million at December 31, 1997) and, if available on satisfactory terms, future
debt and equity offerings as its primary financing sources for such
acquisitions.
HISTORY
Perry Printing Corporation ("Perry Printing") was founded in 1931 by L.E.
Perry upon his purchase of the Waterloo Courier Newspaper. After World War II,
Mr. Perry sold the newspaper operation and began publishing farm newspapers and
printing advertising circulars. In 1956, Mr. Perry was joined by his son, Roger,
who led Perry's pioneering investments into heatset web offset technology, and
the business grew over time to become one of the Midwest's premier printers of
magazines and catalogs. Perry's largest plant, located in Waterloo, Wisconsin,
was built in 1959. The Company opened a second heatset web offset facility in
1982 in Baraboo, Wisconsin. In 1974, Perry Printing became a wholly-owned
subsidiary of Journal Communications, Inc. ("Journal"). In April 1995, PPC
Holdings acquired from Journal substantially all of the assets of Perry Printing
through a wholly-owned subsidiary, PPC Acquisitions, Inc., which was
subsequently renamed Perry Graphic Communications, Inc.
Judd's, Incorporated was founded in 1868 as Judd & Detweiler, a commercial
printer in Washington, D.C. serving government-sector clients. In 1895, Judd's
entered the magazine segment by printing National Geographic magazine, which
continued as a customer for 64 years until shifting to the rotogravure printing
process. In 1961, the Company acquired the book division of Lord Baltimore Press
in Baltimore, Maryland and renamed the subsidiary, a full-service supplier of
professional and technical journals, reference books and directories, Port City
Press. In the early 1970s, the Company built the Shenandoah Valley printing
facility to expand its printing capacity and to provide state-of-the-art heatset
web offset products and services to the publications, catalog and advertising
insert markets. The location is convenient to major distribution routes and
provides access to a skilled, lower-cost work force.
THE PRINTING INDUSTRY
Commercial printing in the U.S. is a large, highly fragmented,
capital-intensive industry which includes the printing of books, magazines,
advertising circulars, catalogs, direct mail, free-standing inserts,
directories, financial and legal documents, labels and wrappers and other
general printing material. There are approximately 35,000 commercial printers in
the U.S. today which generated over $60 billion of sales in 1996. Of these
35,000 commercial printers, only 132 had revenues in excess of $50 million and
only 37 had revenues in excess of $200 million in 1996. The Company believes
that the challenges of ongoing consolidation and competitive pricing trends in
the industry, the high level of capital investment necessary to keep pace with
changing technology, and customer demands for increasingly sophisticated,
specialized and time-sensitive printing and distribution services can be met
only by printers, such as the Company, with the resources and experience to
provide state-of-the-art production facilities, nationwide as well as regional
distribution capabilities, and high quality customer service.
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MARKETS, PRODUCTS AND CUSTOMERS
The following is a table showing the Company's range of printed products:
<TABLE>
<CAPTION>
PRODUCT FORMAT RUN LENGTH FREQUENCY DISTRIBUTION
- ---------------------- --------------- ------------ -------------- ---------------------
<S> <C> <C> <C> <C>
Magazines - Standard - Short - Weekly - Subscription
- Tabloid -Medium -Monthly - Newsstand
- Long - Bimonthly
Catalogs - Standard - Medium - Variable - Direct mail
- Digest - Long
- Letter-sized
Technical Books - Standard - Short - Variable - Drop-ship
- 7x10 - Mail
- Order fulfillment
</TABLE>
MAGAZINES
With the acquisition of Judd's, the Company believes it will be the seventh
largest printer of magazines in the U.S., with combined net sales of
approximately $152.3 million, representing nearly 53% of the Company's total
combined net sales for 1997.
The Company has the specialized equipment required to handle the complex
manufacturing requirements of the nation's premier magazine publishers. Given
its expertise and equipment, the Company can produce a broad range of formats,
run lengths and manufacturing frequencies using various types of paper stock.
The Company's success in attracting and maintaining customer accounts is
enhanced by its ability to facilitate sophisticated targeted marketing and
distribution through the use of its geo-demographic selective binding, ink-jet
addressing and customized list processing services. The Company also provides
specialized tabloid-size magazine capabilities used for titles such as
COMPUTERWORLD AND AMNEWS.
The cost to magazine publishers of switching printers is significant as a
result of the highly sophisticated nature of the magazine production and
distribution process and demanding deadlines. Therefore, publishers generally
establish long-term relationships with printers, such as the Company, which are
knowledgeable and experienced in the customers' particular production
requirements and which invest in state-of-the-art production equipment to meet
the customers' needs to improve quality, flexibility and to reduce production
costs.
The Company produces over 200 magazine titles. The Company's top ten
magazine customers (based on total combined net sales for 1996) include Time
Inc., The McGraw-Hill Companies, CW Communications, the American Medical
Association, the U.S. Chamber of Commerce, the Washington Post Company, Dobbs
Publications, The Economist, Kiplinger's and Newsweek. Titles printed by the
Company include:
- AMNEWS
- ATLANTIC MONTHLY
- AVIATION WEEK
- BUSINESS WEEK
- COMPUTERWORLD
- THE ECONOMIST
- ENTERTAINMENT WEEKLY
- IN STYLE
- KIPLINGER'S PERSONAL FINANCE
- LIFE
- MACWEEK
- NATION'S BUSINESS
- NEWSWEEK
- PEOPLE
- SPORTS ILLUSTRATED
- STEREOPHILE
- TIME
- WASHINGTON POST MAGAZINE
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The Company has also recently signed a contract with Boy Scouts of America
for the printing of BOY'S LIFE, SCOUTING and EXPLORING magazines beginning in
1998.
Substantially all of the Company's magazine printing is performed under
contracts, the significant majority of which have remaining terms ranging from
one to six years. The Company's strong relationships with its magazine customers
have enabled it to extend the majority of such contracts beyond their initial
expiration dates. The Company's average relationship with its top ten magazine
customers is over 15 years, and both Time Inc. and Business Week have recently
extended their contracts with the Company to 2003 and 1999, respectively.
CATALOGS
The Company believes that, with the acquisition of Judd's, it will rank as
the eighth largest printer of catalogs in the U.S. with combined net sales of
approximately $79.6 million, representing over 28% of the Company's total
combined net sales for 1997. The Company's sophisticated prepress, printing,
binding and distribution capabilities ensure that high quality catalogs reach
the consumer in a timely and cost-efficient manner. In addition, the Company can
provide specialized digest-size catalog printing capabilities. The Company
produces catalogs for over 110 customers including:
- BLACK BOX
- BOOK-OF-THE-MONTH
- CONCEPTS DIRECT
- DOUBLEDAY BOOK & MUSIC CLUB
- HEARTLAND AMERICA
- HECHT'S
- HIGHSMITH COMPANY
- HOUSE OF LLOYD, INC.
- J.C. PENNEY
- MASON SHOES
- NATIONAL BUSINESS FURNITURE
- SIERRA TRADING
Consistent with industry practice, the Company performs most of its catalog
printing under short term agreements with its customers. The Company recently
signed a three-year agreement with Miles Kimball to produce its catalogs
beginning in 1998.
TECHNICAL BOOKS
The Company produces a variety of information-intensive professional and
technical journals, reference books and business directories, and also offers
data conversion and composition, database management and multimedia publishing
services to its technical book customers. Combined net sales in technical book
printing were $34.3 million, representing 12% of the Company's total combined
net sales for 1997. The Company serves approximately 350 publishers in this
market, including:
- AMERICAN MEDICAL ASSOCIATION
- ARBITRON RATING COMPANY
- DUN & BRADSTREET
- INSURANCE INSTITUTE
- MATTHEW BENDER
- THE MCGRAW-HILL COMPANIES
- MORNINGSTAR INC.
- STANDARD & POOR'S
Typically, the Company enters into contracts which set manufacturing prices
for one year (allowing for adjustments based on fluctuations in paper costs)
without specifying printing volume. The Company's average relationship with its
top ten customers in this segment is over 16 years.
OTHER COMMERCIAL PRINTING
The Company also produces a variety of specialty commercial products such as
magazine inserts, calendars and general advertising products. These commercial
products enable the Company to optimize capacity utilization by supplementing
its magazine and catalog business and generated combined net sales of $19.5
million, or 7% of total combined net sales for 1997.
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<PAGE>
NEW MEDIA SERVICES
In recent years, the Company has developed a variety of multimedia, on-line
and content repurposing products and services (the "New Media Services"), and
the Company believes it is among the industry leaders in providing its customers
with innovative, creative applications of such technologies to add value to
their businesses.
The New Media Services began as the Company became involved in the
development and management of web-sites to enhance its traditional printing
capabilities and as a natural extension and expansion of its customer
relationships. The Company provides interactive web-site development, tracking,
analysis and reporting services to publishers and direct-marketers desiring to
complement ink-on-paper magazine products with on-line, brand-based products and
services and to take advantage of marketing and sales opportunities in
electronic commerce. Customers utilizing the Company's innovative multimedia
solutions include:
- AMERICAN DIABETES ASSOCIATION
- DOBBS PUBLISHING GROUP
- DORIS DAY ANIMAL LEAGUE
- HOME BUYER PUBLICATIONS
- MARTHA STEWART LIVING
- NATIONAL ASSOCIATION OF REALTORS
- NON-COMMISSIONED OFFICERS
ASSOCIATION
- THE SALVATION ARMY
- VISTA GRAPHICS
- WASHINGTON MAGAZINE
In addition, the Company's experience and reputation for building effective
interactive web-sites and creative electronic commerce solutions has expanded
its customer base for its New Media Services to non-publishing customers,
including Reba McEntire and Electronics Boutique. The Company, a Microsoft-
certified provider of web-site development services, intends to continue to
develop innovative multimedia products and services for publishing,
direct-marketing and non-publishing customers, including current projects
exploring web-site advertising and electronic commerce.
SALES AND MARKETING
The Company employs 41 sales representatives located in fifteen regional
offices nationwide. The sales force is divided into separate groups focused on
each of the three sectors: magazines, catalogs/ commercial, and technical books.
This product-focused approach to sales meets the needs of customers for a sales
representative who is knowledgeable, experienced and technologically well-versed
in the dynamics of the customer's business. The sales force is compensated
through a commission plan that provides incentives for new business as well as
customer retention.
PRODUCTION AND DISTRIBUTION
The Company provides a full range of integrated printing services to its
customers. These services include electronic prepress, platemaking, high-speed
and high quality heatset web offset printing, finishing and distribution
services. The Company believes that it continues to be at the forefront of
rapidly evolving commercial printing technology. After combined capital spending
by Perry and Judd's of over $100 million in capital expenditures since 1993, the
majority of the Company's prepress, platemaking, press and binding equipment is
state-of-the-art. Over the past five years, the Company has acquired and
installed computer-to-plate technology, new cost-effective, high-yield, short
cut-off gapless presses, and advanced, high-speed, automated binding equipment.
Management views the successful application of new technology as a critical
success factor in its chosen markets, and continually evaluates and invests in
new equipment and technology which it believes will further enhance its printing
capabilities and competitiveness.
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PREPRESS
In each of its facilities, the Company provides a full range of prepress
services and equipment utilizing the latest technology, answering the demand for
high quality, 24-hour preparatory services. The Company's prepress services
include conventional preparatory services, (such as typesetting, proofreading,
color separation, production of platemaking film, imposition and platemaking) as
well as state-of-the-art computer-to-plate technology. The Company has made
significant investments in transforming its prepress operations from
labor-intensive to equipment- and system-intensive processes, including the
introduction of electronic prepress capabilities enabling the Company to
receive, create and process pages electronically and to utilize automated
platemaking equipment.
PRESS ROOM
The Company offers its customers state-of-the-art heatset web offset press
capabilities at its four printing facilities. The Company has invested in wide
web press technology which represents a substantial capital commitment that only
a small number of well-capitalized printers are able to justify. Wide web
presses generate a significant cost savings on longer press runs. Other
specialized press capabilities include short cut-off and gapless presses, which
reduce paper waste, and 5-color presses which are used to print covers. The
Company's presses can print on lower-cost paper stocks and certain presses
incorporate folders to produce tabloid- and digest-size publications. The
Company has both high-speed presses best suited for longer runs and other
presses with shorter makeready times which are better suited for short runs. The
Company's book presses are automated to reduce labor costs and makeready times.
Management believes its printing operations have the consistent high quality
reproduction, low paper waste, flexibility and dependability that is required by
the Company's customers.
BINDING AND FINISHING
The Company has invested significant capital to install high-speed,
automated binding and finishing equipment. Printed products requiring finishing
are either saddle bound (stapled) or perfect bound (square back with adhesive).
The Company's finishing services include blow-in-cards, polybagging, tipping and
tabbing.
Among the most significant recent technological advances currently employed
by the Company are ink-jet addressing and geo-demographic selective binding (on
both a regional and specific carrier route basis). All of the Company's magazine
and catalog binding equipment has ink-jet capabilities and partial or fully
selective systems. During the binding process, a product's content can be
modified to include or exclude certain materials using technologies that enable
a magazine publisher or catalog merchant to customize and personalize its market
by sending the same basic magazine or catalog to all consumers while inserting
different advertisements, messages, prices or product offerings, depending upon
the geographic and demographic characteristics of the individual customer or
subscriber.
Ink-jet personalizing is increasingly being used by many publishers and
catalogers. Ink-jet addressing eliminates the additional process of printing
paper labels and improves mailing efficiency. Ink-jet addressing allows both the
cover and the order form to be labeled and to contain customer coding
information. Furthermore, as magazine and catalog publishers continue to look
for methods to increase the level of personalization, the ink-jet process is
being used more frequently to add personal messages, specific inserts to
frequent buyers, or unique coding information for order entry.
DISTRIBUTION
Distribution is a key element in the production process to effectively
manage delivery costs, and the Company provides its customers with
state-of-the-art distribution and mail list services. The distribution services
provided by the Company include multiple entry point analysis, pool shipping,
drop shipping, load
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planning, over-the-road and rail services, mailing/distribution consultation,
freight tracking, co-mailing analysis, mail tracking, ink-jet tape formatting
and ink-jet tape processing.
The Company provides a number of mail list services which are designed to
improve deliverability and minimize shipping costs. Many mail list services are
integrated into the finishing operation, reducing the need for redundant
handling. These services include merging multiple lists and purging
duplications, formatting the tapes or optical disks which run the finishing
controller, isolating undeliverable addresses due to faulty zip codes,
correcting zip codes, creating postnet barcoding, and sorting files to support
customers' mailing strategies. Additionally, the mail list services can be used
to select names to target a specific audience for a particular publication or
catalog. The Company is also able to merge lists of names for the same customer
or to co-mail catalogs and magazines of different customers to achieve increased
postal presort discounts. Management believes smaller competitors either cannot
offer these services or can only offer them in a more limited way.
By integrating the mail list services with its distribution services, the
Company maximizes postal discounts for its customers through achieving optimum
presort savings and automation discounts, as well as ensuring on-time delivery.
Due to its large shipping volume, the Company's plants are designated postal
distribution centers, each with full-time postal employees. The Company's volume
and strategic locations enable it to ship directly to U.S. Postal Service
sectional center facilities, thus providing postal discounts and more timely
delivery for its customers. The Company believes its distribution capabilities
and favorable distribution locations provide a competitive advantage.
FACILITIES
Each of the Company's printing plants has a primary product expertise which
allows it to maximize the efficiency and responsiveness of its operations.
Information about the Company's printing plants is set forth below:
PRINTING PLANTS
<TABLE>
<CAPTION>
LOCATION PRIMARY PRODUCT OWN/LEASE SQUARE FOOTAGE ACREAGE
- ---------------------------------- --------------------------------------- ---------- -------------- -------------
<S> <C> <C> <C> <C>
Waterloo, WI...................... Long- and medium-run magazines Lease 298,000 16
Strasburg, VA
(Shenandoah Valley)............. Medium- and short-run magazines Own 320,000 17
Baraboo, WI....................... Consumer/business catalogs Lease 434,000 42
Baltimore, MD (Port City)......... Professional and technical journals, Own 175,000 6
directories & reference books
</TABLE>
The Company's principal executive offices are located at 575 West Madison
Street, Waterloo, Wisconsin, and occupy 50,200 square feet of office space in a
facility that are leased by the Company pursuant to the Sale/Leaseback. In
addition to the printing plants listed above, the Company owns a 60,000 square
foot printing plant on 47 acres in Mount Jackson, Virginia, which currently is
used for storage. The Company also owns the original Judd & Detweiler facilities
in Washington, D.C., consisting of 225,000 square feet of commercial office and
warehouse space, with a majority of that space currently under lease to third
parties. In addition, the Company leases three warehouses in Waterloo,
principally used for paper storage, having an aggregate square footage of
112,800 square feet. The Company also leases a 47,875 square foot facility in
Dorsey, Maryland nearby to the Port City plant, which is currently used as an
order-processing and fulfillment center for Port City customer orders and a
10,000 square foot warehouse in Winchester, Virginia used for spare parts
storage. The Company also stores paper in a facility in Chambersburg,
Pennsylvania.
The Company's locations provide easy access to air freight at metropolitan
airports in Chicago, Milwaukee and Madison and ground transportation links to
Chicago, Minneapolis, Detroit, St. Louis, New
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York City, Washington, D.C., Philadelphia, New Jersey and other major population
centers, providing the Company with the capability to offer timely,
cost-effective delivery to the entire country.
EMPLOYEES
As of March 31, 1998 on a combined basis, the Company had 2,239 employees,
including 108 at its headquarters and sales offices, 698 at its Waterloo plant,
468 at its Baraboo plant, 754 at its Shenandoah Valley plant and 211 at its Port
City plant. The majority of the Waterloo plant employees are represented by
three unions. Perry entered into a labor contract with all three unions which
became effective July 1, 1994, was supplemented in 1995 in connection with the
acquisition of Perry Printing by PPC Holdings and expires on June 30, 1998. The
Baraboo, Shenandoah Valley and Port City plants are non-union and to date the
Company is not aware of any union organization activity at those plants. The
Company believes that its relations with its employees are good and the Company
has never experienced a work stoppage.
RAW MATERIALS AND SUPPLIERS
Paper and ink are the primary direct materials used by the Company.
Generally, direct material costs are passed on to the customer.
The primary raw material used by the Company in its operation is paper. In
1997, the Company's customers supplied approximately two-thirds of the paper
used in the printing process, and the Company supplied approximately one-third.
The cost of paper is a principal factor in the Company's manufacturing costs and
pricing to certain customers and consequently the cost of paper and the
proportion of paper supplied by customers significantly affects the Company's
net sales and cost of sales. The Company is generally able to pass increases in
the cost of paper to its customers, while declines in paper costs generally
result in lower prices to customers. Fluctuations in paper costs result in
corresponding fluctuations in the Company's net sales, but generally have not
affected volume or profits to any significant extent. However, sharp increases
in paper prices and related reduction in print advertising programs are more
likely to adversely affect volumes and profits. The Company believes that its
relationships with its paper suppliers are strong, and that it has adequate
allocations with its suppliers for its customers' needs.
The Company supplies all of the ink used by its customers and has strong
relationships with its suppliers. The Company believes that there are adequate
sources of supply for ink and that its relationships with its suppliers yield
improved quality, pricing and overall services to its customers. See "Certain
Relationships and Related Transactions."
COMPETITION
The Company competes in each of its market segments on the basis of price,
quality, range of services offered, distribution capabilities, ability to
service the specialized needs of customers, availability of printing time on
appropriate equipment and use of state-of-the-art technology.
The Company's competitors in the magazine and catalog printing market
consist of diversified printing companies who have facilities sufficient to
compete in the national market, along with various local or regional printers
with less extensive facilities who compete for local or regional business. The
Company's key competitors in these markets include R.R. Donnelley & Sons,
Quebecor Printing, World Color Press, Quad/Graphics, Banta Corp. and Brown
Printing.
Competition in the professional and technical journals, reference book and
business directories market is highly fragmented, with competition, arising from
multiple smaller printers, as well as larger competitors such as R.R. Donnelley
& Sons, Quebecor Printing, Cadmus Communications and Fry Communications.
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REGULATORY COMPLIANCE
The Company is subject to regulation under various federal, state and local
laws relating to the environment and to employee health and safety. These
environmental regulations relate to the generation, storage, transportation,
handling, disposal and emission into the environment of various substances.
Permits are required for operation of the Company's business and these permits
are subject to renewal, modification and, in certain circumstances, revocation.
The Company is also subject to regulation under various federal, state and local
laws which allow regulatory authorities to compel (or seek reimbursement for)
cleanup of environmental contamination, if any, at the Company's own sites and
at facilities where its waste is or has been disposed. The Company has internal
controls and personnel dedicated to compliance with all applicable environmental
and employee health and safety laws. The Company expects to incur ongoing
capital and operating costs and administrative expenses to maintain compliance
with applicable environmental laws. The Company cannot predict the environmental
or employee health and safety legislation or regulations that may be enacted in
the future or how existing or future laws or regulations will be administered or
interpreted. Compliance with new laws or regulations, as well as more vigorous
enforcement policies of the regulatory agencies or stricter interpretation of
existing laws, may require additional expenditures by the Company, some or all
of which may be material, however the Company is not currently aware of any
environmental or employee health or safety matter which could have a material
adverse effect upon the Company's competitive or consolidated financial
position.
TRADE NAMES AND TRADEMARKS
The Company owns certain trade names and trademarks used in its business,
none of which it believes are material.
LEGAL PROCEEDINGS
Certain claims, suits and complaints which arise in the ordinary course of
business have been filed or are pending against the Company. The Company
believes that all such matters either are adequately reserved for, are covered
by insurance, or would not have a material adverse effect on the financial
condition or results of operations of the Company, taken as a whole, if
adversely determined against the Company.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGEMENT EMPLOYEES
The table below sets forth certain information regarding the directors,
senior executive officers and certain other executive officers and key
management employees of the Company and its Subsidiaries as of March 31, 1998.
All of the persons listed below are U.S. citizens.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ----------- ----------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS AND SENIOR
EXECUTIVE OFFICERS
Robert E. Milhous............. 61 Chairman of the Board of Directors, Perry-Judd's and all Subsidiaries
Paul B. Milhous............... 59 Vice-Chairman of the Board of Directors, Perry-Judd's and all Subsidiaries
Craig A. Hutchison............ 45 Director, President and Chief Executive Officer, Perry-Judd's and all
Subsidiaries
Thomas V. Bressan............. 49 Director and Secretary, Perry-Judd's and all Subsidiaries
Verne F. Schmidt.............. 57 Director and Senior Vice President and Chief Financial Officer, Perry-Judd's
and all Subsidiaries
David E. Glick................ 51 Director and Executive Vice President, Operations and On-Line Services,
Perry-Judd's and all Subsidiaries
Beth A. Lindsay............... 43 Senior Vice President, Human Resources, Perry-Judd's and all Subsidiaries
EXECUTIVE OFFICERS AND KEY
MANAGEMENT EMPLOYEES
Walter A. Edwards............. 47 Vice President, Perry and Division Manager--Baraboo Plant
Larry C. Cole................. 54 Vice President, Perry and Division Manager--Waterloo Plant
Howard D. Sullivan............ 61 Senior Vice President, Publication Sales, Perry and Judd's
Larry F. Celey................ 52 Vice President, Commercial and Catalog Sales (Eastern Region), Perry and
Judd's
Timothy M. Smith.............. 40 Vice President, Publication Sales, Perry and Judd's
Stephen M. Sanfelippo......... 40 Vice President, Commercial and Catalog Sales (Central Region), Perry and
Judd's
Bradley J. Hoffman............ 36 Vice President, Finance, Perry-Judd's
Joseph J. Janela.............. 41 Vice President, Finance, Judd's and Port City
</TABLE>
ROBERT E. MILHOUS has been Chairman of the Board of both the Company and
Perry since December 1994. Mr. Milhous was Chairman of the Board of Treasure
Chest and its predecessor corporation from 1967 until the sale of Treasure Chest
in 1993. Mr. Milhous is also the Chairman of the Board of Directors of Novamil
Corporation ("Novamil"), which manages various manufacturing companies owned by
affiliates controlled by himself and Paul B. Milhous. Robert E. Milhous is the
brother of Paul B. Milhous.
PAUL B. MILHOUS has been Vice Chairman of the Board of both the Company and
Perry since December 1994. Mr. Milhous was Vice Chairman of the Board of
Treasure Chest and its predecessor corporation from 1967 until the sale of
Treasure Chest in 1993. Mr. Milhous is also the Vice-Chairman of the Board of
Directors of Novamil, which manages various manufacturing companies owned by
affiliates controlled by himself and Robert E. Milhous. Paul B. Milhous is the
brother of Robert E. Milhous.
CRAIG A. HUTCHISON has been the President of Perry since March 1989. From
March 1987 to March 1989, Mr. Hutchison served as Chief Operating Officer for
the Perry Web Division which included
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the Waterloo and Baraboo plants and a non-heatset plant in Trumbull,
Connecticut. Prior to his COO position, Mr. Hutchison was Senior Vice President
of Sales and Marketing for Perry Printing. From January 1980 to February 1987,
Mr. Hutchison held various positions managing the sales and marketing operations
of Perry. Mr. Hutchison joined Perry in 1976 as a sales representative. Mr.
Hutchison has served on the Boards of Directors of PPC Holdings and Perry since
April 1995.
THOMAS V. BRESSAN has been Managing Director of Mergers and Acquisitions for
Novamil since 1987. Prior to joining Novamil, Mr. Bressan was employed by
Bankers Trust Company, Los Angeles, from 1982 to 1987 and by Security Pacific
Business Credit from 1976 to 1982.
VERNE F. SCHMIDT has been Senior Vice President and Chief Financial Officer
since he joined Perry in January 1997 and was elected to the board of directors
in February, 1998. From 1974 through 1996, Mr. Schmidt held various financial
and accounting positions including Senior Vice President and Chief Financial
Officer of Ringier America and its predecessor companies. Prior to 1974, Mr.
Schmidt was an audit manager for Price Waterhouse.
DAVID E. GLICK joined Perry-Judd's as the Executive Vice President of
Operations and On-Line Services and as a director in February, 1998. From 1993
to January 1998, Mr. Glick served in various capacities at Treasure Chest
Advertising, a subsidiary of Big Flower Press Holdings, Inc., including Senior
Vice President of Operations, Senior Vice President and General Manager of
Operations and Sales and Senior Vice President of Operations and Technology.
BETH A. LINDSAY has been Senior Vice President of Human Resources since
joining Perry in March 1996. From 1982 to 1996, Ms. Lindsay was employed with
World Color Press in various positions, including Human Resource Director, Vice
President Human Resources, Commercial Division, and Regional Vice President,
Human Resources. Prior to 1982, Ms. Lindsay was employed by Levi Strauss from
1980 to 1982 and Burrough's Corporation from 1978 to 1980.
WALTER A. EDWARDS has been Vice President and General Manager of the Baraboo
Plant since joining Perry in December 1996. From 1991 to 1995, Mr. Edwards was
employed by World Color Press as Vice President and Regional Manager. From 1974
to 1991, Mr. Edwards held a variety of positions at R.R. Donnelley &
Sons/Meredith-Burda, including Vice President, Manufacturing and Group
Manufacturing Manager.
LARRY C. COLE has been Vice President and General Manager of the Waterloo
Plant since March 1991. From January 1990 to March 1991, Mr. Cole served as Vice
President of Operations of Perry. Mr. Cole joined Perry Printing in 1988 as
Director of Materials Management. From 1977 to 1988, Mr. Cole held various plant
and manufacturing management responsibilities with Butler Manufacturing Company
of Kansas City, Missouri.
HOWARD D. SULLIVAN. Following the Acquisition, Mr. Sullivan has served as
Senior Vice President, Publication Sales of Judd's. Prior to the Acquisition,
Mr. Sullivan served as Vice President of Sales and Customer Service, Shenandoah
Valley. Mr. Sullivan joined Judd & Detweiler in 1958 and rose to the position of
Executive Vice President by 1979. He left Judd's in 1988 to serve as President
and CEO of Holliday-Tyler Printing Corporation. He returned to Shenandoah Valley
as Vice President and Regional Sales Manager in 1992.
LARRY F. CELEY has been Vice President of Eastern Region Commercial Sales of
Perry since July 1997. From 1993 to July 1997, Mr. Celey served as Senior Vice
President of Sales and Marketing. From 1986 to August 1993, Mr. Celey served as
New York Regional Vice President of Sales for Publications and Commercial Sales
of W.A. Krueger (Ringier America). From 1980 to 1986, Mr. Celey served as
Director of Sales of Lehigh Press. From 1973 to 1980, Mr. Celey served as Sales
Manager at Media General.
TIMOTHY M. SMITH has been Vice President of Publication Sales of Perry since
January 1997. Prior to assuming his current responsibilities, Mr. Smith was Vice
President of National Accounts from 1994 to
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<PAGE>
1997. Mr. Smith served as Vice President of Eastern Sales from May 1993 to 1994
and, before that, he was Director of Sales from 1990 to 1993. Mr. Smith joined
Perry in 1981 as a sales representative.
STEPHEN M. SANFELIPPO has been Vice President Central Region Commercial
Sales of Perry since October 1997. Prior to assuming his current
responsibilities, Mr. Sanfelippo served as Director of Central Region Sales from
1994 to October 1997. Mr. Sanfelippo joined Perry in 1984 as a sales
representative.
BRADLEY J. HOFFMAN was Vice President, Finance of Perry since July 1994 and
has served in that position for Perry-Judd's since the Acquisition. From
December 1992 to July 1994, Mr. Hoffman served as Controller Web
Division/Waterloo Plant. From September 1989 to December 1992, Mr. Hoffman was
Chief Financial Officer and Director of Operations at Putman Publishing Company.
From 1985 to 1989, Mr. Hoffman served as Chief Financial Officer at the American
Society for Quality Control prior to which he served as an auditor for Price
Waterhouse from January 1984 to November 1985.
JOSEPH J. JANELA. Mr. Janela has served as Vice President, Finance of Judd's
and Port City since the Acquisition. Mr. Janela previously served as Vice
President of Finance and Secretary of Judd's and as Secretary and Treasurer of
all Judd's subsidiaries. Mr. Janela joined Judd's in 1995 as Vice President of
Finance and Secretary. Prior to that, he was a partner with Stoy, Malone &
Company, P.C., a Washington, D.C. area regional accounting firm and Judd's
independent auditors prior to the Acquisition. Prior to his employment with
Stoy, Malone, Mr. Janela was a manager at M.B. Hariton & Company, CPAs and also
was a controller for a private company for two years.
DIRECTOR COMPENSATION
Non-employee directors are reimbursed for their out-of-pocket expenses
incurred in attending meetings of the Board of Directors of the Company and its
subsidiaries. In addition, Robert E. Milhous and Paul B. Milhous each receive
$25,000 annual compensation for their services as Chairman and Vice-Chairman,
respectively, of the Board of Directors of the Company and its subsidiaries.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information with
respect to the compensation paid or accrued by the Company for services rendered
during the year ended December 31, 1997 by the Company's Chief Executive Officer
and each of the four other most highly compensated executive officers whose
annual salary and bonus for the year ended December 31, 1997 exceeded $100,000
(collectively, the "Named Executive Officers"):
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<PAGE>
1997 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION(2)
---------------------------------------- -------------------------
OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS (# OF SHARES) COMPENSATION(1)
- ------------------------------------- ---------- --------- ----------------- ------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Craig A. Hutchison, ................. $ 260,097 -- -- -- $ 124(3)
PRESIDENT AND CEO
Verne F. Schmidt, ................... $ 184,615 -- -- -- $ 22,166(4)
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Walter A. Edwards, .................. $ 179,615 $ 7,500 -- -- $ 7,121(4)
VICE PRESIDENT AND DIVISION MANAGER
Larry C. Cole, ...................... $ 174,000 -- -- -- --
VICE PRESIDENT AND DIVISION MANAGER
Larry F. Celey, ..................... $ 170,014 -- -- -- --
VICE PRESIDENT, COMMERCIAL AND
CATALOG SALES (EASTERN REGION)
</TABLE>
- ------------------------
(1) The compensation described in this table does not include medical, group
life insurance or other benefits received by the Named Executive Officers
which are available generally to all salaried employees of the Company and
certain perquisites and other personal benefits, securities or property
received by the Named Executive Officers which do not exceed the lesser of
$50,000 or 10% of any such officer's salary and bonus disclosed in this
table.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights or make any long-term incentive plan payouts to the Named Executive
Officers during 1997.
(3) Consists of premiums for life and disability insurance paid by the Company
on behalf of the Named Executive Officer.
(4) Consists of relocation expenses paid by the Company.
OPTION GRANTS
The following tables sets forth certain information concerning grants of
stock options during 1997 to the Named Executive Officers:
65
<PAGE>
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------------ POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK
SECURITIES GRANTED PRICE APPRECIATION
UNDERLYING TO EXERCISE FOR OPTION TERM
OPTION EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED IN YEAR ($/SH) DATE 5% 10%
- ---------------------------------------------- ------------- ------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Craig A. Hutchinson........................... -- -- -- -- -- --
PRESIDENT AND CEO
Verne F. Schmidt.............................. 3,500(2) 100% $ 0.01 1/1/15 $ 221,078 $ 535,115
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
Walter A. Edwards............................. -- -- -- -- -- --
VICE PRESIDENT AND DIVISION MANAGER
Larry C. Cole................................. -- -- -- -- -- --
VICE PRESIDENT AND DIVISION MANAGER
Larry F. Celey................................ -- -- -- -- -- --
VICE PRESIDENT, COMMERCIAL AND CATALOG SALES
(EASTERN REGION)
</TABLE>
- ------------------------
(1) No stock appreciation rights were granted in 1997.
(2) Options are immediately exercisable, but any option shares issued on
exercise are subject to repurchase by the Company on termination of
employment at the $0.01 exercise price per share until vested. Option shares
vest (i) as to 10% on each of December 31, 1997, 1998, 1999, 2000 and 2001,
(ii) as to 15% on each of December 31, 2001 and 2002 and (iii) the remaining
20% on December 31, 2003, subject to acceleration in the years 1997-2001
based on achievement of performance goals and in certain change of control
transactions. The exercise price is $0.01 per share. Vested shares are also
subject to repurchase by the Company upon termination of employment pursuant
to a formula based on Company earnings. See "1995 Stock Option Plan."
YEAR-END OPTION TABLE
The following table sets forth certain information concerning the number and
value of unexercised stock options held by each of the Named Executive Officers
as of December 31, 1997. No stock options were exercised by any Named Executive
Officer in 1997.
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<PAGE>
AGGREGATED OPTION EXERCISES IN 1997
AND 1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-
AT THE-MONEY OPTIONS AT
YEAR-END(#)(1)(3) YEAR-END($)(2)
SHARES ACQUIRED ON ------------------------------ ------------------------------
NAME EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ------------------- ------------------- ----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Craig A. Hutchison . -- -- 8,750 -- $ 218,663(4) --
PRESIDENT AND CEO
Verne F. Schmidt ....... -- -- 3,500 -- $ 87,465(5) --
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL
OFFICER
Walter A. Edwards . -- -- 3,500 -- $ 87,465(6) --
VICE PRESIDENT AND
DIVISION MANAGER
Larry C. Cole .......... -- -- 2,625 -- $ 65,599(7) --
VICE PRESIDENT AND
DIVISION MANAGER
Larry F. Celey ......... -- -- -- -- -- --
VICE PRESIDENT,
COMMERCIAL AND
CATALOG SALES (EASTERN
REGION)
</TABLE>
- ------------------------
(1) No stock appreciation rights were outstanding or exercised in 1997.
(2) There was no public trading market for the common stock as of December 31,
1997. Accordingly, these values have been calculated on the basis of the
fair market value of the Company's Common Stock (regardless of any
restrictions thereon) immediately prior to the Acquisition as determined by
the Company's Board of Directors, less the applicable exercise price.
(3) All options are immediately exercisable but option shares issued are subject
to repurchase by the Company on termination of employment at the $0.01
exercise price until vested. Options vest (i) as to 10% on December 31 of
each of the first five calendar years commencing with December 31 of the
calendar year of the option grant, (ii) as to 15% on December 31 of each of
the next two years and (iii) the remaining 20% on December 31 of the eighth
calendar year from the issuance date subject to acceleration in the first
five calendar years after issuance based on achievement of performance goals
and in certain change of control transactions. The exercise price is $0.01
per share. Vested shares are also subject to repurchase by the Company upon
termination of employment pursuant to a formula based on Company earnings.
See "1995 Stock Option Plan."
(4) Includes $153,064 in value relating to unvested shares that are subject to
repurchase by the Company on termination of employment at the $0.01 exercise
price.
(5) Includes $78,719 in value relating to unvested shares that are subject to
repurchase by the Company on termination of employment at the $0.01 exercise
price.
(6) Includes $69,972 in value relating to unvested shares that are subject to
repurchase by the Company on termination of employment at the $0.01 exercise
price.
(7) Includes $45,919 in value relating to unvested shares that are subject to
repurchase by the Company on termination of employment at the $0.01 exercise
price.
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<PAGE>
EMPLOYMENT AGREEMENT
On April 28, 1995, Craig Hutchison entered into a three-year employment
agreement with Perry (the "Employment Agreement") to serve as President and
Chief Executive Officer of Perry. Unless terminated by written notice of either
party, the Employment Agreement renews automatically for up to five additional
one-year periods. The Employment Agreement provides for a base salary of
$235,000, subject to adjustment upward at the discretion of the Board of
Directors. Mr. Hutchison's current annual base salary is $300,000. Under the
Employment Agreement, Mr. Hutchison is entitled to participate in the Incentive
Compensation Plan (as defined below), the Stock Option Plan (as defined below)
and in all other life, welfare and health plans and benefit programs made
available by the Company to the senior executive officers of the Company.
SHAREHOLDER AGREEMENTS
Certain agreements among the shareholders of the Company, to which the
Company is also a party, provide majority shareholders proposing to sell shares
in a change of control transaction with the right to require the other
shareholders to include their shares in such sale. Conversely, minority
shareholders have the right to sell shares on a sale by majority shareholders on
a pro rata basis. In addition, the agreements provide shareholders with rights
of first refusal on proposed transfers of shares by other shareholders.
MANAGEMENT INCENTIVE COMPENSATION PLAN
The Company's management employees, including the Named Executive Officers,
are eligible to participate in the Company's Management Incentive Compensation
Program (the "Management Incentive Program"). Under the Management Incentive
Program, management employees are eligible to receive an annual cash bonus based
on the Company's achievement of financial performance targets that are based on
the Company's annual budget as approved by the Board of Directors. To date, no
bonuses have been paid under the Management Incentive Program.
1995 STOCK OPTION PLAN
On May 6, 1995, the Board of Directors of PPC Holdings adopted and the
stockholders approved the 1995 Stock Option Plan which was subsequently amended
by the Board of Directors in September 1995 (the "Stock Option Plan"), which
provides for the grant of non-statutory stock options ("Options") for the
purchase of common stock of the Company to officers and employees of and
consultants to the Company. The maximum number of shares of common stock
issuable under the Stock Option Plan is 28,000. The Stock Option Plan is
currently administered by the Board of Directors of the Company, but can be
delegated to an authorized committee thereof.
Options granted under the Stock Option Plan are "hybrid" performance
options. Options are immediately exercisable, but option shares issuable are
subject to repurchase by the Company on termination of employment at the $0.01
original exercise price until vested. Options vest as follows: 10% on December
31 of each of the first five calendar years of service commencing with December
31 of the calendar year of the option grant; 15% on December 31 of the next two
calendar years; and the remaining 20% on December 31 of the eighth calendar year
from the issuance date. Accelerated vesting of Options can occur during the
first five calendar years after issuance upon the Company's attainment of
performance milestones, determined annually by the Board of Directors. For each
year in which performance milestones are attained, 10% of the shares under the
Options shall vest on an accelerated basis, with the installments that would
vest latest under the Options being accelerated first. Outstanding Options also
accelerate upon the occurrence of a change of control of the Company, unless the
successor adopts the Stock Option Plan and does not terminate or constructively
terminate the optionholder (other than for cause) for one year following the
change of control. To date, no accelerated vesting has occurred. The
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<PAGE>
exercise price of Options under the Stock Option Plan is set at $0.01 per share,
and each Option has an 18-year term.
In addition to the right to repurchase unvested option shares described
above, under the Stock Option Plan, the Company has a right to repurchase vested
shares at a per share price based on a multiple of the Company's EBITDA less
outstanding debt. In addition, the Company is obligated to repurchase, based on
the same formula as above, any vested option shares issued or issuable under
outstanding Options at the end of their 18-year term. The Stock Option Plan also
provides that the Company has a right of first refusal on any proposed
disposition of shares acquired under an Option by sale, transfer or in
connection with a marital dissolution, which right shall lapse upon the initial
public offering of the Company's common stock.
401(K) PLAN
The Company's operating subsidiary, Perry, implemented a 401(k) Retirement
Savings Plan effective April 28, 1995 (the "401(k) Plan"). All employees 21
years of age or older employed by Perry and any affiliated company who adopts
the plan (which will, after the Acquisition, include Judd's and the former
Judd's subsidiaries) are or will be eligible to participate in the 401(k) Plan.
Participants in the 401(k) Plan may not contribute more than certain specified
amounts depending upon the employee's level of compensation. Each company
participating in the 401(k) Plan makes contributions to the 401(k) Plan equal to
3% of eligible earnings of all qualified participating employees, as determined
under the 401(k) Plan. Participating employees are 100% vested in all
contributions.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of March 31, 1998 (i) by each person
known by the Company to own beneficially more than 5% of the outstanding shares
of Common Stock, (ii) by each director and Named Executive Officer and (iii) by
all directors and executive officers of the Company as a group. Except as
otherwise listed below, the address of each person listed is c/o Perry Graphic
Communications, Inc., 575 West Madison Street, Waterloo, Wisconsin 53594.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1) AT MARCH 31,
1998
----------------------
NAME NUMBER PERCENT
- ---------------------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Ropamil Limited Partnership(2) ......................................................... 817,510 95.0%
791 Park of Commerce Drive
Boca Raton, Florida 33487
Craig A. Hutchison(3)................................................................... 17,500 2.0
David E. Glick(4)....................................................................... 11,265 1.3
Verne F. Schmidt(5)..................................................................... 3,500 *
Thomas V. Bressan....................................................................... 7,000 *
Larry C. Cole(6)........................................................................ 5,250 *
Walter A. Edwards(7).................................................................... 4,375 *
All directors and executive officers as a group (15 persons)(8)......................... 877,400 97.8%
</TABLE>
- ------------------------
* LESS THAN 1%
(1) Includes shares of Common Stock issuable upon the exercise of stock options
exerciseable within 60 days of March 31, 1998.
(2) Robert E. Milhous, a director and the Chairman of the Board of Directors of
the Company and Paul B. Milhous, a director and the Vice-Chairman of the
Board of Directors of the Company and certain affiliated entities
beneficially own the partnership interests in this partnership.
(3) Includes 8,750 shares issuable under immediately exercisable options. Of
such shares, 6,125 shares are unvested and, if issued on an exercise of the
options as of March 31, 1998, would be subject to repurchase by the Company
on termination of employment at the original $0.01 exercise price.
(4) All shares are issuable under immediately exercisable options. Of such
shares, all shares are unvested and, if issued on an exercise of the options
as of March 31, 1998, would be subject to repurchase by the Company on
termination of employment at the original $0.01 exercise price.
(5) Includes 3,500 shares issuable under immediately exercisable options. Of
such shares, 3,150 shares are unvested and, if issued on an exercise of the
options as of March 31, 1998, would be subject to repurchase by the Company
on termination of employment at the original $0.01 exercise price.
(6) Includes 2,625 shares issuable under immediately exercisable options. Of
such shares, 1,837.5 shares are unvested and, if issued on an exercise of
the options as of March 31, 1998, would be subject to repurchase by the
Company on termination of employment at the original $0.01 exercise price.
(7) Includes 3,500 shares issuable under immediately exercisable options. Of
such shares, 2,800 shares are unvested and, if issued on an exercise of the
options as of March 31, 1998, would be subject to repurchase by the Company
on termination of employment at the original $0.01 exercise price.
(8) Includes an aggregate of 36,890 shares issuable under immediately
exercisable options. Of such shares, an aggregate of 30,602.5 shares are
unvested and, if issued on an exercise of the options as of March 31, 1998,
would be subject to repurchase by the Company on termination of employment
at the original $0.01 exercise price.
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<PAGE>
CERTAIN TRANSACTIONS
Perry and Novamil Corporation, a California corporation owned beneficially
by Robert E. Milhous and Paul B. Milhous ("Novamil"), were parties to a
Management Agreement dated as of April 28, 1995 which was subsequently assigned
by Perry to Perry-Judd's and amended by Perry-Judd's and Novamil as of December
16, 1997 (the "Amended Management Agreement"). Pursuant to the Amended
Management Agreement, Novamil provides to Perry-Judd's certain management
services by agents and employees of Novamil other than Robert E. Milhous and
Paul B. Milhous in connection with business strategy, operations and finance.
Under the Amended Management Agreement, as amended, Perry-Judd's pays to Novamil
an annual management fee of $750,000 payable in equal monthly installments and
subject to annual adjustment for increases in costs of living. The Amended
Management Agreement has a term of five years from December 16, 1997, subject to
one-year extensions thereafter, unless earlier terminated upon the liquidation
or dissolution of the Company, or ten days after a party has received written
notice of a material breach where such breach remains uncured after such ten-day
period.
Pursuant to a consulting agreement dated April 28, 1995 (the "Consulting
Agreement"), Robert E. Milhous and Paul B. Milhous provided consulting services
to Perry as principals of New House Capital Management Corp., a Delaware
corporation, for which Perry pays an annual consulting fee of $450,000, payable
in equal monthly installments. The Consulting Agreement has an initial term of
five years, subject to one year extensions thereafter, unless earlier terminated
upon the liquidation or dissolution of the Company or ten days after a party has
received written notice of a material breach where such breach remains uncured
after such ten-day period. Upon consummation of the Transactions on December 16,
1997, the Consulting Agreement was assigned by Perry to Perry-Judd's.
Pursuant to a promissory note dated November 15, 1996, PPC Holdings loaned
to Thomas V. Bressan the principal amount of $175,000 at an interest rate of 7%
per annum. Principal and interest is payable in four annual installments of
$26,100 with a final payment of all principal and interest outstanding
thereafter due and payable on November 15, 2001.
Pursuant to a consulting agreement dated as of January 10, 1997, Thomas V.
Bressan provides consulting services to Perry regarding strategic planning,
acquisition analysis and structuring, financing and other significant corporate
transactions, and other business strategies. The agreement has a term of five
years, unless earlier terminated upon the liquidation or dissolution of the
Company, or ten days after a party has received written notice of a material
breach where such breach remains uncured after such ten-day period. The total
consulting fee payable under the agreement is $225,000, payable in five equal
annual installments of $45,000.
On December 16, 1997, Ropamil, an affiliate of Robert E. Milhous and Paul B.
Milhous, was issued 95,000 shares of Series A Preferred Stock of the Company in
exchange for $9.5 million in outstanding principal and interest under a certain
$6.5 million promissory note of the Company dated May 2, 1995.
On December 16, 1997, a trust of which Robert E. Milhous is trustee and a
trust of which Paul B. Milhous is the trustee each purchased an aggregate of
80,000 shares of Common Stock at a purchase price of $2.0 million.
Since May 1995, Perry has purchased a substantial portion of its total ink
requirements from Marpax, Inc. ("Marpax"). A company owned by Robert E. Milhous
and Paul B. Milhous acts as a procurement agent for Marpax in procuring the raw
materials used by Marpax in the manufacture of its ink. The Company also
purchases ink from other vendors on terms and at prices substantially the same
as those provided by Marpax. The Company expects to continue to purchase a
substantial portion of its total ink requirements from Marpax so long as it is
able to do so on terms no less favorable than those generally available from
other vendors. As a result of its relationship with Marpax, the Company believes
it has been able to improve product quality and overall services to its
customers.
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<PAGE>
DESCRIPTION OF AMENDED AND RESTATED CREDIT AGREEMENT
Concurrently with the consummation of the other Transactions, the Company
amended and restated its then-existing term loan and revolving credit facility
with BTCC and certain other lenders (the "Existing Credit Agreement"). The
Amended and Restated Credit Agreement provides Perry, Shenandoah Valley and Port
City with a $45 million Revolving Credit Facility and a $30 million Term Loan
Facility. Borrowings by any subsidiary under the Amended and Restated Credit
Agreement are guaranteed by Perry-Judd's and all of its present and future
subsidiaries. The Amended and Restated Credit Agreement has an initial term of
five years with renewals thereafter upon the mutual agreement of all parties.
The Amended and Restated Credit Agreement provides for borrowings under the
Revolving Credit Facility in the aggregate amount equal to the lesser of $45
million or an aggregate borrowing base advanced against the Company's
receivables and inventory.
The scheduled amortization of the Term Loan Facility will be payable in
monthly installments. In addition to the scheduled amortization, the Term Loan
Facility will be amortized by 75% of the annual excess cash flow with payments
to be applied in inverse order. Any remaining principal balance will be due at
the maturity of the Term Loan Facility.
Outstanding loans under the Amended and Restated Credit Agreement for the
Revolving Credit Facility will accrue interest at a variable rate per annum
equal to, at the option of the Company, either 0.75% above Bankers Trust
Company's prime rate, or 2.25% above the Eurodollar rate for the interest period
for each Eurodollar rate borrowing elected by the Company. Outstanding loans
under the Term Loan Facility will accrue interest at a variable rate per annum
equal to, at the option of the Company, either 1.25% above Bankers Trust
Company's prime rate, or 2.50% above the Eurodollar rate for the interest period
for each Eurodollar rate borrowing elected by the Company. The Company will also
pay a 2.25% per annum fee based on the average aggregate face amount of any
outstanding letter of credit and a 0.50% commitment fee on the average daily
amount of the unutilized commitment under the Revolving Credit Facility.
The Amended and Restated Credit Agreement contains representations and
warranties, affirmative and negative covenants and events of default customary
for an asset-based, working capital and term loan facility. The Amended and
Restated Credit Agreement also contains certain negative covenants that, among
other things, limit the Company's ability to sell assets, incur additional
indebtedness, incur additional liens, pay dividends, make capital expenditures,
enter into guarantees, make investments, prepay indebtedness and enter into
other transactions not in the ordinary course of business. In addition, the
Company will agree to maintain specified financial ratios and tests, including a
minimum tangible net worth test, a minimum current ratio, a minimum fixed charge
coverage ratio, a minimum interest coverage ratio, a maximum debt ratio and
other customary financial ratios all as set forth in the Amended and Restated
Credit Agreement.
The Company's obligations under the Amended and Restated Credit Agreement
are secured by a security interest in substantially all the assets of the
Company and its subsidiaries, including all of their cash and other tangible and
intangible assets, and all real property. In addition, Perry-Judd's and Judd's
have pledged as security all of their shares of capital stock in each of their
subsidiaries.
DESCRIPTION OF NOTE CONVERSION
The Company effected the Note Conversion concurrently with the consummation
of the other Transactions. In the Note Conversion, Perry-Judd's converted the
$9.5 million in outstanding principal and interest under that certain Senior
Note dated May 2, 1995 in the principal amount of $6.5 million held by
72
<PAGE>
Ropamil into 95,000 shares of Series A Preferred Stock, par value $.001 per
share (the "Series A Stock"). The rights, preferences and privileges of the
Series A Stock are as follows:
The Series A Stock bears cumulative dividends at the per annum rate of 15%
multiplied by the number of shares of Series A Stock outstanding, payable
quarterly in arrears. Dividends shall be payable in additional shares of Series
A Stock.
Upon a liquidation, dissolution or winding up of Perry-Judd's, whether
voluntary or involuntary, each holder of Series A Stock shall be entitled to
receive, in preference to any distribution of the assets or funds to the common
stockholders, the amount of $100 per share of Series A Stock held or issuable to
such holder in payment of accrued and unpaid dividends.
The Series A Stock shall be redeemable in whole or in part by Perry-Judd's
at its option at any time. In addition, all outstanding shares of Series A Stock
shall be redeemed upon the sale of all of the outstanding common stock of
Perry-Judd's, whether pursuant to a sale, merger, consolidation or other
transaction. Upon a redemption, each holder of Series A Stock shall be entitled
to receive the amount of $100 per share of Series A Stock held or issuable to
such holder in payment of accrued and unpaid dividends on the shares to be
redeemed.
The Series A Stock shall be nonvoting stock, except that holders of at least
51% of the outstanding Series A Stock must approve, by vote or written consent,
any amendment to the Company's Certificate of Incorporation which would result
in an adverse change to the rights, preferences and privileges of Series A
Stock.
The above summary of certain material terms of the Series A Stock is subject
to, and is qualified in its entirety by reference to, all of the provisions of
the Company's Restated Certificate of Incorporation.
DESCRIPTION OF SALE/LEASEBACK
On December 16, 1997, Perry and Judd's, collectively as tenant, entered into
the Sale/Leaseback whereby the printing plants at Baraboo and Waterloo, the
Company's corporate headquarters in Waterloo and three warehouse facilities in
Waterloo (each formerly owned by Perry or a wholly-owned subsidiary of Perry)
were sold to a third party for the aggregate purchase price (exclusive of fees
and costs) of $18.25 million and immediately leased back to Perry and Judd's,
collectively as the tenant. The lease has an initial term of 20 years, with an
economic abandonment buyout for one property selected by the tenant after five
years, and may be extended for three additional five year terms at the tenant's
option. Initial annual rent under the lease is approximately $1.9 million
payable quarterly in advance with 10% escalations scheduled at the start of the
sixth, eleventh and sixteenth years of the 20 year term (and a corresponding 10%
increase at the beginning of any option term). Subject to the lessor's
reasonable consent, so long as tenant is not in default under the lease and
certain other conditions are met, tenant can require the landlord to pay the
costs of expansion of the Baraboo premises, with the annual rent payable under
the lease to be increased in an amount satisfactory to the lessor. For the first
ten years of the lease, tenant shall have a right of first refusal on any
proposed sale of all of the leased properties by the lessor to a third party,
exercisable within 30 days of the tenant's receipt of the proposed sale
contract.
The net proceeds of $17.6 million from the Sale/Leaseback were being used to
prepay term debt under the Existing Credit Agreement immediately prior to the
consummation of the Transactions.
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DESCRIPTION OF EXCHANGE NOTES
The Exchange Notes will be issued under an indenture (the "Indenture"),
dated as of December 16, 1997 by and among the Company, the Subsidiary
Guarantors and U.S. Trust Company of California, N.A., as Trustee (the
"Trustee"). The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to
all of the provisions of the Indenture, including the definitions of certain
terms therein and those terms made a part of the Indenture by reference to the
TIA as in effect on the date of the Indenture. A copy of the Indenture may be
obtained from the Company or the Initial Purchaser. The definitions of certain
capitalized terms used in the following summary are set forth below under
"--Certain Definitions." For purposes of this section, references to the
"Company" include only the Company and not its Subsidiaries.
The Exchange Notes will be unsecured obligations of the Company, ranking
subordinate in right of payment to all Senior Indebtedness of the Company. The
Exchange Notes will be fully and unconditionally guaranteed, on a senior
subordinated basis, jointly and severally, by all existing and future
subsidiaries of Perry-Judd's.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Exchange Notes. The
Exchange Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without notice to
holders of the Exchange Notes (the "Holders"). The Company will pay principal
(and premium, if any) on the Exchange Exchange Notes at the Trustee's corporate
office in New York, New York. At the Company's option, interest may be paid at
the Trustee's corporate trust office or by check mailed to the registered
address of Holders. Any Exchange Notes that remain outstanding after the
completion of the Exchange Offer, together with the Exchange Notes issued in
connection with the Exchange Offer, will be treated as a single class of
securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes are limited in aggregate principal amount to
$200,000,000, of which $115,000,000 will be issued in the Offering, and will
mature on December 15, 2007. Additional amounts may be issued in one or more
series from time to time subject to the limitations set forth under
"--Covenants--Limitation on Incurrence of Additional Indebtedness" and
restrictions contained in the Credit Agreement. Interest on the Exchange Notes
will accrue at the rate of 10 5/8% per annum and will be payable semi-annually
in cash on each June 15 and December 15, commencing on June 15, 1998, to the
persons who are registered Holders at the close of business on the June 1 and
December 1 immediately preceding the applicable interest payment date. Interest
on the Exchange Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from and including the date of
issuance.
The Exchange Notes will not be entitled to the benefit of any mandatory
sinking fund.
REDEMPTION
OPTIONAL REDEMPTION. The Exchange Notes will be redeemable, at the
Company's option, in whole at any time or in part from time to time, on and
after December 15, 2002, upon not less than 30 nor more than 60 days' notice, at
the following redemption prices (expressed as percentages of the principal
amount thereof) if redeemed during the twelve-month period commencing on
December 15 of the year set forth below, plus, in each case, accrued and unpaid
interest thereon, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2002............................................................................. 105.313%
2003............................................................................. 103.542%
2004............................................................................. 101.771%
2005 and thereafter.............................................................. 100.000%
</TABLE>
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OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from time
to time, on or prior to December 15, 2000, the Company may, at its option, use
the net cash proceeds of one or more Public Equity Offerings (as defined below)
to redeem up to 35% of the aggregate principal amount of Exchange Notes
originally issued at a redemption price equal to 110.625% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
redemption; PROVIDED that at least 65% of the principal amount of Exchange Notes
originally issued remains outstanding immediately after any such redemption. In
order to effect the foregoing redemption with the proceeds of any Public Equity
Offering, the Company shall make such redemption not more than 90 days after the
receipt of proceeds of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Exchange Notes are to be redeemed at
any time, selection of such Exchange Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which such Exchange Notes are listed or, if such Exchange
Notes are not then listed on a national securities exchange, on a PRO RATA
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
PROVIDED, HOWEVER, that no Exchange Notes of a principal amount of $1,000 or
less shall be redeemed in part; PROVIDED, FURTHER, that if a partial redemption
is made with the proceeds of a Public Equity Offering, selection of the Exchange
Notes or portions thereof for redemption shall be made by the Trustee only on a
PRO RATA basis or on as nearly a PRO RATA basis as is practicable (subject to
DTC procedures), unless such method is otherwise prohibited. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each Holder of Exchange Notes to be redeemed
at its registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in a principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Exchange Notes or portions thereof called
for redemption as long as the Company has deposited with the Paying Agent funds
in satisfaction of the applicable redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Exchange Notes is subordinated in
right of payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Indebtedness. Upon any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors or marshaling of assets
of the Company or in a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding relating to the Company or its property, whether
voluntary or involuntary, all Obligations due or to become due upon all Senior
Indebtedness shall first be paid in full in cash or Cash Equivalents, or such
payment duly provided for to the satisfaction of the holders of such Senior
Indebtedness, before any payment or distribution of any kind or character is
made on account of any Obligations on the Exchange Notes, or for the acquisition
of any of the Exchange Notes for cash or property or otherwise. If any default
occurs and is continuing in the payment when due, whether at stated maturity,
upon any redemption, by declaration or otherwise, of any principal of, interest
on, unpaid drawings for letters of credit issued in respect of, or regularly
accruing fees with respect to, any Senior Indebtedness, no payment of any kind
or character shall be made by or on behalf of the Company or any other Person on
its or their behalf with respect to any Obligations on the Exchange Notes or to
acquire any of the Exchange Notes for cash or property or otherwise.
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In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Indebtedness, as such event of default is
defined in the instrument creating or evidencing such Designated Senior
Indebtedness, permitting the holders of such Designated Senior Indebtedness then
outstanding to accelerate the maturity thereof and if the Representative for the
respective issue of Designated Senior Indebtedness gives written notice of the
event of default to the Trustee (a "Default Notice"), then, unless and until all
events of default have been cured or waived or have ceased to exist or the
Trustee receives notice from the Representative for the respective issue of
Designated Senior Indebtedness terminating the Blockage Period (as defined
below), during the 180 days after the delivery of such Default Notice (the
"Blockage Period"), neither the Company nor any other Person on its behalf shall
(x) make any payment of any kind or character with respect to any Obligations on
the Exchange Notes or (y) acquire any of the Exchange Notes for cash or property
or otherwise. Notwithstanding anything herein to the contrary, in no event will
a Blockage Period extend beyond 180 days from the date the payment on the
Exchange Notes was due and only one such Blockage Period may be commenced within
any 360 consecutive days. No event of default which existed or was continuing on
the date of the commencement of any Blockage Period with respect to the
Designated Senior Indebtedness shall be, or be made, the basis for commencement
of a second Blockage Period by the Representative of such Designated Senior
Indebtedness whether or not within a period of 360 consecutive days, unless such
event of default shall have been cured or waived for a period of not less than
90 consecutive days (it being acknowledged that any subsequent action, or any
breach of any financial covenants for a period commencing after the date of
commencement of such Blockage Period that, in either case, would give rise to an
event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness,
including the Holders of the Exchange Notes, may recover less, ratably, than
holders of Senior Indebtedness.
On December 31, 1997, the aggregate amount of Senior Indebtedness was $30.0
million, including guarantees of Guarantor Senior Indebtedness.
GUARANTEES
Each Subsidiary Guarantor fully and unconditionally guarantees, on a senior
subordinated basis, jointly and severally, to each Holder and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture and
the Exchange Notes, including the payment of principal of and interest on the
Exchange Notes. The Guarantees will be subordinated to Guarantor Senior
Indebtedness on the same basis as the Exchange Notes are subordinated to Senior
Indebtedness. The obligations of each Subsidiary Guarantor are limited to the
maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Guarantee or pursuant to its contribution obligations under the Indenture,
will result in the obligations of such Subsidiary Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Subsidiary Guarantor that makes a payment or distribution of
more than its proportionate share under a Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor in an amount pro rata, based
on the net assets of each Subsidiary Guarantor, determined in accordance with
GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor that is a Wholly Owned
Restricted Subsidiary of the Company without limitation, or with other Persons
upon the terms and conditions set forth in the Indenture. See "Certain
Covenants." In the event all of the Capital Stock of a Subsidiary Guarantor is
sold by the Company and the sale complies with the provisions set forth in
"Certain Covenants--Limitation on Asset Sales," the Subsidiary Guarantor's
Guarantee will be released.
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Separate financial statements of the Subsidiary Guarantors are not included
herein because such Subsidiary Guarantors are jointly and severally liable with
respect to the Company's obligations pursuant to the Exchange Notes, and the
aggregate net assets, earnings and equity of the Subsidiary Guarantors and the
Company are substantially equivalent to the net assets, earnings and equity of
the Company on a consolidated basis.
HOLDING COMPANY STRUCTURE
The Company is a holding company for its Subsidiaries, with no operations of
its own and only limited assets other than its investments in its subsidiaries.
Accordingly, the Company is dependent upon the distribution of the earnings of
its Restricted Subsidiaries, whether in the form of dividends, advances or
payments on account of intercompany obligations, to service its debt
obligations. There can be no assurance that, after providing for all prior
claims, there would be sufficient assets available from the Company and its
Restricted Subsidiaries to satisfy the claims of the Holders of Exchange Notes.
See "Risk Factors-Holding Company Structure."
CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Exchange Notes pursuant to the offer described below
(the "Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof plus accrued interest to the date of purchase.
The Indenture will provide that, prior to the mailing of the notice referred
to below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and all other Senior Indebtedness the
terms of which require repayment upon a Change of Control or offer to repay in
full and terminate all commitments under all Indebtedness under the Credit
Agreement and all other such Senior Indebtedness and to repay the Indebtedness
owed to each lender which has accepted such offer or (ii) obtain the requisite
consents under the Credit Agreement and all other Senior Indebtedness to permit
the repurchase of the Exchange Notes as provided below. The Company shall first
comply with the covenant in the immediately preceding sentence before it shall
be required to repurchase Exchange Notes pursuant to the provisions described
below. The Company's failure to comply with the covenant described in the
immediately preceding sentence shall constitute an Event of Default described in
clause (iii) and not in clause (ii) under "Events of Default" below.
Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 45 days from the date such notice
is mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have a Note purchased pursuant to a Change of
Control 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, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Exchange Notes that might be delivered by Holders
seeking to accept the Change of Control Offer. In the event the Company is
required to purchase outstanding Exchange Notes pursuant to a Change of Control
Offer, the Company expects that it would seek third party financing to the
extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing.
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Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens on
its property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the Board of Directors of the Company. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of the
Exchange Notes, and there can be no assurance that the Company or the acquiring
party will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage any
leveraged buyout of the Company or any of its Subsidiaries by the management of
the Company. While such restrictions cover a wide variety of arrangements which
have traditionally been used to effect highly leveraged transactions, the
Indenture may not afford the Holders of Exchange Notes protection in all
circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Exchange Notes pursuant to a Change of Control Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Change of Control" provisions of the Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
The Credit Agreement will prohibit the Company from purchasing any Exchange
Notes and also provides that certain change of control events with respect to
the Company would constitute a default thereunder. Any future credit agreements
or other agreements relating to Senior Indebtedness to which the Company becomes
a party may contain similar restrictions and provisions. In the event a Change
of Control occurs at a time when the Company is prohibited from purchasing
Exchange Notes, the Company could seek the consent of its lenders to the
purchase of Exchange Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or repay
such borrowings, the Company will remain prohibited from purchasing Exchange
Notes. In such case, the Company's failure to purchase tendered Exchange Notes
would constitute an Event of Default under the Indenture, which would, in turn,
constitute a default under the Credit Agreement. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of Exchange Notes.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company may incur Indebtedness
(including, without limitation, Acquired Indebtedness) and Restricted
Subsidiaries of the Company may incur Acquired Indebtedness, in each case if on
the date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof and the application of the proceeds therefrom, the
Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to
1.0.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution
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(other than dividends or distributions payable in Qualified Capital Stock of the
Company) on or in respect of shares of the Company's Capital Stock to holders of
such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Company or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock, (c) make any
principal payment on, purchase, defease, redeem, prepay, decrease or otherwise
acquire or retire for value, prior to any scheduled final maturity, scheduled
repayment or scheduled sinking fund payment, any Indebtedness of the Company
that is subordinate or junior in right of payment to the Exchange Notes or (d)
make any Investment (other than Permitted Investments) (each of the foregoing
actions set forth in clauses (a), (b), (c) and (d) being referred to as a
"Restricted Payment"), if at the time of such Restricted Payment or immediately
after giving effect thereto, (i) a Default or an Event of Default shall have
occurred and be continuing or (ii) the Company is not able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant or (iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair market value
of such property as determined reasonably and in good faith by the Board of
Directors of the Company) shall exceed the sum of: (v) 50% of the cumulative
Consolidated Net Income (or if cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss) of the Company earned subsequent to the Issue
Date and on or prior to the date the Restricted Payment occurs (the "Reference
Date") (treating such period as a single accounting period); plus (w) 100% of
the aggregate net cash proceeds received by the Company from any Person (other
than a Subsidiary of the Company) from the issuance and sale subsequent to the
Issue Date and on or prior to the Reference Date of Qualified Capital Stock of
the Company; plus (x) without duplication of any amounts included in clause
(iii) (w) above, 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of the Company's Capital
Stock (excluding, in the case of clauses (iii) (w) and (x), any net cash
proceeds from a Public Equity Offering to the extent used to redeem the Exchange
Notes); plus (y) an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, interest payments,
repayments of loans or advances, or other transfers of cash, in each case, to
the Company or to any Wholly Owned Restricted Subsidiary of the Company from
Unrestricted Subsidiaries (but without duplication of any such amount included
in Consolidated Net Income of the Company), or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (in each case valued as
provided in the definition of "Investment"), not to exceed, in the case of an
Unrestricted Subsidiary, the amount of Investments previously made by the
Company or any Restricted Subsidiary of the Company in such Unrestricted
Subsidiary and which were treated as a Restricted Payment under the Indenture;
plus (z) $1.0 million.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any shares of Capital
Stock of the Company, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company; (3) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Exchange Notes either (i) solely in exchange for shares of
Qualified Capital Stock of the Company, or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Subsidiary
of the Company) of (A) shares of Qualified Capital Stock of the Company or (B)
Refinancing Indebtedness; (4) if no Default or Event of Default shall have
occurred and be continuing, repurchases by the Company of Common Stock of the
Company from officers, directors and employees of the Company or any of its
Subsidiaries or their authorized representatives upon the death, disability or
termination of employment of such officers, directors and employees, in an
aggregate amount not to exceed $500,000 in any calendar year plus the aggregate
cash proceeds from any reissuance during
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such calendar year of Common Stock by the Company to employees, officers or
directors of the Company and its Subsidiaries plus the aggregate cash proceeds
from any payments on life insurance policies with respect to any employees,
officers or directors of the Company and its Subsidiaries which proceeds are
used to purchase the Common Stock of the Company held by any such employees,
officers or directors; and (5) if no Default or Event or Default shall have
occurred and be continuing, the redemption at stated maturity of the existing
Class B Preferred Stock of Perry Graphic Communications, Inc. (the "Class B
Preferred Stock") and the payment of scheduled dividend payments thereon in
accordance with the terms of the Class B Preferred Stock. In determining the
aggregate amount of Restricted Payments made subsequent to the Issue Date in
accordance with clause (iii) of the immediately preceding paragraph, amounts
expended pursuant to clauses (1), (2) (ii), (4) and (5) shall be included in
such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 85% of the consideration
(other than indebtedness assumed by the purchaser in connection with such Asset
Sale and as to which there is no further recourse against the Company or the
Restricted Subsidiaries) received by the Company or the Restricted Subsidiary,
as the case may be, from such Asset Sale shall be in the form of cash or Cash
Equivalents and is received at the time of such disposition; and (iii) upon the
consummation of an Asset Sale, the Company shall apply, or cause such Restricted
Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within
365 days of receipt thereof either (A) to prepay any Senior Indebtedness and, in
the case of any Senior Indebtedness under any revolving credit facility, effect
a permanent reduction in the availability under such revolving credit facility,
(B) to make an investment in properties and assets that replace the properties
and assets that were the subject of such Asset Sale or in properties and assets
that will be used in the business of the Company and its Subsidiaries as
existing on the Issue Date or in businesses reasonably related thereto
(including investments in 100% of the equity interest in a Person that owns such
properties and assets) ("Replacement Assets"), or (C) a combination of
prepayment and investment permitted by the foregoing clauses (iii) (A) and (iii)
(B). On the 366th day after an Asset Sale or such earlier date, if any, as the
Board of Directors of the Company or of such Restricted Subsidiary determines
not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in
clauses (iii) (A), (iii) (B) and (iii) (C) of the next preceding sentence (each,
a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
which have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii) (A), (iii) (B) and (iii) (C) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or
such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a pro rata basis, that amount of Exchange Notes equal to the Net
Proceeds Offer Amount at a price equal to 100% of the principal amount of the
Exchange Notes to be purchased, plus accrued and unpaid interest thereon, if
any, to the date of purchase; PROVIDED, HOWEVER, that if at any time any
non-cash consideration received by the Company or any Restricted Subsidiary of
the Company, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash (other than interest received
with respect to any such non-cash consideration), then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant. The
Company may defer the Net Proceeds Offer until there is an aggregate unutilized
Net Proceeds Offer Amount equal to or in excess of $5,000,000 resulting from one
or more Asset Sales (at which time, the
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entire unutilized Net Proceeds Offer Amount, and not just the amount in excess
of $5,000,000, shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 85% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; PROVIDED that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Exchange Notes in whole or in part in integral multiples
of $1,000 in exchange for cash. To the extent Holders properly tender Exchange
Notes in an amount exceeding the Net Proceeds Offer Amount, Exchange Notes of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law. To the extent the
aggregate amount of the Exchange Notes tendered pursuant to the Net Proceeds
Offer is less than the Net Proceeds Offer Amount, the Company may use such
deficiency for general corporate purposes. Upon completion of such offer to
purchase, the Net Proceeds Offer Amount shall be reset at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Exchange Notes pursuant to a Net Proceeds Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
"Asset Sale" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof. The agreements governing certain outstanding Senior Indebtedness
of the Company will require that the Company and its Subsidiaries apply all
proceeds from asset sales to repay in full outstanding obligations under such
Senior Indebtedness prior to the application of such proceeds to repurchase
outstanding notes.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Company; (4) any instrument governing Acquired
Indebtedness, which encumbrance or
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restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person or the properties or assets of the Person so
acquired; (5) agreements existing on the Issue Date (including, without
limitation, the Credit Agreement) to the extent and in the manner such
agreements are in effect on the Issue Date; or (6) an agreement governing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (2), (4) or (5) above; PROVIDED,
HOWEVER, that the provisions relating to such encumbrance or restriction
contained in any such Indebtedness are no less favorable to the Company in any
material respect as determined by the Board of Directors of the Company in their
reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such clause
(2), (4) or (5).
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly Owned
Restricted Subsidiary of the Company) to own any Preferred Stock of any
Restricted Subsidiary of the Company, other than the Class B Preferred Stock and
any Preferred Stock issued as dividends as expressly provided in the terms of
the Class B Preferred Stock as in effect on the Issue Date.
LIMITATION ON LIENS. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of the Company or any of its Restricted Subsidiaries whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Exchange Notes or any
Guarantee, the Exchange Notes and such Guarantee are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and (ii)
in all other cases, the Exchange Notes are equally and ratably secured, except
for (A) Liens existing as of the Issue Date to the extent and in the manner such
Liens are in effect on the Issue Date; (B) Liens securing Senior Indebtedness
and Liens securing Guarantor Senior Indebtedness; (C) Liens securing the
Exchange Notes and the Guarantees; (D) Liens of the Company or a Wholly Owned
Restricted Subsidiary of the Company on assets of any Subsidiary of the Company;
(E) Liens securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture and
which has been incurred in accordance with the provisions of the Indenture;
PROVIDED, HOWEVER, that such Liens (i) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (ii) do not extend to
or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted
Liens.
PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED INDEBTEDNESS. The Company
will not, and will not permit any Subsidiary Guarantor to, incur or suffer to
exist Indebtedness that is expressly by its terms senior in right of payment to
the Exchange Notes or such Subsidiary Guarantor's Guarantee and subordinate in
right of payment to any other Indebtedness of the Company or such Subsidiary
Guarantor, as the case may be.
MERGER, CONSOLIDATION AND SALE OF ASSETS. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Company's Restricted Subsidiaries) whether as an entirety or substantially as an
entirety to any Person unless: (i) either (1) the Company shall be the surviving
or continuing corporation or (2) the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly
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existing under the laws of the United States or any State thereof or the
District of Columbia and (y) shall expressly assume, by supplemental indenture
(in form and substance satisfactory to the Trustee), executed and delivered to
the Trustee, the due and punctual payment of the principal of, and premium, if
any, and interest on all of the Exchange Notes and the performance of every
covenant of the Exchange Notes, the Indenture and the Registration Rights
Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i) (2) (y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction and (2) shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"--Limitation on Incurrence of Additional Indebtedness" covenant; (iii)
immediately before and immediately after giving effect to such transaction and
the assumption contemplated by clause (i) (2) (y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection with or in
respect of the transaction), no Default or Event of Default shall have occurred
or be continuing; and (iv) the Company or the Surviving Entity shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with the
applicable provisions of the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Exchange Notes with the same effect as
if such surviving entity had been named as such.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any transaction complying with the provisions
of "--Limitation on Asset Sales") will not, and the Company will not cause or
permit any Subsidiary Guarantor to, consolidate with or merge with or into any
Person other than the Company or any other Subsidiary Guarantor unless: (i) the
entity formed by or surviving any such consolidation or merger (if other than
the Subsidiary Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and existing under
the laws of the United States or any State thereof or the District of Columbia;
(ii) such entity assumes by supplemental indenture all of the obligations of the
Subsidiary Guarantor on the Guarantee; (iii) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; and (iv) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a PRO FORMA basis, the Company could
satisfy the provisions of clause (ii) of the first paragraph of this covenant.
Any merger or consolidation of a Subsidiary Guarantor with and into the Company
(with the Company being the surviving entity) or another Subsidiary Guarantor
that is a Wholly Owned Restricted Subsidiary of the Company need only comply
with clause (iv) of the first paragraph of this covenant.
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LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(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
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $500,000 shall be approved
by the Board of Directors of the Company or such Restricted Subsidiary, as the
case may be, such approval to be evidenced by a Board Resolution stating that
such Board of Directors has determined that such transaction complies with the
foregoing provisions. If the Company or any Restricted Subsidiary of the Company
enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $2,500,000, the Company or such Restricted Subsidiary, as the
case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of related transactions
to the Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Wholly Owned Restricted Subsidiaries or exclusively
between or among such Wholly Owned Restricted Subsidiaries, provided such
transactions are not otherwise prohibited by the Indenture; (iii) any agreement
as in effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous to the Holders in any material respect
than the original agreement as in effect on the Issue Date; (iv) payments of
annual fees and reimbursement of reasonable expenses to Novamil Corporation in
accordance with the provisions of the Management Agreement dated April 28, 1995,
as in effect on the Issue Date, to New House Capital Management Corp. in
accordance with the provisions of the Consulting Agreement dated April 28, 1995,
as in effect on the Issue Date and to Thomas V. Bressan in accordance with the
provisions of a consulting agreement dated January 10, 1997, as in effect on the
Issue Date; (v) payments made in accordance with the Marpax, Inc. Supply
Agreement, as in effect on the Issue Date, or any other such ink supply
agreement with Marpax entered into on terms no less favorable to the Company
than those that may reasonably have been obtained in an arm's length transaction
as determined in good faith by the Company's Board of Directors; (vi) advances
or loans to employees, officers and directors of the Company and its Restricted
Subsidiaries permitted by clauses (iv) and (v) of the definition of Permitted
Investments; and (vii) Restricted Payments permitted by the Indenture.
ADDITIONAL SUBSIDIARY GUARANTEES. If the Company or any of its Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property to any Restricted Subsidiary that
is not a Subsidiary Guarantor, or if the Company or any of its Restricted
Subsidiaries shall organize, acquire or otherwise invest in another Restricted
Subsidiary having total assets with a book value in excess of $500,000, then
such transferee or acquired or other Restricted Subsidiary shall (i) execute and
deliver to the Trustee a supplemental indenture in form reasonably satisfactory
to the Trustee pursuant to which such Restricted Subsidiary shall
unconditionally guarantee all of the Company's obligations under the Exchange
Notes and the Indenture on the terms set forth in the Indenture and (ii) deliver
to the Trustee an opinion of counsel that such supplemental indenture has been
duly authorized, executed and delivered by such Restricted Subsidiary and
constitutes a legal, valid, binding and
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enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Subsidiary Guarantor for all purposes of the
Indenture.
CONDUCT OF BUSINESS. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar, related or necessary
to the businesses in which the Company and its Restricted Subsidiaries are
engaged on the Issue Date.
REPORTS TO HOLDERS. The Indenture will provide that the Company will
deliver to the Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, which the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The
Indenture further provides that, notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA Section
314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Exchange Notes when the same becomes
due and payable and the default continues for a period of 30 days
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(ii) the failure to pay the principal on any Exchange Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Exchange
Notes tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer) (whether or not such payment shall be prohibited by the
subordination provisions of the Indenture);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying
the default (and demanding that such default be remedied) from the
Trustee or the Holders of at least 25% of the outstanding principal
amount of the Exchange Notes (except in the case of a default with
respect to the "Merger, Consolidation and Sale of Assets" covenant,
which will constitute an Event of Default with such notice requirement
but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any applicable
grace periods and any extensions thereof) the principal amount of any
Indebtedness of the Company or any Restricted Subsidiary of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has
been accelerated, aggregates $5,000,000 or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5,000,000
shall have been rendered against the Company or any of its Restricted
Subsidiaries and such judgments remain undischarged, unpaid or unstayed
for a period of 60 days after such judgment or judgments become final
and non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees ceases to be in full force and effect or any of
the Guarantees is declared to be null and void and unenforceable or any
of the Guarantees is found to be invalid or any of the
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Subsidiary Guarantors denies its liability under its Guarantee (other
than by reason of release of a Subsidiary Guarantor in accordance with
the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding
Exchange Notes may declare the principal of and accrued interest on all the
Exchange Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Credit Agreement, shall become immediately due and payable upon the first to
occur of an acceleration under the Credit Agreement or 5 business days after
receipt by the Company and the Representative under the Credit Agreement of such
Acceleration Notice. In the event of a declaration of acceleration because of an
Event of Default described in clause (iv) above has occurred and is continuing,
such declaration of acceleration shall be automatically annulled if such payment
default is cured or waived or the holders of the Indebtedness which is the
subject of such event of default have rescinded their declaration of
acceleration in respect of such Indebtedness within 60 days thereof and the
Trustee has received written notice of such cure, waiver or rescission and no
other Event of Default described in clause (iv) above has occurred that has not
been cured or waived within 60 days of the declaration of such acceleration in
respect thereof and if (i) the repayment of Indebtedness or annulment of such
acceleration, as the case may be, would not conflict with any judgment or decree
of a court of competent jurisdiction and (ii) all existing Events of Default,
except non-payment of principal or interest which have become due solely due to
such acceleration, have been cured or waived. If an Event of Default specified
in clause (vi) above with respect to the Company occurs and is continuing, then
all unpaid principal of, and premium, if any, and accrued and unpaid interest on
all of the outstanding Exchange 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.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Exchange Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the Exchange Notes
may rescind and cancel such declaration and its consequences (i) if the
rescission would not conflict with any judgment or decree, (ii) if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration, (iii) to the
extent the payment of such interest is lawful, interest on overdue installments
of interest and overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid, (iv) if the Company has paid the
Trustee its reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Exchange Notes may
waive any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any Exchange Notes.
Holders of the Exchange Notes may not enforce the Indenture or the Exchange
Notes except as provided in the Indenture and under the TIA. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Exchange Notes have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
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Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Exchange Notes ("Legal Defeasance"). Such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Exchange Notes, except
for (i) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the Exchange Notes when such payments are
due, (ii) the Company's obligations with respect to the Exchange Notes
concerning issuing temporary Exchange Notes, registration of Exchange Notes,
mutilated, destroyed, lost or stolen Exchange Notes and the maintenance of an
office or agency for payments, (iii) the rights, powers, trust, duties and
immunities of the Trustee and the Company's obligations in connection therewith
and (iv) the Legal Defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to have the obligations of the
Company released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Exchange Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, reorganization and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders cash in U.S. dollars, non-callable 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 on the Exchange Notes on the stated
date for payment thereof or on the applicable redemption date, as the case may
be; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
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; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
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;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others; (vii) the Company shall have delivered to
the Trustee an officers' certificate and an
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opinion of counsel, each stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with; (viii) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that (A) the trust funds will not be subject to any rights
of holders of Senior Indebtedness, including, without limitation, those arising
under the Indenture and (B) after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (ix) certain other customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Exchange Notes, as expressly provided for in the Indenture) as to all
outstanding Exchange Notes when (i) either (a) all the Exchange Notes
theretofore authenticated and delivered (except lost, stolen or destroyed
Exchange Notes which have been replaced or paid and Exchange Notes for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust) have been delivered to the Trustee for cancellation or (b) all
Exchange Notes not theretofore delivered to the Trustee for cancellation have
become due and payable and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire Indebtedness on the Exchange Notes not theretofore delivered to the
Trustee for cancellation, for principal of, premium, if any, and interest on the
Exchange Notes to the date of deposit together with irrevocable instructions
from the Company directing the Trustee to apply such funds to the payment
thereof at maturity or redemption, as the case may be; (ii) the Company has paid
all other sums payable under the Indenture by the Company; and (iii) the Company
has delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Subsidiary Guarantors and the Trustee,
without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies, so
long as such change does not, in the opinion of the Trustee, adversely affect
the rights of any of the Holders in any material respect. In formulating its
opinion on such matters, the Trustee will be entitled to rely on such evidence
as it deems appropriate, including, without limitation, solely on an opinion of
counsel. Other modifications and amendments of the Indenture may be made with
the consent of the Holders of a majority in principal amount of the then
outstanding Exchange Notes issued under the Indenture, except that, without the
consent of each Holder affected thereby, no amendment may: (i) reduce the amount
of Exchange Notes whose Holders must consent to an amendment; (ii) reduce the
rate of or change or have the effect of changing the time for payment of
interest, including defaulted interest, on any Exchange Notes; (iii) reduce the
principal of or change or have the effect of changing the fixed maturity of any
Exchange Notes, or change the date on which any Exchange Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Exchange Notes payable in money other than that stated in the
Exchange Notes; (v) make any change in provisions of the Indenture protecting
the right of each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such payment,
or permitting Holders of a majority in principal amount of Exchange Notes to
waive Defaults or Events of Default; (vi) amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate a
Net Proceeds Offer with respect to any Asset Sale that has been consummated or
modify any of the provisions or definitions with respect thereto; (vii) modify
or change any provision of the Indenture or the related definitions affecting
the subordination or ranking of the Exchange Notes or any Guarantee in a manner
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which adversely affects the Holders; or (viii) release any Subsidiary Guarantor
from any of its obligations under its Guarantee or the Indenture otherwise than
in accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture will provide that it, the Exchange Notes and the Guarantees
will be governed by, and construed in accordance with, the laws of the State of
New York but 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.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; PROVIDED that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"ASSET ACQUISITION" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary
of the Company, or shall be merged with or into the Company or any Restricted
Subsidiary of the Company, or (b) the acquisition by the Company or any
Restricted Subsidiary of the Company of the assets of any Person (other than a
Restricted Subsidiary of the Company) which constitute all or substantially all
of the assets of such Person or comprises 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 direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by
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the Company or any of its Restricted Subsidiaries (including any Sale and
Leaseback Transaction) to any Person other than the Company or a Wholly Owned
Restricted Subsidiary of the Company of (a) any Capital Stock of any Restricted
Subsidiary of the Company; or (b) any other property or assets of the Company or
any Restricted Subsidiary of the Company other than in the ordinary course of
business; PROVIDED, HOWEVER, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration of less than $500,000
and (ii) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted under "Merger,
Consolidation and Sale of Assets."
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"BORROWING BASE" means the sum of (i) 85% of the net book value (after
allowance for doubtful accounts) of accounts receivable (other than intercompany
receivables) of the Company and the Restricted Subsidiaries arising in the
ordinary course of business from the sale of products sold by the Company and
the Restricted Subsidiaries or the provision of services by the Company and the
Restricted Subsidiaries and (ii) 60% of the net book value (after appropriate
write-downs of obsolescence, quality problems and the like) of inventories of
the Company and the Restricted Subsidiaries held in the ordinary course of
business, in each case on a consolidated basis with Restricted Subsidiaries in
accordance with generally accepted accounting principles.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the Obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such Obligations at any date shall be the capitalized amount of
such Obligations at such date, determined in accordance with GAAP.
"CAPITAL STOCK" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"CASH EQUIVALENTS" means (i) 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; (ii)
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"); (iii) 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-1 from S&P or at least P-1 from Moody's; (iv)
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 U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) 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 any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all
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of the assets of the Company to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group"), together with any
Affiliates thereof (whether or not otherwise in compliance with the provisions
of the Indenture); (ii) the approval by the holders of Capital Stock of the
Company of any plan or proposal for the liquidation or dissolution of the
Company (whether or not otherwise in compliance with the provisions of the
Indenture); (iii) any Person or Group (other than the Permitted Holders) shall
become the owner, directly or indirectly, beneficially or of record, of shares
representing more than 50% of the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock of the Company; or (iv) the replacement
of a majority of the Board of Directors of the Company over a two-year period
from the directors who constituted the Board of Directors of the Company at the
beginning of such period, and such replacement shall not have been approved by a
vote of at least a majority of the Board of Directors of the Company then still
in office who either were members of such Board of Directors at the beginning of
such period or whose election as a member of such Board of Directors was
previously so approved.
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent
Consolidated Net Income has been reduced thereby, (A) all income taxes of such
Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period (other than income taxes attributable to extraordinary, unusual
or nonrecurring gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business), (B) Consolidated Interest Expense and
(C) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for such Person and its Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a PRO
FORMA basis for the period of such calculation to (i) the incurrence of any
Indebtedness of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence of Indebtedness in the ordinary
course of business for working capital purposes pursuant to working capital
facilities, occurring during the Four Quarter Period or at any time subsequent
to the last day of the Four Quarter Period and on or prior to the Transaction
Date, as if such incurrence (and the application of the proceeds thereof)
occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or
Asset Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of such Person or one of
its Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expenses and cost reductions
calculated on a basis consistent with Regulation S-X under the Securities Act in
effect on the Issue Date) (provided that such Consolidated EBITDA shall be
included only to the extent includable pursuant to the definition of
"Consolidated Net Income") attributable to the assets which are the subject of
the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such Asset
Sale or Asset Acquisition (including the incurrence, assumption or liability for
any such Acquired
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Indebtedness) occurred on the first day of the Four Quarter Period. If such
Person or any of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or any Restricted
Subsidiary of such Person had directly incurred or otherwise assumed such
guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed
Charges" for purposes of determining the denominator (but not the numerator) of
this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding
Indebtedness determined on a fluctuating basis as of the Transaction Date and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements. Any Indebtedness repaid out of the proceeds of Indebtedness
properly incurred under the Indenture during any Four Quarter Period shall be
deemed to have been repaid on the first day of such Four Quarter Period.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs, (b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and (d) the interest portion of any deferred
payment obligation; and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains, (c) the net
income of any Person acquired in a "pooling of interests" transaction accrued
prior to the date it becomes a Restricted Subsidiary of the referent Person or
is merged or consolidated with the referent Person or any Restricted Subsidiary
of the referent Person, (d) the net income (but not loss) of any Restricted
Subsidiary of the referent Person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is restricted by a contract, operation of law or otherwise, (e) the net income
of any Person, other than a Restricted Subsidiary of the referent Person, except
to the extent of cash dividends or distributions paid to the referent Person or
to a Wholly Owned Restricted Subsidiary of the referent Person by such Person,
(f) any restoration to income of any contingency reserve, except to the extent
that provision for such reserve was made out of Consolidated Net Income accrued
at any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
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"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"CREDIT AGREEMENT" means the Amended and Restated Credit Agreement dated as
of the Issue Date, among Perry Graphic Communications, Inc., Shenandoah Valley
Press, Inc. and Port City Press, Inc. as borrowers, the Company and the
Subsidiary Guarantors as guarantors, the lenders party thereto in their
capacities as lenders thereunder and BT Commercial Corporation, as agent,
together with the related documents thereto (including, without limitation, any
promissory notes, letters of credit, guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (PROVIDED that such increase in borrowings is
permitted by the "Limitation on Incurrence of Additional Indebtedness" covenant
above) or adding Restricted Subsidiaries of the Company as additional borrowers
or guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"DESIGNATED SENIOR INDEBTEDNESS" means (i) Indebtedness under or in respect
of the Credit Agreement and (ii) any other Indebtedness constituting Senior
Indebtedness or Guarantor Senior Indebtedness which, at the time of
determination, has an aggregate principal amount of at least $25,000,000 and is
specifically designated in the instrument evidencing such Senior Indebtedness as
"Designated Senior Indebtedness" by the Company or by a Subsidiary Guarantor."
"DISQUALIFIED CAPITAL STOCK" means that portion of 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 (other than
upon the sale (by merger or otherwise) of all of the Common Stock of the
Company), matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Exchange Notes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Person making such
determination acting reasonably and in good faith and shall be evidenced by a
Board Resolution of the Board of Directors of such Person delivered to the
Trustee.
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"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 may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"GUARANTOR SENIOR INDEBTEDNESS" means with respect to any Subsidiary
Guarantor, the principal of, premium, if any, and interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of a
Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Guarantee of such Subsidiary Guarantor.
Without limiting the generality of the foregoing, "Guarantor Senior
Indebtedness" shall also include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all other amounts owing in respect of, (x) all monetary obligations of every
nature of the Company under the Credit Agreement, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities, (y) all Interest Swap
Obligations and (z) all obligations under Currency Agreements, in each case
whether outstanding on the Issue Date or thereafter incurred. Notwithstanding
the foregoing, "Guarantor Senior Indebtedness" shall not include (i) any
Indebtedness of such Subsidiary Guarantor to a Restricted Subsidiary of such
Subsidiary Guarantor or any Affiliate of such Subsidiary Guarantor or any of
such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of,
any shareholder, director, officer or employee of such Subsidiary Guarantor or
any Restricted Subsidiary of such Subsidiary Guarantor (including, without
limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services, (iv) Indebtedness represented by Disqualified Capital
Stock, (v) any liability for federal, state, local or other taxes owed or owing
by such Subsidiary Guarantor, (vi) Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of Additional
Indebtedness," (vii) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of such
Subsidiary Guarantor.
"INDEBTEDNESS" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations of such Person under any title
retention agreement (but excluding trade accounts payable and other accrued
liabilities arising in the ordinary course of business that are not overdue by
90 days or more or are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted), (v) all Obligations of such
Person for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (vi) guarantees and other contingent
Obligations of such Person in respect of Indebtedness referred to in clauses (i)
through (v) above and clause (viii) below, (vii) all Obligations of any other
Person of the type referred to in clauses (i) through (vi) which are secured by
any lien on any property or asset of such Person, the amount of such Obligation
being deemed to be the lesser of the fair market value of such property or asset
or the amount of the Obligation so secured, (viii) all Obligations of such
Person under currency agreements and interest swap agreements of such Person and
(ix) all Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to the
book value of such Disqualified Capital Stock. For purposes hereof, the amount
outstanding at any time of any Indebtedness with original issue
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discount is the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP.
"INDEPENDENT FINANCIAL ADVISOR" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"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 or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in the
ordinary course of business. For the purposes of the "Limitation on Restricted
Payments" covenant, (i) "Investment" shall include and be valued at the fair
market value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall
exclude the fair market value of the net assets of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary and (ii) the amount of any Investment shall be the original cost of
such Investment plus the cost of all additional Investments by the Company or
any of its Restricted Subsidiaries, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment, reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; PROVIDED that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
"ISSUE DATE" means the date of original issuance of the Exchange Notes.
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"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
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) cash 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 the Company or any Restricted Subsidiary, as the case
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may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, 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.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED HOLDER" means Ropamil Limited Partnership, Robert E. Milhous,
Paul B. Milhous and their Affiliates.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(i) Indebtedness incurred on the Issue Date under the Exchange Notes,
the Indenture and the Guarantees, and Indebtedness and Guarantees of such
Indebtedness under the Indenture properly incurred in accordance with the
"Certain Covenants--Limitation on Incurrence of Additional Indebtedness"
covenant;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed (A) $30
million with respect to the Indebtedness under the Term Loan Facility, less
the amount of all mandatory principal payments actually made by the Company
in respect of the Term Loan Facility (excluding any such payments to the
extent Refinanced at the time of payment under a replaced Credit Agreement)
and (B) with respect to Indebtedness under the Revolving Credit Facility,
the greater of $45 million in the aggregate or the Borrowing Base; PROVIDED,
HOWEVER, that the aggregate amount of Indebtedness under clause (A) shall be
reduced by any required permanent repayment pursuant to the provisions set
forth under "Certain Covenants-- Limitation on Asset Sales";
(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Restricted Subsidiaries and Interest Swap
Obligations of any Restricted Subsidiary of the Company covering
Indebtedness of such Restricted Subsidiary; PROVIDED, HOWEVER, that such
Interest Swap Obligations are entered into to protect the Company and its
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(v) Indebtedness under Currency Agreements; PROVIDED that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company
to the Company or to a Wholly Owned Restricted Subsidiary of the Company for
so long as such Indebtedness is held by the Company or a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien held
by a Person other than the Company or a Wholly Owned Restricted Subsidiary
of the Company; PROVIDED that if as of any date any Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds
any such Indebtedness or holds a Lien in respect of such Indebtedness, such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of such Indebtedness;
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(vii) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary
of the Company for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien;
PROVIDED that (a) any Indebtedness of the Company to any Wholly Owned
Restricted Subsidiary of the Company is unsecured and subordinated, pursuant
to a written agreement, to the Company's obligations under the Indenture and
the Exchange Notes and (b) if as of any date any Person other than a Wholly
Owned Restricted Subsidiary of the Company owns or holds any such
Indebtedness or any Person holds a Lien in respect of such Indebtedness,
such date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; PROVIDED, HOWEVER, that such Indebtedness is
extinguished within two business days of incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness;
(xi) Purchase money obligations incurred to fund progress payments in
connection with the lease of equipment in the ordinary course of business.
(xii) Capitalized Lease Obligations and Purchase Money Indebtedness of
the Company and its Restricted Subsidiaries incurred in the ordinary course
of business not to exceed $5.0 million at any one time outstanding; and
(xiii) additional Indebtedness of the Company in an aggregate principal
amount not to exceed $10.0 million at any one time outstanding.
"PERMITTED INVESTMENTS" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Wholly Owned Restricted Subsidiary of the
Company or that will merge or consolidate into the Company or a Wholly Owned
Restricted Subsidiary of the Company, (ii) Investments in the Company by any
Restricted Subsidiary of the Company; PROVIDED that any Indebtedness evidencing
such Investment is unsecured and subordinated, pursuant to a written agreement,
to the Company's obligations under the Exchange Notes and the Indenture; (iii)
Investments in cash and Cash Equivalents; (iv) loans and advances to employees,
officers and directors of the Company and its Restricted Subsidiaries in the
ordinary course of business for bona fide business purposes not in excess of
$1.0 million at any one time outstanding; (v) loans to employees, officers and
directors of the Company and its Restricted Subsidiaries to finance the purchase
of Qualified Capital Stock of the Company not to exceed $2.5 million at any one
time outstanding; (vi) Currency Agreements and Interest Swap Obligations entered
into in the ordinary course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the Indenture; (vii) Investments in
Unrestricted Subsidiaries not to exceed $2.5 million at any one time
outstanding; (viii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (ix) Investments
made by the Company or its Restricted Subsidiaries as a result of consideration
received in connection with an Asset Sale made in compliance with the
"Limitation on Asset Sales" covenant; and (x) additional Investments not to
exceed $2.5 million at any one time outstanding.
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"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or
any of its Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; PROVIDED that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;
(vii) purchase money Liens to finance property or assets of the Company
or any Restricted Subsidiary of the Company acquired in the ordinary course
of business; PROVIDED, HOWEVER, that (A) the related Purchase Money
Indebtedness shall not exceed the cost of such property or assets and shall
not be secured by any property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets so acquired and
(B) the Lien securing such Indebtedness shall be created within 90 days of
such acquisition;
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements; and
(xiii) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant; PROVIDED
that (A) such Liens secured such
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Acquired Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company and were not granted in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company and (B) such Liens do not extend to or cover any
property or assets of the Company or of any of its Restricted Subsidiaries
other than the property or assets that secured the Acquired Indebtedness
prior to the time such Indebtedness became Acquired Indebtedness of the
Company or a Restricted Subsidiary of the Company and are no more favorable
to the lienholders than those securing the Acquired Indebtedness prior to
the incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company.
"PERSON" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"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.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"REFINANCE" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (xi) or (xii) of
the definition of Permitted Indebtedness), in each case that does not (1) result
in an increase in the aggregate principal amount of Indebtedness of such Person
as of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
in connection with such Refinancing) or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being Refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being Refinanced; PROVIDED that (x)
if such Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Exchange
Notes, then such Refinancing Indebtedness shall be subordinate to the Exchange
Notes at least to the same extent and in the same manner as the Indebtedness
being Refinanced.
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; PROVIDED that
if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior Indebtedness
shall at all times constitute the holders of a majority in outstanding principal
amount of such Designated Senior Indebtedness in respect of any Designated
Senior Indebtedness or such lesser percentage as shall be permitted to act on
behalf of the holders of such Designated Senior Indebtedness pursuant to the
instrument governing such Designated Senior Indebtedness.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"REVOLVING CREDIT FACILITY" means one or more revolving credit facilities
under the Credit Agreement.
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"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate PROVIDED for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Exchange Notes. Without limiting the
generality of the foregoing, "Senior Indebtedness" shall also include the
principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate PROVIDED for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in respect
of, (x) all monetary obligations of every nature of the Company under the Credit
Agreement, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all obligations under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Indebtedness" shall
not include (i) any Indebtedness of the Company to a Subsidiary of the Company
or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii)
Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer
or employee of the Company or any Subsidiary of the Company (including, without
limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services, (iv) Indebtedness represented by Disqualified Capital
Stock, (v) any liability for federal, state, local or other taxes owed or owing
by the Company, (vi) Indebtedness incurred in violation of the Indenture
provisions set forth under "Limitation on Incurrence of Additional
Indebtedness," (vii) Indebtedness which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of the
Company.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule 1.02(w) of
Regulation S-X under the Securities Act.
"SUBSIDIARY", with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"SUBSIDIARY GUARANTOR" means (i) each of the Company's Restricted
Subsidiaries as of the Issue Date and (ii) each of the Company's Restricted
Subsidiaries that in the future executes a supplemental indenture in which such
Restricted Subsidiary agrees to be bound by the terms of the Indenture as a
Subsidiary Guarantor; PROVIDED that any Person constituting a Subsidiary
Guarantor as described above shall cease to constitute a Subsidiary Guarantor
when its respective Guarantee is released in accordance with the terms of the
Indenture.
"TERM LOAN FACILITY" means one or more term loan facilities under the Credit
Agreement.
"UNRESTRICTED SUBSIDIARY" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner PROVIDED below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
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Board of Directors of such Person may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; PROVIDED that (x) the
Company certifies to the Trustee that such designation complies with the
"Limitation on Restricted Payments" covenant and (y) each Subsidiary to be so
designated and each of its Subsidiaries has not at the time of designation, and
does not thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant to which
the lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving
effect to such designation, the Company is able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
the "Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The discussion set forth in this summary is based on the provisions of the
Internal Revenue Code of 1986, as amended, final, temporary and proposed
Treasury regulations thereunder ("Treasury Regulations"), and administrative and
judicial interpretations thereof, all as in effect on the date hereof and all of
which are subject to change (possibly on a retroactive basis). Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could affect the tax consequences to holders of Senior Notes.
This summary is for general information only and does not purport to address
all of the federal income tax consequences that may be applicable to a holder of
Senior Notes. The tax treatment of a holder of Senior Notes may vary depending
on its particular situation. For example, certain holders, including individual
retirement and other tax-deferred accounts, insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations and
individuals who are not citizens or residents of the United States, may be
subject to special rules not discussed below. In addition, this discussion
addresses the tax consequences to the initial holders of the Senior Notes and
not the tax consequences to subsequent transfers of the Senior Notes.
EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL
INCOME TAX CONSEQUENCES SET FORTH BELOW AND ANY OTHER FEDERAL, STATE, LOCAL, OR
FOREIGN TAX CONSEQUENCES OF EXCHANGING OUTSTANDING NOTES FOR EXCHANGE NOTES AND
OF HOLDING AND DISPOSING OF THE EXCHANGE NOTES.
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EXCHANGE OFFER
Under Section 1001 of the Code modifications in debt instruments may in
certain cases be deemed to constitute a taxable exchange of the existing debt
instrument for a new debt instrument. The Internal Revenue Service (the "IRS")
has issued Regulations providing rules for determining when a modification of a
debt instrument constitutes a taxable exchange. Because the terms of the
Exchange Notes do not modify significantly the terms of the Outstanding Notes,
each Exchange Note will be viewed as a continuation of the corresponding
Outstanding Note, the issuance of the Exchange Note will be disregarded for
federal income tax purposes, and a holder exchanging an Old note for an Exchange
Note (as well as a non-exchanging holder) will not recognize any gain or loss as
a result of the Exchange (or the Exchange Offer).
STATED INTEREST
A holder of an Exchange Note will be required to report as income for
federal income tax purposes interest earned on an Exchange Note in accordance
with the holder's method of tax accounting. A holder of an Exchange Note using
the accrual method of accounting for tax purposes is, as a general rule,
required to include interest in ordinary income as such interest accrues, while
a cash basis holder must include interest income when cash payments are received
(or made available for receipt) by such holder.
ORIGINAL ISSUE DISCOUNT
If the Exchange Notes are issued with original issue discount ("OID") within
the meaning of Sections 1272 and 1273 of the Code and the pertinent Treasury
Regulations, holders of the Exchange Notes generally will be required to include
such OID in gross income as it accrues in advance of the receipt of the cash
attributable to such income. The total amount of OID with respect to each
Exchange Note will be any excess of its "stated redemption price at maturity"
over its "issue price"; provided that an Exchange Note will not be deemed to
have OID if such excess is less than 1/4 of 1% of the Exchange Note's stated
redemption price at maturity multiplied by the number of complete years to its
maturity from its issue date. The "issue price of an Exchange Note will be equal
to its fair market value when issued. The "stated redemption price at maturity"
of an Exchange Note is the sum of all payments provided by the Exchange Note
other than "qualified stated interest" payments. The term "qualified stated
interest" generally means stated interest that is unconditionally payable in
cash or property (other than debt instruments of the issuer) at least annually
at a single fixed rate.
A holder of an Exchange Note must include OID income for federal income tax
purposes as it accrues under a "constant yield method" in advance of receipt of
cash payments attributable to such income, regardless of such holder's method of
accounting for tax purposes. The Company will furnish to the IRS and to record
holders of the Exchange Notes information with respect to the OID, if any,
accruing during the calendar year (as well as interest paid during that year).
SALE, EXCHANGE, OR REDEMPTION OF A NOTE
Upon the sale, exchange (other than pursuant to the Exchange as discussed
above), or redemption of a Senior Note, a holder will recognize taxable gain or
loss equal to the difference between (i) the amount of cash and the fair market
value of property received (other than amounts received attributable to interest
not previously taken into account, which amount will be treated as interest
received), and (ii) the holder's adjusted tax basis in the Senior Note. A
holder's adjusted tax basis in a Senior Note generally will equal the cost of
the Senior Note to the holder, increased by the amount of any OID previously
included in income by the older with respect to the Senior Note and reduced by
any payments previously received by the older with respect to the Senior Note,
other than qualified stated interest payments, and by any premium amortization
deductions previously claimed by the holder. Provided the Senior Note is a
capital asset in the
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hands of the holder and has been held for more than one year, any gain or loss
recognized by the holder will generally be a long-term capital gain or loss.
BACKUP WITHHOLDING
Under the backup withholding rules, a holder of a Senior Note may be subject
to a backup withholding at the rate of 31% on interest paid on the Senior Note
or on any other cash payment with respect to the sale or redemption of the
Senior Note, unless (i) such holder is a corporation or comes under certain
other exempt categories and when required demonstrates this fact or (ii) such
holder provides a correct taxpayer identification number, certifies as to no
loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules in the Treasury
Regulations. Prospective holders of the Senior Notes (who have not previously
furnished a Form W-9 with respect to the Outstanding Notes) will be required to
complete a Form W-9 in order to provide the required information to the Company.
A holder of a Senior Note who does not provide the Company with the holder's
correct taxpayer identification number may be subject to penalties imposed by
the IRS.
The Company will report to the holders of the Senior Notes and to the IRS
the amount of any "reportable payments" for each calendar year and the amount of
tax withheld, if any, with respect to payments on the Senior Notes.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against the holder's federal income tax liability, provided
that the required information is furnished to the IRS.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER SHOULD
CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE
EXCHANGE, OWNERSHIP, AND DISPOSITION OF THE SENIOR NOTES (INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS).
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale for a period of 180 days from the date of
this Prospectus, or such shorter period as will terminate when all Outstanding
Notes acquired by broker-dealers for their own account as a result of
market-making activities or other trading activities have been exchanged for
Exchange Notes and resold by such broker-dealers.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own accounts
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market or, in negotiated transactions or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such 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 such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it 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
such
103
<PAGE>
resale or Exchange Notes and any commissions or concessions received by any such
persons may be deemed 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.
For a period of 180 days from the date of this Prospectus, or such shorter
period as will terminate when all Outstanding Notes acquired by broker-dealers
for their own accounts as a result of market-making activities or other trading
activities have been exchanged for Exchange Notes and resold by such
broker-dealers, the Company will promptly send additional copies of this
Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal. The
Company has agreed to indemnify such broker-dealers against certain liabilities,
including liabilities under the Securities Act.
TRANSFER RESTRICTIONS
Unless and until an Outstanding Note is exchanged for an Exchange Note
pursuant to the Exchange Offer, it will bear a legend substantially to the
following effect unless otherwise agreed by the Company and the holder thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL
NOT PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS
SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER
THEREOF OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN
"ACCREDITED INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL
GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER
OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS
SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER
MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE ISSUER SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE
104
<PAGE>
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
BOOK-ENTRY; DELIVERY AND FORM
The Outstanding Notes were initially, and the Exchange Notes will be
represented by the Global Notes deposited with the Trustee as custodian for DTC
and registered in the name of a nominee of DTC on December 16, 1997 (except for
such Outstanding Notes or Exchange Notes, if any, that are issued in
certificated form as described below).
Senior Notes (i) originally purchased by or transferred to "foreign
purchasers" (which term shall include purchasers other than U.S. persons
purchasing Senior Notes outside the U.S., including dealers or other
professional fiduciaries in the U.C. acting on a discretionary basis for foreign
beneficial owners (other than an estate or trust) in reliance upon Regulation S
under the Securities Act) or (ii) held by QIBs or Accredited Investors who are
not QIBs who elect to take physical delivery of their certificates instead of
holding their interests through the Global Notes (and which are thus ineligible
to trade through DTC) (collectively referred to herein as the "Non-Global
Purchasers") will be issued in registered form (the "Certificated Security").
Upon the transfer to a QIB of any Certificated Security initially issued to a
Non-Global Purchaser, such Certificated Security will, unless the transferee
requests otherwise or the Global Note has previously been exchanged in whole for
Certificated Securities, be exchanged for an interest in the Global Note.
THE GLOBAL NOTES. Pursuant to procedures established by DTC (i) upon the
issuance of the Global Notes, DTC or its custodian credited, and, upon the
issuance of Exchange Notes in the Exchange Offer, will credit on its internal
system, the principal amount of Senior Notes of the individual beneficial
interests represented by such Global Notes to the respective accounts of persons
who have accounts with such depositary and (ii) ownership of beneficial
interests in the Global Notes will be shown on, and the transfer of such
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Ownership of beneficial interests in the Global Notes will be limited to persons
who have accounts with DTC ("participants") or persons who hold interests
through participants. QIBs and Accredited Investors may hold their interests in
the Global Notes directly through DTC if they are participants in such system,
or indirectly through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Senior Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Senior Notes represented by such Global Notes for
all purposes under the Indenture. No beneficial owner of an interest in the
Global Notes will be able to transfer that interest except in accordance with
DTC's procedures, in addition to those provided for under the Indenture with
respect to the Senior Notes.
Payments of the principal of, premium (if any), interest (including
Additional Interest) on, the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest (including Additional Interest) on the
Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
the Global Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
105
<PAGE>
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Senior Notes to persons
in states which require physical delivery of the Senior Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Senior Notes (including the presentation of Senior Notes
for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Notes are credited
and only in respect of such portion of the aggregate principal amount of Senior
Notes as to which such participant or participants has or have given such
direction. However, if there is an Event of Default under the Indenture, DTC
will exchange the Global Notes for Certificated Securities, which, it will
distribute to its participants and which, if applicable, will be legended as set
forth under the heading "Transfer Restrictions."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Notes and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Note, which certificates, if applicable, will bear
the legends referred to under the heading "Transfer Restrictions."
LEGAL MATTERS
The validity of the issuance of Exchange Notes offered by Perry-Judd's
Incorporated hereunder and the issuance of the Guarantees offered by Perry
Graphic Communications, Inc. and Judd's Online, Inc. hereunder will be passed
upon for those companies by Brobeck, Phleger & Harrison LLP, Los Angeles,
California. The validity of the issuance of the Guarantees offered by Judd's
Incorporated, Port City Press, Inc. and Judd & Detweiler, Inc. hereunder will be
passed upon for those companies by Berliner, Corcoran & Rowe, L.L.P.,
Washington, D.C. The validity of the issuance of the Guarantees offered by
Shenandoah Valley Press, Inc. and Mount Jackson Press, Inc. will be passed upon
for those companies by Mackall, MacKall & Gibb A Professional Corporation,
Fairfax, Virginia.
EXPERTS
The consolidated financial statements of Perry-Judd's Incorporated and the
Predecessor subsidiary as of December 31, 1997, 1996 and for the 248 day period
ended December 31, 1995 and the statements of
106
<PAGE>
operations and cash flows for the Predecessor subsidiary for the period January
1, 1995 to April 27, 1995, and the consolidated financial statements of Judd's
Incorporated for the 349 day period ended December 15, 1997 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the Registration
Statement (which reports express unqualified opinions and which report with
respect to Perry-Judd's includes an explanatory paragraph referring to certain
indemnity claims), and has been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Judd's, Incorporated and
Subsidiaries as of December 31, 1996 and for each of the two years in the period
then ended included in this Prospectus have been audited by Stoy, Malone &
Company, P.C., independent auditors, as stated in their report appearing herein,
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company and the Subsidiary Guarantors have filed jointly with the SEC a
Registration Statement on Form S-4 under the Securities Act, with respect to the
Exchange Notes offered by this Prospectus. For the purposes hereof, the term
"Registration Statement" means the original Registration Statement and any and
all amendments thereto. This Prospectus does not contain all of the information
set forth in the Registration Statement and the schedules and exhibits thereto,
to which reference hereby is made. Each statement made in this Prospectus
concerning a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete statement
of its provisions. Any interested party may inspect the Registration Statement
and its exhibits, without charge, at the public reference facilities of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at its regional office at 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th
Floor, New York, New York 10007. Any interested party may obtain copies of all
or any portion of the Registration Statement and its exhibits at prescribed
rates from the Public Reference Section of the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington DC
20549.
Following the effective date of the Registration Statement, the Company will
be subject to the periodic reporting and other information requirements of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") pursuant to
Section 15(d) thereof. The Company has agreed that, whether or not it is
required to do so by the rules and regulations of the Commission, for so long as
any of the Senior Notes remain outstanding, it will furnish to the holders of
the Senior Notes and to the extent permitted by applicable law or regulation,
file with the Commission following the consummation of the Exchange Offer (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
was required to file such forms, including for each a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by the Company's independent
auditors and (ii) all reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports. All
reports filed with the Commission will be available on the Commission's web site
at http:\\www.sec.gov. In addition, for so long as any of the Senior Notes
remain outstanding, the Company has agreed to make available to any prospective
purchaser of the Senior Notes or beneficial owner of the Senior Notes, in
connection with any sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act.
107
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Deloitte & Touche LLP, Independent Auditors..................................................... F-3
PERRY-JUDD'S INCORPORATED:
Consolidated Balance Sheets as of December 31, 1996 and 1997.............................................. F-4
Consolidated Statements of Operations for the 117 days ended April 27, 1995 (Predecessor Subsidiary), the
248 days ended December 31, 1995, and the years ended December 31, 1996 and 1997........................ F-6
Consolidated Statements of Minority Interests and Shareholders' Equity for the 117 days ended April 27,
1995 (Predecessor Subsidiary), the 248 days ended December 31, 1995, and the years ended December 31,
1996 and 1997........................................................................................... F-7
Consolidated Statements of Cash Flows for the 117 days ended April 27, 1995 (Predecessor Subsidiary), the
248 days ended December 31, 1995, and the years ended December 31, 1996 and 1997........................ F-8
Notes to Consolidated Financial Statements................................................................ F-10
Condensed Consolidated Balance Sheets as of March 31, 1998 (Unaudited)
and December 31, 1997................................................................................... F-21
Condensed Consolidated Statements of Operations (Unaudited) for the
Three Months ended March 31, 1998 and March 31, 1997.................................................... F-22
Condensed Consolidated Statements of Minority Interests, Preferred Stock
and Shareholders' Equity (Unaudited) as of March 31, 1998 and December 31, 1997......................... F-23
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
Three Months ended March 31, 1998 and March 31, 1997.................................................... F-24
Notes to Unaudited Condensed Consolidated Financial Statements............................................ F-25
Report of Stoy, Malone & Company, P.C., Independent Auditors.............................................. F-27
Report of Deloitte & Touche LLP, Independent Auditors..................................................... F-28
JUDD'S, INCORPORATED:
Consolidated Balance Sheets as of December 31, 1996 and 1997.............................................. F-29
Consolidated Statements of Operations for the years ended December 31, 1995 and 1996 and for the 349 day
period ended December 15, 1997.......................................................................... F-31
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995 and 1996 and for the
349 day period ended December 15, 1997.................................................................. F-32
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1996 and for the 349 day
period ended December 15, 1997.......................................................................... F-33
Notes to Consolidated Financial Statements................................................................ F-34
</TABLE>
F-1
<PAGE>
(This page has been left blank intentionally.)
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Perry-Judd's Incorporated:
We have audited the accompanying consolidated balance sheets of Perry-Judd's
Incorporated (formerly PPC Holdings, Inc.) and subsidiaries as of December 31,
1997 and 1996 and the related consolidated statements of operations, minority
interests and shareholders' equity and cash flows for the years ended December
31, 1997 and 1996 and the period from April 28, 1995 to December 31, 1995. We
have also audited the statements of operations and cash flows for the
Predecessor subsidiary for the period January 1, 1995 to April 27, 1995. 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 consolidated financial statements present fairly, in
all material respects, the financial position of Perry-Judd's Incorporated and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years ended December 31, 1997 and 1996
and the period from April 28, 1995 to December 31, 1995, and the statements of
operations and cash flows for the Predecessor subsidiary for the period January
1, 1995 to April 27, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 11 of the financial statements, the Company has filed
indemnity claims against the former owner of Perry Printing Corporation. The
Company's Asset Purchase Agreement allows immediate redemption of the Series A
preferred stock up to the maximum redemption value for these claims.
Accordingly, the carrying value of the Series A preferred stock has been reduced
to zero as of December 31, 1996.
/s/ Deloitte & Touche LLP
March 20, 1998
Milwaukee, Wisconsin
F-3
<PAGE>
PERRY-JUDD'S INCORPORATED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
ASSETS
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 1996 31, 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 2,183 $ 3,779
Accounts receivable............................................... 21,239 44,282
Income tax receivable............................................. 138 185
Inventories....................................................... 10,551 18,474
Prepaid expenses.................................................. 833 1,633
Deferred income taxes............................................. -- 1,039
----------- -----------
Total current assets............................................ 34,944 69,392
PROPERTY, PLANT AND EQUIPMENT:
Machinery and equipment........................................... 57,514 107,528
Buildings and improvements........................................ 9,342 17,900
Office furniture and equipment.................................... 3,866 5,611
Land and land improvements........................................ 1,133 4,300
Projects in progress.............................................. 2,683 1,291
----------- -----------
74,538 136,630
Less accumulated depreciation and amortization.................... 9,494 14,822
----------- -----------
Property, plant and equipment, net.............................. 65,044 121,808
----------- -----------
INTANGIBLE ASSETS:
Goodwill, net..................................................... -- 28,597
Deferred financing costs, net..................................... 2,000 8,411
Acquisition costs, net............................................ 1,561 4,634
Covenant not to compete, net...................................... 732 512
----------- -----------
Intangible assets, net.......................................... 4,293 42,154
----------- -----------
TOTAL......................................................... $ 104,281 $ 233,354
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PERRY-JUDD'S INCORPORATED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE)
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 1996 31, 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable.................................................. $ 9,529 $ 17,656
Accrued expenses.................................................. 8,422 14,908
Accrued interest and dividends.................................... 2,515 1,045
Income taxes payable.............................................. -- 808
Current portion of long-term debt................................. 7,172 2,085
----------- -----------
Total current liabilities....................................... 27,638 36,502
----------- -----------
LONG-TERM DEBT (less current portion)............................... 46,039 143,186
----------- -----------
NOTE PAYABLE TO RELATED PARTY....................................... 6,500 --
----------- -----------
DEFERRED INCOME TAXES............................................... -- 11,645
----------- -----------
OTHER NONCURRENT OBLIGATIONS........................................ 1,800 8,712
----------- -----------
MINORITY INTERESTS, Redeemable Preferred Stock Series A, B and D
with stated redemption value of $100 per share, aggregate
liquidation value of $6,975 and $7,138 at December 31, 1996 and
1997, respectively................................................ 6,772 6,935
COMMITMENTS AND CONTINGENCIES....................................... -- --
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock--par value $0.001 per share, 775,000 shares
authorized,
0 and 95,620 shares issued and outstanding, respectively........ -- 9,562
Common stock--par value $0.001 per share, 1,000,000 shares
authorized, 700,010 and 860,010 issued and outstanding,
respectively.................................................... 1 1
Additional paid-in capital........................................ 17,500 21,500
Accumulated deficit............................................... (1,969) (4,689)
----------- -----------
Total shareholders' equity...................................... 15,532 26,374
----------- -----------
TOTAL......................................................... $ 104,281 $ 233,354
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PERRY-JUDD'S INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR -------------------------------------------
--------------- 248 DAYS ENDED YEAR ENDED YEAR ENDED
117 DAYS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
APRIL 27, 1995 1995 1996 1997
--------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
NET SALES......................................... $ 45,920 $ 115,647 $ 138,511 $ 153,815
------- --------------- ------------ ------------
OPERATING EXPENSES:
Costs of production............................. 37,066 98,660 113,185 124,071
Selling, general and administrative............. 3,524 7,724 12,369 15,678
Depreciation.................................... 3,049 3,646 5,869 6,828
Amortization of intangibles..................... -- 354 580 410
------- --------------- ------------ ------------
43,639 110,384 132,003 146,987
------- --------------- ------------ ------------
INCOME FROM OPERATIONS............................ 2,281 5,263 6,508 6,828
------- --------------- ------------ ------------
OTHER (INCOME) EXPENSES:
Interest expense................................ 470 4,503 5,946 6,431
Amortization of deferred financing costs........ -- 400 600 904
Loss (gain) on disposition of assets, net....... -- -- (7) 906
Other, net...................................... 67 (4) 51 200
------- --------------- ------------ ------------
Total other expenses........................ 537 4,899 6,590 8,441
------- --------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES................. 1,744 364 (82) (1,613)
PROVISION FOR INCOME TAXES........................ 682 148 4 20
------- --------------- ------------ ------------
INCOME (LOSS) BEFORE DIVIDENDS AND ACCRETION ON
REDEEMABLE PREFERRED STOCK....................... 1,062 216 (86) (1,633)
------- --------------- ------------ ------------
DIVIDENDS AND ACCRETION ON REDEEMABLE PREFERRED
STOCK............................................ -- 1,101 998 1,025
------- --------------- ------------ ------------
NET LOSS.......................................... $ 1,062 $ (885) $ (1,084) $ (2,658)
------- --------------- ------------ ------------
------- --------------- ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PERRY-JUDD'S INCORPORATED
CONSOLIDATED STATEMENTS OF MINORITY INTERESTS,
PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MINORITY INTERESTS PREFERRED STOCK COMMON STOCK
-------------------- ---------------------- --------------------
CARRYING CARRYING CARRYING ACCUMULATED
SHARES VALUE SHARES VALUE SHARES VALUE DEFICIT
--------- --------- --------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995.................... 1,000 $ 1
Stock issuance................... 115,000 $ 9,000 -- -- 699,010 17,500 --
--------- --------- --------- ----------- --------- --------- ------------
April 28, 1995..................... 115,000 9,000 -- -- 700,010 17,501
Net loss......................... -- -- -- -- $ (885)
Stock dividends.................. 1,104 110 -- -- -- -- --
Accretion........................ 167 -- -- -- -- --
Redeemed shares.................. (2,650) (265) -- -- -- -- --
--------- --------- --------- ----------- --------- --------- ------------
December 31, 1995.................. 113,454 9,012 -- -- 700,010 17,501 (885)
Net loss......................... -- -- -- -- -- -- (1,084)
Stock dividends.................. 1,619 162 -- -- -- -- --
Redeemed shares.................. (47,350) (2,402) -- -- -- -- --
--------- --------- --------- ----------- --------- --------- ------------
December 31, 1996.................. 67,723 6,772 -- -- 700,010 17,501 (1,969)
Net loss......................... -- -- -- -- -- -- (2,658)
Stock issuance................... -- -- 95,000 $ 9,500 160,000 4,000 --
Stock dividends.................. 1,625 163 620 62 -- -- (62)
--------- --------- --------- ----------- --------- --------- ------------
December 31, 1997.................. 69,348 $ 6,935 95,620 $ 9,562 860,010 $ 21,501 $ (4,689)
--------- --------- --------- ----------- --------- --------- ------------
--------- --------- --------- ----------- --------- --------- ------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
PERRY-JUDD'S INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------- -------------------------------------------------------
117 DAYS ENDED 248 DAYS ENDED YEAR ENDED YEAR ENDED
APRIL 27, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................ $ 1,062 $ (885) $ (1,084) $ (2,658)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization....... 3,049 4,000 6,449 7,238
Amortization of deferred financing
costs............................. -- 400 600 904
Deferred income taxes............... (39) -- -- (800)
Loss (gain) on sale of fixed
assets............................ 67 -- (7) 906
Changes in assets and liabilities
excluding effect of acquired
business:
Receivables....................... (2,231) (7,954) 8,031 (5,645)
Inventories....................... (1,913) (4,589) 4,548 (301)
Prepaid expenses.................. 907 (956) 231 304
Accounts payable.................. 6,928 1,396 (6,904) (3,499)
Accrued expenses.................. 210 3,301 (854) 1,795
Accrued interest and dividends.... -- 2,090 864 (1,245)
Income taxes, net................. -- 52 (190) 582
Intangible assets................. -- -- (33) (3,255)
Other liabilities................. -- -- -- 4,386
---------------- -------- ------- -----------------
Net cash provided (used) by
operating activities.......... 7,950 (3,145) 11,651 (1,288)
---------------- -------- ------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash
acquired.......................... -- (77,805) -- (101,992)
Proceeds from sale of fixed assets.. 89 142 18,713
Capital expenditures................ (10,047) (3,265) (8,442) (14,867)
Capital projects converted to
operating leases.................. -- 4,076 3,256 11,635
---------------- -------- ------- -----------------
Net cash (used) by investing
activities.................... (9,958) (76,994) (5,044) (86,511)
---------------- -------- ------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Transfers from parent............... 1,784
Proceeds from long term debt........ -- 61,355 1,609 145,000
Financing costs incurred............ -- (3,000) -- (6,665)
Increase (decrease) in revolver
debt.............................. -- 8,308 (3,077) (16,476)
Repayment of term debt.............. -- (2,333) (4,650) (36,464)
Sale of capital stock............... -- 17,500 -- 4,000
---------------- -------- ------- -----------------
Net cash provided (used) by
financing activities.......... 1,784 81,830 (6,118) 89,395
---------------- -------- ------- -----------------
NET INCREASE IN CASH.................. (224) 1,691 489 1,596
Balance at beginning of period........ 227 3 1,694 2,183
---------------- -------- ------- -----------------
Balance at end of period.............. $ 3 $ 1,694 $ 2,183 $ 3,779
---------------- -------- ------- -----------------
---------------- -------- ------- -----------------
</TABLE>
F-8
<PAGE>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------- -------------------------------------------------------
117 DAYS ENDED 248 DAYS ENDED YEAR ENDED YEAR ENDED
APRIL 27, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Interest............................... $ 653 $ 3,172 $ 4,996 $ 4,977
------ ------ ------ ------
------ ------ ------ ------
Income Taxes........................... $ 1,665 $ 260 $ 185 $ --
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
NONCASH TRANSACTIONS:
On April 28, 1995, Perry Graphic Communications issued 50,000 and 65,000
shares of Series A and B redeemable preferred stock, respectively, to the
previous owner of Perry Printing. The fair value of these securities
approximated $8,700,000 after adjustments to the purchase price of the assets
acquired.
Stock dividends issued to minority interests approximated $110,000, $162,000
and $163,000 based on their value at the time of issuance for the years ended
December 31, 1995, 1996 and 1997, respectively.
Cash dividends accrued on Series D redeemable preferred stock were
approximately $4,000, $26,000 and $49,000 during the years ended December 31,
1995, 1996, and 1997. Such amounts are cumulative and payable on November 1,
2000.
Accretion related to the Series A redeemable preferred stock was $167,000
for the year ended December 31, 1995. There was no accretion related to Series A
redeemable preferred stock in the years ended December 31, 1996 or 1997. See
Note 5.
On December 16, 1997, the Company issued 95,000 shares of Series A preferred
stock to the majority shareholders in exchange for a note payable plus accrued
and unpaid interest. See Note 9.
See notes to consolidated financial statements.
F-9
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Perry-Judd's Incorporated and its wholly-owned subsidiaries
Perry Graphic Communications, Inc. and Judd's, Incorporated (collectively
hereafter referred to as the "Company"). Perry-Judd's Incorporated is a holding
company and has no operations independent from the operations of its
subsidiaries and its assets consists only of its investment in its subsidiaries,
minimal notes receivable, and deferred debt issuance costs. Prior to the
acquisition of Judd's, Incorporated, the Company operated under the name PPC
Holdings, Inc. All significant intercompany balances and transactions have been
eliminated.
Effective April 28, 1995, the Company acquired certain assets and assumed
certain liabilities of Perry Printing Corporation ("Perry Printing") for
approximately $77.8 million in cash and an additional $8.7 million in preferred
stock. Prior to the acquisition of Perry Printing, Perry-Judd's Incorporated had
no operations and substantially no assets. The acquisition was accounted for
under the purchase method of accounting and a final allocation of the purchase
price has been reflected in the financial statements as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired..................................... $ 110,662
Fair value of liabilities assumed................................. (26,357)
Fair value of non-cash preferred stock issuance................... (6,500)
---------
Cash paid for net assets acquired................................. $ 77,805
---------
---------
</TABLE>
Effective December 16, 1997, the Company acquired all of the outstanding
capital stock of Judd's, Incorporated ("Judd's") for approximately $102.0
million less outstanding indebtedness of Judd's. The acquisition was accounted
for under the purchase method of accounting and accordingly the results of
operations are included in the accompanying financial statements since the
acquisition date. The preliminary allocation of the purchase price is based upon
the estimated fair value of the assets acquired and liabilities assumed as
follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired..................................... $ 108,394
Goodwill.......................................................... 28,597
Fair value of liabilities assumed................................. (72,483)
Amounts paid to creditors and preferred shareholders.............. 37,484
---------
Cash paid for net assets acquired................................. $ 101,992
---------
---------
</TABLE>
The unaudited pro forma results of operations assuming the Judd's
acquisition had been consummated as of January 1, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Net sales............................................................. $ 291,074 $ 285,753
Net loss.............................................................. (4,173) (5,210)
</TABLE>
The unaudited pro forma results are not necessarily indicative of the actual
results of operations that would have occurred had the acquisition actually been
made at the beginning of fiscal 1996.
F-10
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. GENERAL INFORMATION (CONTINUED)
NATURE OF BUSINESS--The Company is a full service heatset web offset printer
of magazines, catalogs, technical books, and other commercial products. The
Company serves a national domestic market in the printing of weekly and monthly
consumer, special interest and trade magazines, business-to-business and
consumer catalogs, and a variety of other direct advertising products.
Additionally, the Company prints a variety of association, medical, legal and
reference books, along with business directories.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
CREDIT RISK CONSIDERATIONS--The Company has long-standing relationships
serving certain large customers, typically under multi-year contracts. The
Company has one customer which consisted of four publication titles comprising
approximately 15% and 20% of total gross sales volume for the 248 days ended
December 31, 1995 and the year ended December 31, 1996 respectively. Concurrent
with the acquisition of Judd's, the Company added two additional titles for this
customer. For the year ended December 31, 1997, this customer accounted for
approximately 22% of total gross sales volume. The various titles for this
customer are under contracts expiring between December 31, 1999 and December 31,
2003.
The Company has recorded an allowance for doubtful accounts to estimate the
difference between recorded receivables and ultimate collections. The allowance
and provision for bad debts are adjusted periodically based upon the Company's
evaluation of historical collection experience, industry trends and other
relevant factors. The allowance for doubtful accounts was $320,000 and
$1,266,000 at December 31, 1996 and 1997, respectively.
INVENTORY VALUATION--Inventories are stated at the lower of cost (first-in,
first-out method) or market and are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 4,717 $ 10,382
Work in process......................................................... 3,855 6,138
Production supplies..................................................... 538 658
Repair and maintenance parts............................................ 2,086 2,153
Allowance for obsolete and excess inventories........................... (645) (857)
--------- ---------
$ 10,551 $ 18,474
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at
cost. Assets are depreciated on the straight-line basis over estimated useful
lives which range from three to forty years as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
(IN YEARS)
<S> <C>
Machinery and equipment........................................ 3-15
Buildings and improvements..................................... 7-40
Office furniture and equipment................................. 3-10
Land improvements.............................................. 25-40
</TABLE>
INTANGIBLE ASSETS--Deferred financing costs are being amortized over the
lives of the applicable debt agreements. Accumulated amortization on these costs
was $1,000,000 and $1,253,000 at December 31, 1996 and 1997, respectively.
Direct and external costs related to the acquisition of Perry Printing (See Note
1) are being amortized over five to fifteen years. Accumulated amortization on
these costs was $267,000 and $449,000 at December 31, 1996 and 1997,
respectively. The Company received a covenant not to compete from the former
owner of Perry Printing which is being amortized over the life of the covenant
of five years. Accumulated amortization on these costs was $667,000 and $886,000
at December 31, 1996 and 1997, respectively.
COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED--Cost in excess of net
assets of business acquired ("goodwill") is amortized and charged against
operations on a straight-line method over 35 years.
IMPAIRMENT OF LONG-LIVED ASSETS. The Company periodically evaluates the
carrying value of intangible assets and if undiscounted future cash flows are
believed insufficient to recover the remaining carrying value of the related
assets, the carrying value is written down in the period the impairment is
identified to its estimated future recoverable value.
REVENUE RECOGNITION--Revenue is recognized when complete orders are shipped.
INCOME TAXES--Deferred income taxes are determined utilizing an asset and
liability approach. This method gives consideration to the future tax
consequences associated with differences between financial accounting and tax
bases of assets and liabilities. This method gives immediate effect to changes
in income tax laws upon enactment.
ESTIMATES--The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities as of the balance sheet date and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying value of cash, accounts
receivable, accounts payable and accrued expenses approximates fair value at
December 31, 1996 and 1997 due to their short term nature.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS
No. 131, "Disclosure About Segments of an Enterprise and Related Information."
Both Statements are effective for fiscal years beginning after December 15,
1997. The Company is analyzing the reporting and disclosure requirements and
will adopt SFAS No. 130 and SFAS No. 131 in the upcoming year.
F-12
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------- ------------
<S> <C> <C>
Employee related expenses........................................ $ 4,686 $ 8,040
Accrued paper costs.............................................. 1,929 2,965
Taxes other than income.......................................... 676 957
Other accrued expenses........................................... 1,131 2,946
------ ------------
$ 8,422 $ 14,908
------ ------------
------ ------------
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Revolving credit facility........................................ $ 16,476 $ --
Term loan facility............................................... 35,083 30,000
Mortgage note.................................................... 1,295 --
Capital lease obligations........................................ 357 271
Senior subordinated notes........................................ -- 115,000
------------ ------------
Total debt....................................................... 53,211 145,271
Less current portion............................................. (7,172) (2,085)
------------ ------------
Long-term debt................................................... $ 46,039 $ 143,186
------------ ------------
------------ ------------
</TABLE>
On April 28, 1995, the Company entered into a five year Credit Agreement
with a commercial bank consortium that provides a revolving and term loan
facility. These loans are collateralized by substantially all assets of the
Company. Concurrent with the acquisition of Judd's, the Company entered into an
Amended and Restated Credit Agreement extending the maturity to December 15,
2002. The Credit Agreement requires the Company to maintain and meet certain
minimum operating ratios and limits expenditures for property and equipment,
dividends, investments, other indebtedness, commitments, guarantees and
contingent liabilities. The Company has been in compliance with substantially
all covenants and has received waivers and amendments for 1995 and 1996 covering
certain financial ratio covenants not met. In accordance with the Amended and
Restated Credit Agreement, the Company is required to meet its covenant tests
beginning with first quarter 1998 results.
REVOLVING CREDIT FACILITY--The Company has the ability to borrow, subject to
certain terms and conditions, up to $45.0 million until December 15, 2002, at
which time any outstanding borrowings become due and payable unless otherwise
extended based upon mutual agreement of the Company and lenders. Borrowings
against the line are either at a Eurodollar rate plus 2.25%, fixed for periods
up to 180 days, or at the prime rate plus 0.75%. The weighted average interest
rate on the outstanding borrowings approximated 8.81% and 8.44% and 8.38% for
the years ended December 31, 1995, 1996 and 1997, respectively.
TERM LOAN FACILITY--The term loan facility is due in installment amounts at
the last day of each month until December 15, 2002, at which time any
outstanding borrowings become due and payable. Repayments
F-13
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT (CONTINUED)
may not be reborrowed. Borrowings are either at a Eurodollar rate plus 2.50%,
fixed for periods of up to 180 days, or at the prime rate plus 1.00%. The
weighted average interest rate on the outstanding borrowings approximated 9.27%,
8.99% and 9.03% for the years ended December 31, 1995, 1996 and 1997,
respectively.
MORTGAGE NOTE--The Company entered an agreement to purchase its corporate
office building from the former owner of Perry Printing. The agreement which was
executed on December 31, 1996, required a 30% down payment with the resulting
balance financed by the former owner of Perry Printing as a five year prime rate
mortgage based upon a twenty year amortization with a balloon payment due on the
fifth anniversary of the loan. The mortgage balance was paid in full concurrent
with the sale and leaseback of the property. See Note 7.
SENIOR SUBORDINATED NOTES--The Company issued $115,000,000 aggregate
principal amount of its 10 5/8% senior subordinated notes due December 15, 2007
in connection with its acquisition of Judd's. Interest on the Notes accrues from
the date of original issuance and is payable semi-annually in arrears on June 15
and December 15 of each year. The Notes are redeemable, in whole or in part, at
the option of the Company on or after December 15, 2002 at specified redemption
prices plus accrued interest to the date of redemption. In addition, at any time
on or prior to December 15, 2000, the Company, at its option, may redeem up to
35% of the aggregate principal amount of the Notes originally issued with the
net cash proceeds of one or more Public Equity Offerings (as defined), at the
redemption price equal to 110.625% of the principal amount thereof, plus accrued
interest to the date of redemption.
Future minimum principal payments required under the terms of the agreements
are as follows as of December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
- ----------------------------------------------------------------------------------
<S> <C>
1998.............................................................................. $ 2,085
1999.............................................................................. 4,084
2000.............................................................................. 6,084
2001.............................................................................. 6,018
2002.............................................................................. 12,000
Thereafter........................................................................ 115,000
----------
Total........................................................................... $ 145,271
----------
----------
</TABLE>
The estimated fair value of the Company's senior subordinated notes was
$121,000,000 at December 31, 1997. The remaining long term debt approximates
fair value.
5. MINORITY INTERESTS
REDEEMABLE PREFERRED STOCK A--At April 28, 1995, Series A redeemable
preferred stock issued in the amount of $5.0 million reflects an original issue
discount of $2.5 million which is the difference between the net present value
at the time of issuance and the April 28, 2005 redemption value. The difference
is accreted by charging operations until redemption. Each share of redeemable
Series A, $0.001 par value, $100 redemption value, nonconvertible, non-voting
preferred stock entitles its holder to receive an annual cash dividend
equivalent to carrying value times 90% of the prime interest rate. At December
31, 1995, 50,000 shares were authorized and 47,350 shares were issued and
outstanding. During 1996, the carrying
F-14
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. MINORITY INTERESTS (CONTINUED)
value of the Series A redeemable preferred stock was written down to $-0- to
offset certain purchase accounting adjustments and no accretion was made. (See
Note 11.)
REDEEMABLE PREFERRED STOCK B--Each share of Series B, $0.001 par value, $100
redemption value, nonconvertible, non-voting preferred stock entitles its holder
to receive cash dividends of 12.5% of carrying value and stock dividends of 2.5%
of carrying value (issued in Redeemable Preferred Stock D). At December 31, 1996
and 1997, 65,000 shares were authorized, issued, and outstanding and are
mandatorily redeemable on November 1, 2000.
REDEEMABLE PREFERRED STOCK D--Each share of Series D, $0.001 par value, $100
redemption value, nonconvertible, non-voting preferred stock entitles its holder
to receive cash dividends equivalent to 15% of carrying value. At December 31,
1996 and 1997, 100,000 shares were authorized with 2,723 and 4,348 shares issued
and outstanding, respectively. Series D preferred shares are mandatorily
redeemable on November 1, 2000.
6. STOCK OPTION PLAN
In 1995, shareholders of the Company approved the adoption of a stock option
plan (the "Stock Option Plan"). Under the terms of the Stock Option Plan,
options may be granted to officers and key employees. Options have terms of
eighteen years and an exercise price of $.01 per share. Options are immediately
exercisable, but option shares issuable are subject to repurchase by the Company
on termination of employment at the original exercise price until vested. Option
shares vest in gradual increments over an eight year period.
A summary of option activity under the Stock Option Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
-----------
<S> <C>
Outstanding at January 1, 1995.................................................... 0
Granted........................................................................... 15,125
-----------
Outstanding at December 31, 1995.................................................. 15,125
Granted........................................................................... 7,000
-----------
Outstanding at December 31, 1996.................................................. 22,125
Granted........................................................................... 3,500
-----------
Outstanding at December 31, 1997.................................................. 25,625
-----------
-----------
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretation in accounting for its
employee stock option plan. Accordingly, compensation expense is recorded to the
extent the estimated fair value of each share exceeds the option exercise price
at the date of grant. If the Company had elected to report compensation expense
based on the estimated fair value of the options at the grant date consistent
with the fair value method outlined in SFAS No. 123, "Accounting for Stock-Based
Compensation," the impact on the Company's net income (loss) for any period or
shareholders' equity as of any date would not have been material since the
inception of the Stock Option Plan.
F-15
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTION PLAN (CONTINUED)
The following table summarizes information concerning outstanding and
exercisable options and vested option shares at December 31, 1997:
<TABLE>
<S> <C>
Outstanding and exercisable options............................... 25,625
Weighted Average Remaining Contractual Life of Outstanding
Options......................................................... 16 years
Vested option shares issuable..................................... 6,288
Weighted Average Remaining Contractual Life of Exercisable
Options......................................................... 16 years
</TABLE>
7. OPERATING LEASES
The Company leases certain equipment and office space under non-cancelable
operating lease agreements. Lease expense under such agreements was
approximately $2.5 million, $4.3 million and $5.1 million for the 248 days ended
December 31, 1995 and for the years ended December 31, 1996 and 1997,
respectively. Concurrent with the acquisition of Judd's, the Company entered
into a Sale/Leaseback whereby the Perry Graphic printing plants and warehouse
facilities, and the Company's corporate headquarters were sold to a third party
for the aggregate purchase price (exclusive of fees and costs) of $18.25 million
and immediately leased back to the Company. The sale and leaseback of the real
property resulted in a deferred gain of $2.8 million net of taxes and is being
amortized over the initial term of the lease. The lease has an initial term of
20 years, with an economic abandonment buyout for one property selected by the
company after five years, and may be extended for three additional five year
terms at the company's option. Initial annual rent under the lease is
approximately $1.9 million payable quarterly in advance with 10% escalations
scheduled at the start of the sixth, eleventh and sixteenth years of the 20 year
term (and a corresponding 10% increase at the beginning of any option term). For
the first ten years of the lease, the Company has a right of first refusal on
any proposed sale of all of the leased properties by the lessor to a third
party, exercisable within 30 days of receipt of the proposed sale contract.
Lease expense is recognized on a straight-line basis over the term of the
lease. Future minimum annual lease payments required under the operating lease
agreements are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
- -----------------------------------------------------------------------------------
<S> <C>
1998............................................................................... $ 11,097
1999............................................................................... 9,887
2000............................................................................... 8,258
2001............................................................................... 7,677
2002............................................................................... 5,322
Thereafter......................................................................... 41,263
---------
Total minimum lease payments..................................................... $ 83,504
---------
---------
</TABLE>
F-16
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The provision for income taxes consists of the following components (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------- ---------------------------------------------------
117 DAYS ENDED 248 DAYS ENDED YEAR ENDED
APRIL 27, DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 1995 DECEMBER 31, 1996 1997
----------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
Current
Federal..................... $ 537 $ 89 $ 3 $ 800
State....................... 60 -- 1 20
----- ----- --- -----
597 89 4 820
Deferred:
Federal..................... 77 59 -- (800)
State....................... 8 -- -- --
----- ----- --- -----
85 59 -- (800)
----- ----- --- -----
Provision for income taxes.... $ 682 $ 148 $ 4 $ 20
----- ----- --- -----
----- ----- --- -----
</TABLE>
Following is a reconciliation of the U.S. statutory federal income tax rate
to the effective rate (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------------- -------------------------------------------------
117 DAYS ENDED 248 DAYS ENDED YEAR ENDED YEAR ENDED
APRIL 27, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1995 1996 1997
----------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
Tax expense (benefit) at
Federal statutory rate
(35%)....................... $ 610 $ 127 $ (30) $ (565)
State income taxes (benefit)
net of Federal income tax
benefit..................... 60 13 (4) 20
Other permanent differences... 12 8 38 565
----- ----- --- -----
Provision for income taxes.... $ 682 $ 148 $ 4 $ 20
----- ----- --- -----
----- ----- --- -----
</TABLE>
F-17
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Significant components of deferred tax assets and deferred tax liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Accounts receivable items...................................... $ 128 $ 321
Inventory items................................................ 292 485
Intangible assets.............................................. -- 1,184
Accrued vacation and other benefits............................ 505 779
Accrued pension benefits....................................... -- 339
Sale and leaseback............................................. -- 1,850
Tax loss carryforwards......................................... 4,436 4,363
Tax credit carryforwards....................................... 59 3,496
Other items.................................................... 8 231
------------ ------------
5,428 13,048
Deferred Tax Liabilities:
Prepaid items.................................................. (340) (546)
Property, plant and equipment.................................. (4,705) (23,628)
Other.......................................................... -- 520
------------ ------------
5,045 (23,654)
------------ ------------
Net deferred tax asset (liability)............................... 383 (10,606)
Valuation allowance.............................................. (383) --
------------ ------------
Net deferred income taxes........................................ $ 0 $ (10,606)
------------ ------------
------------ ------------
</TABLE>
The net deferred tax liability is classified in the balance sheets as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
--------- ----------
<S> <C> <C>
Current deferred income taxes.......................................... -- $ 1,039
Non-current deferred income taxes...................................... -- (11,645)
--------- ----------
-- $ (10,606)
--------- ----------
--------- ----------
</TABLE>
Included in tax assets at December 31, 1996 and 1997 are net operating loss
carryforwards of approximately $9.8 million and $5.6 million for federal and
state income tax purposes in 1996 and $10.6 million and $7.5 million in 1997
respectively, which begin to expire in the year 2000 and alternative minimum tax
credits of approximately $2,997,000 and state tax credits of $499,000 which can
be used to offset future regular tax and have no expiration date.
9. RELATED PARTY TRANSACTIONS
On April 28, 1995, the Company entered into management agreements (the
"Agreements") with two companies owned beneficially by the majority shareholders
of the Company. The Agreements, as well as subsequent revisions, provide for
certain management and consulting services in connection with business strategy,
operations and finance. The Agreements have initial terms of five years, subject
to one-year
F-18
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
extensions thereafter and require the Company to pay annual management fees
totaling $1,200,000 per year plus reimbursement of certain expenses. Management
fees and expense reimbursements paid in conjunction with the Agreements
approximated $486,000, $738,000 and $832,000 during the period ended December
31, 1995 and the years ended December 31, 1996 and 1997, respectively.
A California corporation owned beneficially by the majority shareholders,
loaned $6.5 million to the Company in connection with the acquisition of Perry
Printing. The loan was evidenced by a senior note bearing interest at 15% per
annum. Interest was payable quarterly in arrears at the end of each calendar
quarter on the unpaid principal amount. Accrued interest on the note amounted to
$1.8 million at December 31, 1996. In connection with obtaining this financing,
the Company paid a one-time fee of $650,000. This amount has been capitalized as
deferred financing costs in the consolidated financial statements and was being
amortized over the life of the note. The unamortized portion of this fee was
written off on December 16, 1997. Concurrent with the acquisition of Judd's, the
Company converted the note and $3.0 million of accrued and unpaid interest into
95,000 shares of preferred stock. The conversion was effected by exchanging one
share of preferred stock for every $100 of outstanding principal and interest
under the Senior Note.
Since May 1995, the Company has purchased a substantial portion of its total
ink requirements from a company affiliated with the majority shareholders. The
Company expects to continue to purchase a substantial portion of its total ink
requirements from this vendor. Net purchases for the 248 days ended December 31,
1995 and years ended December 31, 1996 and 1997, amounted to $2.8 million, $9.7
million, and $7.2 million, respectively. Net outstanding indebtedness to this
supplier was $2.0 million and $0.3 million as of December 31, 1996 and 1997,
respectively.
Concurrent with the acquisition of Judd's on December 16, 1997, a one-time
fee of $2.0 million was paid to a company owned beneficially by the majority
shareholders of the Company for acquisition services related to the transaction
and the majority shareholders purchased an additional 160,000 shares of common
stock for $4.0 million.
F-19
<PAGE>
PERRY-JUDD'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RETIREMENT PLANS
The Company has a defined contribution plan referred to as the Perry Graphic
Communications Retirement savings Plan (the "Plan"). The Plan covers
substantially all employees who have attained 21 years of age and are credited
with twelve months of service on their enrollment date. The Company contributed
approximately $514,000, $862,000 and $875,000 for the 248 days ended December
31, 1995 and the years ended December 31, 1996 and 1997, respectively, to the
Plan representing 3% of eligible employee wages.
Judd's has a noncontributory defined benefit pension plan which provides
coverage for all full-time permanent employees who meet the length of service
and age requirements specified in the plan. Effective December 31, 1997, the
plan was frozen. The actuarially determined projected benefit obligation at
December 31, 1997, after taking into effect the freeze, was approximately
$7,998,000. The discount rate used to measure the projected benefit obligation
was 7.25%. Plan assets, consisting primarily of investments in mutual funds,
were $9,686,000 at December 31, 1997. The Company has not determined whether it
will continue to administer the plan or whether the plan will be terminated
through the purchase of annuity contracts. Approximately $40,000 of the net
annual pension cost has been reflected in the accompanying financial statements
for the year ended December 31, 1997.
11. COMMITMENTS AND CONTINGENCIES
INDEMNIFICATION--In connection with the acquisition of Perry Printing, the
Company issued 50,000 and 65,000 shares of Series A and B redeemable preferred
stock, respectively, to the former owner of Perry Printing. During 1996, the
Company made two indemnity claims against the former owner of Perry Printing
principally involving breaches of warranties and representations made on certain
assets under its Asset Purchase Agreement. Redemption features of the Series A
redeemable preferred stock provided the Company with the option to offset such
claims as immediate redemption of the Series A redeemable preferred stock up to
the maximum redemption value of $5 million. Accordingly, the carrying value of
the Series A redeemable preferred stock was reduced to $-0- in the financial
statements at December 31, 1996. The former owner of Perry Printing has objected
to these claims for indemnification and management anticipates the claims may
result in litigation but believes the Company's position on the claims will be
upheld.
Additionally, the Company has asserted a claim against the former owner of
Perry Printing for an approximate $1.8 million employee benefit obligation
incurred prior to April 28, 1995, which is now an obligation of the Company to
its employees covered by collective bargaining agreements. This amount has been
reflected as an increase to both assets and liabilities pending resolution with
the former owner of Perry Printing. Management believes that the Company's
position on the claim will be upheld.
PURCHASE COMMITMENTS--At December 31, 1997, the Company has commitments to
purchase or lease approximately $8.1 million of operating assets.
F-20
<PAGE>
PERRY-JUDD'S INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED) (NOTE)
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 295 $ 3,779
Accounts receivable--net of allowance for doubtful accounts of
$776 and $1,266, respectively..................................................... 43,025 44,282
Inventories......................................................................... 17,215 18,474
Deferred income taxes............................................................... 1,039 1,039
Other current assets................................................................ 2,559 1,818
----------- ------------
Total current assets.............................................................. 64,133 69,392
PROPERTY, PLANT AND EQUIPMENT, AT COST................................................ 140,806 136,630
ACCUMULATED DEPRECIATION AND AMORTIZATION............................................. (17,520) (14,822)
----------- ------------
PROPERTY, PLANT AND EQUIPMENT - NET................................................... 123,286 121,808
GOODWILL--NET......................................................................... 28,392 28,597
OTHER--NET............................................................................ 13,009 13,557
----------- ------------
TOTAL ASSETS...................................................................... $ 228,820 $ 233,354
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses............................................... $ 30,742 $ 34,417
Current maturities of long-term debt................................................ 2,583 2,085
----------- ------------
Total current liabilities......................................................... 33,325 36,502
LONG-TERM DEBT........................................................................ 142,165 143,186
DEFERRED INCOME TAXES................................................................. 11,685 11,645
OTHER LONG-TERM LIABILITIES........................................................... 8,755 8,712
----------- ------------
Total liabilities................................................................. 195,930 200,045
----------- ------------
MINORITY INTERESTS: Redeemable Preferred Stock
Series A, B and D with stated redemption value of $100 per share, aggregate
liquidation value of $7,382 and $7,138 at March 31, 1998 and December 31, 1997,
respectively...................................................................... 6,975 6,935
----------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock--par value $0.001 per share, 775,000 shares authorized, 99,210 and
95,620 shares isssued and outstanding, respectively............................... 9,921 9,562
Common Stock--par value $0.001 per share, 1,000,000 shares authorized, 860,010
shares issued and outstanding, respectively....................................... 1 1
Additional paid-in capital.......................................................... 21,500 21,500
Accumulated deficit................................................................. (5,507) (4,689)
----------- ------------
Total stockholders' equity........................................................ 25,915 26,374
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $ 228,820 $ 233,354
----------- ------------
----------- ------------
</TABLE>
- ------------------------
Note: Derived from audited financial statements. See notes to condensed
consolidated financial statements.
F-21
<PAGE>
PERRY-JUDD'S INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
NET SALES................................................................................... $ 76,946 $ 33,777
OPERATING EXPENSES:
Costs of production....................................................................... 61,546 27,906
Selling, general and administrative....................................................... 7,769 3,388
Depreciation.............................................................................. 3,078 1,615
Amortization of intangibles............................................................... 406 100
--------- ---------
72,799 33,009
--------- ---------
INCOME FROM OPERATIONS...................................................................... 4,147 768
--------- ---------
OTHER (INCOME) EXPENSES:
Interest expense.......................................................................... 3,864 1,430
Amortization of deferred financing costs.................................................. 397 150
Interest income........................................................................... (89) (10)
Loss (gain) on sale of assets............................................................. (41) --
Other, net................................................................................ 108 57
--------- ---------
4,239 1,627
--------- ---------
LOSS BEFORE INCOME TAXES.................................................................... (92) (859)
PROVISION (BENEFIT) FOR INCOME TAXES........................................................ 107 (339)
--------- ---------
LOSS BEFORE DIVIDENDS ON REDEEMABLE PREFERRED STOCK......................................... (199) (520)
DIVIDENDS ON REDEEMABLE PREFERRED STOCK..................................................... 260 255
--------- ---------
NET LOSS.................................................................................... $ (459) $ (775)
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
F-22
<PAGE>
PERRY-JUDD'S INCORPORATED
CONSOLIDATED STATEMENTS OF MINORITY INTERESTS,
PREFERRED STOCK AND SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MINORITY INTERESTS PREFERRED STOCK COMMON STOCK
---------------------- ---------------------- --------------------
CARRYING CARRYING CARRYING ACCUMULATED
SHARES VALUE SHARES VALUE SHARES VALUE DEFICIT
--------- ----------- --------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997.................... 69,348 $ 6,935 95,620 $ 9,562 860,010 $ 21,501 $ (4,689)
Net loss............................. -- -- -- -- -- -- (459)
Stock dividends...................... 400 40 3,590 359 -- -- (359)
--------- ----------- --------- ----------- --------- --------- ------------
March 31, 1998....................... 69,748 $ 6,975 99,210 $ 9,921 860,010 $ 21,501 $ (5,507)
--------- ----------- --------- ----------- --------- --------- ------------
--------- ----------- --------- ----------- --------- --------- ------------
</TABLE>
See notes to condensed consolidated financial statements.
F-23
<PAGE>
PERRY JUDD'S INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................................... $ (459) $ (775)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Depreciation and amortization.............................................................. 3,881 1,865
Deferred income tax provision.............................................................. 41 --
Loss (gain) on sale of fixed assets........................................................ (41) --
Changes in operating assets and liabilities:
Accounts receivable -- net............................................................... 1,257 (1,090)
Inventories.............................................................................. 1,259 3,237
Accounts payable and accrued expenses.................................................... (3,450) (1,797)
Other assets and liabilities -- net...................................................... (875) (129)
--------- ---------
Net cash provided by operating activities.............................................. 1,613 1,311
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment -- net.......................................... (4,574) (675)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repayments............................................................................ (523) (2,815)
--------- ---------
Decrease in cash and cash equivalents........................................................ (3,484) (2,179)
Cash and cash equivalents, beginning of period............................................... 3,779 2,183
--------- ---------
Cash and cash equivalents, end of period..................................................... $ 295 $ 4
--------- ---------
--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
F-24
<PAGE>
PERRY JUDD'S INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements have
been prepared by Perry Judd's Incorporated (along with its subsidiaries, the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission and reflect normal and recurring adjustments, which are, in the
opinion of the Company, considered necessary for a fair presentation. As
permitted by these regulations, these statements do not include all information
required by generally accepted accounting principles to be included in an annual
set of financial statements, however, the Company believes that the disclosures
are adequate to make the information presented not misleading. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the consolidated financial statements and the notes thereto included in the
Company's latest audited financial statements.
Effective December 16, 1997, the Company acquired all of the outstanding
capital stock of Judd's Incorporated ("Judd's") for approximately $102.0 million
less outstanding indebtedness of Judd's. The acquisition was accounted for under
the purchase method of accounting and accordingly the results of operations are
included in the accompanying financial statements since the acquisition date.
The preliminary allocation of the purchase price is based upon the estimated
fair value of the assets acquired and liabilities assumed as follows (in
thousands):
<TABLE>
<S> <C>
Fair value of assets acquired..................................... $ 108,394
Goodwill.......................................................... 28,597
Fair value of liabilities assumed................................. (72,483)
Amounts paid to creditors and preferred shareholders.............. 37,484
---------
Cash paid for net assets acquired................................. $ 101,992
---------
---------
</TABLE>
2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Work-in-process..................................................... $ 5,789 $ 6,137
Raw materials and production supplies............................... 11,426 12,337
----------- ------------
----------- ------------
Total............................................................... $ 17,215 $ 18,474
----------- ------------
----------- ------------
</TABLE>
3. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in the financial statements. The Company adopted this
statement in the first quarter of 1998. The adoption of SFAS No. 130 did not
have a material effect on the Company's consolidated financial statements.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
which standardizes the disclosure for pensions and other postretirement
benefits. The Company will adopt this statement for the fiscal year
F-25
<PAGE>
PERRY JUDD'S INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS (Continued)
ended 1998. The Company is currently evaluating the impact SFAS No. 132 may have
on additional disclosure, if any, to its consolidated financial statements.
4. CONTINGENCIES
In connection with the acquisition of Perry Printing, the Company issued
50,000 and 65,000 shares of Series A and B redeemable preferred stock,
respectively, to the former owner of Perry Printing. During 1996, the Company
made two indemnity claims against the former owner of Perry Printing principally
involving breaches of warranties and representations made on certain assets
under its Asset Purchase Agreement. Redemption features of the Series A
redeemable preferred stock provided the Company with the option to offset such
claims as immediate redemption of the Series A redeemable preferred stock up to
the maximum redemption value of $5 million. Accordingly, the carrying value of
the Series A redeemable preferred stock was reduced to $-0- in the financial
statements at December 31, 1996. The former owner of Perry Printing has objected
to these claims for indemnification and management anticipates the claims may
result in litigation but believes the Company's position of the claims will be
upheld.
Additionally, the Company has asserted a claim against the former owner of
Perry Printing for an approximate $1.8 million employee benefit obligation
incurred prior to April 28, 1995, which is now an obligation of the Company to
its employees covered by collective bargaining agreements. This amount has been
reflected as an increase to both assets and liabilities pending resolution with
the former owner of Perry Printing. Management believes that the Company's
position in the claim will be upheld.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Judd's, Incorporated
We have audited the accompanying consolidated balance sheet of Judd's,
Incorporated and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period then ended. 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 financial position of Judd's,
Incorporated and Subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for each of the two years in the period then
ended in conformity with generally accepted accounting principles.
STOY, MALONE & COMPANY, P.C.
Bethesda, Maryland
February 4, 1997
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Judd's Incorporated:
We have audited the accompanying consolidated balance sheet of Judd's
Incorporated and subsidiaries as of December 15, 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the period from January 1, 1997 to December 15, 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Judd's Incorporated and
subsidiaries as of December 15, 1997, and the results of their operations and
their cash flows for the period from January 1, 1997 to December 15, 1997 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
May 4, 1998
Milwaukee, Wisconsin
F-28
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 15,
1997
(AS
DECEMBER 31, RESTATED- SEE
1996 NOTE 11)
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................................... $ 3,895 $ 9,577
Marketable equity securities, at fair value........................................ 1,250 --
Accounts receivable:
Trade, net....................................................................... 19,401 16,351
Other............................................................................ 864 870
Income taxes receivable............................................................ 196 --
Inventories:
Raw materials.................................................................... 7,328 5,085
Work in process.................................................................. 2,065 3,026
Prepaid expenses................................................................... 483 848
Deferred income taxes.............................................................. 624 334
------------ ------------
Total current assets........................................................... 36,106 36,091
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land............................................................................... 922 922
Buildings.......................................................................... 23,384 23,539
Equipment.......................................................................... 87,818 92,771
Projects in progress............................................................... 749 7
------------ ------------
112,873 117,239
Less accumulated depreciation...................................................... 63,521 71,146
------------ ------------
Property, plant and equipment, net............................................... 49,352 46,093
------------ ------------
OTHER ASSETS:
Deferred costs, net:
Lease acquisition costs.......................................................... 714 523
Debt expense..................................................................... 161 175
Lease commissions................................................................ 46 --
Other.............................................................................. 176 81
------------ ------------
Total other assets............................................................... 1,097 779
------------ ------------
Total assets................................................................... $ 86,555 $ 82,963
------------ ------------
------------ ------------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-29
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 15,
1997
(AS
DECEMBER 31, RESTATED- SEE
1996 NOTE 11)
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable--current maturities.................................................. $ 8,680 $ 4,693
Accounts payable................................................................... 11,809 8,108
Accrued expenses................................................................... 5,279 4,940
Income taxes payable............................................................... 15 345
Security deposits.................................................................. 39 44
Deferred income.................................................................... 606 213
------------ ------------
Total current liabilities...................................................... 26,428 18,343
------------ ------------
LONG-TERM LIABILITIES:
Notes payable...................................................................... 22,838 36,470
Debenture bonds payable............................................................ 3,293 3,226
Accrued pension plan............................................................... 659 689
Deferred income.................................................................... -- 608
Deferred income taxes.............................................................. 3,385 3,419
------------ ------------
Total long-term liabilities...................................................... 30,175 44,412
------------ ------------
Total liabilities.............................................................. 56,603 62,755
------------ ------------
MINORITY INTERESTS IN SUBSIDIARIES................................................... 176 156
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock; $10 par value; 7% cumulative; nonparticipating; 100,000 shares
authorized; 620 shares outstanding............................................... 6 6
Common stock; Class A voting; $1 par value; 500,000 shares authorized; 427,320
shares issued.................................................................... 427 427
Common stock; Class B nonvoting; $1 par value; 1,000,000 shares authorized; 985,580
and -0- shares issued at December 31, 1996 and December 15, 1997, respectively... 986 --
Capital contributed in excess of par value......................................... 9,287 --
Retained earnings.................................................................. 28,506 21,342
------------ ------------
39,212 21,775
Treasury stock, at cost; 1996--816,717 shares and 1997--156,060 shares............. (9,436) (1,723)
------------ ------------
Total shareholders' equity....................................................... 29,776 20,052
------------ ------------
Total liabilities and shareholders' equity..................................... $ 86,555 $ 82,963
------------ ------------
------------ ------------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-30
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 349 DAYS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 15,
1995 1996 1997
------------ ------------ ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
NET SALES........................................................... $ 141,222 $ 152,563 $ 131,938
------------ ------------ ---------------
OPERATING EXPENSES:
Costs of production............................................... 108,880 119,039 99,396
Selling, general and administrative............................... 18,569 19,426 18,073
Depreciation...................................................... 7,929 7,797 8,241
Amortization of intangibles....................................... 165 164 191
------------ ------------ ---------------
135,543 146,426 125,901
------------ ------------ ---------------
INCOME FROM OPERATIONS.............................................. 5,679 6,137 6,037
------------ ------------ ---------------
OTHER (INCOME) EXPENSES:
Interest expense.................................................. 3,327 3,066 3,384
Amortization of deferred debt expense............................. 23 78 35
Investment income, net............................................ (825) (306) (411)
Other, net........................................................ (160) (153) 429
------------ ------------ ---------------
2,365 2,685 3,437
------------ ------------ ---------------
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS IN EARNINGS OF
SUBSIDIARIES...................................................... 3,314 3,452 2,600
PROVISION FOR INCOME TAXES.......................................... 1,459 1,447 1,143
------------ ------------ ---------------
INCOME BEFORE MINORITY INTERESTS IN EARNINGS OF SUBSIDIARIES........ 1,855 2,005 1,457
Minority interests in earnings of subsidiaries...................... 14 12 20
------------ ------------ ---------------
NET INCOME.......................................................... $ 1,841 $ 1,993 $ 1,437
------------ ------------ ---------------
------------ ------------ ---------------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-31
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK CONTRIBUTED IN
PREFERRED ------------------------ EXCESS OF PAR RETAINED TREASURY
STOCK CLASS A CLASS B VALUE EARNINGS STOCK
------------- ----------- ----------- --------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995................... $ 8 $ 427 $ 986 $ 8,936 $ 24,674 $ (7,756)
Net income............................... -- -- -- -- 1,841 --
Purchase of 72,445 shares of treasury
stock.................................. -- -- -- -- -- (1,565)
Reissuance of 4,490 shares of treasury
stock.................................. -- -- -- 128 -- 49
Cash dividends on preferred stock ($.70
per share)............................. -- -- -- -- (1) --
--- ----- ----- ------- ----------- -----------
Balance, December 31, 1995................. 8 427 986 9,064 26,514 (9,272)
Net income............................... -- -- -- -- 1,993 --
Redemption of 179 shares of preferred
stock.................................. (2) -- -- -- -- --
Purchase of 36,058 shares of treasury
stock.................................. -- -- -- -- -- (244)
Reissuance of 6,831 shares of treasury
stock.................................. -- -- -- 223 -- 80
Cash dividends on preferred stock ($.70
per share)............................. -- -- -- -- (1) --
--- ----- ----- ------- ----------- -----------
Balance, December 31, 1996................. 6 427 986 9,287 28,506 (9,436)
Net income............................... -- -- -- -- 1,437 --
Purchase of 116,453 shares of treasury
stock.................................. -- -- -- -- -- (702)
Reissuance of 6,530 shares of treasury
stock.................................. -- -- -- 225 -- 66
Recapitalization......................... -- -- (986) (9,512) (8,601) 8,349
--- ----- ----- ------- ----------- -----------
Balance, December 15, 1997................. $ 6 $ 427 $ -- $ -- $ 21,342 $ (1,723)
--- ----- ----- ------- ----------- -----------
--- ----- ----- ------- ----------- -----------
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balance, January 1, 1995................... $ 27,275
Net income............................... 1,841
Purchase of 72,445 shares of treasury
stock.................................. (1,565)
Reissuance of 4,490 shares of treasury
stock.................................. 177
Cash dividends on preferred stock ($.70
per share)............................. (1)
-------------
Balance, December 31, 1995................. 27,727
Net income............................... 1,993
Redemption of 179 shares of preferred
stock.................................. (2)
Purchase of 36,058 shares of treasury
stock.................................. (244)
Reissuance of 6,831 shares of treasury
stock.................................. 303
Cash dividends on preferred stock ($.70
per share)............................. (1)
-------------
Balance, December 31, 1996................. 29,776
Net income............................... 1,437
Purchase of 116,453 shares of treasury
stock.................................. (702)
Reissuance of 6,530 shares of treasury
stock.................................. 291
Recapitalization......................... (10,750)
-------------
Balance, December 15, 1997................. $ 20,052
-------------
-------------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-32
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 1,841 $ 1,993
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment..................................... 7,929 7,797
Amortization of deferred costs.................................................... 192 251
Deferred income taxes............................................................. 390 489
Provision for doubtful accounts................................................... (32) 292
Net gain on sales of equipment.................................................... (39) (64)
Profit sharing distribution paid through the issuance of debenture bonds.......... 252 287
Profit sharing and bonus distribution paid through the reissuance of treasury
stock............................................................................ 177 278
Minority interests in earnings of subsidiaries.................................... 14 12
Changes in operating assets and liabilities:
Marketable equity securities.................................................... 5,935 (48)
Accounts receivable............................................................. (3,788) 229
Income taxes receivable......................................................... 70 (129)
Inventories..................................................................... (6,781) 5,203
Prepaid expenses................................................................ (116) (3)
Lease acquisition costs......................................................... -- (348)
Deferred lease commissions...................................................... (27) (29)
Other assets.................................................................... 42 52
Accounts payable................................................................ (835) 1,872
Accrued expenses................................................................ 512 304
Income taxes payable............................................................ (213) (5)
Security deposits............................................................... 18 (4)
Deferred income................................................................. 168 438
Long-term accrued pension plan.................................................. 102 39
------------- -------------
Net cash provided by operating activities..................................... 5,811 18,906
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equipment.................................................... 205 169
Purchases of property, plant and equipment.......................................... (7,746) (5,954)
------------- -------------
Net cash used in investing activities......................................... (7,541) (5,785)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable......................................................... 5,010 8,953
Principal payments on notes payable................................................. (4,069) (18,841)
Payment of loan acquisition fees.................................................... -- (55)
Proceeds from issuance of debenture bonds........................................... 18 21
Redemption of debenture bonds....................................................... (223) (273)
Redemption of preferred stock....................................................... -- (2)
Proceeds from reissuance of treasury stock.......................................... -- 25
Payments to acquire treasury stock.................................................. (345) (209)
Redemption of minority interests in subsidiaries.................................... (10) (11)
Cash dividends...................................................................... (1) (1)
Cash dividends paid to minority interests in subsidiaries........................... (14) (12)
------------- -------------
Net cash provided by (used in) financing activities........................... 366 (10,405)
------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... (1,364) 2,716
CASH AND CASH EQUIVALENTS:
Beginning of year................................................................... 2,543 1,179
------------- -------------
End of year......................................................................... $ 1,179 $ 3,895
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.......................................................................... $ 3,339 $ 3,149
------------- -------------
------------- -------------
Income taxes...................................................................... $ 1,387 $ 1,116
------------- -------------
------------- -------------
Additions to property, plant and equipment not paid for during the year............. $ 1,224 $ 1,115
------------- -------------
------------- -------------
Notes issued to acquire treasury stock.............................................. $ 1,220 $ 35
------------- -------------
------------- -------------
Seller-financed property, plant and equipment addition.............................. $ -- $ 205
------------- -------------
------------- -------------
<CAPTION>
349 DAYS ENDED
DECEMBER 15,
1997
---------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 1,437
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment..................................... 8,241
Amortization of deferred costs.................................................... 226
Deferred income taxes............................................................. 324
Provision for doubtful accounts................................................... (79)
Net gain on sales of equipment.................................................... (27)
Profit sharing distribution paid through the issuance of debenture bonds.......... 244
Profit sharing and bonus distribution paid through the reissuance of treasury
stock............................................................................ 291
Minority interests in earnings of subsidiaries.................................... 20
Changes in operating assets and liabilities:
Marketable equity securities.................................................... 1,250
Accounts receivable............................................................. 3,123
Income taxes receivable......................................................... 196
Inventories..................................................................... 1,282
Prepaid expenses................................................................ (365)
Lease acquisition costs......................................................... --
Deferred lease commissions...................................................... --
Other assets.................................................................... 141
Accounts payable................................................................ (2,586)
Accrued expenses................................................................ (339)
Income taxes payable............................................................ 330
Security deposits............................................................... 5
Deferred income................................................................. 215
Long-term accrued pension plan.................................................. 30
-------
Net cash provided by operating activities..................................... 13,959
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equipment.................................................... 94
Purchases of property, plant and equipment.......................................... (6,164)
-------
Net cash used in investing activities......................................... (6,070)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable......................................................... 7,954
Principal payments on notes payable................................................. (9,080)
Payment of loan acquisition fees.................................................... (49)
Proceeds from issuance of debenture bonds........................................... 1
Redemption of debenture bonds....................................................... (312)
Redemption of preferred stock....................................................... --
Proceeds from reissuance of treasury stock.......................................... --
Payments to acquire treasury stock.................................................. (681)
Redemption of minority interests in subsidiaries.................................... (20)
Cash dividends...................................................................... --
Cash dividends paid to minority interests in subsidiaries........................... (20)
-------
Net cash provided by (used in) financing activities........................... (2,207)
-------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... 5,682
CASH AND CASH EQUIVALENTS:
Beginning of year................................................................... 3,895
-------
End of year......................................................................... $ 9,577
-------
-------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.......................................................................... $ 3,017
-------
-------
Income taxes...................................................................... $ 306
-------
-------
Additions to property, plant and equipment not paid for during the year............. --
-------
-------
Notes issued to acquire treasury stock.............................................. $ 10,771
-------
-------
Seller-financed property, plant and equipment addition.............................. --
-------
-------
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
F-33
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Judd's, Incorporated and Subsidiaries (the "Company") is a full service
heatset web offset and sheetfed printer of magazines, catalogs and books. The
Company's Shenandoah Division serves a national domestic market in the printing
of weekly and monthly consumer, special interest and trade magazines, as well as
catalogs and advertising inserts. The Company's Port City Division prints a
variety of association, medical, legal and reference books, along with business
directories.
A summary of significant accounting policies of the Company is presented
below.
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of Judd's, Incorporated and its subsidiaries,
Judd & Detweiler, Inc., Port City Press, Inc., Shenandoah Valley Press, Inc.,
and Mount Jackson Press, Inc. The Company owns 100% of the common stock of each
subsidiary. Minority interests in subsidiaries represents the outstanding
preferred stock of those companies. All significant intercompany transactions
and balances have been eliminated.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS. The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
MARKETABLE EQUITY SECURITIES. Marketable equity securities consist of an
investment in a fixed income mutual fund. Management considers its investment to
be a trading security. Accordingly, this security is reported at fair value and
unrealized holding gains and losses are included in the consolidated statement
of operations in the year in which such gains and losses occur.
ACCOUNTS RECEIVABLE. Accounts receivable - trade is shown net of allowance
for doubtful accounts. Management's periodic evaluation of the adequacy of the
allowance is based on past loss experience, known and inherent risks in the
receivables, and other applicable factors. The allowance for doubtful accounts
was $969,000 at December 31, 1996 and $882,000 at December 15, 1997.
INVENTORIES. Inventories are stated at the lower of cost or market, with
cost being determined by the first-in, first-out method. Work in process is
valued under the standard job cost method using the full-absorption method. In
all significant areas, the standard costs are reviewed annually and adjusted
accordingly.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated at
cost less accumulated depreciation. Depreciation is computed using primarily the
straight-line method at rates calculated to allocate the cost of the applicable
assets over their estimated useful lives.
DEFERRED COSTS. Deferred costs are amortized over their estimated lives
using the straight-line method. Lease acquisition costs and lease commissions
are amortized over the terms of the related leases. Debt expense is amortized
over the length of the applicable loan. Accumulated amortization of deferred
costs was $1,416,947 at December 31, 1996 and $1,652,980 at December 15, 1997.
F-34
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS. The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset in question may not be recoverable. No impairment
losses were recorded for 1995, 1996 and 1997.
REVENUE RECOGNITION. Revenue from sales is recognized upon the completion
of each job, which generally coincides with physical delivery and acceptance.
Amounts paid by customers prior to job completion are reflected as deferred
income.
INCOME TAXES. Deferred income taxes are provided using an asset and
liability approach whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their respective tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of cash and cash
equivalents, accounts receivable, accounts payable, and accrued expenses
approximates fair value at December 31, 1996 and December 15, 1997 due to their
short-term nature. Based on interest rates currently available to the Company,
the carrying value of the variable rate notes payable is a reasonable estimation
of fair value, because the debt bears interest based on short-term interest
rates. The Company's carrying value of its fixed rate notes payable and
debenture bonds payable is a reasonable estimation of fair value because the
stated interest rates approximate market rates.
NEW ACCOUNTING PRONOUNCEMENTS. Statement of Financial Accounting Standards
No. 129, "Disclosure of Information about Capital Structure," was issued in
February 1997. This statement establishes standards for disclosing information
about an entity's capital structure. This statement is effective for financial
statements for periods ending after December 15, 1997. The Company is currently
analyzing the reporting and disclosure requirements and will adopt this standard
in the upcoming year.
NOTE 2--ACCRUED EXPENSES:
Accrued expenses are detailed below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 15,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Salaries, wages and other compensation........................... $ 1,286 $ 1,029
Vacation and holiday pay......................................... 617 536
Pension plan..................................................... 857 925
Profit sharing................................................... 461 364
401(k) plan...................................................... 477 450
Interest and taxes............................................... 785 1,241
Insurance........................................................ 796 395
------ ------
$ 5,279 $ 4,940
------ ------
------ ------
</TABLE>
F-35
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--LONG-TERM DEBT:
Long-term notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 15,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Notes payable, unsecured:
10-year guaranteed senior notes due November 18, 2003.......... $ 23,333 $ 20,000
10-year senior subordinated notes due June 30, 2007............ -- 10,750
Notes payable, banks:
Secured line of credit......................................... 4,604 --
Secured term notes............................................. -- 7,554
Notes payable, treasury stock:
Unsecured 10-year notes to former shareholders for the purchase
of treasury stock; interest at rates varying from 6% to 9%
per annum; these notes mature during 1998 to 2007............ 3,396 2,859
Notes payable, other:
Seller-financed installment note bearing interest at 10% per
annum and requiring monthly principal and interest payments
of $3,869; secured by equipment.............................. 47 --
Seller-financed installment note bearing interest at 8% per
annum and requiring monthly principal and interest payments
of $17,708; secured by equipment............................. 138 --
------------ ------------
31,518 41,163
Less current maturities...................................... 8,680 4,693
------------ ------------
Total long-term notes payable.............................. $ 22,838 $ 36,470
------------ ------------
------------ ------------
</TABLE>
The guaranteed senior notes in the original amount of $30 million were
issued by the Company to finance the purchase of certain printing equipment and
building expansion for Shenandoah Valley Press, Inc. These notes are payable in
semi-annual installments of $1,666,667, plus interest, through November 18,
2003. However, the Company can, at its option, prepay principal amounts in whole
or in part any time subsequent to November 18, 1996 in multiples of $500,000.
The original interest rate was 7.71% per annum, but was adjusted to 7.96% per
annum for the period from May 18, 1997 through December 31, 1998. The rate will
revert back to 7.71% per annum on January 1, 1999, provided the Company is in
compliance with certain financial covenants. Interest is payable semi-annually.
These notes are guaranteed by the Company and its subsidiaries and are subject
to certain financial and other covenants.
The Senior Subordinated Notes payable in the original amount of $10,750,000
were issued by the Company on May 1, 1997 in exchange for all the then
outstanding Class B Common Stock (see Note 5). These notes are unsecured and are
payable in full on June 30, 2007, however, the Company can, at its option,
prepay the notes in whole or in part from time to time with a premium as
stipulated in the Note Agreement. Interest on these notes is at a rate of 9.77%
per annum and is paid annually each June 30. This interest rate is subject to a
fifteen (15) basis point increase in the event the Company is not in compliance
with certain financial covenants under the agreement for the Guaranteed Senior
Notes.
F-36
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--LONG-TERM DEBT: (CONTINUED)
The Company has an unsecured line of credit of $12,000,000 with three banks
which expires December 31, 1998. Borrowings under this line bear interest at
varying rates per annum which are based on the Prime, Federal Funds, or Euro
Dollar interest rates, as elected by the Company each calendar quarter. This
line is guaranteed by the Company and its subsidiaries and is subject to certain
financial and other covenants.
The secured line of credit, which expired on March 31, 1997, was used for
short-term bridge financing for the acquisition of certain printing equipment.
The original committed amount under this line was $16,000,000, but was
permanently reduced to $7,960,165 as of December 31, 1996. Borrowings under this
line bore interest at varying rates per annum which were based on the Prime,
Federal Funds, or Euro Dollar interest rates, as elected by the Company each
calendar quarter. In addition to being secured by the purchased printing
equipment, this line was guaranteed by the Company and its subsidiaries and was
subject to certain financial and other covenants. This line was replaced with
permanent financing on March 31, 1997 with the same banks, as further described
in the following paragraph.
The Secured Term Notes were issued on March 31, 1997 in the aggregate amount
of $7,954,409; one-half by Signet Bank and the other half by Chevy Chase Bank.
The terms of these notes require aggregate quarterly principal payments of
$200,000 commencing June 30, 1997. The Signet note matures on March 31, 2002
with a final installment of $2,077,205 due. The Chevy Chase note matures on
March 31, 2007 with a final installment of $77,205 due. Interest on the Signet
and Chevy Chase notes bear interest at 9.15% and 8.63% per annum, respectively,
and is paid quarterly commencing June 30, 1997. In addition to being secured by
certain printing equipment, these notes are guaranteed by the Company and its
subsidiaries and are subject to certain financial and other covenants.
Debenture bonds payable:
The Company has two series of unsecured debenture bonds outstanding as
described below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 15,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Series A bonds; redeemable at the option of the holder and
bearing interest at a rate of 9% per annum..................... $ 250 $ 250
Series B bonds; due 30 years from the date of issuance and
bearing interest at a rate of 8% per annum; all Series B bonds
outstanding at December 31, 1996 and December 15, 1997 are due
after the year ending December 31, 2010; the Company has
reserved the right to call the Series B bonds prior to maturity
without payment of a call premium.............................. 3,043 2,976
------ ------
Total........................................................ $ 3,293 $ 3,226
------ ------
------ ------
</TABLE>
F-37
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--LONG-TERM DEBT: (CONTINUED)
Future maturities of long-term debt at December 15, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR
- ------------------------------------------------------------------------------- AMOUNT
-------------
(IN
THOUSANDS)
<S> <C>
1998........................................................................... $ 4,693
1999........................................................................... 4,652
2000........................................................................... 4,647
2001........................................................................... 4,516
2002........................................................................... 6,119
Later years.................................................................... 19,762
-------------
Total...................................................................... $ 44,389
-------------
-------------
</TABLE>
NOTE 4--LEASE COMMITMENTS:
The Company leases office space and equipment under operating leases, which
expire during 1998 through 2006. Certain office space leases provide for
additional payments of a pro rata share of operating expenses and future
increases in real estate taxes. Certain equipment leases contain options to
purchase the equipment at the end of the lease term at fair value. The following
is a schedule by years of future minimum rental payments required as of December
15, 1997 under these leases:
<TABLE>
<CAPTION>
YEAR
- ------------------------------------------------------------------------------- AMOUNT
-------------
(IN
THOUSANDS)
<S> <C>
1998........................................................................... $ 3,627
1999........................................................................... 2,558
2000........................................................................... 1,353
2001........................................................................... 1,166
2002........................................................................... 1,130
Later years.................................................................... 4,095
-------------
Total...................................................................... $ 13,929
-------------
-------------
</TABLE>
F-38
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LEASE COMMITMENTS: (CONTINUED)
The following is an analysis of total rent expense for all operating leases:
<TABLE>
<CAPTION>
349 DAYS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 15,
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term leases:
Minimum rentals................................. $ 2,649 $ 2,634 $ 3,323
Contingent rentals.............................. 60 48 34
------ ------ ------
2,709 2,682 3,357
------ ------ ------
Short-term leases:
Equipment....................................... 50 44 50
Warehouse....................................... 60 111 94
Sales office.................................... 27 27 29
------ ------ ------
137 182 173
------ ------ ------
Total......................................... $ 2,846 $ 2,864 $ 3,530
------ ------ ------
------ ------ ------
</TABLE>
NOTE 5--CAPITAL STOCK:
The Company, under an agreement with its shareholders, has the option to
purchase the Class A voting common stock of the Company at its book value at the
end of the year preceding the year in which the Company exercises its option to
purchase the stock. The agreement also states that notes payable issued for 90%
of the purchase price shall be curtailed annually by equal payments over a
ten-year period, plus interest.
The Company has entered into stock purchase agreements to purchase 351,130
shares of its Class B nonvoting common stock for $2,018,295. The terms of the
agreements stipulate that 10% of the shares are to be purchased each year on
July 1, (the "closing") beginning July 1, 1990. However, under certain
circumstances, the closing (other than the first closing) can be postponed,
provided that all shares to be purchased under the agreements, including shares
not purchased when one or more scheduled closings have been postponed, are
purchased and paid for no later than July 1, 2003. During both 1995 and 1996,
the Company purchased 35,080 shares under these agreements at a total cost of
$201,640. During 1997, the Company purchased the remaining 115,770 shares
outstanding under the agreements at a cost of $665,453.
On April 30, 1997, the Company's shareholders approved a plan of
recapitalization. In connection with this plan, the Company acquired all of the
outstanding Class B common shares in exchange for notes payable and subsequently
canceled the Class B common stock. The recapitalization also increased the
number of authorized shares of Class A common stock to 2,500,000 and created a
new class of preferred stock with 500,000 shares authorized. As of December 15,
1997, there were no shares of this newly created preferred stock issued.
F-39
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--CAPITAL STOCK: (CONTINUED)
The number of shares held in the treasury are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 15,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Class A Common Stock.............................. 167,760 161,907 156,060
Class B Common Stock.............................. 619,730 654,810 --
</TABLE>
NOTE 6--PENSION PLAN:
The Company participates in a noncontributory defined benefit pension plan
which provides coverage for all full-time permanent employees who meet the
length of service and age requirements specified in the plan. Contributions to
the plan reflect benefits attributed to employees' services to date and benefits
for expected future services. Plan assets were primarily invested in various
mutual funds at December 31, 1996 and December 15, 1997.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 15,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Projected benefit obligation....................................................... $ (7,829) $ (9,020)
Plan assets at fair value.......................................................... 7,588 9,686
------------ ------------
Projected benefit obligation (over) under plan assets................................ (241) 666
Unrecognized net transition obligation............................................... 49 41
Unrecognized prior service benefit................................................... (99) (90)
Unrecognized net gain................................................................ (1,225) (2,231)
------------ ------------
Accrued pension cost............................................................. $ (1,516) $ (1,614)
------------ ------------
------------ ------------
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
349 DAYS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 15,
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $ 780 $ 811 $ 870
Interest cost on projected benefit obligation..... 454 537 620
Actual return on plan assets...................... (304) (388) (470)
Net amortization.................................. (3) (9) (32)
----- ----- -----
Net pension cost.............................. $ 927 $ 951 $ 988
----- ----- -----
----- ----- -----
</TABLE>
The accumulated benefit obligation at December 31, 1995 and 1996 and at
December 15, 1997 was $5,199,823, $6,014,063 and $7,025,192, respectively. The
weighted-average discount rate for 1995, 1996 and 1997 used to measure the
projected benefit obligation is 8.0%. The rate of increase in future
compensation levels for 1995, 1996 and 1997 is 6.5%, and the expected long-term
rate of return on assets is 6.0% for
F-40
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--PENSION PLAN: (CONTINUED)
1995, 1996 and 1997. The Company uses the straight-line method of amortization
for the unrecognized items.
During 1996, the Company adopted a nonqualified pension plan for certain key
employees. Pension expense under this plan amounted to $120,000 for the year
ended December 31, 1996 and $40,000 for the 349 days ended December 15, 1997.
NOTE 7--401(K) PLAN:
The Company maintains a contributory retirement 401(k) savings plan for
employees. Employees who meet the length of service and age requirements
specified in the plan agreement can contribute from 2% to 15% of their salary to
the plan, up to a maximum established by law. For eligible employees electing to
participate, the Company will also make a contribution to the plan equal to 25%
of the first 6% contributed by the employees. The total expense under this plan
amounted to $336,764, $351,988, and $358,454 for 1995 and 1996 and 1997,
respectively.
NOTE 8--INVESTMENT INCOME:
Investment income is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 349 DAYS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 15,
1995 1996 1997
--------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest and dividends............................ $ 460 $ 330 $ 386
Realized loss on sales............................ (290) -- --
Net unrealized holding gains (losses)............. 655 (24) 25
----- ----- -----
Investment income, net............................ $ 825 $ 306 $ 411
----- ----- -----
----- ----- -----
</TABLE>
F-41
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--INCOME TAXES:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 15,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment...................................................... $ 5,414 $ 5,704
Other.............................................................................. 259 204
------ ------
Total deferred tax liabilities................................................... 5,673 5,908
------ ------
Deferred tax assets:
Allowance for doubtful accounts.................................................... 369 157
Accrued pension and vacation liabilities........................................... 342 402
Alternative minimum tax credit carryforwards....................................... 1,689 1,758
Other.............................................................................. 649 643
------ ------
3,049 2,960
Less valuation allowance......................................................... 137 137
------ ------
Total deferred tax assets...................................................... 2,912 2,823
------ ------
Net deferred tax liabilities................................................... $ 2,761 $ 3,085
------ ------
------ ------
</TABLE>
The deferred tax amounts above have been classified in the accompanying
consolidated balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 15,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Long-term liabilities................................................................ $ 3,385 $ 3,419
Current assets....................................................................... 624 334
------ ------
Net deferred tax liabilities....................................................... $ 2,761 $ 3,085
------ ------
------ ------
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
349 DAYS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 15,
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current............................................................... $ 1,069 $ 958 $ 798
Deferred.............................................................. 390 489 345
------ ------ ------
Total............................................................... $ 1,459 $ 1,447 $ 1,143
------ ------ ------
------ ------ ------
</TABLE>
F-42
<PAGE>
JUDD'S, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--INCOME TAXES: (CONTINUED)
Income tax expense differs from that computed at the statutory Federal
income tax rate as follows:
<TABLE>
<CAPTION>
349 DAYS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 15,
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory Federal income tax rate................. 34% 34% 34%
Income tax expense at statutory rate.............. $ 1,127 $ 1,174 $ 884
State income taxes, net of Federal income tax
benefit......................................... 154 162 128
Other............................................. 178 111 131
------ ------ ------
Total......................................... $ 1,459 $ 1,447 $ 1,143
------ ------ ------
------ ------ ------
</TABLE>
NOTE 10--CONCENTRATION OF CREDIT RISK:
The Company's largest customer filed for bankruptcy in late 1996. Net sales
to this customer represented approximately 9%, 8% , and 0% of total net sales
for the years ended December 31, 1995 and 1996, and 349 days ended December 15,
1997, respectively.
Financial instruments consist principally of cash, cash equivalents,
accounts receivable and marketable equity securities. The Company's cash is
maintained primarily in two commercial banks located in the metropolitan
Washington, D.C. area and generally exceeds the federally insured limits. The
Company's cash equivalents consist of repurchase agreements through a financial
institution. Concentrations of credit risk with respect to accounts receivable
are limited due to the number of customers comprising the Company's customer
base and their dispersion across many different industries. Generally, the
Company does not require collateral or other security to support customer
receivables.
NOTE 11--SUBSEQUENT EVENT AND OTHER
The Company entered into a Plan and Agreement of Merger (the "Merger
Agreement") with PPC Holdings, Inc. ("PPC Holdings") which became effective on
December 16, 1997. Pursuant to the Merger Agreement, all of the outstanding
capital stock of the Company was acquired by PPC Holdings, and the Company
became a wholly-owned subsidiary of PPC Holdings (the "Acquisition"). All
indebtedness of the Company was repaid in conjunction with the Acquisition. The
aggregate merger consideration was $103 million before final price adjustments
associated with the level of working capital, including the repayment of
outstanding indebtedness of the Company at the closing date. The Acquisition was
effected by the merger of a wholly-owned subsidiary of PPC Holdings with and
into the Company.
The accompanying balance sheet at December 15, 1997 has been adjusted to
reflect the reduction of cash and accounts payable of $2,367,000 and the
reduction of accrued liabilities of $250,000 from a balance sheet prepared
solely for the purpose of determining a final working capital adjustment in
connection with the Acquisition. In addition, there are certain other
reclassifications to the presentation in this balance sheet.
F-43
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 5
Risk Factors.............................................................. 18
Description of the Acquisition............................................ 24
Use of Proceeds........................................................... 25
The Exchange Offer........................................................ 25
Capitalization............................................................ 33
Unaudited Pro Forma Condensed Combined Financial Data..................... 34
Selected Historical and Pro Forma Financial Data.......................... 38
Perry-Judd's Incorporated Management's Discussion and Analysis of
Financial Condition and Results of Operations........................... 42
Judd's, Incorporated Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 49
Business.................................................................. 52
Management................................................................ 62
Principal Stockholders.................................................... 70
Certain Transactions...................................................... 71
Description of Amended and Restated Credit Agreement...................... 72
Description of Note Conversion............................................ 72
Description of Sale/Leaseback............................................. 73
Description of Exchange Notes............................................. 74
Certain Federal Income Tax
Considerations.......................................................... 101
Plan of Distribution...................................................... 103
Transfer Restrictions..................................................... 104
Book Entry; Delivery and Form............................................. 105
Legal Matters............................................................. 106
Experts................................................................... 106
Available Information..................................................... 107
Index to Financial Statements............................................. F-1
</TABLE>
OFFER TO EXCHANGE
ALL OUTSTANDING
10 5/8% SENIOR SUBORDINATED
NOTES DUE 2007
($115,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 5/8% SENIOR SUBORDINATED
NOTES DUE 2007
OF
[LOGO]
---------------------
PROSPECTUS
---------------------
, 1998
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the state of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that such person as an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was illegal. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his duty. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.
In accordance with Delaware Law, the certificate of incorporation of the
Company contains a provision to limit the personal liability of the directors of
the Registrant for violations of their fiduciary duty. This provision eliminates
each director's liability to the Registrant or its stockholders for monetary
damages except (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware Law providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit. The effect of this provision is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their fiduciary
duty of care, including any such actions involving gross negligence.
Article VII, Section 6 of the Amended and Restated Bylaws of the Registrant
provides for indemnification of the officers and directors of the Registrant to
the fullest extent permitted by applicable law.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<S> <C>
2.1 Plan and Agreement of Merger by and among PPC Holdings, Inc., Naomi Acquisition Corp. and Judd's
Incorporated dated as of October 17, 1997.
3.1 Restated Certificate of Incorporation, as amended, of Perry-Judd's Incorporated.
3.2 Amended and Restated By-laws of Perry-Judd's Incorporated.
4.1 Indenture dated as of December 16, 1997 between the Company and U.S. Trust Company of California, N.A.,
as Trustee, including forms of Senior Notes.
4.2 Registration Rights Agreement dated as of December 16, 1997 between the Company and BT Alex. Brown as
Initial Purchaser.
5.1* Opinion of Brobeck, Phleger & Harrison LLP with respect to Perry-Judd's, Incorporated and Subsidiaries.
5.2* Opinion of Berliner, Corcoran & Rowe, L.L.P. with respect to Judd's, Incorporated, Port City Press, Inc.
and Judd & Detweiler, Inc.
5.3* Opinion of Mackall, Mackall & Gibb, A Professional Corporation with respect to Shenandoah Valley Press,
Inc. and Mount Jackson Press, Inc.
10.1 Lease Agreement by and between Print (WI) QRS 12-40, Inc., Perry Graphic Communications, Inc. and Judd's
Incorporated dated as of December 16, 1997.
10.2 Amended and Restated Credit Agreement among Perry Graphic Communications, Inc., Shenandoah Valley Press,
Inc., and Port City Press, Inc., as Borrowers, the Lenders (as defined therein) and BT Commercial
Corporation as Agent dated as of December 16, 1997.
10.3 1995 Stock Option Plan, as amended.
10.4 Employment Agreement by and between the Company and Craig A. Hutchison dated April 28, 1995.
10.5 Stockholders Agreement by and among the stockholders of the Company named therein dated as of the 1st
day of July, 1996.
10.6 Amended and Restated Co-Sale Agreement by and among the stockholders of the Company named therein dated
as of December 30, 1996.
12+ Statement of Computation of Ratios for Perry-Judd's Incorporated, Judd's Incorporated and Perry-Judd's
Incorporated (pro forma).
21 Subsidiaries of Registrant.
23.1* Consent of Brobeck, Phleger & Harrison LLP (contained in the opinion filed as Exhibit 5.1).
23.2+ Independent Auditors' Consent and Report on Schedule of Deloitte & Touche LLP.
23.3+ Independent Auditors' Consent of Stoy, Malone & Company, P.C.
23.4* Consent of Berliner, Corcoran & Rowe, L.L.P. (contained in opinion filed as Exhibit 5.2).
23.5* Consent of Mackall, Mackall & Gibb, A Professional Corporation (contained in opinion filed as Exhibit
5.3)
24 Power of Attorney.
25 Form T-1 Statement of Eligibility of U.S. Trust Company of California, N.A.
27.1+ Financial Data Schedule for Perry-Judd's, Incorporated.
27.2+ Financial Data Schedule for Judd's, Incorporated.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------------------
+ Filed herewith.
* To be filed by amendment.
II-2
<PAGE>
FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts and Reserves
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or the notes thereto.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a party of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement, relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the 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 the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment, all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(f) The undersigned registrant hereby undertakes to file an application for
the purpose of determining eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrants have duly caused this Amendment No. 2 to the Registration Statement
to be signed on their behalf by the undersigned, thereunto duly authorized, in
the City of Glendora, California on the 29th day of May, 1998.
<TABLE>
<S> <C> <C>
PERRY-JUDD'S INCORPORATED;
PERRY GRAPHIC COMMUNICATIONS, INC.;
JUDD'S, INCORPORATED;
JUDD & DETWEILER, INC.;
MOUNT JACKSON PRESS, INC.;
PORT CITY PRESS, INC.;
SHENANDOAH VALLEY PRESS, INC.; AND
JUDD'S ONLINE, INC.
By: /s/ THOMAS V. BRESSAN
-----------------------------------------
Thomas V. Bressan
DIRECTOR AND SECRETARY
</TABLE>
SIGNATURE TITLES DATE
------------------------- -------------------------- -------------------
Senior Vice President and
By: * Chief Financial Officer
------------------------- (principal accounting May 29, 1998
Verne F. Schmidt officer), Perry-Judd's
and all Subsidiaries
President and Chief
Executive Officer
By: * (principal executive
------------------------- officer), Perry-Judd's May 29, 1998
Craig A. Hutchinson and all Subsidiaries;
Director, Perry-Judd's
and all Subsidiaries
By: * Chairman of the Board and
------------------------- Director, Perry-Judd's May 29, 1998
Robert E. Milhous and all Subsidiaries
Vice Chairman of the Board
By: * and Director,
------------------------- Perry-Judd's and all May 29, 1998
Paul B. Milhous Subsidiaries
By: /s/ THOMAS V. BRESSAN Director and Secretary,
------------------------- Perry-Judd's and all May 29, 1998
Thomas V. Bressan Subsidiaries
*By: /s/ THOMAS V. BRESSAN
-------------------------
Thomas V. Bressan
ATTORNEY-IN-FACT
II-4
<PAGE>
SCHEDULE II
PERRY-JUDD'S INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS OTHER
BALANCE CHARGED TO CHARGES BALANCE
BEGINNING COSTS AND DEDUCTIONS (DEDUCTIONS) END
OF YEAR EXPENSES (DESCRIBE) (DESCRIBE) OF YEAR
---------- ----------- ---------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
RECEIVABLE:
Year Ended December 31, 1997............ $ 319,800 $ 321,535 $ (257,335)(b) $ 882,000(a) $ 1,266,000
Year Ended December 31, 1996............ 427,548 137,241 (244,989)(b) -- 319,800
248 Days Ended December 31, 1995........ 364,724 474,978 (412,154)(b) -- 427,548
ALLOWANCE FOR OBSOLETE AND EXCESS
INVENTORIES:
Year Ended December 31, 1997............ $ 644,500 $ 190,497 $ (293,097)(c) $ 315,000(a) $ 856,900
Year Ended December 31, 1996............ 300,494 10,402 -- 333,604(d) 644,500
248 Days Ended December 31, 1995........ 276,700 23,794 -- -- 300,494
</TABLE>
- ------------------------
(a) Balance of acquired companies at acquisition date
(b) Write-offs of receivables, net of recoveries
(c) Disposal of obsolete inventory, net of recoveries
(d) Claim against former owner for aged and obsolete inventory
S-1
<PAGE>
EXHIBIT 12
PERRY-JUDD'S INCORPORATED
FIXED CHARGE RATIO COMPUTATION
<TABLE>
<CAPTION>
PREDECESSOR PERRY PRINTING PERRY-JUDD'S INCORPORATED
-------------------------------------------- -------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER
117 DAYS 248 DAYS ENDED 31,
------------------------------- ENDED APRIL DECEMBER 31, --------------------
1992 1993 1994 27, 1995 1995 1996 1997
--------- --------- --------- ----------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME (LOSS) BEFORE TAXES.............. $ 4,937 $ 4,897 $ 4,456 $ 1,744 $ 364 $ (82) $ (1,613)
FIXED CHARGES REFLECTED IN INCOME (LOSS)
BEFORE TAXES
Interest Expense...................... 247 433 980 470 4,503 5,946 6,431
Amortization of Deferred Financing.... -- -- -- -- 400 600 904
One-third of Rental Expenses.......... 31 30 48 15 825 1,416 1,683
--------- --------- --------- ----------- ------ --------- ---------
278 463 1,028 485 5,728 7,962 9,018
--------- --------- --------- ----------- ------ --------- ---------
--------- --------- --------- ----------- ------ --------- ---------
INCOME (LOSS) BEFORE TAXES PLUS FIXED
CHARGES ABOVE......................... 5,215 5,360 5,484 2,229 6,092 7,880 7,405
OTHER FIXED CHARGES
Cash Dividends on Preferred Stock..... -- -- -- -- 825 835 862
Tax Gross Up on Preferred Dividends... -- -- -- -- 550 557 575
TOTAL FIXED CHARGES..................... 278 463 1,028 485 7,103 9,354 10,455
FIXED CHARGE RATIO...................... 18.8x 11.6x 5.3x 4.6x 0.9x 0.8x 0.7x
Deficiency............................ -- -- -- -- $ 1,011 $ 1,474 $ 3,050
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
INCOME (LOSS) BEFORE TAXES.............. $ (859) $ (92)
FIXED CHARGES REFLECTED IN INCOME (LOSS)
BEFORE TAXES
Interest Expense...................... 1,430 3,864
Amortization of Deferred Financing.... 150 397
One-third of Rental Expenses.......... 427 981
--------- ---------
2,007 5,242
--------- ---------
--------- ---------
INCOME (LOSS) BEFORE TAXES PLUS FIXED
CHARGES ABOVE......................... 1,148 5,150
OTHER FIXED CHARGES
Cash Dividends on Preferred Stock..... 220 215
Tax Gross Up on Preferred Dividends... 147 143
TOTAL FIXED CHARGES..................... 2,374 5,600
FIXED CHARGE RATIO...................... 0.5x 0.9x
Deficiency............................ $ (1,226) $ (450)
</TABLE>
<PAGE>
EXHIBIT 12 (CONTINUED)
JUDD'S, INCORPORATED
FIXED CHARGE RATIO COMPUTATION
<TABLE>
<CAPTION>
349 DAYS
YEAR ENDED DECEMBER 31, ENDED
----------------------------------------------------- DECEMBER 15,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCOME (LOSS) BEFORE TAXES........................ $ 3,985 $ 2,795 $ (538) $ 3,314 $ 3,452 $ 2,600
FIXED CHARGES REFLECTED IN INCOME (LOSS) BEFORE
TAXES
Interest Expense................................ 901 1,131 2,817 3,327 3,066 3,384
Amortization of Deferred Financing.............. 1 4 23 23 78 35
One-third of Rental Expenses.................... 898 895 970 939 945 1,165
--------- --------- --------- --------- --------- ------
1,800 2,030 3,810 4,289 4,089 4,584
--------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- ------
--------- --------- --------- --------- --------- ------
INCOME (LOSS) BEFORE TAXES PLUS FIXED CHARGES
ABOVE........................................... 5,785 4,825 3,272 7,603 7,541 7,184
OTHER FIXED CHARGES
Cash Dividends in Preferred Stock............... 17 15 15 14 12 20
Tax Gross Up on Preferred Dividends............. 11 10 10 9 8 13
Capitalized Interest............................ -- 263 369 -- 267 --
TOTAL FIXED CHARGES............................... 1,828 2,318 4,204 4,312 4,376 4,617
FIXED CHARGE RATIO................................ 3.2x 2.1x 0.8x 1.8x 1.7x 1.6x
Deficiency...................................... -- -- $ 932 -- -- --
</TABLE>
<PAGE>
EXHIBIT 12 (CONTINUED)
PERRY-JUDD'S INCORPORATED
PRO FORMA RESULTS
FIXED CHARGE RATIO COMPUTATION
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
LOSS BEFORE TAXES................................................................................... $ (5,139)
FIXED CHARGES REFLECTED IN LOSS BEFORE TAXES
Interest Expense.................................................................................. 15,238
Amortization of deferred Financing................................................................ 1,655
One-third of Rental Expenses...................................................................... 3,541
------------
------------
20,434
LOSS BEFORE TAXES PLUS FIXED CHARGES ABOVE.......................................................... 15,295
OTHER FIXED CHARGES
Cash Dividends on Preferred Stock................................................................. 882
Tax Gross Up on Preferred Dividends............................................................... 588
Capitalized Interest.............................................................................. --
TOTAL FIXED CHARGES................................................................................. 21,904
FIXED CHARGE RATIO.................................................................................. 0.7x
Deficiency........................................................................................ $ 6,609
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in Amendment Number 2 to Registration Statement No.
333-45235 of Perry-Judd's, Incorporated on Form S-4 of our report dated March
20, 1998, which report expresses an unqualified opinion and includes an
explanatory paragraph referring to certain indemnity claims. We also consent to
the use of our report on Judd's, Incorporated for the period from January 1,
1997 to December 15, 1997, appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the
headings "Summary Historical and Pro Forma Financial Data," "Selected Historical
and Pro Forma Financial Data" and "Experts" in such Prospectus.
Our audits also included the financial statement schedule of Perry-Judd's
Incorporated listed in Item 21. This financial statement schedule is the
responsibility of the Corporation's management. Our responsibility is to express
an opinion based on our audits. In our opinion such financial statement
schedule, when considered in relation to the basis financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
May 27, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-45235 of Perry-Judd's Incorporated on Form S-4 of our report dated February
4, 1997, on the consolidated financial statements of Judd's, Incorporated and
Subsidiaries for the years ended December 31, 1995 and 1996, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Summary Historical
and Pro Forma Financial Data," "Selected Historical and Pro Forma Financial
Data" and "Experts" in such Prospectus.
STOY, MALONE & COMPANY, P.C.
Bethesda, Maryland
May 29, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
FOR PERRY JUDD'S INCORPORATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0001053722
<NAME> PERRY-JUDD'S INCORPORATED
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 3,779 295
<SECURITIES> 0 0
<RECEIVABLES> 44,282 43,801
<ALLOWANCES> 1,266 776
<INVENTORY> 18,474 17,215
<CURRENT-ASSETS> 69,392 64,133
<PP&E> 136,630 140,806
<DEPRECIATION> 14,822 (17,520)
<TOTAL-ASSETS> 233,354 228,820
<CURRENT-LIABILITIES> 36,502 33,325
<BONDS> 145,271 142,165
0 0
9,562 9,921
<COMMON> 1 1
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 233,354 228,820
<SALES> 153,815 76,946
<TOTAL-REVENUES> 153,815 76,946
<CGS> 124,071 61,546
<TOTAL-COSTS> 146,987 72,799
<OTHER-EXPENSES> 8,441 4,239
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,431 3,864
<INCOME-PRETAX> (1,613) (92)
<INCOME-TAX> 20 107
<INCOME-CONTINUING> 6,828 4,147
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,658) (459)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR THE 349 DAY PERIOD ENDED DECEMBER 15, 1997 FOR JUDD'S
INCORPORATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000202261
<NAME> JUDD'S INCORPORATED
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-15-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-15-1997
<CASH> 9,577
<SECURITIES> 0
<RECEIVABLES> 17,233
<ALLOWANCES> 882
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0
6
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</TABLE>
