<PAGE>
As filed with the Securities and Exchange Commission on October 10, 2000
Registration No. 333-45006
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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JOSTENS, INC.
(Exact name of Registrant as specified in its charter)
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<TABLE>
<CAPTION>
Minnesota 3911 41-0343440
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I R S Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
5501 Norman Center Drive
Minneapolis, Minnesota 55437
(952) 830-3300
(Address, including zip code, and telephone number,
including area code, of Registrant's and co-registrants' principal executive
offices)
----------------
William J. George
Vice President, General Counsel and Corporate Secretary
Jostens, Inc.
5501 Norman Center Drive
Minneapolis, Minnesota 55437
(952) 830-3300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
E. Michael Greaney, Esq.
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Class of to be Offering Price Offering Registration
Securities to be Registered Registered per Note(1) Price(1) Fee
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<S> <C> <C> <C> <C>
12 3/4% senior subordinated notes
due 2010........................ $225,000,000 91.3% $205,454,456 $54,240(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) promulgated under the Securities Act of 1933,
as amended.
(2) Previously paid.
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<PAGE>
PROSPECTUS
[LOGO OF JOSTENS, INC.]
Exchange Offer for
All Outstanding 12 3/4% Senior Subordinated Notes due 2010 for
New 12 3/4% Senior Subordinated Notes due 2010
-------------------
This exchange offer will expire at 5:00 p.m., New York City Time, on
November 13, 2000, unless extended.
Terms of the exchange offer:
. We will exchange all outstanding notes that are validly tendered and not
withdrawn prior to the expiration of the exchange offer.
. You may withdraw tendered outstanding notes at any time prior to the
expiration of the exchange offer.
. The exchange of outstanding notes will not be a taxable exchange for
United States federal income tax purposes.
. The terms of the notes to be issued are substantially identical to the
terms of the outstanding notes, except that transfer restrictions,
registration rights and liquidated damages provisions relating to the
outstanding notes do not apply.
. Each broker-dealer that receives notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the notes. The letter of transmittal
states that by acknowledging this 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 notes received in exchange for
outstanding notes where the outstanding notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities. See "Plan of Distribution."
. We will not receive any proceeds from the exchange offer.
. There is no existing market for the notes to be issued, and we do not
intend to apply for their listing on any securities exchange.
See the "Description of Notes" section beginning on page 84 for more
information about the notes to be issued in this exchange offer.
This investment involves risks. See the section entitled "Risk Factors"
beginning on page 14 for a discussion of the risks that you should consider
prior to tendering your outstanding notes for exchange.
Neither the Securities and Exchange Commission nor any state securities and
exchange commission has approved or disapproved of these securities or passed
upon the adequacy or the accuracy of this prospectus. Any representation to
the contrary is a criminal offense.
Prospectus dated October 13, 2000.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 under the Securities Act with respect to the notes
offered in this prospectus. This prospectus, which forms part of the
registration statement, does not contain all of the information that is
included in the registration statement. You will find additional information
about our company and the notes in the registration statement. Any statements
made in this prospectus concerning the provisions of legal documents are not
necessarily complete and you should read the documents that are filed as
exhibits to the registration statement for a more complete understanding of the
document or matter.
We will file periodic reports, registration statements and other information
with the SEC. You may read and copy the registration statement and any of the
other documents we file with the SEC at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices located at 7 World
Trade Center, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-
0330 for more information on the public reference rooms. In addition, reports
and other filings are available to the public on the SEC's web site at
http://www.sec.gov. You should rely only on the information provided in this
prospectus or any supplement. Jostens has not authorized anyone else to provide
you with different information. You should not assume that the information in
this prospectus is accurate as of any date other than the date on the front of
this prospectus.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY
SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Other than statements of historical facts, all statements contained in this
prospectus, including, without limitation, statements regarding our future
financial position, business strategy, budgets, litigation, projected costs and
plans and objectives of management for future operations, are forward-looking
statements. 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 other similar words or the
negative thereof. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we cannot assure you that such
expectations will prove to be correct.
Any change in the following factors may impact the achievement of results:
. our ability to satisfy our debt obligations;
. our ability to achieve the intended benefits of our corporate
restructuring announced in the fourth quarter of 1999;
. our relationship with our independent and employee sales
representatives;
. litigation cases if decided against us, may adversely affect our
financial results;
. environmental regulations that could impose substantial costs upon us
and may adversely affect our financial results;
. the fluctuating prices of raw materials, primarily gold;
. the seasonality of our School Products segment sales and operating
income;
. our dependence on a key supplier for our synthetic and semiprecious
stones; and
. fashion and demographic trends.
These and other important factors are discussed under "Risk Factors" and
elsewhere in this prospectus. All written and oral forward-looking statements
attributable to us, or persons acting on our behalf, are expressly qualified in
their entirety by such cautionary statements.
MARKET SHARE, RANKING AND OTHER DATA
The market share, ranking and other data contained in this prospectus are
based either on management's own estimates, independent industry publications,
reports by market research firms or other published independent sources and, in
each case, are believed by management to be reasonable estimates. However,
market share data is subject to change and cannot always be verified with
complete certainty due to limits on the availability and reliability of raw
data, the voluntary nature of the data gathering process and other limitations
and uncertainties inherent in any statistical survey of market shares. In
addition, consumption patterns and consumer preferences can and do change. As a
result, you should be aware that market share, ranking and other similar data
set forth herein, and estimates and beliefs based on such data, may not be
reliable. When we use the term "high school" in this prospectus we are
referring to all schools that include the 12th grade, including K-12. When we
use the term "senior high school" we are generally referring to a subset of
high schools that begin with the 8th, 9th or 10th grade.
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PROSPECTUS SUMMARY
In this prospectus, "Jostens," "we," "our," and "us" refer to Jostens, Inc.
and its subsidiaries. Unless stated otherwise, all pro forma information
relating to Jostens in this prospectus gives effect to the recapitalization as
if it had occurred on January 3, 1999 and as further described in the
"Unaudited Pro Forma Condensed Consolidated Financial Statements" section. Our
fiscal year ends on the Saturday closest to December 31. Unless otherwise
specified, references to 1997, 1998 and 1999 relate to the fiscal years ending
on January 3, 1998, January 2, 1999 and January 1, 2000, respectively. The
following summary contains basic information about Jostens and this prospectus.
It likely does not contain all the information that is important to you. For a
more complete understanding of this prospectus, you are encouraged to read this
entire document.
Jostens, Inc.
Jostens is the nation's leading provider of school-related affinity products
and services including yearbooks, class rings and graduation products. We also
have the leading market share for school photography services in Canada. In
addition, we are a leading provider of corporate employee service recognition
programs and achievement awards and products for athletic champions. Our 103-
year history of manufacturing and providing quality products and superior
service has enabled us to develop long-standing and extensive relationships
with schools throughout the country. We estimate that U.S. sales of high school
and college yearbooks, class rings and graduation products are approximately
$1.5 billion annually. We believe that in recent years we have had a domestic
market share in each of senior high school yearbooks, class rings and
graduation products of approximately 45%. In the aggregate, for these product
lines we believe that we have nearly twice the market share of our largest
competitor. In 1999, we generated net sales of $782.4 million.
Our two major business segments are School Products and Recognition. The
School Products segment serves the high school, college and elementary school
markets and accounted for 86.3% of our net sales in 1999. High schools
accounted for approximately 85% of the segment's net sales in 1999. The School
Products segment is comprised of four principal lines of products and services:
Yearbooks, Class Rings, Graduation Products and Photography.
The Recognition segment accounted for 12.4% of our net sales in 1999. This
segment provides products and services that assist companies in recognizing and
rewarding employee service and achievement of performance objectives. The
Recognition segment also produces awards for professional sports team
accomplishments and affinity products for special interest associations.
School Products Segment
The market for school-related affinity products has historically been
characterized by stable revenues and cash flows. We provide customized
products, as well as dedicated technical support and customer service through
our approximately 5,900 School Products employees and 13 manufacturing
facilities. We have approximately 570 independent sales representatives who
sell and distribute yearbooks, class rings and graduation products primarily to
high schools in the United States. In addition, we have approximately 50
employee representatives who service colleges in the United States and focus
primarily on selling and distributing class rings and graduation products. Our
sales representatives establish and maintain extensive customer relationships
with school officials and faculty and in the vast majority of cases we are
designated by the schools as the sole supplier of particular school-related
affinity products.
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Yearbooks. We are the leading manufacturer of yearbooks sold to schools in
the United States, serving approximately 45% of senior high schools in 1999.
Our independent sales representatives coordinate with technical support
employees based in our five printing facilities to assist students and faculty
advisors with the planning, editing and layout of yearbooks. We also manage the
production, printing and distribution of student-created yearbooks. With a new
class of students each year and periodic faculty advisor turnover, our
representative is often a school's main point of continuity for the yearbook
production process on a year-to-year basis.
In 1997, we launched Jostens Direct Solutions ("JDS"), a program whereby
selected high schools have authorized us to implement a direct payment program
with parents of students. This program represents an improvement over the
traditional method of payment and collections, where schools had to serve as an
intermediary by collecting, holding and disbursing funds. JDS reduces
administrative burdens for high schools by streamlining the yearbook order
process and improves our collections and cash flow. We believe that JDS has
also provided parents of students with a greater awareness of our broad
yearbook product offerings, including customization options.
We are investing in enhanced digital technology to meet student demand for
increased color pages and to offer additional personalization and customization
features. Yearbooks accounted for $262.8 million, or 38.9%, of the School
Products segment net sales in 1999.
Class Rings. Jostens is the leading provider of class rings, serving
approximately 46% of U.S. senior high schools in 1999. We manufacture and sell
class rings primarily to high school students through our network of
independent sales representatives. The authorized in-school access of the sales
representatives allows them to stimulate demand through school-endorsed
marketing campaigns, parents' nights and delivery-related events such as ring
dances. Our extensive investment in proprietary ring dies and tooling, as well
as our manufacturing expertise, enables us to offer highly customized class
rings. Class Rings contributed $203.5 million, or 30.1%, of our School Products
segment net sales in 1999.
Graduation Products. Jostens is the leading provider of graduation products,
serving approximately 53% of U.S. senior high schools in 1999. We produce caps
and gowns, diplomas and announcements, and sell these products as well as
graduation-related accessories through the same sales representatives who sell
our class rings. We have a proven track record of providing on-time delivery of
our wide array of graduation products, a critical component of our customers'
satisfaction. Graduation Products contributed $163.2 million, or 24.2%, of our
School Products segment net sales in 1999.
Photography. Our sales of school photography services are divided between
Canada and the United States. We believe that in Canada we are the leading
provider, serving approximately 40% of students in 1999. Through our network of
sales representatives we provide class and individual school pictures for high
school, middle and elementary school students. We are currently testing digital
photography for both school services and special events. Photography
contributed $46.0 million, or 6.8%, of our School Products segment net sales in
1999.
Recognition Segment
Jostens is a leading provider of corporate recognition products and services
with an estimated market share of seven percent of the U.S. market on a revenue
basis in 1999. Our approximately 60 independent sales representatives, together
with our employees, design and administer programs to assist customers in
recognizing and rewarding employee service and performance. We also market
rings to championship sports organizations of the NBA, NFL and Major League
Baseball. The Recognition segment contributed $97.0 million, or 12.4%, of our
net sales in 1999.
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Competitive Strengths
We attribute our leading position in the national school-related affinity
products and services market and our significant opportunities for continued
growth to the following competitive strengths:
Market Leader in School Businesses. Jostens is the U.S. market leader in
yearbooks, class rings and graduation products with net sales that are nearly
twice that of our nearest competitor. We estimate that we have been the market
leader in yearbooks, class rings and graduation products for over 25 years. We
currently serve approximately 14,500 of the approximately 25,500 high schools
in the United States, including approximately 11,600 of the approximately
16,700 senior high schools in the United States. We have an annual account
retention rate of approximately 92%. We believe that our high retention rate is
primarily due to our broad product offering, strong reputation for service,
quality and on-time delivery, as well as our sales representatives' strong
relationships with the schools they serve.
Extensive Network of Experienced Sales Representatives. Jostens has the
industry's largest network of sales representatives for yearbooks, class rings
and graduation products. Our sales representatives have an average tenure of 13
years. Schools typically provide exclusive, authorized access to sell
yearbooks, class rings and graduation products. The process of marketing our
school products and serving our customers is highly interactive and our
independent sales representatives and employees work closely with school
administrators and advisors and students. In addition, the strong relationships
that our highly experienced sales representatives have developed with schools,
combined with Jostens' technical support, brand name and manufacturing
capabilities have created the industry's leading distribution network.
Highly Customized Products. Our yearbooks, class rings and graduation
products are highly personalized and require specialized manufacturing
capabilities. Our continuing investment in these capabilities has enabled us to
consistently provide high quality products to our customers in a timely
fashion. Each of our major products has unique production characteristics:
Yearbooks. The production of a yearbook requires extensive interaction
among the school yearbook advisor, the student committee, our sales
representative, our customer service department and our printing plant
employees. Utilizing specialized publishing software, our sales
representatives guide students through page layout and book organization
and set interim deadlines to ensure production is completed on time. Our
customer service and technical support team provides additional continuity
in the yearly process, as there is a new student yearbook committee each
year and periodic turnover among faculty advisors. As a yearbook is one of
a student's most important high school keepsakes, the production and on-
time delivery of a high quality product is essential.
Class Rings. The production of a class ring involves a high degree of
skilled and experienced labor. Each school works with our artists and die
makers to design and create unique class rings. We maintain an inventory of
approximately 1.5 million unique, proprietary ring dies that would be
expensive and time consuming to replicate. Rings are further customized by
adding a student's name, activities or other personalization. Our skilled
labor force operating in four manufacturing facilities produces
approximately 1.1 million rings per year.
Graduation Products. We provide highly customized and personalized
announcements, caps and gowns and diplomas to over one million students
annually. Our sales representatives work with a school's graduation
committee each year to design an announcement, which can contain a number
of custom features, including the school's official crest. We maintain an
inventory of over 70,000 school crest dies, and have hand-rendered etchings
of over 22,000 school buildings and mascots, for use on both announcements
and diplomas. In addition to these products, which are typically customized
to the school-level, we offer over 30 accessory products to students, many
of which may be further customized with school colors or crests and
personalized with a student's name or initials.
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Strong and Experienced Management Team. Jostens is led by an experienced
team of senior officers and managers with a record of achieving growth,
maintaining long-term relationships with our customers, improving the appeal of
existing products and services and successfully bringing to market new products
and services. Our five most senior executives collectively have over 40 years
of experience at Jostens.
Business Strategy
Our objective is to continue to be recognized as the nation's leading
provider of school-related affinity products and services. To achieve this
objective, we are focusing on the following strategies:
Expand Jostens Direct Solutions Program. In 1997, Jostens launched JDS, a
program whereby selected high schools have authorized us to contact parents
directly. Typically, yearbooks are sold by student committees supervised by a
faculty advisor. Through JDS we send yearbook request forms directly to
students and their parents at their homes. This allows us to provide easy-to-
use direct payment methods, eliminating the burdens of processing paperwork and
handling funds for school officials. In addition, we believe parents find it
more convenient to buy yearbook accessories and customization features when
marketed directly to the home. JDS has improved our working capital due to a
more efficient order and payment process. Currently, we offer JDS to
approximately 25% of our yearbook customers, and we expect to continue to
introduce JDS to additional schools.
Enhance Core Products Offerings. We are investing in existing technologies
that we believe will enable us to increase product customization and
personalization and operate more efficiently. We are developing a series of
initiatives in our School Products segment that will allow us to offer enhanced
features in our existing product offerings on a cost effective basis. For
example, we currently intend to utilize advances in digital technology both to
increase color capacity in yearbooks and to offer more highly customized
graduation announcements.
Complement In-School Access with Internet Capabilities. We believe the
Internet provides a strong complement to our traditional sales processes by
allowing us to leverage our existing distribution network, strong brand name
and long-standing customer relationships through an additional sales channel.
The Internet also presents opportunities for us to improve our order taking and
processing efficiency and to increase product awareness. Additionally, our
management is creating a portfolio of investments in Internet-based companies
which we believe complements our access into, and our existing relationships
with, schools. Our Internet investments are comprised of: Project Achieve, an
Internet-based information management system that integrates and tracks a
variety of student and school information; and Planet Alumni, an on-line
community for high school alumni and students.
Continue Operational Improvements. Jostens has fostered a corporate culture
that continually works to reduce costs. Since 1996, we have closed or
consolidated six manufacturing facilities and have improved our manufacturing
efficiencies at currently operating facilities. We believe there are
significant additional cost savings that can be attained in the near term. For
example, we have implemented several initiatives designed to simplify our class
ring and graduation products ordering and fulfillment processes and our
yearbook production process. We believe these initiatives will further increase
our efficiencies and reduce our operating costs.
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The Recapitalization
On December 27, 1999, Jostens entered into a merger agreement with Saturn
Acquisition Corporation, a newly formed corporation controlled by Investcorp
S.A., a global investment group, and its co-investors. Under this agreement,
Saturn Acquisition Corporation merged with and into Jostens. The merger was
part of a recapitalization of Jostens. Upon completion of the merger,
Investcorp and its co-investors, including DB Capital Investors, an affiliate
of Deutsche Bank Securities Inc. and Jostens senior management acquired
approximately 94% of Jostens' common stock. The remaining 6% of our post-merger
common stock was retained by our pre-merger public shareholders. When we use
the term "Investcorp and its co-investors" in this prospectus, we are referring
to: (1) affiliates of Investcorp, as well as international investors with whom
Investcorp maintains an administrative relationship and who may at or following
completion of the merger have obtained indirect equity interests in Jostens by
investing in offshore entities organized by Investcorp for that purpose; (2) DB
Capital Investors; and (3) First Union Leveraged Capital.
The merger and related financings required total cash of approximately
$981.1 million.
The proceeds from these financings funded:
. the payment of approximately $823.6 million to holders of common stock;
. payment of $10.0 million in consideration for cancellation of all of our
then-outstanding employee stock options;
. the retirement of all of our then-outstanding debt, totaling $67.6
million; and
. payments of approximately $79.9 million of fees and expenses.
We financed the recapitalization through:
. a common equity investment of $208.7 million by Investcorp and its co-
investors;
. a preferred equity investment of $60.0 million by DB Capital Investors;
. $495.0 million in term loans under a new senior bank credit facility;
. the sale of units of which the outstanding notes were a part; and
. cash on hand.
In addition, certain members of Jostens senior management and our pre-
existing public shareholders retained approximately $18.4 million of our common
equity, based on the price paid by Investcorp and its
co-investors.
Investcorp
Investcorp is a global investment group with offices in New York, London and
Bahrain. It is principally engaged in three businesses: corporate investment,
real estate investment and asset management. Since its formation in 1982, the
firm has arranged more than 50 corporate investments in a variety of industries
with an aggregate value exceeding $17 billion. In the United States, Investcorp
and its clients currently own twelve corporate investments, including
Independent Wireless One, Synthetic Industries, Stratus Computer, Werner
Holdings, NationsRent and The William Carter Company. In Europe, Investcorp and
its clients currently own five corporate investments, including Avecia
(formerly Zeneca Specialties), Leica Geosystems, Polestar, Welcome Break and
Helly Hansen.
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The Exchange Offer
Notes to be
Exchanged............. The terms of the notes offered in the exchange offer
are substantially identical to those of the outstanding
notes, except that certain transfer restrictions,
registration rights and liquidated damages provisions
relating to the outstanding notes do not apply to the
new registered notes and interest on the new registered
notes will accrue from the last date on which interest
was paid on the outstanding notes or, if no such
interest has been paid, from May 10, 2000.
Outstanding Notes..... On May 10, 2000, we issued $225,000,000 aggregate
principal amount of 12 3/4% senior subordinated notes
due 2010 in a transaction exempt from the registration
requirements of the Securities Act.
The Exchange Offer.... We are offering to issue registered notes in exchange
for a like principal amount and like denomination of
our outstanding notes. We are offering to issue these
registered notes to satisfy our obligations under a
registration rights agreement that we entered into with
the initial purchasers of the outstanding notes. You
may tender your outstanding notes for exchange by
following the procedures described under the caption
"The Exchange Offer".
Tenders; Expiration
Date; Withdrawal..... The exchange offer will expire at 5:00 p.m., New York
City time, on November 13, 2000, unless we extend it.
If you decide to exchange your outstanding notes for
new notes, you must acknowledge that you are not
engaging in, and do not intend to engage in, a
distribution of the new notes. You may withdraw any
notes that you tender for exchange at any time prior
November 13, 2000. If we decide for any reason not to
accept any notes you have tendered for exchange, those
notes will be returned to you without cost promptly
after the expiration or termination of the exchange
offer. See "The Exchange Offer--Terms of the Exchange
Offer" for a more complete description of the tender
provisions and "The Exchange Offer--Withdrawal Rights"
for a description of the withdrawal provisions.
Conditions to the
Exchange Offer....... The exchange offer is subject to customary conditions,
some of which we may waive. See "The Exchange Offer--
Conditions to the Exchange Offer" for a summary of
these conditions.
U.S. Federal Income
Tax Consequences..... Your exchange of outstanding notes for notes to be
issued in the exchange offer will not result in any
gain or loss to you for U.S. federal income tax
purposes.
Use of Proceeds....... We will not receive any cash proceeds from the exchange
offer.
Exchange Agent........ The Bank of New York
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Consequences of
Failure to
Exchange.............
Outstanding notes that are not tendered or that are
tendered but not accepted will continue to be subject
to the restrictions on transfer that are described in
the legend on those notes. In general, you may offer or
sell your outstanding notes only if they are registered
under, or offered or sold under an exemption from, the
Securities Act and applicable state securities laws.
We, however, will have no further obligation to
register the outstanding notes. If you do not
participate in the exchange offer, the liquidity of
your notes could be adversely affected.
Resales of the
Registered Notes.....
Based on interpretations of the staff of the SEC, we
believe that you may offer for resale, resell or
otherwise transfer the notes that we issue in the
exchange offer without complying with the registration
and prospectus delivery requirements of the Securities
Act if you:
. acquire the notes issued in the exchange offer in the
ordinary course of your business;
. are not participating, do not intend to participate,
and have no arrangement or undertaking with anyone to
participate, in the distribution of the notes issued
to you in the exchange offer; and
. are not an "affiliate" of Jostens as defined in Rule
405 of the Securities Act.
If any of these conditions are not satisfied and you
transfer any notes issued to you in the exchange offer
without delivering a proper prospectus or without
qualifying for a registration exemption, you may incur
liability under the Securities Act. We will not be
responsible for or indemnify you against any liability
you may incur.
Any broker-dealer that acquires notes in the exchange
offer for its own account in exchange for outstanding
notes which it acquired through market-making or other
trading activities, must acknowledge that it will
deliver a prospectus when it resells or transfers any
notes issued in the exchange offer. See "Plan of
Distribution" for a description of the prospectus
delivery obligations of broker-dealers in the exchange
offer.
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Summary of Key Terms of the Notes
Issuer................ Jostens, Inc.
Separability.......... Each of the outstanding notes was issued as part of a
unit consisting of $1,000 principal amount of notes and
one warrant to purchase 1.889155 shares of our Class E
common stock. The outstanding notes and the warrants
will become separately transferable upon the
consummation of the exchange offer and upon the
occurrence of certain events described under the
heading "Description of the Warrants."
Notes................. $225,000,000 principal amount of 12 3/4% Senior
Subordinated Notes due 2010.
Maturity.............. May 1, 2010.
Interest Rate......... 12 3/4% per year (calculated using a 360-day year).
Interest Payment May 1 and November 1, beginning on November 1, 2000.
Dates.................
Ranking............... The notes are unsecured senior subordinated obligations
of Jostens and rank junior to our existing and future
senior debt, including obligations under our new credit
facility.
Guarantees............ At the time the outstanding notes were issued, our sole
domestic subsidiary guaranteed the notes. However, this
subsidiary merged with and into Jostens, Inc. effective
July 29, 2000. If we create or acquire new domestic
subsidiaries, they may, under specified circumstances,
guarantee the notes. Any such guarantees will be
subordinated to existing and future senior debt of our
subsidiaries that guarantee the notes.
Optional Redemption... Except as described below, we cannot redeem the notes
until May 1, 2005. Thereafter we may redeem some or all
of the notes at the redemption prices listed in the
"Description of the Notes" section under the heading
"Optional Redemption."
Optional Redemption
After Public Equity
Offerings.............
At any time (which may be more than once) before May 1,
2003, we may elect to redeem up to 35% of the
outstanding notes with funds that we raise in one or
more specified equity offerings, as long as:
. we pay 112.75% of the face amount of the notes plus
accrued and unpaid interest;
. we redeem the notes within 90 days of completing the
equity offering; and
. at least 65% of the aggregate principal amount of
the notes issued remains outstanding after each
redemption.
Change of Control
Redemption............
If a change of control, as defined in the indenture
governing the notes, occurs, we may redeem all of the
notes at any time on or prior to May 1, 2005, at the
redemption price provided in the "Description of the
Notes" section under the heading "Optional Redemption."
8
<PAGE>
We might not be able to pay you the required price for
notes you present to us at the time of a change of
control because:
. we might not have enough funds at that time; or
. the terms of our senior debt may prevent us from
paying.
Change of Control If a change of control, as defined in the indenture,
Offer................. occurs, we must give holders of the notes the
opportunity to sell us their notes at 101% of their
face amount, plus accrued and unpaid interest, unless
all notes have been called for redemption.
Asset Sale Proceeds... Under the indenture, if we or our subsidiaries engage
in asset sales, we generally must either invest the net
cash proceeds from such sales in our business within a
period of time, prepay senior debt or make an offer to
purchase a principal amount of the notes equal to the
excess net cash proceeds. The purchase price of the
notes will be 100% of their principal amount, plus
accrued and unpaid interest.
Basic Covenants of The indenture includes covenants limiting our (and most
Indenture............. or all of our subsidiaries') ability to:
. incur additional debt;
. pay dividends or distributions on our capital stock
or repurchase our capital stock;
. issue preferred stock of subsidiaries;
. make certain investments;
. create liens on our assets to secure debt or trade
payables;
. enter into transactions with affiliates;
. enter into certain agreements restricting our
subsidiaries' ability to pay dividends;
. merge or consolidate with another company; and
. transfer and sell assets.
These covenants are subject to a number of important
limitations and exceptions.
9
<PAGE>
Summary Consolidated Unaudited Pro Forma Financial Data
The unaudited summary pro forma financial data set forth below have been
derived from, and should be read in conjunction with, the "Unaudited Pro Forma
Condensed Consolidated Financial Statements" and the notes thereto appearing
elsewhere in this prospectus. The summary pro forma statement of operations
data and other financial data give effect to the recapitalization as if it had
occurred on January 3, 1999 and exclude nonrecurring items directly
attributable to the recapitalization. The summary unaudited pro forma financial
data are not necessarily indicative of the consolidated operating results that
would have occurred if the recapitalization had been consummated on the date
indicated, nor are they necessarily indicative of our future consolidated
operating results. The pro forma adjustments were applied to the historical
consolidated financial statements to reflect and account for the merger as a
recapitalization. Accordingly, the historical basis of our assets and
liabilities have not been impacted by the merger.
<TABLE>
<CAPTION>
Pro Forma
-----------------
Six
months
ended
Year ended July
January 1, 1,
2000 2000
---------- ------
(dollars in
millions)
<S> <C> <C>
Statement of Operations
Data:
Net sales............... $782.4 $476.4
Cost of products sold... 349.7 201.8
------ ------
Gross profit............ 432.7 274.6
Selling and
administrative
expenses............... 332.3 181.3
Special charge.......... 20.2 --
------ ------
Operating income........ 80.2 93.3
Net interest expense.... 87.6 42.5
------ ------
Income before income
taxes.................. (7.4) 50.8
Income taxes............ (1.4) 19.4
------ ------
Net loss................ (6.0) 31.4
Dividends and accretion
on redeemable preferred
stock (1).............. 9.6 5.2
------ ------
Net loss attributable to
common shareholders.... $(15.6) $ 26.2
====== ======
Other Financial Data:
Cash flow from
operations............. $125.2 $ 13.1
EBITDA (2).............. 105.5 106.5
Adjusted EBITDA (3)..... 145.5 108.8
Depreciation and
amortization........... 25.3 13.2
Capital expenditures.... 27.8 7.2
Gross margin............ 55.3% 57.6%
EBITDA margin........... 13.5% 22.4%
Adjusted EBITDA margin.. 18.6% 22.8%
Cash interest expense
(4).................... $ 81.5 $ 39.4
Ratio of Adjusted EBITDA
to cash interest
expense................ 1.8x 2.8x
</TABLE>
(footnotes on next page)
10
<PAGE>
(1) Dividends on the redeemable preferred stock issued in connection with the
financing of the merger are calculated based on an annual rate of 14.0%,
compounded quarterly, and include accretion of the $14.0 million preferred
stock discount and amortization of the $3.0 million redeemable preferred
stock offering costs.
(2) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is not a measure of performance under generally
accepted accounting principles ("GAAP") and it should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities, or other income and cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity.
Moreover, EBITDA is not a standardized measure and may be calculated in a
number of ways. Accordingly, the EBITDA information provided might not be
comparable to other similarly titled measures provided by other companies.
EBITDA is included herein because management understands that EBITDA is
customarily used as a criterion in evaluating companies.
(3) Adjusted EBITDA represents EBITDA adjusted as follows:
<TABLE>
<CAPTION>
Six months
Year ended ended
January 1, July 1,
2000 2000
---------- ----------
(in millions)
<S> <C> <C>
EBITDA............................................... $105.5 $106.5
Adjustments to EBITDA:
Special charges...................................... 20.2 --
Amortization of prepaid management fees.............. 1.5 0.8
Cost savings related to employee terminations........ 7.1 1.5
Elimination of certain unprofitable businesses....... 4.0 --
Excess rebates related to the JDS program............ 2.8 --
Costs associated with closing the Mexico
manufacturing facility.............................. 2.7 --
Excess labor costs associated with Recognition
segment............................................. 1.7 --
------ ------
Adjusted EBITDA...................................... $145.5 $108.8
====== ======
</TABLE>
Adjusted EBITDA is presented because it gives the holders of the notes the
ability to better understand our compliance with certain of the covenants
under the notes and the term loans. Those covenants are based on defined
terms that incorporate adjustments based, in part, on the reconciling items
listed above. As such, we believe that the Adjusted EBITDA measure provides
relevant and useful information to investors. However, Adjusted EBITDA
should not be considered in isolation or as a substitute for net income,
cash flows or other income or cash flows data prepared in accordance with
GAAP or as a measure of a company's profitability or liquidity.
For more information on the adjustments to EBITDA, see "Unaudited Pro Forma
Condensed Consolidated Financial Statements."
(4) Represents interest expense plus capitalized interest less amortization of
deferred financing costs and the discount on the senior subordinated notes.
11
<PAGE>
Summary Consolidated Historical Financial Data
The table below sets forth summary consolidated historical financial data
and other data relating to Jostens. The summary consolidated historical
financial data as of January 2, 1999 and January 1, 2000 and for each of the
three fiscal years in the period ended January 1, 2000 have been derived from,
and should be read in conjunction with, our audited consolidated financial
statements and the notes thereto appearing elsewhere in this prospectus. The
unaudited summary consolidated historical financial data as of and for the six
months ended July 3, 1999 and July 1, 2000 were derived from, and should be
read in conjunction with, our unaudited condensed consolidated financial
statements appearing elsewhere in this prospectus which, in our opinion,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results for the interim periods. The
summary consolidated historical balance sheet data as of January 3, 1998 have
been derived from our audited historical financial statements not included
herein.
<TABLE>
<CAPTION>
Six months
ended
Year ended (unaudited)
-------------------------------- ----------------
January 3, January 2, January 1, July 3, July 1,
1998 1999 2000 1999 2000
---------- ---------- ---------- ------- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales................. $742.5 $770.9 $782.4 $ 469.5 $ 476.4
Cost of products sold..... 351.3 351.8 349.7 209.2 201.8
------ ------ ------ ------- -------
Gross profit.............. 391.2 419.1 432.7 260.3 274.6
Selling and administrative
expenses................. 291.5 316.9 330.8 178.6 180.8
Special charge............ -- -- 20.2 -- --
Transaction costs......... -- -- -- -- 45.7
------ ------ ------ ------- -------
Operating income.......... 99.7 102.2 81.7 81.7 48.1
Net interest expense...... 6.3 6.7 7.0 2.5 14.8
Write-off of JLC notes
receivable, net (1)...... -- 12.0 -- -- --
------ ------ ------ ------- -------
Income before income
taxes.................... 93.4 83.5 74.7 79.2 33.3
Income taxes (1).......... 36.2 41.7 31.5 32.1 26.3
------ ------ ------ ------- -------
Net income (2)............ 57.2 41.8 43.2 47.1 7.0
Dividends and accretion on
redeemable preferred
stock (3)................ -- -- -- -- 1.2
------ ------ ------ ------- -------
Net income attributable to
common shareholders...... $ 57.2 $ 41.8 $ 43.2 $ 47.1 $ 5.8
====== ====== ====== ======= =======
Balance Sheet Data (at
period end):
Current assets............ $252.5 $240.5 $286.3 $ 246.6 $ 261.8
Working capital (4)....... 50.2 44.1 8.3 41.7 1.8
Total assets.............. 390.7 366.2 407.7 377.4 420.5
Total debt (including
short-term
borrowings and current
maturities).............. 53.6 97.5 121.2 97.3 700.3
Net debt (5).............. 47.5 94.9 82.7 88.9 664.4
Redeemable preferred
stock.................... -- -- -- -- 44.2
Shareholders' equity
(deficit)................ 127.1 58.6 36.5 68.0 (556.4)
Other Financial Data:
Cash flow from
operations............... $116.7 $101.6 $125.2 $ 67.3 $ 13.1
EBITDA (6)................ 121.8 113.4 107.0 94.5 61.3
Depreciation and
amortization............. 22.1 23.2 25.3 12.8 13.2
Capital expenditures...... 24.4 36.9 27.8 13.3 7.2
Gross margin.............. 52.7% 54.4% 55.3% 55.4% 57.6%
EBITDA margin............. 16.4% 14.7% 13.7% 20.1% 12.9%
Cash interest expense
(7)...................... $ 6.9 $ 7.7 $ 7.7 $ 3.0 $ 14.3
</TABLE>
(footnotes on next page)
12
<PAGE>
--------
(1) Net income for 1998 reflects a charge for the write-off of the Jostens
Learning Corporation ("JLC") notes receivable of $12.0 million and related
deferred tax assets of $3.7 million.
(2) Net income in 1998 and 1997 reflects pre-tax gains of $3.7 million ($2.2
million after tax) and $6.8 million ($4.0 million after tax), respectively,
resulting from a reduction in LIFO gold inventories.
(3) Dividends on the redeemable preferred stock issued in connection with the
financing of the merger are calculated based on an annual rate of 14.0%,
compounded quarterly, and include accretion of the $14.0 million preferred
stock discount and amortization of the $3.0 million redeemable preferred
stock offering costs.
(4) Represents total current assets (excluding cash and cash equivalents) less
total current liabilities (excluding short-term borrowings and current
maturities of long-term debt).
(5) Net debt represents total debt less cash and cash equivalents.
(6) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is not a measure of performance under GAAP and it
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities, or other income and cash flow
statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity. Moreover, EBITDA is not a standardized measure
and may be calculated in a number of ways. Accordingly, the EBITDA
information provided might not be comparable to other similarly titled
measures provided by other companies. EBITDA is included herein because
management understands that EBITDA is customarily used as a criterion in
evaluating companies.
(7) Represents interest expense plus capitalized interest less amortization of
deferred financing and the discount on the senior subordinated notes.
13
<PAGE>
RISK FACTORS
This prospectus includes "forward looking statements" within the meaning of
the federal securities laws and, in particular, the statements about our plans,
strategies, and prospects under the headings "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we cannot assure you that such plans, intentions or expectations
will be achieved. Important factors that could cause actual results to differ
materially from the forward-looking statements we make in this prospectus are
set forth below and elsewhere in this prospectus. All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the following cautionary statements.
Risks Related to the Exchange Offer
You may have difficulty selling the outstanding notes that you do not
exchange.
If you do not exchange your outstanding notes for the notes offered in this
exchange offer, you will continue to be subject to the restrictions on the
transfer of your notes. Those transfer restrictions are described in the
indenture governing the notes and in the legend contained on the outstanding
notes, and arose because we originally issued the outstanding notes under
exemptions from, and in transactions not subject to, the registration
requirements of the Securities Act.
In general, you may offer or sell your outstanding notes only if they are
registered under the Securities Act and applicable state securities laws, or if
they are offered and sold under an exemption from those requirements. This
exchange offer will be your only opportunity to obtain registered notes in
exchange for your outstanding unregistered notes. The outstanding notes are not
currently registered and we do not intend to register the outstanding notes
under the Securities Act. If a large number of outstanding notes are exchanged
for notes issued in the exchange offer, it may be more difficult for you to
sell your unexchanged notes.
See "The Exchange Offer--Consequences of Failure to Exchange Outstanding
Notes" for a discussion of the possible consequences of failing to exchange
your notes.
Risks Related to the Securities, Our Other Indebtedness and the
Recapitalization
Our substantial debt could adversely affect our financial health and prevent
us from making payments on the notes.
We have a significant amount of debt. On July 1, 2000, we had approximately
$700.3 million of debt. See "The Recapitalization" and the "Unaudited Pro Forma
Condensed Consolidated Financial Statements" sections for more information on
the recapitalization and its pro forma effects on our financial condition and
results of operations.
Our substantial debt could have important consequences to you. For example,
it could:
. make it more difficult for us to satisfy our obligations with respect to
the notes;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to obtain additional financing for future working
capital, capital expenditures, acquisitions and other general corporate
requirements;
. increase our vulnerability to interest rate fluctuations because the
interest on the debt under the new credit facility will be at variable
rates;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing the availability of
our cash flow for operations and other purposes;
14
<PAGE>
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
. place us at a competitive disadvantage compared to our competitors that
have less debt.
In addition, we may be able to incur substantial additional debt in the
future. The terms of the indenture permit us to incur a substantial amount of
additional debt and our new credit facility will permit additional borrowings.
In particular, as of July 1, 2000, we had approximately $150.0 million of
additional borrowing capacity under the revolving credit facility which is
generally drawn during the second half of the year. If new debt is added to our
current debt levels, these related risks could increase.
Our ability to make scheduled payments or to refinance our obligations with
respect to our debt will depend on our financial and operating performance,
which, in turn, is subject to prevailing economic conditions and to certain
financial, business and other factors beyond our control. If our cash flow and
capital resources are insufficient to fund our debt service obligations, we may
be forced to reduce or delay scheduled expansion and capital expenditures, sell
material assets or operations, obtain additional capital or restructure our
debt. We cannot assure you that our operating performance, cash flow and
capital resources will be sufficient for payment of our debt in the future. In
the event that we are required to dispose of material assets or operations or
restructure our debt to meet our debt service and other obligations, we cannot
assure you as to the terms of any such transaction or how soon any such
transaction could be completed. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Our new credit facility and the indenture governing the notes contain various
covenants which limit the discretion of our management in operating our
business and could prevent us from engaging in some beneficial activities.
Our new credit facility and the indenture governing the notes contain
various restrictive covenants that limit our management's discretion in
operating our business. In particular, these agreements limit our ability to,
among other things:
. incur additional indebtedness;
. make restricted payments (including paying dividends on, redeeming or
repurchasing our capital stock);
. make investments or acquisitions;
. grant liens on assets;
. sell our assets;
. engage in transactions with affiliates;
. issue capital stock of subsidiaries; and
. merge, consolidate or transfer substantially all of our assets.
In addition, our need to remain in compliance with our covenants may
restrict our flexibility in managing and making changes in our business.
If we fail to comply with the restrictions of our new credit facility or the
indenture governing the notes or any other subsequent financing agreements, a
default may allow the creditors, if the agreements so provide, to accelerate
the related debt as well as any other debt to which a cross-acceleration or
cross-default provision applies. In addition, the lenders may be able to
terminate any commitments they had made to supply us with further funds.
15
<PAGE>
Your right to receive payments on the notes is subordinated to our senior
debt.
Payment on the notes will be subordinated in right of payment to all of our
senior debt, including our new credit facility. On July 1, 2000, the notes
would have been subordinated to approximately $495.0 million of senior debt and
approximately $150.0 million would have been available for borrowing as
additional senior debt under the new credit facility. By reason of the
subordination provisions of the indenture, in the event of our insolvency,
liquidation, reorganization, dissolution or other winding-up, holders of notes
will not receive any payment on the notes until all senior debt, including the
new credit facility, is paid in full. In addition, no payment will be able to
be made in respect of the notes during the continuance of payment defaults on
our senior debt, and payments on the notes may be prohibited for up to 179
consecutive days in the event of certain non-payment defaults on our senior
debt. The notes are unsecured, and are effectively subordinated to all secured
obligations to the extent of the value of the assets securing such obligations.
Any future guarantees of the notes by our subsidiaries will be similarly
subordinated to senior debt of these subsidiaries.
Our foreign subsidiaries will not, and certain other subsidiaries may not,
guarantee the notes. The notes will be structurally subordinated to all
existing and future debt and other liabilities, including trade payables, of
these subsidiaries. The right of the holders of notes to participate in any
distribution of the assets of such subsidiaries upon their liquidation,
reorganization or insolvency will be subject to the prior claims of all of
these subsidiaries' creditors.
The notes and any future guarantees may not be enforceable because of
fraudulent conveyance laws.
The incurrence of indebtedness as part of the recapitalization, and the
payment to our shareholders of $25.25 in cash per share of common stock, may be
subject to review under relevant federal and state fraudulent conveyance
statutes in the case of either a bankruptcy, reorganization or rehabilitation
case or similar proceeding, or a lawsuit by or on behalf of any of Jostens,
Inc.'s or any future guarantor's creditors that are not paid on time.
Although laws differ among various jurisdictions, in general, under these
fraudulent conveyance statutes, a court could invalidate some or all of the
debt related to our recapitalization, including the notes and any future
guarantees, as a fraudulent conveyance, or could subordinate the notes or any
future guarantee to the debt owed to our or any future guarantor's existing or
future creditors, if the court found that, at the time of the recapitalization,
either:
(1) Jostens, Inc. incurred the debt and paid the cash consideration in
the recapitalization or a guarantee was incurred with the intent of
hindering, delaying or defrauding current or future creditors; or
(2) Jostens, Inc. received less than reasonably equivalent value or fair
consideration in the recapitalization or any future guarantor did not
receive reasonably equivalent value or fair consideration for its guarantee
and Jostens, Inc. or any future guarantor, as the case may be, were found
to be one or more of the following:
. insolvent or rendered insolvent by reason of the recapitalization,
including the incurrence of the related debt;
. a company engaged in a business or transaction for which its assets
constituted unreasonably small capital; or
. a company intending to incur, or believing that it would incur,
obligations beyond its ability to pay as these obligations matured.
16
<PAGE>
A legal challenge of a future guarantee on fraudulent conveyance grounds may
focus on the benefits (or lack of benefits) realized by that guarantor as a
result of the issuance by us of the notes. If a future guarantee is avoided as
a fraudulent conveyance or found to be unenforceable for any other reason, you
will not have a claim against that guarantor and will be a creditor only of
Jostens, Inc. and any guarantor whose guarantee was not set aside or found to
be unenforceable.
You will be required to include original issue discount in your gross income
for federal income tax purposes.
The notes will be considered to be issued with original issue discount for
federal income tax purposes. Consequently, a holder of a note must include
original issue discount in income prior to the actual receipt of cash in
respect of such income. See "Certain United States Federal Tax Consequences."
In the event of bankruptcy, your claim with respect to the notes may be
limited.
If a bankruptcy case is commenced by or against us under the United States
Bankruptcy Code after the issuance of the notes, the claim of a holder of any
of the notes with respect to the principal amount may be limited to an amount
equal to the sum of:
. the initial offering price allocable to the notes, and
. that portion of the original issue discount which is not deemed to
constitute "unmatured interest" for purposes of the Bankruptcy Code.
Any original issue discount that was not amortized as of any such bankruptcy
filing would constitute "unmatured interest."
Affiliates of Investcorp, which control Jostens, may take actions that
conflict with your interests.
Approximately 68% of the voting power of our common stock is held by
affiliates of Investcorp. Accordingly, affiliates of Investcorp control the
power to elect our directors, to appoint new management and to approve many
actions requiring the approval of our shareholders, such as adopting most
amendments to our articles of incorporation and approving mergers or sales of
all or substantially all of our assets. The directors have the authority,
subject to the terms of our debt, to issue additional stock, implement stock
repurchase programs, declare dividends and make other such decisions about our
capital stock.
In addition, the interests of the Investcorp affiliates could conflict with
your interests. For example, if we encounter financial difficulties or are
unable to pay our debts as they mature, the interests of the Investcorp
affiliates, as equity holders of Jostens, might conflict with your interests as
a note holder. Affiliates of Investcorp may also have an interest in pursing
acquisitions, divestitures, financings or other transactions that, in their
judgment, could enhance their equity investments, even though such transactions
might involve risks to you, as holders of the notes.
We may not be able to purchase your notes upon a change of control.
Upon the occurrence of specified "change of control" events, we will be
required to offer to purchase each holder's notes at a price of 101% of their
principal amount plus accrued and unpaid interest, unless all notes have been
previously called for redemption. We may not have sufficient financial
resources to purchase
17
<PAGE>
all of the notes that holders tender to us upon a change of control offer. The
occurrence of a change of control could also constitute an event of default
under our new credit facility and/or any of our future credit agreements. Our
bank lenders may also have the right to prohibit any such purchase or
redemption, in which event we would be in default on the notes. See
"Description of the Notes--Repurchase at the Option of Holders--Change of
Control."
You may not be able to sell your securities easily.
Before this exchange offer there was no established trading market for the
outstanding notes and we cannot assure you that an active or liquid trading
market will develop for the exchange notes. The initial purchasers of the
outstanding notes have advised us that they currently intend to make a market
in the exchange notes; however, the initial purchasers are not obligated to do
so and any initial purchaser may discontinue its market-making activities at
any time without notice.
The exchange notes are expected to be eligible for trading in The Portal
Market. However, we do not intend to apply for a listing of the exchange notes
on any securities exchange or automated inter-dealer quotation system. The
liquidity of any market for the notes will depend upon the number of holders,
our own financial performance, the market for similar securities, the interest
of securities dealers in making a market and other factors.
If Deutsche Bank Securities Inc., one of the initial purchasers, is deemed
to be an affiliate of Jostens, it may be required to deliver a "market-making
prospectus" in connection with its market-making activities in respect of the
exchange notes registered under the Securities Act. In such a case, the ability
of Deutsche Bank Securities Inc. to maintain a market in such securities will
be dependent, in part, on our ability to maintain a current market-making
prospectus and we are not obligated to maintain such a prospectus for more than
two years after the day the related shelf registration statement is declared
effective. For details on DB Capital Investors' investment in Jostens, see
"Security Ownership of Certain Beneficial Owners and Management" and
"Description of Capital Stock."
Market trading prices for the securities may be volatile.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the notes offered hereby. The market for the notes, if any, may be
subject to similar disruptions. Any such disruptions may adversely affect the
value of your notes. Similarly, disruptions in the market for the warrants or
warrant shares, if any, may adversely affect their value.
Risks Related to Our Business
We may not be able to achieve some or all of the initiatives in our business
plan and any business strategies implemented may not improve our operating
results.
Our business plan envisions several long-term growth initiatives, including
developing new products and services. We cannot assure you that we will be able
to successfully develop such products or that we will achieve the benefits of
such business plan. If we are unable to do so, our long-term growth and
profitability may be adversely affected.
In addition, the business strategy that we intend to pursue following the
recapitalization is based on our operations and strategic planning process.
After the recapitalization, we may decide to alter or discontinue certain parts
of this strategy or may adopt alternative or additional strategies. We cannot
assure you that the strategies implemented will be successful or will improve
our operating results. Further, other conditions may occur, including increased
competition, which may offset any improved operating results that are
attributable to such business strategy.
18
<PAGE>
Changes in our relationship with our independent sales representatives may
adversely effect our future operating results.
Our success is highly dependent upon the efforts and abilities of our
network of independent sales representatives. Many of our relationships with
customers and schools are cultivated and maintained by our sales
representatives. If we were to experience a significant loss of our independent
sales representatives, it would have a material adverse effect upon our
operating results.
We may not be able to achieve the intended benefits of our recently announced
business refocusing.
In December 1999, we completed a strategic review of our business and
announced a plan to refocus our organization. This business refocusing involves
organizational changes, including job reassignments and reductions. We cannot
assure you that the refocusing will be implemented successfully or on a timely
basis or that it will not result in unanticipated costs. Problems resulting
from the refocusing could have an adverse effect on our financial position or
results of operations.
We depend on a key supplier for a principal component of our class rings and
certain of our recognition products.
We purchase substantially all of our synthetic and semiprecious stones from
a single supplier located in Germany. This supplier provides stones to almost
all of the class ring manufacturers in the United States. If access to this
supplier were to be lost or curtailed to any significant extent, our business
would suffer unless we secured alternative supply arrangements in a timely
fashion. We may not be able to do so on terms that would prevent a material
adverse impact on our operating results.
The seasonality of our School Products segment's sales may adversely affect
our financial results and our ability to service our debt.
Our School Products segment experiences strong seasonal business swings
which correspond to the North American school year, with approximately 60-65%
of full-year segment sales and 70-75% of operating income occurring in the
first half of the year. This seasonality requires us to carefully manage our
cash flows over the course of the year. If our sales were to fall substantially
below what we would normally expect during this period, our annual financial
results would be adversely impacted and our ability to service our debt,
including our ability to make interest payments on the notes, may also be
adversely affected.
Our business is subject to fluctuating raw material prices.
Our products require a number of raw materials to manufacture. The principal
raw materials that we purchase are gold, paper products, and precious,
semiprecious and synthetic stones. The cost of these raw materials is affected
by numerous factors, including availability of supply. Any material increase in
the price of these raw materials could adversely impact our cost of sales. When
these fluctuations result in significantly higher raw material costs, our
operating results are adversely affected to the extent we are unable to pass on
these increased costs to our customers. Therefore, significant fluctuations in
gold, paper products or precious, semiprecious and synthetic stone prices and
other materials could have a material adverse effect on our operating results.
See "Business--Raw Materials and Suppliers."
We are currently involved in litigation which, if decided against us, may
adversely affect our financial results and our ability to service our debt.
In January 1997, Taylor Publishing Company, a competing yearbook provider,
brought suit against us in a Texas federal court, alleging that we had violated
antitrust laws with respect to the yearbook publishing market by interfering
with Taylor's sales representatives and improperly seeking trade secrets. In
May 1998, Taylor won a $25.3 million verdict against us in a jury trial. In
January 1999, the trial judge overturned this verdict
19
<PAGE>
against us and dismissed all claims against us in the case. Taylor has appealed
the decision and is seeking to have the jury verdict reinstated. On July 10,
2000, the Fifth Circuit affirmed the trial court's entry of judgment as a
matter of law on Jostens' behalf. On July 24, 2000, Taylor filed a petition
with the Fifth Circuit to rehear the case in front of the panel that heard the
appeal. This petition was denied. Taylor has until October 23, 2000 to petition
the U.S. Supreme Court to review the case. If the jury verdict is reinstated,
the payment of damages would be material to our results of operations and could
adversely affect our ability to make payments on the notes.
Following the public announcement of the merger that is part of our
recapitalization, three purported class action lawsuits were filed in Minnesota
district court for the County of Hennepin against Jostens and its directors
alleging breaches of fiduciary duty by Jostens directors in connection with the
merger. Among other things, the complaints allege that Jostens' directors
failed to take all necessary steps to ensure that shareholders receive maximum
value for their shares. On May 9, 2000, we agreed in principle to settle the
three purported class actions. The settlement is subject to court approval. See
"Business--Legal Proceedings."
We are subject to environmental regulations that could impose substantial
costs upon us and may adversely effect our financial results and our ability to
service our debt.
Our operations are subject to a wide variety of federal, state and local
laws and regulations governing emissions to air, discharge to waters, the
generation, handling, storage, transportation, treatment and disposal of
hazardous substances and other materials, and employee health and safety
matters. Also, as an owner and operator of real property or a generator of
hazardous substances, we may be subject to environmental cleanup liability,
regardless of fault, pursuant to the Comprehensive Environmental Response
Compensation and Liability Act or analogous state laws. In addition to the
potentially large expenses associated with cleanup liabilities, these laws and
regulations provide for substantial fines and criminal sanctions for
violations.
We believe that it is probable that a loss has been incurred at one of our
sites and, based on findings included in remediation reports and discussions
with legal counsel, we estimate the total cost of this remediation to be
between $2.8 million to $3.8 million. We have made payments of approximately
$2.3 million during fiscal 2000 related to the costs of this remediation. As of
July 31, 2000, we had a remaining accrual of $1.2 million. However, we cannot
assure you that our estimates of the potential liability associated with this
site will not be exceeded or that our reserve will be sufficient to cover the
actual costs of remediation. If the liabilities associated with this site are
materially greater than we have estimated them to be, it could have a material
adverse effect on our results of operations and could adversely affect our
ability to make payments on the notes.
As of July 31, 2000, we had identified two additional sites requiring
further investigation. We cannot assure you that we will not incur costs for
any cleanup or other remedial activities in respect of these or other sites
that would have a material adverse effect on our results of operations and
could adversely affect our ability to make payments on the notes.
20
<PAGE>
THE EXCHANGE OFFER
Purpose of the Exchange Offer
When we sold the outstanding notes in May 2000, we entered into a
registration rights agreement with the initial purchasers of those notes. Under
the registration rights agreement, we agreed to use our reasonable best efforts
to file the registration statement of which this prospectus forms a part
regarding the exchange of the outstanding notes for notes which are registered
under the Securities Act and cause this registration statement to be declared
effective by the SEC by November 6, 2000. We also agreed to conduct this
exchange offer for at least 30 days after the date notice of the exchange offer
is mailed to the holders of the outstanding notes and to use our reasonable
best efforts to keep this registration statement effective until the exchange
offer is completed. The registration rights agreement provides that we will be
required to pay liquidated damages to the holders of the outstanding notes
whose notes are subject to transfer restrictions if:
. the registration statement is not declared effective by November 6,
2000; or
. the exchange offer has not been consummated by December 5, 2000.
A copy of the registration rights agreement is filed as an exhibit to this
registration statement.
Terms of the Exchange Offer
This prospectus and the accompanying letter of transmittal together
constitute the exchange offer. Upon the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal, we will accept for
exchange outstanding notes which are properly tendered on or before the
expiration date and are not withdrawn as permitted below. The expiration date
for this exchange offer is 5:00 p.m., New York City time, on November 13, 2000,
or such later date and time to which we, in our sole discretion, extend the
exchange offer.
The form and terms of the notes being issued in the exchange offer are the
same as the form and terms of the outstanding notes, except that:
. the notes being issued in the exchange offer will have been registered
under the Securities Act;
. interest on the new registered notes will accrue from the last date on
which interest was paid on the outstanding notes or, if no such interest
has been paid, from May 10, 2000;
. the notes issued in the exchange offer will not bear the restrictive
legends restricting their transfer under the Securities Act; and
. the notes being issued in the exchange offer will not contain the
registration rights and liquidated damages provisions contained in the
outstanding notes.
Notes tendered in the exchange offer must be in denominations of the
principal amount of $100,000 and any integral multiples of $1,000 in excess
thereof.
We expressly reserve the right, in our sole discretion:
. to extend the expiration date;
. to delay accepting any outstanding notes;
. if any of the conditions set forth below under "-- Conditions to the
Exchange Offer" have not been satisfied, to terminate the exchange offer
and not accept any notes for exchange; and
. to amend the exchange offer in any manner.
We will give oral or written notice of any extension, delay, non-acceptance,
termination or amendment as promptly as practicable by a public announcement,
and in the case of an extension, no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled expiration date.
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<PAGE>
During an extension, all outstanding notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. Any
outstanding notes not accepted for exchange for any reason will be returned
without cost to the holder that tendered them as promptly as practicable after
the expiration or termination of the exchange offer.
How to Tender Outstanding Notes for Exchange
When the holder of outstanding notes tenders and we accept notes for
exchange, a binding agreement between us and the tendering holder is created,
subject to the terms and conditions set forth in this prospectus and the
accompanying letter of transmittal. Except as set forth below, a holder of
outstanding notes who wishes to tender notes for exchange must, on or prior to
the expiration date:
(1) transmit a properly completed and duly executed letter of
transmittal, including all other documents required by such letter of
transmittal, to The Bank of New York, the exchange agent, at the address
set forth below under the heading "-- The Exchange Agent"; or
(2) if notes are tendered pursuant to the book-entry procedures set
forth below, the tendering holder must transmit an agent's message to the
exchange agent at the address set forth below under the heading "-- The
Exchange Agent."
In addition, either:
(1) the exchange agent must receive the certificates for the outstanding
notes and the letter of transmittal;
(2) the exchange agent must receive, prior to the expiration date, a
timely confirmation of the book-entry transfer of the notes being tendered
into the exchange agent's account at the Depository Trust Company, or DTC,
along with the letter of transmittal or an agent's message; or
(3) the holder must comply with the guaranteed delivery procedures
described below.
The term "agent's message" means a message, transmitted to DTC and received by
the exchange agent and forming a part of a book-entry transfer (a "book-entry
confirmation"), which states that DTC has received an express acknowledgment
that the tendering holder agrees to be bound by the letter of transmittal and
that we may enforce the letter of transmittal against such holder.
The method of delivery of the outstanding notes, the letters of transmittal
and all other required documents is at the election and risk of the holders. If
such delivery is by mail, we recommend registered mail, properly insured, with
return receipt requested. In all cases, you should allow sufficient time to
assure timely delivery. No letters of transmittal or notes should be sent
directly to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the notes surrendered for exchange are
tendered:
(1) by a holder of outstanding notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions"
on the letter of transmittal; or
(2) for the account of an eligible institution.
An "eligible institution" is a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
If signatures on a letter of transmittal or notice of withdrawal are
required to be guaranteed, the guarantor must be an eligible institution. If
notes are registered in the name of a person other than the signer of the
letter of transmittal, the notes surrendered for exchange must be endorsed by,
or accompanied by a written instrument or instruments of transfer or exchange,
in satisfactory form as determined by us in our sole discretion, duly executed
by the registered holder with the holder's signature guaranteed by an eligible
institution.
22
<PAGE>
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of notes tendered for exchange in
our sole discretion. Our determination will be final and binding. We reserve
the absolute right to:
(1) reject any and all tenders of any note improperly tendered;
(2) refuse to accept any note if, in our judgment or the judgment of our
counsel, acceptance of the note may be deemed unlawful; and
(3) waive any defects or irregularities or conditions of the exchange
offer as to any particular note either before or after the expiration date,
including the right to waive the ineligibility of any holder who seeks to
tender notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer as to
any particular notes either before or after the expiration date, including the
letter of transmittal and the instructions to it, will be final and binding on
all parties. Holders must cure any defects and irregularities in connection
with tenders of notes for exchange within such reasonable period of time as we
will determine, unless we waive such defects or irregularities. Neither we, the
exchange agent nor any other person will be under any duty to give notification
of any defect or irregularity with respect to any tender of notes for exchange,
nor will any of us incur any liability for failure to give such notification.
If a person or persons other than the registered holder or holders of the
outstanding notes tendered for exchange signs the letter of transmittal, the
tendered notes must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders that appear on the outstanding notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any notes or any power of attorney,
such persons should so indicate when signing, and you must submit proper
evidence satisfactory to us of such person's authority to so act unless we
waive this requirement.
By tendering, each holder will represent to us that, among other things, the
person acquiring notes in the exchange offer is obtaining them in the ordinary
course of its business, whether or not such person is the holder, and that
neither the holder nor such other person has any arrangement or understanding
with any person to participate in the distribution of the notes issued in the
exchange offer. If any holder or any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of our company, or is engaged in
or intends to engage in or has an arrangement or understanding with any person
to participate in a distribution of such notes to be acquired in the exchange
offer, such holder or any such other person:
(1) may not rely on the applicable interpretations of the staff of the
SEC; and
(2) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction.
Each broker-dealer that receives notes under this exchange offer for its own
account in exchange for outstanding notes, where the outstanding notes were
acquired by the 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 notes issued in the exchange offer. 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. See "Plan of
Distribution" for a discussion of the exchange and resale obligations of
broker-dealers in connection with the exchange offer.
Acceptance of Outstanding Notes for Exchange; Delivery of Notes Issued in the
Exchange Offer
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date, all outstanding notes
properly tendered and will issue notes registered under the
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<PAGE>
Securities Act. For purposes of the exchange offer, we will be deemed to have
accepted properly tendered outstanding notes for exchange when, as and if we
have given oral or written notice to the exchange agent, with written
confirmation of any oral notice to be given promptly thereafter. See "--
Conditions to the Exchange Offer" for a discussion of the conditions that must
be satisfied before we accept any notes for exchange.
For each outstanding note accepted for exchange, the holder will receive a
note registered under the Securities Act having a principal amount equal to,
and in the denomination of, that of the surrendered outstanding note.
Accordingly, registered holders of notes issued in the exchange offer on the
relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid on
the outstanding notes, from May 10, 2000. Outstanding notes that we accept for
exchange will cease to accrue interest from and after the date of consummation
of the exchange offer. Under the registration rights agreement, we may be
required to make additional payments in the form of liquidated damages to the
holders of the outstanding notes under circumstances relating to the timing of
the exchange offer.
In all cases, we will issue notes in the exchange offer for outstanding
notes that are accepted for exchange only after the exchange agent timely
receives:
(1) certificates for such outstanding notes or a timely book-entry
confirmation of such outstanding notes into the exchange agent's account at
DTC;
(2) a properly completed and duly executed letter of transmittal or an
agent's message; and
(3) all other required documents.
If for any reason set forth in the terms and conditions of the exchange
offer we do not accept any tendered outstanding notes, or if a holder submits
outstanding notes for a greater principal amount than the holder desires to
exchange, we will return such unaccepted or non-exchanged notes without cost to
the tendering holder. In the case of notes tendered by book-entry transfer into
the exchange agent's account at DTC, such non-exchanged notes will be credited
to an account maintained with DTC. We will return the notes or have them
credited to DTC as promptly as practicable after the expiration or termination
of the exchange offer.
Book Entry Transfers
The exchange agent will make a request to establish an account at DTC for
purposes of the exchange offer within two business days after the date of this
prospectus. Any financial institution that is a participant in DTC's system
must make book-entry delivery of outstanding notes denominated in dollars by
causing DTC to transfer the outstanding notes into the exchange agent's account
at DTC in accordance with DTC's procedures for transfer. Such participant
should transmit its acceptance to DTC on or prior to the expiration date or
comply with the guaranteed delivery procedures described below. DTC will verify
such acceptance, execute a book-entry transfer of the tendered outstanding
notes into the exchange agent's account at DTC and then send to the exchange
agent confirmation of such book-entry transfer. The confirmation of such book-
entry transfer will include an agent's message confirming that DTC has received
an express acknowledgment from such participant that such participant has
received and agrees to be bound by the letter of transmittal and that we may
enforce the letter of transmittal against such participant. Delivery of notes
issued in the exchange offer may be effected through book-entry transfer at DTC
as applicable. However, the letter of transmittal or facsimile thereof or an
agent's message, with any required signature guarantees and any other required
documents, must:
(1) be transmitted to and received by the exchange agent at the address
set forth below under "--Exchange Agent" on or prior to the expiration
date; or
(2) comply with the guaranteed delivery procedures described below.
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<PAGE>
Guaranteed Delivery Procedures
If a holder of outstanding notes desires to tender such notes and the
holder's notes are not immediately available, or time will not permit such
holder's notes or other required documents to reach the exchange agent before
the expiration date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
(1) the holder tenders the notes through an eligible institution;
(2) prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery, substantially in the form we have provided, by
telegram, facsimile transmission, mail or hand delivery, setting forth the
name and address of the holder of the notes being tendered and the amount
of the notes being tendered. The notice of guaranteed delivery will state
that the tender is being made and guarantee that within five New York Stock
Exchange trading days after the date of execution of the notice of
guaranteed delivery, the certificates for all physically tendered notes, in
proper form for transfer, or a book-entry confirmation, as the case may be,
together with a properly completed and duly executed letter of transmittal
or agent's message with any required signature guarantees and any other
documents required by the letter of transmittal will be deposited by the
eligible institution with the exchange agent; and
(3) the exchange agent receives the certificates for all physically
tendered outstanding notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, together with a properly completed and
duly executed letter of transmittal or agent's message with any required
signature guarantees and any other documents required by the letter of
transmittal, within five New York Stock Exchange trading days after the
date of execution of the notice of guaranteed delivery.
Withdrawal Rights
You may withdraw tenders of your outstanding notes at any time prior to 5:00
p.m., New York City time, on the expiration date.
For a withdrawal to be effective, you must send a written notice of
withdrawal to the exchange agent at one of the addresses set forth below under
"-- Exchange Agent." Any such notice of withdrawal must:
(1) specify the name of the person having tendered the outstanding notes
to be withdrawn;
(2) identify the outstanding notes to be withdrawn, including the
principal amount of such outstanding notes; and
(3) where certificates for outstanding notes are transmitted, specify
the name in which outstanding notes are registered, if different from that
of the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and signed notice of withdrawal with
signatures guaranteed by an eligible institution unless such holder is an
eligible institution. If notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn notes
and otherwise comply with the procedures of such facility. We will determine
all questions as to the validity, form and eligibility (including time of
receipt) of such notices and our determination will be final and binding on all
parties. Any tendered notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Any notes
which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder. In
the case of notes tendered by book-entry transfer into the exchange agent's
account at DTC, the notes withdrawn will be credited to an account maintained
with DTC for the outstanding notes. The notes will be returned or credited to
this account as soon as practicable after
25
<PAGE>
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn notes may be re-tendered by following one of the procedures described
under "-- How to Tender Notes for Exchange" above at anytime on or prior to
5:00 p.m., New York City time, on the expiration date.
Conditions to the Exchange Offer
Under the registration rights agreement that we entered into with the
initial purchasers of the outstanding notes, the exchange offer is not subject
to any conditions, other than that:
(1) the exchange offer does not violate applicable law or any applicable
interpretation of the staff or the SEC;
(2) no action or proceeding shall have been instituted or threatened in
any court or by any governmental agency which might materially impair our
ability to proceed with the exchange offer, and no material adverse
development shall have occurred in any existing action or proceeding with
respect to Jostens;
(3) all governmental approvals shall have been obtained, which approvals
we deem necessary for the consummation of the exchange offer;
(4) each holder of registrable notes shall not have delivered notice to
Jostens that it is a restricted holder, as that term is defined in the
registration rights agreement; and
(5) the conditions precedent to Jostens' obligations under the
registration rights agreement shall have been fulfilled.
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<PAGE>
The Exchange Agent
The Bank of New York has been appointed as our exchange agent for the
exchange offer. All executed letters of transmittal should be directed to our
exchange agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent addressed as follows:
By hand delivery:
The Bank of New York
101 Barclay Street
New York, NY 10286
Ground level
Corporate Trust Services Window
Attention: Reorganization Unit --7E
By Overnight Courier or Registered/Certified Mail:
The Bank of New York
101 Barclay Street
New York, NY 10286
Attention: Reorganization Unit --7E
By facsimile transmission:
(for eligible institutions only)
(212) 815-6339
Confirm by Telephone:
(212) 815-3738
Delivery of the letter of transmittal to an address other than as set forth
above or transmission of such letter of transmittal via facsimile other than as
set forth above does not constitute a valid delivery of such letter of
transmittal.
Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptance of the exchange offer except for reimbursement of mailing expenses.
We will pay the cash expenses to be incurred in connection with the exchange
offer, including accounting, legal, printing, and related fees and expenses.
Transfer Taxes
Holders who tender their outstanding notes for exchange will not be
obligated to pay any transfer taxes in connection with the exchange. If,
however, notes issued in the exchange offer are to be delivered to, or are to
be issued in the name of, any person other than the holder of the notes
tendered, or if a transfer tax is imposed for any reason other than the
exchange of outstanding notes in connection with the exchange offer, then the
holder must pay any of these transfer taxes, whether imposed on the registered
holder or on any other person. If satisfactory evidence of payment of, or
exemption from, these taxes is not submitted with the letter of transmittal,
the amount of these transfer taxes will be billed directly to the tendering
holder.
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<PAGE>
Consequences of Failure to Exchange Outstanding Notes
Holders who desire to tender their outstanding notes in exchange for notes
registered under the Securities Act should allow sufficient time to ensure
timely delivery. Neither the exchange agent nor we are under any duty to give
notification of defects or irregularities with respect to the tenders of notes
for exchange.
Outstanding notes that are not tendered or are tendered but not accepted
will, following the consummation of the exchange offer, continue to be subject
to the provisions in the indenture regarding the transfer and exchange of the
outstanding notes and the existing restrictions on transfer set forth in the
legend on the outstanding notes and in the offering circular dated May 5,
2000, relating to the outstanding notes. Except in limited circumstances with
respect to specific types of holders of outstanding notes, we will have no
further obligation to provide for the registration under the Securities Act of
such outstanding notes. In general, outstanding notes, unless registered under
the Securities Act, may not be offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. We do not currently anticipate that we will take any
action to register the outstanding notes under the Securities Act or under any
state securities laws.
Upon completion of the exchange offer, holders of the outstanding notes
will not be entitled to any further registration rights under the registration
rights agreement, except under limited circumstances.
Holders of the notes issued in the exchange offer and any outstanding notes
which remain outstanding after consummation of the exchange offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage of the class have taken certain actions or exercised
certain rights under the indenture.
Consequences of Exchanging Outstanding Notes
Based on interpretations of the staff of the SEC, as set forth in no-action
letters to third parties, we believe that the notes issued in the exchange
offer may be offered for resale, resold or otherwise transferred by holders of
those notes, other than by any holder which is our "affiliate" within the
meaning of Rule 405 under the Securities Act. The notes may be offered for
resale, resold or otherwise transferred without compliance with the
registration and prospectus delivery provisions of the Securities Act, if:
(1) the notes issued in the exchange offer are acquired in the ordinary
course of the holder's business; and
(2) the holder, other than broker-dealers, has no arrangement or
understanding with any person to participate in the distribution of the
notes issued in the exchange offer.
However, the SEC has not considered the exchange offer in the context of a
no-action letter and we cannot guarantee that the staff of the SEC would make
a similar determination with respect to the exchange offer as in such other
circumstances.
Each holder, must furnish a written representation that:
(1) it is not an affiliate of ours;
(2) it is not engaged in, and does not intend to engage in, a
distribution of the notes issued in the exchange offer and has no
arrangement or understanding to participate in a distribution of notes
issued in the exchange offer;
(3) it is acquiring the notes issued in the exchange offer in the
ordinary course of its business; and
(4) it is not acting on behalf of a person who could not make
representations (1)-(3).
Each broker-dealer that receives notes issued in the exchange offer for its
own account in exchange for outstanding notes must acknowledge that such
outstanding notes were acquired by such broker-dealer as a result of market-
making or other trading activities and that it will deliver a prospectus in
connection with any
28
<PAGE>
resale of such notes issued in the exchange offer. See "Plan of Distribution"
for a discussion of the exchange and resale obligations of broker-dealers in
connection with the exchange offer.
In addition, to comply with state securities laws of certain jurisdictions,
the notes issued in the exchange offer may not be offered or sold in any state
unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and complied with by
the holders selling the notes. We have agreed in the registration rights
agreement that, prior to any public offering of transfer restricted notes, we
will register or qualify the transfer restricted securities for offer or sale
under the securities laws of any jurisdiction requested by a holder. Unless a
holder requests, we currently do not intend to register or qualify the sale of
the notes issued in the exchange offer in any state where an exemption from
registration or qualification is required and not available. Transfer
restricted notes means each note until the date on which it:
(1) has been exchanged for a freely transferable note in the exchange
offer;
(2) has been effectively registered under the Securities Act and
disposed of in accordance with a shelf registration statement that we file
in accordance with the registration rights agreement; or
(3) is distributed to the public under Rule 144 of the Securities Act or
is saleable under Rule 144(k) under the Securities Act.
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USE OF PROCEEDS
We will not receive any proceeds from the exchange offer.
CAPITALIZATION
The following table sets forth our actual capitalization as of July 1, 2000.
This table should be read in conjunction with "Prospectus Summary--Summary
Consolidated Unaudited Pro Forma Financial Data," "Prospectus Summary--Summary
Consolidated Historical Financial Data," "Unaudited Pro Forma Condensed
Consolidated Financial Statements," "Selected Consolidated Historical Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and the notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of July 1,
2000
-------------
(in millions)
<S> <C>
Cash and cash equivalents....................................... $ 35.9
======
Short-term borrowings, including current maturities of long-term
debt........................................................... $5.5
======
Long-term debt:
Term loans.................................................... $489.5
Notes to be exchanged......................................... 205.3
------
Total long-term debt........................................ 694.8
------
Redeemable preferred stock...................................... 44.2
Shareholders' deficit (1)....................................... (556.4)
------
Total capitalization...................................... $182.6
======
</TABLE>
(1) The shareholders' deficit at July 1, 2000 is primarily the result of the
recapitalization and the recording of related expenses, net of income tax
benefits. In connection with the recapitalization, Investcorp and its co-
investors made a cash equity investment of approximately $208.7 million,
representing 92% of the outstanding common stock and voting power of
Jostens.
30
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements have been derived by the application of pro forma adjustments to our
historical consolidated financial statements appearing elsewhere in this
prospectus. The unaudited pro forma condensed consolidated statements of
operations for the periods presented give effect to the recapitalization as if
it had occurred on January 3, 1999 and exclude non-recurring items directly
attributable to the recapitalization. The pro forma adjustments are described
in the accompanying notes. The unaudited pro forma condensed consolidated
financial statements should not be considered indicative of actual results that
would have been achieved had the recapitalization been consummated on the date
indicated, nor are they necessarily indicative of future operating results. The
unaudited pro forma condensed consolidated financial statements should be read
in conjunction with our historical consolidated financial statements and notes
thereto appearing elsewhere in this prospectus. The pro forma adjustments were
applied to the historical consolidated financial statements to reflect and
account for the merger as a recapitalization. Accordingly, the historical basis
of our assets and liabilities have not been impacted by the merger.
31
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statement Of Operations
<TABLE>
<CAPTION>
For the Year Ended January 1, 2000
-----------------------------------------
Pro Forma
Historical Adjustments Pro Forma (e)(f)
---------- ----------- ----------------
(in millions, except share and per
share data)
<S> <C> <C> <C>
Net sales........................... $ 782.4 $ $ 782.4
Cost of products sold............... 349.7 349.7
---------- ------ ---------
Gross profit........................ 432.7 432.7
Selling and administrative
expenses........................... 330.8 1.5 (a) 332.3
Special charge...................... 20.2 20.2
---------- ------ ---------
Operating income.................... 81.7 (1.5) 80.2
Net interest expense................ 7.0 80.6 (b) 87.6
---------- ------ ---------
Income before income taxes.......... 74.7 (82.1) (7.4)
Income taxes........................ 31.5 (32.9)(c) (1.4)
---------- ------ ---------
Net income (loss)................... 43.2 (49.2) (6.0)
Dividends and accretion on
redeemable preferred stock......... 9.6 (d) 9.6
---------- ------ ---------
Net income (loss) attributable to
common shareholders................ $ 43.2 $(58.8) $ (15.6)
========== ====== =========
Ratio of earnings to combined fixed
charges and preferred stock
dividends.......................... 8.9x (g)
Net income (loss) attributable to
common shareholders per share:
Basic............................. $ 1.27 $ (1.73)
Diluted........................... $ 1.27 $ (1.73)
Weighted average number of common
shares used in per share
computations:
Basic............................. 34,004,000 8,993,297
Diluted........................... 34,093,000 8,993,297
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Operations.
32
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statement Of Operations
<TABLE>
<CAPTION>
For the Six Months Ended July 1, 2000
------------------------------------------
Pro Forma
Historical Adjustments Pro Forma (f)
----------- ----------- -------------
(in millions, except share and per
share data)
<S> <C> <C> <C>
Net sales.......................... $ 476.4 $ $ 476.4
Cost of products sold.............. 201.8 201.8
----------- ----- ----------
Gross profit....................... 274.6 274.6
Selling and administrative
expenses.......................... 180.8 0.5 (a) 181.3
Transaction costs.................. 45.7 (45.7)(e) --
----------- ----- ----------
Operating income................... 48.1 45.2 93.3
Net interest expense............... 14.8 27.7 (b) 42.5
----------- ----- ----------
Income before income taxes......... 33.3 17.5 50.8
Income taxes....................... 26.3 (6.9)(c)(e) 19.4
----------- ----- ----------
Net income (loss).................. 7.0 24.4 31.4
Dividends and accretion on
redeemable preferred stock........ 1.2 4.0 (d) 5.2
----------- ----- ----------
Net income (loss) attributable to
common shareholders............... $ 5.8 $20.4 $ 26.2
=========== ===== ==========
Ratio of earnings to combined fixed
charges and preferred stock
dividends......................... 2.7x 1.9x
Net income (loss) attributable to
common shareholders per share:
Basic............................ $ 0.23 $ 2.91
Diluted.......................... $ 0.23 $ 2.91
Weighted average number of common
shares used in per share
computations:
Basic............................ 25,043,000 8,993,297
Diluted.......................... 25,316,000 8,993,297
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Operations.
33
<PAGE>
Notes To Unaudited Pro Forma Condensed Consolidated Statements Of Operations
(a) Reflects the amortization of prepaid management advisory and consulting
services fees that were paid to Investcorp International Inc. as described
under "Certain Relationships and Related Transactions". The fees are being
amortized over the five-year term of the management and consulting
agreement.
(b) Reflects the following:
<TABLE>
<CAPTION>
Six months
Year ended ended
January 1, July 1,
2000 2000
---------- ----------
<S> <C> <C>
Elimination of historical net interest expense including
historical amortization of debt issuance costs on
retired debt............................................ $(7.0) $(14.8)
Interest on borrowings under the $150.0 million revolving
credit facility at an interest rate of LIBOR plus 3.00%
(1)(2).................................................. 2.6 --
Interest on borrowings under the $150.0 million Tranche A
term loan at an interest rate of LIBOR plus 3.00% (2)... 14.7 7.3
Interest on borrowings under the $345.0 million Tranche B
term loan at an interest rate of LIBOR plus 3.50% (2)... 35.5 17.8
Interest on $225.0 million of senior subordinated notes
at an interest rate of 12.75%........................... 28.7 14.3
Amortization of $19.8 million discount on notes over the
ten-year term of the senior subordinated notes.......... 1.0 0.5
Amortization of debt issuance costs of $36.5 million
associated with the financings over the respective terms
of the related indebtedness............................. 5.1 2.6
----- ------
$80.6 $ 27.7
===== ======
(1) Due to the seasonal nature of our business the borrowings under the
revolving credit facility will fluctuate throughout the year. Based on
an analysis of our historical working capital, for the year ended
January 1, 2000 interest expense is calculated assuming a $20.0 million
outstanding seasonal balance plus a 0.50% fee on the unused portion.
For the six months ended July 1, 2000, the interest expense on the
revolver is assumed to be zero as we do not typically draw on the
revolver during the first six months of the year.
(2) A 0.125% change in the interest rates on the amount of outstanding
indebtedness under the senior credit facility would change the six
month and annual pro forma interest expense by $0.3 and $0.6 million,
respectively.
(c) Reflects the tax effect of the foregoing adjustments (excluding adjustment
(e)) at our effective tax rate of 40%. The taxes associated with the
transaction costs adjustment are reflected as $4.4 million.
(d) Reflects the following:
<CAPTION>
Six months
Year ended ended
January 1, July 1,
2000 2000
---------- ----------
<S> <C> <C>
Elimination of historical dividends on the redeemable
preferred stock, accretion of the preferred stock
discount and amortization of the redeemable preferred
stock offering costs.................................... $ -- $ (1.2)
Dividends on the redeemable preferred stock calculated
based on an annual rate of 14.00%, compounded quarterly,
and a liquidation value of $60.0 million................ 8.9 4.9
Accretion of preferred stock discount of $14.0 million
over the eleven-year term of the redeemable preferred
stock................................................... 0.4 0.2
Amortization of $3.0 million redeemable preferred stock
offering costs over the eleven-year term of the
redeemable preferred stock.............................. 0.3 0.1
----- ------
$ 9.6 $ 4.0
===== ======
</TABLE>
34
<PAGE>
(e) The unaudited pro forma condensed consolidated statement of operations
for the year ended January 1, 2000 excludes the following non-recurring
items that were directly attributable to the merger. All of the following
items were recorded as period costs at the time of the merger. The pro
forma adjustment for the six months ended July 1, 2000 reflects the
elimination of these non-recurring items that were directly attributable
to the merger.
(1) $34.7 million of fees and expenses incurred by us in connection with
the merger.
(2) $10.0 million compensation charge resulting from the cancellation of
outstanding stock options in exchange for cash payments in connection
with the merger, and related income tax benefit of $4.0 million.
(3) $1.0 million compensation charge resulting from the accelerated vesting
of restricted stock in connection with the merger, and related income
tax benefit of $0.4 million.
(f) The pro forma financial results exclude the effects of the following
items:
<TABLE>
<CAPTION>
Six months
Year ended ended
January 1, July 1,
2000 2000
---------- ----------
<S> <C> <C>
Cost savings related to employee terminations (1)..... $7.1 $1.5
Elimination of certain unprofitable businesses (2).... 4.0 --
Excess rebates related to the JDS program (3)......... 2.8 --
Costs associated with closing the Mexico manufacturing
facility (4)........................................... 2.7 --
Excess labor costs associated with Recognition segment
(5).................................................... 1.7 --
</TABLE>
(1) As part of the business refocusing that we announced in December
1999, we are eliminating approximately 100 full-time positions from all
levels of employment, primarily in corporate staff and executive
functions. For the year ended January 1, 2000 and the six months ended
July 1, 2000 the cost savings reflect the salary and benefit costs
associated with the employees identified for termination, excluding
those employees associated with the exiting of our non-core business
lines.
(2) As part of the business refocusing that we announced in December
1999, we exited some of our non-core business lines, primarily our
direct marketing sales channel to college alumni. The 1999 net cash
losses associated with these business lines was approximately $4.0
million.
(3) Due to a change in vendors, we incurred certain operational
difficulties in the administration of our JDS program in 1999. In order
to maintain favorable customer relationships with our affected customer
base, we processed approximately $2.8 million in incremental rebates in
1999.
(4) In connection with the closing of the Mexico manufacturing facility
during the first quarter of 1999, we incurred certain non-recurring
charges. These charges included, among other things, costs to transfer
equipment back to the United States, severance payments, retention
bonuses and the write-off of certain assets. Additionally, certain
employees in the Denton and Mexico manufacturing facilities and their
related costs were eliminated when the Mexico facility closed.
(5) During 1999, we installed a new computer system for the Recognition
business. We encountered significant problems when the new system was
implemented in March. These system issues necessitated the hiring of
significant temporary labor that was required to properly process
orders, manufacture goods, and coordinate shipments. By the fourth
quarter of 1999, the system inefficiencies were corrected, and the
majority of this temporary labor cost has been eliminated.
These items have been excluded from the pro forma operating results as they
do not qualify as pro forma adjustments under Regulation S-X promulgated
under the Securities Act and constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1996.
(g) For purposes of this calculation "earnings" consist of income before
income taxes and fixed charges and "combined fixed charges and preferred
stock dividends" consist of interest, amortization of debt issuance
costs, the component of rent expense believed by management to be
representative of the interest factor thereon and the amount of pre-tax
earnings required to cover accretion on preferred stock dividends and
accretion of the preferred stock discount. On a pro forma basis for the
year ended January 1, 2000, earnings would have been inadequate to cover
combined fixed charges and the preferred stock dividend. The coverage
deficiency for such period would have been $23.4 million.
35
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The table below sets forth selected consolidated historical financial data
relating to Jostens. The selected consolidated historical financial data as of
January 2, 1999 and January 1, 2000 and for each of the three fiscal years in
the period ended January 1, 2000 have been derived from, and should be read in
conjunction with our audited consolidated financial statements and the notes
thereto, appearing elsewhere in this prospectus. The selected consolidated
financial data as of and for the six months ended July 3, 1999 and July 1, 2000
have been derived from, and should be read in conjunction with our unaudited
condensed consolidated financial statements, appearing elsewhere in this
prospectus which, in our opinion, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the results
for the interim periods. The selected consolidated historical financial data
for the six month period ended December 28, 1996 and for the years ended
June 30, 1996 and 1995 and consolidated historical balance sheet data as of
January 3, 1998 have been derived from our audited historical consolidated
financial statements not included herein. Effective December 29, 1996, we
changed our fiscal year end from June 30 to the Saturday closest to December
31.
<TABLE>
<CAPTION>
Six months
Six months ended
Year ended ended Year ended (unaudited)
----------------- ------------ ---------------------------------------------- ----------------
December 28,
June 30, June 30, December 28, 1996 January 3, January 2, January 1, July 3, July 1,
1995 1996 1996 (5) (unaudited) 1998 1999 2000 1999 2000
-------- -------- ------------ ------------- ---------- ---------- ---------- ------- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.............. $665.1 $695.1 $277.1 $708.7 $742.5 $770.9 $782.4 $469.5 $476.4
Cost of products sold.. 313.7 332.2 141.5 353.9 351.3 351.8 349.7 209.2 201.8
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit........... 351.4 362.9 135.6 354.8 391.2 419.1 432.7 260.3 274.6
Selling and
administrative
expenses.............. 256.8 268.1 131.5 282.9 291.5 316.9 330.8 178.6 180.8
Special charge......... -- -- -- -- -- -- 20.2 -- --
Transaction costs...... -- 45.7
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income....... 94.6 94.8 4.1 71.9 99.7 102.2 81.7 81.7 48.1
Net interest expense... 0.7 7.3 4.1 9.0 6.3 6.7 7.0 2.5 14.8
Write-off of JLC notes
receivable, net (1)... -- -- -- -- -- 12.0 -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from continuing
operations before
income taxes.......... 93.9 87.5 -- 62.9 93.4 83.5 74.7 79.2 33.3
Income taxes (1)....... 38.0 35.9 0.8 26.6 36.2 41.7 31.5 32.1 26.3
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) from
continuing
operations............ 55.9 51.6 (0.8) 36.3 57.2 41.8 43.2 47.1 7.0
Loss from discontinued
operations,
net of tax (2)........ (4.9) -- -- -- -- -- -- -- --
Cumulative effect of
changes in accounting
principle, net of
tax (3)............... (0.6) -- -- -- -- -- -- -- --
Dividends and accretion
on redeemable
preferred stock....... -- -- -- -- -- -- -- -- 1.2
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)
attributable to common
shareholders (4)...... $ 50.4 $ 51.6 $ (0.8) $ 36.3 $ 57.2 $ 41.8 $ 43.2 $ 47.1 $ 5.8
====== ====== ====== ====== ====== ====== ====== ====== ======
Balance Sheet Data (at
period end):
Current assets......... $402.4 $251.3 $257.5 $257.5 $252.5 $240.5 $286.3 $246.6 $261.8
Working capital (6).... 33.2 73.2 100.0 100.0 50.2 44.1 8.3 41.7 1.8
Total assets........... 548.0 384.0 383.8 383.8 390.7 366.2 407.7 377.4 420.5
Total debt (including
short-term borrowings
and current
maturities)........... 54.3 81.5 94.8 94.8 53.6 97.5 121.2 97.3 700.3
Shareholders' equity
(deficit)............. 270.6 121.8 112.6 112.6 127.1 58.6 36.5 68.0 (556.4)
Other Financial Data:
EBITDA (7)............. $117.4 $111.4 $ 14.0 $ 89.6 $121.8 $113.4 $107.0 $ 94.5 $ 61.3
Depreciation and
amortization.......... 28.3 16.6 9.9 17.7 22.1 23.2 25.3 12.8 13.2
Capital expenditures... 28.7 15.4 9.9 16.9 24.4 36.9 27.8 13.3 7.2
Gross margin........... 52.8% 52.2% 48.9% 50.1% 52.7% 54.4% 55.3% 55.4% 57.6%
EBITDA margin.......... 17.7% 16.0% 5.1% 12.6% 16.4% 14.7% 13.7% 20.1% 12.9%
Cash interest expense
(8)................... $ 5.4 $ 9.3 $ 4.3 $ 9.3 $ 6.9 $ 7.7 $ 7.7 $ 3.0 $ 14.3
Ratio of earnings to
combined fixed
charges and preferred
stock dividends (9)... 13.4x 8.6x 1.0x 6.5x 11.4x 10.2x 8.9x 22.1x 2.7x
</TABLE>
(footnotes on next page)
36
<PAGE>
--------
(1) Net income for 1998 reflects a charge for the write-off of the Jostens
Learning Corporation ("JLC") notes receivable of $12.0 million and related
deferred tax assets of $3.7 million.
(2) Discontinued operations for fiscal 1995 reflects JLC and Wicat Systems.
(3) Net income for fiscal 1995 reflects the cumulative effect of adopting SFAS
112.
(4) Net income in 1998 and 1997 reflects pre-tax gains of $3.7 million ($2.2
million after tax) and $6.8 million ($4.0 million after tax),
respectively, resulting from a reduction in LIFO gold inventories.
(5) In October 1996, we elected to change our fiscal year end from June 30 to
the 52- or 53-week period ending the Saturday closest to December 31,
effective December 29, 1996
(6) Represents total current assets (excluding cash and cash equivalents) less
total current liabilities (excluding short-term borrowings and current
maturities of long-term debt).
(7) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is not a measure of performance under GAAP and it
should not be considered in isolation or as a substitute for net income,
cash flows from operating activities, or other income and cash flow
statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity. Moreover, EBITDA is not a standardized measure
and may be calculated in a number of ways. Accordingly, the EBITDA
information provided might not be comparable to other similarly titled
measures provided by other companies. EBITDA is included herein because
management understands that EBITDA is customarily used as a criterion in
evaluating companies.
(8) Represents interest expense plus capitalized interest less amortization of
deferred financing costs and discount on the senior subordinated notes.
(9) For purposes of this calculation "earnings" consist of income before
income taxes and fixed charges and "combined fixed charges and preferred
stock dividends" consist of interest, amortization of debt issuance costs,
the component of rent expense believed by management to be representative
of the interest factor thereon and the amount of pre-tax earnings required
to cover accretion on preferred stock dividends and accretion of the
preferred stock discount.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of our consolidated financial condition and results
of operations should be read in conjunction with the information contained in
our consolidated financial statements and the notes thereto. The following
discussion includes forward-looking statements that involve certain risks and
uncertainties. See "Disclosure Regarding Forward-Looking Statements."
Overview
The consolidated financial statements and notes include our results of
operations, financial condition and cash flows as of and for the years ended
January 3, 1998 (fiscal 1997), January 2, 1999 (fiscal 1998) and January 1,
2000 (fiscal 1999) and the six months ended July 3, 1999, and July 1, 2000.
This discussion summarizes significant factors that affected the
consolidated operating results, financial condition and liquidity of Jostens in
the first six months of the 1999 and 2000 fiscal years and in the 1997, 1998,
and 1999 fiscal years.
Results of Operations
The following table sets forth selected information from our Consolidated
Statements of Operations, expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Percentage of net Percentage Six Months
sales change Ended
------------------- ---------------- ---------------
1997 to 1998 to July 3, July 1,
1997 1998 1999 1998 1999 1999 2000
----- ----- ----- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 3.8 % 1.5 % 100.0% 100.0%
Cost of products sold... 47.3% 45.6% 44.7% 0.1 % (0.6)% 44.6% 42.4%
----- ----- ----- ----- ----- ----- -----
Gross profit............ 52.7% 54.4% 55.3% 7.1 % 3.3 % 55.4% 57.6%
Selling and
administrative
expenses............... 39.3% 41.1% 42.3% 8.7 % 4.4 % 38.0% 38.0%
Special charge.......... 0.0% 0.0% 2.6% -- -- -- 0.0%
Transaction costs....... 0.0% 0.0% 0.0% -- -- -- 9.6%
----- ----- ----- ----- ----- ----- -----
Operating income........ 13.4% 13.3% 10.4% 2.5 % (20.1)% 17.4% 10.1%
Net interest expense.... 0.8% 0.9% 0.9% 6.1 % 5.1 % 0.5% 3.1%
Write-off of JLC notes
receivable, net........ 0.0% 1.6% 0.0% -- -- -- --
----- ----- ----- ----- ----- ----- -----
Income before income
taxes.................. 12.6% 10.8% 9.5% (10.6)% (10.6)% 16.9% 7.0%
Income taxes............ 4.9% 5.4% 4.0% 15.2 % (24.5)% 6.8% 5.5%
----- ----- ----- ----- ----- ----- -----
Net income.............. 7.7% 5.4% 5.5% (26.9)% 3.2 % 10.0% 1.5%
===== ===== ===== ===== ===== ===== =====
</TABLE>
38
<PAGE>
Six Months ended July 1, 2000 Compared to the Six Months Ended July 3, 1999
RESULTS OF OPERATIONS
The following table sets forth selected information from our unaudited
Condensed Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Six months ended
--------------------------
July 3 July 1 %
1999 2000 Change
-------- -------- ------
Dollars in thousands
<S> <C> <C> <C>
Net sales.......................................... $469,519 $476,387 1.5%
Cost of products sold.............................. 209,243 201,787 (3.6%)
-------- -------- -----
Gross profit....................................... 260,276 274,600 5.5%
Selling and administrative expenses................ 178,636 180,799 1.2%
Transactions costs................................. -- 45,711 0.0%
-------- -------- -----
Operating income................................... 81,640 48,090 (41.1%)
Interest income.................................... (201) (488) 142.8%
Interest expense................................... 2,699 15,292 466.6%
-------- -------- -----
Income before income taxes......................... 79,142 33,286 (57.9%)
Income taxes....................................... 32,053 26,257 (18.1%)
-------- -------- -----
Net income......................................... $ 47,089 $ 7,029 (85.1%)
======== ======== =====
</TABLE>
Net sales
The change in net sales for the six month period was due to average price/mix
increases of approximately 2.7 percent, and volume decreases of approximately
1.2 percent.
Year-to-date net sales by segment and the changes from last year were as
follows:
<TABLE>
<CAPTION>
Six months ended
------------------------
July 3, July 1, %
1999 2000 change
-------- -------- ------
In thousands
<S> <C> <C> <C>
School Products...................................... $408,923 $424,662 3.8%
Recognition.......................................... 53,536 45,568 (14.9%)
Other................................................ 7,060 6,157 (12.8%)
-------- -------- -----
Consolidated......................................... $469,519 $476,387 1.5%
======== ======== =====
</TABLE>
School Products
The increase in School Products sales was primarily due to:
. fewer yearbook rebates and returns resulting from improvements with
JDS;
. increased JDS processing fees;
. an increase in commercial printing volume;
. higher sales of add-on features in our Printing and Publishing
product line;
. sales of graduation announcements to more schools; and
. expanded sales of graduation accessories.
39
<PAGE>
These increases were offset by:
. accelerated jewelry shipments in the fourth quarter of 1999 due to
improved manufacturing efficiencies compared with the prior year.
Recognition
The decrease in Recognition sales was primarily due to a decline in the
headcount of the sales force as well as lost customers as a result of
problems encountered with a system implementation that took place in 1999.
Other
Other segment sales decreased as a result of exiting the college alumni
direct marketing business in the fourth quarter of 1999. Sales for this
business were $1.8 million for the six month period ended July 3, 1999.
Gross Profit
Gross margin for the six months ended July 1, 2000 was 57.6 percent, compared
with 55.4 percent for the comparable period in 1999.
The increase in gross margin was primarily due to:
. favorable product mix and price increases;
. manufacturing efficiencies in our School Products segment in 2000;
and
. a $1.5 million non-recurring charge in the first quarter of 1999 to
close a facility in Mexico and realign Jewelry operations in the
United States.
These increases were partially offset by:
. sales decreases in Recognition as a result of problems encountered
with a system implementation that took place in 1999.
Selling and Administrative Expenses
Selling and administrative expenses for the six months ended July 1, 2000 were
$180.8 million, compared with $178.6 million for the comparable period in 1999.
The changes reflect the following offsetting increases and decreases:
. lower amortization expense in 2000 related to our write-off of goodwill
as part of the 1999 special charge;
. lower costs as a result of exiting the college alumni direct marketing
business in the fourth quarter of 1999;
. lower legal fees in 2000 compared with 1999 primarily due to the
litigation with Taylor Publishing;
. reduced spending on temporary labor and lower costs in our Recognition
segment in 2000 compared with 1999 due to the system implementation.
40
<PAGE>
. higher selling expense in 2000 related to programs and initiatives
intended to increase our sales;
. higher bad debt expense in 2000;
. higher information system expense, primarily associated with
depreciation; and
. higher commission expense in 2000 due to increased sales.
Operating Income
Year-to-date operating income (loss) by segment and the changes from last year
were as follows:
<TABLE>
<CAPTION>
Six months ended
--------------------------
July 3, July 1, %
1999 2000 change
-------- -------- ------
In thousands
<S> <C> <C> <C>
School Products.................................... $100,942 $108,657 7.6%
Recognition........................................ 2,162 (76) (103.5%)
Other.............................................. (21,464) (60,491) 181.8%
-------- -------- ------
Consolidated....................................... $ 81,640 $ 48,090 (41.1%)
======== ======== ======
</TABLE>
School Products
The increase in School Products operating income for the six month period was
primarily due to:
.favorable product mix and price increases;
.fewer yearbook rebates and returns resulting from improvements with
JDS;
.increased JDS processing fees;
.an increase in commercial printing volume;
.manufacturing efficiencies in 2000;
.lower legal fees in 2000 compared with 1999;
.higher sales of add-on features in our Printing and Publishing product
line;
.sales of graduation announcements to more schools;
.expanded sales of graduation accessories; and
. a $1.5 million charge in the first quarter of 1999 to close a
facility in Mexico and realign all Jewelry operations in the United
States.
These increases were partially offset by:
. the acceleration of jewelry sales into the fourth quarter of 1999 due
to manufacturing efficiencies compared with the prior year;
. higher selling and marketing expense in 2000 related to programs and
initiatives intended to increase sales;
41
<PAGE>
. higher bad debt expense in 2000; and
. higher information system depreciation expense as a result of our
1999 system implementations.
These increases were partially offset by:
. higher commission expense in 2000 due to increased sales.
Recognition
The decrease in Recognition operating income was primarily due to:
. a sales decrease due to a decline in the head count of the sales
force and lost customers as a result of problems encountered with a
system implementation that took place in 1999; and
. higher information system depreciation expense as a result of our
1999 system implementation.
These decreases were partially offset by:
. reduced spending on temporary labor in 2000 compared with 1999 when
we prepared for a system implementation that took place in 1999; and
. lower costs in 2000 compared to 1999 related to problems encountered
during the system implementation.
Other
The increase in Other operating loss was primarily due to costs of $45.7
million associated with the merger and recapitalization. This was offset
by:
. lower selling and administrative expenses as a result of exiting the
college alumni direct marketing business in the fourth quarter of
1999;
. lower spending in 2000 compared with 1999 related to our new product
and channel development group; and
. lower information system expense related to the year 2000 and Oracle
system.
Transaction Costs
We incurred costs consisting of professional fees and transaction expenses
associated with the merger and recapitalization. Transaction costs of $45.7
million were expensed in the second quarter of 2000. The remaining costs of
$36.5 million were deferred and are being amortized over the applicable lives
of the debt for up to a maximum of ten years.
Net Interest Expense
Net interest expense increased $12.3 million in the six month period ended July
1, 2000 over the prior year period. The increase was primarily due to
additional interest expense resulting from the new senior secured credit
facility and the issuance of the senior subordinated notes in connection with
the transaction.
Income Taxes
Income taxes for the six month period ended July 1, 2000 were accrued at a rate
of 41.5 percent (excluding effects of the non-deductible transaction costs)
compared with 40.5 percent for the comparable period in 1999. The year-to-date
effective rate for July 1, 2000 was 78.9 percent and reflects non-deductible
transaction related costs of $30.0 million.
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<PAGE>
Fiscal Years ended January 1, 2000, January 2, 1999 and January 3, 1998
Net sales
Net sales in 1997, 1998 and 1999 were $742.5 million, $770.9 million and $782.4
million, respectively. The increase from 1997 to 1998 of $28.4 million, or 3.8
percent, was driven by increases in sales volume and pricing in our three
largest product lines (Yearbook, Class Rings and Graduation Products). The
increase from 1998 to 1999 of $11.5 million, or 1.5 percent, was driven by
price increases in our School Products segment and volume increases in class
rings and yearbook pages. These increases were offset by overall volume
decreases in our other product lines. Price increases in 1998 and 1999 varied
by product and ranged from zero to four percent. The following is an
explanation of changes in net sales by business segment.
School Products segment net sales in 1997, 1998 and 1999 were $624.5 million,
$653.9 million and $675.5 million, respectively. The increase of $29.4 million,
or 4.7 percent, from 1997 to 1998 was due to increased pricing in all school
product lines and new marketing programs which resulted in higher sales of
yearbooks and add-on features in our Yearbook product line. In addition, we had
a 5.2 percent increase in Class Ring units sold in 1998 primarily due to sales
of specially designed rings for students graduating in 1999, 2000 and 2001.
These increases were offset by a decline in commercial printing volume as more
production capacity was used to produce higher margin yearbooks, and a decrease
in photography sales volume as we did not renew our relationships with a number
of independent wholesale dealers whose volume generated unacceptable returns.
In addition, we lost about $2.9 million in Class Rings and Graduation Products
sales volume due to an independent sales group that left Jostens in mid-1998.
The increase from 1998 to 1999 of $21.6 million, or 3.3 percent, was primarily
driven by price increases in all school product lines and a unit volume
increase of 2.2 percent in Class Rings, primarily due to strong sales in the
high school market. In addition, we experienced yearbook page volume increases
and higher sales of add-on features in our Yearbook product line. These
increases were offset by a decline in commercial printing volume (used to fill
excess capacity), higher than expected yearbook rebates and returns due to
problems encountered with Jostens Direct Solutions ("JDS") (a direct payment
program for parents of high school students), a decrease in photography sales
volume due to closing eleven unprofitable retail sites and not renewing our
relationships with a number of independent wholesale dealers. In addition, the
first half of 1998 included approximately $9.9 million in Class Rings,
Graduation Products, and Yearbook sales volume from an independent sales group
that left Jostens in mid-1998.
Recognition segment net sales in 1997, 1998 and 1999 were $103.7 million,
$103.9 million and $97.0 million, respectively. In 1998, Recognition sales were
flat with 1997 as we realigned sales management, drove internal efficiencies
and streamlined business processes in advance of the installation of a new
computer system that was implemented in 1999. The decrease of 6.7 percent from
1998 to 1999 was primarily due to lower sales volume caused by issues related
to the new system implemented in the first quarter of 1999 as part of our year
2000 compliance efforts.
The "Other" segment is comprised primarily of corporate expenses, the results
of the direct marketing sales channel to college alumni, international sales
and expenses and expenses associated with new product development. Net sales in
1997, 1998 and 1999 were $14.3 million, $13.1 million and $9.9 million,
respectively. The decreases of $1.2 million in 1998 compared with 1997, and
$3.2 million in 1999 compared with 1998 were primarily due to lower sales
volume resulting from a decline in response rates and fewer mailings in our
direct marketing program to college alumni. As part of the 1999 special charge,
we decided to close down the direct marketing program to college alumni due to
1999 performance and forecasted decline in sales volume. In addition, we
experienced international sales volume decreases from 1997 to 1998 due to sales
representatives in Puerto Rico not renewing their contracts. We replaced these
sales representatives in the second-half of 1999.
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Gross Margin
Gross margin in 1997 was 52.7 percent, compared with 54.4 percent in 1998 and
55.3 percent in 1999. The 2.6 percentage point increase in gross margin from
1997 to 1999 was primarily the result of increased pricing and manufacturing
efficiencies.
Improvements in 1998 included:
. consolidating all photography processing into one facility;
. a one-time pre-tax benefit of $3.7 million in 1998 due to a
reduction in the remaining LIFO gold inventories resulting from our
expansion of consigned gold; and
. a decrease in raw material costs for class rings compared with 1997.
Improvements in 1998 were offset by:
. a one-time charge of $2.5 million in 1998 to consolidate all
photography processing into one facility; and
. a one-time pre-tax benefit of $6.8 million in 1997 due to a
reduction in a portion of the LIFO gold inventories resulting from
our decision to consign gold.
Improvements in 1999 included:
. exiting the ring production facility in Nuevo Laredo, Mexico, which
experienced higher than expected costs, and moving all ring
manufacturing back to the United States; and
. closing eleven unprofitable retail photo sites.
Improvements in 1999 were offset by:
. approximately $2.5 million of expenses incurred in 1999 to exit the
Nuevo Laredo, Mexico facility;
. higher costs in 1999 due to problems encountered with JDS; and
. higher costs in Recognition due to issues related to the new system
implemented in the first quarter of 1999 as part of our year 2000
compliance efforts.
Selling and Administrative Expenses
Selling and administrative expenses in 1997, 1998 and 1999 were $291.5 million,
$316.9 million and $330.9 million, respectively. The 8.7 percent increase in
1998 from 1997 and 4.4 percent increase in 1999 from 1998 were primarily the
result of investments in information systems to ensure year 2000 readiness and
higher costs associated with market development activities.
Special Charge
In the fourth quarter of 1999, we completed a strategic review of product
lines, manufacturing operations, infrastructure projects, and support functions
based on performance trends. In addition, we decided to refocus our
organization on sales growth versus infrastructure improvement. As a result of
this review, we incurred a pre-tax special charge of $20.2 million ($13.3
million after tax or $0.39 per share), which was approved by our Board of
Directors.
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Information relating to the special charge follows:
<TABLE>
<CAPTION>
Balance end of
Initial accrual Used in 1999 1999
--------------- ------------ --------------
(in millions)
<S> <C> <C> <C> <C>
Employee termination benefits.. $ 4.9 $ -- $4.9
Abandonment of internal use
software under development.... 6.4 6.2 0.2
Write-off of impaired goodwill
related to retail class ring
sales channel................. 4.6 4.6 --
Write-off of goodwill related
to exiting the direct
marketing sales channel to
college alumni................ 3.1 3.1 --
Other costs related to exiting
the direct marketing sales
channel to college alumni..... 1.2 0.3 0.9
----- ----- ----
$20.2 $14.2 $6.0
===== ===== ====
</TABLE>
Of the $20.2 million special charge, $4.8 million relates to the School
Products segment and $15.4 million relates to our "Other" segment.
Included in other accrued liabilities on the consolidated balance sheets is the
unused portion of the special charge of $6.0 million, which will be used or
paid in 2000.
Of the total special charge, $4.9 million relates to employee termination
benefits for the elimination of about 100 full-time positions, primarily in
corporate staff and executive functions and in exiting the direct marketing
sales channel to college alumni. Headcount reductions will be completed and
termination benefits paid in 2000.
We reviewed and modified our strategies for our retail class ring product line
and, as a result, determined that the carrying value of the related goodwill
was impaired based upon anticipated inadequate projected cash flows.
Accordingly, an impairment charge of $4.6 million was recorded as part of the
special charge for the write-off of all of the goodwill.
We also reviewed our college alumni direct marketing business and decided in
the fourth quarter of 1999 to close down the business due to 1999 performance
and forecasted decline in sales volume. As a result of that decision, the
remaining balance of the related goodwill of $3.1 million was written off and
other exiting costs of $1.2 million were recorded.
We estimate the pre-tax savings of the 1999 special charge to be approximately
$8.0 million in 2000 and $10.0 million in 2001 and beyond.
Operating Income (Loss)
Operating income in 1997 was $99.7 million compared with $102.2 million in 1998
and, excluding the special charge of $20.2 million, $101.9 million in 1999. The
following is an explanation of changes in operating income by business segment.
School Products operating income in 1997 was $108.8 million compared with
$127.0 million in 1998 and, excluding the special charge of $4.8 million,
$146.7 million in 1999.
The $18.2 million, or 16.7 percent, increase in 1998 compared with 1997
primarily resulted from:
. consolidating all photography processing into one facility;
. decreased cycle times and lower costs in Yearbooks due to operating
plants with common management teams;
. a one-time pre-tax benefit of $2.3 million in 1998 due to a
reduction in the remaining LIFO gold inventories resulting from our
expansion of consigned gold;
. a decrease in raw material costs for class rings compared with 1997;
and
45
<PAGE>
. a one-time charge of $2.6 million in 1997 to close an announcement
plant.
These were partially offset by:
. a one-time charge of $2.5 million in 1998 to consolidate all
photography processing into one facility;
. higher than expected costs associated with the Nuevo Laredo, Mexico
facility; and
. a one-time pre-tax benefit of $5.4 million in 1997 due to a
reduction in a portion of the LIFO gold inventories resulting from
our decision to consign gold.
The $19.7 million, or 15.5 percent, increase in 1999 compared with 1998
primarily resulted from:
. increased sales; and
. manufacturing efficiencies due to exiting the Nuevo Laredo, Mexico
facility and moving all ring manufacturing back to the United
States.
These were partially offset by:
. approximately $2.5 million of expenses incurred in 1999 to exit the
Nuevo Laredo, Mexico facility; and
. higher costs in 1999 due to problems encountered with JDS.
Recognition had operating income in 1997 of $8.9 million compared with
operating income of $10.4 million in 1998 and an operating loss of $0.4 million
in 1999.
The $1.5 million increase in 1998 compared with 1997 was primarily the
result of:
. $3.3 million in material cost reductions, overhead spending
reductions and production efficiency improvements; and
. a partial offset by $1.8 million of additional investments in sales
and marketing staff to realign sales management.
The $10.8 million decrease in 1999 compared with 1998 was primarily due to:
. decreased sales;
. higher costs caused by issues related to the new system implemented
in the first quarter of 1999 as part of our year 2000 compliance
efforts; and
. a one-time pre-tax benefit of $1.4 million in 1998 due to a
reduction in the remaining LIFO gold inventories resulting from our
expansion of consigned gold.
Operating loss for our "Other" segment in 1997 was $18.1 million compared with
$35.3 million in 1998 and, excluding the special charge of $15.4 million, $44.5
million in 1999.
The $17.2 million increase in operating loss in 1998 compared with 1997 and
$9.2 million increase in operating loss in 1999 compared with 1998 resulted
primarily from:
. higher costs related to investments in information systems as part
of our year 2000 compliance efforts; and
. higher costs associated with market development activities.
Net Interest Expense
Net interest expense was $6.3 million in 1997 compared with $6.7 million in
1998 and $7.0 million in 1999. The year-over-year increases reflect higher
borrowings partially offset by a decline in average interest rates.
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<PAGE>
Write-off of JLC Notes Receivable, Net
In June 1995 we sold our Jostens Learning Corp. ("JLC") curriculum software
subsidiary to a group led by Bain Capital, Inc. As partial consideration for
the sale, we received two notes which were subsequently discounted and recorded
at their estimated fair values. In addition, a transaction gain of $13.2
million was deferred in accordance with the SEC Staff Accounting Bulletin No.
81, "Gain Recognition on the Sale of a Business or Operating Assets to a Highly
Leveraged Entity." The notes were subsequently recorded at their estimated fair
value of $12.9 million, net of deferred gain.
In January 1999, we received information indicating to us that the carrying
value of the notes was permanently impaired. As a result, we wrote-off $12.0
million in 1998 for the carrying value of the notes, net of miscellaneous JLC-
related assets and liabilities, plus $3.7 million of net deferred tax assets
associated with the initial sale of JLC. We did not record a tax benefit
related to the write-off for financial reporting purposes because the tax
benefit may not be realized.
Income Taxes
Our 1997 effective income tax rate was 38.8 percent compared with 49.9 percent
in 1998 and 42.2 percent in 1999. The 11.1 percentage point increase in 1998
from 1997 and the 7.7 percentage point decrease in 1999 from 1998 were
primarily due to the write-off in 1998 of $3.7 million of net deferred tax
assets related to our 1995 sale of JLC, and the fact that no tax benefit was
recorded for financial reporting purposes on the JLC-notes that were written
off.
Other items that impacted our tax rates for the three years included: the
recognition of $2.0 million of accumulated net operating loss carryforwards
benefits in 1997 through the reversal of a deferred tax asset valuation reserve
as a result of combining our U.S. Photography legal entity with the main U.S.
businesses; a benefit of $0.8 million for the reduction of a valuation reserve
in 1998 to reflect the utilization of previously reserved foreign tax credits
as a result of executed tax planning strategies; and the write-off of $3.1
million of nondeductible goodwill in connection with the special charge in
1999.
LIQUIDITY AND CAPITAL RESOURCES
Our primary cash needs are for debt obligations, capital expenditures, working
capital, and general corporate purposes. Cash generated from operating
activities and proceeds in connection with the transaction including a new
senior secured credit facility, issuance of the senior subordinated notes,
issuance of redeemable preferred stock, and issuance of common stock were our
main sources of liquidity for the six month period ended July 1, 2000. These
funds covered our cash payments made in connection with the transaction,
including $25.25 for each share of common stock tendered, debt acquisition
costs and the pay-off of borrowings under the credit facilities existing prior
to the transaction. In addition, we made investments in property and equipment.
Cash generated from operating activities and availability under short-term
borrowing agreements have been our principal sources of liquidity in 1997, 1998
and 1999. These funds covered our share repurchase, dividend payments, and
investments in property and equipment and equity investments.
We believe that cash flow from our operating activities, combined with the
availability of funds under our new revolving credit facility will be
sufficient to support our operations and liquidity requirements for the
foreseeable future.
Operating Activities
Operating activities generated cash of $13.1 million in the first six months of
2000, compared with $67.3 million for the same period in the prior year. The
decrease of $54.2 million was primarily due to lower net
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<PAGE>
income related to cash payments associated with the transaction. In addition,
during the six months ended July 1, 2000, cash was unfavorably impacted by the
timing of customer deposits and accounts payable and favorably impacted by
reduced inventories.
Operating activities generated cash of $116.7 million in 1997 compared with
$101.6 million in 1998 and $125.2 million in 1999. The $15.1 million decrease
in 1998 over 1997 primarily reflected a change in the timing of customer
deposit collections resulting from a vendor change in the JDS program. The
$23.6 million increase in cash generated in 1999 compared with 1998 was
primarily due to increased customer deposits, partially offset by other working
capital decreases.
Investing Activities
Capital expenditures for the first six months of 2000 were $7.2 million,
compared with $13.3 million for the same period in 1999. The decrease of $6.1
million relates primarily to higher capital expenditures in 1999 on information
systems.
Capital expenditures in 1997, 1998 and 1999 were $24.4 million, $36.9 million
and 27.8 million, respectively. The $12.5 million increase in 1998 over 1997
and the $9.1 million decrease in 1999 over 1998 was primarily due to higher
spending in 1998 to replace information systems to ensure year 2000 compliance.
In 1997, we invested $9.5 million to purchase Gold Lance, our retail class ring
sales channel. An impairment charge of $4.6 million was recorded as part of the
1999 special charge for the write-off of goodwill associated with this sales
channel. In 1999 we invested $10.6 million to take minority equity positions in
three privately-held Internet-based companies which we believe will leverage
our access into, and our sales representatives' relationships with, schools.
Subsequent to July 1, 2000, we sold our entire ownership position in one of
these investments for $5.0 million.
Financing Activities
Net cash used for financing activities in the first six months of 2000 was $7.9
million, compared with $43.8 million for the same period in 1999. The decrease
of the net cash used for financing activities of $35.9 million was primarily
due to proceeds from the new senior secured credit facility, issuance of the
senior subordinated notes, issuance of redeemable preferred stock and issuance
of common stock in connection with the transaction. In addition, we had no
common stock repurchases in 2000 and no dividend was paid in the second quarter
of 2000. These decreases were offset by payment of $25.25 for each share of
common stock tendered in the transaction and the pay-off of credit facilities
existing prior to the transaction.
As a result of the recapitalization, we have significantly more debt which will
result in much higher interest expense and a decline in operating cash flows
which could adversely affect our future financial health. The senior secured
credit facility requires that we meet certain financial covenants, ratios and
tests including a maximum leverage ratio and a minimum interest coverage ratio.
Dividends paid in 1997 were $34.2 million compared with $32.3 million in 1998
and $30.0 million in 1999. The year-over-year decreases are the result of
common stock repurchases in each of the years. Our new credit facility and
indenture governing the notes restrict us from paying dividends.
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<PAGE>
The following table summarizes total amounts available under various borrowing
agreements as of the end of 1999:
<TABLE>
<CAPTION>
Amount
Expiration date Total amount available at the
of agreement of agreement end of 1999
--------------- ------------ ----------------
(in millions)
<S> <C> <C> <C>
Five-year bank credit
agreement...................... 12/20/2000 $180.0 $62.4
Unsecured demand facilities with
three banks.................... (1) 54.5 54.5
Precious metals consignment
arrangement (2)................ 5/31/2000 25.0 2.9
------ ------
$259.5 $119.8
====== ======
</TABLE>
--------
(1) Facilities are subject to periodic review from time to time and at least
annually.
(2) See Note 5 of Notes to Consolidated Financial Statements.
COMMITMENTS AND CONTINGENCIES
Environmental
As part of our environmental management program, we are involved in various
environmental remediation activities. As sites are identified and assessed in
this program, we determine potential environmental liabilities. Factors
considered in assessing liability include, but are not limited to: whether we
have been designated as a potentially responsible party, the number of other
potentially responsible parties designated at the site, the stage of the
proceedings and available environmental technology. As of the end of 1999, we
had identified three sites requiring further investigation. However, we have
not been designated as a potentially responsible party at any site.
We have assessed the likelihood that a loss has been incurred at one of these
sites as probable, and based on findings included in remediation reports and
from discussions with legal counsel, estimated the potential loss to be between
$2.8 million to $3.8 million. For the six months ended July 1, 2000, we made
payments of $1.0 million related to the costs of the remediation. As of July 1,
2000, we had a remaining accrual of $2.5 million which is included in "other
accrued liabilities" on the consolidated balance sheets. While we may have a
right of contribution or reimbursement under insurance policies, amounts
recoverable from other entities with respect to a particular site are not
considered until recoveries are deemed probable. No assets for potential
recoveries were established as of the end of 1999.
Litigation
In January 1999, a federal judge in Texas overturned a jury's $25.3 million
verdict against Jostens in an antitrust lawsuit. The judge, acting on Jostens'
post-trial motions, set aside the jury's verdict and dismissed all claims
against Jostens in the case. Yearbook competitor Taylor Publishing Company, the
plaintiff in the case, has appealed the decision and is seeking to have the
jury verdict reinstated. On July 10, 2000, the Fifth Circuit affirmed the trial
court's entry of judgment as a matter of law on Jostens' behalf. On July 24,
2000, Taylor filed a petition with the Fifth Circuit to rehear the case in
front of the panel that heard the appeal. The petition was denied. If the jury
verdict is reinstated, the payment of damages would be material to our results
of operations and could adversely affect our ability to make payments on the
notes. Taylor has until October 23, 2000 to petition the U.S. Supreme Court to
review the case. No costs were accrued related to the lawsuit because we
believe a loss is not "probable and estimable."
Following the public announcement of the merger, three purported class actions
were filed, two on December 30, 1999 and the third on January 14, 2000, in the
Fourth Judicial District of the District Court for the State of Minnesota,
County of Hennepin. By order of the Honorable Daniel H. Mabley dated January
21, 2000, the Actions were consolidated, and the Complaint in File No. MC 99-
18533 was thereafter designated as the
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<PAGE>
Consolidated Complaint. An amended Consolidated Complaint was filed on February
23, 2000 and we filed an answer on March 24, 2000 denying all material
allegations. On May 9, 2000, we agreed in principle to settle the three
purported class actions. The settlement is subject to court approval.
Jostens is a party to other litigation arising in the normal course of
business. We regularly analyze current information and, as necessary, provide
accruals for probable liabilities on the eventual disposition of these matters.
We believe the effect on our consolidated results of operations and financial
position, if any, for the disposition of these matters will not be material.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, which is required to be adopted in years beginning after June 15,
2000. The effect of adopting the Statement is not currently expected to have a
material effect on our future financial position or overall trends in results
of operations.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), which summarizes certain of the SEC's
views regarding the application of generally accepted accounting principles to
revenue recognition in financial statements. We are in the process of analyzing
the requirements of SAB 101 and are required to comply with its provisions by
the fourth quarter of 2000. Management believes the ultimate outcome will not
have a significant effect on our consolidated results of operations, financial
position or liquidity.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
We are subject to market risk associated with changes in commodity prices,
interest rates and foreign currency exchange rates. To reduce any one of these
risks, we may at times use financial instruments. All hedging transactions are
authorized and executed under clearly defined policies and procedures, which
prohibit the use of financial instruments for trading purposes.
Commodity Price Risk
Our results of operations could be significantly affected by changes in the
price of gold. To manage the risk associated with gold price changes, on an
annual basis we simultaneously set our pricing to customers and enter into gold
forward or option contracts based upon the estimated ounces needed to satisfy
customer requirements. We prepared a sensitivity analysis as of the end of 1999
to estimate our exposure to market risk on our open gold forward purchase
contracts. The fair market value of our gold positions was calculated by
valuing each position at quoted futures prices as of the end of 1999 and 1998
and July 3, 1999, and was $18.0 million, $17.8 million and $17.8 million,
respectively. The market risk associated with these contracts was $1.8 million
as of the end of 1999, 1998, and July 3, 1999 and is estimated as the potential
loss in fair value resulting from a hypothetical 10 percent adverse change in
such prices. At July 1, 2000, we had no open gold forward purchase contracts.
We anticipate we will enter into new contracts in the second half of 2000.
Interest Rate Risk
For 1999 and 1998 our earnings were affected by changes in short-term interest
rates as a result of our issuing short-term commercial paper. For 2000, our
earnings are affected by changes in the LIBOR as a result of our new senior
secured credit facility. The fair market value of our long-term debt
approximated the carrying value. If short-term interest rates or the LIBOR
averaged 10 percent more or less in 1999 and 2000, our interest expense would
have changed by approximately $1.3 million for the six month period in 2000 and
$0.7 million for the year in 1999 and 1998.
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As a result of the transaction, our earnings could be highly affected by
changes in the London Interbank Offered Rate ("LIBOR") due to our new senior
secured credit facility which bears a variable rate predominantly linked to the
LIBOR as determined in three month intervals. To reduce our exposure to these
interest rate changes, we entered into an interest rate swap agreement on July
7, 2000. The interest rate provided by the swap agreement is fixed at 7.0
percent in lieu of LIBOR. The swap agreement became effective on August 15,
2000 with a notional amount of $135 million, decreasing to $70.0 million
quarterly over the next three years. The notional amount is used to measure the
interest to be paid or received and does not represent the amount of exposure.
Foreign Currency Risk
We may enter into foreign currency forward contracts to hedge purchases of
inventory in foreign currency. The purpose of these hedging activities is to
protect us from the risk that inventory purchases denominated in foreign
currencies will be adversely affected by changes in foreign currency rates. Our
principal currency exposures relate to the Canadian dollar and German mark. We
consider our market risk in such activities to be immaterial. Our foreign
operations are primarily in Canada, and substantially all transactions are
denominated in the local currency. Therefore, the exposure to exchange risks is
not considered to be material.
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BUSINESS
Overview
Jostens is the nation's leading provider of school-related affinity products
and services including yearbooks, class rings and graduation products. We also
have the leading market share for school photography services in Canada. In
addition, we are a leading provider of corporate employee service recognition
programs and achievement awards and products for athletic champions. Our 103-
year history of manufacturing and providing quality products and superior
service has enabled us to develop long-standing and extensive relationships
with schools throughout the country. We estimate that U.S. sales of high school
and college yearbooks, class rings and graduation products are approximately
$1.5 billion annually. We believe that in recent years we have had a domestic
market share in each of senior high school yearbooks, class rings and
graduation products of approximately 45%. In the aggregate, for these product
lines we believe that we have nearly twice the market share of our largest
competitor. In 1999, we generated net sales of $782.4 million.
Our two major business segments are School Products and Recognition. The
School Products segment serves the high school, college and elementary school
markets and accounted for 86.3% of our net sales in 1999. High schools
accounted for approximately 85% of the segment's net sales in 1999. The School
Products segment is comprised of four principal lines of products and services:
Yearbooks, Class Rings, Graduation Products and Photography.
The Recognition segment accounted for 12.4% of our net sales in 1999. This
segment provides products and services that assist companies in recognizing and
rewarding employee service and achievement of performance objectives. The
Recognition segment also produces awards for professional sports team
accomplishments and affinity products for special interest associations.
The remainder of our net sales is derived primarily from school-related
affinity products sales to Latin America and Europe. This segment accounted for
approximately 1.3% of our net sales in 1999.
Industry
School-Related Affinity Products and Services
The market for school-related affinity products has historically been
characterized by stable revenues and cash flows. The industry is concentrated
around five competitors who offer some combination of yearbooks, class rings
and/or graduation products on a national level. The market for these products
and services is estimated to be approximately $1.5 billion, with the vast
majority of sales generated from the high school segment of the market. The
U.S. Department of Education has projected that the number of high school
graduates will increase by approximately 1.3% per year from 2.75 million in
1999 to 3.09 million by 2008, based on birth rates in the 1980s and early
1990s.
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The following table shows the historical and projected number of U.S. high
school graduates from 1983 to 2008:
High School Graduates
<TABLE>
<CAPTION>
High School High School
Year Graduates Year Graduates (1)
---- -------------- ---- --------------
(in thousands) (in thousands)
<S> <C> <C> <C>
1983................. 2,888 1996................. 2,573
1984................. 2,767 1997................. 2,573
1985................. 2,677 1998................. 2,653
1986................. 2,643 1999................. 2,751
1987................. 2,694 2000................. 2,847
1988................. 2,773 2001................. 2,875
1989................. 2,727 2002................. 2,887
1990................. 2,586 2003................. 2,909
1991................. 2,503 2004................. 2,972
1992................. 2,482 2005................. 2,976
1993................. 2,490 2006................. 2,985
1994................. 2,479 2007................. 3,044
1995................. 2,538 2008................. 3,093
</TABLE>
--------
Source: U.S. Department of Education, National Center for Education Statistics,
Projections of Education Statistics to 2008, October 1997.
(1) Projected
We believe that we are the largest of the national competitors in each of
yearbooks, class rings and graduation products. Other national competitors
include Herff Jones, Inc., Commemorative Brands Inc., Taylor Publishing Company
and Walsworth Publishing Company. The high school and college market for
yearbooks in the United States is approximately $585 million. The market for
class rings in the United States is approximately $520 million. Approximately
75% of high school class rings are sold directly in schools and approximately
25% are sold through retail chains and local jewelers. The market for
graduation products in the United States is approximately $430 million.
The school photography market, estimated at approximately $1.0 billion for
North America, is highly fragmented, with Lifetouch Inc. being the largest
provider. We believe Jostens is the largest school photography provider in
Canada.
Providers of school-related affinity products and services compete on the
basis of quality, customer service, on-time delivery, breadth of product
offering and price. Barriers to new entrants in the school affinity products
and services market are high primarily due to the highly customized nature of
the products, which require significant capital investment on the part of the
provider, and the established position of the existing competitors.
Corporate Recognition Products and Services
The corporate recognition products and services industry is highly
fragmented with the four largest competitors collectively representing
approximately 30% of the market. The corporate recognition products and
services industry includes awards and programs that recognize employee
achievement. We believe Jostens is the second largest national competitor in
this industry with an approximate seven percent market share on a revenue
basis. Other national competitors include O.C. Tanner Recognition Company, The
Robbins Company and The Tharpe Company, Inc. Competition is based on breadth of
product offering, program management and price.
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Our recognition products fit within a broad collection of market niches and
our competitors include a significant number of well developed and varied
competitors. Recognition products are marketed through retail outlets,
independent sales representatives (who develop programs with corporate and
other clients), and directly to corporations through direct mail campaigns.
School Products Segment
We estimate that U.S. sales of high school and college yearbooks, class
rings, and graduation products are approximately $1.5 billion annually. The
market for school-related affinity products has historically been characterized
by stable revenues and cash flows. We provide customized products, as well as
dedicated technical support and customer service through our approximately
5,900 School Products employees and 13 manufacturing facilities. We have
approximately 570 independent sales representatives who sell and distribute
yearbooks, class rings and graduation products primarily to high schools in the
United States. In addition, we have approximately 50 employee representatives
who service colleges in the United States and focus primarily on selling and
distributing class rings and graduation products. Our sales representatives
establish and maintain extensive customer relationships with school officials
and faculty and in the vast majority of cases we are designated by the schools
as the sole supplier of particular school-related affinity products.
Yearbooks
We are the leading manufacturer of yearbooks sold to schools in the United
States, serving approximately 45% of senior high schools in 1999. Our
independent sales representatives coordinate with technical support employees
based in our five printing facilities to assist students and faculty advisors
with the planning, editing and layout of yearbooks. We also manage the
production, printing and distribution of student-created yearbooks. With a new
class of students each year and periodic faculty advisor turnover, our
representative is often a school's point of continuity for the yearbook
production process on a year-to-year basis.
In 1997, we launched Jostens Direct Solutions ("JDS"), a program whereby
selected high schools have authorized us to implement a direct payment program
with parents of students. This program represents an improvement over the
traditional method of payment and collections, where schools had to serve as an
intermediary by collecting, holding and disbursing funds. JDS reduces
administrative burdens for high schools by streamlining the yearbook order
process and improves our collections and cash flow. We believe that JDS has
also provided parents of students with a greater awareness of our broad
yearbook product offerings, including customization options. We are investing
in enhanced digital technology to meet student demand for increased color pages
and to offer additional personalization and customization features.
In addition to yearbooks, a small portion of Yearbook net sales is derived
from printing commercial brochures and promotional books and materials.
Yearbooks accounted for $262.8 million, or 38.9%, of the School Products
segment net sales in 1999.
Class Rings
Jostens is the leading provider of class rings, serving approximately 46% of
U.S. senior high schools in 1999. We manufacture and sell class rings primarily
to high school students through our network of independent sales
representatives. The authorized in-school access of the sales representatives
allows them to stimulate demand through school-endorsed marketing campaigns,
parents' nights and delivery-related events such as ring dances. Our extensive
investment in proprietary ring dies and tooling, as well as our manufacturing
expertise, enables us to offer highly customized class rings. Class Rings
contributed $203.5 million, or 30.1%, of our School Products segment net sales
in 1999.
Approximately 75% of high school class rings in the United States are sold
in schools and approximately 25% are sold through retail channels including
mass merchandisers and local jewelry stores. We focus principally on the in-
school market and maintain a relatively small share of the retail market. Class
rings sold through retail jewelers and mass merchandisers are generally lower
priced rings than class rings sold through schools. In addition, we believe
that retail sales of class rings are characterized by lower margins than sales
directly to the school market.
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<PAGE>
Graduation Products
Jostens is the leading provider of graduation products, serving
approximately 53% of U.S. senior high schools in 1999. We produce caps and
gowns, diplomas and announcements, and sell these products as well as
graduation-related accessories through the same sales representatives who sell
our class rings. We have a proven track record of providing on-time delivery of
our wide array of graduation products, a critical component of our customers'
satisfaction. Graduation Products contributed $163.2 million, or 24.2%, of our
School Products segment net sales in 1999.
Photography
Our sales of school photography services are divided between Canada and the
United States. We believe that in Canada we are the leading provider, serving
approximately 40% of students in 1999. Through our network of sales
representatives we provide class and individual school pictures for high
school, middle and elementary school students. Additionally, we provide high
school senior portrait photography, photography for proms and other special
events, and other photo-based products such as student ID cards. We are
currently testing digital photography services for both school services and
special events. Photography contributed $46.0 million, or 6.8%, of our School
Products segment net sales in 1999.
Recognition Segment
Jostens is a leading provider of corporate recognition products and services
with an estimated market share of seven percent of the U.S. market on a revenue
basis in 1999. We serve customers ranging from small and mid-size companies to
global corporations, professional sports teams and special interest
associations. Our approximately 60 independent sales representatives, together
with our employees, design and administer programs to assist customers in
recognizing and rewarding employee service and performance. We also market
rings to championship sports organizations of the NBA, NFL and Major League
Baseball. We manufacture almost half the products sold including jewelry,
rings, watches and engraved certificates. In addition, we market items
manufactured by other companies, such as Lenox, Waterman, Howard Miller, Oneida
and Waterford. The Recognition segment contributed $97.0 million, or 12.4%, of
our net sales, in 1999.
Competitive Strengths
We attribute our leading position in the national school-related affinity
products and services market and our significant opportunities for continued
growth to the following competitive strengths:
Market Leader in School Businesses
Jostens is the U.S. market leader in yearbooks, class rings and graduation
products with net sales that are nearly twice that of our nearest competitor.
We estimate that we have been the market leader in yearbooks, class rings and
graduation products for the past 25 years. We currently serve approximately
14,500 of the approximately 25,500 high schools in the United States, including
approximately 11,600 of the approximately 16,700 senior high schools in the
United States. We have an annual account retention rate of approximately 92%.
We believe that our high retention rate is primarily due to our broad product
offering, strong reputation for service, quality and on-time delivery, as well
as our sales representatives' strong relationships with the schools they serve.
Extensive Network of Experienced Sales Representatives
Jostens has the industry's largest network of sales representatives for
yearbooks, class rings and graduation products. Our sales representatives have
an average tenure of 13 years. Schools typically provide exclusive, authorized
access to sell yearbooks, class rings and graduation products. The process of
marketing our school products and serving our customers is highly interactive
and our independent sales representatives and employees work closely with
school administrators and advisors and students. In addition, the creation of a
55
<PAGE>
yearbook requires a great deal of in-school work in which the representatives'
experience and input is critical. Similarly, the sales process for class rings
is driven by school-authorized events and mandatory student meetings at which
our sales representatives display and market class rings to students. In
addition, the strong relationships that our highly experienced sales
representatives have developed with schools, combined with Jostens' technical
support, brand name and manufacturing capabilities have created the industry's
leading distribution network.
Highly Customized Products
Our yearbooks, class rings and graduation products are highly personalized
and require specialized manufacturing capabilities. Our continuing investment
in these capabilities has enabled us to consistently provide high quality
products to our customers in a timely fashion. Each of our major products has
unique production characteristics:
Yearbooks. The production of a yearbook requires extensive interaction
among the school yearbook advisor, the student committee, our sales
representative, our customer service department and our printing plant
employees. Utilizing specialized publishing software, our sales
representatives guide students through page layout and book organization
and set interim deadlines to ensure production is completed on time. Our
customer service and technical support team provides additional continuity
in the yearly process, as there is a new student yearbook committee each
year and periodic turnover among faculty advisors. As a yearbook is one of
a student's most important high school keepsakes, the production and on-
time delivery of a high quality product is essential.
Class Rings. The production of a class ring involves a high degree of
skilled and experienced labor. Each school works with our artists and die
makers to design and create unique class rings. We maintain an inventory of
approximately 1.5 million unique, proprietary ring dies that would be
expensive and time consuming to replicate. Rings are further customized by
adding a student's name, activities or other personalization. Our skilled
labor force operating in four manufacturing facilities produces
approximately 1.1 million rings per year.
Graduation Products. We provide highly customized and personalized
announcements, caps and gowns and diplomas to over one million students
annually. Our sales representatives work with a school's graduation
committee each year to design an announcement, which can contain a number
of custom features, including the school's official crest. We maintain an
inventory of over 70,000 school crest dies, and have hand-rendered etchings
of over 22,000 school buildings and mascots, for use on both announcements
and diplomas. In addition to these products, which are typically customized
to the school-level, we offer over 30 accessory products to students, many
of which may be further customized with school colors or crests and
personalized with a student's name or initials.
Strong and Experienced Management Team
Jostens is led by an experienced team of senior officers and managers with a
record of achieving growth, maintaining long-term relationships with our
customers, improving the appeal of existing products and services and
successfully bringing to market new products and services. Our five most senior
executives collectively have over 40 years of management experience at Jostens.
Business Strategy
Our objective is to continue to be recognized as the nation's leading
provider of school-related affinity products and services. To achieve this
objective, we are focusing on the following strategies:
Expand Jostens Direct Solutions Program
In 1997, Jostens launched JDS, a program whereby selected high schools have
authorized us to contact parents directly. Typically, yearbooks are sold by
student committees supervised by a faculty adviser. Through JDS we send
yearbook request forms directly to students and their parents at their homes.
This allows
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<PAGE>
us to provide easy-to-use direct payment methods, eliminating the burdens of
processing paperwork and handling funds for school officials. In addition, we
believe parents find it more convenient to buy yearbook accessories and
customization features when marketed directly to the home. JDS has improved our
working capital due to a more efficient order and payment process. Currently,
we offer JDS to approximately 25% of our yearbook customers, and we expect to
continue to introduce JDS to additional schools.
Enhance Core Product Offerings
We are investing in existing technologies that we believe will enable us to
increase product customization and personalization and operate more
efficiently. We are developing a series of initiatives in our School Products
segment that will allow us to offer enhanced features in our existing product
offerings on a cost effective basis. For example, we currently intend to
utilize advances in digital technology both to increase color capacity in
yearbooks and to offer more highly customized graduation announcements.
Complement In-School Access with Internet Capabilities
We believe the Internet provides a strong complement to our traditional
sales processes by allowing us to leverage our existing distribution network,
strong brand name and long-standing customer relationships through an
additional sales channel. The Internet also presents opportunities for us to
improve our order taking and processing efficiency and to increase product
awareness. Additionally, our management is creating a portfolio of investments
in Internet-based companies which we believe complements our access into, and
our existing relationships with, schools. Our Internet investments are
comprised of: Project Achieve, an Internet-based information management system
that integrates and tracks a variety of student and school information; and
Planet Alumni, an on-line community for high school alumni and students.
Continue Operational Improvements
Jostens has fostered a corporate culture that continually works to reduce
costs. Since 1996, we have closed or consolidated six manufacturing facilities
and have improved our manufacturing efficiencies at currently operating
facilities. We believe there are significant additional cost savings that can
be attained in the near term. We have implemented several initiatives designed
to simplify our class ring and graduation products ordering and fulfillment
processes and our yearbook production process. We believe these initiatives
will further increase our efficiencies and reduce our operating costs.
Marketing and Sales
We believe we have the largest sales force in the school-related affinity
products and services industry. Our School Products sales representatives gain
access to high schools through administrators or student representatives who
are involved in the selection process. Once selected, the sales representative
coordinates between the school and our customer service and plant employees to
ensure satisfactory quality and service. Yearbooks are sold directly to schools
by our sales representatives and their associates. Class rings are sold within
the school through temporary order-taking booths, bookstores, other campus
stores and retail jewelry stores. Our sales representatives make calls on
schools and take sales orders for graduation products through temporary order-
taking booths, telemarketing programs, college bookstores and the Internet. Our
photography services are sold by our sales representatives who arrange the
sittings at individual schools or in their own studios.
Our independent sales representatives typically operate under one to three
year contracts with exclusive non-compete arrangements that prohibit sales of
competing products during the term of the arrangement
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<PAGE>
and for a period of time, generally two years, thereafter. Independent sales
representatives may employ one or more additional sales representatives in
addition to part-time or full-time assistants. We compensate our independent
sales representatives on a commission basis, and most independent sales
representatives receive an annual draw against commissions earned. In addition,
all of an independent sales representative's expenses are the responsibility of
the representative, including the cost of promotional materials which we design
and produce.
Manufacturing
Our School Products segment is supported by 13 manufacturing facilities. Of
these facilities, five are involved in the production of yearbooks, four in
class rings, three in graduation products and one produces photographs for our
North American photography product lines. We continually invest in our
manufacturing facilities to achieve process improvements and believe these
investments along with our significant experience in the industry have made us
one of the most efficient manufacturers of school-related affinity products.
Additionally, by investing to establish these capabilities, we have been able
to consistently provide high quality products to our customers in a timely
fashion.
Our Recognition segment is supported by one manufacturing plant which
produces customized jewelry products such as rings, charms and medallions. We
also purchase and customize brand-name products such as watches and electronic
goods which are assembled at two additional facilities.
Competition
School Products
The school-related affinity products and services industry consists
primarily of national manufacturers and a number of small regional competitors.
We are one of five national competitors in the sale of yearbooks, class rings
and/or graduation products along with Herff Jones, Inc., Commemorative Brands
Inc., Taylor Publishing Company and Walsworth Publishing Company. We believe
that we are the largest of the national competitors in yearbooks, class rings
and graduation products based on number of schools served. Herff Jones, Inc. is
the only national manufacturer, other than us, that sells each of these three
product lines. However, both Commemorative Brands, Inc. and Taylor Publishing
Company are owned by affiliates of Castle Harlan, Inc., a New York-based
merchant bank, and collectively offer all three products. We believe that due
to the size of the market, the time required to develop relationships with
schools, the cost of acquiring the equipment and the expertise required for the
customization of products, there have been few new entrants since the 1970s.
Yearbooks. Our principal competition consists of three firms: Herff
Jones, Inc., Taylor Publishing Company and Walsworth Publishing Company.
All compete on the basis of product offerings, price, print quality, and
customer service. Technological offerings in the way of computer-based
publishing are becoming significant market differentiators.
Class Rings. Our competition in class rings consists primarily of two
national firms, Herff Jones and Commemorative Brands, Inc. (which markets
the Balfour and ArtCarved brands). Herff Jones, Inc. distributes its
product in schools, in a manner similar to ours, while Commemorative
Brands, Inc. distributes its product through multiple distribution channels
including schools, independent and chain jewelers and mass merchandisers.
Class rings sold through independent and chain jewelers and mass
merchandisers are generally lower priced rings than class rings sold
through schools. Customer service is particularly important in the sale of
class rings because of the high degree of customization and the emphasis on
timely delivery.
Graduation Products. Like class rings, our primary competition in
graduation products consists primarily of Herff Jones, Inc. and
Commemorative Brands, Inc. In addition, numerous local and regional
competitors offer products similar to ours. Participants in the graduation
products market compete on the basis of on-time delivery, price and breadth
of product offerings.
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Photography. Our sales of school photography services are divided
between Canada and the United States. In Canada, we compete with a variety
of regional and local photographers. In the United States our primary
competitors are Lifetouch Inc. and Herff Jones, Inc. as well as regional
and local photographers. With respect to photography services we compete on
the basis of quality, price and on-time delivery.
Recognition
Our Recognition business competes primarily with O.C. Tanner, The Robbins
Company, and The Tharpe Company, Inc. on a national basis, as well as a large
number of regional companies. Our Recognition business focuses on service and
product offerings in competing with these companies.
Raw Materials and Suppliers
The principal raw materials that we purchase are gold, paper products and
precious, semiprecious and synthetic stones. The cost of gold and precious,
semiprecious and synthetic stones are affected by market volatility. Any
increase in the price of gold could adversely affect our cost of sales. To
manage the risk associated with gold price changes, on an annual basis we
simultaneously set our pricing to customers and enter into gold forward or
option contracts based upon the estimated ounces needed to satisfy customer
requirements.
We purchase substantially all synthetic and semiprecious stones from a
single supplier, located in Germany. This supplier provides semiprecious and
synthetic stones to almost all of the class ring manufacturers in the United
States. We believe that the loss of this supplier could adversely affect our
business during the time period in which alternate sources adapted their
production capacities to meet increased demand.
Backlog
Because of the nature of our business, generally all orders are filled
within a few months from the time of placement. However, our School Products
segment obtains student yearbook contracts in one year for a significant
portion of the yearbooks to be delivered in the next year. Often the prices of
the yearbooks are not established at the time of the order because the content
of the books may not be finalized. Subject to the foregoing qualifications, we
estimate the backlog of orders related to continuing operations was
approximately $305 million as of the end of 1999, compared with $292 million as
of the end of 1998, primarily related to student yearbooks, class rings and
graduation products. Most of our 1999 backlog was filled in 2000.
Environmental
Our operations are subject to a wide variety of federal, state and local
laws and regulations governing emissions to air, discharge to waters, the
generation, handling, storage, transportation, treatment and disposal of
hazardous substances and other materials, and employee health and safety
matters. As part of our environmental management program, we are involved in
various environmental remediation activities. As sites are identified and
assessed in this program, we determine potential environmental liability. We
consider a number of factors in order to assess liability, including: whether
we had been designated as a potentially responsible party, the number of other
potentially responsible parties designated at the site, the stage of the
proceedings and available environmental technology. As of January 1, 2000, we
had identified three sites requiring further investigation. However, we have
not been designated as a potentially responsible party at any site.
We believe that it is probable that a loss has been incurred at one of our
sites and, based on findings included in remediation reports and discussions
with legal counsel, we estimate the total cost of this remediation to be
between $2.8 million to $3.8 million. We have made payments of approximately
$2.3 million during fiscal 2000 related to the costs of this remediation. As of
July 31, 2000, we had a remaining accrual of $1.2 million. While we may have a
right of contribution or reimbursement under insurance policies, we are not
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considering amounts recoverable from other entities with respect to a
particular site until recoveries are deemed probable. No assets for potential
recoveries were established as of January 1, 2000.
Employees
On average, we employ approximately 6,200 people, of whom approximately 300
are members of two separate unions. Due to the seasonal nature of our business,
our number of employees tends to vary significantly. We have never suffered an
interruption of business that had a material impact on our operations as a
result of a labor dispute and consider our relationship with our employees to
be good.
Intellectual Property
We have licenses, trademarks and copyrights that in aggregate are an
important part of our business. However, we do not regard our business as being
materially dependent upon any single license, trademark or copyright. We have
trademark registration applications pending and will pursue other registrations
as appropriate to establish and preserve our intellectual property rights.
Properties
A summary of the physical properties that we use, arranged according to
significant business segments, follows:
<TABLE>
<CAPTION>
Business Owned or Approximate
Segment Location Type of Property Leased Square Footage
----------- ------------------- ------------------- -------- --------------
<S> <C> <C> <C> <C>
School
Products Anaheim, CA Office Leased 12,000
Attleboro, MA Manufacturing Owned 52,000
Burnsville, MN Manufacturing Leased 47,000
Clarksville, TN Manufacturing Owned 105,000
Denton, TX Manufacturing Owned 56,000
Laurens, SC Manufacturing Owned 98,000
Laurens, SC Warehouse Leased 105,000
Laurens, SC Warehouse Leased 73,500
Owatonna, MN Office Owned 88,000
Owatonna, MN Manufacturing Owned 30,000
Owatonna, MN Warehouse Leased 29,000
Red Wing, MN Manufacturing Owned 132,000
Shelbyville, TN Manufacturing Owned 87,000
State College, PA Manufacturing Owned 66,000
Topeka, KS Manufacturing Owned 236,000
Visalia, CA Manufacturing Owned 96,000
Winnipeg, MAN Manufacturing Owned 69,000
Winnipeg, MAN Office Leased 28,000
Winston-Salem, NC Manufacturing Owned 132,000
Webster, NY (1) Manufacturing Owned 60,000
Recognition Memphis, TN Distribution Center Owned 67,000
Princeton, IL Manufacturing Owned 65,000
Princeton, IL Building Owned 14,750
Saddle Brook, NJ (2) Office Leased 6,000
Sherbrooke, QUE Distribution Center Leased 15,000
Other Bloomington, MN Office Owned 116,000
Bloomington, MN Office Leased 37,000
</TABLE>
--------
(1) Closed and currently held for sale.
(2) Currently subleasing.
We believe that our production facilities are suitable for their purpose and
are adequate to support our businesses. The extent of utilization of individual
facilities varies due to the seasonal nature of our business.
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Legal Proceedings
In January 1999, a federal judge in Texas overturned a jury's $25.3 million
verdict against Jostens in an antitrust lawsuit. The judge, acting on Jostens'
post-trial motions, set aside the jury's verdict and dismissed all claims
against Jostens in the case. Yearbook competitor Taylor Publishing Company, the
plaintiff in the case, has appealed the decision and is seeking to have the
jury verdict reinstated. On July 10, 2000, the Fifth Circuit affirmed the trial
court's entry of judgment as a matter of law on Jostens' behalf. On July 24,
2000, Taylor filed a petition with the Fifth Circuit to rehear the case in
front of the panel that heard the appeal. The petition was denied. If the jury
verdict is reinstated, the payment of damages would be material to our results
of operations and could adversely affect our ability to make payments on the
notes. Taylor has until October 23, 2000 to petition the U.S. Supreme Court to
review the case. No costs were accrued related to the lawsuit because we
believe a loss is not "probable and estimable."
Following the public announcement of the merger, three purported class actions
were filed, two on December 30, 1999 and the third on January 14, 2000, in the
Fourth Judicial District of the District Court for the State of Minnesota,
County of Hennepin. By order of the Honorable Daniel H. Mabley dated January
21, 2000, the Actions were consolidated, and the Complaint in File No. MC 99-
18533 was thereafter designated as the Consolidated Complaint. An amended
Consolidated Complaint was filed on February 23, 2000 and we filed an answer on
March 24, 2000 denying all material allegations. On May 9, 2000, we agreed in
principle to settle the three purported class actions. The settlement is
subject to court approval.
Jostens is a party to other litigation arising in the normal course of
business. We regularly analyze current information and, as necessary, provide
accruals for probable liabilities on the eventual disposition of these matters.
We believe the effect on our consolidated results of operations and financial
position, if any, for the disposition of these matters will not be material.
International Operations
Our foreign sales are derived primarily from our operations in Canada. Local
taxation, import duties, fluctuation in currency exchange rates and
restrictions on exportation of currencies are among the risks attendant to
foreign operations, but we do not consider these risks to be material with
respect to our business. The profit margin on foreign sales is approximately
the same as our profit margin on domestic sales.
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MANAGEMENT
The following table sets forth certain information regarding our directors
and executive officers.
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Robert C. Buhrmaster.... 53 Chairman of the Board of Directors, President
and Chief Executive Officer
William N. Priesmeyer... 55 Senior Vice President and Chief Financial Officer
Carl H. Blowers......... 60 Senior Vice President--Manufacturing
Michael L. Bailey....... 44 Senior Vice President--School Solutions
Gregory S. Lea.......... 48 Vice President--Business Ventures
William J. George....... 51 Vice President, General Counsel and Corporate Secretary
Lee U. McGrath.......... 44 Vice President and Treasurer
Charles J. Philippin.... 50 Director
James O. Egan........... 51 Director
Charles K. Marquis...... 57 Director
Steven G. Puccinelli.... 41 Director
George Visnyei.......... 51 Director
David A. Tayeh.......... 33 Director
Robert G. Sharp......... 35 Director
</TABLE>
Robert C. Buhrmaster joined Jostens in December 1992 as Executive Vice
President and Chief Staff Officer. He was named President and Chief Operating
Officer in June 1993; was named Chief Executive Officer in March 1994; and was
named Chairman in February 1998. Prior to joining Jostens, Mr. Buhrmaster
worked for Corning, Inc. for 18 years, most recently as Senior Vice President.
He is also a director of The Toro Company.
William N. Priesmeyer joined Jostens in August 1997 in his current position.
From April to August 1997, Mr. Priesmeyer was Senior Vice President and CFO of
MVE Holdings. From 1994 to 1997, he was Senior Vice President and CFO with
Waldorf Corp.; and from 1993 to 1994 was Vice President and CFO for DataCard
Corp.
Michael L. Bailey joined Jostens in 1978. He has held a variety of
leadership positions including director of marketing, planning manager for
manpower and sales, national product sales director, division manager for
Yearbooks, printing operations manager and Vice President--Jostens School
Solutions. He was appointed to his current position in February 2000.
Carl H. Blowers joined Jostens in May 1996 as an independent consultant
serving as Division Vice President, Manufacturing & Engineering and was hired
as an employee in 1997. He was appointed to his current position in February
1998. Prior to joining Jostens, Mr. Blowers worked for Corning, Inc. for 27
years, most recently as Vice President and General Manager of Corning's
Advanced Materials and Process Technologies Division.
Gregory S. Lea joined Jostens in November 1993 as Vice President--Total
Quality Management. From June 1995 to January 2000 he was Vice President and
General Manager--Colleges and Universities. He was named to his current
position in February 2000. Prior to joining Jostens, Mr. Lea spent 19 years
with International Business Machines Corp. in various financial, operations and
quality positions.
William J. George joined Jostens in February 1999 in his current position.
From 1995 to 1999, Mr. George was Vice President, General Counsel and Secretary
of Simplex Time Recorder Co. From 1978 to 1995, he worked for Honeywell, Inc.,
most recently as Vice President and Associate General Counsel.
62
<PAGE>
Lee U. McGrath joined Jostens in May 1995 in his current position. For the
six years prior to joining Jostens, he was the assistant treasurer for H.B.
Fuller Company.
Charles J. Philippin became one of our directors upon consummation of the
recapitalization. Mr. Philippin was an executive of Investcorp or one or more
of its wholly owned subsidiaries from 1994 until this year. Prior to joining
Investcorp, Mr. Philippin was a partner in the accounting firm of Coopers &
Lybrand L.L.P. (now PricewaterhouseCoopers LLP). Mr. Philippin is currently the
Chief Executive Officer of Online Retail Partners.
James O. Egan became one of our directors upon consummation of the
recapitalization. Mr. Egan has been an executive of Investcorp or one or its
wholly owned subsidiaries since January 1999. Prior to joining Investcorp, Mr.
Egan was a partner in the accounting firm of KPMG from October 1997 to December
1998. Prior to that, Mr. Egan was a Senior Vice President and Chief Financial
Officer of Riverwood International, a paperboard, packaging and machinery
company, from May 1996 to September 1997. Prior to that, Mr. Egan was a partner
in the accounting firm of Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers
LLP). Mr. Egan is a director of CSK Auto Corporation, Harborside Healthcare
Corporation and Werner Holding Co. (DE), Inc.
Charles K. Marquis became one of our directors upon consummation of the
recapitalization. Mr. Marquis has been a senior advisor to Investcorp or one or
more of its wholly owned subsidiaries since January 1999. Prior to joining
Investcorp, Mr. Marquis was a partner in the law firm of Gibson, Dunn &
Crutcher, LLP. Mr. Marquis is a director of CSK Auto Corporation, Stratus
Computer Systems International S.A., Tiffany & Co., and Werner Holding Co.
(DE), Inc.
Steven G. Puccinelli became one of our directors in July 2000. Mr.
Puccinelli has been an executive of Investcorp or one or more of its wholly
owned subsidiaries since July 2000. Prior to joining Investcorp, Mr. Puccinelli
was a Managing Director at Donaldson, Lufkin & Jenrette.
George Visnyei became one of our directors in August 2000. Mr. Visnyei has
been an executive of Investcorp or one or more of its wholly owned subsidiaries
since 1996. Prior to joining Investcorp, Mr. Visnyei was a partner with Coopers
& Lybrand L.L.P. (now PricewaterhouseCoopers LLP).
David A. Tayeh became one of our directors upon consummation of the
recapitalization. Mr. Tayeh has been an executive of Investcorp or one or more
of its wholly owned subsidiaries since February 1999. Prior to joining
Investcorp, Mr. Tayeh was a Vice President in investment banking at Donaldson,
Lufkin & Jenrette.
Robert G. Sharp became one of our directors upon consummation of the
recapitalization. Mr. Sharp has been an executive of DB Capital Partners, Inc.,
the general partner of DB Capital Investors, since October 1999. Prior to
joining DB Capital Investors, Mr. Sharp was an executive at Investcorp or one
or more of its wholly owned subsidiaries.
63
<PAGE>
Executive Compensation
The following table sets forth the cash and non-cash compensation for 1999,
1998 and 1997 awarded to or earned by the Chief Executive Officer, the four
other most highly compensated executive officers, and one former executive
officer of Jostens.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation Long-term compensation
------------------ ----------------------
Restricted Securities All Other
Stock Underlying Compen-
Name and Principal Position Year Salary Bonus (1) Awards (2) Options (#) sation (3)
--------------------------- ---- -------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Buhrmaster.... 1999 $536,154 $273,266 $243,873 100,000 $ --
Chairman of the Board, 1998 496,154 324,000 -- 75,000 286,344
President and Chief 1997 467,307 167,227 -- 60,000 --
Executive Officer
David J. Larkin......... 1999 $348,650 $153,516 $143,028 55,000 $492,000
Executive Vice 1998 304,927 138,918 10,639 100,000 225,785
President and 1997 -- -- -- -- --
Chief Operating Officer
(4)
Carl H. Blowers......... 1999 $296,471 $124,524 $115,909 25,000 $ --
Senior Vice President 1998 290,097 118,288 -- 70,000 100,221
Manufacturing (5) 1997 249,231 66,746 -- 21,000 --
William N. Priesmeyer... 1999 $262,490 $153,536 $120,144 50,000 $ --
Senior Vice President 1998 229,154 70,490 15,491 85,000 162,186
and 1997 72,692 23,663 -- 21,000 --
Chief Financial Officer
(6)
Thomas W. Jans.......... 1999 $201,891 $ 63,717 $ 60,974 20,000 $202,550
Vice President-- 1998 195,261 100,006 -- 31,500 71,586
Consumer Marketing and 1997 197,308 27,207 35,719 30,000 --
Channel Development (7)
John J. Mann............ 1999 $113,465 $ 86,846 $ -- 25,000 $313,998
Vice President and 1998 209,231 72,463 -- 41,500 71,586
General Manager-- 1997 207,692 66,485 35,719 30,000 --
Scholastic (8)
</TABLE>
--------
(1) Bonuses for 1999, 1998 and 1997 were paid in February of the following
year. Amounts in 1999 include payments under the Performance Pays bonus
program as follows: Mr. Buhrmaster: not eligible; Mr. Larkin, $12,900; Mr.
Blowers, $10,969; Mr. Priesmeyer, $9,712; Mr. Jans, $7,470; and Mr. Mann,
not eligible. Amounts in 1998 include payments under the Performance Pays
bonus program as follows: Mr. Buhrmaster: not eligible; Mr. Larkin,
$11,343; Mr. Blowers, $10,792; Mr. Priesmeyer, $8,525; Mr. Jans, $7,264;
and Mr. Mann, $7,783. Amounts in 1997 include payments under the
Performance Pays bonus program as follows: Mr. Buhrmaster, $5,227; Mr.
Blowers, $2,788; Mr. Priesmeyer, $1,163; Mr. Jans $2,207; and Mr. Mann,
$2,323. The Performance Pays bonus program was introduced in 1997 for all
of Jostens' non-union employees and is based on Jostens' net income
performance.
(2) Amounts in 1999 include awards of restricted stock under the Executive
Stock Purchase Program. The total number and value of restricted stock
holdings as of the end of 1999 was calculated by multiplying the average of
the high and low trading prices of our common stock on the last trading day
of 1999 ($24.2188) by the number of restricted shares held for the named
officers as follows: Mr. Buhrmaster, 10,135 shares valued at $245,458; Mr.
Larkin, 6,411 shares valued at $155,267; Mr. Blowers, 4,817 shares valued
at $116,662; Mr. Priesmeyer, 5,673 shares valued at $137,393; and Mr. Jans,
4,034 shares valued at $97,699. Amounts in 1998 were for restricted stock
awarded to Mr. Larkin and Mr. Priesmeyer as part of their bonus and vest
three years from the date of grant. Amounts in 1997 were for restricted
stock awarded to Mr. Jans and Mr. Mann upon their appointment as officers
in May 1997 and upon Mr. Mann's date of hire in April 1996.
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<PAGE>
(3) The 1999 amounts for Mr. Larkin and Mr. Jans are accruals related to the
termination of their employment as part of the restructuring plan announced
in the fourth quarter of 1999. The accrual amounts were estimated based on
terms set forth in the Executive Severance Pay Plan. The 1999 amount for
Mr. Mann is for salary continuation and other benefits paid or to be paid
by Jostens under his separation agreement. Amounts in 1998 include
conversion of performance shares granted in 1997 for 1998 company
performance. Performance shares were earned at 110 percent of targets. One-
half of the amounts were paid in cash and the other half was paid in our
common stock based on the average of the high and low trading prices of our
common stock on the last trading day of 1998 ($26.0313). The 1998 amounts
listed for Mr. Larkin and Mr. Priesmeyer also include the portion of their
1998 bonus they elected to have paid in our common stock, $42,525 and
$61,965, respectively.
(4) Mr. Larkin joined Jostens in February 1998. His employment with Jostens was
terminated as part of the restructuring plan announced in the fourth
quarter of 1999.
(5) Mr. Blowers joined Jostens in May 1996 as an independent consultant and
became an employee of Jostens in 1997. He was appointed to his current
position in February 1998.
(6) Mr. Priesmeyer joined Jostens in August 1997.
(7) Mr. Jans' employment with Jostens was terminated as part of the
restructuring plan announced in the fourth quarter of 1999.
(8) Mr. Mann resigned from Jostens in August 1999 as his position was
eliminated. Mr. Mann and Jostens reached a mutually acceptable separation
agreement in which his compensation and certain benefits will continue
through August 2000.
Option Grants
The following table sets forth information concerning stock options granted
in 1999, including the potential realizable value of each grant assuming that
the market value of our common stock appreciates from the date of grant to the
expiration of the option at annualized rates of (a) 5% and (b) 10%, in each
case compounded annually over the term of the option. These assumed rates of
appreciation have been specified by the Securities and Exchange Commission for
illustrative purposes only and are not intended to predict future prices of our
common stock, which will depend upon various factors, including market
conditions and our future performance and prospects.
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Potential realizable
value
at assumed annual
rates of
Number of % of total stock price
securities options appreciation
underlying granted to Exercise for option term
options employees price Expiration ---------------------
Name granted (#) in 1999 ($/share) date (1)(2) 5% 10%
---- ----------- ---------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Buhrmaster.... 100,000 13.23% $22.7813 2/4/09 $1,432,703 $3,630,753
David J. Larkin......... 55,000 7.28% 22.7813 2/4/09 787,987 1,996,914
Carl H. Blowers......... 25,000 3.31% 22.7813 2/4/09 358,176 907,688
William N. Priesmeyer... 50,000 6.61% 22.7813 2/4/09 716,352 1,815,376
Thomas W. Jans.......... 20,000 2.65% 22.7813 2/4/09 286,541 726,151
John J. Mann............ 25,500 3.31% 22.7813 2/4/09 358,176 907,688
</TABLE>
--------
(1) Options not yet exercisable generally become exercisable upon a change in
control as defined in our Executive Change in Control Severance Pay Plan.
The exercise price may be paid in cash, in shares of Jostens' common stock
subject to certain conditions or pursuant to a cashless exercise procedure.
The proposed merger and recapitalization will constitute a change in
control as a result of which all outstanding options will vest and be
cancelled in exchange for a cash payment equal to the difference between
$25.25 per underlying share and the applicable exercise price.
(2) Options become exercisable in equal installments on February 4 of 2000,
2001 and 2002 so long as employment with Jostens or any of its subsidiaries
continues.
65
<PAGE>
The following table sets forth information concerning the aggregate number
of options held and the value of unexercised "in-the-money" options held at the
end of 1999, the difference between the aggregate exercise price of all such
options held and the market value of the shares covered by such options as of
the end of 1999. No options by the named officers were exercised in 1999.
Year End 1999 Option Values
<TABLE>
<CAPTION>
Number of securities Value of unexercised
underlying unexercised in-the-money options
options at year end 1999 at year end 1999 (1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert C. Buhrmaster........ 466,000 170,000 $2,291,223 $181,250
David J. Larkin............. 33,333 121,667 25,000 129,063
Carl H. Blowers............. 55,333 78,667 96,813 70,938
William N. Priesmeyer....... 42,333 113,667 21,250 114,375
Thomas W. Jans.............. 61,420 46,000 48,800 44,500
John J. Mann ............... 46,333 -- 33,110 --
</TABLE>
--------
(1) Based on the average of the high and low trading prices of our common
stock on the last trading day of 1999 ($24.2188).
Additional Compensation
At its meeting held on December 22, 1999, the Jostens board of directors
approved additional compensation for Messrs. Buhrmaster, Priesmeyer, Blowers,
Bailey and Lea for services to be rendered after the merger in connection with
our transition to new ownership, including managing the transition process from
financial reporting, public relations and sales and marketing perspectives, in
an amount equal to $2.5 million in the aggregate. The $2.5 million was
allocated among Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea as
follows:
<TABLE>
<CAPTION>
Additional
Name Compensation
---- ------------
<S> <C>
Mr. Buhrmaster.................................................. $500,000
Mr. Priesmeyer.................................................. $800,000
Mr. Blowers..................................................... $400,000
Mr. Bailey...................................................... $500,000
Mr. Lea......................................................... $300,000
</TABLE>
Compensation Committee Interlocks and Insider Participation
Mr. Jack W. Eugster, Mr. Mannie L. Jackson and Ms. Brenda J. Lauderback
served as members of the Compensation Committee during fiscal year 1999.
Neither Mr. Eugster, Mr. Jackson nor Ms. Lauderback was an officer or employee
of Jostens or any of its subsidiaries during 1999. Each of Mr. Eugster, Mr.
Jackson and Ms. Lauderback were removed from the Board of Directors as well as
the Compensation Committee at the effective time of the merger.
Termination of Employment and Change in Control Arrangements
Termination of Employment
In August of 1999, we entered into a separation agreement with Mr. Mann. The
terms of the agreement provide that Mr. Mann will receive salary and
perquisites through August 2000, a management bonus of $36,846 for the first
half of 1999, and an additional performance bonus of $50,000. In addition, Mr.
Mann will receive an amount covering the difference of any COBRA premiums and
the premiums paid for coverage by similarly situated active employees.
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<PAGE>
Executive Change in Control Severance Pay Plan
In 1999, we implemented the Jostens' Executive Change in Control Severance
Pay Plan (the "Plan"). The primary purpose of the Plan is to provide severance
benefits for our Chief Executive Officer and other members of management or
highly compensated employees selected to participate in the Plan by our Chief
Executive Officer, whose employment is terminated during the 24-month period
following a change in control (as defined in the Plan). The merger was deemed
to be a "change in control" under the Plan. Plan participants are eligible to
receive severance benefits if their employment is terminated either voluntarily
with "good reason" (as defined in the Plan) or involuntarily for any reason
other than death or for "cause" (as defined in the Plan). The amount of
severance benefits received by a particular employee is based upon the
employee's position in Jostens and the employee's base salary plus the higher
of the current year's annual incentive target bonus or the three year average
of the actual incentive bonus payments to the participant for the three prior
years. The range of severance benefits is from 15 months to 36 months and would
be paid in a lump sum upon termination. Plan participants are also eligible to
receive an additional cash payment from us to the extent the total payments
received from this Plan or any other benefit plan is treated as an "excess
parachute payment" within the meaning of Section 280(G) of the Internal Revenue
Code of 1986, as amended. Such payment would be in an amount necessary so that
the net amount received by the terminated participant would equal the payment
he would receive if the payment were not treated as an "excess parachute
payment".
Executive Stock Purchase Program
In 1998, our Board of Directors approved an Executive Stock Purchase Program
(the "Program") sponsored by Jostens. The Program offered certain executives a
one-time opportunity to purchase Jostens' common stock, at current market
price, through unsecured, full-recourse loans financed by The First Chicago
National Bank and guaranteed by Jostens. The dollar value of shares that
participants were authorized to purchase under the Program was one to three
times their base salary, depending upon the executive's position within
Jostens. A minimum purchase of 50 percent of the authorized value was required
in order to participate. Our Board of Directors also authorized a grant of
restricted shares of common stock equal to 15 percent of the number of shares
that each participant purchased in the Program. The restricted stock awards
under this Program vest five years from the date of grant. Dividends from the
stock purchased under this Program and the restricted stock may be applied to
the quarterly interest payments due on the loans. The remainder of the interest
will be capitalized and due at the end of the five-year loan period. Five of
the named executive officers in the Summary Compensation Table elected to
participate in this Program. The principal amounts of loans to the named
executive officers and guaranteed by Jostens are: Mr. Buhrmaster: $1,620,000;
Mr. Larkin: $950,000; Mr. Blowers: $770,000; Mr. Priesmeyer: $798,000; and Mr.
Jans: $405,000. The number of shares purchased and related restricted stock
granted for each of the named executive officers are: Mr. Buhrmaster: 67,569
and 10,135; Mr. Larkin: 39,624 and 5,944; Mr. Blowers: 32,116 and 4,817; Mr.
Priesmeyer: 33,284 and 4,993; and Mr. Jans: 16,892 and 2,534. As a result of
the merger, the loans became due and were repaid. In addition, all unvested
shares of restricted stock became immediately vested. Some of these officers
repaid these loans with the proceeds of loans from Jostens described under "--
New Stock Loan Program" below.
New Stock Loan Program
At the effective time of the merger, we adopted a new stock loan program to
make loans to Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea in
amounts up to 100% of their then outstanding loans, the proceeds of which were
used to purchase shares of our common stock. Loans made under the stock loan
program bear interest at our cost of funds under our revolving credit facility
and are recourse loans. Subject to certain prepayment provisions, the loans
will mature and all principal and accrued interest will be payable on May 10,
2005; provided, however, that each loan may be extended for a period of two
years under certain circumstances. Each loan will become payable in full in the
event the borrower's employment with us is terminated other than due to death
or disability or for a reason other than cause or by the borrower for good
reason. Loans are collateralized by the shares of our capital stock owned by
such individual, and each
67
<PAGE>
individual has entered into a pledge agreement and executed a secured
promissory note. Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea
borrowed the following amounts under the new stock loan program:
<TABLE>
<CAPTION>
Amount
Name Borrowed
---- ----------
<S> <C>
Mr. Buhrmaster................................................. $1,010,025
Mr. Priesmeyer................................................. 368,499
Mr. Blowers.................................................... 250,000/1/
Mr. Bailey..................................................... 291,158
Mr. Lea........................................................ 105,318
----------
Total........................................................ $2,025,000
==========
</TABLE>
(1)Mr. Blowers repaid this loan in July 2000, including accrued interest.
Management Bonus Arrangements
In connection with the merger, we established a Management Shareholder Bonus
Plan providing for an annual bonus to be paid to Messrs. Buhrmaster,
Priesmeyer, Bailey, Blowers and Lea. Based upon achievements of specific EBITDA
targets, Mr. Buhrmaster will be entitled to a standard bonus equal to 60% of
his base salary. No bonus will be paid to Mr. Buhrmaster if Jostens fails to
achieve specified performance levels. Based upon achievements of specific
EBITDA targets, Messrs. Priesmeyer, Bailey, Blowers and Lea will be entitled to
a standard bonus as determined by the chief executive officer and the board of
directors, and approved by Investcorp. Similarly, no bonus will be paid to them
if Jostens fails to achieve specified minimum performance levels.
In connection with the merger, we further provided that, in the event of
either a sale of Jostens or a public offering of our securities, we will grant
to Messrs. Buhrmaster, Priesmeyer, Bailey, Blowers and Lea options to purchase
1% of our common stock on a fully diluted basis, without taking into account
any shares issued following the merger, other than any shares issued upon
exercise of the options granted under our stock option plan, and without taking
into account any shares issued upon exercise of the warrants issued to
purchasers of the redeemable preferred stock. In the event of a sale of
Jostens, the options would be immediately exercisable. In the event of a public
offering of our securities, the options would be exercisable for a period of
two years beginning one year after the date of the public offering. In either
case, the options will be exercisable only if Investcorp realizes a specified
rate of return in such transaction on its investment in Jostens. In either
case, we would allocate such options among Messrs. Buhrmaster, Priesmeyer,
Bailey, Blowers and Lea provided that each is still employed by us at the time
of such sale or offering, based upon the recommendation of our chief executive
officer, subject to the approval of our board of directors.
Stock Option Plan
At the effective time of the merger, we adopted a new stock option plan. The
number of shares of our Class A common stock available to be awarded under the
new stock option plan is 676,908. The new stock option plan is administered by
our board of directors or a committee designated by the board. The board may
designate which of our officers and employees will be eligible to receive
awards under the new stock option plan, and the amount, timing and other terms
and conditions applicable to such awards. We granted options to purchase
502,846 shares to Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea upon
completion of the merger. We have reserved the remaining 174,062 shares for the
future grant of options to officers and employees.The options granted to
Messrs. Buhrmaster, Priesmeyer, Blowers, Bailey and Lea have an exercise price
of $25.25 per share. Each option is subject to certain vesting provisions. To
the extent not earlier vested or terminated, each option vests on the seventh
anniversary of the date of grant and will expire 30 days thereafter if not
exercised. In the case of Mr. Buhrmaster, 40% of his options will vest
irrespective of the vesting provisions if Mr. Buhrmaster is terminated prior to
May 9, 2002, except for a termination for cause or a resignation without good
reason. Under the new stock option plan, an optionee has certain rights to put
to an affiliate of Investcorp, and we have certain rights to call from the
optionee, vested stock options upon termination of the optionee's employment
prior to a public offering of Jostens common stock.
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<PAGE>
Long-Term Incentive Plan
We intend to adopt a long-term incentive plan. Pursuant to this program,
specified members of current management other than the Messrs. Buhrmaster,
Priesmeyer, Blowers, Bailey and Lea will be entitled to cash bonuses in the
event we exceed specified performance-based targets. These performance targets
are primarily based on achieving specified annual levels of EBITDA. Current
members of management, other than Messrs. Buhrmaster, Priesmeyer, Blowers,
Bailey and Lea, may receive long-term incentive awards of up to 200% of their
annual salary, dependent on achieving these EBITDA-based targets. The long-term
incentive awards will be subject to vesting over time. A participant's right to
be paid under this long-term incentive program is subject to forfeiture if such
participant is terminated for cause or resigns without good reason. Amounts
payable under the long-term incentive program would be reduced by any amount
payable under our Executive Change in Control Severance Plan.
Jostens Retirement Plans
We maintain a non-contributory pension plan, Pension Plan D (Plan D), that
provides benefits for substantially all salaried employees. Retirement income
benefits are computed using a formula based upon:
. a participant's highest average annual cash compensation (base salary
plus annual bonus, if any), during any five consecutive calendar years;
. the participant's years of credited service (to a maximum of 35 years);
and
. the Social Security-covered compensation table in effect at the
participant's termination.
We also maintain an unfunded supplemental retirement plan that gives
additional service credit for years of service as a Jostens' sales
representative to those salespersons who were hired as employees of Jostens
prior to October 1, 1991. Under the plan, a participant will receive a
supplemental payment so that the sum of his supplemental plan benefit and Plan
D benefit will equal the benefit he would have received under Plan D if his
service as a sales representative were credited under Plan D. In addition,
benefits specified in Plan D may be limited by certain provisions of the
Internal Revenue Code of 1986, as amended. The benefits up to IRS limits are
paid from Plan D and benefits in excess, to the extent they would have been
earned in Plan D, without regard to the IRS limits, are paid from the unfunded
supplemental plan.
The executive officers participate in pension plans maintained by us for
certain employees. The following table shows estimated annual retirement
benefits payable for life at age 65 for various levels of compensation and
service under these plans. The table does not take into account transition rule
provisions of the plan for employees who were participants on June 30, 1988.
<TABLE>
<CAPTION>
Average Years of service at retirement (1)
final -----------------------------------------------------------------------
compensation 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 150,000 $ 27,300 $ 36,400 $ 45,500 $ 54,600 $ 63,700
200,000 38,600 51,400 64,300 77,100 90,000
300,000 61,100 81,400 101,800 122,100 142,500
400,000 83,600 111,400 139,300 167,100 195,000
500,000 106,100 141,400 176,800 212,100 247,500
600,000 128,600 171,400 214,300 257,100 300,000
700,000 151,100 201,400 251,800 302,100 352,500
800,000 173,600 231,400 289,300 347,100 405,000
900,000 196,100 261,400 326,800 392,100 457,500
1,000,000 218,600 291,400 364,300 437,100 510,000
1,050,000 229,800 306,400 383,000 459,600 536,200
</TABLE>
--------
(1) The following individuals named in the Summary Compensation Table have the
respective number of years of service under Plan D: Mr. Buhrmaster, 7.1
years; Mr. Larkin, 1.9 years; Mr. Blowers, 3.6 years; Mr. Priesmeyer, 2.3
years; Mr. Jans, 4.4 years; and Mr. Mann, 3.4 years.
69
<PAGE>
We also maintain a non-contributory supplemental pension plan for corporate
vice presidents. Under the plan, vice presidents who retire after age 55 with
at least seven full calendar years of service as a corporate vice president,
are eligible for a benefit equal to one percent of final base salary for each
full calendar year of service, up to a maximum of 30 percent. Only service
after age 30 is recognized under the plan. The calculation of benefits is
frozen at the level reached at age 60. If they continue in their current
positions at their current levels of compensation and retire at age 60, the
estimated total annual pension amounts from this plan for Messrs. Buhrmaster
and Priesmeyer would be $75,600 and $21,280, respectively. Messrs. Larkin and
Blowers waived their eligibility in this plan. Messrs. Mann and Jans were not
vested in this plan at the time of their separation from Jostens in 1999.
Directors Fees
We do not pay any additional remuneration to our employees or to executives
of Investcorp or its co-investors for serving as directors. We reimburse
directors for expenses incurred in attending any meetings.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Jostens is authorized to issue shares of six classes of common stock, each
with a par value of $0.01 per share except for the Class A common stock which
has a par value of $0.33 1/3 per share. The classes of common stock consist of
Class A common stock, Class B common stock, Class C common stock, Class D
common stock, Class E common stock and common stock. Class A common stock,
Class D common stock and common stock are the only classes of common stock that
will have a right to vote. Holders of Class B common stock, Class C common
stock and Class E common stock do not have any voting rights, except that the
holders of such classes of common stock have the right to vote as a class to
the extent required under the laws of the State of Minnesota.
Holders of Class A common stock and common stock of the Company are entitled
to one vote per share, and holders of Class D common stock are entitled to
306.55 votes per share, in each case on all matters as to which shareholders
may be entitled to vote pursuant to the Minnesota Business Corporation Act.
Investcorp and its co-investors (other than DB Capital Investors and First
Union Leveraged Capital) beneficially own all of the outstanding Class D common
stock, constituting approximately 68% of our voting power. DB Capital
Investors, First Union Leveraged Capital, Northwestern Mutual Life Insurance
Company and our pre-merger shareholders, including certain members of
management, beneficially own all of the outstanding Class A common stock,
constituting the remainder of our voting power. In addition, Investcorp and its
co-investors, other than DB Capital Investors and First Union Leveraged
Capital, own 5,300,000 shares of Class B common stock and 811,020 shares of
Class C common stock.
The following tables set forth certain information regarding the expected
beneficial ownership of our voting stock as of the date of this prospectus. The
table sets forth, as of that date:
. each person whom we know to be a beneficial owner of more than 5% of any
class of our voting stock;
. each person who was a director of Jostens or a named executive officer
of Jostens who beneficially owns shares of our voting stock;
. all of our directors and executive officers as a group;
. other persons as required.
None of our directors or executive officers own shares of our Class D common
stock. Unless otherwise indicated, we believe each of the shareholders shown in
the table below has sole voting and investment power with respect to the shares
beneficially owned.
Class A Common Stock
<TABLE>
<CAPTION>
Name and address of Number of Percent of
Beneficial Owner (1) Shares (2) Class (2)
-------------------- ---------- ----------
<S> <C> <C>
DB Capital Investors, L.P. (3)........................... 2,003,679 70.0%
First Union Leveraged Capital (3)........................ 198,019 6.9%
Northwestern Mutual Life Insurance Company (3)........... 463,682 16.2%
Robert C. Buhrmaster (3)................................. 93,205 3.3%
Michael L. Bailey (3).................................... 15,913 *
Carl H. Blowers (3)...................................... 41,858 1.5%
William N. Priesmeyer (3)................................ 28,034 1.0%
Gregory S. Lea (3)....................................... 9,522 *
All directors and executive officers as a group,
including certain
of the persons named above (14 persons)................. 189,418 6.6%
</TABLE>
--------
* less than 1%.
71
<PAGE>
Class D Common Stock
<TABLE>
<CAPTION>
Name and address of Number of Percent of
Beneficial Owner (1) Shares (2) Class (2)
-------------------- ---------- ----------
<S> <C> <C>
INVESTCORP S.A. (4)(5).................................... 20,000 100.0
SIPCO Limited (5)......................................... 20,000 100.0
CIP Limited (5)........................................... 18,400 92.0
Ballet Limited (5)........................................ 1,840 9.2
Denary Limited (5)........................................ 1,840 9.2
Gleam Limited (5)......................................... 1,840 9.2
Highlands Limited (5)..................................... 1,840 9.2
Nobel Limited (5)......................................... 1,840 9.2
Outrigger Limited (5)..................................... 1,840 9.2
Quill Limited (5)......................................... 1,840 9.2
Radial Limited (5)........................................ 1,840 9.2
Shoreline Limited (5)..................................... 1,840 9.2
Zinnia Limited (5)........................................ 1,840 9.2
Investcorp Investment Equity Limited (5).................. 1,600 8.0
</TABLE>
--------
(1) As used in the table above, a beneficial owner of a security includes any
person who, directly or indirectly, through contract, arrangement,
understanding, relationship, or otherwise has or shares (i) the power to
vote, or direct the voting of, such security or (ii) investment power which
includes the power to dispose, or to direct the disposition of, such
security.
(2) This number includes shares of stock that are subject to securities
exercisable or convertible within 60 days of the date of this prospectus.
The options granted upon consummation of the merger pursuant to Jostens new
stock option plan are not included in this table because they are not
exercisable within 60 days of the date of this prospectus.
(3) The address for DB Capital Investors, L.P. is 130 Liberty Street, 25th
Floor, New York, New York 10006. The address for First Union Leveraged
Capital is One First Union Center, 5th Floor, 301 South College Street,
Charlotte, North Carolina 28288. The address for Northwestern Mutual Life
Insurance Company is 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
The address of each other person listed in the table as a holder of our
Class A Common Stock is c/o Jostens, Inc., 5501 Norman Center Drive,
Minneapolis, Minnesota 55437.
(4) Investcorp does not directly own any of our stock. The number of shares of
stock shown as owned by Investcorp includes all of the shares owned by
Investcorp Investment Equity Limited (see note (6) below). Investcorp owns
no stock in Ballet Limited, Denary Limited, Gleam Limited, Highlands
Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial Limited,
Shoreline Limited, Zinnia Limited, or in the beneficial owners of these
entities (see note (6) below). Investcorp may be deemed to share beneficial
ownership of the shares of voting stock held by these entities because the
entities have entered into revocable management services or similar
agreements with an affiliate of Investcorp, pursuant to which each such
entities has granted such affiliate the authority to direct the voting and
disposition of Jostens' voting stock owned by such entity for so long as
such agreement is in effect. Investcorp is a Luxembourg corporation with
its address at 37 rue Notre-Dame, Luxembourg.
(5) Investcorp Investment Equity Limited is a Cayman Islands corporation, and a
wholly-owned subsidiary of Investcorp, with its address at P.O. Box 1111,
West Wind Building, George Town, Grand Cayman, Cayman Islands. SIPCO
Limited may be deemed to control Investcorp through its ownership of a
majority of a company's stock that indirectly owns a majority of
Investcorp's shares. SIPCO Limited's address is P.O. Box 1111, West Wind
Building, George Town, Grand Cayman, Cayman Islands. CIP Limited ("CIP")
owns no stock of Jostens. CIP indirectly owns less than 0.1% of the stock
of each of Ballet Limited, Denary Limited, Gleam Limited, Highlands
Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial Limited,
Shoreline Limited and Zinnia Limited. CIP may be deemed to share beneficial
ownership of the shares of Jostens' voting stock held by such entities
because CIP acts as a director of such entities and the ultimate beneficial
shareholders of each of those entities have granted to CIP revocable
proxies in companies that own those entities' stock. None of the ultimate
beneficial owners of such entities beneficially owns individually more than
5% of Jostens' voting stock. Each of CIP Limited, Ballet Limited, Denary
Limited, Gleam Limited, Highlands Limited, Noble Limited, Outrigger
Limited, Quill Limited, Radial Limited, Shoreline Limited and Zinnia
Limited is a Cayman Islands corporation with its address at P.O. Box 2197,
West Wind Building, George Town, Grand Cayman, Cayman Islands.
72
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Immediately prior to consummation of the recapitalization, we received
approximately $208.7 million of equity capital provided by Investcorp and its
co-investors. In connection with obtaining the financing for the
recapitalization, we paid Investcorp International, Inc., an affiliate of
Investcorp, advisory fees of approximately $12.7 million. In addition, Jostens
entered into an agreement with Investcorp International for management advisory
and consulting services for a five-year term pursuant to which we prepaid
Investcorp International $7.5 million at the closing of the merger.
Pursuant to the merger agreement, for six years after the closing date of
the merger, Jostens has agreed to indemnify and hold harmless our present and
former officers and directors for acts or omissions occurring before the
completion of the merger to the extent provided under our articles of
incorporation and by-laws in effect on the date of the merger agreement. In
addition, all indemnification agreements with any current or former directors,
officers and employees of Jostens or any subsidiary will survive the merger and
terminate as provided in such agreements. For six years after the completion of
the merger, Jostens will provide officers' and directors' or fiduciary
liability insurance for acts or omissions occurring before the completion of
the merger covering each such person currently covered by our officers' and
directors' or fiduciary liability insurance policy on terms with respect to
coverage and amount no less favorable than those in effect on the date of the
merger agreement, provided, that the cost of such insurance does not exceed
200% of the most recent annual premium paid by us.
Pursuant to the merger agreement, Messrs. Buhrmaster, Priesmeyer, Blowers,
Bailey and Lea retained shares of our common stock as follows:
<TABLE>
<CAPTION>
Number of
Name Retained Shares
---- ---------------
<S> <C>
Mr. Buhrmaster............................................... 93,205
Mr. Priesmeyer............................................... 28,034
Mr. Blowers.................................................. 41,858
Mr. Bailey................................................... 15,913
Mr. Lea...................................................... 9,522
-------
Total...................................................... 188,532
=======
</TABLE>
These shares were redesignated as Class A common stock as of the effective
time of the merger, the same designation as the shares of common stock retained
by other existing Jostens shareholders. All other shares held by Messrs.
Buhrmaster, Priesmeyer, Blowers, Bailey and Lea were exchanged in the merger
for $25.25 in cash.
We have entered into management shareholder agreements with each of Messrs.
Buhrmaster, Priesmeyer, Bailey, Blowers and Lea. Each agreement allows us to
repurchase shares of our common stock from the executive in the event the
executive ceases to be employed by us at any time prior to a public offering of
our common stock. In addition, in the event of terminations of employment under
specified circumstances, the executive has the right to require an affiliate of
Investcorp to repurchase his shares of common stock. The management shareholder
agreements grant to the executives piggyback registration rights in connection
with a registration statement filed by us with respect to our common equity
securities following an initial public offering of our common stock. The
agreements also impose restrictions on each executive's ability to sell shares
in connection with or following an initial public offering. The agreements with
each of Messrs. Priesmeyer, Bailey, Blowers and Lea further provide that if Mr.
Buhrmaster is terminated without cause or leaves Jostens for good reason prior
to May 10, 2001, each of the other executives will be entitled to resign within
60 days of such event and receive severance benefits in an amount equal to the
benefits he would have received under our benefits plans as if a change in
control had occurred and the executive has resigned for good reason.
At the time of the merger, we agreed to redeem all outstanding preferred
share purchase rights issued pursuant to our shareholder rights plan for
approximately $33,500. In addition, at the time of the merger we agreed to
terminate, by mutual consent, the shareholder rights plan which was promulgated
under a shareholder rights agreement dated as of July 23, 1998 between Norwest
Bank Minnesota, N.A. and Jostens.
73
<PAGE>
THE RECAPITALIZATION
Overview
On December 27, 1999, we entered into a merger agreement with Saturn
Acquisition Corporation, an entity organized for the purpose of effecting the
merger on behalf of Investcorp and its co-investors. On May 10, 2000, pursuant
to the merger agreement, Saturn Acquisition Corporation was merged with and
into Jostens, with Jostens as the surviving corporation. As a result of the
merger:
. Investcorp and its co-investors and Messrs. Buhrmester, Priesmeyer,
Blowers, Bailey and Lea became the owners of approximately 94% of the
post-merger common stock of Jostens.
. Certain of Jostens pre-merger shareholders retained 539,690 shares of
Jostens' common stock, representing approximately 6% of the post-merger
common stock of Jostens, valued at approximately $13.6 million, based on
the price paid by Investcorp and its co-investors.
. Each other share of Jostens common stock was converted into $25.25 in
cash, representing an aggregate of approximately $823.6 million in cash
payments to Jostens shareholders.
. Outstanding options to purchase shares of Jostens' previously-existing
common stock were cancelled and holders of those outstanding Jostens
stock options had their options converted into cash at $25.25 per
underlying share, less the applicable option exercise price, resulting
in an aggregate of approximately $10.0 million in cash payments to
holders of outstanding Jostens stock options. Stock options with an
exercise price equal to or in excess of $25.25 per share were cancelled
in the merger for no consideration.
The recapitalization of Jostens had several components all of which closed
prior to or simultaneously with the merger. The recapitalization consisted of:
. the merger;
. the retirement of Jostens' then existing debt;
. an offering of units of which the outstanding notes were a part;
. the following equity contributions:
. a common equity investment of $208.7 million by Investcorp and its
co-investors;
. a preferred equity investment of $60.0 million by DB Capital
Investors; and
. a new senior bank credit facility consisting of $495.0 million in term
loans and a $150.0 million available revolving credit facility.
The Merger
Pursuant to the terms of the merger agreement, each outstanding share of our
common stock, par value $0.33 1/3 per share was converted, at the election of
the holder into either:
. the right to receive $25.25 in cash, or
. one share of our new common stock.
Messrs. Buhrmaster, Priesmeyer, Bailey, Blowers and Lea were not subject to
the election described above or proration and instead 93,205, 28,034, 15,913,
41,858 and 9,522 shares of our common stock held by them, respectively, were
converted into the right to retain the same number of shares of Jostens common
stock (the "Management Rollover Shares").
74
<PAGE>
In addition, pursuant to the terms of the merger agreement, as of the
effective time of the merger the shares of Saturn Acquisition's Class A Stock,
Class B Stock, Class C Stock and Class D Stock and Class E Stock issued and
outstanding immediately prior to the effective time of the merger, all of which
were owned by Investcorp and its co-investors, were converted into an equal
number of shares of Jostens Class A common stock, Jostens Class B common stock,
Jostens Class C common stock, Jostens Class D common stock and Jostens Class E
common stock, respectively.
Pursuant to the terms of the merger agreement, the number of shares of our
common stock (other than Management Rollover Shares) retained by pre-merger
shareholders of Jostens was 539,690 which represented approximately 6% of the
total number of shares of all classes of our common stock issued and
outstanding immediately after giving effect to the merger. The number of shares
of our common stock retained by pre-merger Jostens shareholders was 728,222
(including the Management Rollover Shares), which constituted approximately 8%
of the outstanding common stock and approximately 8% of the voting power of
Jostens immediately following the merger. The shares of Jostens common stock
owned by Investcorp and its co-investors immediately following the merger
constituted the remaining approximately 92% of the outstanding common stock and
approximately 92% of the voting power of Jostens immediately following the
merger.
In addition, pursuant to the merger agreement, all unvested stock options
automatically became vested at the effective time of the merger. Each stock
option outstanding immediately prior to the effective time of the merger was
cancelled in exchange for a cash payment equal to the excess, if any, of $25.25
over the per share exercise price of each stock option. Stock options with an
exercise price equal to or in excess of $25.25 per share were cancelled in the
merger for no consideration. As a result, outstanding Jostens stock options
were exchanged for an aggregate cash payment of $10.0 million.
Retirement of Existing Debt
At the time of the merger, we retired all of our then-outstanding debt,
totalling approximately $67.6 million, as part of the recapitalization.
Recapitalization Financings
The merger consideration and retirement of existing debt were financed
through (1) an offering of units of which the outstanding notes were a part,
(2) a new senior secured credit facility and (3) two private equity
investments.
The Units. We raised gross proceeds of $215.9 million through the offering
of units of which the outstanding notes were a part.
Equity Investments. Saturn Acquisition Corporation raised approximately
$208.7 million in equity contributions as part of the recapitalization from
funds provided by Investcorp and its co-investors at the time of closing. In
addition, we issued $60.0 million of redeemable preferred stock to DB Capital
Investors. See "Description of Capital Stock."
Credit Facility. We entered into a $645.0 million senior secured credit
facility concurrently with the offering of the notes. Upon completion of the
recapitalization, we had $495.0 million of term loans outstanding under our new
senior secured credit facility. We also had additional available borrowing
capacity under a $150.0 million revolving credit facility, which was not drawn
at closing. See "Description of the Credit Facility" for a full description of
our credit facility.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following is a summary of certain of the rights and privileges
pertaining to Jostens capital stock.
General
Jostens is authorized to issue an aggregate of 29,940,000 shares of capital
stock, consisting of 4,000,000 shares of preferred stock, with a par value of
$0.01 per share and an aggregate of 25,940,000 shares of the six classes of
common stock described below. The Jostens board of directors is authorized,
without further action by Jostens shareholders, but subject to the limitations
set forth in the articles of designation of such series of preferred stock, to
provide for the issue of additional shares of preferred stock, in one or more
additional series, and to fix for each such additional series such voting
powers, full or limited, and such designations, preferences and relative,
participating, optional or other special rights and such qualifications,
limitations or restrictions thereof as will be stated and expressed in the
resolution or resolutions adopted by the Jostens board of directors providing
for the issue of such series and as may be permitted by the MBCA.
Redeemable Preferred Stock
In connection with the recapitalization, Jostens issued to DB Capital
Investors a new series of redeemable, payment-in-kind preferred stock having an
initial liquidation preference of $60.0 million, which redeemable preferred
shares are entitled to receive dividends at a rate of 14.0% per annum
compounded quarterly and payable either in cash or in additional shares of the
same series of preferred stock. The redeemable preferred shares are subject to
mandatory redemption by Jostens 11 years after issuance. The holders of these
shares are, under specified circumstances involving a default by Jostens,
entitled to additional dividends at a rate of 1% of the liquidation preference
per share of redeemable preferred stock and also are entitled to designate up
to two members of the Jostens board of directors. The redeemable preferred
stock is generally not redeemable by Jostens until the fifth anniversary of the
issue date and thereafter will be redeemable at a premium which will decline
ratably to par by the eighth anniversary of the issue date. The redeemable
preferred stock will also be redeemable in part with the proceeds of a public
equity offering by Jostens. In the event of a change of control of Jostens,
Jostens will be required to make an offer to purchase the outstanding
exchangeable preferred shares at a price equal to 101% of the applicable
liquidation preference including accrued but unpaid dividends. The terms of the
redeemable preferred stock contain covenants placing restrictions and
obligations on Jostens with respect to:
. incurrence of debt;
. mergers and consolidations;
. SEC reports;
. dividends, stock repurchases and investments; and
. transactions with affiliates.
The shares of redeemable preferred stock are not subject to any restrictions
on transferability, other than restrictions imposed by applicable federal and
state securities laws.
DB Capital Investors is entitled to registration rights similar to those
customarily offered for comparable securities. These rights require Jostens to
file a shelf registration with respect to the redeemable preferred stock within
120 days after a demand by DB Capital Investors and to use its best efforts to
have the shelf registration become effective within 180 days after a demand by
DB Capital Investors. Jostens is required to maintain the effectiveness of the
shelf registration statement for a period of two years or, if earlier, until
such time as the
76
<PAGE>
holders of the redeemable preferred stock have sold all shares of redeemable
preferred stock held by them. Jostens will bear the reasonable expenses,
exclusive of underwriting discounts and commissions, of the shelf registration
statement and will enter into customary indemnification arrangements. These
registration rights are transferable in connection with any transfer of any
shares of redeemable preferred stock.
Common Stock Purchase Warrants
In connection with the issuance of the redeemable preferred stock, we also
issued to DB Capital Investors detachable warrants to purchase shares of our
Class E common stock representing 5% of the total number of shares of our
common equity (of all classes) on a fully diluted basis to be outstanding
immediately after the merger. Principal terms of the warrants include the
following:
. an exercise price of $0.01 per share;
. a term of 11 years;
. customary anti-dilution provisions; and
. customary registration rights similar to those set forth above.
Common Stock
Our common stock consists of six classes: Class A common stock, Class B
common stock, Class C common stock, Class D common stock, Class E common stock
and common stock. The number of authorized and outstanding shares for each of
the six classes of common stock is set forth below.
<TABLE>
<CAPTION>
Authorized Outstanding
Title Shares Shares
----- ---------- -----------
<S> <C> <C>
Class A common stock.................................... 4,200,000 2,862,277
Class B common stock.................................... 5,300,000 5,300,000
Class C common stock.................................... 2,500,000 811,020
Class D common stock.................................... 20,000 20,000
Class E common stock.................................... 1,900,000 --
Common stock............................................ 12,020,000 --
---------- ---------
Total................................................. 25,940,000 8,993,297
========== =========
</TABLE>
Voting
Holders of shares of Jostens Class A common stock and common stock are
entitled to one vote per share on all matters as to which shareholders may be
entitled to vote pursuant to the MBCA. Holders of shares of Jostens new Class D
common stock are entitled to 306.55 votes per share on all matters as to which
shareholders may be entitled to vote pursuant to the MBCA.
Holders of Jostens Class B common stock, Class C common stock and Class E
common stock do not have any voting rights, except that holders of shares of
such classes have the right to vote as a class to the extent required under the
laws of the State of Minnesota.
Each issued and outstanding share of Class E common stock is convertible at
the option of the holder thereof into one share of Class A common stock at any
time commencing 30 days after the original date of issuance of such share of
Class E common stock.
Any amendment, alteration or repeal of any provision of Jostens' restated
articles of incorporation, whether by merger, consolidation or otherwise, that
would alter or change the relative powers, preferences, or special rights of
any class of capital stock so as to affect the holders of Jostens Class A
common stock or Class E common stock materially and adversely, requires, in
addition to any other approvals required by the MBCA and the restated articles
of incorporation, approval by the holders of a majority of the then outstanding
shares of the respective class of stock.
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<PAGE>
Liquidation; Dividends; Certain Adjustments; Merger
Subject to the rights of the holders of any shares of then outstanding
preferred stock, any distribution made upon Jostens' liquidation or dissolution
or a winding up of Jostens' affairs, whether voluntary or involuntary, will be
allocated pro rata based upon the number of shares of common stock held by each
shareholder.
Subject to the rights of the holders of any shares of then outstanding
preferred stock, holders of Jostens common stock, regardless of class or
series, will be entitled to share ratably as a single class in all dividends
and other distributions of cash or any other right or property as may be
declared thereon by Jostens' board of directors from time to time out of
Jostens' assets or funds that are legally available for such dividends or
distribution.
Whenever, during the period that shares of Jostens Class A common stock are
outstanding, we:
. declare a dividend on shares of any class of common stock in shares of
such class of common stock or in securities convertible into or
exchangeable for shares of such class of common stock,
. subdivide the outstanding shares of any class of common stock,
. combine the outstanding shares of any class of common stock into a
smaller number of shares, or
. issue any shares of any class of common stock upon reclassification of
such shares,
a corresponding dividend, subdivision, combination or other adjustment will be
made with respect to the shares of the other class or classes of common stock
if and to the extent necessary to prevent the interests of the holders of
Jostens Class A common stock and Class E common stock from being materially and
adversely affected.
In the event that Jostens merges into or consolidates with another entity,
whether or not Jostens is the surviving entity, the holders of each share of
Jostens Class A common stock and Class E common stock will be entitled to
receive not less than the same per share consideration as the per share
consideration, if any, received by the holders of Jostens Class B common stock,
Class C common stock and Class D common stock in such merger or consolidation,
unless, in addition to such other approvals, if any, as may be required by the
MBCA and the restated articles of incorporation, a different treatment is
approved by holders of a majority of the then outstanding shares of the
respective class of stock.
Tag-Along Rights; Mandatory Redemption
If other than in connection with an initial public offering of Jostens, any
holder or holders of Jostens Class D common stock (for purposes of this
provision singularly or collectively, the "Proposed Transferor"), at any time
or from time to time in one transaction or in a series of transactions, desire
to enter into an agreement, whether oral or written, to transfer their shares
of Class D common stock or any part thereof in a transaction which is a sale to
any person other than a Permitted Transferee (as defined in the articles of
incorporation) (the "Proposed Transferee"), such proposed transfer will be
deemed a "Tag-Along Transfer" and each holder of Jostens new Class A common
stock, Class B common stock, Class C common stock and Class E common stock
(collectively, the "Other Shareholders") will have the right, but not the
obligation, as a condition to such Tag-Along Transfer, to sell to the Proposed
Transferee up to the same percentage of its shares (the "Tag-Along Pro Rata
Amount") of stock as the percentage of the total number of shares of Class D
common stock that the Proposed Transferor proposes to transfer in the Tag-Along
Transfer (the "Proposed Purchase Amount"). All Tag-Along Transfers by Other
Shareholders will be on the same terms and conditions as the proposed Tag-Along
Transfer by the Proposed Transferor, provided that no Other Shareholder may be
required to make any representation or warranty in connection with the Tag-
Along Transfer other than as to its ownership and authority to transfer the
shares of new common stock to be transferred by it, free and clear of any and
all liens and encumbrances and in compliance with all applicable laws. Each
Proposed Transferor and each Other
78
<PAGE>
Shareholder whose shares are sold in a Tag-Along Transfer will be required to
bear its pro rata share of the expenses of the transaction, based on the number
of shares included in such Tag-Along Transfer. DB Capital Investors, its
affiliates and their Permitted Assignees (as defined in the Shareholders'
Agreement) will have similar "tag-along" rights with respect to sales of any
equity interests in Jostens held by Investcorp and its co-investors (other than
DB Capital Investors).
In the event of a Tag-Along Transfer in which the Proposed Transferor
proposes to transfer a number of shares of Class D common stock equal to or
greater than 80% of the outstanding shares of Class D common stock, Jostens
will redeem, to the extent permitted by law, from each holder of Class A common
stock, Class B common stock, Class C common stock and Class E common stock, the
number of shares of Class A common stock, Class B common stock, Class C common
stock or Class E common stock equal to the difference between:
. the number of shares that the Class A common shareholder, Class B common
shareholder, Class C common shareholder or Class E common shareholder
elected to include in the Tag-Along Transfer pursuant to the foregoing
Tag-Along Transfer provisions and
. the Tag-Along Pro Rata Amount, the number of shares such holder was
entitled to include in the Tag-Along Transfer,
at a redemption price (the "Tag-Along Redemption Price") per share equal to the
per share price paid for the Class D common stock by the Proposed Transferee
less such Other Shareholder's pro rata share of the expenses of the Tag-Along
Transfer. After such redemption, Jostens will issue to the Proposed Transferee
shares of Class A common stock, Class B common stock, Class C common stock and
Class E common stock in amounts equal to the respective numbers of shares of
such classes of new common stock so redeemed, and the Proposed Transferee will
pay to Jostens for each such share a purchase price equal to the Tag-Along
Redemption Price if the Proposed Transferee does not purchase all of the shares
of new common stock of the Proposed Transferor, all of the shares that the
Other Shareholders elect to include in such proposed Tag-Along Transfer, and
all of the shares to be issued by Jostens in amounts equal to the numbers of
redeemed shares, then the proposed Tag-Along Transfer to such Proposed
Transferee will be prohibited and any attempt to consummate the proposed Tag-
Along Transfer will be null and void and of no force and effect.
Conversion
Upon the occurrence at any future date of a sale of 100% of Jostens'
outstanding equity securities or substantially all of Jostens' assets or a
merger or similar transaction in which all of Jostens' stock is converted or
exchanged or the initial public offering of Jostens' common stock, each share
of Jostens Class A common stock, Class B common stock, Class C common stock,
Class D common stock and Class E common stock not otherwise redeemed by Jostens
pursuant to the mandatory redemption provisions described above will convert
into one share of new common stock; provided that shares of Class E common
stock will not be converted if such conversion is prohibited by the Hart-Scott-
Rodino Antitrust Improvements Act of 1976.
Registration Rights Agreement
DB Capital Investors also has registration rights with respect to any shares
of common stock which it owns, including the Class A common stock it acquired
in the merger and the Class E common stock issuable upon the exercise of the
warrants, as well as any shares of Class A common stock into which the Class E
common stock may be converted. Following an initial public offering of Jostens
common stock, DB Capital Investors will have two demand registration rights,
which DB Capital Investors may require to be shelf registrations. Upon exercise
of such registration rights, Jostens will be required to use its best efforts
to file and cause to become effective a registration statement in respect of
the shares requested to be registered. Jostens will not be obligated to effect
more than one such registration in any 12-month period.
DB Capital Investors will be entitled to unlimited "piggy-back" registration
rights on all registrations of Jostens common stock by Jostens or any other
shareholder, subject to customary conditions.
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Jostens will bear the reasonable expenses, exclusive of underwriting
discounts and commissions, of all demand and piggy-back registrations and will
enter into customary indemnification arrangements. DB Capital Investors'
registration rights with respect to common stock will be fully transferable to
any transferees who acquire more than 10,000 shares of Jostens common stock
from DB Capital Investors.
Shareholder Agreement
In connection with the merger, we entered into a Shareholder Agreement with
DB Capital Investors and each of the shareholders that are affiliated with
Investcorp, including Investcorp Investment Equity Limited ("IIEL"). The
Shareholder Agreement has the following provisions:
. If, prior to an initial public offering of Jostens, DB Capital Investors
or any permitted transferee of DB Capital Investors proposes to sell its
shares of common stock to any person other than a permitted transferee,
Jostens and IIEL shall each have the irrevocable option to purchase such
shares at the same price and on the same terms and conditions as offered
by the other person.
. If, prior to an initial public offering of Jostens, any of the
Investcorp-affiliated shareholders propose to sell any of their equity
interests and such sale is not a "Tag-Along Transfer" within the meaning
of Article IV of the Articles of Incorporation, DB Capital Investors
will have the right to include in such sale, at the same price and on
the same terms and conditions as the Investcorp affiliates, the
percentage of shares held by DB Capital Investors equal to the
percentage of the equity securities held by the other selling
shareholders being sold by such selling shareholders.
. For the period prior to an initial public offering by Jostens and so
long as DB Capital Investors beneficially owns at least one-half of the
shares of Jostens common stock it owns immediately following the merger
or at least $30 million in aggregate liquidation preference of
redeemable preferred stock, holders of Class D common stock shall vote
in favor of one nominee to Jostens' board of directors specified by DB
Capital Investors.
. If, prior to an initial public offering, we engage in any equity
financing, DB Capital Investors shall have the option to participate as
a purchaser in such financing such that DB Capital Investors would
maintain its fully-diluted percentage interest in our outstanding common
equity securities.
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DESCRIPTION OF THE CREDIT FACILITY
The following is a summary of important terms of our senior secured credit
facility:
General
As part of the recapitalization, immediately following the effective time of
the merger, we entered into a credit facility with our sole domestic subsidiary
as a co-borrower, and with Deutsche Bank Securities Inc., Chase Securities
Inc., and Goldman Sachs Credit Partners L.P. as co-lead arrangers, Bankers
Trust Company as the Syndication Agent, The Chase Manhattan Bank as the
Administrative Agent, and Goldman Sachs Credit Partners L.P. as the
Documentation Agent, and a group of other syndicated lenders. Our credit
facility provides an aggregate principal amount of $645.0 million, available as
follows: (1) $150.0 million available under a six year amortizing term loan
facility (the "Tranche A term loan"), (2) $345.0 million available under an
eight year amortizing term loan facility (the "Tranche B term loan" and,
together with the Tranche A term loan, the "Term Loans") and (3) $150.0 million
available under a six year revolving credit facility (the "Revolving
Facility"). The following is a summary description of the principal terms of
the credit facility and is qualified in its entirety by reference to the
definitive agreements.
Loans under the credit facility are secured by a first priority security
interest in substantially all of our and our domestic subsidiaries' assets and
in all of our and our subsidiaries' capital stock (but limited to 65% in the
case of foreign subsidiaries). The loans may be guaranteed by some of our
future domestic subsidiaries.
Use of Proceeds
Proceeds of the Term Loans were used to finance a portion of the
recapitalization and to pay related fees and expenses. Proceeds of loans under
the Revolving Facility may be used for general corporate purposes.
Interest Rates
Interest accrues quarterly on the loans with reference to the base rate (the
"Base Rate") plus the applicable Base Rate interest margin. We may elect that
all or a portion of the loans other than the swing line loans bear interest at
the eurodollar rate (the "Eurodollar Rate") plus the applicable eurodollar
interest margin. The Base Rate is defined as the highest of (1) the Federal
Funds Rate plus 0.50%, (2) the secondary market rate for three-month
certificates of deposit of money center banks plus 1% or (3) the prime
commercial lending rate of the administrative agent. The Eurodollar Rate is
defined as the rate at which eurodollar deposits for one, two, three or six
months or (if and when available to all of the relevant lenders) nine or twelve
months are offered to the administrative agent in the interbank eurodollar
market. The initial interest margin for the Tranche A term loan and the
Revolving Facility is 2.0% for Base Rate loans and 3.0% for Eurodollar Rate
loans. After May 10, 2001, the interest margins for the Tranche A term loan and
the Revolving Facility will be subject to reduction based on financial tests.
The interest margin for the Tranche B term loan is 2.5% for Base Rate loans and
3.5% for Eurodollar Rate loans.
Mandatory and Optional Prepayments
The Term Loans will be required to be prepaid, subject to certain conditions
and exceptions, with (1) 100% of the net proceeds of incurrence of
indebtedness, subject to certain exceptions, by us or our subsidiaries, (2) 50%
of the net proceeds from certain equity issuances by us or any of our
subsidiaries, subject to certain exceptions and redemption rights, (3) 100% of
the net proceeds of certain asset dispositions and (4) commencing with the
fiscal year ending December 29, 2001, 50% of our "excess cash flow," as such
term is
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defined in the credit facility. The foregoing mandatory prepayments will be
applied pro rata to reduce outstanding Term Loans. The Tranche B term loan
lenders shall have the opportunity to refuse any mandatory prepayments and the
administrative agent will apply any such refused amounts to the prepayment of
the outstanding Tranche A term loan.
The credit facility provides that we may from time to time make optional
prepayments of loans in whole or in part without penalty, subject to minimum
prepayments and reimbursement of the lenders' breakage costs in the case of
prepayment of Eurodollar Rate loans.
The Tranche A term loan matures on May 31, 2006. The Tranche B term loan
matures on May 31, 2008. The following table sets forth the schedule of
aggregate annual payments of principal required under the Term Loans:
<TABLE>
<CAPTION>
Total
Aggregate Aggregate Aggregate
Fiscal Tranche A Tranche B Term Loan
Year Payments Payments Payments
------ --------- --------- ---------
(in millions)
<S> <C> <C> <C>
2001........................................ $ 15.00 $ 1.50 $ 16.50
2002........................................ 23.75 2.00 25.75
2003........................................ 28.75 2.00 30.75
2004........................................ 33.75 2.00 35.75
2005........................................ 38.75 2.00 40.75
2006........................................ 10.00 75.50 85.50
2007........................................ n/a 193.75 193.75
2008........................................ n/a 66.25 66.25
------- ------- -------
$150.00 $345.00 $495.00
======= ======= =======
</TABLE>
Covenants
The credit facility contains covenants and other requirements of us and our
subsidiaries. In general, the affirmative covenants provide for, among other
requirements, mandatory reporting of financial and other information to the
lenders and notice to the lenders upon the occurrence of certain events. The
affirmative covenants also include standard covenants requiring us to operate
our business in an orderly manner.
The credit facility also contains negative covenants and restrictions on
actions by us and our subsidiaries including, without limitation, restrictions
on indebtedness, liens, guarantee obligations, mergers, asset dispositions not
in the ordinary course of business, investments, loans, advances and
acquisitions, dividends and other restricted junior payments, transactions with
affiliates, change in business conducted and certain prepayment and amendments
of subordinated indebtedness. The credit facility requires that we meet certain
financial covenants, ratios and tests, including a maximum leverage ratio and a
minimum interest coverage ratio.
Events of Default
The credit facility specifies certain customary events of default including,
without limitation, non-payment of principal, interest or fees, violation of
covenants, inaccuracy of representations and warranties in any material
respect, cross default to certain other indebtedness and agreements, bankruptcy
and insolvency events, material judgments and liabilities, change of control
and unenforceability of certain documents under the credit facility.
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Fees and Expenses
We are required to pay certain fees in connection with the credit facility,
including:
. letter of credit fees;
. agency fees; and
. commitment fees.
Commitment fees are payable quarterly, initially at a rate per annum of 0.5%
on the average daily unused portion of the credit facility and, after May 10,
2001 will be subject to reduction by amounts based on financial tests.
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DESCRIPTION OF THE UNITS
At the time of their issuance, each unit consisted of $1,000 principal
amount of notes and one warrant to purchase 1.889155 shares of our Class E
common stock, par value $0.01 per share. The notes and the warrants will become
separately transferable on the Separability Date and, in any event, will become
separately transferable upon the consummation of the exchange offer. See
"Description of the Warrants."
DESCRIPTION OF THE NOTES
General
The terms of the notes we are issuing in this exchange offer and the
outstanding notes are identical in all material respects, except:
. the notes issued in the exchange offer will have been registered under
the Securities Act;
. the notes issued in the exchange offer will not contain transfer
restrictions and registration rights that relate to the outstanding
notes; and
. the notes issued in the exchange offer will not contain provisions
relating to the payment of liquidated damages to be made to the holders
of the outstanding notes under circumstances related to the timing of
the exchange offer.
Any outstanding notes that remain outstanding after the exchange offer,
together with notes issued in the exchange offer, will be treated as a single
class of securities under the indenture for voting purposes. When we refer to
the term "Note" or "Notes", we are referring to both outstanding notes and the
notes to be issued in the exchange offer. When we refer to "holders" of the
notes, we are referring to those persons who are the registered holders of
notes on the books of the registrar appointed under the indenture.
You can find the definitions of certain terms used in this description under
the subheading "--Certain Definitions." All references in this Description of
the Notes to the "Issuer" are limited to Jostens, Inc. and do not include any
of its Subsidiaries.
The Notes were issued pursuant to an indenture, dated May 10, 2000 (the
"Indenture"), by and among the Issuer, the Guarantor and The Bank of New York,
as trustee (the "Trustee"). Effective July 29, 2000, the Guarantor was merged
with and into the Issuer. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are
subject to all such terms, and holders of Notes are referred to the Indenture
and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below.
The Indenture provides for the issuance of up to $125.0 million in aggregate
principal amount of additional Notes having identical terms and conditions to
the Notes offered hereby (the "Additional Notes"), subject to compliance with
the covenants contained in the Indenture. Any Additional Notes will be part of
the same issue as the Notes offered hereby and will vote on all matters with
the Notes offered hereby.
As of the Issue Date, all of the Issuer's Subsidiaries will be Restricted
Subsidiaries. However, under certain circumstances, the Issuer will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
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Brief Description of the Notes and the Note Guarantees
The Notes
These Notes:
. are general unsecured obligations of the Issuer;
. are subordinated in right of payment to all existing and future Senior
Debt of the Issuer; and
. are senior in right of payment to any future Subordinated Debt of the
Issuer.
The Note Guarantees
All future Subsidiaries of the Issuer, other than Foreign Subsidiaries,
Receivables Subsidiaries and Unrestricted Subsidiaries, will guarantee the
Notes to the extent such Subsidiaries are guarantors or otherwise obligors
under any Credit Facility incurred under clause (1) in the second paragraph
under "--Certain Covenants--Incurrence of Debt and Issuance of Preferred
Stock."
The Guarantees of these Notes:
. will be general unsecured obligations of each Guarantor;
. will be subordinated in right of payment to all existing and future
Senior Debt of each Guarantor; and
. will be senior in right of payment to any future Subordinated Debt of
each Guarantor.
Principal, Maturity and Interest
The Notes are general unsecured senior subordinated obligations of the
Issuer, in an aggregate principal amount of $225.0 million and will mature on
May 1, 2010. Interest on the Notes accrues at the rate of 12 3/4% per annum and
will be payable, in cash, semi-annually in arrears on May 1 and November 1 of
each year, commencing on November 1, 2000, to holders of record on the
immediately preceding April 15 and October 15. Interest on the Notes accrues
from the most recent date to which interest has been paid or, if no interest
has been paid, from the Issue Date. Interest is computed on the basis of a 360-
day year comprised of twelve 30-day months.
Methods of Receiving Payment on the Notes
Principal, premium, if any, and interest on the Notes is payable at the
office or agency of the Issuer maintained for such purpose within the City and
State of New York (the "Paying Agent") or, at the option of the Issuer, payment
of interest may be made by check mailed to the holders of the Notes at their
respective addresses set forth in the register of holders of Notes; provided
that all payments of principal, premium, if any, and interest, with respect to
any Notes the holders of which have given wire transfer instructions to the
Issuer will be required to be made by wire transfer of immediately available
funds to the accounts specified by the holders thereof. Until otherwise
designated by the Issuer, the Issuer's office or agency in New York is the
office of the Trustee maintained for such purpose. The Notes will be issued in
denominations of $1,000 and integral multiples thereof.
Subordination
The Notes are unsecured, are or will be subordinated in right of payment, as
set forth in the Indenture, to all existing and future Senior Debt of the
Issuer, rank or will rank pari passu in right of payment with all existing and
future Pari Passu Debt of the Issuer and are or will be senior in right of
payment to all existing and future Subordinated Debt of the Issuer. The Notes
are also effectively subordinated to any Secured Debt of the Issuer and its
subsidiaries to the extent of the value of the assets securing such Debt.
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However, payment from the money or the proceeds of Government Notes held in
any defeasance trust described under "--Legal Defeasance and Covenant
Defeasance" below is not subordinated to any Senior Debt or subject to the
restrictions described herein, so long as the payments into the defeasance
trust were not prohibited pursuant to the subordination provisions hereinafter
described at the time when so paid.
Presently, there are no Guarantors; however, it is expected that, any future
Note Guarantee will be unsecured, will be subordinate in right of payment, as
set forth in the Indenture, to all existing and future Senior Debt of such
Guarantor, will rank pari passu in right of payment with all existing and
future Pari Passu Debt of such Guarantor and will be senior in right of payment
to all existing and future Subordinated Debt of such Guarantor. Each Note
Guarantee will be effectively subordinated to any Secured Debt of the
applicable Guarantor to the extent of the value of the assets securing such
Debt.
At July 1, 2000:
(1) the aggregate amount of outstanding Senior Debt of the Issuer and
the initial Guarantor (effective July 29, 2000 the initial Guarantor was
merged with and into the Issuer) was $495.0 million;
(2) the Issuer and the initial Guarantor had no Pari Passu Debt
outstanding and no Debt that was subordinate or junior in right of payment
to the Notes or the Note Guarantee of such Guarantor; and
(3) the total liabilities of the Subsidiaries of the Issuer that are not
Guarantors (collectively, the "Subsidiary Non-Guarantors") (including trade
payables and deferred taxes but excluding intercompany amounts) were $7.2
million.
As of July 1, 2000, the Issuer and its Subsidiaries had $700.3 million of
consolidated Debt and $60.0 million in Senior Preferred Stock. In addition, as
of July 1, 2000, the Issuer had the ability to borrow an additional $150.0
million under the New Credit Facility which is generally drawn during the
second half of the fiscal year.
Although the Indenture contains limitations on the amount of additional Debt
that the Issuer and the Guarantors may incur, under certain circumstances the
amount of such Debt could be substantial and such Debt may be Senior Debt. The
Issuer and the Guarantors may not incur or otherwise become liable for any Debt
that is subordinate or junior in right of payment to any Senior Debt and senior
in any respect in right of payment to the Notes.
Claims of creditors of the Subsidiary Non-Guarantors, including trade
creditors, generally will have priority with respect to the assets and earnings
of such Subsidiary Non-Guarantors over the claims of creditors of the Issuer,
including the holders of the Notes. The Notes, therefore, will be effectively
subordinated to creditors (including trade creditors) of such Subsidiary Non-
Guarantors.
Only Debt of the Issuer or a Guarantor that is Senior Debt ranks senior to
the Notes or the relevant Note Guarantee in accordance with the provisions of
the Indenture. The Notes and each Note Guarantee in all respects rank pari
passu with all other Pari Passu Debt of the Issuer or the relevant Guarantor,
respectively. The Issuer has agreed in the Indenture, and each Guarantor will
agree in a Supplemental Indenture, that they will not incur, directly or
indirectly, any Debt which is subordinate or junior in ranking in any respect
to Senior Debt unless such Debt is pari passu with or is expressly subordinated
in right of payment to the Notes or the Note Guarantees. Unsecured Debt is not
deemed to be subordinate or junior to secured indebtedness merely because it is
unsecured.
Upon any payment or distribution to creditors of the Issuer in a liquidation
or dissolution of the Issuer or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Issuer or its property, an
assignment for the benefit of creditors or any marshaling of the Issuer's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full, in cash or Cash Equivalents, of all Obligations due in respect
of such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not
allowed or allowable in such
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proceeding) before the holders of Notes will be entitled to receive any payment
with respect to the Notes, and until all Obligations with respect to Senior
Debt are paid in full, in cash or Cash Equivalents, any payment or distribution
to which the holders of Notes would be entitled shall be made to the holders of
Senior Debt, except that holders of Notes may receive and retain:
(1) Permitted Junior Securities; and
(2) payments made from the trust described under "--Legal Defeasance and
Covenant Defeasance" so long as, on the date or dates the respective
amounts were paid into the trust, such payments were made with respect to
the Notes without violating the subordination provisions described herein.
The term "payment" means, with respect to the Notes, any payment, whether in
cash or other assets or property, of interest, principal (including redemption
price and purchase price), premium, Liquidated Damages or any other amount on,
of or in respect of the Notes, any other acquisition of Notes and any deposit
into the trust described under "--Legal Defeasance and Covenant Defeasance"
below. The verb "pay" has a correlative meaning.
The Issuer also may not make any payment or distribution upon or in respect
of the Notes (except from the trust described under "--Legal Defeasance and
Covenant Defeasance") if:
(1) a default in the payment of any Designated Senior Debt occurs and is
continuing beyond any applicable grace period (a "payment default") or any
other default on Designated Senior Debt occurs and the maturity of such
Designated Senior Debt is accelerated in accordance with its terms; or
(2) a default, other than a payment default, occurs and is continuing
with respect to Designated Senior Debt that permits holders of the
Designated Senior Debt as to which such default relates to accelerate its
maturity (a "non-payment default") and, in the case of this clause (2)
only, the Trustee receives a notice of such default (a "Payment Blockage
Notice") from the Issuer, a Representative for, or the holders of a
majority of the outstanding principal amount of, any issue of Designated
Senior Debt.
Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived and, in the case of Designated Senior Debt that
has been accelerated, such acceleration has been rescinded; and
(2) in case of a non-payment default, the earliest of (x) the date on
which such non-payment default is cured or waived, (y) 179 days after the
date on which the applicable Payment Blockage Notice is received or (z) the
date on which the Trustee receives notice from the Representative for such
Designated Senior Debt rescinding the Payment Blockage Notice, unless the
maturity of any Designated Senior Debt has been accelerated.
No new period of payment blockage may be commenced on account of any non-
payment default unless and until 360 days have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice. No non-payment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default shall have been cured or waived for
a period of not less than 90 days.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, holders of Notes may recover less ratably than
other creditors of the Issuer including holders of Senior Debt and trade
creditors. The Indenture limits, subject to certain financial tests and
exceptions, the amount of additional Debt, including Senior Debt, that the
Issuer and its Subsidiaries can incur. See "--Certain Covenants--Incurrence of
Debt and Issuance of Preferred Stock" and "Risk Factors--Your right to receive
payment on the notes is subordinated to our senior debt."
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If the Trustee or any holder of the Notes receives a payment in respect of
the Notes (except in Permitted Junior Securities or from the trust described
under the caption "--Legal Defeasance and Covenant Defeasance") when:
(1) the payment is prohibited by these subordination provisions; and
(2) the Trustee or the holder has actual knowledge that the payment is
prohibited;
the Trustee or the holder, as the case may be, will hold the payment in trust
for the benefit of the holders of Senior Debt. Upon the proper written request
of the holders of Senior Debt, the Trustee or the holder, as the case may be,
will deliver the amounts in trust to the holders of Senior Debt or their proper
Representative.
The Issuer must promptly notify holders of Senior Debt if payment of the
Notes is accelerated because of an Event of Default.
Note Guarantees
The Issuer's payment obligations under the Notes will be jointly and
severally guaranteed by any future Guarantors. The Note Guarantee of each
Guarantor will be subordinated to the prior payment in full of all Senior Debt
of such Guarantor on substantially the same terms as the Notes are subordinated
to Senior Debt of the Issuer. Each Note Guarantee will be limited to an amount
not to exceed the maximum amount that can be Guaranteed by that Subsidiary
without rendering the Note Guarantee, as it relates to such Subsidiary,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally. See "Risk
Factors--The notes and any future guarantees may not be enforceable because of
fraudulent conveyance laws."
No Guarantor may consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person) another Person (other than the Issuer or
another Guarantor) unless:
(1) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Note Guarantee of such Guarantor, the Indenture and the
Registration Rights Agreement; and
(2) immediately after giving effect to such transaction, no Default or
Event of Default exists.
Notwithstanding the foregoing clause (2):
(1) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to any Guarantor; and
(2) any Guarantor may merge with an Affiliate incorporated solely for
the purpose of reincorporating such Guarantor in another jurisdiction.
In the event of a sale or other disposition of all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the Capital Stock of any Guarantor then held by the
Issuer and its Restricted Subsidiaries, then such Guarantor will be released
and relieved of any obligations under its Note Guarantee; provided that the Net
Proceeds of such sale or other disposition are applied in accordance with the
applicable provisions of the Indenture, to the extent required thereby. See "--
Repurchase at the Option of Holders--Asset Sales." In addition, any Guarantor
that is designated as an Unrestricted Subsidiary in accordance with the
provisions of the Indenture or is released from its guarantee or is otherwise
no longer an obligor under all Credit Facilities incurred under clause (1) of
the second paragraph under "--Certain Covenants--Incurrence of Debt and
Issuance of Preferred Stock" will be released from its Note Guarantee upon
effectiveness of such designation, release or cessation.
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Optional Redemption
Except as described in the following paragraphs, the Notes are not be
redeemable at the Issuer's option prior to May 1, 2005. Thereafter, the Notes
will be subject to redemption at any time at the option of the Issuer, in whole
or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the applicable redemption date (subject to the right of holders on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the twelve-month period beginning on May 1 of the
years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2005........................................ 106.375%
2006........................................ 104.250%
2007........................................ 102.125%
2008 and thereafter......................... 100.000%
</TABLE>
In addition, at any time and from time to time, prior to May 1, 2003, the
Issuer may redeem up to 35% of the aggregate principal amount of Notes issued
under the Indenture at a redemption price of 112.75% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the redemption date (subject to the right of holders on the relevant
record date to receive interest due on the relevant interest payment date),
with the net cash proceeds of an underwritten registered public offering of
common stock of the Issuer; provided that at least 65% of the aggregate
principal amount of Notes issued under the Indenture remains outstanding
immediately after the occurrence of any such redemption; and provided, further,
that such redemption shall occur within 90 days of the date of the closing of
such public offering.
At any time on or prior to May 1, 2005, the Notes may be redeemed as a whole
but not in part at the option of the Issuer upon the occurrence of a Change of
Control, upon not less than 30 nor more than 60 days' prior notice (but in no
event may any such redemption occur more than 120 days after the occurrence of
such Change of Control) mailed by first-class mail to each holder's registered
address, at a redemption price equal to 100% of the principal amount thereof
plus the Applicable Premium as of, and accrued but unpaid interest and
Liquidated Damages, if any, to, the redemption date, subject to the right of
holders on the relevant record date to receive interest due on the relevant
interest payment date.
Selection and Notice
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis
(among the Notes and any Additional Notes as one class), by lot or by such
method as the Trustee shall deem fair and appropriate; provided that no Notes
of $1,000 or less shall be redeemed in part; provided further, however, that if
a partial redemption is made with the proceeds of a public offering of common
stock, selection of the Notes or portions thereof for redemption shall be made
by the Trustee on a pro rata basis only or on as nearly a pro rata basis as is
practicable (subject to DTC procedures), unless such method is otherwise
prohibited. Notices 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 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 principal
amount equal to the unredeemed portion thereof will be issued in the name of
the holder thereof upon cancellation of the original Note. Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest and Liquidated Damages, if any, cease to accrue on
Notes or portions of them called for redemption.
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Mandatory Redemption
Except as set forth below under "--Repurchase at the Option of Holders," the
Issuer is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, unless all Notes have been
called for redemption pursuant to the provisions described above under the
caption "--Optional Redemption," each holder of Notes will have the right to
require the Issuer to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of such holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash (the
"Change of Control Payment") equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the date of purchase. Within 30 days following any Change of Control,
unless notice of redemption of all Notes has then been given pursuant to the
provisions described under the caption "--Optional Redemption" above, the
Issuer will mail a notice to each holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice.
The Issuer 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 the Notes as a result of a Change of Control. To the extent that
the provisions of any applicable securities laws or regulations conflict with
provisions of this covenant, the Issuer will comply with such securities laws
and regulations and will not be deemed to have breached its obligations under
the "Change of Control" provisions of the Indenture by virtue thereof.
On the Change of Control Payment Date, the Issuer will:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of Notes or portions thereof being purchased by the
Issuer.
The Paying Agent will promptly mail to each holder of Notes so tendered the
Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book-entry) to each holder
a new Note equal in principal amount to any unpurchased portion of the Note
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. Prior to consummating a
Change of Control Offer, the Issuer will either repay all outstanding Senior
Debt or obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of Notes required by this
covenant, unless notice of redemption of all Notes has then been given pursuant
to the provisions described under the caption "--Optional Redemption" above and
such redemption is permitted by the terms of outstanding Senior Debt. The
Issuer will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the holders of the Notes to require that the
Issuer repurchase or redeem
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the Notes in the event of a takeover, recapitalization or similar transaction.
The Change of Control purchase feature is a result of negotiations between the
Issuer and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Issuer would decide to do so in the future. Subject to the limitations
discussed below, the Issuer could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of Debt outstanding at such time or otherwise affect
the Issuer's capital structure or credit ratings.
The New Credit Facility will prohibit the Issuer from purchasing any Notes,
and will also provide that certain change of control events with respect to the
Issuer would constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Debt to which the Issuer becomes a party or
that may be entered into by Subsidiaries of the Issuer may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Issuer is prohibited from purchasing Notes, the Issuer could seek the
consent of its lenders to purchase Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Issuer does not obtain such a
consent or repay such borrowings, the Issuer will remain prohibited from
purchasing Notes. In such case, the Issuer's failure to purchase tendered Notes
would constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the New Credit Facility or any such future credit or
other agreement. In such circumstances, the subordination provisions in the
Indenture would restrict payments to the holders of Notes.
The Issuer will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes and consummates a Change of Control
Offer in a manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer
made by the Issuer and purchases all Notes validly tendered and not withdrawn
under the Change of Control Offer.
Asset Sales
The Issuer will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) the Issuer (or the 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 or Equity Interests issued or sold or
otherwise disposed of; and
(2) at least 75% of the consideration therefor received by the Issuer or
such Restricted Subsidiary is in the form of cash or Cash Equivalents
and/or property or assets that will be used or useful in a Permitted
Business of the Issuer or any of its Restricted Subsidiaries; provided that
this clause (2) shall not apply to any sale of Equity Interests of or other
Investments in Unrestricted Subsidiaries. For purposes of this provision,
each of the following will be deemed to be cash:
(a) any liabilities (as shown on the Issuer's or such Restricted
Subsidiary's most recent balance sheet), of the Issuer or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Notes or, in the case of liabilities of a
Guarantor, the Note Guarantee of such Guarantor) that are assumed by
the transferee of any such assets, or from which the Issuer and its
Restricted Subsidiaries are released; and
(b) any notes or other obligations received by the Issuer or any
such Restricted Subsidiary from such transferee that are converted by
the Issuer or such Restricted Subsidiary into cash (to the extent of
the cash received) within 90 days after receipt.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Issuer may apply such Net Proceeds, at its option:
(1) to repay Senior Debt or to repay Debt of any Restricted Subsidiary;
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(2) to make capital expenditures or to acquire properties and assets
that will be used or useful in the business of the Issuer or any of its
Subsidiaries; or
(3) to the acquisition of a controlling interest in another entity
engaged in a Permitted Business;
provided that if during such 360-day period the Issuer or a Restricted
Subsidiary enters into a definitive agreement committing it to apply such Net
Proceeds in accordance with the requirements of clause (2) or (3) or if the
application of such Net Proceeds is part of a project authorized by the Board
of Directors in good faith that will take longer than 360 days to complete and
such project has begun, such 360 day period will be extended with respect to
the amount of Net Proceeds so committed until required to be paid in accordance
with such agreement (or, if earlier, until termination of such agreement) or,
until completion of such project, as the case may be. Pending the final
application of any Net Proceeds, the Issuer or any Restricted Subsidiary may
temporarily reduce borrowings under a Credit Facility or otherwise invest such
Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of the preceding paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $20.0 million, the Issuer will:
(1) make an offer to all holders of Notes; and
(2) prepay, purchase or redeem (or make an offer to do so) any Pari
Passu Debt of the Issuer in accordance with provisions governing such Debt
requiring the Issuer to prepay, purchase or redeem such Debt with the
proceeds from any Asset Sales (or offer to do so), pro rata in proportion
to the respective principal amounts of the Notes and such other Debt
required to be prepaid, purchased or redeemed or tendered for, in the case
of the Notes pursuant to such offer (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes that may be purchased out of such pro
rata portion of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of their principal amount plus accrued and unpaid interest
and Liquidated Damages (if any) to the date of purchase subject to the
right of holders of record on a record date to receive interest on the
relevant interest payment date in accordance with the procedures set forth
in the Indenture.
To the extent that the aggregate principal amount of Notes and Pari Passu
Debt tendered pursuant to an Asset Sale Offer or other offer is less than the
Excess Proceeds, the Issuer may use any remaining Excess Proceeds for any
purpose not otherwise prohibited by the Indenture. If the aggregate principal
amount of Notes surrendered by holders thereof exceeds the pro rata portion of
such Excess Proceeds to be used to purchase Notes, the Trustee shall select the
Notes to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero. Notwithstanding
anything to the contrary in the foregoing, the Issuer may commence an Asset
Sale Offer prior to the expiration of 360 days after the occurrence of an Asset
Sale.
The Issuer 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 or regulations are applicable in connection with the
repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any applicable securities laws or regulations conflict with the
provisions of the Indenture, the Issuer will comply with such securities laws
and regulations and shall not be deemed to have breached its obligations
described in the Indenture by virtue thereof.
Certain Covenants
Restricted Payments
The Issuer will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
(1) declare or pay any dividend or make any other distribution
(including any payment by the Issuer or any Restricted Subsidiary in
connection with any merger or consolidation involving the Issuer or any of
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its Restricted Subsidiaries) on account of the Issuer's or any of its
Restricted Subsidiaries' Equity Interests (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock)
and dividends payable to the Issuer or any Restricted Subsidiary);
(2) purchase, redeem or otherwise acquire or retire for value (including
any acquisition or retirement by the Issuer or any Restricted Subsidiary in
connection with any merger or consolidation) any Equity Interests of the
Issuer;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value, any Subordinated Debt of the
Issuer or any Guarantor, except (a) a payment of interest, principal or
other related Obligations at Stated Maturity and (b) the purchase,
repurchase or other acquisition or retirement of Subordinated Debt of the
Issuer or such Guarantor in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due
within one year of the date of purchase, repurchase or other acquisition or
retirement; or
(4) make any Restricted Investment,
(all such payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "Restricted Payments"), unless, at the time
of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Issuer would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Debt pursuant to the Coverage Ratio
Exception; and
(c) such Restricted Payment, together with (without duplication) the
aggregate amount of all other Restricted Payments made by the Issuer and
its Restricted Subsidiaries after the Issue Date, is less than the sum
(without duplication) (the "Restricted Payments Basket") of;
(i) 50% of the Consolidated Net Income of the Issuer for the period
(taken as one accounting period) from the beginning of the fiscal
quarter during which the Issue Date occurs to the end of the Issuer's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is negative, 100% of such
negative amount); plus
(ii) 100% of the aggregate net cash proceeds, and the fair market
value of any property other than cash, received by the Issuer from the
issue or sale (other than to a Subsidiary) of, or from capital
contributions with respect to, Equity Interests of the Issuer (other
than Disqualified Stock and all warrants, options or other rights to
acquire Disqualified Stock (but excluding any debt security that is
convertible into, or exchangeable for, Disqualified Stock)), in either
case after the Issue Date; plus
(iii) the amount by which the aggregate principal amount (or
accreted value, if less) of Debt or Disqualified Stock of the Issuer or
any Restricted Subsidiary is reduced on the Issuer's consolidated
balance sheet upon the conversion or exchange after the Issue Date of
any Debt convertible into or exchangeable for Equity Interests (other
than Disqualified Stock) of the Issuer, together with the net cash
proceeds received by the Issuer at the time of such conversion; plus
(iv) 100% of the aggregate net cash proceeds received by the Issuer
or a Restricted Subsidiary of the Issuer since the Issue Date (to the
extent not included in Consolidated Net Income of the Issuer) from (i)
Restricted Investments, whether through interest payments, principal
payments, dividends or other distributions and payments, or the sale or
other disposition (other than to the Issuer or a Restricted Subsidiary)
thereof made by the Issuer and its Restricted Subsidiaries (less the
cost of such
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sale or disposition, if any) and (ii) a cash dividend from, or the sale
(other than to the Issuer or a Restricted Subsidiary) of the stock of,
an Unrestricted Subsidiary; plus
(v) upon the redesignation as a Restricted Subsidiary of any
Subsidiary that was designated an Unrestricted Subsidiary after the
Issue Date, the fair market value of the Restricted Investments of the
Issuer and its Restricted Subsidiaries (other than such Subsidiary) in
such Subsidiary.
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment would have
complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests or Subordinated Debt of the Issuer in
exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of the Issuer) of,
other Equity Interests (other than any Disqualified Stock) of, or a capital
contribution to, the Issuer; provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall not increase the Restricted Payments
Basket;
(3) the redemption, repurchase, retirement, defeasance or other
acquisition of Subordinated Debt of the Issuer (A) made by an exchange for,
or with the net cash proceeds from a substantially concurrent incurrence
of, Permitted Refinancing Debt or (B) upon a Change of Control or Asset
Sale to the extent required by the agreement governing such Subordinated
Debt but only if the Issuer shall have complied with the covenants
described under the heading "Change of Control" or "Asset Sales", as the
case may be, and purchased all Notes validly tendered pursuant to the
relevant offer prior to purchasing or repaying such Subordinated Debt;
(4) the payment of any dividend by a Restricted Subsidiary of the Issuer
to the holders of its common Equity Interests on a pro rata basis;
(5) to the extent constituting Restricted Payments, the Specified
Affiliate Payments;
(6) Restricted Payments in an aggregate amount not to exceed $15.0
million; and
(7) without limitation of the parenthetical at the end of clause (1) of
the first paragraph of this covenant, the payment of any dividends in
respect of the 14% Senior Redeemable Payment-In-Kind Preferred Stock of the
Issuer (the "Senior Preferred Stock") in the form of additional shares of
Senior Preferred Stock having the terms and conditions set forth in the
Certificate of Designation relating to the Senior Preferred Stock as in
effect on the Issue Date.
In determining the aggregate amount of Restricted Payments made after the
Issue Date in accordance with clause (c) of the second preceding paragraph,
amounts expended pursuant to clauses (1) (without duplication) and (4) (but not
amounts under any other clauses of the immediately preceding paragraph) shall
be included in such calculation; provided that any amounts expended pursuant to
such clause (4) relating to dividends paid to the Issuer or one of its
Restricted Subsidiaries shall not be included in such calculation.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Issuer or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment or any property other
than cash that increases the Restricted Payments Basket shall be determined in
good faith by the Board of Directors of the Issuer.
In making the computations required by this covenant:
(a) the Issuer or the relevant Restricted Subsidiary shall use audited
financial statements for the portions of the relevant period for which
audited financial statements are available on the date of determination and
unaudited financial statements and other current financial data based on
the books and records of the Issuer for the remaining portion of such
period; and
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(b) the Issuer or the relevant Restricted Subsidiary will be permitted
to rely in good faith on the financial statements and other financial data
derived from the books and records of the Issuer and the Restricted
Subsidiary that are available on the date of determination.
If the Issuer makes a Restricted Payment that, at the time of the making of
such Restricted Payment, would in the good faith determination of the Issuer or
any Restricted Subsidiary be permitted under the requirements of the Indenture,
such Restricted Payment will be deemed to have been made in compliance with the
Indenture notwithstanding any subsequent adjustments made in good faith to the
Issuer's or any Restricted Subsidiary's financial statements, affecting
Consolidated Net Income of the Issuer for any period. For the avoidance of
doubt, it is expressly agreed that no payment or other transaction permitted by
clauses (i), (iv), (vi), (vii) and (viii) of the second paragraph of the
covenant described under "--Transactions with Affiliates," and no payment
contemplated by or otherwise arising pursuant to the Recapitalization, shall be
considered a Restricted Payment for purposes of, or otherwise restricted by,
the Indenture.
Incurrence of Debt and Issuance of Preferred Stock
The Issuer will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Debt (including Acquired Debt) or issue
any Disqualified Stock and the Issuer will not permit any of its Restricted
Subsidiaries to issue any shares of Preferred Stock; 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 or issuance of any such Debt, the
Issuer or any Guarantor or Foreign Subsidiary of the Issuer may incur Debt
(including Acquired Debt) or issue shares of Disqualified Stock, and Guarantors
may issue Preferred Stock, if, in any such case, the Consolidated Coverage
Ratio for the Issuer's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Debt is incurred or such Disqualified Stock or other
Preferred Stock is issued would have been at least 2.00 to 1.00, if such Debt
is incurred or such Disqualified Stock or other Preferred Stock is issued on or
before May 1, 2002, or at least 2.25 to 1.00 thereafter, determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom),
as if the additional Debt had been incurred, or the Disqualified Stock or
Preferred Stock had been issued, as the case may be, at the beginning of such
four-quarter period (the "Coverage Ratio Exception").
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Debt (collectively, "Permitted
Debt"):
(1) the incurrence by the Issuer or any of its Restricted Subsidiaries
of term and revolving Debt and letters of credit (with letters of credit
being deemed to have a principal amount equal to the undrawn face amount
thereof) under Credit Facilities (including Guarantees of such Debt by the
Issuer or any of its Subsidiaries); provided that the aggregate principal
amount of such Debt outstanding pursuant to this clause (1) without
duplication, does not exceed an amount equal to the sum of (a) $500.0
million and (b) the greater of $170.0 million and the Borrowing Base at the
time such Debt is incurred;
(2) the incurrence by the Issuer and its Restricted Subsidiaries of
Existing Debt;
(3) the incurrence by the Issuer of Debt represented by the Notes and by
the Guarantors of Debt represented by the Note Guarantees;
(4) the incurrence by the Issuer or any of its Restricted Subsidiaries
of (a) Acquired Debt or (b) Debt (including Capital Lease Obligations) for
the purpose of financing or refinancing all or any part of the lease,
purchase price or cost of construction or improvement of any property (real
or personal) or other assets that are used or useful in the business of the
Issuer or such Restricted Subsidiary (whether through the direct purchase
of assets or the Capital Stock of any Person owning such assets and whether
such Debt is owed to the seller or Person carrying out such construction or
improvement or to any third party), in an aggregate principal amount at the
date of such incurrence (including all Permitted Refinancing Debt
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incurred to refund, refinance or replace any other Debt incurred pursuant
to this clause (4)) not to exceed an amount equal to $35.0 million;
provided that such Debt exists at the date of such purchase or transaction,
or is created within 180 days thereafter;
(5) the incurrence by the Issuer or any of its Restricted Subsidiaries
of Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to refund, refinance or replace Debt (other than intercompany
Debt) incurred pursuant to the Coverage Ratio Exception, or pursuant to
clause (2), (3) or (4) of this paragraph;
(6) the incurrence by the Issuer or any of its Restricted Subsidiaries
of intercompany Debt or Preferred Stock owed or issued to and held by the
Issuer and any of its Restricted Subsidiaries including any Indebtedness
arising in connection with a Qualified Receivables Transaction, provided,
however, that (a) any such Debt of the Issuer shall be subordinated and
junior in right of payment to the Notes and (b)(i) any subsequent issuance
or transfer of Equity Interests or other action that results in any such
Debt or Preferred Stock being held by a Person other than the Issuer or a
Restricted Subsidiary and (ii) any sale or other transfer of any such Debt
or Preferred Stock to a Person that is not either the Issuer or a
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Debt or issuance of such Preferred Stock by the Issuer
or such Restricted Subsidiary, as the case may be, that was not permitted
by this clause (6);
(7) the incurrence by the Issuer or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred (a) for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Debt that is
permitted by the terms of the Indenture to be outstanding in a notional
amount not exceeding the amount of such Debt or (b) for the purpose of
fixing or hedging currency exchange rate risk or commodity price risk
incurred in the ordinary course of business, and in each case, not for
speculative purposes;
(8) the guarantee by the Issuer or any Guarantor of Debt of the Issuer
or a Restricted Subsidiary of the Issuer or by any Restricted Subsidiary of
Debt of any other Restricted Subsidiary that is not a Guarantor, in each
case, that was permitted to be incurred by another provision of this
covenant;
(9) the incurrence by Foreign Subsidiaries of Debt for working capital
purposes (including acquisitions), and by the Issuer or any of its
Restricted Subsidiaries of Guarantees of Debt of Foreign Subsidiaries or
foreign joint ventures, provided that the aggregate principal amount of
such Debt and of the Debt so Guaranteed at any time outstanding does not
exceed $30.0 million; and
(10) the incurrence by the Issuer or any of its Restricted Subsidiaries
of additional Debt (which may comprise Debt under the New Credit Facility)
in an aggregate principal amount (or accreted value, as applicable) at any
time outstanding, pursuant to this clause (10) not to exceed an amount
equal to $50.0 million.
Notwithstanding any other provision in this covenant, the maximum amount of
Debt that the Issuer or any Restricted Subsidiary may incur pursuant to this
covenant shall not be deemed to be exceeded as a result of fluctuations in the
exchange rates of currencies. For purposes of determining compliance with this
covenant:
(a) the outstanding principal amount of any particular Debt shall be
counted only once and any obligation arising under any guarantee, Lien,
letter of credit or similar instrument supporting such Debt shall be
disregarded;
(b) in the event that an item of Debt meets the criteria of more than
one of the categories of Permitted Debt described in clauses (1) through
(10) above or is entitled to be incurred pursuant to the first paragraph of
this covenant, the Issuer shall, in its sole discretion, classify such item
of Debt in any manner that complies with this covenant and such item of
Debt will be treated as having been incurred pursuant to only one of such
clauses or pursuant to the first paragraph hereof; provided that all
outstanding Debt under the New Credit Facility immediately following the
Recapitalization shall be deemed to have been incurred pursuant to clause
(1) of the definition of Permitted Debt; and
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(c) accrual of interest and the accretion of accreted value will not be
deemed to be an incurrence of Debt.
No Senior Subordinated Debt
The Issuer will not incur any Debt that is expressly subordinate in right of
payment to any Senior Debt and senior in any respect in right of payment to the
Notes. No Guarantor will incur any Debt that is expressly subordinate in right
of payment to any Senior Debt and senior in any respect in right of payment to
the Note Guarantee of such Guarantor.
Liens
The Issuer will not, and will not permit any of its Restricted Subsidiaries
to, create, incur, assume or otherwise cause or suffer to exist or become
effective any Lien of any kind securing Debt or trade payables (other than
Permitted Liens) upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under the Indenture and the Notes are secured
on an equal and ratable basis with the obligations so secured until such time
as such obligations are no longer secured by a Lien; provided that:
(1) if such other Debt constitutes Subordinated Debt or is otherwise
subordinate or junior in right of payment to the Obligations under the
Indenture, the Notes or the relevant Note Guarantee, as the case may be,
such Lien is expressly made prior and senior in priority to the Lien
securing such other Debt; or
(2) in any other case, such Lien ranks equally and ratably with the Lien
securing the other Debt or obligations so secured.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Issuer will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction on the ability of
any Restricted Subsidiary to:
(1) (a) pay dividends or make any other distributions to the Issuer or
any of its Restricted Subsidiaries (i) on its Capital Stock or (ii) with
respect to any other interest or participation in, or measured by, its
profits, or (b) pay any Debt owed to the Issuer or any of its Restricted
Subsidiaries;
(2) make loans or advances to the Issuer or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Issuer or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(a) contracts in effect on the Issue Date as in effect on the Issue
Date, including the New Credit Facility and other Existing Debt and the
related documentation;
(b) the Indenture, the Notes, the Note Guarantees and any other
agreement entered into after the Issue Date, provided that the encumbrances
or restrictions in such agreements are not materially more restrictive than
those contained in the foregoing agreements;
(c) any agreement or other instrument of a Person acquired by the Issuer
or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (but not created in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired;
(d) purchase money obligations (including Capital Lease Obligations) for
property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (3) above on the property so
acquired;
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(e) Debt or other contractual requirements in connection with a
Qualified Receivables Transaction that, in the good faith determination of
the Board of Directors or senior management of the Issuer, are necessary or
advisable to effect such Qualified Receivables Transaction;
(f) in the case of clause (3) above, any encumbrance or restriction (i)
that restricts in a customary manner the subletting, assignment, or
transfer of any property or asset that is subject to a lease, license or
similar contract or (ii) contained in security agreements or mortgages
securing Debt to the extent such encumbrance or restriction restricts the
transfer of the property subject to such security agreements or mortgages;
(g) in the case of clause (3) above, any Lien on property or assets of
the Issuer or any Restricted Subsidiary not otherwise prohibited by the
Indenture;
(h) any restriction under an agreement (including an option or right) to
sell property or assets of, or Equity Interests in, the Issuer or any
Restricted Subsidiary pending the closing of such sale, which sale is
permitted under the Indenture;
(i) restrictions on cash or other deposits or net worth imposed by
leases or other agreements entered into in the ordinary course of business;
(j) customary provisions in joint venture agreements and other similar
agreements (in each case relating solely to the respective joint venture or
similar entity or the Equity Interests therein) entered into in the
ordinary course of business;
(k) any encumbrances or restrictions created with respect to (i) Debt or
Preferred Stock of Guarantors permitted to be incurred or issued subsequent
to the Issue Date pursuant to the provisions of the covenant described
under the caption "--Incurrence of Debt and Issuance of Preferred Stock"
and (ii) Debt or Preferred Stock of Subsidiary Non-Guarantors permitted to
be incurred or issued subsequent to the Issue Date pursuant to the
provisions of the covenant described under the caption "--Incurrence of
Debt and Issuance of Preferred Stock", provided that in the case of this
clause (ii) the Board of Directors of the Issuer determines (as evidenced
by a resolution of the Board of Directors) in good faith at the time such
encumbrances or restrictions are created that such encumbrances or
restrictions would not reasonably be expected to impair the ability of the
Issuer to make payments of interest and scheduled payments of principal on
the Notes in each case as and when due;
(l) any encumbrances or restrictions required by any governmental, local
or regulatory authority having jurisdiction over the Issuer or any of its
Restricted Subsidiaries or any of their businesses in connection with any
development grant made or other assistance provided to the Issuer or any of
its Restricted Subsidiaries by such governmental authority; or
(m) any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of the contracts,
instruments or obligations referred to in clauses (a) through (l) above,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings, taken as
a whole, are, in the good faith judgment of the Issuer, not materially more
restrictive with respect to such encumbrances or restrictions than those
contained in the contracts, instruments or obligations prior to such
amendment, modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing.
Merger, Consolidation, or Sale of all or Substantially all Assets
The Issuer may not consolidate or merge with or into (whether or not the
Issuer is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another Person unless:
(1) the Issuer is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Issuer) or to
which such sale, assignment, transfer, lease,
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conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Issuer) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made
assumes all the obligations of the Issuer under the Notes, the Indenture
and the Registration Rights Agreement pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee;
(3) immediately before and immediately after giving effect to such
transaction (including giving effect to any Debt being incurred in
connection in with the transaction) no Default or Event of Default exists;
and
(4) except in the case of a merger of the Issuer with or into a Wholly
Owned Restricted Subsidiary of the Issuer, the Issuer or the Person formed
by or surviving any such consolidation or merger (if other than the
Issuer), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made will, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, either (a) be permitted to incur at least $1.00 of additional Debt
pursuant to the Coverage Ratio Exception or (b) have a Consolidated
Coverage Ratio at least equal to the Consolidated Coverage Ratio of the
Issuer for such four-quarter reference period.
Notwithstanding the foregoing clauses (3) and (4):
(a) any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Issuer; and
(b) the Issuer may merge with an Affiliate incorporated solely for the
purpose of reincorporating the Issuer in another jurisdiction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of related transactions) of all or
substantially all of the properties and assets of one or more Restricted
Subsidiaries of the Issuer, the Capital Stock of which constitutes all or
substantially all of the assets and properties of the Issuer (determined on a
consolidated basis for the Issuer and its Subsidiaries), shall be deemed to be
the transfer of all or substantially all of the properties and assets of the
Issuer.
This covenant does not apply to the merger of Saturn Acquisition Corporation
with and into the Issuer on the Issue Date.
Transactions with Affiliates
The Issuer will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any contract, agreement, understanding, loan,
advance, guarantee or other transaction with, or for the benefit of, any
Affiliate of the Issuer (each of the foregoing, an "Affiliate Transaction"),
unless:
(1) such Affiliate Transaction is on terms that, taken as a whole, are
no less favorable to the Issuer or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the
Issuer or such Restricted Subsidiary with an unrelated Person; and
(2) the Issuer delivers to the Trustee:
(a) with respect to any Affiliate Transaction entered into after the
Issue Date involving aggregate consideration in excess of $4.0 million,
a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with
clause (1) above and
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that such Affiliate Transaction has been approved by a majority of the
members of the Board of Directors; and
(b) with respect to any Affiliate Transaction involving aggregate
consideration in excess of $10.0 million, an opinion as to the fairness
to the Issuer or such Restricted Subsidiary of such Affiliate
Transaction from a financial point of view issued by an investment
banking, appraisal or accounting firm of national standing.
Notwithstanding the foregoing, the following will not be deemed to be
Affiliate Transactions:
(i) any employment agreements, non-competition agreements, stock
purchase or option agreements, collective bargaining agreements, employee
benefit plans or arrangements (including vacation plans, health and life
insurance plans, deferred compensation plans, stock loan programs, long-
term incentive plans, directors' and officers' indemnification agreements
and retirement, savings or similar plans), related trust agreements or any
similar arrangements, in each case in respect of employees, officers or
directors and entered into in the ordinary course of business, any payments
or other transactions contemplated by any of the foregoing and any other
payments of compensation to employees, officers, directors or consultants
in the ordinary course of business or in connection with the Issuer's
transition to new ownership;
(ii) transactions between or among (a) the Issuer and/or its Restricted
Subsidiaries or (b) the Issuer and/or one or more of its Restricted
Subsidiaries and any joint venture; provided no Affiliate of the Issuer
(other than a Restricted Subsidiary) owns Capital Stock of any such joint
venture;
(iii) Permitted Investments and Restricted Payments that are permitted
by the provisions of the Indenture described above under the caption "--
Restricted Payments;"
(iv) loans or advances to employees (or guarantees of third party loans
to employees) in the ordinary course of business or pursuant to a stock
loan program;
(v) transactions among the Issuer and/or one or more of its Subsidiaries
effected as part of a Qualified Receivables Transaction;
(vi) payments to Investcorp and its Affiliates (whether or not such
Persons are Affiliates of the Issuer) for annual management, consulting and
advisory fees and related expenses, which fees shall not exceed $1.5
million per year; provided, however, that such fees with respect to the
first five years after the Issue Date were paid on the Issue Date;
(vii) any agreement as in effect on the Issue Date (including the
Recapitalization Agreement) or any amendment thereto (so long as any such
amendment is not disadvantageous to the holders of the Notes in any
material respect) or any transaction pursuant thereto (including the
payment of all fees and expenses related to the Recapitalization);
(viii) transactions with customers, clients, suppliers, or purchasers or
sellers of goods or services, in each case in the ordinary course of
business and otherwise in compliance with the terms of the Indenture which
are fair to the Issuer or its Restricted Subsidiaries, or are on terms at
least as favorable as might reasonably have been obtained at such time from
an unaffiliated party, in each case in the reasonable determination of the
Board of Directors of the Issuer or the senior management thereof;
(ix) Debt permitted by paragraph (10) of the covenant described under
the caption "--Incurrence of Debt and Issuance of Preferred Stock" on terms
that, taken as a whole, are no less favorable to the Issuer or the relevant
Restricted Subsidiary than those that would have been obtained in a
comparable transaction with an unrelated Person, or, if there is no
comparable transaction, have been negotiated in good faith by the parties
thereto and, if any member of management is then a member of the Board of
Directors of the Issuer or the relevant Restricted Subsidiary, also
approved by such member;
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(x) any transaction on arm's length terms with non-affiliates that
become Affiliates as a result of such transaction; and
(xi) the issuance of common stock of the Issuer.
Limitations on Designations of Unrestricted Subsidiaries
The Board of Directors may designate (a "Designation") any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Issuer) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Issuer or
any Restricted Subsidiary, so long as such Designation would not cause a
Default; provided that:
(1) any then existing Guarantee by the Issuer or any Restricted
Subsidiary of any Debt of the Subsidiary being so designated shall be
deemed an "incurrence" of such Debt at the time of such Designation; and
(2) either (a) the Subsidiary to be so designated has total assets of
$1.0 million or less or (b) if such Subsidiary has assets greater than $1.0
million, the "incurrence" of Debt referred to in clause (1) of this
provision would be permitted under the "--Incurrence of Debt and Issuance
of Preferred Stock" covenant described above.
For purposes of making the determination of whether such Designation would
cause a Default, the portion of the fair market value of the net assets of any
Subsidiary of the Issuer at the time that such Subsidiary is designated an
Unrestricted Subsidiary that is represented by the interest of the Issuer and
its Restricted Subsidiaries (excluding Permitted Investments) in such
Subsidiary, in each case as determined in good faith by the Board of Directors
of the Issuer, shall be deemed to be a Restricted Payment. Such Designation
will only be permitted if such Restricted Payment would be permitted at such
time.
The Board of Directors may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation"); provided that:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Revocation; and
(b) all Liens and Debt of such Unrestricted Subsidiary outstanding
immediately after such Revocation would, if incurred at such time, have
been permitted to be incurred (and shall be deemed to have been incurred)
for all purposes of the Indenture.
Any such Designation or Revocation by the Board of Directors after the Issue
Date shall be evidenced to the Trustee by promptly filing with the Trustee a
copy of the resolution of the Board of Directors giving effect to such
Designation or Revocation and an Officers' Certificate certifying that such
Designation or Revocation complied with the foregoing provisions.
Additional Note Guarantees
All current and future Subsidiaries of the Issuer, other than Foreign
Subsidiaries, Receivables Subsidiaries and Subsidiaries that have been properly
designated as Unrestricted Subsidiaries in accordance with the Indenture for so
long as they continue to constitute Unrestricted Subsidiaries, will be
Guarantors in accordance with the terms of the Indenture to the extent such
Subsidiaries are guarantors or are otherwise obligors under any Credit Facility
incurred under clause (1) in the second paragraph under "--Incurrence of Debt
and Issuance of Preferred Stock." Notwithstanding the foregoing, if any Foreign
Subsidiary that is a Restricted Subsidiary shall Guarantee any Debt of the
Issuer or any Domestic Subsidiary while the Notes are outstanding, then such
Foreign Subsidiary shall become a Guarantor under the Indenture and will
execute a Note Guarantee in accordance with the provisions of the Indenture.
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Business Activities
The Issuer will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent
as is not material to the Issuer and its Restricted Subsidiaries taken as a
whole.
Reports
Notwithstanding that the Issuer may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act, the Issuer will file with the Securities
and Exchange Commission (the "Commission") and provide, within 15 days after
the Issuer is required to file the same with the Commission, the Trustee and
the holders with the annual reports and the information, documents and other
reports that are specified in Sections 13 and 15(d) of the Exchange Act. In the
event the Issuer is not permitted to file such reports, documents and
information with the Commission, the Issuer will provide substantially similar
information to the Trustee and the holders, as if the Issuer were subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act.
Events of Default and Remedies
Each of the following constitutes an Event of Default with respect to the
Notes:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by
the subordination provisions of the Indenture);
(2) default in payment when due of the principal of or premium, if any,
on the Notes (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or an Asset Sale Offer)
(whether or not prohibited by the subordination provisions of the
Indenture);
(3) failure by the Issuer for 30 days after receipt of notice from the
Trustee or the holders of at least 25% in principal amount of the then
outstanding Notes to comply with the provisions described under the
captions "--Repurchase at the Option of Holders--Change of Control," "--
Repurchase at the Option of Holders--Asset Sales," "--Certain Covenants--
Restricted Payments," "--Certain Covenants--Incurrence of Debt and Issuance
of Preferred Stock" or "--Certain Covenants--Merger, Consolidation, or Sale
of all or Substantially all Assets;"
(4) failure by the Issuer for 60 days after receipt of notice from the
Trustee or the holders of at least 25% in principal amount of the then
outstanding Notes specifying such failure to comply with any of its other
agreements in the Indenture or the Notes;
(5) the failure by the Issuer or any Restricted Subsidiary that is a
Significant Subsidiary to pay any Debt within any applicable grace period
after final maturity or acceleration by the holders thereof because of a
default if the total amount of all such Debt unpaid or accelerated at the
time exceeds $25.0 million;
(6) any judgment or decree for the payment of money in excess of $25.0
million (net of any insurance or indemnity payments actually received in
respect thereof prior to or within 60 days from the entry thereof, or to be
received in respect thereof in the event any appeal thereof shall be
unsuccessful) is entered against the Issuer or any Significant Subsidiary
that is a Restricted Subsidiary and is not discharged, waived or stayed and
either (A) an enforcement proceeding has been commenced by any creditor
upon such judgment or decree or (B) there is a period of 60 days following
the entry of such judgment or decree during which such judgment or decree
is not discharged, waived or the execution thereof stayed;
(7) any Note Guarantee by a Guarantor that is a Significant Subsidiary
shall be held in any judicial proceeding to be unenforceable or invalid or,
except as permitted by the Indenture, shall cease for any reason to be in
full force and effect or any Guarantor, or any Person acting on behalf of
any Guarantor, shall deny or disaffirm its obligations under its Note
Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to the
Issuer or any of its Restricted Subsidiaries that is a Significant
Subsidiary.
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If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in aggregate principal amount of the then outstanding Notes may
declare all the Notes to be due and payable. Upon such a declaration, such
amounts shall be due and payable immediately. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Issuer all outstanding Notes will become due and
payable without further action or notice.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the holders of a majority in aggregate principal amount of the Notes may
rescind and cancel such declaration and its consequences:
(a) if the rescission would not conflict with any judgment or decree;
(b) 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;
(c) 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; and
(d) if the Issuer has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of or premium on, the Notes.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders unless such holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, interest or Liquidated Damages when due, no holder
may pursue any remedy with respect to the Indenture or the Notes unless:
(1) such holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in aggregate principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after
the receipt of the request and the offer of security or indemnity; and
(5) the holders of a majority in aggregate principal amount of the
outstanding Notes have not given the Trustee a direction inconsistent with
such request within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
of exercising any trust or power conferred on the Trustee.
The Trustee, however, may refuse to follow any direction that conflicts with
law or the Indenture or that the Trustee determines is unduly prejudicial to
the rights of any other holder or that would involve the Trustee in personal
liability. Prior to taking any action under the Indenture, the Trustee will be
entitled to
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indemnification satisfactory to it in its sole discretion against all losses
and expenses caused by taking or not taking such action.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee must mail to each holder notice of the Default within the earlier of
90 days after it occurs or 30 days after it is known to a trust officer or
written notice of it is received by the Trustee. Except in the case of a
Default in the payment of principal of, premium, if any, interest or
Liquidated Damages on any Note, the Trustee may withhold notice if and so long
as a committee of its trust officers in good faith determines that withholding
notice is in the interests of holders of Notes. In addition, the Issuer is
required to deliver to the Trustee, within 120 days after the end of each
fiscal year, a certificate indicating whether the signers thereof actually
know of any Default that occurred during the previous year. The Issuer also is
required to deliver to the Trustee, forthwith upon any Senior Officer
obtaining actual knowledge of any such Default, written notice of any event
which would constitute certain Defaults, their status and what action the
Issuer is taking or proposes to take in respect thereof.
No Personal Liability of Directors, Officers, Employees and Stockholders
No past, present or future director, officer, employee, incorporator, agent
or stockholder or Affiliate of the Issuer, as such, shall have any liability
for any obligations of the Issuer under the Notes, the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. No past, present or future director, officer, employee,
incorporator, agent or stockholder or Affiliate of any of the Guarantors, as
such, shall have any liability for any obligations of the Guarantors under the
Note Guarantees, the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of Notes and Note
Guarantees by accepting a Note and a Note Guarantee waives and releases all
such liabilities. The waiver and release are part of the consideration for
issuance of the Notes and the Note Guarantees. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
Satisfaction and Discharge
Upon the request of the Issuer, the Indenture will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange
of the Notes, as expressly provided for in the Indenture) and the Trustee, at
the expense of the Issuer, will execute proper instruments acknowledging
satisfaction and discharge of the Indenture, the Note Guarantees, the
Registration Rights Agreement relating thereto and the Notes when:
(1) either:
(a) all the Notes theretofore authenticated and delivered (other than
destroyed, lost or stolen Notes that have been replaced or paid and Notes
that have been subject to defeasance as described under the caption "--
Legal Defeasance and Covenant Defeasance") have been delivered to the
Trustee for cancellation; or
(b) all Notes not theretofore delivered to the Trustee for cancellation:
(i) have become due and payable;
(ii) will become due and payable at maturity within one year; or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and the expense, of the Issuer,
and the Issuer has irrevocably deposited or caused to be deposited with
the Trustee funds in trust for such purpose in an amount sufficient to
pay and discharge the entire Debt on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any, on) and interest on the Notes to the date of such deposit (in
case of Notes that have become due and payable) or to the Stated
Maturity or redemption date, as the case may be;
(2) the Issuer has paid or caused to be paid all sums payable under the
Indenture by the Issuer; and
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(3) the Issuer has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent provided
in the Indenture relating to the satisfaction and discharge of the
Indenture, the Note Guarantees, the security agreements relating thereto
and the Notes have been complied with.
Legal Defeasance and Covenant Defeasance
The Issuer may, at its option and at any time, elect to have all of its and
the Guarantors' obligations discharged with respect to the outstanding Notes
and Note Guarantees ("Legal Defeasance") and cure all then existing Events of
Default, except for:
(1) the rights of holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest and Liquidated
Damages on such Notes when such payments are due from the trust referred to
below;
(2) the Issuer's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost
or stolen Notes and the maintenance of an office or agency for payment and
money for Note payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the Issuer's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Issuer may, at its option and at any time, elect to have
the obligations of the Issuer and the Guarantors released with respect to
certain covenants that are described in the Indenture and the Note Guarantees
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes and the Note Guarantees. In the event Covenant Defeasance occurs,
certain events (not including non-payment, and, solely with respect to the
Issuer, bankruptcy and insolvency events) described under "--Events of Default
and Remedies" will no longer constitute an Event of Default with respect to the
Notes and the Note Guarantees.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuer must irrevocably deposit with the Trustee, in trust, for
the benefit of the holders of the Notes cash in U.S. dollars, non-callable
Government Notes, or a combination thereof, in such amounts as will be
sufficient (without reinvestment), in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest and Liquidated Damages on the outstanding
Notes on the Stated Maturity or on the applicable redemption date, as the
case may be, and the Issuer must specify whether the Notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the Issuer shall have delivered to
the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that:
(a) the Issuer has received from, or there has been published by,
the Internal Revenue Service a ruling; or
(b) since the Issue Date, 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, subject to customary assumptions and
exclusions, the holders of the outstanding Notes 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;
(3) in the case of Covenant Defeasance, the Issuer shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary
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assumptions and exclusions, the holders of the outstanding Notes 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;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit and the
grant of any Lien securing such borrowing);
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than the Indenture) to which the Issuer or
any of its Subsidiaries is a party or by which the Issuer or any of its
Subsidiaries is bound;
(6) the Issuer must have delivered to the Trustee an opinion of counsel,
subject to customary assumptions and exclusions, to the effect that after
the 91st day following the deposit, the trust funds will not be part of any
"estate" formed by the bankruptcy or reorganization of the Issuer or
subject to the "automatic stay" under the Bankruptcy Law or, in the case of
Covenant Defeasance, will be subject to a first priority Lien in favor of
the Trustee for the benefit of the holders;
(7) the Issuer must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Issuer with the intent of
preferring the holders of Notes over the other creditors of the Issuer or
the Guarantors, as applicable, or with the intent of defeating, hindering,
delaying or defrauding creditors of the Issuer or the Guarantors, as
applicable, or others; and
(8) the Issuer must deliver to the Trustee an Officers' Certificate and
an Opinion of Counsel (which Opinion of Counsel may be subject to customary
assumptions and exclusions), each stating that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
Transfer and Exchange
A holder may transfer or exchange Notes in accordance with the Indenture.
The Trustee may require a holder, among other things, to furnish appropriate
endorsements and transfer documents and the Issuer may require a holder to pay
any taxes and fees required by law or permitted by the Indenture. The Issuer is
not required to transfer or exchange any Note selected for redemption or
repurchase. Also, the Issuer is not required to transfer or exchange any Note
for a period of 15 days before a selection of Notes to be redeemed or before
any repurchase offer.
The Notes will be issued in registered form and the registered holder of a
Note will be treated as the owner of it for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture, the
Notes and the Note Guarantees may be amended or supplemented with the consent
of the holders of at least a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder):
(1) reduce the principal amount of Notes whose holders must consent to
an amendment, supplement or waiver;
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(2) reduce the principal of, change the fixed maturity of any Note,
reduce any premium payable upon optional redemption of the Notes or
otherwise alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
Note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) impair the rights of holders of Notes to receive payments of
principal of or premium, if any, or interest or Liquidated Damages on the
Notes;
(7) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or the Note
Guarantees in a manner which adversely affects the holders of the Notes;
(8) make any change in the foregoing amendment and waiver provisions; or
(9) except as permitted by the Indenture, release any Note Guarantee.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Issuer and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to provide for the assumption
of the Issuer's or any Guarantor's obligations to holders of Notes in the case
of a merger, consolidation or sale of assets, to release any Note Guarantee in
accordance with the provisions of the Indenture, to provide for additional
Guarantors, to make any change that would provide any additional rights or
benefits to the holders of Notes or that, as determined by the Board of
Directors of the Company in good faith, does not adversely affect the legal
rights of any such holder under the Indenture, the Notes or the Notes
Guarantees, or to comply with requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Issuer, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if the Trustee acquires any conflicting interest
the Trustee must eliminate such conflict within 90 days, apply to the
Commission for permission to continue or resign.
In case an Event of Default shall occur (which shall not be cured), the
Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs.
Copies of Documents
Anyone who receives this prospectus may obtain a copy of the Indenture and
Registration Rights Agreement from the SEC as set forth below under the heading
"Where You Can Find More Information."
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Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Debt of any other Person existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified
Person, including Debt incurred in connection with, or in contemplation of,
such other Person's merging with or into or becoming a Restricted
Subsidiary of such specified Person; and
(2) Debt secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means:
(1) any other Person, directly or indirectly, controlling or controlled
by or under direct or indirect common control with such specified Person;
(2) any other Person that owns, directly or indirectly, 5% or more of
such specified Person's Voting Stock; or
(3) any Person who is a director or officer (a) of such Person, (b) of
any Subsidiary of such Person or (c) of any Person described in clause (1)
or (2) above.
For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, whether through the ownership of voting securities,
by agreement or otherwise.
"Applicable Premium" means, with respect to a Note at any redemption date,
the greater of (i) 1.0% of the principal amount of such Note or (ii) the excess
of (A) the present value at such time of (1) the redemption price of such Note
at May 1, 2005 (such redemption price being set forth in the table under the
subheading "Optional Redemption") plus (2) all required interest payments due
on such Note through May 1, 2005 (excluding accrued but unpaid interest),
computed using a discount rate equal to the Treasury Rate plus 50 basis points,
over (B) the principal amount of such Note, if greater.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including by way of a sale and leaseback) (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the Issuer and its Restricted Subsidiaries taken as a whole will
be governed by the provisions of the Indenture described above under the
caption "--Certain Covenants--Merger, Consolidation, or Sale of all or
Substantially all Assets" and not by the provisions of the Asset Sale
covenant), and
(2) the issue or sale by the Issuer or any of its Restricted
Subsidiaries of Equity Interests of any of the Issuer's Subsidiaries (other
than director's qualifying shares),
in the case of either clause (1) or (2), whether in a single transaction or a
series of related transactions:
(1) that have a fair market value in excess of 1.0% of Total Assets; or
(2) for Net Proceeds in excess of 1.0% of Total Assets.
Notwithstanding the foregoing, the following will not be Asset Sales:
(a) a transfer of assets or an issuance of Equity Interests by a
Restricted Subsidiary to the Issuer or to another Restricted Subsidiary or
a transfer of assets by the Issuer to a Restricted Subsidiary;
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(b) a Restricted Payment or Permitted Investment that is permitted by
the covenant described above under the caption "--Certain Covenants--
Restricted Payments" (including any formation of or contribution of assets
to a Subsidiary or joint venture);
(c) leases or subleases to third parties, of real property owned in fee
or leased by the Issuer or its Subsidiaries or a disposition of a lease of
real property, in each case, in the ordinary course of business;
(d) any disposition of property or assets (including inventory, accounts
receivable and licensing agreements) of the Issuer or any of its
Subsidiaries in the ordinary course of business, or that in the reasonable
judgment of the Issuer, have become uneconomic, obsolete or worn out;
(e) the disposition of Cash Equivalents or cash; and
(f) sales of accounts or other receivables and related assets (or a
fractional undivided interest therein) for the fair market value thereof,
in a Qualified Receivables Transaction.
"Bankruptcy Law" means Title 11, United States Code, or any similar federal
or state law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person, or (except if used in the definition of "Change of
Control") any authorized committee of the Board of Directors of such Person.
"Borrowing Base" means, as of any date, an amount equal to the sum of:
(1) 85% of the aggregate book value of all accounts receivable of the
Issuer and its Restricted Subsidiaries; and
(2) 60% of the aggregate book value of all inventory owned by the Issuer
and its Restricted Subsidiaries,
all calculated on a consolidated basis and in accordance with GAAP.
To the extent that information is not available as to the amount of accounts
receivable or inventory as of a specific date, the Issuer shall use the most
recent available information for purposes of calculating the Borrowing Base.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York are authorized or required by law to
close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(3) in the case of an association or other business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of stock.
"Cash Equivalents" means:
(1) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof;
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(2) certificates of deposit and eurodollar time deposits with maturities
of one year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding one year and overnight bank deposits, in each case
with any commercial bank or trust company having capital and surplus in
excess of $300 million;
(3) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (1) and (2) above
entered into with any financial institution meeting the qualifications
specified in clause (2) above;
(4) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Services,
a division of the McGraw-Hill Companies, Inc. ("S&P") and in each case
maturing within one year after the date of acquisition;
(5) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of
the two highest rating categories obtainable from either Moody's or S&P;
(6) Debt with a rating of "A" or higher from S&P or "A2" or higher from
Moody's; and
(7) investment funds investing at least 95% of their assets in
securities of the types described in clauses (1)-(4) above.
"Change of Control" means the occurrence of any of the following events:
(1) prior to the first public offering after the Issue Date of Voting
Stock of the Issuer, the Initial Control Group ceases to be the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of more than 50% of the total voting power of the
Voting Stock of the Issuer, whether as a result of the issuance of
securities of the Issuer, any merger, consolidation, liquidation or
dissolution of the Issuer, any direct or indirect transfer of securities by
the Initial Control Group or otherwise (for purposes of this clause (1) and
clause (2) below, the Initial Control Group shall be deemed to beneficially
own any Voting Stock of an entity (the "specified entity") held by any
other entity (the "parent entity") so long as the Initial Control Group
beneficially owns (as so defined), directly or indirectly, in the aggregate
a majority of the voting power of the Voting Stock of the parent entity);
(2) following the first public offering after the Issue Date of Voting
Stock of the Issuer, (a) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than one or more members of the
Initial Control Group, is or becomes the beneficial owner (as defined in
clause (1) above), directly or indirectly, of more than 40% of the total
voting power of the Voting Stock of the Issuer, and (b) the Initial Control
Group "beneficially owns" (as defined in clause (1) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of the Issuer than such other person and does not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Issuer
(for purposes of this clause (2), such other person shall be deemed to
beneficially own any Voting Stock of a specified entity held by a parent
entity, if such other person "beneficially owns" (as defined in clause (1)
above), directly or indirectly, in the aggregate more than 40% of the
voting power of the Voting Stock of such parent entity and the Initial
Control Group "beneficially owns" (as defined in clause (1) above),
directly or indirectly, in the aggregate a lesser percentage of the voting
power of the Voting Stock of such parent entity and does not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent entity); or
(3) at any time after the first public offering of common stock of the
Issuer, any person other than the Initial Control Group (or their
designated Board of Directors), (a)(i) nominates one or more individuals
for election to the Board of Directors of the Issuer, and (ii) solicits
proxies, authorizations or consents in connection therewith and (b) such
number of nominees elected to serve on the Board of Directors in such
election and all previous elections after the Issue Date represents a
majority of the Board of Directors of the Issuer following such election.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Hedging Agreements" means any futures contract or other similar
agreement or arrangement designed to protect the Issuer or any Restricted
Subsidiary against fluctuations in commodities prices.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period:
(1) plus, to the extent deducted in computing such Consolidated Net
Income:
(a) Consolidated Interest Expense and the amortization of debt
issuance costs, commissions, fees and expenses of such Person and its
Restricted Subsidiaries for such period;
(b) provision for taxes based on income or profits (including
franchise taxes) of such Person and its Restricted Subsidiaries for such
period;
(c) depreciation and amortization expense, including amortization of
inventory write-up under APB 16, amortization of intangibles (including
goodwill and the non-cash costs of Interest Rate Agreements, Commodity
Hedging Agreements or Currency Agreements, license agreements and non-
competition agreements), amortization of management fees, non-cash
amortization of Capital Lease Obligations, and organization costs;
(d) expenses and charges related to any equity offering or incurrence
of Debt permitted to be incurred by the Indenture (including any such
expenses or charges relating to the Recapitalization);
(e) the amount of any restructuring or other type of special charge
or reserve;
(f) unrealized gains and losses from hedging, foreign currency or
commodities translations and transactions;
(g) expenses consisting of internal software development costs that
are expensed during the period but could have been capitalized in
accordance with GAAP;
(h) any write-downs, write-offs, and other non-cash charges, items
and expenses;
(i) the amount of any expense relating to any minority interest of
Restricted Subsidiaries; and
(j) costs of surety bonds in connection with financing activities,
and
(2) minus any cash payment for which a reserve or charge of the kind
described in clause (e), (h) or (i) of subclause (1) above was taken
previously during such period.
"Consolidated Coverage Ratio" means with respect to any Person, the ratio
of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries
for the four full fiscal quarters ending on or prior to the date the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio (the "Calculation Date") for which financial statements are available to
the Consolidated Interest Expense of such Person and its Restricted
Subsidiaries for such period. In the event that the Issuer or any of its
Restricted Subsidiaries incurs, assumes, Guarantees or redeems any Debt (other
than working capital borrowings) or issues or redeems Preferred Stock
subsequent to the commencement of the period for which the Consolidated
Coverage Ratio is being calculated but prior to Calculation Date, then the
Consolidated Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee or redemption of Debt, or such issuance
or redemption of Preferred Stock, as if the same had occurred at the beginning
of the applicable four-quarter reference period.
For purposes of making the computation referred to above, Investments,
acquisitions, dispositions, mergers and consolidations that have been made by
the Issuer or any of its Restricted Subsidiaries during the four-quarter
reference period or subsequent to such reference period and on or prior to the
Calculation Date, and discontinued operations determined in accordance with
GAAP on or prior to the Calculation Date, shall be
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given effect on a pro forma basis assuming that all such Investments,
acquisitions, dispositions, mergers and consolidations or discontinued
operations (and the reduction or increase of any associated Consolidated
Interest Expense, and the change in Consolidated Cash Flow, resulting
therefrom, including because of Pro Forma Cost Savings) had occurred on the
first day of the four-quarter reference period. If since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Issuer or any Restricted Subsidiary since the beginning
of such period) shall have made any Investment, acquisition, disposition,
merger or consolidation or determined a discontinued operation, that would have
required adjustment pursuant to this definition, then the Consolidated Coverage
Ratio shall be calculated giving pro forma effect thereto for such period as if
such Investment, acquisition, disposition, merger or consolidation or
discontinued operations had occurred at the beginning of the applicable four-
quarter period.
For purposes of this definition, whenever pro forma effect is to be given to
a transaction, the pro forma calculations shall be made in good faith by a
financial or accounting officer of the Issuer. If any Debt to which pro forma
effect is given bears interest at a floating rate, the interest expense on such
Debt shall be calculated as if the rate in effect on the Calculation Date had
been the applicable interest rate for the entire period (taking into account
any Interest Rate Agreement in effect on the Calculation Date). Interest on a
Capital Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined by a responsible financial or accounting officer of the
Issuer to be the rate of interest implicit in such Capital Lease Obligation in
accordance with GAAP. Interest on Debt that 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 rate, shall be deemed to have been based upon
the rate actually chosen, or, if none, then based upon such optional rate
chosen as the Issuer may designate.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) the consolidated net interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued (including
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings or any Qualified
Receivables Transaction, and net payments (if any) pursuant to Hedging
Obligations relating to Interest Rate Agreements or Currency Agreements
with respect to Debt, excluding, however (a) amortization of debt issuance
costs, commissions, fees and expenses and (b) customary commitment,
administrative and transaction fees and charges);
(2) dividends paid in respect of any Disqualified Stock of the Issuer or
any Restricted Subsidiary, or cash dividends paid in respect of any
Preferred Stock of a Restricted Subsidiary of the Issuer held by Persons
other than the Issuer or a Subsidiary; and
(3) commissions, discounts and other fees and charges incurred in
connection with a Qualified Receivables Transaction of the Issuer or any
Restricted Subsidiary,
in each case, on a consolidated basis and in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income of any Person that is not a Restricted Subsidiary or
that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash
to the referent Person or a Restricted Subsidiary of such Person and the
net losses of any such Person shall only be included to the extent funded
with cash or property from the Issuer or any Restricted Subsidiary;
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(2) the Net Income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, prohibited by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders unless such
restriction with respect to the payment of dividends has been permanently
waived;
(3) except for purposes of calculating the Consolidated Coverage Ratio,
the Net Income of any Person acquired in a pooling of interests transaction
for any period prior to the date of such acquisition shall be excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded (effected either through cumulative effect adjustment or a
retroactive application, in each case, in accordance with GAAP);
(5) to the extent deducted in determining Net Income, the fees, expenses
and other costs incurred in connection with the Recapitalization, including
payments to management contemplated by the Recapitalization Agreement or in
connection with the Issuer's transition to new ownership, in each case, to
the extent that such fee, expense, cost or payment was disclosed in this
prospectus, shall be excluded; and
(6) with respect to periods prior to the Issue Date, Consolidated Net
Income shall include (without duplication) all adjustments relating to
reductions in costs related to employee terminations, elimination of
certain unprofitable businesses, excess rebates related to the JDS program,
closing the Mexico manufacturing facility, excess labor costs associated
with the recognition segment and other items in each case of the type
reflected in the calculation of Adjusted EBITDA set forth in footnote 3 to
"Summary Consolidated Unaudited Pro Forma Financial Data". To the extent
that all employee terminations referred to above have not been completed
before the Issue Date, such costs shall be added back to Consolidated Net
Income in periods after the Issue Date; provided, however, that if
Consolidated Net Income is being calculated after September 30, 2000, the
expected cost savings of such employee terminations with respect to
employees that have not been terminated prior to the date of such
calculation shall not be added back to Consolidated Net Income.
"Coverage Ratio Exception" shall have the meaning set forth in the first
paragraph of the covenant described under the caption "--Certain Covenants--
Incurrence of Debt and Issuance of Preferred Stock."
"Credit Facilities" means, with respect to the Issuer and its Restricted
Subsidiaries, one or more unsubordinated debt facilities (including the New
Credit Facility) or commercial paper facilities with banks, insurance companies
or other institutional lenders providing for unsubordinated revolving credit
loans, unsubordinated term loans, unsubordinated notes, factoring or other
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from or issue
securities to such lenders against such receivables) or unsubordinated letters
of credit or other unsubordinated credit facilities, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement to which the Issuer or any
Restricted Subsidiary is a party or of which it is a beneficiary.
"Debt" means, with respect to any Person (without duplication):
(1) any indebtedness of such Person, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or reimbursement agreements in
respect thereof) or banker's acceptances or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property, which purchase price is due more than
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six months after the date of placing such property in final service or
taking final delivery thereof, or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade
payable, if and to the extent any of the foregoing indebtedness (other than
letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP;
(2) all indebtedness under clause (1) of other Persons secured by a Lien
on any asset of such Person (whether or not such indebtedness is assumed by
such Person) provided that the amount of indebtedness of such Person shall
be the lesser of:
(a) the fair market value of such asset at such date of
determination; and
(b) the amount of such indebtedness of such other Persons, and
(3) to the extent not otherwise included, the Guarantee by such Person
of any Debt under clause (1) of any other Person;
provided, however, that Debt shall not include:
(a) obligations and liabilities in respect of synthetic lease facilities
that are accounted for as operating leases in accordance with GAAP
(including Guarantees of loans then outstanding by the lenders under any
such facility to the lessor thereunder);
(b) obligations of the Issuer or any of its Restricted Subsidiaries
arising from agreements of the Issuer or a Restricted Subsidiary providing
for indemnification, adjustment of purchase price or similar obligations,
in each case, incurred or assumed in connection with the disposition of any
business, assets or a Subsidiary, other than guarantees of Debt incurred by
any Person acquiring all or any portion of such business, assets or a
Subsidiary for the purpose of financing such acquisition; provided,
however, that:
(i) such obligations are not reflected on the balance sheet of the
Issuer or any Restricted Subsidiary (contingent obligations referred to
in a footnote to financial statements and not otherwise reflected on
the balance sheet will not be deemed to be reflected on such balance
sheet for purposes of this clause (i)); and
(ii) the maximum assumable liability in respect of all such
obligations shall at no time exceed the gross proceeds including
noncash proceeds (the fair market value of such noncash proceeds being
measured at the time received and without giving effect to any
subsequent changes in value) actually received by the Issuer and its
Restricted Subsidiaries in connection with such disposition,
(c) (i) obligations under (or constituting reimbursement obligations
with respect to) letters of credit, performance bonds, surety bonds, appeal
bonds, completion guarantees or similar instruments issued in connection
with the ordinary course of a Permitted Business, including letters of
credit in respect of workers' compensation claims, security or lease
deposits and self-insurance; provided, however, that upon the drawing of
such letters of credit or other instrument, such obligations are reimbursed
within 30 days following such drawing, and (ii) obligations arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of day-light
overdrafts) drawn against insufficient funds in the ordinary course of
business; provided, however, that such obligations are extinguished within
three business days of incurrence;
(d) purchase price holdbacks in connection with purchasing in the
ordinary course of business of the Issuer and its Restricted Subsidiaries;
(e) leases of precious metals used in the ordinary course of business of
the Issuer and its Restricted Subsidiaries, whether or not accounted for as
operating leases under GAAP; or
(f) customer deposits in the ordinary course of business.
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Except as otherwise expressly provided in this definition, the amount of any
Debt outstanding as of any date shall be:
(i) the accreted value thereof, in the case of any Debt issued at a
discount to par value; and
(ii) the principal amount thereof in the case of any other Debt.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means:
(1) any Senior Debt outstanding under our credit facility; and
(2) any other Senior Debt permitted under the Indenture the outstanding
principal amount of which is $10.0 million or more and that has been
designated by the Issuer by notice to the Trustee as "Designated Senior
Debt."
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is:
(1) required to be redeemed or is redeemable at the option of the holder
of such class or series of Capital Stock at any time on or prior to the
date that is 91 days after the Stated Maturity of the Notes; or
(2) convertible into or exchangeable at the option of the holder thereof
for Capital Stock referred to in clause (1) above or Debt having a
scheduled maturity on or prior to the date that is 91 days after the Stated
Maturity of the Notes.
Notwithstanding the preceding sentence, (A) if such Capital Stock is issued
to any plan for the benefit of employees or by any such plan to such
employees, in each case in the ordinary course of business of the Issuer or
its Subsidiaries, such Capital Stock shall not constitute Disqualified Stock
solely because it may be required to be repurchased by the Issuer in order to
satisfy applicable statutory or regulatory obligations, (B) any Capital Stock
that would constitute Disqualified Stock solely because the holders of the
Capital Stock have the right to require the Issuer to repurchase such Capital
Stock upon the occurrence of a Change of Control or an Asset Sale will not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Issuer may not repurchase or redeem any such Capital Stock pursuant to
such provisions prior to the Issuer's purchase of such Notes as are required
to be repurchased pursuant to the provisions of the Indenture as described
under "--Repurchase at the Option of Holders--Change of Control" and (C) the
Senior Preferred Stock having the terms and conditions set forth in the
Certificate of Designation for the Senior Preferred Stock as in effect on the
Issue Date shall not constitute Disqualified Stock under the Indenture.
For purposes hereof, the amount of any Disqualified Stock shall be equal to
the greater of its voluntary or involuntary liquidation preference and its
maximum fixed repurchase price, but excluding accrued dividends, if any. The
"maximum fixed repurchase price" of any Disqualified Stock which does not have
a fixed repurchase price shall be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were purchased on any
date as of which the Consolidated Coverage Ratio shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Stock, such fair
market value shall be determined reasonably and in good faith by the Board of
Directors of the issuer of such Disqualified Stock.
"Domestic Subsidiary" means any Restricted Subsidiary of the Issuer other
than a Foreign Subsidiary.
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Debt" means Debt of the Issuer and its Restricted Subsidiaries
(other than Debt under the New Credit Facility) in existence on the Issue
Date, until such amounts are repaid.
"Foreign Subsidiary" means any Subsidiary of the Issuer formed under the
laws of any jurisdiction other than the United States or any political
subdivision thereof substantially all of the assets of which are located
outside of the United States or that conducts substantially all of its
business outside of the United States.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those 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 have been approved by a significant segment of the accounting
profession. All ratios and computations based on GAAP contained in the
Indenture shall be computed in conformity with GAAP as in effect as of the
Issue Date.
"Government Notes" means direct obligations (or certificates representing
an ownership interest in such obligations) of the United States of America
(including any agency or instrumentality thereof) for the payment of which the
full faith and credit of the United States of America is pledged and which are
not callable or redeemable at the issuer's option.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including letters of credit and reimbursement
agreements in respect thereof), of all or any part of any Debt.
"Guarantors" means:
(1) each of the Issuer's Restricted Subsidiaries on the Issue Date other
than any (a) Foreign Subsidiary and (b) Subsidiary that is a Receivables
Subsidiary; and
(2) each Restricted Subsidiary that executes and delivers a Note
Guarantee and a supplemental indenture assuming the obligations of a
Guarantor under the Indenture after the Issue Date, and their respective
successors and assigns, in each case until released from its Note Guarantee
in accordance with the terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under Interest Rate Agreements, Currency Agreements or Commodity
Hedging Agreements.
"Initial Control Group" means Investcorp S.A., Deutsche Bank Securities
Inc. and their respective Affiliates, any Person acting in the capacity of an
underwriter or initial purchaser in connection with a public or private
offering of the Issuer's Capital Stock, or any Permitted Transferee of any of
the foregoing Persons.
"Initial Purchasers" means Deutsche Bank Securities Inc., UBS Warburg LLC,
and Goldman, Sachs & Co.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, repurchase agreement, futures contract or other financial
agreement or arrangement designed to protect the Issuer or any Restricted
Subsidiary against fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (but excluding Guarantees of Debt not otherwise prohibited to
be incurred under the Indenture (to the extent that such Guarantees of Debt do
not then require cash payments by the Issuer and in the event that cash
payments are then required, such payments shall constitute an Investment under
the Indenture only 90 days subsequent to such payment)), advances or capital
contributions (excluding commission, travel, payroll, entertainment,
relocation and similar advances to officers
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and employees and profit sharing plan contributions made in the ordinary course
of business), and purchases or other acquisitions for consideration of Debt,
Equity Interests or other securities. If the Issuer or any Restricted
Subsidiary of the Issuer sells or otherwise disposes of any Equity Interests of
any direct or indirect Subsidiary of the Issuer such that, after giving effect
to any such sale or disposition, such Person is no longer a Subsidiary of the
Issuer, the Issuer 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 Equity
Interests of such Subsidiary not sold or disposed of in an amount determined as
provided in the second to last paragraph of the covenant described above under
the caption "--Certain Covenants--Restricted Payments."
"Issue Date" means May 10, 2000.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement or any lease in the
nature thereof); provided that in no event shall an operating lease be deemed
to constitute a Lien.
"Net Income" means, with respect to any Person and any period, the net
income (or loss) of such Person (but not any Subsidiaries) for such period,
determined in accordance with GAAP and before any reduction in respect of
Preferred Stock dividends of such Person (but not any Subsidiaries), excluding,
however:
(1) any extraordinary or non-recurring gains or losses or charges
(including non-cash charges resulting from any write-up, write-down or
write-off of amounts in connection with the Recapitalization) and gains or
losses or charges from the sale of assets outside the ordinary course of
business, together with any related provision for taxes on such gain or
loss or charges; and
(2) deferred financing costs written off in connection with the early
extinguishment of Debt;
provided, however, that Net Income shall be deemed to include any increases
during such period to shareholder's equity of such Person attributable to
tax benefits from net operating losses and the exercise of stock options
that are not otherwise included in Net Income for such period.
"Net Proceeds" means the aggregate cash proceeds or Cash Equivalents
received by the Issuer or any of its Restricted Subsidiaries in respect of any
Asset Sale (including any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including legal, accounting and investment banking
fees, and brokerage and sales commissions) and any relocation, redundancy and
closing costs incurred as a result thereof, taxes paid or payable as a result
thereof (after taking into account any available tax credits or deductions and
any tax sharing arrangements), amounts applied to the repayment of principal,
premium, if any, and interest on Debt that is not subordinated to the Notes
required (other than required by clause (1) of the second paragraph of "--
Repurchase at the Option of Holders--Asset Sales") to be paid as a result of
such transaction, all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Sale, and any deduction of appropriate amounts to be provided by the
Issuer as a reserve in accordance with GAAP against any liabilities associated
with the asset disposed of in such transaction and retained by the Issuer after
such sale or other disposition thereof, including pension and other post-
employment benefit liabilities and liabilities related to environmental matters
or against any indemnification obligations associated with such transaction.
"New Credit Facility" means the Credit Agreement expected to be dated as of
May 10, 2000 among the Issuer, the Subsidiaries of the Issuer party thereto and
the financial institutions named therein, and any related notes, collateral
documents, letters of credit and Guarantees, including any appendices, exhibits
or schedules to any of the foregoing (as the same may be in effect from time to
time), in each case, as such agreements may be amended, modified, supplemented
or restated from time to time, or refunded, refinanced, restructured, replaced,
renewed, repaid or extended from time to time (whether with the original agents
and lenders or other agents or lenders or otherwise, and whether provided under
the original credit agreement or other credit agreements or otherwise).
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"Note Guarantee" means the unconditional Guarantee by each Guarantor of the
Issuer's Obligations under the Notes.
"Notes" means the $225,000,000 aggregate principal amount of 12 3/4% Senior
Subordinated Notes due 2010 issued by the Issuer on the Issue Date pursuant to
the Indenture together with any Additional Notes and any exchange notes issued
pursuant to this exchange offer.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages, Guarantees and other liabilities
payable under the documentation governing any Debt, in each case, whether now
or hereafter existing, renewed or restructured, whether or not from time to
time decreased or extinguished and later increased, created or incurred,
whether or not arising on or after the commencement of a proceeding under Title
11, U.S. Code or any similar federal or state law for the relief of debtors
(including post-petition interest) and whether or not allowed or allowable as a
claim in any such proceeding.
"Officers" means any of the following: Chairman, President, Chief Executive
Officer, Treasurer, Chief Financial Officer, Executive Vice President, Senior
Vice President, Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer reasonably acceptable to the Trustee.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Issuer or the Trustee.
"Pari Passu Debt" means any Debt of the Issuer or any Guarantor that ranks
pari passu with the Notes or the relevant Note Guarantee.
"Permitted Business" means the businesses conducted by the Issuer and its
Subsidiaries as of the date of the Indenture and any other business reasonably
related, complementary or incidental to any of those businesses including the
provision of goods or services related to educational institutions.
"Permitted Investments" means:
(1) any Investment in the Issuer or in a Restricted Subsidiary
(including in any Equity Interests of a Restricted Subsidiary);
(2) any Investment in (a) cash or Cash Equivalents or (b) to the extent
determined by the Issuer in good faith to be necessary for local currency
working capital requirements of a Foreign Subsidiary, other cash
equivalents, provided in the case of clause (b), the Investment is made by
the Foreign Subsidiary having such operations;
(3) any Investment by the Issuer or any Restricted Subsidiary of the
Issuer in a Person, if as a result of such Investment (A) such Person
becomes a Restricted Subsidiary or (B) such Person, in one transaction or a
series of substantially concurrent related transactions, is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Issuer or a
Restricted Subsidiary;
(4) any securities received or other Investments made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales" or in connection with
any other disposition of assets not constituting an Asset Sale;
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of the Issuer;
(6) any Investments relating to a Receivables Subsidiary;
(7) loans or advances to employees (or guarantees of third-party loans
to employees) in the ordinary course of business or pursuant to a stock
loan program;
(8) stock, obligations or securities received in satisfaction of
judgments, foreclosure of liens or settlement of debts (whether pursuant to
a plan of reorganization or similar arrangement);
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(9) receivables owing to the Issuer or any Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms (including such
concessionary terms as the Issuer or such Restricted Subsidiary deems
reasonable);
(10) any Investment existing on the Issue Date or made pursuant to
legally binding written commitments in existence on the Issue Date which
Investment is disclosed in this prospectus;
(11) Investments in Interest Rate Agreements, Currency Agreements and
Commodity Hedging Agreements not otherwise prohibited under the Indenture;
(12) any Investment in a Permitted Business having an aggregate fair
market value, taken together with all other Investments made pursuant to
this clause (12) that are at that time outstanding, not to exceed 10.0% of
Total Assets at the time of such Investment (with the fair market value of
each Investment being measured at the time made and without giving effect
to subsequent changes in value); and
(13) additional Investments having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (13) that
are at that time outstanding, not to exceed 2.5% of Total Assets at the
time of such Investment (with the fair market value of each Investment
being measured at the time made and without giving effect to subsequent
changes in value).
"Permitted Junior Securities" means debt or equity securities of the Issuer,
any Guarantor or any successor corporation to the Issuer or such Guarantor
issued pursuant to a plan of reorganization or readjustment of the Issuer or
such Guarantor that are subordinated to the payment of all then outstanding
Senior Debt of the Issuer or such Guarantor, as applicable, at least to the
extent that (i) in the case of the Issuer, the Notes are subordinated to the
payment of all Senior Debt on the Issue Date and (ii) in the case of such
Guarantor, that the Note Guarantee of such Guarantor is subordinated to the
payment of Senior Debt of such Guarantor on the Issue Date, so long as:
(1) the effect of the use of this defined term in the subordination
provisions described under the caption "--Subordination" is not to cause
the Notes or the Note Guarantee, as applicable to be treated as part of (A)
the same class of claims as the Senior Debt of the Issuer or such
Guarantor, as applicable, or (B) any class of claims pari passu with, or
senior to, the Senior Debt of the Issuer or such Guarantor, as applicable,
for any payment or distribution in any case or proceeding or similar event
relating to the liquidation, insolvency, bankruptcy, dissolution, winding
up or reorganization of the Issuer or such Guarantor; and
(2) to the extent that any Senior Debt of the Issuer or such Guarantor,
as applicable, outstanding on the date of consummation of any such plan of
reorganization or readjustment is not paid in full in cash on such date,
either (A) the holders of any such Senior Debt not so paid in full in cash
have consented to the terms of such plan of reorganization or readjustment
or (B) such holders receive securities which constitute Senior Debt of the
Issuer or such Guarantor, as applicable, and which have been determined by
the relevant court to constitute satisfaction in full in money or money's
worth of any Senior Debt of the Issuer or such Guarantor, as applicable,
not paid in full in cash.
"Permitted Liens" means:
(1) Liens securing Senior Debt of the Issuer or Debt of a Restricted
Subsidiary (in each case including related Obligations) that was permitted
by the terms of the Indenture to be incurred;
(2) Liens in favor of the Issuer or any Restricted Subsidiary;
(3) Liens on property (i) existing at the time of acquisition thereof or
(ii) of a Person existing at the time such Person is merged into or
consolidated with or acquired by the Issuer or any Restricted Subsidiary of
the Issuer; provided that such Liens were in existence prior to the
contemplation of such acquisition, merger or consolidation and do not
extend to any assets other than those acquired or to those of the Person
merged into or consolidated with the Issuer or a Restricted Subsidiary, as
the case may be;
(4) Liens that secure Debt of a Person existing at the time any such
Person becomes a Restricted Subsidiary of the Issuer; provided that such
Liens do not extend to any assets other than those of the Person that
became a Restricted Subsidiary of the Issuer;
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(5) banker's Liens, rights of setoff and Liens to secure the performance
of bids, tenders, trade or government contracts (other than for borrowed
money), leases, licenses, statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the
ordinary course of business;
(6) without limitation of clause (1) above, Liens to secure Debt
(including Capital Lease Obligations) permitted by clause (4) of the second
paragraph of the covenant described under the caption "--Certain
Covenants--Incurrence of Debt and Issuance of Preferred Stock" covering
only the assets acquired, leased, constructed or improved with such Debt;
(7) Liens existing on the Issue Date;
(8) customary Liens incurred in connection with a Qualified Receivables
Transaction;
(9) (A) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other like Liens arising in the ordinary
course of business and (B) Liens for taxes, assessments or governmental
charges or claims, in each case, that are not yet due or delinquent or that
are bonded or that are being contested in good faith and by appropriate
proceedings; provided that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made therefor;
(10) Liens, pledges or deposits in connection with (A) workmen's
compensation, obligations and general liability exposure of the Issuer and
its Restricted Subsidiaries and (B) unemployment insurance and other social
security legislation;
(11) Liens on goods (and the proceeds thereof) and documents of title
and the property covered thereby securing Debt in respect of commercial
letters of credit;
(12) (A) mortgages, Liens, security interests, restrictions,
encumbrances or any other matters of record that have been placed by any
developer, landlord or other third party on property over which the Issuer
or any Restricted Subsidiary of the Issuer has easement rights or on any
real property leased by the Issuer or any Restricted Subsidiary on the
Issue Date and subordination or similar agreements relating thereto and (B)
any condemnation or eminent domain proceedings affecting any real property;
(13) Liens arising by reason of a judgment, decree or court order, to
the extent not otherwise resulting in an Event of Default, and any Liens
that are required to protect or enforce any rights in any administrative,
arbitration or other court proceedings in the ordinary course of business;
(14) Liens securing Hedging Obligations entered into in the ordinary
course of business;
(15) without limitation of clause (1) above, Liens securing Refinancing
Debt permitted to be incurred under the Indenture or amendments or renewals
of Liens that were permitted to be incurred; provided, in each case, that
such Liens do not extend to any additional property or asset of the Issuer
or a Restricted Subsidiary;
(16) any provision for the retention of title to an asset by the vendor
or transferor of such asset which asset is acquired by the Issuer or any
Restricted Subsidiary in a transaction entered into in the ordinary course
of business of the Issuer or such Restricted Subsidiary;
(17) Liens that secure Debt incurred by Foreign Subsidiaries for working
capital purposes (including acquisitions), and by the Issuer or any of its
Restricted Subsidiaries of Guarantees of Debt of Foreign Subsidiaries or
foreign joint ventures; provided that the aggregate principal amount of
such Debt and of the Debt so Guaranteed at any time outstanding does not
exceed $30.0 million or was permitted to be incurred pursuant to the
Coverage Ratio Exception; and
(18) Liens incurred in the ordinary course of business of the Issuer or
any Restricted Subsidiary of the Issuer with respect to obligations that do
not exceed $5.0 million at any one time outstanding and that (A) are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (B) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Issuer or such Restricted Subsidiary.
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"Permitted Refinancing Debt" means any Debt of the Issuer or any of its
Restricted Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other Debt of
the Issuer or any of its Restricted Subsidiaries incurred in compliance with
the Indenture; provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Debt does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Debt so
extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable premium and fees and expenses incurred in connection
therewith);
(2) in the case of term Debt, principal payments required under such
Permitted Refinancing Debt have a Stated Maturity no earlier than the
earlier of (A) the Stated Maturity of those under the Debt being refinanced
and (B) the maturity date of the Notes and such Permitted Refinancing Debt
has a Weighted Average Life to Maturity equal to or greater than the lesser
of the Weighted Average Life to Maturity of the Debt being extended,
refinanced, renewed, replaced, defeased or refunded and the Weighted
Average Life to Maturity of the Notes;
(3) if the Debt being extended, refinanced, renewed, replaced, defeased
or refunded is subordinated in right of payment to the Notes, such
Permitted Refinancing Debt has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the holders of Notes as those contained in
the documentation governing the Debt being extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) such Debt is incurred either by the Restricted Subsidiary who is the
obligor on the Debt being extended, refinanced, renewed, replaced, defeased
or refunded or by the Issuer.
The Issuer may incur Permitted Refinancing Debt not more than six months
prior to the application of the proceeds thereof to repay the Debt to be
refinanced; provided that upon the incurrence of such Permitted Refinancing
Debt, the Issuer shall provide written notice thereof to the Trustee,
specifically identifying the Debt to be refinanced with Permitted Refinancing
Debt.
"Permitted Transferee" means, with respect to any Person:
(1) any other Person, directly or indirectly, controlling or controlled
by or under direct or indirect common control with such specified Person;
and
(2) any investment fund or investment entity that is a subsidiary of
such Person or a Permitted Transferee of such Person.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
such Person (however designated) that is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person. With respect to the Issuer,
"Preferred Stock" includes the Senior Preferred Stock.
"Pro Forma Cost Savings" means, with respect to any period ended on any
Calculation Date, the reductions in costs with respect to the applicable four-
quarter reference period that (1) are directly attributable to any Investments,
acquisitions, dispositions, mergers, consolidations or discontinued operations
and calculated on a basis that is consistent with Article 11 of Regulation S-X
under the Securities Act as in effect on the date of the Indenture or (2) have
begun to be implemented prior to the Calculation Date by, or have been
identified and approved in good faith by the Board of Directors of, the Issuer,
any Restricted Subsidiary or the business that was the subject of any such
Investments, acquisitions, dispositions, mergers, consolidations or
discontinued
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operations pursuant to a formalized plan, in the case of each of clause (1) and
(2), based on a supportable, good faith estimate of the Chief Financial Officer
or other senior financial officer of the Issuer and determined on a pro forma
basis as if all such reductions in costs had been effected as of the beginning
of such period, decreased by any incremental expenses (other than capitalized
expenses) incurred or to be incurred during the four-quarter reference period
in order to achieve such reduction in costs.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Issuer, any Restricted Subsidiary
or any Receivables Subsidiary pursuant to which the Issuer, any Restricted
Subsidiary or any Receivables Subsidiary may sell, convey or otherwise transfer
to, or grant a security interest in for the benefit of, (a) a Receivables
Subsidiary (in the case of a transfer or encumbrancing by the Issuer or a
Restricted Subsidiary) and (b) any other Person, accounts and other receivables
(whether now existing or arising in the future) of the Issuer or a Restricted
Subsidiary which arose in the ordinary course of business of the Issuer or a
Restricted Subsidiary, and any assets related thereto, including all collateral
securing such receivables, all contracts and all guarantees or other
obligations in respect of such receivables, proceeds of such receivables and
other assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization or
factoring transactions involving receivables.
"Recapitalization" means the recapitalization of the Issuer pursuant to
which Saturn Acquisition Corporation was merged with and into the Issuer and
the financing transactions related thereto.
"Recapitalization Agreement" means the Agreement and Plan of Merger dated as
of December 27, 1999 by and between the Issuer and Saturn Acquisition
Corporation, as amended through the Issue Date.
"Receivables Subsidiary" means a Wholly Owned Subsidiary of the Issuer which
engages in no activities other than in connection with the financing of
receivables and related assets which is designated by the Board of Directors of
the Issuer (as provided below) as a Receivables Subsidiary (a) no portion of
any Debt or any other obligations (contingent or otherwise) of which, directly
or indirectly, contingently or otherwise, (1) is guaranteed by the Issuer or a
Restricted Subsidiary of the Issuer (excluding Standard Securities
Undertakings), (2) is recourse to or obligates the Issuer or a Restricted
Subsidiary of the Issuer in any way other than pursuant to Standard
Securitization Undertakings, or (3) subjects any asset of the Issuer or a
Restricted Subsidiary of the Issuer to the satisfaction thereof, other than
Standard Securitization Undertakings, (b) with which neither the Issuer nor a
Restricted Subsidiary of the Issuer has any material contract, agreement,
arrangement or understanding other than those customarily entered into in
connection with Qualified Receivables Transactions, and (c) with which neither
the Issuer nor a Restricted Subsidiary of the Issuer has any obligation,
directly or indirectly, contingently or otherwise, to maintain or preserve such
Subsidiary's financial condition or cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors of
the Issuer shall be evidenced to the Trustee by the filing with the Trustee a
certified copy of the resolution of the Board of Directors of the Issuer giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions.
"Representative" means any agent or representative in respect of any
Designated Senior Debt; provided that if, and for so long as, any Designated
Senior Debt lacks such a representative, then the Representative for such
Designated Senior Debt shall at all times constitute the holders of a majority
in outstanding principal amount of such Designated Senior Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payments Basket" shall have the meaning set forth in clause
(4)(c) of the first paragraph of the covenant described under the caption "--
Certain Covenants--Restricted Payments."
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Secured Debt" means any Debt of the Issuer or any Guarantor secured by a
Lien.
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"Senior Debt" means:
(1) all Debt of the Issuer or any Guarantor outstanding under the New
Credit Facility and all Hedging Obligations with respect thereto;
(2) any other Debt (including Acquired Debt) permitted to be incurred by
the Issuer or any Guarantor under the terms of the Indenture, unless the
instrument under which such Debt is incurred expressly provides that it is
on a parity with or subordinated in right of payment to the Notes or the
relevant Note Guarantee; and
(3) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing
by the Issuer;
(2) any Debt of the Issuer or any Guarantor to any of its Subsidiaries
or other Affiliates (other than Debt under any Credit Facility to any such
Affiliate);
(3) any trade payables;
(4) that portion of Debt incurred in violation of the covenant described
above under the caption""--Certain Covenants--Incurrence of Debt and
Issuance of Preferred Stock" (but as to any such Debt under any Credit
Facility, no such violation shall be deemed to exist for purposes of this
clause (4) if the lenders have obtained a representation from a responsible
financial officer of the Issuer to the effect that the issuance of such
Debt does not violate such covenant); or
(5) any Debt or obligation of the Issuer or any Guarantor which is
expressly subordinated in right of payment to any other Debt or obligation
of the Issuer or such Guarantor, as applicable, including any Subordinated
Debt of the Issuer.
"Senior Officer" means the Chief Executive Officer or the Chief Financial
Officer of the Issuer.
"Significant Subsidiary" means (a) any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such regulation is in effect on
the Issue Date or (b) any one or more Restricted Subsidiaries of the Issuer
that (1) are not otherwise Significant Subsidiaries, (2) as to which any event
described in clause (6), (7) or (8) under "-- Events of Default and Remedies"
has occurred and is continuing and (3) would together constitute a Significant
Subsidiary under clause (a) of this definition.
"Specified Affiliate Payments" means:
(1) the direct or indirect repurchase, redemption or other acquisition
or retirement for value of any Equity Interests of the Issuer or any
Restricted Subsidiary of the Issuer, held by any future, present or former
employee, director, officer or consultant of the Issuer (or any of its
Restricted Subsidiaries) pursuant to any management equity subscription
agreement, stock option agreement or plan, stock ownership plan, put
agreement, stockholder agreement or similar agreement that may be in effect
from time to time; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $5.0 million in any calendar year (with unused amounts in any
calendar year being carried over to succeeding calendar years subject to a
maximum amount of repurchases, redemptions or other acquisitions or
retirements pursuant to this clause (1) (without giving effect to the
immediately following proviso) of $10.0 million in any calendar year) and
no payment default on Senior Debt or the Notes shall have occurred and be
continuing; provided further that such amount in any calendar year may be
increased by an amount not to exceed:
(a) the cash proceeds received by the Issuer (including by way of
capital contribution) since the Issue Date from the sale of Equity
Interests of the Issuer to employees, directors, officers or
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consultants of, the Issuer or its Subsidiaries that occurs in such
calendar year (it being understood that such cash proceeds shall be
excluded from clause (c)(2) of the first paragraph under the covenant
described under the caption "--Certain Covenants--Restricted Payments")
plus
(b) the cash proceeds from key man life insurance policies received
by the Issuer and its Restricted Subsidiaries in such calendar year
(including proceeds from the sale of such policies to the person
insured thereby); and
provided further that cancellation of Debt owing to the Issuer from
employees, directors, officers or consultants of the Issuer or any of its
Subsidiaries in connection with a repurchase of Equity Interests of the
Issuer will not be deemed to constitute a Restricted Payment for purposes
of the Indenture;
(2) repurchases of Equity Interests deemed to occur upon exercise of
stock options or warrants as a result of the payment of all or a portion of
the exercise price of such options or warrants with Equity Interests; and
(3) payments by the Issuer to shareholders or members of management of
the Issuer and its Subsidiaries in connection with the Recapitalization
that are reflected as adjustments to the pro forma financial statements
included in this offering memorandum.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Issuer or a Restricted Subsidiary
which are reasonably customary in a receivables securitization transaction.
"Stated Maturity" means, with respect to any installment of interest on or
principal of, or any other amount payable in respect of, any series of Debt,
the date on which such interest, principal or other amount was scheduled to be
paid in the documentation governing such Debt, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest,
principal or other amount prior to the date scheduled for the payment thereof.
"Subordinated Debt" means any Debt of the Issuer or any Guarantor (whether
outstanding on the Issue Date or thereafter incurred) that is subordinate or
junior in right of payment to the Notes or the applicable Note Guarantee
pursuant to written agreement.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the
only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
Unless otherwise specified, "Subsidiary" refers to a Subsidiary of the
Issuer.
"Total Assets" means, at any time, the total consolidated assets of the
Issuer and its Restricted Subsidiaries at such time, determined in accordance
with GAAP. For the purposes of paragraph (4) of the covenant described under
the caption "--Certain Covenants--Incurrence of Debt and Issuance of Preferred
Stock," Total Assets shall be determined giving pro forma effect to the lease,
acquisition, construction or improvement of the assets being leased, acquired,
constructed or improved with the proceeds of the relevant Debt.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical
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Release H. 15(519) which has become publicly available at least two Business
Days prior to the redemption date (or, if such Statistical Release is no longer
published, any publicly available source or similar market data)) most nearly
equal to the period from the redemption date to May 1, 2005; provided, however,
that if the period from the redemption date to May 1, 2005 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the redemption date to May 1, 2005 is
less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Issuer that is designated an Unrestricted
Subsidiary by the Board of Directors of the Issuer in the manner provided
under "--Certain Covenants--Limitations on Designations of Unrestricted
Subsidiaries"; and
(2) any Subsidiary of an Unrestricted Subsidiary;
but only to the extent permissible under the Indenture, as described above
under "--Certain Covenants--Limitations on Designations of Unrestricted
Subsidiaries."
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Debt at any
date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect thereof,
by (b) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment, by
(2) the then outstanding principal amount of such Debt.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF THE WARRANTS
The warrants to purchase Class E common stock of Jostens were issued
pursuant to a warrant agreement (the "Warrant Agreement"), dated as of May 10,
2000, between the Issuer and The Bank of New York, as Warrant Agent.
General
Each warrant, when exercised, will entitle the holder to purchase 1.889155
shares of our Class E common stock at a price equal to $0.01 per share. The
number of shares issuable upon exercise of a warrant is subject to adjustment
in certain cases as described below. In the aggregate, the warrants represent
the right to purchase shares of our Class E common stock representing 4.0% of
the total number of shares of our common equity (of all classes) outstanding on
a fully diluted basis.
The warrants are exercisable at any time prior to May 1, 2010. The number of
shares issuable upon exercise of a warrant, was initially 1.889155 and is
subject to adjustment from time to time upon the occurrence of certain events.
Registration Rights
Registration Rights
Pursuant to a warrant registration rights agreement, if we propose to effect
a public offering, we must, not later than the date of the initial filing of
the related registration statement, provide written notice to the holders of
the warrants and the warrant shares. Each holder will have the right, within 15
days after receipt of such notice, to request that Jostens include such
holder's shares subject to the warrant for sale pursuant to such registration
statement. We will include in any public offering all the warrant shares for
which we receive notice pursuant to the preceding sentence subject to certain
"underwriter's cutback" provisions which may reduce the number of warrant
shares offered.
In addition, at any time following 90 days, subject to any lock-up period
then in effect, after the completion of an initial public offering, on one
separate occasion only, holders of 25% of the outstanding warrants and warrant
shares will have the right to require Jostens, at the expense of Jostens (other
than customary underwriting and broker commissions), to file a registration
statement for the registration of resale of the warrants and warrant shares.
Tag-Along Rights; Mandatory Redemption
Holders of warrants and warrant shares shall have the benefit of tag-along
rights and, whether or not the Warrants have been exercised, will be subject to
the mandatory redemption provisions of sections 4 and 5 of article IV of our
articles of incorporation. See "Description of Capital Stock--New Common
Stock--Tag-Along Rights; Mandatory Redemption" for a description of these
provisions.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
General
The following is a general discussion of certain United States federal
income tax considerations relating to the exchange of the outstanding notes for
the notes issued in this exchange offer. This discussion is based upon the
Internal Revenue Code of 1986 as amended (the "Code"), existing and proposed
Treasury Regulations, and judicial decisions and administrative interpretations
thereunder, as of the date hereof, all of which are subject to change, possibly
with retroactive effect, or are subject to different interpretations. We cannot
assure you that the Internal Revenue Service (the "IRS") will not challenge one
or more of the tax considerations described herein, and we have not obtained,
nor do we intend to obtain, a ruling from the IRS or an opinion of counsel with
respect to the United States federal tax considerations resulting from exchange
of, holding or disposing of the notes.
In this discussion, we do not purport to address all tax considerations that
may be important to a particular holder in light of the holder's circumstances,
or to certain categories of investors (such as certain financial institutions,
insurance companies, tax-exempt organizations, dealers in securities, persons
who hold notes through partnerships or other pass-through entities, U.S.
expatriates, or persons who hold the notes as part of a hedge, conversion
transaction, straddle or other risk reduction transaction) that may be subject
to special rules. This discussion is limited to holders who hold the notes as
capital assets. This discussion also does not address the tax considerations
arising under the laws of any foreign, state or local jurisdiction.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSIDERATIONS TO YOU OF THE EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION
OF THE NOTES, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL OR FOREIGN
TAX LAWS.
U.S. Holders
As used herein, the term "non-U.S. holder" means a holder of notes that is
not any of the following:
(1) a citizen or resident of the United States for United States federal
income tax purposes;
(2) a corporation created or organized in or under the laws of the United
States or of any political subdivision thereof;
(3) an estate, the income of which is subject to United States federal
income taxation regardless of its source; or
(4) a trust that either is subject to the supervision of a court within the
United States and which has one or more United States persons with
authority to control all substantial decisions, or has a valid election
in effect under applicable U.S. Treasury regulations to be treated as a
U.S. person.
As used herein, the term "U.S. holder" means any holder other than a non-
U.S. holder, as defined.
The Notes
Exchange Pursuant to Exercise of Registration Rights
Neither an exchange of outstanding notes for exchange notes nor the filing
of a registration statement with respect to the resale of the notes should be a
taxable event to you, and you should not recognize any taxable gain or loss or
any interest income as a result of such exchange or such filing.
Stated Interest
Stated interest on a note will be includible in your gross income as
ordinary interest income in accordance with your usual method of accounting for
tax purposes.
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Original Issue Discount
The "issue price" of a unit for U.S. federal income tax purposes equalled
the first price at which a substantial number of units were sold for money,
excluding sales to underwriters, placement agents or wholesalers. The issue
price of a note was determined by allocating the issue price of the units
between the notes and the warrants in proportion to their relative fair market
values. We allocated the issue price of each unit as follows: $911.73 to each
note and $47.70 to each warrant. Our allocation of the issue price is binding
on you unless you explicitly disclose on a statement attached to your income
tax return that you have made a different determination.
Because the units were sold at a substantial discount from their principal
amount at maturity, and a portion of the offering price for a unit was
allocated to the warrants, the issuance of the notes resulted in original issue
discount, referred to as "OID," in an amount equal to the excess of the "stated
redemption price at maturity" over the issue price of the notes. The "stated
redemption price at maturity" is the sum of all payments to be made on the
notes other than "qualified stated interest." The term "qualified stated
interest" means, generally, stated interest that is unconditionally payable at
least annually at a single fixed rate.
In general, you must include in income OID calculated on a constant-yield
accrual method in advance of the receipt of some or all of the related cash
payments. The amount of OID includible in income by you is the sum of the
"daily portions" of OID with respect to the notes for each day during the
taxable year or portion of the taxable year in which you hold such notes. This
amount is referred to as "Accrued OID." The daily portion is determined by
allocating to each day in any accrual period a pro rata portion of the OID
allocable to that accrual period. The amount of OID allocable to any accrual
period is equal to:
. the product of the notes' adjusted issue price at the beginning of such
accrual period and its yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly adjusted
for the length of the accrual period) less
. the qualified stated interest allocable to such accrual period.
OID allocable to the final accrual period is the difference between the
amount payable at maturity of the notes (other than qualified stated interest)
and the notes' "adjusted issue price" at the beginning of the final accrual
period. Special rules will apply calculating OID for an initial short accrual
period. The "adjusted issue price" of a note at the beginning of any accrual
period is equal to its issue price, increased by the Accrued OID for each prior
accrual period and reduced by any payments other than qualified stated interest
made on such note on or before the first day of the accrual period.
We will furnish annually to the IRS and to holders (other than with respect
to certain exempt holders, including, in particular, corporations) information
with respect to the OID accruing while notes were held by the holders. You may
be required to include different amounts of OID in gross income based on your
individual circumstances.
Market Discount
If you acquire a note at a "market discount", some or all of any gain
realized upon a disposition of, or full or partial principal payment on such
note may be treated as ordinary income, as described below. "Market discount"
is the excess (if any) of the principal amount of a note over your initial tax
basis in the note. Such excess is not treated as market discount if it does not
exceed a certain de minimis amount. Unless you have elected to include the
market discount in income as it accrues, gain, if any, realized on a
disposition or a full or partial principal payment of a note with market
discount will be treated as ordinary income to the extent of the market
discount that is treated as having accrued during the period you held such
note. Gain may not be required to be recognized if you dispose of a note in
connection with certain nonrecognition transactions.
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The amount of market discount treated as having accrued will be determined
on a ratable basis unless you elect to accrue such discount on a constant
interest basis. You may make that election with respect to any note but, once
made, such election may never be revoked. Under the ratable accrual method, the
accrued market discount on a note is an amount that bears the same ratio to the
total market discount on the note as (A) the number of days you held the note
bears to (B) the number of days after the date you acquired the note up to and
including the date of maturity. In other words:
Accrued Market Discount =Number of Days Note Held
--------------------- ---------------------
Total Market Discount Number of Days After Date of Acquisition to Date of
Maturity.
Under the constant interest method, the accrued market discount is
calculated using the purchased note's yield to maturity based on the purchase
price. The yield to maturity is the interest rate at which the present value of
all principal and interest payments to be made under the note equals the
purchase price of the note. It must be constant over the term of the note. You
may elect to include market discount in income currently, on either a ratable
or constant interest basis. If you make this election, you will not be required
to recharacterize gain upon disposition as ordinary income as discussed above.
Once made, this election will apply to all debt instruments acquired by you at
a market discount during the taxable year for which the election is made, and
all subsequent taxable years. This election may be revoked only with the
consent of the IRS. If you make this election, your tax basis in the note will
be increased by the amount of the market discount that is included in income.
Unless you elect to include market discount in income currently, you may be
required to defer deductions for a portion of the interest paid on debt created
to acquire a note. The amount deferred will not exceed the deferred market
discount. The deferred amount will be deductible when the deferred market
discount is realized.
Bond Premium
If you purchase a note and immediately after the purchase your tax basis in
the note exceeds the sum of all amounts payable on the note after the purchase
date (other than payments of stated interest), the note will be treated as
having been acquired with "bond premium". You may elect to amortize such bond
premium over the remaining term of such note using the constant yield method,
but only as you take stated interest into account under your regular method of
tax accounting (or, if it results in a smaller amount of amortizable bond
premium, until an earlier call date).
If bond premium is amortized, the amount of interest that must be included
in your income for each period ending on an interest payment date or at the
stated maturity of the note, as the case may be, will be reduced. The reduction
will be equal to the portion of premium allocable to such period based on your
yield to maturity with respect to the note as determined under the bond premium
rules. If you elect to amortize bond premium, you must reduce your tax basis in
the note as described below under "-- Sale, Exchange or Redemption of the
Notes". If you do not elect to amortize bond premium, you must include the full
amount of each interest payment as ordinary income in accordance with your
regular method of tax accounting. You may receive a tax benefit (in the form of
capital loss or reduced capital gain) from the premium only in computing your
gain or loss upon the sale or disposition or payment of the principal amount of
the note.
An election to amortize premium will apply to amortizable bond premium on
all notes and other bonds held at the beginning of your first taxable year to
which the election applies (if the interest on such notes or bonds is
includible in the your gross income) or that are thereafter acquired. This
election may be revoked only with the consent of the IRS.
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Optional Redemption
The notes may be redeemed prior to their stated maturity at the option of
Jostens or the holders upon certain circumstances. We do not anticipate that
either Jostens' or the holders' ability to redeem or cause the redemption of
the notes prior to the stated maturity thereof would affect the yield of the
notes for U.S. federal income tax purposes.
Sale, Exchange or Redemption of the Notes
Upon the disposition of a note by sale, exchange or redemption, you will
generally recognize gain or loss equal to the difference between (i) the amount
realized on the disposition (other than amounts attributable to accrued
interest) and (ii) your adjusted federal income tax basis in the note. Your
adjusted federal income tax basis in a note generally will equal the cost of
the note (other than amounts attributable to accrued interest), increased by
the amount of OID you previously included in income, and decreased by payments
previously received by you other than payments of stated interest and any
premium amortized by you.
Assuming that the note is held as a capital asset, subject to the market
discount rules discussed above, such gain or loss will generally constitute
capital gain or loss and will be long-term capital gain or loss if you have
held the note for longer than one year. Non-corporate taxpayers are generally
subject to a maximum regular federal income tax rate of 20% on net long-term
capital gains. The deductibility of capital losses is subject to certain
limitations.
Backup Withholding and Information Reporting
Under the Code, you may be subject, under certain circumstances, to
information reporting and/or backup withholding at a 31% rate with respect to
cash payments in respect of the notes. This withholding applies only if you (i)
fail to furnish your social security or other taxpayer identification number
("TIN") within a reasonable time after a request therefor, (ii) furnish an
incorrect TIN, (iii) fail to report interest properly, or (iv) fail, under
certain circumstances, to provide a certified statement, signed under penalty
of perjury, that the TIN provided is your correct number and that you are not
subject to backup withholding. Any amount withheld from a payment under the
backup withholding rules is allowable as a credit against your United States
federal income tax liability (and may entitle you to a refund), provided that
the required information is furnished to the IRS. Certain persons are exempt
from backup withholding, including corporations and certain financial
institutions. You should consult your tax advisor as to your qualification for
exemption from withholding and the procedure for obtaining such exemption.
Non-United States Holders
U.S. Federal Withholding Tax
The 30% U.S. federal withholding tax will not apply to any payment of
principal or interest (including original issue discount) on a particular
series of notes provided that:
. you do not actually (or constructively) own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and the U.S. Treasury regulations;
. you are not a controlled foreign corporation that is related to us
through stock ownership; and
. you are not a bank whose receipt of interest on the notes is pursuant to
a loan agreement entered into in the ordinary course of business; and
(a) you provide your name and address on an IRS Form W-8BEN (or
successor form), and certify, under penalty of perjury, that you are not
a U.S. person or (b) a financial institution holding the notes on your
behalf certifies, under penalty of perjury, that it has received an IRS
Form W-8BEN (or successor form) from the beneficial owner and provides
us with a copy.
If you cannot satisfy the requirements described above, payments of
principal and interest made to you will be subject to the 30% U.S. federal
withholding tax, unless you provide us with a properly executed (1) IRS Form W-
8BEN (or successor form) claiming an exemption from (or a reduction of)
withholding under the
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benefit of a tax treaty or (2) IRS Form W-8ECI (or successor form) stating that
interest paid on the note is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business in the United
States.
The 30% U.S. federal withholding tax will generally not apply to any gain or
income that you realize on the sale, exchange, or other disposition of the
notes.
U.S. Federal Estate Tax
Your estate will not be subject to U.S. federal estate tax on notes
beneficially owned by you at the time of your death, provided that (1) you do
not own 10% or more of the total combined voting power of all classes of our
voting stock (within the meaning of the Code and the U.S. Treasury Regulations)
and (2) interest on that note would not have been, if received at the time of
your death, effectively connected with the conduct by you of a trade or
business in the United States.
U.S. Federal Income Tax
If you are engaged in a trade or business in the United States and interest
on the notes is effectively connected with the conduct of that trade or
business, you will be subject to U.S. federal income tax on the interest on a
net income basis (although exempt from the 30% withholding tax) in the same
manner as if you were a U.S. person as defined under the Code. In addition, if
you are a foreign corporation, you may be subject to a branch profits tax equal
to 30% (or lower applicable treaty rate) of your earnings and profits for the
taxable year that are effectively connected with the conduct by you of a trade
or business in the United States. For this purpose, interest on notes will be
included in earnings and profits if so effectively connected.
Any gain or income realized on the sale, exchange, or redemption of notes
generally will not be subject to U.S. federal income tax unless:
. that gain or income is effectively connected with the conduct of a trade
or business in the United States by you,
. you are an individual who is present in the United States for 183 days
or more in the taxable year of that disposition, and certain other
conditions are met, or
. you are subject to tax under tax laws applicable to certain U.S.
expatriates.
Information Reporting and Backup Withholding
In general, you will not be subject to information reporting and backup
withholding with respect to payments that we make to you provided that we do
not have actual knowledge that you are a U.S. person and we have received from
you the statement described above under "U.S. Federal Withholding Tax."
In addition, you will not be subject to backup withholding and information
reporting with respect to the proceeds of the sale of a note within the United
States or conducted through certain U.S.-related financial intermediaries, if
the payor receives the statement described above and does not have actual
knowledge that you are a U.S. person, as defined under the Code, or you
otherwise establish an exemption.
U.S. Treasury regulations were recently issued that generally modify the
information reporting and backup withholding rules applicable to certain
payments made after December 31, 2000. In general, the new U.S. Treasury
regulations would not significantly alter the present rules discussed above,
except in certain special situations.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your U.S. federal income tax liability provided the
required information is furnished to the IRS.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the notes will be issued in fully registered
form. Except as described below, the notes will initially be represented by one
or more global notes in fully registered form, without interest coupons. The
global notes will be deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC, or
will remain in the custody of the trustee pursuant to the FAST Balance
Certificate Agreement between DTC and the trustee.
Certain Book Entry Procedures for the Global Notes
The descriptions of the operations and procedures of DTC set forth below are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to change by them from time to
time. Neither we nor any of the initial purchasers takes any responsibility for
these operations or procedures, and investors are urged to contact DTC or its
participants directly to discuss these matters.
The Global Notes
We expect that pursuant to procedures established by DTC (i) upon the
issuance of the global notes, DTC or its custodian will credit, on its internal
system, the principal amount of 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). Such accounts initially will be
designated by or on behalf of the initial purchasers and 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. Holders 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
notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the 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.
Payments on the global notes will be made to DTC or its nominee, as the case
may be, as the registered owner thereof. None of Jostens, 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.
We expect that DTC or its nominee, upon receipt of any payment on the global
notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the applicable global
notes as shown on the records of DTC or its nominee. We also expect 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 notes held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
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 note for any reason, including to sell notes to persons in states
which require physical delivery of the notes, or to pledge such notes, such
holder must transfer its interest in a global note in accordance with the
normal procedures of DTC and with the procedures set forth in the indenture.
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<PAGE>
DTC has advised us that it will take any action permitted to be taken by a
holder of notes (including the presentation of 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 or beneficial interests in notes
as to which such participant or participants has or have given such direction.
However, in the case of the notes, if there is an event of default under the
indenture, DTC will exchange the global notes for certificated notes, which it
will distribute to its participants.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934. 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"). The rules applicable to DTC and its direct and
indirect participants are on file with the SEC.
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 Jostens 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.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy thereof.
Certificated Notes
Certificated notes shall be issued in exchange for beneficial interests in
the global notes (i) if requested by a holder of such interests or (ii) 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 us within 90 days.
133
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives notes for its own account in the exchange
offer must acknowledge that it will deliver a prospectus in connection with any
resale of the 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
notes received in exchange for outstanding notes where the outstanding notes
were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of 90 days after the expiration
date of the exchange offer, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
resale. In addition, until January 11, 2001, (90 days after the date of this
Prospectus) all dealers effecting transactions in the notes may be required to
deliver a prospectus.
Jostens will not receive any proceeds from any sale of notes by broker-
dealers. Notes received by broker-dealers for their own account in the exchange
offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, or a combination of these
methods of resale, at market prices prevailing at the time of resale, at prices
related to these prevailing market prices or at negotiated prices. Any resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any broker-
dealer or the purchasers of any of the notes. Any broker-dealer that resells
notes that were received by it for its own account in the exchange offer and
any broker or dealer that participates in a distribution of these notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any resale of notes and any commission or concessions received any
these 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.
Furthermore, any broker dealer that acquired any of its outstanding notes
directly from us:
. may not rely on the applicable interpretation of the staff of the SEC's
position contained in Exxon Capital Holdings Corp., SEC No-Action Letter
(April 13, 1988), Morgan Stanley & Co., Inc., SEC No-Action Letter (June
5, 1991) and Shearman & Sterling, SEC No-Action Letter (July 2, 1993);
and
. must also be named a selling noteholder in connection with the
registration and prospectus delivery requirements of the Securities Act
relating to any resale transaction.
For a period of 90 days after the expiration date of the exchange offer we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests these
documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer other than commissions or concessions of any
broker-dealers and will indemnify the holders of the notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the exchange notes will be passed upon by William J. George,
General Counsel of Jostens, Minneapolis, Minnesota.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at January 1, 2000 and January 2, 1999, and
for each of the three years in the period ended January 1, 2000, as set forth
in their report. We've included our financial statements and schedule in the
Prospectus and elsewhere in the Registration Statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
134
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Index to Consolidated Financial Statements........................ F-1
Report of Independent Auditors.................................... F-2
Consolidated Statements of Operations for the Fiscal Years Ended
January 3, 1998,
January 2, 1999 and January 1, 2000.............................. F-3
Consolidated Balance Sheets as of January 2, 1999 and January 1,
2000............................................................. F-4
Consolidated Statements of Cash Flows for the Fiscal Years Ended
January 3, 1998,
January 2, 1999 and January 1, 2000.............................. F-5
Consolidated Statements of Changes in Shareholders' Investment for
the Fiscal Years Ended January 3, 1998, January 2, 1999 and
January 1, 2000.................................................. F-6
Notes to Consolidated Financial Statements........................ F-7
Condensed Consolidated Statements of Operations for the Six-Months
Ended July 3, 1999 and July 1, 2000 (unaudited).................. F-33
Consolidated Balance Sheets as of July 3, 1999 and July 1, 2000
(unaudited)...................................................... F-34
Condensed Consolidated Statement of Cash Flows for the Six-Months
Ended July 3, 1999 and July 1, 2000 (unaudited).................. F-35
Condensed Consolidated Statement of Change in Shareholders'
Investment (Deficit)
for the Six-Months Ended July 3, 1999 and July 1, 2000
(unaudited)...................................................... F-36
Notes to Condensed Consolidated Financial Statements (unaudited).. F-37
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of Jostens, Inc.:
We have audited the accompanying consolidated balance sheets of Jostens,
Inc. and subsidiaries as of January 1, 2000 and January 2, 1999, and the
related consolidated statements of operations, changes in shareholders'
investment and cash flows for each of the three fiscal years in the period
ended January 1, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jostens, Inc.
and subsidiaries as of January 1, 2000 and January 2, 1999, and the
consolidated results of their operations and cash flows for each of the three
fiscal years in the period ended January 1, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota
February 2, 2000, except for note 16, as to which the date is April 13, 2000
F-2
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands, except per-
share data)
<S> <C> <C> <C>
Net sales......................................... $782,438 $770,917 $742,479
Cost of products sold............................. 349,691 351,795 351,290
-------- -------- --------
Gross profit.................................... 432,747 419,122 391,189
Selling and administrative expenses............... 330,895 316,933 291,527
Special charge.................................... 20,194 -- --
-------- -------- --------
Operating income.................................. 81,658 102,189 99,662
Interest income................................... (487) (366) (587)
Interest expense.................................. 7,486 7,026 6,866
Write-off of JLC notes receivable, net............ -- 12,009 --
-------- -------- --------
Income before income taxes...................... 74,659 83,520 93,383
Income taxes...................................... 31,480 41,700 36,200
-------- -------- --------
Net income........................................ $ 43,179 $ 41,820 $ 57,183
======== ======== ========
Earnings per common share
Basic........................................... $ 1.27 $ 1.14 $ 1.47
Diluted......................................... $ 1.27 $ 1.14 $ 1.47
Weighted average common shares outstanding
Basic........................................... 34,004 36,527 38,773
Diluted......................................... 34,093 36,705 38,969
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 1, 2000 and January 2, 1999
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands,
except per-share
ASSETS data)
<S> <C> <C>
Current assets
Cash and cash equivalents.................................. $ 38,517 $ 2,595
Accounts receivable, net of allowance of $5,775 and $7,308,
respectively.............................................. 107,638 106,347
Inventories................................................ 87,839 90,494
Deferred income taxes...................................... 17,400 14,682
Salespersons overdrafts, net of allowance of $6,332 and
$7,061, respectively...................................... 26,194 20,689
Prepaid expenses and other current assets.................. 8,721 5,737
-------- --------
Total current assets..................................... 286,309 240,544
Other assets
Intangibles, net........................................... 18,895 28,165
Other...................................................... 17,872 8,811
-------- --------
Total other assets....................................... 36,767 36,976
Property and equipment, net................................ 84,640 88,647
-------- --------
$407,716 $366,167
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities
Short-term borrowings...................................... $117,608 $ 93,922
Accounts payable........................................... 23,641 23,682
Employee compensation...................................... 29,478 27,560
Commissions payable........................................ 26,134 22,131
Customer deposits.......................................... 112,958 92,092
Income taxes............................................... 17,223 4,713
Other accrued liabilities.................................. 30,100 23,679
-------- --------
Total current liabilities................................ 357,142 287,779
Other noncurrent liabilities............................... 14,064 19,836
-------- --------
Total liabilities.......................................... 371,206 307,615
Commitments and contingencies
Shareholders' investment
Preferred shares, $1.00 par value: authorized 4,000 shares,
none issued............................................... -- --
Common shares, $.33 1/3 par value: authorized 100,000
shares, issued January 1, 2000 --33,324; January 2, 1999
-- 35,071................................................. 11,108 11,690
Retained earnings.......................................... 31,072 54,627
Accumulated other comprehensive loss....................... (5,670) (7,765)
-------- --------
Total shareholders' investment........................... 36,510 58,552
-------- --------
$407,716 $366,167
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Operating activities
Net income...................................... $ 43,179 $ 41,820 $ 57,183
Depreciation.................................... 23,329 20,587 19,845
Amortization.................................... 2,009 2,584 2,297
Deferred income taxes........................... (2,671) 15,712 (3,403)
Special charge (non-cash portion)............... 14,101 -- --
Write-off of JLC notes receivable, net.......... -- 12,009 --
Changes in assets and liabilities, net of
effects of business acquisition
Accounts receivable........................... (1,291) 2,167 (651)
Inventories................................... 2,655 1,568 6,431
Salespersons overdrafts....................... (5,505) 4,806 (602)
Prepaid expenses and other current assets..... (2,984) (1,058) 4,554
Accounts payable.............................. 8,364 (1,171) 1,506
Employee compensation......................... 1,918 8,114 4,457
Commissions payable........................... 4,003 2,909 1,628
Customer deposits............................. 20,866 (6,567) 22,625
Income taxes.................................. 12,593 (6,044) 5,658
Other......................................... 4,653 4,179 (4,811)
-------- -------- --------
Net cash provided by operating activities... 125,219 101,615 116,717
-------- -------- --------
Investing activities
Purchases of property and equipment............. (27,830) (36,936) (24,381)
Business acquisition............................ -- -- (9,883)
Equity investments.............................. (10,611) -- --
Other........................................... 1,262 1,675 --
-------- -------- --------
Net cash used for investing activities...... (37,179) (35,261) (34,264)
-------- -------- --------
Financing activities
Net short-term borrowings (repayments).......... 15,281 38,248 (36,238)
Principal payments on long-term debt............ -- -- (281)
Dividends paid.................................. (29,998) (32,332) (34,198)
Proceeds from exercise of stock options......... 2,452 4,258 11,693
Repurchases of common stock..................... (39,853) (80,001) (20,000)
-------- -------- --------
Net cash used for financing activities...... (52,118) (69,827) (79,024)
-------- -------- --------
Change in cash and cash equivalents............. 35,922 (3,473) 3,429
Cash and cash equivalents, beginning of period.. 2,595 6,068 2,639
-------- -------- --------
Cash and cash equivalents, end of period........ $ 38,517 $ 2,595 $ 6,068
======== ======== ========
Supplemental information
Income taxes paid............................... $ 20,623 $ 32,357 $ 26,300
Interest paid................................... $ 5,702 $ 6,426 $ 5,900
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Accumulated
Common shares other
--------------- Capital Retained comprehensive Comprehensive
Number Amount surplus earnings loss Total income
------ ------- ------- -------- ------------- -------- -------------
(in thousands, except per-share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 28,
1996................... 38,665 $12,888 $ 1,480 $101,687 $(3,442) $112,613
Stock options and
restricted stock, net.. 584 241 11,452 11,693
Cash dividends declared
of $0.88 per share..... (34,198) (34,198)
Share repurchases....... (827) (276) (14,430) (5,294) (20,000)
Tax benefit of stock
options................ 1,498 1,498
Net income.............. 57,183 57,183 $57,183
Change in cumulative
translation
adjustment............. (824) (824) (824)
Adjustment in minimum
pension liability, net
of $606 tax............ (872) (872) (872)
-------
Comprehensive income.... $55,487
------ ------- ------- -------- ------- -------- =======
Balance -- January 3,
1998................... 38,422 12,853 -- 119,378 (5,138) 127,093
Stock options and
restricted stock, net.. 234 78 4,180 4,258
Cash dividends declared
of $0.88 per share..... (32,332) (32,332)
Share repurchases....... (3,585) (1,241) (4,521) (74,239) (80,001)
Tax benefit of stock
options................ 341 341
Net income.............. 41,820 41,820 $41,820
Change in cumulative
translation
adjustment............. (1,576) (1,576) (1,576)
Adjustment in minimum
pension liability, net
of $649 tax............ (1,051) (1,051) (1,051)
-------
Comprehensive income.... $39,193
------ ------- ------- -------- ------- -------- =======
Balance -- January 2,
1999................... 35,071 11,690 -- 54,627 (7,765) 58,552
Stock options and
restricted stock, net.. 129 43 2,409 2,452
Cash dividends declared
of $0.88 per share..... (29,998) (29,998)
Share repurchases....... (1,876) (625) (2,492) (36,736) (39,853)
Tax benefit of stock
options................ 83 83
Net income.............. 43,179 43,179 $43,179
Change in cumulative
translation
adjustment............. 1,078 1,078 1,078
Adjustment in minimum
pension liability, net
of $667 tax............ 1,017 1,017 1,017
-------
Comprehensive income.... $45,274
------ ------- ------- -------- ------- -------- =======
Balance -- January 1,
2000................... 33,324 $11,108 $ -- $ 31,072 $(5,670) $ 36,510
====== ======= ======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Our Business
We are a leading manufacturer and marketer of school-related affinity
products and one of the leading manufacturers and suppliers of corporate-based
affinity products that help people celebrate important moments, recognize
achievements and build affiliations.
Fiscal Year
Our fiscal year ends the Saturday closest to December 31. Fiscal years 1999,
1998 and 1997 ended on January 1, 2000, January 2, 1999 and January 3, 1998,
respectively. Normally each fiscal year consists of 52 weeks, but periodically,
there will be a 53-week year, as was the case in 1997.
Principles of Consolidation
Our consolidated financial statements include the accounts of our company
and our subsidiaries. Significant intercompany accounts and transactions have
been eliminated. Certain balances have been reclassified to conform to the 1999
presentation.
Use of Estimates
The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and assumptions that affect the amounts reported in our
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, time deposits and commercial
paper. Short-term investments have an original maturity of three months or less
and are considered cash equivalents. Investments in debt securities have an
original maturity of three months or less and are held to maturity. All short-
term securities are carried at amortized cost, which approximates fair value.
Negative cash as of the end of 1998 was $8.4 million and is included in
"accounts payable" on the consolidated balance sheets. There was no negative
cash as of the end of 1999.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method for all inventories except gold and
certain other precious metals which are determined using the last-in, first-out
(LIFO) method. LIFO inventories were $0.1 million and $0.2 million as of the
end of 1999 and 1998 and approximate replacement cost.
Net income in 1998 and 1997 reflects pre-tax gains of $3.7 million ($2.2
million after tax or 6 cents per share) and $6.8 million ($3.5 million after
tax or 10 cents per share), respectively, resulting from a reduction in LIFO
gold inventories.
Intangibles
Intangibles primarily represent the excess of the purchase price over the
fair value of the net tangible assets of acquired businesses and are amortized
over various periods of up to 40 years. Accumulated amortization as of the end
of 1999 and 1998 was $14.1 million and $16.6 million, respectively.
F-7
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization is
computed for financial reporting purposes principally using the straight-line
method over the following estimated useful lives:
<TABLE>
<CAPTION>
Years
--------
<S> <C>
Buildings........................................................ 15 to 40
Machinery and equipment.......................................... 3 to 10
Capitalized software............................................. 2 to 5
</TABLE>
Impairment of Long-Lived Assets
We review long-lived assets for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If impairment indicators are present and the estimated future
undiscounted cash flows are less than the carrying value of the assets and any
related goodwill, the carrying value is reduced to the estimated fair value as
measured by the discounted cash flows.
Income Taxes
Deferred taxes are recognized for the estimated taxes ultimately payable or
recoverable based on enacted tax law. Changes in enacted tax rates are
reflected in the tax provision as they occur.
Revenue Recognition, Sales Returns and Warranty Costs
Sales are recognized when product is shipped. Provisions for sales returns
and warranty costs are recorded at the time of sale based on historical
information and current trends.
Foreign Currency Translation
Assets and liabilities denominated in foreign currency are translated at the
current exchange rate as of the balance sheet date, and income statement
amounts are translated at the average monthly exchange rate. Translation
adjustments resulting from fluctuations in exchange rates are recorded in
comprehensive income.
Financial Instruments
From time to time, we may use derivative financial instruments to manage
market risks and reduce our exposure resulting from fluctuations in foreign
currency and interest rates. Financial instruments are not used for trading
purposes.
We may enter into foreign currency forward contracts to hedge purchases of
inventory in foreign currency. The purpose of these hedging activities is to
protect us from the risk that inventory purchases denominated in foreign
currency will be adversely affected by changes in foreign currency rates. Gains
or losses on forward contracts used to purchase inventory for which we have
firm purchase commitments qualify as accounting hedges and are therefore
deferred and recognized in income when the inventory is sold. Counterparties
expose us to credit loss in the event of nonperformance as measured by the
unrealized gains on the contracts. There were no foreign currency contracts
outstanding as of the end of 1999 or 1998.
We may enter into interest rate swap agreements to limit the effect of
increases in the interest rates on any floating rate debt. The differential is
accrued as interest rates change and is recorded in interest expense. There
were no open interest rate swap agreements as of the end of 1999 or 1998.
F-8
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Earnings Per Common Share
Basic earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share are
computed by dividing net income by the weighted average number of common shares
outstanding, including the dilutive effects of options, restricted stock and
contingently issuable shares. Unless otherwise noted, references are to diluted
earnings per share.
Basic and diluted earnings per share were calculated using the following:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands, except
per-share data)
<S> <C> <C> <C>
Weighted average common shares outstanding --
basic............................................. 34,004 36,527 38,773
Dilutive shares.................................... 89 178 196
------- ------- -------
Weighted average common shares outstanding --
diluted........................................... 34,093 36,705 38,969
======= ======= =======
Net income for basic and diluted earnings per
share............................................. $43,179 $41,820 $57,183
Earnings per share -- basic........................ $ 1.27 $ 1.14 $ 1.47
Earnings per share -- diluted...................... $ 1.27 $ 1.14 $ 1.47
</TABLE>
Stock-Based Compensation
We use the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for employee stock options. Under the intrinsic
value method, compensation expense is recognized only to the extent the market
price of the common stock exceeds the exercise price of the stock at the date
of grant.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, which is required to be adopted in years beginning after June 15,
2000. The effect of adopting the Statement is not currently expected to have a
material effect on our future financial position or overall trends in results
of operations.
2. Merger and Recapitalization
On December 27, 1999, we entered into a merger agreement with Saturn
Acquisition Corporation, a newly formed corporation controlled by Investcorp
S.A., a global investment group, and its co-investors. Under this agreement,
Saturn Acquisition Corporation will merge with and into Jostens. The merger
will be accounted for as a recapitalization by Jostens. Upon completion of the
merger, Investcorp and its co-investors, including Jostens' senior management,
will own approximately 94 percent of Jostens' common stock. The remaining 6
percent of our post-merger common stock will be retained by some or all of our
pre-merger public shareholders.
As a result of the merger:
. approximately 98 percent of Jostens' outstanding common stock will be
purchased for cash of $25.25 per share;
. all outstanding options to purchase Jostens' common stock will
automatically vest and be cancelled in exchange for a cash payment equal
to $25.25 per underlying share, less the applicable exercise price; and
. we will incur a substantial amount of debt.
F-9
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The merger agreement obligates us to pay a fee of $19.125 million, plus up
to $5.0 million in expenses if the agreement is terminated under certain
circumstances, including a decision by us to accept a more favorable
acquisition proposal.
Successful completion of the recapitalization depends principally upon
shareholder approval and satisfaction of conditions to closing in the merger
agreement with Saturn Acquisition Corporation.
It is currently anticipated that the merger and recapitalization will be
completed in the second quarter of 2000.
In connection with our execution of the merger agreement, our Board of
Directors approved the following amendments to the shareholder rights
agreement:
. neither Saturn Acquisition nor its affiliates will be deemed to be an
acquiring person;
. the execution and delivery of the merger agreement will not give rise to
a distribution date or a triggering event; and
. no holder of rights shall be entitled to exercise such rights as a result
of the execution and delivery of the merger agreement.
If the merger is not approved, the rights will expire in August 2008 unless
extended or redeemed earlier by us.
3. Special Charge
In the fourth quarter of 1999, we completed a strategic review of product
lines, manufacturing operations, infrastructure projects, and support functions
based on performance trends. In addition, we decided to refocus our
organization on sales growth versus infrastructure improvement. As a result of
this review, we incurred a pre-tax special charge of $20.2 million ($13.3
million after tax or $0.39 per share), which was approved by our Board of
Directors.
Information relating to the special charge follows:
<TABLE>
<CAPTION>
Balance
Initial Used in end of
accrual 1999 1999
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Employee termination benefits......................... $ 4,910 $ -- $4,910
Abandonment of internal use software under
development.......................................... 6,455 6,245 210
Write-off of impaired goodwill related to retail class
ring sales channel................................... 4,560 4,560 --
Write-off of goodwill related to exiting the direct
marketing sales channel to college alumni............ 3,086 3,086 --
Other costs related to exiting the direct marketing
sales channel to college alumni...................... 1,183 270 913
------- ------- ------
$20,194 $14,161 $6,033
======= ======= ======
</TABLE>
Of the $20.2 million special charge, $4.8 million relates to the School
Products segment and $15.4 million relates to our "Other" segment.
Included in other accrued liabilities on the consolidated balance sheets is
the unused portion of the special charge of $6.0 million, which will be used or
paid in 2000.
F-10
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Of the total special charge, $4.9 million relates to employee termination
benefits for the elimination of about 100 full-time positions, primarily in
corporate staff and executive functions and in exiting the direct marketing
sales channel to college alumni. Headcount reductions will be completed and
termination benefits paid in 2000.
We reviewed and modified our strategies for the retail class ring product
line and, as a result, determined that the carrying value of the related
goodwill was impaired based upon anticipated inadequate projected cash flows.
Accordingly, an impairment charge of $4.6 million was recorded as part of the
special charge for the write-off of all of the goodwill.
We also reviewed the Jostens Direct business and decided in the fourth
quarter of 1999 to close down the business due to 1999 performance and
forecasted decline in sales volume. As a result of that decision, the remaining
balance of the related goodwill of $3.1 million was written off and other
exiting costs of $1.2 million were recorded.
4. Comprehensive Income
The following amounts were included in accumulated other comprehensive loss
as of the end of 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Minimum pension liability adjustments, net of tax...... $(1,026) $(2,043)
Foreign currency translation adjustments............... (4,644) (5,722)
------- -------
Accumulated other comprehensive loss................. $(5,670) $(7,765)
======= =======
</TABLE>
5. Inventories
As of the end of 1999 and 1998, inventories were comprised of:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Raw materials and supplies............................... $17,886 $22,618
Work-in-process.......................................... 29,772 29,735
Finished goods........................................... 40,181 38,141
------- -------
Total inventories...................................... $87,839 $90,494
======= =======
</TABLE>
Precious Metals Consignment Arrangement
We have a precious metals consignment arrangement with a major financial
institution whereby we have the ability to obtain up to $25.0 million in
consigned inventory. In 1999, 1998 and 1997, we expensed consignment fees
related to this facility of approximately $0.3 million, $0.1 million and $0.1
million, respectively. Under the terms of the consignment arrangement, we do
not own the consigned inventory until it is shipped in the form of a product to
a customer. Accordingly, we do not include the value of consigned inventory or
the corresponding liability in our financial statements. The value of our
consigned inventory as of the end of 1999 and 1998 was $22.1 million and $14.4
million.
F-11
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Property and Equipment
As of the end of 1999 and 1998, property and equipment, net consisted of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Land................................................... $ 3,618 $ 4,866
Buildings.............................................. 36,420 36,210
Machinery and equipment................................ 195,673 182,698
Capitalized software................................... 36,079 32,391
-------- --------
Total property and equipment........................... 271,790 256,165
Less accumulated depreciation and amortization......... 187,150 167,518
-------- --------
Property and equipment, net............................ $ 84,640 $ 88,647
======== ========
</TABLE>
Capitalized interest was $0.4 million in 1999 and $0.7 million in 1998.
7. Borrowings
Line of Credit and Commercial Paper
We have a $180.0 million, five-year bank credit agreement that expires on
December 31, 2000. Credit available under the agreement is reduced by
commercial paper borrowings outstanding. Commercial paper outstanding is due
within 90 days and is included in short-term borrowings in the consolidated
balance sheets.
Annual fees and interest on borrowings are based on our commercial paper
rating. Annual fees range from 0.075 to 0.15 percent of the commitment. The
weighted average interest rate on commercial paper outstanding as of the end of
1999 and 1998 was 5.9 percent and 5.8 percent. Under the restrictive covenants
of the agreement, we must maintain a defined minimum interest coverage ratio
and a maximum leverage ratio. As of the end of 1999, $62.4 million was
available under the bank credit agreement.
Demand Facilities
As of the end of 1999, we had available unsecured demand facilities with
three banks totaling $54.5 million. Such credit arrangements are renegotiated
periodically based on the anticipated seasonal needs for short-term financing.
8. Income Taxes
The following summarizes the differences between income taxes computed at
the federal statutory rate and income tax expense for financial reporting
purposes:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Federal statutory income tax rate............ 35% 35% 35%
Federal tax at statutory rate................ $26,130 $29,232 $32,684
State income taxes, net of federal tax
benefit..................................... 3,086 4,509 4,223
Write-off of JLC notes and related deferred
tax assets.................................. -- 7,245 --
Write-off of goodwill........................ 1,080 -- --
Reduction in deferred tax valuation
allowance................................... -- (750) (2,030)
Other differences, net....................... 1,184 1,464 1,323
------- ------- -------
Income tax expense........................... $31,480 $41,700 $36,200
======= ======= =======
</TABLE>
F-12
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The U.S. and foreign components of income before income taxes and the
provision for income taxes were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Income before income taxes
Domestic........................................ $68,044 $77,756 $88,275
Foreign......................................... 6,615 5,764 5,108
------- ------- -------
Income before income taxes...................... $74,659 $83,520 $93,383
======= ======= =======
Provision for income taxes
Federal......................................... $25,828 $18,435 $30,227
State........................................... 5,276 4,439 6,864
Foreign......................................... 3,047 3,114 2,512
------- ------- -------
Total current taxes............................. 34,151 25,988 39,603
Deferred........................................ (2,671) 15,712 (3,403)
------- ------- -------
Income tax expense.............................. $31,480 $41,700 $36,200
======= ======= =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the deferred income tax liabilities and assets as of the end of 1999 and
1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax liabilities
Tax over book depreciation.......................... $ (3,558) $ (4,083)
Capitalized software development costs.............. (8,712) (8,076)
Other, net.......................................... (3,616) (2,792)
-------- --------
Deferred tax liabilities............................ (15,886) (14,951)
-------- --------
Deferred tax assets
Reserves for accounts receivable and salespersons
overdrafts......................................... 6,936 7,194
Reserves for employee benefits...................... 10,669 8,698
Other reserves not recognized for tax purposes...... 4,025 4,215
Foreign tax credit carryforwards.................... 838 1,900
Other, net.......................................... 4,483 3,066
-------- --------
Deferred tax assets................................. 26,951 25,073
Valuation allowance................................. (838) (1,900)
-------- --------
Deferred tax assets................................. 26,113 23,173
-------- --------
Net deferred tax asset.............................. $ 10,227 $ 8,222
======== ========
</TABLE>
The net deferred tax asset as of the end of 1999 consisted of $17.4 million
current net deferred tax assets and $7.2 million noncurrent net deferred tax
liabilities. The net deferred tax asset as of the end of 1998 consisted of
$14.7 million current net deferred tax assets and $6.5 million noncurrent net
deferred tax assets.
We also have foreign tax credit carryforwards of $0.8 million that expire in
2000 through 2002. The foreign tax credits of $0.8 million and $1.9 million as
of the end of 1999 and 1998 were fully reserved.
F-13
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. Benefit Plans
Pension and Postretirement Benefits
We have noncontributory defined-benefit pension plans that cover nearly all
employees. The benefits provided under the plans are based on years of service
and/or compensation levels. We also provide health care insurance benefits for
nearly all retirees. Generally, the health care plans require contributions
from retirees.
The assumptions used for these plans consisted of:
<TABLE>
<CAPTION>
Pension benefits Retiree health benefits
------------------- -------------------------
1999 1998 1997 1999 1998 1997
----- ----- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Discount rate.............. 7.75% 7.00% 7.75% 7.75% 7.00% 7.75%
Expected return on plan
assets.................... 10.00% 10.00% 10.00% -- -- --
Rate of compensation
increase.................. 5.00% 5.00% 5.00% -- -- --
Initial health care cost
trend rate (1)............ -- -- -- 7.00% 8.00% 9.00%
</TABLE>
--------
(1) Assumed to decrease to 6% in 2001.
Net periodic benefit (income) or expense for 1999, 1998 and 1997 included
the following components:
<TABLE>
<CAPTION>
Pension benefits Retiree health benefits
---------------------------- -----------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 4,419 $ 4,044 $ 3,988 $ 74 $ 65 $ 61
Interest cost........... 9,462 8,838 8,346 351 372 377
Expected return on plan
assets................. (14,942) (13,447) (11,653) -- -- --
Amortization of prior
year service cost...... 1,869 1,716 1,585 (8) (7) (7)
Amortization of
transition amount...... (885) (894) (894) -- -- --
Amortization of net
actuarial gains........ (341) (929) (698) (41) (95) (109)
-------- -------- -------- -------- -------- ---------
Net periodic benefit
(income) expense....... $ (418) $ (672) $ 674 $ 376 $ 335 $ 322
======== ======== ======== ======== ======== =========
</TABLE>
F-14
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The following tables present a reconciliation of the benefit obligation of
the plans, plan assets, and funded status of the plans.
<TABLE>
<CAPTION>
Retiree health
Pension benefits benefits
------------------ ----------------
1999 1998 1999 1998
-------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation beginning of year.... $138,825 $117,670 $ 5,238 $ 5,047
Service cost............................ 4,419 4,044 74 65
Interest cost........................... 9,462 8,838 351 372
Plan amendments......................... -- 1,575 -- --
Actuarial loss (gain)................... (12,284) 14,004 (894) 643
Benefits paid........................... (7,919) (7,306) (762) (889)
-------- -------- ------- -------
Benefit obligation end of year.......... $132,503 $138,825 $ 4,007 $ 5,238
======== ======== ======= =======
Change in plan assets
Fair value of plan assets beginning of
year................................... $164,103 $167,246 $ -- $ --
Actual return on plan assets............ 43,651 2,397 -- --
Company contributions................... 1,938 1,766 762 889
Benefits paid........................... (7,919) (7,306) (762) (889)
-------- -------- ------- -------
Fair value of plan assets end of year... $201,773 $164,103 $ -- $ --
======== ======== ======= =======
Funded status
Funded (unfunded) status end of year.... $ 69,270 $ 25,278 $(4,007) $(5,238)
Unrecognized cost:
Net actuarial gains..................... (64,263) (23,611) (1,947) (1,095)
Transition amount....................... (3,294) (4,179) -- --
Prior service cost...................... 8,416 10,285 (50) (58)
-------- -------- ------- -------
Prepaid (accrued) benefit cost.......... $ 10,129 $ 7,773 $(6,004) $(6,391)
======== ======== ======= =======
Plan assets consist primarily of corporate equity investments as well as
corporate and U.S. government debt and real estate.
The components in the consolidated balance sheets consist of:
<CAPTION>
Retiree health
Pension benefits benefits
------------------ ----------------
1999 1998 1999 1998
-------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Prepaid benefit cost.................... $ 25,612 $ 22,918 $ -- $ --
Accrued benefit liability............... (18,185) (19,808) (6,004) (6,391)
Intangible asset........................ 1,005 1,283 -- --
Accumulated other comprehensive income.. 1,697 3,380 -- --
-------- -------- ------- -------
Net amount recognized................... $ 10,129 $ 7,773 $(6,004) $(6,391)
======== ======== ======= =======
Pension plans with obligations in excess of plan assets were as follows:
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C> <C> <C>
Projected benefit obligation............ $ 19,159 $ 21,048
Accumulated benefit obligation.......... 18,185 19,808
Fair value of plan assets............... -- --
</TABLE>
F-15
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
A one-percent change in the assumed health care cost trend rate would have
the following effects:
<TABLE>
<CAPTION>
1-Percent 1-Percent
Increase Decrease
--------- ---------
(in thousands)
<S> <C> <C>
Effect on total of service and interest cost
components for 1999............................... $ 19 $ 19
Effect on postretirement benefit obligation at the
end of 1999....................................... $218 $212
</TABLE>
Savings Plan
We have a retirement savings plan (401k plan), which covers nearly all
nonunion employees. We provide a matching contribution on amounts, limited to 6
percent of compensation, contributed by employees. Our contribution, in the
form of our common stock purchased in the open market, was $2.9 million, $2.6
million and $2.3 million in 1999, 1998 and 1997, respectively and this
represents 50 percent of eligible employee contributions.
10. Shareholders' Investment
Share Repurchases
In December 1998, the Board of Directors authorized the repurchase of up to
$100.0 million shares of our common stock in open market or negotiated
transactions. During 1999, we repurchased 1.9 million shares for $39.9 million.
This share repurchase program was suspended in the fourth quarter of 1999. A
similar $100.0 million repurchase program was authorized in July 1997 and
completed in the fourth quarter of 1998. Under this program we repurchased 4.4
million shares, including 3.6 million shares for $80.0 million in 1998.
Shareholder Rights Plan
In July 1998, the Board of Directors declared a distribution to shareholders
of one preferred share purchase right for each outstanding share of common
stock. The dividend was payable August 19, 1998, to shareholders of record at
the close of business on that date. Each right entitles the holder to purchase
one one-hundredth of a share of Series A Junior Participating Preferred Stock
at an exercise price of $90. If a person or group acquires at least 20 percent
of our common stock, each right will entitle the holder (other than the
acquiring person or group) to purchase, at the right's then-current exercise
price, a number of our common shares having a market value of twice the
exercise price. In addition, if we are acquired in a merger or other business
combination transaction after a person has acquired at least 20 percent of our
common stock, each right will entitle the holder to purchase, at the right's
then-current exercise price, a number of the acquiring company's common shares
having a market value of twice the exercise price. If a person or group
acquires at least 20 percent and less than 50 percent of our common stock, the
Board of Directors may exchange the rights (other than the rights owned by the
acquiring person or group), in whole or in part, for the number of shares of
common stock per right as could be purchased at the then-current exercise
price. Before a person or group acquires at least 20 percent of our stock, the
rights are redeemable for one-tenth of a cent per right at the option of a
committee of the board composed exclusively of our independent, non-employee
directors. The rights will expire in August 2008 unless extended or redeemed
earlier by us.
F-16
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. Stock Plans
Stock Options
We may grant stock options to any employee, including officers, under our
stock option plans. Options are granted with an exercise price equal to 100
percent of the market price on the dates the options were granted. One plan
also provides for increases in the number of shares available for future grants
equal to 1 percent of the outstanding common shares on July 1 of each year
through 2002. As of the end of 1999, there were 710,320 shares available for
future grant under stock option plans. Options are exercisable after five years
or less, subject to continuous employment and certain other conditions and
expire 10 years after the grant date. We apply Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for employee stock options and long-term
management incentive plans. Accordingly, no compensation cost has been
recognized for these plans. The following table summarizes results as if we had
recorded compensation expense for our stock option and long-term management
incentive plans under SFAS No. 123, "Accounting for Stock-Based Compensation."
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(in thousands, except per-share data)
<S> <C> <C> <C>
Net income
As reported.......................... $ 43,179 $ 41,820 $ 57,183
Pro forma............................ $ 42,428 $ 41,404 $ 56,800
Basic earnings per share
As reported.......................... $ 1.27 $ 1.14 $ 1.47
Pro forma............................ $ 1.25 $ 1.13 $ 1.46
Diluted earnings per share
As reported.......................... $ 1.27 $ 1.14 $ 1.47
Pro forma............................ $ 1.24 $ 1.13 $ 1.46
</TABLE>
These figures reflect only the impact of grants since July 1, 1995, and
reflect only part of the possible compensation expense that we would amortize
over the vesting period of the grants. In future years, therefore, the effect
on net income and earnings per share may differ from those shown above.
The weighted average fair value of options granted in 1999, 1998 and 1997
was $6.72, $4.67 and $4.44 per option, respectively. We estimated the fair
values using the Black-Scholes option-pricing model, modified for dividends and
using the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free rate............................................ 6.7% 4.7% 5.4%
Dividend yield............................................ 3.9% 3.8% 3.6%
Volatility factor of the expected market price of Jostens'
common stock............................................. 37% 26% 22%
Expected life of the award (years)........................ 5.0 5.2 4.7
</TABLE>
F-17
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Weighted-average
Shares exercise price
------ ----------------
(shares in thousands)
<S> <C> <C>
Outstanding at December 28, 1996.................... 2,882 $22.38
Granted............................................. 496 24.69
Exercised........................................... (581) 25.05
Canceled............................................ (582) 25.14
------ ------
Outstanding at January 3, 1998...................... 2,215 22.31
Granted............................................. 946 23.47
Exercised........................................... (199) 19.34
Canceled............................................ (62) 24.40
------ ------
Outstanding at January 2, 1999...................... 2,900 22.69
Granted............................................. 776 22.66
Exercised........................................... (53) 18.51
Canceled............................................ (453) 24.85
------ ------
Outstanding at January 1, 2000...................... 3,170 $22.44
====== ======
</TABLE>
The following table summarizes information concerning options outstanding as
of the end of 1999:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------------ -------------------------------
Number Weighted-average Number
outstanding remaining life Weighted-average exercisable Weighted-average
Range of exercise prices (in thousands) (in years) exercise price (in thousands) exercise price
------------------------ -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$16.56-$20.00........... 831 4.9 $18.19 804 $18.19
$20.01-$25.00........... 2,161 8.0 23.43 773 23.93
$25.01-$30.00........... 76 1.5 26.42 76 26.42
$30.01-$34.19........... 102 1.6 33.22 102 33.22
------ ------ ------ ------ ------
3,170 6.8 $22.44 1,755 $21.94
====== ====== ====== ====== ======
</TABLE>
Restricted Stock Awards
We have a stock incentive plan under which eligible employees are awarded
restricted shares of our common stock. Awards generally vest from three to five
years, subject to continuous employment and certain other conditions. The
awards are recorded at market value on the date of the grant as unearned
compensation and amortized over the vesting period.
The following table summarizes information concerning our restricted stock
awards:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Number of restricted shares awarded during the
year.............................................. 51,442 5,350 46,050
Average market price of shares awarded during the
year.............................................. $ 23.84 $ 23.72 $ 23.51
Restricted shares outstanding at year end.......... 67,492 47,100 53,350
Annual expense, net (in thousands)................. $ 629 $ 416 $ 36
</TABLE>
Performance Shares
In 1997, a management incentive plan was approved. Under the plan, certain
members of the senior management team would receive the market value of up to
56,400 shares of our common stock upon achieving
F-18
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
specific financial targets in 1998. Under the plan, 50 percent of the value of
the award was paid in cash and 50 percent in unrestricted common stock. We
recorded $1.1 million as compensation expense in 1998 as a result of achieving
the financial targets contained in the plan. The plan was not renewed in 1999.
12. Business Segments
We classify our operations into the following business segments:
. SCHOOL PRODUCTS, which manufactures and markets school-related affinity
products primarily for the high school and college markets. School
Products is comprised of four product lines: Printing & Publishing,
Jewelry, Graduation Products and Photography.
. RECOGNITION, which manufactures and supplies corporate-based affinity
products that help companies and other organizations promote and
recognize achievement in people's careers. We concentrate our efforts in
service recognition and incentive programs designed to help companies
achieve their business objectives through improved employee performance.
Products include jewelry and other brand name merchandise from industry
leading manufacturers.
. OTHER, which represents the operating units which do not meet the
quantitative threshold for determining reportable segments. Our "Other"
segment primarily is comprised of corporate expenses, the results of the
direct marketing sales channel to college alumni, international sales and
expenses and expenses associated with new product development.
The accounting policies of our operating segments are the same as those
described in the summary of significant accounting policies. We evaluate
performance based on the operating income of the segment. Revenues are reported
in the geographic area where the final sales to customers are made, rather than
where the transaction originates.
F-19
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Financial information by reportable business segment is included in the
following summary:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net Sales From External Customers
School Products............................. $675,511 $653,865 $624,528
Recognition................................. 96,998 103,929 103,651
Other....................................... 9,929 13,123 14,300
-------- -------- --------
Consolidated................................ $782,438 $770,917 $742,479
======== ======== ========
Operating Income
School Products............................. $141,947 $127,016 $108,803
Recognition................................. (361) 10,430 8,916
Other....................................... (59,928) (35,257) (18,057)
-------- -------- --------
Consolidated................................ 81,658 102,189 99,662
Net interest expense........................ 6,999 6,660 6,279
Write-off of JLC notes receivable, net...... -- 12,009 --
-------- -------- --------
Income Before Income Taxes.................. $ 74,659 $ 83,520 $ 93,383
======== ======== ========
Identifiable Assets
School Products............................. $247,059 $251,629 $265,638
Recognition................................. 54,109 43,089 43,080
Other....................................... 106,548 71,449 82,012
-------- -------- --------
Consolidated................................ $407,716 $366,167 $390,730
======== ======== ========
Depreciation and Amortization
School Products............................. $ 15,560 $ 16,032 $ 15,244
Recognition................................. 2,649 2,749 3,002
Other....................................... 7,129 4,390 3,896
-------- -------- --------
Consolidated................................ $ 25,338 $ 23,171 $ 22,142
======== ======== ========
Capital Expenditures
School Products............................. $ 12,509 $ 12,358 $ 14,754
Recognition................................. 1,074 1,966 2,036
Other....................................... 14,247 22,612 7,591
-------- -------- --------
Consolidated................................ $ 27,830 $ 36,936 $ 24,381
======== ======== ========
</TABLE>
Operating Income
School Products operating income included:
. $4.8 million of the $20.2 million special charge in 1999;
. charges of $2.5 million in both 1999 and 1998 and $2.6 million in 1997
for plant closing costs; and
. LIFO gains from converting owned gold to consigned gold of $2.3 million
in 1998 and $5.4 million in 1997.
Recognition operating income included LIFO gains from converting owned gold
to consigned gold of $1.4 million in both 1998 and 1997.
F-20
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Operating loss for our Other segment in 1999 included of $15.4 million of
the $20.2 million special charge.
The following tables present net sales by product and certain geographic
information.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net Sales by Classes of Similar Products or
Services
Printing & publishing, primarily yearbooks......... $264,801 $258,452 $243,806
Jewelry, primarily class rings..................... 206,624 194,283 186,816
Graduation products................................ 164,713 159,473 153,066
Photography........................................ 45,971 47,297 48,245
Recognition, primarily jewelry and brand name
merchandise....................................... 96,998 103,929 103,651
Other.............................................. 3,331 7,483 6,895
-------- -------- --------
Consolidated....................................... $782,438 $770,917 $742,479
======== ======== ========
Net Sales by Geographic Area
United States...................................... $743,450 $732,433 $703,781
Other, primarily Canada............................ 38,988 38,484 38,698
-------- -------- --------
Consolidated....................................... $782,438 $770,917 $742,479
======== ======== ========
Net Property and Equipment and Intangibles by
Geographic Area
United States...................................... $ 98,858 $111,911 $100,999
Other, primarily Canada............................ 4,677 4,901 3,888
-------- -------- --------
Consolidated....................................... $103,535 $116,812 $104,887
======== ======== ========
</TABLE>
13. Commitments and Contingencies
Forward Purchase Contracts
To manage the risk associated with gold price changes, on an annual basis we
simultaneously set our pricing to customers and enter into gold forward or
option contracts based upon the estimated ounces needed to satisfy customer
requirements. We had open forward contracts of $17.9 million to purchase gold
as of the end of 1999 that mature at various times in 2000.
Environmental
As part of our environmental management program, we are involved in various
environmental remediation activities. As sites are identified and assessed in
this program, we determine potential environmental liabilities. Factors
considered in assessing liability include, but are not limited to: whether we
have been designated as a potentially responsible party, the number of other
potentially responsible parties designated at the site, the stage of the
proceedings and available environmental technology. As of the end of 1999, we
had identified three sites requiring further investigation. However, we have
not been designated as a potentially responsible party at any site.
We have assessed the likelihood that a loss has been incurred at one of
these sites as probable, and based on findings included in remediation reports
and from discussions with legal counsel, estimated the potential loss as of the
end of 1999 to range from $2.8 million to $3.8 million. As of the end of 1999,
$3.5 million was accrued and is included in "other accrued liabilities" on the
consolidated balance sheets. While we may have a right of contribution or
reimbursement under insurance policies, amounts recoverable from other entities
with
F-21
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
respect to a particular site are not considered until recoveries are deemed
probable. No assets for potential recoveries were established as of the end of
1999.
Executive Stock Purchase Program
In 1998, our Board of Directors approved an Executive Stock Purchase Program
("the Program"). The Program offered certain executives a one-time opportunity
to purchase our stock, at current market price, through unsecured, full-
recourse loans financed by The First Chicago National Bank and guaranteed by
us. The total amounts of such loans outstanding as of the end of 1999 were $7.2
million.
Litigation
In January 1999, a federal judge in Texas overturned a jury's $25.3 million
verdict against Jostens in an antitrust lawsuit. The judge, acting on Jostens'
post-trial motions, set aside the jury's verdict and dismissed all claims
against Jostens in the case. Yearbook competitor Taylor Publishing Company, who
is also the plaintiff in the case, has appealed the decision and is seeking to
have the jury verdict reinstated. Briefs have been filed and oral arguments
were held on December 8, 1999. The date for the decision from the Fifth Circuit
Court of Appeals has not been determined. No costs were accrued related to the
lawsuit because we believe a loss is not "probable and estimable."
Following the public announcement of the merger, three purported class
actions were filed, two on December 30, 1999 and the third on January 14, 2000,
in the Fourth Judicial District of the District Court for the State of
Minnesota, County of Hennepin (the "Court"). By order of the Honorable Daniel
H. Mabley dated January 21, 2000, the Actions were consolidated, and the
Complaint in File No. MC 99-18533 was thereafter designated as the Consolidated
Complaint.
The Consolidated Complaint is purportedly brought on behalf of a class of
"all holders of Jostens common stock who are being and will be harmed" by the
actions alleged in the Consolidated Complaint. In the Consolidated Complaint,
the plaintiffs allege that the individual defendants, by virtue of their
positions as officers and directors of Jostens, owe fiduciary duties to the
shareholders of Jostens, and that by allegedly failing to take all steps
reasonably required to maximize the value shareholders will receive in a sale
of Jostens, the defendants have breached such duties. More specifically, the
plaintiffs allege that the defendants have taken actions designed to halt any
other offers and deter higher offers from other potential acquirers including,
among other things:
. allegedly concealing Jostens' fourth quarter results until after the
defendants entered into and disclosed the existence of the merger
agreement, thus allegedly capping the price of Jostens' common stock;
. allegedly agreeing to include in the merger agreement a termination fee
provision which would under specified circumstances require Jostens to
pay Saturn Acquisition the sum of $24 million, together with Investcorp's
expenses, in the event that Jostens receives a superior offer and
terminates the merger agreement;
. allegedly structuring a "preferential deal" pursuant to which some of the
defendants would receive "change of control" payments following the
consummation of the proposed merger; and
. allegedly failing to announce any active auction, open bidding, or any
other procedures best calculated to maximize shareholder value.
F-22
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Consolidated Complaint seeks an order of the Court:
. enjoining the defendants from proceeding with the merger;
. enjoining the defendants from consummating the merger, or a business
combination with a third party, unless and until Jostens adopts and
implements a procedure or process, such as an auction, to obtain the
highest possible price for Jostens;
. directing the individual defendants to exercise their fiduciary duties to
obtain a transaction which is in the best interests of shareholders until
the process for the sale or auction of Jostens is completed and the
highest possible price is obtained;
. awarding compensatory damages against the defendants;
. awarding the plaintiffs the costs and disbursements of the Consolidated
Complaint, including reasonable attorneys' and experts' fees; and
. granting such further relief as the Court may deem just and proper.
Jostens is a party to other litigation arising in the normal course of
business. We regularly analyze current information and, as necessary, provide
accruals for probable liabilities on the eventual disposition of these matters.
We believe the effect on our consolidated results of operations and financial
position, if any, for the disposition of these matters will not be material.
14. Write-off of JLC Notes Receivable, Net
In June 1995 we sold our Jostens Learning Corp. ("JLC") curriculum software
subsidiary to a group led by Bain Capital, Inc. As partial consideration for
the sale, we received two notes which were subsequently discounted and recorded
at their estimated fair values. In addition, a transaction gain of $13.2
million was deferred in accordance with the SEC Staff Accounting Bulletin No.
81, "Gain Recognition on the Sale of a Business or Operating Assets to a Highly
Leveraged Entity." The notes were subsequently recorded at their estimated fair
value of $12.9 million, net of deferred gain.
In January 1999, we received information indicating to us that the carrying
value of the notes was permanently impaired. As a result, we wrote-off $12.0
million in 1998 for the carrying value of the notes, net of miscellaneous JLC-
related assets and liabilities, plus $3.7 million of net deferred tax assets
associated with the initial sale of JLC. We did not record a tax benefit
related to the write-off for financial reporting purposes because the tax
benefit may not be realized.
F-23
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
15. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------- ----------------------------------------------------
First Second Third Fourth (1) Year (1) First Second Third Fourth (2) Year (2)
--------- ---------- -------- ---------- -------- -------- -------- -------- ---------- --------
(in thousands, except per-share and stock data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....... $ 166,358 $ 303,161 $122,643 $190,276 $782,438 $168,277 $298,879 $127,009 $176,752 $770,917
Gross profit.... 97,859 162,417 52,984 119,487 432,747 99,604 156,320 56,539 106,659 419,122
Net income
(loss)......... 8,043 39,046 (6,914) 3,004 43,179 10,496 37,632 (7,178) 870 41,820
Earnings (loss)
per share: (3)
Basic........... 0.23 1.14 (0.21) 0.09 1.27 0.28 1.02 (0.20) 0.02 1.14
Diluted......... 0.23 1.14 (0.21) 0.09 1.27 0.28 1.01 (0.20) 0.02 1.14
Stock price:
High............ 27 1/8 22 5/8 21 24 5/16 27 1/8 24 15/16 26 1/4 25 5/8 26 1/4 26 1/4
Low............. 21 1/4 20 7/16 19 1/8 17 9/16 17 9/16 22 1/16 22 7/8 19 9/16 19 19
Dividends
declared per
share (4)...... 0.22 0.22 0.22 0.22 0.88 0.22 0.22 0.22 0.22 0.88
</TABLE>
--------
(1) Net income in 1999 reflects a pre-tax special charge of $20.2 million
($13.3 million after tax or 39 cents per share) incurred in the fourth
quarter.
(2) Net income in 1998 reflects an after tax charge of $15.7 million (43 cents
per share) in the fourth quarter for the write-off of JLC notes receivable
and related net deferred tax assets. Net income in 1998 also reflects a
pre-tax gain of $3.7 million ($2.2 million after tax or 6 cents per share)
resulting from a reduction in LIFO gold inventories in the fourth quarter.
(3) Amounts may not total to the annual earnings per share because each quarter
and the year are calculated separately based on basic and diluted weighted
average common shares outstanding during that period.
(4) We have historical declared and paid a quarterly dividend to our common
stock shareholders. We do not anticipate paying dividends to any class of
our common shareholders following the proposed merger and recapitalization.
16. Condensed Consolidating Financial Information
Assuming completion of the merger as described in footnote 2 "Merger and
Recapitalization," Jostens' sole wholly owned domestic subsidiary will be a co-
borrower under a new $645.0 million senior secured credit facility and will
guarantee $225.0 million aggregate principal amount of senior subordinated
notes.
In connection with the issuance of such guarantees, the information which
follows presents the condensed consolidating financial position as of January
1, 2000 and January 2, 1999, and the condensed consolidating results of
operations and cash flows for each of the three years in the period ended
January 1, 2000 of (a) the parent company only ("Parent"), (b) the Guarantor
("Guarantor"), (c) the combined Non-Guarantors ("Non-Guarantors"), (d)
eliminating entries and (e) Jostens, Inc. and Subsidiaries on a consolidated
basis.
F-24
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheet
As of January 1, 2000
-------------------------------------------------------
Non-
Parent Guarantor Guarantors Elimination Consolidated
-------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
(in thousands)
ASSETS
------
Current assets
Cash and cash equiva-
lents ................. $ 26,567 $ 37 $11,913 $ -- $ 38,517
Accounts receivable, net
....................... 74,392 28,120 5,126 -- 107,638
Inventories ............ 53,466 31,108 3,265 -- 87,839
Deferred income taxes .. 17,400 -- -- -- 17,400
Salespersons overdrafts,
net ................... 12,836 6,678 6,680 -- 26,194
Prepaid expenses and
other current assets... 2,892 5,565 264 -- 8,721
-------- -------- ------- --------- --------
Total current assets
..................... 187,553 71,508 27,248 -- 286,309
Other assets
Intercompany accounts .. (322,245) 323,341 (1,096) -- --
Intangibles, net ....... 457 13,483 4,955 -- 18,895
Other .................. 326,627 248 200 (309,203) 17,872
-------- -------- ------- --------- --------
Total other assets ... 4,839 337,072 4,059 (309,203) 36,767
Property and equipment,
net ................... 60,715 20,055 3,870 -- 84,640
-------- -------- ------- --------- --------
$253,107 $428,635 $35,177 $(309,203) $407,716
======== ======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
----------------------------------------
Current liabilities
Short-term borrowings .. $117,608 $ -- $ -- $ -- $117,608
Accounts payable ....... 17,602 4,029 2,010 -- 23,641
Employee compensation .. 19,143 9,210 1,125 -- 29,478
Commissions payable .... 19,170 4,201 2,763 -- 26,134
Customer deposits ...... 38,317 71,634 3,007 -- 112,958
Income taxes ........... 16,974 -- 249 -- 17,223
Other accrued liabili-
ties .................. 25,875 3,379 846 -- 30,100
-------- -------- ------- --------- --------
Total current
liabilities ......... 254,689 92,453 10,000 -- 357,142
Other noncurrent liabil-
ities ................. 11,495 2,569 -- -- 14,064
-------- -------- ------- --------- --------
Total liabilities ...... 266,184 95,022 10,000 -- 371,206
Shareholders' investment
....................... (13,077) 333,613 25,177 (309,203) 36,510
-------- -------- ------- --------- --------
$253,107 $428,635 $35,177 $(309,203) $407,716
======== ======== ======= ========= ========
</TABLE>
F-25
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheet
As of January 2, 1999
--------------------------------------------------------
Non-
Parent Guarantor Guarantors Elimination Consolidated
--------- --------- ---------- ----------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equiva-
lents ................. $ (1,171) $ 6 $ 3,760 $ -- $ 2,595
Accounts receivable, net
....................... 75,607 25,172 5,568 -- 106,347
Inventories ............ 56,442 30,786 3,266 -- 90,494
Deferred income taxes .. 14,682 -- -- -- 14,682
Salespersons overdrafts,
net ................... 8,333 7,353 5,003 -- 20,689
Prepaid expenses and
other current assets .. 4,316 1,295 126 -- 5,737
--------- -------- ------- --------- --------
Total current assets
..................... 158,209 64,612 17,723 -- 240,544
Other assets
Intercompany accounts... (277,541) 276,524 1,017 -- --
Intangibles, net........ 9,465 13,398 5,302 28,165
Other................... 317,192 258 (5) (308,634) 8,811
--------- -------- ------- --------- --------
Total other assets ... 49,116 290,180 6,314 (308,634) 36,976
Property and equipment,
net ................... 64,685 19,982 3,980 -- 88,647
--------- -------- ------- --------- --------
$ 272,010 $374,774 $28,017 $(308,634) $366,167
========= ======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities
Short-term borrowings .. $ 93,922 $ -- $ -- $ -- $ 93,922
Accounts payable ....... 17,494 4,142 2,046 -- 23,682
Employee compensation .. 17,198 9,021 1,341 -- 27,560
Commissions payable .... 17,792 3,460 879 -- 22,131
Customer deposits ...... 34,987 54,647 2,458 -- 92,092
Income taxes ........... 4,342 -- 371 -- 4,713
Other accrued liabili-
ties .................. 20,851 1,816 1,012 -- 23,679
--------- -------- ------- --------- --------
Total current liabili-
ties ................ 206,586 73,086 8,107 -- 287,779
Other noncurrent liabil-
ities ................. 16,032 3,804 -- -- 19,836
--------- -------- ------- --------- --------
Total liabilities ...... 222,618 76,890 8,107 -- 307,615
Shareholders' invest-
ment................... 49,392 297,884 19,910 (308,634) 58,552
--------- -------- ------- --------- --------
$ 272,010 $374,774 $28,017 $(308,634) $366,167
========= ======== ======= ========= ========
</TABLE>
F-26
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Condensed Consolidating Statement of
Operations
Year ended January 1, 2000
--------------------------------------------
Non-
Parent Guarantor Guarantors Consolidated
-------- --------- ---------- ------------
<S> <C> <C> <C> <C>
(in thousands)
Net sales ....................... $458,044 $278,225 $46,169 $782,438
Cost of products sold ........... 185,450 148,205 16,036 349,691
-------- -------- ------- --------
Gross profit .................. 272,594 130,020 30,133 432,747
Selling and administrative
expenses........................ 237,585 69,727 23,583 330,895
Special charge .................. 19,971 223 -- 20,194
-------- -------- ------- --------
Operating income ................ 15,038 60,070 6,550 81,658
Interest income ................. (280) (1) (206) (487)
Interest expense ................ 7,396 -- 90 7,486
-------- -------- ------- --------
Income before income taxes .... 7,922 60,071 6,666 74,659
Income taxes .................... 4,092 24,342 3,046 31,480
-------- -------- ------- --------
Net income ...................... $ 3,830 $ 35,729 $ 3,620 $ 43,179
======== ======== ======= ========
</TABLE>
F-27
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Condensed Consolidating Statement of
Operations
Year ended January 2, 1999
-------------------------------------------
Non-
Parent Guarantor Guarantors Consolidated
-------- --------- ---------- ------------
<S> <C> <C> <C> <C>
(in thousands)
Net sales......................... $455,556 $272,805 $42,556 $770,917
Cost of products sold ............ 182,808 153,604 15,383 351,795
-------- -------- ------- --------
Gross profit ................... 272,748 119,201 27,173 419,122
Selling and administrative
expenses......................... 228,780 66,465 21,688 316,933
-------- -------- ------- --------
Operating income ................. 43,968 52,736 5,485 102,189
Interest income .................. 21 (1) (386) (366)
Interest expense ................. 6,918 -- 108 7,026
Write-off of JLC notes receivable,
net.............................. 12,009 -- -- 12,009
-------- -------- ------- --------
Income before income taxes ..... 25,020 52,737 5,763 83,520
Income taxes ..................... 17,180 21,407 3,113 41,700
-------- -------- ------- --------
Net income ....................... $ 7,840 $ 31,330 $ 2,650 $ 41,820
======== ======== ======= ========
</TABLE>
F-28
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Condensed Consolidating Statement of
Operations
Year ended January 3, 1998
-------------------------------------------
Non-
Parent Guarantor Guarantors Consolidated
-------- --------- ---------- ------------
<S> <C> <C> <C> <C>
(in thousands)
Net sales ................ $440,331 $259,227 $42,921 $742,479
Cost of products sold .... 180,692 152,885 17,713 351,290
-------- -------- ------- --------
Gross profit ........... 259,639 106,342 25,208 391,189
Selling and administrative
expenses 198,330 71,775 21,422 291,527
-------- -------- ------- --------
Operating income ......... 61,309 34,567 3,786 99,662
Interest income .......... (400) -- (187) (587)
Interest expense ......... 6,761 -- 105 6,866
-------- -------- ------- --------
Income before income
taxes ................. 54,948 34,567 3,868 93,383
Income taxes ............. 15,897 17,884 2,419 36,200
-------- -------- ------- --------
Net income ............... $ 39,051 $ 16,683 $ 1,449 $ 57,183
======== ======== ======= ========
</TABLE>
F-29
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Cash
Flows
Year ended January 1, 2000
--------------------------------------------
Non-
Parent Guarantor Guarantors Consolidated
-------- --------- ---------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Operating activities
Net income ...................... $ 3,830 $ 35,729 $ 3,620 $ 43,179
Depreciation .................... 16,269 5,817 1,243 23,329
Amortization .................... 1,083 468 458 2,009
Deferred income taxes ........... (2,671) -- -- (2,671)
Special charge (non-cash portion)
................................ 14,101 -- -- 14,101
Changes in assets and liabilities
Accounts receivable ............ 1,215 (2,948) 442 (1,291)
Inventories .................... 2,976 (322) 1 2,655
Salespersons overdrafts ........ (4,503) 675 (1,677) (5,505)
Prepaid expenses and other
current assets ................ 1,424 (4,270) (138) (2,984)
Intercompany accounts .......... 44,704 (46,817) 2,113 --
Accounts payable ............... 8,513 (113) (36) 8,364
Employee compensation .......... 1,945 189 (216) 1,918
Commissions payable ............ 1,378 741 1,884 4,003
Customer deposits .............. 3,330 16,987 549 20,866
Income taxes ................... 12,715 -- (122) 12,593
Other .......................... 3,703 (215) 1,165 4,653
-------- -------- ------- --------
Net cash provided by operating
activities................... 110,012 5,921 9,286 125,219
-------- -------- ------- --------
Investing activities
Purchases of property and
equipment ...................... (20,810) (5,898) (1,122) (27,830)
Equity investments .............. (10,611) -- -- (10,611)
Other ........................... 1,265 8 (11) 1,262
-------- -------- ------- --------
Net cash used for investing
activities .................. (30,156) (5,890) (1,133) (37,179)
-------- -------- ------- --------
Financing activities
Net short-term borrowings ....... 15,281 -- -- 15,281
Dividends paid .................. (29,998) -- -- (29,998)
Proceeds from exercise of stock
options ........................ 2,452 -- -- 2,452
Repurchases of common stock ..... (39,853) -- -- (39,853)
-------- -------- ------- --------
Net cash used for financing
activities .................. (52,118) -- -- (52,118)
-------- -------- ------- --------
Change in cash and cash
equivalents .................... 27,738 31 8,153 35,922
Cash and cash equivalents,
beginning of period ............ (1,171) 6 3,760 2,595
-------- -------- ------- --------
Cash and cash equivalents, end of
period.......................... $ 26,567 $ 37 $11,913 $ 38,517
======== ======== ======= ========
Supplemental information
Income taxes paid................ $ 2,604 $ 14,724 $ 3,295 $ 20,623
Interest paid.................... $ 5,612 $ -- $ 90 $ 5,702
</TABLE>
F-30
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Cash
Flows Year ended January 2, 1999
--------------------------------------------
Non-
Parent Guarantor Guarantors Consolidated
-------- --------- ---------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Operating activities
Net income ........................ $ 7,840 $ 31,330 $ 2,650 $ 41,820
Depreciation ...................... 12,992 6,493 1,102 20,587
Amortization ...................... 5,380 451 (3,247) 2,584
Deferred income taxes ............. 15,712 -- -- 15,712
Write-off of JLC notes receivable,
net .............................. 12,009 -- -- 12,009
Changes in assets and liabilities
Accounts receivable ............. (1,804) 3,020 951 2,167
Inventories ..................... (1,307) 2,852 23 1,568
Salespersons overdrafts ......... 5,801 (1,819) 824 4,806
Prepaid expenses and other
current assets ................. (2,591) 1,458 75 (1,058)
Intercompany accounts ........... 45,875 (42,818) (3,057) --
Accounts payable ................ (1,468) (723) 1,020 (1,171)
Employee compensation ........... 4,284 3,214 616 8,114
Commissions payable ............. 648 2,512 (251) 2,909
Customer deposits ............... 2,265 (9,550) 718 (6,567)
Income taxes .................... (6,179) -- 135 (6,044)
Other ........................... 3,779 1,998 (1,598) 4,179
-------- -------- ------- --------
Net cash provided by (used for)
operating activities ......... 103,236 (1,582) (39) 101,615
-------- -------- ------- --------
Investing activities
Purchases of property and equipment
.................................. (31,299) (3,759) (1,878) (36,936)
Other ............................. 135 1,901 (361) 1,675
-------- -------- ------- --------
Net cash used for investing ac-
tivities ..................... (31,164) (1,858) (2,239) (35,261)
-------- -------- ------- --------
Financing activities
Net short-term repayments ......... 38,248 -- -- 38,248
Dividends paid .................... (32,332) -- -- (32,332)
Proceeds from exercise of stock
options .......................... 4,258 -- -- 4,258
Repurchases of common stock ....... (80,001) -- -- (80,001)
-------- -------- ------- --------
Net cash used for financing ac-
tivities ..................... (69,827) -- -- (69,827)
-------- -------- ------- --------
Change in cash and cash
equivalents....................... 2,245 (3,440) (2,278) (3,473)
Cash and cash equivalents,
beginning of period............... (3,416) 3,446 6,038 6,068
-------- -------- ------- --------
Cash and cash equivalents, end of
period............................ $ (1,171) $ 6 $ 3,760 $ 2,595
======== ======== ======= ========
Supplemental information
Income taxes paid.................. $ 11,787 $ 17,848 $ 2,722 $ 32,357
Interest paid...................... $ 6,318 $ -- $ 108 $ 6,426
</TABLE>
F-31
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
<TABLE>
<CAPTION>
Condensed Consolidating Statement of Cash
Flows
Year ended January 3, 1998
--------------------------------------------
Non-
Parent Guarantor Guarantors Consolidated
-------- --------- ---------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Operating activities
Net income ...................... $ 39,051 $ 16,683 $ 1,449 $ 57,183
Depreciation .................... 11,955 6,866 1,024 19,845
Amortization .................... 1,556 624 117 2,297
Deferred income taxes ........... (3,403) -- -- (3,403)
Changes in assets and
liabilities, net of effects of
business acquisition
Accounts receivable ............ 1,376 (118) (1,909) (651)
Inventories .................... 6,423 80 (72) 6,431
Salespersons overdrafts ........ (513) (1,079) 990 (602)
Prepaid expenses and other
current assets ................ 6,607 (2,269) 216 4,554
Intercompany accounts .......... 26,173 (27,994) 1,821 --
Accounts payable ............... 333 1,598 (425) 1,506
Employee compensation .......... 3,498 866 93 4,457
Commissions payable ............ 1,761 151 (284) 1,628
Customer deposits .............. 8,020 14,814 (209) 22,625
Income taxes ................... 5,019 -- 639 5,658
Other .......................... (2,268) (197) (2,346) (4,811)
-------- -------- ------- --------
Net cash provided by operating
activities................... 105,588 10,025 1,104 116,717
-------- -------- ------- --------
Investing activities
Purchases of property and
equipment ...................... (16,606) (7,403) (372) (24,381)
Business acquisition ............ (9,883) -- -- (9,883)
-------- -------- ------- --------
Net cash used for investing
activities .................. (26,489) (7,403) (372) (34,264)
-------- -------- ------- --------
Financing activities
Net short-term repayments........ (36,238) -- -- (36,238)
Principal payments on long-term
debt ........................... (281) -- -- (281)
Dividends paid .................. (34,198) -- -- (34,198)
Proceeds from exercise of stock
options ........................ 11,693 -- -- 11,693
Repurchases of common stock ..... (20,000) -- -- (20,000)
-------- -------- ------- --------
Net cash used for financing
activities .................. (79,024) -- -- (79,024)
-------- -------- ------- --------
Change in cash and cash
equivalents .................... 75 2,622 732 3,429
Cash and cash equivalents,
beginning of period ............ (3,491) 824 5,306 2,639
-------- -------- ------- --------
Cash and cash equivalents, end of
period.......................... $ (3,416) $ 3,446 $ 6,038 $ 6,068
======== ======== ======= ========
Supplemental information
Income taxes paid................ $ 14,134 $ 10,424 $ 1,742 $ 26,300
Interest paid.................... $ 5,795 -- $ 105 $ 5,900
</TABLE>
F-32
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
------------------
July 1, July 3,
2000 1999
-------- --------
(in thousands,
except per-share
data)
<S> <C> <C>
Net sales................................................... $476,387 $469,519
Cost of products sold....................................... 201,787 209,243
-------- --------
Gross profit.............................................. 274,600 260,276
Selling and administrative expenses......................... 180,799 178,636
Transaction costs........................................... 45,711 --
-------- --------
Operating income............................................ 48,090 81,640
Interest income............................................. (488) (201)
Interest expense............................................ 15,292 2,699
-------- --------
Income before income taxes................................ 33,286 79,142
Income taxes................................................ 26,257 32,053
-------- --------
Net income.................................................. $ 7,029 $ 47,089
Dividends and accretion on redeemable preferred stock....... 1,243 --
-------- --------
Net income available to common shareholders................. $ 5,786 $ 47,089
======== ========
Net income per share available to common shareholders
Basic..................................................... $ 0.23 $ 1.37
Diluted................................................... $ 0.23 $ 1.36
Weighted average common shares outstanding
Basic..................................................... 25,043 34,488
Diluted................................................... 25,316 34,590
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
F-33
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
July 1, July 3,
2000 1999
-------- --------
(in thousands,
except per-share
data)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 35,875 $ 8,405
Accounts receivable, net of allowance for doubtful
accounts of $5,535 and $6,234............................ 125,505 129,379
Inventories............................................... 66,319 77,783
Deferred income taxes..................................... 17,400 14,682
Salespersons overdrafts, net of allowance of $5,301 and
$7,157................................................... 11,108 11,934
Prepaid expenses and other current assets................. 5,592 4,382
-------- --------
Total current assets..................................... 261,799 246,565
Other Assets
Intangibles, net.......................................... 18,309 27,638
Deferred financing costs, net............................. 35,606 --
Other..................................................... 25,930 14,163
-------- --------
Total other assets....................................... 79,845 41,801
Property and equipment.................................... 278,010 268,654
Less accumulated depreciation............................. (199,192) (179,583)
-------- --------
Property and equipment, net............................. 78,818 89,071
-------- --------
$420,462 $377,437
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
(DEFICIT)
Current liabilities
Short-term borrowings..................................... $ -- $ 93,690
Accounts payable.......................................... 18,979 16,002
Accrued employee compensation and related taxes........... 25,674 23,160
Commissions payable....................................... 53,410 51,641
Customer deposits......................................... 55,277 53,576
Income taxes payable...................................... 34,617 30,953
Current portion of long-term debt......................... 5,500 --
Other accrued liabilities................................. 36,171 21,092
-------- --------
Total current liabilities................................ 229,628 290,114
Long-term debt, net of current maturities................. 694,797 3,600
Other noncurrent liabilities.............................. 8,215 15,698
-------- --------
Total liabilities........................................ 932,640 309,412
Commitments and contingencies............................. -- --
Redeemable preferred shares, $.01 par value, liquidation
preference $60,000, issued and outstanding;
July 1, 2000 -- 60....................................... 44,243 --
Preferred shares, $.01 par value: authorized 4,000 shares,
issued and outstanding; July 1, 2000 -- 60 in the form of
redeemable preferred shares listed above, the remaining
3,940 undesignated
Shareholders' investment (deficit)
Common shares............................................. 1,015 11,350
Warrants to purchase common shares........................ 24,733 --
Officer notes receivable.................................. (2,050) --
Retained earnings (accumulated deficit)................... (573,787) 63,672
Accumulated other comprehensive loss...................... (6,332) (6,997)
-------- --------
Total shareholders' investment (deficit)................. (556,421) 68,025
-------- --------
$420,462 $377,437
======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
F-34
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
-----------------
July 1, July 3,
2000 1999
-------- -------
(in thousands)
<S> <C> <C> <C>
Operating activities
Net income............................................. $ 7,029 $47,089
Depreciation........................................... 12,684 11,663
Amortization of debt discount and deferred financing
costs................................................. 1,011 6
Amortization of goodwill............................... 536 1,125
Changes in operating assets and liabilities
Accounts receivable.................................. (17,867) (23,032)
Inventories.......................................... 21,520 12,711
Salespersons overdrafts.............................. 15,086 8,755
Prepaid expenses and other current assets............ 3,129 1,355
Accounts payable..................................... (10,294) (2,497)
Accrued employee compensation and related taxes...... (3,804) (4,400)
Commissions payable.................................. 27,276 29,510
Customer deposits.................................... (57,681) (38,516)
Income taxes payable................................. 17,394 26,240
Other................................................ (2,877) (2,715)
-------- -------
Net cash provided by operating activities.......... 13,142 67,294
-------- -------
Investing activities
Purchases of property and equipment.................... (7,150) (13,339)
Equity investments..................................... (1,103) (5,000)
Other.................................................. 395 654
-------- -------
Net cash used for investing activities............. (7,858) (17,685)
-------- -------
Financing activities
Net short-term borrowings (repayments)................. (111,976) (5,415)
Repurchases of common stock............................ (823,630) (25,007)
Principal payments on long-term debt................... (3,600) --
Proceeds from issuance of long-term debt............... 700,139 --
Proceeds from issuance of common shares................ 208,693 --
Net proceeds from the issuance of preferred stock...... 43,000 --
Proceeds from the issuance of warrants to purchase
common shares......................................... 24,733 --
Dividends paid to common shareholders.................. (7,331) (15,231)
Proceeds from exercise of stock options................ 555 1,854
Issuance of officer note receivable.................... (2,050) --
Debt acquisition costs................................. (36,459) --
-------- -------
Net cash used for financing activities............. (7,926) (43,799)
-------- -------
Change in cash and cash equivalents.................... (2,642) 5,810
Cash and cash equivalents, beginning of period......... 38,517 2,595
-------- -------
Cash and cash equivalents, end of period............... $ 35,875 $ 8,405
======== =======
Supplemental information
Income taxes paid...................................... $ 8,763 $ 4,989
Interest paid.......................................... $ 6,767 $ 2,976
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
F-35
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' INVESTMENT (DEFICIT)
FOR THE SIX MONTHS ENDED JULY 1, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Warrants
to Retained Accumulated
Common shares purchase Officer earnings other
---------------- common Capital notes (accumulated comprehensive
Number Amount shares surplus receivable deficit) loss Total
------- ------- -------- --------- ---------- ------------ ------------- ---------
(in thousands, except per-share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--January 1,
2000................... 33,324 $11,108 $ -- $ -- $ -- $ 31,072 $(5,670) $ 36,510
Exercise of stock
options and restricted
stock--net............. 23 8 1,520 1,528
Cash dividends declared
to common shareholders
of $0.22 per share..... (7,331) (7,331)
Issuance of common
shares................. --
Class A................ 2,134 711 53,176 (2,050) 51,837
Class B................ 5,300 53 133,772 133,825
Class C................ 811 8 20,470 20,478
Class D................ 20 -- 505 505
Repurchases of common
stock.................. (32,619) (10,873) (209,443) (603,314) (823,630)
Issuance of warrants to
purchase common
shares................. 24,733 24,733
Preferred stock dividend
accrual................ (1,187) (1,187)
Preferred stock
accretion.............. (56) (56)
Net income.............. 7,029 7,029
Change in cumulative
translation
adjustment............. (662) (662)
------- ------- ------- --------- ------- ---------- ------- ---------
Balance--July 1, 2000... 8,993 $ 1,015 $24,733 $ -- $(2,050) $ (573,787) $(6,332) $(556,421)
======= ======= ======= ========= ======= ========== ======= =========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
F-36
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
We prepared our accompanying unaudited condensed consolidated financial
statements following the requirements of the Securities and Exchange Commission
("SEC") for interim reporting. As permitted under those rules, certain
footnotes or other financial information that are normally required by
accounting principles generally accepted in the United States can be condensed
or omitted. Therefore, we suggest that these financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the fiscal year ended January 1,
2000 ("1999 Form 10-K"). The condensed consolidated balance sheet data as of
January 1, 2000 were derived from audited financial statements, but do not
include all disclosures required by accounting principles generally accepted in
the United States.
Revenues, expenses, cash flows, assets and liabilities can and do vary
during each quarter of the year. Therefore, the results and trends in these
interim financial statements may not be the same as those for the full year.
In our opinion, the accompanying unaudited condensed consolidated financial
statements include all adjustments (consisting only of normal recurring
adjustments) considered necessary to present fairly, when read in conjunction
with the 1999 Form 10-K, our financial position, results of operations and cash
flows for the periods presented. Certain balances have been reclassified to
conform to the 2000 presentation.
2. Merger and Recapitalization
On December 27, 1999, we entered into a merger agreement with Saturn
Acquisition Corporation, an entity organized for the sole purpose of effecting
a merger on behalf of certain affiliates of Investcorp S.A. and other
investors. On May 10, 2000, Saturn Acquisition Corporation merged with and into
Jostens, with Jostens as the surviving corporation. The merger was part of a
recapitalization of Jostens which resulted in affiliates of Investcorp and the
other investors acquiring approximately 92 percent of our post-merger common
stock. The remaining 8 percent of our common stock was retained by pre-
recapitalization shareholders and five members of senior management and was
redesignated as shares of Class A common stock. As a result of the transaction,
our shares have been de-listed from the New York Stock Exchange.
Voting Rights
The post-merger common stock consists of Class A through Class E common
stock as well as undesignated common stock. Holders of Class A common stock are
entitled to one vote per share, whereas holders of Class D common stock are
entitled to 306.55 votes per share. Holders of Class B common stock, Class C
common stock and Class E common stock have no voting rights.
The par value and number of authorized, issued and outstanding shares for
July 1, 2000 for each class of common stock is set forth below:
<TABLE>
<CAPTION>
Par Authorized Issued and
Value Shares Outstanding Shares
-------- ---------- ------------------
(in thousands)
<S> <C> <C> <C>
Class A............................. $.33 1/3 4,200 2,862
Class B............................. $.01 5,300 5,300
Class C............................. $.01 2,500 811
Class D............................. $.01 20 20
Class E............................. $.01 1,900 --
Undesignated........................ $.01 12,020 --
</TABLE>
F-37
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
As of July 3, 1999 there were 34,049 thousand shares of common stock
outstanding.
Recapitalization Financing
The recapitalization was funded by (a) $495.0 million of borrowings under a
senior secured credit facility with a syndicate of banks which included term
loans and a revolving credit facility (collectively the "senior secured credit
facility"), (b) issuance of $225.0 million in principal amount of senior
subordinated notes (the "notes") and warrants to purchase 425,060 shares of
Class E common stock, (c) issuance of $60.0 million in principal amount of
redeemable preferred stock and warrants to purchase 531,325 shares of Class E
common stock and (d) $208.7 million of proceeds from the sale of shares of
common stock to the investors.
The proceeds from these financings funded (a) the payment of approximately
$823.6 million to holders of common stock, (b) repayment of $67.6 million of
outstanding indebtedness (c) payment of $10.0 million in consideration for
cancellation of employee stock options (d) approximately $71.9 million of fees
and expenses associated with the recapitalization, including approximately
$12.7 million of advisory fees paid to Investcorp and (e) a pre-payment of $7.5
million for a management and consulting services agreement for a five-year term
with Investcorp. This pre-payment is being amortized on a straight-line basis
over the term of the agreement.
Recapitalization Accounting
The transaction was accounted for as a recapitalization and as such, the
historical basis of our assets and liabilities has not been affected.
Recapitalization related costs of $45.7 million consisting of investment banker
fees, transaction fees, legal and accounting fees, cash transaction bonuses,
stock option payments, and other miscellaneous costs were expensed in the six
month periods ended July 1, 2000. Additionally, $3.0 million of
recapitalization costs incurred related to the issuance of shares of redeemable
preferred stock was netted against the proceeds of $60.0 million. Finally,
$36.5 million associated with the debt financing was capitalized and is being
amortized over the applicable lives of the debt for up to a maximum of ten
years.
Other Arrangements
We adopted a new employee stock option plan to purchase shares of Class A
common stock. The number of shares available to be awarded under the new stock
option plan is 676,908. The stock option plan is administered by the
Compensation Committee of the Board of Directors who designate the amount,
timing and other terms and conditions applicable to the option awards. Under
the stock option plan, an optionee has certain rights to put to an affiliate of
Investcorp, and we have certain rights to call from the optionee, after a six-
month waiting period, vested stock options issued to the optionee under the
stock option plan upon termination of the optionee's employment prior to a
public offering of Jostens' common stock. At the time of the transaction,
options to purchase 502,846 of our Class A common stock were granted to five
members of senior management. The options have an exercise price of $25.25 and,
prior to a public offering, become exercisable annually in one-fifth increments
upon Jostens meeting or exceeding target cumulative earnings before interest,
taxes, depreciation and amortization ("EBITDA").
We adopted a new stock loan program to make loans to Messrs. Buhrmaster,
Priesmeyer, Blowers, Bailey and Lea in amounts up to 100% of their outstanding
loans at the time of the transaction, the proceeds of which were used to
purchase shares of our common stock. Loans made under the stock loan program
bear interest at our cost of funds under our revolving credit facility and are
recourse loans. Subject to certain prepayment provisions, the loans will mature
and all principal and accrued interest will be payable on May 10, 2005;
provided, however, that each loan may be extended for a period of two years
under certain circumstances. Each loan will become payable in full in the event
the borrower's employment with us is terminated other than due to death or
disability or for a reason other than cause or by the borrower for good reason.
Loans are collateralized by the shares of our capital stock owned by such
individual, and each individual has entered into a pledge agreement and
executed a secured promissory note. At July 1, 2000, total borrowings under the
new stock loan program were $2.0 million.
F-38
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--
(Continued)
3.Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
July 1, July 3,
2000 1999
-------- -------
(in thousands)
<S> <C> <C>
Term loan A, 9.87 percent variable rate at July 1, 2000,
semi-annual principal and interest payments through May
2006........................................................ $150,000 $ --
Term loan B, 10.37 percent variable rate at July 1, 2000,
semi-annual principal and interest payments through May
2008........................................................ 345,000 --
Senior subordinated notes, 12.75 percent fixed rate, net of
discounts of $19,703,
semi-annual interest payments of $14.3 million, interest due
and payable at maturity -- May 2010......................... 205,297 --
Industrial revenue bonds, 6.75 percent fixed rate, covering
general offices............................................. -- 3,600
-------- -----
<CAPTION>
700,297 3,600
<S> <C> <C>
Less current portion 5,500 --
-------- -----
<CAPTION>
$694,797 $ 3,600
<S> <C> <C>
======== =====
</TABLE>
Maturities of long-term debt including $19.7 million of discount as of July
1, 2000 are as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
2001..................................................... $ 5,500
2002..................................................... 23,250
2003..................................................... 28,250
2004..................................................... 33,250
2005..................................................... 38,250
Thereafter............................................... 591,500
--------
$720,000
========
</TABLE>
Principal payments under term loan A commence in 2001 with a $5.0 million
payment due June 30, 2001 and a $10.0 million payment due December 31, 2001.
Thereafter, semi-annual payments increase $1.25 million per period through
December 2005 with the remaining $10.0 million due in May 2006.
Principal payments under term loan B commence in 2001 with a $0.5 million
payment due June 30, 2001 and semiannual payments of $1.0 million thereafter
through December 2005. Semiannual payments increase on an escalating scale from
$25.5 million in June 2006 to $112.5 million in December 2007 with a final
payment of $66.2 million due in May 2008.
The fair value of long-term debt at July 1, 2000 and July 3, 1999
approximated the carrying value and is estimated based on quoted market prices
for comparable instruments.
In connection with the merger and recapitalization, we entered into a $150
million, six year revolving credit facility that expires on May 31, 2006. We
may borrow funds and elect to pay interest under the "alternative base rate" or
"eurodollar" interest rate provisions of the agreement. There were no amounts
outstanding under this facility as of July 1, 2000. Our previous credit
facility, due to expire on December 31, 2000, was terminated as part of the
transaction.
The senior subordinated notes are not collateralized and are subordinate in
right of payment to the term loans and borrowings under the new revolving
credit facility (collectively the "senior secured credit facility").
F-39
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--
(Continued)
The senior secured credit facility is with the same lenders and is
collateralized by substantially all the assets of our domestic operations and
all of our capital stock (limited to 65 percent in the case of foreign
subsidiaries). The senior secured credit facility requires that we meet certain
financial covenants, ratios and tests, including a maximum leverage ratio and a
minimum interest coverage ratio. In addition, we are required to pay certain
fees in connection with the senior secured credit facility, including letter of
credit fees, agency fees and commitment fees. Commitment fees will be payable
quarterly, initially at a rate per annum of 0.5 percent on the average daily
unused portion of the revolving credit facility. The senior secured credit
facility and senior subordinated notes contain certain cross-default provisions
whereby a violation of a covenant under one debt obligation would,
consequently, violate covenants under the other debt obligations.
The variable rate on the senior secured credit facility is predominantly
linked to the London Interbank Offered Rate ("LIBOR") as determined in three
month intervals. To manage our exposure to changes in the LIBOR, we entered
into an interest rate swap agreement on July 7, 2000. The interest rate
provided by the swap agreement is fixed at 7.0 percent, in lieu of LIBOR. The
swap agreement becomes effective on August 15, 2000 with a notional amount of
$135.0 million, decreasing to $70.0 million quarterly over the next three
years. The notional amount is used to measure the interest to be paid or
received and does not represent the amount of exposure to loss.
The senior subordinated notes were issued with detachable warrants and an
original issuance discount, resulting in total discounts of $19.7 million. The
detachable warrants were valued at $10.7 million and are exercisable through
2011. The value of the warrants has been included as a component of
stockholders' deficit. If all the warrants were to be exercised, the holders
would acquire shares (at a price of $0.01 per share) of our Class E common
stock representing approximately 4.0 percent of the total number of shares
(outstanding immediately after the recapitalization) of our common equity on a
fully diluted basis. The entire discount is being amortized to interest expense
through 2011.
4.Redeemable Preferred Stock
In connection with the recapitalization, we issued redeemable, payment-in-
kind preferred shares which have an initial liquidation preference of $60.0
million and are entitled to receive dividends at 14.0 percent per annum,
compounded quarterly and payable either in cash or in additional shares of the
same series of preferred stock. The redeemable preferred shares are subject to
mandatory redemption by Jostens in May 2011. In connection with the redeemable
preferred shares, the company ascribed $14.0 million of the proceeds to
detachable warrants to purchase shares of our Class E common stock, which is
reflected as a component of stockholders' deficit. The warrants have an
exercise price of $0.01 per share and expire in 2011. In addition, $3.0 million
of issuance costs have been netted against the initial proceeds and are
reflected as a reduction to the carrying amount of the preferred stock. The
carrying value of the preferred stock will be accreted to full liquidation
preference value plus unpaid preferred stock dividends over the eleven year
period of the redeemable preferred stock through charges to the accumulated
deficit account.
F-40
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
5. Earnings Per Common Share
Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing net income
available to common shareholders by the average number of common shares
outstanding, including the dilutive effects of options, restricted stock and
contingently issuable shares.
Basic and diluted earnings per share were calculated using the following:
<TABLE>
<CAPTION>
Six months
ended
------------------
July
1, July 3,
2000 1999
------ -------
(in thousands,
except per-
share data)
<S> <C> <C>
Net income................................................. $7,029 $47,089
Dividends and accretion on redeemable preferred stock...... 1,243 --
------ -------
Net income available to common shareholders................ $5,786 $47,089
====== =======
Weighted average number of common shares outstanding--
basic..................................................... 25,043 34,488
Dilutive shares............................................ 273 (1) 102
------ -------
Weighted average number of common shares outstanding--
diluted................................................... 25,316 34,590
====== =======
Earnings per share--basic.................................. $ 0.23 $ 1.37
Earnings per share--diluted................................ $ 0.23 $ 1.36
</TABLE>
(1) Options to purchase 503 shares were not included as their effect would
have been antidilutive.
F-41
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
6. Special Charge
During the fourth quarter of 1999, we recorded a special charge of $20.2
million. Cash outlays associated with the charge were $2.2 million in the first
half of 2000. The components of the special charge and utilization in 1999 and
the first half of 2000 are as follows:
<TABLE>
<CAPTION>
Utilization
---------------------------------
Six months
Initial ended Balance
accrual 1999 July 1, 2000 July 1, 2000
------- ------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
Employee termination benefits.... $ 4,910 $ -- $2,015 $2,895
Abandonment of internal use
software under development...... 6,455 6,245 -- 210
Write-off of impaired goodwill
related to retail class ring
sales channel................... 4,560 4,560 -- --
Write-off of goodwill related to
exiting the college alumni
direct marketing business....... 3,086 3,086 -- --
Other costs related to exiting
the college alumni direct
marketing business.............. 1,183 270 210 703
------- ------- ------ ------
$20,194 $14,161 $2,225 $3,808
======= ======= ====== ======
</TABLE>
We expect to complete restructuring activities and utilize the majority of
remaining charge by the end of 2000.
As a result of the special charge, the work force was reduced by about 100
personnel, primarily in corporate staff and executive functions and in our
college alumni direct marketing business.
7. Inventories
Inventories were comprised of the following:
<TABLE>
<CAPTION>
July 1, July 3,
2000 1999
------- -------
(in thousands)
<S> <C> <C>
Raw material and supplies.................................. $18,765 $26,229
Work-in-process............................................ 28,178 27,089
Finished goods............................................. 19,376 24,465
------- -------
Total inventories.......................................... $66,319 $77,783
======= =======
</TABLE>
F-42
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
8. Comprehensive Income
Comprehensive income and its components are as follows:
<TABLE>
<CAPTION>
Six months ended
----------------------
July 1, July 3,
2000 1999
----------------------
(in thousands)
<S> <C> <C>
Net income............... $ 7,029 $ 47,089
Change in cumulative
translation adjustment.. (662) 768
--------- --------
Comprehensive income..... $ 6,367 $ 47,857
========= ========
9. Supplier Concentration
We purchase substantially all synthetic and semiprecious stones from a
single supplier located in Germany, who is also a supplier to substantially all
of the class ring manufacturers in the United States.
10.Revenue Recognition
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB101), which summarizes certain of the SEC's
views regarding the application of generally accepted accounting principles to
revenue recognition in financial statements. We are in the process of analyzing
the requirements of SAB101 and are required to comply with its provisions by
the fourth quarter of fiscal 2000. Management believes the ultimate outcome
will not have a significant effect on our consolidated results of operations,
financial position or liquidity.
11.Business Segments
Financial information by reportable business segment is included in the
following summary:
<CAPTION>
Six months ended
----------------------
July 1, July 3,
2000 1999
----------------------
(in thousands)
<S> <C> <C>
Net Sales From External Customers
School Products.......... $ 424,662 $408,923
Recognition.............. 45,568 53,536
Other.................... 6,157 7,060
--------- --------
Consolidated............. $ 476,387 $469,519
========= ========
Operating Income
School Products.......... $ 108,657 $100,942
Recognition.............. (76) 2,162
Other.................... (60,491)(1) (21,464)
--------- --------
Consolidated............. 48,090 81,640
Net interest expense..... 14,804 (2) 2,498
--------- --------
Income before income
taxes................... $ 33,286 $ 79,142
========= ========
</TABLE>
--------
(1) The Other segment includes $45.7 million of transaction related costs as
discussed in footnote 2 "Merger and Recapitalization."
(2) Net interest expense increased due to higher debt levels resulting from
the transaction as discussed in footnote 2, "Merger and Recapitalization."
F-43
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
Capitalized deferred financing costs associated with obtaining financing for
the transaction have been included in the Other segment's identifiable assets.
12. Income Taxes
Income taxes for the six month periods ended July 1, 2000 were accrued at a
rate of 41.5 percent (excluding effects of the non-deductible transaction
costs) compared with 40.5 percent for the comparable periods in 1999. The year-
to-date effective rate for July 1, 2000 was 78.9 percent and reflects the
impact of non-deductible transaction related costs of approximately $30.0
million.
13. Condensed Consolidating Information
Jostens' wholly-owned foreign subsidiaries are not co-borrowers under the
new $645.0 million senior secured credit facility and do not guarantee $225.0
million aggregate principal amount of senior subordinated notes. As such, the
information which follows presents the condensed consolidating financial
position as of July 1, 2000 and July 3, 1999, and the condensed consolidating
results of operations and cash flows for the six month periods ended July 1,
2000 and July 3, 1999 of (a) the parent company only ("Parent"), (b) the
combined Non-Guarantors ("Non-Guarantors"), (c) eliminating entries and (d)
Jostens, Inc. and Subsidiaries on a consolidated basis. Effective July 29,
2000, Jostens wholly-owned domestic subsidiary merged with and into Jostens and
as a result, amounts and balances of this wholly-owned domestic subsidiary have
been consolidated with the parent company.
F-44
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheets
As of July 1, 2000
----------------------------------------------
Non-
Parent guarantors Eliminations Consolidated
-------- ---------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents...... $ 19,200 $16,675 $ -- $ 35,875
Accounts receivable, net of al-
lowance....................... 120,597 4,908 -- 125,505
Inventories.................... 62,684 3,635 -- 66,319
Deferred income taxes.......... 17,400 -- -- 17,400
Salespersons overdrafts, net of
allowance..................... 6,822 4,286 -- 11,108
Prepaid expenses and other cur-
rent assets................... 5,230 362 -- 5,592
-------- ------- -------- --------
Total current assets......... 231,933 29,866 -- 261,799
Other Assets
Intercompany accounts.......... 4,712 (4,712) -- --
Intangibles, net............... 13,626 4,683 -- 18,309
Deferred financing costs, net.. 35,606 -- -- 35,606
Other.......................... 43,438 218 (17,726) 25,930
-------- ------- -------- --------
Total other assets........... 97,382 189 (17,726) 79,845
Property and equipment, net.... 75,571 3,247 -- 78,818
-------- ------- -------- --------
$404,886 $33,302 $(17,726) 420,462
======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT (DEFICIT)
--------------------------------------------------
Current liabilities
Accounts payable............... $ 17,688 $ 1,291 $ -- $ 18,979
Accrued employee compensation
and related taxes............. 24,694 980 -- 25,674
Commissions payable............ 51,762 1,648 -- 53,410
Customer deposits.............. 52,213 3,064 -- 55,277
Income taxes payable........... 34,688 (71) -- 34,617
Current portion of long-term
debt.......................... 5,500 -- -- 5,500
Other accrued liabilities...... 35,856 315 -- 36,171
-------- ------- -------- --------
Total current liabilities.... 222,401 7,227 -- 229,628
Long-term debt, net of current
maturities.................... 694,797 -- -- 694,797
Other noncurrent liabilities... 8,215 -- -- 8,215
-------- ------- -------- --------
Total liabilities.............. 925,413 7,227 -- 932,640
Commitments and contingencies.. -- -- -- --
Redeemable Preferred Stock..... 44,243 -- -- 44,243
Shareholders' investment (defi-
cit).......................... (564,770) 26,075 (17,726) (556,421)
-------- ------- -------- --------
$404,886 $33,302 $(17,726) 420,462
======== ======= ======== ========
</TABLE>
F-45
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
<TABLE>
<CAPTION>
Condensed Consolidating Balance Sheets
As of July 3, 1999
---------------------------------------------
Non-
Parent guarantors Eliminations Consolidated
-------- ---------- ------------ ------------
(in thousands)
ASSETS
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents....... $ 614 $ 7,791 $ -- $ 8,405
Accounts receivable, net of
allowance...................... 124,011 5,368 -- 129,379
Inventories..................... 73,408 4,375 -- 77,783
Deferred income taxes........... 14,682 -- 14,682
Salespersons overdrafts, net of
allowance...................... 6,993 4,941 -- 11,934
Prepaid expenses and other
current assets................. 4,142 240 -- 4,382
-------- ------- --------- --------
Total current assets.......... 223,850 22,715 -- 246,565
Other Assets
Intercompany accounts........... 3,376 (3,376) -- --
Intangibles, net................ 22,483 5,155 -- 27,638
Other........................... 31,258 62 (17,157) 14,163
-------- ------- --------- --------
Total other assets............ 57,117 1,841 (17,157) 41,801
Property and equipment, net..... 85,306 3,765 -- 89,071
-------- ------- --------- --------
$366,273 $28,321 $ (17,157) $377,437
======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT (DEFICIT)
Current liabilities
Short-term borrowings........... $ 93,690 $ -- $ -- $ 93,690
Accounts payable................ 15,080 922 -- 16,002
Accrued employee compensation
and related taxes.............. 21,846 1,314 -- 23,160
Commissions payable............. 50,385 1,256 -- 51,641
Customer deposits............... 50,657 2,919 -- 53,576
Income taxes payable............ 31,409 (456) -- 30,953
Other accrued liabilities....... 20,720 372 -- 21,092
-------- ------- --------- --------
Total current liabilities..... 283,787 6,327 -- 290,114
Long-term debt, net of current
maturities..................... 3,600 3,600
Other noncurrent liabilities.... 15,698 -- -- 15,698
-------- ------- --------- --------
Total liabilities............. 303,085 6,327 -- 309,412
Commitments and contingencies... -- -- --
Shareholders' investment
(deficit)...................... 63,188 21,994 (17,157) 68,025
-------- ------- --------- --------
$366,273 $28,321 $ (17,157) $377,437
======== ======= ========= ========
</TABLE>
F-46
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
<TABLE>
<CAPTION>
Condensed Consolidating
Statements of Operations for The
Six Months Ended July 1, 2000
---------------------------------
Non-
Parent guarantors Consolidated
-------- ---------- ------------
(in thousands)
<S> <C> <C> <C>
Net sales..................................... $452,724 $23,663 $476,387
Cost of products sold......................... 191,133 10,654 201,787
-------- ------- --------
Gross profit................................ 261,591 13,009 274,600
Selling and administrative expenses........... 170,451 10,348 180,799
Transaction costs............................. 45,711 -- 45,711
-------- ------- --------
Operating income.............................. 45,429 2,661 48,090
Interest income............................... (247) (241) (488)
Interest expense.............................. 15,251 41 15,292
-------- ------- --------
Income before income taxes.................. 30,425 2,861 33,286
Income taxes.................................. 24,957 1,300 26,257
-------- ------- --------
Net income.................................... $ 5,468 $ 1,561 $ 7,029
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidating
Statements of Operations for The
Six Months Ended July 3, 1999
---------------------------------
Non-
Parent guarantors Consolidated
-------- ---------- ------------
(in thousands)
<S> <C> <C> <C>
Net sales..................................... $449,831 $19,688 $469,519
Cost of products sold......................... 200,747 8,496 209,243
-------- ------- --------
Gross profit.................................. 249,084 11,192 260,276
Selling and administrative expenses........... 169,578 9,058 178,636
-------- ------- --------
Operating income.............................. 79,506 2,134 81,640
Interest income............................... (104) (97) (201)
Interest expense.............................. 2,659 40 2,699
-------- ------- --------
Income before income taxes.................. 76,951 2,191 79,142
Income taxes.................................. 31,178 875 32,053
-------- ------- --------
Net income.................................... $ 45,773 $ 1,316 $ 47,089
======== ======= ========
</TABLE>
F-47
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
<TABLE>
<CAPTION>
Condensed Consolidating
Statements of Cash Flows for The
Six Months Ended July 1, 2000
---------------------------------
Non-
Parent guarantors Consolidated
-------- ---------- ------------
(in thousands)
<S> <C> <C> <C>
Operating activities
Net income.................................. $ 5,468 $ 1,561 $ 7,029
Depreciation................................ 12,061 623 12,684
Amortization of debt discount and deferred
financing costs............................ 1,011 -- 1,011
Amortization of goodwill.................... 314 222 536
Changes in operating assets and liabilities
Accounts receivable....................... (18,085) 218 (17,867)
Inventories............................... 21,890 (370) 21,520
Salespersons overdrafts................... 12,692 2,394 15,086
Prepaid expenses and other current
assets................................... 3,227 (98) 3,129
Intercompany accounts..................... (3,616) 3,616 --
Accounts payable.......................... (9,575) (719) (10,294)
Accrued employee compensation and related
taxes.................................... (3,659) (145) (3,804)
Commissions payable....................... 28,391 (1,115) 27,276
Customer deposits......................... (57,738) 57 (57,681)
Income taxes payable...................... 17,714 (320) 17,394
Other..................................... (1,819) (1,058) (2,877)
-------- ------- --------
Net cash provided by operating
activities............................. 8,276 4,866 13,142
-------- ------- --------
Investing activities
Purchases of property and equipment......... (7,150) -- (7,150)
Equity investments.......................... (1,103) -- (1,103)
Other....................................... 499 (104) 395
-------- ------- --------
Net cash used for investing activities.. (7,754) (104) (7,858)
-------- ------- --------
Financing activities
Net short-term borrowings (repayments)...... (111,976) -- (111,976)
Repurchases of common stock................. (823,630) -- (823,630)
Principal payments on long-term debt........ (3,600) -- (3,600)
Proceeds from issuance of long-term debt.... 700,139 -- 700,139
Proceeds from issuance of common shares..... 208,693 -- 208,693
Net proceeds from the issuance of preferred
stock...................................... 43,000 -- 43,000
Proceeds from the issuance of warrants to
purchase common shares..................... 24,733 -- 24,733
Dividends paid to common shareholders....... (7,331) -- (7,331)
Proceeds from exercise of stock options..... 555 -- 555
Issuance of officer note receivable......... (2,050) -- (2,050)
Debt acquisition costs...................... (36,459) -- (36,459)
-------- ------- --------
Net cash used for financing activities.. (7,926) -- (7,926)
-------- ------- --------
Change in cash and cash equivalents......... (7,404) 4,762 (2,642)
Cash and cash equivalents, beginning of
period..................................... 26,604 11,913 38,517
-------- ------- --------
Cash and cash equivalents, end of period.... $ 19,200 $16,675 $ 35,875
======== ======= ========
Supplemental information
Income taxes paid........................... $ 7,135 $ 1,628 $ 8,763
Interest paid............................... $ 6,726 $ 41 $ 6,767
</TABLE>
F-48
<PAGE>
JOSTENS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
<TABLE>
<CAPTION>
Condensed Consolidating
Statements of Cash Flows for The
Six Months Ended July 3, 1999
---------------------------------
Non-
Parent guarantors Consolidated
-------- ---------- ------------
(in thousands)
<S> <C> <C> <C>
Operating activities
Net income.................................. $ 45,773 $ 1,316 $ 47,089
Depreciation................................ 11,072 591 11,663
Amortization of debt discount and deferred
financing costs............................ 6 -- 6
Amortization of goodwill.................... 928 197 1,125
Changes in operating assets and liabilities
Accounts receivable....................... (23,232) 200 (23,032)
Inventories............................... 13,820 (1,109) 12,711
Salespersons overdrafts................... 8,693 62 8,755
Prepaid expenses and other current
assets................................... 1,469 (114) 1,355
Intercompany accounts..................... (4,393) 4,393 --
Accounts payable.......................... (1,373) (1,124) (2,497)
Accrued employee compensation and related
taxes.................................... (4,373) (27) (4,400)
Commissions payable....................... 29,133 377 29,510
Customer deposits......................... (38,977) 461 (38,516)
Income taxes payable...................... 27,067 (827) 26,240
Other..................................... (2,793) 78 (2,715)
-------- ------- --------
Net cash provided by operating
activities............................. 62,820 4,474 67,294
-------- ------- --------
Investing activities
Purchases of property and equipment......... (12,963) (376) (13,339)
Equity investments.......................... (5,000) -- (5,000)
Other....................................... 721 (67) 654
-------- ------- --------
Net cash used for investing activities.. (17,242) (443) (17,685)
-------- ------- --------
Financing activities
Net short-term borrowings (repayments)...... (5,415) -- (5,415)
Repurchases of common stock................. (25,007) -- (25,007)
Dividends paid to common shareholders....... (15,231) -- (15,231)
Proceeds from exercise of stock options..... 1,854 -- 1,854
-------- ------- --------
Net cash used for financing activities.. (43,799) -- (43,799)
-------- ------- --------
Change in cash and cash equivalents......... 1,779 4,031 5,810
Cash and cash equivalents, beginning of
period..................................... (1,165) 3,760 2,595
-------- ------- --------
Cash and cash equivalents, end of period.... $ 614 $ 7,791 $ 8,405
======== ======= ========
Supplemental information
Income taxes paid........................... $ 3,273 $ 1,716 $ 4,989
Interest paid............................... $ 2,936 $ 40 $ 2,976
</TABLE>
F-49
<PAGE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Until January 11, 2001, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information...................................... i
Prospectus Summary....................................................... 1
Risk Factors............................................................. 14
The Exchange Offer....................................................... 21
Use of Proceeds.......................................................... 30
Capitalization........................................................... 30
Unaudited Pro Forma Condensed Consolidated Financial Statements.......... 31
Selected Consolidated Historical Financial Data.......................... 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 38
Business................................................................. 52
Management............................................................... 62
Security Ownership of Certain Beneficial Owners and Management........... 71
Certain Relationships and Related Transactions........................... 73
The Recapitalization..................................................... 74
Description of Capital Stock............................................. 76
Description of the Credit Facility....................................... 81
Description of the Units................................................. 84
Description of the Notes................................................. 84
Description of the Warrants.............................................. 126
Certain United States Federal Tax Consequences........................... 127
Book-Entry; Delivery and Form............................................ 132
Plan of Distribution..................................................... 134
Legal Matters............................................................ 134
Experts.................................................................. 134
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
PROSPECTUS
-------------------------------------------------------------------------------
[LOGO OF JOSTENS]
Exchange Offer
for
All Outstanding 12 3/4%
Senior Subordinated Notes due 2010 for New 12 3/4% Senior Subordinated Notes
due 2010
October 13, 2000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Indemnification under the Minnesota Business Corporation Act and Josten's
Articles of Incorporation and By-laws
Unless stated otherwise in the articles of incorporation or by-laws, Section
302A.521 of the Minnesota Business Corporation Act (the "MBCA") requires a
Minnesota corporation to indemnify a person made a party to a proceeding by
reason of his or her former or present official capacity with the corporation,
against judgments, penalties, fines, including without limitation, excise taxes
assessed against the person with respect to an employee benefit plan,
settlements, and reasonable expenses, including attorney's fees and
disbursements, incurred by the person in connection with the proceeding, if,
with respect to the acts or omissions of the person complained of in the
proceeding, the person:
. has not been indemnified by another organization or employee benefit
plan for the same liabilities in connection with the same proceedings;
. acted in good faith;
. received no improper benefit;
. in the case of a criminal proceeding, had no reason to believe the
conduct was unlawful; and
. in the case of acts or omissions occurring in such person's official
capacity as a director, officer or employee, the person reasonably
believed that the conduct was in the best interests of the corporation,
or at least not opposed to the best interests of the corporation
depending on the capacity in which that person is serving.
Jostens' articles of incorporation and bylaws provide that Jostens shall
indemnify all directors and officers for such expenses and liabilities, in such
manner, under such circumstances, and to the extent permitted by law.
Advances of Expenses
The MBCA states that a person made or threatened to be made a party to a
proceeding (as described above), is entitled, upon written request to the
corporation, to payment or reimbursement by the corporation of reasonable
expenses, including attorney's fees and disbursements, incurred by the person
in advance of the final disposition of the proceeding, (1) upon receipt by the
corporation of a written affirmation by the person of a good faith belief that
the criteria for indemnification set forth in MBCA 302A.521 have been satisfied
and a written undertaking by the person to repay all amounts so paid or
reimbursed by the corporation, if it is ultimately determined that such
criteria for indemnification have not been satisfied and (2) if, after a
determination of the facts then known to those making the determination, such
facts would not preclude indemnification under the statute. The applicability
of this provision may be limited by a corporation's articles of incorporation
or bylaws, however, Jostens' Articles and bylaws are silent with regard to the
advancement of expenses.
Limitation on Liability of Directors
Jostens' articles of incorporation state that no director shall be
personally liable to Jostens or its shareholders for monetary damages for
breach of fiduciary duty as a director, except as otherwise required by law.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care.
Furthermore, the MBCA provides that the articles of incorporation of a
corporation cannot eliminate or limit director's liability for:
. any breach of the director's duty of loyalty to the corporation or
shareholders;
II-1
<PAGE>
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. any transaction from which the director derived an improper personal
benefit; or
. any act or omission occurring prior to the date when the provision in
the articles eliminating or limiting liability became effective.
Insurance
As is permitted by the MBCA, Jostens' articles of incorporation and by-laws
provide that Jostens may purchase and maintain insurance, at its expense, to
protect itself and any director, officer, or employee of Jostens acting in his
or her official capacity against any expense, liability or loss, whether or not
Jostens would be required or permitted to indemnify such person against such
expense, liability or loss.
Indemnification under the Merger Agreement
Pursuant to the merger agreement, for six years after the closing date of
the merger, Jostens will indemnify and hold harmless our present and former
officers and directors for acts or omissions occurring before the completion of
the merger to the extent provided under our articles of incorporation and by-
laws in effect on the date of the merger agreement. In addition, all
indemnification agreements with any current or former directors, officers and
employees of Jostens or any subsidiary will survive the merger and terminate as
provided in such agreements. For six years after the completion of the merger,
Jostens will provide officers' and directors' or fiduciary liability insurance
for acts or omissions occurring before the completion of the merger covering
each such person currently covered by our officers' and directors' or fiduciary
liability insurance policy on terms with respect to coverage and amount no less
favorable than those in effect on the date of the merger agreement, provided,
that the cost of such insurance does not exceed 200% of the most recent annual
premium paid by us.
Item 21. Exhibits and Financial Statement Schedules
(a) See the Exhibit Index at page II-4 to this Form S-4 for the list of
exhibits, which is incorporated herein by reference.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not applicable or the required information is shown in the financial
statements or notes thereto.
Item 22. Undertakings
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
(b) 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.
(c) 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Minneapolis, Minnesota on October
10, 2000.
JOSTENS, INC.
/S/ Robert C. Buhrmaster
By______________________________
Robert C. Buhrmaster
Chairman of the Board, President
and Chief
Executive Officer (Principal
Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William J. George and William Schlukebier, his
true and lawful attorneys-in-fact and agents, each acting alone, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this
Registration Statement, including post-effective amendments, and to file the
same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, and hereby ratifies and confirms all that said attorneys-in-fact and
agents, each acting alone, or their substitute or substitutes, may lawfully do
or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 10, 2000.
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
/s/ Robert C. Buhrmaster Chairman of the Board, President and Chief
______________________________________ Executive Officer (Principal Executive
Robert C. Buhrmaster Officer)
Senior Vice President and Chief Financial
/s/ William N. Priesmeyer Officer
______________________________________ (Principal Accounting Officer and Principal
William N. Priesmeyer Financial Officer)
______________________________________
Charles J. Philippin Director
/s/ James O. Egan
______________________________________
James O. Egan Director
______________________________________
Charles K. Marquis Director
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Name Title
---- -----
<C> <S>
/s/ Steven G. Puccinelli
______________________________________
Steven G. Puccinelli Director
/s/ David A. Tayeh
______________________________________
David A. Tayeh Director
______________________________________
Robert G. Sharp Director
/s/ George Visnyei
______________________________________
George Visnyei Director
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
The following exhibits are filed with this registration statement or are
incorporated by reference to previously filed material.
(a)
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, dated as of December 27, 1999, by
and between Jostens, Inc. and Saturn Acquisition Corporation,
incorporated by reference to Appendix A to the Proxy
Statement/Prospectus which is a part of Jostens' registration
statement on Form S-4 filed April 7, 2000.
2.2 -- First Amendment to the Agreement and Plan of Merger, dated as of
March 31, 2000, by and between Jostens, Inc. and Saturn
Acquisition Corporation, incorporated by reference to Appendix A
to the Proxy Statement/Prospectus which is a part of Jostens'
registration statement on Form S-4 filed April 7, 2000.
3.1 -- Form of Amended and Restated Articles of Incorporation of Jostens,
Inc., incorporated by reference to Appendix D to the Proxy
Statement/Prospectus which is a part of Jostens' registration
statement on Form S-4 filed April 7, 2000.
*3.2 -- By-Laws of Jostens, Inc.
4.1 -- Indenture, dated as of May 10, 2000, including therein the form of
Note, between Jostens, Inc. and The Bank of New York, as Trustee,
providing for 12 3/4% Senior Subordinated Notes due 2010.
Incorporated by reference to Exhibit 4.1 to Jostens' Form 8-K
filed on May 25, 2000.
4.2 -- Registration Rights Agreement, dated as of May 10, 2000, between
Jostens, Inc. and American Yearbook Company, Inc. as Issuers, and
Deutsche Bank Securities Inc., UBS Warburg LLC and Goldman, Sachs
& Co. as Initial Purchasers. Incorporated by reference to Exhibit
4.2 to Jostens' Form 8-K filed on May 25, 2000.
4.3 -- Purchase Agreement dated May 5, 2000, for 225,000 Units Consisting
of $225,000,000 12 3/4% Senior Subordinated Notes due 2010 and
Warrants to Purchase 425,060 Shares of Class E Common Stock,
between Jostens, Inc. and American Yearbook Company, and Deutsche
Bank Securities Inc., UBS Warburg LLC and Goldman, Sachs & Co.
Incorporated by reference to Exhibit 4.6 to Jostens' Form 8-K
filed on May 25, 2000.
*4.4 -- Form of Exchange Note
+5.1 -- Opinion of William J. George, Esq., regarding the legality of the
exchange notes being issued by Jostens.
10.1 -- Certificate of Designation, effective May 10, 2000, of the Powers,
Preferences and Rights of the 14% Senior Redeemable Payment-In-
Kind Preferred Stock, and Qualifications, Limitations and
Restrictions Thereof. Incorporated by reference to Exhibit 4.3 to
Jostens' Form 8-K filed on May 25, 2000.
*10.2 -- Warrant Agreement, dated May 10, 2000, including therein the form
of Warrant, between Jostens, Inc. and The Bank of New York, as
Warrant Agent.
10.3 -- Warrant Registration Rights Agreement, dated May 10, 2000, between
Jostens, Inc. and Deutsche Bank Securities Inc., UBS Warburg LLC
and Goldman, Sachs & Co. Incorporated by reference to Exhibit 4.5
to Jostens' Form 8-K filed on May 25, 2000.
10.4 -- Purchase Agreement, dated May 10, 2000, for 14% Senior Redeemable
Payment In Kind Preferred Stock with Warrants to Purchase Shares
of Class E Common Stock, between Jostens, Inc. and DB Capital
Investors, L.P. Incorporated by reference to Exhibit 4.6 to
Jostens' Form 8-K filed on May 25, 2000.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<C> <C> <S>
*10.5 -- Warrant Agreement, dated May 10, 2000, including therein the form
of Warrant, between Jostens, Inc. and The Bank of New York, as
Warrant Agent.
10.6 -- Preferred Stock Registration Rights Agreement, dated May 10, 2000,
between Jostens, Inc. and DB Capital Investors, L.P. Incorporated
by reference to Exhibit 4.8 to Jostens' Form 8-K filed on May 25,
2000.
10.7 -- Shareholder Agreement, dated May 10, 2000, between Jostens, Inc.,
and DB Capital Investors, L.P. and Certain Other Holders of Stock
of Jostens, Inc. Incorporated by reference to Exhibit 4.9 to
Jostens' Form 8-K filed on May 25, 2000.
10.8 -- Shareholder Agreement, dated May 10, 2000, between Jostens, Inc.,
and First Union Leveraged Capital, LLC and Certain Other Holders
of Stock of Jostens, Inc. Incorporated by reference to Exhibit
4.10 to Jostens' Form 8-K filed on May 25, 2000.
10.9 -- Common Equity Registration Rights Agreement, dated May 10, 2000,
between Jostens, Inc., and Certain Holders as Defined Therein.
Incorporated by reference to Exhibit 4.11 to Jostens' Form 8-K
filed on May 25, 2000.
*10.10 -- Management Shareholder Agreement, dated as of May 10, 2000,
between Jostens, Inc. and Robert Buhrmaster.
*10.11 -- Management Shareholder Agreement, dated as of May 10, 2000,
between Jostens, Inc. and William Priesmeyer.
*10.12 -- Management Shareholder Agreement, dated as of May 10, 2000,
between Jostens, Inc. and Carl Blowers.
*10.13 -- Management Shareholder Agreement, dated as of May 10, 2000,
between Jostens, Inc. and Michael Bailey.
*10.14 -- Management Shareholder Agreement, dated as of May 10, 2000,
between Jostens, Inc. and Gregory Lea.
*10.15 -- Stock Option Agreement, dated as of May 10, 2000, between Jostens,
Inc. and William Priesmeyer.
*10.16 -- Stock Option Agreement, dated as of May 10, 2000, between Jostens,
Inc. and Carl Blowers.
*10.17 -- Stock Option Agreement, dated as of May 10, 2000, between Jostens,
Inc. and Michael Bailey.
*10.18 -- Stock Option Agreement, dated as of May 10, 2000, between Jostens,
Inc. and Gregory Lea.
*10.19 -- Stock Option Agreement, dated as of May 10, 2000, between Jostens,
Inc. and Robert Buhrmaster.
*10.20 -- Loan and Pledge Agreement, dated as of May 10, 2000, between
Jostens, Inc. and Robert Buhrmaster, together with form of proxy
and promissory note.
*10.21 -- Loan and Pledge Agreement, dated as of May 10, 2000, between
Jostens, Inc. and William Priesmeyer, together with form of proxy
and promissory note.
*10.22 -- Loan and Pledge Agreement, dated as of May 10, 2000, between
Jostens, Inc. and Michael Bailey, together with form of proxy and
promissory note.
*10.23 -- Loan and Pledge Agreement, dated as of May 10, 2000, between
Jostens, Inc. and Gregory Lea, together with form of proxy and
promissory note.
*10.24 -- Management Stock Incentive Plan established by Jostens, Inc. dated
as of May 10, 2000.
*10.25 -- Jostens, Inc. 2000 Stock Loan Plan.
*10.26 -- Management Shareholder Bonus Plan established by Credit Agreement
*10.27 -- Credit Agreement, dated as of May 10, 2000, between Jostens, Inc.
and Chase Securities Inc., Deutsche Bank Securities Inc., and
Goldman Sachs Credit Partners L.P., as Co-Lead Arrangers, Bankers
Trust Company, as Syndication Agent, Goldman Sachs Credit Partners
L.P., as Documentation Agent, and The Chase Manhattan Bank, as
Administrative Agent.
10.28 -- Separation Agreement, dated as of August 13, 1999, between
Jostens, Inc. and John Mann. Incorporated by reference to Exhibit
10.14 contained in Josten's Report on Form 10-K filed on March 10,
2000.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
------- ----------------------
<C> <C> <S>
*12.1 -- Computation of Ratio of Earnings to Fixed Charges
*21.1 -- Subsidiaries of Jostens
23.1 -- Consent of Independent Auditors--Ernst & Young LLP
+23.2 -- Consent of William J. George, Esq. (included in Exhibit 5.1)
24.1 -- Powers of Attorney (included on signature page)
*25.1 -- Statement of Eligibility of Trustee under Trust Indenture Act of
1939 on Form T-1
+99.1 -- Form of Letter of Transmittal
+99.2 -- Form of Notice of Guaranteed Delivery
*(b) Schedule II--Valuation and Qualifying Accounts
(c) Not applicable.
</TABLE>
--------
* Filed herewith.
+ Replaces previously filed exhibit.
II-8
