<PAGE>
As filed with the Securities and Exchange Commission on July 16, 1999
Registration No. 333-_________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CADMUS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 2750 54-1274108
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation) Classification Code Number) Identification No.)
6620 West Broad Street, Suite 240
Richmond, Virginia 23230
(804) 287-5680
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
BRUCE V. THOMAS
Senior Vice President and Chief Financial Officer
Cadmus Communications Corporation
6620 West Broad Street, Suite 240
Richmond, Virginia 23230
(804) 287-5680
(Name, address, including zip code, and telephone number,
including area code, of agent for service of process)
Copies to:
RANDALL S. PARKS
Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23219
(804) 788-8200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
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 statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Amount to be Maximum Offering Maximum Aggregate Amount of
Securities to be Registered Registered(1) Price Per Unit Offering Price Registration Fee
--------------------------- ------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
9 3/4% Senior Subordinated Notes $125,000,000 N/A N/A $34,750
due 2009
</TABLE>
(1) The Registration Statement covers the maximum principal amount of notes of
the Registrant which may be issued in connection with the transaction described
herein.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY ___, 1999
PROSPECTUS
OFFER FOR
ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
REGISTERED 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
OF
CADMUS COMMUNICATIONS CORPORATION
$125,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ___________, 1999
We are offering to exchange up to $125,000,000 of our 9 3/4% Exchange Notes due
2009 (the "Exchange Notes"), which have been registered under the Securities Act
of 1933 for our existing 9 3/4% Notes due 2009 (the "Old Notes"). We are
offering to issue the new notes to satisfy our obligations contained in the
Registration Rights Agreement entered into when the Old Notes were sold in
transactions pursuant to Rule 144A under the Securities Act and therefore not
registered with the SEC.
The terms of the Exchange Notes are substantially identical in all material
respects to the Old Notes that we issued on June 1, 1999, except for the
Exchange Notes have been registered under the Securities Act, and certain
transfer restrictions, registration rights and special interest provisions
relating to the Old Notes do not apply to the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on June 1 and December 1
of each year, beginning on December 1, 1999.
We may redeem some or all of the Exchange Notes at any time on or after June 1,
2004. In addition, before June 1, 2002, we may redeem up to 35% of the Exchange
Notes with the net proceeds of certain equity offerings. If we sell certain of
our assets or undergo a change of control, we must offer to repurchase the
Exchange Notes.
The Exchange Notes will be unsecured and subordinated to all of our existing and
future senior debt. All of our principal subsidiaries on the issue date
guaranteed the Exchange Notes with unconditional guarantees that are unsecured
and subordinated to senior debt of such subsidiaries.
To exchange your Old Notes for Exchange Notes:
. You must complete and send the letter of transmittal that accompanies
this prospectus to the Exchange Agent, First Union National Bank, by
5:00 p.m., New York time, on ______, 1999.
. If your Old Notes are held in book-entry form at the Depository Trust
Company ("DTC"), you must instruct DTC through your signed letter of
transmittal that you wish to exchange your Old Notes for Exchange Notes.
When the exchange offer closes, your DTC account will be changed to
reflect your exchange of Old Notes for Exchange Notes.
. You should read the section called "The Exchange Offer" for additional
information on how to exchange your Old Notes for Exchange Notes.
CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 20 OF THIS PROSPECTUS.
- ------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved the Exchange Notes to be distributed in the exchange
offer, nor have these organizations determined that this prospectus is accurate
or complete. Any representation to the contrary is a criminal offense.
- ------------------------------------------------------------------------------
The date of this prospectus is July __, 1999
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION............................................................ ii
INDUSTRY DATA.................................................................................. iii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS...................................... iii
PROSPECTUS SUMMARY............................................................................. 1
SUMMARY OF THE EXCHANGE OFFER.................................................................. 4
SUMMARY OF THE EXCHANGE NOTES.................................................................. 8
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA........................................ 11
CADMUS COMMUNICATIONS CORPORATION SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA............... 14
MELHAM HOLDINGS, INC. SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA........................... 17
RISK FACTORS................................................................................... 20
USE OF PROCEEDS................................................................................ 30
UNAUDITED PRO FORMA CAPITALIZATION............................................................. 31
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA................................................ 32
CADMUS COMMUNICATIONS CORPORATION SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA.............. 41
THE COMPANY.................................................................................... 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 56
MANAGEMENT..................................................................................... 66
EXECUTIVE COMPENSATION......................................................................... 68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................. 73
CERTAIN RELATED TRANSACTIONS................................................................... 75
DESCRIPTION OF SENIOR CREDIT FACILITY.......................................................... 77
THE EXCHANGE OFFER............................................................................. 79
DESCRIPTION OF EXCHANGE NOTES.................................................................. 88
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES......................................... 132
PLAN OF DISTRIBUTION........................................................................... 132
VALIDITY OF THE EXCHANGE NOTES................................................................. 133
EXPERTS 133
FINANCIAL STATEMENTS........................................................................... F-1
</TABLE>
(i)
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act, and, in
accordance therewith, file reports, proxy and information statements and other
information with the Commission. These reports, proxy and information statements
and other information may be inspected without charge and copied at the public
reference facilities maintained by the Commission at its principal offices at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the Commission's regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials also can be
obtained at prescribed rates from the Public Reference Section of the Commission
at the principal offices of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material may also be inspected at the offices
of the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. Such material may also be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
We have filed with the SEC a Registration Statement on Form S-4 (the
"Registration Statement") with respect to the Exchange Notes. This prospectus,
which is a part of the Registration Statement, omits certain information
included in the Registration Statement. Statements made in this prospectus as to
the contents of any contract, agreement or other document are only summaries and
are not complete. We refer you to these exhibits for a more complete description
of the matter involved. Each statement regarding the exhibits is qualified by
the actual documents.
(ii)
<PAGE>
INDUSTRY DATA
In this prospectus, we rely on and refer to information regarding the printing
and graphic communications market and its segments and competitors derived from
internal company estimates, industry publications, market research reports,
analyst reports and other publicly available information. Although we believe
that information compiled by third-parties is reliable, we cannot guarantee the
accuracy and completeness of the information and have not independently verified
it.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the registration statement include forward-looking
statements. In particular, statements about our expectations, beliefs, plans,
objectives, assumptions or future events or performance contained in this
prospectus under the headings "Summary," "Risk Factors," "The Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are forward-looking statements. We have based these forward-looking
statements on our current expectations about future events. While we believe
these expectations are reasonable, such forward-looking statements are
inherently subject to risks and uncertainties, many of which are beyond our
control. Our actual results may differ materially from those suggested by these
forward-looking statements for various reasons, including those discussed in
this prospectus under the headings "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Some of the key
factors that could cause actual results to differ from our expectations are:
. our ability to compete in the specific markets for our products and
services;
. the impact of industry consolidation among key customers;
. our ability to retain management and other employees;
. the gain or loss of significant customers or the decrease in demand
from existing customers;
. our ability to continue to obtain improved efficiencies and lower
overall production costs;
. changes in our product sales mix driven by changes in demand in the
evolving markets in which we operate, including the impact of
electronic commerce and the increased use of alternative, non-print
media such as the Internet;
. the effective integration of recent acquisitions and the ability to
achieve cost savings from acquisition-related synergies; and
. our ability to avoid significant increases in our labor costs or a
significant deterioration in our labor relations.
Given these risks and uncertainties, you are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking statements
included in this prospectus are made only as of the date hereof. We do not
undertake and specifically decline any obligation to update any such statements
or to publicly announce the results of any revisions to any of such statements
to reflect future events or developments.
_________________________
(iii)
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
appearing elsewhere in this prospectus. The terms "Cadmus," "we," "our"
and "us," as used in this prospectus, refer to Cadmus Communications
Corporation and its subsidiaries as a combined entity, except where it is clear
that such terms mean only Cadmus Communications Corporation. Unless the context
otherwise requires, this prospectus also assumes completion of our recent
acquisition of Melham Holdings, Inc. and its principal subsidiary, Mack Printing
Company, which is sometimes referred to as the acquisition of Mack or the Mack
acquisition, the divestitures of our financial communications and custom
publishing product lines and all other acquisitions and divestitures completed
prior to the date of this prospectus. The term "Old Notes" refers to the
unregistered 9 3/4% notes due 2009 that were issued on June 1, 1999 to qualified
institutional buyers in a Rule 144A private placement. The term "Exchange Notes"
refers to the registered 9 3/4% notes due 2009 that are offered pursuant to this
prospectus.
THE EXCHANGE OFFER
On June 1, 1999, we completed the private offering of an aggregate principal
amount of $125,000,000 of Old Notes. We entered into a registration rights
agreement with the initial purchasers (the "Registration Rights Agreement") in
which we agreed, among other things, to deliver to you this prospectus and to
offer to exchange your Old Notes for Exchange Notes with substantially identical
terms. If the exchange offer is not completed by November 27, 1999, then special
interest, in addition to the base interest that would otherwise accrue on the
Old Notes, shall accrue at an additional per annum rate of 0.50% for the first
90 days after that date. The interest rate shall increase 0.50% for each 90 day
period that this requirement is not satisfied, provided that the aggregate
increase in the annual interest rate cannot exceed 1.0%. You should read the
discussion under the heading "Description of Exchange Notes" for further
information regarding the Exchange Notes.
We believe the Exchange Notes issued in the exchange offer may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act, subject to certain conditions. You should read the
discussion under the heading "The Exchange Offer" for further information
regarding the exchange offer and resale of the Exchange Notes.
THE COMPANY
Overview
Cadmus focuses on delivering high-end, integrated graphic communications
solutions. We are the largest printer and producer of scientific, technical and
medical ("STM") journals and publications in the United States with an estimated
market share of approximately 33% in 1998. We are also a leading printer and
producer of special interest magazines, point-of-purchase materials and
specialty packaging materials. We were formed in 1984, and, through both
internal growth and over ten acquisitions, we have become the fifth largest
publications printer in the United States, with pro forma net sales of $395.3
million and pro forma adjusted EBITDA of $53.3 million for the nine months ended
March 31, 1999.
We are divided into two business sectors: Professional Communications, which
serves customers who create and convey information, and Marketing
Communications, which serves customers who create and convey marketing messages.
1
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
Securities to be Exchanged..... On June 1, 1999, we issued $125.0 million in
aggregate principal amount of Old Notes to
the initial purchasers in a transaction
exempt from the registration requirements of
the Securities Act of 1933. The terms of the
Exchange Notes and the Old Notes are
substantially identical in all material
respects, except for certain interest rate
increases and transfer restrictions. See
"Description of Exchange
Notes."
The Exchange Offer............. $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of
Old Notes. As of the date hereof, Old Notes
representing $125.0 million in aggregate
principal amount are outstanding.
Based on interpretations by the staff of the
Securities and Exchange Commission, as set
forth in no-action letters issued to certain
third parties unrelated to us, including
"Exxon Capital Holdings Corporation"
(available May 13, 1988), we believe that
Exchange Notes issued pursuant to the
exchange offer in exchange for Old Notes may
be offered for resale, resold or otherwise
transferred by holders thereof (other than
any holder which is our "affiliate" within
the meaning of Rule 405 promulgated under the
Securities Act of 1933, or a broker-dealer
who purchased Old Notes directly from us to
resell pursuant to Rule 144A or any other
available exemption promulgated under the
Securities Act of 1933), without compliance
with the registration and prospectus delivery
requirements of the Securities Act of 1933;
provided that such Exchange Notes are
acquired in the ordinary course of such
holders' business and such holders have no
arrangement with any person to engage in a
distribution of such Exchange Notes.
However, we have not submitted a no-action
letter to the Securities and Exchange
Commission. We cannot be sure that the staff
of the Securities and Exchange Commission
would make a similar determination with
respect to the exchange offer as in such
other circumstances. Furthermore, each
holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and
does not intend to engage in, a distribution
of such Exchange Notes and has no arrangement
or understanding to participate in a
distribution of Exchange Notes. Each broker-
dealer that receives Exchange Notes for its
own account pursuant to the exchange offer
must acknowledge that it will comply with the
prospectus delivery requirements of the
Securities Act of 1933 in connection with any
resale of such Exchange Notes directly from
us and not as a result of market-making
activities or other trading activities; may
not rely on the staff's interpretations
discussed above or participate in the
exchange offer; and must comply with the
prospectus delivery requirements of the
Securities Act of 1933 in order to resell the
Old Notes.
4
<PAGE>
Registration Rights Agreement... We sold the Old Notes on June 1, 1999 in a
private placement in reliance on Section 4(2)
of the Securities Act of 1933. The Old Notes
were immediately resold by the initial
purchasers in reliance on Rule 144A and
Regulation S under the Securities Act of
1933.
In connection with the sale, we entered into
a registration rights agreement with the
initial purchasers of the Old Notes requiring
us to make the exchange offer. The
registration rights agreement also provides
that we must use our reasonable best efforts
to (i) cause the registration statement with
respect to the exchange offer to be declared
effective within 150 days of the date on
which we issued the Old Notes and (ii)
consummate the exchange offer on or before
the 180th day following the date on which we
issued the Old Notes. See "The Exchange
Offer."
Expiration Date................. The exchange offer will expire at 5:00 p.m.,
New York City time, on _____________, 1999,
or such later date and time to which it is
extended.
Withdrawal...................... The tender of the Old Notes pursuant to the
exchange offer may be withdrawn at any time
prior to 5:00 p.m., New York City time, on
_____________, 1999, or such later date and
time to which we extend the offer. Any Old
Notes not accepted for exchange for any
reason will be returned to the tendering
holder thereof as soon as practicable after
the expiration or termination of the exchange
offer.
Interest on the Exchange Notes
and the Old Notes.............. Interest on the Exchange Notes will accrue
from June 1, 1999 or from the date of the
last payment of interest on the Old Notes,
whichever is later. No additional interest
will be paid on Old Notes tendered and
accepted for exchange.
Conditions to the Exchange The exchange offer is subject to certain
Offer........................... customary conditions, certain of which may be
waived by us. See "The Exchange Offer--
Conditions to Exchange Offer."
Procedures for Tendering Old
Notes........................... Each holder of the Old Notes wishing to
accept the exchange offer must complete, sign
and date the letter of transmittal, or a copy
thereof, in accordance with the instructions
contained in this prospectus and therein, and
mail or otherwise deliver the letter of
transmittal, or the copy, together with the
Old Notes and all other required
documentation, to the exchange agent at the
address set forth in this prospectus. Anyone
holding the Old Notes through the Depository
Trust Company ("DTC") and wishing to accept
the exchange offer must do so pursuant to the
DTC's Automated
5
<PAGE>
Tender Offer Program, by which each tendering
holder will agree to be bound by the letter of
transmittal. By executing or agreeing to be bound
by the letter of transmittal, each holder will
represent to us that, among other things:
. the Exchange Notes acquired pursuant to the
exchange offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the registered holder of the
Old Notes;
. the holder is not engaging in and does not
intend to engage in a distribution of such
Exchange Notes;
. the holder does not have an arrangement or
understanding with any person to participate
in a distribution of such Exchange Notes; and
. the holder is not an "affiliate," as defined
under Rule 405 under the Securities Act of
1933, of the Company.
Pursuant to the registration rights agreement if:
. we determine that we are not permitted to
effect the exchange offer as contemplated by
this prospectus because of any change in law
or Securities and Exchange Commission policy;
or
. any holder of Transfer Restricted Securities,
as that term is defined in the Registration
Rights Agreement filed as an exhibit to this
registration statement, notifies us within 20
days after consummation of the exchange
offer:
. that it is prohibited by law or
Securities and Exchange Commission
policy from participating in the
exchange offer;
. that it may not resell the Exchange
Notes acquired by it in the exchange
offer to the public without delivering a
prospectus and that this prospectus is
not appropriate or available for such
resales; or
. that it is a broker-dealer and owns Old
Notes acquired directly from us or one
of our affiliates,
we may be required to file a "shelf" registration
statement for a continuous offering pursuant to
Rule 415 under the Securities Act of 1933 in
respect of the Old Notes.
We will accept for exchange any and all Old Notes
which are
6
<PAGE>
properly tendered (and not withdrawn) in the
exchange offer prior to 5:00 p.m., New York City
time, on ____________, 1999. The Exchange Notes
issued pursuant to the exchange offer will be
delivered promptly following the expiration date.
See "The Exchange Offer--Acceptance of Old Notes
for Exchange; Delivery of Exchange Notes."
Exchange Agent............. First Union National Bank is serving as exchange
agent in connection with the exchange offer.
Federal Income Tax
Considerations............. The exchange of Old Notes for Exchange Notes
pursuant to the exchange offer should not
constitute a sale or an exchange for federal
income tax purposes. See "Material United States
Federal Income Tax Consequences."
Effect of Not Tendering.... Old Notes that are not tendered or that are
tendered but not accepted will, following the
completion of the exchange offer, continue to be
subject to the existing restrictions upon
transfer. Except as noted above, we will have no
further obligation to provide for the registration
under the Securities Act of 1933 of such Old
Notes. See "Risk Factors--Holders That Do Not
Exchange Old Notes Hold Restricted Securities."
7
<PAGE>
SUMMARY OF THE EXCHANGE NOTES
The summary below describes the principal terms of the Exchange Notes.
Certain of the terms and conditions described below are subject to important
limitations and exceptions. The "Description of Exchange Notes" section of this
prospectus beginning on page 20 contains a more detailed description of the
terms and conditions of the Exchange Notes.
Total Amount of Notes
Offered.............................. $125.0 million in principal amount of 9
3/4 % Senior Subordinated Notes due
2009.
Maturity............................. June 1, 2009.
Issue Price.......................... Par plus accrued interest from June
1,
1999.
Interest............................. 9 3/4% per year.
Interest Payment Dates............... June 1 and December 1 of each year,
beginning on December 1, 1999. Interest
will accrue from the issue date of the
Old Notes.
Subsidiary Guarantors................ Each of our principal subsidiaries on
the issue date unconditionally
guaranteed the Exchange Notes. Future
domestic subsidiaries also may be
required to guarantee the Exchange
Notes.
Ranking.............................. The Exchange Notes will be unsecured
senior subordinated obligations of
Cadmus
and will rank junior to all of
our existing and future senior debt,
including indebtedness under our senior
credit facility. The guarantees by our
principal subsidiaries will be
subordinated to existing and future
senior debt of such subsidiaries,
including each such subsidiary's
guarantee of indebtedness under our
senior credit facility. In addition, the
Exchange Notes will effectively be
subordinated to all existing and future
liabilities, including trade payables,
of our subsidiaries that ar
e not
guarantors of the Exchange Notes. As of
March 31, 1999, after giving pro forma
effect to our acquisition of Mack, our
divestitures of our financial printing
and custom publishing product lines, the
refinancing of our former senior credit
facility and the sale of the Old Notes
and the application of the net proceeds
therefrom, the Exchange Notes and the
subsidiary guarantees would have been
subordinated to $143.9 million of senior
debt, excluding $61.9 million of
additional borrowing capac
ity we expect
to have available under our senior
credit facility. In addition, on the
same pro forma basis, our subsidiaries
that are not guarantors of the Exchange
Notes would have had $6.5 million of
liabilities, including trade payables,
to which the Notes would have been
effectively subordinated.
8
<PAGE>
Optional Redemption.................. We may redeem some or all of the
Exchange Notes at any time on or after
June 1, 2004, at the redemption prices
listed in the "Description of Exchange
Notes" section under the heading
"Redemption--Optional Redemption," plus
accrued interest.
Optional Redemption after Public At any time (which may be more than
Equity Offerings.................... once) before June 1, 2002, we may redeem
up to 35% of the Old Notes and Exchange
Notes with the net proceeds we receive
from certain offerings of our equity
securities at 109.75% of the principal
amount of the Old Notes and Exchange
Notes, plus accrued interest, if at
least 65% of the aggregate principal
amount of the Notes originally issued
remain outstanding immediately after the
redemption.
Change of Control.................. If we undergo a change of control, we
must offer to repurchase the Exchange
Notes at 101% of the principal amount of
the Exchange Notes, plus accrued
interest.
Our senior credit facility restricts our
ability to redeem Exchange Notes
presented to us upon a change of
control. See "Description of Senior
Credit Facility."
Asset Sale Proceeds................. If we engage in certain asset sales, we
generally must either invest the net
cash proceeds from such sales in our
business within a period of time, repay
senior debt or make an offer to purchase
a principal amount of Exchange Notes
equal to the net cash proceeds. The
purchase price of the Exchange Notes
will be 100% of their principal amount,
plus accrued interest.
Basic Covenants of Indenture........ The indenture governing the Exchange
Notes contains covenants limiting our
(and most of our subsidiaries') ability
to:
. incur additional debt;
. pay dividends or distributions on,
redeem or repurchase our capital
stock;
. make certain investments;
. enter into transactions with
affiliates;
. issue stock of subsidiaries;
. engage in unrelated lines of
business;
. create liens on our assets to
secure debt; and
. transfer or sell assets or merge
with or into other companies.
These covenants are subject to important
exceptions and
9
<PAGE>
qualifications which are described in
the "Description of Exchange Notes"
section under the heading "Certain
Covenants."
Use of Proceeds...................... We will not receive any cash proceeds
from the issuance of the Exchange Notes.
Risk Factors
See "Risk Factors" for a discussion of certain factors that you should carefully
consider before investing in the Notes.
10
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth summary unaudited pro forma consolidated
statement of income and other financial data for the year ended June 30, 1998,
the nine months ended March 31, 1999, and summary unaudited pro forma
consolidated balance sheet data as of March 31, 1999.
The summary unaudited pro forma consolidated financial data are based upon our
historical consolidated financial statements and the historical consolidated
financial statements of Melham Holdings, Inc., adjusted to give effect in the
manner described under "Unaudited Pro Forma Consolidated Financial Data" and
the notes thereto to (1) our acquisition of Mack, (2) our divestitures of our
financial communications and custom publishing product lines, (3) the
refinancing of our former senior credit facility and (4) the sale of the Old
Notes and the application of the net proceeds therefrom, as if each event had
occurred on July 1, 1997 with respect to the summary unaudited pro forma
consolidated statement of income data and other financial data and as of March
31, 1999, to the extent the transactions had not occurred by such date, with
respect to the summary unaudited pro forma consolidated balance sheet data.
The summary unaudited pro forma consolidated financial data do not purport to be
indicative of our results of operations or financial position that actually
would have been attained had all of those transactions occurred as of the dates
indicated nor are they necessarily indicative of the results of operations that
may be achieved in the future. The pro forma information should be read in
conjunction with "Unaudited Pro Forma Consolidated Financial Data," "Cadmus
Communications Corporation Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the separate consolidated financial statements and notes
thereto of both Cadmus and Melham included elsewhere in this prospectus.
11
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<TABLE>
<CAPTION>
Pro Forma
---------------------------------------------------------------
Year Ended Nine Months Ended
--------------- -----------------
June 30, 1998 March 31, 1999
Dollars in thousands --------------- --------------
Statement of Income Data:
<S> <C> <C>
Net sales.......................................... $ 499,241 $ 395,277
Operating expenses:
Cost of sales.................................... 381,941 307,756
Selling and administrative....................... 70,643 50,275
Amortization expense............................. 3,850 4,334
Restructuring charge, net........................ 3,950 --
---------------------------- ----------------------------
Operating income...................................
38,857 32,912
Interest expense................................... 23,243 17,943
Other, net......................................... 986 (97)
---------------------------- ----------------------------
Income before income taxes......................... 14,628 15,066
Income tax expense................................. 6,999 6,780
---------------------------- ----------------------------
Net income......................................... $ 7,629 $ 8,286
============================ =========================
===
Earnings Per Share Data:
Earnings per share - Basic:
Net income (loss)................................. $ 0.85 $ 0.92
Weighted average common shares
outstanding....................................... 9,022 9,034
Earnings per share - Diluted:
Net income (loss)................................. $ 0.82 $ 0.90
Weighted average common shares
outstanding....................................... 9,338 9,235
Other Financial Data:
EBITDA/(1)/........................................ $ 63,598 $ 52,711
Adjusted EBITDA.................................... 68,373 (3) 53,330 (4)
Adjusted EBITDA margin............................. 13.7% 13.5%
Depreciation and amortization...................... $ 25,727 $ 19,702
Capital expenditures............................... 37,932 18,425
Ratio of total debt to adjusted EBITDA............. - 5.2x
Ratio of adjusted EBITDA to interest
expense............................................ 2.9x 3.0x
Ratio of earnings to fixed charges/(2)/............ 1.6x 1.8x
<CAPTION>
Pro Forma
March 31,
1999
----------------------------
Balance Sheet Data:
<S> <C>
Working capital........................................................................ $ 54,606
Total assets........................................................................... 533,739
Total debt............................................................................. 275,341
Total shareholders' equity.............................................................
134,807
</TABLE>
12
<PAGE>
Notes to Summary Unaudited Pro Forma Consolidated Financial Data
(1) EBITDA represents net income before interest, income taxes, depreciation
and amortization. EBITDA is presented because we believe it is frequently
used by security analysts, lenders and others in the evaluation of
companies. However, EBITDA should not be considered as an alternative to
operating income, net income, net cash provided by operating activities or
any other measure for determining our operating performance or liquidity in
accordance with generally accepted accounting principles. EBITDA, as used
herein, is not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method of
calculation.
(2) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes plus fixed charges. Fixed
charges consist of interest expense, including amortization of deferred
financing costs, whether expensed or capitalized, and the portion of rental
expense which management believes is representative of the interest
component of rental expense.
(3) Represents EBITDA, adjusted to eliminate the effect of certain payroll and
payroll-related costs of $0.8 million due to the elimination of certain
employee positions in connection with the acquisition of Mack and the
acquisition of Port City Press, Inc. by Melham Holdings, Inc. and to
eliminate the effect of a restructuring charge of $4.0 million recorded in
June 1998 relating to our acquisition of Germersheim, Inc.
(4) Represents EBITDA, adjusted to eliminate the effect of certain payroll and
payroll-related costs of $0.6 million due to the elimination of certain
employee positions in connection with the acquisition of Mack and the
acquisition of Port City Press, Inc. by Melham Holdings, Inc.
13
<PAGE>
CADMUS COMMUNICATIONS CORPORATION
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial data as
of the dates and for the periods indicated. The financial data for each of the
three years in the period ended June 30, 1998, have been derived from our
audited consolidated financial statements and notes thereto, which have been
audited by Arthur Andersen LLP, independent public accountants, whose reports on
such financial statements are included elsewhere in this prospectus. The
financial data for the nine months ended March 31, 1998 and March 31, 1999 have
been derived from our unaudited condensed consolidated financial statements
which, in the opinion of management, contain all adjustments (consisting only of
normal and recurring adjustments) necessary to present fairly our financial
position and results of operations at such dates and for such periods. Results
for the nine months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the entire fiscal year. The data presented
below should be read in conjunction with, and are qualified in their entirety by
reference to, ``Management's Discussion and Analysis of Financial Condition and
Results of Operations'' and our consolidated financial statements and the notes
thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
==============================================================================================
Fiscal Year Ended Nine Months Ended
----------------------------------------------------------------------------------------------
Dollars in thousands June 30, 1996 June 30, 1997 June 30, 1998 March 31, 1998 March 31, 1999
-------------- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales........................... $ 336,655 $ 384,942 $ 393,823 $ 289,644 $ 308,596
Operating expenses:
Cost of sales...................... 258,947 299,840 304,014 223,706 246,994
Selling and administrative expenses 61,204 63,123 62,141 45,933 42,221
Restructuring charge, net.......... -- 19,699 3,950 -- --
Net gain on divestiture............ -- -- -- -- (9,521)
------------ ----------- ------------ ------------ -----------
Operating income.................... 16,504 2,280 23,718 20,005 28,902
Interest and other expenses......... 5,957 9,716 8,938 6,624 7,472
------------ ----------- ------------ ------------ -----------
Income (loss) before income taxes
and extraordinary item................ 10,547 (7,436) 14,780 13,381 21,430
Income tax expense (benefit)........ 3,956 (2,219) 5,690 5,152 8,251
------------ ----------- ------------ ------------ -----------
Income (loss) before extraordinary
item............................. 6,591 (5,217) 9,090 8,229 13,179
Extraordinary loss on early
extinguishment of debt (net of tax) (795) -- -- -- --
------------ ----------- ------------ ------------ -----------
Net income (loss)................... $ 5,796 $ (5,217) $ 9,090 $ 8,229 $ 13,179
============ =========== ============ ============ ===========
Earnings Per Share Data:
Earnings per share - Basic:
Income (loss) before extraordinary
item:............................. $ 0.91 $ (0.66) $ 1.16 $ 1.05 $ 1.67
Extraordinary loss on early
extinguishment of debt............ (0.11) -- -- -- --
------------ ----------- ------------ ------------ -----------
Net income (loss).................. $ 0.80 $ (0.66) $ 1.16 $ 1.05 $ 1.67
============ =========== ============ ============ ===========
Weighted average common shares
outstanding (in thousands)........ 7,249 7,900 7,860 7,841 7,872
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================
Fiscal Year Ended Nine Months Ended
----------------------------------------------------------------------------------------------
Dollars in thousands June 30, 1996 June 30, 1997 June 30, 1998 March 31, 1998 March 31, 1999
-------------- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Earnings per share - Diluted:
Income (loss) before extraordinary
item.............................. $ 0.88 $ (0.65) $ 1.11 $ 1.01 $ 1.63
Extraordinary loss on early
extinguishment of debt............ (0.11) -- -- -- --
------------ ----------- ------------ ------------ -----------
Net income (loss).................. $ 0.77 $ (0.65) $ 1.11 $ 1.01 $ 1.63
============ =========== ============ ============ ===========
Weighted average common shares
outstanding (in thousands):....... 7,495 8,035 8,176 8,140 8,073
Other Financial Data:
EBITDA(1)........................... $ 29,459 $ 18,540 $ 40,819 $ 32,553 $ 41,841
Adjusted EBITDA(2).................. 30,254 38,239 44,769 32,553 32,320
Adjusted EBITDA margin.............. 9.0% 9.9% 11.4% 11.2% 10.5%
Depreciation and amortization....... $ 14,563 $ 18,188 $ 18,444 $ 13,608 $ 14,326
Capital expenditures................ 25,289 22,883 33,588 28,582 12,340
Ratio of total debt to adjusted
EBITDA............................. 3.5x 2.5x 2.2x -- --
Ratio of adjusted EBITDA to interest
expenses........................... 5.9 4.9 5.9 5.9x 5.3x
Ratio of earnings to fixed 2.8 --(5) 2.7 3.1 4.2
charges(3).........................
Balance Sheet Data (at period end):
Working capital (4) ................ $ 60,517 $ 49,774 $ 35,315 $ 34,734 $ 28,777
Total assets........................ 283,723 266,916 291,752 278,530 285,229
Total debt.......................... 106,801 94,469 99,655 88,546 71,303
Total shareholders' equity.......... 108,528 100,643 109,816 107,395 120,543
</TABLE>
See Notes to Summary Historical Consolidated Financial Data
15
<PAGE>
Notes to Summary Historical Consolidated Financial Data
(1) EBITDA represents net income before interest, income taxes, depreciation
and amortization. EBITDA is presented because we believe it is frequently
used by security analysts, lenders and others in the evaluation of
companies. However, EBITDA should not be considered as an alternative to
operating income, net income, net cash provided by operating activities or
any other measure for determining our operating performance or liquidity in
accordance with generally accepted accounting principles. EBITDA, as used
herein, is not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method of
calculation.
(2) Represents EBITDA, adjusted to eliminate the effect of an extraordinary
loss on early extinguishment of debt of $0.8 million (net of tax) recorded
in fiscal 1996, a restructuring charge of $19.7 million recorded in fiscal
1997, a restructuring charge of $4.0 million recorded in fiscal 1998 and a
pre-tax net gain on divestitures of $9.5 million recorded in the nine
months ended March 31, 1999.
(3) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income before income taxes plus fixed charges. Fixed
charges consist of interest expense, including amortization of deferred
financing costs, whether expensed or capitalized, and the portion of rental
expense which management believes is representative of the interest
component of rental expense.
(4) Working capital represents the excess of current assets over current
liabilities, excluding restructuring reserves.
(5) Earnings were insufficient to cover fixed charges by $0.8 million.
16
<PAGE>
MELHAM HOLDINGS, INC.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial data
with respect to Melham Holdings, Inc. as of the dates and for the periods
indicated and reflects the acquisition of Port City Press, Inc. by Mack Printing
Company, a subsidiary of Melham Holdings, Inc., on September 2, 1998. The
financial data for each of the three years in the period ended December 31,
1998, have been derived from Melham's audited consolidated financial statements
and notes thereto, which have been audited by Ernst & Young LLP, independent
auditors, whose report thereon is included elsewhere in this prospectus. The
financial data for the three mont
hs ended March 31, 1998 and March 31, 1999,
have been derived from the unaudited consolidated financial statements of Melham
Holdings, Inc., which, in the opinion of the management of Melham, contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly its financial position and results of operations at such dates
and for such periods. The data presented below should be read in conjunction
with, and are qualified in their entirety by reference to Melham's consolidated
financial statements and the notes thereto appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Year Ended Three Months Ended
------------------------------------------------------------ ----------------------------------
December 31, December 31, December 31, March 31, March 31,
Dollars in thousands 1996 1997 1998 1998 1999
---------------- ------------------ ------------------ ----------------- --------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales..................... $ 111,670 $ 119,120 $ 135,674 $ 31,404 $ 39,484
Operating expenses:
Cost of sales................. 83,972 90,587 104,375 24,057 30,074
Selling and administrative
expenses..................... 13,412 14,269 16,974 3,804 5,558
Recapitalization expenses...... -
- - 7,405 -- -- --
--------------- ------------------ ------------------ ----------------- -----------
Operating income................ 14,286 6,859 14,325 3,543 3,852
Interest expense, net........... 3,129 7,375 9,440 2,171 2,728
Miscellaneous expense (income),
net........................... (156) (157) (84) (13) 35
-------------- ------------------ ------------------ ----------------- -----------
Income (loss) before income taxes
and minority interest.......... 11,313 (359) 4,969 1,385 1,089
Income tax expense.............. 4,339 36
2,124 567 456
Minority interest............... 577 (443) -- -- --
---------------- ------------------ ------------------ ----------------- --------------
Net income...................... $ 6,397 $ 48 $ 2,845 $ 818 $ 633
================ ================== ================== ================= ==============
Other Financial Data:
EBITDA/(1)/..................... $ 19,841 $ 13,942 $ 22,252 $ 5,307 $ 6,233
EBITDA margin................... 17.8% 11.7% 16.4% 16.9% 15.8%
Depreciation and amortization,
excluding amortization of deferred
financing costs and original issue
discounts....................... $ 5,976
$ 6,483 $ 7,843 $ 1,751 $ 2,416
Capital expenditures............ 6,465 5,655 5,001 539 3,204
Balance Sheet Data
(at period end):
Working capital................. -- $ 7,550 $ 11,543 -- $ 9,265
Total assets.................... -- 92,579 124,931 -- 121,905
Total debt...................... -- 77,256 105,498 -- 101,935
Deficiency in assets............ -- (27,151) (23,358) -- ( 22,495)
</TABLE>
17
<PAGE>
See Notes to Summary Historical Consolidated Financial Data
18
<PAGE>
__________
(1) EBITDA represents net income before interest, income taxes, depreciation
and amortization. EBITDA is presented because we believe it is frequently
used by security analysts, lenders and others in the evaluation of
companies. However, EBITDA should not be considered as an alternative to
operating income, net income, net cash provided by operating activities or
any other measure for determining our operating performance or liquidity in
accordance with generally accepted accounting principles. EBITDA, as used
herein, is not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method of
calculation.
19
<PAGE>
RISK FACTORS
You should consider carefully the following risks and all of the information set
forth in this prospectus before tendering your Old Notes in the exchange offer
and making an investment in the Exchange Notes. The risk factors set forth below
(other than "--Holders That Do Not Exchange Old Notes Hold Restricted
Securities") are applicable to the Old Notes as well as the Exchange Notes.
RISKS RELATING TO THE EXCHANGE OFFER
Holders That Do Not Exchange Old Notes Hold Restricted Securities
If you do not exchange your Old Notes for Exchange Notes, your ability to sell
the Old Notes will be restricted.
If you do not exchange your Old Notes for the Exchange Notes in the exchange
offer, you will continue to be subject to the restrictions on transfer described
in the legend on your Old Notes. The restrictions on transfer of your Old Notes
arise because we issued the Old Notes in a transaction not subject to the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
and applicable state securities laws. In general, you may only offer or sell the
Old Notes if they are registered under the Securities Act and applicable state
securities laws, or offered and sold pursuant to an exemption from such
requirements. If you are still holding any Old Notes after the Expiration Date
and the exchange offer has been consummated, you will not be entitled to have
such Old Notes registered under the Securities Act or to any similar rights
under the Registration Rights Agreement (subject to limited exceptions, if
applicable). After the exchange offer is completed, we will not be required, and
we do not intend, to register the Old Notes under the Securities Act. In
addition, if you exchange your Old Notes in the exchange offer for the purpose
of participating in a distribution of the Exchange Notes, you may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent Old Notes are tendered and
accepted in the exchange offer, the trading market, if any, for the Old Notes
would be adversely affected.
Holders Responsible for Compliance with Exchange Offer Procedures
If you do not comply with the exchange offer procedures, you will be unable to
obtain the Exchange Notes.
We will issue the Exchange Notes in exchange for the Old Notes only after we
have timely received your Old Notes, along with a properly completed and duly
executed Letter of Transmittal and all other required documents. Therefore, if
you want to tender your Old Notes in exchange for Exchange Notes, you should
allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor
Cadmus is under any duty to give notification of defects or irregularities in
the tender of Old Notes for exchange. The exchange offer will expire at 5:00
p.m., New York City time, on ___________, 1999, or on a later extended date and
time as we may decide (the "Expiration Date").
The Exchange Notes and any Old Notes which remain outstanding after the exchange
offer will vote together as a single class for purposes of determining whether
the required percentage of holders have taken certain actions or exercised
certain rights under the Indenture.
20
<PAGE>
Requirements for Transfer of Exchange Notes
Even the Exchange Notes, in your hands, may not be freely tradeable.
Based on interpretations by the SEC staff set forth in no-action letters issued
to third parties, we believe that you may offer for resale, resell and otherwise
transfer the Exchange Notes without compliance with the registration and
prospectus delivery provisions of the Securities Act, subject to certain
limitations. These limitations include that you are not an "affiliate" of ours
within the meaning of Rule 405 under the Securities Act, that you acquired your
Exchange Notes in the ordinary course of your business and that you have no
arrangement with any person to participate in the distribution of such Exchange
Notes. However, we have not submitted a no-action letter to the SEC regarding
this exchange offer and we cannot assure you that the SEC would make a similar
determination with respect to this exchange offer. If you are an affiliate of
Cadmus, are engaged in or intend to engage in or have any arrangement or
understanding with respect to a distribution of the Exchange Notes to be
acquired pursuant to the exchange offer, you will be subject to additional
limitations. See "The Exchange Offer - Resale of the Exchange Notes."
RISKS RELATING TO THE EXCHANGE NOTES AS WELL AS THE OLD NOTES
The following risk factors apply to an investment in the Old Notes and the
Exchange Notes. References in this section to "the Notes" apply both to the
Exchange Notes and the Old Notes.
Substantial Leverage and Additional Borrowings Possible
Our substantial indebtedness could adversely affect our business and prevent us
from fulfilling our obligations under the Exchange Notes.
We have a substantial amount of indebtedness. The following chart shows certain
important credit statistics and is presented assuming we had completed our
acquisition of Mack, our divestitures of our financial communications and custom
publishing product lines, the refinancing of our former senior credit facility
and the sale of the Old Notes and the application of the net proceeds therefrom
as of March 31, 1999 for the balance sheet statistics or on July 1, 1997 for the
ratio of earnings to fixed charges.
<TABLE>
<CAPTION>
As of
-----
March 31, 1999
--------------------
(Dollars in millions)
<S> <C>
Total indebtedness.............................................................. $ 275.3
Total shareholders' equity...................................................... 134.8
<CAPTION>
Year Ended Nine Months Ended
----------------- --------------------
June 30, 1998 March 31, 1999
----------------- --------------------
<S> <C> <C>
Ratio of earnings to fixed charges............................. 1.6x 1.8x
</TABLE>
In addition to our current debt, we will also be permitted to incur substantial
additional indebtedness in the future. As of March 31, 1999, after giving pro
forma effect to the transactions described above, approximately $61.9 million
would have been available for additional borrowing under our senior credit
facility. If new indebtedness is added to our and our subsidiaries' current debt
levels, the related risks that we and they now face could intensify. Please
refer to the sections of this prospectus entitled "Unaudited Pro Forma
Capitalization," "Description of Senior Credit Facility" and "Description of
Exchange Notes--Certain Covenants--Limitation on Incurrence of Additional
Indebtedness."
21
<PAGE>
Our substantial indebtedness could have important consequences to you. For
example, it could
. make it more difficult for us to satisfy our obligations with
respect to the Notes;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to obtain additional financing to fund future
working capital, capital expenditures and other general corporate
requirements;
. require us to dedicate a substantial portion of our cash flow from
operations to make debt service payments, which would reduce our
ability to fund working capital, capital expenditures or other
general corporate requirements;
. limit our flexibility in planning for, or reacting to, changes in
our business and the industry; and
. place us at a disadvantage when compared to those of our competitors
that have less debt.
Ability to Service Debt
To service our debt, we will require a significant amount of cash. Our ability
to generate cash depends on many factors beyond our control.
You should be aware that our ability to repay or refinance our current debt or
to fund planned capital expenditures and other obligations depends on our
successful financial and operating performance and on our ability to
successfully implement our business strategy. Unfortunately, we cannot assure
you that we will be successful in implementing our strategy or in realizing our
anticipated financial results. You should also be aware that our financial and
operational performance depends on general economic, financial, competitive,
legislative, regulatory and other factors, many of which are beyond our control.
Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available cash
and available borrowings under our senior credit facility will be adequate to
meet our future liquidity needs through at least fiscal 2000.
We cannot assure you, however, that our business will generate sufficient cash
flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule, or at all, or that future borrowings
will be available to us under our senior credit facility or otherwise in an
amount sufficient to enable us to service our debt, including the Notes, or to
fund our other liquidity needs. We may need to refinance all or a portion of our
debt, including the Notes, on or before maturity. We cannot assure you that we
will be able to refinance any of our debt, including our senior credit facility
and the Notes, on commercially reasonable terms or at all.
Restrictive Debt Covenants
We are required to comply with covenants in our senior credit facility and the
indenture governing the Notes that restrict the manner in which we conduct our
business.
Our senior credit facility contains, and the indenture governing the Notes, will
contain a number of significant covenants. These covenants will limit our
ability to, among other things:
22
<PAGE>
. borrow additional money;
. make capital expenditures and other investments;
. merge, consolidate or dispose of our assets;
. acquire assets in excess of certain dollar amounts; and
. grant liens on our assets.
Our senior credit facility requires and the indenture will require us and our
subsidiaries to meet certain financial tests. The failure to comply with these
covenants and tests would cause a default under those agreements. A default, if
not waived, could result in the debt under our senior credit facility becoming
immediately due and payable. In addition, a default under our senior credit
facility or the Notes could result in a default or acceleration of our other
indebtedness with cross-default provisions. If this occurs, we may not be able
to pay our debt or borrow sufficient funds to refinance it. Even if new
financing is available, it may not be on terms that are acceptable to us.
Complying with these covenants and tests may cause us to take actions that we
otherwise would not take or not take actions that we otherwise would take. The
stock of our subsidiary guarantors is pledged as security under our senior
credit facility. Please refer to the sections in this prospectus entitled
"Description of Senior Credit Facility" and "Description of Exchange Notes--
Certain Covenants."
Subordination
Your right to receive payments on the Notes and the guarantees of the Notes is
junior to substantially all of our other indebtedness and possibly all future
borrowings.
The Notes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors' existing and future senior indebtedness. As a result,
upon any distribution to our creditors or the creditors of the subsidiary
guarantors in a bankruptcy, liquidation or reorganization or similar proceeding
relating to us or the subsidiary guarantors or our or their property, the
holders of our senior debt and the senior debt of the subsidiary guarantors will
be entitled to be paid in full in cash before any payment may be made with
respect to the Notes or the subsidiary guarantees.
In addition, all payments on the Notes and the subsidiary guarantees will be
blocked in the event of a payment default on senior debt and may be blocked for
up to 180 of 360 consecutive days in the event of certain non-payment defaults
on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the subsidiary guarantors, holders of the Notes
will participate with trade creditors and all other holders of our subordinated
indebtedness and the subordinated indebtedness of the subsidiary guarantors in
the assets remaining after we and the subsidiary guarantors have paid all senior
debt. However, because the indenture requires that amounts otherwise payable to
holders of the Notes in a bankruptcy or similar proceeding be paid to holders of
senior debt instead, holders of the Notes may receive less, ratably, than
holders of trade payables in any such proceeding. In any of these cases, we and
the subsidiary guarantors may not have sufficient funds to pay all our creditors
and holders of Notes may receive less, ratably, than the holders of senior debt.
The Notes will also be effectively subordinated to all existing and future
liabilities, including trade payables, of our subsidiaries that are not
guarantors of the Notes. Holders of indebtedness of, and trade
23
<PAGE>
creditors of, such subsidiaries, would, in a bankruptcy, liquidation or
reorganization or similar proceeding relating to us or our property, generally
be entitled to payment of their claims from the assets of the affected
subsidiaries before such assets would be made available for distribution to our
creditors, including holders of the Notes.
As of March 31, 1999, after giving pro forma effect to our acquisition of Mack,
the sale of Cadmus Financial Communications and Cadmus Custom Publishing, the
refinancing of our former senior credit facility and the consummation of this
offering and the application of net proceeds thereof, the Notes and the
subsidiary guarantees would have been subordinated to $143.9 million of senior
debt, excluding approximately $61.9 million of additional borrowing capacity we
expect to have available under our senior credit facility. In addition, on the
same pro forma basis, our subsidiaries that are not guarantors of the Notes
would have had $6.5 million of liabilities, including trade payables, to which
the Notes would have been effectively subordinated. We will be permitted to
borrow substantial additional indebtedness, including senior debt, in the future
under the terms of the indenture.
Fraudulent Conveyance
Federal and state laws allow courts, in certain circumstances, to avoid the
guarantees of the Notes and require noteholders to return payments made by the
subsidiary guarantors.
Under the federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, the subsidiary guarantees could be voided, or claims in respect
of the subsidiary guarantees could be subordinated to the debts of a subsidiary
guarantor if, among other things, the subsidiary guarantor, at the time it
incurred the indebtedness evidenced by its subsidiary guarantee:
. received less than reasonably equivalent value or fair consideration
for the incurrence of such indebtedness; and
. either (1) was insolvent or rendered insolvent by reason of such
incurrence; (2) was engaged in a business or transaction for which
such subsidiary guarantor's remaining assets constituted unreasonably
small capital; or (3) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they mature.
In addition, any payment by such subsidiary guarantor pursuant to its subsidiary
guarantee could be voided and required to be returned to such subsidiary
guarantor, or to a fund for the benefit of creditors of such subsidiary
guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws will
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, a subsidiary guarantor
would be considered insolvent if:
. the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets;
. the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
. it could not pay its debts as they become due.
24
<PAGE>
On the basis of historical financial information, recent operating history and
other factors, Cadmus and each subsidiary guarantor believes that, after giving
effect to the indebtedness incurred in connection with this offering and the
establishment of our senior credit facility, no subsidiary guarantor will be
insolvent, will have unreasonably small capital for the business in which it is
engaged or will have incurred debts beyond its ability to pay such debts as they
mature. There can be no assurance, however, as to what standard a court would
apply in making such determinations or that a court would agree with our or the
subsidiary guarantors' conclusions in this regard.
Financing a Change of Control Offer
We may not have the ability to raise the funds necessary to finance a change of
control offer as required by the indenture.
Upon the occurrence of certain specific kinds of change of control events, we
will be required to offer to repurchase all outstanding Notes. However, it is
possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of Notes or that restrictions in our
senior credit facility will not allow such repurchases. In addition, certain
important corporate events, such as leveraged recapitalizations that would
increase the level of our indebtedness, would not constitute a "Change of
Control" under the indenture. Please refer to the section of this prospectus
entitled "Description of Exchange Notes--Change of Control."
No Public Market for the Notes
An active trading market for the Notes may not develop.
The Notes are a new issue of securities with no established trading market and
will not be listed on any securities exchange.
The liquidity of any market for the Notes will depend upon various factors,
including:
. the number of holders of Notes;
. the interest of securities dealers in making a market for the Notes;
. the overall market for high-yield securities;
. our financial performance or prospects; and
. the prospects for companies in our industry generally.
Accordingly, we cannot assure you that a market or liquidity will develop for
the Notes.
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. We cannot assure you that the market for the Notes, if
any, will not be subject to similar disruptions. Such disruptions may adversely
affect you as a holder of the Notes.
25
<PAGE>
RISKS RELATING TO OUR COMPANY
Integration of Mack
The integration of our Mack acquisition may divert management time and could
adversely affect our operations.
The integration of Mack will require substantial management time and other
resources and may pose risks with respect to production, customer service and
market share. While we believe that we have sufficient management and other
resources to accomplish the rationalization and integration of Mack, we cannot
assure you that this will occur or that we will not experience difficulties with
customers, suppliers, personnel, technology or other factors.
Although we believe that the Mack acquisition will enhance our competitive
position and business prospects, we cannot assure you that such benefits will be
realized or that our combination with Mack will be more successful than the
companies would have been if they had remained independent. Several of our
customers that also had been customers of Mack may be unwilling to have all of
their work produced by one company. We cannot assure you that we will be able to
retain these customers or that we will continue to sell to them at current
levels. Finally, our business plan contemplates certain cost savings in
connection with the acquisition and integration of Mack. The majority of these
savings relate to improved terms and pricing in connection with the purchase of
paper, ink and other raw materials. We cannot assure you that we will achieve
these synergies and efficiencies in accordance with our plan or at all.
Evolution of Technology and Alternative Delivery Media
The evolution of the Internet and other technology may decrease the demand for
our products and services.
The technology we use in our operations is rapidly evolving. We could experience
delays or difficulties in responding to changing technology, in addressing the
increasingly sophisticated needs of our customers or in keeping pace with
emerging industry standards. In addition, the cost required to respond to and
integrate changing technologies may be greater than we anticipate. If we do not
respond adequately to the need to integrate changing technologies in a timely
manner, or if the investment required to so respond is greater than anticipated,
our business, financial condition, results of operations, cash flow and ability
to make payments on the Exchange Notes and Old Notes may be adversely affected.
Although an increasing portion of the net sales and profitability of our
Professional Communications sector is derived from composition, electronic media
and other non-print revenues, we remain largely dependent on the distribution of
STM information in printed form. Usage of the Internet and other electronic
media continues to grow. We cannot assure you that the acceleration of the trend
toward such electronic media will not cause a decrease in demand for our
products or what effect, if any, such an event would have on our business,
financial condition, results of operations and cash flow.
Competition
The printing and graphic communications industry is competitive and rapidly
evolving, and competition and downward pricing pressures may adversely affect
our results of operations.
The printing and graphics communications industry is extremely competitive.
Industry over-capacity and recent technological developments in prepress and
design have increased industry consolidation and
26
<PAGE>
competitive pressures. We compete with numerous companies, some of which have
greater financial resources than we do. We compete on the basis of ongoing
customer service, quality of finished products, range of services offered,
distribution capabilities and price. We cannot assure you that we will be able
to compete successfully with respect to any of these factors. We believe that,
primarily as a result of the continued excess capacity in the industry, there
has been, and will continue to be, downward pricing pressure and increased
competition. Moreover, we compete for potential acquisition candidates with
other industry consolidators, many of which have greater financial resources
than we do. Our failure to compete successfully could have a material adverse
effect on our business, financial condition and results of operations.
Cost and Availability of Paper and Other Raw Materials
Increases in prices of raw materials or the loss of our primary paper
distributor could cause disruptions in our services to customers.
The principal raw material used in our business is paper, which represents a
significant portion of our cost of materials. Historically, we have generally
been able to pass increases in the cost of paper on to our customers. However,
we cannot assure you that we will be able to continue to do so. We do not
maintain significant stock inventories. Instead, we generally purchase paper on
a direct order basis for specific jobs under supply agreements that guarantee
tonnage and provide short range price protection for three to six month
intervals. Although we believe that we have been successful in negotiating
favorable price relationships with our paper vendors, the overall paper market
is beyond our control. Future paper price increases could have a material
adverse affect on our business, financial condition, results of operations and
cash flow.
Due to the significance of paper in our business, we are dependent upon the
availability of paper. In periods of high demand, certain paper grades have been
in short supply, including grades we use in our business. In addition, during
periods of tight supply, many paper producers allocate shipments of paper based
upon historical purchase levels of customers. Although we generally have not
experienced significant difficulty in obtaining adequate quantities of paper,
unforeseen developments in the overall paper markets could result in a decrease
in the supply of paper and could have a material adverse effect on our business.
Approximately 59% of our paper requirements are purchased from one primary
distributor. If that distributor is unwilling or unable to fulfill our future
paper requirements, we would be forced to contract with a different supplier for
the majority of our paper needs. We believe that we have good relationships both
with our primary distributor and with the paper mills that produce the paper we
purchase from this distributor. In addition, we believe that there are other
suppliers that are familiar with our business that, if necessary, could fulfill
our paper requirements in the long term. However, we cannot assure you that the
loss of services of our primary distributor would not cause an interruption in
our business in the short term or what impact, if any, such an event would have
on our business, financial condition, results of operations or cash flow.
We use a variety of other raw materials including ink, film, offset plates,
chemicals and solvents, glue, wire and subcontracted components. In general, we
have not experienced any significant difficulty in obtaining these raw
materials. We cannot assure you, however, that a shortage of any of these raw
materials will not occur in the future or what effect, if any, such a shortage
would have on our business, financial condition, results from operations and
cash flow.
27
<PAGE>
Technicians and Salespeople
A loss of skilled technicians and salespeople could adversely affect our
productivity and operations.
To provide high-quality printed products in a timely fashion we must maintain an
adequate staff of skilled technicians, including prepress personnel, pressmen,
bindery operators and fulfillment personnel. Accordingly, our ability to
increase our productivity and profitability will depend, in part, on our ability
to employ, train and retain the skilled technicians necessary to meet our
commitments. From time-to-time:
. the graphics communication industry experiences shortages of qualified
technicians, and we may not be able to maintain an adequate skilled
labor force necessary to operate efficiently;
. our labor expenses may increase as a result of shortages of skilled
technicians; or
. we may have to curtail our planned internal growth as a result of
labor shortages.
In addition, portions of the graphics communication printing industry are
characterized by personal relationships between individual members of a
company's sales force and customers who order printing services. Our business,
financial condition, results of operations, cash flow and our ability to make
payments on the Exchange Notes and Old Notes could be adversely affected if we
do not retain salespeople with large customer bases.
Labor Relations
Some of our employees belong to labor unions and certain actions by such
employees, such as strikes or work stoppages, could adversely affect our
operations or cause us to incur costs.
We employ approximately 4,600 persons. Within our Professional Communications
sector, we have approximately 1,000 employees across three plants that are
members of local labor unions of the Communications Workers of America and
Graphic Communications International. We believe we have a collaborative, non-
adversarial relationship with our union employees. We recently renewed contracts
with the three local unions at our Lancaster, Pennsylvania plant for a three-
year term expiring in February 2002. The union contract covering employees at
our Easton, Pennsylvania facility expires in January 2001. The contracts with
the three local unions at the East Stroudsburg, Pennsylvania plant expired in
March, April and May 1999, respectively. The contract with one of the local
unions at East Stroudsburg was recently renewed and the contracts with the
remaining two local unions are currently under negotiation. We do not expect any
significant problems in concluding those contracts by August 1, 1999. We believe
we have good relationships with our non-union employees and provide good working
conditions to all employees. Historically, the unions at the Cadmus facilities
have not organized a strike or other work stoppage. However, if unionized
employees were to engage in a concerted strike or other work stoppage, or if
other employees were to become unionized, we could experience a disruption of
operations, higher labor costs or both. We cannot assure you that a strike or
other disruption of operations or work stoppage would not have a material
adverse effect on our business or operations.
Environmental Compliance
Our printing and other facilities are subject to environmental regulations,
which will require us to incur costs to comply with such regulations.
28
<PAGE>
Our operations are subject to federal, state and local environmental laws and
regulations relating to, among other things, air emissions, waste generation,
handling, management and disposal, waste water treatment and discharge and
remediation of soil and groundwater contamination. In addition, permits are
required for the operation of certain of our businesses, and these permits are
subject to renewal, modification and, in some circumstances, revocation. We
believe that our current operations are in substantial compliance with
applicable environmental laws and regulations. However, we cannot assure you
that compliance with environmental laws or remedial obligations thereunder will
not have a material adverse effect on our results of operations or cash flow in
the future. Moreover, we cannot predict future changes to environmental laws and
regulations or interpretations or enforcement thereof or what impact, if any,
such changes would have on our business or operations in the future.
We and certain of the sellers from whom we have acquired businesses have been
designated as potentially responsible parties at eight sites under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
which provides, under certain circumstances, for joint and several liability for
remedial costs with respect to off-site disposal of hazardous materials. We have
established a comprehensive environmental compliance program and have a
designated environmental and safety manager. We believe that we have minimal
exposure as a result of such designations, due to indemnities obtained in the
course of acquisitions or because of the de minimis nature of the claims, or
both. Also, soil and groundwater contamination is present at two facilities due
to the actions of prior owners and is being remediated under indemnity
agreements. We cannot assure you, however, that all of our indemnities will be
fully performed or that currently unknown environmental issues will not be
identified or what impact, if any, such issues may have on our business or
operations in the future.
Year 2000 Issues
The change from 1999 to the year 2000 could cause malfunctions in our equipment
or computer systems.
Like many other companies, the Year 2000 computer issue creates risks for us. If
our internal systems, or those of our significant vendors or customers, do not
correctly recognize and process date information beyond the year 1999, there
could be an adverse impact on our operations. The Year 2000 computer issue stems
from the computer industry's practice of conserving data storage by using two
digits, instead of four digits, to represent a year. Systems and hardware which
use this two-digit format may process data incorrectly or fail with the use of
dates in the next century. These types of failures can influence applications
that rely on dates to perform calculations (such as an accounts receivable aging
report), as well as systems such as building security and heating.
We believe our internal exposure to Year 2000 issues is limited to the purchase
of computer hardware and, to a lesser extent, software at certain of our
locations. Our Year 2000 risks also include (1) equipment malfunctions; (2)
business outages or other interruptions suffered by non-compliant vendors and
(3) the inability of our customers to forward electronic images due to their own
Year 2000 malfunctions. To address the Year 2000 computer issue, we initiated a
four-phased program that included a review of all computers, software and
related date-sensitive equipment used in the management of print jobs, office
automation, accounting, process control and other applications. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Issue" for a description of our Year 2000 plan. We
substantially completed all Year 2000 related remediation, testing and
implementation by June 30, 1999, pending minor system installations planned for
July, 1999 and non-compliant vendor contingency planning occurring through
August 31, 1999. Excluding costs associated with Mack, which are discussed
below, we estimate the cost of corrective actions to address our Year 2000
computer exposure to be approximately $0.4 million to $0.6 million in excess of
our normal software upgrades and replacements. We cannot assure you, however,
that we will not incur
29
<PAGE>
additional costs in addressing the Year 2000 issue or that we will be Year 2000
compliant by July 31, 1999.
Our due diligence process for new acquisitions includes a Year 2000 assessment,
and any necessary corrective actions will be scheduled for immediate
implementation. We have substantially completed the inventory and assessment
process and have made progress in remediation for the Mack entities. We estimate
that Mack's Year 2000 program will be completed during or prior to October 1999.
To accelerate remediation and to fund Year 2000 compliance efforts, we
negotiated a $2.0 million special escrow from the former owners of Mack. This
special escrow is intended to cover the cost of Year 2000 remediation at Mack.
We cannot assure you, however, that Year 2000 compliance at Mack will be
achieved by October 1999 or that the funds in the special escrow account will be
sufficient to cover the costs of any Year 2000 remediation at Mack. Moreover, we
cannot assure you that any Year 2000 issues present at Mack will not have a
material adverse effect on our business, financial condition, results of
operations and cash flow. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Issue."
Risks Associated With Future Acquisitions
We may not be able to acquire other companies, and companies we do acquire may
not perform as well as expected.
As part of our business strategy, we expect to pursue additional acquisitions.
Nonetheless, we cannot assure you that we will identify suitable acquisitions or
that such acquisitions can be made at an acceptable price. If we acquire
additional businesses, those businesses may require substantial capital.
Although we will be able to borrow under our senior credit facility under
certain circumstances to fund acquisitions, we cannot assure you that such
borrowings will be available in sufficient amounts or that other financing will
be available in amounts and on terms that we deem acceptable. Furthermore, the
integration of acquired businesses may result in unforeseen difficulties that
require a disproportionate amount of management's attention and our other
resources. Finally, we cannot assure you that we will achieve synergies and
efficiencies comparable to those from recent acquisitions.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the Exchange Notes.
In consideration for issuing the Exchange Notes as contemplated in this
prospectus, we will receive in exchange the Old Notes in like principal amounts,
which we will cancel. Accordingly, there will not be an increase in our
outstanding indebtedness.
30
<PAGE>
UNAUDITED PRO FORMA CAPITALIZATION
The following table sets forth our unaudited pro forma cash and cash equivalents
and capitalization as of March 31, 1999, as adjusted to give effect to (1) our
acquisition of Mack, (2) the refinancing of our former senior credit facility
and (3) the sale of the Old Notes and (4) the application of the net proceeds to
repay in full $110.0 million of senior subordinated bridge notes issued in
connection with the Mack Acquisition and to repay $10.8 million of borrowings
under the senior credit facility.
<TABLE>
<CAPTION>
---------------------
Dollars in thousands
March 31, 1999
---------------------
<S> <C>
Cash and cash equivalents.................................................. $ 351
=====================
Long-term debt (including current maturities):
Senior credit facility/(1)/............................................ $ 138,123
Old Notes.............................................................. 125,000
Other.................................................................. 12,218
---------------------
Total long-term debt (including current maturities)................... 275,341
Total shareholders' equity..........................................
...... 134,807
---------------------
Total capitalization...................................................... $ 410,148
=====================
</TABLE>
__________
(1) Our senior credit facility consists of a $145.0 million revolving credit
facility, of which $83.1 million was outstanding, and a $55.0 million term
loan facility, all of which was outstanding. We had $61.9 million of
additional borrowings available under the revolving credit facility.
31
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data are based upon our
historical consolidated financial statements and the historical consolidated
financial statements of Melham Holdings, Inc., appearing elsewhere in this
prospectus, as adjusted to give effect to:
. our acquisition of Mack;
. the acquisition by Melham Holdings, Inc. of Port City Press, Inc.;
. the divestitures of our financial communications and custom publishing
product lines;
. the refinancing of our former senior credit facility; and
. the sale of the Old Notes and the application of the net proceeds
therefrom.
The pro forma adjustments are based upon available information and certain
assumptions that we believe are reasonable. The unaudited pro forma consolidated
financial data and accompanying notes should be read in conjunction with our
historical consolidated financial statements and notes thereto and the
historical consolidated financial statements and notes thereto of Melham
Holdings, Inc., appearing elsewhere in this prospectus. See "Prospectus
Summary--Recent Transactions" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The following unaudited pro forma statements of income for the year ended June
30, 1998, and the nine months ended March 31, 1999, give effect to the
transactions described above as if they had occurred on July 1, 1997. The
following unaudited pro forma balance sheet as of March 31, 1999 gives effect to
the transactions described above as if they had occurred on such date (excluding
the divestitures of our financial communications and custom publishing product
lines, which occurred in March and February 1999, respectively). The unaudited
pro forma financial data do not purport to be indicative of what our results of
operations or financial position would actually have been had the transactions
described above occurred at the beginning of the periods indicated or on such
date or to project our results of operations for any future date.
The fiscal year of Melham Holdings, Inc. ends on December 31. Financial data of
Melham Holdings, Inc. included in the unaudited pro forma statement of income
for the year ended June 30, 1998, are for the twelve months then ended.
32
<PAGE>
Unaudited Pro Forma Consolidated Statement of Income
Year Ended June 30, 1998
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Cadmus Port City
Historical Divestiture Adjusted Historical Acquisition Adjusted
Dollars in thousands Cadmus Adjustments Cadmus Melham Adjustments/(3)/ Melham
---------- ------------ -------- ----------- -----------
- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $393,823 $(54,406) $339,417 $123,699 $ 36,125 $159,824
Cost of sales........................ 304,014 (36,306) 267,708 95,079 25,852 120,931
Selling and administrative
expenses............................ 62,141 (11,700) 50,441 14,589 6,259/(4)/ 20,848
Amortization expense................. -- -- -- 449 414/(4)/ 863
Restructuring charge, net............ 3,950 -- 3,950 -- -- --
-------- -------- --------
-------- ----------- --------
Operating income................... 23,718 (6,400) 17,318 13,582 3,600 17,182
-------- -------- -------- -------- ----------- --------
Interest expense..................... 7,595 (2,039) 5,556 8,783 3,303/(4)/ 12,086
Other expenses, net.................. 1,343 -- 1,343 (56) (281) (337)
-------- -------- -------- -------- ----------- --------
Income (loss) before
income taxes........................ 14,780 (4,361) 10,419 4,855 578 5,433
-------- -
- ------- -------- -------- ----------- --------
Income tax expense
(benefit)........................... 5,690 (1,679) 4,011 2,086 230 2,316
-------- -------- -------- -------- ----------- --------
Net income (loss).................... $ 9,090 $ (2,682) $ 6,408 $ 2,769 $ 348 $ 3,117
======== ======== ======== ======== =========== ========
Earnings Per Share Data:
Earnings per share - basic:
Net income (loss)................... $ 1.16
Weighted average common shares
Outstanding......................... 7,860
Earnings per share - diluted:
Net income (loss)................... $ 1.11
Weighted average common shares
Outstanding......................... 8,176
Other Financial Data:
EBITDA/(1)/.......................... $ 40,819 $ (7,290) $ 33,529 $ 20,508 $ 6,628 $ 27,136
Adjusted EBITDA/(2)/................. -- -- -- -- -- --
Adjusted EBITDA
margin.............................. -- -- -- -- -- --
Depreciation and
amortization........................ $ 18,444 $ (890) $ 17,554 $ 6,870 $ 2,747 $ 9
,617
Capital expenditures................. 33,588 (1,332) 32,256 5,349 327 5,676
<CAPTION>
---------------------------------------------------------------------------
Mack Other
Acquisition Transaction Adjusted
Dollars in thousands Adjustments/(5)/ Adjustments Pro Forma
--------------- ------------- ----------
<S> <C> <C> <C>
Net sales............................ $ -- $ -- $499,241
Cost of sales..
...................... (6,698)/(6)/(7)/ -- 381,941
Selling and administrative
expenses............................ (646)/(7)/(8)/ -- 70,643
Amortization expense................. 2,987 /(8)/ -- 3,850
Restructuring charge, net............ -- -- 3,950
---------------- ------------ --------
Operating income................... 4,357 -- 38,857
---------------- ------------ --------
Interest expense.....................
- -- 5,601/(9)/ 23,243
Other expenses, net.................. (20) -- 986
---------------- ------------ --------
Income (loss) before
income taxes........................ 4,377 (5,601) 14,628
---------------- ------------ --------
Income tax expense
(benefit)........................... 2,829 (2,157)/(10)/ 6,999
---------------- ---------
- --- --------
Net income (loss).................... $ 1,548 $ (3,444) $ 7,629
================ ============ ========
Earnings Per Share Data:
Earnings per share - basic:
Net income (loss)................... $ 0.85
Weighted average common shares
Outstanding......................... 9,
022
Earnings per share - diluted:
Net income (loss)................... $ 0.82
Weighted average common shares
Outstanding......................... 9,338
Other Financial Data:
EBITDA/(1)/.......................... $ 2,933 $ -- $ 63,598
Adjusted EBITDA/(2)/................. -- -- 68,373
Adjusted EBITDA
margin.............................. -- -- 13.7%
Depreciation and
amortization........................ $ (1,444) $ -- 25,727
Capital expenditures................. -- -- 37,932
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Income
33
<PAGE>
Unaudited Pro Forma Consolidated Statement of Income
Nine Months Ended March 31, 1999
<TABLE>
<CAPTION>
Cadmus Port City
Historical Divestiture Adjusted Historical Acquisition Adjusted
Dollars in thousands Cadmus Adjustments Cadmus Melham Adjustments/(3)/ Melham
----------- ------------ ---------- ----------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
<C>
Net sales..................... $308,596 $(31,188) $277,408 $112,378 $ 5,588 $117,966
Cost of sales................. 246,994 (24,296) 222,698 86,002 4,110 90,112
Selling and administrative
expenses..................... 42,221 (6,741) 35,480 14,498 991/(4)/ 15,489
Amortization expense.......... 1,453 -- 1,453 572 69/(4)/ 641
Net gain on divestitures...... (9,521) 9,521 -- -- -- --
Restructuring charge, net..... -- -- -- -- -- --
-------- -------- --------
-------- ---------- --------
Operating income............ 27,449 (9,672) 17,777 11,306 418 11,724
-------- -------- -------- -------- ---------- --------
Interest expenses............. 6,085 (1,453) 4,632 7,841 554/(4)/ 8,395
Other expenses, net........... (66) -- (66) (5) (4) (9)
-------- -------- -------- -------- ---------- --------
Income (loss) before income
taxes........................ 21,430 (8,219) 13,211 3,470 (132) 3,338
--------
-------- -------- -------- ---------- --------
Income tax expense (benefit).. 8,251 (3,164) 5,087 1,468 (53) 1,415
-------- -------- -------- -------- ---------- --------
Net income (loss)............. $ 13,179 $ (5,055) $ 8,124 $ 2,002 $ (79) $ 1,923
======== ======== ======== ======== ========== ========
Earnings Per Share Data:
Earnings per share - basic:
Net income (loss)..
.......... $ 1.67
Weighted average common
shares outstanding.......... 7,872
Earnings per share diluted:
Net income (loss)............ $ 1.63
Weighted average common
shares outstanding.......... 8,073
Other Financial Data:
EBITDA/(1)/................... $ 41,841 $(10,368) $ 31,473 $ 18,046 $ 842 $ 18,888
Adjusted EBITDA/(11)/......... -- -- -- -- -- --
Adjusted EBITDA margin........ -- -- -- -- -- --
Depreciation and
amortization................. $ 14,326 $ (696) $ 13,630 $ 6,735
$ 420 $ 7,155
Capital expenditures.......... 12,340 (701) 11,639 6,682 104 6,786
<CAPTION>
Mack Other
Acquisition Transaction Adjusted
Dollars in thousands Adjustments/(5)/ Adjustments Pro Forma
----------------- ---------------- ----------
<S> <C> <C> <C>
Net sales..................... $ (97) $ -- $395,277
Cost of sales................. (5,054)/(6)(7)/ -- 307,756
Selling and administrative
expenses..................... (694)/(7)(8)/ -- 50,275
Amortization expense.......... 2,240/(8)/ -- 4,334
Net gain on divestitures...... -- -- --
Restructuring charge, net..... -- -- --
---------------- ----------- --------
Operating income............ 3,411 -- 32,912
---------------- ----------- --------
Interest expenses............. (89) 5,005/(9)/ 17,943
Other expenses, net........... (22)
-- (97)
---------------- ----------- --------
Income (loss) before income
taxes........................ 3,522 (5,005) 15,066
---------------- ----------- --------
Income tax expense (benefit).. 2,205 (1,927)(10) 6,780
---------------- ----------- --------
Net income (loss)............. $ 1,317 $ (3,078) $ 8,286
================ =========== ========
Earnings Per Share Data:
Earnings per share - basic:
Net income (loss)............ $ 0.92
Weighted average common
shares outstanding.......... 9,034
Earnings per share diluted:
Net income (loss)............ $ 0.90
Weighted average common
shares outstanding..........
9,235
Other Financial Data:
EBITDA/(1)/................... $ 2,350 $ -- $ 52,711
Adjusted EBITDA/(11)/......... -- -- 53,330
Adjusted EBITDA margin........ -- -- 13.5%
Depreciation and
amortization................. $ (1,083) $ -- $ 19,702
Capital expenditures.......... -- --
18,425
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Income
34
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statements of Income
(Dollars in thousands)
(1) EBITDA represents net income before interest, income taxes, depreciation
and amortization. EBITDA is presented because we believe it is frequently
used by security analysts, lenders and others in the evaluation of
companies. However, EBITDA should not be considered as an alternative to
operating income, net income, net cash provided by operating activities or
any other measure for determining our operating performance or liquidity in
accordance with generally accepted accounting principles. EBITDA, as used
herein, is not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method of
calculation.
(2) Represents EBITDA, adjusted to eliminate the effect of certain payroll and
payroll-related costs of $825 due to the elimination of certain employee
positions in connection with the acquisition of Mack and the acquisition of
Port City Press, Inc. by Melham Holdings, Inc. and to eliminate the effect
of a restructuring charge of $3,950 recorded in June 1998 relating to our
acquisition of Germersheim, Inc.
(3) Represents the results of operations of Port City Press, Inc. for the
periods prior to September 2, 1998, its date of acquisition by Melham
Holdings, Inc., adjusted as described in footnote (4).
(4) Includes (i) an increase in amortization expense resulting from purchase
accounting adjustments, (ii) additional interest expense on the debt
incurred to finance the acquisition of Port City Press, Inc. by Melham
Holdings, Inc. and (iii) adjustments for the elimination of management fees
charged by parent and certain fringe benefits not continued:
<TABLE>
<CAPTION>
--------------------------------------
Nine Months
Year Ended Ended
June 30, 1998 March 31, 1999
---------------- -------------------
<S> <C> <C>
Amortization expense.......................... $ 414 $ 69
Interest expense.............................. 3,129 527
Management fee charged by parent.............. (800) (140)
Fringe benefits not continued................. (459) --
</TABLE>
(5) Includes the elimination of the results of VPI, Inc., a subsidiary of
Melham Holdings, Inc., which we did not acquire:
<TABLE>
<CAPTION>
-----------------------------------------
Nine Months
Year Ended Ended
June 30, 1998 March 31, 1999
----------------- -------------------
<S> <C> <C>
Net sales.............................. $ -- $ 97
Cost of sales.......................... -- 30
Selling and administrative expenses.... 217 372
---------------- ------------------
Operating loss......................... (217) (305)
Interest expense....................... -- 89
Other, net............................. 20 22
---------------- ------------------
Loss before income taxes............... (237) (416)
Provision for income taxes............. (85) (147)
---------------- ------------------
Net loss............................... $(152) $(269)
================ ==================
</TABLE>
35
<PAGE>
(6) Includes a decrease in cost of sales primarily related to volume-related
procurement savings based on our contractual purchase programs for paper,
pre-press supplies and freight:
<TABLE>
<CAPTION>
--------------------------------------
Nine Months
Year Ended Ended
June 30, 1998 March 31, 1999
--------------- --------------------
<S> <C> <C>
Cost of sales
$ 2,799 $ 2,099
</TABLE>
(7) Includes a reduction in depreciation expense resulting from the revaluation
of assets and a change in depreciable lives arising from purchase
accounting adjustments:
<TABLE>
<CAPTION>
-------------------------------------
Nine Months
Year Ended Ended
June 30, 1998 March 31, 1999
--------------- --------------------
<S> <C> <C>
Cost of sales............................... $ 3,899 $ 2,925
Selling and administrative expenses......... 532 399
</TABLE>
(8) Represents an increase in selling and administrative expenses resulting
from an in
crease in pension costs and goodwill amortization (goodwill is
amortized over 40 years), which was partially offset by a decrease related
to the termination of certain management and consulting agreements in
connection with the acquisition of Mack.
<TABLE>
<CAPTION>
--------------------------------------
Nine Months
Year Ended Ended
June 30, 1998 March 31, 1999
--------------- ---------------------
<S> <C> <C>
Selling and administrative expenses......... $ 103 $ 77
Amortization expense........................ 2,987 $ 2,240
</TABLE>
(9) Includes additional interest expense and amorti
zation of deferred financing
costs and estimated fees on the debt incurred in connection with the
acquisition of Mack. Amounts below represent total expenses for the periods
presented:
<TABLE>
<CAPTION>
--------------------------------------
Year Ended Nine Months Ended
June 30, 1998 March 31, 1999
--------------- ------------------
<S> <C> <C>
Revolving credit facility ($83,123
@LIBOR+2.75%).............................. $ 4,674 $ 4,079
Term loan facility ($55,000
@LIBOR+2.75%).............................. 4,011 2,812
Old Notes ($125,000 @ 9.75%)................ 12,188 9,141
Junior sell
er note ($6,415 @ 11.50%)........ 738 553
Amortization of deferred financing costs
and commitment fees........................ 1,359 1,019
--------------- ------------------
$ 22,970 $ 17,604
=============== ==================
</TABLE>
(10) Represents the assumed tax effect on the pro forma adjustments using an
effective tax rate of 38.5%, except for the non-deductible goodwill
amortization adjustment resulting from the acquisition of Mack.
36
<PAGE>
(11) Represents EBITDA, adjusted to eliminate the effect of certain payroll and
payroll-related costs of $619 due to the elimination of certain employee
positions in connection with the acquisition of Mack and the acquisition of
Port City Press, Inc. by Melham Holdings, Inc.
37
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
As of March 31, 1999
---------------------------------------------------------------------------------
Melham
Acquisition and Proceeds of the
Refinancing Offering of the Adjusted
Cadmus Melham (1) Adjustments Old Notes Pro Forma
------ ---------- ------------------- --------------- ---------
Dollars in thousands
Assets
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents............. $ 281 $ 70 $ -- $ -- $ 351
Accounts receivable, net.............. 65,454 22,198 28 /(1)/ -- 87,680
Inventories........................... 27,978 9,623 (181) /(1)/ -- 37,420
Deferred income taxes................. 5,210 1,576 344 /(1)/ -- 7,130
Prepaid expenses and other............ 3,892 1,402
1,880 /(1)/ 443 /(3)/ 8,425
808 /(3)/
--------- --------- ----------- ----------- ----------
Total current assets............... 102,815 34,869 2,879 443 141,006
--------- --------- ----------- ----------- ----------
Property, plant and equipment, net...... 126,907 50,001 708 /(1)/ -- 177,616
Goodwill and other intangibles, net..... 50,646 32,518 119,470 /(1)/ -- 202,634
Other assets............................ 4,861 4,517 3,123 /(2)/ 3,081 /(2)/ 12,483
(3,099) /(1)/ -- --
--------- --------- ----------- ----------- ----------
Total assets............................ $ 285,229 $ 121,905 $ 123,081 $ 3,524 $ 533,739
========= ========= =========== =========== ==========
Liabilities And Shareholders'
Equity
Current Liabilities:
Short-term borrowings................. $ 12,170 $ -- $ (12,170) /(5)/ $ -- $ --
Current maturities of long-term
debt................................ 6,089 6,216 (6,216) /(4)/ -- 5,089
(1,000) /(8)/
Accounts payable...................... 35,577 6,374 1,420 /(1)/ -- 43,371
Accrued ex
penses...................... 20,202 13,014 588 /(1)/ -- 33,804
Restructuring reserve................. 1,136 -- 3,000 /(1)/ -- 4,136
--------- --------- ----------- ----------- ----------
Total current liabilities.......... 75,174 25,604 (14,378) -- 86,400
--------- --------- ----------- ----------- ----------
Long-term debt, less current
maturities............................. 65,214 95,719 (95,719) /(4)/ (120,769) /(7)/ 270,252
84,392 /(5)/ 125,000 /(7)/
116,415 /(6)/
Other long-term liabilities............. 10,510
23,077 (5,095) /(1)/ -- 28,492
Deferred income taxes................... 13,788 -- -- -- 13,788
Shareholders' equity:
Common stock.......................... 3,923 -- 580 /(1)/ -- 4,503
Preferred stock....................... -- 6,424 (6,424) /(1)/ -- --
Capital in excess of par.............. 52,292 3,983 11,699 /(1)/ -- 67,974
Retained earnings..................... 64,328 (32,902) 31,611 /(1)//(3)/ (707) /(3)/ 62,330
-------- --------- ----------- ---------- ----------
Total shareholders' equity......... 120,543 (22,495) 37,466 (707) 134,807
------
- --- --------- ----------- ---------- ----------
Total liabilities and shareholders'
equity................................. $ 285,229 $ 121,905 $ 123,081 $ 3,524 $ 533,739
========= ========= ========== ========== ==========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
38
<PAGE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
(Dollars in thousands)
(1) Represents the preliminary adjustments to record the acquisition of Mack
which is accounted for as a purchase.
The purchase price for pro forma purposes is as follows:
1,200,000 common shares of Cadmus Communications $ 16,262
Cash..................................................... 66,000
Junior seller notes...................................... 6,415
Bridge financing notes................................... 110,000
Estimated transaction costs.............................. 2,250
--------
$200,927
========
The purchase price has been allocated for pro forma
purposes as follows:
Working capital.......................................... $ 14,794
Long-term assets, excluding goodwill..................... 52,127
Goodwill................................................. 151,988
Long-term liabilities.................................... (17,982)
--------
$200,927
========
The above allocation of acquisition costs is preliminary and may change
upon final determination of the fair value of the assets acquired and
liabilities assumed.
(2) Represents the following adjustments to deferred loan costs:
<TABLE>
<CAPTION>
----------------------------------------------
Mack
Acquisition and Offering of
Refinancing Old Notes Total
------------------ --------------- ---------
<S> <C> <C> <C>
Senior credit facility........... $ 2,250 $ -- $ 2,250
Former senior credit facility.... (277) -- (277)
Bridge financing notes........... 1,150 (1,150) --
Old Notes........................ -- 4,231 4,231
-------- -------- -------
$ 3,123 $ 3,081 $ 6,204
======== ======== =======
</TABLE>
(3) Represents a payment to terminate certain interest rate swaps associated
with the former senior credit facility and to write-off deferred costs
associated with the bridge financing notes.
(4) Represents an adjustment to eliminate the current and long-term debt of
Melham Holdings, Inc. that was repaid in connection with the acquisition of
Mack.
(5) Represents proceeds from the senior credit facility used to refinance the
former senior credit facility and to partially finance the acquisition of
Mack.
(6) Represents proceeds from the issuance of the junior seller notes and the
bridge financing notes in conjunction with the acquisition of Mack.
39
<PAGE>
(7) Represents the net proceeds from the offering of the Old Notes offering
used to repay the bridge financing notes and to reduce the revolving credit
facility.
(8) Represents $1.0 million decrease in current maturities of long-term due to
different maturities for our senior credit facility.
40
<PAGE>
CADMUS COMMUNICATIONS CORPORATION
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial data
as of the dates and for the periods indicated. The financial data for each of
the five years in the period ended June 30, 1998, have been derived from our
audited consolidated financial statements and notes thereto. Each of the four
fiscal years in the period ended June 30, 1998, have been audited by Arthur
Andersen LLP, independent public accountants, whose reports for the fiscal years
ended June 30, 1996, through June 30, 1998, are included elsewhere in this
prospectus. The financial data for the for the nine months ended March 31, 1998,
and March 31, 1999,
have been derived from our unaudited condensed consolidated
financial statements which, in the opinion of management, contain all
adjustments (consisting only of normal and recurring adjustments) necessary to
present fairly our financial position and results of operations at such dates
and for such periods. Results for the nine months ended March 31, 1999, are not
necessarily indicative of the results that may be expected for the entire fiscal
year. The data presented below should be read in conjunction with, and are
qualified in their entirety by reference to, ``Management's Discussion and
Analysis of Financial Condition and Results of Operations'' and our consolidated
financial statements and notes thereto appearing elsewhere in this prospectus.
41
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended Ended
----------------------------------------------------------------------
June 30, June 30, June 30, June 30, June 30, March 31,
1994 1995 1996 1997 1998 1998
Dollars in thousands -------- -------- -------- -------- --------
---------
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales............................................ $247,730 $279,641 $336,655 $384,942 $393,823 $289,644
Operating expenses:
Cost of sales....................................... 184,488 209,259 258,947 299,840 304,014 223,706
Selling and administrative.......................... 48,824 52,172 61,204 63,123 62,141 45,933
Restructuring charge, net........................... 1,900 -- -- 19,699 3,950 --
Net gain on divestitures............................ -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Operating income..................................... 12,518
18,210 16,504 2,280 23,718 20,005
Interest and other expenses.......................... 4,985 5,372 5,957 9,716 8,938 6,624
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes, extraordinary
item and cumulative effect of changes in
accounting principles............................... 7,533 12,838 10,547 (7,436) 14,780 13,381
Income tax expense (benefit)......................... 2,968 5,263 3,956 (2,219) 5,690 5,152
Income (loss) before extraordinary item and
cumulative effect of changes in accounting
principles.......................................... 4,565 7,575 6,591 (5,217) 9,090 8,229
Extraordinary loss on early extinguishment of
debt (net of tax)................................... -- -- (795)
-- -- --
Cumulative effect of changes in accounting
principles (net of tax)............................. 401 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss).................................... $ 4,966 $ 7,575 $ 5,796 $ (5,217) $ 9,090 $ 8,229
======== ======== ======== ======== ======== ========
Earnings Per Share Data: /(7)/
Income (loss) before extraordinary item and
and cumulative effect of change in
accounting principle:/(6)/.......................... $ 0.75 $ 1.22 $ 0.88 $ (0.65) $ 1.11 $ 1.05
Net income (loss).................................... 0.82 1.22 0.77 (0.65) 1.11 1.05
Cash dividends.......................................
0.20 0.20 0.20 0.20 0.20 0.15
Shareholders' equity................................. 9.31 10.41 13.72 12.85 13.86 13.65
Weighted average common shares
outstanding (in thousands)...................... 6,085 6,195 7,495 8,035 8,176 8,140
Other Financial Data:
EBITDA/(1)/.......................................... $ 24,221 $ 30,321 $ 29,459 $ 18,540 $ 40,819 $ 32,553
Adjusted EBITDA/(2)/................................. 26,121 30,321 30,254 38,239 44,769 32,553
Adjusted EBITDA margin............................... 10.5% 10.8% 9.0% 9.9% 11.4% 11.2%
Depreciation and amortization........................ $ 11,474 $ 12,132 $ 14,563 $ 18,188 $ 18,444 $ 13,608
Capital expenditures................................. 11,742 20,959 25,289 22,883 33,588 28,582
Ratio of total debt to adjusted EBITDA............... 2.2x 1.9x 3.5x 2.5x 2.2x --
Ratio of adjusted EBITDA to interest expense......... 5.4 5.7 5.9 4.9 5.9 5.9x
Ratio of earnings to fixed charges/(3)/.............. 2.5 3.3 2.8 --/(5)/ 2.7 3.1
Balance Sheet Data (at period end):
Working capital/(4)/................................. $ 26,033 $ 33,286 $ 60,517 $ 49,774 $ 35,315 $ 34,734
Total assets......................................... 160,906 172,443 283,723 266,916 291,752 278,530
Total debt........................................... 58,440 56,342 106,801 94,469 99,655 88,546
Total shareholders' equity........................... 55,706 62,755 108,528 100,643 109,816 107,395
<CAPTION>
------------
- -----
Nine Months Ended
-----------------
March 31,
1999
Dollars in thousands ---------
<S> <C>
Statement of Income Data:
Net sales............................................ $ 308,596
Operating expenses:
Cost of sales....................................... 246,994
Selling and administrative.......................... 42,221
Restructuring charge, net........................... --
Net gain on divestitures............................ (9,521)
---------
Operating income........
............................. 28,902
Interest and other expenses.......................... 7,472
---------
Income (loss) before income taxes, extraordinary
item and cumulative effect of changes in
accounting principles............................... 21,430
Income tax expense (benefit)......................... 8,251
Income (loss) before extraordinary item and
cumulative effect of changes in accounting
principles.......................................... 13,179
Extraordinary loss on early extinguishment of
debt (net of tax)................................... --
Cumulative effect of changes in accounting
principles (net of tax)............................. --
---------
Net income (loss).................................... $ 13,179
=========
Earnings Per Share Data: /(7)/
Income (loss) before extraordinary item and
and cumulative effect of change in
accounting principle:/(6)/........................... $ 1.67
Net income (loss).................................... 1.67
Cash dividends....................................... 0.15
Shareholders' equity................................. 15.36
Weighted average common shares
outstanding (in thousands)......................
8,073
Other Financial Data:
EBITDA/(1)/.......................................... $ 41,841
Adjusted EBITDA/(2)/................................. 32,320
Adjusted EBITDA margin............................... 10.5%
Depreciation and amortization........................ $ 14,326
Capital expenditures................................. 12,340
Ratio of total debt to adjusted EBITDA............... --
Ratio of adjusted EBITDA to interest expense......... 5.3x
Ratio of earnings to fixed charges/(3)/.............. 4.2
Balance Sheet Data (at period end):
Working capital/(4)/................................. $ 28,777
Total assets......................................... 285,229
Total debt.....................................
...... 71,303
Total shareholders' equity........................... 120,543
</TABLE>
See Selected Historical Consolidated Financial Data
42
<PAGE>
Notes to Selected Historical Consolidated Financial Data
(1) EBITDA represents net income before interest, income taxes, depreciation and
amortization. EBITDA is presented because we believe it is frequently used
by security analysts, lenders and others in the evaluation of companies.
However, EBITDA should not be considered as an alternative to operating
income, net income, net cash provided by operating activities or any other
measure for determining our operating performance or liquidity in accordance
with generally accepted accounting principles. EBITDA, as used herein, is
not necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation.
(2) Represents EBITDA, adjusted to eliminate the effect of an extraordinary loss
on early extinguishment of debt of $0.8 million (net of tax) recorded in
fiscal 1996, a restructuring charge of $19.7 million recorded in fiscal
1997, a restructuring charge of $4.0 million recorded in fiscal 1998 and a
pre-tax net gain on divestitures of $9.5 million recorded in the nine months
ended March 31, 1999.
(3) For purposes of calculating the ratio of earnings to fixed charges, earnings
represent income before taxes plus fixed charges. Fixed charges consist of
interest expense, including amortization of deferred financing costs,
whether expensed or capitalized, and the portion of rental expense which
management believes is representative of the interest component of rental
expense.
(4) Working capital represents the excess of current assets over current
liabilities, excluding restructuring reserves.
(5) Earnings were insufficient to cover fixed charges by $0.8 million.
(6) Extraordinary loss on early extinguishment of debt in fiscal 1996 of $0.8
million (net of tax) and income from cumulative effect of changes in
accounting principles in fiscal 1994 of $0.4 million (net of tax).
(7) Income per share data assumes dilution.
43
<PAGE>
THE COMPANY
Overview
Cadmus focuses on delivering high-end, integrated graphic communications
solutions. We are the largest printer and producer of STM journals and
publications in the United States with an estimated market share of
approximately 33% in 1998. We are also a leading printer and producer of special
interest magazines, point-of-purchase materials and specialty packaging
materials. We were formed in 1984, and, through both internal growth and over
ten acquisitions, we have become the fifth largest publications printer in the
United States, with pro forma net sales of $395.3 million and pro forma adjusted
EBITDA of $53.3 million for the nine months ended March 31, 1999.
We focus on specialized markets where w
e can use our in-depth knowledge of our
customers' industries to create innovative products and services that satisfy
our customers' graphic communications needs, including printing, information
dissemination and marketing services. We have expanded our product offerings to
include integrated, end-to-end services that go beyond the traditional printing
functions. We play an increasingly important role in helping our customers more
efficiently create and disseminate their information and marketing products. We
provide our customers with a full range of creative, production and distribution
services, making us a one-stop provider of graphic communications and marketing
solutions. We believe being a one-stop provider allows us to achieve higher
margins, solidify customer relationships and capture a greater share of our
customers' graphic communications spending.
We operate through two business sectors, Cadmus Professional Communications and
Cadmus Marketing Communications.
Cadmus Professional Communicatio
ns is comprised of two product lines: STM
journal services and special interest magazines. We serve both not-for-profit
and commercial publishers of STM journals and publishers of special interest
magazines. For these customers, we provide traditional composition, editorial,
prepress, printing, warehousing and distribution services. In addition, we
provide a full complement of digital products and services, including website
design and architecture, content management, Internet and CD-ROM based
electronic archiving, electronic peer review and online publishing.
On April 1, 1999, we acquired Mack, our largest competitor in the STM journal
market and one of the largest publications printers in North America. The
acquisition provides us with new STM journal services capabilities, including
the production of short-run journals and business directories. The acquisition
also significantly enhances our market position in the special interest magazine
market and creates opportunities for additional economies of
scale and
improvements to our overall efficiency and competitive position.
For the nine months ended March 31, 1999, our Professional Communications sector
contributed 68.7% of pro forma net sales and 89.6% of pro forma adjusted EBITDA
before corporate expenses.
Cadmus Marketing Communications focuses on the creation, production and
distribution of graphic communications and marketing services for Fortune 1000
companies. Our major product lines include:
. point-of-purchase marketing materials, such as menu boards, table tents
and translites for fast food customers such as Hardee's and retail
advertising displays and custom display boxes for beverage companies
such as Coca-Cola and
. specialty packaging and promotional printing production, including
package designs and construction of marketing-related packaging for
customers such as UPS, FedEx and America
44
<PAGE>
Online, and high quality packaging materials for apparel, high-tech,
pharmaceutical, transportation and travel companies.
Within this sector, we also offer software duplication, advertising, catalog
design and photography, commercial printing, direct marketing and fulfillment
and distribution services. We combine our creative, production and distribution
services across these product lines to provide comprehensive solutions to our
customers' marketing needs.
For the nine months ended March 31, 1999, our Marketing Communications sector
contributed 31.3% of pro forma net sales and 10.4% of pro forma adjusted EBITDA
before corporate expenses.
The Industry
We compete in specialized markets of the highly fragmented U.S. printing
industry.
STM Journal Market
We estimate that the STM journal market is a $650.0 million market that has
grown at a compounded annual rate of 6.2% since 1992. The STM journal market is
generally characterized by non-cyclical product demand, long-term customer
contracts and relationships, an increasing demand for an integrated, full line
of services and an appreciation of high value-added services. The STM journal
market consists of approximately 8,500 publications from approximately 1,600 STM
journal publishers and is largely supported by governmental and private research
funding and association dues and subscriptions. Approximately 60% of the STM
journal market consists of not-for-profit societies, universities and government
agencies. These customers typically have limited composition, editorial,
production and distribution capabilities in-house and thus value and demand our
end-to-end services.
Special Interest Magazine Market
Special interest magazines are typically directed at a defined audience and
usually have circulations of between 20,000 and 200,000. We believe that the
special interest magazine market, which we estimate to be a $2.0 billion market,
is growing faster than the general interest or longer run magazine markets. In
recent years, special interest magazines have gained increasing advertising
revenue due to the focused nature of their circulations. Special interest
magazine publishers typically have more limited in-house capabilities than
larger commercial publishers and require a higher level of service. Our
customers in this market consist primarily of special interest and trade or
professional association publishers and include the National Council of Teachers
of Math, International Mission Board, American Kennel Club, Bank Director,
TimeOut New York and Billboard.
Point-of-Purchase and Specialty Packaging Markets
The point-of-purchase and specialty packaging markets are both characterized by
a significant number of regional, privately-held businesses. The point-of-
purchase market is highly fragmented, with over 10,000 competitors. According to
industry sources, point-of-purchase expenditures are expected to grow at a 4.1%
compounded annual rate between 1997 and 2002, from $13.1 billion to $16.0
billion, benefiting in recent years from a continuing shift in advertising
spending toward point-of-purchase and other impulse-oriented programs. The
point-of-purchase market is the third largest consumer of advertising spending
behind network and local "spot" television.
Similarly, the $9.7 billion folding carton specialty packaging market is highly
fragmented and has a large number of market participants, none of which is a
dominant provider. Folding cartons function as part of a
45
<PAGE>
product's marketing campaign and may employ multiple colors, coatings, several
printing techniques, stamping and other features. This market is characterized
by a demand for high-quality packaging with fast turnaround.
Competitive Strengths
We attribute our strong historical results and positive growth outlook to the
following factors:
Leading Position in Highly Attractive STM Journal Market. The STM journal market
is highly attractive because of its historical insensitivity to economic
downturns and because customers are increasingly placing a premium on the
integrated, end-to-end services we provide. We are the largest producer of STM
journals in the United States with an estimated market share of 33% in 1998,
more than four times the market share of our nearest competitor. Because of our
focus and market share, we believe we know the market better, and can anticipate
its trends more readily, than our smaller competitors. We capitalize on that
knowledge and our range of services to win new customers and to develop new
products that our customers value highly.
Well-Established and Diversified Customer Relationships. We serve over 1,300
customers, including many of the leading and largest businesses and associations
in their sectors. For the nine months ended March 31, 1999, more than 85% of
Cadmus's net sales from STM journal customers (not including Mack) were under
long-term contracts, and we estimate that approximately 70% of Mack's net sales
from STM journal customers were under long term contracts. For the same
period, more than 55% of our STM journal net sales came from not-for-profit
organizations. Our average relationship with our top ten STM journal customers
is over 38 years, our typical contract length is three to seven years and our
renewal rate for STM journal publishers has been approximately 97% over the past
five years. We serve many of the leading STM journal publishers, including the
American Chemical Society, American Medical Association, American Psychological
Society, American Society for Microbiology, Elsevier Science, Lippincott
Williams & Wilkins, Macmillan, W.B. Saunders and Wiley/Liss, Inc. In our point-
of-purchase and specialty packaging businesses, our customers include
significant marketers such as America Online, Bell South, Coca-Cola, FedEx,
Hardee's, IBM, Microsoft, Modus Media, Polaroid, Sara Lee and UPS. None of our
customers contributed more than 5.0% of our pro forma net sales in fiscal 1998.
Positive and Stable Operating Results. From fiscal 1993 to fiscal 1998, our net
sales and adjusted EBITDA increased at compounded annual growth rates of 14.7%
and 17.1%, respectively. We also experienced stable operating results from our
Professional Communications sector, which grew net sales and adjusted EBITDA at
20.2% and 34.1% compounded annual rates, respectively, from fiscal 1993 to
fiscal 1998. We have seen similar operating results from Mack, which grew net
sales and EBITDA by compounded annual rates of 6.1% and 16.9%, respectively,
from 1993 to 1998. The Professional Communications sector generated $51.9
million, or 89.6%, of our pro forma adjusted EBITDA before corporate expenses
for the nine months ended March 31, 1999.
Proven Ability To Deliver Full-Service Solutions. We have enhanced and expanded
our traditional printing capabilities with creative and distribution
capabilities through hiring qualified personnel, training employees and
acquiring facilities and companies. We have integrated our capabilities to
provide full service, end-to-end solutions to our customers, including:
. The Society for Neuroscience, for whom we perform online peer review,
electronic editing, electronic copy editing, digital art integration,
digital content management, composition, printing, binding, mailing,
international distribution and order and full service reprint
fulfillment;
46
<PAGE>
. FedEx, for whom we provide package design, in-package literature
composition, disk duplication and warehousing and distribution services
for their online shipping software; and
. Hardee's, for whom we developed and maintain a detailed database of all
restaurant dimensions, produce and catalog a variety of table tents,
menu boards and translites, answer phone calls directly from franchisees
and assemble and ship materials to franchisees.
Leading Edge Capabilities. We are a technology leader in each of our markets.
For example, in our STM journal product line, we have substantially improved
lead times, improved our competitive position and reduced our operating costs by
converting the entire STM composition and prepress operations to a fully
automated, digital process. In our specialty packaging product line, we built a
new state-of-the-art plant in Charlotte, adding the most modern press and
finishing equipment available to support this fast growing product line. In
addition, we are building state-of-the-art fulfillment facilities in both
Atlanta and Charlotte. As a result of this consistent pattern of technological
advances, we have streamlined our operations and believe we now offer our
customers some of the most advanced facilities and capabilities in our markets.
Experienced Management. Our executive officers have an average of 16 years of
service in the industry. This team has been responsible for the successful
development of our niche-market strategy, as well as the integration of more
than ten acquisitions over the past 13 years. Our Professional Communications
sector's management team has an average of 22 years of service in the
publications industry and has successfully integrated several substantial
acquisitions, including Waverly Press in 1993 and Lancaster Press in 1996.
Business Strategy
Key elements of our business strategy include:
Tailoring End-to-End Solutions to Customer Needs. We are one of the few
printing, graphic communications and marketing companies that has a proven track
record of integrating creative, production and distribution services into
customer-specific solutions. In our STM journals product line, we offer
traditional composition, editorial, prepress, printing, warehousing and
distribution services, as well as a full complement of digital products and
services, including website design and architecture, content management,
Internet and CD-ROM-based electronic archiving, electronic peer review, online
publishing and related composition and editorial services. In our point-of-
purchase product line, we provide unique third-party marketing outsourcing
solutions by combining marketing design services, traditional printing on paper
and board, ultraviolet printing on plastics, sophisticated fulfillment services
and other customer service functions.
Our goal is to continue to enhance our knowledge in these specialized markets
and to expand our creative, production and distribution capabilities to make our
services more valuable to customers and more distinct from those offered by our
competitors. This full service strategy allows us to expand existing customer
relationships and to attract new customers. We believe that this strategy will
enhance internal growth rates as we capitalize on our market expertise and
further expand our capabilities.
Disciplined, In-Market Strategic Acquisitions. We believe significant
opportunities exist both to consolidate market share and to broaden our product
offerings in our markets. We particularly focus on acquisitions of profitable,
established businesses that enhance our position by offering products
complementary to our existing creative, production and distribution capabilities
and that create operating efficiencies and cost savings.
Improving Margins. We believe that we will continue to realize cost savings as a
result of volume purchases of paper, ink and other raw materials used in the
printing process. As we acquire additional businesses in each
47
<PAGE>
of our markets, we believe we will be able to realize similar additional
savings. We have also achieved cost savings through the consolidation of
insurance, employee benefits, risk management and other administrative
functions. We believe that by continuing to centralize certain administrative
and support functions, management of our operating businesses will be able to
focus on pursuing new customers, developing additional product and service
capabilities and increasing capacity utilization. In addition, we believe that
opportunities exist to further improve the operating efficiency of our business
by eliminating redundant facilities and equipment, by consolidating operations
and by achieving better capacity utilization as a result of improved
coordination among our operations. For example, as a result of our Mack
acquisition, we believe that immediately available procurement synergies alone
will account for approximately $2.6 million annually in reduced materials and
outside services costs.
Our Product Lines
Professional Communications Sector
Journal Services
In our STM journal services product line, we provide traditional composition,
printing and distribution services, as well as a full complement of digital
solutions and management services for not-for-profit associations and commercial
publishers. We are the largest producer of STM journals in the United States.
Approximately 80% of our STM journal customers and approximately 55% of net
sales from this product line come from the association and society marketplace.
We offer STM journal customers a wide range of products and services, including
editorial services, composition, management of digital content, Internet and
online publishing services, CD-ROM production services, traditional and digital
prepress services, web and sheet-fed offset printing, complete bindery and
mailing services, international distribution services, author reprint services
and mail list support.
With our extensive knowledge of the STM journal market, we have developed
proprietary products and services, including:
. CJSNet, a secured, electronic file transfer process which allows
customers to send any type of file, mail list, digital art or other
information via the Internet or an ISDN or modem;
. Digital Direct, a digital desktop work flow that builds an
infrastructure of advertising, pages, proofs, imposition and output, all
in a digital format;
. EdiTech Services, a proprietary, electronic editing program which
converts and pre-edits manuscripts by correcting typographical errors,
making exchanges according to each journal's unique style and inserting
typesetting codes;
. Virtual Journals and Reference Books online, an Internet and online
publishing service; and
. World-Wide Destination Services, a delivery service offering expedited
world-wide delivery of journals.
We have developed a workflow process called the "Total Digital Pathway" that
provides a completely digital production process for STM journal customers and
provides for the creation of a digital content database of a customer's text and
graphics. With the Total Digital Pathway, we receive data from a customer,
digitize the content and create final digital pages with fully integrated text
and graphic images. These digital pages are used to create a variety of end
products, including printed products, CD-ROM versions for archival
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<PAGE>
applications, and Internet and online publishing products, and assure that the
content is readily accessible for future use.
Through our STM journal services product line, we are a leader in the online
delivery of STM journal information. We have developed an online capability that
meets the specific needs of both authors and users. This online environment
enables the publisher to control the Internet or online publishing site with a
great deal of administrative efficiency. Using our advanced access technology,
the publisher can profile its users and deliver more targeted access and
research content to a specific customer profile. Simultaneous release of the
printed and online journal allows readers to view articles from anywhere in the
world on the day of publication. Individual readers also can create their own
personal pages, enabling them to track session history information and save
citation lists.
Special Interest Magazines
We specialize in short-to-medium run magazines, producing over 750 titles for
over 275 customers, servicing associations, commercial publishers and
educational institutions in the United States, with a primary concentration on
the east coast. We employ advanced technologies to meet our magazine customers'
requirements for printing, distribution and digital solutions. Our special
interest magazine product line offers a wide array of services, including
conventional and digital prepress services, desktop publishing, printing,
binding, distribution, mailing list support, worldwide distribution services,
reprint services and backcopy storage and fulfillment. Examples of our special
interest magazine customers include the National Council of Teachers of Math,
International Mission Board, American Kennel Club, Bank Director, Bird Watcher's
Digest, Diabetes Care, US Banker, TimeOut New York, Computer Telephony,
Billboard and Daily Variety.
Marketing Communications Sector
Point of Purchase
In our point-of-purchase product line, we offer creative design and sales
promotional concepts and a full range of production capabilities for
merchandising materials of all sizes and shapes. Our products include tabletop
displays, table tent cards, banners, posters, shelf danglers, translites,
motorized aisle displays, retail spectaculars and other merchandising materials
used to gain the attention of consumers. We specialize in providing customized
solutions for a customer's marketing and sales promotion needs. Production
services include traditional offset full-color printing, ultraviolet printing on
plastics, large-format printing, finishing, product engineering and prototyping
and silkscreen printing. This product line's sophisticated fulfillment database
captures the exact quantities and types of materials each franchisee or
distribution point requires for a promotional campaign and fulfills the order
via in-bound telemarketing stations maintained by us on behalf of the customer.
Additionally, distribution and fulfillment services include inventory
management, warehousing, in-bound customer services and out-bound telemarketing
services, fulfillment and customer service for third party marketing services.
Primary markets served include the fast food restaurant, beverage, retail,
motorsports, hospitality and travel industries.
Specialty Packaging and Promotional Printing
In our specialty packaging and promotional printing product line, we produce
full color, high quality, high visibility product packaging and printed
materials that promote the sale of products or communicate marketing messages.
Our primary markets within this product line include the apparel, technology,
pharmaceutical, transportation, travel and furniture industries. Our primary
services include structural package design, production and distribution of high-
quality, full-color external and internal packaging, dimensional mailers,
corporate identity materials, product literature, computer documentation and
catalogs for leading national
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companies. In addition, we provide turnkey software services, including CD-ROM
and floppy disk duplication, label printing, custom kit assembly, fulfillment,
distribution and inventory and logistics management for technology-oriented
customers.
In fiscal 1998, we achieved several significant milestones in our specialty
packaging and promotional printing product line, including:
. the completion of our move to a new state-of-the-art 180,000 square-foot
printing facility, providing capacity to keep pace with our growing
national customer base;
. the national expansion of our sales force, adding offices in Atlanta,
Boston, Chicago, New York and Raleigh; and
. the registration of our quality system to the ISO 9002 standard, a
designation awarded to a select few organizations in the industry, which
we believe is increasingly required by both our existing and target
customers.
Graphic Solutions
Our graphic solutions product line offers a full array of commercial printing
and distribution services to Fortune 1000 companies and catalog marketers. This
product line focuses on larger corporate customers that want preferred vendor
relationships and full service offerings. Services include electronic and
conventional prepress services, web and sheet-fed offset printing, bindery,
fulfillment and distribution services. Our graphic solutions product line's
offerings were expanded with the purchase of the assets of Beacon Press in
October 1998, which brought us additional web offset printing capabilities.
Marketing Services
In our marketing services product line, we provide creative development and
marketing strategies for customers. Our services include brand research and
implementation, print and broadcast advertising, direct marketing, catalog
design, communications design and new media services. In fiscal 1998, we
consolidated all of our creative businesses under one operating model. The
combination of these diverse marketing and advertising capabilities allows us to
provide customers with complete solutions to marketing challenges.
Our Products and Services
We believe that our success is due largely to our emphasis on providing a full
array of products and services, combined with superior customer service and
responsiveness. In close collaboration with our sales forces, customer service
staffs in each product line work closely with customers from product design and
editing through production and final delivery to assure that customers'
expectations and specifications are met on a consistent basis. Our goal is to
offer the highest standards in meeting our printing customers' needs with our
primary focus on responding quickly and competitively to customer demands and
requirements. Many of our production facilities are open 24 hours a day, seven
days a week, to allow for timely production of materials. We provide the
following services to our customers in both sectors of our business:
Creative Services
. Composition. These services include digital typesetting and the
integration of text with graphics. These services are focused primarily
on our STM journal customers where the composition capability is a
critical component of our end-to-end services. We are one of the largest
providers
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of composition services in the United States, with four facilities in
the Mid-Atlantic region. Our composition processes and software are
among the best in the industry.
. Editorial services. These services are primarily focused on serving the
needs of STM journal customers who want to out-source components of
their editorial functions, including digital file conversion, copy
editing and indexing. We have developed proprietary software and
processes to improve the efficiency and effectiveness of this function
for customers.
. Internet and online publishing services. These services include the
design, engineering and content maintenance of our customers' Internet
and web-based, online publishing operations. Our STM journal customers
increasingly desire additional distribution outlets via the Internet or
online publishing applications. Our E-DOC division provides a full array
of digital information delivery services to address the STM journal
customers' needs for Internet and online publishing services.
. Creative marketing services. These services typically involve the design
of a customer's marketing message or materials. Creative services
include package design, package engineering, sales promotion
development, strategic marketing consulting, direct marketing,
photography and advertising services. Our advertising services include
the creation and placement of TV, radio and print advertising.
. Digital archiving. We allow customers to store digitally rendered
artwork on our file servers. The artwork can then be accessed and
retrieved from a remote site via high-speed data transmission.
Production Services
Over the past several years, we have developed state-of-the-art print production
facilities and equipment specifically tailored for the markets we serve. Our STM
journal facilities, for example, are equipped to produce high quality black and
white images required to accurately reproduce scientific and medical research.
Similarly, our point-of-purchase facilities are specifically equipped to print
large format point-of-purchase materials and to print on plastic substrates for
products such as translites for fast food restaurant and beverage customers.
Our typical job involves one or more of the following steps and services:
. Prepress. Our prepress services include all the processes necessary to
prepare the media (art, photographs and typed copy), photographically
duplicate or digitally produce images, separate color images into
process colors, assemble films and reproduce film images onto a printing
press. We use electronic technology to compose the individual pages of
the project and to create screen tints, produce color blends and retouch
photos. These images can then be reviewed for exact color and content.
The digital information is then processed to a film plotter for film
output. Our film plotters are capable of plotting up to 3600 dots per
inch resolution, giving a clean detail of the image. We have also
developed an advanced screening process which allows larger quantities
of ink to be used in the printing process, thereby producing a higher
quality image than is available using conventional techniques.
. Electronic prepress. This is a fully automated electronic prepress
process which allows the customer to submit its graphic design and
materials in digital formats, including diskettes and modem file
transfers, or in hard copy, which is digitized through a computer
scanning process. We then edit the design and import digital text and
graphics on a computer to create digital files
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from which the printing plate is developed. Electronic prepress greatly
reduces the time and the number of people involved in the production of
plates, and we believe that we are an industry leader in fully automated
electronic prepress operations.
. Printing. We operate heatset web presses, including half-web, full-web
and double-web presses, as well as large format and conventional sheet-
fed presses. For short-to-medium run length jobs, we primarily use
sheet-fed presses capable of printing up to eight colors, running at
standard press speeds of 6,000 to 10,000 sheets per hour. Web presses
are higher run length presses which utilize rolls of paper, print on
both sides and produce a product that may be folded, glued and
perforated on the press.
. Finishing. We provide extensive finishing services in the final stages
of the production cycle. These services include the cutting, folding and
binding of the finished product.
Distribution Services
We also provide warehousing, fulfillment and distribution services to customers
in each of our major product lines. These services are critical elements of our
integrated end-to-end services.
Primary distribution services include:
. Warehousing. Our customers typically order more materials than they
immediately require. For many of these customers we store the excess
finished products and distribute them as requested by the customer.
. Fulfillment. Many of our large franchised or manufacturing customers
have complicated distribution requirements for their multiple
franchisee, retail or distribution networks. For these customers, we
provide sophisticated inventory management, inbound and outbound
telemarketing, custom kit assembly and order processing for finished
product and marketing materials.
. Reprint services. For our STM journal customers, we provide complete
article reprint services, including order processing, printing and
mailing.
. Distribution. We provide distribution services to customers through
multiple services, including air and ground, U.S. mail, and bulk freight
delivery. For our STM journal customers, we have developed World Wide
Destination Services, a delivery service offering expedited world-wide
distribution of STM journals.
Sales and Marketing
Each of our product lines has dedicated sales and marketing employees. We
believe this structure facilitates understanding and serving the needs of our
specialized markets, enhances our market-focused strategy and allows us to
deliver improved services to our customers. In each of our production
facilities, customer service employees are dedicated to specific product lines.
This alignment of customer service and sales teams improves the flow of work in
our facilities and provides for more efficient internal communications.
Materials and Supply Arrangements
The primary materials used in each of our printing divisions are paper, ink,
film, offset plates, chemicals and cartons, with paper accounting for the
majority of total material costs. We purchase these materials from a
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number of suppliers and have not experienced any significant difficulties in
obtaining the raw materials necessary for operations. We have implemented an
inventory management system in which a limited number of paper suppliers supply
all of our paper needs. These suppliers are responsible for delivering paper on
a "just-in-time" basis directly to our facilities. We believe that this system
enhances the flexibility and speed with which we can serve customers, improves
pricing on paper purchases, eliminates a significant amount of paper inventory
and reduces costs by reducing warehousing capacity. See "Risk Factors--Cost and
Availability of Paper and Other Raw Materials."
Competition
We compete in the highly fragmented and competitive U.S. printing and marketing
services industry. To lessen our exposure to larger competitors with greater
resources, we focus generally on specialized markets where we can achieve market
leader status and where we can gain competitive advantages through our knowledge
of the market and our ability to offer high quality, end-to-end solutions to
customers.
In our Professional Communications sector, we compete in the STM journal and
special interest magazine markets. In the STM journal market, our primary
competitors consist of several smaller, privately-held full-service firms
including Sheridan Press, Inc., Allen Press Inc. and Edwards Brothers, which
offer a range of products and services similar to ours. In addition, several
large publication printers, including R. R. Donnelley & Sons Company, Banta
Corporation and Quebecor Printing Inc., provide more limited services to journal
publishers. In this market, we compete primarily on our ability to provide end-
to-end services to not-for-profit and commercial STM journal publishers, most of
whom choose to out-source significant aspects of their journal editorial,
production and distribution process.
In the special interest magazines market, our competition consists of both large
national printers and smaller regional printers. While the competitive nature of
this market requires that we provide quality services at competitive prices, our
strategy is to focus on associations, educational institutions and special-
interest commercial publishers. These customers typically place a higher value
on service and publish shorter circulation titles, where we believe our
equipment and processes give us a competitive advantage over longer-run
printers.
Our Marketing Communications sector competes with a wide range of traditional
printing and packaging firms, as well as marketing, advertising and new media
firms. In the highly fragmented specialty packaging market, many firms compete
in the high quality folding carton printing sector. Several of these competitors
are larger than us, with the remainder of our competition consisting of regional
commercial printing and package printing firms. In this market, firms compete
based on ability to provide high quality products with quick turn around. In the
point-of-purchase market, there are over 10,000 firms providing point-of-
purchase products and services in the United States, none of which is dominant.
Customers in this market demand sophisticated, customized services ranging from
design to distribution and fulfillment.
Patents, Trademarks and Brand Names
We market products under a number of trademarks and brand names. We also hold or
have rights to use various patents relating to our envelope business, which
expire at various times through 2012. Our sales do not materially depend upon
any single or related group of patents.
Facilities
We consider all of our properties and the related machinery and equipment to be
well-maintained, in good operating condition and adequate for our present needs.
We expect to expand as necessary to support the
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continued development of our operations. The following table contains
information regarding our primary facilities:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Owned/ Size
Product Line Location Primary Use Leased (sq. ft.)
- ----------------------------------------------------------------------------------------------------------------------
Professional Communications Sector
<S> <C> <C> <C> <C>
Journal
Services Akron, PA Manufacturing/Composition Owned 50,000
Directories, Books Baltimore, MD Manufacturing/Printing Leased 175,000
Journal Services Baltimore, MD Manufacturing/Composition Leased 51,700
Directories, Books Baltimore, MD Warehouse, Distribution Leased 40,000
Magazines East Stroudsburg, PA Manufacturing/Printing Owned 164,570
Journal Services Easton, MD Manufacturing/Printing Owned 196,800
Journal Services, Magazines Easton, PA Manufacturing, Warehouse, Offices Owned 252,320
Journal Services Ephrata, PA Manufacturing/Printing Owned 142,300
Journal Services, Magazines Ephrata, PA Warehou
se Leased 24,840
Journal Services Lancaster, PA Manufacturing/Printing Owned 175,000
Journal Services Lancaster, PA Warehouse Owned 52,000
Journal Services, Magazines Lancaster, PA Warehouse, Distribution Leased 18,000
Journal Services, Magazines Richmond, VA Manufacturing/Printing Owned 266,900
Journal Services Richmond, VA Warehouse, Backcopy Leased 72,000
Journal Services Richmond, VA Manufacturing, Digital Services Owned 14,760
Marketing Communications Sector
Specialty Packaging (Disk Duplication) Atlanta, GA Manufacturing Leased 88,000
Point of Purchase Atlanta, GA Manufacturing Owned
80,000
Point of Purchase Atlanta, GA Manufacturing, Office Owned 65,300
Point of Purchase Atlanta, GA Warehouse Leased 61,175
Marketing Services (Catalogs) Atlanta, GA Catalog Services and Production Leased 60,000
Point of Purchase Atlanta, GA Offices Leased 38,000
Point of Purchase Atlanta, GA Warehouse Leased 19,000
Specialty Packaging and Promotional Charlotte, NC Manufacturing/Printing Owned 180,000
Printing
Specialty Packaging and Promotional Charlotte, NC Warehouse Leased 39,600
Printing
Marketing Services (Direct Marketing) Charlotte, NC Direct Marketing Services Leased 19,000
Graphic Solutions
Richmond, VA Manufacturing/Printing Owned 97,000
Marketing Services (Advertising, Identity
Marketing, New Media) Richmond, VA Advertising Services Leased 13,000
Corporate
Corporate Office Richmond, VA Corporate Office Leased 23,000
</TABLE>
Employees
We employ approximately 4,600 persons, approximately 22% of whom are covered by
collective bargaining agreements with local unions of the Communications Workers
of America and Graphic Communications International. We recently renewed
contracts with the three local unions at our Lancaster, Pennsylvania plant for a
three-year term expiring in February 2002. The union contract covering employees
at the Easton, Pennsylvania facility expires in January 2001. The contract with
one of the local unions in East Stroudsburg was recently renewed and the
contracts with the two remaining local unions are currently under negotiat
ion.
We do not foresee any significant problems in concluding those contracts by
August 1, 1999. These agreements expire from time to time and are negotiated
separately. We believe our relationship with our employees is good. In addition,
we believe that no single collective bargaining agreement is material to our
operations taken as a whole.
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Legal Proceedings
From time to time we may be involved in claims or lawsuits that arise in the
ordinary course of business. Accruals for claims or lawsuits have been provided
for to the extent that losses are deemed probable and can reasonably be
estimated. Although the ultimate outcome of these claims or lawsuits cannot be
ascertained, on the basis of present information and advice received from
counsel, it is our opinion that the disposition or ultimate determination of
such claims or lawsuits will not have a material adverse effect on us. In the
case of administrative proceedings related to environmental matters involving
governmental authorities, we do not believe that any imposition of monetary
damages or fines would be material.
Environmental
Our operations are subject to federal, state and local environmental laws and
regulations relating to, among other things, air emissions, waste generation,
handling, management and disposal, wastewater treatment and discharge and
remediation of soil and groundwater contamination. We believe we are in
substantial compliance with environmental laws and regulations.
Although we do not anticipate that material capital expenditures will be
required to achieve or maintain compliance with environmental laws and
regulations, changing environmental laws and regulations might affect the
printing industry as well as the manufacture or transportation of envelopes and
related packaging products. For example, we will be subject to regulations being
developed by the federal Environmental Protection Agency ("EPA") and state
environmental agencies to implement the Clean Air Act Amendments of 1990.
Accordingly, we cannot assure you that we will not discover environmental
matters resulting in material liabilities or expenditures or that, in the
future, material expenditures for environmental matters will not be required by
changes in law or regulations or their enforcement.
The Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), as amended (also known as the "Superfund" legislation), under
certain circumstances imposes joint and several liability, without regard to
fault or the legality of the original conduct, on certain classes of persons for
the costs of investigation and remediation of sites at which there have been
releases or threatened releases of hazardous substances. These persons, known as
potentially responsible parties ("PRPs"), include the owners and operators of
property and persons that generated, disposed of or arranged for the disposal of
hazardous substances found at a site. Many states have similar programs.
Although certain of our predecessors have been designated as PRPs under CERCLA
with respect to off-site disposal of hazardous substances, we believe that we
have minimal exposure as a result of such designations, particularly because of
the indemnifications described below. We have not been named as a PRP at any
Superfund sites as a result of our ongoing operations. Due to our waste
management and minimization programs and our current use of permitted hazardous
waste disposal facilities, we do not believe that our current operations will
give rise to future material liability under CERCLA.
Soil and groundwater contamination is present at our facilities in Lancaster,
Pennsylvania and Easton, Maryland owing to the operations of former owners. This
contamination is being remediated by the former owners pursuant to indemnity
agreements obtained from them at the time of purchase of these facilities. There
can be no assurance, however, that these indemnities will be fully performed or
that we will not incur any material costs with respect to these matters.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
We are the largest printer and producer of STM journals and publications in the
United States. We are also a leading printer and producer of special interest
magazines, point-of-purchase materials and specialty packaging materials. We are
organized around two business sectors, Cadmus Professional Communications, which
provides printing and publishing services for STM journal and special interest
magazine publishers, and Cadmus Marketing Communications, which provides graphic
communications and marketing services primarily to Fortune 1000 companies. In
the third quarter of fiscal 1999, we divested our financial communications and
custom publishing product lines. On April 1, 1999, we acquired Mack, further
strengthening our position in the STM journal and special interest magazine
market.
The following discussion and analysis of the financial condition and results of
operations covers periods prior to our acquisition of Mack and the refinancing
of our former senior credit facility. As a result of those transactions, we now
have a different capital structure. Accordingly, the results of operations for
periods subsequent to the consummation of these transactions will not
necessarily be comparable to prior periods. See "Prospectus Summary--Recent
Transactions," "Unaudited Pro Forma Consolidated Financial Data," "Cadmus
Communications Corporation Selected Historical Consolidated Financial Data,"
"Description of Senior Credit Facility," "Description of Exchange Notes" and the
audited and unaudited consolidated historical financial statements and notes
thereto, included elsewhere in this prospectus.
Certain Effects of Mack Acquisition
We believe that the acquisition of Mack will create economies of scale and
synergies that should result in improved margins and operating results and
enable us to better serve our customers. For example, we believe we will realize
procurement savings of approximately $2.6 million annually by applying the
volume discounts in our existing national procurement contracts to Mack's
historical purchases of paper, printing supplies and certain other manufacturing
items. As we integrate Mack, we will evaluate additional opportunities to
improve our operating results through revenue expansion, cost reductions and
consolidation of redundant operations and functions. If we decide to eliminate
any assets, that decision could result in a charge for business integration and
consolidation costs that would have the effect of reducing assets and our net
worth.
Significant Transactions
In the third quarter of fiscal 1999, we divested our financial communications
and custom publishing product lines. Net cash proceeds from these transactions
totaled $35.0 million and resulted in a pre-tax net gain of $9.5 million. For
the twelve months ended December 31, 1998, our financial communications product
line's net sales were $40.7 million and its operating income was $3.8 million.
Contributions to net sales and operating income from our custom publishing
product line were immaterial.
In April 1998, we acquired Germersheim, Inc., an Atlanta-based point-of-purchase
provider. In June 1998, we recorded an acquisition-related restructuring charge
of $4.0 million ($2.5 million net of tax) related to the integration of
Germersheim with our existing point-of-purchase operations. The charge included
costs to consolidate facilities, eliminate redundant assets and provide
severance.
During the fourth quarter of fiscal 1997, we adopted a restructuring plan that
impacted a number of our operations. The plan included:
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. the closing of our Baltimore promotional printing facility and our
Long Beach-based direct marketing agency;
. the consolidation of our Atlanta and Richmond-based interactive
divisions;
. the consolidation of two STM journal fulfillment and distribution
operations;
. the realignment of management, production and administrative personnel
due to the realignment of our businesses;
. the write-down of tangible and intangible assets; and
. the exit from certain nonstrategic customer relationships and product
lines.
In connection with this restructuring plan, we recorded a restructuring charge
of $19.9 million ($12.9 million net of tax) i
n the fourth quarter of fiscal
1997. Operations that were discontinued as a result of the restructuring had net
sales of $16.4 million and $15.9 million in fiscal 1997 and fiscal 1996,
respectively. The fiscal 1997 restructuring charge was offset by a $0.3 million
restructuring gain ($0.2 million net of tax) recorded in the first quarter of
fiscal 1997 related to the restructuring of our former consumer publishing
product line.
As of March 31, 1999, we had $1.1 million remaining in restructuring reserves,
which we believe is adequate to complete the restructuring activities described
above.
Results of Operations
The following table summarizes our consolidated results of operations for the
periods indicated, as well as the percentages of certain categories relative to
net sales.
<TABLE>
<CAPTION>
=======================================================================================
Years Ended June 30,
Nine Months Ended March 31,
---------------------------------------------------------------------------------------
Dollars in millions 1996 1997 1998 1998 1999
---------------- ----------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $336.7 100.0% $384.9 100.0% $393.8 100.0% $289.6 100.0% $308.6 100.0%
Cost of sales 259.0 76.9 299.8 77.9 304.0 77.2 223.7 77.2 247.0 80.0
------ ----- ------ ------ ------ ----- ------ ----- ------ -----
Gross profit 77.7 23.1 85.1 22.1 89.8
22.8 65.9 22.8 61.6 20.0
------ ----- ------ ------ ------ ----- ------ ----- ------ -----
Selling and administrative expenses 61.2 18.2 63.1 16.4 62.1 15.8 45.9 15.9 42.2 13.7
Restructuring charge, net -- -- 19.7 5.1 4.0 1.0 -- -- -- --
Net gain on divestitures -- -- -- -- -- -- -- -- (9.5) (3.1)
------ ----- ------ ------ ------ ----- ------ ----- ------ -----
Operating income 16.5 4.9 2.3 0.6 23.7 6.0 20.0 6.9 28.9 9.4
------ ----- ------ ------ ------ ----- ------ ----- ------ -----
Interest expense 5.2 1.5 7.8 2.0 7.6 1
.9 5.6 1.9 6.1 2.0
Other expenses, net 0.8 0.3 1.9 0.5 1.3 0.3 1.1 0.4 1.4 0.4
------ ----- ------ ------ ------ ----- ------ ----- ------ -----
Income (loss) before income taxes and
extraordinary item 10.5 3.1 (7.4) (1.9) 14.8 3.8 13.3 4.6 21.4 7.0
Income tax expense (benefit) 3.9 1.2 (2.2) (0.6) 5.7 1.5 5.1 1.8 8.2 2.7
------ ----- ------ ------ ------ ----- ------ ----- ------ -----
Income (loss) before extraordinary
item 6.6 1.9 (5.2) (1.3) 9.1 2.3 8.2 2.8 13.2 4.3
Extraordinary loss on early
extinguishment of debt (net of
income tax benefit) (0.8) (0.2) -- --
-- -- -- -- -- --
------ ----- ------ ------ ------ ----- ------ ----- ------ -----
Net income (loss) $ 5.8 1.7% $(5.2) (1.3)% $ 9.1 2.3% $ 8.2 2.8% $ 13.2 4.3%
====== ===== ====== ====== ====== ===== ====== ===== ====== =====
Capital expenditures $ 25.3 7.5% $ 22.9 5.9 % $ 33.6 8.5% $ 28.6 9.9% $ 12.3 4.0%
</TABLE>
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Comparison of Nine Months Ended March 31, 1999 with Nine Months Ended March 31,
1998
Net Sales
Net sales for the first nine months of fiscal 1999 increased 6.5% to $308.6
million from $289.6 million for the same period in fiscal 1998. The increase for
the nine-month period was driven primarily by growth from our STM journal,
graphic solutions and specialty packaging and promotional printing product lines
and the inclusion of Germersheim's point-of-purchase operations in the first
nine months of fiscal 1999. Adjusted for the acquisition of Germersheim and the
divestitures of our financial communications and custom publishing product
lines, net sales growth was 5.8% for the nine-month period ended March 31, 1999.
Professional Communications sector net sales rose 2.4% to $154.3 million during
the first nine months of fiscal 1999. This increase was primarily attributable
to net sales growth in our STM journal product line, which was partially offset
by lower magazine net sales. This decline was due principally to our decision to
discontinue serving certain non-strategic magazine accounts in fiscal 1998.
Net sales for the Marketing Communications sector increased by 11.7% for the
first nine months of fiscal 1999, from $138.9 million to $155.1 million. This
increase was primarily driven by sales growth of 28.5% and 19.4% in our graphic
solutions and specialty packaging and promotional printing product lines,
respectively, and the inclusion of Germersheim's point-of-purchase operations in
the first nine months of fiscal 1999. These increases in net sales were
generally attributable to the addition of new clients, increased work from
existing clients and the expansion of manufacturing and selling capacity within
these businesses. The acquisition of certain assets from Beacon Press in October
1998 also contributed to the growth in our graphic solutions product line. These
increases were partially offset by lower net sales from our financial
communications and custom publishing product lines, which were divested in the
third quarter of fiscal 1999.
Gross Profit
Our gross profit margin declined to 20.0% for the first nine months of fiscal
1999, compared to 22.8% for the same period of fiscal 1998. This decline was
attributable to several factors, including: (1) the impact of lower margins in
our financial communications product line; (2) lower net sales in our custom
publishing product line; and (3) higher costs and certain production
inefficiencies associated with the integration of Germersheim into our existing
point-of-purchase product line. Adjusted for the divestitures of our financial
communications and custom publishing product lines, gross profit margin was
20.3% for the first nine months of fiscal 1999 compared to 21.2% for the same
period last year.
Selling and Administrative Expenses
Selling and administrative expenses expressed as a percentage of net sales
declined to 13.7% in the first nine months of fiscal 1999 from 15.9% for the
same period of fiscal 1998. This improvement was largely attributable to net
sales growth, continued aggressive cost containment, lower sales and
administrative costs in our point-of-purchase product line resulting from the
integration of Germersheim and lower incentive compensation and discretionary
benefits reflecting lower than anticipated year-to-date performance.
Operating Income
Operating income rose 44.5% for the first nine months of fiscal 1999 to $28.9
million from $20.0 million in the same period of fiscal 1998. Adjusted for the
$9.5 million pre-tax net gain on the divestitures of our financial
communications and custom publishing product lines, and the operating results of
these product lines, our operating income rose 33.5% to $20.6 million for the
first nine months of fiscal 1999 compared to the same period last year.
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Interest Expense and Income Taxes
Interest expense increased $0.5 million for the first nine months of fiscal 1999
over the same period last year due to higher interim debt levels resulting
primarily from acquisitions and additional working capital requirements.
The effective income tax rate remained unchanged at 38.5% for the first nine
months of fiscal 1999 and fiscal 1998.
Comparison of Fiscal 1998 with Fiscal 1997
Net Sales
Net sales rose 2.3% to $393.8 million for fiscal 1998 from $384.9 million in
fiscal 1997. Adjusted for businesses discontinued in connection with the 1997
restructuring and for the 1998 acquisition of Germersheim, net sales growth was
6.5%.
Net sales for our Professional Communications sector were $202.7 million for
fiscal 1998, which were relatively unchanged from fiscal 1997. This was due to
lower paper prices, which are passed on to our customers and consequently
decrease net sales, and the intentional downsizing of our magazine product line.
These declines in net sales were offset by increases in trade
association/educational publications and a 1.1% increase in STM journal net
sales.
Net sales for our Marketing Communications sector were $199.0 million for fiscal
1998 compared to $183.5 million for fiscal 1997, representing an increase of
8.4%. Adjusting for the impact of discontinued operations and the acquisition of
Germersheim, net sales increased 16.7%. This increase in Marketing
Communications' net sales was led primarily by: (1) a 19.0% increase in net
sales from our specialty packaging and promotional printing product line; (2) a
17.5% increase in agency fees from our marketing services product line; (3) a
30.8% increase from our financial communications product line; and (4) strong
performances by our graphic solutions and point-of-purchase product lines,
particularly in the latter half of the fiscal year. The net sales increase in
our marketing services product line was driven by a 32.2% increase in direct
marketing agency fees resulting from new account development and growth from
existing customers, a 19.0% increase in custom publishing agency fees due to
growth from existing customers and an increase in catalog design and photography
agency fees due to increased billings to existing customers. The growth in the
financial communications product line was driven by strong capital markets
activity, growth in mutual fund services and growth in full service banking
relationships.
Gross Profit
Our gross profit margin improved to 22.8% in fiscal 1998 from 22.1% in the prior
year. This increase was primarily attributable to the benefits resulting from
restructuring actions that we took in the fourth quarter of fiscal 1997, a
favorable change in product mix and lower paper prices.
Selling and Administrative Expenses
Selling and administrative expenses were $62.1 million for fiscal 1998,
representing a decrease of $1.0 million from the prior year. As a percentage of
net sales, selling and administrative expenses decreased from 16.4% in fiscal
1997 to 15.8% in fiscal 1998. This improvement was driven by efficiencies
resulting from restructuring actions that we took in the fourth quarter of
fiscal 1997.
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Operating Income
Operating income was $23.7 million for fiscal 1998, as compared to $2.3 million
for fiscal 1997. Operating income was affected by restructuring charges of $4.0
million and $19.7 million in fiscal 1998 and 1997, respectively. Operating
income before restructuring charges rose to $27.7 million, or 7.0% of net sales,
from $22.0 million, or 5.7% of net sales in the prior year. This increase in
operating income was driven by improvement from both our Professional
Communications and Marketing Communications sectors.
Interest Expense and Income Taxes
Interest expense decreased to $7.6 million in fiscal 1998 from $7.8 million in
fiscal 1997, primarily due to our lower average debt levels throughout the year.
The effective income tax rate was 38.5% for fiscal 1998 and 29.8% for fiscal
1997.
Comparison of Fiscal 1997 with Fiscal 1996
Net Sales
Fiscal 1997 net sales increased 14.3% to $384.9 million from $336.7 million in
fiscal 1996. Professional Communications sector net sales increased by 26.4% and
Marketing Communications sector net sales rose by 7.2%. Offsetting these
increases were lower publishing net sales resulting from the sale of our
consumer publishing operation during the first quarter of fiscal 1997. Fiscal
1997 net sales were flat with fiscal 1996 when adjusted for the impact of
acquisitions, divestitures and lower paper prices.
The 26.4% increase in Professional Communications sector net sales was primarily
due to our acquisition of Lancaster Press, Inc. in the fourth quarter of fiscal
1996, and continued growth in other STM journal product lines. Excluding
Lancaster net sales and the impact of lower paper prices, other STM journal net
sales increased by 3.0%. Special interest magazine net sales declined by 27.3%
as a result of the intentional refocusing of our sales mix and discontinuation
of relationships with non-strategic customers and lower paper prices.
Marketing Communications sector net sales rose 7.2%, driven by a full year's
inclusion of net sales from our purchase of The Software Factory during the
second quarter of fiscal 1996 and internal growth. Specialty packaging and
promotional printing product line net sales rose by 22.9% in fiscal 1997 as
compared to fiscal 1996 due to the inclusion of The Software Factory operations
and continued growth from existing customers. Financial communications net sales
increased 22.8%, primarily due to continued strength in financial markets, an
increase in shareholder communication sales and growth in full-service contracts
with financial institutions. These increases were partially offset by a 16.5%
decline in point-of-purchase product line net sales resulting from lower sales
to fast food restaurant and beverage customers, the loss of a significant
account during fiscal 1997 and a longer than anticipated selling cycle for new
business.
Gross Profit
Our gross profit margin in fiscal 1997 was 22.1% of net sales compared to 23.1%
in fiscal 1996. The margin decline was due to margin erosion in our point-of-
purchase, interactive and custom publishing product lines, due to the
combination of lower sales and higher production costs. Cost of sales also was
negatively impacted by excess capacity at several of our Marketing
Communications sector printing facilities. These factors were partially offset
by significant gross margin improvement in our Professional Communications
sector as a result of improved sales mix, continued efficiency improvements from
the Richmond manufacturing facility and the successful integration of the
acquired Lancaster operations.
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Selling and Administrative Expenses
Selling and administrative expenses declined to 16.4% of net sales compared to
18.2% in fiscal 1996. This decrease was primarily attributable to the full-year
impact of the acquisition of Lancaster, which had a lower selling and
administrative expense ratio than we did in the aggregate, and to cost control
measures implemented in fiscal 1997.
Operating Income
Operating income in 1997 was $2.3 million, down 86.1% from fiscal 1996. This
decline was due to a $19.7 million restructuring charge taken in June 1997.
Adjusted for the restructuring charge, operating income rose 33.2% to $22.0
million from $16.5 million in 1996.
Interest Expense and Income Taxes
Interest expense increased by $2.6 million, or 51.4% in fiscal 1997, due to
additional debt incurred to fund the acquisition of Lancaster during the fourth
quarter of fiscal 1996. The effective income tax rate was 29.8% for fiscal 1997
and 37.4% for fiscal 1996.
Liquidity and Capital Resources
Operating Activities
Net cash provided by operating activities was $3.5 million for the first nine
months of fiscal 1999, as compared to $27.3 million for the first nine months of
1998, representing a $23.8 million reduction in cash provided by operating
activities. This change was primarily due to an increase in working capital
demands in the first half of fiscal 1999, which included: (1) seasonal increases
in receivables due to higher net sales over the prior quarter and pre-billings
to customers; (2) seasonal increases to work in process and paper inventory
levels; (3) final payments on certain production equipment purchased in late
fiscal 1998; and (4) the payment of fiscal year 1998 sales and management
incentives. The decrease in cash provided by operating activities as compared to
the prior year was partially offset by a reduction in cash outflows related to
our restructuring plans announced in the fourth quarters of fiscal years 1998
and 1997 and by a decrease in the required cash contribution to fund our pension
plan.
Net cash provided by operating activities totaled $35.3 million, $31.6 million
and $13.8 million for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively. The lower amount recorded in fiscal 1996 was attributable to
increases in our investment in accounts receivable and inventories.
Investing Activities
Net cash provided by (used in) investing activities was $18.1 million for the
first nine months of fiscal 1999, compared to $(24.0) million in the first nine
months of 1998. This increase was due primarily to the receipt of $35.0 million
in proceeds from the sale of the financial communications product line, offset
by an aggregate of $5.2 million paid for the purchase of certain printing assets
of Beacon Press and the acquisition of Dynamic Diagrams, Inc., a web information
architecture firm. Capital expenditures for the first nine months of fiscal 1999
were $12.3 million compared to $28.6 million in the prior period, and primarily
consisted of investments in new presses and new business and manufacturing
systems. On a pro forma basis, after giving effect to the acquisition of Mack,
capital expenditures were $18.4 million for the first nine months of fiscal 1999
and $37.9 million for fiscal 1998. Currently, we have no material commitments
for capital expenditures. However, we estimate that capital expenditures for
fiscal 1999 will total $20.0 million and anticipate that capital expenditures
for fiscal 2000 will total approximately $22.5 million.
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Net cash used in investing activities totaled $38.5 million in fiscal 1998.
Investing activities included $33.6 million for capital expenditures and $11.1
million to fund acquisitions. Partially offsetting these uses was $6.8 million
in proceeds from sales of property, plant and equipment, primarily related to
the sale of manufacturing facilities in Charlotte and Baltimore. Significant
capital expenditures included three new presses and the expansion of our
Charlotte manufacturing and fulfillment facilities.
Net cash used in investing activities in fiscal 1997 totaled $15.5 million.
Included in this amount were capital expenditures of $22.9 million, which were
partially offset by proceeds of $6.5 million from the sale of our consumer
publishing product line and sales of property, plant and equipment of $2.9
million.
In fiscal 1996, net cash used in investing activities totaled $98.3 million,
including $25.3 million for capital expenditures and $73.4 million related to
our acquisitions of Lancaster Press and The Software Factory.
Financing Activities
Net cash used in financing activities was $21.3 million for the first nine
months of fiscal 1999 compared to $3.2 million for the same period of the prior
year. We reduced borrowings by $18.3 million in the first nine months of fiscal
1999. Additional uses of funds include the repurchase of shares of our common
stock for $3.9 million, and dividend payments of $1.2 million.
Net cash provided by financing activities totaled $3.0 million in fiscal 1998 as
additional bank revolving credit facility borrowings were utilized to fund
investing activities in excess of net cash provided by operating activities.
Net cash used by financing activities in fiscal 1997 totaled $17.1 million as we
used the excess of net cash provided by operating activities less net cash used
in investing activities to repay debt.
Net cash provided by financing activities in fiscal 1996 totaled $85.4 million.
Included in this amount was additional indebtedness incurred to finance the
acquisitions of Lancaster Press and The Software Factory and the issuance of
$38.4 million in common stock.
Total debt at March 31, 1999 was $83.5 million, down from $101.8 million at June
30, 1998, as proceeds from the sale of the financial communications product line
partially offset an increase in working capital requirements described above. As
a result of the decreased debt level, our debt to total capital ratio decreased
to 40.9% at March 31, 1999, from 48.1% at June 30, 1998.
On April 1, 1999, we entered into a new five year, $200.0 million senior credit
facility. Initial borrowings under this facility totaled approximately $137.4
million and were used to pay off borrowings under our former senior credit
facility, to repay certain indebtedness of Mack and to pay the cash purchase
price to the former shareholders of Mack. See "Description of Senior Credit
Facility."
Following our acquisition of Mack, the divestiture of our financial
communications and custom publishing product lines, the refinancing of our
former senior credit facility and the sale of the Old Notes and the application
of the net proceeds therefrom, our primary cash requirements will be for debt
service, capital expenditures and working capital. Our primary sources of
liquidity will be cash flow provided by operations and borrowings under our
senior credit facility. We believe that these funds will provide us with
sufficient liquidity and capital resources to meet our anticipated debt service
requirements, capital expenditures and working capital needs through fiscal
2000. We cannot assure you, however, that our business will generate sufficient
cash flow from operations or that future borrowings will be available under our
senior credit facility or otherwise to enable us to do so. Our future operating
performance and our ability to service or refinance
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the Old Notes and the Exchange Notes or to service, extend or refinance our
senior credit facility depends on our ability to implement our business strategy
and on general economic, financial, competitive, legislative, regulatory and
other factors, many of which are beyond our control.
Market Risk
Our total outstanding long-term debt at March 31, 1999, included approximately
$79.4 million in variable rate obligations. As of June 30, 1998, we had
outstanding interest rate swap agreements that effectively converted $53.7
million of these variable rate obligations to fixed rate obligations. These swap
agreements expired or were terminated prior to March 31, 1999. At March 31,
1999, there were approximately $2.1 million of unamortized losses on the
terminate
d contracts which were to be amortized over the remaining life of the
former senior credit facility. For the nine months ended March 31, 1999, the
interest rate swap agreements increased interest expense by approximately $0.9
million. Additional information on the interest rate swaps is provided in Note 7
of Notes to Consolidated Financial Statements in our annual report on Form 10-K
for the fiscal year ended June 30, 1998.
Year 2000 Issue
Many computer systems in use today were designed and developed using two digits,
rather than four, to specify the year. As a result, such systems will recognize
the year 2000 as "00." This could cause many computer applications to fail
completely or to create erroneous results unless corrective measures are taken.
We recognize the need to ensure that our operations will not be adversely
impacted by Year 2000 software failures and are in the process of preparing for
the Year 2000. We are engaged in an ongoing analysis and remediation of our Year
2000 exposure. Mack, w
hich we acquired on April 1, 1999, was engaged in its own
analysis of its Year 2000 exposure at the time we acquired them. We are actively
continuing the process that they started and are aggressively integrating Mack's
Year 2000 response model into our model, which is discussed below. Because each
company's Year 2000 model has operated separately up to this point, we have
presented separate discussions of each below.
Cadmus
In April 1998, we designated a formal Year 2000 monitoring team to coordinate,
identify, evaluate and implement changes to computer systems and applications
necessary to achieve a Year 2000 date conversion with minimal effect on
customers or disruption to business operations. Cadmus' Year 2000 response model
includes the following four phases, each of which are explained more fully
below:
. problem awareness;
. inventory;
. assessment; and
. remediation, testing and implementation.
Problem Awareness: During the problem awareness phase, we held
training
sessions for management on potential effects of the change to the year 2000 and
notified our employees that we were aware of and addressing the problem. This
phase was completed in October 1998.
Inventory: During this phase, the monitoring team conducted site level
inventories of systems and equipment to survey assets and software for potential
compliance problems. Information technology systems and operational systems
(presses, environmental controls, telecommunications equipment, etc.) were
addressed. These continually updated inventories formed the basis of the site
level remediation, testing and implementation efforts. All formal system
inventories were completed by November 1998.
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Assessment: In the assessment phase, we analyzed the results of our inventories
and concluded that our risk of having non-compliant systems was low. The
assessment phase was completed by November 1998.
Remediation, Testing and Implementation: This phase began in January 1999.
During this phase, we implemented planned financial and administrative system
upgrades and Year 2000 compliant replacements. In addition, our manufacturing
systems also were made compliant. Programming modifications were tested and
placed back into production when the testing was completed. We substantially
completed all remediation, testing and implementation by June 30, 1999, pending
minor system installations planned for July, 1999.
We believe that our most reasonably likely worst case Year 2000 scenario may
involve non-compliant vendors or non-compliant customers who may experience
business outages. Accordingly, we have been communicating with all third parties
with which we have a material relationship (including vendors, financial
institutions and customers) to identify potentially non-compliant parties. We
will compile a list of non-compliant parties for the purpose of assessing the
degree of exposure and risk. Contingency plans specific to those parties
(including, with respect to vendors, alternative vendor relationships) will be
developed. This process is expected to be completed by August 31, 1999.
We estimate the total cost of achieving Year 2000 compliance to be $0.4 million
to $0.6 million in excess of our normal software upgrades and replacements. Some
of these costs have already been incurred during fiscal 1998. The remainder will
be incurred in fiscal 1999 and the first half of fiscal 2000 and will be
expensed through operations.
Mack
We have substantially completed the inventory and assessment process for the
Mack entities and have made progress in their remediation.
Prior to our acquisition of Mack, they recognized the need to ensure that their
business operations would not be adversely affected by the Year 2000 and were
aware of the time-sensitive nature of the problem. Mack has assessed and we are
completing our assessment of how Mack may be impacted by the Year 2000. Mack had
formulated and commenced a comprehensive plan to address all known aspects of
the Year 2000 problem: information systems, production and facilities equipment,
suppliers and customers. We are currently making inquiries of Mack's customers
and suppliers to assess their Year 2000 readiness. We are also in the process of
testing Mack's information technology systems, as well as all other systems and
verifying that vendor-supplied or outsourced systems will be Year 2000
compliant. Any systems that are not compliant will be repaired or replaced. Mack
executives have represented that they have substantially completed their
assessment of how Mack may be impacted, have completed the development of plans
to address the testing and remediation of their systems and have completed more
than half of their testing and remediation activities. In collaboration with
former Mack executives, we have estimated that Mack will complete this process
prior to October 1999.
The identifiable costs of assessing and modifying Mack's computer software and
hardware and its production facilities and equipment, incurred as of March 31,
1999, were $1.9 million. The estimated costs yet to be incurred are $2.0
million. In conjunction with our purchase of Mack, $2.0 million of the purchase
price has been placed in escrow to cover the expected Year 2000 costs. The
current assessment (and therefore the escrow) does not include costs related to
software and hardware replaced in the normal course of business other than
replacements accelerated due to the Year 2000 issue.
We believe that the most reasonably likely worst-case Year 2000 scenario for
Mack may involve non-compliant vendors or non-compliant customers who may
experience business outages. Accordingly, we are
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currently communicating with all third parties with which Mack has a material
relationship (including vendors, financial institutions and customers) and
identifying potentially non-compliant parties. We will compile a list of non-
compliant parties for the purpose of assessing the degree of exposure and risk.
Contingency plans specific to those parties (including, with respect to vendors,
alternative vendor relationships) will be developed at that time. We expect to
complete this entire process for Mack prior to November 1999.
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MANAGEMENT
The name, age and position held of each of our directors and executive officers
as of May 1, 1999 are set forth below.
==============================================================================
Name Age Position
==============================================================================
C. Stephenson Gillispie, Jr. 56 Chairman of the Board, President
and Chief Executive Officer
David G. Wilson, Jr. 58 Chairman, Professional
Communications, Director
Steven R. Isaac 51 Executive Vice President, Cadmus
Marketing Communications
Joseph J. Ward 52 Executive Vice President, Cadmus
Professional Communications Group
President and Chief Executive
Officer, Cadmus Journal Services
Bruce V. Thomas 42 Senior Vice President and Chief
Financial Officer
David E. Bosher 45 Vice President and Treasurer
Edward B. Fernstrom 50 Vice President, Information
Technology
D. Raymond Fisher 41 Vice President and Controller
John H. Phillips 55 Vice President, Procurement and
Operations Finance
Frank Daniels, III 43 Director
G. Waddy Garrett 58 Director
Jeanne M. Liedtka 44 Director
John D. Munford, II 71 Director
Nathu R. Puri 59 Director
John C. Purnell, Jr. 58 Director
Jerry I. Reitman 61 Director
Russell M. Robinson, II 67 Director
John W. Rosenblum 55 Director
Wallace Stettinius 66 Director
Bruce A. Walker 65 Director
C. Stephenson Gillispie, Jr. has served as Chairman of the Board, President and
Chief Executive Officer since 1992. He has served as a director since 1991.
Prior to that he served as President and Chief Operating Officer from 1990-1992.
He is a director of First Union--VA/MD/DC Advisory.
David G. Wilson, Jr. has served as Chairman, Cadmus Professional Communications
since 1998. He has served as a director since 1998. Prior to that he served as
Executive Vice President of Cadmus Professional Communications from 1997-1998;
President and Chief Executive Officer of Cadmus Journal Services from 1994-1998;
and Senior Vice President and General Manager of our Byrd Journals division from
1993-1994.
Steven R. Isaac has served as Executive Vice President, Cadmus Marketing
Communications since 1997. Prior to that he served as Group President of Cadmus
Marketing Group from 1996-1997; Executive Vice President and Chief Operating
Officer of The Martin Agency in 1996; and Chairman and CEO, Martin Direct from
1979-1996.
Joseph J. Ward has served as Executive Vice President of Cadmus Professional
Communications since 1998 and Group President and Chief Executive Officer of
Cadmus Journal Services since 1998. Prior to that he served as President of
Direct Response for Europe & North America, Bertelsmann Book Group, Bertelsmann
AG from 1996-1998; President and Chief Executive Officer of JWard Consulting
from 1995-1996; and President, Meredith Book Group, Meredith Corporation from
1991-1995.
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Bruce V. Thomas has served as Senior Vice President and Chief Financial Officer
since 1997. Prior to that he served as Vice President and Chief Financial
Officer from 1996-1997; and Vice President, Law and Development from 1992-1996.
David E. Bosher has served as Vice President and Treasurer since 1993. Prior to
that he served as Vice President, Treasurer and Chief Financial Officer from
1990-1993.
Edward B. Fernstrom has served as Vice President of Information Technology since
1995. Prior to that he served as Vice President, Chief Information Officer of
Dyncorp from 1990-1995.
D. Raymond Fisher has served as Vice President and Controller since 1998. Prior
to that he served as Director, Corporate Strategy for CSX Corporation from 1994-
1998; Director, Financial and Economic Reporting for CSX Transportation from
1992-1994; and Director of Finance and Treasurer for TDSI from 1987-1992.
John H. Phillips has served as Vice President, Procurement and Operations
Finance since 1997. Prior to that he served as Vice President, Support and
Development from 1996-1997; Vice President and Regional Manufacturing Officer
from 1994-1996; and Vice President--Operations from 1992-1994.
Frank Daniels, III has served as a director since 1994. He is also Chairman and
Chief Executive Officer, Total Sports, Inc., a Raleigh-based news media
publisher and Chairman, KOZ Inc., a Raleigh-based provider of Web-based data. He
formerly served as Publisher, Nando.net and Vice President, Editor and Director
of Operations, The News and Observer Publishing Company.
G. Waddy Garrett has served as a director since 1997. He is also Chairman and
Chief Executive Officer of Alliance Agronomics, Inc., a Mechanicsville, Virginia
fertilizer production and distribution concern. He is a director of Ag-Chem
Equipment Co., Inc., Reeds Jewelers, Inc. and County Bank of Chesterfield, Inc.
Jeanne M. Liedtka has served as a director since 1995. She also serves as
Associate Professor at the Darden Graduate School of Business Administration,
University of Virginia. She formerly served as Associate Professor at Rutgers
University and Simmons College.
John D. Munford, II has served as a director since 1965. He formerly served as
Vice Chairman and Executive Vice President, Union Camp Corporation, Franklin,
Virginia. He is a director of Universal Corporation and Caraustar Industries,
Inc.
Nathu R. Puri became a director as of the closing of the Mack acquisition on
April 1, 1999, and will serve as a director until the next annual meeting of our
shareholders, which is expected to occur in September of 1999. Mr. Puri has
served as Chairman of the Melton Medes Group since he founded that building
services company by acquiring F.G. Skerritt Limited in 1983. From 1988 to April
1, 1999, Mr. Puri was the Chairman and founder of Melham Holdings, Inc., the
parent company of Mack Printing, which we acquired on April 1, 1999.
John C. Purnell, Jr. has served as a director since 1979. He also serves as
Executive Director, Friends Association for Children, Richmond, Virginia, a non-
profit child welfare organization.
Jerry I. Reitman has served as a director since 1997. He currently serves as
Vice Chairman, International Data Response Corporation and Chairman, Board of
Governors of Children's Miracle Network and as Executive Vice President and
Director, Integrated Communications (retired) of the Leo Burnett Company, a
Chicago-based international advertising agency.
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Russell M. Robinson, II has served as a director since 1984. He is an attorney-
at-law, and serves as President, Director and shareholder of Robinson, Bradshaw
& Hinson, P.A., Charlotte, North Carolina. He is a director of Caraustar
Industries, Inc. and Duke Energy Corporation.
John W. Rosenblum has served as a director since 1988. He is Dean of The Jepson
School of Leadership Studies, University of Richmond, Richmond, Virginia.
Formerly, he served as Tayloe Murphy Professor and Dean, the Darden Graduate
School of Business Administration, University of Virginia. He is a Director of
Chesapeake Corporation, Comdial Corporation, Cone Mills Corporation and a former
director of T. Rowe Price Associates.
Wallace Stettinius has served as a director since 1967. He is also Senior
Executive Fellow at the School of Business, Virginia Commonwealth University,
Richmond, Virginia. He was formerly Chairman of the Board, President and Chief
Executive Officer of our company. He is also a director of Chesapeake
Corporation.
Bruce A. Walker has served as a director since 1977. He is also President and
Chief Executive Officer of Valco Graphics, Inc., a Seattle marketing firm
providing printing, mailing and fulfillment services.
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended June 30, 1998, 1997, and
1996, all compensation paid or accrued by us to our Chief Executive Officer and
our four other most highly compensated executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-----------------------------------------------------------------------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPENSATION OPTIONS/ COMPEN-
POSITION YEAR SALARY ($)(1) BONUS ($)(2) ($)(3) SARS (#S) SATION ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
C. Stephenson Gillispie, Jr. FY98 $332,000 $199,200 -- 45,000 $ 16,160 (8)
Chairman, President and FY97 322,000 0 -- 20,000 19,347 (9)
Chief Executive Officer FY96 310,000 0 $46,575(5) 20,000 29,185 (10)
Steven R. Isaac FY98 315,000 137,800 -- 20,000 14,611 (11)
Executive Vice President FY97 305,000 50,000 -- 25,000 5,520 (12)
FY96 -- -- -- -- --
David G. Wilson, Jr. FY98 275,000 138,300 -- 25,000 13,414 (13)
Executive Vice President FY97 248,000 50,000 -- 25,000 14,681 (14)
FY96 -- -- -- -- --
Bruce V. Thomas FY98 218,000 130,000 -- 19,000 6,237 (15)
Senior Vice President and FY97 198,000 50,000(4) -- 15,000 4,899 (16)
Chief Financial Officer FY96 165,000 0 21,344(6) 8,000 7,952 (17)
John H. Phillips FY98 182,500 52,000 -- 5,000 8,169 (18)
Vice President, Procurement FY97 176,900 0 -- 10,000 9,003 (19)
and Operations Finance FY96 172,000 0 25,777(7) 8,000 10,105 (20)
</TABLE>
______________________
(1) Reflects salary before pretax contributions under the our Thrift Savings
Plans. David G. Wilson, Jr., served as Executive Vice President of our
Professional Communications sector during the fiscal year ended June 30,
1998, and assumed his current position as Chairman of that sector effective
July 22, 1998.
(2) Reflects short-term incentive awards, if any, accrued for each of the three
fiscal years ended June 30, 1998 under the Cadmus Executive Incentive Plan.
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(3) For the fiscal year ended June 30, 1998, perquisites did not exceed 10% of
salary and bonus for any of the named executive officers and thus no
amounts are reportable as "Other Annual Compensation."
(4) Reflects a short-term incentive award paid with respect to the fiscal year
ended June 30, 1997, but not included in the Summary Compensation Table in
1997 because it was not awarded until after release of the 1997 Proxy
Statement.
(5) Of the total amount reported as "Other Annual Compensation" for Mr.
Gillispie in fiscal year 1996, $34,875 was paid, pursuant to a change in
our vacation policy, for previously accrued vacation not taken in prior
fiscal years and $11,700 was paid as an automobile allowance.
(6) Of the total amount reported as "Other Annual Compensation" for Mr. Thomas
in fiscal year 1996, $12,163 was paid, pursuant to a change our vacation
policy, for previously accrued vacation not taken in prior fiscal years and
$9,181 was paid as an automobile allowance.
(7) Of the total reported as "Other Annual Compensation" for Mr. Phillips in
1996, $19,350 was paid, pursuant to a change our vacation policy, for
previously accrued vacation not take in prior fiscal years and $6,427 was
paid as an automobile allowance.
(8) Reflects $11,472 contributed or matched by us for fiscal year 1998 under
our Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
(9) Reflects $16,452 contributed or matched by us for fiscal year 1997 under
our Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
(10) Reflects $26,809 contributed or matched by us for fiscal year 1996 under
our Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
(11) Reflects $11,409 contributed or matched by us for fiscal year 1998 under
our Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
(12) Reflects $4,883 contributed or matched by us for fiscal year 1997 under our
Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
(13) Reflects $10,553 contributed or matched by us for fiscal year 1998 under
our Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
(14) Reflects $12,525 contributed or matched by us for fiscal year 1997 under
our Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
(15) Reflects $5,628 contributed or matched by us for fiscal year 1998 under our
Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
(16) Reflects $4,347 contributed or matched by us for fiscal year 1997 under our
Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
(17) Reflects $7,635 contributed or matched by us for fiscal year 1996 under our
Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
(18) Reflects $6,906 contributed or matched by us for fiscal year 1998 under our
Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
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(19) Reflects $7,782 contributed or matched by us for fiscal year 1997 under our
Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
(20) Reflects $8,600 contributed or matched by us for the fiscal year 1996 under
our Thrift Savings Plans and the remainder paid by us for life insurance
premiums.
Stock Options
The following table reflects grants of stock options made during the fiscal year
ended June 30, 1998 to each of the named executive officers.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
NUMBER OF PERCENTAGE OF APPRECIATION FOR
SECURITIES TOTAL OPTIONS/ OPTION TERM (3)
---------------
UNDERLYING SARS GRANTED EXERCISE
OPTIONS TO EMPLOYEES OR BASE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR PRICE ($/SH) DATE 5% 10%
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
C. Stephenson Gillispie, Jr. 15,000(1) 6 26.875 5/12/08 253,521 642,476
30,000(2) 12 26.875 5/12/08 507,043 1,284,952
Stephen R. Isaac 5,000(1) 2 26.875 5/12/08 84,507 214,158
15,000(1) 6 26.875 5/12/08 253,521 642,476
David G. Wilson, Jr. 5,000(1) 2 17.125 8/12/07 53,848 136,463
5,000(1) 2 26.875 5/12/08 84,507 214,158
15,000(2) 6 26.875 5/12/08 253,521 642,476
Bruce V. Thomas 5,000(1) 2 26.875 5/12/08 84,507 214,158
14,000(2) 6 26.875 5/12/08 236,620 599,644
John H. Phillips 5,000(2) 2 26.875 5/12/08 84,507 214,158
</TABLE>
______________________
(1) Grants were made our 1990 Long Term Incentive Stock Plan, and were
immediately exercisable.
(2) Grants were made under our 1990 Long Term Incentive Stock Plan and become
exercisable in increments of one-third of the total number of shares
subject to option each on December 31, 2000, 2001 and 2002, subject to
earlier vesting if certain performance criteria are met.
(3) The dollar amounts under these columns are the result of calculations at
assumed annual rates of stock price appreciation set by the Securities and
Exchange Commission. The dollar amounts shown are not intended to forecast
possible future appreciation, if any, of the price of our common stock.
The following table reflects certain information regarding the exercise of stock
options during the fiscal year ended June 30, 1998, as well as information with
respect to unexercised options held at such date by each of the named executive
officers.
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Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED "IN THE MONEY" OPTIONS AT
OPTIONS AT FISCAL YEAR END (#) FISCAL YEAR END ($)
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------- -------------------------
<S> <C> <C>
C. Stephenson Gillispie, Jr. 204,200/30,000 2,216,632/0
Stephen R. Isaac 30,000/15,000 250,313/0
David G. Wilson, Jr. 79,900/15,000 882,178/0
Bruce V. Thomas 58,800/14,000 573,736/0
John H. Phillips 51,500/33,800 803,281/220,840
</TABLE>
The Columns "Number of Shares Acquired Upon Exercise" and "Value Realized" have
been omitted because no options were exercised by the named executive officers
during the last fiscal year.
Change-In-Control Agreements
We entered into agreements with Messrs. Gillispie, Isaac, Wilson, Thomas,
Phillips, Bosher and Fernstrom and five other managers that provide for
severance payments and certain other benefits if their employment terminates
after "a change in control." Payments and benefits will be paid under these
agreements only if, within three years following a change in control (or such
shorter period from the date of any change in control to normal retirement), the
employee (i) is terminated involuntarily without "cause" (as defined therein)
and not as a result of death, disability or normal retirement, or (ii)
terminates his employment voluntarily for "good reason" (as defined therein).
"Change in control" is defined generally to include (i) an acquisition of 20% or
more of our voting stock, (ii) certain changes in the composition of our board
of directors, (iii) shareholder approval of certain business combinations or
asset sales in which our historic shareholders hold less than 60% of the
resulting or purchasing company or (iv) shareholder approval of our liquidation
or dissolution.
In the event of such termination following a change in control, the employee
will be entitled to receive a lump sum severance payment, certain other payments
and a continuation of employee welfare benefits. Severance payments under these
agreements are determined by a formula that takes into account base salary,
annual bonus and years of employment. Under this formula, Mr. Gillispie will be
entitled to the maximum severance payment, which will be an amount equal to
three times the sum of his base salary and annual bonus for the year in which
termination occurs, or for the fiscal year ended June 30, 1998, whichever is
higher. The total amount payable to Mr. Gillispie may not exceed the maximum
amount that may be paid without the imposition of a federal excise tax on Mr.
Gillispie, except that the amount payable will not be reduced unless his net
after-tax benefit would be greater than that without the reduction.
Retirement Benefits
Pension Plan
Substantially all of our employees who are 21 years of age or older and who are
credited with at least one year of service are covered by our pension plan. The
pension plan is a non-contributory defined benefit pension plan under which
retirement benefits are generally based on periods of active participation. For
the period July 1, 1979 through June 30, 1985, a participant earned a retirement
benefit expressed as an annuity for life equal to 2% of his or her base
compensation (exclusive of non-guaranteed commissions, bonuses, overtime pay and
similar payments) for each year of service. For periods after June 30, 1985, a
participant earns a
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retirement benefit generally equal to 1.6% of his or her base compensation each
year (limited to the inflation adjusted compensation cap each year starting July
1, 1989). Under a special rule, employees who were participants on June 30, 1985
generally accrued further benefits after June 30, 1985 and before January 1,
1992 at no less than the amount of accrual for the fiscal year ended June 30,
1985. This special rule ceased to apply effective for accruals after December
31, 1991. Prior to July 1, 1979, several different benefit formulas applied, and
employees who were participants before July 1, 1979 will retain their accrued
past service benefit for service before July 1, 1979 based on the benefit
formulas then in effect.
Because retirement benefits under our pension plan are based on career average
compensation, a table showing annual retirement benefits based upon final
average compensation and years of service is inappropriate and has been omitted.
Based on the benefit formula in effect on and after July 1, 1985, and on the
assumption that the individuals named will continue to receive, until normal
retirement age, covered compensation in the same amounts paid for the fiscal
year ended June 30, 1998, the estimated annual benefits (which are not subject
to any deduction for Social Security or other offset amount) payable for the
named executive officers are $67,050 for Mr. Gillispie, $37,120 for Mr. Isaac,
$61,252 for Mr. Wilson, $73,928 for Mr. Thomas and $66,268 for Mr. Phillips.
Supplemental Executive Retirement Plan
We maintain a Supplemental Executive Retirement Plan (the "SERP") to provide
supplemental retirement benefits for our key employees who are credited with at
least five years of service and who are selected by the board of directors for
participation in the SERP. Our board of directors may waive all or any part of
the five year service requirement. The SERP is a non-qualified unfunded plan
which covers 17 active key employees. The retirement or death benefit payable
under the SERP is a 15-year term certain annuity equal to 30% of the
participant's final average (highest three years out of last ten) base
compensation (exclusive of non-guaranteed commissions, bonuses, overtime pay or
similar payments) generally commencing at the participant's normal retirement
age (which is age 65 for employees last hired prior to age 60 or otherwise is
the fifth anniversary of commencement of participation). Benefits are not
subject to any reduction for Social Security or other offset amount.
The following table shows the estimated annual retirement benefits payable to
SERP participants in the following average final compensation and years of
service classifications assuming retirement at age 65. Average compensation
under the SERP includes only the amounts set forth under "Salary" in the Summary
Compensation Table.
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<PAGE>
Supplemental Executive Retirement Plan Table
<TABLE>
<CAPTION>
HIGHEST 3-YEAR YEARS OF SERVICE
---------------------------------------------
AVERAGE COMPENSATION 5 10 15 20 AND OVER
- --------------------
<S> <C> <C> <C> <C>
100,000 $ 7,500 15,000 22,500 $ 30,000
125,000 9,125 18,750 28,125 37,500
150,000 11,250 22,500 33,750 45,000
175,000 13,125 26,250 39,375 52,500
200,000 15,000 30,000 45,000 60,000
225,000 16,875 33,750 50,625 67,500
250,000 18,750 37,500 56,250 75,000
300,000 22,500 45,000 67,500 90,000
350,000 26,250 52,500 78,750 105,000
400,000 30,000 60,000 90,000 120,000
450,000 33,750 67,500 101,250 135,000
500,000 37,500 75,000 112,500 150,000
</TABLE>
Credited years of service under the SERP as of the fiscal year ended June 30,
1998 are: Mr. Gillispie -- 21; Mr. Isaac -- 2; Mr. Wilson -- 35; Mr. Thomas --
6; and Mr. Phillips -- 23.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of May 6, 1999, the number and percentage of
shares of common stock held by persons known by us to be the owners of more than
5% of our common stock, each of our directors, certain executive officers and
all directors and executive officers as a group.
<TABLE>
<CAPTION>
===================================================================
Amount and Nature of Beneficial Percent of Common Stock
Name and Address of Beneficial Owner Ownership of Common Stock/(1)/ Issued and Outstanding/(2)/
- ------------------------------------ ------------------------------- ---------------------------
<S> <C> <C>
Kestrel Investment Management.................... 503,000 5.58%
411 Borel Avenue, Suite 403
San Mateo, California 94402
Sheridan Printing Company, Inc................... 460,000 5.11%
1425 Third Avenue
Alpha, New Jersey 08865
J. & W. Seligman & Co. Inc....................... 478,545 5.31%
100 Park Avenue, 8th Floor
New York, New York 10006
Frank Daniels, III............................... 26,000/(3)/ *
Raleigh, North Carolina
C. Stephenson Gillispie, Jr...................... 236,038/(4)/ 2.62%
Richmond, Virginia
</TABLE>
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<PAGE>
G. Waddy Garrett............................ 4,600/(5)/ *
Richmond, Virginia
Steven R. Isaac............................. 32,600/(6)/ *
Richmond, Virginia
Jeanne M. Liedtka........................... 3,000/(7)/ *
Charlottesville, Virginia
John D. Munford, II......................... 50,145 *
Virginia Beach, Virginia
John H. Phillips............................ 92,849/(8)/ 1.03%
Richmond, Virginia
Nathu R. Puri............................... 1,058,333/(9)/ 11.75%
Nottingham, England
John C. Purnell, Jr......................... 10,182/(10)/ *
Richmond, Virginia
Jerry I. Reitman............................ 1,500/(11)/ *
Chicago, Illinois
Russell M. Robinson, II..................... 20,272 *
Charlotte, North Carolina
John W. Rosenblum........................... 7,000 *
Charlottesville, Virginia
Wallace Stettinius.......................... 194,328/(12)/ 2.16%
Richmond, Virginia
Bruce V. Thomas............................. 62,799/(13)/ *
Richmond, Virginia
Bruce A. Walker............................. 6,800 *
Seattle, Washington
David G. Wilson, Jr......................... 136,270/(14)/ 1.51%
Richmond, Virginia
All Directors and Executive Officers as a 1,998,903 22.19%
Group (17 persons)..........................
* Less than one percent.
(1) Except as otherwise indicated and except to the extent that in certain
cases shares may be held in joint tenancy with a spouse, each nominee,
director, or executive officer has sole voting and investment power with
respect to the shares shown. Except as otherwise noted, beneficial
ownership for each non-
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<PAGE>
employee director includes 5,000 shares as to which each such director
holds presently exercisable options under the 1992 Non-Employee Director
Stock Compensation Plan.
(2) Based on 9,007,848 shares outstanding on April 30, 1999.
(3) Mr. Daniels holds 3,000 of his shares in the form of presently exercisable
options.
(4) Includes: 204,200 shares as to which Mr. Gillispie holds presently
exercisable options, 986 shares held in his father's estate of which he
is executor; 10 shares held as custodian; and 581 shares held for his
account in the Cadmus account under the Cadmus Thrift Savings Plan.
(5) Includes: 1,000 shares held by Mr. Garrett's wife, as to which shares Mr.
Garrett disclaims beneficial ownership, and 1,000 shares held in the form
of presently exercisable options.
(6) Includes: 500 shares held by Mr. Isaac's children and 350 shares held by
Mr. Isaac's wife, as to all of which shares Mr. Isaac disclaims
beneficial ownership; and 30,000 shares in the form of presently
exercisable options.
(7) Ms. Liedtka holds all of her shares in the form of presently exercisable
options.
(8) Includes: 51,500 shares as to which Mr. Phillips holds presently
exercisable options and 11,517 shares held for his account under the
Cadmus Thrift Savings Plan.
(9) Includes 929,268 shares owned by Purico (IOM) Limited, a wholly-owned
subsidiary of Clary Limited, which is approximately 88% owned by Mr. Puri,
and 129,065 shares owned by Melham U.S. Inc., which is approximately 88%
indirectly owned by Mr. Puri.
(10) Includes 150 shares held by Mr. Purnell's wife, as to which shares Mr.
Purnell disclaims beneficial ownership.
(11) Mr. Reitman holds 1,000 of his shares in the form of presently
exercisable options.
(12) Includes: 156,106 shares held in an agency account by NationsBank of
Virginia, N.A., as to all of which shares Mr. Stettinius is the
beneficial owner; 2,222 shares, also held in an agency account by
NationsBank of Virginia, N.A., for Mr. Stettinius' wife, as to which
shares Mr. Stettinius disclaims beneficial ownership; and 36,000 shares
as to which Mr. Stettinius holds presently exercisable options.
(13) Includes: 58,800 shares as to which Mr. Thomas holds presently
exercisable options and 2,063 shares held for his account under the
Cadmus Thrift Savings Plan.
(14) Includes: 79,900 shares as to which Mr. Wilson holds presently
exercisable options and 506 shares held for his account under the Cadmus
Thrift Savings Plan.
CERTAIN RELATED TRANSACTIONS
The Members of our Executive Compensation and Organization Committee are Messrs.
Garrett (Chairman), Gwynn, Munford, Rosenblum, Walker and Ms. Liedtka. No
member of the Executive Compensation and Organization Committee is or has been
our employee. Furthermore, none of our executive officers has served
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<PAGE>
on the board of directors of any company of which an Executive Compensation and
Organization Committee member is an employee except for John H. Phillips, Vice
President, Procurement and Operations Finance of Cadmus, who serves as a
director of Valco Graphics, Inc., a privately-held Seattle marketing firm
providing printing, mailing and fulfillment services, of which Bruce Walker, an
Executive Compensation and Organization Committee, member is President.
Russell M. Robinson, II, a Class III director, served as Chairman of the
Executive Compensation and Organization Committee until August 12, 1997 and
currently serves as lead outside director of our board of directors. The firm
of Robinson, Bradshaw and Hinson, P.A., of which Mr. Robinson is President, a
Director and a shareholder, was retained to perform legal services for us during
fiscal year 1998. It is anticipated that the firm will continue to provide
legal services to us during fiscal year 1999 and fiscal year 2000.
From time to time, we may purchase products from or utilize services of, other
corporations of which one of our directors is a director, officer or employee.
Such transactions occur in the ordinary course of business and are not deemed
material.
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<PAGE>
DESCRIPTION OF SENIOR CREDIT FACILITY
On April 1, 1999, we entered into our senior credit facility with a group of
lenders, with Wachovia Bank, N.A., as agent, NationsBank, N.A., as documentation
agent, and First Union National Bank, an affiliate of First Union Capital
Markets Corp., as syndication agent. The senior credit facility consists of a
$145 million revolving credit facility and a $55 million term loan facility.
The proceeds of the loans under the senior credit facility have been and will be
used: (1) to refinance indebtedness under our former senior credit facility and
certain other indebtedness; (2) to finance a portion of the Mack acquisition and
pay related expenses; and (3) for general corporate purposes, including working
capital.
The senior credit facility is jointly and severally guaranteed by each of our
present and future significant subsidiaries and is secured by a pledge of all of
the capital stock of such subsidiaries.
The senior credit facility requires us to meet certain financial tests,
including a maximum total debt to EBITDA ratio, a maximum senior debt to EBITDA
ratio, a minimum consolidated net worth and a minimum fixed charge coverage
ratio. In addition, the senior credit facility contains certain negative
covenants prohibiting or limiting, among other things, additional indebtedness,
liens, consolidations, mergers and sales of assets, loans or advances,
investments, capital expenditures, transactions with affiliates, acquisitions,
prepayments and modifications of debt instruments, new lines of business, sale-
leaseback transactions, restrictive agreements and other matters. The senior
credit facility contains customary events of default, including, among others,
payment defaults, financial and other negative covenant violations, other
covenant violations, breaches of representations and warranties, cross-defaults
to certain other debt, certain events of bankruptcy and insolvency, ERISA
defaults, material judgments, changes in control of Cadmus and actual or
asserted failure of any guaranty or security document supporting the senior
credit facility to be valid and binding.
Our senior credit facility restricts our ability to redeem the Old Notes and the
Exchange Notes with the net proceeds of equity offerings or upon a change in
control or asset sale. See "Description of Exchange Notes--Redemption" and "--
Change of Control."
The revolving credit facility will terminate on March 31, 2004. The term loan
facility will be amortized in quarterly installments beginning June 30, 1999 and
will mature on March 31, 2004. In addition, the senior credit facility provides
that the net proceeds of certain stock issuances, debt incurrences, sale, lease
or transfer of assets and casualties and condemnations must be used to
permanently prepay the term loan facility. The net proceeds from the offering of
the Old Notes in excess of the amount required to repay the bridge financing
notes was used to prepay amounts outstanding under the revolving credit
facility. That prepayment did not reduce the revolving credit commitments under
that facility. Voluntary prepayments of the revolving credit facility and the
term loan facility are permitted, subject to certain notice, minimum amount and
other customary requirements.
Outstanding borrowings under the senior credit facility will bear interest at a
floating rate and may be maintained for an initial period of approximately seven
and one-half months at either (1) the Base Rate (defined as the higher of (x)
the applicable prime rate of Wachovia Bank, N.A. and (y) 0.50% in excess of the
Federal Funds Rate (defined as the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System) plus
0.50% (1.0% after June 15, 1999) per annum or (2) LIBOR plus 2.50% (2.75% after
June 15, 1999) per annum. Thereafter, outstanding borrowings under the senior
credit facility will bear interest at (1) the Base Rate or (2) LIBOR plus, in
either case, a margin determined by reference to our total debt to EBITDA ratio
as it exists from time to time. Upon the occurrence of certain
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<PAGE>
events, including, without limitation, a default or an event of default under
the senior credit facility, the interest rates applicable to outstanding
borrowings under the senior credit facility will or may be increased as provided
in the senior credit facility documents.
We are required to pay an unused commitment fee with respect to the revolving
credit facility under the senior credit facility. The unused commitment fee for
an initial period of approximately seven and one-half months is equal to the
aggregate of the daily average amounts of the Unused Revolving Credit
Commitments (as defined in the senior credit facility) multiplied by 0.50%
(0.625% after June 1, 1999) per annum. Thereafter, the unused commitment fee
will be determined by reference to our total debt to EBITDA ratio as it exists
from time to time. Upon the occurrence of certain events, including, without
limitation, a default or an event of default under the senior credit facility,
the unused commitment fee will or may be increased as provided in the senior
credit facility documents. We have also agreed to pay certain additional fees to
Wachovia Bank, N.A. in its capacity as agent.
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<PAGE>
THE EXCHANGE OFFER
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus and in
the Letter of Transmittal, Cadmus will accept for exchange Old Notes that are
properly tendered on or prior to the Expiration Date and not withdrawn.
"Expiration Date" means 5:00 p.m., New York City time, on __________, 1999, or,
if Cadmus has extended the period of time for the exchange offer, the latest
time and date to which the exchange offer is extended.
As of the date of this prospectus, $125,000,000 aggregate principal amount of
the Old Notes was outstanding. This prospectus, together with the Letter of
Transmittal, is first being sent on or about the date set forth on the cover
page to all holders of Old Notes at the addresses set forth in the securities
register with respect to Old Notes maintained by DTC. Cadmus' obligation to
accept Old Notes for exchange pursuant to the exchange offer is subject to
certain conditions set forth below. See "-Conditions to Exchange Offer."
Cadmus expressly reserves the right, at any time or from time to time, to extend
the period during which the exchange offer is open, and thereby delay acceptance
for exchange of any Old Notes, by mailing written notice of such extension to
the holders as described below. During any extension, all Old Notes previously
tendered will remain subject to the exchange offer and may be accepted for
exchange by Cadmus. Any Old Notes not accepted for exchange for any reason will
be returned without expense to the holder as promptly as practicable after the
expiration or termination of the exchange offer.
Old Notes tendered in the exchange offer must be $1,000 in principal amount or
any integral multiple thereof.
The Company will mail written notice of any extension, amendment, non-acceptance
or termination to the holders of the Old Notes as promptly as practicable, such
notice to be mailed to the holders of record of the Old Notes no later than 9:00
a.m. New York City time, on the next business day after the previously scheduled
Expiration Date or other event giving rise to such notice requirement.
Procedures For Tendering Old Notes
Letter of Transmittal. The tender to Cadmus of Old Notes by a holder as set
forth below and the acceptance of the tender by Cadmus will constitute a binding
agreement between the tendering holder and Cadmus upon the terms and subject to
the conditions set forth in this prospectus and in the Letter of Transmittal.
Except as set forth below, a holder who wishes to tender Old Notes for exchange
must transmit a properly completed and executed Letter of Transmittal, together
with all other documents required by such Letter of Transmittal, to the Exchange
Agent at the address set forth below under " Exchange Agent" on or prior to the
Expiration Date.
Other Documents. In addition,
. the Exchange Agent must receive certificates for the Old Notes along
with the Letter of Transmittal,
. the Exchange Agent must receive prior to the Expiration Date a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
the Old Notes, if such procedure is available, into the Exchange
Agent's account at the DTC pursuant to the procedure for book-entry
transfer described below, or
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<PAGE>
. the holder must comply with the guaranteed delivery procedures
described in "-- Guaranteed Delivery Procedures," below.
================================================================================
The method of delivery of Old Notes, Letters of Transmittal and all other
required documents is at the election and risk of the holders. If the delivery
is by mail, it is recommended that registered mail, properly insured, with
return receipt requested, be used in all cases. Sufficient time should be
allowed to assure timely delivery. No Letters of Transmittal or Old Notes should
be sent to Cadmus.
================================================================================
Signatures. Signatures on a Letter of Transmittal or a notice of withdrawal
must be guaranteed unless the Old Notes surrendered for exchange pursuant
thereto are tendered (1) by a registered holder of the Old Notes who has not
completed the box entitled "Special Issuance Instructions" on the Letter of
Transmittal or (2) for the account of an Eligible Institution (as defined
below). If signatures on a Letter of Transmittal or a notice of withdrawal are
required to be guaranteed, the guarantees must be by a firm that is an eligible
guarantor institution (bank, stockbroker, national securities exchange,
registered securities association, savings and loan association or credit union
with membership in a signature medallion program) pursuant to Exchange Act Rule
17Ad-15 (collectively, "Eligible Institutions"). If Old Notes are registered in
the name of a person other than the person signing the Letter of Transmittal,
the Old Notes surrendered for exchange must be endorsed by, or be accompanied
by, a written instrument or instruments of transfer or exchange, in satisfactory
form as determined by Cadmus, duly executed by the registered holder, with the
signature guaranteed by an eligible Institution.
Powers of Attorney. If the Letter of Transmittal is signed by a person or
persons other than the registered holder or holders of Old Notes, the Old 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 Old Notes.
Representatives, Trustees, Guardians, Etc. If the Letter of Transmittal or any
Old Notes or powers of attorney are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and unless waived by Cadmus, proper evidence satisfactory
to Cadmus of their authority to so act must be submitted with the Letter of
Transmittal.
Required Acknowledgments; Resales by Broker-Dealers. By tendering Old Notes,
each holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of Exchange Notes. If any
holder of Old Notes is an "affiliate" of Cadmus, as defined in Rule 405 under
the Securities Act, or is engaged in or intends to engage in or has any
arrangement with any person to participate in the distribution of the Exchange
Notes to be acquired pursuant to the exchange offer, the holder:
. cannot rely on the applicable interpretations of the SEC staff, and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Old Notes must acknowledge that the Old Notes were acquired by the broker-
dealer as a result of market-making activities or other trading activities and
that it will deliver a prospectus in connection with any resale of the Exchange
Notes. Any such broker-dealer may be deemed to be an "underwriter" under the
Securities Act. See "Plan of
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Distribution." 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.
Acceptance of Old Notes For Exchange; Delivery of Exchange Notes
The Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Old Notes. For each Old Note accepted for exchange, the holder of the Old
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Old Note. The Exchange Notes will bear interest from the most
recent date on which interest has been paid on the Old Notes or, if no interest
has been paid, from June 1, 1999. Accordingly, if the relevant record date for
interest payment occurs after the completion of the exchange offer, registered
holders of Exchange Notes on the record date will receive interest accruing from
the most recent date that interest has been paid or, if no interest has been
paid, from June 1, 1999. If, however, the relevant record date for interest
payment occurs prior to the completion of the exchange offer, registered holders
of Old Notes on the record date will receive interest accruing from the most
recent date that interest has been paid or, if no interest has been paid, from
June 1, 1999. Old Notes accepted for exchange will cease to accrue interest
from and after the date of completion of the exchange offer, except as set forth
in the immediately preceding sentence. Holders of Old Notes whose Old Notes are
accepted for exchange will not receive any payment in respect of interest on the
Old Notes otherwise payable on any interest payment date the record date for
which occurs on or after completion of the exchange offer.
In all cases, issuance of Exchange Notes for Old Notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the Exchange Agent of:
. certificates for the Old Notes or a timely Book-Entry Confirmation of
the transfer of the Old Notes into the Exchange Agent's account at
DTC;
. a properly completed and duly executed Letter of Transmittal; and
. all other required documents.
If any tendered Old Notes are not accepted for any reason set forth in the terms
and conditions of the exchange offer or if certificates representing Old Notes
are submitted for a greater principal amount than the holder desires to
exchange, certificates representing the unaccepted or non-exchanged Old Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at DTC pursuant to the book-entry transfer procedures described below,
the non-exchanged Old Notes will be credited to an account maintained with DTC)
as promptly as practicable after the expiration or termination of the exchange
offer.
All questions as to the validity, form, eligibility (including time of receipt)
and acceptance of Old Notes tendered for exchange will be determined by Cadmus
in its sole discretion, which determination shall be final and binding. The
Company reserves the absolute right to reject any and all tenders of any
particular Old Notes not properly tendered or not to accept any particular Old
Notes if acceptance might, in the judgment of Cadmus or its counsel, be
unlawful. See "--Conditions to Exchange Offer." The Company also reserves the
absolute right in its sole discretion to waive any defects or irregularities or
conditions of the exchange offer as to any particular Old Notes either before or
after the Expiration Date (including the right to waive the ineligibility of any
holder who seeks to tender Old Notes in the exchange offer). The interpretation
of the terms and conditions of the exchange offer as to any particular Old Notes
either before or after the Expiration Date (including the Letter of Transmittal
and the instructions thereto) by Cadmus shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Old Notes for exchange
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must be cured within a reasonable period of time that Cadmus shall determine.
Neither Cadmus, the Exchange Agent nor any other person shall be required to
give notice of any defect or irregularity regarding any tender of Old Notes for
exchange, nor shall any of them incur any liability for failure to give notice.
The Exchange Agent has established an account with respect to the Old Notes at
DTC for purposes of the exchange offer and any financial institution that is a
participant in DTC's systems may make book-entry delivery of Old Notes by
causing DTC to transfer the Old Notes into the Exchange Agent's account at DTC
in accordance with DTC's procedures for transfer.
================================================================================
Although delivery of Old Notes may be effected through book-entry transfer at
DTC, the Letter of Transmittal or a facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, 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 the guaranteed
delivery procedures described below must be complied with.
================================================================================
Guaranteed Delivery Procedures
If a registered holder of Old Notes desires to tender the Old Notes and the Old
Notes are not immediately available, or time will not permit the holder's Old
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:
. the tender is made through an Eligible Institution;
. prior to the Expiration Date, the Exchange Agent receives from the
Eligible Institution a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and a Notice of Guaranteed
Delivery, substantially in the form provided by Cadmus (by telegram,
telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the holder of Old Notes and the amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange ("NYSE") trading
days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all Old Notes will be physically tendered in
proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent;
and
. the certificates for all Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange
Act within five NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. For a withdrawal to be effective, a written
or facsimile notice of withdrawal must be received by the Exchange Agent at the
address set forth below under "--Exchange Agent." Any notice of withdrawal must
specify the name of the person having tendered the Old Notes to be withdrawn,
identify the Old Notes to be withdrawn (including the principal amounts of such
Old Notes), and (where certificates for
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Old Notes have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing holder.
If certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless the holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer, any notice
of withdrawal must specify the name and number of the account at DTC to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of the facility. All questions as to the validity, form and eligibility
(including time of receipt) of the notices will be determined by Cadmus, whose
determination shall be final and binding on all parties. Certificates for any
Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any Old Notes that have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to the holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
DTC pursuant to the book-entry transfer procedures described above, the Old
Notes will be credited to an account maintained with DTC for the Old Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described under "--Procedures for Tendering Old Notes," at any
time on or prior to the Expiration Date.
Conditions to Exchange Offer
Notwithstanding any other provision of the exchange offer, we are not required
to accept for exchange, or to issue Exchange Notes in exchange for, any Old
Notes and may terminate or amend the exchange offer if, at any time before the
acceptance of such Old Notes in exchange or the exchange of the Exchange Notes
for such Old Notes, we determine that the exchange offer violates applicable
law, any applicable interpretation of the staff of the SEC or any order of any
governmental agency or court of competent jurisdiction.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. Our failure to exercise any of the foregoing rights at any time
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any Old Notes tendered, and no
Exchange Notes will be issued in exchange for any such Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended. In any event, we are required to use every reasonable effort to obtain
the withdrawal of any stop order at the earliest possible time.
Exchange Agent
All executed Letters of Transmittal should be directed to the 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 Registered or Certified Mail:
First Union National Bank
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First Union Customer Information Center
Corporate Trust Operations (NC1153)
1525 West W. T. Harris Boulevard-3C3
Charlotte, NC 28288
Attention: Mike Klotz
By Overnight Courier or By Hand:
First Union National Bank
First Union Customer Information Center
Corporate Trust Operations (NC1153)
1525 West W. T. Harris Boulevard-3C3
Charlotte, NC 28262-1153
Attention: Mike Klotz
Confirm by Telephone: (704) 590-7628
================================================================================
Delivery of the Letter of Transmittal to an address other than as set forth
above or transmission or instructions via facsimile other than as set forth
above does not constitute a valid delivery of the Letter of Transmittal.
================================================================================
Fees and Expenses
The Company will not make any payment to brokers-dealers or others soliciting
acceptances of the exchange offer.
Transfer Taxes
Holders who tender Old Notes for exchange will not be obligated to pay any
transfer tax in connection therewith, except that Holders who instruct Cadmus to
register Exchange Notes in the name of, or request that Old Notes not tendered
or not accepted in the exchange offer be returned to, a person other than the
registered tendering Holder will be responsible for the payment of any
applicable transfer tax.
Appraisal Rights
Holders of Old Notes will not have dissenters' rights or appraisal rights in
connection with the exchange offer.
Resale of the Exchange Notes
Based on interpretations by the SEC staff issued to third parties, Exchange
Notes issued in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by holders thereof without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that:
. the Exchange Notes are acquired in the ordinary course of the holders'
business;
. the holders have no arrangement with any person to participate in the
distribution of the Exchange Notes; and
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. the holder is not an "affiliate" of Cadmus as defined in Rule 405
under the Securities Act.
Each holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of Exchange Notes. This
analysis is based upon the SEC's position in no-action letters issued regarding
other transactions that were substantially similar to this exchange offer
including "Exxon Capital Holdings Corporation" (available May 13, 1988).
Although the SEC has not indicated that it has changed its position on this
issue, Cadmus has not sought its own interpretive letter from the SEC. There is
no assurance that the SEC would make a similar determination with respect to the
resale of the Exchange Notes. See "Risk Factors--Requirements for Transfer of
Exchange Notes."
If any holder is an affiliate of Cadmus, or if any holder is engaged in or
intends to engage in or has any arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired pursuant to the exchange
offer, the holder
. can not rely on the applicable interpretations of the SEC staff; and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus meeting
the requirements under the Securities Act in connection with any resale of
Exchange Notes. The Letter of Transmittal states that by so acknowledging and
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter' within the meaning of the Securities Act. This prospectus, as
it may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of Exchange Notes where the Old Notes
exchanged for such Exchange Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. We have agreed
to use our best efforts to make this prospectus available for a period not to
exceed 180 days to any participating broker-dealer for use in connection with
any such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the Exchange Notes may
not be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available.
Same-Day Funds Settlement and Payment
We will make all payments of principal and interest in respect of Exchange Notes
in book-entry form in immediately available funds to the accounts specified in
DTC.
Secondary trading in long-term notes and notes of corporate issuers is generally
settled in clearing house or next-day funds. In contrast, the Exchange Notes
will trade in DTC's Same-Day Funds Settlement System until maturity or until the
Exchange Notes are issued in certificated form, and secondary market trading
activity in the Exchange Notes will therefore be required by DTC to settle in
immediately available funds. No assurance can be given as to the effect, if
any, of settlement in immediately available funds on trading activity in the
Exchange Notes.
Concerning the Trustee
First Union National Bank is the trustee under the Indenture. We may maintain
deposit accounts or conduct other banking transactions with the Trustee in the
ordinary course of business. Notice to the Trustee should be directed to its
Corporate Trust Department, 800 East Main Street, Lower Mezzanine, Richmond,
Virginia 23219-3279, attention: Patricia A. Welling.
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Form, Denomination and Book-Entry Procedures
Exchange Notes will be issued in fully registered book-entry form without
interest coupons and in denominations of $1,000 and integral multiples thereof.
The Exchange Notes generally will be represented by one or more fully-registered
global securities (collectively, the "Global Note"). Notwithstanding the
foregoing, Old Notes held in certificated form will be exchanged solely for
Exchange Notes in certificated form, as discussed below. The Global Note will
be deposited upon issuance with the DTC and registered in the name of Cede & Co.
Except as set forth below, the Global Note may be transferred, in whole and not
in part, only to another nominee of DTC or to a successor of DTC or its nominee.
Global Notes and Book-Entry System
The certificates representing the Exchange Notes will be issued in the form or
one or more permanent global certificates in definitive fully registered form
and will be deposited with, or on behalf of, DTC and registered in the name of
Cede & Co., as the nominee of DTC. Except as described below, the Exchange
Notes will not be issued in definitive form. Unless and until they are
exchanged in whole or in part for the individual Exchange Notes represented
thereby, any interests in the Global Notes may not be transferred except as a
whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC or by DTC or any nominee of DTC to a successor depositary or any
nominee of such successor.
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 and
Exchange Act of 1934, as amended. DTC holds securities that its participants
("Participants") pledge, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations ("Direct Participants"). DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly. The rules applicable to DTC and its Participants are on file with
the SEC.
Upon the issuance of the Global Notes, and the deposit of such Global Notes with
or on behalf of DTC, DTC will credit, on its book-entry registration and
transfer system, the respective principal amounts of the Exchange Notes
represented by such Global Notes to the accounts of Participants that have
accounts with DTC or its nominee. The accounts to be credited will be
designated by the underwrites or agents engaging in the distribution or
placement of the Exchange Notes. Ownership of beneficial interests in such
Global Notes will be limited to Participants or persons that may hold interests
through participants. Ownership of beneficial interests by participants in such
Global Notes will be shown by book-keeping entries on, and the transfer of that
ownership interest will be effected only through book-keeping entries to,
records maintained by DTC or its nominee for such Global Notes. Ownership of
beneficial interests in such Global Notes by persons that hold through
Participants will be shown by book-keeping entries on, and the transfer of that
ownership interest among or through such Participants will be effected only
through book-keeping entries to, records maintained by such Participants. The
laws of some jurisdictions require that certain purchasers take physical
delivery of such securities in definitive certificated form rather than book-
entry form. Such laws may impair the ability to own, transfer or pledge
beneficial interests in the Global Notes.
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So long as DTC or its nominee is the registered owner of such Global Notes, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Exchange Notes represented by the Global Notes for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in the
Global Notes will not be entitled to have Exchange Notes represented by such
Global Notes registered in their names, will not receive or be entitled to
receive physical delivery of Exchange Notes in definitive certificated form, and
will not be considered the holders thereof for any purposes under the Indenture.
Accordingly, each person owning a beneficial interest in Global Notes must rely
on the procedures of DTC and, if such person is not a participant, on the
procedures of the Participant through which such person directly or indirectly
owns its interest, to exercise any rights of a holder under the Indenture. The
Indenture provides that DTC may grant proxies and otherwise authorize
Participants to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action that a holder is entitled to give or
take under the Indenture. The Indenture provides that DTC may grant proxies and
otherwise authorize Participants to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action that a holder
is entitled to give or take under the Indenture. (Indenture, Section 104). We
understand that under existing industry practices, if we request any action of
holders or any owner of a beneficial interest in the Global Notes desires to
give any notice or take any action that a holder is entitled to give or take
under the Indenture, DTC would authorize the Participants holding the relevant
beneficial interest to give such notice or take such action, and such
Participants would authorize beneficial owners owning through such Participants
to give such notice or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Principal and any premium and interest payments on the Exchange Notes
represented by the Global Notes registered in the name of DTC or its nominee
will be made to DTC or its nominee, as the case may be, as the registered owner
of the Global Notes. Neither we, the Trustee nor any paying agent for the
Exchange Notes 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 interests.
We expect that DTC, upon receipt of any payment of principal, premium or
interest, will credit immediately Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Notes as shown on the records of DTC. We also expect that
payments by Participants to owners of beneficial interests in such Global Notes
held through such Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in "street name," and will be the responsibility of such
Participants.
If DTC is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by us within 90 days, we will issue the
Notes in definitive certificated form in exchange for such Global Notes. In
addition, we may at any time and in our sole discretion determine not to have
the Exchange Notes represented by one or more Global Notes and, in such event,
will issue the Exchange Notes in definitive certificated form in exchange for
Global Notes.
Further, an owner of a beneficial interest in the Global Notes may, on terms
acceptable to us and DTC, receive Exchange Notes in definitive certificated
form, if we so specify. In any such instance, an owner of beneficial interest
in the Global Notes will be entitled to have Exchange Notes equal in principal
amount to such beneficial interest registered in its name and will be entitled
to physical delivery of such Exchange Notes in definitive certificated form.
Exchange Notes so issued in definitive certificated form will be issued in
denominations of $1,000 and integral multiples thereof and will be issued in
registered form.
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DESCRIPTION OF EXCHANGE NOTES
The Company will issue the Exchange Notes under an indenture (the "Indenture")
among itself, the Guarantors and First Union National Bank, as Trustee (the
"Trustee"). The following description is a summary of the material provisions of
the Indenture and the Registration Rights Agreement. It does not include all of
the provisions of the Indenture or the Registration Rights Agreement. We urge
you to read the Indenture and the Registration Rights Agreement because they,
and not this description, define your rights as a holder of the Exchange Notes.
The terms of the Exchange 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 ("TIA"), as in effect on the date of the Indenture. Copies of the
proposed forms of the Indenture and the Registration Rights Agreement may be
obtained from the Company or the Initial Purchasers. You can find definitions of
certain capitalized terms used in this description under the heading "--Certain
Definitions." For purposes of this description, references to the "Company" mean
only Cadmus Communications Corporation and not its Subsidiaries.
Brief Description of the Exchange Notes and the Subsidiary Guarantees
The Exchange Notes
The Exchange Notes:
. are general unsecured obligations of the Company;
. are subordinated in right of payment to all existing and future Senior
Debt of the Company;
. are equal in right of payment to all future senior subordinated
Indebtedness of the Company; and
. are senior in right of payment to all existing and future subordinated
Indebtedness of the Company.
The Subsidiary Guarantees
The Exchange Notes are guaranteed by each of the Company's principal
Subsidiaries on the Issue Date.
The Guarantees of the Exchange Notes:
. are general unsecured obligations of each Guarantor;
. are subordinated in right of payment to all existing and future
Guarantor Senior Debt of each Guarantor;
. are equal in right of payment to all future senior subordinated
Indebtedness of each Guarantor; and
. are senior in right of payment to all future subordinated Indebtedness
of each Guarantor.
As discussed in detail below under the headings "--Subsidiary Guarantees" and "-
- -Subordination," payments on the Exchange Notes and under the Guarantees will be
subordinated to the prior payment in full in cash or Cash Equivalents of all
Senior Debt and Guarantor Senior Debt, respectively, including under the Credit
Facility. In addition, the Exchange Notes will be effectively subordinated to
all existing and future liabilities, including trade payables, of the Company's
Subsidiaries that are not Guarantors. As of March 31, 1999, after
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giving pro forma effect to the acquisition of Mack, the sale of Cadmus Financial
Communications and Cadmus Custom Publishing, the refinancing of the Company's
former credit facility and the sale of the Old Notes and the application of the
net proceeds therefrom, the Company would have had $138.1 million of Senior Debt
outstanding and approximately $61.9 million of additional borrowing capacity
under the Credit Facility and the Guarantors would have had $5.8 million of
Guarantor Senior Debt outstanding (other than guarantees of Senior Debt). In
addition, on the same pro forma basis, the Company's Subsidiaries that are not
Guarantors would have had outstanding $6.5 million of liabilities, including
trade payables, to which the Exchange Notes would have been effectively
subordinated. The Indenture will permit the Company and the Guarantors to incur
additional Senior Debt and Guarantor Senior Debt, respectively, and will permit
the Company's Subsidiaries that are not Guarantors to incur additional
liabilities.
As of the date of the Indenture, all of our Subsidiaries will be Restricted
Subsidiaries. However, under the circumstances described below under the heading
"--Certain Covenants--Limitation on Restricted and Unrestricted Subsidiaries,"
we will be permitted to designate certain of our subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the Indenture. Unrestricted Subsidiaries will not
guarantee the Exchange Notes.
Principal, Maturity and Interest
The Indenture will provide that the Company may issue Exchange Notes with an
aggregate principal amount of up to $200.0 million, of which $125.0 million will
be issued in this offering. Additional amounts may be issued under the Indenture
from time to time, subject to the limitations described below under the heading
"--Certain Covenants--Limitation on Incurrence of Additional Indebtedness" and
restrictions contained in the Credit Facility. The Company will issue Exchange
Notes only in registered form without coupons, in denominations of $1,000 and
integral multiples of $1,000. The Exchange Notes will mature on June 1, 2009.
Interest on the Exchange Notes will accrue at the rate of 9 3/4% per annum and
will be payable in cash semi-annually in arrears on each June 1 and December 1,
beginning on December 1, 1999. The Company will make each interest payment to
the Holders of record of the Exchange Notes on the immediately preceding May 15
and November 15.
Interest on these Exchange Notes will accrue from the date of original issuance
or, if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve 30-
day months.
Methods of Receiving Payments on the Exchange Notes
The Company will pay principal, premium, if any, and interest (including
Additional Interest, if any) on the Exchange Notes at the office or agency of
the Paying Agent within the City of New York. In addition, interest may be paid
at the option of the Company by check mailed to the Holders at their addresses
set forth in the register of Holders.
Paying Agent and Registrar for the Exchange Notes
The Trustee will initially act as Paying Agent and Registrar. The Company may
change the Paying Agent or Registrar without prior notice to the Holders of the
Exchange Notes.
Transfer and Exchange
A Holder may transfer or exchange Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer
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documents and the Company may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Exchange Note selected for redemption. Also, the
Company is not required to transfer or exchange any Exchange Note for a period
of 15 days before a selection of Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of it for
all purposes.
Voting
The Indenture provides that the Holders of the Old Notes and the Exchange Notes
will vote and consent together on all matters to which such Holders are entitled
to vote or consent as one class and that none of the Holders of the Old Notes or
the Exchange Notes will have the right to vote or consent as a separate class on
any matter.
Subsidiary Guarantees
Each Guarantor will fully and unconditionally guarantee, on a senior
subordinated basis, jointly and severally, the Company's Obligations under the
Indenture and the Exchange Notes, including the payment of principal of and
interest on the Exchange Notes. Each Guarantee will be subordinated to the prior
payment in full in cash or Cash Equivalents of all Guarantor Senior Debt of that
Guarantor. The subordination provisions applicable to the Guarantees will be
substantially similar to the subordination provisions applicable to the Exchange
Notes as set forth below under the heading "--Subordination."
The Obligations of each Guarantor under its Guarantee will be limited as
necessary to prevent the Guarantee from constituting a fraudulent conveyance or
fraudulent transfer under applicable law. See "Risk Factors--Fraudulent
Conveyance." Each Guarantor that makes a payment or distribution under the
Guarantee shall be entitled to a contribution from each other Guarantor in a
proportionate amount based upon the net assets of each Guarantor, determined in
accordance with GAAP.
Each Guarantor may consolidate with, or merge with or into, or sell its assets
to, the Company or another Guarantor that is a Wholly Owned Restricted
Subsidiary of the Company without limitation, or with, into or to other Persons
upon the terms and conditions set forth in the Indenture. See "--Certain
Covenants--Merger, Consolidation and Sale of Assets." In the event that all of
the Capital Stock or all or substantially all of the assets of a Guarantor are
sold and the sale complies with the provisions described under the heading "--
Certain Covenants--Limitation on Asset Sales," then the Guarantor's Guarantee
will be released.
Subordination
The payment of all Obligations on the Exchange Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt of the Company, whether outstanding on the Issue Date
or thereafter incurred, including, without limitation, the Company's Obligations
under the Credit Facility.
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 Senior Debt (including
interest after the commencement of any bankruptcy or other like proceeding at
the rate specified in the applicable Senior Debt, whether or not such interest
is an allowed claim in any such proceeding) before the Holders of Exchange Notes
will be entitled to receive any payment or distribution in respect to the
Exchange Notes in the event of any payment or distribution to creditors of the
Company:
(1) in a liquidation or dissolution of the Company;
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(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, whether voluntary or
involuntary;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of the Company's assets and liabilities.
The Company also may not make any payment or distribution in respect of the
Exchange Notes if:
(1) a payment default on Designated Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on Designated Senior Debt that
permits holders of the Designated Senior Debt to accelerate its maturity
and the Trustee receives a notice of such default (a "Payment Blockage
Notice") from the Representative of any Designated Senior Debt.
Payments on the Exchange 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 or ceases to exist; and
(2) in case of a nonpayment default, upon the earlier of (x) the date on which
such nonpayment default is cured or waived or ceases to exist (so long as
no other default exists), (y) 180 days after the date on which the
applicable Payment Blockage Notice is received and (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 Payment Blockage Notice may be delivered unless and until 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment 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 consecutive days.
The Company must promptly notify holders of Senior Debt if payment of the
Exchange Notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of a
bankruptcy, liquidation or reorganization of the Company, Holders of the
Exchange Notes may recover less ratably than creditors of the Company who are
holders of Senior Debt. See "Risk Factors--Subordination."
Redemption
Optional Redemption. Except as described below, the Exchange Notes are not
redeemable before June 1, 2004. Thereafter, the Company may redeem the Exchange
Notes at its option, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the following redemption prices (expressed as percentages of
the principal amount thereof), plus accrued and unpaid interest (including
Additional Interest, if any) thereon to the date of redemption, if redeemed
during the twelve month period beginning on June 1 of the years set forth below:
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<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.............................. 104.875%
2005.............................. 103.250%
2006.............................. 101.625%
2007 and thereafter............... 100.000%
</TABLE>
Optional Redemption upon Equity Offerings. On one or more occasions prior to
June 1, 2002, the Company may, at its option, use the net cash proceeds of one
or more Equity Offerings to redeem up to 35% of the sum of (i) the initial
aggregate principal amount of the Old Notes originally issued under the
Indenture in this offering and (ii) the respective initial aggregate principal
amounts of Exchange Notes issued under the Indenture after the Issue Date, at a
redemption price of 109.75% of the principal amount thereof, plus accrued and
unpaid interest (including Additional Interest, if any) thereon to the date of
redemption; provided that:
(1) at least 65% of the aggregate principal amount of the sum of (i) the
initial aggregate principal amount of the Exchange Notes originally issued
under the Indenture in this offering and (ii) the respective initial
aggregate principal amounts of Exchange Notes issued under the Indenture
after the Issue Date, remains outstanding immediately after any such
redemption; and
(2) the Company makes such redemption not more than 90 days after the
consummation of any such Equity Offering.
Selection and Notice of Redemption
In the event that the Company chooses to redeem less than all of the Exchange
Notes, selection of the Exchange Notes for redemption will be made by the
Trustee either:
(1) in compliance with the requirements of the principal national securities
exchange, if any, on which the Exchange Notes are listed; or
(2) on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate.
No Exchange Notes of a principal amount of $1,000 or less shall be redeemed in
part.
If a partial redemption is made with the proceeds of an Equity Offering, the
Trustee will select the Exchange Notes only on a pro rata basis or on as nearly
a pro rata basis as is practicable. Notice of redemption will be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Exchange Notes to be redeemed at its registered address.
If any Exchange Note is to be redeemed in part only, the notice of redemption
that relates to such Exchange Note shall state the portion of the principal
amount thereof to be redeemed. A new Exchange Note in a principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Exchange Note. On and after the
redemption date, interest will cease to accrue on Exchange Notes or portions
thereof called for redemption as long as the Company has deposited with the
Paying Agent funds in satisfaction of the applicable redemption price.
Change of Control
If a Change of Control occurs, each Holder will have the right to require that
the Company purchase all or a portion of such Holder's Exchange Notes pursuant
to the offer described below (the "Change of Control Offer"), at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest (including Additional Interest, if any) thereon, to the date of
purchase.
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Within 30 days following the date upon which the Change of Control occurred, the
Company must send, by first class mail, a notice to each Holder, with a copy to
the Trustee, which notice shall govern the terms of the Change of Control Offer.
Such notice shall state, among other things, the purchase date, which must be no
earlier than 30 days nor later than 45 days from the date such notice is mailed,
other than as may be required by law (the "Change of Control Payment Date").
Holders electing to have an Exchange Note purchased pursuant to a Change of
Control Offer will be required to surrender the Exchange Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Exchange
Note completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the third Business Day prior to the Change of
Control Payment Date.
Prior to the mailing of the notice referred to above, but in any event within 30
days following any Change of Control, the Company covenants to:
(1) repay in full and terminate all commitments under all Indebtedness under
the Credit Facility and all other Senior Debt the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate
all commitments under all Indebtedness under the Credit Facility and all
other such Senior Debt and to repay the Indebtedness owed to each lender
which has accepted such offer; or
(2) obtain the requisite consents under the Credit Facility and all such other
Senior Debt to permit the repurchase of the Exchange Notes as provided
below.
The Company shall first comply with the covenant in the immediately preceding
sentence before it shall be required to repurchase Exchange Notes pursuant to
the provisions described below. The Company's failure to comply with the
covenant described in the immediately preceding paragraph shall constitute an
Event of Default described in clause (3) and not in clause (2) under the heading
"--Events of Default" below.
The Company will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture.
If a Change of Control Offer is made, there can be no assurance that the Company
will have available funds sufficient to pay the purchase price for all the
Exchange Notes that might be delivered by Holders seeking to accept the Change
of Control Offer. In the event the Company is required to purchase outstanding
Notes pursuant to a Change of Control Offer, the Company expects that it would
seek third party financing to the extent it does not have available funds to
meet its purchase obligations. However, there can be no assurance that the
Company would be able to obtain such financing.
The Credit Facility contains covenants prohibiting the Company from repurchasing
the Exchange Notes upon a Change of Control. In order to make a Change of
Control Offer, the Company would be required to pay off the Credit Facility in
full or seek the consent of the lenders under the Credit Facility to allow the
Company to make the Change of Control Offer. The occurrence of certain change of
control events with respect to the Company will also constitute an event of
default under the Credit Facility and will entitle the lenders thereunder to
accelerate all amounts owing under the Credit Facility. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. Moreover, the
exercise by the Holders of the Exchange Notes of their rights to require the
Company to repurchase the Exchange Notes upon a Change of Control could cause a
default under other Indebtedness of the Company, even if the Change of Control
does not, due to the financial effect of such repurchase on the Company. Failure
to make a Change of Control Offer, even if prohibited by the Company's debt
instruments, would constitute an Event of Default under the Indenture which
would, in turn, constitute a
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default under the Credit Facility and possibly other Indebtedness. If such cross
default leads to an acceleration of the Obligations under the Credit Facility or
any other Senior Debt, the subordination provisions of the Indenture would
restrict payments to the Holders of the Exchange Notes.
Neither the Board of Directors of the Company nor the Trustee may waive
compliance with this covenant. Restrictions in the Indenture described herein on
the ability of the Company and its Restricted Subsidiaries to incur additional
Indebtedness, to grant Liens on their property, to make Restricted Payments and
to make Assets Sales may also make more difficult or discourage a takeover of
the Company, whether favored or opposed by the management of the Company.
Consummation of any such transaction in certain circumstances may require
redemption of repurchase of the Exchange Notes, and there can be no assurance
that the Company or the acquiring party will have sufficient financial resources
to effect such redemption or repurchase. Such restrictions and the restrictions
on transactions with Affiliates may, in certain circumstances, make more
difficult or discourage any leveraged buyout of the Company or any of its
Subsidiaries by the management of the Company. While such restrictions cover a
wide variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Indenture may not afford the Holders of the Exchange
Notes protection in all circumstances from the adverse aspects of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The definition of "Change of Control" includes a phrase relating to the sale,
lease, exchange or other transfer of all or substantially all of the assets of
the Company. Although there is a limited body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a Holder of Exchange
Notes to require the Company to repurchase Exchange Notes as a result of a sale,
lease, exchange or other transfer of less than all of the assets of the Company
may be uncertain.
The Company will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of
Exchange Notes pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Change of
Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and shall not be deemed to have breached its
obligations under the "Change of Control" provisions of the Indenture by virtue
thereof.
Certain Covenants
The Indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness
The Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume, guarantee, acquire, become
liable, contingently or otherwise, with respect to, or otherwise become
responsible for payment of (collectively, "incur") any Indebtedness (other than
Permitted Indebtedness); provided, however, that if no Default or Event of
Default shall have occurred and be continuing at the time of or as a consequence
of the incurrence of any such Indebtedness, the Company and any Guarantor may
incur Indebtedness (including, without limitation, Acquired Indebtedness) if on
the date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than 2.25 to 1.0.
Limitation on Restricted Payments
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly:
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(1) declare or pay any dividend or make any distribution (other than (x)
dividends or distributions made to the Company or any Wholly Owned
Restricted Subsidiary of the Company that is a Guarantor and (y) dividends
or distributions payable in Qualified Capital Stock of the Company or in
warrants, rights or options to purchase or acquire shares of such
Qualified Capital Stock) on or in respect of shares of Capital Stock of
the Company or any Restricted Subsidiary of the Company to holders of such
Capital Stock; provided, however, that if no Default or Event of Default
shall have occurred and be continuing, the Company may pay cash dividends
on its Common Stock in an aggregate amount that, when taken together with
all other dividends paid by the Company on its Common Stock after the
Issue Date, does not exceed $500,000;
(2) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any Restricted Subsidiary or any warrants, rights
or options to purchase or acquire shares of any class of such Capital
Stock;
(3) make any principal payment on, purchase, defease, redeem, prepay, decrease
or otherwise acquire or retire for value, prior to any scheduled final
maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of the Company or a Restricted Subsidiary that is subordinate
or junior in right of payment to the Exchange Notes or such Restricted
Subsidiary's Guarantee, as the case may be; or
(4) make any Investment (other than Permitted Investments) (each of the
foregoing actions set forth in clauses (1), (2), (3) and (4) being
referred to as a "Restricted Payment");
if at the time of such Restricted Payment or immediately after giving effect
thereto:
(a) a Default or an Event of Default shall have occurred and be continuing;
(b) the Company is not able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the covenant
described under the heading "--Limitation on Incurrence of Additional
Indebtedness;" or
(c) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made subsequent to the Issue Date (the amount expended
for such purpose, if other than cash, being the fair market value of such
property as determined reasonably and in good faith by the Board of
Directors of the Company) shall exceed the sum of:
(i) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of
the Company earned subsequent to the Issue Date through the last day
of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (the "Reference Date") (treating such period as a
single accounting period); plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
any Person (other than a Restricted Subsidiary of the Company) from
the issuance and sale subsequent to the Issue Date and on or prior
to the Reference Date of Qualified Capital Stock of the Company
(excluding any net cash proceeds from an Equity Offering to the
extent used to redeem the Exchange Notes in compliance with the
provisions set forth under the heading "--Redemption--Optional
Redemption upon Equity Offerings"); plus
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(iii) without duplication of any amounts included in clause (c)(ii) above,
100% of the aggregate net cash proceeds of any equity contribution
received by the Company from a holder of the Company's Capital Stock
(excluding any net cash proceeds from an Equity Offering to the
extent used to redeem the Exchange Notes in compliance with the
provisions set forth under the heading "--Redemption--Optional
Redemption Upon Equity Offerings"); plus
(iv) to the extent not otherwise included in the Company's Consolidated
Net Income, in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the Issue
Date, an amount equal to the lesser of (A) the cash return of capital
with respect to such Investment and (B) the initial amount of such
Investment, in either case, less the cost of the disposition of such
Investment.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
of such dividend if the dividend would have been permitted on the date of
declaration;
(2) if no Default or Event of Default shall have occurred and be continuing,
the redemption, repurchase or other acquisition or retirement of any
shares of Capital Stock of the Company, either (i) solely in exchange for
shares of Qualified Capital Stock of the Company or (ii) through the
application (within 60 days of the sale thereof) of net cash proceeds of a
sale for cash (other than to a Restricted Subsidiary of the Company) of
shares of Qualified Capital Stock of the Company;
(3) if no Default or Event of Default shall have occurred and be continuing,
the redemption, repurchase or other acquisition or retirement of any
Indebtedness of the Company or any Guarantor that is subordinate or junior
in right of payment to the Exchange Notes or such Guarantor's Guarantee,
as the case may be, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or warrants, rights or options to purchase or
acquire shares of Qualified Capital Stock of the Company or (ii) through
the application (within 60 days of the sale thereof) of net proceeds of a
sale for cash (other than to a Restricted Subsidiary of the Company) of
(A) shares of Qualified Capital Stock of the Company or (B) Refinancing
Indebtedness; and
(4) if no Default or Event of Default shall have occurred and be continuing,
repurchases by the Company of Common Stock of the Company pursuant to
repurchase options in stock option agreements between the Company and
employees of the Company or any of its Subsidiaries from such employees or
their authorized representatives upon the death, disability or termination
of employment of such employees, in the aggregate not to exceed $250,000
in any calendar year.
In determining the aggregate amount of Restricted Payments made subsequent to
the Issue Date in accordance with clause (c) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1), (2)(ii) and (4) of this
paragraph shall be included in such calculation.
Limitation on Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
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(1) the Company or the applicable Restricted Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold or otherwise disposed
of (as determined reasonably and in good faith by the Company's Board
of Directors);
(2) at least 80% of the consideration received by the Company or such
Restricted Subsidiary, as the case may be, from such Asset Sale shall
be in the form of cash or Cash Equivalents and is received at the time
of such disposition; and
(3) upon the consummation of an Asset Sale, the Company shall apply, or
cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 270 days of receipt thereof either:
(a) to prepay any Senior Debt or Guarantor Senior Debt and, in the case
of any Senior Debt or Guarantor Senior Debt under any revolving
credit facility, including the Credit Facility, effect a
corresponding permanent reduction in the availability under such
revolving credit facility;
(b) to make an investment in Productive Assets; or
(c) to a combination of prepayment and investment permitted by the
foregoing clauses (3)(a) and (3)(b).
On the 271st day after an Asset Sale or such earlier date, if any, as the Board
of Directors of the Company or of such Restricted Subsidiary determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(3)(a), (3)(b) and (3)(c) of the immediately preceding paragraph (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (3)(a), (3)(b) and (3)(c) of the immediately preceding
paragraph (each a "Net Proceeds Offer Amount") shall be applied by the Company
or such Restricted Subsidiary, as the case may be, to make an offer to purchase
(the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not
less than 20 Business Days nor more than 30 Business Days following the date on
which the notice of such Net Proceeds Offer is mailed to the Holders, from all
Holders on a pro rata basis, that principal amount of Exchange Notes equal to
the Net Proceeds Offer Amount at a price equal to 100% of the principal amount
of the Exchange Notes to be purchased, plus accrued and unpaid interest
(including Additional Interest, if any) thereon to the date of purchase;
provided, however, that if at any time any non-cash consideration received by
the Company or any Restricted Subsidiary of the Company, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant.
Notwithstanding the foregoing, the Company may defer the Net Proceeds Offer
until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in
excess of $5.0 million resulting from one or more Asset Sales (at which time,
the entire unutilized Net Proceeds Offer Amount, and not just the amount in
excess of $5.0 million, shall be applied as required pursuant to this
paragraph). Upon completion of a Net Proceeds Offer, the amount of Net Cash
Proceeds and the amount of aggregate unutilized Net Proceeds Offer Amount will
be reset to zero. Accordingly, to the extent that any Net Proceeds remain after
consummation of a Net Proceeds Offer, the Company or any Restricted Subsidiary
of the Company, as the case may be, may use such Net Proceeds for any purpose
not prohibited by the Indenture.
Notwithstanding the first two paragraphs of this covenant, the Company and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent that:
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(1) at least 80% of the consideration for such Asset Sale constitutes
Productive Assets; and
(2) such Asset Sale is for fair market value; provided that any cash or
Cash Equivalents received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds
subject to the provisions of the two immediately preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Exchange Notes in whole or in part in integral multiples
of $1,000 in exchange for cash. To the extent Holders properly tender Exchange
Notes in an amount exceeding the Net Proceeds Offer Amount, Exchange Notes of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 Business
Days or such longer period as may be required by law.
The Company's and its Restricted Subsidiaries' ability to repurchase Exchange
Notes in a Net Proceeds Offer is prohibited by the terms of the Credit Facility
and may be prohibited or otherwise limited by the terms of any then-existing
borrowing arrangements and the Company's financial resources.
The Company will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations to the extent such laws and
regulations are applicable in connection with the repurchase of Exchange Notes
pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Asset Sale" provisions of the
Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to:
(1) pay dividends or make any other distributions on or in respect of its
Capital Stock;
(2) make loans or advances, or pay any Indebtedness or other obligation
owed, to the Company or any other Restricted Subsidiary of the Company;
or
(3) transfer any of its property or assets to the Company or any other
Restricted Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of:
(a) applicable law;
(b) the Indenture and the Exchange Notes;
(c) any agreement governing Acquired Indebtedness, which encumbrance or
restriction shall not apply to any Person, or the properties or
assets of any Person, other than the Person, or the assets of the
Person, so acquired;
(d) the Credit Facility;
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(e) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary of the
Company;
(f) agreements existing on the Issue Date, to the extent and in the manner
such agreements are in effect on the Issue Date;
(g) Liens permitted to be incurred pursuant to the provisions of the
covenant described under the heading "--Limitation on Liens;"
(h) any contract for the sale of specified assets, including, without
limitation, any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered for the sale or disposition of
all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary, to be consummated in accordance with the terms
of the Indenture, pending the closing of such sale or disposition;
provided that any such restriction relates solely to the Capital Stock
or assets that are the subject of such agreement;
(i) any agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clauses (b), (c), (d) or (f) above; provided, however,
that the provisions relating to such encumbrance or restriction
contained in any such Indebtedness are not materially more restrictive,
as determined by the Board of Directors of the Company in their
reasonable and good faith judgment, than the provisions relating to
such encumbrance or restriction contained in agreements referred to in
such clause (b), (c), (d) or (f); and
(j) Indebtedness or other contractual requirements of a Securitization
Entity in connection with a Qualified Securitization Transaction or the
charter documents of such Securitization Entity; provided that, in any
case, such restrictions apply only to such Securitization Entity.
Limitation on Preferred Stock of Restricted Subsidiaries
The Company will not cause or permit any of its Restricted Subsidiaries to issue
to any Person (other than to the Company or to a Wholly Owned Restricted
Subsidiary of the Company) any Preferred Stock or permit any Person (other than
the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any
Preferred Stock of any Restricted Subsidiary of the Company.
Limitation on Liens
Other than Permitted Liens, the Company will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Restricted Subsidiaries (whether
owned on the Issue Date or acquired after the Issue Date), or any proceeds
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom unless:
(1) in the case of Liens securing Indebtedness that is expressly subordinate or
junior in right of payment to the Exchange Notes or any Guarantee, the
Exchange Notes are, or such Guarantee is, as the case may be, secured by a
Lien on such property, assets or proceeds that is senior in priority to
such Liens at least to the same extent that the Exchange Notes are, or such
Guarantee is, as the case may be, senior in priority to such Indebtedness;
and
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(2) in all other cases, the Exchange Notes are, and the Guarantee is, as the
case may be, equally and ratably secured.
Prohibition on Incurrence of Senior Subordinated Debt
The Company will not, and will not permit any Restricted Subsidiary that is a
Guarantor to, incur or suffer to exist Indebtedness that is senior in right of
payment to the Exchange Notes or such Guarantor's Guarantee, as the case may be,
and subordinate in right of payment to any other Indebtedness of the Company or
such Guarantor, as the case may be.
Merger, Consolidation and Sale of Assets
The Company will not, in a single transaction or series of related transactions,
consolidate or merge with or into any Person, or sell, assign, transfer, lease,
convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of
the Company to sell, assign, transfer, lease, convey or otherwise dispose of)
all or substantially all of the Company's assets (determined on a consolidated
basis for the Company and the Company's Restricted Subsidiaries) whether as an
entirety or substantially as an entirety to any Person unless:
(1) either:
(a) the Company shall be the surviving or continuing corporation; or
(b) the Person (if other than the Company) formed by such consolidation or
into which the Company is merged or the Person which acquires by sale,
assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity"):
(i) shall be a corporation organized and validly existing under the
laws of the United States or any State thereof or the District of
Columbia; and
(ii) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to
the Trustee, the due and punctual payment of the principal of,
premium, if any, and interest on all of the Exchange Notes and
the performance of every covenant of the Exchange Notes, the
Indenture and the Registration Rights Agreement on the part of
the Company to be performed or observed;
(2) immediately after giving effect to such transaction and the assumption
contemplated by clause (1)(b)(ii) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the
Company or such Surviving Entity, as the case may be:
(a) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such
transaction; and
(b) shall be able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the covenant
described under the heading "--Limitation on Incurrence of Additional
Indebtedness;"
(3) immediately before and immediately after giving effect to such transaction
and the assumption contemplated by clause (1)(b)(ii) above (including,
without limitation, giving effect to any
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Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing;
(4) each Guarantor, unless it is the other party to the transactions
described above, shall have by supplemental indenture to the Indenture
confirmed that its Guarantee of the Exchange Notes shall apply to such
Person's obligations under the Indenture and the Exchange Notes; and
(5) the Company or the Surviving Entity, as the case may be, shall have
delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction,
such supplemental indenture, comply with the applicable provisions of
the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture will provide that upon any consolidation or merger of the Company
or any transfer of all or substantially all of the assets of the Company and its
Restricted Subsidiaries in accordance with the foregoing, in which the Company
is not the continuing corporation, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
lease or transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture and the
Exchange Notes with the same effect as if such surviving entity had been named
as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released in
accordance with the terms of the Guarantee and the Indenture in connection with
any transaction complying with the covenant described under the heading "--
Limitation on Asset Sales") will not, and the Company will not cause or permit
any Guarantor to, consolidate with or merge with or into any Person other than
the Company or any other Guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger (if
other than the Guarantor) is a corporation organized and existing under
the laws of the United States or any State thereof or the District of
Columbia;
(2) such entity assumes by supplemental indenture all of the Obligations of
the Guarantor under its Guarantee;
(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(4) immediately after giving effect to such transaction and the use of any
net proceeds therefrom on a pro forma basis, the Company could satisfy
the provisions of clause (2) of the first paragraph of this covenant.
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Any merger or consolidation of a Guarantor with and into the Company (with the
Company being the surviving entity) or any other Guarantor that is a Wholly
Owned Restricted Subsidiary of the Company need only comply with clause (5) of
the first paragraph of this covenant.
Limitations on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or permit to occur any transaction or series
of related transactions (including, without limitation, the purchase, sale,
lease or exchange of any property, the guaranteeing of any Indebtedness or the
rendering of any service) with, or for the benefit of, any of their respective
Affiliates (each, an "Affiliate Transaction"), other than Affiliate Transactions
on terms that are no less favorable than those that could reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $1.0 million shall be
approved by the Board of Directors of the Company or such Restricted Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Restricted Subsidiary of the
Company enters into an Affiliate Transaction (or a series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $10.0 million,
the Company or such Restricted Subsidiary, as the case may be, shall, prior to
the consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view, from
an Independent Financial Advisor and file the same with the Trustee.
The restrictions set forth in the first paragraph of this covenant shall not
apply to:
(1) reasonable fees and compensation paid to, and indemnity provided on
behalf of, officers, directors, employees or consultants of the Company
or any Restricted Subsidiary of the Company as determined reasonably
and in good faith by the Board of Directors or senior management of the
Company or such Restricted Subsidiary, as the case may be;
(2) transactions exclusively between or among the Company and any of its
Wholly Owned Restricted Subsidiaries or exclusively between or among
such Wholly Owned Restricted Subsidiaries; provided that such
transactions are not otherwise prohibited by the Indenture;
(3) any agreement as in effect as of the Issue Date or any amendment
thereto, any transaction contemplated thereby (including pursuant to
any amendment thereto) or in any replacement agreement thereto so long
as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the
original agreement as in effect on the Issue Date;
(4) Restricted Payments permitted by the Indenture; and
(5) transactions effected as part of a Qualified Securitization
Transaction.
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Additional Guarantees
If the Company or any of its Restricted Subsidiaries transfers or causes to be
transferred, in one transaction or a series of related transactions, any
property to any Domestic Restricted Subsidiary of the Company that is not a
Guarantor having total consolidated assets with a book value in excess of $2.0
million or if the Company or any of its Restricted Subsidiaries shall organize,
acquire or otherwise invest in or hold an Investment in a Domestic Restricted
Subsidiary of the Company that is not a Guarantor having total consolidated
assets with a book value in excess of $2.0 million, then such transferee or
acquired or other Domestic Restricted Subsidiary shall:
(1) execute and deliver to the Trustee a supplemental indenture in form
satisfactory to the Trustee pursuant to which such Domestic Restricted
Subsidiary shall unconditionally guarantee all of the Company's
Obligations under the Exchange Notes and the Indenture on the terms set
forth in the Indenture; and
(2) deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such
Domestic Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Domestic Restricted Subsidiary;
provided, however, that, notwithstanding the foregoing, each transferee or
acquired or other Domestic Restricted Subsidiary shall comply with clauses (1)
and (2) above if such Domestic Restricted Subsidiary, together with the
Company's other Restricted Subsidiaries that are not Guarantors, after giving
pro forma effect to such transfer, organization, acquisition or Investment,
would constitute a Significant Subsidiary (using 5.0%, rather than 10.0%, for
purposes of such calculation).
Thereafter, such Domestic Restricted Subsidiary shall be a Guarantor for all
purposes of the Indenture.
Limitation on Restricted and Unrestricted Subsidiaries
The Board of Directors of the Company may designate an Unrestricted Subsidiary
to be a Restricted Subsidiary under the Indenture only if:
(1) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation;
(2) any such designation shall be deemed to be an incurrence as of the date
of such designation by a Restricted Subsidiary of the Company of the
Indebtedness (if any) of such designated Subsidiary for purposes of the
covenant described under the heading "--Limitation on Incurrence of
Additional Indebtedness;" and
(3) immediately after giving effect to such designation and the incurrence
of such additional Indebtedness, the Company is able to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in
compliance with the covenant described under the heading "--Limitation
on Incurrence of Additional Indebtedness."
The Board of Directors of the Company may designate any Restricted Subsidiary
(other than a Guarantor) to be an Unrestricted Subsidiary under the Indenture
only if:
(1) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation;
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(2) such designation is at that time permitted pursuant to the covenant
described under the heading "--Limitation on Restricted Payments"
(other than pursuant to clause (8) of the definition of Permitted
Investment); and
(3) immediately after giving effect to such designation, the Company is
able to incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the covenant described under the
heading "--Limitation on Incurrence of Additional Indebtedness."
Any such designation by the Board of Directors of the Company of an Unrestricted
Subsidiary to be a Restricted Subsidiary or of a Restricted Subsidiary to be an
Unrestricted Subsidiary shall be evidenced to the Trustee by the filing with the
Trustee of a certified copy of a Board Resolution of the Company giving effect
to such designation and an officers' certificate certifying that such
designation complied with the foregoing conditions and setting forth in
reasonable detail the underlying calculations.
For purposes of the covenant described under the heading "--Limitation on
Restricted Payments" above:
(1) an Investment shall be deemed to have been made at the time any
Restricted Subsidiary is designated to be an Unrestricted Subsidiary in
an amount (proportionate to the Company's equity interest in such
Subsidiary) equal to the net worth of such Restricted Subsidiary at the
time that such Restricted Subsidiary is designated to be an
Unrestricted Subsidiary;
(2) at any date the aggregate amount of all Restricted Payments made as
Investments since the Issue Date shall exclude and be reduced by an
amount (proportionate to the Company's equity interest in such
Subsidiary) equal to the net worth of any Unrestricted Subsidiary at
the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary, not to exceed, in the case of any such designation of an
Unrestricted Subsidiary as a Restricted Subsidiary, the amount of
Investments previously made by the Company and its Restricted
Subsidiaries in such Unrestricted Subsidiary (in the case of each of
clauses (1) and (2), "net worth" shall be calculated based upon the
fair market value of the assets of such Subsidiary as of any such date
of designation); and
(3) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer.
Notwithstanding the foregoing, the Board of Directors of the Company may not
designate any Restricted Subsidiary of the Company to be an Unrestricted
Subsidiary if, after such designation:
(1) the Company or any of its Restricted Subsidiaries, other than pursuant
to Standard Securitization Undertakings, (x) provides credit support
for, or a guarantee of, any Indebtedness of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness)
or (y) is directly or indirectly liable for any Indebtedness of such
Subsidiary;
(2) a default with respect to any Indebtedness of such Subsidiary
(including any right which the holders thereof may have to take
enforcement action against such Subsidiary) would permit (upon notice,
lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated
or payable prior to its final stated maturity; or
(3) such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, any Restricted Subsidiary which is not a Subsidiary of
the Subsidiary to be so designated.
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Subsidiaries of the Company that are not designated by the Board of Directors of
the Company as Restricted or Unrestricted Subsidiaries will be deemed to be
Restricted Subsidiaries.
Conduct of Business
The Indenture will provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, engage in any businesses other than a Permitted
Business.
Reports to Holders
The Company will deliver to the Trustee within 15 days after the filing of the
same with the Commission, copies of the quarterly and annual reports and of the
information, documents and other reports, if any, which the Company is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the Commission, to the extent permitted, and provide the Trustee and
Holders or prospective Holders (upon request) with such annual reports and such
information, documents and other reports specified in Sections 13 and 15(d) of
the Exchange Act. The Company will also comply with the other provisions of
Section 314(a) of the TIA.
Events of Default
The following events are defined in the Indenture as "Events of Default:"
(1) the failure to pay interest (including Additional Interest, if any) on
any Old Notes or Exchange Notes when the same becomes due and payable
and the default continues for a period of 30 days (whether or not such
payment shall be prohibited by the subordination provisions of the
Indenture);
(2) the failure to pay the principal on any Old Notes or Exchange Notes,
when such principal becomes due and payable, at maturity, upon
redemption or otherwise (including the failure to make a payment to
purchase Old Notes or Exchange Notes tendered pursuant to a Change of
Control Offer or a Net Proceeds Offer) (whether or not such payment
shall be prohibited by the subordination provisions of the Indenture);
(3) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying
the default (and demanding that such default be remedied) from the
Trustee or the Holders of at least 25% of the outstanding principal
amount of the Old Notes and Exchange Notes (except in the case of a
default with respect to the covenant described under the heading "--
Certain Covenants--Merger, Consolidation and Sale of Assets," which
will constitute an Event of Default with such notice requirement but
without such passage of time requirement);
(4) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions thereof) the Junior
Subordinated Note or the principal amount of any other Indebtedness of
the Company or any Restricted Subsidiary of the Company (other than a
Securitization Entity), or the acceleration of the final stated
maturity of the Junior Subordinated Note or any such other Indebtedness
(which acceleration is not rescinded, annulled or otherwise cured
within 20 days after receipt by the Company or such Restricted
Subsidiary of notice of any such acceleration), if, in the case of any
such other Indebtedness, the aggregate principal amount of such
Indebtedness, together
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with the principal amount of any such other Indebtedness in default for
failure to pay principal at final maturity or which has been
accelerated, aggregates $10.0 million or more at any time;
(5) one or more judgments in an aggregate amount in excess of $10.0 million
shall have been rendered against the Company or any of its Restricted
Subsidiaries and such judgments remain undischarged, unpaid or unstayed
for a period of 60 days after such judgment or judgments become final
and non-appealable;
(6) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(7) any Guarantee of a Significant Subsidiary ceases to be in full force
and effect or any Guarantee of a Significant Subsidiary is declared to
be null and void and unenforceable or any Guarantee of a Significant
Subsidiary is found to be invalid or any Guarantor that is a
Significant Subsidiaries denies its liability under its Guarantee
(other than by reason of release of a Guarantor in accordance with the
terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause (6)
above with respect to the Company) shall occur and be continuing, the Trustee or
the Holders of at least 25% in principal amount of outstanding Old Notes and
Exchange Notes may declare the principal, premium, if any, and accrued and
unpaid interest (including Additional Interest, if any) on all the Old Notes and
Exchange Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same:
(1) shall become immediately due and payable; or
(2) if there are any amounts outstanding under the Credit Facility, shall
become immediately due and payable upon the first to occur of an
acceleration under the Credit Facility or five Business Days after
receipt by the Company and the Representative under the Credit Facility
of such Acceleration Notice but only if such Event of Default is then
continuing. If an Event of Default specified in clause (6) above with
respect to the Company occurs and is continuing, then all unpaid
principal, premium, if any, and accrued and unpaid interest (including
Additional Interest, if any) on all of the outstanding Exchange Notes
and Old Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee
or any Holder.
The Indenture will provide that, at any time after a declaration of acceleration
with respect to the Old Notes and Exchange Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the Old Notes and
Exchange Notes may rescind and cancel such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) 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;
(3) 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;
(4) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances;
and
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(5) in the event of the cure or waiver of an Event of Default of the type
described in clause (6) of the description above of Events of Default,
the Trustee shall have received an officers' certificate and an opinion
of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Old Notes and Exchange
Notes may waive any existing Default or Event of Default under the Indenture,
and its consequences, except a default in the payment of the principal of or
interest on any Old Notes and Exchange Notes.
Holders of the Old Notes and Exchange Notes may not enforce the Indenture or the
Old Notes and Exchange Notes except as provided in the Indenture and under the
TIA. Subject to the provisions of the Indenture relating to the duties of the
Trustee, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request, order or direction of any of the
Holders, unless such Holders have offered to the Trustee reasonable indemnity.
Subject to all provisions of the Indenture and applicable law, the Holders of a
majority in aggregate principal amount of the then outstanding Old Notes and
Exchange Notes have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers' certificate
to the Trustee promptly upon any such officer obtaining knowledge of any Default
or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have its obligations
and the obligations of the Guarantors discharged with respect to the outstanding
Old Notes and Exchange Notes ("Legal Defeasance"). Such Legal Defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Old Notes and Exchange Notes, except
for:
(1) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the Old Notes and Exchange Notes
when such payments are due;
(2) the Company's obligations with respect to the Old Notes and Exchange
Notes concerning issuing temporary Old Notes and Exchange Notes,
registration of Old Notes and Exchange Notes, mutilated, destroyed,
lost or stolen Old Notes and Exchange Notes and the maintenance of an
office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and the
Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Old Notes and Exchange Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under the
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heading "Events of Default" above will no longer constitute an Event of Default
with respect to the Exchange Notes or Old Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders cash in U.S. dollars, non-callable U.S.
government obligations, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the Old Notes and Exchange Notes on the stated
date for payment thereof or on the applicable redemption date, as the
case may be;
(2) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that:
(a) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling; or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that,
the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will
be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or
any other material agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(6) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the
Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others;
(7) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance, as the case may be, have been complied with;
(8) the Company shall have delivered to the Trustee an opinion of counsel
to the effect that:
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(a) the trust funds will not be subject to any rights of holders of
Senior Debt, including, without limitation, those arising under the
Indenture; and
(b) assuming no intervening bankruptcy of the Company between the date
of deposit and the 91st day following the date of deposit and that
no Holder is an insider of the Company, after the 91st day
following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally; and
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (2)
above with respect to a Legal Defeasance need not be delivered if all Old Notes
not theretofore delivered to the Trustee for cancellation:
(1) have become due and payable; or
(2) will become due and payable on the maturity date within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect (except
as to surviving rights or registration of transfer or exchange of the Old Notes,
as expressly provided for in the Indenture) as to all outstanding Old Notes and
Exchange Notes when:
(1) either:
(a) all the Old Notes theretofore authenticated and delivered (except
lost, stolen or destroyed Old Notes which have been replaced or
paid and Old Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company
and thereafter repaid to the Company or discharged from such trust)
have been delivered to the Trustee for cancellation; or
(b) all Old Notes not theretofore delivered to the Trustee for
cancellation have become due and payable, pursuant to an optional
redemption notice or otherwise, and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on
the Old Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on
the Old Notes to the date of deposit together with irrevocable
instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case
may be; and
(2) the Company has paid all other sums payable under the Indenture by the
Company; and
(3) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
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The Trustee will acknowledge the satisfaction and discharge of the Indenture if
the Company has delivered to the Trustee an officers' certificate and an opinion
of counsel stating that all conditions precedent under the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
Modification of the Senior Subordinated Indenture
From time to time, the Company, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for certain specified purposes,
including curing ambiguities, defects or inconsistencies, so long as such change
does not, in the opinion of the Trustee, adversely affect the rights of any of
the Holders in any material respect. In formulating its opinion on such matters,
the Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an opinion of counsel. Other
modifications and amendments of the Indenture may be made with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
issued under the Indenture, except that, without the consent of each Holder
affected thereby, no amendment may:
(1) reduce the amount of Old Note and Exchange Notes whose Holders must
consent to an amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any Old Notes
and Exchange Notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any Old Notes and Exchange Notes, or change the date
on which any Old Notes and Exchange Notes may be subject to redemption
or reduce the redemption price therefor;
(4) make any Old Notes and Exchange Notes payable in money other than that
stated in the Old Notes and Exchange Notes;
(5) make any change in the provisions of the Indenture protecting the right
of each Holder to receive payment of principal of and interest on such
Old Notes or Exchange Note on or after the due date thereof or to bring
suit to enforce such payment, or permitting Holders of a majority in
principal amount of Old Notes and Exchange Notes to waive Defaults or
Events of Default;
(6) after the Company's obligation to purchase Old Notes and Exchange Notes
arises thereunder, amend, change or modify in any material respect the
obligation of the Company to make and consummate a Change of Control
Offer in the event of a Change of Control or make and consummate a Net
Proceeds Offer with respect to any Asset Sales that have been
consummated or, after such Change of Control has occurred or such Asset
Sale has been consummated, modify any of the provisions or definitions
with respect thereto;
(7) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Old Notes and
Exchange Notes or any Guarantee in a manner which adversely affects the
Holders; or
(8) release any Guarantor that is a Significant Subsidiary from any of its
obligations under its Guarantee or the Indenture otherwise then in
accordance with the terms of the Indenture.
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Governing Law
The Indenture will provide that it, the Exchange Notes and the Guarantees will
be governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
The Trustee
The Indenture will provide that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on the
rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with or into the Company or
any of its Restricted Subsidiaries or that is assumed in connection with the
acquisition of assets from such Person, in each case not incurred by such
Person in connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"Affiliate" means, with respect to any specified Person, any other Person who
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the
foregoing. Notwithstanding the foregoing, no Person (other than the Company or
any Subsidiary of the Company) in whom a Securitization Entity makes an
Investment in connection with a Qualified Securitization Transaction shall be
deemed to be an Affiliate of the Company or any of its Subsidiaries solely by
reason of such Investment.
"Asset Acquisition" means:
(1) an Investment by the Company or any Restricted Subsidiary of the
Company in any other Person pursuant to which such Person shall become
a Restricted Subsidiary of the Company, or shall be merged with or into
the Company or any Restricted Subsidiary of the Company; or
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(2) the acquisition by the Company or any Restricted Subsidiary of the
Company of the assets of any Person (other than a Restricted Subsidiary
of the Company) which constitute all or substantially all of the assets
of such Person or comprises any division or line of business of such
Person or any other properties or assets of such Person other than in
the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of:
(1) any Capital Stock of any Restricted Subsidiary of the Company; or
(2) any other property or assets of the Company or any Restricted
Subsidiary of the Company other than in the ordinary course of
business.
Notwithstanding the foregoing, the following shall not be deemed to be Asset
Sales:
(a) a transaction or series of related transactions for which the Company
or its Restricted Subsidiaries receive aggregate consideration of less
than $250,000;
(b) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted by the
covenant described under the heading "--Certain Covenants --Merger,
Consolidation and Sale of Assets;"
(c) sales of accounts receivable and related assets (including contract
rights) of the type specified in the definition of "Qualified
Securitization Transaction" to a Securitization Entity for the fair
market value thereof, including cash in an amount at least equal to 75%
of the fair market value thereof as determined in accordance with GAAP
(for the purposes of this clause (c), Purchase Money Notes shall be
deemed to be cash); and
(d) transfers of accounts receivable and related assets (including contract
rights) of the type specified in the definition of Qualified
Securitization Transaction (or a fractional undivided interest therein)
by a Securitization Entity in a Qualified Securitization Transaction.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"Business Day" means any day other than Saturday, Sunday or any other day on
which banking institutions in the City of New York are required or authorized by
law or governmental action to be closed.
"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated and
whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such Person; and
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(2) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally guaranteed
by, the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United States
of America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from either S&P or Moody's;
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from or Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or
the District of Columbia or any U.S. branch of a foreign bank having at
the date of acquisition thereof combined capital and surplus of not
less than $250.0 million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above
entered into with any bank meeting the qualifications specified in
clause (4) above; and
(6) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (1) through (5)
above.
"Change of Control" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the
assets of the Company to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group"), together
with any Affiliates thereof (whether or not otherwise in compliance
with the provisions of the Indenture);
(2) the approval by the holders of Capital Stock of the Company of any plan
or proposal for the liquidation or dissolution of the Company (whether
or not otherwise in compliance with the provisions of the Indenture);
(3) any Person or Group is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 14(d) under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 50% of the total Voting Stock of the Company, measured by
voting power rather than number of shares;
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(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors; or
(5) the Company consolidates with, or merges with or into, any Person, or
any Person consolidates with, or merges with or into, the Company, in
any such event pursuant to a transaction in which any of the
outstanding Voting Stock of the Company is converted into or exchanged
for cash, securities or other property, other than any such transaction
where the Voting Stock of the Company outstanding immediately prior to
such transaction is converted into or exchanged for Voting Stock (other
than Disqualified Capital Stock) of the surviving or transferee Person
constituting a majority of such Voting Stock of such surviving or
transferee Person, measured by voting power rather than number of
shares (immediately after giving effect to such issuance).
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net income has been reduced thereby:
(a) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business);
(b) Consolidated Interest Expense; and
(c) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries
in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person,
the ratio of Consolidated EBITDA of such Person during the four full fiscal
quarters (the "Four-Quarter Period") ending prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio for which financial statements are available (the "Transaction
Date") to Consolidated Fixed Charges of such Person for the Four-Quarter
Period. In addition to and without limitation of the foregoing, for purposes of
this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges"
shall be calculated after giving effect on a pro forma basis (in accordance with
Article 11 of Regulation S-X under the Securities Act) for the period of such
calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or any
of its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of
the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital
purposes pursuant to working capital facilities, occurring during the
Four-Quarter Period or at any time subsequent to the last day of the
Four-Quarter Period and on or prior to the Transaction
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Date, as if such incurrence or repayment, as the case may be (and the
application of the proceeds thereof), had occurred on the first day of
the Four-Quarter Period; and
(2) any Asset Sales or other dispositions or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost
reductions calculated in accordance with Article 11 of Regulation S-X
under the Securities Act) attributable to the assets which are the
subject of the Asset Sale or other disposition or Asset Acquisition
during the Four-Quarter Period) occurring during the Four-Quarter
Period or at any time subsequent to the last day of the Four Quarter
Period and on or prior to the Transaction Date, as if such Asset Sale
or other disposition or Asset Acquisition (including the incurrence,
assumption or liability for any such Acquired Indebtedness) occurred on
the first day of the Four-Quarter Period. If such Person or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness
of a third Person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or any
Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such other Indebtedness that was so guaranteed. If, since the
beginning of such Four-Quarter Period, any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company
or any Restricted Subsidiary since the beginning of such Four-Quarter
Period) shall have made any Asset Sale or other disposition or Asset
Acquisition that would have required adjustment pursuant to this
definition, then the Consolidated Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect thereto (in accordance with Article
11 of Regulation S-X under the Securities Act) as if such Asset Sale or
other disposition or Asset Acquisition had occurred at the beginning of
the applicable Four-Quarter Period.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio:"
(1) interest on outstanding Indebtedness determined on a fluctuating basis
as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the
Transaction Date;
(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a
factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four-
Quarter Period; and
(3) notwithstanding clause (1) of this paragraph, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be
deemed to accrue at the rate per annum resulting after giving effect to
the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any period,
the sum, without duplication, of:
(1) Consolidated Interest Expense; plus
(2) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person and its Restricted Subsidiaries (other
than dividends paid in Qualified Capital Stock) paid or
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accrued during such period times (y) a fraction, the numerator of which
is one and the denominator of which is one minus the then current
effective consolidated federal, state and local income tax rate of such
Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its Restricted
Subsidiaries for such period on a consolidated basis in accordance with
GAAP, including, without limitation, (w) any amortization of debt
discount and amortization or write-off of deferred financing costs, (x)
the net costs under Interest Swap Obligations, (y) all capitalized
interest and (z) the interest portion of any deferred payment
obligation; and
(2) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided, that there shall be excluded therefrom:
(1) after-tax gains from Asset Sales (without regard to the $250,000
limitation set forth in the definition thereof) or abandonments or
reserves relating thereto;
(2) after-tax items classified as extraordinary, unusual or nonrecurring
gains;
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted
Subsidiary of the referent Person or is merged or consolidated with or
into the referent Person or any Restricted Subsidiary of the referent
Person;
(4) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is
prohibited by contract, operation of law or otherwise;
(5) the net income of any Person, other than a Restricted Subsidiary of the
referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or a Wholly Owned Restricted
Subsidiary of the referent Person by such Person;
(6) in the case of a successor to the referent Person by consolidation or
merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or
transfer of assets;
(7) any restoration of income of any contingency reserve, except to the
extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date; and
(8) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period, whether
or not such operations were classified as discontinued).
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"Consolidated Net Worth" of any Person as of any date means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash charges and
expenses of such Person and its Restricted Subsidiaries reducing Consolidated
Net Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
charges constituting an extraordinary item or loss or any such charges that
require an accrual of or a reserve for cash charges for any future period).
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election.
"Credit Facility" means the Credit Agreement, dated as of April 1, 1999, among
the Company, the lenders party thereto in their capacities as lenders
thereunder, NationsBank, N.A., as documentation agent, First Union National
Bank, as syndication agent, and Wachovia Bank, N.A., as agent, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder or adding Restricted
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means an event or condition the occurrence of which is, or with the
lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Debt," as to the Company or any Guarantor, means:
(1) Indebtedness under or in respect of the Credit Facility; and
(2) any other Indebtedness constituting Senior Debt or Guarantor Senior
Debt, as the case may be, which, at the time of determination, has an
aggregate principal amount of at least $25.0 million and is
specifically designated in the instrument evidencing such Senior Debt
or Guarantor Senior Debt, as the case may be, as "Designated Senior
Debt" by such Person.
"Disqualified Capital Stock" means that portion of any Capital Stock which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation
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or otherwise, or is redeemable at the sole option of the holder thereof on or
prior to the final maturity date of the Notes. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Capital Stock
solely because the holders thereof have the right to require the Company to
repurchase such Capital Stock upon the occurrence of a change of control or
asset sale shall not constitute Disqualified Capital Stock if the terms of such
Capital Stock provide that the Company may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described under the heading "--Certain Covenants--
Limitation on Restricted Payments."
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of the
Company that is incorporated or otherwise organized under the laws of the United
States or any State thereof or the District of Columbia.
"Equity Offering" means an underwritten public offering of Qualified Capital
Stock of the Company pursuant to a registration statement filed with the
Commission in accordance with the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the Issue Date.
"Guarantee" means the guarantee of the Obligations of the Company with respect
to the Notes by each Guarantor pursuant to the terms of the Indenture.
"Guarantor" means:
(1) each of Cadmus Journal Services, Inc., Washburn Graphics, Inc.,
American Graphics, Inc., Expert Graphics, Inc., Cadmus Direct
Marketing, Inc., Three Score, Inc., Mack Printing Company, Port City
Press, Inc., Mack Printing Group, Inc. and Science Craftsman
Incorporated; and
(2) each of the Company's Restricted Subsidiaries that in the future
executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of the Indenture as a Guarantor;
provided that any Person constituting a Guarantor as described above shall cease
to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of the Indenture.
"Guarantor Senior Debt" means, with respect to any Guarantor, the principal
of, premium, if any, and interest (including any interest accruing subsequent to
the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on any Indebtedness of such Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness
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shall not be senior in right of payment to the Guarantee of such Guarantor.
Without limiting the generality of the foregoing, "Guarantor Senior Debt"
shall also include the principal of, premium, if any, interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of:
(1) all monetary obligations of every nature of such Guarantor in respect
of the Credit Facility, including, without limitation, obligations to
pay principal and interest, reimbursement obligations under letters of
credit, fees, expenses and indemnities;
(2) all Interest Swap Obligations (including guarantees thereof); and
(3) all obligations under Currency Agreements (including guarantees
thereof),
in each case, whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(1) any Indebtedness of such Guarantor to any Subsidiary or Affiliate of
such Guarantor, or any Subsidiary of such Affiliate;
(2) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(3) Indebtedness represented by Disqualified Capital Stock;
(4) any liability for federal, state, local or other taxes owed or owing by
such Guarantor;
(5) Indebtedness to, or guaranteed on behalf of, any shareholder, director,
officer or employee of such Guarantor or any Subsidiary of such
Guarantor (including, without limitation, amounts owed for
compensation);
(6) that portion of any Indebtedness incurred in violation of the covenant
described under the heading "--Certain Covenants--Limitation on
Incurrence of Additional Indebtedness" (but, as to any such
obligation, no such violation shall be deemed to exist for purposes of
this clause (6) if the holder(s) of such obligation or their
representative and the Trustee shall have received an officers'
certificate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit
indebtedness, that the incurrence of the entire committed amount
thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of the Indenture);
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to such Guarantor; and
(8) any Indebtedness which is, by its express terms, subordinated in right
of payment to any other Indebtedness of such Guarantor.
"Indebtedness" means, with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money;
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(2) all Obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted
and diligently conducted);
(5) all Obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of Indebtedness
referred to in clauses (1) through (5) above and clause (8) below;
(7) all Obligations of any other Person of the type referred to in clauses
(1) through (6) above which are secured by any Lien on any property or
asset of such Person, the amount of such Obligation being deemed to be
the lesser of the fair market value of such property or asset and the
amount of the Obligation so secured;
(8) all Obligations under currency agreements and interest swap agreements
of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued
dividends, if any.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
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
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital
Stock.
"Independent Financial Advisor" means a nationally recognized investment
banking or accounting firm:
(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the
Company or any of its Subsidiaries; and
(2) which, in the judgment of the Board of Directors of the Company, is
otherwise independent and qualified to perform the task for which it is
to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
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"Investment" means, with respect to any Person, any direct or indirect loan or
other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or any such Restricted
Subsidiary, as the case may be. If the Company or any Restricted Subsidiary of
the Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, such Restricted Subsidiary is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Common Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Junior Subordinated Note" means, collectively, the three 11.5% subordinated
promissory notes of the Company due March 31, 2010.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Moody's" means Moody's Investors Service, Inc.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the
form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment
banking fees and sales commissions);
(2) taxes paid or payable relating to such Asset Sale after taking into
account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements;
(3) the repayment of Indebtedness that is secured by such assets in
accordance with the terms of any Lien upon or with respect to such
assets; and
(4) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained
by the Company or any Restricted Subsidiary of the Company, as the
case may be, after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Business" means any business (including stock or assets) that
derives its revenues from the business engaged in by the Company and its
Restricted Subsidiaries on the Issue Date and/or activities that are
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reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which the Company and its
Restricted Subsidiaries are engaged on the Issue Date.
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness represented by the Notes issued on the Issue Date in an
aggregate principal amount not to exceed $125.0 million and the
Guarantees thereof;
(2) Indebtedness incurred by the Company pursuant to the Credit Facility
in an aggregate principal amount not to exceed $200.0 million at any
one time outstanding, less:
(a) the amount of all mandatory principal payments actually made by
the Company in respect of term loans thereunder;
(b) the amount of all required permanent repayments (which are
accompanied by a corresponding permanent commitment reduction)
thereunder; and
(c) the aggregate amount of Indebtedness of Securitization Entities
in Qualified Securitization Transactions at the time outstanding,
to the extent that the proceeds from such Indebtedness are not
used (within five Business Days after the incurrence of such
Indebtedness) to make mandatory principal payments or required
permanent repayments in accordance with clauses (a) and (b)
above.
(3) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereof;
(4) Interest Swap Obligations of the Company or any of its Restricted
Subsidiaries covering Indebtedness of the Company or any of its
Restricted Subsidiaries; provided that such Interest Swap Obligations
are entered into to protect the Company and its Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent that the
notional principal amount of any such Interest Swap Obligation does
not exceed the principal amount of the Indebtedness to which such
Interest Swap Obligation relates;
(5) Indebtedness of the Company or any of its Restricted Subsidiaries
under Currency Agreements; provided that such Currency Agreements are
entered into to protect the Company and its Restricted Subsidiaries
from fluctuations in the value of foreign currencies purchased or
received in the ordinary course of business; provided, further, that,
in the case of Currency Agreements which relate to Indebtedness, such
Currency Agreements do not increase the Indebtedness of the Company
and its Restricted Subsidiaries outstanding other than as a result of
fluctuations of foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(6) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company to
the Company or to a Wholly Owned Restricted Subsidiary of the Company
for so long as such Indebtedness is held by the Company or a Wholly
Owned Restricted Subsidiary of the Company, in each case subject to no
Lien held by a Person other than the Company or a Wholly Owned
Restricted Subsidiary of the Company; provided that if as of any date
any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company owns or holds any such Indebtedness or holds
a Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by
the issuer of such Indebtedness;
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(7) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of
the Company for so long as such Indebtedness is held by a Wholly Owned
Restricted Subsidiary of the Company, in each case subject to no Lien;
provided that (a) any Indebtedness of the Company to any Wholly Owned
Restricted Subsidiary of the Company that is not a Guarantor is
unsecured and subordinated, pursuant to a written agreement, to the
Company's Obligations under the Indenture and the Notes and (b) if as
of any date any Person other than a Wholly Owned Restricted Subsidiary
of the Company owns or holds any such Indebtedness or any Person holds
a Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by
the Company;
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two Business Days of incurrence;
(9) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or
such Restricted Subsidiary, as the case may be, in order to provide
security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the ordinary
course of business;
(10) Indebtedness represented by Capitalized Lease Obligations and Purchase
Money Indebtedness of the Company and its Restricted Subsidiaries
incurred in the ordinary course of business not to exceed $5.0 million
at any one time outstanding;
(11) Refinancing Indebtedness;
(12) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to the
Company or any Subsidiary of the Company (except for Standard
Securitization Undertakings); and
(13) additional Indebtedness of the Company and its Restricted Subsidiaries
in an aggregate principal amount that does not exceed $15.0 million at
any one time outstanding (which amount may, but need not, be incurred
in whole or in part under the Credit Facility).
For purposes of determining compliance with the covenant described under the
heading "--Certain Covenants--Limitation on Incurrence of Additional
Indebtedness," in the event that an item of Indebtedness meets the criteria of
more than one of the categories of Permitted Indebtedness described in clauses
(1) through (11) and (13) above or is otherwise entitled to be incurred pursuant
to the Consolidated Fixed Charge Coverage Ratio provisions of such covenant, the
Company shall, in its sole discretion, classify (or later reclassify) such item
of Indebtedness in any manner that complies with such covenant. Accrual of
interest, accretion or amortization of original issue discount, the payment of
interest on any Indebtedness in the form of additional Indebtedness with the
same terms and the payment of dividends on Disqualified Capital Stock will not
be deemed to be an incurrence of Indebtedness or an issuance of Disqualified
Capital Stock for purposes of the covenant described under the heading ``--
Certain Covenants--Limitation on Incurrence of Additional Indebtedness." The
amount of Indebtedness issued at a price that is either less or greater than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.
"Permitted Investments" means:
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(1) Investments by the Company or any Restricted Subsidiary of the Company
in any Wholly Owned Restricted Subsidiary of the Company that is a
Guarantor or any Person if as a result of such Investment such Person
shall become a Wholly Owned Restricted Subsidiary of the Company that
is a Guarantor or will merge or consolidate with or into the Company
or a Wholly Owned Restricted Subsidiary of the Company that is a
Guarantor;
(2) Investments in the Company by any Restricted Subsidiary of the
Company; provided that any Indebtedness evidencing such Investment is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Notes and the Indenture;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of the Company and its
Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes in an aggregate principal amount not to exceed
$2.0 million at any one time outstanding;
(5) Currency Agreements and Interest Swap Obligations entered into in the
ordinary course of the Company's or its Restricted Subsidiaries'
business and otherwise in compliance with the Indenture;
(6) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(7) Investments made by the Company or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset Sale made
in compliance with the covenant described under the heading "--
Certain Covenants--Limitation on Asset Sales;"
(8) additional Investments having an aggregate fair market value, when
taken together with all other Investments made pursuant to this clause
(8) that are at that time outstanding, not to exceed $5.0 million
(with the fair market value of each Investment being measured at the
time made and without giving effect to subsequent changes in value);
(9) any Investment by the Company or a Restricted Subsidiary of the
Company in a Securitization Entity or any Investment by a
Securitization Entity in any other Person in connection with a
Qualified Securitization Transaction; provided that any Investment in
a Securitization Entity is in the form of a Purchase Money Note or an
equity interest; and
(10) Investments in Permitted Businesses made by the Company or any Wholly
Owned Restricted Subsidiary of the Company that is a Guarantor having
an aggregate fair market value, when taken together with all other
Investments made pursuant to this clause (10) after the Issue Date,
not to exceed $5.0 million (with the fair market value of each
Investment being measured at the time made and without giving effect
to subsequent changes in value).
"Permitted Liens" means the following types of Liens:
(1) Liens securing Senior Debt and Guarantor Senior Debt (including Liens
securing Indebtedness outstanding under the Credit Facility) to the
extent that the Indebtedness secured thereby is permitted to be
incurred pursuant to the covenant described under the heading "--
Certain Covenants--Limitation on Incurrence of Additional
Indebtedness;"
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(2) Liens securing the Notes and the Guarantees;
(3) Liens in favor of the Company or any Wholly Owned Restricted
Subsidiary of the Company on assets of any Restricted Subsidiary of
the Company;
(4) Liens existing on the Issue Date securing Indebtedness existing on the
Issue Date to the extent and in the manner such Liens are in effect on
the Issue Date;
(5) Liens securing Refinancing Indebtedness which is incurred to Refinance
any Indebtedness which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided that such Liens:
(a) are no less favorable to the Holders and are not more favorable
to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being Refinanced; and
(b) do not extend to or cover any property or assets of the Company
or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced;
(6) Liens for taxes, assessments or governmental charges or claims either:
(a) not delinquent; or
(b) contested in good faith by appropriate proceedings and as to
which the Company or any of its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required
pursuant to GAAP;
(7) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen and repairmen and other Liens
imposed by law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP
shall have been made in respect thereof;
(8) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money);
(9) judgment Liens not giving rise to an Event of Default so long as any
such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment
shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
(10) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in
any material respect with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries;
(11) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property of
asset which is not leased property subject to such Capitalized Lease
Obligation;
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(12) Liens securing Purchase Money Indebtedness of the Company or any
Restricted Subsidiary of the Company; provided that:
(a) the Purchase Money Indebtedness shall not exceed purchase price
or the cost of construction or improvement of such property or
assets, as the case may be, and shall not be secured by any
property or assets of the Company or any Restricted Subsidiary of
the Company other than the property or assets so acquired,
constructed or improved; and
(b) the Lien securing such Indebtedness shall be created within 90
days of such acquisition or completion of construction or
improvement;
(13) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to
facilitate the purchase, shipment, or storage of such inventory or
other goods;
(14) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating
to such letters of credit and products and proceeds thereof;
(15) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of
offset and set-off;
(16) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under
the Indenture;
(17) Liens securing Indebtedness under Currency Agreements;
(18) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of custom duties in connection with the
importation of goods;
(19) Liens securing Acquired Indebtedness incurred in compliance with the
covenant described under the heading "--Certain Covenants--Limitation
on Incurrence of Additional Indebtedness;" provided that:
(a) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary of the Company and were not
granted in anticipation of the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the
Company; and
(b) such Liens do not extend to or cover any property or assets of
the Company or of any of its Restricted Subsidiaries other than
the property or assets that secured the Acquired Indebtedness
prior to the time such Indebtedness became Acquired Indebtedness
of the Company or a Restricted Subsidiary of the Company and are
no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the
Company; and
(20) Liens on assets transferred to a Securitization Entity or on assets of
a Securitization Entity, in either case incurred in connection with a
Qualified Securitization Transaction.
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"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Productive Assets" means properties and assets (including Capital Stock) that
are used or useful by the Company and its Restricted Subsidiaries in Permitted
Businesses.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
construction or improvement, of property or equipment.
"Purchase Money Note" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary of the Company in connection with a Qualified Securitization
Transaction to a Securitization Entity, which note shall be repaid from cash
available to the Securitization Entity, other than amounts required to be
established as reserves pursuant to agreements, amounts paid to investors in
respect of interest, principal and other amounts owing to such investors and
amounts paid in connection with the purchase of newly generated receivables.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which the Company or any or its Subsidiaries may sell, convey or
otherwise transfer to (a) a Securitization Entity (in the case of a transfer by
the Company or any of its Subsidiaries) or (b) any other Person (in the case of
a transfer by a Securitization Entity), or may grant a security interest in, any
accounts receivable (whether now existing or arising in the future) of the
Company or any of its Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such accounts receivable, all
contracts and contract rights and all guarantees or other obligations in respect
of such accounts receivable, proceeds of such accounts receivable and other
assets (including contract rights) which are customarily transferred or in
respect of which security interests are customarily granted in connection with
asset securitization transactions involving accounts receivable.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness (the proceeds of which are applied within 60 days after
the incurrence thereof) in exchange or replacement for, such security or
Indebtedness in whole or in part. ``Refinanced" and ``Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any of its
Restricted Subsidiaries of Indebtedness incurred in accordance with the covenant
described under the heading "--Certain Covenants--Limitation on Incurrence of
Additional Indebtedness" (other than pursuant to clauses (2), (4), (5), (6),
(7), (8), (9), (10), (12) or (13) of the definition of Permitted Indebtedness),
in each case, that does not:
(1) directly or indirectly result in an increase in the aggregate
principal amount (or accreted value, if applicable) of Indebtedness of
the Company or such Restricted Subsidiary as of the date of such
Refinancing (plus the amount of any premium required to be paid under
the terms of the instrument governing such Indebtedness and the amount
of reasonable expenses incurred by the Company or such Restricted
Subsidiary in connection with such Refinancing); or
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(2) create Indebtedness with (a) a Weighted Average Life to Maturity as of
the date of such Refinancing that is less than the Weighted Average
Life to Maturity at such time of the Indebtedness being Refinanced or
(b) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced; provided that (x) such Refinancing
Indebtedness shall be incurred solely by the obligor of the
Indebtedness being Refinanced and (y) if such Indebtedness being
Refinanced is subordinated to the Notes or a Guarantee, then such
Refinancing Indebtedness shall be subordinated or junior to the Notes
or such Guarantee, as the case may be, at least to the same extent and
in the same manner as the Indebtedness being Refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior 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 in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Rating Group.
"Sale and Leaseback Transaction" means any direct or indirect arrangement with
any Person or to which any such Person is a party, providing for the leasing to
the Company or a Restricted Subsidiary of the Company of any property, whether
owned by the Company or any Restricted Subsidiary of the Company at the Issue
Date or later acquired, which has been or is to be sold or transferred by the
Company or such Restricted Subsidiary to such Person or to any other Person from
whom funds have been or are to be advanced by such Person on the security of
such property.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute or statutes thereto.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
accounts receivable and related assets) which engages in no activities other
than in connection with the financing of accounts receivable and which is
designated by the Board of Directors of the Company (as provided below) as a
Securitization Entity:
(a) no portion of the Indebtedness or any other obligation (contingent or
otherwise) of which:
(i) is guaranteed by the Company or any Subsidiary of the Company
(excluding guarantees of obligations (other than the principal
of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings);
(ii) is recourse to or obligates the Company or any Subsidiary of
the Company in any way other than pursuant to Standard
Securitization Undertakings; or
(iii) subjects any property or asset of the Company or any Subsidiary
of the Company, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to
Standard Securitization Undertakings;
(b) with which neither the Company nor any Subsidiary of the Company has
any material contract, agreement, arrangement or understanding other
than on terms no less favorable to the Company or
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such Subsidiary than those that might be obtained at the time
from Persons that are not Affiliates of the Company, other than
fees payable in the ordinary course of business in connection
with servicing receivables of such entity; and
(c) to which neither the Company nor any Subsidiary of the Company has any
obligation to maintain or preserve such entity's financial condition
or cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors of the Company shall be evidenced
to the Trustee by filing with the Trustee a Board Resolution of the Board of
Directors of the Company giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
conditions.
"Senior Debt" means the principal of, premium, if any, and interest (including
any interest accruing subsequent to the filing of a petition of bankruptcy at
the rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law) on any Indebtedness of
the Company, whether outstanding on the Issue Date or thereafter created,
incurred or assumed, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the Notes. Without limiting the generality of the foregoing,
"Senior Debt" shall also include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all other amounts owing in respect of:
(1) all monetary obligations of every nature of the Company under the
Credit Facility, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of
credit, fees, expenses and indemnities;
(2) all Interest Swap Obligations (including guarantees thereof); and
(3) all obligations under Currency Agreements (including guarantees
thereof),
in each case, whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of the Company to any Subsidiary or Affiliate of the
Company, or any Subsidiary of such Affiliate;
(2) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(3) Indebtedness represented by Disqualified Capital Stock;
(4) any liability for federal, state, local or other taxes owed or owing
by the Company;
(5) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of the Company or any Subsidiary of the
Company (including, without limitation, amounts owed for
compensation);
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(6) that portion of any Indebtedness incurred in violation of the covenant
described under the heading "--Certain Covenants--Limitation on
Incurrence of Additional Indebtedness" (but, as to any such
obligation, no such violation shall be deemed to exist for purposes of
this clause (6) if the holder(s) of such obligation or their
representative and the Trustee shall have received an officers'
certificate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit
indebtedness, that the incurrence of the entire committed amount
thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of the Indenture);
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company; and
(8) any Indebtedness which is, by its express terms, subordinated in right
of payment to any other Indebtedness of the Company.
"Significant Subsidiary," with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a ``significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company which are reasonably customary in an accounts receivable transaction.
"Subsidiary," with respect to any Person, means:
(1) any corporation a majority of whose Voting Stock shall at the time be
owned, directly or indirectly, by such Person; or
(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly,
owned by such Person.
"Unrestricted Subsidiary" of any Person means:
(1) any Subsidiary of such Person formed or acquired after the Issue Date
that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary by the Board of Directors of
such Person in compliance with the covenant described under the
heading "--Certain Covenants--Limitation on Restricted and
Unrestricted Subsidiaries"; and
(2) any Subsidiary of an Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
any Person (irrespective of whether or not, at the time, stock of any other
class or classes shall have, or might have, voting power by reason of the
happening of any contingency) and, with respect to the Company, shall be deemed
to include the Common Stock of the Company.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:
(1) the then outstanding aggregate principal amount of such Indebtedness;
into
130
<PAGE>
(2) the sum of the total of the products obtained by multiplying:
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof; by
(b) the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Wholly Owned
Subsidiary of such Person which at the time of determination is a Restricted
Subsidiary.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person of
which all the outstanding Voting Stock (other than in the case of a Subsidiary
that is incorporated in a jurisdiction other than a State in the United States
or the District of Columbia, directors' qualifying shares or an immaterial
amount of shares required to be owned by other Persons pursuant to applicable
law) is owned by such Person or any Wholly Owned Subsidiary of such Person.
131
<PAGE>
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summarizes the material federal income tax consequences of the
exchange of Old Notes for Exchange Notes. This summary is based on current law,
which is subject to change at any time, possibly with retroactive effect. In
addition, this summary does not address the tax consequences of the exchange
under applicable state, local or foreign laws.
The exchange of Old Notes for Exchange Notes pursuant to the exchange offer will
not result in any United States federal income tax consequences to Holders.
When a Holder exchanges an Old Note for an Exchange Note pursuant to the
exchange offer, the Holder will have the same adjusted basis and holding period
for the Exchange Note as for the Old Note immediately before the exchange.
Each Holder should consult his own tax advisor as to the particular tax
consequences to it of exchanging Old Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. We have agreed that we will, for a period of 180 days
after the consummation of the exchange offer, make this prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale.
We will not receive any proceeds from the sale of Exchange Notes by broker-
dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Exchange Notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the consummation of the exchange offer, we will
promptly send additional copies of the prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such document
in the Letter of Transmittal. We have agreed to pay all expenses incident to
the exchange offer other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Exchange Notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
Following consummation of the exchange offer, we may, in our sole discretion,
commence one or more additional exchange offers to holders of Old Notes who did
not exchange their Old Notes for Exchange Notes
132
<PAGE>
in the exchange offer on terms which may differ from those contained in the
Registration Rights Agreement. This prospectus, as it may be amended or
supplemented from time to time, may be used by us in connection with any such
additional exchange offers. Such additional exchange offers will take place from
time to time until all outstanding Old Notes have been exchanged for Exchange
Notes pursuant to the terms and conditions contained herein.
VALIDITY OF THE EXCHANGE NOTES
The validity of the Exchange Notes will be passed upon for us by Hunton &
Williams, Richmond, Virginia.
EXPERTS
The consolidated financial statements of Cadmus Communications Corporation as of
June 30, 1998 and 1997, and for each of the three years in the period ended June
30, 1998 included in this registration statement to the extent and for the
periods indicated in their report, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of Melham Holdings, Inc. at December 31, 1998 and 1997, and for each
of the three years in the period ended December 31, 1998, as set forth in their
report. We have included those consolidated financial statements in this
prospectus and registration statement in reliance on Ernst & Young LLP's report,
given on their authority as experts in accounting and auditing.
133
<PAGE>
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Consolidated Interim Financial Statements of Cadmus
Communications Corporation (unaudited):
Condensed Consolidated Balance Sheets as of March 31, 1999 and June 30,
1998 F-2
Condensed Consolidated Statements of Income for the Nine Months ended
March 31, 1999 and 1998 F-3
Condensed Consolidated Statements of Cash Flows for the Nine Months
ended March 31, 1999 and 1998 F-4
Notes to Condensed Consolidated Financial Statements F-5
Consolidated Financial Statements of Cadmus Communications Corporation:
Report of Independent Public Accountants F-8
Consolidated Statements of Income for the Years ended June 30, 1998,
1997 and 1996 F-9
Consolidated Balance Sheets as of June 30, 1998 and 1997 F-10
Consolidated Statements of Cash Flows for the Years ended June 30, 1998,
1997 and 1996 F-11
Notes to Consolidated Financial Statements F-12
Consolidated Interim Financial Statements of Melham Holdings, Inc.
(unaudited):
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 F-24
Consolidated Statements of Operations for the Three Months ended March
31, 1999 and 1998 F-25
Consolidated Statements of Cashflows for the Three Months ended March
31, 1999 and 1998 F-26
Notes to Unaudited Consolidated Financial Statements F-27
Consolidated Financial Statements of Melham Holdings, Inc.:
Report of Independent Auditors F-28
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-29
Consolidated Statements of Operations for the Years ended December 31,
1998, 1997 and 1996 F-30
Consolidated Statements of Changes in (Deficiency in Assets)
Stockholder's Equity for the Years ended December 31, 1998, 1997 and
1996 F-31
Consolidated Statements of Cash Flows for the Years ended December 31,
1998, 1997 and 1996 F-32
Notes to Consolidated Financial Statements F-33
</TABLE>
F-1
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
----------------------
March 31,
1999 June 30,
Dollars in thousands, except per share data (Unaudited) 1998
- ------------------------------------------- ----------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 281 $ --
Accounts receivable, less allowance for doubtful
accounts 65,454 70,571
Inventories 27,978 25,610
Deferred income taxes 5,210 3,832
Prepaid expenses and other 3,892 4,107
<CAPTION>
----------- ---------
<S> <C> <C>
Total current assets 102,815 104,120
<CAPTION>
----------- ---------
<S> <C> <C>
Property, plant, and equipment (net of accumulated
depreciation of $111,896 at March 31, 1999, and
$107,269 at June 30, 1998) 126,907 133,836
Goodwill and other intangibles, net 50,646 48,158
Other assets 4,861 5,638
<CAPTION>
----------- ---------
<S> <C> <C>
Total assets $ 285,229 $ 291,752
<CAPTION>
=========== =========
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings $ 12,170 $ 2,100
Current maturities of long-term debt 6,089 6,431
Accounts payable 35,577 41,981
Accrued expenses 20,202 18,293
Restructuring reserve 1,136 4,378
<CAPTION>
----------- ---------
<S> <C> <C>
Total current liabilities 75,174 73,183
<CAPTION>
----------- ---------
<S> <C> <C>
Long-term debt, less current maturities 65,214 93,224
Other long-term liabilities 10,510 8,867
Deferred income taxes 13,788 6,662
Shareholders' equity:
Common stock ($.50 par value; authorized shares-
16,000,000 shares; issued and outstanding shares-
7,846,000 at March 31, 1999, and 7,921,000 at
June 30, 1998) 3,923 3,961
Capital in excess of par value 52,292 53,532
Retained earnings 64,328 52,323
<CAPTION>
----------- ---------
<S> <C> <C>
Total shareholders' equity 120,543 109,816
<CAPTION>
----------- ---------
<S> <C> <C>
Total liabilities and shareholders' equity $ 285,229 $ 291,752
<CAPTION>
=========== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
F-2
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
---------------------
Nine Months Ended
March 31,
1999 1998
Dollars in thousands, except per share data --------- ---------
<S> <C> <C>
Net sales $ 308,596 $ 289,644
Operating expenses:
Cost of sales 246,994 223,706
Selling and administrative 42,221 45,933
Net gain on divestitures (9,521) --
<CAPTION>
--------- ---------
<S> <C> <C>
279,694 269,639
<CAPTION>
--------- ---------
<S> <C> <C>
Operating income 28,902 20,005
<CAPTION>
--------- ---------
<S> <C> <C>
Interest and other expenses:
Interest 6,085 5,564
Other, net 1,387 1,060
<CAPTION>
--------- ---------
<S> <C> <C>
7,472 6,624
<CAPTION>
--------- ---------
<S> <C> <C>
Income before income taxes 21,430 13,381
Income taxes 8,251 5,152
<CAPTION>
--------- ---------
<S> <C> <C>
Net income $ 13,179 $ 8,229
<CAPTION>
========= =========
<S> <C> <C>
Earnings per share--basic:
Net income per share $ 1.67 $ 1.05
<CAPTION>
========= =========
<S> <C> <C>
Weighted-average common shares outstanding 7,872 7,841
<CAPTION>
========= =========
<S> <C> <C>
Earnings per share--diluted:
Net income per share $ 1.63 $ 1.01
<CAPTION>
========= =========
<S> <C> <C>
Weighted-average common shares outstanding 8,073 8,140
<CAPTION>
========= =========
<S> <C> <C>
Cash dividends per common share $ .15 $ .15
<CAPTION>
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
F-3
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
---------------------
Nine Months Ended
March 31,
1999 1998
Dollars in thousands, except share data --------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 13,179 $ 8,229
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 14,326 13,608
Net gain on divestitures (9,521) --
Other, net 6,461 3,152
<CAPTION>
--------- ---------
<S> <C> <C>
24,445 24,989
<CAPTION>
--------- ---------
<S> <C> <C>
Changes in assets and liabilities, excluding debt and
effects of acquisitions and dispositions:
Accounts receivable, net (4,523) 655
Inventories (4,846) (4,555)
Accounts payable and accrued expenses (8,928) 11,511
Restructure reserve (due to cash payments) (1,236) (3,648)
Other current assets and liabilities (142) 115
Other long-term liabilities (due to pension plan
payments) -- (1,148)
Other, net (1,252) (668)
<CAPTION>
--------- ---------
<S> <C> <C>
(20,927) 2,262
<CAPTION>
--------- ---------
<S> <C> <C>
Net cash provided by operating activities 3,518 27,251
<CAPTION>
--------- ---------
<S> <C> <C>
Cash Flows from Investing Activities
Purchases of property, plant and equipment (12,340) (28,582)
Proceeds from sale of property, plant and equipment 962 4,557
Payments for business acquired (5,192) --
Proceeds from divested businesses 34,971 --
Other, net (295) --
<CAPTION>
--------- ---------
<S> <C> <C>
Net cash provided by (used in ) investing activities 18,106 (24,025)
<CAPTION>
--------- ---------
<S> <C> <C>
Cash Flows from Financing Activities
Proceeds from short-term borrowings 10,070 3,445
Repayment of long-term revolving credit facility (23,500) (2,500)
Repayment of long-term borrowings (4,852) (3,423)
Dividends paid (1,183) (1,176)
Repurchase and retirement of common stock (3,864) (118)
Issuance of stock 1,986 --
Proceeds from exercise of stock options -- 581
<CAPTION>
--------- ---------
<S> <C> <C>
Net cash used in financing activities (21,343) (3,191)
<CAPTION>
--------- ---------
<S> <C> <C>
Increase in cash and cash equivalents 281 35
Cash and cash equivalents at beginning of period -- 184
<CAPTION>
--------- ---------
<S> <C> <C>
Cash and cash equivalents at end of period $ 281 $ 219
<CAPTION>
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
F-4
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements of
Cadmus Communications Corporation and Subsidiaries have been prepared in
accordance with generally accepted accounting principles for interim
financial reporting, and with applicable quarterly reporting regulations of
the Securities and Exchange Commission. They do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements and, accordingly, should be
read in conjunction with the consolidated financial statements and related
footnotes included in the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1998.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation of
interim financial information have been included. The results of operations
for the period ended March 31, 1999, are not necessarily indicative of
results for the entire fiscal year.
2. Basic earnings per share is computed on the basis of weighted-average common
shares outstanding from the date of issue. Diluted earnings per share is
computed on the basis of weighted-average common shares outstanding plus
common shares contingently issuable upon exercise of dilutive stock options.
Incremental shares for dilutive stock options, computed under the treasury
stock method, were 133,000 and 317,000 for the quarters ended March 31, 1999
and 1998, respectively.
3. In August 1998, the Board of Directors approved an extension to August 31,
1999, of its fiscal 1997 stock repurchase plan. Under the plan, the Company
is authorized to repurchase up to 750,000 shares of its common stock. As of
March 31, 1999, approximately 297,000 shares have been repurchased under
this plan, including approximately 202,000 shares repurchased during fiscal
1999.
4. Components of net inventories at March 31, 1999, and June 30, 1998 were as
follows (in thousands):
<TABLE>
<CAPTION>
------------------
March 31, June 30,
1999 1998
--------- --------
<S> <C> <C>
Raw materials and supplies $ 5,967 $ 4,841
Work in process:
Materials 9,974 6,567
Other manufacturing costs 9,168 11,331
Finished Goods 2,869 2,871
<CAPTION>
--------- --------
<S> <C> <C>
Inventories $27,978 $25,610
<CAPTION>
========= ========
</TABLE>
5. On March 1, 1999, the Company consummated the sale of certain assets and
liabilities related to the Company's Financial Communications ("CFC")
division. Pursuant to the terms of the Asset Purchase Agreement dated
February 20, 1999, between the Company and R.R. Donnelley & Sons Company,
the Company sold certain of the assets and was relieved of certain of the
liabilities which were employed by the Company in operating the Financial
Communications division. The assets sold were specific to CFC's business of
marketing, selling and distribution of financial printing services, mutual
fund printing services, shareholder communications printing services, and
activities related thereto.
The Company recorded a gain on the sale of CFC of approximately $12.3
million ($7.5 million or $.94 per diluted share, after taxes). The initial
purchase price for the business was $35 million in cash. The net book value
of CFC was approximately $14.4 million. In connection with the sale, the
Company recorded liabilities for certain purchase price adjustments
(approximately $1.9 million), severance payments, and other transaction
costs and recorded impairments of certain long lived assets as a result of
the sale ($2.3 million). The purchase price was established through arms-
length negotiations among the parties. The funds received in the sale were
used to pay down debt.
6. On February 26, 1999, the Company completed the sale of its Custom
Publishing business ("Custom") to the president of Custom. The sales price
was approximately $2.1 million comprised of cash and a note. The Company
recorded a loss on the sale of approximately $2.8 million (approximately
$1.7 million or $.22 per share, after taxes).
F-5
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements--(Continued)
7. On April 1, 1999, the Company consummated the purchase of all of the
outstanding stock of Melham Holdings, Inc., a Delaware corporation. The
purchase was pursuant to the terms of a Stock Purchase Agreement dated April
1, 1999, (the "Melham Agreement"), by and among Cadmus Communications
Corporation, Melham U.S. Inc., Purico (IOM) Limited, and Paul F. Mack.
Immediately prior to consummation of the transactions contemplated by the
Melham Agreement, Melham U.S. Inc., Purico (IOM) Limited, and Paul F. Mack
(collectively the "Sellers") owned 100% of Melham Holdings, Inc.
The principal operating subsidiary of Melham Holdings, Inc. is Mack Printing
Company ("Mack"), a full-service printer that produces a wide variety of
short-to medium-run magazines and journals generally for customers in the
mid-Atlantic and northeast regions of the United States. Melham Holdings,
Inc. indirectly owns 100% of Mack through Melham, Inc., a Delaware
corporation. In connection with the consummation of the transactions
contemplated by the Melham Agreement, Mack repurchased approximately 15% of
its then-outstanding equity securities from other securityholders and repaid
certain indebtedness to such securityholders.
The purchase price was approximately $201 million and consisted of the
following: approximately $110 million in bridge financing notes issued to
the Sellers and others, approximately $66 million in cash, approximately
$6.4 million of newly issued junior subordinated notes of the Company and
approximately 1.2 million shares of the Company's common stock (valued at
approximately $18.6 million). The Company expects to repay in full the $110
million in bridge financing notes with the proceeds of $125 million of
senior subordinated notes that the Company plans to issue in its fiscal
fourth quarter. The senior subordinated notes are anticipated to have a 10
year term. In order to satisfy a condition to closing under the Melham
Agreement, the Company elected Mr. Nathu R. Puri, a majority shareholder of
Melham U.S. Inc. and Purico (IOM) Limited, to the Board of Directors of the
Company to serve until the next annual meeting of shareholders of the
Company.
The purchase price was established through arms-length negotiations among
the parties.
The facilities of Mack include its headquarters in Easton, Pennsylvania with
manufacturing facilities located in Easton, Ephrata, and East Stroudsburg,
Pennsylvania, and Baltimore, Maryland. The Company intends to continue to
use these facilities for the same or similar purposes.
8. On April 1, 1999, the Company entered into a new $200 million senior credit
facility with various banks and financial institutions, including Wachovia
Bank, NationsBank, and First Union National Bank. The new facility consists
of a $145 million, five-year revolving credit facility and a $55 million,
five-year amortizing term loan facility.
The proceeds of the loans under the senior credit facility have been and
will be used (1) to refinance indebtedness under the former senior credit
facility and certain other indebtedness, (2) to finance a portion of the
Melham Holdings Inc. acquisition and related transaction expenses, (3) to
finance permitted acquisitions and (4) for general corporate purposes,
including working capital.
The new facility is jointly and severally guaranteed by each of the
Company's present and future significant subsidiaries and is secured by a
pledge of all of the capital stock of present and future significant
subsidiaries.
The revolving credit facility under the new facility will terminate on March
31, 2004. The term loan facility under the new facility will be amortized in
quarterly installments beginning June 30, 1999 and will also mature on March
31, 2004.
Interest on the new facility will be a function of LIBOR. The senior credit
facility requires the Company to pay unused commitment fees with respect to
the revolving credit facility. The unused commitment fee for an initial
period of approximately seven and one-half months is 0.50%. Thereafter, the
unused commitment fee will be determined by reference to total debt to
EBITDA ratio as it exists from time to time.
The new facility contains certain covenants regarding debt to EBITDA (as
defined), fixed charged coverage and net worth, and contains other
restrictions including limitations on additional borrowings, and the
acquisition, disposition and securitization of assets.
F-6
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements--(Continued)
9. On April 1, 1998, the Company acquired Germersheim, Inc., an Atlanta-based
national point-of-purchase marketing service provider, for $13.7 million. Of
$11 million in cash payments made during fiscal 1998, $2 million were held
in escrow at June 30, 1998, as contingent consideration only to be released
if specified performance levels are met during each of the next two years.
On August 31, 1998, the Company, the seller and the Escrow Agent amended
certain terms and conditions of the purchase and escrow agreements related
to this acquisition. Pursuant to these amendments, the Company issued, in
the name of the seller, 93,500 shares of the Company's common stock, at an
aggregate market value of $2 million, and delivered these shares to the
Escrow Agent in exchange for the $2 million of cash held in escrow. These
"Escrow Shares" are subject to certain terms and restrictions, as outlined
in the amended purchase and escrow agreements, and are held in escrow as of
March 31, 1999, as contingent consideration, to be released only if
specified performance levels are met during each of the next two years.
10. During the fourth quarter of fiscal 1998, the Company recorded a one-time
restructuring charge of $3.95 million ($2.5 million net of tax) related to
the integration of Germersheim, Inc. with its existing point-of-purchase
operations. The charge included costs to consolidate facilities, eliminate
duplicate assets and provide severance costs. These actions were initiated
in fiscal 1998 and are substantially complete. The restructuring reserve
balance remaining at March 31, 1999 totaled $0.9 million, and relates to
lease termination costs and excess rent payments. Management believes that
the remaining restructuring reserve is adequate to complete the
restructuring plan.
During the fourth quarter of fiscal 1997, the Company adopted a
restructuring plan that impacted a number of its operations. The plan
included the closure of certain facilities; realignment of certain
management, production and administrative personnel; write-down of certain
tangible and intangible assets; and exiting certain nonstrategic customer
relationships and product lines. All restructuring actions were taken by the
end of fiscal 1998. The restructuring reserve balance remaining at March 31,
1999 totaled $0.3 million, and relates primarily to continuing excess rent
and lease termination costs related to the restructuring. Management
believes the remaining restructuring reserve is adequate to cover such
costs.
F-7
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Report of Independent Public Accountants
To the Shareholders and Board of Directors of
Cadmus Communications Corporation:
We have audited the accompanying consolidated balance sheets of Cadmus Communi-
cations Corporation (a Virginia corporation), and Subsidiaries as of June 30,
1998 and 1997, and the related consolidated statements of income and cash flows
for each of the three years in the period ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our responsibil-
ity is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform an audit to obtain rea-
sonable 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 man-
agement, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cadmus Communications Corpora-
tion and Subsidiaries as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1998, in conformity with generally accepted accounting principles.
As explained in Note 4 to the financial statements, the Company has given ret-
roactive effect to the change in accounting for certain of its inventories from
the last-in, first-out method to the first-in, first-out method.
ARTHUR ANDERSEN LLP
Richmond, Virginia
July 28, 1998
F-8
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
-----------------------------------------
Years Ended June 30,
Dollars in thousands, except per 1998 1997 1996
share data --------- -------------- --------------
(as adjusted-- (as adjusted--
see Note 4) see Note 4)
<S> <C> <C> <C>
Net sales $ 393,823 $ 384,942 $ 336,655
<CAPTION>
--------- -------------- --------------
<S> <C> <C> <C>
Operating expenses:
Cost of sales 304,014 299,840 258,947
Selling and administrative 62,141 63,123 61,204
Restructuring charge, net 3,950 19,699 --
<CAPTION>
--------- -------------- --------------
<S> <C> <C> <C>
370,105 382,662 320,151
<CAPTION>
--------- -------------- --------------
<S> <C> <C> <C>
Operating income 23,718 2,280 16,504
Interest and other expenses:
Interest 7,595 7,788 5,144
Other, net 1,343 1,928 813
<CAPTION>
--------- -------------- --------------
<S> <C> <C> <C>
8,938 9,716 5,957
<CAPTION>
--------- -------------- --------------
<S> <C> <C> <C>
Income (loss) before income taxes
and extraordinary item 14,780 (7,436) 10,547
Income tax expense (benefit) 5,690 (2,219) 3,956
<CAPTION>
--------- -------------- --------------
<S> <C> <C> <C>
Income (loss) before extraordinary
item 9,090 (5,217) 6,591
Extraordinary loss on early
extinguishment of debt (net of
income tax benefit of $487) -- -- (795)
<CAPTION>
--------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) $ 9,090 $ (5,217) $ 5,796
<CAPTION>
--------- -------------- --------------
<S> <C> <C> <C>
Earnings per share--basic:
Income (loss) before extraordinary
item $ 1.16 $ (.66) $ .91
Extraordinary loss on early
extinguishment of debt -- -- (.11)
<CAPTION>
--------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) $ 1.16 $ (.66) $ .80
<CAPTION>
========= ============== ==============
<S> <C> <C> <C>
Weighted-average common shares
outstanding 7,860 7,900 7,249
<CAPTION>
========= ============== ==============
<S> <C> <C> <C>
Earnings per share--diluted:
Income (loss) before extraordinary
item $ 1.11 $ (.65) $ .88
Extraordinary loss on early
extinguishment of debt -- -- (.11)
<CAPTION>
--------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) $ 1.11 $ (.65) $ .77
<CAPTION>
========= ============== ==============
<S> <C> <C> <C>
Weighted-average common shares
outstanding--assuming dilution 8,176 8,035 7,495
<CAPTION>
========= ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
----------------------
At June 30,
1998 1997
-------- -------------
(as adjusted,
see Note 4)
<S> <C> <C>
Dollars in thousands, except share data
Assets
Current assets:
Cash and cash equivalents $ -- $ 184
Accounts receivable, less allowance for doubtful
accounts ($2,575 in 1998 and $2,250 in 1997) 70,571 69,093
Inventories 25,610 20,673
Deferred income taxes 3,832 7,789
Prepaid expenses and other 4,107 3,969
<CAPTION>
-------- -------------
<S> <C> <C>
Total current assets 104,120 101,708
<CAPTION>
-------- -------------
<S> <C> <C>
Property, plant and equipment, net 133,836 118,621
Goodwill and other intangibles, net 48,158 42,572
Other assets 5,638 4,015
<CAPTION>
-------- -------------
<S> <C> <C>
Total assets $291,752 $266,916
<CAPTION>
-------- -------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 2,100 $ 1,650
Current maturities of long-term debt 6,431 5,017
Accounts payable 41,981 29,593
Accrued expenses 18,293 15,674
Restructuring reserve 4,378 7,612
<CAPTION>
-------- -------------
<S> <C> <C>
Total current liabilities 73,183 59,546
<CAPTION>
-------- -------------
<S> <C> <C>
Long-term debt, less current maturities 93,224 89,452
Other long-term liabilities 8,867 7,811
Deferred income taxes 6,662 9,464
Shareholders' equity:
Common stock ($.50 par value; authorized shares--
16,000,000; issued and outstanding shares--7,921,000
in 1998 and 7,830,000 in 1997) 3,961 3,915
Capital in excess of par value 53,532 51,923
Retained earnings 52,323 44,805
<CAPTION>
-------- -------------
<S> <C> <C>
Total shareholders' equity 109,816 100,643
<CAPTION>
-------- -------------
<S> <C> <C>
Total liabilities and shareholders' equity $291,752 $266,916
<CAPTION>
======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-10
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
----------------------------------------
Years Ended June 30,
1997 1996
(as adjusted-- (as adjusted--
1998 Note 4) Note 4)
-------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Operating Activities
Net income (loss)................... $ 9,090 $ (5,217) $ 5,796
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Extraordinary loss on early
extinguishment of debt............ -- -- 795
Depreciation and amortization...... 18,444 18,188 14,563
Restructuring charge............... 3,950 19,699 --
Deferred income taxes.............. 679 (5,580) 1,836
Other, net......................... 997 112 1,942
<CAPTION>
-------- -------------- --------------
<S> <C> <C> <C>
33,160 27,202 24,932
<CAPTION>
-------- -------------- --------------
<S> <C> <C> <C>
Changes in assets and liabilities,
excluding debt and effects of
acquisitions:
Accounts receivable, net........... 4,675 5,544 (7,064)
Inventories........................ (4,158) 4,455 (2,735)
Accounts payable and accrued
expenses.......................... 7,873 (3,071) 1,680
Restructure reserve (due to cash
payments)......................... (4,745) (2,850) --
Other current assets............... (138) 2,018 (2,391)
Other long-term liabilities (due to
pension plan payments)............ (1,774) (3,400) (300)
Other, net......................... 414 1,742 (302)
<CAPTION>
-------- -------------- --------------
<S> <C> <C> <C>
2,147 4,438 (11,112)
<CAPTION>
-------- -------------- --------------
<S> <C> <C> <C>
Net cash provided by operating
activities....................... 35,307 31,640 13,820
<CAPTION>
-------- -------------- --------------
<S> <C> <C> <C>
Investing Activities
Proceeds from sale of consumer
publishing division................ -- 6,500 --
Purchases of property, plant and
equipment.......................... (33,588) (22,883) (25,289)
Proceeds from sales of property,
plant and equipment................ 6,765 2,860 651
Purchase of license agreement....... -- (482) --
Payments for businesses acquired.... (11,139) -- (73,372)
Other, net.......................... (543) (1,520) (303)
<CAPTION>
-------- -------------- --------------
<S> <C> <C> <C>
Net cash used in investing
activities........................ (38,505) (15,525) (98,313)
<CAPTION>
-------- -------------- --------------
<S> <C> <C> <C>
Financing Activities
Proceeds from stock offering, net... -- -- 38,376
Penalty on early extinguishment of
debt............................... -- -- (1,282)
Proceeds from (repayment of) short-
term borrowings, net............... 450 (1,673) (452)
Proceeds from long-term revolving
credit facility.................... 8,500 18,000 30,000
Proceeds from long-term borrowings.. -- 40,415 32,724
Repayment of long-term borrowings... (5,018) (70,747) (12,502)
Dividends paid...................... (1,572) (1,581) (1,485)
Repurchase and retirement of common
stock.............................. (118) (1,185) --
Proceeds from exercise of stock
options............................ 772 98 631
Other, net.......................... -- (399) (602)
<CAPTION>
-------- -------------- --------------
<S> <C> <C> <C>
Net cash provided by (used in)
financing activities.............. 3,014 (17,072) 85,408
<CAPTION>
-------- -------------- --------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash
equivalents........................ (184) (957) 915
Cash and cash equivalents at
beginning of year.................. 184 1,141 226
<CAPTION>
-------- -------------- --------------
<S> <C> <C> <C>
Cash and cash equivalents at end of
year............................... $ -- $ 184 $ 1,141
<CAPTION>
======== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Significant Accounting Policies
Basis of Consolidation.
The consolidated financial statements include the accounts and operations of
Cadmus Communications Corporation and Subsidiaries (the "Company"), a Virginia
corporation. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements. Es-
timates also affect the reported amounts of revenue and expenses during the re-
porting period. Actual results could differ from those estimates.
Nature of Operations.
The Company is an integrated communications company offering products and serv-
ices in the areas of marketing communications and professional communications.
Revenue Recognition.
Substantially all products are produced to customer specifications. The Company
recognizes revenue when service projects are completed or products are shipped.
Cash and Cash Equivalents.
Cash and cash equivalents include all cash balances and highly liquid invest-
ments with an original maturity of three months or less.
Inventories.
Inventories are valued at the lower of cost or market. Inventory costs have
been determined by the first-in, first-out method (see Note 4).
Property, Plant and Equipment.
Property, plant and equipment are stated at cost, net of accumulated deprecia-
tion. Major renewals and improvements are capitalized, whereas ordinary mainte-
nance and repair costs are expensed as incurred. Gains or losses on disposition
of assets are reflected in earnings and the related asset costs and accumulated
depreciation are removed from the respective accounts. Depreciation is calcu-
lated by the straight-line method based on useful lives of 30 years for build-
ings and 3 to 10 years for machinery, equipment, and fixtures.
Goodwill.
The Company amortizes costs in excess of fair value of net assets of businesses
acquired using the straight-line method over a period not to exceed 40 years.
Recoverability is reviewed annually or sooner if events or changes in circum-
stances indicate that the carrying amount may exceed fair value. If
recoverability is deemed to be potentially impaired, recoverability is then de-
termined by comparing the undiscounted net cash flows of the assets to which
the goodwill applies to the net book value including goodwill of those assets.
Accumulated amortization at June 30, 1998 and 1997 was $8.1 million and $6.4
million, respectively.
Income Taxes.
The Company uses the asset and liability method of Statement of Financial Ac-
counting Standards ("SFAS") No. 109 to account for income taxes. SFAS No. 109
requires the recognition of deferred tax liabilities and assets for the ex-
pected future tax consequences of temporary differences between the financial
reporting basis and tax basis of assets and liabilities.
Earnings Per Share.
During the second quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings per Share," which establishes new standards for computing and pre-
senting earnings per share. The impact of adopting the new standard was not ma-
terial. Basic earnings per share is computed on the basis of weighted-average
common shares outstanding from the date of issue. Diluted earnings per share is
computed on the basis of weighted-average common shares outstanding plus common
shares
F-12
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
contingently issuable upon the exercise of dilutive stock options. Incremental
shares for dilutive stock options, computed under the treasury stock method,
were 316,000, 135,000, and 246,000, in fiscal 1998, 1997, and 1996, respective-
ly.
Recently Issued Accounting Pronouncements.
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits--an amendment of FASB Statements No. 87, 88, and 106."
The Company plans to adopt these three pronouncements in fiscal 1999. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The Company plans to adopt this pronouncement in fiscal
2000. These statements will affect the Company's financial statement disclo-
sures. Management believes that the adoption of these pronouncements is not ex-
pected to have a material impact on the Company's financial position or results
of operations.
Reclassifications.
Certain previously reported amounts have been reclassified to conform to the
current-year presentation.
2. Restructuring Charges
During the fourth quarter of fiscal 1998, the Company recorded a one-time re-
structuring charge of $3.95 million ($2.5 million net of tax) related to the
integration of Germersheim, Inc. (see Note 3) with its existing point of pur-
chase operations. The charge included costs to consolidate facilities, elimi-
nate duplicate assets and provide severance costs. These actions were initiated
in fiscal 1998 and are expected to be completed within one year. Management be-
lieves that the remaining restructuring reserve at June 30, 1998 of $3.2 mil-
lion is adequate to complete the restructuring plan.
During the fourth quarter of fiscal 1997, the Company adopted a restructuring
plan that impacted a number of its operations. The plan included the following
actions: closure of the Baltimore promotional printing facility and the Long
Beach-based direct marketing agency; consolidation of Atlanta and Richmond-
based interactive divisions and certain journal fulfillment and distribution
operations; realignment of certain management, production and administrative
personnel; write-down of certain tangible and intangible assets; and exiting
certain nonstrategic customer relationships and product lines. In connection
with the restructuring plan, the Company recorded a restructuring charge of
$19.9 million ($12.9 million net of tax) in the fourth quarter of fiscal 1997.
The restructuring charge consisted of tangible and intangible asset write-downs
of $11.5 million, severance and other employee costs of $4.5 million, facility
closure and consolidation costs of $2.9 million and exit costs of $1.0 million.
Severance and other employee costs relate to approximately 250 associates at
various operating and corporate facilities. Operations that were discontinued
as a result of the restructuring reported sales of $16.4 million and $15.9 mil-
lion in fiscal 1997 and fiscal 1996, respectively. All restructuring actions
were taken by the end of fiscal 1998. The restructuring reserve balance remain-
ing at June 30, 1998 totaled $1.2 million, and relates primarily to continuing
excess rent and lease termination costs related to the restructuring. Manage-
ment believes the remaining restructuring reserve is adequate to cover such
costs.
The fiscal 1997 restructuring charge was offset by a $0.3 million restructuring
gain ($0.2 million net of tax) recorded in the first quarter of fiscal 1997 re-
lated to the restructuring of the former publishing operations. The $0.3 mil-
lion gain consisted of a $0.7 million gain from the sale of the consumer pub-
lishing operation, offset by a $0.4 million charge related to the strategic re-
positioning of the custom publishing product line into the Marketing Communica-
tions sector.
3. Acquisitions and Dispositions
On April 1, 1998, the Company acquired Germersheim, Inc., an Atlanta-based na-
tional point of purchase marketing service provider. The $13.7 million purchase
price consisted of 41,195 shares of the Company's common stock, at an aggregate
value of $1 million, $11 million in cash payments (including direct acquisition
costs), and $1.7 million in debt (primarily capital lease obligations). Of the
$11 million in cash payments, $2 million was held in escrow at June 30, 1998,
as contingent consideration, and will only be released if specified sales per-
formance levels are met during each of the next two years. The purchase agree-
ment also provides for additional contingent consideration payable to the
seller based upon future profitability of the business. Such contingent consid-
eration has been excluded from the purchase price above. The acquisition was
accounted for under the purchase method and, accordingly, the costs of the ac-
quisition were allocated to the assets acquired and the liabilities assumed
based upon their respective fair values at the date of purchase. The
F-13
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
operating results of Germersheim, Inc. have been included in the consolidated
operating results since the date of acquisition.
In September 1996, the Company sold the net assets of its consumer publishing
division for total consideration of $6.5 million. The sale resulted in a pretax
gain of $0.7 million (see Note 2).
In May 1996, the Company acquired all of the outstanding stock of Lancaster
Press, Inc. and Subsidiary, a Pennsylvania-based producer of scientific, tech-
nical and medical journals, for total consideration, including assumed debt and
transaction costs, of approximately $58.7 million. Debt assumed included a $2.7
million mortgage payable obligation. The acquisition was funded by borrowings
under the Company's revolving credit/term loan facility with its banks (see
Note 7).
In November 1995, the Company acquired substantially all of the assets and as-
sumed certain liabilities of The Software Factory, Inc., an Atlanta-based pro-
vider of software packaging and media duplication services. The $14.1 million
purchase price consisted of 79,681 shares of the Company's common stock, at an
aggregate value of $2.0 million, and $12.1 million in cash payments, including
direct acquisition costs. In fiscal 1996, the Company acquired certain assets
of four other companies. Total cash paid for these acquisitions was $3.4 mil-
lion.
The funds used to acquire fiscal 1996 acquisitions were primarily provided from
the proceeds of the issuance of 1.725 million shares of the Company's common
stock (see Note 11). All of the fiscal 1996 acquisitions were accounted for un-
der the purchase method and, accordingly, the costs of the acquisitions were
allocated to the assets acquired and liabilities assumed based on their respec-
tive fair values. The results of operations of each of the acquired companies
have been included in the Company's consolidated results of operations since
each respective date of acquisition.
The unaudited consolidated results of operations on a pro forma basis, as
though Lancaster Press, Inc. and The Software Factory, Inc. had been acquired
as of the beginning of fiscal year 1996 are as follows:
<TABLE>
<CAPTION>
-------------
1996
(In thousands, except per share data) -------------
(as adjusted,
see Note 4)
<S> <C>
Revenues $391,804
Income before extraordinary item 8,459
Net income 7,664
Earnings per share, assuming dilution:
Income before extraordinary item $ 1.13
Net income 1.02
<CAPTION>
=============
</TABLE>
4. Inventories
Inventories as of June 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
---------------
1998 1997
(In thousands) ------- -------
<S> <C> <C>
Raw materials and supplies $ 4,841 $ 5,341
Work in process:
Materials 6,567 2,838
Other manufacturing costs 11,331 9,451
Finished goods 2,871 3,043
<CAPTION>
------- -------
<S> <C> <C>
Inventories $25,610 $20,673
<CAPTION>
======= =======
</TABLE>
During the fourth quarter of fiscal 1998, the Company changed its method of ac-
counting for certain of its inventories from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method. As of June 30, 1997, the Com-
pany had valued approximately 15% of its inventories using LIFO. This change
standardizes the method of accounting for all Company inventory. As required by
generally accepted accounting principles, the Company has retroactively ad-
justed prior years'
F-14
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
financial statements for the change. The restatement had no effect on net in-
come in fiscal 1998, increased the net loss in fiscal 1997 by $194,000, or
$0.02 per share, and increased net income in fiscal 1996 by $87,000, or $0.01
per share. The restatement also had the effect of increasing retained earnings
as of June 30, 1995 by $873,000.
5. Property, Plant and Equipment
Property, plant and equipment as of June 30, 1998 and 1997 consist of the fol-
lowing:
<TABLE>
<CAPTION>
-----------------
1998 1997
(In thousands) -------- --------
<S> <C> <C>
Land and improvements $ 6,041 $ 5,040
Buildings and improvements 49,985 45,856
Machinery, equipment and fixtures 185,079 167,283
<CAPTION>
-------- --------
<S> <C> <C>
Total property, plant and equipment 241,105 218,179
Less: Accumulated depreciation 107,269 99,558
<CAPTION>
-------- --------
<S> <C> <C>
Property, plant and equipment, net $133,836 $118,621
<CAPTION>
======== ========
</TABLE>
Commitments outstanding for capital expenditures at June 30, 1998 totaled $9.9
million.
The Company leases office, production and storage space, and equipment under
various noncancelable operating leases. A number of leases contain renewal op-
tions and some contain purchase options. Certain leases require the Company to
pay utilities, taxes, and other operating expenses. Future minimum rental pay-
ments required under operating leases that have initial or remaining noncancel-
able lease terms in excess of one year as of June 30, 1998 are as follows:
1999--$6.2 million; 2000--$4.7 million; 2001--$3.5 million; 2002-- $3.0 mil-
lion; 2003--$2.7 million and thereafter--$4.4 million.
Total rental expense charged to operations was $6.5 million, $7.0 million, and
$5.7 million in fiscal 1998, 1997 and 1996, respectively. Substantially all
such rental expense represented the minimum rental payments under operating
leases.
Depreciation expense was $16.7 million, $16.2 million, and $13.4 million for
fiscal 1998, 1997 and 1996, respectively.
6. Other Balance Sheet Information
Accrued expenses at June 30, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
---------------
1998 1997
(In thousands) ------- -------
<S> <C> <C>
Compensation $12,737 $11,029
Deferred revenue 818 1,576
Other 4,738 3,069
<CAPTION>
------- -------
<S> <C> <C>
Accrued expenses $18,293 $15,674
<CAPTION>
======= =======
</TABLE>
Other long-term liabilities consist principally of amounts recorded under de-
ferred compensation arrangements with certain executive officers and other em-
ployees and amounts recorded under the pension and other postretirement benefit
plans (see Notes 9 and 10).
F-15
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
7. Debt
Long-term debt at June 30, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
---------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Bank borrowings:
Term loan facility, weighted-average interest rate of 6.38% $37,000 $40,000
Revolving credit facility, weighted-average interest rate of
6.15% 56,500 48,000
Tax-exempt variable rate industrial development bonds,
weighted-average interest rate of 4.4%, due 2016 1,600 3,315
Mortgage payable, 10%, due 2002 2,669 2,696
Other 1,886 458
<CAPTION>
------- -------
<S> <C> <C>
Total long-term debt 99,655 94,469
Less: current maturities of long-term debt 6,431 5,017
<CAPTION>
------- -------
<S> <C> <C>
Long-term debt $93,224 $89,452
<CAPTION>
======= =======
</TABLE>
In October 1996, the Company entered into a new $160 million bank credit agree-
ment with six major banks. The $160 million bank credit agreement consists of a
$40 million term loan facility, expiring in 2003, and a $120 million revolving
credit facility, expiring in 2001. This agreement replaced an existing $115
million bank credit agreement, consisting of a $30 million term loan facility
and an $85 million revolving credit facility, entered into with four of the
same banks in January 1996. The term of the facility, interest rate spreads and
commitment fees were essentially the same under both the current and former
bank credit agreements.
The term loan facility requires the Company to make quarterly installment pay-
ments beginning January 1998 through expiration. The revolving credit facility
requires the Company to pay commitment fees at an annual rate ranging from 1/8
to 1/4 of 1% (based on the level of certain debt covenants) of the total amount
of the facility. The rate of interest payable under the bank credit agreement
is a function of (i) LIBOR, (ii) prime rate or (iii) money market rate, each as
defined under the agreement.
Using the additional capacity available under the new $160 million bank credit
agreement, the Company repaid $40 million of 6.74% senior unsecured notes.
These notes were originally due in 2003. There was no prepayment penalty asso-
ciated with the debt retirement in fiscal 1997.
In December 1995, the Company retired $11.2 million principal of 9.76% senior
notes originally due June 2000 and recorded a $1.3 million ($0.8 million net of
tax) extraordinary loss relating to the early retirement of this debt. The
funds used for the debt retirement were provided from the proceeds of the issu-
ance of 1.725 million shares of the Company's common stock (see Note 11).
The Company's debt agreements contain covenants regarding fixed charge coverage
and net worth and contain other restrictions, including limitations of addi-
tional borrowings, and the acquisition, disposition and securitization of as-
sets. The Company was in compliance with all debt covenants at June 30, 1998.
The fair value of long-term debt as of June 30, 1998 and 1997 approximated
their recorded values.
Maturities of long-term debt are as follows: 1999--$6.4 million; 2000--$6.4
million; 2001--$6.4 million; 2002--$66.3 million; 2003--$8.3 million; thereaf-
ter--$5.9 million. The net book value of all encumbered properties as of June
30, 1998 and 1997 totaled $4.2 million and $4.4 million, respectively.
The Company had uncommitted bank lines of credit which provide for unsecured
borrowings of up to $10 million, of which $2.1 million was outstanding at June
30, 1998.
The Company incurred interest costs of $8.2 million, $8.5 million, and $5.4
million for fiscal 1998, 1997 and 1996, respectively, of which $0.6 million for
1998, $0.7 million for 1997, and $0.3 million for 1996 were capitalized. Inter-
est
F-16
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
paid, net of amounts capitalized, totaled $7.7 million, $7.9 million, and $5.0
million for fiscal 1998, 1997 and 1996 respectively.
The Company has a strategy to optimize the ratio of the Company's fixed-to-
variable rate financing consistent with maintaining an acceptable level of ex-
posure to the risk of interest rate fluctuations. To achieve this mix, the
Company, from time to time, enters into interest rate swap agreements with
various banks to exchange fixed and variable rate interest payment obligations
without the exchange of the underlying principal amounts (the "notional
amounts"). These agreements are hedged against the Company's long-term
borrowings and have the effect of converting the Company's long-term
borrowings from variable rate to fixed rate, or fixed rate to variable rate,
as required. The differential to be paid or received is accrued as interest
rates change and recognized as an adjustment to interest expense related to
the debt. The related amount payable to or receivable from counterparties is
included in other liabilities or assets. The Company's strategy to effectively
convert variable rate financing to fixed rate financing through the use of the
aforementioned swap agreements resulted in additional interest cost of $1.3
million in fiscal 1998, $1.2 million in fiscal 1997, and $0.7 million in fis-
cal 1996.
At June 30, 1998, the Company had one fixed-to-floating interest rate swap
agreement outstanding with a notional amount of $35 million. This swap was en-
tered into in fiscal 1994 to convert $35 million of the 6.74% Senior Notes due
in 2003 to floating-rate debt. Under the terms of this agreement, the Company
receives interest payments at a fixed rate of 5.265% and pays interest at a
variable rate that is based on six-month LIBOR. The initial term of this swap
agreement expires in fiscal 1999, and is renewable at the bank's option for an
additional two years. The fair value of this contract (which is not recognized
in the consolidated financial statements) at June 30, 1998 and 1997 was nega-
tive $0.1 million, and negative $0.4 million, respectively. In fiscal 1997,
the Company repaid the fixed rate debt hedged by this swap with variable rate
debt. To adjust the ratio of the Company's fixed to variable rate financing,
the Company entered into additional floating-to-fixed rate swap agreements in
fiscal 1997.
At June 30, 1998, the Company had various floating-to-fixed interest rate swap
agreements outstanding with notional amounts totaling $88.7 million. These
swaps effectively convert a portion of the Company's variable-rate debt and
aforementioned fixed-to-floating rate swap to a fixed-rate. The swap agree-
ments have individual notional amounts ranging from $6.5 million to $40 mil-
lion. Under the terms of each of the agreements, the Company receives interest
payments at a variable rate based on either 30-day or six-month LIBOR and pays
interest at a fixed rate ranging from 6.54% to 8.09%. The fair value of these
contracts (which is not recognized in the consolidated financial statements)
at June 30, 1998 and 1997 totaled negative $2.0 million and negative $1.1 mil-
lion, respectively. These swap agreements are scheduled to expire as follows:
1999: $18.7 million; 2002: $40 million; 2003: $30 million.
The notional amounts and applicable rates of the Company's interest rate swap
agreements are as follows:
<TABLE>
<CAPTION>
------------------------------------------------
Paid Fixed, Received Paid Floating, Received
Floating Fixed
1998 1997 1996 1998 1997 1996
(In thousands) ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Notional amount:
Beginning balance $88,700 $47,900 $17,375 $35,000 $35,000 $35,000
New contracts -- 40,800 37,900 -- -- --
Expired contracts -- -- (7,375) -- -- --
<CAPTION>
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Ending Balance $88,700 $88,700 $47,900 $35,000 $35,000 $35,000
<CAPTION>
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
-------------------
Weighted-Average
Interest Rate
for 1998
-------------------
Paid Received
-------- ----------
<S> <C> <C>
Type of swap:
Paid fixed, received floating 7.0% 5.8%
Paid floating, received fixed 5.9% 5.3%
</TABLE>
The notional amount of each swap contract does not represent exposure to
credit loss. In the event of default by the counterparties, the risk, if any,
is the cost of replacing the swap agreement at current market rates. The Com-
pany continu-
F-17
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
ally monitors its positions and the credit rating of its counterparties and
limits the amount of agreements it enters into with any one party. Management
does not anticipate nonperformance by the counterparties; however, if incurred,
any such loss would be immaterial.
8. Income Taxes
Income tax expense (benefit), for the years ended June 30, 1998, 1997, and 1996
consists of the following:
<TABLE>
<CAPTION>
----------------------
1998 1997 1996
(In thousands) ------ ------- ------
(as adjusted,
see Note 4)
<S> <C> <C> <C>
Current:
Federal $4,069 $ 2,878 $2,139
State 1,098 483 418
<CAPTION>
------ ------- ------
<S> <C> <C> <C>
Total current 5,167 3,361 2,557
<CAPTION>
------ ------- ------
<S> <C> <C> <C>
Deferred:
Federal 456 (4,168) 1,228
State 67 (1,412) 171
<CAPTION>
------ ------- ------
<S> <C> <C> <C>
Total deferred 523 (5,580) 1,399
<CAPTION>
------ ------- ------
<S> <C> <C> <C>
Income tax expense (benefit) $5,690 $(2,219) $3,956
<CAPTION>
====== ======= ======
</TABLE>
The amount of income tax expense (benefit) differs from the amount obtained by
application of the statutory U.S. rates to income (loss) before income taxes
and extraordinary item for the reasons shown in the following table:
<TABLE>
<CAPTION>
-----------------------
1998 1997 1996
(In thousands) ------ ------- ------
(as adjusted,
see Note 4)
<S> <C> <C> <C>
Computed at statutory U.S. rate $5,059 $(2,573) $3,591
State income taxes, net of Federal tax benefit 341 (613) 388
Goodwill amortization 450 924 251
Research tax credit (50) (75) (217)
Other (110) 118 (57)
<CAPTION>
------ ------- ------
<S> <C> <C> <C>
Income tax expense (benefit) $5,690 $(2,219) $3,956
<CAPTION>
====== ======= ======
</TABLE>
Cash paid for income taxes totaled $5.0 million, $2.3 million, and $2.4 mil-
lion, for fiscal 1998, 1997, and 1996, respectively.
The Company has state net operating loss carryforwards aggregating approxi-
mately $52.6 million, which expire during fiscal years 2004 to 2013. A valua-
tion allowance of $0.8 million has been established for state net operating
loss benefits that are not expected to be realized. The valuation allowance in-
creased by $0.1 million in fiscal 1998 and $0.2 million in fiscal 1997.
F-18
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
The tax effects of the significant temporary differences that comprise the de-
ferred tax assets and liabilities in the consolidated balance sheets at June
30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
---------------------
1998 1997
(In thousands) ------- -------------
(as adjusted,
see Note 4)
<S> <C> <C>
Assets:
Allowance for doubtful accounts $ 1,067 $ 857
Employee benefits 5,028 3,510
State net operating loss carryforwards 1,545 1,354
Goodwill 2,625 2,576
Accrued restructuring costs 2,133 3,318
Other 51 308
<CAPTION>
------- -------------
<S> <C> <C>
Gross deferred tax assets 12,449 11,923
<CAPTION>
------- -------------
<S> <C> <C>
Liabilities:
Property, plant, and equipment 14,171 12,450
Other 346 501
<CAPTION>
------- -------------
<S> <C> <C>
Gross deferred tax liabilities 14,517 12,951
<CAPTION>
------- -------------
<S> <C> <C>
Valuation allowance 762 647
<CAPTION>
------- -------------
<S> <C> <C>
Net liability $ 2,830 $ 1,675
<CAPTION>
======= =============
</TABLE>
9. Retirement Plans
Defined Benefit Plans
The Company sponsors a noncontributory defined benefit pension plan that cov-
ers substantially all employees, and participates in a multiemployer retire-
ment plan that provides defined benefits to employees covered under a collec-
tive bargaining agreement (collectively, the "core plans"). The Company also
sponsors a supplemental pension plan for certain key executives (the "supple-
mental plan"). All plans provide benefit payments using formulas based on an
employee's compensation and length of service, or stated amounts for each year
of service. The Company makes contributions to its core plans sufficient to
meet the minimum funding requirements of applicable laws and regulations. The
supplemental plan for key executives is a nonqualified, nonfunded pension
plan, and is provided for by charges to earnings sufficient to meet the pro-
jected benefit obligation. Contributions to the multiemployer plan are gener-
ally based on a negotiated labor contract. The Company's contributions totaled
$1.8 million, $3.4 million, and $0.3 million in fiscal 1998, 1997 and 1996,
respectively. The core plans' assets consist primarily of equity and debt se-
curities.
The components of net pension costs for fiscal 1998, 1997, and 1996 for all
plans follow:
<TABLE>
<CAPTION>
-------------------------
1998 1997 1996
(In thousands) ------- ------- -------
<S> <C> <C> <C>
Present value of benefits earned $ 2,550 $ 2,341 $ 2,010
Interest cost on plan liabilities 3,288 2,783 2,305
Return on plan assets:
Actual (9,546) (3,567) (4,522)
Deferred 6,154 838 2,382
Net amortization (41) (86) (104)
Contributions to multiemployer plan 64 59 --
<CAPTION>
------- ------- -------
<S> <C> <C> <C>
Net pension costs $ 2,469 $ 2,368 $ 2,071
<CAPTION>
======= ======= =======
</TABLE>
F-19
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
The actuarial assumptions used in determining net pension cost and the related
benefit obligations for all plans were as follows:
<TABLE>
<CAPTION>
-----------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Discount rate 7.25% 8.25% 8.25%
Rate of increase in compensation 4.5% 4.5% 4.5%
Long-term rate of return on plan assets 9.75% 9.0% 9.0%
</TABLE>
A summary of the funded status of pension plans at June 30, 1998 and 1997 fol-
lows:
<TABLE>
<CAPTION>
---------------------------------
Supplemental
Core Plans Plan
1998 1997 1998 1997
(In thousands) ------- ------- ------- ------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefits $38,612 $29,581 $ 4,073 $3,360
Nonvested benefits 2,498 1,733 362 341
<CAPTION>
------- ------- ------- ------
<S> <C> <C> <C> <C>
Accumulated benefit obligation 41,110 31,314 4,435 3,701
Effect of projected salary increases 6,516 4,975 1,132 868
<CAPTION>
------- ------- ------- ------
<S> <C> <C> <C> <C>
Projected benefit obligation 47,626 36,289 5,567 4,569
<CAPTION>
------- ------- ------- ------
<S> <C> <C> <C> <C>
Plan assets at market value 44,860 35,057 * *
<CAPTION>
------- ------- ------- ------
<S> <C> <C> <C> <C>
Excess of projected benefit obligation over
plan assets 2,766 1,232 5,567 4,569
Unrecognized net asset (obligation) at
transition 1,723 1,875 (578) (649)
Unrecognized prior service cost (365) (40) -- --
Unrecognized losses (1,609) (867) (1,306) (474)
Additional minimum pension liability -- 238 577 255
<CAPTION>
------- ------- ------- ------
<S> <C> <C> <C> <C>
Accrued pension costs $ 2,515 $ 2,438 $ 4,260 $3,701
<CAPTION>
======= ======= ======= ======
</TABLE>
* The supplemental plan is technically a nonfunded plan. However, the Company
has acquired life insurance contracts ($14.5 million face amount at June 30,
1998 and 1997) intended to be adequate to fund future benefits. The cash sur-
render value of these contracts, net of policy loans, was $2.2 million and
$1.9 million at June 30, 1998 and 1997, respectively, and is included in
other assets in the consolidated balance sheets.
Defined Contribution Plan
The thrift savings plan enables employees to save a portion of their earnings
on a tax-deferred basis and also provides for matching contributions from the
Company for a portion of the employees' savings. Additionally, the plan pro-
vides for individual subsidiary companies to make profit-sharing contributions.
The Company's expense under this plan was $1.9 million in fiscal 1998, and $1.8
million in fiscal 1997 and fiscal 1996.
10. Other Postretirement Benefits
All employees of the Company are eligible for retiree medical coverage if they
retire on or after attaining age 55 with ten or more years of service. Benefits
differ depending upon the date of retirement. For those employees who retired
prior to April 1, 1988, and are under age 65, coverage is available at a cost
to the retiree equal to the cost to the Company for an active employee less the
fixed Company subsidy. Once employees in this group have reached age 65, cover-
age is available at a cost to the retiree equal to the cost to the Company for
a post-65 retiree less the fixed Company subsidy. For those employees who re-
tired on or after April 1, 1988, but before January 1, 1994, coverage is avail-
able until age 65. The retiree contributes the full active rate. Upon reaching
age 65, coverage under the Company's plan ceases and the retiree becomes cov-
ered by Medicare. For those employees who retire on or after January 1, 1994,
coverage is available until age 65. The retiree contributes the full retiree
rate, which is equal to the cost to the Company for a pre-65 retired employee.
Upon reaching age 65, coverage under the Company's plan ceases, and the retiree
becomes covered by Medicare.
F-20
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
The following table sets forth the components of the accrued postretirement
benefit obligation as of June 30, 1998 and 1997:
<TABLE>
<CAPTION>
---------
1998 1997
(In thousands) ---- ----
<S> <C> <C>
Accrued postretirement benefit obligation attributable to retirees $337 $356
Unrecognized net gain 206 274
<CAPTION>
---- ----
<S> <C> <C>
Accrued postretirement benefit cost $543 $630
<CAPTION>
==== ====
</TABLE>
Amounts recognized as net periodic postretirement benefit cost in fiscal 1998
and 1997 were not material.
The discount rate used in determining the accumulated postretirement benefit
obligation as of June 30, 1998 was 7.25%. The assumed healthcare cost trend
rate used in measuring the accumulated benefit obligation was 8% in fiscal
1998, gradually decreasing to 5.75% in the year 2003 and remaining level there-
after. A one percentage-point increase in the assumed healthcare cost trend
rates would not change the accumulated postretirement benefit obligation.
11. Shareholders' Equity
Shareholders' equity consists of the following:
<TABLE>
<CAPTION>
---------------------------------------
Capital in
Common Stock Excess of Retained
(Dollars in thousands, except per Shares Amount Par Value Earnings
share data) --------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1995 (as
previously reported) 6,030,000 $3,015 $12,448 $46,419
Adjustment for the cumulative effect
on prior years of applying
retroactively the new method of
accounting for inventory (see note
4) -- -- -- 873
<CAPTION>
--------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1995, as adjusted 6,030,000 3,015 12,448 47,292
Net income (as adjusted, see note 4) -- -- -- 5,796
Cash dividends--$.20 per share -- -- -- (1,485)
Issuance of common stock 1,805,000 902 39,459 --
Net shares issued upon exercise of
stock options 73,000 37 1,064 --
<CAPTION>
--------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1996, as adjusted 7,908,000 3,954 52,971 51,603
Net loss (as adjusted, see note 4) -- -- -- (5,217)
Cash dividends--$.20 per share -- -- -- (1,581)
Repurchase of common stock (88,000) (44) (1,141) --
Net shares issued upon exercise of
stock options 10,000 5 93 --
<CAPTION>
--------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1997, as adjusted 7,830,000 3,915 51,923 44,805
Net income -- -- -- 9,090
Cash dividends--$.20 per share -- -- -- (1,572)
Repurchase of common stock (8,000) (4) (114) --
Issuance of common stock for business
acquisition (see note 3) 41,000 21 980 --
Net shares issued upon exercise of
stock options 58,000 29 743 --
<CAPTION>
--------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance at June 30, 1998 7,921,000 $3,961 $53,532 $52,323
<CAPTION>
========= ====== ========== ========
</TABLE>
In fiscal 1997, the Board of Directors authorized the repurchase of up to
750,000 shares of the Company's common stock, or about 9% of shares outstand-
ing. Shares may be repurchased from time to time in the open market or through
privately negotiated transactions. As of June 30, 1998, 96,000 shares had been
repurchased under this authorization.
In November 1995, the Company completed the issuance of an additional 1.725
million shares of the Company's common stock through a public offering, result-
ing in net proceeds (after deducting issuance costs) of $38.4 million. The Com-
pany
F-21
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
used the net proceeds to (i) repay the $11.2 million of 9.76% Senior Notes due
in June 2000, plus a $1.3 million ($0.8 million net of tax) prepayment penalty,
(ii) fund the cash portion of certain acquisitions and (iii) repay short-term
borrowings used to fund seasonal working capital needs.
In 1989 and 1990, the Board of Directors authorized the purchase of up to
200,000 shares of the Company's stock from time to time on the open market. The
shares, if and when purchased, may be used for the funding of employee benefit
plans. As of June 30, 1998, 133,000 shares had been repurchased under this au-
thorization.
In February 1989, as part of a shareholder rights plan, the Board of Directors
declared a dividend distribution of one preferred share purchase right for each
outstanding share of common stock. Each right entitles the shareholder to buy
one unit (one one-thousandth of a share) of Series A Preferred Stock at a pur-
chase price of $45 per share (the "Purchase Price"), subject to adjustment. The
rights will become exercisable initially if a person or group acquires or an-
nounces a tender offer for 20% or more of the Company's common stock ("Acquir-
ing Person"), at which time each right will be exercisable to purchase one unit
of Series A Preferred at the Purchase Price. At any time after a person becomes
an Acquiring Person, the Company may issue a share of common stock in exchange
for each right other than those held by the Acquiring Person. If an Acquiring
Person acquires 30% or more of the Company's common stock or an Acquiring Per-
son merges into or combines with the Company, each right will entitle the hold-
er, other than the Acquiring Person, upon payment of the Purchase Price, to ac-
quire Series A Preferred or, at the option of the Company, common stock, having
a market value equal to twice the Purchase Price. If the Company is acquired in
a merger or other business combination in which it does not survive or if 50%
of its earnings power is sold, each right will entitle the holder, other than
the Acquiring Person, to purchase securities of the surviving company having a
market value equal to twice the Purchase Price. Unless redeemed earlier, the
rights expire on February 13, 1999. The rights may be redeemed by the Board of
Directors at any time prior to the tenth day after a person becomes an Acquir-
ing Person, subject to the Board of Directors' ability to extend or reinstate
the redemption period under certain circumstances. The rights may have certain
anti-takeover effects. An Acquiring Person will experience substantial dilution
under certain circumstances. However, the rights should not interfere with any
merger or other business combination approved by the Board of Directors because
the rights are generally redeemable at the discretion of the Board.
In addition to its common stock, the Company's authorized capital includes
1,000,000 shares of preferred stock ($1.00 par value), issuable in series, of
which 100,000 shares are designated as Series A Preferred.
12. Stock Options
Under the Company's stock option plans, selected employees and nonemployee di-
rectors may be granted options to purchase its common stock at prices equal to
the fair market value of the stock at the date the options are granted. In fis-
cal 1997, the Company adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by the provisions of
SFAS No. 123, the Company continues to follow Accounting Principles Board Opin-
ion No. 25, "Accounting for Stock Issued to Employees," and related interpreta-
tions in accounting for its stock-based awards. Accordingly, since stock op-
tions are issued at fair market value on the date of grant, the Company does
not recognize charges to earnings resulting from the plans.
The following information is provided solely in connection with the disclosure
requirements of SFAS No. 123. If the Company had elected to recognize compensa-
tion cost related to its stock options granted in fiscal 1998 and 1997 in ac-
cordance with the provisions of SFAS No. 123, there would have been a pro forma
net income of $8,436,000 in fiscal 1998 ($1.03 per share, assuming dilution)
and a pro forma net loss of $5,450,000 during fiscal 1997 (($0.68) per share,
assuming dilution). The fair value of these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following weight-
ed-average assumptions for fiscal 1998 and 1997, respectively: risk-free inter-
est rates of 5.97% and 6.61%; dividend yields of 0.82% and 1.42%; volatility
factors of .340 and .390 and an expected life of 8 years. The weighted-average
fair value of options was $11.52 and $6.71 per option during fiscal 1998 and
1997, respectively.
F-22
<PAGE>
Cadmus Communications Corporation and Subsidiaries
Notes to Consolidated Financial Statements--(Continued)
A summary of the Company's stock option activity and related information for
the fiscal years ended June 30, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
--------------------------------------------
Weighted-Average
Number of Option Price Exercise
Shares Per Share Price(A)
--------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding at June 30, 1995 607,000 $ 6.38 to $28.00
Exercised (73,000) 6.38 to 9.75
Granted 169,000 16.75 to 25.06
Lapsed or canceled (30,000) 16.75 to 25.06
<CAPTION>
--------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding at June 30, 1996 673,000 8.25 to 28.00 $14.12
Exercised (10,000) 9.81 9.81
Granted 258,000 13.18 to 16.13 14.06
Lapsed or canceled (24,000) 9.13 to 19.19 16.30
<CAPTION>
--------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding at June 30, 1997 897,000 8.25 to 28.00 14.08
Exercised (58,000) 9.00 to 17.13 13.21
Granted 251,000 16.14 to 26.88 24.46
Lapsed or canceled (88,000) 13.25 to 19.19 16.78
<CAPTION>
--------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding at June 30, 1998 1,002,000 $ 8.25 to $28.00 $16.50
<CAPTION>
--------- ---------------- ----------------
<S> <C> <C> <C>
Exercisable at June 30:
1996 436,000 $ 8.25 to $24.05
1997 403,000 8.25 to 24.05 $11.44
1998 590,000 8.25 to 26.88 13.67
<CAPTION>
========= ================ ================
</TABLE>
(A) Disclosure of weighted-average exercise price information is required by
SFAS No. 123 for fiscal years beginning after December 15, 1995.
The weighted-average remaining contractual life of options outstanding at June
30, 1998 is 7 years. At June 30, 1998, 1,129,000 shares of authorized but
unissued common stock were reserved for issuance upon exercise of options
granted or grantable under the plans. Options are generally exercisable under
the plans for periods of 5 to 10 years from the date of grant. The following
table provides additional detail of the 1,002,000 options outstanding at June
30, 1998:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Weighted-Average Number of
Range of Number of Remaining Life Weighted-Average Options Weighted-Average
Exercise Prices Outstanding (years) Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 8.25 to $13.25 322,000 4.0 $ 9.66 297,000 $ 9.36
14.25 to 19.19 465,000 8.0 16.50 252,000 16.73
24.05 to 28.00 215,000 9.2 26.75 41,000 26.12
</TABLE>
13. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base, and their dispersion across
different businesses and geographic regions. As of June 30, 1998 and 1997, the
Company had no significant concentrations of credit risk.
14. Contingencies
The Company is party to various legal actions which are ordinary and incidental
to its business. While the outcome of legal actions cannot be predicted with
certainty, management believes the outcome of any of these proceedings, or all
of them combined, will not have a materially adverse effect on its consolidated
financial position or results of operations.
F-23
<PAGE>
Melham Holdings, Inc.
Consolidated Balance Sheets
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
------------------------
March 31 December 31
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 70 $ 450
Accounts receivable, less allowance of $1,234 in
1999 and $1,426 in 1998 22,198 24,427
Inventories 9,623 10,590
Prepaid expenses and other 1,128 1,165
Deferred income taxes 1,576 1,692
Recoverable income taxes 274 282
<CAPTION>
----------- -----------
<S> <C> <C>
Total current assets 34,869 38,606
Property, plant, and equipment, at cost:
Land 761 761
Buildings 12,926 12,988
Machinery and equipment 81,275 80,516
Construction in progress 3,955 1,714
<CAPTION>
----------- -----------
<S> <C> <C>
98,917 95,979
Less accumulated depreciation 48,916 46,937
<CAPTION>
----------- -----------
<S> <C> <C>
50,001 49,042
Excess of cost over net assets of businesses
acquired, net of amortization 32,518 32,730
Deferred financing costs, net of amortization 2,608 2,733
Deferred income taxes 1,045 900
Other assets 864 920
<CAPTION>
----------- -----------
<S> <C> <C>
$121,905 $124,931
<CAPTION>
=========== ===========
<S> <C> <C>
Liabilities and deficiency in assets
Current liabilities:
Trade accounts payable $ 6,374 $ 7,841
Other accrued expenses 6,259 6,176
Accrued payroll costs 5,577 4,822
Accrued pension contribution 716 714
Income taxes payable 462 38
Current portion of long-term debt 6,216 7,472
<CAPTION>
----------- -----------
<S> <C> <C>
Total current liabilities 25,604 27,063
Long-term debt, excluding current portion 95,719 98,026
Deferred credits and other liabilities:
Pension liabilities 6,061 5,842
Postretirement benefits 16,441 16,715
Customer deposits and other 575 608
Due to affiliates -- 35
<CAPTION>
----------- -----------
<S> <C> <C>
23,077 23,200
<CAPTION>
----------- -----------
<S> <C> <C>
Total liabilities 144,400 148,289
Deficiency in assets:
Series A Preferred Stock, $0.01 par value (stated
at $100 liquidation value), authorized 100,000
shares, issued 64,243 shares in 1999 and 62,263
shares in 1998 6,424 6,226
Common Stock, $0.01 par value, authorized 50,000
shares, issued 40,000 shares in 1999 and 1998 -- --
Additional paid-in capital 3,983 3,983
Retained-earnings deficit (32,692) (33,357)
Accumulated other comprehensive loss (210) (210)
<CAPTION>
----------- -----------
<S> <C> <C>
Total deficiency in assets (22,495) (23,358)
<CAPTION>
----------- -----------
<S> <C> <C>
$121,905 $124,931
<CAPTION>
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-24
<PAGE>
Melham Holdings, Inc.
Consolidated Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
-------------------
Three months ended
March 31
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
Net sales $ 39,484 $ 31,404
Cost of sales:
Materials and outside services 10,113 7,838
Other operating costs 19,961 16,219
<CAPTION>
--------- ---------
<S> <C> <C>
30,074 24,057
<CAPTION>
--------- ---------
<S> <C> <C>
Gross profit 9,410 7,347
Selling, general, and administrative expenses 5,558 3,804
<CAPTION>
--------- ---------
<S> <C> <C>
Operating income 3,852 3,543
Interest expense 2,728 2,171
Miscellaneous expense (income), net 35 (13)
<CAPTION>
--------- ---------
<S> <C> <C>
2,763 2,158
<CAPTION>
--------- ---------
<S> <C> <C>
Earnings before income taxes 1,089 1,385
Provision for income taxes 456 567
<CAPTION>
--------- ---------
<S> <C> <C>
Net income $ 633 $ 818
<CAPTION>
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-25
<PAGE>
Melham Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
--------------------
Three months ended
March 31
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
Operating activities
Net income $ 633 $ 818
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,204 1,638
Amortization, including deferred financing costs 347 235
(Benefit) provision for loss on accounts receivable (123) 64
(Benefit) provision for deferred income taxes (29) 288
Loss on sale of assets 43 6
Series A Preferred Stock issued in lieu of payment of
interest 198 214
Changes in operating assets and liabilities:
Accounts receivable 2,352 1,939
Inventories (932) (474)
Prepaid expenses and other 3 (40)
Income taxes 403 208
Trade accounts payable (1,423) (2,981)
Accrued liabilities and other 1,017 (748)
Accrued pension 221 377
Postretirement benefits (274) (284)
Other 539 136
<CAPTION>
--------- ---------
<S> <C> <C>
Net cash provided by operating activities 5,179 1,396
Investing activities
Proceeds from sale of assets 21 3
Capital expenditures (3,204) (539)
<CAPTION>
--------- ---------
<S> <C> <C>
Net cash used in investing activities (3,183) (536)
Financing activities
Principal payments on long-term debt (2,282) (1,212)
Proceeds from debt financing 1,232 1,270
Proceeds from line of credit 43,435 35,060
Repayments of line of credit (44,726) (35,737)
Change in due to affiliates (35) 15
<CAPTION>
--------- ---------
<S> <C> <C>
Net cash used in financing activities (2,376) (604)
<CAPTION>
--------- ---------
<S> <C> <C>
(Decrease) increase in cash (380) 256
Cash at beginning of period 450 320
<CAPTION>
--------- ---------
<S> <C> <C>
Cash at end of period $ 70 $ 576
<CAPTION>
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-26
<PAGE>
Melham Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation and Description of Business
The Company's principal operating business is Mack Printing Company ("Mack"),
which it indirectly owns 85% through Melham, Inc. Mack is a full-service
printer that produces a wide variety of short- to medium-run magazines and
journals generally for customers in the mid-Atlantic and northeast regions of
the United States.
On April 1, 1999, the stockholders of the Company entered into a definitive
agreement to sell the stock of the Company to Cadmus Communications Corporation
(See Note 4).
2. Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim finan-
cial information and with the instructions to Form 10-Q and Rule 10-01 of Regu-
lation S-X. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) considered necessary to present fairly the financial
position as of March 31, 1999, the results of operations for the three months
ended March 31, 1999 and 1998 and the cash flows for the three months ended
March 31, 1999 and 1998 have been included. Certain information and footnote
disclosures normally included in financial statements presented in accordance
with generally accepted accounting principles, but which are not required for
interim reporting purposes, have been omitted. Operating results for the three
months ended March 31, 1999 are not necessarily indicative of the results which
may be expected for the year ending December 31, 1999. The accompanying unau-
dited consolidated financial statements should be read in conjunction with the
audited financial statements and notes thereto included elsewhere herein.
3. Inventories
The major classes of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
--------------------------------
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Raw materials $4,922 $ 5,155
Supplies and other 148 191
Work-in-process 4,457 3,970
Finished goods 96 1,274
<CAPTION>
-------------- -----------------
<S> <C> <C>
$9,623 $10,590
<CAPTION>
============== =================
</TABLE>
4. Subsequent Event
On April 1, 1999, the stockholders of Melham Holdings, Inc. sold all of the
Company's Capital Stock owned by them to Cadmus Communications Corporation for
$201 million in cash, notes and stock, subject to certain closing conditions
and adjustments. Prior to the sale, the Company stockholders purchased all of
the capital stock of VPI owned by the Company. The VPI transaction occurred
prior to March 31, 1999 and, accordingly, the assets and liabilities of VPI are
not included in the March 31, 1999 balance sheet. The operating results of VPI
for the three months ended March 31, 1999 and 1998 were immaterial. The Company
also paid-off all long-term debt and purchased all common stock of Mack owned
by the minority stockholders of Mack; these transactions and their impact are
not reflected in the accompanying unaudited financial statements.
F-27
<PAGE>
Melham Holdings, Inc.
Report of Independent Auditors
The Board of Directors and Stockholders
Melham Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Melham Hold-
ings, Inc. (a 90%-owned subsidiary of Purico (IOM) Limited) as of December 31,
1998 and 1997, and the related consolidated statements of operations, changes
in (deficiency in assets) stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Melham Holdings,
Inc. as of December 31, 1998 and 1997, and the consolidated results of its op-
erations and its cash flows for each of the three years in the period ended De-
cember 31, 1998, in conformity with generally accepted accounting principles.
Ernst & Young LLP
February 19, 1999, except for Note 14, as to
which the date is April 1, 1999
F-28
<PAGE>
Melham Holdings, Inc.
Consolidated Balance Sheets
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
------------------
December 31
1998 1997
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash $ 450 $ 320
Accounts receivable, less allowance of $1,426 in 1998 and
$1,283 in 1997 24,427 18,511
Inventories 10,590 8,900
Prepaid expenses and other 1,165 1,088
Deferred income taxes 1,692 1,872
Recoverable income taxes 282 463
<CAPTION>
-------- --------
<S> <C> <C>
Total current assets 38,606 31,154
Property, plant, and equipment, at cost:
Land 761 761
Buildings 12,988 12,588
Machinery and equipment 80,516 65,513
Construction in progress 1,714 488
<CAPTION>
-------- --------
<S> <C> <C>
95,979 79,350
Less accumulated depreciation 46,937 40,142
<CAPTION>
-------- --------
<S> <C> <C>
49,042 39,208
Excess of cost over net assets of businesses acquired, net
of amortization 32,730 17,415
Deferred financing costs, net of amortization 2,733 2,725
Deferred income taxes 900 1,393
Other assets 920 684
<CAPTION>
-------- --------
<S> <C> <C>
$124,931 $ 92,579
<CAPTION>
======== ========
<S> <C> <C>
Liabilities and deficiency in assets
Current liabilities:
Trade accounts payable $ 7,841 $ 6,365
Other accrued expenses 6,176 6,320
Accrued payroll costs 4,822 4,609
Accrued pension contribution 714 1,299
Income taxes payable 38 --
Current portion of long-term debt 7,472 5,011
<CAPTION>
-------- --------
<S> <C> <C>
Total current liabilities 27,063 23,604
Long-term debt, excluding current portion 98,026 72,245
Deferred credits and other liabilities:
Pension liabilities 5,842 5,344
Postretirement benefits 16,715 17,850
Customer deposits and other 608 642
Due to affiliates 35 45
<CAPTION>
-------- --------
<S> <C> <C>
23,200 23,881
<CAPTION>
-------- --------
<S> <C> <C>
Total liabilities 148,289 119,730
Deficiency in assets:
Series A Preferred Stock, $0.01 par value (stated at $100
liquidation value), authorized 100,000 shares, issued
62,263 shares in 1998 and 44,288 shares in 1997 6,226 4,429
Common Stock, $0.01 par value, authorized 50,000 shares,
issued 40,000 shares in 1998 and 1997 -- --
Additional paid-in capital 3,983 3,983
Retained-earnings deficit (33,357) (35,563)
Accumulated other comprehensive loss (210) --
<CAPTION>
-------- --------
<S> <C> <C>
Total deficiency in assets (23,358) (27,151)
<CAPTION>
-------- --------
<S> <C> <C>
$124,931 $ 92,579
<CAPTION>
======== ========
</TABLE>
See accompanying notes.
F-29
<PAGE>
Melham Holdings, Inc.
Consolidated Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
----------------------------
Year ended December 31
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales $135,674 $119,120 $111,670
Cost of sales:
Materials and outside services 34,025 27,030 25,045
Other operating costs 70,350 63,557 58,927
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
104,375 90,587 83,972
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Gross profit 31,299 28,533 27,698
Selling, general, and administrative expenses 16,974 14,269 13,412
Recapitalization expenses -- 7,405 --
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Operating income 14,325 6,859 14,286
Interest expense 9,440 7,375 3,129
Miscellaneous income, net (84) (157) (156)
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
9,356 7,218 2,973
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Earnings before income taxes and minority
interest 4,969 (359) 11,313
Provision for income taxes 2,124 36 4,339
Minority interest -- (443) 577
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net income $ 2,845 $ 48 $ 6,397
<CAPTION>
======== ======== ========
</TABLE>
See accompanying notes.
F-30
<PAGE>
Melham Holdings, Inc.
Consolidated Statements of Changes in (Deficiency in Assets) Stockholders'
Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
------------------------------------------------------------
Accumulated
Other
Series A Additional Retained Compre-
Preferred Common Paid-in Earnings hensive
Stock Stock Capital (Deficit) Loss Total
--------- ------ ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996 $ -- $-- $ 500 $ (6,023) $ -- $ (5,523)
Net income (1) -- -- -- 6,397 -- 6,397
Preferred Stock
dividends -- -- -- (102) -- (102)
<CAPTION>
--------- ------ ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996 -- -- 500 272 -- 772
Net income (1) -- -- -- 48 -- 48
Issuance of 40,000
shares of Common Stock
and Warrants -- -- 3,483 -- -- 3,483
Issuance of 40,000
shares of Series A
Preferred Stock 4,000 -- -- -- -- 4,000
Common Stock dividends -- -- -- (35,500) -- (35,500)
Series A Preferred Stock
dividends -- -- -- (383) -- (383)
Issuance of 4,288 shares
of Series A Preferred
Stock as payment of
interest 429 -- -- -- -- 429
<CAPTION>
--------- ------ ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997 4,429 -- 3,983 (35,563) -- (27,151)
Comprehensive income
(loss):
Net income -- -- -- 2,845 -- 2,845
Other comprehensive
income (loss) net of
tax, minimum pension
liability -- -- -- -- (210) (210)
<CAPTION>
--------
<S> <C> <C> <C> <C> <C> <C>
Comprehensive income -- -- -- -- -- 2,635
Series A Preferred Stock
dividends 989 -- -- (639) -- 350
Issuance of 8,084 shares
of Series A Preferred
Stock as payment of
interest 808 -- -- -- -- 808
<CAPTION>
--------- ------ ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998 $6,226 -- $3,983 $(33,357) $(210) $(23,358)
<CAPTION>
========= ====== ========== ========= =========== ========
</TABLE>
(1) Equals comprehensive income for the year.
See accompanying notes.
F-31
<PAGE>
Melham Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
-------------------------------
Year ended December 31
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating activities
Net income $ 2,845 $ 48 $ 6,397
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest -- (443) 577
Depreciation 7,258 6,138 5,944
Amortization, including deferred financing
costs 1,164 831 198
Provision for loss on accounts receivable 258 233 341
Provision (benefit) for deferred income
taxes 815 4 (154)
Write-off of deferred financing costs -- 455 --
Loss on sale of assets 12 7 (244)
Series A Preferred Stock issued in lieu of
payment of interest 808 429 --
Changes in operating assets and
liabilities, net of effect of business
acquired:
Accounts receivable (820) (1,383) 675
Inventories 341 (953) 1,222
Prepaid expenses and other 49 26 80
Income taxes 210 (488) 275
Trade accounts payable (44) 1,733 409
Accrued liabilities and other (490) 2,097 (178)
Accrued pension (573) (625) (26)
Postretirement benefits (1,135) (994) (1,267)
Other (120) (389) 35
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
Net cash provided by operating activities 10,578 6,726 14,284
Investing activities
Acquisition of businesses (33,111) (19,137) --
Proceeds from sale of assets 11 14 2,916
Capital expenditures (5,001) (5,655) (6,465)
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
Net cash used in investing activities (38,101) (24,778) (3,549)
Financing activities
Recapitalization and refinancing
transactions:
Proceeds from issuance of long-term debt -- 81,514 --
Repayment of debt -- (23,534) --
Proceeds from sale of Common Stock -- 2,710 --
Proceeds from sale of Series A Preferred
Stock -- 4,000 --
Common Stock dividends -- (35,500) --
Principal payments on long-term debt (5,183) (5,391) (9,611)
Proceeds from debt financing 19,611 923 --
Proceeds from line of credit 143,020 179,910 130,635
Repayments of line of credit (129,321) (182,056) (131,553)
Payment of deferred financing costs (464) (3,081) --
Cash dividends -- -- (102)
Change in due to affiliates (10) (1,163) (108)
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
Net cash provided by (used in) financing
activities 27,653 18,332 (10,739)
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
Increase (decrease) in cash 130 280 (4)
Cash at beginning of year 320 40 44
<CAPTION>
--------- --------- ---------
<S> <C> <C> <C>
Cash at end of year $ 450 $ 320 $ 40
<CAPTION>
========= ========= =========
</TABLE>
See accompanying notes.
F-32
<PAGE>
Melham Holdings, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
1. Basis of Presentation and Description of Business
Melham Holdings, Inc. (the "Company"), which is a 90%-owned subsidiary of
Purico (IOM) Limited ("Purico"), was incorporated on February 26, 1997 and was
initially capitalized primarily by issuing its capital stock in exchange for
all of the outstanding capital stock of Melham, Inc. The controlling sharehold-
ers of the Company and Melham, Inc. were the same before and after the transac-
tion. Therefore, the historical basis of Melham, Inc.'s consolidated assets and
liabilities is carried over in the accompanying consolidated financial state-
ments, and the combination of the two entities is accounted for similar to the
pooling-of-interests method of accounting for business combinations. The re-
sults of operations of all companies are combined for all periods presented.
The Company's principal operating business is Mack Printing Company ("Mack"),
which it indirectly owns 85% through Melham, Inc. Mack is a full-service
printer that produces a wide variety of short- to medium-run magazines and
journals generally for customers in the mid-Atlantic and northeast regions of
the United States. Generally, the Company does not require collateral as a con-
dition of sale.
The Company's other operating business is Vital Public Information, Inc.
("VPI"), which was formed on September 19, 1997 and continues in the start-up
stage. The Company owns a 90% interest in VPI. VPI currently publishes self-
help books for sale and distribution through supermarket-continuity programs on
a consignment basis. VPI had no sales through December 31, 1998 and it had to-
tal assets of $2,155 and $79 at December 31, 1998 and 1997, respectively, con-
sisting primarily of inventory. VPI is subject to the risks and uncertainties
that are normal to a start-up company. Although VPI has a definitive marketing
plan for its business concept and products, there is no assurance that the plan
or VPI's products will be accepted in the marketplace. If not accepted in the
marketplace, it is unlikely VPI will be able to realize the full carrying
amount of its assets.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated. Because Mack had a deficit in assets as a result of the recap-
italization in 1997 (Note 13), subsequent to the recapitalization, the Company
has not reflected in its results of operations any share of earnings or loss
otherwise attributable to Mack's 15% minority shareholders. In addition to its
ownership of 85% of Mack's common stock, the Company owns all of Mack's out-
standing preferred stock, which had a liquidation value of $21,765 and $19,176
at December 31, 1998, and 1997, respectively. The Mack preferred stock pays cu-
mulative dividends of 13% on the senior preferred stock and 14% on the junior
preferred stock. Net income of Mack would be reduced by the preferred stock
dividends and credited to the Company before determining the amount allocable
to the minority interests.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Ac-
tual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost or market. Mack paper inventories
included in raw material and work-in-process, amounting to $4,586 and $5,559 at
December 31, 1998 and 1997, respectively, are determined using the last-in,
first-out (LIFO) method. At December 31, 1998 and 1997, the LIFO value of the
inventory approximated the FIFO value. The cost of all other inventories is de-
termined using the first-in, first-out (FIFO) method.
VPI's inventories at December 31, 1998 and 1997 include work-in-process and
finished goods. Included in work-in-process inventory is editorial development
costs associated with the development of three new publications. Inventory is
valued at cost.
F-33
<PAGE>
Melham Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
(dollars in thousands, except per share data)
The major classes of inventory are:
<TABLE>
<CAPTION>
------------------------
December 31
1998 1997
Mack VPI Mack VPI
------ ------ ------ ---
<S> <C> <C> <C> <C>
Raw materials $5,155 $ -- $5,471 $--
Supplies and other 191 -- 137 --
Work-in-process 3,489 481 3,024 47
Finished goods 95 1,179 221 --
------ ------ ------ ---
$8,930 $1,660 $8,853 $47
====== ====== ====== ===
</TABLE>
Property, Plant, and Equipment
Depreciation of property, plant, and equipment is computed over estimated use-
ful lives using the straight-line method.
Excess of Cost Over Net Assets of Businesses Acquired
Excess of cost over net assets of businesses acquired ("goodwill") by Mack
($16,778 and $1,045, net of accumulated amortization of $423 and $256 at De-
cember 31, 1998 and 1997, respectively) is primarily the result of the acqui-
sition of Port City Press, Inc. in 1998. The balance of goodwill ($15,952 and
$16,370, net of accumulated amortization of $731 and $313 at December 31, 1998
and 1997, respectively) resulted from the 1997 acquisition by Melham, Inc. of
Mack's capital stock owned by minority interests, which increased Melham,
Inc.'s ownership in Mack's common stock to 85% from 55%. Goodwill is being am-
ortized on a straight-line basis over 40 years. The carrying value of goodwill
is evaluated periodically in relation to the operating performance and ex-
pected future undiscounted cash flows of the underlying businesses.
Deferred Financing Costs
Deferred financing costs are amortized over the lives of the respective debt
obligations, using the interest method for the Term Loans and Debenture and
the straight-line method for the Revolver. Accumulated amortization at Decem-
ber 31, 1998 and 1997 was $812 and $356, respectively.
Revenue Recognition
Substantially all revenue is recognized when products are shipped to custom-
ers.
Comprehensive Income
As of December 31, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which estab-
lished standards for the reporting and display of comprehensive income and its
components in financial statements. Comprehensive income is defined in the
Statement as net income plus other comprehensive income, which for the Company
consists only of a minimum pension liability. Comprehensive (loss) income is
reported by the Company in the consolidated statement of changes in (defi-
ciency in assets) stockholders' equity. Prior years' financial statements have
been reclassified to conform to the requirements of SFAS No. 130.
Internal Use Software
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-1, Accounting For the Costs of Computer Soft-
ware Developed For or Obtained For Internal Use. The Company adopted the SOP
during 1998. The SOP requires the capitalization of certain costs incurred in
connection with developing or obtaining software for internal use. The adop-
tion of this SOP did not have a material effect on the results of operations
or financial position.
3. Acquisition
On September 2, 1998, Mack acquired all of the outstanding stock of Port City
Press, Inc. ("PCP") based in Baltimore, Maryland for an aggregate purchase
price of $33,536. PCP is a full-service printer servicing the association,
medical, legal, reference and scientific book market as well as the business
directory and catalog market. The acquisition has been accounted for under the
purchase method and, accordingly, is included in the consolidated financial
statements from the date of acquisition. The aggregate purchase price was al-
located to the net assets based on their estimated fair values. The excess of
the purchase price over the fair value of net assets acquired of approximately
$16,324 is being amortized over
F-34
<PAGE>
Melham Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
(dollars in thousands, except per share data)
forty years on a straight-line basis. This acquisition was funded by increasing
Mack's Term Loan under its Credit Facility and available borrowings under the
Revolver portion of the Credit Facility.
The following unaudited pro forma information has been prepared assuming the
acquisition had taken place on January 1, 1997:
<TABLE>
<CAPTION>
-----------------------
Year ended December 31
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 160,015 $ 153,798
Net income (loss) 3,186 (825)
</TABLE>
The unaudited pro forma information includes adjustments for interest expense
that would have been incurred to finance the purchase, additional depreciation
based on the estimated fair value of the property, plant, and equipment ac-
quired, and the amortization of the intangible assets arising from the transac-
tion. The unaudited pro forma financial information is not necessarily indica-
tive of the results of operations that would have been achieved had the trans-
action been effected on the assumed date.
4. Long-Term Debt
Long-term debt consists of:
<TABLE>
<CAPTION>
----------------
December 31
----------------
1998 1997
-------- -------
<S> <C> <C>
Fixed-rate term note (9.78%), payable in quarterly
installments through January 1, 2003 $ 14,440 $17,997
Floating-rate term note payable in quarterly installments
through April 1, 2004:
At LIBOR plus 2.75% (7.94% at December 31, 1998) 31,000 19,000
At Prime plus 0.75% (8.50% at December 31, 1998) 5,310 503
Borrowings under revolving credit facility expiring April 1,
2004:
At LIBOR plus 2.25% (7.59% at December 31, 1998) 13,500 2,000
At Prime plus 0.25% (8.00% at December 31, 1998) 3,209 1,010
Subordinated notes (12.0%), face value $25,000 (net of
unamortized discount of $341 in 1998 and $382 in 1997) with
warrants to purchase 15,464 shares of common stock 24,659 24,618
Fixed-rate equipment note (8.08%) payable in monthly
installments through September 5, 2001 594 856
Fixed-rate equipment note (7.40%) payable in monthly
installments through February 1, 2002 504 --
Promissory notes payable to shareholders (11%) due March 27
and March 31, 2007 (net of unamortized discount of $653 in
1998 and $728 in 1997), interest payable quarterly 11,347 11,272
Promissory notes payable to shareholder (8%), due in 2001 935 --
<CAPTION>
-------- -------
<S> <C> <C>
105,498 77,256
Less current portion 7,472 5,011
<CAPTION>
-------- -------
<S> <C> <C>
$ 98,026 $72,245
<CAPTION>
======== =======
</TABLE>
During 1998, in conjunction with the acquisition of Port City Press, Inc., Mack
amended its credit agreement ("Credit Facility") to increase the available
borrowings to $80,000. The Credit Facility consists of $52,000 in amortizing
Term Loans and a Revolver. The Term Loans and Revolver are secured by liens on
substantially all of Mack's tangible and intangible property. Borrowings under
the Revolver are limited to the lesser of (a) $80,000 minus the Term Loans, the
equipment notes and outstanding letters of credit, with such amount not to ex-
ceed $25,000 or (b) a borrowing base of 85% of Mack's eligible receivables (es-
sentially excludes greater-than-60-day-past-due amounts) plus the lesser of
$7,500 or 75% of Mack's raw materials inventories plus 60% of work-in-process
inventories minus outstanding letters of credit. As of December 31, 1998, ap-
proximately $8,000 of additional borrowings were available under the Credit Fa-
cility.
F-35
<PAGE>
Melham Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
(dollars in thousands, except per share data)
At Mack's option, borrowings under the Term Loans may bear interest at a rate
based on the London Interbank Offered Rate ("LIBOR") plus 2.75%, the lender's
prime rate plus .75%, or at a fixed rate as quoted by the lender, and
borrowings under the Revolver may bear interest at a rate based on LIBOR plus
2.25% or at the lender's prime rate plus .25%. Borrowings subject to the LIBOR-
rate option must remain outstanding for a term not to exceed six months. Mack
may obtain a .25% interest-rate reduction on the Term Notes and Revolver by
meeting certain provisions and making certain prepayments. In addition, Mack is
required to pay a commitment fee of .25% on the unused portion of the Credit
Facility.
Mack has outstanding letters of credit at December 31, 1998 and 1997 of $940,
and $1,140, respectively, primarily for its workers' compensation program. The
letters of credit, which may not exceed $3,000, are secured by Mack's Revolver.
Mack issued a subordinated debenture (the "Debenture") in 1997 in the principal
amount of $25,000. The Debenture is due on March 31, 2007 and is subordinated
to Mack's obligations under the Credit Facility. The Debenture was recorded at
$24,587, with the $413 balance ascribed to the warrants and Mack common stock
issued to the investor. If, upon the fifth anniversary of the debenture, any
amounts under the Debenture remain outstanding, Mack shall issue to the warrant
holder 15,464 shares of Mack common stock at par value. The debt discount is
amortized over the ten-year term of the Debenture. Interest is payable on the
Debenture semi-annually at 12% per annum.
Interest due on the 11% Promissory Notes payable to shareholders may be paid,
at the Company's option, 60% in shares of the Company's Series A Preferred
Stock. At issuance, the creditor shareholder for $10,800 of Promissory Notes
received a warrant to purchase 5,000 shares of the Company's Common Stock at
$100 per share. The warrant expires in 2007. At the time of issuance, the Com-
pany valued the warrant at $783, which was credited to Additional Paid-in Capi-
tal, and is classified as a reduction of the carrying amount of the note. The
discount is being amortized to interest expense over the life of the note.
Under the Credit Facility and Debenture, Mack is required to maintain minimum
levels of tangible net worth and fixed-charge coverage ratios, each as defined.
The agreements also contain covenants which, among other things, restrict capi-
tal expenditures, mergers, acquisitions, additional borrowings, operating
leases, and dividends.
Mack's Credit Facility provides for principal pay downs based upon an excess
cash flow provision which resulted in $1,990 being classified as currently due
at December 31, 1998. Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
--------
<S> <C>
1999 $ 7,472
2000 5,997
2001 7,276
2002 6,029
2003 6,000
Thereafter 72,724
--------
Total $105,498
========
</TABLE>
The Company made interest payments of $7,564, $5,442, and $3,167 in 1998, 1997,
and 1996, respectively.
F-36
<PAGE>
Melham Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
(dollars in thousands, except per share data)
5. Fair Value of Financial Instruments
The estimated fair values of the Company's financial obligations compared to
the recorded amounts as of December 31 are as follows:
<TABLE>
<CAPTION>
---------------------------------------
1998 1997
Recorded Recorded
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Fixed-rate term note $ 14,440 $ 16,365 $17,997 $18,589
Floating-rate term note payable 36,310 36,310 19,503 19,503
Revolving lines of credit 16,709 16,709 3,010 3,010
Fixed-rate equipment note payable 504 506 -- --
Fixed-rate equipment note payable 594 558 856 852
Debenture 24,659 24,659 24,618 24,618
Promissory Notes payable to sharehold-
ers 12,282 12,282 11,272 11,272
-------- -------- ------- -------
$105,498 $107,389 $77,256 $77,844
======== ======== ======= =======
</TABLE>
The fair values of these obligations are estimated based on borrowing rates
currently available to the Company for loans with similar terms and maturities.
The fair value of these borrowings does not reflect estimated fees that would
be incurred if the debt were refinanced. The fair value of the Debenture and
the Promissory Notes payable to shareholders are not readily determinable due
to the nature of the instruments.
6. Income Taxes
The Company files a consolidated federal income tax return with its subsidiar-
ies.
Income tax expense consists of the following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Current Deferred Total
------- -------- ------
<S> <C> <C> <C>
1998:
Federal $1,146 $ 782 $1,928
State 163 33 196
<CAPTION>
------- -------- ------
<S> <C> <C> <C>
Total $1,309 $ 815 $2,124
<CAPTION>
======= ======== ======
<S> <C> <C> <C>
1997
Federal $ -- $ (18) $ (18)
State 32 22 54
<CAPTION>
------- -------- ------
<S> <C> <C> <C>
Total $ 32 $ 4 $ 36
<CAPTION>
======= ======== ======
<S> <C> <C> <C>
1996:
Federal $3,888 $(134) $3,754
State 605 (20) 585
<CAPTION>
------- -------- ------
<S> <C> <C> <C>
Total $4,493 $(154) $4,339
<CAPTION>
======= ======== ======
</TABLE>
F-37
<PAGE>
Melham Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
(dollars in thousands, except per share data)
The provision for income taxes differs from the amount of tax expense which
would result from using the federal tax rate of 35% as follows:
<TABLE>
<CAPTION>
--------------------
1998 1997 1996
------ ----- ------
<S> <C> <C> <C>
Statutory federal income tax $1,739 $(126) $3,960
State income taxes, net of federal tax benefit 127 35 380
Permanent difference 213 161 35
Other 45 (34) (36)
<CAPTION>
------ ----- ------
<S> <C> <C> <C>
$2,124 $ 36 $4,339
<CAPTION>
====== ===== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences be-
tween the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets at
December 31, 1998 include approximately $132 related to the minimum pension li-
ability, which is included in accumulated other comprehensive loss.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
----------------
December 31,
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Vacation and compensation $ 843 $ 820
Employee benefits 9,046 9,847
Bad debts 536 499
Net operating loss and alternative minimum tax credit
carry-forwards -- 423
Other 177 43
<CAPTION>
------- -------
<S> <C> <C>
Total deferred tax assets 10,602 11,632
Deferred tax liabilities:
Fixed assets (7,036) (7,072)
Inventory valuation (24) (472)
Other (209) (82)
<CAPTION>
------- -------
<S> <C> <C>
Total deferred tax liabilities (7,269) (7,626)
Valuation allowance (741) (741)
<CAPTION>
------- -------
<S> <C> <C>
Net deferred tax assets $ 2,592 $ 3,265
<CAPTION>
======= =======
</TABLE>
Income tax payments amounted to $1,089, $508, and $4,225 in 1998, 1997, and
1996 respectively.
7. Preferred Stock
In conjunction with its initial capitalization, the Company issued 40,000
shares of its 12% Series A Preferred Stock. Dividends on the Series A Preferred
Stock are payable annually, on the 15th day of December, in an amount equal to
the stated rate times the liquidation value of $100 per share. All dividend
payments are to be made either in cash or by issuance of additional shares of
Series A Preferred Stock, at the Company's option. All dividends, whether paid
in cash or in shares, accrue from the date of issuance and are cumulative. Dur-
ing 1998, the Company paid the 1998 and 1997 dividends with 9,891 shares of Se-
ries A Preferred Stock. Additionally, dividends of $33 and $383 were accrued at
December 31, 1998 and 1997, respectively. The terms of the Company's 11% Prom-
issory Notes provide for interest to be paid either in cash or by issuance of
additional shares of Series A Preferred Stock at the Company's option. During
1998 and 1997, respectively, the Company issued 8,084 and 4,288 shares of Se-
ries A Preferred Stock in lieu of payment of interest on the Promissory Notes.
F-38
<PAGE>
Melham Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
(dollars in thousands, except per share data)
The shares of Series A Preferred Stock are non-voting. The Company, at the op-
tion of the Board of Directors, may at any time redeem the Series A Preferred
Stock for cash equal to the liquidation value of $100 per share, plus any ac-
cumulated and unpaid dividends, whether or not earned or declared. In the
event of any liquidation, dissolution, or winding up of the affairs of the
Company, whether voluntary or involuntary, each issued and outstanding share
of Series A Preferred Stock will entitle the holder to payment at the rate of
$100 per share.
The Company is authorized to issue 250,000 shares of Series Preferred Stock of
which 100,000 has been reserved for the issuance of Series A Preferred Stock.
8. Stock Options and Appreciation Rights
In 1997, in connection with the Recapitalization, Mack settled for cash all
outstanding stock options for $4,018 and for cash and installment payments all
stock appreciation rights for $2,200 ($1,600 in cash). The unpaid stock appre-
ciation rights of $600 were payable in two installments of $300 each, of which
$300 was paid in 1998 with the remainder due in 1999. Expenses incurred in
connection with the settlement of these stock options and stock appreciation
rights were $3,756 and $1,964, respectively. No awards were granted under the
these plans during the three-year period ended December 31, 1998.
9. Pension Plans and Other Post Retirement Benefits
Mack has various retirement plans which cover substantially all employees.
Mack's defined benefit plans provide for payments under varying formulas. Cer-
tain executives also participate in a supplemental plan, which is not funded.
Mack contributes to the plans in amounts not less than required under the Em-
ployee Retirement Income Security Act of 1974.
In 1997, Mack merged its East Stroudsburg Typographical Union Local No. 943
Pension Plan into the Mack Printing Company Pension Plan.
Plan assets consist primarily of listed stocks and bonds and interest-bearing
deposits under insurance contracts.
Mack provides certain health care benefits for eligible retired employees and
their spouses. In addition, the Company provides fully paid life insurance
coverage with benefits ranging from $5 to $40 for all retirees. The retiree
health care plan is contributory for all retirees who were full-time regular
employees of Mack.
Since the adoption of Statement of Financial Accounting Standards No. 106 in
1993, Mack has introduced various amendments to its plan which have resulted
in a cumulative unrecognized gain at December 31, 1998 of $9,462. Amendments
in 1994 yielded a gain of $13,373 and a 1996 amendment requiring all non-bar-
gaining and retired participants to be covered under one insurance plan re-
sulted in a gain of $4,379. In 1998, Mack amended its plan to cap its contri-
bution for retiree medical coverage. This amendment resulted in a gain of
$1,461. These amounts, after reduction for the 1997 acquisition of 30% of
Mack's common stock owned by then-minority shareholders, are being credited to
expense on a straight-line basis over periods ranging from 10 to 13 years--the
average expected years of future service to be rendered by active plan partic-
ipants to reach full eligibility.
F-39
<PAGE>
Melham Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
(dollars in thousands, except per share data)
The following table sets forth the plans' funded status and amounts recognized
in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
December 31, 1998 December 31, 1997
Plans with Plans with
Assets in Plans with Assets in Plans with
Excess of Assets Less Excess of Assets Less
Benefit Than Benefit Other Benefit Than Benefit Other
Obligations Obligations Benefits Total Obligations Obligations Benefits Total
----------- ------------ -------- -------- ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Change in benefit
obligation
Benefit obligation at
beginning of year $1,238 $43,921 $ 5,860 $ 51,019 $1,242 $41,082 $ 6,046 $ 48,370
Service cost 58 1,032 102 1,192 57 967 134 1,158
Interest cost 90 3,186 325 3,601 93 3,046 403 3,542
Plan participants'
contributions -- -- 68 68 -- -- 71 71
Amendments -- -- (1,461) (1,461) -- -- -- --
Actuarial gain/loss 152 3,100 485 3,737 104 1,040 (410) 734
Benefits paid (148) (2,728) (416) (3,292) (258) (2,214) (384) (2,856)
<CAPTION>
----------- ------------ -------- -------- ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Benefit obligation at
end of year $1,390 $48,511 $ 4,963 $ 54,864 $1,238 $43,921 $ 5,860 $ 51,019
<CAPTION>
=========== ============ ======== ======== =========== ============ ======== ========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Change in plan assets
Fair value of plan
assets at beginning of
year $1,479 $37,446 $ -- $ 38,925 $1,540 $32,688 $ -- $ 34,228
Actual return on plan
assets 88 3,852 -- 3,940 78 5,385 -- 5,463
Employer contribution 119 1,397 -- 1,516 119 1,587 -- 1,706
Benefits paid (148) (2,728) -- (2,876) (258) (2,214) -- (2,472)
<CAPTION>
----------- ------------ -------- -------- ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fair value of plan
assets at end of year $1,538 $39,967 $ -- $ 41,505 $1,479 $37,446 $ -- $ 38,925
<CAPTION>
=========== ============ ======== ======== =========== ============ ======== ========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Funded status at end of
year $ 148 $(8,543) $ (4,963) $(13,358) $ 246 $(6,475) $ (5,860) $(12,089)
Unrecognized net
actuarial (gain) loss 380 2,301 (2,290) 391 234 (393) (2,860) (3,019)
Unrecognized prior
service cost 32 286 (9,462) (9,144) 33 323 (9,130) (8,774)
<CAPTION>
----------- ------------ -------- -------- ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prepaid (accrued)
benefit cost $ 560 $(5,956) $(16,715) $(22,111) $ 513 $(6,545) $(17,850) $(23,882)
<CAPTION>
=========== ============ ======== ======== =========== ============ ======== ========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts recognized in
the statements of
financial position
consist of
Prepaid (accrued)
benefit cost $ 560 $(5,956) $(16,715) $(22,111) $ 513 $(6,545) $(17,850) $(23,882)
Additional minimum
liability -- (485) -- (485) -- (170) -- (170)
Intangible asset -- 143 -- 143 -- 170 -- 170
Accumulated other
comprehensive income -- 342 -- 342 -- -- -- --
<CAPTION>
----------- ------------ -------- -------- ----------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net amount recognized at
end of year $ 560 $(5,956) $(16,715) $(22,111) $ 513 $(6,545) $(17,850) $(23,882)
<CAPTION>
=========== ============ ======== ======== =========== ============ ======== ========
</TABLE>
<TABLE>
<CAPTION>
-------------------------
Year ended December 31
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 1,192 $ 1,158 $ 1,193
Interest cost 3,601 3,542 3,443
Expected return on plan assets (3,615) (3,035) (2,742)
Amortization of prior service cost (1,065) (1,011) (1,318)
Amortization of net (gain)/loss (85) (143) (147)
Recognized net actuarial loss 21 9 --
------- ------- -------
Net periodic benefit cost $ 49 $ 520 $ 429
======= ======= =======
</TABLE>
F-40
<PAGE>
Melham Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
--------------------------------------
Year ended December 31
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average assumptions:
Discount rate 6.75% 7.25% 7.50%
Expected return on plan assets 8.0% to 9.5% 8.0% to 9.0% 8.0% to 9.0%
Rate of compensation increase 4.75% 4.75% 4.75%
Assumed health care cost trend rate 7.00% 7.00% 9.00%
</TABLE>
The weighted-average health care cost trend rate is assumed to decrease gradu-
ally to 6% by 1999 and remain at that level thereafter. The assumed health care
cost trend rate affects the amounts reported. For example: 1) increasing the
assumed health care cost trend rate by one percentage point would increase the
accumulated postretirement benefit obligation as of December 31, 1998 by $296
and the aggregate of the service and interest cost components of the
postretirement benefit obligation for 1998 by $36; and 2) decreasing the as-
sumed health care cost trend rate by one percentage point would decrease the
accumulated postretirement benefit obligation as of December 31, 1998 by $252
and the aggregate of the service and interest cost components of the
postretirement benefit obligation for 1998 by $29.
Mack sponsors a defined contribution plan. For certain eligible employees, Mack
makes annual contributions of 4% of qualifying compensation. For certain addi-
tional eligible employees, Mack will match employee contributions up to a maxi-
mum of 2% of qualifying compensation. The expense under the defined contribu-
tion plan was $784, $749 and $705 in 1998, 1997, and 1996, respectively. In ad-
dition, Mack provides a defined contribution plan for two of its unions. The
contributions under this plan are based on a bargaining agreement and amounted
to $142, $145, $114 in 1998, 1997, and 1996, respectively.
10. Commitments and Contingencies
Expenses under a services agreement and operating lease arrangements were ap-
proximately $1,515, $1,123 and $843, for December 31, 1998, 1997 and 1996, re-
spectively. A summary of noncancelable, long-term commitments at December 31,
1998 follows:
<TABLE>
<CAPTION>
-------
Year Amount
---- -------
<S> <C>
1999 $ 2,375
2000 2,201
2001 2,072
2002 1,668
2003 1,025
Thereafter 18,966
<CAPTION>
-------
<S> <C>
Total $28,307
<CAPTION>
=======
</TABLE>
In December 1997, Mack entered into a five-year agreement with a vendor for
document management services. Since this agreement is essentially a replacement
and supplement for previous duplicating equipment leases, the expense commit-
ments under this arrangement are included above.
The Company has employment agreements with certain executives and one other em-
ployee of its subsidiaries.
The Company is involved in various claims arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these mat-
ters will not have a material adverse effect on the Company's financial posi-
tion.
As of December 31, 1998, the Company has entered into commitments for capital
expenditures totaling approximately $2,819.
Under the terms of the 1991 sale of the assets of Specialty Printers of Ameri-
ca, Inc. (SPA), Mack guaranteed the operating lease obligation ($444 at Decem-
ber 31, 1998) relating to SPA's manufacturing facility in the event that the
buyer were to default. The lease expires on January 10, 2002.
F-41
<PAGE>
Melham Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
(dollars in thousands, except per share data)
11. Related Party Transactions
The Company incurred interest and fees to affiliates for services rendered in
connection with financing arrangements and other matters. These fees are in-
cluded in the accompanying statement of operations as follows.
<TABLE>
<CAPTION>
------------------
1998 1997 1996
------ ------ ----
<S> <C> <C> <C>
Interest $1,449 $1,072 $107
Management fees 360 28 210
Deferred financing fees 342 1,240 --
Recapitalization costs -- 835 --
<CAPTION>
------ ------ ----
<S> <C> <C> <C>
$2,151 $3,175 $317
<CAPTION>
====== ====== ====
</TABLE>
12. Year 2000 Issue (Unaudited)
The Year 2000 issue exists because many software programs, computer hardware,
operating systems and microprocessor-based embedded controls in automated
equipment use two-digit date fields to designate a year. As the century date
change occurs, date-sensitive systems may recognize the year 2000 as 1900, or
not at all. This inability to recognize or properly treat the year 2000 may
cause systems to process financial and operational information incorrectly or
fail to operate.
The Company has recognized the need to ensure that its business operations will
not be adversely affected by the upcoming calendar Year 2000 and is cognizant
of the time sensitive nature of the problem. The Company has assessed or is in
the process of assessing how it may be impacted by Year 2000 and has formulated
and commenced a comprehensive plan to address all known aspects of the Year
2000 problem: information systems, production, and facilities equipment, sup-
pliers and customers. The Company is currently making inquiries of customers
and suppliers to assess their Year 2000 readiness. The Company is also in the
process of testing information technology ("IT") systems, as well as non-IT
systems, and verifying that vendor-supplied or outsourced systems will be Year
2000 compliant and will repair or replace any such systems found to be non-com-
pliant. Currently, the Company estimates that it has substantially completed
its assessment of how it may be impacted, is completely through the development
of plans to address the testing and remediation of its systems, and has com-
pleted approximately 55% to 70% of its testing and remediation activities. The
Company estimates that it will complete this process prior to October 1999.
The Company has not separately tracked its Year 2000 costs as a project, but
rather has incurred the costs in conjunction with normal sustaining activities.
The discretely identifiable costs incurred through December 31, 1998 of com-
pleting the Company's Year 2000 assessment and of modifying its computer soft-
ware and hardware, as well as its production and facilities equipment, to be
Year 2000 compliant were approximately $1,800. The estimated costs yet to be
incurred are approximately $2,000. The current assessment does not include
costs related to software and hardware replaced in the normal course of busi-
ness other than replacements accelerated due to the Year 2000 issue.
While the Company does not currently foresee any material problems, there can
be no assurance that the Company and its material suppliers and customers will
be Year 2000 compliant by January 1, 2000 and that any such non-compliance will
not have a material adverse effect on the Company.
The Company is in the process of developing contingency plans in the event that
any unresolved issues are identified.
13. Formation of the Company
The Company was formed on February 26, 1997 with authorized capital of 50,000
shares of Common Stock and 250,000 shares of Series Preferred Stock (see Note
7). The Company was formally capitalized in March, 1997 through a series of
transactions with related entities as follows: 1) issued 5,000 shares of its
Common Stock to Purico in exchange for 500 shares of Melham, Inc. common stock
(constituting 100% of the capital stock of Melham, Inc.); 2) issued 31,000
shares of its Common Stock and 36,000 shares of Series A Preferred Stock to
Purico for $6,700; 3) issued 4,000 shares of its Common Stock, 4,000 shares of
its Series A Preferred Stock and a $1,200 11% promissory note to Mack's presi-
dent in exchange for Mack common stock (the Company subsequently contributed
the Mack common stock to Melham, Inc.); and
F-42
<PAGE>
Melham Holdings, Inc.
Notes to Consolidated Financial Statements--(Continued)
(dollars in thousands, except per share data)
4) issued to Melham, U.S., Inc. (an affiliated company) for $10,800 cash a
$10,800 11% promissory note and warrants to purchase 5,000 shares of Common
Stock of the Company at $100 per share. Prior to the exchange of common stock
between the Company and Purico, Melham, Inc. declared and paid to Purico a div-
idend on its common stock totaling $35,500.
In 1997, Mack completed a recapitalization which resulted in changes in its
ownership and capital structure (the "Recapitalization"). Through a series of
transactions, Mack: (1) redeemed and retired all of the outstanding shares of
its Series A Preferred Stock ($760, which excludes the amount paid to Melham,
Inc.); (2) redeemed and retired all of the outstanding shares of its Common
Stock, except the shares owned by Melham, Inc. and a portion of the shares held
by the Company's president ($18,087); (3) effected the exchange of the presi-
dent's Common Stock for Common Stock of the new indirect parent company (Melham
Holdings, Inc.); (4) purchased all outstanding stock options ($4,018) and set-
tled all stock appreciation rights ($2,200).
An unrelated investor purchased for $25,000, 15% of Mack's common stock, Mack's
$25,000 subordinated debenture, and warrants to purchase 3% of Mack's common
stock. Mack also issued to Melham, Inc. shares of Mack cumulative senior and
junior preferred stock. As a result of these transactions, the Company in-
creased its ownership of Mack from 55% to 85% at a cost of $19,923, represent-
ing the net amount paid to buy-out a 30% interest owned by minority stockhold-
ers, which was accounted for under the purchase method of accounting. The total
amount was allocated $5,400 (before deferred income taxes of $2,160), to reduce
the recorded amount of postretirement benefits (Note 9) and the remainder to
goodwill (Note 2).
Mack completed the financing for the Recapitalization by replacing its existing
bank credit facility with a new $65,000 arrangement (the "Credit Facility"),
consisting of a revolving credit agreement (the "Revolver") and $42,000 in term
loans (the "Term Loans").
14. Subsequent Event
On April 1, 1999, the stockholders of Melham Holdings, Inc. sold all of the
Company's Capital Stock owned by them to Cadmus Communications, Inc. Coincident
with the sale, the Company stockholders purchased all of the capital stock of
VPI owned by the Company. The Company also paid-off all long-term debt and pur-
chased all common stock of Mack owned by the minority stockholders of Mack.
F-43
<PAGE>
[LOGO]
CADMUS COMMUNICATIONS CORPORATION
OFFER FOR
ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
REGISTERED 9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
__________________
PROSPECTUS
__________________
JULY______, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
As permitted by Virginia law, the Restated Articles of Incorporation of the
Registrant eliminate the liability of officers and directors to the Registrant
or its shareholders for monetary damages except for liabilities resulting from
such persons having engaged in willful misconduct or a knowing violation of the
criminal law or any federal or state securities law. The Amended and Restated
Articles of Incorporation of the Registrant eliminate director and officer
liability to the Company or its shareholders to the fullest extent permitted
under Virginia corporate law, as now or hereafter in effect. Virginia corporate
law permits, and the Restated Articles of Incorporation require, indemnification
of the Registrant's directors against all liabilities imposed or asserted
against them by reason of having been a director of the Registrant (including
derivative actions), except in the case of willful misconduct or a knowing
violation of the criminal law. The Restated Articles of Incorporation also
permit the Registrant to indemnify officers, employees or agents of the
Registrant to the same extent as is mandated for directors. The Restated
Articles of Incorporation require indemnification of directors, and permit
indemnification of officers, to the fullest extent permitted under Virginia
corporate law, as now or hereafter in effect.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Item 21. Exhibits and Financial Data Schedules
The following is a list of all the exhibits filed herewith or incorporated by
reference as part of the Registration Statement.
Exhibit
Number Description
- ------ -----------
3.1 Restated Articles of Incorporation of Cadmus Communications Corporation, as
amended (incorporated herein by reference from Exhibit 3.1 of the Form 10-K
for the fiscal year ended June 30, 1993).
3.2 Bylaws of Cadmus Communications Corporation, as amended (incorporated
herein by reference from Exhibit 3.2 of the Form 10-Q for the quarterly
period ended December 31, 1997).
4.1 Indenture dated as of June 1, 1999 among Cadmus Communications Corporation,
as issuer, the Guarantors named therein and First Union National Bank, as
trustee.
4.2 Form of Note (included in Exhibit 4.1).
5.1 Form of Opinion of Hunton & Williams as to the legality of the securities.
10.1 Cadmus 1984 Stock Option Plan (incorporated herein by reference from
Exhibit 10.3 of the Form 10-K for the fiscal year ended June 30, 1985).
<PAGE>
10.2 Cadmus Supplemental Executive Retirement Plan, as restated effective July
1, 1992 (incorporated herein by reference from Exhibit 10.2 of Form SE
dated September 25, 1992).
10.3 Cadmus 1992 Non-Employee Director Stock Compensation Plan (incorporated
herein by reference from Exhibit 10.5 of the Form SE dated September 25,
1992).
10.4 Cadmus Executive Incentive Plan dated November 11, 1997 (incorporated
herein by reference from Exhibit 10.1 of the Form 10-K for the fiscal
year ended June 30, 1998).
10.5 Cadmus 1997 Non-Employee Director Stock Compensation Plan (incorporated
herein by reference from Exhibit 10.5 of the Form 10-K for the fiscal
year ended June 30, 1998).
10.6 Cadmus 1990 Long Term Stock Incentive Plan, as amended effective August
12, 1998 (incorporated herein by reference from Exhibit 10.6 of the Form
10-K for the fiscal year ended June 30, 1998).
10.7 Cadmus Deferred Compensation Plan, as amended through February 16, 1996
(incorporated herein by reference from Exhibit 10.7 of the Form 10-K for
the fiscal year ended June 30, 1998).
10.8 Cadmus Non-Qualified Thrift Plan, as amended through March 26, 1997
(incorporated herein by reference from Exhibit 10.8 of the Form 10-K for
the fiscal year ended June 30, 1998).
10.9 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and C. Stephenson Gillispie, Jr. (incorporated
herein by reference from Exhibit 10.9 of the Form 10-K for the fiscal
year ended June 30, 1998).
10.10 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and David E. Bosher (incorporated herein by
reference from Exhibit 10.10 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.11 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and Bruce V. Thomas (incorporated herein by
reference from Exhibit 10.11 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.12 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and John H. Phillips (incorporated herein by
reference from Exhibit 10.12 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.13 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and Edward B. Fernstrom (incorporated herein
by reference from Exhibit 10.13 of the Form 10-K for the fiscal year
ended June 30, 1998).
10.14 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and Steven R. Isaac (incorporated herein by
reference from Exhibit 10.14 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.15 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and David G. Wilson, Jr. (incorporated herein
by reference from Exhibit 10.15 of the Form 10-K for the fiscal year
ended June 30, 1998).
<PAGE>
10.16 Employee Retention Agreement dated as of August 11, 1998, between Cadmus
Communications Corporation and Joseph J. Ward (incorporated herein by
reference from Exhibit 10.16 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.17 Asset Purchase Agreement dated February 20, 1999, by and among Washburn
Graphics, Inc., Washburn of New York, Inc., Cadmus Communications
Corporation, and R. R. Donnelley & Sons Company (incorporated herein by
reference from Exhibit 2 of the Current Report on Form 8-K dated March 1,
1999).*
10.18 $200,000,000 Credit Agreement dated as of April 1, 1999 among Cadmus
Communications Corporation, the Banks listed therein, NationsBank, N.A.,
as Documentation Agent, First Union National Bank, as Syndication Agent
and Wachovia Bank, N.A, as Agent (incorporated herein by reference from
Exhibit 10.1 of the Form 10-Q for the quarterly period ended March 31,
1999).
10.19 Stock Purchase Agreement dated April 1, 1999, by and among Cadmus
Communications Corporation, Melham U.S. Inc., Purico (IOM) Limited, and
Paul F. Mack (incorporated herein by reference from Exhibit 2.2 of the
Current Report on Form 8-K dated April 1, 1999).*
10.20 Registration Rights Agreement dated as of June 1, 1999 by and among
Cadmus Communications Corporation, as Issuer, the Guarantors listed
therein, and J.P. Morgan Securities Inc. and First Union Capital Markets
Corp., as Initial Purchasers.
11.1 Statement regarding computation of per share earnings.
12.1 Statements regarding computation of ratios.
18.1 Letter re change in accounting principles (incorporated herein by
reference from Exhibit 18 of the Form 10-K for the fiscal year ended June
30, 1998).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Hunton & Williams (included in Exhibit 5.1).
24.1 Powers of Attorney (included on signature page to this Registration
Statement)
25.1 Statement of Eligibility of Trustee.
99.1 Letter of Transmittal, with respect to the Old Notes and Exchange Notes.
99.2 Notice of Guaranteed Delivery, with respect to the Old Notes and Exchange
Notes.
_________________
* The schedules and exhibits to this Agreement are omitted in accordance
with the instructions to Item 601 (b) (2) of Regulation S-K. A listing of such
schedules and exhibits is found in the Agreement and Cadmus hereby undertakes to
supply the Securities and Exchange Commission supplementally with a copy of any
such exhibits upon request (incorporated herein by reference from Exhibit 2.2 of
the Current Report on Form 8-K dated April 1, 1999).
<PAGE>
99.3 Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner.
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(c) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (b) immediately preceding, or (ii) that purports to meet
the requirements of Sections 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change in such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
<PAGE>
(e) Insofar as indemnification for liabilities arising under the Securities Act
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 the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(f) 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.
(g) 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.
<PAGE>
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Richmond, Commonwealth of
Virginia, on July 14, 1999.
CADMUS COMMUNICATIONS CORPORATION
(Registrant)
By: /s/ C. Stephenson Gillispie, Jr.
--------------------------------
C. Stephenson Gillispie, Jr.
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons on behalf of the
Registrant and in the capacity indicated on July 14, 1999. Each of the
undersigned officers and directors of the registrant hereby constitutes C.
Stephenson Gillispie, Jr., Bruce V. Thomas and David E. Bosher, any of whom may
act, his true and lawful attorneys-in-fact with full power to sign for him and
in his name in the capacities indicated below and to file any and all amendments
to the registration statement filed herewith, making such changes in the
registration statement as the registrant deems appropriate, and generally to do
all such things in his name and behalf in his capacity as an officer and
director to enable the registrant to comply with the provisions of the
Securities Act of 1933 and all requirements of the Securities and Exchange
Commission.
Signature Title
--------- -----
/s/ C. Stephenson Gillispie, Jr. Chairman, President, Chief
- --------------------------------------
C. Stephenson Gillispie, Jr. Executive Officer and Director
(Principal Executive Officer)
/s/ Bruce V. Thomas Senior Vice President and
- --------------------------------------
Bruce V. Thomas Chief Financial Officer
(Principal Financial Officer)
/s/ David E. Bosher Vice President and Treasurer
- --------------------------------------
David E. Bosher (Principal Accounting Officer)
/s/ Frank Daniels III Director
- --------------------------------------
Frank Daniels III
<PAGE>
/s/ G. Waddy Garrett Director
- --------------------------------------
G. Waddy Garrett
______________________________________ Director
Jeanne M. Liedtka
/s/ John D. Munford, II Director
- --------------------------------------
John D. Munford, II
/s/ Nathu R. Puri Director
- --------------------------------------
Nathu R. Puri
/s/ John C. Purnell, Jr. Director
- --------------------------------------
John C. Purnell, Jr.
______________________________________ Director
Jerry I. Reitman
/s/ Russell M. Robinson, II Director
- --------------------------------------
Russell M. Robinson, II
/s/ John W. Rosenblum Director
- --------------------------------------
John W. Rosenblum
/s/ Wallace Stettinius Director
- --------------------------------------
Wallace Stettinius
/s/ Bruce A. Walker Director
- --------------------------------------
Bruce A. Walker
/s/ David G. Wilson, Jr. Director
- --------------------------------------
David G. Wilson, Jr.
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.1 Restated Articles of Incorporation of Cadmus Communications Corporation,
as amended (incorporated herein by reference from Exhibit 3.1 of the Form
10-K for the fiscal year ended June 30, 1993).
3.2 Bylaws of Cadmus Communications Corporation, as amended (incorporated
herein by reference from Exhibit 3.2 of the Form 10-Q for the quarterly
period ended December 31, 1997).
4.1 Indenture dated as of June 1, 1999 among Cadmus Communications
Corporation, as issuer, the Guarantors named therein and First Union
National Bank, as trustee.
4.2 Form of Note (included in Exhibit 4.1).
5.1 Form of Opinion of Hunton & Williams as to the legality of the securities.
10.1 Cadmus 1984 Stock Option Plan (incorporated herein by reference from
Exhibit 10.3 of the Form 10-K for the fiscal year ended June 30, 1985).
10.2 Cadmus Supplemental Executive Retirement Plan, as restated effective July
1, 1992 (incorporated herein by reference from Exhibit 10.2 of Form SE
dated September 25, 1992).
10.3 Cadmus 1992 Non-Employee Director Stock Compensation Plan (incorporated
herein by reference from Exhibit 10.5 of the Form SE dated September 25,
1992).
10.4 Cadmus Executive Incentive Plan dated November 11, 1997 (incorporated
herein by reference from Exhibit 10.1 of the Form 10-K for the fiscal year
ended June 30, 1998).
10.5 Cadmus 1997 Non-Employee Director Stock Compensation Plan (incorporated
herein by reference from Exhibit 10.5 of the Form 10-K for the fiscal year
ended June 30, 1998).
10.6 Cadmus 1990 Long Term Stock Incentive Plan, as amended effective August
12, 1998 (incorporated herein by reference from Exhibit 10.6 of the Form
10-K for the fiscal year ended June 30, 1998).
10.7 Cadmus Deferred Compensation Plan, as amended through February 16, 1996
(incorporated herein by reference from Exhibit 10.7 of the Form 10-K for
the fiscal year ended June 30, 1998).
10.8 Cadmus Non-Qualified Thrift Plan, as amended through March 26, 1997
(incorporated herein by reference from Exhibit 10.8 of the Form 10-K for
the fiscal year ended June 30, 1998).
10.9 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and C. Stephenson Gillispie, Jr. (incorporated
herein by reference from Exhibit 10.9 of the Form 10-K for the fiscal year
ended June 30, 1998).
<PAGE>
10.10 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and David E. Bosher (incorporated herein by
reference from Exhibit 10.10 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.11 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and Bruce V. Thomas (incorporated herein by
reference from Exhibit 10.11 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.12 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and John H. Phillips (incorporated herein by
reference from Exhibit 10.12 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.13 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and Edward B. Fernstrom (incorporated herein by
reference from Exhibit 10.13 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.14 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and Steven R. Isaac (incorporated herein by
reference from Exhibit 10.14 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.15 Employee Retention Agreement dated as of June 25, 1998, between Cadmus
Communications Corporation and David G. Wilson, Jr. (incorporated herein
by reference from Exhibit 10.15 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.16 Employee Retention Agreement dated as of August 11, 1998, between Cadmus
Communications Corporation and Joseph J. Ward (incorporated herein by
reference from Exhibit 10.16 of the Form 10-K for the fiscal year ended
June 30, 1998).
10.17 Asset Purchase Agreement dated February 20, 1999, by and among Washburn
Graphics, Inc., Washburn of New York, Inc., Cadmus Communications
Corporation, and R. R. Donnelley & Sons Company (incorporated herein by
reference from Exhibit 2 of the Current Report on Form 8-K dated March 1,
1999).*
10.18 $200,000,000 Credit Agreement dated as of April 1, 1999 among Cadmus
Communications Corporation, the Banks listed therein, NationsBank, N.A.,
as Documentation Agent, First Union National Bank, as Syndication Agent
and Wachovia Bank, N.A, as Agent (incorporated herein by reference from
Exhibit 10.1 of the Form 10-Q for the quarterly period ended March 31,
1999).
10.19 Stock Purchase Agreement dated April 1, 1999, by and among Cadmus
Communications Corporation, Melham U.S. Inc., Purico (IOM) Limited, and
Paul F. Mack (incorporated herein by reference from Exhibit 2.2 of the
Current Report on Form 8-K dated April 1, 1999).*
________________________
* The schedules and exhibits to this Agreement are omitted in
accordance with the instructions to Item 601 (b) (2) of Regulation S-K. A
listing of such schedules and exhibits is found in the Agreement and Cadmus
hereby undertakes to supply the Securities and Exchange Commission
supplementally with a copy of any such exhibits upon request (incorporated
herein by reference from Exhibit 2.2 of the Current Report on Form 8-K dated
April 1, 1999).
<PAGE>
10.20 Registration Rights Agreement dated as of June 1, 1999 by and among Cadmus
Communications Corporation, as Issuer, the Guarantors listed therein, and
J.P. Morgan Securities Inc. and First Union Capital Markets Corp., as
Initial Purchasers.
11.1 Statement regarding computation of per share earnings.
12.1 Statements regarding computation of ratios.
18.1 Letter re change in accounting principles (incorporated herein by
reference from Exhibit 18 of the Form 10-K for the fiscal year ended June
30, 1998).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Hunton & Williams (included in Exhibit 5.1)
24.1 Powers of Attorney (included on signature page to this Registration
Statement)
25.1 Statement of Eligibility of Trustee.
99.1 Letter of Transmittal, with respect to the Old Notes and Exchange Notes.
99.2 Notice of Guaranteed Delivery, with respect to the Old Notes and Exchange
Notes.
99.3 Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner.
<PAGE>
Exhibit 4.1
-----------
INDENTURE
Dated as of June 1, 1999
among
CADMUS COMMUNICATIONS CORPORATION,
as Issuer,
THE GUARANTORS named herein
and
FIRST UNION NATIONAL BANK,
as Trustee
__________________
Up to $200,000,000 aggregate principal amount of
9 3/4% Senior Subordinated Notes due 2009, Series A
9 3/4% Senior Subordinated Notes due 2009, Series B
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- -------------
<S> <C>
(S) 310 (a)(1)................................... 7.10
(a)(2)................................... 7.10
(a)(3)................................... N.A.
(a)(4)................................... N.A.
(a)(5)................................... 7.08, 7.10.
(b)...................................... 7.08; 7.10; 13.02
(c)...................................... N.A.
(S) 311 (a)...................................... 7.11
(b)...................................... 7.11
(c)...................................... N.A.
(S) 312 (a)...................................... 2.05
(b)...................................... 13.03
(c)...................................... 13.03
(S) 313 (a)...................................... 7.06
(b)(1)................................... N.A.
(b)(2)................................... 7.06
(c)...................................... 7.06; 13.02
(d)...................................... 7.06
(S) 314 (a)...................................... 4.11; 4.12; 13.02
(b)...................................... N.A.
(c)(1)................................... 13.04
(c)(2)................................... 13.04
(c)(3)................................... N.A.
(d)...................................... N.A.
(e)...................................... 13.05
(f)...................................... N.A.
(S) 315 (a)...................................... 7.01(b)
(b)...................................... 7.05; 13.02
(c)...................................... 7.01(a)
(d)...................................... 7.01(c)
(e)...................................... 6.11
(S) 316 (a)(last sentence)....................... 2.09
(a)(1)(A)................................ 6.05
(a)(1)(B)................................ 6.04
(a)(2)................................... N.A.
(b)...................................... 6.07
(c)...................................... 10.04
(S) 317 (a)(1)................................... 6.08
(a)(2)................................... 6.09
(b)...................................... 2.04
(S) 318 (a)...................................... 13.01
(c)...................................... 13.01
</TABLE>
- ------------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions............................................... 1
SECTION 1.02. Other Definitions......................................... 25
SECTION 1.03. Incorporation by Reference of Trust Indenture Act......... 26
SECTION 1.04. Rules of Construction..................................... 26
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating........................................... 27
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount.. 27
SECTION 2.03. Registrar and Paying Agent................................ 29
SECTION 2.04. Paying Agent To Hold Assets in Trust...................... 29
SECTION 2.05. Holder Lists.............................................. 29
SECTION 2.06. Transfer and Exchange..................................... 30
SECTION 2.07. Replacement Securities.................................... 31
SECTION 2.08. Outstanding Securities.................................... 31
SECTION 2.09. Treasury Securities....................................... 31
SECTION 2.10. Temporary Securities...................................... 32
SECTION 2.11. Cancellation.............................................. 32
SECTION 2.12. Defaulted Interest........................................ 32
SECTION 2.13. CUSIP Number.............................................. 33
SECTION 2.14. Deposit of Moneys......................................... 33
SECTION 2.15. Book-Entry Provisions for Global Securities............... 33
SECTION 2.16. Special Transfer Provisions............................... 34
ARTICLE THREE
REDEMPTION
SECTION 3.01. Election to Redeem; Notice to Trustee..................... 36
SECTION 3.02. Selection of Securities To Be Redeemed.................... 37
SECTION 3.03. Notice of Redemption...................................... 37
SECTION 3.04. Effect of Notice of Redemption............................ 38
SECTION 3.05. Deposit of Redemption Price............................... 38
SECTION 3.06. Securities Redeemed in Part............................... 39
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities..................................... 39
SECTION 4.02. Maintenance of Office or Agency........................... 39
SECTION 4.03. Limitations on Transactions with Affiliates............... 40
</TABLE>
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<TABLE>
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SECTION 4.04. Limitation on Incurrence of Additional Indebtedness............... 40
SECTION 4.05. Limitation on Asset Sales......................................... 41
SECTION 4.06. Limitation on Restricted Payments................................. 43
SECTION 4.07. Compliance with Laws.............................................. 46
SECTION 4.08. Payment of Taxes and Other Claims................................. 46
SECTION 4.09. Notice of Defaults................................................ 46
SECTION 4.10. Maintenance of Properties and Insurance........................... 46
SECTION 4.11. Compliance Certificate............................................ 47
SECTION 4.12. Reports to Holders................................................ 48
SECTION 4.13. Waiver of Stay, Extension or Usury Laws........................... 48
SECTION 4.14. Change of Control................................................. 48
SECTION 4.15. Prohibition on Incurrence of Senior Subordinated Debt............. 50
SECTION 4.16. Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries................................................. 50
SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries.......... 51
SECTION 4.18. Limitation on Liens............................................... 51
SECTION 4.19. Additional Guarantees............................................. 52
SECTION 4.20. Limitation on Restricted and Unrestricted Subsidiaries............ 52
SECTION 4.21. Conduct of Business............................................... 54
SECTION 4.22. Corporate Existence............................................... 54
ARTICLE FIVE
MERGERS; SUCCESSORS
SECTION 5.01. Merger, Consolidation and Sale of Assets.......................... 54
SECTION 5.02. Successor Substituted............................................. 55
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default................................................. 56
SECTION 6.02. Acceleration...................................................... 57
SECTION 6.03. Other Remedies.................................................... 58
SECTION 6.04. Waiver of Past Default............................................ 58
SECTION 6.05. Control by Majority............................................... 58
SECTION 6.06. Limitation on Suits............................................... 59
SECTION 6.07. Rights of Holders To Receive Payment.............................. 59
SECTION 6.08. Collection Suit by Trustee........................................ 59
SECTION 6.09. Trustee May File Proofs of Claim.................................. 60
SECTION 6.10. Priorities........................................................ 60
SECTION 6.11. Undertaking for Costs............................................. 60
SECTION 6.12. Restoration of Rights and Remedies................................ 61
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee................................................. 61
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 7.02. Rights of Trustee.......................................... 62
SECTION 7.03. Individual Rights of Trustee............................... 63
SECTION 7.04. Trustee's Disclaimer....................................... 63
SECTION 7.05. Notice of Defaults......................................... 63
SECTION 7.06. Reports by Trustee to Holders.............................. 64
SECTION 7.07. Compensation and Indemnity................................. 64
SECTION 7.08. Replacement of Trustee..................................... 65
SECTION 7.09. Successor Trustee by Merger, etc........................... 66
SECTION 7.10. Eligibility; Disqualification.............................. 66
SECTION 7.11. Preferential Collection of Claims Against the Company...... 66
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Debt..................... 66
SECTION 8.02. No Payment on Securities in Certain Circumstances.......... 67
SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc............. 68
SECTION 8.04. Subrogation................................................ 69
SECTION 8.05. Obligations of the Company Unconditional................... 69
SECTION 8.06. Notice to Trustee.......................................... 70
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating
Agent................................................. 70
SECTION 8.08. Trustee's Relation to Senior Debt.......................... 71
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Debt................. 71
SECTION 8.10. Holders Authorize Trustee To Effectuate Subordination
of Securities......................................... 71
SECTION 8.11. This Article Not To Prevent Events of Default.............. 72
SECTION 8.12. Trustee's Compensation Not Prejudiced...................... 72
SECTION 8.13. No Waiver of Subordination Provisions...................... 72
SECTION 8.14. Subordination Provisions Not Applicable to Money Held
in Trust for Holders.................................. 72
SECTION 8.15. Amendments................................................. 72
ARTICLE NINE
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. Satisfaction and Discharge................................. 72
SECTION 9.02. Legal Defeasance and Covenant Defeasance................... 73
SECTION 9.03. Conditions to Legal Defeasance or Covenant Defeasance...... 74
SECTION 9.04. Application of Trust Money................................. 76
SECTION 9.05. Repayment to Company....................................... 76
SECTION 9.06. Reinstatement.............................................. 77
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders................................. 77
SECTION 10.02. With Consent of Holders.................................... 78
</TABLE>
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<TABLE>
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<S> <C>
SECTION 10.03. Compliance with Trust Indenture Act........................ 79
SECTION 10.04. Revocation and Effect of Consents.......................... 79
SECTION 10.05. Notation on or Exchange of Securities...................... 79
SECTION 10.06. Trustee To Sign Amendments, etc............................ 80
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee.................................... 80
SECTION 11.02. Severability............................................... 81
SECTION 11.03. Release of a Guarantor..................................... 81
SECTION 11.04. Limitation of Guarantor's Liability........................ 81
SECTION 11.05. Guarantors May Consolidate, etc., on Certain Terms......... 82
SECTION 11.06. Contribution............................................... 83
SECTION 11.07. Waiver of Subrogation...................................... 83
SECTION 11.08. Execution of Guarantee..................................... 84
SECTION 11.09. Waiver of Stay, Extension or Usury Laws.................... 84
SECTION 11.10. Subordination of Guarantee................................. 84
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated to Senior Debt.......... 84
SECTION 12.02. Payment Over of Proceeds upon Dissolution, etc.;
No Payment in Certain Circumstances................... 84
SECTION 12.03. Subrogation................................................ 87
SECTION 12.04. Obligations of Guarantors Unconditional.................... 87
SECTION 12.05. Notice to Trustee.......................................... 88
SECTION 12.06. Reliance on Judicial Order or Certificate of
Liquidating Agent..................................... 88
SECTION 12.07. Trustee's Relation to Guarantor Senior Debt of a
Guarantor............................................. 89
SECTION 12.08. Subordination Rights Not Impaired by Acts or Omissions
of Holders of Guarantor Senior Debt................... 89
SECTION 12.09. Holders Authorize Trustee To Effectuate Subordination
of Guarantee.......................................... 89
SECTION 12.10. This Article Not To Prevent Events of Default.............. 90
SECTION 12.11. Trustee's Compensation Not Prejudiced...................... 90
SECTION 12.12. No Waiver of Guarantee Subordination Provisions............ 90
SECTION 12.13. Amendments................................................. 90
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. TIA Controls............................................... 90
SECTION 13.02. Notices.................................................... 91
SECTION 13.03. Communications by Holders with Other Holders............... 92
SECTION 13.04. Certificate and Opinion as to Conditions Precedent......... 92
SECTION 13.05. Statements Required in Certificate or Opinion.............. 92
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.................. 93
</TABLE>
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<S> <C>
SECTION 13.07. Governing Law................................................ 94
SECTION 13.08. No Recourse Against Others................................... 94
SECTION 13.09. Successors................................................... 94
SECTION 13.10. Counterpart Originals........................................ 94
SECTION 13.11. Severability................................................. 94
SECTION 13.12. No Adverse Interpretation of Other Agreements................ 95
SECTION 13.13. Legal Holidays............................................... 95
SECTION 13.14. Independence of Covenants.................................... 95
SIGNATURES.................................................................. S-1
EXHIBIT A Form of Series A Security.................................... A-1
EXHIBIT B Form of Series B Security.................................... B-1
EXHIBIT C Form of Legend for Global Securities......................... C-1
EXHIBIT D Form of Transfer Certificate................................. D-1
EXHIBIT E Form of Transfer Certificate for Institutional Accredited
Investors.................................................... E-1
EXHIBIT F Form of Guarantee............................................ F-1
</TABLE>
_________________
NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part
of this Indenture.
-v-
<PAGE>
INDENTURE dated as of June 1, 1999, among CADMUS COMMUNICATIONS
CORPORATION, a Virginia corporation (the "Company"), as issuer, the GUARANTORS
-------
(as defined herein) and FIRST UNION NATIONAL BANK, a national banking
association organized under the laws of the United States, as trustee (the
"Trustee").
-------
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
---------------------
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with or into the Company or
any of its Restricted Subsidiaries or that is assumed in connection with the
acquisition of assets from such Person, in each case, not incurred by such
Person in connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of the Company or such acquisition, merger or
consolidation.
"Additional Interest" has the meaning ascribed to it in the
-------------------
Registration Rights Agreement.
"Affiliate" means, with respect to any specified Person, any other
---------
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing. Notwithstanding the foregoing, no Person (other than the Company or
any Subsidiary of the Company) in whom a Securitization Entity makes an
Investment in connection with a Qualified Securitization Transaction shall be
deemed to be an Affiliate of the Company or any of its Subsidiaries solely by
reason of such Investment.
"Agent" means any Registrar, Paying Agent or co-Registrar.
-----
"Asset Acquisition" means
-----------------
(1) an Investment by the Company or any Restricted Subsidiary of the
Company in any other Person pursuant to which such Person shall become a
Restricted Subsidiary of the Company, or shall be merged with or into the
Company or any Restricted Subsidiary of the Company; or
(2) the acquisition by the Company or any Restricted Subsidiary of
the Company of the assets of any Person (other than a Restricted Subsidiary
of the Company) which constitute all or substantially all of the assets of
such Person or comprise any division or line of business of such Person or
any other properties or assets of such Person other than in the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
----------
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the
<PAGE>
-2-
Company or any of its Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company of:
(1) any Capital Stock of any Restricted Subsidiary of the Company; or
(2) any other property or assets of the Company or any Restricted
Subsidiary of the Company other than in the ordinary course of business.
Notwithstanding the foregoing, the following shall not be deemed to be
Asset Sales:
(a) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration of
less than $250,000;
(b) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company permitted under Section
5.01 hereof;
(c) sales of accounts receivable and related assets (including
contract rights) of the type specified in the definition of "Qualified
Securitization Transaction" to a Securitization Entity for the fair market
value thereof, including cash in an amount at least equal to 75% of the
fair market value thereof as determined in accordance with GAAP (for the
purposes of this clause (c), Purchase Money Notes shall be deemed to be
cash); and
(d) transfers of accounts receivable and related assets (including
contract rights) of the type specified in the definition of Qualified
Securitization Transaction (or a fractional undivided interest therein) by
a Securitization Entity in a Qualified Securitization Transaction.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
--------------
state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors
------------------
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
----------------
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, a Sunday or any
------------
other day on which banking institutions in the City of New York are required or
authorized by law or governmental action to be closed.
"Capital Stock" means
-------------
(1) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such Person; and
(2) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.
<PAGE>
-3-
"Capitalized Lease Obligation" means, as to any Person, the
----------------------------
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
----------------
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's;
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250.0 million;
(5) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (1) above
entered into with any bank meeting the qualifications specified in clause
(4) above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
"Change of Control" means the occurrence of one or more of the
-----------------
following events:
(1) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of the
assets of the Company to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group"), together with
-----
any Affiliates thereof (whether or not otherwise in compliance with the
provisions of this Indenture);
(2) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or dissolution of the Company
(whether or not otherwise in compliance with the provisions of this
Indenture);
(3) any Person or Group is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 14(d) under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all securities
that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the Company,
measured by voting power rather than number of shares;
<PAGE>
-4-
(4) the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors; or
(5) the Company consolidates with, or merges with or into, any
Person, or any Person consolidates with, or merges with or into, the
Company, in any such event pursuant to a transaction in which any of the
outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where
the Voting Stock of the Company outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Capital Stock) of the surviving or transferee Person
constituting a majority of such Voting Stock of such surviving or
transferee Person, measured by voting power rather than number of shares
(immediately after giving effect to such issuance).
"Common Stock" of any Person means any and all shares, interests or
------------
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" has the meaning ascribed to such term in the introductory
-------
paragraphs to this Indenture, until a successor replaces such party pursuant to
Article Five hereof, and thereafter "Company" shall mean such successor.
-------
"Consolidated EBITDA" means, with respect to any Person, for any
-------------------
period, the sum (without duplication) of
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby:
(a) all income taxes of such Person and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business);
(b) Consolidated Interest Expense; and
(c) Consolidated Non-Cash Charges less any non-cash items
increasing Consolidated Net Income for such period, all as determined
on a consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
----------------------------------------
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four-Quarter Period") ending prior to the date of the
-------------------
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio for which financial statements are available (the "Transaction
-----------
Date") to Consolidated Fixed Charges of such Person for the Four-Quarter Period.
- ----
In addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calcula-
<PAGE>
-5-
tion and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or
repayment of Indebtedness in the ordinary course of business for working
capital purposes pursuant to working capital facilities, occurring during
the Four-Quarter Period or at any time subsequent to the last day of the
Four-Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the
proceeds thereof), had occurred on the first day of the Four-Quarter
Period; and
(2) any Asset Sales or other dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions)
attributable to the assets which are the subject of the Asset Sale or other
disposition or Asset Acquisition during the Four-Quarter Period) occurring
during the Four-Quarter Period or at any time subsequent to the last day of
the Four-Quarter Period and on or prior to the Transaction Date as if such
Asset Sale or other disposition or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness)
occurred on the first day of the Four-Quarter Period. If such Person or any
of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to
the incurrence of such guaranteed Indebtedness as if such Person or any
Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such other Indebtedness that was so guaranteed. If, since the
beginning of such Four-Quarter Period, any Person (that subsequently became
a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such Four-Quarter Period)
shall have made any Asset Sale or other disposition or Asset Acquisition
that would have required adjustment pursuant to this definition, then the
Consolidated Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto as if such Asset Sale or other disposition or Asset
Acquisition had occurred at the beginning of the applicable Four-Quarter
Period.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes
--------------------------
of determining the denominator (but not the numerator) of this "Consolidated
------------
Fixed Charge Coverage Ratio":
- ---------------------------
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the Transaction
Date will be deemed to have been in effect during the Four-Quarter Period;
and
(3) notwithstanding clause (1) of this paragraph, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest
is covered by agreements relating to Interest Swap Obligations, shall be
deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
--------------------------
period, the sum, without duplication, of:
(1) Consolidated Interest Expense; plus
<PAGE>
-6-
(2) the product of (x) the amount of all dividend payments on any
series of Preferred Stock of such Person and its Restricted Subsidiaries
(other than dividends paid in Qualified Capital Stock) paid or accrued
during such period times (y) a fraction, the numerator of which is one and
the denominator of which is one minus the then current effective
consolidated Federal, state and local income tax rate of such Person,
expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for
-----------------------------
any period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period on a consolidated basis in
accordance with GAAP, including, without limitation, (w) any amortization
of debt discount and amortization or write-off of deferred financing costs,
(x) the net costs under Interest Swap Obligations, (y) all capitalized
interest and (z) the interest portion of any deferred payment obligation;
and
(2) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
-----------------------
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom:
(1) after-tax gains from Asset Sales (without regard to the $250,000
limitation set forth in the definition thereof) or abandonments or reserves
relating thereto;
(2) after-tax items classified as extraordinary, unusual or
nonrecurring gains;
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of
the referent Person or is merged or consolidated with or into the referent
Person or any Restricted Subsidiary of the referent Person;
(4) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is prohibited by
contract, operation of law or otherwise;
(5) the net income of any Person, other than a Restricted Subsidiary
of the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or a Wholly Owned Restricted
Subsidiary of the referent Person by such Person;
(6) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets,
any earnings of the successor corporation prior to such consolidation,
merger or transfer of assets;
(7) any restoration of income of any contingency reserve, except to
the extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date; and
<PAGE>
-7-
(8) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during such period,
whether or not such operations were classified as discontinued).
"Consolidated Net Worth" of any Person as of any date means the
----------------------
consolidated stockholders' equity of such Person, determined on a consolidated
basis in accordance with GAAP, less (without duplication) amounts attributable
to Disqualified Capital Stock of such Person.
"Consolidated Non-Cash Charges" means, with respect to any Person, for
-----------------------------
any period, the aggregate depreciation, amortization and other non-cash charges
and expenses of such Person and its Restricted Subsidiaries reducing
Consolidated Net Income of such Person and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP (excluding
any such charges constituting an extraordinary item or loss or any such charges
that require an accrual of or a reserve for cash charges for any future period).
"Continuing Directors" means, as of any date of determination, any
--------------------
member of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the Issue Date; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
-------------------------------------
Trustee specified in Section 13.02 or such other address as the Trustee may give
notice to the Company.
"Credit Facility" means the Credit Agreement, dated as of April 1,
---------------
1999, among the Company, the lenders party thereto in their capacities as
lenders thereunder, NationsBank, N.A., as documentation agent, First Union
National Bank, as syndication agent, and Wachovia Bank, N.A., as agent, together
with the related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder or adding Restricted
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Currency Agreement" means any foreign exchange contract, currency
------------------
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
---------
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or
-------
with the lapse of time or the giving of notice or both would be, an Event of
Default.
<PAGE>
-8-
"Depositary" means, with respect to the Securities issued in the form
----------
of one or more Global Securities, DTC or another Person designated as Depositary
by the Company, which must be a clearing agency registered under the Exchange
Act.
"Designated Senior Debt" as to the Company or any Guarantor, means:
----------------------
(1) Indebtedness under or in respect of the Credit Facility; and
(2) any other Indebtedness constituting Senior Debt or Guarantor
Senior Debt, as the case may be, which, at the time of determination, has
an aggregate principal amount of at least $25.0 million and is specifically
designated in the instrument evidencing such Senior Debt or Guarantor
Senior Debt, as the case may be, as "Designated Senior Debt" by such
Person.
"Disqualified Capital Stock" means that portion of any Capital Stock
--------------------------
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof on or prior to the final maturity date
of the Securities. Notwithstanding the preceding sentence, any Capital Stock
that would constitute Disqualified Capital Stock solely because the holders
thereof have the right to require the Company to repurchase such Capital Stock
upon the occurrence of a change of control or asset sale shall not constitute
Disqualified Capital Stock if the terms of such Capital Stock provide that the
Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with Section 4.06.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of
------------------------------
the Company that is incorporated or otherwise organized under the laws of the
United States or any State thereof or the District of Columbia.
"DTC" means The Depository Trust Company.
---
"Equity Offering" means an underwritten public offering of Qualified
---------------
Capital Stock of the Company pursuant to a registration statement filed with the
Commission in accordance with the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any successor statute or statutes thereto.
"Exchange Offer" has the meaning provided in the Registration Rights
--------------
Agreement.
"Exchange Offer Registration Statement" has the meaning provided in
-------------------------------------
the Registration Rights Agreement.
"Exchange Securities" means the 9 3/4% Senior Subordinated Notes due
-------------------
2009, Series B (with related Guarantees), to be issued in exchange for the
Initial Securities pursuant to the Registration Rights Agreement or, with
respect to the Initial Securities issued under this Indenture subsequent to the
Issue Date pursuant to Section 2.02, a registration rights agreements
substantially identical to the Registration Rights Agreement.
"fair market value" means, with respect to any asset or property, the
-----------------
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value
<PAGE>
-9-
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Company
delivered to the Trustee.
"Final Maturity Date" when used with respect to any Security or any
-------------------
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the Issue Date.
"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, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"Guarantee" means the guarantee of the Obligations of the Company with
---------
respect to the Securities by each Guarantor pursuant to the terms of this
Indenture, a form of which is attached hereto as part of Exhibits A and B. When
used as a verb, "Guarantee" shall have a corresponding meaning.
---------
"Guarantor" means:
---------
(1) each of Cadmus Journal Services, Inc., Washburn Graphics, Inc.,
American Graphics, Inc., Expert Graphics, Inc., Cadmus Direct Marketing,
Inc., Three Score, Inc., Mack Printing Company, Port City Press, Inc., Mack
Printing Group, Inc. and Science Craftsman Incorporated; and
(2) each of the Company's Restricted Subsidiaries that in the future
executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of this Indenture as a Guarantor;
provided that any Person constituting a Guarantor as described above shall cease
to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of Section 11.03.
"Guarantor Senior Debt" means, with respect to any Guarantor, the
---------------------
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of such Guarantor,
whether outstanding on the Issue Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Guarantee of such Guarantor. Without limiting the generality of
the foregoing, "Guarantor Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
<PAGE>
-10-
(1) all monetary obligations of every nature of such Guarantor in
respect of the Credit Facility, including, without limitation, obligations
to pay principal and interest, reimbursement obligations under letters of
credit, fees, expenses and indemnities;
(2) all Interest Swap Obligations (including guarantees thereof); and
(3) all obligations under Currency Agreements (including guarantees
thereof),
in each case, whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not
include:
(1) any Indebtedness of such Guarantor to any Subsidiary or Affiliate
of such Guarantor, or any Subsidiary of such Affiliate;
(2) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(3) Indebtedness represented by Disqualified Capital Stock;
(4) any liability for Federal, state, local or other taxes owed or
owing by such Guarantor;
(5) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of such Guarantor or any Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation);
(6) that portion of any Indebtedness incurred in violation of Section
4.04 (but, as to any such obligation, no such violation shall be deemed to
exist for purposes of this clause (6) if the holder(s) of such obligation
or their representative and the Trustee shall have received an Officers'
Certificate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit indebtedness,
that the incurrence of the entire committed amount thereof at the date on
which the initial borrowing thereunder is made would not) violate such
provisions of this Indenture);
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to such Guarantor; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of such Guarantor.
"Holder" means the registered holder of any Security.
------
"Indebtedness" means, with respect to any Person, without duplication:
------------
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
<PAGE>
-11-
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted);
(5) all Obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below;
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) above which are secured by any Lien on any property
or asset of such Person, the amount of such Obligation being deemed to be
the lesser of the fair market value of such property or asset and the
amount of the Obligation so secured;
(8) all Obligations under currency agreements and interest swap
agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued dividends, if
any.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital
Stock.
"Indenture" means this Indenture, as amended or supplemented from time
---------
to time.
"Independent Financial Advisor" means a nationally recognized
-----------------------------
investment banking or accounting firm:
(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the
Company or any of its Subsidiaries; and
(2) which, in the judgment of the Board of Directors of the Company,
is otherwise independent and qualified to perform the task for which it is
to be engaged.
"Initial Purchasers" means J.P. Morgan Securities Inc. and First Union
------------------
Capital Markets Corp.
"Initial Securities" means, collectively, (i) the 9 3/4% Senior
------------------
Subordinated Notes due 2009, Series A, of the Company issued on the Issue Date
and (ii) one or more series of 9 3/4% Senior Subordinated Notes due 2009 that
are issued under this Indenture subsequent to the Issue Date pursuant to Section
2.02, in each case for so long as such securities constitute Restricted
Securities.
<PAGE>
-12-
"Institutional Accredited Investor" means an institution that is an
---------------------------------
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date on
---------------------
June 1 and December 1 of each year, commencing June 1, 1999.
"Interest Record Date" for the interest payable on any Interest
--------------------
Payment Date (except a date for payment of defaulted interest) means the May 15
or November 15 (whether or not a Business Day), as the case may be, immediately
preceding such Interest Payment Date.
"Interest Swap Obligations" means the obligations of any Person
-------------------------
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect
----------
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or any such Restricted
Subsidiary, as the case may be. If the Company or any Restricted Subsidiary of
the Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, such Restricted Subsidiary is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Common Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means June 1, 1999, the date of original issuance of the
----------
Securities.
"Junior Subordinated Note" means, collectively, the three 11.5% junior
------------------------
subordinated notes of the Company due March 31, 2010.
"Lien" means any lien, mortgage, deed of trust, pledge, security
----
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Maturity Date" means, with respect to any Security, June 1, 2009 or
-------------
the date on which the principal of such Security becomes due and payable as
provided in such Security or this Indenture, whether at the Final Maturity Date
or by declaration of acceleration, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc.
-------
"Net Cash Proceeds" means, with respect to any Asset Sale, the
-----------------
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of:
<PAGE>
-13-
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions);
(2) taxes paid or payable relating to such Asset Sale after taking
into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements;
(3) the repayment of Indebtedness that is secured by such assets in
accordance with the terms of any Lien upon or with respect to such assets;
and
(4) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained
by the Company or any Restricted Subsidiary of the Company, as the case may
be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale.
"Non-U.S. Person" has the meaning assigned to such term in Regulation
---------------
S.
"Obligations" means all obligations for principal, premium, interest,
-----------
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officer" of any Person means the Chairman of the Board, the Chief
-------
Executive Officer, the President, any Vice President, the Chief Financial
Officer, the Treasurer, the Controller, or the Secretary or Assistant Secretary
of such Person or any other officer designated by the Board of Directors of such
Person serving in a similar capacity.
"Officers' Certificate" of any Person means a certificate signed on
---------------------
behalf of such Person or the general partner, in the case of a limited
partnership, or member, in the case of a limited liability company, of such
Person by the Chairman of the Board, the Chief Financial Officer, the President
or any Vice President (whether or not such title is preceded or followed by one
or more words or phrases) and by the Treasurer or any Assistant Treasurer or the
Secretary or any Assistant Secretary of such Person, that meets the requirements
set forth in Sections 13.04 and 13.05 of this Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to the Trustee, complying with the requirements of
Sections 12.04 and 12.05, as they relate to the giving of an Opinion of Counsel.
The counsel may be an employee of or counsel to the Company or the Trustee.
"Paying Agent" has the meaning provided in Section 2.03, except that,
------------
upon any bankruptcy or reorganization proceeding relating to the Company, the
Paying Agent shall not be the Company or any Affiliate of the Company.
"Permitted Business" means any business (including stock or assets)
------------------
that derives its revenues from the business engaged in by the Company and its
Restricted Subsidiaries on the Issue Date and/or activities that are reasonably
similar, ancillary or related to, or a reasonable extension, development or
expansion of, the businesses in which the Company and its Restricted
Subsidiaries are engaged on the Issue Date.
<PAGE>
-14-
"Permitted Indebtedness" means, without duplication, each of the
----------------------
following:
(1) Indebtedness represented by the Securities issued on the Issue
Date in an aggregate principal amount not to exceed $125.0 million and the
Guarantees thereof;
(2) Indebtedness incurred by the Company pursuant to the Credit
Facility in an aggregate principal amount not to exceed $200.0 million at
any one time outstanding, less:
(a) the amount of all mandatory principal payments actually made
by the Company in respect of term loans thereunder;
(b) the amount of all required permanent repayments (which are
accompanied by a corresponding permanent commitment reduction)
thereunder; and
(c) the aggregate amount of Indebtedness of Securitization
Entities in Qualified Securitization Transactions at the time
outstanding, to the extent that the proceeds from such Indebtedness
are not used (within five Business Days after the incurrence of such
Indebtedness) to make mandatory principal payments or required
permanent repayments in accordance with clauses (a) and (b) above.
(3) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereof;
(4) Interest Swap Obligations of the Company or any of its Restricted
Subsidiaries covering Indebtedness of the Company or any of its Restricted
Subsidiaries; provided that such Interest Swap Obligations are entered into
to protect the Company and its Restricted Subsidiaries from fluctuations in
interest rates on Indebtedness incurred in accordance with this Indenture
to the extent that the notional principal amount of any such Interest Swap
Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(5) Indebtedness of the Company or any Restricted Subsidiary of the
Company under Currency Agreements; provided that such Currency Agreements
are entered into to protect the Company and its Restricted Subsidiaries
from fluctuations in the value of foreign currencies purchased or received
in the ordinary course of business; provided, further, that, in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of the Company and its Restricted
Subsidiaries outstanding other than as a result of fluctuations of foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(6) Indebtedness of a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company for so long as such Indebtedness is held by the Company or a Wholly
Owned Restricted Subsidiary of the Company, in each case subject to no Lien
held by a Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company; provided that if as of any date any Person other
than the Company or a Wholly Owned Restricted Subsidiary of the Company
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
<PAGE>
-15-
(7) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Restricted Subsidiary of the Company, in each case subject to
no Lien; provided that (a) any Indebtedness of the Company to any Wholly
Owned Restricted Subsidiary of the Company that is not a Guarantor is
unsecured and subordinated, pursuant to a written agreement, to the
Company's Obligations under this Indenture and the Securities and (b) if as
of any date any Person other than a Wholly Owned Restricted Subsidiary of
the Company owns or holds any such Indebtedness or any Person holds a Lien
in respect of such Indebtedness, such date shall be deemed the incurrence
of Indebtedness not constituting Permitted Indebtedness by the Company;
(8) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two Business Days of incurrence;
(9) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(10) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of the Company and its Restricted Subsidiaries
incurred in the ordinary course of business not to exceed $5.0 million at
any one time outstanding;
(11) Refinancing Indebtedness;
(12) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to the Company or
any Subsidiary of the Company (except for Standard Securitization
Undertakings); and
(13) additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount that does not exceed $15.0
million at any one time outstanding (which amount may, but need not, be
incurred in whole or in part under the Credit Facility).
For purposes of determining compliance with Section 4.04, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (1) through (11) and
(13) above or is otherwise entitled to be incurred pursuant to the Consolidated
Fixed Charge Coverage Ratio provisions of Section 4.04, the Company shall, in
its sole discretion, classify (or later reclassify) such item of Indebtedness in
any manner that complies with Section 4.04. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms and the
payment of dividends on Disqualified Capital Stock will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Capital Stock for
purposes of Section 4.04. The amount of Indebtedness issued at a price that is
either less or greater than the principal amount thereof shall be equal to the
amount of the liability in respect thereof determined in accordance with GAAP.
"Permitted Investments" means:
---------------------
(1) Investments by the Company or any Restricted Subsidiary of the
Company in any Wholly Owned Restricted Subsidiary of the Company that is a
Guarantor or any Person if as a result of
<PAGE>
-16-
such Investment such Person shall become a Wholly Owned Restricted
Subsidiary of the Company that is a Guarantor or will merge or consolidate
with or into the Company or a Wholly Owned Restricted Subsidiary of the
Company that is a Guarantor;
(2) Investments in the Company by any Restricted Subsidiary of the
Company; provided that any Indebtedness evidencing such Investment is
unsecured and subordinated, pursuant to a written agreement, to the
Company's obligations under the Securities and this Indenture;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of the Company and
its Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes in an aggregate principal amount not to exceed $2.0
million at any one time outstanding;
(5) Currency Agreements and Interest Swap Obligations entered into in
the ordinary course of the Company's or its Restricted Subsidiaries'
business and otherwise in compliance with this Indenture;
(6) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(7) Investments made by the Company or its Restricted Subsidiaries as
a result of consideration received in connection with an Asset Sale made in
compliance with Section 4.05;
(8) additional Investments having an aggregate fair market value,
when taken together with all other Investments made pursuant to this clause
(8) that are at that time outstanding, not to exceed $5.0 million (with the
fair market value of each Investment being measured at the time made and
without giving effect to subsequent changes in value);
(9) any Investment by the Company or a Restricted Subsidiary of the
Company in a Securitization Entity or any Investment by a Securitization
Entity in any other Person in connection with a Qualified Securitization
Transaction; provided that any Investment in a Securitization Entity is in
the form of a Purchase Money Note or an equity interest; and
(10) Investments in Permitted Businesses made by the Company or any
Wholly Owned Restricted Subsidiary of the Company that is a Guarantor
having an aggregate fair market value, when taken together with all other
Investments made pursuant to this clause (10) after the Issue Date, not to
exceed $5.0 million (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value).
"Permitted Liens" means the following types of Liens:
---------------
(1) Liens securing Senior Debt and Guarantor Senior Debt (including
Liens securing Indebtedness outstanding under the Credit Facility) to the
extent that the Indebtedness secured thereby is permitted to be incurred
pursuant to Section 4.04;
(2) Liens securing the Securities and the Guarantees;
<PAGE>
-17-
(3) Liens in favor of the Company or any Wholly Owned Restricted
Subsidiary of the Company on assets of any Restricted Subsidiary of the
Company;
(4) Liens existing on the Issue Date securing Indebtedness existing
on the Issue Date to the extent and in the manner such Liens are in effect
on the Issue Date;
(5) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness which has been secured by a Lien permitted under
this Indenture and which has been incurred in accordance with the
provisions of this Indenture; provided that such Liens:
(a) are no less favorable to the Holders and are not more
favorable to the lienholders with respect to such Liens than the Liens
in respect of the Indebtedness being Refinanced; and
(b) do not extend to or cover any property or assets of the
Company or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced;
(6) Liens for taxes, assessments or governmental charges or claims
either:
(a) not delinquent; or
(b) contested in good faith by appropriate proceedings and as to
which the Company or any of its Restricted Subsidiaries shall have set
aside on its books such reserves as may be required pursuant to GAAP;
(7) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen and repairmen and other Liens imposed by
law incurred in the ordinary course of business for sums not yet delinquent
or being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(8) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(9) judgment Liens not giving rise to an Event of Default so long as
any such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall
not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
(10) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(11) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property of asset
which is not leased property subject to such Capitalized Lease Obligation;
<PAGE>
-18-
(12) Liens securing Purchase Money Indebtedness of the Company or any
Restricted Subsidiary of the Company; provided that:
(a) the Purchase Money Indebtedness shall not exceed the
purchase price or the cost of construction or improvement of such
property or assets, as the case may be, and shall not be secured by
any property or assets of the Company or any Restricted Subsidiary of
the Company other than the property or assets so acquired, constructed
or improved; and
(b) the Lien securing such Indebtedness shall be created within
90 days of such acquisition or completion of construction or
improvement; (13) Liens upon specific items of inventory or other
goods and proceeds of any Person securing such Person's obligations in
respect of bankers' acceptances issued or created for the account of
such Person to facilitate the purchase, shipment or storage of such
inventory or other goods;
(14) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(15) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements of the
Company or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(16) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture;
(17) Liens securing Indebtedness under Currency Agreements;
(18) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods;
(19) Liens securing Acquired Indebtedness incurred in compliance with
Section 4.04; provided that:
(a) such Liens secured such Acquired Indebtedness at the time of
and prior to the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary of the Company and were not granted
in anticipation of the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary of the Company; and
(b) such Liens do not extend to or cover any property or assets
of the Company or of any of its Restricted Subsidiaries other than the
property or assets that secured the Acquired Indebtedness prior to the
time such Indebtedness became Acquired Indebtedness of the Company or
a Restricted Subsidiary of the Company and are no more favorable to
the lienholders than those securing the Acquired Indebtedness prior to
the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary of the Company; and
(20) Liens on assets transferred to a Securitization Entity or on
assets of a Securitization Entity, in either case incurred in connection
with a Qualified Securitization Transaction.
<PAGE>
-19-
"Person" means an individual, partnership, corporation, limited
------
liability company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Physical Securities" means one or more certificated Securities in
-------------------
registered form.
"Preferred Stock" of any Person means any Capital Stock of such Person
---------------
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"principal" of any indebtedness means the principal amount of such
---------
indebtedness plus the premium, if any, on such indebtedness.
"Private Exchange Securities" has the meaning provided in the
---------------------------
Registration Rights Agreement.
"Productive Assets" means properties and assets (including Capital
-----------------
Stock) that are used or useful by the Company and its Restricted Subsidiaries in
Permitted Businesses.
"pro forma" means, with respect to any calculation made or required to
---------
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act as interpreted by the
Company's Board of Directors in consultation with its independent certified
public accountants.
"Purchase Money Indebtedness" means Indebtedness of the Company and
---------------------------
its Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
construction or improvement, of property or equipment.
"Purchase Money Note" means a promissory note of a Securitization
-------------------
Entity evidencing a line of credit, which may be irrevocable, from the Company
or any Subsidiary of the Company in connection with a Qualified Securitization
Transaction to a Securitization Entity, which note shall be repaid from cash
available to the Securitization Entity, other than amounts required to be
established as reserves pursuant to agreements, amounts paid to investors in
respect of interest, principal and other amounts owing to such investors and
amounts paid in connection with the purchase of newly generated receivables.
"Qualified Capital Stock" means any Capital Stock that is not
-----------------------
Disqualified Capital Stock.
"Qualified Securitization Transaction" means any transaction or series
------------------------------------
of transactions that may be entered into by the Company or any of its
Subsidiaries pursuant to which the Company or any or its Subsidiaries may sell,
convey or otherwise transfer to (a) a Securitization Entity (in the case of a
transfer by the Company or any of its Subsidiaries) or (b) any other Person (in
the case of a transfer by a Securitization Entity), or may grant a security
interest in, any accounts receivable (whether now existing or arising in the
future) of the Company or any of its Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable, all contracts and contract rights and all guarantees or other
obligations in respect of such accounts receivable, proceeds of such accounts
receivable and other assets (including contract rights) which are customarily
transferred or in respect of which security interests are customarily granted in
connection with asset securitization transactions involving accounts receivable.
"Qualified Institutional Buyer" or "QIB" means a "qualified
----------------------------- ---
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
<PAGE>
-20-
"Redemption Date," when used with respect to any Security to be
----------------
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Security to be
----------------
redeemed, means the price fixed for such redemption pursuant to this Indenture
as set forth in the form of Security annexed hereto as Exhibit A.
---------
"Refinance" means, in respect of any security or Indebtedness, to
---------
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness (the proceeds of which are applied within 60
days after the incurrence thereof) in exchange or replacement for, such security
or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
---------- -----------
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
------------------------
of its Restricted Subsidiaries of Indebtedness incurred in accordance with
Section 4.04 (other than pursuant to clauses (2), (4), (5), (6), (7), (8), (9),
(10), (12) or (13) of the definition of Permitted Indebtedness), in each case,
that does not:
(1) directly or indirectly result in an increase in the aggregate
principal amount (or accreted value, if applicable) of Indebtedness of the
Company or such Restricted Subsidiary as of the date of such Refinancing
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and the amount of reasonable
expenses incurred by the Company or such Restricted Subsidiary in
connection with such Refinancing); or
(2) create Indebtedness with (a) a Weighted Average Life to Maturity
as of the date of such Refinancing that is less than the Weighted Average
Life to Maturity at such time of the Indebtedness being Refinanced or (b) a
final maturity earlier than the final maturity of the Indebtedness being
Refinanced; provided that (x) such Refinancing Indebtedness shall be
incurred solely by the obligor of the Indebtedness being Refinanced and (y)
if such Indebtedness being Refinanced is subordinated to the Securities or
a Guarantee, then such Refinancing Indebtedness shall be subordinated or
junior to the Securities or such Guarantee, as the case may be, at least to
the same extent and in the same manner as the Indebtedness being
Refinanced.
"Regulation S" means Regulation S under the Securities Act.
------------
"Regulation S Global Security" means a global security in registered
----------------------------
form representing the aggregate principal amount of Securities sold pursuant to
Regulation S under the Securities Act.
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement, dated as of June 1, 1999, by and among the Company, the Guarantors
and the Initial Purchasers.
"Representative" means the indenture trustee or other trustee, 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 in respect of any Designated Senior Debt.
"Restricted Security" means a Security that constitutes a "Restricted
-------------------
Security" within the meaning of Rule 144(a)(3) under the Securities Act;
provided, however, that the Trustee shall be entitled to request and
conclusively rely on an Opinion of Counsel with respect to whether or not any
Security constitutes a Restricted Security.
<PAGE>
-21-
"Restricted Subsidiary" of any Person means any Subsidiary of such
---------------------
Person which at the time of determination is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
---------
"S&P" means Standard & Poor's Rating Group.
---
"Sale and Leaseback Transaction" means any direct or indirect
------------------------------
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of the Company of any
property, whether owned by the Company or any Restricted Subsidiary of the
Company at the Issue Date or later acquired, which has been or is to be sold or
transferred by the Company or such Restricted Subsidiary to such Person or to
any other Person from whom funds have been or are to be advanced by such Person
on the security of such property.
"SEC" or "Commission" means the Securities and Exchange Commission.
--- ----------
"Securities" means, collectively, the Initial Securities, the Private
----------
Exchange Securities, if any, and the Unrestricted Securities, treated as a
single class of securities, as amended or supplemented from time to time in
accordance with the terms of this Indenture, that are issued pursuant to this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor statute or statutes thereto.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company
---------------------
(or another Person in which the Company or any Subsidiary of the Company makes
an Investment and to which the Company or any Subsidiary of the Company
transfers accounts receivable and related assets) which engages in no activities
other than in connection with the financing of accounts receivable and which is
designated by the Board of Directors of the Company (as provided below) as a
Securitization Entity:
(a) no portion of the Indebtedness or any other obligation
(contingent or otherwise) of which:
(i) is guaranteed by the Company or any Subsidiary of the
Company (excluding guarantees of obligations (other than the principal
of, and interest on, Indebtedness) pursuant to Standard Securitization
Undertakings);
(ii) is recourse to or obligates the Company or any Subsidiary
of the Company in any way other than pursuant to Standard
Securitization Undertakings; or
(iii) subjects any property or asset of the Company or any
Subsidiary of the Company, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to
Standard Securitization Undertakings;
(b) with which neither the Company nor any Subsidiary of the Company
has any material contract, agreement, arrangement or understanding other
than on terms no less favorable to the Company or such Subsidiary than
those that might be obtained at the time from Persons that are not
Affiliates of the Company, other than fees payable in the ordinary course
of business in connection with servicing receivables of such entity; and
<PAGE>
-22-
(c) to which neither the Company nor any Subsidiary of the Company has
any obligation to maintain or preserve such entity's financial condition or
cause such entity to achieve certain levels of operating results.
Any such designation by the Board of Directors of the Company shall be evidenced
to the Trustee by filing with the Trustee a Board Resolution of the Company
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions.
"Senior Debt" means the principal of, premium, if any, and interest
-----------
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Securities. Without limiting the
generality of the foregoing, "Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
(1) all monetary obligations of every nature of the Company under the
Credit Facility, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit,
fees, expenses and indemnities;
(2) all Interest Swap Obligations (including guarantees thereof); and
(3) all obligations under Currency Agreements (including guarantees
thereof), in each case, whether outstanding on the Issue Date or thereafter
incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of the Company to any Subsidiary or Affiliate of
the Company, or any Subsidiary of such Affiliate;
(2) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(3) Indebtedness represented by Disqualified Capital Stock;
(4) any liability for Federal, state, local or other taxes owed or
owing by the Company;
(5) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of the Company or any Subsidiary of the
Company (including, without limitation, amounts owed for compensation);
(6) that portion of any Indebtedness incurred in violation of Section
4.04 (but, as to any such obligation, no such violation shall be deemed to
exist for purposes of this clause (6) if the holder(s) of such obligation
or their representative and the Trustee shall have received an officers'
certificate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving
<PAGE>
-23-
credit indebtedness, that the incurrence of the entire committed amount
thereof at the date on which the initial borrowing thereunder is made would
not) violate Section 4.04);
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of the Company.
"Significant Subsidiary," with respect to any Person, means any
----------------------
Restricted Subsidiary of such Person that satisfies the criteria for a
"significant subsidiary" set forth in Rule 1-02(w) of Regulation S-X under the
Securities Act ; provided, however, that for purposes of Section 4.19, the
determination of whether any Restricted Subsidiary of the Company satisfies the
criteria for a "significant subsidiary" set forth in Rule 1-02(w) of Regulation
S-X under the Securities Act, such determination shall be made using 5.0% rather
than 10.0% as set forth in Rule 1-02(w) of Regulation S-X under the Securities
Act.
"Standard Securitization Undertakings" means representations,
------------------------------------
warranties, covenants and indemnities entered into by the Company or any
Subsidiary of the Company which are reasonably customary in an accounts
receivable transaction.
"Subsidiary," with respect to any Person, means:
----------
(1) any corporation a majority of whose Voting Stock shall at the
time be owned, directly or indirectly, by such Person; or
(2) any other Person of which at least a majority of the voting
interest under ordinary circumstances is at the time, directly or
indirectly, owned by such Person.
"TIA" means the Trust Indenture Act of 1939, as amended, as in effect
---
on the date of this Indenture (except as provided in Section 10.03) until such
time as this Indenture is qualified under the TIA, and thereafter as in effect
on the date on which this Indenture is qualified under the TIA.
"Trust Officer" means any officer within the Corporate Trust
-------------
Department of the Trustee (or any successor group of the Trustee), and also
means, with respect to a particular corporate trust matter, any other officer to
whom such trust matter is referred because of his knowledge of and familiarity
with the particular subject, or in the case of a successor trustee, an officer
assigned to the department, division or group performing the corporation trust
work of such successor and assigned to administer this Indenture.
"Trustee" means the party named as such in the first paragraph of this
-------
Indenture until a successor replaces it in accordance with the provisions of
this Indenture and thereafter means such successor.
"United States Government Obligations" means direct non-callable
------------------------------------
obligations of the United States for the payment of which the full faith and
credit of the United States is pledged.
"United States Legal Tender" means such coin or currency of the United
--------------------------
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"Unrestricted Securities" means one or more Securities that do not and
-----------------------
are not required to bear the Private Placement Legend in the form set forth in
Exhibit A hereto, including, without limitation, the Ex-
- ---------
<PAGE>
-24-
change Securities and any Securities registered under the Securities Act
pursuant to and in accordance with the Registration Rights Agreement.
"Unrestricted Subsidiary" of any Person means:
-----------------------
(1) any Subsidiary of such Person formed or acquired after the Issue
Date that at the time of determination shall be or continue to be
designated an Unrestricted Subsidiary by the Board of Directors of such
Person in compliance with Section 4.20; and
(2) any Subsidiary of an Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to
------------
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency) and, with respect to the Company, shall be
deemed to include the Common Stock of the Company.
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing:
(1) the then outstanding aggregate principal amount of such
Indebtedness; into
(2) the sum of the total of the products obtained by multiplying:
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof; by
(b) the number of years (calculated to the nearest one-twelfth)
which will elapse between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Wholly
----------------------------------
Owned Subsidiary of such Person which at the time of determination is a
Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such
-----------------------
Person of which all the outstanding Voting Stock (other than in the case of a
Subsidiary that is incorporated in a jurisdiction other than a State in the
United States or the District of Columbia, directors' qualifying shares or an
immaterial amount of shares required to be owned by other Persons pursuant to
applicable law) is owned by such Person or any Wholly Owned Subsidiary of such
Person.
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Acceleration Notice"...................................... 6.02
-------------------
"Affiliate Transaction".................................... 4.03
---------------------
"Change of Control Date"................................... 4.14(a)
----------------------
"Change of Control Offer".................................. 4.14(a)
-----------------------
"Change of Control Payment"................................ 4.14(a)
-------------------------
</TABLE>
<PAGE>
-25-
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Change of Control Payment Date"........................... 4.14(a)
------------------------------
"Covenant Defeasance"...................................... 9.02(c)
-------------------
"Default Interest Payment Date"............................ 2.12
-----------------------------
"Defeasance Trust Payment.................................. 8.02
------------------------
"Event of Default"......................................... 6.01
----------------
"Funding Guarantor"........................................ 11.06
-----------------
"Global Security".......................................... 2.01
---------------
"incur".................................................... 4.04
-----
"Legal Defeasance"......................................... 9.02(b)
----------------
"Net Proceeds Offer"....................................... 4.05
------------------
"Net Proceeds Offer Amount"................................ 4.05
-------------------------
"Net Proceeds Offer Payment Date".......................... 4.05
-------------------------------
"Net Proceeds Offer Trigger Date".......................... 4.05
-------------------------------
"Net Proceeds Purchase Date"............................... 4.05
--------------------------
"Participant".............................................. 2.15
-----------
"Paying Agent"............................................. 2.03
------------
"Payment Blockage Notice".................................. 8.02
-----------------------
"Payment Blockage Period".................................. 8.02
-----------------------
"Physical Securities"...................................... 2.01
-------------------
"Private Placement Legend"................................. 2.17
------------------------
"Reference Date"........................................... 4.06
--------------
"Registrar"................................................ 2.03
---------
"Restricted Payment"....................................... 4.07
------------------
"Surviving Entity"......................................... 5.01
----------------
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities and the Guarantees;
--------------------
"indenture security holder" means a Holder;
-------------------------
"indenture to be qualified" means this Indenture;
-------------------------
"indenture trustee" or "institutional trustee" means the
----------------- ---------------------
Trustee; and
"obligor" on the indenture securities means the Company, the
------
Guarantors or any other obligor on the Securities.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
<PAGE>
-26-
SECTION 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Initial Notes, the notation thereon relating to the Guarantees
and the Trustee's certificate of authentication thereof shall be substantially
in the form of Exhibit A hereto. The Exchange Securities, the notation thereon
---------
relating to the Guarantees and the Trustee's certificate of authentication
thereof shall be substantially in the form of Exhibit B hereto. The Securities
---------
may have notations, legends or endorsements required by law, stock exchange rule
or depository rule or usage. The Company and the Trustee shall approve the
forms of the Securities and any notation, legend or endorsement thereon. Each
Security shall have an executed Guarantee from each of the Guarantors endorsed
thereon substantially in the form of Exhibit F hereto. Each Security shall be
---------
dated the date of its authentication.
The terms and provisions contained in the Securities and the
Guarantees annexed hereto as Exhibits A, B and F shall constitute, and are
-------------------
hereby expressly made, a part of this Indenture and, to the extent applicable,
the Company, the Guarantors and the Trustee, by their execution and delivery of
this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
Securities offered and sold in reliance on Rule 144A, and Securities
offered and sold in reliance on Regulation S, shall be issued initially in the
form of one or more permanent global notes in fully registered form without
interest coupons, substantially in the form set forth in Exhibit A (each a
---------
"Global Security"), and shall be deposited with the Trustee, as custodian for
- ----------------
the Depositary, and registered in the name of a nominee of the Depositary. The
Global Security shall bear the legend set forth in Exhibit C, and shall be duly
---------
executed by the Company (and have an executed Guarantee from each of the
Guarantors endorsed thereon) and shall be authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Global Security may
from time to time be increased or decreased by adjustments made on the records
of the Trustee, as custodian for the Depository, as hereinafter provided.
<PAGE>
-27-
Securities issued in exchange for interests in a Global Security
pursuant to Section 2.15 may be issued in the form of permanent certificated
Securities in registered form in substantially the form set forth in Exhibit A
---------
(the "Physical Securities") and shall bear the legend set forth in Exhibit A.
------------------- ---------
All Securities offered and sold in reliance on Regulation S shall remain in the
form of a Global Security until the consummation of the Exchange Offer pursuant
to the Registration Rights Agreement; provided, however, that all of the time
-------- -------
periods specified in the Registration Rights Agreement to be complied with by
the Company and the Guarantors have been so complied with.
SECTION 2.02. Execution and Authentication; Aggregate Principal Amount.
Two Officers shall sign the Securities of the Company by manual or
facsimile signature and may be imprinted or otherwise reproduced. Each
Guarantor shall execute its Guarantee in the manner set forth in Section 11.08.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature of such authorized signatory of the Trustee shall be conclusive
evidence that the Security has been authenticated under this Indenture.
The Trustee shall authenticate (i) Initial Securities for original
issue in an aggregate principal amount not to exceed $200,000,000 in one or more
series; provided that the aggregate principal amount of Initial Securities on
the Issue Date shall not exceed $125,000,000; and provided, further, that the
Company complies with Section 4.04; (ii) Private Exchange Securities from time
to time only in exchange for a like principal amount of the same type of Initial
Securities and (iii) Unrestricted Securities from time to time (A) in exchange
for a like principal amount of Initial Securities or (B) in an aggregate
principal amount of not more than the excess of $200,000,000 over the sum of the
aggregate principal amount of (i) Initial Securities then outstanding, (ii)
Private Exchange Securities then outstanding and (iii) Unrestricted Securities
issued in accordance with (iii)(A) above, in each case upon a written order of
the Company in the form of an Officers' Certificate. Each such written order
shall specify the amount of and the type of Securities to be authenticated and
the date on which the Securities are to be authenticated, whether the Securities
are to be Initial Securities, Private Exchange Securities or Unrestricted
Securities and whether (subject to Section 2.01) the Securities are to be issued
as Physical Securities or Global Securities and such other information as the
Trustee may reasonably request. In addition, with respect to authentication
pursuant to clauses (ii) or (iii) of the first sentence of this paragraph, the
first such written order from the Company shall be accompanied by an Opinion of
Counsel of the Company in a form reasonably satisfactory to the Trustee stating
that the issuance of the Private Exchange Securities or the Unrestricted
Securities, as the case may be, does not give rise to an Event of Default,
complies with this Indenture and has been duly authorized by the Company. The
aggregate principal amount of Securities outstanding at any time may not exceed
$200,000,000, except as provided in Sections 2.07 and 2.08.
In the event that the Company shall issue and the Trustee shall
authenticate any Securities issued under this Indenture subsequent to the Issue
Date pursuant to clauses (i) and (iii) of the first sentence of the immediately
preceding paragraph, the Company shall use its best efforts to obtain the same
"CUSIP" number for such Securities as is printed on the Securities outstanding
at such time; provided, however, that if any series of Securities issued under
this Indenture subsequent to the Issue Date is determined, pursuant to an
Opinion of Counsel of the Company in a form reasonably satisfactory to the
Trustee, to be a different class of security than
<PAGE>
-28-
the Securities outstanding at such time for Federal income tax purposes, the
Company may obtain a "CUSIP" number for such Securities that is different than
the "CUSIP" number printed on the Securities then outstanding.
Notwithstanding the foregoing, all Securities issued under this
Indenture shall vote and consent together on all matters (as to which any of
such Securities may vote or consent) as one class and no series of Securities
will have the right to vote or consent as a separate class on any matter.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent shall
have the same rights as an Agent to deal with the Company and Affiliates of the
Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York (which may be a drop facility), where (a)
Securities may be presented or surrendered for registration of transfer or for
exchange (the "Registrar"), (b) Securities may be presented or surrendered for
---------
payment (the "Paying Agent") and (c) notices and demands to or upon the Company
------------
in respect of the Securities and this Indenture may be served. The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company, upon notice to the Trustee, may appoint one or more co-Registrars and
one or more additional paying agents. The term "Paying Agent" includes any
additional paying agent and the term "Registrar" includes any co-Registrar.
Except as provided herein, the Company or any Affiliate of the Company may act
as Paying Agent, Registrar or co-Registrar. The Company hereby designates the
Trustee, c/o First Union National Bank, 40 Broad Street, Fifth Floor, Suite 550,
New York, New York 10004, as such drop facility in compliance with this Section
2.03.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall notify the Trustee, in advance, of the
name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such and shall be entitled to appropriate compensation in
accordance with Section 7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed. The Company initially appoints DTC to act as Depositary with respect
to the Global Securities.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that, subject to Articles Eight, Eleven and Twelve hereof, each
Paying Agent shall hold in trust for the benefit of Holders or the Trustee all
assets held by the Paying Agent for the payment of principal of, premium, if
any, or interest on, the Securities (whether such assets have been distributed
to it by the Company or any other obligor on the Securities), and the Company
and the Paying Agent shall notify the Trustee in writing of any Default by the
Company (or any other obligor on the Securities) in making any such payment.
The Company at any time may
<PAGE>
-29-
require a Paying Agent to distribute all assets held by it to the Trustee and
account for any assets disbursed, and the Trustee may at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee and
to account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Company to the Paying Agent (if
other than the Company), the Paying Agent shall have no further liability for
such assets. If the Company, any Guarantor or any of their respective Affiliates
acts as Paying Agent, it shall, on or before each due date of the principal of
or interest on the Securities, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay the principal or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
SECTION 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is not
the Registrar, the Company shall furnish or cause the Registrar to furnish to
the Trustee at least five Business Days before each Interest Record Date and
before each related Interest Payment Date and at such other times as the Trustee
may request in writing, a list as of such date and in such form as the Trustee
may reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when Securities
are presented to the Registrar with a request to register the transfer of such
Securities or to exchange such Securities for an equal principal amount of
Securities of other authorized denominations of the same series, the Registrar
shall register the transfer or make the exchange as requested if its
requirements for such transaction are met; provided, however, that the
Securities surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Company and the Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing; provided, further, that no exchange of
Initial Securities for Exchange Securities shall occur until an Exchange Offer
Registration Statement shall have been declared effective by the Commission, and
that the Initial Securities to be exchanged for the Exchange Securities shall be
canceled by the Trustee. To permit registrations of transfers and exchanges,
the Company shall issue and execute and the Trustee shall authenticate
Securities (with related Guarantees executed by the Guarantors) at the
Registrar's written request. No service charge shall be made to a Holder for
any registration of transfer or exchange, but the Company or the Trustee may
require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer taxes or other similar governmental charges payable upon exchanges or
transfers pursuant to Section 2.10, 3.06, 4.05, 4.14 or 10.05). The Registrar
shall not be required to register the transfer or exchange of any Security (i)
during a period beginning at the opening of business 15 days before (a) the
selection of Securities to be redeemed under Section 3.02 or (b) the mailing of
a notice of redemption of Securities, and ending at the close of business on the
day of such mailing and (ii) selected for redemption in whole or in part
pursuant to Article Three hereof, except the unredeemed portion of any Security
being redeemed in part.
None of the Company or the Trustee or the Registrar shall be liable
for any delay by the Depositary in identifying the beneficial owners of the
Securities and each such person may conclusively rely on, and shall be protected
in relying on, instructions from the Depositary for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of any Securities to be issued).
<PAGE>
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Members of, or participants in, the Depositary shall have no rights
under this Indenture with respect to any Global Security held on their behalf by
the Depositary or the Registrar, or under the Global Security, and the
Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of the Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall (x)
prevent the Company, the Trustee or any agent of the Company or the Trustee from
giving effect to any written certification, proxy or other authorization
furnished by the Depositary or (y) impair, as between the Depositary and members
of, or participants in, the Depositary, the operation of customary practices
governing the exercise of the rights of a Holder of any Security.
Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee and any Agent shall treat the person in whose
name the Security is registered as the owner thereof for all purposes whether or
not the Security shall be overdue, and neither the Company, the Trustee nor any
Agent shall be affected by notice to the contrary. Any Holder of a beneficial
interest in a Global Security shall, by acceptance of such beneficial interest
in a Global Security, agree that transfers of beneficial interests in such
Global Security may be effected only through a book-entry system maintained by
the Depositary (or its agent), and that ownership of a beneficial interest in a
Global Security shall be required to be reflected in a book entry.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or the Registrar
or if the Holder of a Security shall provide the Trustee and the Company with
evidence to their satisfaction that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and execute and the Trustee shall
authenticate a replacement Security (with related Guarantees executed by the
Guarantors) if the Trustee's requirements for replacement of Securities are met
and the Holder satisfies any other reasonable requirements of the Trustee. If
required by the Company or the Trustee, such Holder must provide an indemnity
bond or other indemnity, sufficient in the reasonable judgment of the Company,
the Guarantors and the Trustee, to protect the Company, the Guarantors, the
Trustee and any Agent from any loss which any of them may suffer if a Security
is replaced. The Company or the Trustee may charge such Holder for its
reasonable expenses in replacing a Security, including reasonable fees and
expenses of counsel. If after the delivery of such new Security, a bona fide
purchaser of the original Security in lieu of which such new Security was issued
presents for payment such original Security, the Company and the Trustee shall
be entitled to recover such new Security from the person to whom it was
delivered or any transferee thereof, except a bona fide purchaser, and shall be
entitled to recover upon the security or indemnity provided therefor to the
extent of any loss, damage, cost or expense incurred by the Company or the
Trustee in connection therewith.
Every replacement Security is an additional obligation of the Company
and every replacement Guarantee shall constitute an additional obligation of the
Guarantors.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those canceled by it, those delivered
to it for cancellation and those described in this Section 2.08 as not
outstanding. Subject to Section 2.09, a Security does not cease to be
outstanding because the Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
<PAGE>
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If on a Redemption Date, Proceeds Purchase Date or the Maturity Date
the Paying Agent holds United States Legal Tender or United States Governmental
Obligations sufficient to pay all of the principal, premium, if any, and
interest due on the Securities payable on that date (or the portion thereof to
be redeemed or maturing, as the case may be) and is not prohibited from paying
such money to the Holders pursuant to the terms of this Indenture, then on and
after that date such Securities (or portions thereof) cease to be outstanding
and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, a Guarantor or any of their respective Affiliates shall be
considered as though they are not outstanding, except that, for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities that a Trust Officer of the
Trustee actually knows are so owned shall be disregarded.
The Company shall notify the Trustee, in writing, when the Company, a
Guarantor or any of their respective Affiliates repurchases or otherwise
acquires Securities, of the aggregate principal amount of such Securities so
repurchased or otherwise acquired and such other information as the Trustee may
reasonably request and the Trustee shall be entitled to rely thereon.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities (with related
Guarantees executed by the Guarantors) upon receipt of a written order of the
Company in the form of an Officers' Certificate. The Officers' Certificate
shall specify the amount of temporary Securities to be authenticated and the
date on which the temporary Securities are to be authenticated and shall direct
the Trustee to authenticate such Securities and certify that all conditions
precedent to the issuance of such Securities contained herein have been complied
with.
Temporary Securities shall be substantially in the form of definitive
Securities but may have variations that the Company considers appropriate for
temporary Securities. Without unreasonable delay, the Company shall prepare and
the Trustee shall authenticate upon receipt of a written order of the Company
pursuant to Section 2.02 definitive Securities (with the related Guarantees
executed by the Guarantors) in exchange for temporary Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel, and shall (subject to the record retention
requirements of the Exchange Act) dispose of and deliver evidence of such
disposal of all Securities surrendered for transfer, exchange, payment or
cancellation. Subject to Section 2.07, the Company may not issue new Securities
to replace Securities that it has paid or delivered to the Trustee for
cancellation. If the Company or any Guarantor shall acquire any of the
Securities, such acquisition shall not operate as a redemption or satisfaction
of the Indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
<PAGE>
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SECTION 2.12. Defaulted Interest.
The Company shall pay interest on overdue principal from time to time
on demand at the applicable rate of interest then borne by the Securities. The
Company shall, to the extent lawful, pay interest on overdue installments of
interest (without regard to any applicable grace periods) at the rate of
interest then borne by the Securities. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months, and, in the case of a
partial month, the actual number of days elapsed.
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest to the Persons who are Holders on a subsequent
special record date, which date shall be the fifteenth day preceding the date
fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. The Company shall
notify the Trustee in writing of the amount of defaulted interest proposed to be
paid on each Security and the date of the proposed payment (a "Default Interest
----------------
Payment Date"), and at the same time the Company shall deposit with the Trustee
- ------------
an amount of money equal to the aggregate amount proposed to be paid in respect
of such defaulted interest or shall make arrangements satisfactory to the
Trustee for such deposit on or prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons entitled
to such defaulted interest as provided in this Section; provided, however, that
in no event shall the Company deposit monies proposed to be paid in respect of
defaulted interest later than 10:00 a.m., Eastern Time, on the proposed Default
Interest Payment Date. At least 15 days before the subsequent special record
date, the Company shall mail to each Holder, with a copy to the Trustee, a
notice that states the subsequent special record date, the Default Interest
Payment Date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid.
Notwithstanding the foregoing, any interest which is paid prior to the
expiration of the 30-day period set forth in Section 6.01(1) shall be paid to
Holders as of the regular record date for the Interest Payment Date for which
interest has not been paid. Notwithstanding the foregoing, the Company may make
payment of any defaulted interest in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange if, after
notice given by the Company to the Trustee of the proposed payment pursuant to
this Section, such payment shall be deemed practicable by the Trustee.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities may use one or more "CUSIP"
numbers and, if so, the Trustee shall use the CUSIP number(s) in notices of
redemption or exchange as a convenience to Holders; provided, however, that any
such notice may state that no representation is made by the Trustee as to the
correctness or accuracy of the CUSIP number(s) printed in the notice or on the
Securities, and that reliance may be placed only on the other identification
numbers printed on the Securities. The Company shall promptly notify the
Trustee of any changes in CUSIP numbers.
SECTION 2.14. Deposit of Moneys.
Prior to 10:00 a.m., Eastern Time, on each Interest Payment Date,
Redemption Date, Net Proceeds Offer Payment Date and the Maturity Date, the
Company shall deposit with the Paying Agent in immediately available funds money
sufficient to make cash payments, if any, due on such Interest Payment Date,
Redemption Date, Net Proceeds Offer Payment Date or Maturity Date, as the case
may be, in a timely manner which permits the Paying Agent to remit payment to
the Holders on such Interest Payment Date, Redemption Date, Net Proceeds Offer
Payment Date or Maturity Date, as the case may be.
<PAGE>
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SECTION 2.15. Book-Entry Provisions for Global Securities.
(a) The Global Securities initially shall (i) be registered in the
name of the Depositary or the nominee of such Depositary for the Global
Securities, (ii) be deposited with, or on behalf of, the Depositary or with the
Trustee, as custodian for such Depositary and (iii) bear legends as set forth in
Exhibit C.
- ---------
Members of, or participants in, the Depositary ("Participants") shall
------------
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Security, and the Depositary may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or shall impair, as between the
Depositary and Participants, the operation of customary practices governing the
exercise of the rights of a beneficial holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depositary, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depositary and the provisions of Section 2.16; provided,
however, that Physical Securities shall be transferred to beneficial owners in
exchange for their beneficial interests in Global Securities (i) if requested by
a Holder of such interests or (ii) if the Depositary notifies the Company and
the Company notifies the Trustee that it is unwilling or unable to continue as
Depositary for any Global Security and a successor Depositary is not appointed
by the Company within 90 days of such notice.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in a Global Security to beneficial owners pursuant to
paragraph (b) of this Section 2.15, the Registrar shall (if one or more Physical
Securities are to be issued) reflect on its books and records the date and a
decrease in the principal amount of the Global Security in an amount equal to
the principal amount of the beneficial interest in the Global Security to be
transferred, and the Company shall execute (and, in the case of the Guarantees,
the Guarantors shall execute), and the Trustee shall authenticate and deliver,
one or more Physical Securities of like tenor and amount.
(d) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute (and, in the case of the Guarantees,
the Guarantors shall execute), and the Trustee shall upon written instructions
from the Company authenticate and deliver, to each beneficial owner identified
by the Depositary in exchange for its beneficial interest in the Global
Securities, an equal aggregate principal amount of Physical Securities of
authorized denominations.
(e) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) of this Section 2.15 shall, except as otherwise provided by Section 2.16,
bear the Private Placement Legend.
(f) The Holder of any Global Security may grant proxies and otherwise
authorize any Person, including Participants and Persons that may hold interests
through Participants, to take any action which a Holder is entitled to take
under this Indenture or the Securities.
<PAGE>
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SECTION 2.16. Special Transfer Provisions.
The Trustee is entitled to rely upon the certificates delivered
pursuant to this Section 2.16 and is irrevocably authorized to produce such
certificates or copies thereof to any interested party in any administrative or
legal proceeding or official inquiry with respect to the matters covered
thereby.
(a) Transfers to Non-QIB Institutional Accredited Investors and Non-
U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Restricted Security to any
Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Restricted
Security, whether or not such Security bears the Private Placement Legend,
if (x) the requested transfer is after the second anniversary of the Issue
Date; provided, however, that neither the Company nor any Affiliate of the
-------- -------
Company has held any beneficial interest in such Security, or portion
thereof, at any time on or prior to the second anniversary of the Issue
Date or (y) (1) in the case of a transfer to an Institutional Accredited
Investor which is not a QIB (excluding Non-U.S. Persons), the proposed
transferee has delivered to the Registrar a certificate substantially in
the form of Exhibit D hereto and any legal opinions and certifications
---------
required thereby and (2) in the case of a transfer to a Non-U.S. Person,
the proposed transferor has delivered to the Registrar a certificate
substantially in the form of Exhibit E hereto;
---------
(ii) if the proposed transferor is a Participant holding a
beneficial interest in the Global Security, upon receipt by the Registrar
of (x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depositary's and the Registrar's
procedures, whereupon
(A) the Registrar shall reflect on its books and records the date and (if the
transfer does not involve a transfer of outstanding Physical Securities) a
decrease in the principal amount of the Global Security in an amount equal to
the principal amount of the beneficial interest in the Global Security to be
transferred, and (B) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Securities of like tenor and
amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for on
the form of Security stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Security stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account, or the Person on
whose behalf it is acting with respect to any such account, is a QIB within
the meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is a Participant, and the Securities
to be transferred consist of Physical Securities which after transfer are
to be evidenced by an interest in the Global Security, upon receipt by the
Registrar of instructions given in accordance with the Depositary's and the
Registrar's
<PAGE>
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procedures, the Registrar shall reflect on its books and records the date
and an increase in the principal amount of the Global Security in an amount
equal to the principal amount of the Physical Securities to be transferred,
and the Trustee shall cancel the Physical Security so transferred.
(c) Private Placement Legend. Upon the registration of transfer,
exchange or replacement of Securities not bearing the Private Placement
Legend, the Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the registration of transfer, exchange or
replacement of Securities bearing the Private Placement Legend, the
Registrar shall deliver only Securities that bear the Private Placement
Legend unless (i) the circumstance contemplated by paragraph (a)(i)(x) of
this Section 2.16 exist or (ii) there is delivered to the Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee
to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions
of the Securities Act.
(d) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and
in the Private Placement Legend and agrees that it will transfer such
Security only as provided in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16
for a period of three years. The Company shall have the right to inspect and
make copies of all such letters, notices or other written communications at any
reasonable time upon the giving of reasonable written notice to the Registrar.
SECTION 2.17. Restrictive Legends.
-------------------
Each Global Security and Physical Security that constitutes a
Restricted Security shall bear the legend (the "Private Placement Legend") as
------------------------
set forth in Exhibit A on the face thereof until after the second anniversary of
---------
the later of the Issue Date and the last date on which the Company or any
Affiliate of the Company was the owner of such Security (or any predecessor
security) (or (i) such shorter period of time as permitted by Rule 144(k) under
the Securities Act or any successor provision thereunder or (ii) such longer
period of time as may be required under the Securities Act or applicable state
securities laws in the opinion of counsel for the Company, unless otherwise
agreed by the Company and the Holder thereof).
Each Global Security shall also bear the legend as set forth in
Exhibit C.
- ---------
ARTICLE THREE
REDEMPTION
SECTION 3.01. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
paragraph 5 of the Securities shall be evidenced by a Board Resolution. In case
of any redemption at the election of the Company of less than all of the
Securities, the Company shall, at least 45 days prior to the Redemption Date
fixed by the Company (unless a shorter period shall be satisfactory to the
Trustee), notify the Trustee in writing of such Redemption Date and of the
principal amount of Securities to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 3.02 (including, without
limitation, a description of the partial redemption requirements of any national
securities ex-
<PAGE>
-36-
change on which the Securities are listed). In case of any redemption at the
election of the Company of all of the Securities, the Company shall, at least 45
days prior to the Redemption Date fixed by the Company (unless a shorter period
shall be satisfactory to the Trustee), notify the Trustee in writing of such
Redemption Date. Together with any such written notice of a Redemption Date, the
Company shall deliver to the Trustee an Officer's Certificate and Opinion of
Counsel stating that such redemption will comply with the conditions contained
herein.
SECTION 3.02. Selection of Securities To Be Redeemed.
In the event that the Company chooses to redeem less than all of the
Securities, selection of the Securities for redemption will be made by the
Trustee either:
(1) in compliance with the requirements, if any, of the principal
national securities exchange on which the Securities are listed; or
(2) if such Securities are not then listed on a national securities
exchange or such exchange has no selection requirements, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and
appropriate.
No Securities of a principal amount of $1,000 or less shall be
redeemed in part.
If a partial redemption is made with the proceeds of an Equity
Offering, the Trustee shall select the Securities to be redeemed only on a pro
rata basis or on as nearly a pro rata basis as is practicable (subject to the
applicable procedures of the Depositary) unless such method is prohibited.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities and portions of Securities selected shall be in amounts of
$1,000 or whole multiples of $1,000. The Trustee may select for redemption
portions (equal to $1,000 or any integral multiple thereof) of the principal of
Securities that have denominations larger than $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail or cause to be mailed a notice of redemption by first-
class mail, postage prepaid, to each Holder whose Securities are to be redeemed
at such Holder's registered address, with a copy to the Trustee and any Paying
Agent.
Each notice of redemption shall identify the Securities to be redeemed
(including the CUSIP number thereon) and shall state:
(1) the paragraph of the Securities pursuant to which the Securities
are being redeemed;
(2) the Redemption Date;
(3) the redemption price and the amount of accrued and unpaid
interest, if any, to be paid as of the Redemption Date;
<PAGE>
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(4) the name and address of the Paying Agent to which the Securities
are to be surrendered for redemption;
(5) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price plus accrued and unpaid
interest, if any;
(6) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the Holders
is to receive payment on the Redemption Date of the redemption price plus
accrued and unpaid interest as of the Redemption Date, if any, upon
surrender to the Paying Agent of the Securities redeemed;
(7) that if any Security is being redeemed in part, the portion of the
principal amount (equal to $1,000 or any integral multiple thereof) of such
Security to be redeemed and that, after the Redemption Date, upon surrender
of such Security, a new Security or Securities in principal amount equal to
the unredeemed portion thereof will be issued;
(8) if less than all of the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed; and
(9) the CUSIP number, provided that no representation is made as to
the correctness or accuracy of the CUSIP number, if any, listed on such
notice or printed on the Securities.
At the Company's request, the Trustee shall give the notice of
redemption on behalf of the Company, in the Company's name and at the Company's
expense; provided that the Company shall give notice of redemption to the
Trustee at least 10 days before the date the notice of redemption is requested
by the Company to be mailed to the Holders (unless a shorter notice period shall
be agreed to by the Trustee in writing).
SECTION 3.04. Effect of Notice of Redemption.
Once a notice of redemption is mailed in accordance with Section 3.03,
Securities called for redemption become due and payable on the Redemption Date
and at the redemption price, plus accrued interest, if any. Upon surrender to
the Paying Agent, such Securities shall be paid at the redemption price, plus
accrued interest thereon, if any, to the Redemption Date, but installments of
interest, the maturity of which is on or prior to such Redemption Date, shall be
payable to the Holders of record at the close of business on the relevant
Interest Record Date.
The Paying Agent shall promptly return to the Company any money
deposited with the Paying Agent by the Company in excess of the amount necessary
to pay the redemption price of, and accrued and unpaid interest on, all
Securities to be redeemed. Interest shall accrue on or after the Redemption
Date and shall be payable only if the Company defaults in payment of the
redemption price.
SECTION 3.05. Deposit of Redemption Price.
Prior to 10:00 a.m., Eastern Time, on the Redemption Date, the Company
shall deposit with the Paying Agent (or if the Company or any Affiliate is the
Paying Agent, shall, on or before the Redemption Date, segregate and hold in
trust) in immediately available funds, United States Legal Tender sufficient to
pay the redemption price of and accrued interest, if any, on all Securities to
be redeemed on that date other than Securities
<PAGE>
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or portions thereof called for redemption on that date which have been delivered
by the Company to the Trustee for cancellation.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company
shall issue and execute and the Trustee shall authenticate for the Holder a new
Security or Securities (with related Guarantees executed by the Guarantors)
equal in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of, premium if any, and interest
(including Additional Interest, if any) on the Securities on the dates and in
the manner provided in the Securities, this Indenture and the Registration
Rights Agreement. Principal, premium, if any, and interest (including
Additional Interest, if any) shall be considered paid on the date due if the
Paying Agent holds (or segregates if the Company is the Paying Agent), as of
10:00 a.m., Eastern Time, on the due date United States Legal Tender deposited
by the Company in immediately available funds and designated for and sufficient
to pay all principal, premium, if any, and interest (including Additional
Interest, if any) then due and the Paying Agent is not prohibited from paying
such money to the Holders of the Securities pursuant to the terms of this
Indenture. The Company shall pay all Additional Interest, if any, in the same
manner on the dates and in the amounts set forth in the Registration Rights
Agreement.
The Company shall pay cash interest on overdue principal (including
post-petition interest in any proceeding under any Bankruptcy Law) at the same
rate per annum borne by the Securities. The Company shall pay cash interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest (including Additional Interest, if any) at the
same rate per annum borne by the applicable Securities, to the extent lawful.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03. The Company shall
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee. The Company
hereby initially designates the Corporate Trust Office of the Trustee as one
such office or agency of the Company in accordance with Section 2.03.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
<PAGE>
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SECTION 4.03. Limitations on Transactions with Affiliates
(a) The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to occur any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property, the guaranteeing of any
Indebtedness or the rendering of any service) with, or for the benefit of, any
of their respective Affiliates (each, an "Affiliate Transaction"), other than
---------------------
(i) Affiliate Transactions permitted under paragraph (b) below and (ii)
Affiliate Transactions on terms that are no less favorable than those that could
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of the Company or such
Restricted Subsidiary. All Affiliate Transactions (and each series of related
Affiliate Transactions which are similar or part of a common plan) involving
aggregate payments or other property with a fair market value in excess of $1.0
million shall be approved by the Board of Directors of the Company or such
Restricted Subsidiary, as the case may be, such approval to be evidenced by a
Board Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a
series of related Affiliate Transactions which are similar or part of a common
plan) involving aggregate payments or other property with a fair market value in
excess of $10.0 million, the Company or such Restricted Subsidiary, as the case
may be, shall, prior to the consummation thereof, obtain a favorable opinion as
to the fairness of such transaction or series of related transactions to the
Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
(b) The restrictions set forth in Section 4.03(a) shall not apply to:
(1) reasonable fees and compensation paid to, and indemnity provided
on behalf of, officers, directors, employees or consultants of the Company
or any Restricted Subsidiary of the Company as determined reasonably and in
good faith by the Board of Directors or senior management of the Company or
such Restricted Subsidiary, as the case may be;
(2) transactions exclusively between or among the Company and any of
its Wholly Owned Restricted Subsidiaries or exclusively between or among
such Wholly Owned Restricted Subsidiaries; provided that such transactions
are not otherwise prohibited by this Indenture;
(3) any agreement as in effect as of the Issue Date or any amendment
thereto, any transaction contemplated thereby (including pursuant to any
amendment thereto) or in any replacement agreement thereto so long as any
such amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
the Issue Date;
(4) Restricted Payments permitted by this Indenture; and
(5) transactions effected as part of a Qualified Securitization
Transaction.
SECTION 4.04. Limitation on Incurrence of Additional Indebtedness.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or otherwise
become responsible for payment of (collectively, "incur") any Indebtedness
-----
(other than Permitted Indebtedness); provided, however, that if no Default or
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company and any
Guarantor may incur Indebtedness (including, without limitation, Acquired
Indebtedness) if on the date of the incurrence of such
<PAGE>
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Indebtedness, after giving effect to the incurrence thereof, the Consolidated
Fixed Charge Coverage Ratio of the Company is greater than 2.25 to 1.0.
SECTION 4.05. Limitation on Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company or the applicable Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold or otherwise disposed of
(as determined reasonably and in good faith by the Company's Board of
Directors);
(2) at least 80% of the consideration received by the Company or such
Restricted Subsidiary, as the case may be, from such Asset Sale shall be in
the form of cash or Cash Equivalents and is received at the time of such
disposition; and
(3) upon the consummation of an Asset Sale, the Company shall apply,
or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 270 days of receipt thereof either:
(a) to prepay any Senior Debt or Guarantor Senior Debt and, in
the case of any Senior Debt or Guarantor Senior Debt under any
revolving credit facility, including the Credit Facility, effect a
corresponding permanent reduction in the availability under such
revolving credit facility;
(b) to make an investment in Productive Assets; or
(c) a combination of prepayment and investment permitted by the
foregoing clauses (3)(a) and (3)(b).
On the 271st day after an Asset Sale or such earlier date, if any, as
the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as set
forth in clauses (3)(a), (3)(b) and (3)(c) of the immediately preceding
paragraph (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of
-------------------------------
Net Cash Proceeds which have not been applied on or before such Net Proceeds
Offer Trigger Date as permitted in clauses (3)(a), (3)(b) and (3)(c) of the
immediately preceding paragraph (each a "Net Proceeds Offer Amount") shall be
-------------------------
applied by the Company or such Restricted Subsidiary, as the case may be, to
make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net
------------------ ---
Proceeds Offer Payment Date") not less than 20 Business Days nor more than 30
- ---------------------------
Business Days following the date on which the notice of such Net Proceeds Offer
is mailed to the Holders, from all Holders on a pro rata basis, that principal
amount of Securities equal to the Net Proceeds Offer Amount at a price equal to
100% of the principal amount of the Securities to be purchased, plus accrued and
unpaid interest (including Additional Interest, if any) thereon to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary of the Company, as the case
may be, in connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash (other than interest received with respect to any such non-
cash consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this Section 4.05.
Notwithstanding the foregoing, the Company may defer the Net Proceeds
Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to
or in excess of $5.0 million resulting from one or more
<PAGE>
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Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and
not just the amount in excess of $5.0 million, shall be applied as required
pursuant to this paragraph) (the first date the aggregate amount of all such
unutilized Net Proceeds Offer Amount is equal to or in excess of $5.0 million
shall be deemed to be the Net Proceeds Offer Trigger Date). Upon completion of a
Net Proceeds Offer, the amount of Net Cash Proceeds and the amount of aggregate
unutilized Net Proceeds Offer Amount will be reset to zero. Accordingly, to the
extent that any Net Proceeds remain after consummation of a Net Proceeds Offer,
the Company or any Restricted Subsidiary of the Company, as the case may be, may
use such Net Proceeds for any purpose not prohibited by this Indenture.
Notwithstanding the first two paragraphs of this covenant, the Company
and its Restricted Subsidiaries shall be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent that:
(1) at least 80% of the consideration for such Asset Sale constitutes
Productive Assets; and
(2) such Asset Sale is for fair market value; provided that any
consideration consisting of cash or Cash Equivalents received by the
Company or any of its Restricted Subsidiaries in connection with any Asset
Sale permitted to be consummated under this paragraph shall constitute Net
Cash Proceeds subject to the provisions of the two immediately preceding
paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown
on the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Securities in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Securities in an amount exceeding the Net Proceeds Offer Amount, Securities of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 Business
Days or such longer period as may be required by law. The notice shall contain
all instructions and materials necessary to enable such Holders to tender
Securities pursuant to the Net Proceeds Offer and shall state the following
terms:
(1) that the Net Proceeds Offer is being made pursuant to this
Section 4.05 and that all Securities tendered will be accepted for payment;
provided, however, that if the aggregate principal amount of Securities
tendered in a Net Proceeds Offer plus accrued and unpaid interest at the
expiration of such offer exceeds the Net Proceeds Offer Amount, the Company
shall select the Securities to be purchased on a pro rata basis (based on
amounts tendered) (with such adjustments as may be deemed appropriate by
the Company so that only Securities in denominations of $1,000 or integral
multiples thereof shall be purchased);
(2) the purchase price (including the amount of accrued interest)
and the purchase date (which shall be no earlier than 20 Business Days nor
later than 30 Business Days from the date such notice is mailed, other than
as may be required by law) (the "Net Proceeds Purchase Date");
--------------------------
(3) that any Security not tendered will continue to accrue interest
if interest is then accruing;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Purchase Date;
<PAGE>
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(5) that Holders electing to have a Security purchased pursuant to a
Net Proceeds Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent at the address specified in the
notice prior to 5:00 p.m., Eastern Time, on the second Business Day prior
to the Net Proceeds Purchase Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than 5:00 p.m., Eastern Time, on the
second Business Day preceding the Net Proceeds Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Securities the Holder delivered for
purchase and a statement that such Holder is withdrawing his/her election
to have such Securities purchased; and
(7) that Holders whose Securities were purchased only in part will
be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered.
On or before the Net Proceeds Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the Net
Proceeds Offer which are to be purchased in accordance with this Section 4.05,
(ii) deposit with the Paying Agent United States Legal Tender sufficient to pay
the purchase price of all Securities to be purchased and (iii) deliver to the
Trustee Securities so accepted together with an Officers' Certificate stating
the Securities or portions thereof being purchased by the Company. The Paying
Agent shall promptly mail to the Holders of Securities so accepted payment in an
amount equal to the purchase price plus accrued and unpaid interest, if any, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail or deliver to such Holders new Securities equal in principal amount to
any unpurchased portion of the Securities surrendered. Any Securities not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Net Proceeds
Offer on or as soon as practicable after the Net Proceeds Purchase Date. For
purposes of this Section 4.05, the Trustee shall act as the Paying Agent.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Net Proceeds Offer. To the extent that
the provisions of any securities laws or regulations conflict with this Section
4.05, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.05 by virtue thereof.
SECTION 4.06. Limitation on Restricted Payments.
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution (other than
(x) dividends or distributions made to the Company or any Wholly Owned
Restricted Subsidiary of the Company that is a Guarantor and (y) dividends
or distributions payable in Qualified Capital Stock of the Company or in
warrants, rights or options to purchase or acquire shares of such Qualified
Capital Stock) on or in respect of shares of Capital Stock of the Company
or any Restricted Subsidiary of the Company to holders of such Capital
Stock; provided, however, that if no Default or Event of Default shall have
occurred and be continuing, the Company may pay cash dividends on its
Common Stock in an aggregate amount that, when taken together with all
other dividends paid by the Company on its Common Stock after the Issue
Date, does not exceed $500,000;
<PAGE>
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(2) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any Restricted Subsidiary or any warrants,
rights or options to purchase or acquire shares of any class of such
Capital Stock;
(3) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness of the Company or a Restricted Subsidiary of the
Company that is subordinate or junior in right of payment to the Securities
or such Restricted Subsidiary's Guarantee, as the case may be; or
(4) make any Investment (other than Permitted Investments) (each of
the foregoing actions set forth in clauses (1), (2), (3) and (4) being
referred to as a "Restricted Payment"); if at the time of such Restricted
------------------
Payment or immediately after giving effect thereto:
(a) a Default or an Event of Default shall have occurred and be
continuing;
(b) the Company is not able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in
compliance with Section 4.04; or
(c) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the
amount expended for such purpose, if other than cash, being the fair
market value of such property as determined reasonably and in good
faith by the Board of Directors of the Company) shall exceed the sum
of:
(i) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company earned subsequent to the Issue Date
through the last day of the Company's most recently ended fiscal
quarter for which internal financial statements are available at
the time of such Restricted Payment (the "Reference Date")
--------------
(treating such period as a single accounting period); plus
(ii) 100% of the aggregate net cash proceeds received by
the Company from any Person (other than a Restricted Subsidiary
of the Company) from the issuance and sale subsequent to the
Issue Date and on or prior to the Reference Date of Qualified
Capital Stock of the Company (excluding any net cash proceeds
from an Equity Offering to the extent used to redeem the
Securities in compliance with the provisions set forth under
paragraph 8 of the Securities); plus
(iii) without duplication of any amounts included in clause
(c)(ii) above, 100% of the aggregate net cash proceeds of any
equity contribution received by the Company from a holder of the
Company's Capital Stock (excluding any net cash proceeds from an
Equity Offering to the extent used to redeem the Securities in
compliance with the provisions set forth under paragraph 8 of the
Securities); plus
(iv) to the extent not otherwise included in the Company's
Consolidated Net Income, in the case of the disposition or
repayment of any Investment constituting a Restricted Payment
made after the Issue Date, an amount equal to the lesser of (A)
the cash return of capital with respect to such Investment and
(B) the initial amount of such Investment, in either case, less
the cost of the disposition of such Investment.
<PAGE>
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Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been permitted on
the date of declaration;
(2) if no Default or Event of Default shall have occurred and be
continuing, the redemption, repurchase or other acquisition or retirement
of any shares of Capital Stock of the Company, either (i) solely in
exchange for shares of Qualified Capital Stock of the Company or (ii)
through the application (within 60 days of the sale thereof) of net cash
proceeds of a sale for cash (other than to a Restricted Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company;
(3) if no Default or Event of Default shall have occurred and be
continuing, the redemption, repurchase or other acquisition or retirement
of any Indebtedness of the Company or any Guarantor that is subordinate or
junior in right of payment to the Securities or such Guarantor's Guarantee,
as the case may be, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or warrants, rights or options to purchase or
acquire shares of Qualified Capital Stock of the Company or (ii) through
the application (within 60 days of the sale thereof) of net proceeds of a
sale for cash (other than to a Restricted Subsidiary of the Company) of (A)
shares of Qualified Capital Stock of the Company or (B) Refinancing
Indebtedness; and
(4) if no Default or Event of Default shall have occurred and be
continuing, repurchases by the Company of Common Stock of the Company
pursuant to repurchase options in stock option agreements between the
Company and employees of the Company or any of its Subsidiaries from such
employees or their authorized representatives upon the death, disability or
termination of employment of such employees, in the aggregate not to exceed
$250,000 in any calendar year.
In determining the aggregate amount of Restricted Payments made subsequent to
the Issue Date in accordance with clause (c) of the immediately preceding
paragraph, (x) amounts expended pursuant to clauses (1), (2)(ii) and (4) of this
paragraph shall be included in such calculation and (y) amounts expended
pursuant to clauses 2(i) and 3 shall be excluded from such calculation.
SECTION 4.07. Compliance with Laws.
The Company shall comply, and shall cause each of its Subsidiaries to
comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as are not in the aggregate
reasonably likely to have a material adverse effect on the financial condition
or results of operations of the Company and its Subsidiaries, taken as a whole.
SECTION 4.08. Payment of Taxes and Other Claims.
The Company shall, and shall cause each of its Subsidiaries to, pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all material taxes, assessments and governmental charges levied
or imposed upon the Company or any such Subsidiary or upon the income, profits
or property of the Company or any such Subsidiary and (2) all lawful claims for
labor, materials and supplies which, in each case, if unpaid, might by law
become a material liability, or Lien upon the property, of the Company or any
Sub-
<PAGE>
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sidiary; provided, however, that neither the Company nor any of its Subsidiaries
shall be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which
appropriate provision has been made.
SECTION 4.09. Notice of Defaults.
Upon becoming aware of any Default or Event of Default, the Company
shall promptly deliver an Officers' Certificate to the Trustee specifying the
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4.10. Maintenance of Properties and Insurance.
(a) Subject to Article Five, the Company shall cause all material
properties owned by or leased to it or any of its Subsidiaries and used or
useful in the conduct of the Company's business or the business of any of its
Subsidiaries to be maintained and kept in normal condition, repair and working
order (reasonable wear and tear excepted) and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 4.10 shall prevent the Company or any of
its Subsidiaries from discontinuing the use, operation or maintenance of any of
such properties, or disposing of any of them, if such discontinuance or disposal
is, in the judgment of the Board of Directors of the Company or such Subsidiary
of the Company concerned, or of an Officer (or other agent employed by the
Company or such Subsidiary) of the Company or such Subsidiary having managerial
responsibility for any such property, desirable in the conduct of the business
of the Company or such Subsidiary of the Company, and if such discontinuance or
disposal is not adverse in any material respect to the Holders.
(b) The Company shall maintain, and shall cause each of its
Subsidiaries to maintain, insurance with responsible carriers against such risks
and in such amounts, and with such deductibles, retentions, self-insured amounts
and co-insurance provisions as are customarily carried by similar businesses of
similar size, including property and casualty loss, workers' compensation, and
interruption of business insurance, and as otherwise may be necessary in the
judgment of the Company.
SECTION 4.11. Compliance Certificate.
(a) The Company shall deliver to the Trustee within 120 days after
the end of each fiscal year an Officers' Certificate (one of the signers of
which shall be the principal executive officer, principal financial officer or
principal accounting officer of the Company) stating that a review of the
activities of the Company and its Subsidiaries has been made under the
supervision of the signing Officers with a view to determining whether the
Company and its Subsidiaries have kept, observed, performed and fulfilled their
obligations under this Indenture, and further stating, as to each Officer
signing such certificate, that to the best of his or her knowledge the Company
and its Subsidiaries have kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and are not in default in the performance
or observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing such Default or
Events of Default of which he or she may have knowledge and what action the
Company or such Subsidiary, as the case may be, is taking or proposes to take
with respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Securities are prohibited or if such
event has occurred, a description of the event and what action the Company and
its Subsidiaries are taking or propose to take with respect thereto. For
purposes of this Section
<PAGE>
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4.11, such compliance shall be determined without regard to any period of grace
or requirement of notice provided under this Indenture.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.12 shall be accompanied by a written
statement of the Company's independent public accountants (who shall be a firm
of established national reputation) that in making the examination necessary for
certification of such financial statements, nothing has come to their attention
that would lead them to believe that the Company has violated any provisions of
Article 4 or Article 5 hereof or, if any such violation has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation.
SECTION 4.12. Reports to Holders.
(a) The Company shall deliver to the Trustee and mail to each Holder,
within 15 days after the filing of the same with the Commission, copies of the
quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Company shall also
comply with the other provisions of Section 314(a) of the TIA.
(b) If the Company ceases to be subject to the requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall file with the
Commission, to the extent permitted, and deliver to the Trustee and mail to each
Holder (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its Restricted
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports, in
each case, within the time periods specified in the Commission's rules and
regulations. Such information shall be made available to securities analysts
and prospective investors upon request. In addition, the Company shall furnish
to the Holders and to securities analysts and prospective investors, upon
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
SECTION 4.13. Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Guarantors covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law, that would prohibit or forgive the
Company or such Guarantor from paying all or any portion of the principal of,
premium, if any, and/or interest on the Securities as contemplated herein or in
the Securities, wherever enacted, now or at any time hereafter in force, or that
may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company and each Guarantor hereby
expressly waive all benefit or advantage of any such law, and covenant that they
shall not hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.
<PAGE>
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SECTION 4.14. Change of Control.
(a) If a Change of Control occurs (the date of such occurrence being
the "Change of Control Date"), each Holder shall have the right to require that
----------------------
the Company purchase all or a portion of such Holder's Securities pursuant to
the offer described below (the "Change of Control Offer"), at a purchase price
-----------------------
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
(including Additional Interest, if any) thereon, to the date of purchase (the
"Change of Control Payment").
-------------------------
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. The notice to the Holders shall contain all instructions and
materials necessary to enable such Holders to tender Notes pursuant to the
Change of Control Offer. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.14 and that all Securities validly tendered and not withdrawn
will be accepted for payment and that the Change of Control Offer shall
remain open for a period of 20 Business Days or such longer period as may
be required by law;
(2) the purchase price (including the amount of accrued and unpaid
interest, if any) and the purchase date (which shall be no earlier than 30
days and no later than 45 days after the date such notice is mailed, other
than as may be required by law) (the "Change of Control Payment Date");
------------------------------
(3) that any Securities not tendered will continue to accrue
interest in accordance with the terms of this Indenture;
(4) that, unless the Company defaults in making the payment
therefor, all Securities accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date;
(5) that Holders electing to have any Securities purchased pursuant
to a Change of Control Offer will be required to surrender the Securities,
with the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Securities completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than 5:00 p.m., Eastern Time, on the
second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
the holder, the principal amount of Securities delivered for purchase, and
a statement that such Holder is withdrawing his election to have such
Securities purchased;
(7) that Holders whose Securities are being purchased in part will
be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof; and
(8) the circumstances and the relevant facts regarding such Change
of Control.
(b) On or before 10:00 a.m., Eastern Time, on the Change of Control
Payment Date, the Company shall, to the extent lawful, (1) accept for payment
all Securities or portions thereof properly tendered pursu-
<PAGE>
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ant to the Change of Control Offer, (2) deposit with the Paying Agent United
States Legal Tender sufficient to pay the Change of Control Payment in respect
of all Securities or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Securities so accepted together with an Officers'
Certificate stating the aggregate principal amount of Securities or portions
thereof being purchased by the Company. The Paying Agent shall promptly mail to
each Holder of Securities so tendered the Change of Control Payment for such
Securities, and the Trustee shall promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Security equal in principal
amount to any unpurchased portion of the Securities surrendered, if any;
provided that each such new Security will be in a principal amount of $1,000 or
an integral multiple thereof. The Company shall publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date. For purposes of this Section 4.14, the Trustee shall act
as Paying Agent.
(c) Prior to the mailing of the notice referred to above, but in any
event within 30 days following any Change of Control, the Company covenants to:
(1) repay in full and terminate all commitments under all
Indebtedness under the Credit Facility and all other Senior Debt the terms
of which require repayment upon a Change of Control or offer to repay in
full and terminate all commitments under all Indebtedness under the Credit
Facility and all other such Senior Debt and to repay the Indebtedness owed
to each lender which has accepted such offer; or
(2) obtain the requisite consents under the Credit Facility and all
such other Senior Debt to permit the repurchase of the Securities as
provided below.
The Company shall first comply with the covenant in the immediately
preceding paragraph before it shall be required to repurchase Securities
pursuant to this Section 4.14. The Company's failure to comply with the
covenant described in the immediately preceding paragraph shall constitute an
Event of Default described in clause (3) and not in clause (2) under Section
6.01.
(d) The Company shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Section 4.14 and purchases all Securities validly
tendered and not withdrawn under such Change of Control Offer.
(e) The Company shall 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 Securities pursuant to a Change of Control Offer. To the extent
that the provisions of any securities laws or regulations conflict with this
Section 4.14, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.14 by virtue thereof.
SECTION 4.15. Prohibition on Incurrence of Senior Subordinated Debt.
The Company shall not, and shall not permit any Restricted Subsidiary
that is a Guarantor to, incur or suffer to exist Indebtedness that is senior in
right of payment to the Securities or such Guarantor's Guarantee, as the case
may be, and subordinate in right of payment to any other Indebtedness of the
Company or such Guarantor, as the case may be.
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SECTION 4.16. Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries.
The Company shall not, and shall not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to:
(1) pay dividends or make any other distributions on or in respect
of its Capital Stock;
(2) make loans or advances, or pay any Indebtedness or other
obligation owed, to the Company or any other Restricted Subsidiary of the
Company; or
(3) transfer any of its property or assets to the Company or any
other Restricted Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of:
(a) applicable law;
(b) this Indenture and the Securities;
(c) any agreement governing Acquired Indebtedness, which
encumbrance or restriction shall not apply to any Person, or the
properties or assets of any Person, other than the Person, or the
properties or assets of the Person, so acquired;
(d) the Credit Facility;
(e) customary non-assignment provisions of any contract or any
lease governing a leasehold interest of any Restricted Subsidiary of
the Company;
(f) agreements existing on the Issue Date, to the extent and in
the manner such agreements are in effect on the Issue Date;
(g) Liens permitted to be incurred pursuant to Section 4.18;
(h) any contract for the sale of specified assets, including,
without limitation, any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered for the sale or
disposition of all or substantially all of the Capital Stock or assets
of such Restricted Subsidiary, to be consummated in accordance with
the terms of this Indenture, pending the closing of such sale or
disposition; provided that any such restriction relates solely to the
Capital Stock or assets that are the subject of such agreement;
(i) any agreement governing Indebtedness incurred to Refinance
the Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clauses (b), (c), (d) or (f) above; provided, however,
that the provisions relating to such encumbrance or restriction
contained in any such Indebtedness are not materially more restrictive
as determined by the Board of Directors of the Company in their
reasonable and good faith judgment, than the provisions relating to
such encumbrance or restriction contained in agreements referred to in
such clause (b), (c), (d) or (f); and
(j) Indebtedness or other contractual requirements of a
Securitization Entity in connection with a Qualified Securitization
Transaction or the charter documents of such Securiti-
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zation Entity; provided that, in any case, such restrictions apply
only to such Securitization Entity.
SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries.
The Company shall not permit any of its Restricted Subsidiaries to
issue to any Person (other than to the Company or to a Wholly Owned Restricted
Subsidiary of the Company) any Preferred Stock or permit any Person (other than
the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any
Preferred Stock of any Restricted Subsidiary of the Company.
SECTION 4.18. Limitation on Liens.
Other than Permitted Liens, the Company shall not, and shall not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or permit or suffer to exist any Liens of any kind against or upon
any property or assets of the Company or any of its Restricted Subsidiaries
(whether owned on the Issue Date or acquired after the Issue Date), or any
proceeds therefrom, or assign or otherwise convey any right to receive income or
profits therefrom unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Securities or any
Guarantee, the Securities are, or such Guarantee is, as the case may be,
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens at least to the same extent that the Securities are,
or such Guarantee is, as the case may be, senior in priority to such
Indebtedness; and
(2) in all other cases, the Securities are, or the Guarantee is, as
the case may be, equally and ratably secured.
SECTION 4.19. Additional Guarantees.
If the Company or any of its Restricted Subsidiaries transfers or
causes to be transferred, in one transaction or a series of related
transactions, any property to any Domestic Restricted Subsidiary of the Company
that is not a Guarantor having total consolidated assets with a book value in
excess of $2.0 million, or if the Company or any of its Restricted Subsidiaries
shall organize, acquire or otherwise invest in or hold an Investment in a
Domestic Restricted Subsidiary of the Company that is not a Guarantor having
total consolidated assets with a book value in excess of $2.0 million, then such
transferee or acquired or other Domestic Restricted Subsidiary shall:
(1) execute and deliver to the Trustee a supplemental indenture in
form and substance satisfactory to the Trustee pursuant to which such
Domestic Restricted Subsidiary shall unconditionally guarantee all of the
Company's Obligations under the Securities and this Indenture on the terms
set forth in this Indenture; and
(2) deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered by
such Domestic Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Domestic Restricted Subsidiary;
provided, however, that, notwithstanding the foregoing, each transferee or
acquired or other Domestic Restricted Subsidiary shall comply with clauses (1)
and (2) above if such Domestic Restricted Subsidiary, together with the
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Company's other Restricted Subsidiaries that are not Guarantors, after giving
pro forma effect to such transfer, organization, acquisition or Investment,
would constitute a Significant Subsidiary.
Thereafter, such Domestic Restricted Subsidiary shall be a Guarantor for all
purposes of this Indenture.
SECTION 4.20. Limitation on Restricted and Unrestricted Subsidiaries.
The Board of Directors of the Company may designate an Unrestricted
Subsidiary to be a Restricted Subsidiary under this Indenture only if:
(1) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such designation;
(2) any such designation shall be deemed to be an incurrence as of
the date of such designation by a Restricted Subsidiary of the Company of
the Indebtedness (if any) of such designated Subsidiary for purposes of
Section 4.04; and
(3) immediately after giving effect to such designation and the
incurrence of such additional Indebtedness, the Company is able to incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with Section 4.04.
The Board of Directors of the Company may designate any Restricted
Subsidiary (other than a Guarantor) to be an Unrestricted Subsidiary under this
Indenture only if:
(1) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such designation;
(2) such designation is at that time permitted pursuant to Section
4.06 (other than pursuant to clause (8) of the definition of Permitted
Investment); and
(3) immediately after giving effect to such designation, the Company
is able to incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with Section 4.04.
Any such designation by the Board of Directors of the Company of an
Unrestricted Subsidiary to be a Restricted Subsidiary or of a Restricted
Subsidiary to be an Unrestricted Subsidiary shall be evidenced to the Trustee by
the filing with the Trustee of a certified copy of a Board Resolution of the
Company giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and
setting forth in reasonable detail the underlying calculations.
For purposes of Section 4.06:
(1) an Investment shall be deemed to have been made at the time any
Restricted Subsidiary is designated to be an Unrestricted Subsidiary in an
amount (proportionate to the Company's equity interest in such Subsidiary)
equal to the net worth of such Restricted Subsidiary at the time that such
Restricted Subsidiary is designated to be an Unrestricted Subsidiary;
(2) at any date the aggregate amount of all Restricted Payments made
as Investments since the Issue Date shall exclude and be reduced by an
amount (proportionate to the Company's equity interest in such Subsidiary)
equal to the net worth of any Unrestricted Subsidiary at the time that such
Unre-
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stricted Subsidiary is designated a Restricted Subsidiary, not to exceed,
in the case of any such designation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the amount of Investments previously made by the
Company and its Restricted Subsidiaries in such Unrestricted Subsidiary (in
the case of each of clauses (1) and (2), "net worth" shall be calculated
based upon the fair market value of the assets of such Subsidiary as of any
such date of designation); and
(3) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer.
Notwithstanding the foregoing, the Board of Directors of the Company
may not designate any Restricted Subsidiary of the Company to be an Unrestricted
Subsidiary if, after such designation:
(1) the Company or any of its Restricted Subsidiaries (x) provides
credit support for, or a guarantee of, any Indebtedness of such Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness) or (y) is directly or indirectly liable for any Indebtedness
of such Subsidiary excluding, in any such case, any Standard Securitization
Undertaking;
(2) a default with respect to any Indebtedness of such Subsidiary
(including any right which the holders thereof may have to take enforcement
action against such Subsidiary) would permit (upon notice, lapse of time or
both) any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its final
stated maturity; or
(3) such Subsidiary owns any Capital Stock of, or owns or holds any
Lien on any property of, any Restricted Subsidiary which is not a
Subsidiary of the Subsidiary to be so designated.
Subsidiaries of the Company that are not designated by the Board of
Directors of the Company as Restricted or Unrestricted Subsidiaries will be
deemed to be Restricted Subsidiaries.
SECTION 4.21. Conduct of Business.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in any businesses other than a Permitted Business.
SECTION 4.22. Corporate Existence.
Except as otherwise permitted by Article Five hereof, the Company
shall do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and the corporate, partnership or other
existence of each of its Restricted Subsidiaries in accordance with the
respective organizational documents of each Restricted Subsidiary and the rights
(charter and statutory), licenses and franchises of the Company and each of its
Restricted Subsidiaries; provided, however, that the Company shall not be
required to preserve any such right, licenses, franchises or corporate,
partnership or other existence if the Board of Directors of the Company shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries, taken as a whole,
and that the loss thereof is not, and will not be, adverse in any material
respect to the Holders.
<PAGE>
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ARTICLE FIVE
MERGERS; SUCCESSORS
SECTION 5.01. Merger, Consolidation and Sale of Assets.
The Company shall not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless:
(1) either:
(a) the Company shall be the surviving or continuing
corporation; or
(b) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company and of the
Company's Restricted Subsidiaries substantially as an entirety (the
"Surviving Entity"):
----------------
(i) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the
District of Columbia; and
(ii) shall expressly assume, by supplemental indenture (in
form and substance satisfactory to the Trustee), executed and
delivered to the Trustee, the due and punctual payment of the
principal of, premium, if any, and interest on all of the
Securities and the performance of every covenant of the
Securities, this Indenture and the Registration Rights Agreement
on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(b)(ii) above (including giving effect
to any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company
or such Surviving Entity, as the case may be:
(a) shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(b) shall be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with
Section 4.04;
(3) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(b)(ii) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing;
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(4) each Guarantor, unless it is the other party to the transactions
described above, shall have by supplemental indenture to this Indenture
confirmed that its Guarantee of the Securities shall apply to such Person's
obligations under this Indenture and the Securities; and
(5) the Company or the Surviving Entity, as the case may be, shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture, comply with the applicable provisions of this
Indenture and that all conditions precedent in this Indenture relating to
such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
SECTION 5.02. Successor Substituted.
Upon any consolidation or merger of the Company or any transfer of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries in accordance with Section 5.01, in which the Company is not the
continuing corporation, the successor Person formed by such consolidation or
into which the Company is merged or to which such conveyance, lease or transfer
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture and the Securities with the same
effect as if such surviving entity had been named as the Company in this
Indenture, and thereafter the predecessor entity shall be relieved of all
obligations and covenants under this Indenture and the Securities.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
Each of the following shall be an "Event of Default" for purposes of
----------------
this Indenture:
(1) the failure to pay interest (including Additional Interest, if
any) on any Securities when the same becomes due and payable and the
default continues for a period of 30 days (whether or not such payment
shall be prohibited by Article Eight hereof);
(2) the failure to pay the principal on any Securities, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Securities
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by Article Eight hereof);
(3) a default in the observance or performance of any other covenant
or agreement contained in this Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Securities (except in the case of a
<PAGE>
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default with respect to Section 5.01, which will constitute an Event of
Default with such notice requirement but without such passage of time
requirement);
(4) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions thereof) the Junior
Subordinated Note or the principal amount of any other Indebtedness of the
Company or any Restricted Subsidiary of the Company (other than a
Securitization Entity), or the acceleration of the final stated maturity of
the Junior Subordinated Note or any such other Indebtedness (which
acceleration is not rescinded, annulled or otherwise cured within 20 days
after receipt by the Company or such Restricted Subsidiary of notice of any
such acceleration) if, in the case of any such other Indebtedness, the
aggregate principal amount of such Indebtedness, together with the
principal amount of any such other Indebtedness in default for failure to
pay principal at final maturity or which has been accelerated, aggregates
$10.0 million or more at any time;
(5) one or more judgments in an aggregate amount in excess of $10.0
million shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(6) the Company or any Significant Subsidiary of the Company pursuant
to or within the meaning of any Bankruptcy Law: (a) commences a voluntary
case or proceeding; (b) consents to the entry of an order for relief
against it in an involuntary case or proceeding; (c) consents to the
appointment of a Custodian of it or for all or substantially all of its
property; or (d) makes a general assignment for the benefit of its
creditors, or any of them takes any action to authorize or effect any of
the foregoing;
(7) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that: (a) is for relief against the Company or any
Significant Subsidiary of the Company in an involuntary case or proceeding;
(b) appoints a Custodian of the Company or any Significant Subsidiary of
the Company for all or substantially all of the property of the Company or
any Significant Subsidiary of the Company; or (c) orders the liquidation of
the Company or any Significant Subsidiary of the Company and, in each case
the order or decree remains unstayed and in effect for 60 days; or
(8) any Guarantee of a Significant Subsidiary of the Company ceases to
be in full force and effect or any Guarantee of a Significant Subsidiary of
the Company is declared to be null and void and unenforceable or any
Guarantee of a Significant Subsidiary of the Company is found to be invalid
or any Guarantor that is a Significant Subsidiary of the Company denies its
liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of this Indenture).
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clause (6) or (7) of Section 6.01 with respect to the Company) shall occur and
be continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Securities may declare the principal, premium, if any, and
accrued and unpaid interest (including Additional Interest, if any) on all the
Securities to be due and payable immediately by notice in writing to the Company
and the Trustee specifying the Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same:
-------------------
(1) shall become immediately due and payable; or
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(2) if there are any amounts outstanding under the Credit Facility,
shall become immediately due and payable upon the first to occur of an
acceleration under the Credit Facility or five Business Days after receipt
by the Company and the Representative under the Credit Facility of such
Acceleration Notice but only if such Event of Default is then continuing.
If an Event of Default specified in clause (6) or (7) of Section 6.01 with
respect to the Company occurs and is continuing, then all unpaid principal,
premium, if any, and accrued and unpaid interest (including Additional Interest,
if any) on all of the outstanding Securities shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
At any time after a declaration of acceleration with respect to the
Securities as described in the preceding paragraph, the Holders of a majority in
principal amount of the Securities may rescind and cancel such declaration and
its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) 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;
(3) 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;
(4) if the Company has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its expenses, disbursements and advances;
and
(5) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) or (7) of Section 6.01, the Trustee shall have
received an Officers' Certificate and an Opinion of Counsel that such Event
of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of, premium, if any, or interest (including Additional
Interest, if any) on the Securities or to enforce the performance of any
provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy is exclusive of any
other remedy. All available remedies are cumulative to the extent permitted by
law.
SECTION 6.04. Waiver of Past Default.
Subject to Sections 2.09, 6.02, 6.07 and 10.02, the Holders of not
less than a majority in aggregate principal amount of the Securities then
outstanding by notice to the Trustee may, on behalf of the Holders of
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all Securities, waive an existing Default or Event of Default and its
consequences, except for a Default or Event of Default specified in Section
6.01(1) or (2). The Company shall deliver to the Trustee an Officers'
Certificate stating that the requisite percentage of Holders have consented to
such waiver and attaching copies of such consents. In case of any such waiver,
the Company, the Trustee and the Holders shall be restored to their former
positions and rights hereunder and under the Securities, respectively. This
paragraph of this Section 6.04 shall be in lieu of (S) 316(a)(1)(B) of the TIA
and such (S) 316(a)(1)(B) of the TIA is hereby expressly excluded from this
Indenture and the Securities, as permitted by the TIA.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred for every
purpose of this Indenture and the Securities, but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal amount
of the Securities then outstanding may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, including,
without limitation, any remedies provided for in Section 6.03. Subject to
Section 7.01, however, the Trustee may refuse to follow any direction that
conflicts with any law or this Indenture that the Trustee determines may be
unduly prejudicial to the rights of another Holder or that may involve the
Trustee in personal liability; provided, however, that the Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such
direction. In the event the Trustee takes any action or follows any direction
pursuant to this Indenture, the Trustee shall be entitled to indemnification
reasonably satisfactory to it against any loss, liability or expense caused by
taking such action or following such direction. This Section 6.05 shall be in
lieu of (S) 316(a)(1)(A) of the TIA, and such (S) 316(a)(1)(A) of the TIA is
hereby expressly excluded from this Indenture and the Securities, as permitted
by the TIA.
SECTION 6.06. Limitation on Suits.
A Holder may not pursue any remedy with respect to this Indenture or
the Securities unless:
(i) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of the
then outstanding Securities make a written request to the Trustee to pursue
the remedy;
(iii) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity reasonably satisfactory to the Trustee against any loss,
liability or expense to be incurred in compliance with such request;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(v) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
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SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of, premium, if any, or interest
(including Additional Interest, if any) on a Security, on or after the
respective due dates expressed in such Security, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in Section 6.01(1) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company,
any Guarantor or any other obligor on the Securities for the whole amount of
principal, premium, if any, and interest (including Additional Interest, if any)
remaining unpaid on the Securities, together with interest on overdue principal
and, to the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the
Securities, and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company or any other
obligor upon the Securities, their respective creditors or their respective
property and shall be entitled and empowered to collect and receive any moneys
or other property payable or deliverable on any such claims and to distribute
the same, and any Custodian in any such judicial proceedings is hereby
authorized by each Holder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, taxes, disbursements and advances of the Trustee, its
agent and counsel, and any other amounts due the Trustee under Section 7.07.
The Company's payment obligations under this Section 6.09 shall be secured in
accordance with the provisions of Section 7.07. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article
Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Sections 6.09 and 7.07;
Second: Subject to Articles Eight, Eleven and Twelve, to Holders for
amounts due and unpaid on the Securities for interest and premium, if any,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for interest and premium, if any,
respectively;
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Third: subject to Articles Eight, Eleven and Twelve, to Holders for
amounts due and unpaid on the Securities for principal, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Securities for principal; and
Fourth: Subject to Articles Eight, Eleven and Twelve, to the Company,
the Guarantors or any other obligor on the Securities, as their interests
may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 shall not apply to a suit by the Trustee, a suit by a Holder
or group of Holders of more than 10% in aggregate principal amount of the
outstanding Securities, or to any suit instituted by any Holder pursuant to
Section 6.07.
SECTION 6.12. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Security and such proceeding has
been discontinued or abandoned for any reason, or has been determined adversely
to the Trustee or to such Holder, then and in every such case the Company, the
Guarantors, the Trustee and the Holders shall, subject to any determination in
such proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise thereof as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are specifically
set forth in this Indenture and the TIA and no others and no covenants or
obligations shall be implied in this Indenture against the Trustee; and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions
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conforming to the requirements of this Indenture; however, in the case of
any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall
examine such certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee shall not be relieved from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01;
(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to (i) any action
it takes, suffers or omits to take in good faith in accordance with a
direction received by it pursuant to Sections 6.02, 6.04 or 6.05 or (ii)
any action believed by the Trustee to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture, unless,
in the case of this clause (ii), it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or take any action at the request or direction of Holders
if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money or
asset received by it except as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and/or an Opinion of Counsel, which shall conform
to the provisions of Sections 13.04 and 13.05. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance
on such Officer's Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent or
attorney (other than an agent who is an employee of the Trustee) appointed
with due care.
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(d) The Trustee shall not be liable for any action it takes, suffers
or omits to take in good faith which it reasonably believes to be
authorized or within its rights, discretion or powers.
(e) The Trustee may consult with counsel of its selection and the
advice or opinion of such counsel as to matters of law shall be full and
complete authorization and protection from liability in respect of any
action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
(f) Any request or direction of the Company mentioned herein shall be
sufficiently evidenced by an Officers' Certificate and any resolution of
the Board of Directors may be sufficiently evidenced by a Board Resolution.
(g) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee security or indemnity reasonably satisfactory
to the Trustee against the costs, expenses and liabilities which might be
incurred by it in compliance with such request, order or direction.
(h) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters
as it may see fit. If the Trustee shall determine to make such further
inquiry or investigation, the Trustee shall be entitled, upon reasonable
notice to the Company and in good faith, to examine the books, records and
premises of the Company or any Guarantor, personally or by agent or
attorney.
(i) Except with respect to Section 4.01, the Trustee shall have no
duty to inquire as to the performance of the Company with respect to the
covenants contained in Article Four. In addition, the Trustee shall not be
deemed to have notice of an Event of Default unless a Trust Officer of the
Trustee has actual knowledge thereof or unless the Trustee shall have
received written notice thereof at the Corporate Trust Office of the
Trustee, and such notice references the Securities and this Indenture.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, it shall not
be accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company in this Indenture or
the Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Holder notice of the
Default or Event of Default within 30 days after the occur
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rence thereof. Except in the case of a Default or an Event of Default in payment
of principal of, or interest on, any Security or a Default or Event of Default
in complying with Section 5.01, the Trustee may withhold the notice if and so
long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interest of Holders. This Section 7.05 shall be
in lieu of the proviso to (S) 315(b) of the TIA and such proviso to (S) 315(b)
of the TIA is hereby expressly excluded from this Indenture and the Securities,
as permitted by the TIA. For purposes of this Section 7.05, the Trustee shall
not be deemed to have knowledge of a Default or an Event of Default hereunder
unless an officer of the Trustee with direct responsibility for the
administration of this Indenture has actual knowledge thereof, or unless written
notice of any event which is a Default or an Event of Default is received by the
Trustee and such notice references the Securities or this Indenture.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after each May 15 of each year, the Trustee shall, to
the extent that any of the events described in TIA (S) 313(a) occurred within
the previous twelve months, but not otherwise, mail to each Holder a brief
report dated as of such date that complies with TIA (S) 313(a). The Trustee also
shall comply with TIA (S)(S) 313(b), 313(c) and 313(d).
A copy of each report at the time of its mailing to Holders shall be
mailed to the Company and filed with the SEC and each securities exchange, if
any, on which the Securities are listed.
The Company shall promptly notify the Trustee if the Securities become
listed on any securities exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
compensation as the Company and the Trustee shall from time to time agree in
writing for its services. The Trustee's compensation shall not be limited by any
law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it in addition to the compensation for its services except
any such disbursements, expenses and advances as may be attributable to the
Trustee's negligence or bad faith. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents, accountants,
experts and counsel and any taxes or other expenses incurred by a trust created
pursuant to Section 9.01.
The Company shall indemnify the Trustee and its agents, employees,
attorneys-in-fact, officers, directors and shareholders for, and hold it
harmless against, any and all loss, damage, claims, liability or expense,
including taxes (other than franchise taxes imposed on the Trustee and taxes
based upon, measured by or determined by the income of the Trustee), arising out
of or in connection with the acceptance or administration of the trust or trusts
hereunder (including its services as Registrar or Paying Agent, if so appointed
by the Company), including the reasonable costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder, except to the extent that such loss,
damage, claim, liability or expense is due to its own negligence or bad faith.
The Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of their obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the defense
(and may employ its own counsel) at the Company's expense; provided, however,
that the Company's reimbursement obligation with respect to counsel employed by
the Trustee will be limited to the reasonable fees and expenses of such counsel.
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The Company need not pay for any settlement made without its written
consent, which consent shall not be unreasonably withheld. The Company need not
reimburse any expense or indemnify against any loss or liability incurred by the
Trustee as a result of the violation of this Indenture by the Trustee, or
arising out of the Trustee's negligence or willful misconduct.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Securities against all money or property
held or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(6) or (7) occurs, such expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law. The Company's obligations under this
Section 7.07 and any lien arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Company's obligations pursuant to
Article Nine and any rejection or termination under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee and the Company in
writing and may appoint a successor Trustee with the Company's consent, which
consent shall not be unreasonably withheld. The Company may remove the Trustee
if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent under any
Bankruptcy Law;
(c) a receiver or other public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Securities may appoint a successor
Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. As promptly as
practicable after that, the retiring Trustee shall transfer, after payment of
all sums then owing to the Trustee pursuant to Section 7.07, all property held
by it as Trustee to the successor Trustee, subject to the Lien provided in
Section 7.07, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have the rights, powers and duties of
the Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
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Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or banking corporation, the resulting, surviving or transferee
corporation or banking corporation without any further act shall, if such
resulting, surviving or transferee corporation or banking corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee which shall be eligible to
act as Trustee under TIA (S)(S) 310(a)(1) and 310(a)(2). The Trustee shall have
a combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. If the Trustee has or shall acquire
any "conflicting interest" within the meaning of TIA (S) 310(b), the Trustee and
the Company shall comply with the provisions of TIA (S) 310(b); provided,
however, that there shall be excluded from the operation of TIA 310(b)(1) any
indenture or indentures under which other securities or certificates of interest
or participation in other securities of the Company are outstanding if the
requirements for such exclusion set forth in TIA (S) 310(b)(1) are met. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 7.10, the Trustee shall resign immediately in the
manner and with the effect hereinbefore specified in this Article Seven.
SECTION 7.11. Preferential Collection of Claims Against the Company.
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE EIGHT
SUBORDINATION OF SECURITIES
SECTION 8.01. Securities Subordinated to Senior Debt.
The Company covenants and agrees, and the Trustee and each Holder of
the Securities by its acceptance thereof likewise covenant and agree, (i) that
all Securities shall be issued subject to the provisions of this Article Eight;
and the Trustee and each Person holding any Security, whether upon original
issue or upon transfer, assignment or exchange thereof, accepts and agrees that
the payments of all Obligations on the Securities or under this Indenture by the
Company shall, to the extent and in the manner set forth in this Article Eight,
be subordinated and junior in right of payment to the prior payment in full in
cash or Cash Equivalents of all Obligations on Senior Debt of the Company,
whether outstanding on the Issue Date or thereafter incurred, including, without
limitation, the Company's Obligations under the Credit Facility, and (ii) that
the subordination is for the benefit of, and shall be enforceable directly by,
the holders of Senior Debt, and that each holder of Senior Debt whether now
outstanding or hereafter created, incurred, assumed or guaranteed shall be
deemed to have acquired Senior Debt in reliance upon the covenants and
provisions contained in this Indenture and the Securities.
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SECTION 8.02. No Payment on Securities in Certain Circumstances.
Unless Section 8.03 shall be applicable, if any default occurs and is
continuing in the payment when due, whether at maturity, upon any redemption, by
acceleration or otherwise, of any principal of, interest on, unpaid drawings for
letters of credit issued in respect of, or regularly accruing fees with respect
to, any Designated Senior Debt, no payment of any kind or character shall be
made by or on behalf of the Company or any other Person on its behalf with
respect to any Obligations on the Securities or to acquire any of the Securities
for cash or property or otherwise (except that holders of the Securities may
receive payments from a trust described under Article Nine so long as, on the
date or dates the respective amounts were paid into the trust, such payments
were made with respect to the Securities in accordance with the provisions of
Article Nine and without violating the provisions of Article Eight or Article
Twelve of this Indenture (a "Defeasance Trust Payment")).
------------------------
In addition, unless Section 8.03 shall be applicable, if any other
event of default occurs and is continuing with respect to any Designated Senior
Debt, as such event of default is defined in the instrument creating or
evidencing such Designated Senior Debt, permitting the holders of such
Designated Senior Debt then outstanding to accelerate the maturity thereof and
if the Representative for the respective issue of Designated Senior Debt gives
written notice of the event of default to the Trustee (a "Payment Blockage
----------------
Notice"), then, unless and until all events of default have been cured or waived
- ------
or have ceased to exist or the Trustee receives notice from the Representative
for the respective issue of Designated Senior Debt terminating the Payment
Blockage Period, during the 180 days after the receipt by the Trustee of such
Payment Blockage Notice (the "Payment Blockage Period"), neither the Company nor
-----------------------
any other Person its behalf shall (x) make any payment of any kind or character
with respect to any Obligations on the Securities or (y) acquire any of the
Securities for cash or property or otherwise (except that holders of the
Securities may receive Defeasance Trust Payments).
Notwithstanding anything herein to the contrary, in no event will a
Payment Blockage Period extend beyond 180 days after the receipt by the Trustee
of the Payment Blockage Notice and only one such Payment Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Debt shall be, or be made, the basis for
commencement of a second Payment Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days (it being acknowledged that any subsequent action,
or any breach of any financial covenants for a period commencing after the date
of commencement of such Payment Blockage Period that, in either case, would give
rise to an event of default pursuant to any provisions under which an event of
default previously existed or was continuing shall constitute a new event of
default for this purpose).
In the event that, notwithstanding the foregoing provisions of this
Section 8.02 prohibiting such payment or distribution, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities (excluding any Defeasance Trust
Payment), shall be received by the Trustee or any Holder of Securities at a time
when such payment or distribution is prohibited by the first three paragraphs of
this Section 8.02 and before all Obligations in respect of Designated Senior
Debt of the Company are paid in full in cash or Cash Equivalents, such payment
or distribution shall be received and held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Designated Senior Debt of the
Company (pro rata to such holders on the basis of the respective amounts of
Designated Senior Debt held by such holders) or their Representatives, as their
respective interests may appear, for application to the payment of such
Designated Senior Debt remaining unpaid until all such Designated Senior Debt
has been paid in full in cash or Cash Equivalents after giving effect to any
prior or concurrent payment, distribution or provision therefor to or for the
holders of such Designated Senior Debt.
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SECTION 8.03. Payment Over of Proceeds upon Dissolution, etc.
(a) Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any total or partial liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt whether or not such interest is an
allowed claim in such proceeding) shall first be paid in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Debt, before any payment or distribution of any kind or
character is made on account of any Obligations on the Securities, or for the
acquisition of any of the Securities for cash or property or otherwise (except
that Holders of the Securities may receive Defeasance Trust Payments). Before
any payment may be made by, or on behalf of, the Company of any Obligations on
the Securities upon any such dissolution or winding-up or total liquidation or
reorganization, any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or securities
(excluding any Defeasance Trust Payment), to which the Holders of the Securities
or the Trustee on their behalf would be entitled, but for the subordination
provisions of this Indenture, shall be made by the Company or by any receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, directly to the holders of the Senior Debt of the
Company (pro rata to such holders on the basis of the respective amounts of
Senior Debt held by such holders) or their Representatives or to the trustee or
trustees or agent or agents under any agreement or indenture pursuant to which
any of such Senior Debt may have been issued, as their respective interests may
appear, to the extent necessary to pay all such Senior Debt in full in cash or
Cash Equivalents after giving effect to any prior or concurrent payment,
distribution or provision therefor to or for the holders of such Senior Debt.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities (excluding any Defeasance Trust Payment), shall be received by the
Trustee or any Holder of Securities at a time when such payment or distribution
is prohibited by Section 8.03(a) and before all Obligations in respect of Senior
Debt of the Company are paid in full in cash or Cash Equivalents, such payment
or distribution shall be received and held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Senior Debt of the Company
(pro rata to such holders on the basis of the respective amounts of Senior Debt
held by such holders) or their Representatives, or to the trustee or trustees or
agent or agents under any indenture pursuant to which any of such Senior Debt
may have been issued, as their respective interests may appear, for application
to the payment of such Senior Debt remaining unpaid until all such Senior Debt
has been paid in full in cash or Cash Equivalents after giving effect to any
prior or concurrent payment, distribution or provision therefor to or for the
holders of such Senior Debt.
(c) To the extent any payment of Senior Debt (whether by or on behalf
of the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, if such payment is recovered by, or paid over
to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person, the Senior Debt or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
has not occurred.
(d) The consolidation of the Company with, or the merger of the
Company with or into, another corporation or the liquidation or dissolution of
the Company following the conveyance or transfer of all or substantially all of
its assets, to another corporation upon the terms and conditions provided in
Article Five
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hereof shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section 8.03 if such other corporation
shall, as a part of such consolidation, merger, conveyance or transfer, comply
with the conditions stated in Article Five.
SECTION 8.04. Subrogation.
Upon the payment in full in cash or Cash Equivalents of all Senior
Debt of the Company, the Holders of the Securities shall be subrogated to the
rights of the holders of such Senior Debt to receive payments or distributions
of cash, property or securities of the Company made on such Senior Debt until
the Securities shall be paid in full; and, for the purposes of such subrogation,
no payments or distributions to the holders of the Senior Debt of the Company of
any cash, property or securities to which the Holders of the Securities or the
Trustee on their behalf would be entitled except for the provisions of this
Article Eight, and no payment over pursuant to the provisions of this Article
Eight to the holders of Senior Debt of the Company by Holders of the Securities
or the Trustee on their behalf shall, as between the Company, its creditors
other than holders of Senior Debt of the Company, and the Holders of the
Securities, be deemed to be a payment by the Company to or on account of the
Senior Debt of the Company. It is understood that the provisions of this Article
Eight are and are intended solely for the purpose of defining the relative
rights of the Holders of the Securities, on the one hand, and the holders of the
Senior Debt of the Company, on the other hand.
If any payment or distribution to which the Holders of the Securities
would otherwise have been entitled but for the provisions of this Article Eight
shall have been applied, pursuant to the provisions of this Article Eight, to
the payment of all amounts payable under Senior Debt, then and in such case, the
Holders of the Securities shall be entitled to receive from the holders of such
Senior Debt any payments or distributions received by such holders of Senior
Debt in excess of the amount required to make payment in full in cash or Cash
Equivalents of such Senior Debt.
SECTION 8.05. Obligations of the Company Unconditional.
Nothing contained in this Article Eight or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as among the Company, its
creditors other than the holders of the Senior Debt, and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders of the Securities and creditors of the Company other than the holders of
the Senior Debt of the Company, nor shall anything herein or therein prevent the
Holder of any Security or the Trustee on their behalf from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article Eight of the
holders of the Senior Debt of the Company in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article Eight shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due and payable
prior to their stated maturity pursuant to Section 6.02 or to pursue any rights
or remedies hereunder; provided, however, that all Senior Debt of the Company
then due and payable shall first be paid in full in cash or Cash Equivalents
before the Holders of the Securities or the Trustee are entitled to receive any
direct or indirect payment from, or on behalf of, the Company on account of any
Obligations on the Securities.
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SECTION 8.06. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities pursuant to the provisions of this
Article Eight (although the failure to give any such notice shall not affect the
subordination provisions set forth in this Article Eight). The Trustee shall not
be charged with knowledge of the existence of any default or event of default
with respect to any Senior Debt of the Company or of any other facts which would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing at its Corporate Trust Office to
that effect signed by an Officer of the Company, or by a holder of Senior Debt
or trustee or agent therefor; and prior to the receipt of any such written
notice, the Trustee shall, subject to Article Seven, be entitled to assume that
no such facts exist; provided, however, that if the Trustee shall not have
received the notice provided for in this Section 8.06 at least two Business Days
prior to the date upon which by the terms of this Indenture any moneys shall
become payable for any purpose (including, without limitation, the payment of
the principal of or interest on any Security), then, regardless of anything
herein to the contrary, the Trustee shall have full power and authority to
receive any moneys from the Company and to apply the same to the purpose for
which they were received, and shall not be affected by any notice to the
contrary which may be received by it on or after such prior date (although the
receipt of such moneys by any Holder of Securities shall otherwise be subject to
the provisions of this Article Eight). Nothing contained in this Section 8.06
shall limit the right of the holders of Senior Debt of the Company to recover
payments from Holders as contemplated by Section 8.02 or 8.03. The Trustee shall
be entitled to rely on the delivery to it of a written notice by a Person
representing himself or itself to be a holder of any Senior Debt of the Company
(or a trustee on behalf of, or other representative of, such holder) to
establish that such notice has been given by a holder of such Senior Debt or a
trustee or representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Debt of the Company to participate in any payment or distribution
pursuant to this Article Eight, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Debt of the Company held by such Person, the extent to which such Person
is entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article Eight, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities referred to
in this Article Eight, the Trustee and the Holders of the Securities shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or
reorganization proceedings are pending, or upon a certificate of the receiver,
trustee in bankruptcy or liquidating trustee, delivered to the Trustee or to the
Holders of the Securities for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Debt of the
Company and other indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article Eight.
SECTION 8.08. Trustee's Relation to Senior Debt.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Eight with respect to any Senior Debt of the Company
which may at any time be held by it in its individual or any other capacity to
the same extent as any other holder of Senior Debt of the Company, and nothing
in this Indenture shall deprive the Trustee or any Paying Agent of any of its
rights as such holder.
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With respect to the holders of Senior Debt of the Company, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Eight, and no implied covenants or
obligations with respect to the holders of Senior Debt of the Company shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior Debt of the Company (except as
provided in the last paragraph of Section 8.02 and Section 8.03(b)). The Trustee
shall not be liable to any such holders if the Trustee shall in good faith
mistakenly pay over or distribute to Holders of Securities or to the Company or
to any other person cash, property or securities to which any holders of Senior
Debt of the Company shall be entitled by virtue of this Article Eight or
otherwise.
SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Debt.
No right of any present or future holders of any Senior Debt of the
Company to enforce subordination as provided herein shall at any time in any way
be prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any such holder, or
by any noncompliance by the Company with the terms of this Indenture, regardless
of any knowledge thereof which any such holder may have or otherwise be charged
with. The provisions of this Article Eight are intended to be for the benefit
of, and shall be enforceable directly by, the holders of Senior Debt of the
Company.
SECTION 8.10. Holders Authorize Trustee To Effectuate Subordination of
Securities.
Each Holder of Securities by its acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Eight, and appoints the Trustee its attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, total
liquidation or reorganization of the Company (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of the Company, the filing of a claim for the unpaid balance
of its or his Securities in the form required in those proceedings. If the
Trustee does not file a proper claim or proof of debt in the form required in
any such proceeding prior to 30 days before the expiration of the time to file
such claim or claims, then any of the holders of the Senior Debt or their
Representative is hereby authorized to file an appropriate claim for and on
behalf of the Holders of said Securities. Nothing herein contained shall be
deemed to authorize the Trustee or the holders of Senior Debt or their
Representative to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee or the holders of Senior Debt or their Representative to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 8.11. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Eight shall not be
construed as preventing the occurrence of a Default or Event of Default
specified under Section 6.01.
SECTION 8.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article Eight shall apply to amounts due to the
Trustee, in its capacity as such, pursuant to other sections in this Indenture.
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SECTION 8.13. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 8.09, the
holders of Senior Debt of the Company may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Eight or the obligations hereunder of the Holders of the Securities to the
holders of Senior Debt of the Company, do any one or more of the following: (a)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, such Senior Debt or any instrument evidencing the same or any
agreement under which such Senior Debt is outstanding or secured; (b) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing such Senior Debt; (c) release any Person liable in any manner
for the collection of such Senior Debt; and (d) exercise or refrain from
exercising any rights against the Company and any other Person.
SECTION 8.14. Subordination Provisions Not Applicable to Money Held in Trust
for Holders.
All money and United States Government Obligations deposited in trust
with the Trustee pursuant to and in accordance with Article Nine shall be for
the sole benefit of the Holders and shall not be subject to this Article Eight.
SECTION 8.15. Amendments.
As long as the Credit Facility is outstanding or any amounts are
outstanding thereunder, the provisions of this Article Eight (and the
definitions used herein) shall not be amended or modified without the written
consent of the Representative under the Credit Facility.
ARTICLE NINE
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 9.01. Satisfaction and Discharge.
This Indenture, the Securities and the Guarantees shall be discharged
and shall cease to be of further effect (except as to surviving rights of
registration of transfer or exchange of the Securities, as expressly provided
for in this Indenture) as to all outstanding Securities when:
(1) either:
(a) all the Securities theretofore authenticated and delivered
(except lost, stolen or destroyed Securities which have been replaced
or paid and Securities for whose payment money has theretofore been
deposited with the Trustee or the Paying Agent in trust or segregated
and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust, as provided in Section 9.05) have been
delivered to the Trustee for cancellation; or
(b) all Securities not theretofore delivered to the Trustee for
cancellation have become due and payable, pursuant to an optional
redemption notice or otherwise, and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the
Securities not theretofore deliv-
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ered to the Trustee for cancellation, for principal of, premium, if
any, and interest on the Securities to the date of deposit together
with irrevocable instructions from the Company directing the Trustee
to apply such funds to the payment thereof at maturity or redemption,
as the case may be; and
(2) the Company has paid all other sums payable under this Indenture
by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating that all conditions precedent under
this Indenture relating to the satisfaction and discharge of this Indenture
have been complied with.
The Trustee will acknowledge the satisfaction and discharge of this
Indenture if the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating that all conditions precedent under this
Indenture relating to the satisfaction and discharge of this Indenture have been
complied with.
SECTION 9.02. Legal Defeasance and Covenant Defeasance.
(a) The Company may, at its option by Board Resolution of the Board
of Directors of the Company, at any time, elect to have either paragraph (b) or
(c) below be applied to all outstanding Securities upon compliance with the
conditions set forth in Section 9.03.
(b) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (b), the Company and, if it so selects, each
of the Guarantors, shall, subject to the satisfaction of the conditions set
forth in Section 9.03, be deemed to have been discharged from its obligations
with respect to all outstanding Securities on the date the conditions set forth
below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal
----------------
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Securities, which shall
thereafter be deemed to be "outstanding" only for the purposes of Section 9.04
and the other Sections of this Indenture referred to in (i) and (ii) below, and
to have satisfied all its other obligations under such Securities and this
Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), and Holders and any
amounts deposited under Section 9.03 shall cease to be subject to any
obligations to, or the rights of, any holder of Senior Debt under Article Eight
or Guarantor Senior Debt under Article Eleven or Twelve, as the case may be, or
otherwise, except for the following provisions, which shall survive until
otherwise terminated or discharged hereunder:
(i) the rights of Holders to receive solely from the trust fund
described in Section 9.04, and as more fully set forth in such Section,
payments in respect of the principal of, premium, if any, and interest on
such Securities when such payments are due;
(ii) the Company's obligations with respect to such Securities under
Article Two and Section 4.02;
(iii) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and the Company's obligations in connection therewith; and
(iv) this Article Nine.
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Subject to compliance with this Article Nine, the Company may exercise its
option under this paragraph (b) notwithstanding the prior exercise of its option
under paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 9.03, be released from its
obligations under the covenants contained in Sections 4.03 through 4.06,
inclusive, Sections 4.08 through 4.10, inclusive, Sections 4.14 through 4.21,
inclusive, and Article Five hereof with respect to the outstanding Securities on
and after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Securities shall thereafter be deemed not
- --------------------
"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Securities shall not be deemed
outstanding for accounting purposes) and Holders and any amounts deposited under
Section 9.03 shall cease to be subject to any obligations to, or the rights of,
any holder of Senior Debt under Article Eight or Guarantor Senior Debt under
Article Eleven or Twelve or otherwise. For this purpose, such Covenant
Defeasance means that, with respect to the outstanding Securities, the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event or Default under Section 6.01(3), but, except as specified above,
the remainder of this Indenture and such Securities shall be unaffected thereby.
In addition, upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (c), subject to the satisfaction of the
conditions set forth in Section 9.03, Sections 6.01(3), 6.01(4), 6.01(5) and
6.01(8) shall not constitute Events of Default.
SECTION 9.03. Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 9.02(b) or 9.02(c) to the outstanding Securities:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, United States Legal Tender or United States
Government Obligations, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest on the Securities on the stated date for payment thereof or on
the applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that:
(a) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling; or
(b) since the date of this Indenture, there has been a change in
the applicable United States federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
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(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(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) or insofar as Sections
6.01(6) and (7) are concerned, at any time in the period ending on the 91st
day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, this Indenture
(other than as permitted by the parenthetical phrase in clause (4) above)
or any other material agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(6) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;
(7) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance, as the case may be, have been complied with; and
(8) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that:
(a) the trust funds will not be subject to any rights of holders
of Senior Debt, including, without limitation, those arising under
this Indenture; and
(b) assuming no intervening bankruptcy of the Company between
the date of deposit and the 91st day following the date of deposit
and that no Holder is an insider of the Company, after the 91st day
following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally.
Notwithstanding the foregoing, the Opinion of Counsel required by
clause (2) above with respect to a Legal Defeasance need not be delivered if all
Securities not therefor delivered to the Trustee for cancellation:
(1) have become due and payable;
(2) will become due and payable on the maturity date within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company;
or
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(3) 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 at the expense, of the Company.
SECTION 9.04. Application of Trust Money.
The Trustee or Paying Agent shall hold in trust United States Legal
Tender or United States Government Obligations deposited with it pursuant to
this Article Nine, and shall apply the deposited United States Legal Tender and
the money from United States Government Obligations in accordance with this
Indenture to the payment of principal of and interest on the Securities. The
Trustee shall be under no obligation to invest said United States Legal Tender
or United States Government Obligations except as it may agree with the Company.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the United States Legal Tender or
United States Government Obligations deposited pursuant to Section 9.03 or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Securities.
Anything in this Article Nine to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the Company's
request any United States Legal Tender or United States Government Obligations
held by it as provided in Section 9.03 which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof that would then be required to be deposited to effect an equivalent
Legal Defeasance or Covenant Defeasance.
SECTION 9.05. Repayment to Company.
Subject to Section 7.07 and this Article Nine, the Trustee and the
Paying Agent shall promptly pay to the Company, or if deposited with the Trustee
by any Guarantor, to such Guarantor, upon request any excess United States Legal
Tender or United States Government Obligations held by them at any time and
thereupon shall be relieved from all liability with respect to such money. The
Trustee and the Paying Agent shall pay to the Company, or if deposited by any
Guarantor, to such Guarantor, upon request any money held by them for the
payment of principal or interest that remains unclaimed for two years after the
date of payment of such principal and interest; provided that the Trustee or
such Paying Agent, before being required to make any payment, may at the expense
of the Company cause to be published once in a newspaper of general circulation
in The City of New York or mail to each Holder entitled to such money notice
that such money remains unclaimed and that after a date specified therein which
shall be at least 30 days from the date of such publication or mailing any
unclaimed balance of such money then remaining will be repaid to the Company or
a Guarantor. After payment to the Company or a Guarantor, as the case may be,
Holders entitled to such money must look to the Company for payment as general
creditors unless an applicable law designates another Person and all liability
of the Trustee and such Paying Agent with respect to such money shall cease.
SECTION 9.06. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
Legal Tender or United States Government Obligations in accordance with this
Article Nine by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's and each Guarantor's
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had occurred pursuant to this Article Nine until
such time as
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the Trustee or Paying Agent is permitted to apply all such United States Legal
Tender or United States Government Obligations in accordance with Article Nine;
provided that if the Company or any Guarantor, as the case may be, has made any
payment of interest on or principal of any Securities because of the
reinstatement of its obligations, the Company or any Guarantor, as the case may
be, shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the United States Legal Tender or United States
Government Obligations held by the Trustee or Paying Agent.
ARTICLE TEN
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 10.01. Without Consent of Holders.
The Company and the Guarantors, when authorized by a Board Resolution
of their respective Boards, and the Trustee, together, may amend or supplement
this Indenture, the Securities or any Guarantee without notice to or consent of
any Holder:
(a) to cure any ambiguity, defect or inconsistency; provided that
such amendment or supplement does not adversely affect the rights of any
Holder;
(b) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(c) to comply with Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Securities or that does not adversely affect
the rights of any Holder of the Security; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA; provided that
the Company has delivered to the Trustee an Opinion of Counsel and an
Officers' Certificate stating that such amendment or supplement complies
with the provisions of this Section 10.01.
SECTION 10.02. With Consent of Holders.
Subject to Section 6.07, the Company and each Guarantor, when
authorized by a Board Resolution, and the Trustee, together, may amend or
supplement this Indenture or the Securities, without notice to any other Holders
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Securities). Subject to Section
6.07, the Holder or Holders of a majority in aggregate principal amount of the
outstanding Securities may waive compliance by the Company with any provision of
this Indenture or the Securities without notice to any other Holder. However,
without the consent of each Holder affected, an amendment, supplement or waiver,
including a waiver pursuant to Section 6.04, shall not:
(a) reduce the amount of Securities whose Holders must consent to an
amendment;
(b) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any
Securities;
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(c) reduce the principal of or change or have the effect of changing
the fixed maturity of any Securities, or change the date on which any
Securities may be subject to redemption or reduce the redemption price
therefor;
(d) make any Securities payable in money other than that stated in
the Securities;
(e) make any change in the provisions of this Indenture protecting
the right of each Holder to receive payment of principal of and interest on
such Security on or after the due date thereof or to bring suit to enforce
such payment, or permitting Holders of a majority in principal amount of
Securities to waive Defaults or Events of Default;
(f) after the Company's obligation to purchase Securities arises
thereunder, amend, change or modify in any material respect the obligation
of the Company to make and consummate a Change of Control Offer in the
event of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sales that have been consummated or, after such
Change of Control has occurred or such Asset Sale has been consummated,
modify any of the provisions or definitions with respect thereto;
(g) modify or change any provision of this Indenture or the related
definitions affecting the subordination or ranking of the Securities or any
Guarantee in a manner which adversely affects the Holders; or
(h) release any Guarantor that is a Significant Subsidiary from any
of its obligations under its Guarantee or this Indenture otherwise than in
accordance with the terms of this Indenture.
It shall not be necessary for the consent of the Holders under this
Section 10.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 10.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 10.03. Compliance with Trust Indenture Act.
Every amendment, supplement or waiver of this Indenture, the
Securities or any Guarantee shall comply with the TIA as then in effect ;
provided, however, that this Section 10.03 shall not of itself require that this
Indenture or the Trustee be qualified under the TIA or constitute any admission
or acknowledgment by any party hereto that any such qualification is required
prior to the time the Indenture and the Trustee are required by the TIA to be so
qualified.
SECTION 10.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of that Security or portion of that Security that evidences the same debt
as the consenting Holder's Security, even if notation of the consent is not made
on any Security. Subject to the following paragraph, any such Holder or
subsequent Holder may revoke the consent as to such Holder's Security or portion
of such Security by notice to the Trustee or the Company received before the
date on which the Trustee receives an Officers' Certificate certifying that the
Holders of the requisite principal
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amount of Securities have consented (and not theretofore revoked such consent)
to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders of Securities entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (a)
through (h) of Section 10.02. In that case, the amendment, supplement or waiver
shall bind each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security; provided that any such waiver shall
not impair or affect the right of any Holder to receive payment or principal of
an interest on a Security, on or after the respective due dates expressed in
such Security, or to bring suit for the enforcement of any such payment on or
after such respective dates without the consent of such Holder.
SECTION 10.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determine, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms. Any
such notation or exchange shall be made at the sole cost and expense of the
Company. Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 10.06. Trustee To Sign Amendments, etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Ten; provided, however, that the Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise. In signing any amendment, supplement or waiver, the
Trustee shall be entitled to receive an indemnity reasonably satisfactory to it
and to receive, and shall be fully protected in relying upon, an Opinion of
Counsel and an Officers' Certificate each stating that the execution of any
amendment, supplement or waiver authorized pursuant to this Article Ten is
authorized or permitted by this Indenture and that such amendment or supplement
is the legal, valid and binding obligation of the Company and the Guarantors
enforceable against each of them in accordance with its terms, subject to
customary exceptions, and complies with the provision hereof. Such Opinion of
Counsel shall not be an expense of the Trustee.
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ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. Unconditional Guarantee.
Each Guarantor hereby unconditionally guarantees, jointly and
severally, to each Holder of a Security authenticated by the Trustee and to the
Trustee and its successors and assigns that: (i) the principal of and interest
on the Securities will be promptly paid in full when due, subject to any
applicable grace period, whether at maturity, by acceleration or otherwise, and
interest on the overdue principal, if any, and interest on any overdue interest,
to the extent lawful, on the Securities and all other obligations of the Company
to the Holders or the Trustee hereunder or under the Securities will be promptly
paid in full or performed, all in accordance with the terms hereof and thereof;
and (ii) in the case of any extension of time of payment or renewal of any
Securities or of any such other obligations, the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, subject to any applicable grace period, whether at stated maturity, by
acceleration or otherwise, subject, however, in the case of clauses (i) and (ii)
above, to the limitations set forth in Section 11.04. Each Guarantor hereby
agrees that its Obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Securities or this Indenture,
the absence of any action to enforce the same, any waiver or consent by any
Holder of the Securities with respect to any provisions hereof or thereof, the
recovery of any judgment against the Company, any action to enforce the same or
any other circumstance which might otherwise constitute a legal or equitable
discharge or defense of such Guarantor. Each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice and all demands whatsoever and covenants
that the Guarantee will not be discharged except by complete performance of the
obligations contained in the Securities, this Indenture and in this Guarantee.
If any Holder or the Trustee is required by any court or otherwise to return to
the Company or any Guarantor or any custodian, trustee, liquidator or other
similar official acting in relation to the Company or a Guarantor, any amount
paid by the Company or a Guarantor to the Trustee or such Holder, the Guarantee,
to the extent theretofore discharged, shall be reinstated in full force and
effect. Each Guarantor further agrees that, as between such Guarantor, on the
one hand, and the Holders and the Trustee, on the other hand, (x) the maturity
of the obligations guaranteed hereby may be accelerated as provided in Article
Six for the purpose of this Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Article Six, such obligations (whether or not due and payable)
shall forthwith become due and payable by such Guarantor for the purpose of the
Guarantee.
SECTION 11.02. Severability.
In case any provision of this Article Eleven shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 11.03. Release of a Guarantor
(a) If no Default exists or would exist under this Indenture, upon
the sale or disposition of all of the Capital Stock, or all or substantially all
of the assets, of a Guarantor by the Company or one or more Restricted
Subsidiaries of the Company in a transaction constituting an Asset Sale the Net
Cash Proceeds of which are applied in accordance with Section 4.05, or upon the
consolidation or merger of a Guarantor with or into any Person in compliance
with Article Five (in each case, other than to the Company or a Wholly-Owned
Restricted Subsidiary), or if any Guarantor is dissolved or liquidated in
accordance with this Indenture, such Guarantor and
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each Subsidiary of such Guarantor that is also a Guarantor shall be
automatically and unconditionally released from all obligations under this
Article Eleven without any further action required on the part of the Trustee or
any Holder; provided, however, that each such Guarantor is sold or disposed of
in accordance with this Indenture. Any Guarantor not so released or the entity
surviving such Guarantor, as applicable, shall remain or be liable under its
Guarantee as provided in this Article Eleven.
(b) The Trustee shall execute an appropriate instrument evidencing
the release of the Guarantor upon receipt of a request by the Company or such
Guarantor accompanied by an Officers' Certificate and an Opinion of Counsel
certifying as to the compliance with this Section 11.03, provided the legal
counsel delivering such Opinion of Counsel may rely as to matters of fact on one
or more Officers' Certificates.
The Trustee shall execute any documents reasonably requested by the
Company or a Guarantor in order to evidence the release of such Guarantor from
its obligations under its Guarantee endorsed on the Securities and under this
Article Eleven.
SECTION 11.04. Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof each Holder and the
Trustee, hereby confirm that it is the intention of all such parties that the
guarantee by such Guarantor pursuant to the Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar U.S. Federal or state or other applicable law. To effectuate the
foregoing intention, each Holder and each Guarantor hereby irrevocably agree
that the obligations of each Guarantor under its Guarantee shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor, and after giving effect to any collections
from or payments made by or on behalf of such Guarantor in respect of the
obligations of such Guarantor pursuant to Section 11.06, result in the
obligations of such Guarantor not constituting such a fraudulent transfer or
conveyance.
SECTION 11.05. Guarantors May Consolidate, etc., on Certain Terms.
(a) Nothing contained in this Indenture or in any of the Securities
shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of the
Company or shall prevent any sale of assets or conveyance of the property of a
Guarantor as an entirety or substantially as an entirety, to the Company or
another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company.
Upon any such consolidation, merger, sale or conveyance, the Guarantee given by
such Guarantor shall no longer have any force or effect.
(b) Except as set forth in Article Four, nothing contained in this
Indenture or in any of the Securities shall prevent any consolidation or merger
of a Guarantor with or into a corporation or corporations other than the Company
or another Guarantor that is a Wholly Owned Restricted Subsidiary of the Company
(whether or not affiliated with the Guarantor), or shall prevent any sale or
conveyance of all or substantially all of the assets of a Guarantor to a
corporation other than the Company or another Guarantor that is a Wholly Owned
Restricted Subsidiary of the Company (whether or not affiliated with the
Guarantor); provided, however, that, subject to Sections 11.03 and 11.05(a),
either (x) the transaction is an Asset Sale consummated in accordance with
Section 4.05 or (y) (i) the entity formed by or surviving any such consolidation
or merger (if other than such Guarantor) or to which such sale, lease,
conveyance or other disposition shall have been made is a corporation organized
and existing under the laws of the United States, any State thereof or the
District of Columbia, (ii) immediately after such transaction, and giving effect
thereto, no Default or Event of Default shall have occurred as a result of such
transaction and be continuing, (iii) each Guarantor hereby covenants and agrees
that, upon any such consolidation, merger, sale or conveyance, the Guarantee of
such Guarantor set forth in this Arti-
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cle Eleven, and the due and punctual performance and observance of all of the
covenants and conditions of this Indenture to be performed by such Guarantor,
shall be expressly assumed (in the event that the Guarantor is not the Surviving
Entity), by supplemental indenture satisfactory in form to the Trustee, executed
and delivered to the Trustee, together with an Officers' Certificate of the
Company and an Opinion of Counsel stating that the transaction and such
supplemental indenture comply with this Indenture, by the corporation formed by
such consolidation, or into which the Guarantor shall have merged, or by the
corporation that shall have acquired such property and (iv) immediately after
giving effect to such transaction, the Company shall be in compliance with
clause 2 of the first paragraph of Section 5.01. In the case of any such
consolidation, merger, sale or conveyance that is not an Asset Sale consummated
in accordance with Section 4.05, upon the assumption by the successor
corporation, by supplemental indenture executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the due and punctual performance of all
of the covenants and conditions of this Indenture to be performed by the
Guarantor, such successor corporation shall succeed to and be substituted for
the Guarantor with the same effect as if it had been named herein as a
Guarantor. Any merger or consolidation of a Guarantor with and into the Company
(with the Company being the surviving entity) or another Guarantor that is a
Wholly Owned Restricted Subsidiary of the Company need only comply with clause
(iv) of Section 5.01(a).
SECTION 11.06. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
-----------------
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Securities or any other Guarantor's obligations
with respect to the Guarantee. "Adjusted Net Assets" of such Guarantor at any
date shall mean the lesser of the amount by which (x) the fair value of the
property of such Guarantor exceeds the total amount of liabilities, including,
without limitation, contingent liabilities (after giving effect to all other
fixed and contingent liabilities incurred or assumed on such date), but
excluding liabilities under the Guarantee of such Guarantor at such date and (y)
the present fair salable value of the assets of such Guarantor at such date
exceeds the amount that will be required to pay the probable liability of such
Guarantor on its debts including, without limitation, Guarantor Senior Debt
(after giving effect to all other fixed and contingent liabilities incurred or
assumed on such date and after giving effect to any collection from any
Subsidiary of such Guarantor in respect of the obligations of such Subsidiary
under the Guarantee), excluding debt in respect of the Guarantee of such
Guarantor, as they become absolute and matured.
SECTION 11.07. Waiver of Subrogation.
Until all Obligations on the Securities are paid in full, each
Guarantor hereby irrevocably waives any claim or other rights which it may now
or hereafter acquire against the Company that arise from the existence, payment,
performance or enforcement of such Guarantor's obligations under the Guarantees
and this Indenture, including, without limitation, any right of subrogation,
reimbursement, exoneration, indemnification, and any right to participate in any
claim or remedy of any Holder of Securities against the Company, whether or not
such claim, remedy or right arises in equity, or under contract, statute or
common law, including, without limitation, the right to take or receive from the
Company, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim or other rights.
If any amount shall be paid to any Guarantor in violation of the preceding
sentence and the Securities shall not have been paid in full, such amount shall
have been deemed to have been paid to such Guarantor for the benefit of, and
held in trust for the benefit of, the Holders of the Securities, and shall,
subject to the provisions of Section 11.09, Article Eight and Article Twelve,
forthwith be paid to the Trustee for the benefit of such Holders to be credited
and applied upon the Securities, whether matured or unmatured, in accordance
with the terms of this Indenture. Each Guar-
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antor acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated by this Indenture and that the waiver set
forth in this Section 11.06 is knowingly made in contemplation of such benefits.
SECTION 11.08. Execution of Guarantee.
To evidence their Guarantee to the Holders set forth in this Article
Eleven, the Guarantors hereby agree to execute the Guarantee in substantially
the form included in Exhibit F, which shall be endorsed on each Security ordered
---------
to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees
that its Guarantee set forth in this Article Eleven shall remain in full force
and effect notwithstanding any failure to endorse on each Note a notation of
such Guarantee. Each such Guarantee shall be signed on behalf of each Guarantor
by two Officers (who shall have been duly authorized by all requisite corporate
actions), who shall attest to such Guarantee prior to the authentication of the
Security on which it is endorsed, and the delivery of such Security by the
Trustee, after the authentication thereof hereunder, shall constitute due
delivery of such Guarantee on behalf of such Guarantor. Such signature upon the
Guarantee may be by manual or facsimile signature of such officers and may be
imprinted or otherwise reproduced on the Guarantee, and in case any such officer
who shall have signed the Guarantee shall cease to be such officer before the
Security on which such Guarantee is endorsed shall have been authenticated and
delivered by the Trustee or disposed of by the Company, such Security
nevertheless may be authenticated and delivered or disposed of as though the
Person who signed the Guarantee had not ceased to be such officer of the
Guarantor.
SECTION 11.09. Waiver of Stay, Extension or Usury Laws.
Each Guarantor covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) each such Guarantor hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 11.10. Subordination of Guarantee.
The obligations of each Guarantor to the Holders of Securities and to
the Trustee pursuant to the Guarantee and this Indenture are expressly
subordinate and subject in right of payment to the prior payment in full of all
Guarantor Senior Debt of such Guarantor, to the extent and in the manner
provided in Article Twelve.
ARTICLE TWELVE
SUBORDINATION OF GUARANTEE
SECTION 12.01. Guarantee Obligations Subordinated to Senior Debt.
Each Guarantor covenants and agrees, and the Trustee and each Holder
of the Securities by its acceptance thereof likewise covenants and agrees, (i)
that such Guarantor's Guarantee shall be issued subject to the provisions of
this Article Twelve; and the Trustee and each Person holding any Security,
whether upon original issue or upon transfer, assignment or exchange thereof,
accepts and agrees that the payment of all Obligations
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on the Securities pursuant to the Guarantee made by or on behalf of such
Guarantor shall, to the extent and in the manner set forth in this Article
Twelve, be subordinated and junior in right of payment to the prior payment in
full in cash or Cash Equivalents of all Obligations on Guarantor Senior Debt of
such Guarantor, whether outstanding on the Issue Date or thereafter incurred,
including, without limitation, any Obligation of such Guarantor in respect of
the Credit Facility, and (ii) that the subordination is for the benefit of, and
shall be enforceable directly by, the holders of Guarantor Senior Debt, and that
each holder of Guarantor Senior Debt whether now outstanding or hereafter
created, incurred, assumed or guaranteed shall be deemed to have acquired
Guarantor Senior Debt in reliance upon the covenants and provisions contained in
this Indenture, Securities and the Guarantees.
SECTION 12.02. Payment Over of Proceeds upon Dissolution, etc.; No Payment in
Certain Circumstances
(a) Upon any payment or distribution of assets of a Guarantor of any
kind or character, whether in cash, property or securities, to creditors upon
any total or partial liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Guarantor
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Guarantor or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Guarantor Senior Debt
of such Guarantor (including interest after the commencement of any such
proceeding at the rate specified in the applicable Guarantor Senior Debt whether
or not such interest is an allowed claim in such proceeding) shall first be paid
in full in cash or Cash Equivalents, or such payment duly provided for to the
satisfaction of the holders of Guarantor Senior Debt, before any payment or
distribution of any kind or character is made by or on behalf of the Guarantor
on account of any Obligations on its Guarantee or for the acquisition of any of
the Securities for cash or property or otherwise (except that holders of the
Securities may receive Defeasance Trust Payments). Before any payment may be
made by, or on behalf of, a Guarantor of any Obligations on the Securities upon
any such dissolution or winding-up or total liquidation or reorganization, any
payment or distribution of assets or securities of such Guarantor of any kind or
character, whether in cash, property or securities (excluding any Defeasance
Trust Payment), to which the Holders of the Securities or the Trustee on their
behalf would be entitled, but for the subordination provisions of this
Indenture, shall be made by the Guarantor or by any receiver, trustee in
bankruptcy, liquidation trustee, agent or other Person making such payment or
distribution, directly to the holders of the Guarantor Senior Debt of the
Guarantor (pro rata to such holders on the basis of the respective amounts of
such Guarantor Senior Debt held by such holders) or their representatives or to
the trustee or trustees or agent or agents under any agreement or indenture
pursuant to which any of such Guarantor Senior Debt may have been issued, as
their respective interests may appear, to the extent necessary to pay all such
Guarantor Senior Debt in full in cash or Cash Equivalents after giving effect to
any prior or concurrent payment, distribution or provision therefor to or for
the holders of such Guarantor Senior Debt.
(b) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of a Guarantor of any kind or character, whether in cash, property
or securities (excluding any Defeasance Trust Payment), shall be received by the
Trustee or any Holder of Securities at a time when such payment or distribution
is prohibited by Section 12.02(a) and before all Obligations in respect of the
Guarantor Senior Debt of such Guarantor are paid in full in cash or Cash
Equivalents, such payment or distribution shall be received and held in trust
for the benefit of, and shall be paid over or delivered to, the holders of such
Guarantor Senior Debt (pro rata to such holders on the basis of the respective
amounts of such Guarantor Senior Debt held by such holders) or their respective
representatives, or to the trustee or trustees or agent or agents under any
indenture pursuant to which any of such Guarantor Senior Debt may have been
issued, as their respective interests may appear, for application to the payment
of such Guarantor Senior Debt remaining unpaid until all such Guarantor Senior
Debt has been paid in full in cash or Cash Equivalents after giving effect to
any prior or concurrent payment, distribution or provision therefor to or for
the holders of such Guarantor Senior Debt.
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(c) To the extent any payment of Guarantor Senior Debt of a Guarantor
(whether by or on behalf of such Guarantor, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar Person, the Guarantor
Senior Debt or part thereof originally intended to be satisfied shall be deemed
to be reinstated and outstanding as if such payment has not occurred.
(d) The consolidation of a Guarantor with, or the merger of a
Guarantor with or into, another corporation or the liquidation or dissolution of
a Guarantor following the conveyance or transfer of its property as an entirety,
or substantially as an entirety, to another corporation upon the terms and
conditions provided in Article Five shall not be deemed a dissolution, winding-
up, liquidation or reorganization for the purposes of this Section 12.02 if such
other corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated in Article Five.
(e) Unless Section 12.02 (a) shall be applicable, if any default
occurs and is continuing in the payment when due, whether at maturity, upon any
redemption, by acceleration or otherwise, of any principal of, interest on,
unpaid drawings for letters of credit issued in respect of, or regularly
accruing fees with respect to, any Designated Senior Debt of any Guarantor, no
payment of any kind or character shall be made by or on behalf of such Guarantor
or any other Person on its behalf with respect to any Obligations on the
Guarantee of such Guarantor or to acquire any of the Securities for cash or
property or otherwise (except that holders of the Securities may receive
Defeasance Trust Payments).
(f) In addition, if any other event of default occurs and is
continuing with respect to any Designated Senior Debt of any Guarantor, as such
event of default is defined in the instrument creating or evidencing such
Designated Senior Debt, permitting the holders of such Designated Senior Debt
then outstanding to accelerate the maturity thereof and if the Representative
for the respective issue of Designated Senior Debt gives a Payment Blockage
Notice to the Trustee, then, unless and until all events of default have been
cured or waived or have ceased to exist or the Trustee receives notice from the
Representative for the respective issue of Designated Senior Debt terminating
the Payment Blockage Period, during the Payment Blockage Period, neither the
Guarantor, nor any other Person on the Guarantor's behalf, shall (x) make any
payment of any kind or character with respect to any Obligations on the
Guarantee of such Guarantor or (y) acquire any of the Securities for cash or
property or otherwise (except that holders of the Securities may receive
Defeasance Trust Payments).
(g) Notwithstanding anything herein to the contrary, in no event will
a Payment Blockage Period extend beyond 180 days after the receipt by the
Trustee of the Payment Blockage Notice and only one such Payment Blockage Period
may be commenced within any 360 consecutive days. No event of default which
existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Debt shall be, or be made,
the basis for commencement of a second Payment Blockage Period by the
Representative of such Designated Senior Debt whether or not within a period of
360 consecutive days, unless such event of default shall have been cured or
waived for a period of not less than 90 consecutive days (it being acknowledged
that any subsequent action, or any breach of any financial covenants for a
period commencing after the date of commencement of such Payment Blockage Period
that, in either case, would give rise to an event of default pursuant to any
provisions under which an event of default previously existed or was continuing
shall constitute a new event of default for this purpose).
(h) In the event that, notwithstanding the provisions of this Section
12.02 prohibiting such payment or distribution, any payment or distribution of
assets or securities of a Guarantor of any kind or character, whether in cash,
property or securities (excluding any Defeasance Trust Payment), shall be
received by the
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Trustee or any Holder of Securities at a time when such payment or distribution
is prohibited by Section 12.02(e) or (f) and before all Obligations in respect
of the Designated Senior Debt of such Guarantor are paid in full in cash or Cash
Equivalents, such payment or distribution shall be received and held in trust
for the benefit of, and shall be paid over or delivered to, the holders of such
Designated Senior Debt (pro rata to such holders on the basis of the respective
amounts of such Designated Senior Debt held by such holders) or their
representatives, or to the trustee or trustees or agent or agents under any
indenture pursuant to which any of such Designated Senior Debt may have been
issued, as their respective interests may appear, for application to the payment
of such Designated Senior Debt remaining unpaid until all such Designated Senior
Debt has been paid in full in cash or Cash Equivalents after giving effect to
any prior or concurrent payment, distribution or provision therefor to or for
the holders of such Designated Senior Debt.
SECTION 12.03. Subrogation.
Upon the payment in full in cash or Cash Equivalents of all Guarantor
Senior Debt of a Guarantor, the Holders of the Securities shall be subrogated to
the rights of the holders of such Guarantor Senior Debt to receive payments or
distributions of cash, property or securities of such Guarantor made on such
Guarantor Senior Debt until the principal of and interest on the Securities
shall be paid in full in cash or Cash Equivalents; and, for the purposes of such
subrogation, no payments or distributions to the holders of such Guarantor
Senior Debt of any cash, property or securities to which the Holders of the
Securities or the Trustee on their behalf would be entitled except for the
provisions of this Article Twelve, and no payment over pursuant to the
provisions of this Article Twelve to the holders of such Guarantor Senior Debt
by Holders of the Securities or the Trustee on their behalf shall, as between
such Guarantor, its creditors other than holders of such Guarantor Senior Debt,
and the Holders of the Securities, be deemed to be a payment by such Guarantor
to or on account of such Guarantor Senior Debt. It is understood that the
provisions of this Article Twelve are and are intended solely for the purpose of
defining the relative rights of the Holders of the Securities, on the one hand,
and the holders of Guarantor Senior Debt of any such Guarantor on the other
hand.
If any payment or distribution to which the Holders of the Securities
would otherwise have been entitled but for the provisions of this Article Twelve
shall have been applied, pursuant to the provisions of this Article Twelve, to
the payment of all amounts payable under Guarantor Senior Debt of any Guarantor,
then and in such case, the Holders of the Securities shall be entitled to
receive from the holders of such Guarantor Senior Debt any payments or
distributions received by such holders of Guarantor Senior Debt in excess of the
amount required to make payment in full in cash of such Guarantor Senior Debt.
SECTION 12.04. Obligations of Guarantors Unconditional.
Subject to Sections 11.03 and 8.02, nothing contained in this Article
Twelve or elsewhere in this Indenture or in the Securities is intended to or
shall impair, as among any Guarantor and the Holders of the Securities, the
obligation of such Guarantor, which is absolute and unconditional, to pay to the
Holders of the Securities the principal of and interest on the Securities as and
when the same shall become due and payable in accordance with the terms of the
Guarantee, or is intended to or shall affect the relative rights of the such
Guarantor of the Securities and creditors of any Guarantor other than the
holders of Guarantor Senior Debt of such Guarantor, as the case may be, nor
shall anything herein or therein prevent the Holder of any Security or the
Trustee on their behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Twelve of the holders of Guarantor Senior Debt in respect of
cash, property or securities of such Guarantor received upon the exercise of any
such remedy.
Without limiting the generality of the foregoing, nothing contained in
this Article Twelve shall restrict the right of the Trustee or the Holders of
Securities to take any action to declare the Securities to be due
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and payable prior to their stated maturity pursuant to Section 6.01 or to pursue
any rights or remedies hereunder; provided, however, that all Guarantor Senior
Debt of each Guarantor then due and payable shall first be paid in full in cash
or Cash Equivalents before the Holders of the Securities or the Trustee are
entitled to receive any direct or indirect payment from, or on behalf of, such
Guarantor on account of any Obligations on the Securities pursuant to the
Guarantee of such Guarantor.
SECTION 12.05. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities pursuant to the provisions of this
Article Twelve (although the failure to give any such notice shall not affect
the subordination provisions set forth in this Article Twelve). The Trustee
shall not be charged with knowledge of the existence of any event of default
with respect to any Guarantor Senior Debt of a Guarantor or of any other facts
which would prohibit the making of any payment to or by the Trustee unless and
until the Trustee shall have received notice in writing at its Corporate Trust
Office to that effect signed by an Officer of the Company, or by a holder of
Guarantor Senior Debt of a Guarantor or trustee or agent therefor; and prior to
the receipt of any such written notice, the Trustee shall, subject to Article
Seven, be entitled to assume that no such facts exist; provided, however, that
if the Trustee shall not have received the notice provided for in this Section
12.05 at least two Business Days prior to the date upon which by the terms of
this Indenture any moneys shall become payable for any purpose (including,
without limitation, the payment of the principal of or interest on any
Security), then, regardless of anything herein to the contrary, the Trustee
shall have full power and authority to receive any moneys from such Guarantor
and to apply the same to the purpose for which they were received, and shall not
be affected by any notice to the contrary which may be received by it on or
after such prior date (although the receipt of such moneys by any Holder of
Securities shall otherwise be subject to the provisions of this Article Twelve).
Nothing contained in this Section 12.05 shall limit the right of the holders of
Guarantor Senior Debt of a Guarantor to recover payments as contemplated by
Section 12.02. The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself or itself to be a holder of any
Guarantor Senior Debt of a Guarantor (or a trustee on behalf of, or other
representative of, such holder) to establish that such notice has been given by
a holder of such Guarantor Senior Debt or a trustee or representative on behalf
of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Debt of a Guarantor to participate in any payment or
distribution pursuant to this Article Twelve, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Guarantor Senior Debt held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article Twelve,
and if such evidence is not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment.
SECTION 12.06. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets or securities of a
Guarantor referred to in this Article Twelve, the Trustee and the Holders of the
Securities shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which bankruptcy, dissolution, winding-up,
liquidation or reorganization proceedings are pending, or upon a certificate of
the receiver, trustee in bankruptcy or liquidating trustee, delivered to the
Trustee or to the Holders of the Securities for the purpose of ascertaining the
persons entitled to participate in such distribution, the holders of Guarantor
Senior Debt of such Guarantor and other indebtedness of such Guarantor, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article Twelve.
<PAGE>
-86-
SECTION 12.07. Trustee's Relation to Guarantor Senior Debt of a Guarantor.
The Trustee and any Paying Agent shall be entitled to all the rights
set forth in this Article Twelve with respect to any Guarantor Senior Debt of a
Guarantor which may at any time be held by them in their individual or any other
capacity to the same extent as any other holder of Guarantor Senior Debt of such
Guarantor, and nothing in this Indenture shall deprive the Trustee or any Paying
Agent of any of its rights as such holder.
With respect to the holders of Guarantor Senior Debt of any Guarantor,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Twelve, and no implied
covenants or obligations with respect to the holders of such Guarantor Senior
Debt shall be read into this Indenture against the Trustee. The Trustee shall
not be deemed to owe any fiduciary duty to the holders of Guarantor Senior Debt
of any Guarantor (except as provided in Section 12.02(b) and (h)). The Trustee
shall not be liable to any such holders if the Trustee shall in good faith
mistakenly pay over or distribute to Holders of Securities or to the Company or
to any other person cash, property or securities to which any holders of
Guarantor Senior Debt of a Guarantor shall be entitled by virtue of this Article
Twelve or otherwise.
SECTION 12.08. Subordination Rights Not Impaired by Acts or Omissions of
Holders of Guarantor Senior Debt.
No right of any present or future holders of any Guarantor Senior Debt
of a Guarantor to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
such Guarantor or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by such Guarantor with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have or
otherwise be charged with. The provisions of this Article Twelve are intended to
be for the benefit of, and shall be enforceable directly by, the holders of
Guarantor Senior Debt of any Guarantor.
SECTION 12.09. Holders Authorize Trustee To Effectuate Subordination of
Guarantee.
Each Holder of Securities by its acceptance of such Securities
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article Twelve, and appoints the Trustee his attorney-in-fact for such
purposes, including, in the event of any dissolution, winding-up, total
liquidation or reorganization of any Guarantor (whether in bankruptcy,
insolvency, receivership, reorganization or similar proceedings or upon an
assignment for the benefit of creditors or otherwise) tending towards
liquidation of the business and assets of any Guarantor, the filing of a claim
for the unpaid balance of its or his Securities in the form required in those
proceedings. If the Trustee does not file a proper claim or proof of debt in
the form required in any proceeding referred to in Section 6.09 prior to 30 days
before the expiration of the time to file such claim or claims, then any of the
holders of the Guarantor Senior Debt or their Representative is hereby
authorized to file an appropriate claim for and on behalf of the Holders of said
Securities. Nothing herein contained shall be deemed to authorize the Trustee
or the holders of Guarantor Senior Debt or their Representative to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee or the holders
of Guarantor Senior Debt or their Representative to vote in respect of the claim
of any Holder in any such proceeding.
<PAGE>
-87-
SECTION 12.10. This Article Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Twelve shall not be
construed as preventing the occurrence of an Event of Default specified in
clauses (1), (2) or (3) of Section 6.01.
SECTION 12.11. Trustee's Compensation Not Prejudiced.
Nothing in this Article Twelve shall apply to amounts due to the
Trustee, in its capacity as such, pursuant to other sections in this Indenture.
SECTION 12.12. No Waiver of Guarantee Subordination Provisions.
Without in any way limiting the generality of Section 12.08, the
holders of Guarantor Senior Debt of any Guarantor, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article
Twelve or the obligations hereunder of the Holders of the Securities to the
holders of such Guarantor Senior Debt, may do any one or more of the following:
(a) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, such Guarantor Senior Debt or any instrument evidencing
the same or any agreement under which such Guarantor Senior Debt is outstanding
or secured; (b) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing such Guarantor Senior Debt; (c) release
any Person liable in any manner for the collection of such Guarantor Senior
Debt; and (d) exercise or refrain from exercising any rights against the
Guarantor and any other Person.
SECTION 12.13. Amendments.
As long as the Credit Facility is outstanding or any amounts are
outstanding thereunder, the provisions of this Article Twelve (and the
definitions used herein) shall not be amended or modified without the written
consent of the Representative under the Credit Facility.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. TIA Controls.
If any provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control; provided that this Section 13.01 shall
not of itself require that this Indenture or the Trustee be qualified under the
TIA or constitute any admission or acknowledgment by any party hereto that any
such qualification is required prior to the time this Indenture and the Trustee
are required by the TIA to be so qualified. If any provision of this Indenture
modifies or excludes any provision of the TIA that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or excluded, as the case may be.
<PAGE>
-88-
SECTION 13.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier, by reputable overnight delivery service, or registered
or certified mail, postage prepaid, return receipt requested, addressed as
follows:
If to the Company and/or any Guarantor:
Cadmus Communications Corporation
6620 West Broad Street
Suite 240
Richmond, Virginia 23230
Attention: Chief Financial Officer
Facsimile: (804) 287-5683
Telephone: (804) 287-5680
with copies to:
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
Attention: Randall S. Parks, Esq.
Facsimile: (804) 788-7375
Telephone: (804) 788-8218
If to the Trustee:
First Union National Bank
800 East Main Street, Lower Mezzanine
Richmond, Virginia 23219
Attention: Corporate Trust Department
Facsimile: (804) 343-6699
Telephone: (804) 343-6067
The Company, the Guarantors and the Trustee by written notice to each
other may designate additional or different addresses for notices. Any notice
or communication to the Company, the Guarantors or the Trustee shall be deemed
to have been given or made as of the date so delivered if personally delivered;
when answered back, if telexed; when receipt is acknowledged, if faxed; one (1)
Business Day after mailing by reputable overnight courier, and five (5) calendar
days after mailing if sent by registered or certified mail, postage prepaid
(except that a notice of change of address shall not be deemed to have been
given until actually received by the addressee).
<PAGE>
-89-
Any notice or communication mailed to a Holder shall be mailed to such
Holder by first class mail or other equivalent means at such Holder's address as
it appears on the registration books of the Registrar and shall be sufficiently
given to such Holder if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Securities. The
Company, the Guarantors, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
or refrain from taking any action under this Indenture after the date hereof,
the Company shall furnish to the Trustee, at the request of the Trustee:
(1) an Officers' Certificate in form and substance satisfactory to
the Trustee stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel in form and substance satisfactory to the
Trustee stating that, in the opinion of such counsel, all such conditions
precedent, if any, have been complied with, and such other opinions as the
Trustee may reasonably require.
SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition and the definitions relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him or her
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with; provided, however, that
with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
<PAGE>
-90-
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules in accordance with the Trustee's
customary practice for action by or at a meeting of Holders. The Paying Agent or
Registrar may make reasonable rules for its functions.
SECTION 13.07. Governing Law.
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS TO THE
EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE SECURITIES.
SECTION 13.08. No Recourse Against Others.
No past, present or future director, officer, employee, stockholder or
incorporator of the Company, the Guarantors or the Trustee as such, shall have
any liability for any obligations of the Company or any Guarantor under the
Securities, the Guarantees or this Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Security waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Securities. This
provision does not affect any possible claims under federal securities laws.
SECTION 13.09. Successors.
All agreements of a party to this Indenture contained in this
Indenture shall bind such party's successors. All agreements of the Trustee in
this Indenture shall bind its successors.
SECTION 13.10. Counterpart Originals.
The parties may sign any number of counterparts of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 13.11. Severability.
In case any one or more of the provisions in this Indenture or in the
Securities or the Guarantees shall be held invalid, illegal or unenforceable, in
any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions shall not
in any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
SECTION 13.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
<PAGE>
-91-
SECTION 13.13. Legal Holidays.
If a payment date is a not a Business Day at a place of payment,
payment may be made at that place on the next succeeding Business Day, and no
interest shall accrue for the intervening period.
SECTION 13.14. Independence of Covenants.
All covenants and agreements in this Indenture and the Securities
shall be given independent effect so that if any particular action or condition
is not permitted by any of such covenants, the fact that it would be permitted
by an exception to, or otherwise be within the limitations of, another covenant
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists.
SECTION 13.15. Table of Contents, Headings, etc.
The table of contents, cross-reference sheet and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 13.16. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give any Person, other than the parties to this Indenture and their
successors hereunder and the Holders, any benefit or any legal or equitable
right, remedy or claim under this Indenture or the Securities.
<PAGE>
S-1
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
COMPANY:
CADMUS COMMUNICATIONS CORPORATION
By: /s/ C. Stephenson Gillispie, Jr.
----------------------------------------------
Name: C. Stephenson Gillispie, Jr.
Title: Chairman of the Board, President and
Chief Executive Officer
GUARANTORS:
CADMUS JOURNAL SERVICES, INC.
By: /s/ David E. Bosher
----------------------------------------------
Name: David E. Bosher
Title: Vice President
WASHBURN GRAPHICS, INC.
By: /s/ David E. Bosher
----------------------------------------------
Name: David E. Bosher
Title: Vice President
AMERICAN GRAPHICS, INC.
By: /s/ David E. Bosher
----------------------------------------------
Name: David E. Bosher
Title: Vice President
<PAGE>
S-2
EXPERT GRAPHICS, INC.
By: /s/ David E. Bosher
-------------------
Name: David E. Bosher
Title: Vice President
CADMUS DIRECT MARKETING, INC.
By: /s/ David E. Bosher
-------------------
Name: David E. Bosher
Title: Vice President
THREE SCORE, INC.
By: /s/ David E. Bosher
-------------------
Name: David E. Bosher
Title: Vice President
MACK PRINTING COMPANY
By: /s/ David E. Bosher
-------------------
Name: David E. Bosher
Title: Vice President
PORT CITY PRESS, INC.
By: /s/ David E. Bosher
-------------------
Name: David E. Bosher
Title: Vice President
MACK PRINTING GROUP, INC.
By: /s/ David E. Bosher
-------------------
Name: David E. Bosher
Title: Vice President
SCIENCE CRAFTSMAN INCORPORATED
<PAGE>
S-3
By: /s/ David E. Bosher
-------------------
Name: David E. Bosher
Title: Vice President
TRUSTEE:
FIRST UNION NATIONAL BANK,
as Trustee
By: /s/ Patricia A. Welling
-----------------------
Name: Patricia A. Welling
Title: Vice President
<PAGE>
EXHIBIT A
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL
ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A)
TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES TO AN "ACCREDITED INVESTOR" (AS DEFINED IN
RULE 501(a)(1),(2),(3) or (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS
BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER
OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR
THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE
COMPANY SO REQUESTS), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM
THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER
THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN
ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN
TO THEM BY REGULATIONS S UNDER THE SECURITIES ACT.
A-1
<PAGE>
CUSIP No.:
CADMUS COMMUNICATIONS CORPORATION
9 3/4% Senior Subordinated Note
due 2009, Series A
No. $
CADMUS COMMUNICATIONS CORPORATION, a Virginia corporation (the
"Company"), for value received, promises to pay to or registered
-------
assigns, the principal sum of , on June 1, 2009.
Interest Payment Dates: June 1 and December 1
Interest Record Dates: May 15 and November 15
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
Dated: [ ], 1999 CADMUS COMMUNICATIONS CORPORATION
By: ________________________________
Name:
Title:
Trustee's Certificate of Authentication
This is one of the 9 3/4% Senior Subordinated Notes due 2009, Series
A, referred to in the within-mentioned Indenture.
Dated: [ ], 1999
FIRST UNION NATIONAL BANK,
as Trustee
By: ________________________________
Authorized Signatory
A-3
<PAGE>
(REVERSE OF SECURITY)
9 3/4% Senior Subordinated Note due 2009, Series A
1. Principal and Interest. CADMUS COMMUNICATIONS CORPORATION, a
----------------------
Virginia corporation (the "Company"), promises to pay the principal of this
Security on June 1, 2009, or earlier as provided in the Indenture. The Company
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. Interest on the Securities will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from June 1, 1999. The Company will pay interest semi-annually in arrears on
each June 1 and December 1 (each, an "Interest Payment Date") and at stated
maturity, commencing on December 1, 1999. Interest will be computed on the
basis of a 360-day year of twelve 30-day months and, in the case of a partial
month, the actual number of days elapsed.
The Company shall pay interest on overdue principal from time to time
on demand at the rate borne by the Securities. The Company shall, to the extent
lawful, pay interest on overdue installments of interest (without regard to any
applicable grace periods) at the rate borne by the Securities.
2. Method of Payment. The Company shall pay interest on the
-----------------
Securities (except defaulted interest) to the Persons who are the registered
Holders at the close of business on the Interest Record Date immediately
preceding the Interest Payment Date even if the Securities are cancelled on
registration of transfer or registration of exchange after such Interest Record
Date. Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company shall pay principal, premium, if any, and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("United States Legal Tender"). However,
the Company may pay principal, premium, if any, and interest by its check
payable in such United States Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address. If an Interest Payment Date is a date other than a Business Day,
payment may be made on the next succeeding day that is a Business Day.
3. Paying Agent and Registrar. Initially, FIRST UNION NATIONAL BANK
--------------------------
(the "Trustee") will act as Paying Agent and Registrar. The Company may change
any Paying Agent, Registrar or co-Registrar without notice to the Holders.
4. Indenture. The Company issued the Securities under an Indenture,
---------
dated as of June 1, 1999 (the "Indenture"), by and among the Company, each of
the Guarantors named therein and the Trustee. This Security is one of a duly
authorized issue of Securities of the Company designated as its 9 3/4% Senior
Subordinated Notes due 2009, Series A (the "Initial Securities"), limited
(except as otherwise provided in the Indenture) in aggregate principal amount to
$200,000,000, which may be issued under the Indenture; provided that the
principal amount of Initial Securities issued on the Issue Date will not exceed
$125,000,000. The Securities include the Initial Securities, the Private
Exchange Securities and the Unrestricted Securities issued in exchange for the
Initial Securities pursuant to the Registration Rights Agreement or, with
respect to Initial Securities issued under the Indenture subsequent to the Issue
Date, a registration rights agreement similar to the Registration Rights
Agreement. The Initial Securities and the Unrestricted Securities are treated
as a single class of securities under the Indenture. Capitalized terms used
herein shall have the meanings assigned to them in the Indenture unless
otherwise defined herein. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect
on the date of the Indenture (except as otherwise indicated therein), until such
time as the Indenture is qualified under the TIA, and thereafter as in effect on
the date on which the Indenture is qualified under the TIA. Notwithstanding
anything to the contrary herein, the Securities are subject to all such terms,
and Holders of Securities are referred to the Indenture and the TIA for a
statement of them. The Securities are general unsecured obligations of the
Company limited in aggregate principal amount to $200,000,000. Under Article
Eleven of the
A-4
<PAGE>
Indenture the payment on each Security is guaranteed on a senior subordinated
basis by the Guarantors. Each Holder, by accepting a Security, agrees to be
bound by all of the terms and provisions of the Indenture, as the same may be
amended from time to time.
5. (a) Redemption. Except as provided below, the Securities may not
----------
be redeemed prior to June 1, 2004. Thereafter, the Company may redeem the
Securities at its option, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) plus accrued and unpaid interest
thereon (including Additional Interest), if any, to the date of redemption, if
redeemed during the twelve-month period commencing on June 1 of the year set
forth below:
Year Percentage
---- ----------
2004..................................... 104.875%
2005..................................... 103.250%
2006..................................... 101.625%
2007 and thereafter...................... 100.000%
(b) Optional Redemption Upon Equity Offerings. At any time, or from
-----------------------------------------
time to time, on or prior to June 1, 2002, the Company may, at its option, use
the net cash proceeds of one or more Equity Offerings (as defined below) to
redeem up to 35% of the principal amount of the Securities issued under the
Indenture at a redemption price of 109.750% of the principal amount thereof,
plus accrued and unpaid interest thereon (including Additional Interest), if
any, to the date of redemption; provided that at least 65% of the principal
amount of Securities issued under the Indenture remains outstanding immediately
after any such redemption and the Company makes such redemption not more than 90
days after the consummation of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
6. Notice of Redemption. Notice of redemption will be mailed at
--------------------
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Securities to be redeemed at such Holder's registered address.
Securities in denominations larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of
the Securities called for redemption shall have been deposited with the Paying
Agent for redemption on such Redemption Date, then, unless the Company defaults
in the payment of such Redemption Price plus accrued and unpaid interest
(including Additional Interest), if any, the Securities called for redemption
will cease to bear interest from and after such Redemption Date and the only
right of the Holders of such Securities will be to receive payment of the
Redemption Price plus accrued and unpaid interest (including Additional
Interest), if any.
7. Offers to Purchase. Section 4.14 of the Indenture provides that,
------------------
upon the occurrence of a Change of Control, each Holder will have the right,
subject to certain conditions set forth in the Indenture, to require the Company
to repurchase such Holder's Securities at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest thereon (including
Additional Interest), if any, to the date of repurchase. Section 4.05 of the
Indenture provides that, after certain Asset Sales and subject to further
limitations contained therein, the Company will make an offer to purchase
certain amounts of the Securities in accordance with the procedures set forth in
the Indenture.
8. Subordination. The Securities are subordinated in right of
-------------
payment, in the manner and to the extent set forth in the Indenture, to the
prior payment in full in cash or Cash Equivalents of all Senior Debt of the
Company, whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or
A-5
<PAGE>
guaranteed. The Guarantees in respect of the Securities are subordinated in
right of payment, in the manner and to the extent set forth in the Indenture, to
the prior payment in full in cash or Cash Equivalents of all Guarantor Senior
Debt of each Guarantor, whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed or guaranteed. Each Holder, by its
acceptance hereof, agrees to be bound by such provisions and authorizes and
expressly directs the Trustee, on its behalf, to take such action as may be
necessary or appropriate to effectuate the subordination provided for in the
Indenture and appoints the Trustee its attorney-in-fact for such purposes.
9. Denominations; Transfer; Exchange. The Securities are in
---------------------------------
registered form, without coupons, in denominations of $1,000 and integral
multiples of $1,000. A Holder shall register the transfer or exchange of
Securities in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay certain transfer taxes or similar governmental charges
payable in connection therewith as required by law or as permitted by the
Indenture. The Registrar need not register the transfer or exchange of any
Securities selected for redemption. The Registrar need not register the
transfer or exchange of any Securities during a period beginning 15 days before
the selection of, or the mailing of a redemption notice for, any Securities or
portions thereof selected for redemption.
10. Persons Deemed Owners. The registered Holder of a Security shall
---------------------
be treated as the owner of it for all purposes.
11. Unclaimed Money. If money for the payment of principal or
---------------
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company. After that, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Company at any
-----------------------------------------
time deposits with the Trustee United States Legal Tender or United States
Government Obligations sufficient to pay the then outstanding principal of,
premium, if any, and interest (including Additional Interest, if any) on the
Securities prior to redemption or maturity and complies with the other
provisions of the Indenture relating thereto, the Company will be discharged
from certain provisions of the Indenture and the Securities (including certain
covenants, but excluding its obligation to pay the principal of, premium and
interest (including Additional Interest, if any) on the Securities).
13. Amendment; Supplement; Waiver. Subject to certain exceptions in
-----------------------------
the Indenture, the Indenture, the Securities or the Guarantees may be amended or
supplemented with the written consent of the Holders of at least a majority in
aggregate principal amount of the then outstanding Securities, and any existing
Default or Event of Default or noncompliance with any provision may be waived
with the written consent of the Holders of a majority in aggregate principal
amount of the then outstanding Securities. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture or the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities, comply with Article Five of the Indenture, make any other change
that does not adversely affect in any material respect the rights of any Holder
of a Security or comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA.
14. Restrictive Covenants. The Indenture imposes certain limitations
---------------------
on the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, pay dividends or make certain other
Restricted Payments, consummate certain Asset Sales, enter into certain
transactions with Affiliates, incur Liens, incur Indebtedness that is
subordinate to Senior Debt but senior in right of payment to the Securities,
impose restrictions on the ability of a Restricted Subsidiary to pay dividends
or make certain payments to the Company and its Restricted Subsidiaries, merge
or consolidate with any other Person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company.
Such limitations are subject to a number of important qualifications and
exceptions. The Company must annually report to the Trustee on compliance with
such limitations.
A-6
<PAGE>
15. Successors. When a successor assumes, in accordance with the
----------
Indenture, all the obligations of its predecessor under the Securities and the
Indenture, the predecessor will be released from those obligations.
16. Defaults and Remedies. If an Event of Default occurs and is
---------------------
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities may declare all the Securities to be due and
payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Securities may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Securities unless it has been offered indemnity or
security reasonably satisfactory to it. The Indenture permits, subject to
certain limitations therein provided, Holders of a majority in aggregate
principal amount of the Securities then outstanding to direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of
Securities notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest) if it determines in good faith that
withholding notice is in their interest.
17. Trustee Dealings with Company. The Trustee under the Indenture,
-----------------------------
in its individual or any other capacity, may become the owner or pledgee of
Securities and may otherwise deal with the Company, its Subsidiaries or their
respective Affiliates as if it were not the Trustee.
18. No Recourse Against Others. No past, present or future
--------------------------
stockholder, director, officer, employee or incorporator, as such, of the
Company shall have any liability for any obligation of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
19. Authentication. This Security shall not be valid until the
--------------
Trustee or authenticating agent manually signs the certificate of authentication
on this Security.
20. Governing Law. THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. EACH OF THE HOLDERS
AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY.
21. Abbreviations and Defined Terms. Customary abbreviations may be
-------------------------------
used in the name of a Holder of a Security or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated by the
-------------
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities as a convenience to the Holders of
the Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
23. Registration Rights. Pursuant to the Registration Rights
-------------------
Agreement, the Company and the Guarantors will be obligated to consummate an
exchange offer pursuant to which the Holder of this Security shall have the
right to exchange this Security for 9 3/4% Senior Subordinated Notes due 2009,
Series B, of the Company which have been registered under the Securities Act, in
like principal amount and having terms identical in all material respects as
this Security (other than as relates to registration rights and transfer
restrictions).
A-7
<PAGE>
The Holders shall be entitled to receive certain Additional Interest in the
event such exchange offer is not consummated and upon certain other conditions,
all pursuant to and in accordance with the terms of the Registration Rights
Agreement.
24. Indenture. Each Holder, by accepting a Security, agrees to be
---------
bound by all of the terms and provisions of this Indenture, as the same may be
amended from time to time.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
CADMUS COMMUNICATIONS CORPORATION, 6620 West Broad Street, Suite 240. Richmond,
Virginia 23230, Attention: Chief Financial Officer.
A-8
<PAGE>
FORM OF ASSIGNMENT
I or we assign to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name, address and zip code and social security or tax ID
number of assignee)
the within Security and all rights thereunder, and hereby irrevocably
constitutes and appoints ______________________________________________________
________________________________ agent to transfer the Security on the books of
the Company with full power of substitution in the premises.
Dated:________________________ Signature:_____________________________________
NOTICE: The signature on this
assignment must correspond with the
name as it appears upon the face of
the within Security in every
particular without alteration or
enlargement or any change whatsoever
and be guaranteed by the endorser's
bank or broker.
Signature Guarantee:__________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), covering resales of this
Security (which effectiveness shall not have been suspended or terminated at the
date of the transfer) and (ii) June 1, 2001, the undersigned confirms that it
has not utilized any general solicitation or general advertising in connection
with the transfer and that this Security is being transferred:
A-9
<PAGE>
[Check One]
(1) ___ to the Company or a subsidiary thereof; or
(2) ___ pursuant to and in compliance with Rule 144A under the Securities Act;
or
(3) ___ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) that has
furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee); or
(4) ___ outside the United States to a "foreign purchaser" in compliance with
Rule 904 of Regulation S under the Securities Act; or
(5) ___ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act; or
(6) ___ pursuant to an effective registration statement under the Securities
Act; or
(7) ___ pursuant to another available exemption from the registration
statement requirements of the Securities Act
and unless the box below is checked, the undersigned confirms that such Security
is not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act (an "Affiliate"):
[_] The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to
register any of the Securities evidenced by this certificate in the name of any
person other than the registered Holder thereof; provided, however, that if item
(3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior
to registering any such transfer of the Securities, in their sole discretion,
such written legal opinions, certifications (including an investment letter in
the case of box (3) or (4)) and other information as the Trustee or the Company
have reasonably requested to confirm that such transfer is being made pursuant
to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act.
If none of the foregoing items are checked, the Trustee or Registrar
shall not be obligated to register this Security in the name of any person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.16 of the Indenture shall have
been satisfied.
Dated:___________________________ Signed:_____________________________________
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:
Participant in recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
TO BE COMPLETED BY PURCHASER IF ITEM (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regard-
A-10
<PAGE>
ing the Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated: __________________ Signed:__________________________________________
NOTICE: To be executed by an executive
officer
A-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate
box:
Section 4.05 [_]
Section 4.14 [_]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state the
amount you elect to have purchased: $_____________
Date:_______________________ Your Signature:___________________________________
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
A-12
<PAGE>
EXHIBIT B
---------
CUSIP NO.:
CADMUS COMMUNICATIONS CORPORATION
9 3/4% Senior Subordinated Security due 2009, Series B
No. $
CADMUS COMMUNICATIONS CORPORATION, a Virginia corporation (the
"Company"), for value received, promises to pay to or registered
assigns, the principal sum of Dollars, on June 1, 2009.
Interest Payment Dates: June 1 and December 1
Interest Record Dates: May 15 and November 15
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
B-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
Dated: , 1999 CADMUS COMMUNICATIONS CORPORATION
By:_______________________________________
Name:
Title:
Trustee's Certificate of Authentication
This is one of the 9 3/4% Senior Subordinated Securities due 2009,
Series B, referred to in the within-mentioned Indenture.
Dated: , 1999
FIRST UNION NATIONAL BANK,
as Trustee
By:_______________________________________
Authorized Signatory
B-2
<PAGE>
(REVERSE OF SECURITY)
9 3/4% Senior Subordinated Note due 2009, Series B
1. Principal and Interest. CADMUS COMMUNICATIONS CORPORATION, a
----------------------
Virginia corporation (the "Company"), promises to pay the principal of this
Security on June 1, 2009 or earlier as provided in the Indenture. The Company
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. Interest on the Securities will accrue from the most
recent date on which interest has been paid or, if no interest has been paid,
from June 1, 1999. The Company will pay interest semi-annually in arrears on
each June 1 and December 1 (each, an "Interest Payment Date") and at stated
maturity, commencing on June 1, 1999. Interest will be computed on the basis of
a 360-day year of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed.
The Company shall pay interest on overdue principal from time to time
on demand at the rate borne by the Securities. The Company shall, to the extent
lawful, pay interest on overdue installments of interest (without regard to any
applicable grace periods) at the rate borne by the Securities.
2. Method of Payment. The Company shall pay interest on the
-----------------
Securities (except defaulted interest) to the Persons who are the registered
Holders at the close of business on the Interest Record Date immediately
preceding the Interest Payment Date even if the Securities are canceled on
registration of transfer or registration of exchange after such Interest Record
Date. Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company shall pay principal, premium, if any, and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("United States Legal Tender"). However,
the Company may pay principal, premium, if any, and interest by its check
payable in such United States Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address. If an Interest Payment Date is a date other than a Business Day,
payment may be made on the next succeeding day that is a Business Day.
3. Paying Agent and Registrar. Initially, FIRST UNION NATIONAL BANK
--------------------------
(the "Trustee") will act as Paying Agent and Registrar. The Company may change
any Paying Agent, Registrar or co-Registrar without notice to the Holders.
4. Indenture. The Company issued the Securities under an Indenture,
---------
dated as of June 1, 1999 (the "Indenture"), by and among the Company, each of
the Guarantors named therein and the Trustee. This Security is one of a duly
authorized issue of Securities of the Company designated as its 9 3/4% Senior
Subordinated Notes due 2009, Series B (the "Unrestricted Securities"), limited
(except as otherwise provided in the Indenture) in aggregate principal amount to
$200,000,000, which may be issued under the Indenture; provided that the
principal amount of Initial Securities issued on the Issue Date shall not exceed
$125,000,000. The Securities include the 9 3/4% Senior Subordinated Notes due
2009, Series A (the "Initial Securities"), the Private Exchange Securities and
the Unrestricted Securities. The Initial Securities and the Unrestricted
Securities are treated as a single class of securities under the Indenture.
Capitalized terms used herein shall have the meanings assigned to them in the
Indenture unless otherwise defined herein. The terms of the Securities include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"),
as in effect on the date on which the Indenture is qualified under the TIA.
Notwithstanding anything to the contrary herein, the Securities are subject to
all such terms, and Holders of Securities are referred to the Indenture and the
TIA for a statement of them. The Securities are general unsecured obligations of
the Company limited in aggregate principal amount to $200,000,000. Under Article
Eleven of the Indenture the payment on each Security is guaranteed on a senior
subordinated basis by the Guarantors. Each Holder, by accepting a Security,
agrees to be bound by all of the terms and provisions of the Indenture, as the
same may be amended from time to time.
B-3
<PAGE>
5. (a) Redemption. Except as provided below, the Securities may not
----------
be redeemed prior to June 1, 2004. Thereafter, the Company may redeem the
Securities at its option, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the following redemption prices (expressed as
percentages of the principal amount thereof) plus accrued and unpaid interest
thereon, if any, to the date of redemption, if redeemed during the twelve-month
period commencing on June 1 of the year set forth below:
Year Percentage
---- ----------
2004.......................... 104.875%
2005.......................... 103.250%
2006.......................... 101.625%
2007 and thereafter........... 100.000%
(b) Optional Redemption Upon Equity Offerings. At any time, or from
-----------------------------------------
time to time, on or prior to June 1, 2002 the Company may, at its option, use
the net cash proceeds of one or more Equity Offerings (as defined below) to
redeem up to 35% of the principal amount of the Securities issued under the
Indenture at a redemption price of 109.750% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the date of redemption;
provided that at least 65% of the principal amount of Securities issued under
the Indenture remains outstanding immediately after any such redemption and the
Company makes such redemption not more than 90 days after the consummation of
any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act.
6. Notice of Redemption. Notice of redemption will be mailed at
--------------------
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Securities to be redeemed at such Holder's registered address.
Securities in denominations larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of
the Securities called for redemption shall have been deposited with the Paying
Agent for redemption on such Redemption Date, then, unless the Company defaults
in the payment of such Redemption Price plus accrued and unpaid interest, if
any, the Securities called for redemption will cease to bear interest from and
after such Redemption Date and the only right of the Holders of such Securities
will be to receive payment of the Redemption Price plus accrued and unpaid
interest, if any.
7. Offers to Purchase. Section 4.14 of the Indenture provides that,
------------------
upon the occurrence of a Change of Control, each Holder will have the right,
subject to certain conditions set forth in the Indenture, to require the Company
to repurchase such Holder's Securities at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of repurchase. Section 4.05 of the Indenture provides that, after
certain Asset Sales and subject to further limitations contained therein, the
Company will make an offer to purchase certain amounts of the Securities in
accordance with the procedures set forth in the Indenture.
8. Subordination. The Securities are subordinated in right of
-------------
payment, in the manner and to the extent set forth in the Indenture, to the
prior payment in full in cash or Cash Equivalents of all Senior Debt of the
Company, whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed. The Guarantees in respect of the Securities
are subordinated in right of payment, in the manner and to the extent set forth
in the Indenture, to the prior payment in full in cash or Cash Equivalents of
all Guarantor Senior Debt of each Guarantor, whether outstanding on the date of
the Indenture or thereafter created, incurred, assumed or guaranteed. Each
Holder, by its acceptance hereof, agrees to be bound by such provisions and
authorizes and expressly directs the Trustee, on its behalf, to take such action
as may be necessary or appropriate
B-4
<PAGE>
to effectuate the subordination provided for in the Indenture and appoints the
Trustee its attorney-in-fact for such purposes.
9. Denominations; Transfer; Exchange. The Securities are in
---------------------------------
registered form, without coupons, in denominations of $1,000 and integral
multiples of $1,000. A Holder shall register the transfer of or exchange
Securities in accordance with the Indenture. The Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay certain transfer taxes or similar governmental charges
payable in connection therewith as required by law or as permitted by the
Indenture. The Registrar need not register the transfer or exchange of any
Securities selected for redemption. The Registrar need not register the
transfer of or exchange any Securities during a period beginning 15 days before
the selection of, or the mailing of a redemption notice for, any Securities or
portions thereof selected for redemption.
10. Persons Deemed Owners. The registered Holder of a Security shall
---------------------
be treated as the owner of it for all purposes.
11. Unclaimed Money. If money for the payment of principal or
---------------
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company. After that, all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Company at any
-----------------------------------------
time deposits with the Trustee United States Legal Tender or United States
Government Obligations sufficient to pay the then outstanding principal of,
premium, if any, and interest on the Securities prior to redemption or maturity
and complies with the other provisions of the Indenture relating thereto, the
Company will be discharged from certain provisions of the Indenture and the
Securities (including certain covenants, but excluding its obligation to pay the
principal of, premium and interest on the Securities).
13. Amendment; Supplement; Waiver. Subject to certain exceptions in
-----------------------------
the Indenture, the Indenture, the Securities or the Guarantees may be amended or
supplemented with the written consent of the Holders of at least a majority in
aggregate principal amount of the then outstanding Securities, and any existing
Default or Event of Default or noncompliance with any provision may be waived
with the written consent of the Holders of a majority in aggregate principal
amount of the then outstanding Securities. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture or the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities, comply with Article Five of the Indenture, make any other change
that does not adversely affect in any material respect the rights of any Holder
of a Security or comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA.
14. Restrictive Covenants. The Indenture imposes certain limitations
---------------------
on the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, pay dividends or make certain other
Restricted Payments, consummate certain Asset Sales, enter into certain
transactions with Affiliates, incur Liens, incur Indebtedness that is
subordinate to Senior Debt but senior in right of payment to the Securities,
impose restrictions on the ability of a Restricted Subsidiary to pay dividends
or make certain payments to the Company and its Restricted Subsidiaries, merge
or consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company.
Such limitations are subject to a number of important qualifications and
exceptions. The Company must annually report to the Trustee on compliance with
such limitations.
15. Successors. When a successor assumes, in accordance with the
----------
Indenture, all the obligations of its predecessor under the Securities and the
Indenture, the predecessor will be released from those obligations.
B-5
<PAGE>
16. Defaults and Remedies. If an Event of Default occurs and is
---------------------
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities may declare all the Securities to be due and
payable in the manner, at the time and with the effect provided in the
Indenture. Holders of Securities may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Securities unless it has been offered indemnity or
Security reasonably satisfactory to it. The Indenture permits, subject to
certain limitations therein provided, Holders of a majority in aggregate
principal amount of the Securities then outstanding to direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of
Securities notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest) if it determines in good faith that
withholding notice is in their interest.
17. Trustee Dealings with Company. The Trustee under the Indenture,
-----------------------------
in its individual or any other capacity, may become the owner or pledgee of
Securities and may otherwise deal with the Company, its Subsidiaries or their
respective Affiliates as if it were not the Trustee.
18. No Recourse Against Others. No past, present or future
--------------------------
stockholder, director, officer, employee or incorporator, as such, of the
Company shall have any liability for any obligation of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
19. Authentication. This Security shall not be valid until the
--------------
Trustee or authenticating agent manually signs the certificate of authentication
on this Security.
20. Governing Law. THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. EACH OF THE HOLDERS
AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY.
21. Abbreviations and Defined Terms. Customary abbreviations may be
-------------------------------
used in the name of a Holder of a Security or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated by the
-------------
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities as a convenience to the Holders of
the Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
23. Indenture. Each Holder, by accepting a Security, agrees to be
---------
bound by all of the terms and provisions of this Indenture, as the same may be
amended from time to time.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
CADMUS COMMUNICATIONS CORPORATION, 6620 West Broad Street, Suite 240, Richmond,
Virginia 23230, Attention: Chief Financial Officer.
B-6
<PAGE>
FORM OF ASSIGNMENT
I or we assign to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(please print or type name, address and zip code and social security or tax ID
number of assignee)
the within Security and all rights thereunder, and hereby irrevocably
constitutes and appoints _______________________________________________________
______________________________ agent to transfer the Security on the books of
the Company with full power of substitution in the premises.
Dated:___________________ Signature:________________________________________
NOTICE: The signature on this assignment must
correspond with the name as it appears
upon the face of the within Security in
every particular without alteration or
enlargement or any change whatsoever and
be guaranteed by the endorser's bank or
broker.
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
B-7
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate
box:
Section 4.05 [_]
Section 4.14 [_]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state the
amount you elect to have purchased: $_____________
Date:_______________ Your Signature:________________________________________
(Sign exactly as your name appears on
the other side of this Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
B-8
<PAGE>
EXHIBIT C
---------
FORM OF LEGEND FOR GLOBAL NOTE
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER
NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF
OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE INDENTURE.
C-1
<PAGE>
EXHIBIT D
---------
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
_______________, ____
Cadmus Communications Corporation
c/o First Union National Bank
800 East Main Street, Lower Mezzanine
Mail Code VA 2379
Richmond, Virginia 23219
Re: CADMUS COMMUNICATIONS CORPORATION
9 3/4% Senior Subordinated Notes due 2009 (the "Securities")
------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of $__________ in aggregate
principal amount of the Securities of the Company, we confirm that:
1. We have received a copy of the Offering Memorandum (the "Offering
Memorandum"), dated May 25, 1999 relating to the Securities and such other
information as we deem necessary in order to make our investment decision. We
acknowledge that we have read and agreed to the matters stated on pages (i) and
(ii) of the Offering Memorandum and in the section entitled "Notice to Investors
" of the Offering Memorandum, including the restrictions on duplication and
circulation of the Offering Memorandum.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture
relating to the Securities (as described in the Offering Memorandum) and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act"),
and all applicable state securities laws.
3. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold except as permitted in the following sentence. We agree, on our
own behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities prior to the date that is two
years after the original issuance of the Securities, we will do so only (i) to
the Company or any of its subsidiaries, (ii) inside the United States in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act), (iii) inside the
United States to an institutional "accredited investor" (as defined below) that,
prior to such transfer, furnishes (or has furnished on its behalf by a U.S.
broker-dealer) to the Trustee (as defined in the Indenture relating to the
Securities), a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Securities (the form of which
letter can be obtained from the Trustee), (iv) outside the United States in
accordance with Rule 904 of Regulation S under the Securities Act, (v) pursuant
to the exemption from registration provided by Rule 144 under the Securities Act
(if available), or (vi) pursuant to an effective registration statement under
the Securities Act, and we further agree to provide to any person purchasing any
of the Securities from us a notice advising such purchaser that resales of the
Securities are restricted as stated herein.
D-1
<PAGE>
4. We are not acquiring the Securities for or on behalf of, and will
not transfer the Securities to, any pension or welfare plan (as defined in
Section 3 of the Employee Retirement Income Security Act of 1974), except as
permitted in the section entitled "Notice to Investors" of the Offering
Memorandum.
5. We understand that, on any proposed resale of any Securities, we
will be required to furnish to the Trustee and the Company such certification,
legal opinions and other information as the Trustee and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities purchased by us will
bear a legend to the foregoing effect.
6. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
7. We are acquiring the Securities purchased by us for our account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion and not
with a view to any distribution thereof in a transaction that would violate the
Securities Act or the securities laws of any State of the United States or any
other applicable jurisdiction.
D-2
<PAGE>
You, the Company and the Initial Purchasers (as defined in the
Offering Memorandum) are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
[Name of Transferee]
By:________________________________
Name:
Title:
D-3
<PAGE>
EXHIBIT E
---------
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
-----------------------------------
_______________, ____
Cadmus Communications Corporation
c/o First Union National Bank
800 East Main Street, Lower Mezzanine
Mail Code VA 2379
Richmond, Virginia 23219
Re: CADMUS COMMUNICATIONS CORPORATION
9 3/4% Senior Subordinated Notes due 2009 (the "Securities")
------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $____________ in aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of, a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been pre-
arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You, the Company and counsel for the Company are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceedings or
official inquiry with respect to the matters covered hereby. Terms used in this
certificate have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:___________________________
Authorized Signature
E-1
<PAGE>
EXHIBIT F
---------
GUARANTEE
---------
For value received, each Guarantor (which term includes any successor
Person under the Indenture) hereby fully and unconditionally, jointly and
severally, guarantees on a senior subordinated basis (such guarantee by each
Guarantor being referred to herein as the "Guarantee") (i) the due and punctual
payment of the principal of and interest on the Securities, whether at maturity,
by acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and interest, if any, on the Securities, to the extent lawful,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee all in accordance with the terms set forth in Article
Eleven and Twelve of the Indenture (as defined below) and (ii) in case of any
extension of time of payment or renewal of any Securities or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. This Guarantee will become effective in
accordance with Article Eleven of the Indenture and its terms shall be evidenced
therein. The validity and enforceability of any Guarantee shall not be affected
by the fact that it is not affixed to any particular Security.
The obligations of each Guarantor to the Holders and to the Trustee
pursuant to the Guarantee and the Indenture are expressly set forth, and are
expressly subordinated and subject in right of payment to the prior payment in
full in cash or Cash Equivalents of all Guarantor Senior Debt of such Guarantor,
to the extent and in the manner provided, in Article Twelve of the Indenture,
and reference is hereby made to the Indenture for the precise terms of the
Guarantee therein made.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Indenture, dated as of [ ], 1999, among
Cadmus Communications Corporation, a Virginia corporation, as issuer (the
"Company"), each of the Guarantors named therein and First Union National Bank,
N.A., as trustee (the "Trustee"), as amended or supplemented (the "Indenture").
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW. THE UNDERSIGNED GUARANTOR HEREBY AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS GUARANTEE.
This Guarantee is subject to release upon the terms set forth in the
Indenture and subordination as set forth in Article Twelve thereof.
F-1
<PAGE>
IN WITNESS WHEREOF, each of the undersigned Guarantors has caused this
Guarantee to be signed manually or by facsimile by its duly authorized officer.
CADMUS JOURNAL SERVICES, INC.
By:__________________________
Name:
Title:
WASHBURN GRAPHICS, INC.
By:__________________________
Name:
Title:
AMERICAN GRAPHICS, INC.
By:__________________________
Name:
Title:
EXPERT GRAPHICS, INC.
By:__________________________
Name:
Title:
CADMUS DIRECT MARKETING, INC.
By:__________________________
Name:
Title:
THREE SCORE, INC.
By:__________________________
Name:
Title:
F-2
<PAGE>
MACK PRINTING COMPANY
By:__________________________
Name:
Title:
PORT CITY PRESS, INC.
By:__________________________
Name:
Title:
MACK PRINTING GROUP, INC.
By:__________________________
Name:
Title:
SCIENCE CRAFTSMAN INCORPORATED
By:__________________________
Name:
Title:
F-3
<PAGE>
Exhibit 5.1
-----------
FORM OF OPINION
---------------
[LETTERHEAD OF HUNTON & WILLIAMS]
July 16, 1999
Board of Directors
Cadmus Communications Corporation
6620 West Broad Street, Suite 500
Richmond, Virginia 23230
Registration Statement on Form S-4 for Exchange of
Outstanding 9 3/4% Senior Subordinated Notes due 2009 for
Registered 9 3/4% Senior Subordinated Notes due 2009
----------------------------------------------------
Ladies and Gentlemen:
We are acting as special counsel for Cadmus Communications Corporation (the
"Company") in connection with the registration of $125.0 million aggregate
principal amount of 9 3/4% Senior Subordinated Notes due 2009 (the "Exchange
Notes"). The Exchange Notes are to be issued by the Company in exchange for an
equal amount of unregistered 9 3/4% Senior Subordinated Notes due 2009 (the "Old
Notes"), issued on June 1, 1999 in a private placement pursuant to Rule 144A
under the Securities Act of 1933. The Old Notes and Exchange Notes are
governed by an Indenture between the Company and First Union National Bank as
Trustee ("Trustee") dated June 1, 1999 (the "Indenture"). The issuance of the
Exchange Notes in exchange for the Old Notes is more fully described in the
Registration Statement on Form S-4 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") on July 16, 1999. In
connection with the filing of the Registration Statement, you have requested our
opinion concerning certain corporate matters.
In rendering the following opinions, we have relied, as to factual matters,
upon certificates of executive officers of the Company and a certificate issued
by the Virginia State Corporation Commission. We have assumed the authenticity
of all documents submitted to us as originals, the conformity to originals of
documents submitted as certified or photostatic copies and the genuineness of
signatures not witnessed by us.
We are members of the Virginia Bar and we do not purport to express an
opinion on any laws other than those of the Commonwealth of Virginia and the
United States of America.
Based upon the foregoing and the further qualifications stated below, we
are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the Commonwealth of Virginia.
<PAGE>
2. The Exchange Notes have been duly authorized by all necessary
corporate action of the Company and, when executed by the Company,
authenticated and delivered by the Trustee and issued in accordance
with the terms of the Indenture and as described in the Registration
Statement, will constitute valid and legally binding obligations of
the Company, enforceable against the Company in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general application
relating to or affecting the enforcement of creditors' rights and to
general equity principles.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the references to us included
therein. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by Section 7 of the Securities Act
of 1933 or the rules and regulations promulgated thereunder by the Commission.
Very truly yours,
<PAGE>
Exhibit 10.20
REGISTRATION RIGHTS AGREEMENT
Dated as of June 1, 1999
By and Among
CADMUS COMMUNICATIONS CORPORATION,
as Issuer
and
THE GUARANTORS named herein
and
J.P. MORGAN SECURITIES INC.
and
FIRST UNION CAPITAL MARKETS CORP.,
as Initial Purchasers
9 3/4% Senior Subordinated Notes due 2009
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions............................................... 1
2. Exchange Offer............................................ 4
3. Shelf Registration........................................ 8
4. Additional Interest....................................... 9
5. Registration Procedures................................... 10
6. Registration Expenses..................................... 18
7. Indemnification........................................... 19
8. Rules 144 and 144A........................................ 22
9. Underwritten Registrations................................ 22
10. Miscellaneous............................................. 23
(a) No Inconsistent Agreements......................... 23
(b) Adjustments Affecting Registrable Notes............ 23
(c) Amendments and Waivers............................. 23
(d) Notices............................................ 24
(e) Successors and Assigns............................. 24
(f) Counterparts....................................... 24
(g) Headings........................................... 24
(h) Governing Law; Jurisdiction........................ 24
(i) Severability....................................... 25
(j) Securities Held by the Issuers or Their Affiliates. 25
(k) Third Party Beneficiaries.......................... 25
(l) Entire Agreement................................... 25
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
(m) Additional Amounts of Securities................... 25
</TABLE>
(ii)
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
---------
June 1, 1999, by and among CADMUS COMMUNICATIONS CORPORATION, a Virginia
corporation (the "Company"), CADMUS JOURNAL SERVICES, INC., WASHBURN GRAPHICS,
-------
INC., AMERICAN GRAPHICS, INC., EXPERT GRAPHICS, INC., CADMUS DIRECT MARKETING,
INC., THREE SCORE, INC., MACK PRINTING COMPANY, PORT CITY PRESS, INC., MACK
PRINTING GROUP, INC., and SCIENCE CRAFTSMAN INCORPORATED (collectively, the
"Guarantors") and J.P. MORGAN SECURITIES INC. and FIRST UNION CAPITAL MARKETS
- -----------
CORP. (together, the "Initial Purchasers").
------------------
This Agreement is entered into in connection with the Purchase
Agreement, dated as of May 25, 1999 (the "Purchase Agreement"), by and among the
------------------
Company, the Guarantors and the Initial Purchasers, which provides for the sale
by the Company to the Initial Purchasers of an aggregate of $125, 000,000
aggregate principal amount of the Company's 9 3/4% Senior Subordinated Notes
due 2009 (the "Notes"). The Notes are being issued pursuant to the Indenture,
-----
dated as of June 1, 1999 (the "Indenture"), among the Company, Guarantors and
---------
First Union National Bank, as Trustee. The Notes are guaranteed (the
"Guarantees") by the Guarantors. The Notes and the Guarantees are collectively
- -----------
referred to herein as the "Securities".
----------
In order to induce the Initial Purchasers to enter into the Purchase
Agreement, the Company and the Guarantors have agreed to provide the
registration rights set forth in this Agreement for the benefit of the Initial
Purchasers and any subsequent holder or holders of the Securities. The
execution and delivery of this Agreement is a condition to the Initial
Purchasers' obligation to purchase the Securities under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
-----------
shall have the following meanings:
Additional Interest: See Section 4 hereof.
-------------------
Advice: See Section 5 hereof.
------
Agreement: See the introductory paragraphs hereto.
---------
Applicable Period: See Section 2 hereof.
-----------------
Business Day: Any day that is not a Saturday, Sunday or a day on
------------
which banking institutions in New York are authorized or required by law to be
closed.
Company: See the introductory paragraphs hereto.
-------
<PAGE>
Effectiveness Date: The 150th day after the Issue Date; provided,
------------------ --------
however, that with respect to any Shelf Registration, the Effectiveness Date
- -------
shall be the 60th day after the Filing Date with respect thereto.
Effectiveness Period: See Section 3 hereof.
--------------------
Event Date: See Section 4 hereof.
----------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2 hereof.
--------------
Exchange Offer: See Section 2 hereof.
--------------
Exchange Offer Registration Statement: See Section 2 hereof.
-------------------------------------
Filing Date: (A) If no Exchange Offer Registration Statement has been
-----------
filed by the Issuer pursuant to this Agreement, the 90th day after the Issue
Date; and (B) with respect to a Shelf Registration Statement, the 60th day after
the delivery of a Shelf Notice as required pursuant to Section 2(c) hereof.
Guarantees: See introductory paragraphs hereto.
----------
Guarantors: See introductory paragraphs hereto.
----------
Holder: Any holder of a Registrable Note or Registrable Notes.
------
Indemnified Person: See Section 7(c) hereof.
------------------
Indemnifying Person: See Section 7(c) hereof.
-------------------
Indenture: The Indenture, dated as of June 1, 1999, by and among the
---------
Company, the Guarantors, and First Union National Bank, as trustee, pursuant to
which the Securities are being issued, as amended or supplemented from time to
time in accordance with the terms thereof.
Initial Purchasers: See introductory paragraphs hereto.
------------------
Initial Shelf Registration: See Section 3(a) hereof.
--------------------------
Inspectors: See Section 5(n) hereof.
----------
Issue Date: June 1, 1999.
----------
NASD: See Section 5(s) hereof.
----
Notes: See the introductory paragraphs hereto.
-----
-2-
<PAGE>
Participant: See Section 7(a) hereof.
-----------
Participating Broker-Dealer: See Section 2 hereof.
---------------------------
Person: An individual, trustee, corporation, partnership, joint stock
------
company, trust, unincorporated association, union, business association, firm or
other legal entity.
Private Exchange: See Section 2 hereof.
----------------
Private Exchange Notes: See Section 2 hereof.
----------------------
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act and any term sheet filed pursuant to Rule
434 under the Securities Act), as amended or supplemented by any prospectus
supplement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs hereto.
------------------
Records: See Section 5(n) hereof.
-------
Registrable Notes: Each Security upon its original issuance and at
-----------------
all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv)
hereof is applicable upon original issuance and at all times subsequent thereto
and each Private Exchange Note (and related Guarantees) upon original issuance
thereof and at all times subsequent thereto, until in the case of any such
Security, Exchange Note or Private Exchange Note, as the case may be, the
earliest to occur of (i) a Registration Statement (other than, with respect to
any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the
applicable Exchange Offer Registration Statement) covering such Security,
Exchange Note or such Private Exchange Note has been declared effective by the
SEC and such Security, Exchange Note or such Private Exchange Note, as the case
may be, has been disposed of in accordance with such effective Registration
Statement, (ii) such Security has been exchanged for an Exchange Note or
Exchange Notes (and related Guarantees) pursuant to an Exchange Offer which may
be resold without restriction under state and federal securities laws, (iii)
such Security, Exchange Note or Private Exchange Note (and related Guarantees),
as the case may be, ceases to be outstanding for purposes of the Indenture, or
(iv) such Security, Exchange Note or Private Exchange Note (and related
Guarantees), as the case may be, may be resold without restriction pursuant to
Rule 144 (or any similar provision then in force) under the Securities Act.
Registration Statement: Any registration statement of the Company and
----------------------
the Guarantors that covers any of the Securities, the Exchange Notes (and
related Guarantees) or the Private Exchange Notes (and related Guarantees) filed
with the SEC under the Securities Act, including the Prospectus, amendments and
supplements to such registration statement, including
-3-
<PAGE>
post-effective amendments, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such
---------
Rule may be amended from time to time, or any similar rule (other than Rule 144)
or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
---
Securities: See the introductory paragraphs hereof.
----------
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2 hereof.
------------
Shelf Registration: See Section 3(b) hereof.
------------------
Subsequent Shelf Registration: See Section 3(b) hereof.
-----------------------------
TIA: The Trust Indenture Act of 1939, as amended.
---
Trustee: The trustee under the Indenture and, if existent, the
-------
trustee under any indenture governing the Exchange Notes (and the related
Guarantees) and Private Exchange Notes (and the related Guarantees) (if any).
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of the Company are sold to an underwriter for reoffering to the
public.
2. Exchange Offer. (a) The Company and the Guarantors shall file
--------------
with the SEC, no later than the Filing Date, a Registration Statement (the
"Exchange Offer Registration Statement") on an appropriate registration form
- --------------------------------------
with respect to a registered offer (the "Exchange Offer") to exchange any and
--------------
all of the Registrable Notes for a like aggregate principal amount of debt
securities of the Company (guaranteed by the Guarantors) which are identical in
all material respects to the Securities (the "Exchange Notes"), except that (i)
--------------
the Exchange Notes (and the Guarantors' Guarantees thereof) shall have been
registered pursuant to an effective Registration Statement under the Securities
Act, shall not contain provisions for Additional Interest, and shall contain no
restrictive legend thereon, (ii) interest thereon shall accrue from the last
date on which
-4-
<PAGE>
interest was paid on the Notes or, if no such interest has been paid, from the
Issue Date, and which are entitled to the benefits of the Indenture or a trust
indenture which is identical in all material respects to the Indenture (other
than such changes to the Indenture or any such identical trust indenture as are
necessary to comply with any requirements of the SEC to effect or maintain the
qualification thereof under the TIA) and which, in either case, has been
qualified under the TIA. The Exchange Offer shall comply with all applicable
tender offer rules and regulations under the Exchange Act and other applicable
law. The Company and the Guarantors shall use their respective best efforts to
(x) cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act on or before the Effectiveness Date; (y) keep the
Exchange Offer open for not less than 20 Business Days (or longer if required by
applicable law) after the date that notice of such Exchange Offer is mailed to
Holders; and (z) consummate such Exchange Offer on or prior to the 180th day
following the Issue Date. For purposes of this Section 2(a) only, if after the
Exchange Offer Registration Statement is initially declared effective by the
SEC, the Exchange Offer or the issuance of the Exchange Notes thereunder is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, the Exchange Offer
Registration Statement shall be deemed not to have become effective for purposes
of this Agreement during the period of such interference, until the Exchange
Offer may legally resume.
Each Holder who participates in the Exchange Offer will be required,
as a condition to its participation in the Exchange Offer, to represent to the
Company in writing (which may be contained in the applicable letter of
transmittal) that (i) any Exchange Notes received by it will be acquired in the
ordinary course of its business, (ii) at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
Person to participate in the distribution of the Exchange Notes in violation of
the provisions of the Securities Act, (iii) such Holder is not an affiliate of
the Company or any Guarantor within the meaning of the Securities Act, (iv) if
such Holder is not a broker-dealer, such Holder is not engaged in, and does not
intend to engage in, the distribution of Exchange Notes, (v) if such Holder is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for Securities that were acquired as a result of market-making or other trading
activities, such Holder will deliver a prospectus in connection with any resale
of such Exchange Notes and (vi) such Holder is not acting on behalf of any
Persons who could not truthfully make the foregoing representations.
Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, mutatis
-------
mutandis, solely with respect to Registrable Notes that are Private Exchange
- --------
Notes, Exchange Notes as to which Section 2(c)(iv) is applicable and Exchange
Notes held by Participating Broker-Dealers, and the Company and the Guarantors
shall have no further obligation to register Registrable Notes (other than
Private Exchange Notes and other than in respect of any Exchange Notes as to
which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof.
No securities other than the Exchange Notes shall be included in the
Exchange Offer Registration Statement.
(b) The Company and the Guarantors shall include within the Prospectus
contained in the Exchange Offer Registration Statement a section entitled "Plan
of Distribution,"
-5-
<PAGE>
reasonably acceptable to the Initial Purchasers, which shall contain a summary
statement of the positions taken or policies made by the staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer (a
"Participating Broker-Dealer"), whether such positions or policies have been
---------------------------
publicly disseminated by the staff of the SEC or such positions or policies
represent the prevailing views of the staff of the SEC. Such "Plan of
Distribution" section shall also expressly permit the use of the Prospectus by
all Persons subject to the prospectus delivery requirements of the Securities
Act, including all Participating Broker-Dealers, and include a statement
describing the means by which Participating Broker-Dealers may resell the
Exchange Notes in compliance with the Securities Act.
The Company and the Guarantors shall use their respective best efforts
to keep the Exchange Offer Registration Statement effective and to amend and
supplement the Prospectus contained therein in order to permit such prospectus
to be lawfully delivered by all Persons subject to the prospectus delivery
requirements of the Securities Act for such period of time as is necessary to
comply with applicable law in connection with any resale of the Exchange Notes
covered thereby; provided, however, that such period shall not exceed 180 days
-------- -------
after such Exchange Offer Registration Statement is declared effective (or such
longer period if extended pursuant to the last paragraph of Section 5 hereof)
(the "Applicable Period").
-----------------
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Notes acquired by them and having, or which are reasonably
likely to be determined to have, the status of an unsold allotment in an initial
distribution, the Company and the Guarantors upon the request of the Initial
Purchasers shall simultaneously with the delivery of the Exchange Notes in the
Exchange Offer, issue and deliver to the Initial Purchasers, in exchange (each,
a "Private Exchange") for such Notes held by the Initial Purchasers, a like
----------------
principal amount of debt securities of the Company (guaranteed by the
Guarantors) that are identical in all material respects to the Exchange Notes
(the "Private Exchange Notes") except for the placement of a restrictive legend
----------------------
on such Private Exchange Notes (and which are issued pursuant to the same
indenture as the Exchange Notes). If possible, the Private Exchange Notes shall
bear the same CUSIP number as the Exchange Notes.
In connection with each Exchange Offer, the Company and the Guarantors
shall:
(1) mail, or cause to be mailed, to each Holder entitled to
participate in the Exchange Offer a copy of the Prospectus forming part of
the Exchange Offer Registration Statement relating to such Exchange Offer,
together with an appropriate letter of transmittal and related documents;
(2) use their respective best efforts to keep the Exchange Offer open
for not less than 20 Business Days after the date that notice of the
Exchange Offer is mailed to Holders (or longer, if required by applicable
law);
(3) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
-6-
<PAGE>
(4) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last Business Day on which the
Exchange Offer remains open; and
(5) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer and the
Private Exchange, if any, the Company and the Guarantors shall:
(1) accept for exchange all Registrable Notes validly tendered and
not validly withdrawn pursuant to the Exchange Offer and the Private
Exchange, if any;
(2) deliver to the Trustee for cancellation all Registrable Notes so
accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may
be, equal in principal amount to the Securities of such Holder so accepted
for exchange.
The Exchange Offer and the Private Exchange shall not be subject to
any conditions, other than that (i) the Exchange Offer or Private Exchange, as
the case may be, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) no action or proceeding is
instituted or threatened in any court or by any governmental agency which might
materially impair the ability of the Company and the Guarantors to proceed with
the Exchange Offer or the Private Exchange and no material adverse development
has occurred in any existing action or proceeding with respect to the Company or
the Guarantors that would materially impair the ability of the Company and the
Guarantors to consummate the Exchange Offer or the Private Exchange and (iii)
all governmental approvals have been obtained, which approvals the Company and
the Guarantors deem necessary for the consummation of the Exchange Offer or the
Private Exchange.
The Exchange Notes and the Private Exchange Notes shall be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event has been qualified under the TIA or is
exempt from such qualification and shall provide that the Exchange Notes shall
not be subject to the transfer restrictions set forth in the Indenture. The
Indenture or such indenture shall provide that the Exchange Notes, the Private
Exchange Notes and the Securities shall vote and consent together on all matters
as one class and that none of the Exchange Notes, the Private Exchange Notes or
the Securities will have the right to vote or consent as a separate class on any
matter.
(c) If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the SEC, the Company and the Guarantors are not
permitted to effect the Exchange Offer, (ii) the Exchange Offer is not
consummated within 180 days after the Issue Date, (iii) any holder of Private
Exchange Notes so requests, or (iv) in the case of any Holder that participates
in the Exchange Offer, such Holder does not receive Exchange Notes on the date
of the
-7-
<PAGE>
exchange that may be sold without restriction under state and federal securities
laws (other than due solely to the status of such Holder as an affiliate of the
Company or any Guarantor within the meaning of the Securities Act), in the case
of each of clauses (i) to and including (iv) of this sentence, then the Company
and the Guarantors shall promptly deliver to the Holders and the Trustee written
notice thereof (the "Shelf Notice") and shall file a Shelf Registration pursuant
------------
to Section 3 hereof.
3. Shelf Registration. If at any time a Shelf Notice is delivered
------------------
as contemplated by Section 2(c) hereof, then:
(a) Shelf Registration. The Company and the Guarantors shall file
------------------
with the SEC a Registration Statement for an offering to be made on a continuous
basis pursuant to Rule 415 covering all of the Registrable Notes not exchanged
in the Exchange Offer, Private Exchange Notes and Exchange Notes to which
Section 2(c)(iv) is applicable (the "Initial Shelf Registration"). The Company
--------------------------
and the Guarantors shall use their respective best efforts to file with the SEC
the Initial Shelf Registration on or prior to the Filing Date. The Initial
Shelf Registration shall be on Form S-1 or another appropriate form permitting
registration of such Registrable Notes for resale by Holders in the manner or
manners designated by them (including, without limitation, one or more
underwritten offerings). Neither the Company nor any Guarantor shall permit any
debt securities or securities convertible into or exchangeable for debt
securities other than the Registrable Notes to be included in the Initial Shelf
Registration or any Subsequent Shelf Registration (as defined below).
The Company and the Guarantors shall use their respective best efforts
to cause each Initial Shelf Registration to be declared effective under the
Securities Act on or prior to the Effectiveness Date and to keep such Initial
Shelf Registration continuously effective under the Securities Act until the
date which is two years from the Effectiveness Date, subject to extension
pursuant to the last paragraph of Section 5 hereof (the "Effectiveness Period"),
--------------------
or such shorter period ending when (i) all Registrable Notes covered by the
Initial Shelf Registration have been sold in the manner set forth and as
contemplated in the Initial Shelf Registration or (ii) a Subsequent Shelf
Registration covering all of the Registrable Notes covered by and not sold under
the Initial Shelf Registration or an earlier Subsequent Shelf Registration has
been declared effective under the Securities Act; provided, however, that the
-------- -------
Effectiveness Period in respect of the Initial Shelf Registration shall be
extended to the extent required to permit dealers to comply with the applicable
prospectus delivery requirements of Rule 174 under the Securities Act and as
otherwise provided herein.
(b) Subsequent Shelf Registrations. If the Initial Shelf Registration
--- ------------------------------
or any Subsequent Shelf Registration ceases to be effective for any reason at
any time during the Effectiveness Period (other than because of the sale of all
of the securities registered thereunder), the Company and the Guarantors shall
use their respective reasonable best efforts to obtain the prompt withdrawal of
any order suspending the effectiveness thereof, and in any event shall within 45
days of such cessation of effectiveness amend the Initial Shelf Registration in
a manner to obtain the withdrawal of the order suspending the effectiveness
thereof, or file an additional "shelf" Registration Statement pursuant to Rule
415 covering all of the Registrable Notes covered by and not sold under the
Initial Shelf Registration or an earlier Subsequent Shelf
-8-
<PAGE>
Registration (each, a "Subsequent Shelf Registration"). If a Subsequent Shelf
-----------------------------
Registration is filed, the Company and the Guarantors shall use their respective
best efforts to cause the Subsequent Shelf Registration to be declared effective
under the Securities Act as soon as practicable after such filing and to keep
such Registration Statement continuously effective for a period equal to the
number of days in the Effectiveness Period less the aggregate number of days
during which the Initial Shelf Registration or any Subsequent Shelf Registration
was previously continuously effective. As used herein the term "Shelf
-----
Registration" means the Initial Shelf Registration and any Subsequent Shelf
- ------------
Registration.
(c) Supplements and Amendments. The Company and the Guarantors shall
--------------------------
promptly supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement or by any underwriter
of such Registrable Notes.
4. Additional Interest. (a) The Company, the Guarantors and the
-------------------
Initial Purchasers agree that the Holders will suffer damages if the Company and
the Guarantors fail to fulfill their obligations under Section 2 or Section 3
hereof and that it would not be feasible to ascertain the extent of such damages
with precision. Accordingly, the Company and the Guarantors agree to pay, as
liquidated damages, additional interest on the Notes ("Additional Interest")
-------------------
under the circumstances and to the extent set forth below (each of which shall
be given independent effect):
(i) if (A) neither the Exchange Offer Registration Statement nor the
Initial Shelf Registration has been filed with the SEC within 90 days after
the Issue Date or (B) notwithstanding that the Company and the Guarantors
have consummated or will consummate an Exchange Offer, the Company and the
Guarantors are required to file a Shelf Registration and such Shelf
Registration is not filed on or prior to the Filing Date applicable
thereto, then, commencing on the day after any such Filing Date, Additional
Interest shall accrue on the principal amount of the Notes at a rate of
.50% per annum for the first 90 days immediately following each such Filing
Date, such Additional Interest rate increasing by an additional .50% per
annum at the beginning of each subsequent 90-day period;
(ii) if (A) neither the Exchange Offer Registration Statement nor the
Initial Shelf Registration is declared effective by the SEC on or prior to
the relevant Effectiveness Date or (B) notwithstanding that the Company and
the Guarantors have consummated or will consummate the Exchange Offer, the
Company and the Guarantors are required to file a Shelf Registration and
such Shelf Registration is not declared effective by the SEC on or prior to
the Effectiveness Date in respect of such Shelf Registration, then,
commencing on the day after such Effectiveness Date, Additional Interest
shall accrue on the principal amount of the Notes at a rate of .50% per
annum for the first 90 days immediately following the day after such
Effectiveness Date, such Additional Interest rate increasing by an
additional .50% per annum at the beginning of each subsequent 90-day
period; and
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<PAGE>
(iii) if (A) the Company and the Guarantors have not exchanged
Exchange Notes for all Notes validly tendered in accordance with the terms
of the Exchange Offer on or prior to the 180th day after the Issue Date or
(B) if applicable, a Shelf Registration has been declared effective and
such Shelf Registration ceases to be effective at any time during the
Effectiveness Period (other than after such time as all Notes have been
disposed of thereunder), then Additional Interest shall accrue on the
principal amount of the Notes at a rate of .50% per annum for the first 90
days commencing on the (x) 181st day after the Issue Date, in the case of
(A) above, or (y) the day such Shelf Registration ceases to be effective in
the case of (B) above, such Additional Interest rate increasing by an
additional .50% per annum at the beginning of each such subsequent 90-day
period;
provided, however, that Additional Interest on the Notes may not accrue under
- -------- -------
more than one of the foregoing clauses (i), (ii) or (iii) at any one time and at
no time shall the aggregate amount of Additional Interest accruing exceed in the
aggregate 1.0% per annum; provided, further, however, that (1) upon the filing
-------- ------- -------
of the Exchange Offer Registration Statement or a Shelf Registration as required
hereunder (in the case of clause (a)(i) of this Section 4), (2) upon the
effectiveness of the Exchange Offer Registration Statement or a Shelf
Registration as required hereunder (in the case of clause (a)(ii) of this
Section 4), or (3) upon the exchange of Exchange Notes for all Notes tendered
(in the case of clause (a)(iii)(A) of this Section 4), or upon the
effectiveness of a Shelf Registration which had ceased to remain effective (in
the case of (a)(iii)(B) of this Section 4), Additional Interest on the Notes as
a result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue. It is understood and agreed that, notwithstanding any
provision to the contrary, so long as any Registrable Note is then covered by an
effective Shelf Registration Statement, no Additional Interest shall accrue on
such Registrable Security.
(b) The Company and the Guarantors shall notify the Trustee within two
business days after each and every date on which an event occurs in respect of
which Additional Interest is required to be paid (an "Event Date"). Any amounts
----------
of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this
Section 4 will be payable in cash semi-annually on each June 1 and December 1
(to the holders of record on the May 15 and November 15 immediately preceding
such dates), commencing with the first such date occurring after any such
Additional Interest commences to accrue. The amount of Additional Interest will
be determined by multiplying the applicable Additional Interest rate by the
principal amount of the Registrable Notes, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed), and the denominator of which is 360.
5. Registration Procedures. In connection with the filing of any
-----------------------
Registration Statement pursuant to Sections 2 or 3 hereof, the Company and the
Guarantors shall effect such registrations to permit the sale of the securities
covered thereby in accordance with the intended method or methods of disposition
thereof, and pursuant thereto and in connection with any Registration Statement
filed by the Company and the Guarantors hereunder the Company and the Guarantors
shall:
-10-
<PAGE>
(a) Prepare and file with the SEC prior to the applicable Filing Date,
a Registration Statement or Registration Statements as prescribed by Sections 2
or 3 hereof, and use their respective best efforts to cause each such
Registration Statement to become effective and remain effective as provided
herein; provided, however, that, if (1) such filing is pursuant to Section 3
-------- -------
hereof, or (2) a Prospectus contained in the Exchange Offer Registration
Statement filed pursuant to Section 2 hereof is required to be delivered under
the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period relating thereto, before filing any
Registration Statement or Prospectus or any amendments or supplements thereto,
the Company and the Guarantors shall furnish to and afford the Holders of the
Registrable Notes covered by such Registration Statement or each such
Participating Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by reference
therein and all exhibits thereto) proposed to be filed (in each case at least
five business days prior to such filing, or such later date as is reasonable
under the circumstances). Neither the Company nor any Guarantor shall file any
Registration Statement or Prospectus or any amendments or supplements thereto if
the Holders of a majority in aggregate principal amount of the Registrable Notes
covered by such Registration Statement, or any such Participating Broker-Dealer,
as the case may be, their counsel, or the managing underwriters, if any, shall
reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Offer Registration Statement,
as the case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period, as
the case may be; cause the related Prospectus to be supplemented by any
Prospectus supplement required by applicable law, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) promulgated
under the Securities Act; and comply with the provisions of the Securities Act
and the Exchange Act applicable to each of them with respect to the disposition
of all securities covered by such Registration Statement as so amended or
described in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus. The Company and the Guarantors shall be deemed
not to have used their respective best efforts to keep a Registration Statement
effective during the Effectiveness Period or the Applicable Period, as the case
may be, relating thereto if the Company or any Guarantor, as the case may be,
voluntarily takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking to
sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period unless (i) such action is required by
applicable law or (ii) such action is taken by each of them in good faith and
for valid business reasons (not including avoidance of any of its obligations
hereunder), including the acquisition or divestiture of assets.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period relating thereto from whom the Company has received
written notice that it will be a Participating Broker-Dealer in the Exchange
Offer, notify the selling Holders of Registrable Notes, or each such
Participating
-11-
<PAGE>
Broker-Dealer, as the case may be, their counsel and the managing underwriters,
if any, promptly (but in any event within two Business Days), and confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective
under the Securities Act (including in such notice a written statement that any
Holder may, upon request, obtain, at the sole expense of the Company and the
Guarantors, one conformed copy of such Registration Statement or post-effective
amendment including financial statements and schedules, documents incorporated
or deemed to be incorporated by reference and exhibits), (ii) of the issuance by
the SEC of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus or the initiation of any proceedings for that purpose, (iii) if, at
any time when a prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Notes or resales of Exchange Notes by
Participating Broker-Dealers, the representations and warranties of the Company
and the Guarantors contained in any agreement (including any underwriting
agreement) contemplated by Section 5(m) hereof cease to be true and correct in
all material respects, (iv) of the receipt by the Company or any Guarantor of
any notification with respect to the suspension of the qualification or
exemption from qualification of a Registration Statement or any of the
Registrable Notes or the Exchange Notes to be sold by any Participating Broker-
Dealer for offer or sale in any jurisdiction, or the initiation or threatening
of any proceeding for such purpose, (v) of the happening of any event, the
existence of any condition or any information becoming known that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in or
amendments or supplements to such Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (vi) of the
determination by the Company and the Guarantors that a post-effective amendment
to a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, use their respective reasonable best efforts to prevent
the issuance of any order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of a Prospectus or
suspending the qualification (or exemption from qualification) of any of the
Registrable Notes or the Exchange Notes to be sold by any Participating Broker-
Dealer, for sale in any jurisdiction, and, if any such order is issued, to use
their respective reasonable best efforts to obtain the withdrawal of any such
order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or underwriters (if any), the Holders of a
majority in aggregate
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<PAGE>
principal amount of the Registrable Notes being sold in connection with an
underwritten offering or any Participating Broker-Dealer, (i) promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters (if any), such Holders,
any Participating Broker-Dealer or counsel for any of them reasonably determine
is necessary to be included therein, (ii) make all required filings of such
prospectus supplement or such post-effective amendment as soon as practicable
after the Company has received notification of the matters to be incorporated in
such prospectus supplement or post-effective amendment, and (iii) supplement or
make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, furnish to each selling Holder of Registrable Notes and
to each such Participating Broker-Dealer who so requests and to counsel and each
managing underwriter, if any, at the sole expense of the Company and the
Guarantors, one conformed copy of the Registration Statement or Registration
Statements and each post-effective amendment thereto, including financial
statements and schedules, and, if requested, all documents incorporated or
deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, deliver to each selling Holder of Registrable Notes, or
each such Participating Broker-Dealer, as the case may be, their respective
counsel, and the underwriters, if any, at the sole expense of the Company, as
many copies of the Prospectus or Prospectuses (including each form of
preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, the Company and
the Guarantors hereby consent to the use of such Prospectus and each amendment
or supplement thereto by each of the selling Holders of Registrable Notes or
each such Participating Broker-Dealer, as the case may be, and the underwriters
or agents, if any, and dealers (if any), in connection with the offering and
sale of the Registrable Notes covered by, or the sale by Participating Broker-
Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery
of a Prospectus contained in the Exchange Offer Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, to use their respective reasonable best efforts to register
or qualify, and to cooperate with the selling Holders of Registrable Notes or
each such Participating Broker-Dealer, as the case may be, the managing
underwriter or underwriters, if any, and their respective counsel in connection
with the registration or qualification (or exemption from such registration or
qualification) of such Registrable Notes for offer and sale under the securities
or Blue Sky laws of such jurisdictions within the United States as any selling
Holder, Participating Broker-Dealer, or the managing
-13-
<PAGE>
underwriter or underwriters reasonably request; provided, however, that where
-------- -------
Exchange Notes held by Participating Broker-Dealers or Registrable Notes are
offered other than through an underwritten offering, the Company and the
Guarantors agree to cause their counsel to perform Blue Sky investigations and
file registrations and qualifications required to be filed pursuant to this
Section 5(h), keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is required
to be kept effective and do any and all other acts or things reasonably
necessary or advisable to enable the disposition in such jurisdictions of the
Exchange Notes held by Participating Broker-Dealers or the Registrable Notes
covered by the applicable Registration Statement; provided, further, that
-------- -------
neither the Company nor any Guarantor shall be required to (A) qualify generally
to do business in any jurisdiction where it is not then so qualified, (B) take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to taxation
in excess of a nominal dollar amount in any such jurisdiction where it is not
then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
reasonably cooperate with the selling Holders of Registrable Notes and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes to be
sold, which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable such
Registrable Notes to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or Holders may request.
(j) Use their respective reasonable best efforts to cause the
Registrable Notes covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be reasonably
necessary to enable the seller or sellers thereof or the underwriter or
underwriters, if any, to consummate the disposition of such Registrable Notes,
except as may be required solely as a consequence of the nature of such selling
Holder's business, in which case the Company and the Guarantors will cooperate
in all reasonable respects with the filing of such Registration Statement and
the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, upon the occurrence of any event contemplated by
paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and
(subject to Section 5(a) hereof) file with the SEC, at the sole expense of the
Company, a supplement or post-effective amendment to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes being
sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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<PAGE>
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with certificates for
the Registrable Notes in a form eligible for deposit with The Depository Trust
Company and (ii) provide a CUSIP number for the Registrable Notes.
(m) In connection with any underwritten offering of Registrable Notes
pursuant to a Shelf Registration, enter into an underwriting agreement as is
customary in underwritten offerings of debt securities similar to the Securities
and take all such other actions as are reasonably requested by the managing
underwriter or underwriters in order to expedite or facilitate the registration
or the disposition of such Registrable Notes and, in such connection, (i) make
such representations and warranties to, and covenants with, the underwriters
with respect to the business of the Company, the Guarantors and their respective
subsidiaries (including any acquired business, properties or entity, if
applicable) and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case, as
are customarily made by issuers to underwriters in underwritten offerings of
debt securities similar to the Securities, and confirm the same in writing if
and when requested; (ii) obtain the written opinions of counsel to the Company
and the Guarantors and written updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters, addressed
to the underwriters covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by the managing underwriter or underwriters; (iii) obtain "cold
comfort" letters and updates thereof in form, scope and substance reasonably
satisfactory to the managing underwriter or underwriters from the independent
certified public accountants of the Company and the Guarantors (and, if
necessary, any other independent certified public accountants of any subsidiary
of the Company or any Guarantor or of any business acquired by the Company or
any Guarantor for which financial statements and financial data are, or are
required to be, included or incorporated by reference in the Registration
Statement), addressed to each of the underwriters, such letters to be in
customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings and such other
matters as reasonably requested by the managing underwriter or underwriters as
permitted by the Statement on Auditing Standards No. 72; and (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth in Section 7
hereof (or such other provisions and procedures acceptable to Holders of a
majority in aggregate principal amount of Registrable Notes covered by such
Registration Statement and the managing underwriter or underwriters or agents)
with respect to all parties to be indemnified pursuant to said Section. The
above shall be done as and to the extent required by such underwriting
agreement.
(n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in the Exchange Offer Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, make available for inspection by any selling Holder of
such Registrable Notes being sold, or each such Participating Broker-Dealer, as
the case may be, any underwriter participating in any such disposition of
Registrable Notes, if any, and any attorney, accountant or other agent retained
by any such selling Holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the
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<PAGE>
"Inspectors"), at the offices where normally kept, during reasonable business
----------
hours, all financial and other records, pertinent corporate documents and
instruments of the Company, the Guarantors and their respective subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise any applicable due diligence responsibilities, and cause the officers,
directors and employees of the Company, the Guarantors and their respective
subsidiaries to supply all information reasonably requested by any such
Inspector in connection with such Registration Statement or Prospectus. Records
which the Company determines, in good faith, to be confidential and any Records
which the Company notifies the Inspectors in writing are confidential shall not
be disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary or advisable to avoid or correct a misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court of competent jurisdiction, (iii)
disclosure of such information is necessary or advisable in connection with any
action, claim, suit or proceeding, directly or indirectly, involving or
potentially involving such Inspector and arising out of, based upon, relating
to, or involving this Agreement or the Purchase Agreement, or any transactions
contemplated hereby or thereby or arising hereunder or thereunder; provided,
--------
however, that prior notice shall be provided as soon as practicable to the
- -------
Company of the potential disclosure of any information by such Inspector
pursuant to clauses (ii) or (iii) of this sentence to permit the Company and the
Guarantors to obtain a protective order (or waive the provisions of this
paragraph (n)) and that such Inspector shall take such actions as are reasonably
necessary to protect the confidentiality of such information (if practicable) to
the extent such action is otherwise not inconsistent with, an impairment of or
in derogation of the rights and interests of the Holder or any Inspector, or
(iv) the information in such Records has been made generally available to the
public other than as a result of a breach of this Agreement.
(o) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the first
Registration Statement relating to the Registrable Notes; and in connection
therewith, reasonably cooperate with the trustee under any such indenture and
the Holders of the Registrable Notes, to effect such changes to such indenture
as may be required for such indenture to be so qualified in accordance with the
terms of the TIA; and execute, and use their respective reasonable best efforts
to cause such trustee to execute, all documents as may be required to effect
such changes, and all other forms and documents required to be filed with the
SEC to enable such indenture to be so qualified in a timely manner.
(p) Comply in all material respects with all applicable rules and
regulations of the SEC and make generally available to their respective
securityholders earnings statements satisfying the provisions of Section 11(a)
of the Securities Act and Rule 158 thereunder (or any similar rule promulgated
under the Securities Act) no later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Notes are sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such an offering,
commencing on the first day of the first fiscal quarter of the Company after the
effective date of a Registration Statement, which statements shall cover said
12-month periods.
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<PAGE>
(q) Upon consummation of the Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company and the Guarantors, in a form
customary for underwritten transactions, addressed to the Trustee for the
benefit of all Holders of Registrable Notes participating in the Exchange Offer
or the Private Exchange, as the case may be, that the Exchange Notes or Private
Exchange Notes, as the case may be, and the related indenture constitute legal,
valid and binding obligations of the Company (and the Guarantors, in the case of
the guarantees thereof) enforceable against the Company (and the Guarantors, in
the case of the guarantees thereof) in accordance with their terms, subject to
customary exceptions and qualifications.
(r) If the Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Company (or to such
other Person as directed by the Company) in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be, the Company shall mark, or cause
to be marked, on such Registrable Notes that such Registrable Notes are being
cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as
the case may be; in no event shall such Registrable Notes be marked as paid or
otherwise satisfied.
(s) Reasonably cooperate with each seller of Registrable Notes covered
by any Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in connection
with any filings required to be made with the National Association of Securities
Dealers, Inc. (the "NASD").
----
(t) Use their respective reasonable best efforts to take all other
steps necessary or advisable to effect the registration of the Exchange Notes
and/or Registrable Notes covered by a Registration Statement contemplated
hereby.
The Company and the Guarantors may require each seller of Registrable
Notes as to which any registration is being effected to furnish to the Company
such information regarding such seller and the distribution of such Registrable
Notes as the Company may, from time to time, reasonably request. The Company
may exclude from such registration the Registrable Notes of any seller if such
seller fails to furnish such information within 20 Business Days after receiving
such request. Each seller as to which any registration is being effected agrees
to furnish promptly to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such seller
not materially misleading.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company or any Guarantor, then
such Holder shall have the right to require (i) the insertion therein of
language, in form and substance reasonably satisfactory to such Holder, to the
effect that the holding by such Holder of such securities is not to be construed
as a recommendation by such Holder of the investment quality of the securities
covered thereby and that such holding does not imply that such Holder will
assist in meeting any future financial requirements of the Company or such
Guarantor, or (ii) in the event that such reference to such Holder by name or
otherwise is not required by the Securities Act or any similar federal statute
then in force, the deletion of the reference to such Holder in any amendment or
supple-
-17-
<PAGE>
ment to the Registration Statement filed or prepared subsequent to the time that
such reference ceases to be required.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, that, upon actual receipt
of any notice from the Company of the happening of any event of the kind
described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such
Holder will forthwith discontinue disposition of such Registrable Notes covered
by such Registration Statement or Prospectus or Exchange Notes to be sold by
such Holder or Participating Broker-Dealer, as the case may be, until such
Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "Advice") by the Company that the use of the
------
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event that the Company shall give any such
notice, the Applicable Period shall be extended by the number of days during
such periods from and including the date of the giving of such notice to and
including the date when each seller of Registrable Notes covered by such
Registration Statement or Exchange Notes to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y)
the Advice.
6. Registration Expenses. All fees and expenses incident to the
---------------------
performance of or compliance with this Agreement by the Company and the
Guarantors shall be borne by the Company and the Guarantors, whether or not any
Exchange Offer or any Shelf Registration is filed or becomes effective or the
Exchange Offer is consummated, including, without limitation, (i) all
registration and filing fees (including, without limitation, (A) fees with
respect to filings required to be made with the NASD in connection with an
underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Notes or Exchange Notes and determination of the eligibility of the
Registrable Notes or Exchange Notes for investment under the laws of such
jurisdictions (x) where the holders of Registrable Notes are located, in the
case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the
case of Registrable Notes or Exchange Notes to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) printing expenses, including,
without limitation, expenses of printing certificates for Registrable Notes or
Exchange Notes in a form eligible for deposit with The Depository Trust Company
and of printing prospectuses if the printing of prospectuses is requested by the
managing underwriter or underwriters, if any, or by the Holders of a majority in
aggregate principal amount of the Registrable Notes included in any Registration
Statement or in respect of Registrable Notes or Exchange Notes to be sold by any
Participating Broker-Dealer during the Applicable Period, as the case may be,
(iii) messenger, telephone and delivery expenses of the Company and the
Guarantors, (iv) fees and disbursements of counsel for the Company and the
Guarantors and reasonable fees and disbursements of one special counsel for all
of the sellers of Registrable Notes (exclusive of any counsel retained pursuant
to Section 7 hereof), (v) fees and disbursements of all independent certified
public accountants referred to in Section 5(m)(iii) hereof (including, without
limitation, the expenses of any special audit and "cold comfort" letters
required by or incident to such performance), (vi) Securities Act liability
insurance, if the Company and the Guarantors desire such insurance,
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<PAGE>
(vii) fees and expenses of all other Persons retained by the Company and the
Guarantors, (viii) internal expenses of the Company and the Guarantors
(including, without limitation, all salaries and expenses of officers and
employees of the Company and the Guarantors performing legal or accounting
duties), (ix) the expense of any annual audit, (x) the fees and expenses
incurred by the Company and the Guarantors in connection with the listing of the
securities to be registered on any securities exchange, and the obtaining of a
rating of these securities, in each case, if applicable, and (xi) the expenses
relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, indentures and any other documents
necessary in order to comply with this Agreement.
7. Indemnification. (a) The Company and each Guarantor, jointly
---------------
and severally, agree to indemnify and hold harmless each Holder of Registrable
Notes and each Participating Broker-Dealer selling Exchange Notes during the
Applicable Period, the officers and directors of each such Person, and each
Person, if any, who controls any such Person within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a
"Participant"), from and against any and all losses, claims, damages and
- ------------
liabilities (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any claim asserted) caused by, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) or Prospectus (as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto) or
any preliminary prospectus, or caused by, arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the case of the
Prospectus, in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Participant furnished to the Company or any Guarantor in writing by such
Participant expressly for use therein; provided, however, that neither the
-------- -------
Company nor any Guarantor will be liable if such untrue statement or omission or
alleged untrue statement or omission was contained or made in any preliminary
prospectus and corrected in the Prospectus or any amendment or supplement
thereto and the Prospectus does not contain any other untrue statement or
omission or alleged untrue statement or omission of a material fact that was the
subject matter of the related proceeding and any such loss, liability, claim,
damage or expense suffered or incurred by the Participants resulted from any
action, claim or suit by any Person who purchased Registrable Notes or Exchange
Notes which are the subject thereof from such Participant and it is established
in the related proceeding that such Participant failed to deliver or provide a
copy of the Prospectus (as amended or supplemented) to such Person with or prior
to the confirmation of the sale of such Registrable Notes or Exchange Notes sold
to such Person if required by applicable law, unless such failure to deliver or
provide a copy of the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company or any Guarantor with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless each of the Company and Guarantors, their respective
directors, their respective officers who sign the Registration Statement and
each Person who controls the Company and the Guarantors within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act
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<PAGE>
to the same extent (but on a several, and not joint, basis) as the foregoing
indemnity from the Company and the Guarantors to each Participant, but only with
reference to information relating to such Participant furnished to the Company
and any Guarantor in writing by such Participant expressly for use in any
Registration Statement or Prospectus, any amendment or supplement thereto, or
any preliminary prospectus. The liability of any Participant under this
paragraph shall in no event exceed the proceeds received by such Participant
from sales of Registrable Notes or Exchange Notes giving rise to such
obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
------------------
notify the Persons against whom such indemnity may be sought (the "Indemnifying
------------
Persons") in writing, and the Indemnifying Persons, upon request of the
- -------
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
-------- -------
Indemnifying Persons shall not relieve any of them of any obligation or
liability which any of them may have hereunder or otherwise (unless and only to
the extent that such failure directly results in the loss or compromise of any
material rights or defenses). In any such proceeding, any Indemnified Person
shall have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Person unless (i) the
Indemnifying Persons and the Indemnified Person shall have mutually agreed in
writing to the contrary, (ii) the Indemnifying Persons shall have failed within
a reasonable period of time to retain counsel reasonably satisfactory to the
Indemnified Person or (iii) the named parties in any such proceeding (including
any impleaded parties) include both any Indemnifying Person and the Indemnified
Person or any affiliate and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. It is understood that, unless there exists a conflict among Indemnified
Persons, the Indemnifying Persons shall not, in connection with any one such
proceeding or separate but substantially similar related proceeding in the same
jurisdiction arising out of the same general allegations, be liable for the fees
and expenses of more than one separate firm (in addition to any local counsel)
for all Indemnified Persons, and that all such fees and expenses shall be
reimbursed promptly as they are incurred. Any such separate firm for the
Participants and such control Persons of Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable Notes and
Exchange Notes sold by all such Participants and reasonably acceptable to the
Company and the Guarantors and any such separate firm for the Company and the
Guarantors, their respective directors, their respective officers and such
control Persons of the Company and the Guarantors shall be designated in writing
by the Company and the Guarantors and reasonably acceptable to the Holders.
The Indemnifying Persons shall not be liable for any settlement of any
proceeding effected without its prior written consent (which consent shall not
be unreasonably withheld or delayed), but if settled with such consent or if
there be a final judgment for the plaintiff for which the Indemnified Person is
entitled to indemnification pursuant to this Agreement, each of the Indemnifying
Persons agrees to indemnify and hold harmless each Indemnified Person from
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<PAGE>
and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified Person
shall have requested in writing to the chief legal officer or, if no chief legal
officer exists, to the chief executive officer of an Indemnifying Person to
reimburse the Indemnified Person for reasonable fees and expenses actually
incurred by counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 60 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) a second such written request shall have been sent to
and received by the chief legal officer or, if no chief legal officer exists, to
the chief executive officer of the Indemnifying Person at least 30 days after
the first such request but at least 15 days prior to the date of such
settlement, and (iii) with respect to such request, such Indemnifying Person
shall not have reimbursed the Indemnified Person for all reasonable fees and
expenses actually incurred by such counsel, as contemplated by the third
sentence of this paragraph, in accordance with such request prior to the date of
such settlement, provided, however, that the Indemnifying Person shall not be
-------- -------
liable for any settlement effected without its consent pursuant to this sentence
if the Indemnifying Person is contesting, in good faith, the request for
reimbursement. No Indemnifying Person shall, without the prior written consent
of the Indemnified Persons (which consent shall not be unreasonably withheld),
effect any settlement or compromise of any pending or threatened proceeding in
respect of which any Indemnified Person is or could have been a party, or
indemnity could have been sought hereunder by such Indemnified Person, unless
such settlement includes an unconditional written release of such Indemnified
Person, in form and substance reasonably satisfactory to such Indemnified
Person, from all liability on claims that are the subject matter of such
proceeding.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or insufficient
to hold harmless, an Indemnified Person in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Person under
such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Person or Persons on the one hand and
the Indemnified Person or Persons on the other in connection with the statements
or omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and the
Guarantors on the one hand or such Participant or such other Indemnified Person,
as the case may be, on the other, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
--- ----
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The
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<PAGE>
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, pursuant to a Registration Statement,
exceeds the amount of any damages that such Participant has otherwise been
required to pay or has paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for which an
Indemnified Person is entitled to indemnification or contribution under this
Section 7 shall be paid by the Indemnifying Persons to the Indemnified Person as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company and the Guarantors set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Holder or any person who
controls a Holder, the Company or any Guarantor, their respective directors or
officers or any person controlling the Company or any Guarantor, and (ii) any
termination of this Agreement.
(g) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A. The Company covenants that it will use its
------------------
reasonable best efforts to file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
SEC thereunder in a timely manner in accordance with the requirements of the
Securities Act and the Exchange Act and, for so long as any Registrable Notes
remain outstanding, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder or beneficial owner of
Registrable Notes, make available such information necessary to permit sales
pursuant to Rule 144A under the Securities Act. The Company further covenants
that, for so long as any Registrable Notes remain outstanding, it will use its
reasonable best efforts to take such further action as any Holder of Registrable
Notes may reasonably request, all to the extent required from time to time to
enable such holder to sell Registrable Notes without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule
144(k) and Rule 144A under the Securities Act, as such Rules may be amended from
time to time, or (b) any similar rule or regulation hereafter adopted by the
SEC. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed
to require the Company to register any of its securities pursuant to the
Exchange Act.
9. Underwritten Registrations. If any of the Registrable Notes
--------------------------
covered by any Shelf Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the
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<PAGE>
Holders of a majority in aggregate principal amount of such Registrable Notes
included in such offering and reasonably acceptable to the Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous. (a) No Inconsistent Agreements. Neither the
------------- --------------------------
Company nor any Guarantor has, as of the date hereof, and neither the Company
nor any Guarantor shall, after the date of this Agreement, enter into any
agreement with respect to any of its securities that is inconsistent with the
rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's or any Guarantor's other
issued and outstanding securities under any such agreements. Neither the Company
nor any Guarantor will enter into any agreement with respect to any of its
securities which will grant to any Person piggy-back registration rights with
respect to any Registration Statement.
(b) Adjustments Affecting Registrable Notes. Neither the Company nor
---------------------------------------
any Guarantor shall, directly or Notes indirectly, take any action with respect
to the Registrable Notes as a class that would adversely affect the ability of
the Holders of Registrable Notes to include such Registrable Notes in a
registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of (I) the Company and the Guarantors and (II)(A) the Holders of not
less than a majority in aggregate principal amount of the then outstanding
Registrable Notes and (B) in circumstances that would adversely affect the
Participating Broker-Dealers, the Participating Broker-Dealers holding not less
than a majority in aggregate principal amount of the Exchange Notes held by all
Participating Broker-Dealers; provided, however, that Section 7 and this Section
-------- -------
10(c) may not be amended, modified or supplemented without the prior written
consent of each Holder and each Participating Broker-Dealer (including any
person who was a Holder or Participating Broker-Dealer of Registrable Notes or
Exchange Notes, as the case may be, disposed of pursuant to any Registration
Statement) affected by any such amendment, modification or supplement.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders of Registrable Notes whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect, impair,
limit or compromise the rights of other Holders of Registrable Notes may be
given by Holders of at least a majority in aggregate principal amount of the
Registrable Notes being sold by such Holders pursuant to such Registration
Statement.
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<PAGE>
(d) Notices. All notices and other communications (including without
-------
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, next-day air courier or facsimile:
(i) if to a Holder of Registrable Notes or any Participating Broker-
Dealer, at the most current address of such Holder or Participating Broker-
Dealer, as the case may be, set forth on the records of the registrar under the
Indenture.
(ii) if to the Company or any Guarantor at the address as follows:
Cadmus Communications Corporation
6020 West Broad Street
Richmond, Virginia 23230
Attention: Bruce V. Thomas
Chief Financial Officer
Telephone: (804) 287-5690
Facsimile: (804) 287-5683
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five Business Days
after being deposited in the mail, postage prepaid, if mailed; one Business Day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the parties
hereto, the Holders and the Participating Broker-Dealers; provided, however,
-------- -------
that this Agreement shall not inure to the benefit of or be binding upon a
successor or assign of a Holder unless and to the extent such successor or
assign holds Registrable Notes.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law; Jurisdiction. THIS AGREEMENT SHALL BE GOVERNED BY
---------------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO
-24-
<PAGE>
SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties hereto that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Securities Held by the Company or Its Affiliates. Whenever the
------------------------------------------------
consent or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by the Company, the Guarantors or any
of their affiliates (as such term is defined in Rule 405 under the Securities
Act) shall not be counted in determining whether such consent or approval was
given by the Holders of such required percentage.
(k) Third Party Beneficiaries. Holders of Registrable Notes and
-------------------------
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement and the Indenture, is intended by the parties as a final and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein and any and all prior oral or
written agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Holders on the one hand
and the Company and the Guarantors on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
(m) Additional Amounts of Securities. The Securities are limited in
--------------------------------
aggregate principal amount to $200,000,000, of which $125,000,000 will be issued
on the date hereof. Additional amounts of Securities may be issued in one or
more series from time to time under the Indenture (collectively "Additional
----------
Notes") prior to the filing of any Registration Statement. The Company and the
- -----
Guarantors shall provide the registration rights set forth under this Agreement
to the Initial Purchasers and any subsequent holder or holders of such
Additional Notes and notwithstanding anything contained herein may but are not
obligated to include such Additional Notes in any Registration Statement filed
hereunder.
-25-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CADMUS COMMUNICATIONS CORPORATION
By: /s/ C. Stephenson Gillispie, Jr.
------------------------------------------------
Name: C. Stephenson Gillispie, Jr.
Title: Chairman of the Board, President and
Chief Executive Officer
GUARANTORS
CADMUS JOURNAL SERVICES, INC.
By: /s/ David E. Bosher
------------------------------------------------
Name: David E. Bosher
Title: Vice President
WASHBURN GRAPHICS, INC.
By: /s/ David E. Bosher
------------------------------------------------
Name: David E. Bosher
Title: Vice President
AMERICAN GRAPHICS, INC.
By: /s/ David E. Bosher
------------------------------------------------
Name: David E. Bosher
Title: Vice President
EXPERT GRAPHICS, INC.
By: /s/ David E. Bosher
------------------------------------------------
Name: David E. Bosher
Title: Vice President
<PAGE>
CADMUS DIRECT MARKETING, INC.
By: /s/ David E. Bosher
------------------------------------------------
Name: David E. Bosher
Title: Vice President
THREE SCORE, INC.
By: /s/ David E. Bosher
------------------------------------------------
Name: David E. Bosher
Title: Vice President
MACK PRINTING COMPANY
By: /s/ David E. Bosher
------------------------------------------------
Name: David E. Bosher
Title: Vice President
PORT CITY PRESS, INC.
By: /s/ David E. Bosher
------------------------------------------------
Name: David E. Bosher
Title: Vice President
MACK PRINTING GROUP, INC.
By: /s/ David E. Bosher
------------------------------------------------
Name: David E. Bosher
Title: Vice President
SCIENCE CRAFTSMAN INCORPORATED
By: /s/ David E. Bosher
------------------------------------------------
Name: David E. Bosher
Title: Vice President
<PAGE>
INITIAL PURCHASERS
J.P.MORGAN SECURITIES INC.
FIRST UNION CAPITAL MARKETS CORP.
By: J.P. Morgan Securities Inc.
By: /s/ Steven Tulip
------------------------------------------------
Name: Steven Tulip
Title: Vice President
<PAGE>
Exhibit 11.1
------------
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
June 30, 1996 June 30, 1997 June 30, 1998
------------- ------------- -------------
Per Share Per Share Per Share
--------- --------- ---------
Net Income Shares Amount Net Income Shares Amount Net Income Shares Amount
---------- ------ ------ ---------- ------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS $5,796 7,249 $ 0.80 $(5,217) 7,900 $(0.66) $9,090 7,860 $1.16
Effect of dilutive
security options - 246 (0.03) - 135 0.01 - 316 (0.04)
------------------------------- -------------------------------- -------------------------------
Diluted EPS $5,796 7,495 $ 0.77 $(5,217) 8,035 $(0.65) $9,090 8,176 $1.11
=============================== ================================ ===============================
Nine Months Ended Nine Months Ended
March 31, 1998 March 31, 1999
-------------- --------------
Per Share Per Share
---------- ---------
Net Income Shares Amount Net Income Shares Amount
---------- ------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $8,229 7,841 $ 1.05 $13,179 7,872 $ 1.67
Effect of dilutive
security options - 299 (0.04) - 201 (0.04)
-----------------------------------------------------------------------
Diluted EPS $8,229 8,140 $ 1.01 $13,179 8,073 $ 1.63
=======================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Fiscal Year Ended Nine Months Ended
June 30, 1998 March 31, 1999
------------- --------------
Per Share Per Share
--------- ---------
Net Income Shares Amount Net Income Shares Amount
---------- ------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $7,629 9,022 $ 0.85 $8,286 9,034 $ 0.92
Effect of dilutive
security options - 316 (0.03) - 201 (0.02)
----------------------------------------- ----------------------------------------
Diluted EPS $7,629 9,338 $ .82 $8,286 9,235 $ 0.90
========================================= ========================================
</TABLE>
<PAGE>
Exhibit 12.1
------------
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------------------------------- --------------
Dollars in Thousands June 30, 1994 June 30, 1995 June 30, 1996 June 30, 1997 June 30, 1998 March 31, 1998
------------- ------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Pretax Income (Loss) from continuing $ 7,533 $ 12,838 $ 10,547 $ (7,346) $ 14,780 $13,381
operat (1)
Interest expense and amortized 4,813 5,351 5,144 7,788 7,595 5,564
deferred financial costs (2)
Interest within rent expense 100 100 200 200 200 150
-------------------------------------------------------------------------- -------------
Earnings as defined 12,446 18,289 15,891 642 22,575 19,095
========================================================================== =============
Fixed Charges:
Interest expense and amortized 4,813 5,351 5,144 7,788 7,595 5,564
deferred financial costs (2)
Capitalized Interest - 100 313 691 615 468
Interest within rent expense 100 100 200 200 200 150
-------------------------------------------------------------------------- -------------
4,913 5,551 5,657 6,679 8,410 6,182
========================================================================== =============
Ratio of earnings to fixed charges 2.5 3.3 2.8 - (3) 2.7 3.1
========================================================================== =============
<CAPTION>
Pro Forma
-------------------------------------
Nine Months Ended Nine Months Ended Fiscal Year Ended
----------------- ----------------- -----------------
Dollars in Thousands March 31, 1999 March 31, 1999 June 30, 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Pretax Income (Loss) from continuing $ 21,430 $ 15,066 $ 14,628
operat
Interest expense and amortized 6,085 17,943 23,243
deferred financial costs
Interest within rent expense 150 150 200
-------------------------------- -------------
Earnings as defined 27,665 33,159 38,071
================================ =============
Fixed Charges:
Interest expense and amortized 6,085 17,943 23,243
deferred financial costs
Capitalized Interest 312 312 615
Interest within rent expense 150 150 200
-------------------------------- -------------
6,547 18,405 24,058
================================ =============
Ratio of earnings to fixed charges 4.2 1.8 1.6
================================ =============
</TABLE>
(1) Excludes extraordinary items and cummulative effect of change in accounting
principles
(2) Deferred financing costs are already included in interest expense
(3) Earnings were insufficient to cover fixed charges by $0.8 million
<PAGE>
Exhibit 21.1
Existing Subsidiaries
- -------------------------------------------------------------------------------
Name of Subsidiary Jurisdiction of Incorporation
- -------------------------------------------------------------------------------
American Graphics, Inc./1/ Georgia
Cadmus Direct Marketing, Inc. North Carolina
Cadmus Financial Distribution, Inc. Virginia
Cadmus Interactive, Inc. Georgia
Cadmus Investment Corporation Delaware
Cadmus Journal Services, Inc. Virginia
Cadmus Marketing, Inc. Virginia
Cadmus Marketing Group, Inc. Virginia
Cadmus/O'Keefe Marketing, Inc. Virginia
Cadmus Printing Group, Inc. Virginia
Cadmus Publishing Group, Inc. Virginia
Cadmus Publishing Holding Corporation Delaware
Cadmus Technology Solutions, Inc. Virginia
Dynamic Diagrams, Inc./2/ Rhode Island
E-Docs, Inc. Pennsylvania
Electronic Document Services, Inc. Pennsylvania
Expert Graphics, Inc. Virginia
Garamond/Pridemark Press, Inc. Maryland
Lancaster Information Group, Inc. Delaware
Lancaster Information Group, Inc. Pennsylvania
Mack Printing Company Pennsylvania
Mack Printing Group, Inc. Delaware
Melham, Inc. Delaware
Melham Holdings, Inc. Delaware
Port City Press, Inc. Maryland
Science Craftsman, Incorporated New York
Three Score, Inc. Georgia
Vaughan Printers, Inc. Florida
VSUB Holding Company Virginia
Washburn Graphics, Inc. North Carolina
Washburn of New York, Inc. New York
/1/ American Graphics, Inc. has a number of inactive subsidiaries.
/2/ Dynamic Diagrams, Inc. is the only non wholly-owned subsidiary of Cadmus
<PAGE>
Exhibit 23.1
------------
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the inclusion of our
report (and to all references to our Firm) included in or made a part of this
registration statement on Form S-4 relating to the $125,000,000 principal
amount, 9 3/4 % Senior Subordinated Notes due 2009 of Cadmus Communications
Corporation.
/s/ ARTHUR ANDERSEN LLP
Richmond, Virginia
July 14, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITOR
We consent to the references to our firm under the captions "Melham Holdings,
Inc. Summary Historical Consolidated Financial Data" and "Experts" and to the
use of our report dated February 19, 1999 (except for Note 14, as to which the
date is April 1, 1999) with respect to the consolidated financial statements of
Melham Holdings, Inc. as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998, included in the Registration
Statement (Form S-4 No. 333- ) and related Prospectus of Cadmus
----
Communications Corporation for the registration of $125,000,000 of its 9 3/4%
Senior Subordinated Notes due 2009.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
July 14, 1999
<PAGE>
Exhibit 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM T-1
----------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a trustee pursuant to
Section 305(b) (2) _____
----------------------
FIRST UNION NATIONAL BANK
(Exact name of Trustee as specified in its charter)
230 SOUTH TRYON STREET, 9TH FL.
CHARLOTTE, NC 28288-1179 22-1147033
(Address of principal executive office) (Zip Code) (I.R.S. Employer
Identification No.)
Patricia A. Welling (804) 343-6067
800 East Main Street, Richmond, Virginia 23219
----------------------
Cadmus Communications Corporation
(Exact name of obligor as specified in its charter)
Delaware 54-1274108
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
6620 West Broad Street
Suite 240
Richmond, VA 23230
(Address of principal executive offices) (Zip Code)
----------------------
9.75% Senior Subordinated Notes due 2009
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market Regulation,
Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor.
The obligor is not an affiliate of the Trustee.
3. Voting Securities of the Trustee.
Response not required.
(See answer to Item 13)
4. Trusteeships under other indentures.
Response not required.
(See answer to Item 13)
5. Interlocking directorates and similar relationships with the obligor or
underwriters.
Response not required.
(See answer to Item 13)
6. Voting securities of the Trustee owned by the obligor or its officials.
Response not required.
(See answer to Item 13)
7. Voting securities of the Trustee owned by underwriters or their officials.
Response not required.
(See answer to Item 13)
8. Securities of the obligor owned or held by the Trustee.
Response not required.
(See answer to Item 13)
9. Securities of underwriters owned or held by the Trustee.
Response not required.
(See answer to Item 13)
2
<PAGE>
10. Ownership or holdings by the Trustee of voting securities of certain
affiliates or security holders of the obligor.
Response not required.
(See answer to Item 13)
11. Ownership or holdings by the Trustee of any securities of a person owning
50 percent or more of the voting securities of the obligor.
Response not required.
(See answer to Item 13)
12. Indebtedness of the obligor to the Trustee.
Response not required.
(See answer to Item 13)
13. Defaults by the obligor.
A. None
B. None
14. Affiliations with the underwriters.
Response not required.
(See answer to Item 13)
15. Foreign trustee.
Trustee is a national banking association organized under the laws of
the United States.
16. List of Exhibits.
(1) *Articles of Incorporation.
(2) Certificate of Authority of the Trustee to conduct business. No
Certificate of Authority of the Trustee to commence business is
furnished since this authority is continued in the Articles of
Association of the Trustee.
(3) *Certificate of Authority of the Trustee to exercise corporate trust
powers.
(4) *By-Laws.
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939 as amended. Included at Page 5 of this Form T-1
Statement.
3
<PAGE>
(7) Report of condition of Trustee
(8) Inapplicable.
(9) Inapplicable.
* Exhibits thus designated have heretofore been filed with the Securities
and Exchange Commission, have not been amended since filing are incorporated
herein by reference (See Exhibit T-1 Registration Number 333-76965).
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK, a national banking association
organized and existing under the laws of the United States of America, has duly
caused this Statement of Eligibility and Qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Richmond, and in the Commonwealth of Virginia on the 16th day of July, 1999.
FIRST UNION NATIONAL BANK
(Trustee)
4
<PAGE>
BY: /s/ Patricia A. Welling
-----------------------------------
Patricia A. Welling, Vice President
EXHIBIT T-1 (6)
CONSENT OF TRUSTEE
Under Section 321(b) of the Trust Indenture Act of 1939 and in
connection with the issuance by Cadmus Communications Corporation 9.75% Senior
Subordinated Notes 2009, First Union National Bank, as the Trustee herein
named, hereby consents that reports of examinations of said Trustee by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK
BY: /s/ John M. Turner
------------------------------
John M. Turner, Vice President
Dated: July 16, 1999
5
<PAGE>
Exhibit 99.1
------------
LETTER OF TRANSMITTAL
CADMUS COMMUNICATIONS CORPORATION
To Tender 9 3/4% Senior Subordinated Notes due 2009
In Exchange for Registered 9 3/4% Senior Subordinated Notes due 2009
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON AUGUST __, 1999,
UNLESS THE OFFER IS EXTENDED
- --------------------------------------------------------------------------------
To First Union National Bank (the "Exchange Agent")
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile Transmission By Overnight Mail or Hand:
First Union National Bank (for Eligible Institutions Only): First Union National Bank
First Union Customer Information Center First Union National Bank First Union Customer Information Center
Corporate Trust Operations NC1153 (704) 590-7628 Corporate Trust Operations NC1153
1525 West W.T. Harris Boulevard - 3C3 Confirm: (704) 590-7408 1525 West W.T. Harris Boulevard - 3C3
Charlotte, North Carolina 28288 Attention Mike Klotz Charlotte, North Carolina 28262-1153
Attention: Mike Klotz Attention Mike Klotz
</TABLE>
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
The undersigned hereby acknowledges receipt of the Prospectus dated July
__, 1999 (the "Prospectus") of Cadmus Communications Corporation (the "Company")
and this Letter of Transmittal (the "Letter of Transmittal"), which together
constitute the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 9 3/4% Senior Subordinated Notes due 2009 (the "Exchange
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for each $1,000 principal amount of its outstanding 9 3/4%
Senior Subordinated Notes due 2009 (the "Old Notes"). The terms of the Exchange
Notes are identical in all material respects (including principal amount,
interest rate and maturity) to the terms of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer, except that (i) the Exchange Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (ii) holders of Exchange Notes will
not be entitled to certain rights of holders of Old Notes under the Registration
Rights Agreement. The term "Expiration Date" shall mean 5:00 p.m., New York City
time, on August __, 1999, unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term shall mean the latest date and time
to which the Exchange Offer is extended. Capitalized terms used but not defined
herein have the meaning given to them in the Prospectus.
Holders who wish to tender their Old Notes must, at a minimum, fill in the
necessary account information in the table below entitled "Account Information"
(the "Account Information Table"), complete columns (1) through (3) in the table
below entitled "Description of Old Notes Tendered" (the "Description Table"),
complete and sign in the box below entitled "Registered Holder(s) of Old Notes
Sign Here" and complete the Substitute Form W-9. If a holder wishes to tender
less than all of such Old Notes delivered to the Exchange Agent, column (4) of
the Description Table must be completed in full. See Instruction 3.
Holders of Old Notes that are tendering by book-entry transfer to the
Exchange Agent's account at The Depository Trust Company ("DTC") can execute the
exchange through the DTC Automated Tender Offer Program ("ATOP"), for which the
transaction will be eligible. DTC participants that are accepting the exchange
should transmit their acceptance to DTC, which will edit and verify the
acceptance and execute a book-entry delivery to the Exchange Agent's account at
DTC. DTC will then send an Agent's Message to the Exchange Agent for its
acceptance. Delivery of the Agent's Message by DTC will satisfy the terms of the
exchange as to execution and delivery of a Letter of Transmittal by the
participant identified in the Agent's Message. DTC participants may also accept
the exchange by submitting a notice of guaranteed delivery through ATOP.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned agree to take with respect to
the Exchange Offer. Holders who wish to tender there Old Notes must complete
this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE ACCOMPANYING
INSTRUCTIONS, AND THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT OR THE
COMPANY. SEE INSTRUCTION 9.
List below the Old Notes to which this Letter of Transmittal relates. If
the space indicated below is inadequate, the Certificate Numbers and Principal
Amounts should be listed on a separately signed schedule affixed hereto.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- --------------------------------------------------------------------------------------------------------------------
(3)
Aggregate Principle (4)
(1) (2) Amount Principal Amount
Name(s) and Address(es) of Registered Holder(s) Registration Represented by Tendered
(Please fill in) Numbers* Old Notes** (if less than
all)**
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, the Holder will be deemed to have tendered the
full aggregate principal amount represented by such Old Notes. All tenders
must be in integral multiples of $1,000.
This Letter of Transmittal is to be used (i) if certificates of Old Notes
are to be forwarded herewith, (ii) if delivery of Old Notes is to be made by
book-entry transfer to an account maintained by the Exchange Agent at DTC,
pursuant to the procedures set forth in "The Exchange Offer--Procedures for
Tendering Old Notes" in the Prospectus or (iii) if tender of the Old Notes is to
be made according to the guaranteed delivery procedures described in the
Prospectus under the caption "The Exchange Offer--Guaranteed Delivery
Procedures." See Instruction 2. Delivery of documents to a book-entry transfer
facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder.
- --------------------------------------------------------------------------------
ACCOUNT INFORMATION
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _________________________________________________
If delivered by book-entry transfer:
Account Number ___________________ Transaction Code Number ________________
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other documents required hereby to the Exchange Agent
on or prior to the Expiration Date must tender their Old Notes according to the
guaranteed delivery procedure set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2.
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) __________________________________________________
Name of Eligible Institution that Guaranteed Delivery__________________________
If delivered by book-entry transfer:
Account Number ___________________ Transaction Code Number ________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name ________________________________ Address ______________________________
- --------------------------------------------------------------------------------
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Old Notes
indicated above in exchange for a like principal amount of the Exchange Notes.
Subject to, and effective upon, the acceptance for exchange of such Old Notes
tendered hereby, the undersigned hereby exchanges, assigns and transfers to, or
upon the order of, the Company all right, title and interest in and to such Old
Notes as are being tendered hereby, including all rights to accrued and unpaid
interest thereon as of the Expiration Date and any and all claims in respect of
or arising or having arisen as a result of the undersigned's status as a holder
of, all Old Notes tendered hereby. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said Exchange
Agent acts as the agent of the Company in connection with the Exchange Offer) to
cause the Old Notes to be assigned, transferred and exchanged. The undersigned
represents and warrants that (a) it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire Exchange Notes
issuable upon the exchange of such tendered Old Notes; and (b) when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim.
The undersigned is the registered owner of all tendered Old Notes and the
undersigned represents that it has received from each beneficial owner of
tendered Old Notes ("Beneficial Owners") a duly completed and executed form of
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" accompanying this Letter of Transmittal,
instructing the undersigned to take the action described in this Letter of
Transmittal.
The undersigned understands that, subject to the terms and conditions of
the Exchange Offer, Old Notes properly tendered and not withdrawn will be
exchanged for Exchange Notes. If any amount of tendered Old Notes is not
exchanged for any reason, or if certificates are submitted that evidence a
greater principal amount of Old Notes than the principal amount to be tendered,
such unexchanged Old Notes or Old Notes for untendered amounts, as the case may
be, will be returned, without expense, to the undersigned, either to the book-
entry transfer facility account from which tender was effected or to the address
below if Old Notes were tendered in physical form.
The undersigned hereby represents to the Company that (i) the Exchange
Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, and (ii) neither the undersigned nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such Exchange Notes. If the undersigned or the person
receiving the Exchange Notes covered hereby is a broker-dealer that is receiving
the Exchange Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making activities or other trading activities,
the undersigned acknowledges that it or such other person will deliver a
prospectus in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned and any such other person acknowledge that, if they are
participating in the Exchange Offer for the purpose of distributing the Exchange
Notes, (i) they cannot rely on the position of the staff of the Securities and
Exchange Commission enunciated in Exxon Capital Holdings Corporation (available
May 13, 1988), Morgan Stanley & Co., Incorporated (available June 5, 1991) or
similar no-action letters and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with the resale transaction and (ii) failure to
comply with such requirements in such instance could result in the undersigned
or any such other person incurring liability under the Securities Act for which
such persons are not indemnified by the Company. If the undersigned or the
person receiving the Exchange Notes covered by this letter is an affiliate (as
defined under Rule 405 of the Securities Act) of the Company, the undersigned
represents to the Company that the undersigned understands and acknowledges that
such Exchange Notes may not be offered for resale, resold or otherwise
transferred by the undersigned or such other person without registration under
the Securities Act or an exemption therefrom.
The undersigned also warrants that it will upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable, to complete the exchange, assignment and transfer of
tendered Old Notes or transfer ownership of such Old Notes on the account books
maintained by a book-entry transfer facility. The undersigned further agrees
that acceptance of any tendered Old Notes by the Company and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by the
Company of its obligations under the Registration Rights Agreement and that the
Company shall have no further obligations or liabilities thereunder for the
registration of the Old Notes or the Exchange Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer--Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be, required to exchange any of the Old Notes tendered
hereby and, in such event, the Old Notes not exchanged will be returned to the
undersigned at the address shown below the signature of the undersigned.
TENDERS OF OLD NOTES MADE PURSUANT TO THE EXCHANGE OFFER MAY NOT BE
WITHDRAWN AFTER 5.00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. A
PURPORTED NOTICE OF WITHDRAWAL WILL BE EFFECTIVE ONLY IF DELIVERED TO THE
EXCHANGE AGENT IN ACCORDANCE WITH THE SPECIFIC PROCEDURES SET FORTH IN THE
PROSPECTUS UNDER THE HEADING "THE EXCHANGE OFFER--WITHDRAWAL OF TENDERS."
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Old Notes may be withdrawn at any time
prior to the Expiration Date only in accordance with the procedures set forth in
the Instructions contained in the Letter of Transmittal and the Prospectus.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Old Notes, and any Old Notes delivered herewith but not exchanged, will
be registered in the name of the undersigned and shall be delivered to the
undersigned, at the address shown below the signature of the undersigned. If an
Exchange Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if the Exchange Note is to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address different than the address
shown on this Letter of Transmittal, the appropriate boxes of this Letter of
Transmittal should be completed. If Old Notes are surrendered by Holder(s) that
have completed either the box entitled "Special Registration Instructions" or
the box entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (defined in Instruction 2).
<PAGE>
- --------------------------------------------------------------------------------
Special Registration Instructions
To be completed ONLY if the Exchange Notes and any Old Notes delivered herewith
but not exchanged are to be issued in the name of someone other than the
undersigned or are to be returned by credit to an account maintained by a book-
entry transfer facility.
Issue Exchange Notes and any Old Notes delivered herewith but not exchanged to:
Name ______________________________________________________________
Address: __________________________________________________________
__________________________________________________________
__________________________________________________________
(Please print or type)
Credit Exchange Notes and any Old Notes delivered herewith but not exchanged to
the following book-entry transfer facility account:
_________________________________________________________________________
(Name of book-entry transfer facility)
_________________________________________________________________________
(Account number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Registered Holder(s) of Old Notes Sign Here
(In addition, complete Substitute Form W-9 Below)
X _________________________________________________________________________
X _________________________________________________________________________
(Signature(s) of Registered Holder(s))
Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Old Notes or on a security position listing as the owner of the Old Notes or by
person(s) authorized to become registered holder(s) by properly completed bond
powers transmitted herewith. If signature is by attorney-in-fact, trustee,
executor, administrator, guardian, officer of a corporation or other person
acting in a fiduciary capacity, please provide the following information (Please
print or type):
Name and Capacity (full title): ________________________________________________
Address (including zip code):___________________________________________________
Area Code and Telephone Number:_________________________________________________
Dated:______________________________
Signature Guarantee (If required -- See Instruction 4)
Authorized Signature:___________________________________________________________
(Signature of Representative of Signature Guarantor)
Name and Title:_________________________________________________________________
Name of Firm:___________________________________________________________________
Area Code and Telephone Number:_________________________________________________
(Please print or type)
Dated:______________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Special Delivery Instructions
To be completed ONLY if the Exchange Notes and any Old Notes delivered herewith
but not exchanged are to be sent to someone other than the undersigned, or to
the undersigned at an address other than that shown under "Description of Old
Notes Tendered."
Mail Exchange Notes and any Old Notes delivered herewith but not exchanged to:
Name ______________________________________________________________
Address: __________________________________________________________
__________________________________________________________
(Please print or type)
- --------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes.
All physically delivered Old Notes or confirmation of any book-entry
transfer to the Exchange Agent's account at a book-entry transfer facility of
Old Notes tendered by book-entry transfer, as well as a properly completed and
duly executed copy of this Letter of Transmittal or facsimile thereof, and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein on or prior to the
Expiration Date (as defined in the Prospectus). The method of delivery of this
Letter of Transmittal, the Old Notes and any other required documents, including
delivery by book-entry transfer and any acceptance or Agent's Message delivered
through ATOP, is at the election and risk of the Holder, and, except as
otherwise provided below, the delivery will be deemed made only when actually
received by the Exchange Agent. If such delivery is by mail, it is suggested
that registered mail with return receipt requested, properly insured, be used.
In all cases, sufficient time should be allowed to ensure timely delivery.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Old Notes for exchange.
Delivery to an address other than as set forth herein, or instructions via
a facsimile number other than the one set forth herein, will not constitute a
valid delivery.
2. Guaranteed Delivery Procedures.
Holders who wish to tender their Old Notes, but whose Old Notes are not
immediately available and thus cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent (or comply
with the procedures for book-entry transfer) prior to the Expiration Date, may
effect a tender if :
(a) the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the registration
number(s) of such Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the Old Notes (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the
book-entry transfer facility) and any other documents required by the
Letter of Transmittal, will be deposited by the Eligible Institution
with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Old Notes in proper form
for transfer (or a confirmation of book-entry transfer of such Old
Notes into the Exchange Agent's account at the book-entry transfer
facility) and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within three New York
Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above. Any holder who wishes to tender Old Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery relating to such
Old Notes prior to the Expiration Date. Failure to complete the guaranteed
delivery procedures outlined above will not, of itself affect the validity or
effect a revocation of any Letter of Transmittal form properly completed and
executed by a Holder who attempted to use the guaranteed delivery procedures.
3. Partial Tenders; Withdrawals.
Tenders of Old Notes will be accepted only in integral multiples of $1,000.
The aggregate principal amount of all Old Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated in the
Description Table. If less than the entire principal amount of Old Notes
evidenced by a submitted certificate is tendered, the tendering Holder should
fill in the principal amount tendered in the column entitled "Principal Amount
Tendered (if less than all)" in the Description Table. A newly issued Old Note
for the principal amount of Old Notes submitted but not tendered will be sent to
such Holder as soon as practicable after the Expiration Date unless otherwise
provided in the appropriate box on this Letter of Transmittal. Book-entry
transfer to the Exchange Agent should be made in the exact principal amount of
Old Notes tendered.
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date, after which tenders of Old Notes are
irrevocable. To be effective, a written telegraphic or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the registration number(s) and principal amount of such
Old Notes, or, in the case of Old Notes transferred by book-entry transfer, the
name and number of the account at the book-entry transfer facility to be
credited), (iii) be signed by the Holder in the same manner as the original
signature on this Letter of Transmittal (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Notes register the transfer of such Old Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. If Old Notes have been tendered pursuant to the procedures for book-
entry transfer, any notice of withdrawal must also comply with DTC's procedures.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no Exchange Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for exchange will be returned to the Holder
<PAGE>
thereof without cost to such Holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer, unless otherwise
provided in the appropriate box on this Letter of Transmittal.
4. Signature on This Letter of Transmittal; Written Instruments and
Endorsements; Guarantee of Signatures.
If this Letter of Transmittal is signed by the registered Holder(s) of the
Old Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration or enlargement or any
change whatsoever. If this Letter of Transmittal is signed by a participant in a
book-entry transfer facility, the signature must correspond with the name as it
appears on the security position listing as the owner of the Old Notes.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
Signatures on this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the Old Notes
tendered hereby are tendered (i) by a registered Holder who has not completed
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or Holders
of Old Notes (which term, for the purposes described herein, shall include a
participant in a book-entry transfer facility whose name appears on a security
listing as the owner of the Old Notes) listed and tendered hereby, no
endorsements of the tendered Old Notes or separate written instruments of
transfer or exchange are required. In any other case, the registered Holder (or
acting Holder) must either properly endorse the Old Notes or transmit properly
completed bond powers with this Letter of Transmittal (in either case, executed
exactly as the name(s) of the registered Holder(s) appear(s) on the Old Notes,
and, with respect to a participant in a book-entry transfer facility whose name
appears on a security position listing as the owner of Old Notes, exactly as the
name of the participant appears on such security position listing), with the
signature on the Old Notes or bond power guaranteed by an Eligible Institution
(except where the Old Notes are tendered for the account of an Eligible
Institution).
Only a Holder in whose name tendered Old Notes are registered on the books
of the registrar (or the legal representative or attorney-in-fact of such
registered Holder) may execute and deliver this Letter of Transmittal. Any
Beneficial Owner of tendered Old Notes who is not the registered Holder must
arrange promptly with the registered Holder to execute and deliver this Letter
of Transmittal on his or her behalf through the execution and delivery to the
registered Holder of the Instructions to Registered Holder and/or Book-Entry
Transfer Facility Participant from Beneficial Owner form accompanying this
Letter of Transmittal.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
5. Special Registration and Delivery Instructions.
Tendering Holders should indicate, in the applicable box, the name and
address (or account at a book-entry transfer facility) in which the Exchange
Notes or substitute Old Notes for principal amounts not tendered or not accepted
for exchange are to be issued (or deposited), if different from the names and
addresses or accounts of the person signing this Letter of Transmittal. In the
case of issuance in a different name, the employer identification number or
social security number of the person named must also be indicated and the
tendering Holder should complete the applicable box.
If no instructions are given, the Exchange Notes (and any Old Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the Old Notes or deposited at such Holder's account at a book-entry
transfer facility.
6. Transfer Taxes.
The Company shall pay or cause to be paid all security transfer taxes, if
any, applicable to the transfer and exchange of Old Notes to it or its order
pursuant to the Exchange Offer. If a transfer tax is imposed for any reason
other than the transfer and exchange of Old Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered Holder or any other person) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or exception
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering Holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
7. Waiver of Conditions.
The Company reserves the absolute right to waive, in whole or in part, any
of the conditions to the Exchange Offer set forth in the Prospectus.
8. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any Holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
9. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering as well as requests for
additional copies of the Prospectus and this Letter of Transmittal may be
directed to the Exchange Agent at the address and telephone number(s) set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to the Company at 6620 West Broad Street, Suite
240, Richmond, Virginia 23230 Attention: __________________________________ --
Investor Relations (telephone: (804) 287-5680).
10. Validity and Form.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
<PAGE>
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in this Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Although the Company intends to notify Holders of defects or irregularities with
respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders as soon as practicable following the Expiration
Date, unless otherwise provided in the appropriate box on this Letter of
Transmittal.
11. Substitute Form W-9.
Federal income tax laws require each tendering Holder to provide the
Company with a correct taxpayer identification number ("TIN") on the Substitute
Form W-9 which is provided under "Important Tax Information" below, and to
indicate whether or not the Holder is subject to backup withholding by checking
the box in Part 2 of the Form. Failure to provide the information on the Form or
to check the box in Part 2 of the Form may subject the tendering Holder to 31%
Federal income tax withholding on the payments made to the Holder. The box in
Part 3 of the Form may be checked if the tendering Holder has not been issued a
TIN and has applied for a TIN or intends to apply for a TIN in the near future.
If the box in Part 3 is checked and the Holder does not provide the Company with
a TIN within sixty (60) days, the Company will withhold 31% on all such payments
thereafter until a TIN is provided to the Company.
12. Conflicts.
In the event of any conflict between the terms of the Prospectus and the
terms of this Letter of Transmittal, the terms of the Prospectus will control.
IMPORTANT: This Letter of Transmittal or a facsimile thereof (together with
Old Notes or confirmation of book entry transfer and all other required
documents) or a Notice of Guaranteed Delivery must be received by the Exchange
Agent on or prior to the Expiration Date.
IMPORTANT TAX INFORMATION
The Federal income tax discussion set forth below is included for general
information only. Each Holder is urged to consult a tax advisor to determine the
particular tax consequences to it (including the application and effect of
foreign, state and local tax laws) of the offer. Certain Holders (including
insurance companies, tax exempt organizations and foreign tax payers) may be
subject to special rules not discussed below. The discussion does not consider
the effect of any applicable foreign, state and local tax laws. Under Federal
income tax law, a Holder tendering Old Notes is required to provide the Exchange
Agent with such Holder's correct TIN on Substitute Form W-9 below. If such
Holder is an individual, the TIN is the Holder's social security number. The
Certificate of Awaiting Tax Identification Number should be completed if the
tendering Holder has not been issued a TIN and has applied for a number or
intends to apply for a number in the near future. If the Exchange Agent is not
provided with the correct TIN, the Holder may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, payments that are made to
such Holder with respect to tendered Old Notes may be subject to backup
withholding.
Certain Holders (including, among others, all corporations and certain
foreign individuals and foreign entities) are not subject to these backup
withholding and reporting requirements. A corporation, however, must complete
the Substitute Form W-9, including providing its TIN and indicating that it is
exempt from backup withholding, in order to establish its exemption from backup
withholding. In order for a foreign individual to qualify as an exempt
recipient, that holder must submit to the Exchange Agent a properly completed
Internal Revenue Service Form W-8, signed under penalties of perjury, attesting
to that Holder's exempt status. Such forms can be obtained from the Exchange
Agent.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any amounts otherwise payable to the Holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to a Holder with
respect to Old Notes tendered for exchange, the Holder is required to notify the
Exchange Agent of his or her correct TIN by completing the form herein
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
Holder is awaiting a TIN) and that (i) such Holder has not been notified by the
Internal Revenue Service that he or she is subject to backup withholding as a
result of failure to report all interest or dividends or (ii) the Internal
Revenue Service has notified such Holder that he or she is no longer subject to
backup withholding.
What Number to Give the Exchange Agent
Each Holder is required to give the Exchange Agent the social security
number or employer identification number of the record Holder(s) of the Old
Notes. If Old Notes are in more than one name or are not in the name of the
actual Holder, consult the instructions on Internal Revenue Service, Form W-9,
which may be obtained from the Exchange Agent, for additional guidance on which
number to report.
Certificate of Awaiting Tax Identification Number
If the tendering Holder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, check the box in
Part 3 on Substitute Form W-9, sign and date the form and the Certificate of
Awaiting Taxpayer Identification Number and return them to the Exchange Agent.
If such certificate is completed and the Exchange Agent is not provided with the
TIN within 60 days, the Exchange Agent will withhold 31% of all payments made
thereafter until a TIN is provided to the Exchange Agent.
<PAGE>
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS DOES
NOT CONSIDER THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY HOLDER'S SITUATION OR
STATUS. THE SUMMARY IS BASED ON THE PROVISIONS OF THE CODE, REGULATIONS,
PROPOSED REGULATIONS, RULINGS AND JUDICIAL DECISIONS NOW IN EFFECT, ALL OF WHICH
ARE SUBJECT TO CHANGE, POSSIBLY ON A RETROACTIVE BASIS. HOLDERS OF OLD NOTES
(INCLUDING HOLDERS OF OLD NOTES WHO DO NOT EXCHANGE THEIR OLD NOTES FOR EXCHANGE
NOTES) SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER LAWS, OF THE EXCHANGE OF OLD NOTES FOR EXCHANGE NOTES. FOR ADDITIONAL
INFORMATION, SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" IN THE PROSPECTUS.
Payor's Name: First Union National Bank
This Substitute Form W-9 Must Be Completed and Signed
Please provide your social security number or other taxpayer identification
number on the following Substitute Form W-9 and certify therein that you are not
subject to backup withholding.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1 -- Please provide your TIN in the box at
FORM W-9 right and certify by signing and dating below. _______________________
Department of the Treasury Social Security
Internal Revenue Service Part 2 -- Check the box if you are not subject to Number or
backup withholding under the provisions of section Employer
3406(a)(1)(C) of the Internal Revenue Code because Identification
(1) you have not been notified that you are subject Number
to backup withholding as a result of failure to
report all interest or dividends or (2) the Internal
Revenue Service has notified you that you are no
longer subject to backup withholding. [_]
- --------------------------------------------------------------------------------------------------------------------
Certification: Under the penalties of perjury, I
certify that the information provided on this form Part 3
Payer's Request for Taxpayer is true, correct and complete.
Identification Number ("TIN") Signature: _________________ Dated: ___________ Awaiting TIN
- --------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE
TO YOU.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
====================================================================================================================
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either
(a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (b) I intend to mail or deliver an
application in the near future. I understand that if I do not provide a Taxpayer Identification Number within
60 days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number.
__________________________________________________ __________________________, 1999
Signature Date
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 99.2
------------
CADMUS COMMUNICATIONS CORPORATION
NOTICE OF GUARANTEED DELIVERY
(Not to be used for Signature Guarantee)
As set forth in the Prospectus dated July __, 1999 (the "Prospectus") in
the section entitled "The Exchange Offer -- Procedures for Tendering Old Notes"
and in the accompanying Letter of Transmittal (the "Letter of Transmittal") and
Instruction 2 thereto, this form or one substantially equivalent hereto must be
used to accept the Exchange Offer if certificates representing 93/4% Senior
Subordinated Notes due 2009 of Cadmus Communications Corporation (the "Old
Notes") are not immediately available or time will not permit such holder's Old
Notes or other required documents to reach the Exchange Agent, or complete the
procedures for book-entry transfer, prior to the Expiration Date (as defined in
the Prospectus) of the Exchange Offer. This form may be delivered by hand or
sent by overnight courier, facsimile transmission or registered or certified
mail to the Exchange Agent and must be received by the Exchange Agent prior to
5:00 p.m., New York City time on August __, 1999.
To First Union National Bank
(the "Exchange Agent")
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Mail or Hand:
First Union National Bank First Union National Bank
First Union Customer Information Center First Union Customer Information Center
Corporate Trust Operations NC1153 Corporate Trust Operations NC1153
1525 West W.T. Harris Boulevard - 3C3 1525 West W.T. Harris Boulevard - 3C3
Charlotte, North Carolina 28288 Charlotte, North Carolina 28288
Attention: Mike Klotz Attention: Mike Klotz
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By Facsimile Transmission
(for Eligible Institutions Only):
Confirm: (704) 590-7408
First Union National Bank
(704) 590-7628
Attention: Mike Klotz
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
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Ladies and Gentlemen:
The undersigned hereby tender(s) to Cadmus Communications Corporation the
principal amount of the Old Notes listed below, upon the terms of and subject to
the conditions set forth in the Prospectus and the related Letter of Transmittal
and the instructions thereto (which together constitute the "Exchange Offer"),
receipt of which is hereby acknowledged, pursuant to the guaranteed delivery
procedures set forth in the Prospectus, as follows:
Aggregate Principal Principal Amount
Amount Represented Tendered (must be in integral)
Certificate Nos. by Certificate(s) multiples of $1,000)
---------------- ----------------- --------------------
______________________ _________________ ________________________
______________________ _________________ ________________________
______________________ _________________ ________________________
______________________ _________________ ________________________
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery.
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The Book-Entry Transfer Facility Account Number (if the Old Notes will be
tendered by book-entry transfer)
______________________________________________________________
______________________________________________________________
Sign Here
______________________________________________________________
Account Number
______________________________________________________________
Principal Amount Tendered
(must be in integral multiples of $1,000)
______________________________________________________________
Number and Street or P.O. Box
______________________________________________________________
City, State, Zip Code
______________________________________________________________
Signature(s)
Dated: ___________, 1999
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GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member firm of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office in the United States, or otherwise an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, guarantees that, within three (3)
New York Stock Exchange trading days from the date of this Notice of Guaranteed
Delivery, a properly completed and validly executed Letter of Transmittal (or a
facsimile thereof), together with Old Notes tendered hereby in proper form for
transfer (or confirmation of the book-entry transfer of such Old Notes into the
Exchange Agent's account a The Depository Trust Company pursuant to the
procedures for book-entry transfer set forth in the Prospectus under the caption
"The Exchange Offer--Procedures for Tendering Old Notes') and all other required
documents will be deposited by the undersigned with the Exchange Agent at its
address set forth above.
The Institution that completes this form must communicate the guarantee to the
Exchange Agent and must deliver the Letter of Transmittal and Old Notes to the
Exchange Agent within the time period shown herein. Failure to do so could
result in a financial loss to the undersigned.
_________________________________ _________________________________
Name of Firm Authorized Signature
_________________________________ _________________________________
Address Title
_________________________________ Name ____________________________
Zip Code Please Type or Print
_________________________________ Name ____________________________
Area Code and Tel. No.
Dated _____________________, 1999
NOTE: DO NOT SEND CERTIFICATES REPRESENTING OLD NOTES WITH THIS FORM.
CERTIFICATES REPRESENTING OLD NOTES SHOULD BE SENT ONLY WITH A LETTER OF
TRANSMITTAL.
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Exhibit 99.3
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INSTRUCTIONS
TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
CADMUS COMMUNICATIONS CORPORATION
9 3/4% SENIOR SUBORDINATED NOTES DUE 2009
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated July __,
1999 (the "Prospectus") of Cadmus Communications Corporation, a Virginia
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 9 3/4% Senior Subordinated Notes due 2009 (the "Old
Notes") held by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of the
undersigned is (fill in amount):
$________ of the 9 3/4% Senior Subordinated Notes due 2009
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[_] TO TENDER the following Old Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF OLD NOTES TO BE TENDERED, IF
ANY): $_____________
[_] NOT TO TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of __________ (FILL IN STATE),
(ii) the undersigned is acquiring the Exchange Notes in the ordinary course of
business of the undersigned, (iii) the undersigned is not participating, does
not participate, and has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) the undersigned
acknowledges that any person participating in the Exchange Offer for the purpose
of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Securities Act"), in connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely on the position of the
Staff of the Securities and Exchange Commission set forth in no-action letters
that are discussed in the section of the Prospectus entitled "The Exchange
Offer--Resale of Exchange Notes," and (v) the undersigned is not an "affiliate,"
as defined in Rule 405 under the Securities Act, of the Company; (b) to agree,
on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c)
to take such other action as necessary under the Prospectus or the Letter of
Transmittal to effect the valid tender of such Old Notes.
[_] Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Old
Notes for its own account as a result of market-making activities or
other trading activities.
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SIGN HERE
Name of beneficial owner(s): ___________________________________________________
Signature(s): __________________________________________________________________
Name (please print): ___________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
Telephone number: ______________________________________________________________
Taxpayer Identification or Social Security Number: _____________________________
Date: __________________________________________________________________________
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