<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1999.
REGISTRATION NO. 333-74087
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO.1
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
WORLD COLOR PRESS, INC.
(Exact name of Registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2752 37-1167902
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------
<TABLE>
<S> <C>
THE MILL JENNIFER L. ADAMS, ESQ.
340 PEMBERWICK ROAD VICE CHAIRMAN, CHIEF LEGAL AND ADMINISTRATIVE
GREENWICH, CONNECTICUT 06831 OFFICER
(203) 532-4200 AND SECRETARY
THE MILL
340 PEMBERWICK ROAD
GREENWICH, CONNECTICUT 06831
(203) 532-4200
(Address, including zip code, and telephone (Name, address, including zip code, telephone
number, including area number, including area
code, of Registrant's principal executive code, of agent for service)
office)
</TABLE>
------------------------
COPIES TO:
STEVEN DELLA ROCCA, ESQ.
LATHAM & WATKINS
885 THIRD AVENUE, SUITE 1000
NEW YORK, NEW YORK 10022
(212) 906-1200
------------------------
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. / / ______
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATES AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THIS PROSPECTUS, DATED MARCH 17, 1999, IS SUBJECT TO COMPLETION AND AMENDMENT.
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
8 3/8% UNREGISTERED SENIOR SUBORDINATED NOTES DUE 2008
FOR
8 3/8% REGISTERED SENIOR SUBORDINATED NOTES DUE 2008
WORLD COLOR PRESS, INC.
We hereby offer, on the terms and conditions described in this prospectus,
to exchange all of our outstanding unregistered 8 3/8% Senior Subordinated Notes
due 2008 for our registered 8 3/8% Senior Subordinated Notes due 2008. The
unregistered notes and registered notes are sometimes collectively referred to
as the notes. The unregistered notes were issued on November 20, 1998 and, as of
the date of this prospectus, an aggregate principal amount of $300.0 million is
outstanding. The terms of the registered notes are identical to the terms of the
unregistered notes except that the registered notes are registered under the
Securities Act of 1933, as amended, and will not contain any legends restricting
their transfer.
<TABLE>
<S> <C>
PLEASE CONSIDER THE FOLLOWING: INFORMATION ABOUT THE NOTES:
- - You should carefully review the Risk - The notes will mature on November 15, 2008.
Factors beginning on page 17 of this - We will pay interest on the notes semi-annually
prospectus. on May 15 and November 15 of each year beginning
- - Our offer to exchange unregistered May 15, 1999, at the rate of 8 3/8% per annum.
notes for registered notes will be - We have the option to redeem all or a portion of
open until 5:00 p.m., New York City the notes at any time on or after November 15, 2003
time, on April 14, 1999, unless we at the redemption prices set forth on page 50 of
extend the offer. this prospectus.
- - You should carefully review the - We also have the option to redeem up to 40% of
procedures for tendering the the original aggregate principal amount of the
unregistered notes beginning on page notes on or prior to November 15, 2001 with the
45 of this prospectus. If you do not net cash proceeds from a public equity offering.
follow those procedures, we may not - If we sell certain assets, we must offer to
exchange your unregistered notes for repurchase the notes.
registered notes. - The notes are subordinated to all of our current
- - If you fail to tender your senior indebtedness (other than trade payables) and
unregistered notes, you will future senior indebtedness (other than trade
continue to hold unregistered notes. payables) unless the terms of the indebtedness
Your ability to transfer expressly provide otherwise. Please be advised
unregistered notes after the offer that, as of December 27, 1998 after giving pro
could be adversely affected. forma effect to the February notes offering
- - No public market currently exists applying the proceeds as intended and after
for the unregistered notes. We do using the proceeds from the November offering to
not intend to list the registered redeem certain indebtedness, World Color had
notes on any securities exchange approximately $1,017.8 million of indebtedness
and, therefore, no active public and trade payables outstanding, of which
market is anticipated. approximately $394.3 million of indebtedness was
senior to the registered notes.
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS MARCH 18, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More
Information..................... 3
Incorporation of Certain Documents
by Reference.................... 3
Cautionary Statement Regarding
Forward-Looking Statements...... 4
Summary........................... 5
Risk Factors...................... 17
Use of Proceeds................... 19
Capitalization.................... 20
Selected Financial Data........... 21
Management's Discussion and
Analysis
of Financial Condition and
Results
of Operations................... 23
<CAPTION>
PAGE
----
<S> <C>
Business.......................... 30
Management........................ 37
Principal Stockholders............ 39
Description of Certain
Indebtedness.................... 40
The Exchange Offer................ 42
Description of Registered Notes... 50
Certain Federal Income Tax
Considerations.................. 80
Plan of Distribution.............. 81
Legal Matters..................... 82
Experts........................... 82
Index to Financial Statements..... F-1
</TABLE>
------------------------
We are a Delaware corporation and have offices at The Mill, 340 Pemberwick
Road, Greenwich, Connecticut 06831. Our telephone number is (203) 532-4200. In
this prospectus the words "World Color," "Company," "we," "our," "ours," and
"us" refer to World Color Press, Inc. and its subsidiaries.
------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
2
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy any document we file at
the Commission's public reference rooms at 450 Fifth Street, N.W., Washington,
D.C., 20549, 7 World Trade Center, 13th Floor, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Please call 1-800-SEC-0330 for further information on the public
reference rooms. Our filings are also available to the public from commercial
document retrieval services and at the web site maintained by the Securities and
Exchange Commission at "http://www.sec.gov." In addition, our reports and proxy
statements, and certain other information concerning World Color, can be
inspected at the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE MATTERS WE DISCUSS IN THIS PROSPECTUS OTHER THAN THOSE
CONTAINED HEREIN OR IN THE DOCUMENTS WE INCORPORATE HEREIN BY REFERENCE. IF YOU
ARE GIVEN ANY INFORMATION OR REPRESENTATIONS ABOUT THESE MATTERS THAT IS NOT
DISCUSSED OR INCORPORATED IN THIS PROSPECTUS, YOU MUST NOT RELY ON THAT
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM WE ARE NOT
PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. OUR AFFAIRS MAY HAVE
CHANGED SINCE THE DATE OF THIS PROSPECTUS. WE CANNOT ASSURE YOU THAT THE
INFORMATION IN THIS PROSPECTUS OR IN THE DOCUMENTS WE INCORPORATE HEREIN BY
REFERENCE IS CORRECT AFTER THIS DATE.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We are incorporating by reference the following documents, all of which we
have filed with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, into and as a part of this prospectus:
(i) our annual report on Form 10-K for the fiscal year ended December
28, 1997;
(ii) the portions of our 1997 Annual Report to Stockholders that have
been incorporated by reference into the 1997 10-K;
(iii) the portions of our 1997 definitive Proxy Statement for our Annual
Meeting of Stockholders dated March 27, 1998 that have been
incorporated by reference into the 1997 10-K;
(iv) our Quarterly Report on Form 10-Q for the quarter ended March 29,
1998;
(v) our Quarterly Report on Form 10-Q for the quarter ended June 28,
1998;
(vi) our Quarterly Report on Form 10-Q for the quarter ended September
27, 1998;
(vii) our Current Report on Form 8-K dated November 18, 1998; and
(viii) our Current Report on Form 8-K dated February 23, 1999.
Each document that we file pursuant to Section 13(a), 13(c), 14 and 15(d) of
the Securities Exchange Act of 1934 after the date of this prospectus and prior
to the termination of this exchange offer will be deemed to be incorporated by
reference in this prospectus and to be a part hereof from the date of filing of
such document. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained in this
prospectus or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this prospectus.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, on the request of any such person, a copy of any or all
of the foregoing documents incorporated herein by reference, other than exhibits
to such documents (unless such exhibits are specifically incorporated by
reference in such documents). Written or telephone requests for such copies
should be directed to the Office of Investor Relations, World Color Press, Inc.,
The Mill, 340 Pemberwick Road, Greenwich, Connecticut 06831, telephone: (203)
532-4200.
3
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain certain
forward-looking statements about our financial condition, results of operations
and business. These statements may be made expressly in this document, or may be
"incorporated by reference" to other documents we have filed with the Securities
and Exchange Commission. You can find many of these statements by looking for
words such as "believes," "expects," "anticipates," "estimates," or similar
expressions used in this prospectus or incorporated herein.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by us in those statements include, among
others, the following:
- our ability to pay interest and principal on a very large amount of debt;
- changes in our customers' demands;
- changes in raw material and equipment costs and availability;
- seasonal changes in customer orders;
- our ability, and the ability of our customers and vendors, to become Year
2000 compliant;
- the competitive nature of the printing business;
- our ability to acquire and successfully integrate new technologies; and
- our ability to acquire and successfully integrate complementary
businesses.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. You are cautioned not to place undue reliance on
such statements, which speak only as of the date of this prospectus or, in the
case of documents incorporated by reference, as of the date of such document.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this prospectus. Additionally, we do not undertake
any responsibility to update you on the occurrence of any unanticipated events
which may cause actual results to differ from those expressed or implied by the
forward-looking statements contained or incorporated by reference in this
prospectus.
4
<PAGE>
SUMMARY
THE WORDS "WORLD COLOR," "COMPANY," "WE," "OUR," "OURS," AND "US" MEAN WORLD
COLOR PRESS, INC. AND ALL OF OUR SUBSIDIARIES ON A CONSOLIDATED BASIS. THE
FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THIS EXCHANGE OFFER. IT IS
LIKELY THAT THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT
TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THIS OFFERING, WE ENCOURAGE YOU TO
READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO WHICH WE HAVE REFERRED. ALL
REFERENCES TO FISCAL YEARS ARE TO OUR FISCAL YEAR WHICH IS THE 52 OR 53-WEEK
PERIOD ENDING ON THE LAST SUNDAY IN DECEMBER.
THE COMPANY
We are an industry leader in the management and distribution of print and
digital information, with revenues of approximately $2.4 billion for the twelve
months ended December 27, 1998. We are the second largest diversified commercial
printer in the United States, providing digital prepress, press, binding,
distribution and multi-media services to our customers in the commercial,
magazine, catalog, direct mail, book and directory markets. Founded in 1903, we
operate a national network of 52 production and distribution facilities and an
extensive network of sales offices nationwide. Through selective acquisitions
and internal expansion, we have strategically positioned ourselves as a
full-service provider of high technology solutions for our customers' imaging,
print and distribution needs.
Since the appointment of a new management team in May 1991, we have
significantly expanded our national presence as a leading, innovative commercial
printer. We have achieved significant growth in sales, adjusted operating income
(as defined herein) and net income, while also improving our operating margins.
Over the past eight fiscal years, net sales and adjusted operating income grew
at compound annual rates of 20.7% and 37.6%, respectively, and net income
increased from a net loss of $58.7 million in 1991 to net income of $73.6
million for the year ended December 27, 1998. In addition, we have recorded six
consecutive years of improvement in our adjusted operating income margins.
GROWTH STRATEGY
We have increased stockholder value through emphasizing quality,
diversification of our business mix, operational efficiencies and strategic
growth. Specifically, our growth strategy is to:
- further establish and strengthen our leadership positions in diverse and
balanced businesses;
- make strategic acquisitions and broaden the array of services we provide
to our customers;
- provide high quality services within a low cost operating structure; and
- continue to increase efficiency and productivity.
The key elements underlying this strategy are described below.
ESTABLISH AND STRENGTHEN LEADERSHIP POSITIONS IN DIVERSE, BALANCED
BUSINESSES. We continue to expand our services and geographic presence to meet
our customers' full range of digital imaging, print, information management and
distribution needs. We believe our broad array of high quality products and
services, cost-effective distribution capabilities, advanced technologies and
competitive pricing allow us to capture a larger share of our existing
customers' business as well as attract new customers.
STRATEGIC ACQUISITIONS. The fragmented printing industry continues to
undergo significant consolidation due primarily to changing customer demand for
a full range of sophisticated services and the high levels of capital investment
necessary to meet this demand. Since the beginning of 1993, we have capitalized
on the industry's consolidation opportunities by successfully consummating and
integrating 22 acquisitions having an aggregate purchase price of approximately
$1.3 billion (including assumed indebtedness). We have targeted our acquisitions
to expand our services and geographic presence and to diversify our business mix
by, among other things, targeting customers operating in new markets such as the
direct mail and book markets. Our acquisitions have been accretive to our
earnings because of, among other things, significant cost savings in the
purchase of raw materials, the reduction of overhead costs and productivity
gains captured by our ability to better absorb and manage available capacity at
newly acquired facilities. We believe that our competitive and financial
strengths and considerable experience in
5
<PAGE>
identifying, acquiring and integrating complementary businesses will continue to
provide significant growth opportunities. While we continuously evaluate
opportunities to make strategic acquisitions, at present we have no commitments
or agreements with respect to any material acquisitions.
LOW COST OPERATING STRUCTURE. We make a vigorous effort to optimize the
management of our resources, and believe our ratio of selling, general and
administrative expenses to net sales is among the lowest in our industry. We
continually evaluate our business in order to keep our costs in line with
current and anticipated revenues, as well as to identify opportunities for
productivity improvement. For instance, most recently we initiated the "World
2000" project which involves a systematic evaluation of each cost element within
our production facilities. We believe the project will improve business
processes throughout our production cycle and enable us to generate greater
efficiency from our existing capital. Our "one-company" operating structure has
allowed us to maximize capacity utilization by balancing production across
plants and to reduce costs by providing a central support organization for
administrative services. In addition, our purchasing power enables us to acquire
raw materials and equipment on more favorable terms than our smaller
competitors, as well as to ensure the availability of raw materials in tight
markets.
TARGETED CAPITAL INVESTMENTS TO INCREASE EFFICIENCY AND PRODUCTIVITY. We
have been at the forefront of technological advances and are committed to
maintaining our position as an industry leader through strategic capital
spending. We are a leader in the transition from conventional prepress to an
all-digital workflow, providing a complete spectrum of film and digital
preparation services. Since the beginning of 1993, we have invested
approximately $520.8 million in equipment and plant expansions (exclusive of
equipment obtained in acquisitions) to position ourselves for continued growth
and productivity improvements. We believe that our significant size and
financial strength allow us to invest in technologies that are not commercially
viable for smaller or less well-capitalized competitors.
MARKETS AND CUSTOMERS
As illustrated in the charts below, since the appointment of our current
management team in 1991, we have diversified our business mix and expanded into
serving customers in faster growth markets.
OUR BUSINESS MIX
PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
1990 PRO FORMA 1998*
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<CAPTION>
COMMERCIAL 28%
<S> <C>
COMMERCIAL10%Magazines 27% Magazines 72%
Catalogs 23% Catalogs 4%
Direct Mail 9% Directories 14%
Books 9%
Directories 4%
</TABLE>
- ------------------------
* As used herein, "Pro Forma 1998" gives effect to the acquisitions of Magna
Graphic, Inc. (January 1998), Century Graphics Corporation (February 1998),
Dittler Brothers, Incorporated (March 1998), Acme Printing Company, Inc.
(April 1998), Great Western Publishing, Inc. (December 1998) and Infiniti
Graphics, Inc. (January 1999), as if each had occurred on the first day of
fiscal 1998. The Pro Forma 1998 amounts are not necessarily indicative of
the results that would have occurred had the acquisitions been consummated
on the first day of fiscal 1998, or of our or the acquired companies'
individual or combined future results.
6
<PAGE>
COMMERCIAL. We are a premier printer of virtually all of the different
kinds of materials used by businesses to promote their goods and services to
other businesses, investors and consumers. We print high quality specialty
products, such as annual reports and automobile and travel brochures, for
customers such as BMG, Columbia Pictures, Donna Karan/New York, Ford Motor,
Guess?, Mercedes Benz, Outback Steakhouse, Pillsbury, Princess Cruises, Reebok
and Tiffany. We are also a leading printer of product brochures, bill stuffers,
informational marketing materials and other advertising supplements. Our
customers in this area include ADVO, American Express Publishing, Grolier and
Ziff-Davis. We also print freestanding inserts for customers such as News
America and retail inserts for established national and regional retailers such
as Albertson's, Best Buy, Home Depot, J.C. Penney, Rite-Aid, Staples, True Value
and Wal-Mart. We are the second largest offset printer of retail advertising
inserts in the United States. We are also an industry leader in three highly
specialized areas: (1) complex personalized direct response materials; (2)
unique and intricate consumer-involvement promotional materials such as
scratch-off game pieces; and (3) airline guides and hotel directories. Our
long-standing customers include leading players in the direct mail, fast food,
soft drink and other consumer markets.
MAGAZINES. We believe that we are the second largest printer of consumer
magazines in the United States, printing over 2 billion magazines annually. We
believe that our principal competitors in this category consist of three
diversified printing companies. The magazines that we print are among the
best-selling in their class and include such titles as AMERICAN WAY, CIGAR
AFICIONADO, EBONY, ELLE, ENTERTAINMENT WEEKLY, ESPN MAGAZINE, FORBES, GOLF
DIGEST, GOOD HOUSEKEEPING, MAXIM, MEN'S HEALTH, NATIONAL GEOGRAPHIC, NEWSWEEK,
ROAD AND TRACK, SOAP OPERA WEEKLY, TEEN, TV GUIDE, VOGUE and WOMAN'S DAY. The
popularity of these magazines makes them less susceptible to cyclical downturns
in advertising spending, which we believe provides us with a significant
advantage over competitors whose customers may be more susceptible to such
downturns. A majority of our magazine printing is performed under contracts with
remaining terms of between one and ten years, the largest of which are with
customers with whom we have had relationships for, on average, more than 20
years. We have extended a majority of such contracts beyond their initial
expiration dates and intend to continue this practice when economically
practical.
CATALOGS. We are a leading printer for the U.S. catalog market, and print
approximately 3 billion catalogs annually. Our key competitors in this category
consist of four diversified commercial printers whose facilities enable them to
compete in the national market and smaller and local regional printers who
compete for regional business. We currently print many of the most well known
catalog titles, including Abercrombie & Fitch, Avon, Banana Republic, Blair,
Chadwick's, Crate & Barrel, Frontgate, Hammacher Schlemmer, Pottery Barn, Sears,
Starbucks, Victoria's Secret and Williams-Sonoma. In addition, our
business-to-business catalog printing work spans a broad range of industries
including the computer, home and office furniture, office products and
industrial safety products industries. Our business-to-business customers
include Global DirectMail and Reliable.
DIRECT MAIL. Direct mail targeted marketing services are an important and
growing component of many businesses' marketing programs and overall U.S.
advertising expenditures. We print direct mail materials such as booklets,
inserts, bill stuffers and other advertisements for customers including ADVO,
Blair, Citicorp, DiscoverCard, Fleet, The Franklin Mint, Frito-Lay, National
Geographic, New York Life, Publisher's Clearing House and Quaker Oats. Among the
direct mail services provided are direct imaging, personalization and other
lettershop services. We believe we are the only direct mail printer capable of
providing complex personalization for both short and long-run projects.
BOOKS. We print mass-market, racksize books for customers including Avon
Books, Bantam Doubleday Dell, Kensington Publishing, Random House and St.
Martin's Press/TOR. We also print hardcover books for the consumer, education
and reference markets on behalf of many of the largest U.S. publishers. Our
hardcover book customers include Grolier, Rand McNally, Random House, Reader's
Digest, Rodale, Thomas Publishing and Time Warner.
7
<PAGE>
DIRECTORIES. We have printed directories since 1981 predominantly through
our relationship with Pacific Bell. We print four-color white page and yellow
page directories for Pacific Bell pursuant to a contract which extends through
the year 2002 and which can be extended by Pacific Bell for up to an additional
three years. We print more than 100 different regional directory titles for
Pacific Bell and certain other customers. We print over 35 million directories
annually.
RECENT DEVELOPMENTS
NOVEMBER NOTES OFFERING. On November 20, 1998, we issued $300.0 million in
aggregate principal amount of 8 3/8% Senior Subordinated Notes due 2008. The net
proceeds from the issuance of these notes was approximately $291.7 million. We
used $160.8 million of the net proceeds to redeem our 9 1/8% Senior Subordinated
Notes due 2003. The remainder of the net proceeds were used to repay borrowings
under our credit facility, all of which may be reborrowed for general corporate
purposes.
EXISTING NOTES REDEMPTION. On December 28, 1998, we redeemed all of the
$150.0 million of outstanding principal amount of our existing 9 1/8% Senior
Subordinated Notes due 2003. The cost of redeeming these notes was $160.8
million, including prepayment premium and accrued interest to the date of
redemption. This early extinguishment of debt generated an extraordinary charge
in the first quarter of fiscal 1999 of approximately $6.0 million net of tax.
FEBRUARY NOTES OFFERING. On February 22, 1999, we issued $300.0 million in
aggregate principal amount of 7 3/4% Senior Subordinated Notes due 2009. The net
proceeds from the issuance of these notes was approximately $294.0 million. We
used: (a) $69.2 million to permanently reduce certain facilities under our
credit facility; and (b) $224.8 million to reduce certain other facilities under
our credit facility, all of which may be reborrowed to fund acquisitions and for
other general corporate purposes.
RECENT RESULTS OF OPERATIONS. Our results for the quarter ended December
27, 1998 included an increase in net sales of 15.6% over the last quarter of
fiscal 1997 to $624.0 million reflecting continued core business growth, the
effects of the acquisitions we completed in fiscal 1998 and sales related to
capital expansion. Operating income increased 21.5% over the last quarter of
fiscal 1997 to $66.6 million. EBITDA (earnings before interest and
securitization fees, taxes and depreciation and amortization) increased 19.1% to
$102.5 million compared with $86.0 million in the fourth quarter of 1997. In
addition, net income increased 22.1% over the last quarter of fiscal 1997 to
$25.5 million. Diluted earnings per share increased 18.9% over the last quarter
of fiscal 1997 to $0.63.
Our results for the year ended December 27, 1998, included an increase in
net sales of 19.0% over the prior year to $2.36 billion and an increase in
operating income of 20.0% over the prior year to $214.2 million. EBITDA
increased 14.4% to $355.0 million compared with $310.3 million for fiscal 1997.
In addition, net income increased 28.6% from fiscal 1997 to $73.6 million, and
diluted earnings per share increased 15.0% from fiscal 1997 to $1.84 for the
year ended December 27, 1998.
CHANGE IN ACCOUNTING PRINCIPLE. In April 1998, the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-up Activities," which requires costs of
start-up activities and organization costs to be expensed as incurred. We will
adopt this SOP in the first quarter of fiscal 1999. We estimate that the
adoption of SOP 98-5 will result in the recognition of a charge to income of
approximately $10.5 million, net of tax, as the cumulative effect of a change in
accounting principle in the first quarter of fiscal 1999.
1999 ACQUISITIONS. In December 1998, we purchased Great Western Publishing,
Inc., establishing us as the second largest offset printer of retail advertising
inserts in the United States. In January 1999, we purchased Infiniti Graphics,
Inc., adding short-run capabilities to our existing northeastern commercial
operations and strengthening our overall position in the northeastern commercial
printing market.
8
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
SECURITIES TO BE EXCHANGED.... On November 20, 1998, we issued $300.0 million in aggregate
principal amount of unregistered notes to the initial
purchasers in a transaction exempt from the registration
requirements of the Securities Act of 1933. The terms of the
registered notes and the unregistered notes are
substantially identical in all material respects, except
that the registered notes will be freely transferable by the
holders thereof except as otherwise provided herein. See
"Description of Registered Notes."
THE EXCHANGE OFFER............ $1,000 principal amount of registered notes in exchange for
each $1,000 principal amount of unregistered notes. As of
the date hereof, unregistered notes representing $300.0
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, we believe
that registered notes issued pursuant to the exchange offer
in exchange for unregistered 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 unregistered 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 registered 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 registered notes.
However, the Securities and Exchange Commission has not
considered the exchange offer in the context of a no-action
letter and 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
registered notes and has no arrangement or understanding to
participate in a distribution of registered notes. Each
broker-dealer that receives registered 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 registered notes. Broker-dealers who acquired
unregistered 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 unregistered notes.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
REGISTRATION RIGHTS
AGREEMENT................... We sold the unregistered notes on November 20, 1998 in a
private placement in reliance on Section 4(2) of the
Securities Act of 1933. The unregistered 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
unregistered 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 unregistered notes and (ii) consummate the
exchange offer on or before the 180th day following the date
on which we issued the unregistered notes. See "The Exchange
Offer--Purpose and Effect."
EXPIRATION DATE............... The exchange offer will expire at 5:00 p.m., New York City
time, April 14, 1999, or such later date and time to which
it is extended.
WITHDRAWAL.................... The tender of the unregistered notes pursuant to the
exchange offer may be withdrawn at any time prior to 5:00
p.m., New York City time, on April 14, 1999, or such later
date and time to which we extend the offer. Any unregistered
notes not accepted for exchange for any reason will be
returned without expense to the tendering holder thereof as
soon as practicable after the expiration or termination of
the exchange offer.
INTEREST ON THE REGISTERED
NOTES AND THE UNREGISTERED
NOTES....................... Interest on the registered notes will accrue from the date
of the original issuance of the unregistered notes or from
the date of the last payment of interest on the unregistered
notes, whichever is later. No additional interest will be
paid on unregistered notes tendered and accepted for
exchange.
CONDITIONS TO THE EXCHANGE
OFFER....................... The exchange offer is subject to certain customary
conditions, certain of which may be waived by us. See "The
Exchange Offer--Certain Conditions to Exchange Offer."
PROCEDURES FOR TENDERING
UNREGISTERED NOTES.......... Each holder of the unregistered 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 unregistered notes and all other
required documentation, to the exchange agent at the address
set forth in this prospectus. Anyone holding the
unregistered notes through the Depository Trust Company
("DTC") and wishing to accept the exchange offer must do so
pursuant to the DTC's Automated 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:
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
- the registered notes acquired pursuant to the exchange
offer are being obtained in the ordinary course of business
of the person receiving such registered notes, whether or
not such person is the registered holder of the
unregistered notes;
- the holder is not engaging in and does not intend to
engage in a distribution of such registered notes;
- the holder does not have an arrangement or understanding
with any person to participate in a distribution of such
registered 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 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 registered 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 unregistered 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 unregistered notes.
We will accept for exchange any and all unregistered notes
which are properly tendered (and not withdrawn) in the
exchange offer prior to 5:00 p.m., New York City time, on
April 14, 1999. The registered notes issued pursuant to the
exchange offer will be delivered promptly following the
expiration date. See "The Exchange Offer-- Terms of the
Exchange Offer."
EXCHANGE AGENT................ The Bank of New York is serving as exchange agent in
connection with the exchange offer.
FEDERAL INCOME TAX
CONSIDERATIONS.............. The exchange of unregistered notes for registered notes
pursuant to the exchange offer should not constitute a sale
or an exchange for federal income tax purposes. See "Certain
Federal Income Tax Considerations."
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
EFFECT OF NOT TENDERING....... Unregistered 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 unregistered notes.
</TABLE>
12
<PAGE>
THE REGISTERED NOTES
The summary below describes the principal terms of the registered notes.
Certain of the terms and conditions described below are subject to important
limitations and exceptions. The "Description of Registered Notes" section of
this prospectus beginning on page 50 contains a more detailed description of the
terms and conditions of the registered notes.
<TABLE>
<S> <C>
TOTAL AMOUNT OF NOTES
OFFERED..................... $300.0 million in principal amount of 8 3/8% Senior
Subordinated Notes due 2008.
MATURITY...................... November 15, 2008.
ISSUE PRICE................... Par plus accrued interest from November 20, 1998.
INTEREST...................... Annual rate--8 3/8%.
Payment frequency-- every six months on May 15 and November
15.
First payment--May 15, 1999.
RANKING....................... These registered notes are senior subordinated debt.
They rank in right of payment behind all of our existing
senior indebtedness and all of our future borrowings, except
trade payables and any existing or future indebtedness that
expressly provides that it ranks equal in right of payment
with, or subordinated in right of payment to, these
registered notes.
Assuming we had completed the February notes offering and
applied the proceeds of the offering as intended and applied
the proceeds from the November offering to redeem certain
indebtedness prior to the 1998 fiscal year end, on December
27, 1998 these registered notes:
- would have been subordinated to $394.3 million of senior
indebtedness; and
- would have ranked equally with $623.5 million of other
senior subordinated indebtedness.
OPTIONAL REDEMPTION........... Before November 15, 2001, we may redeem up to 40% of the
aggregate principal amount of the registered notes with the
proceeds of certain public offerings of equity in our
Company at the price listed in the section "Description of
Registered Notes" under the heading "Optional Redemption;"
PROVIDED that at least 60% in aggregate principal amount of
the registered notes originally issued must remain
outstanding after each such redemption.
On or after November 15, 2003, we may redeem some or all of
the registered notes at any time at the redemption prices
listed in the section "Description of Registered Notes"
under the heading "Optional Redemption."
MANDATORY OFFER TO
REPURCHASE.................. If we sell certain assets, we must offer to repurchase the
registered notes at the prices listed in the section
"Description of Registered Notes."
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
BASIC COVENANTS OF
INDENTURE................... The indenture governing the registered notes contains
covenants limiting our (and most of our subsidiaries')
ability to:
- borrow money;
- pay dividends on stock or purchase stock or redeem debt
that is junior in right of payment to the registered notes;
- make investments;
- use assets as security in other transactions; and
- sell certain assets or merge with or into other companies.
For more details, see the section "Description of Registered
Notes" under the heading "Certain Covenants."
USE OF PROCEEDS............... We will not receive any cash proceeds from the issuance of
the registered notes.
</TABLE>
14
<PAGE>
SUMMARY FINANCIAL DATA
The following summary operating and financial data for the fiscal years
ended December 31, 1995 through December 28, 1997, have been derived from our
consolidated financial statements, which have been audited by Deloitte & Touche
LLP, independent auditors, whose report thereon is included elsewhere in this
prospectus. The following summary operating and financial data for the
nine-month periods ended September 28, 1997 and September 27, 1998 have been
derived from our unaudited condensed consolidated financial statements which, in
the opinion of our management, contain all adjustments (consisting of only
normal and recurring adjustments) necessary to present fairly our 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, our consolidated financial statements and the notes
thereto appearing elsewhere in this prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR (1) NINE MONTHS (1)
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES AND RATIOS)
OPERATING DATA:
Net sales..................................... $ 1,295,582 $ 1,641,412 $ 1,981,225 $ 1,441,266 $ 1,732,890
Cost of sales................................. 1,074,785 1,349,130 1,613,938 1,179,198 1,424,069
------------ ------------ ------------ ------------ ------------
Gross profit.................................. 220,797 292,282 367,287 262,068 308,821
Selling, general and administrative
expenses.................................... 125,539 153,071 188,688 138,287 161,202
Streamlining and other special
charges (2)................................. 40,900 -- -- -- --
------------ ------------ ------------ ------------ ------------
Operating income.............................. 54,358 139,211 178,599 123,781 147,619
Interest expense and securitization fees...... 37,897 58,417 80,039 61,099 65,368
Income tax provision.......................... 6,584 33,533 41,341 26,326 34,134
------------ ------------ ------------ ------------ ------------
Net income.................................... $ 9,877 $ 47,261 $ 57,219 $ 36,356 $ 48,117
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income per common share (3):
Basic....................................... $ 0.31 $ 1.40 $ 1.65 $ 1.08 $ 1.25
Diluted..................................... 0.29 1.35 1.60 1.05 1.21
OTHER OPERATING DATA:
EBITDA (4).................................... $ 169,926 $ 243,704 $ 310,309 $ 224,279 $ 252,467
Adjusted operating income (5)................. 95,258 139,211 178,599 123,781 147,619
Capital expenditures(6)....................... 120,339 70,639 93,145 72,247 88,055
Cash provided by (used in) operations: 6,744 146,583 239,305 151,757 (19,675)
Gross profit margin........................... 17.0% 17.8% 18.5% 18.2% 17.8%
EBITDA margin................................. 13.1 14.8 15.7 15.6 14.6
Adjusted operating income margin.............. 7.4 8.5 9.0 8.6 8.5
Ratio of earnings to fixed charges (7)........ 1.3x 2.2x 2.1x 1.9x 2.0x
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER
27,
BALANCE SHEET DATA: 1998
-------------
<S> <C>
Working capital............................................................ $ 248,200
Property, plant and equipment, net......................................... 912,878
Total assets............................................................... 2,303,206
Long-term debt (including current maturities).............................. 1,115,842
Stockholders' equity....................................................... 640,389
</TABLE>
(FOOTNOTES ON NEXT PAGE)
15
<PAGE>
- ------------------------
(1) The fiscal years shown each represent the 52 or 53-week period ending on
the last Sunday in December. Fiscal year 1995 consisted of 53 weeks. Fiscal
years 1996 and 1997 each consisted of 52 weeks. The nine-month periods ended
September 28, 1997 and September 27, 1998 each consisted of 39 weeks.
(2) In the fourth quarter of 1995, we recorded a streamlining charge of $40,900
($24,540 net of tax benefits). This charge, which was primarily non-cash,
was related to the realignment of certain business operations which resulted
in the writedown of certain assets and a provision for other associated
costs. See Note 15 to our consolidated financial statements.
(3) In accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," we have calculated net income per common share--basic
and diluted based on the weighted average shares and dilutive common
equivalent shares outstanding, as applicable, during each period after
giving effect to the change in our capital structure pursuant to the Merger
and Options Adjustments (as defined in the Notes to the consolidated
financial statements).
(4) EBITDA represents earnings before interest expense and securitization fees,
income taxes, depreciation, amortization and non-recurring streamlining and
other special charges. EBITDA is not intended to represent cash flows for
the period, is not presented as an alternative to operating income as an
indicator of operating performance, may not be comparable to other similarly
titled measures of other companies and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. See our consolidated financial
statements and the notes thereto appearing elsewhere in this prospectus.
(5) Adjusted operating income represents operating income before non-recurring
streamlining and other special charges. Adjusted operating income is not
intended to represent cash flows for the period, is not presented as an
alternative to operating income as an indicator of operating performance,
may not be comparable to other similarly titled measures of other companies
and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. See our consolidated financial statements and the notes thereto
appearing elsewhere in this prospectus.
(6) Capital expenditures for the nine month period ended September 27, 1998 are
net of proceeds of $60,700 from the sale-leaseback of certain equipment.
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges (other than
capitalized interest) and amortization of previously capitalized interest.
Fixed charges consist of interest expense and debt issuance cost,
capitalized interest and that portion of rental expenses representative of
the interest factor. The 1995 ratio reflects the 1995 streamlining charge of
$40,900 discussed in footnote (2). Excluding the effect of this charge the
1995 ratio would be 2.2x.
16
<PAGE>
RISK FACTORS
THIS PROSPECTUS INCLUDES "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, INCLUDING, IN PARTICULAR, THE STATEMENTS ABOUT OUR PLANS,
STRATEGIES, AND PROSPECTS UNDER THE HEADINGS "SUMMARY," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS."
ALTHOUGH WE BELIEVE THAT OUR PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN OR
SUGGESTED BY SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO
ASSURANCE THAT SUCH PLANS, INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
FORWARD LOOKING STATEMENTS WE MAKE IN THIS PROSPECTUS ARE SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS, AND INCLUDE CHANGES IN OUR CUSTOMERS' DEMANDS FOR
OUR PRODUCTS, CHANGES IN THE COSTS AND AVAILABILITY OF OUR RAW MATERIALS AND
EQUIPMENT, SEASONAL CHANGES IN CUSTOMER ORDERS, PRICING ACTIONS BY OUR
COMPETITORS, CHANGES IN ESTIMATES OF OUR READINESS AND THE READINESS OF OUR
VENDORS AND CUSTOMERS WITH REGARD TO YEAR 2000 ISSUES AND THE SIGNIFICANCE OF
THE COSTS THEREOF, AND GENERAL CHANGES IN ECONOMIC CONDITIONS. ALL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING ON OUR BEHALF
ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE FOLLOWING CAUTIONARY
STATEMENTS.
FAILURE TO EXCHANGE NOTES--YOUR FAILURE TO TENDER YOUR UNREGISTERED NOTES IN THE
EXCHANGE OFFER COULD LIMITED THE TRADING MARKET AND TRADING VALUE OF YOUR
UNREGISTERED NOTES.
Registered notes will be issued in exchange for unregistered notes only
after timely receipt by the exchange agent of the unregistered notes, a properly
completed and duly executed letter of transmittal and all other required
documentation. Therefore, holders of unregistered notes who want to tender their
unregistered notes in exchange for registered notes should allow sufficient time
to ensure timely delivery. Neither the exchange agent nor World Color is under
any obligation to notify holders of defects or irregularities with respect to
tenders of unregistered notes for exchange. Unregistered notes that are not
exchanged in the exchange offer will continue to be subject to the existing
restrictions upon transfer thereof. Each broker-dealer that receives registered
notes for its own account in exchange for unregistered notes, where such
unregistered notes were acquired by the broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such registered
notes.
The trading market for unregistered notes that are not exchanged in the
exchange offer could be adversely affected due to the limited amount, or
"float," of the unregistered notes that are expected to remain outstanding
following the exchange offer. Generally, a lower "float" of a security could
result in less demand to purchase such security and could, therefore, result in
lower prices for such security. For the same reason, to the extent that a large
amount of unregistered notes are not exchanged in the exchange offer, the
trading market for the registered notes could be adversely affected. See "Plan
of Distribution" and "The Exchange Offer."
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THESE REGISTERED NOTES IS
JUNIOR TO OUR EXISTING INDEBTEDNESS AND, POSSIBLY, ALL OF OUR FUTURE BORROWINGS.
These registered notes rank in right of payment behind all of our existing
senior indebtedness and all of our future borrowings, except trade payables and
any existing or future indebtedness that expressly provides that it ranks equal
in right of payment with, or subordinated in right of payment to, the registered
notes. Assuming we had completed the February notes offering, applied the
proceeds as intended and used the proceeds from the November notes offering to
redeem certain indebtedness prior to the 1998 fiscal year end, at December 27,
1998:
- these registered notes would have been subordinated to $394.3 million of
senior indebtedness;
- we would have had approximately $522.0 million available for borrowing as
additional senior indebtedness under our credit facility; and
17
<PAGE>
- these registered notes would have ranked equally with $623.5 million of
other senior subordinated indebtedness and trade payables.
We will be permitted to borrow substantial additional indebtedness,
including senior indebtedness, in the future under the terms of our credit
facility and our indentures. As a result, upon any distribution to our creditors
in a bankruptcy, liquidation or reorganization or similar proceeding relating to
us or our property, the holders of our senior indebtedness will be entitled to
be paid in full in cash before any payment may be made with respect to these
registered notes. In addition, because the indenture requires that amounts
otherwise payable to holders of the registered notes in a bankruptcy or similar
proceeding be paid to holders of senior indebtedness instead, holders of the
registered notes may receive less, ratably, than holders of trade payables in
any such proceeding. Further, if any cash or assets are available after
distributing to holders of our senior indebtedness, you will have to share such
cash or assets with indebtedness that ranks equal to the registered notes.
In addition, all payments on the registered notes will be blocked in the
event of a payment default on our senior indebtedness and may be blocked for up
to 179 of 360 consecutive days in the event of certain non-payment defaults on
our senior indebtedness.
Our obligations under the credit facility are guaranteed, subject to certain
limitations, by all of our subsidiaries. The registered notes are not, and the
registered notes will not be, guaranteed by such subsidiaries. A significant
portion of our assets are owned by our subsidiaries. Our right, and thus the
right of our creditors, to participate in any distribution of earnings or assets
of our subsidiaries is subject to the prior claims of the creditors of such
subsidiaries, including the lenders under the credit facility.
COMPETITION--THE HIGH LEVEL OF COMPETITION IN THE PRINTING INDUSTRY MAY LEAD TO
CONTINUED PRESSURE TO DECREASE PRICES.
Although we are one of the largest diversified commercial printers in the
United States, the industry is highly competitive in most product categories and
geographic regions. Our industry is experiencing excess capacity. Further, the
industries that we serve have been subject to consolidation efforts, leading to
a smaller number of potential customers who exercise increased pricing leverage
over our industry. Primarily as a result of this excess capacity and customer
consolidation, there has been, and will continue to be, downward pricing
pressure and increased competition in the printing industry.
TECHNOLOGY--BECAUSE PRODUCTION TECHNOLOGIES CONTINUE TO EVOLVE, WE MAY BE
REQUIRED TO MAKE SIGNIFICANT CAPITAL EXPENDITURES TO REMAIN TECHNOLOGICALLY AND
ECONOMICALLY COMPETITIVE.
Production technology in the printing industry has evolved and continues to
evolve. Although we have invested approximately $520.8 million in equipment and
plant expansions (exclusive of equipment obtained in acquisitions) since the
beginning of fiscal 1993, we may be required to invest significant capital in
additional production technology in order to remain competitive.
ACQUISITIONS--OUR GROWTH STRATEGY DEPENDS, IN PART, UPON GROWTH THROUGH
ACQUISITIONS, MAKING US VULNERABLE TO FINANCING RISKS AND THE CHALLENGES OF
INTEGRATING NEW OPERATIONS INTO OUR OWN.
In order to expand our services and geographic presence, diversify our
business mix and lead the consolidation trend in the printing industry, our
business strategy includes growth through acquisitions. We cannot assure you
that future acquisition opportunities will exist on acceptable terms or that any
newly acquired companies will be successfully integrated into our operations. We
may use our common stock or we may incur additional long-term indebtedness or a
combination of both for all or a portion of the consideration to be paid in
future acquisitions. We cannot assure you that we will be able to secure any
such financing upon acceptable terms. While we continuously evaluate
opportunities to make strategic acquisitions, we have no present commitments or
agreements with respect to any material acquisitions.
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER--YOU CANNOT BE SURE THAT AN
ACTIVE TRADING MARKET WILL DEVELOP FOR THE REGISTERED NOTES.
18
<PAGE>
The unregistered notes were not listed on any securities exchange. Prior to
the November offering of unregistered notes, there had been no market for the
unregistered notes. Since the issuance of the unregistered notes, there has been
a limited trading market for the notes and there can be no assurance that such
market will provide adequate liquidity for holders who want to sell their notes.
The registered notes will not be listed on any securities exchange. The
registered notes are new securities for which there is currently no market. The
registered notes may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities, our
performance and other factors. We have been advised by BT Alex. Brown
Incorporated and CIBC Oppenheimer Corporation that they intend to make a market
in the registered notes, as well as the unregistered notes, as permitted by
applicable laws and regulations. However, they are not obligated to do so and
their market making activities may be discontinued at any time without notice.
In addition, their market making activities may be limited during the exchange
offer and the pendency of the shelf registration statement. Therefore, there can
be no assurance that an active market for the registered notes will develop. See
"The Exchange Offer" and "Plan of Distribution."
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the registered
notes. In consideration for issuing the registered notes as contemplated in this
prospectus, we will receive in exchange unregistered notes in like principal
amount, which will be canceled. Accordingly, there will not be any increase in
our outstanding indebtedness.
19
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents and our
consolidated capitalization as of September 27, 1998 on an actual basis and as
adjusted for the notes offering in February 1999, the notes offering in November
1998 and the application of the net proceeds of the offerings. See "Use of
Proceeds." The information below should be read in conjunction with our
consolidated financial statements and the notes thereto included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 27, 1998
--------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
(IN THOUSANDS)
<CAPTION>
<S> <C> <C>
Cash and cash equivalents............................................................. $ 23,621 $ 57,771
------------ ------------
------------ ------------
Debt:
Borrowings under the credit facility (1)(2)......................................... $ 752,200 $ 360,753
9 1/8% Senior Subordinated Notes due 2003(3)........................................ 150,000 --
8 3/8% Senior Subordinated Notes due 2008........................................... -- 300,000
7 3/4% Senior Subordinated Notes due 2009........................................... -- 300,000
6% Convertible Senior Subordinated Notes due 2007................................... 151,800 151,800
Other debt (4)...................................................................... 61,842 61,842
------------ ------------
Total debt...................................................................... $ 1,115,842 $ 1,174,395
------------ ------------
Stockholders' equity:
Common stock, $0.01 par value--authorized, 100,000,000 shares; issued and
outstanding, 38,589,142 at September 27, 1998 (5)................................. $ 386 $ 386
Additional paid-in capital.......................................................... 715,060 715,060
Accumulated deficit (3)............................................................. (66,923) (72,931)
Treasury stock, at cost: 185,100 shares............................................. (5,609) (5,609)
Unamortized restricted stock compensation........................................... (2,525) (2,525)
------------ ------------
Total stockholders' equity...................................................... 640,389 634,381
------------ ------------
Total capitalization.................................................................. $ 1,756,231 $ 1,808,776
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) At September 27, 1998, commitments under the credit facility aggregated
$920,000, and the weighted average interest rate of all outstanding
borrowings under the credit facility was 6.29%.
(2) Includes current maturities of $28,725.
(3) On December 28, 1998, we redeemed all of the $150,000 of outstanding
principal amount of our 9 1/8% Senior Subordinated Notes due 2003 at a cost
of $160,800, including prepayment premium and accrued interest to the date
of redemption. In connection with the redemption of such notes, we
recognized an extraordinary charge of $6,008 for the extinguishment of debt.
(4) Includes current maturities of $9,156.
(5) Does not include 2,997,032 shares of common stock issuable upon exercise of
outstanding stock options (of which 1,698,659 were then exercisable) and
3,660,477 shares of common stock issuable upon conversion of the convertible
notes.
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected operating and financial data for the five fiscal
years ended December 28, 1997 have been derived from our audited consolidated
financial statements. The following selected operating and financial data for
the nine-month periods ended September 28, 1997 and September 27, 1998 have been
derived from our unaudited condensed consolidated financial statements which, in
the opinion of management, contain all adjustments (consisting of only normal
and recurring adjustments) necessary to present fairly our financial position
and results of operations at such dates and for such periods. The data presented
below should be read in conjunction with, and is qualified in its entirety by
reference to, our consolidated financial statements and the notes thereto
appearing elsewhere in this prospectus. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR (1) (1)
------------------------------------------------------------ -----------
1993 1994 1995 1996 1997 1997
---------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES AND RATIOS)
OPERATING DATA:
Net sales...................................... $ 825,569 $ 971,627 $ 1,295,582 $ 1,641,412 $ 1,981,225 $ 1,441,266
Cost of sales.................................. 715,895 817,934 1,074,785 1,349,130 1,613,938 1,179,198
---------- --------- ----------- ----------- ----------- -----------
Gross profit................................... 109,674 153,693 220,797 292,282 367,287 262,068
Selling, general and administrative expenses... 69,688 90,312 125,539 153,071 188,688 138,287
Streamlining and other special
charges (2).................................. 98,000 -- 40,900 -- -- --
---------- --------- ----------- ----------- ----------- -----------
Operating income (loss)........................ (58,014) 63,381 54,358 139,211 178,599 123,781
Interest expense and securitization fees....... 25,080 23,825 37,897 58,417 80,039 61,099
Income tax provision (benefit)................. (24,700) 15,822 6,584 33,533 41,341 26,326
Extraordinary charge (3)....................... 7,007 -- -- -- -- --
Cumulative effect of changes in accounting
methods (4).................................. 55,900 -- -- -- -- --
---------- --------- ----------- ----------- ----------- -----------
Net income (loss).............................. $ (121,301) $ 23,734 $ 9,877 $ 47,261 $ 57,219 $ 36,356
---------- --------- ----------- ----------- ----------- -----------
---------- --------- ----------- ----------- ----------- -----------
Net income (loss) per common share (5):
Basic........................................ $ (4.26) $ 0.74 $ 0.31 $ 1.40 $ 1.65 $ 1.08
Diluted...................................... (4.26) 0.69 0.29 1.35 1.60 1.00
OTHER OPERATING DATA:
EBITDA (6)..................................... $ 103,651 $ 124,023 $ 169,926 $ 243,704 $ 310,309 $ 224,279
Adjusted operating income (7).................. 39,986 63,381 95,258 139,211 178,599 123,781
Capital expenditures (8)....................... 57,234 83,875 120,339 70,639 93,145 72,247
Cash provided by (used in) operations.......... 83,208 100,124 6,744 146,583 239,305 151,757
Gross profit margin............................ 13.3% 15.8% 17.0% 17.8% 18.5% 18.2%
EBITDA margin.................................. 12.6 12.8 13.1 14.8 15.7 15.6
Adjusted operating income margin............... 4.8 6.5 7.4 8.5 9.0 8.6
Ratio of earnings to fixed charges (9)(10)..... -- 2.1x 1.3x 2.2x 2.1x 1.9x
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................ $ 83,125 $ 113,144 $ 160,835 $ 227,068 $ 168,752 $ 180,411
Property, plant and equipment, net............. 356,060 363,929 480,421 818,157 857,195 879,451
Total assets................................... 818,130 837,417 1,150,728 1,822,432 1,933,571 1,966,932
Long-term debt (including current maturities).. 323,118 293,515 487,106 897,867 819,113 1,001,830
Stockholders' equity........................... 247,570 274,113 358,766 414,932 599,769 451,371
<CAPTION>
1998
-----------
<S> <C>
OPERATING DATA:
Net sales...................................... $ 1,732,890
Cost of sales.................................. 1,424,069
-----------
Gross profit................................... 308,821
Selling, general and administrative expenses... 161,202
Streamlining and other special
charges (2).................................. --
-----------
Operating income (loss)........................ 147,619
Interest expense and securitization fees....... 65,368
Income tax provision (benefit)................. 34,134
Extraordinary charge (3)....................... --
Cumulative effect of changes in accounting
methods (4).................................. --
-----------
Net income (loss).............................. $ 48,117
-----------
-----------
Net income (loss) per common share (5):
Basic........................................ $ 1.25
Diluted...................................... 1.21
OTHER OPERATING DATA:
EBITDA (6)..................................... $ 252,467
Adjusted operating income (7).................. 147,619
Capital expenditures (8)....................... 88,055
Cash provided by (used in) operations.......... (19,675)
Gross profit margin............................ 17.8%
EBITDA margin.................................. 14.6
Adjusted operating income margin............... 8.5
Ratio of earnings to fixed charges (9)(10)..... 2.0x
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................ $ 248,200
Property, plant and equipment, net............. 912,878
Total assets................................... 2,303,206
Long-term debt (including current maturities).. 1,115,842
Stockholders' equity........................... 640,389
</TABLE>
(FOOTNOTES ON NEXT PAGE)
21
<PAGE>
- ------------------------
(1) The fiscal years shown each represent the 52 or 53-week period ending on the
last Sunday in December. Fiscal year 1995 consisted of 53 weeks. Fiscal
years 1993, 1994, 1996 and 1997 each consisted of 52 weeks. The nine-month
periods ended September 28, 1997 and September 27, 1998 each consisted of 39
weeks.
(2) See Note 15 to our consolidated financial statements regarding the 1995
amount. Operating income in 1993 was reduced by $98,000 of special charges.
These charges reflect our strategy in 1993 to grant price concessions to
certain significant customers to renew and extend long-term contracts in
advance of their expiration dates and to streamline its operations in
response to the continuing competitive marketplace.
(3) The 1993 extraordinary charge of $7,007 represents a writeoff, net of an
income tax benefit of $4,670, of deferred financing costs related to early
repayments of indebtedness during 1993.
(4) Effective December 28, 1992, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and SFAS No. 109, "Accounting For Income
Taxes." Effective this same date, we also elected early adoption of SFAS No.
112, "Employers' Accounting for Postemployment Benefits." The cumulative
effect of adopting these new accounting standards was a non-cash charge to
income of $55,900, net of an income tax benefit of $22,100.
(5) EBITDA represents earnings before interest expense and securitization fees,
income taxes, depreciation, amortization and non-recurring streamlining and
other special charges. EBITDA is not intended to represent cash flows for
the period, is not presented as an alternative to operating income as an
indicator of operating performance, may not be comparable to other similarly
titled measures of other companies and should not be considered in isolation
or as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. See our consolidated financial
statements and the notes thereto appearing elsewhere in this prospectus.
(6) In accordance with SFAS No. 128, "Earnings Per Share," we have calculated
net income (loss) per common share--basic and diluted based on the weighted
average shares and dilutive common equivalent shares outstanding, as
applicable, during each period after giving effect to the change in our
capital structure pursuant to the Merger and Options Adjustments (as defined
in the notes to the consolidated financial statements).
(7) Adjusted operating income represents operating income before non-recurring
streamlining and other special charges. Adjusted operating income is not
intended to represent cash flows for the period, is not presented as an
alternative to operating income as an indicator of operating performance,
may not be comparable to other similarly titled measures of other companies
and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. See our consolidated financial statements and the notes thereto
appearing elsewhere in this prospectus.
(8) Capital expenditures for the nine month period ended September 27, 1998 are
net of proceeds of $60,700 from the sale-leaseback of certain equipment.
(9) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges (other than
capitalized interest) and amortization of previously capitalized interest.
Fixed charges consist of interest expense and debt issuance cost,
capitalized interest and that portion of rental expenses representative of
the interest factor. The 1995 ratio reflects the 1995 streamlining charge of
$40,900 discussed in footnote (2). Excluding the effect of this charge the
1995 ratio would be 2.2x.
(10) Our earnings were inadequate to cover fixed charges by $83,014 in 1993.
Adjusted to eliminate non-cash charges of depreciation and amortization of
$63,665, as well as the non-recurring streamlining charge of $98,000, 1993
earnings would have exceeded fixed charges by $78,651. Excluding the effect
of this charge the 1993 ratio would be 1.5x.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
GENERAL
We are a diversified commercial printer serving customers in the commercial,
magazine, catalog, direct mail, book and directory markets. Our objective is to
continue our growth in net sales, operating income, operating income margin and
net income. We have achieved compound annual growth rates in net sales and
adjusted operating income over the past eight fiscal years of 20.7% and 37.6%,
respectively, and have grown net income from a net loss of $58.7 million in 1991
to net income of $73.6 million for the year ended December 27, 1998.
Our revenues are derived primarily from the sale of services and materials
to our customer base, including digital and prepress services, press and binding
services and distribution and logistics services. We have a broad and diverse
customer base, of which no one customer accounted for more than 5.0% of 1998 net
sales. We continue to experience significant pricing pressure within our
industry.
Operating expenses include primarily the cost of paper and ink, salaries and
employee benefits, occupancy, depreciation and amortization and other general
and administrative expenses. We are focused on providing high-quality services
within a low cost structure by, among other things, increasing efficiency and
productivity and matching costs to revenues.
Our net sales include sales to certain customers of paper that we purchase.
The price of paper, our primary raw material, is volatile over time and may
cause significant swings in net sales and cost of sales. We generally are able
to pass on increases in the cost of paper to our customers, while declines in
paper costs result in lower prices to our customers. The paper market firmed in
pricing from early 1997 to late 1997. The paper market in 1998 softened from
late 1997. Prices continued to decline throughout 1998 as availability became
plentiful for most grades of paper. We anticipate that this trend will continue
in 1999. We believe we have adequate allocations with our paper suppliers to
meet our customers' needs. Our contracts with our customers generally provide
for price adjustments to reflect price changes for other materials, wages and
outside services.
Our operations are seasonal with approximately two-thirds of historical
operating profits recognized in the second half of the fiscal year, primarily
due to the higher number of magazine pages, new product launches and
back-to-school and holiday catalog promotions.
ACQUISITION HISTORY
We have completed 22 strategic acquisitions since the beginning of 1993
having a combined purchase price of approximately $1.3 billion, including two
acquisitions that have been completed since the beginning of fiscal 1999 having
a combined purchase price of approximately $60.0 million, including assumed
indebtedness, and four acquisitions that were completed in fiscal 1998 having a
combined purchase price of approximately $200.0 million, including assumed
indebtedness. These acquisitions have enabled us to diversify our business mix
and to expand our services and geographic presence. The following table
summarizes these acquisitions.
23
<PAGE>
<TABLE>
<CAPTION>
DATE ACQUISITION LOCATION STRATEGIC BENEFITS
- -------------- ------------------------ ----------------------- ---------------------------------------------
<S> <C> <C> <C>
January 1999 INFINITI GRAPHICS, INC. Enfield, CT STRENGTHENED OVERALL POSITION AS LEADER IN
NORTHEASTERN COMMERCIAL MARKET. ADDED
SHORT-RUN CAPABILITIES TO EXISTING
NORTHEASTERN COMMERCIAL OPERATIONS.
December 1998 GREAT WESTERN Phoenix, AZ/ Salt Lake ESTABLISHED US AS THE SECOND LARGEST OFFSET
PUBLISHING, INC. City, UT/ Ontario, CA/ PRINTER OF RETAIL ADVERTISING INSERTS IN THE
Houston, TX UNITED STATES.
April 1998 ACME PRINTING COMPANY, Wilmington, MA EXPANDED EAST COAST PRESENCE IN THE PRINTING
INC. OF HIGH- END COMMERCIAL PRODUCTS. ENHANCED
OUR POSITION AS A LEADING PRINTER OF ANNUAL
REPORTS.
March 1998 DITTLER BROTHERS, Atlanta, GA/Oakwood, GA EXPANDED AND ENHANCED DIRECT MAIL
INCORPORATED CAPABILITIES. ESTABLISHED US AS AN INDUSTRY
LEADER IN THE PRODUCTION OF UNIQUE AND
INTRICATE CONSUMER-INVOLVEMENT PROMOTIONAL
GAME PIECES.
February 1998 CENTURY GRAPHICS Metairie, LA/Omaha, ESTABLISHED US AS THE THIRD LARGEST OFFSET
CORPORATION NE/Winchester, PRINTER OF RETAIL ADVERTISING INSERTS.
VA/South Windsor, CT
January 1998 MAGNA GRAPHIC, INC. Lexington, KY DIGITAL PREPRESS ACQUISITION FURTHER
EXPANDING OUR SERVICES TO THE EDUCATIONAL
BOOK MARKET.
July 1997 THE JOHNSON & HARDIN CO. Lebanon, OH/Red Bank, COMPLEMENTARY SHORT TO MEDIUM-RUN PRINTER
OH SERVICING THE MAGAZINE AND COMMERCIAL MARKET
SECTORS, LOCATED IN THE MID-REGION OF THE
COUNTRY; PROVIDED VALUABLE SHORT CUT-OFF
PRESS CAPACITY.
January 1997 RAND MCNALLY BOOK & Versailles, KY/Taunton, ESTABLISHED PRESENCE AS A PRINTER OF
MEDIA SERVICES COMPANY MA HARDCOVER BOOKS; COMPLEMENTARY TO OPERATIONS
SERVICING MASS-MARKET, RACKSIZE BOOK
PUBLISHERS.
October 1996 MT/ORLANDO, INC. Orlando, FL COMPLEMENTARY EXPANSION OF COMMERCIAL
OPERATING PRESENCE IN SOUTHEASTERN REGION.
August 1996 ISA DIRECT, INC. Aurora, IL INCREASED NATIONAL PRESENCE AS A PRINTER OF
DIRECT MAIL MATERIALS; PROVIDED DIRECT
IMAGING AND PERSONALIZATION CAPABILITIES.
June 1996 KRUEGER ACQUISITION Itasca, IL SIGNIFICANT EXPANSION OF CATALOG AND MAGAZINE
CORPORATION (RINGIER (headquarters) PRINTING CAPABILITIES; PROVIDED ENTRY INTO
AMERICA) PRINTING FOR MASS-MARKET, RACKSIZE BOOK
PUBLISHERS.
April 1996 SHEA COMMUNICATIONS Oklahoma City, OK COMPLEMENTARY EXPANSION OF COMMERCIAL,
COMPANY CATALOG AND DIRECT MAIL PRINTING
CAPABILITIES.
February 1996 VIKING COLOR Los Angeles, CA INCREASED NATIONAL DIGITAL PREPRESS
CAPABILITIES.
November 1995 DIGITAL PRE-PRESS, INC. New York, NY INCREASED NATIONAL DIGITAL PREPRESS
CAPABILITIES.
September 1995 IMAGE TECHNOLOGIES, INC. St. Petersburg, FL ESTABLISHED PRESENCE AS AN INTERACTIVE,
MULTI-MEDIA SERVICE PROVIDER.
March 1995 THE WESSEL COMPANY, INC. Elk Grove Village, IL STRENGTHENED PRESENCE AS A PRINTER OF DIRECT
MAIL MATERIALS.
March 1995 NORTHEAST GRAPHICS INC. North Haven, CT COMPLEMENTARY EXPANSION OF COMMERCIAL
OPERATING PRESENCE IN NORTHEASTERN REGION.
March 1995 THE LANMAN COMPANIES,
INC.:
Lanman Progressive Washington, D.C. INCREASED NATIONAL DIGITAL PREPRESS
CAPABILITIES.
Lanman Lithotech, Inc. Orlando, FL INCREASED NATIONAL DIGITAL PREPRESS
CAPABILITIES.
Central Florida Press, Orlando, FL EXPANDED COMMERCIAL CAPABILITIES AND
L.L.C. OPERATING PRESENCE IN SOUTHEASTERN REGION.
May 1994 UNIVERSAL GRAPHICS Warren, MI INCREASED NATIONAL DIGITAL PREPRESS
CORPORATION CAPABILITIES.
February 1994 WEB INSERTS/ Gainesville, GA INCREASED PRESENCE AS A PRINTER FOR CATALOG
ATLANTA, INC. INSERT AND DIRECT MAIL PUBLISHERS.
December 1993 GEORGE RICE & SONS Los Angeles, CA ESTABLISHED WEST COAST PRESENCE IN THE
PRINTING OF HIGH-END COMMERCIAL PRODUCTS.
February 1993 THE ALDEN PRESS COMPANY Elk Grove Village, IL SIGNIFICANTLY INCREASED PRESENCE AS A PRINTER
FOR THE SPECIALTY CONSUMER CATALOG AND DIRECT
MAIL PUBLISHERS.
</TABLE>
24
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 27, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 28,
1997
Net sales increased $291.6 million or 20.2% to $1,732.9 million in 1998 from
$1,441.3 million in 1997. The increase was due to the inclusion of sales from
the 1997 and 1998 acquisitions, higher paper prices and volume and improved base
business performance.
Gross profit increased $46.8 million or 17.8% to $308.8 million in 1998 from
$262.1 in 1997. The gross profit margin decreased to 17.8% from 18.2% in 1997
due to increased sales resulting from higher paper prices and volume, slightly
offset by the benefits of certain cost reduction initiatives and other synergies
resulting from the combination of acquisitions and increased plant utilization.
Selling, general and administrative expenses increased $22.9 million or
16.6% to $161.2 million in 1998 from $138.3 million in 1997. The increase was
attributable to the 1997 and 1998 acquisitions, including the related additional
amortization expense for goodwill, offset by benefits derived from cost saving
initiatives.
Interest expense and securitization fees increased $4.3 million or 7.0% to
$65.4 million in 1998 from $61.1 million in 1997. The increase was attributable
to higher average borrowings incurred to fund acquisitions, capital expenditures
and working capital requirements, offset by a lower average cost of funds.
The effective tax rate, primarily composed of the combined federal and state
statutory rates, was 41.5% for the first nine months of 1998 compared to 42.0%
for the comparable period in 1997.
YEAR ENDED DECEMBER 28, 1997 COMPARED TO YEAR ENDED DECEMBER 29, 1996
Net sales increased $339.8 million or 20.7% to $1,981.2 million in 1997 from
$1,641.4 million in 1996. The increase was attributable to the inclusion of both
a full year of results from the acquisitions in 1996 and results from the
acquisitions in 1997, as well as improved sales in our base business.
Gross profit increased $75.0 million or 25.7% to $367.3 million in 1997 from
$292.3 million in 1996, due primarily to the inclusion of the acquisitions in
1996 and 1997. Gross profit margin improved to 18.5% in 1997 from 17.8% in 1996.
This improvement is a result of the acquisitions in 1996 and 1997, including the
benefits of certain cost reduction initiatives and other synergies resulting
from the combination of the businesses.
Selling, general and administrative expenses increased $35.6 million or
23.3% to $188.7 million in 1997 from $153.1 million in 1996. The increase is
attributable to the acquisitions in 1996 and 1997, including the related
additional amortization expense for goodwill, offset by benefits derived from
cost saving initiatives. In addition, in 1997 we incurred a higher than usual
provision for bad debts related to a customer that entered into bankruptcy.
Interest expense and securitization fees increased $21.6 million or 37.0% to
$80.0 million in 1997 from $58.4 million in 1996. The increase is attributable
to higher average borrowings incurred to fund acquisitions, capital expenditures
and working capital requirements. The 1997 amount includes $5.1 million of fees
resulting from our asset securitization arrangement entered into on June 30,
1997. See "--Liquidity and Capital Resources."
The effective tax rate, primarily composed of the combined federal and state
statutory rates, was approximately 42.0% for 1997 and 41.5% for 1996. This
slight increase was due to additional nondeductible amortization expense for
goodwill resulting from acquisitions.
25
<PAGE>
YEAR ENDED DECEMBER 29, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales increased $345.8 million or 26.7% to $1,641.4 million in 1996 from
$1,295.6 million in 1995. The increase was due to acquisitions in 1996,
partially offset by lower paper prices. 1996 net sales also benefited slightly
by continued business growth from new and existing customers.
Gross profit increased $71.5 million or 32.4% to $292.3 million in 1996 from
$220.8 million in 1995. The increase is attributable to the inclusion of
acquisitions in 1996, as well as increased volume and improved operating
efficiencies. Gross profit margin improved to 17.8% in 1996 from 17.0% in 1995
as a result of acquisitions in 1996, including certain cost savings and other
operating synergies that have resulted from the combination of the businesses,
along with the effect of lower paper prices.
Selling, general and administrative expenses increased $27.5 million or
21.9% to $153.1 million in 1996 from $125.5 million in 1995. The increase is
partially attributable to acquisitions in 1996, including the related additional
amortization expense for goodwill, as well as increased selling expenses related
to higher volume.
Operating income increased $84.9 million or 156.1% to $139.2 million in 1996
from $54.4 million in 1995. The increase is attributable to the factors
discussed in the preceding paragraphs, and the absence in 1996 of a streamlining
charge of $40.9 million recorded in the fourth quarter of 1995, when we
finalized and committed to a plan to realign certain business operations. The
major components of this realignment plan were to close a facility and to
consolidate certain digital prepress operations and functions. Before the
reduction for the 1995 streamlining charge, 1996 operating income increased
$44.0 million or 46.1%.
Interest expense increased $20.5 million or 54.1% to $58.4 million in 1996
from $37.9 million in 1995. The increase is attributable to higher average
borrowings incurred to fund acquisitions in 1996 and capital expenditures,
partially offset by a slight benefit from a lower average cost of funds.
The effective income tax rate was approximately 41.5% for 1996 and 40.0% for
1995, and was primarily composed of the combined federal and state statutory
rates.
LIQUIDITY AND CAPITAL RESOURCES
We have historically met our liquidity and capital investment needs with
cash flow from operations and external borrowings. Net income plus depreciation
and amortization, deferred taxes, and streamlining charge was $124.7 million,
$165.3 million and $203.2 million for the fiscal years 1995, 1996 and 1997,
respectively, and was $146.3 million and $164.7 million for the first nine
months of 1997 and 1998, respectively. Cash flow from operations was primarily
used to fund working capital requirements, capital expenditures and
acquisitions.
Working capital was $160.8 million, $227.1 million and $168.8 million at
December 31, 1995, December 29, 1996 and December 28, 1997, respectively, and
was $180.4 million and $248.2 million at September 28, 1997 and September 27,
1998, respectively.
Capital expenditures totaled $120.3 million, $70.6 million and $93.1 million
in 1995, 1996 and 1997, respectively. Capital expenditures, net of proceeds of
$60.7 million from the sale-leaseback of certain equipment, were $88.1 million
for the first nine months of 1998. These capital expenditures reflect the
purchase of additional press and bindery equipment and other capital items.
These capital expenditures have increased our capacity and are part of our
ongoing program to maintain modern, efficient plants and continually increase
productivity. Capital expenditures, net of proceeds of $88.5 million from the
sale and leaseback of certain equipment, were $95.5 million for the full year
ended 1998.
Our capital expenditures and acquisitions have been funded through
operations and borrowings under our Second Amended and Restated Credit Agreement
dated as of June 6, 1996, as amended. In June 1997, this credit facility was
amended in conjunction with the sale of accounts receivable described below.
After giving effect to this amendment, certain pay-downs and concurrent
commitment reductions, the credit
26
<PAGE>
facility provides for aggregate total commitments of $920.0 million, comprised
of $95.0 million in term loan commitments, $250.0 million of revolving loan
commitments and $575.0 million in acquisition term loan commitments. The credit
facility provides for varying semi-annual reductions in commitments through
maturity on December 31, 2002. Borrowings bear interest at rates that fluctuate
with the prime rate and Eurodollar rate. As of September 27, 1998, we had
unutilized commitments of $146.1 million under our credit facility.
Concurrently with the amendment to the credit facility, on June 30, 1997, we
entered into an agreement to sell, on a revolving basis for a period of up to
five years, certain of our accounts receivable to a wholly-owned subsidiary,
which entered into an agreement to transfer, on a revolving basis, an undivided
percentage ownership interest in a designated pool of accounts receivable to a
maximum of $204.0 million. At September 27, 1998, $200.0 million of accounts
receivable had been sold and reflected as a reduction of accounts receivable.
The net proceeds were primarily used to repay certain indebtedness incurred
under our credit facility. Fees associated with the securitization vary based on
commercial paper rates plus a margin, providing a lower effective rate than that
available from our traditional funding sources.
On October 8, 1997, we issued 4,600,000 shares of our common stock,
receiving net proceeds of approximately $127.6 million. Concurrent with such
stock offering, we issued $151.8 million aggregate principal amount of our 6%
Convertible Senior Subordinated Notes due 2007, receiving net proceeds of
approximately $147.9 million. Interest on these convertible notes is payable
semi-annually at the annual rate of 6.0%. The convertible notes have no required
principal payments prior to maturity on October 1, 2007. The convertible notes
in the aggregate are convertible into 3,660,477 shares of our common stock at
$41.47 per share subject to adjustment upon the occurrence of certain events.
See "Description of Certain Indebtedness--6% Convertible Senior Subordinated
Notes." The net proceeds from the stock offering and convertible note offering
were used to repay certain indebtedness incurred under our credit facility.
In July 1998, we entered into an agreement for the sale and leaseback of
certain printing equipment for which we received approximately $60.7 million of
proceeds. The lease, which expires in July 2010, has been classified as an
operating lease. In October 1998, we received proceeds of approximately $27.8
million for the sale and leaseback of additional equipment.
In August 1998, the Board of Directors authorized the repurchase of up to
1,800,000 shares of our common stock. The repurchase of shares commenced in
August 1998 and may occur over the next three years in the open market at
prevailing market prices or in negotiated transactions, depending on market
conditions. The shares will be repurchased to satisfy commitments under certain
employee benefit plans. As of September 27, 1998, we had repurchased 313,119
shares at a weighted average cost of $30.88 and reissued 128,019 shares.
On November 20, 1998, we issued $300.0 million in aggregate principal amount
of our 8 3/8% senior subordinated notes due 2008, receiving net proceeds of
approximately $291.7 million. Interest on the November notes is payable
semi-annually at the annual rate of 8 3/8%. The November notes have no required
principal payments prior to maturity on November 15, 2008. See "Description of
Registered Notes." On December 28, 1998, $160.8 million of the net proceeds from
the offering of our 8 3/8% Senior Subordinated Notes was used to redeem the
$150.0 million in aggregate principal amount outstanding of our existing 9 1/8%
Senior Subordinated Notes, including prepayment premium and accrued interest to
the date of redemption. The remainder of the net proceeds were used to repay
revolving loans under the credit facility, all of which may be reborrowed for
general corporate purposes.
On February 22, 1999, we issued $300.0 million in aggregate principal amount
of our 7 3/4% senior subordinated notes due 2009, receiving net proceeds of
approximately $294.0 million. Interest on the February notes is payable
semi-annually at the annual rate of 7 3/4%. The February notes have no required
principal payments prior to maturity on February 15, 2009. See "Description of
Certain Indebtedness-- 7 3/4% Senior Subordinated Notes." We used: (a) $69.2
million to permanently reduce certain facilities
27
<PAGE>
under our credit facility; and (b) $224.8 million to reduce certain other
facilities under our credit facility, all of which may be reborrowed to fund
acquisitions and for other general corporate purposes.
Concentrations of credit risk with respect to accounts receivable are
limited due to our diverse operations and large customer base. As of September
27, 1998, we had no significant concentrations of credit risk.
In order to reduce the exposure on our variable rate obligations, we have
entered into interest rate cap and swap agreements. Our interest rate cap
agreements have a notional value of $400.0 million and expire in the third
quarter of 1999. Our interest rate swap agreements have a notional value of
$75.0 million and exchange floating rate for fixed interest payments
periodically over five years. The swap agreements are cancelable by the
respective counterparties in September and December 1999. The impact of these
agreements on the consolidated financial statements was not material for the
periods presented. While we are exposed to credit loss in the event of
nonperformance by the counterparties of these agreements, management believes
that the possibility of incurring such a loss is remote due to the
creditworthiness of the counterparties. We do not hold or issue any derivative
financial instruments for trading purposes.
At December 28, 1997, we had net operating loss carryforwards for federal
income tax purposes of $14.9 million available to reduce future taxable income,
which net operating loss carryforwards expire primarily in 2000, and had federal
tax credits of $2.5 million expiring primarily from 1999 to 2002 and state tax
credits of approximately $2.6 million expiring from 2001 to 2012. Also, we have
alternative minimum tax carryover credits of $34.5 million which do not expire
and may be applied against regular tax in the future, in the event regular tax
expense exceeds alternative minimum tax.
We believe that our liquidity, capital resources and cash flows are
sufficient to fund planned capital expenditures, working capital requirements
and interest and principal payments for the foreseeable future.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which requires costs of start-up activities and organization costs
to be expensed as incurred. We will adopt this SOP in the first quarter of
fiscal year 1999. We estimate that the adoption of SOP 98-5 will result in the
recognition of a charge to income of approximately $10.5 million, net of tax, as
the cumulative effect of a change in accounting principle in the first quarter
of 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. We would account for gains or losses resulting from
changes in the values of those derivatives depending on the use of the
derivative and whether it qualifies for hedge accounting. We plan to adopt this
statement in the first quarter of fiscal year 2000. Based on our current
portfolio of derivative financial instruments, we do not expect the adoption of
SFAS No. 133 to have a material impact on our consolidated financial statements.
YEAR 2000
The Year 2000 issue, which affects virtually all corporations, arises due to
the inability of certain computer software and hardware and embedded chips found
in manufacturing and other equipment to properly recognize dates beyond 1999.
This inability may cause errors in information and/or system failures. We have a
comprehensive effort underway to address the Year 2000 issue. As discussed
below, we are, among other things, evaluating our present information technology
and non-information technology systems (i.e., equipment with embedded chips),
monitoring and addressing our vendor and customer Year 2000 issues and engaging
in remediative measures as necessary.
28
<PAGE>
In connection with our readiness program, we have endeavored to inventory
and assess the state of compliance of all information systems and
non-information systems. We commenced remediation of our information systems in
1994. As a result, the majority of our information systems, including our
financial, human resources and payroll functions, are Year 2000 compliant. We
believe that all of our information systems will be compliant by mid-1999. With
respect to our non-information systems, we have substantially completed an
inventory of facilities (HVAC, safety and security) and manufacturing (press,
bindery and finishing) systems. We are working with the outside suppliers of
such systems as well as with an outside consultant to identify and remediate
non-compliant components. We have targeted mid-1999 for substantial completion
of our readiness efforts with respect to our non-information systems, including
selective testing procedures.
As part of our readiness program, we are communicating with our major
customers and vendors to assess such parties' respective efforts to identify and
remediate their own Year 2000 issues in a timely and comprehensive manner. We
are also requesting our vendors to certify to the compliance of their systems
and equipment that we currently own or lease. We intend to follow up with
non-compliant vendors through 1999 in order to continually assess the extent of
such third parties' Year 2000 exposure and to adjust our contingency plans
accordingly.
The costs incurred to date solely related to our Year 2000 efforts have not
been material to us, and based upon current estimates, we do not believe that
the total cost of our Year 2000 readiness program will have a material adverse
effect upon our operating results or financial condition. While we can make no
assurances as to the impact of the Year 2000 issue on our operations, we
currently anticipate that any adverse consequences of the Year 2000 issue on our
systems will not create a significant disruption to our operations. However, the
failure or delay by us, our customers and/or vendors to identify and remediate
each respective instance of Year 2000 non-compliance could result in a material
adverse effect on our results of operations, liquidity or financial condition.
Our readiness program includes the development of contingency plans
addressing potential business interruptions arising from Year 2000-related
disruptions. Such plans include assessing the movement of work among our
facilities. In 1999, we will hone our contingency plans, taking into account,
among other things, the state of readiness of our vendors, including, without
limitation, utility suppliers, as well as our major customers.
The statements set forth herein concerning Year 2000 issues which are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. In particular, the costs associated with our
Year 2000 programs, the time-frame in which we plan to complete Year 2000
modifications and the potential impact of the Year 2000 issues are based upon
management's best estimates. These estimates were derived from internal
assessments and numerous assumptions of future events. These estimates may be
adversely affected by, among other things, the continued availability of
personnel and system resources, the accurate identification of all relevant
computer codes, the success of remediation efforts, the effectiveness of our
contingency plans and the failure of significant third parties to properly
address Year 2000 issues. Therefore, there can be no guarantee that any
estimates or other forward-looking statements will be achieved and actual
results could differ significantly from those contemplated.
SEASONALITY
Results of operations for interim periods are not necessarily indicative of
results for the full year. Our operations are seasonal. Historically,
approximately two-thirds of our operating income has been generated in the
second half of the fiscal year, primarily due to the higher number of magazine
pages, new product launches and back-to-school and holiday catalog promotions.
29
<PAGE>
BUSINESS
GENERAL
We are an industry leader in the management and distribution of print and
digital information, with revenues of approximately $2.4 billion for the twelve
months ended December 27, 1998. We are the second largest diversified commercial
printer in the United States, providing digital prepress, press, binding,
distribution and multi-media services to our customers in the commercial,
magazine, catalog, direct mail, book and directory markets. Founded in 1903, we
currently operate a national network of 52 production and distribution
facilities and an extensive network of sales offices nationwide. Through
selective acquisitions and internal expansion, we have strategically positioned
ourselves as a full-service provider of high technology solutions for our
customers' imaging, print and distribution needs.
Since the appointment of a new management team in May 1991, we have
significantly expanded our national presence as a leading, innovative commercial
printer, and have achieved significant growth in sales, adjusted operating
income (as defined herein) and net income, while also improving our operating
margins. Over the past eight fiscal years, net sales and adjusted operating
income grew at compound annual rates of 20.7% and 37.6%, respectively, and net
income increased from a net loss of $58.7 million in 1991 to net income of $73.6
million for the year ended December 27, 1998. In addition, we have recorded six
consecutive years of improvement in our adjusted operating income margins.
GROWTH STRATEGY
We have increased stockholder value through emphasizing quality,
diversification of our business mix, operational efficiencies and strategic
growth. Specifically, our growth strategy is to:
- further establish and strengthen our leadership positions in diverse and
balanced businesses;
- make strategic acquisitions and broaden the array of services we provide
to our customers;
- provide high quality services within a low cost operating structure; and
- continue to increase efficiency and productivity.
The key elements underlying this strategy are described below.
ESTABLISH AND STRENGTHEN LEADERSHIP POSITIONS IN DIVERSE, BALANCED
BUSINESSES. We continue to expand our services and geographic presence to meet
our customers' full range of digital imaging, print, information management and
distribution needs. We believe our broad array of high quality products and
services, cost-effective distribution capabilities, advanced technologies and
competitive pricing allow us to capture a larger share of our existing
customers' business as well as attract new customers.
STRATEGIC ACQUISITIONS. The fragmented printing industry continues to
undergo significant consolidation due primarily to changing customer demand for
a full range of sophisticated services and the high levels of capital investment
necessary to meet this demand. Since the beginning of 1993, we have capitalized
on the industry's consolidation opportunities by successfully consummating and
integrating 22 acquisitions having an aggregate purchase price of approximately
$1.3 billion (including assumed indebtedness). We have targeted our acquisitions
to expand our services and geographic presence and to diversify our business mix
by, among other things, targeting customers operating in new markets such as the
direct mail and book markets. Our acquisitions have been accretive to our
earnings because of, among other things, significant cost savings in the
purchase of raw materials, the reduction of overhead costs and productivity
gains captured by our ability to better absorb and manage available capacity at
newly acquired facilities. We believe that our competitive and financial
strengths and considerable experience in identifying, acquiring and integrating
complementary businesses will continue to provide significant growth
opportunities. While we continuously evaluate opportunities to make strategic
acquisitions, at present we have no commitments or agreements with respect to
any material acquisitions.
30
<PAGE>
LOW COST OPERATING STRUCTURE. We make a vigorous effort to optimize the
management of our resources, and believe our ratio of selling, general and
administrative expenses to net sales is among the lowest in our industry. We
continually evaluate our business in order to keep our costs in line with
current and anticipated revenues, as well as to identify opportunities for
productivity improvement. For instance, most recently we initiated the "World
2000" project which includes a systematic evaluation of each cost element within
our production facilities. We believe the project will improve business
processes throughout our production cycle and enable us to generate greater
efficiency from our existing capital. Our "one-company" operating structure has
allowed us to maximize capacity utilization by balancing production across
plants and to reduce costs by providing a central support organization for
administrative services. In addition, our purchasing power enables us to acquire
raw materials and equipment on more favorable terms than our smaller
competitors, as well as to ensure the availability of raw materials in tight
markets.
TARGETED CAPITAL INVESTMENTS TO INCREASE EFFICIENCY AND PRODUCTIVITY. We
have been at the forefront of technological advances and are committed to
maintaining our position as an industry leader through strategic capital
spending. We are a leader in the transition from conventional prepress to an
all-digital workflow, providing a complete spectrum of film and digital
preparation services. Since the beginning of 1993, we have invested
approximately $520.8 million in equipment and plant expansions (exclusive of
equipment obtained in acquisitions) to position ourselves for continued growth
and productivity improvements. We believe that our significant size and
financial strength allow us to invest in technologies that are not commercially
viable for smaller or less well-capitalized competitors.
THE PRINTING INDUSTRY
The $70 billion commercial printing industry in the United States is highly
fragmented and capital-intensive, and includes the printing and distribution of
magazines, advertising inserts, catalogs, direct mail, free-standing inserts,
directories and other printed material. There are approximately 35,000
commercial printers in the United States today, approximately 500 of which have
revenues in excess of $10 million. Technological trends in the industry,
together with increasing demands by customers for specialized capabilities and a
full range of services have increased the competitive advantages available to us
and other large printers. We believe that only large, well-capitalized printers,
such as World Color, will be capable of making the capital expenditures
necessary to invest in state-of-the-art technology and provide customers a full
range of services. As a result, we believe that consolidation in the printing
industry will continue.
WORLD COLOR SERVICES
As a result of significant capital expenditures and strategic acquisitions
which have allowed us to diversify our services, expand our geographic presence
and enhance our use of new technologies, we are an industry leader in the
management and distribution of print and digital information. Our services
include:
DIGITAL AND PREPRESS SERVICES. We are a leader in the transition from
conventional prepress to an all-digital workflow, providing a complete spectrum
of film and digital preparation services, from traditional paste-up and color
separations to state-of-the-art, all-digital prepress, as well as digital
imaging and digital archiving. Our 11 specialized digital and prepress
facilities, which are strategically located close to our customers, provide high
quality, 24-hour preparatory services linked directly to our various printing
facilities. In addition, our computer systems enable us to exchange images and
textual material electronically directly between our facilities and our
customers' business locations. The integrated prepress operations provide us
with competitive advantages over traditional prepress shops that are not able to
provide the same level of integrated services. Our digital group also provides
multi-media services such as the transformation of customers' existing printed
and digital material into interactive media such as user-friendly information
kiosk systems, Internet web sites, corporate intranets, CD-ROMs and computer
laptop sales presentations. Our digital services group has provided a natural
opportunity for our cross-
31
<PAGE>
selling efforts by offering integrated prepress and multi-media services to our
print customers who may have historically used third-party suppliers for their
prepress and multi-media needs.
PRESS AND BINDING SERVICES. We believe that we provide our customers with
access to state-of-the-art technology in all phases of the printing and binding
process, including, among others, wide-web presses, computerized quality
information systems, computer-to-plate and digital processing systems, high
speed binding and personalization capabilities and robotic material handling.
Wide-web press technology, a large expenditure which only a small number of
well-capitalized printers are able to justify, generates a significant cost
savings on longer press runs. The computerized quality information systems
provide us and our customers with instant analysis of the quality of the
printing, thereby enabling us to improve our performance and plan preventative
maintenance of our equipment more effectively. The computer-to-plate and digital
processing technologies eliminate the use of film which significantly reduces
costs and production time and enables our customers to extend their production
deadlines. Our personalization capabilities allow customers to include different
content, whether advertising or editorial or both, within different copies of
their product depending upon the geographic, demographic and subscriber
specifications of their readers.
We operate web and sheetfed offset, rotogravure and flexographic presses. We
believe that the variety and capabilities of our presses and other production
equipment allow us to meet the broad range of our customers' printing needs and
be the full service provider demanded by the market. This capacity provides us
with the competitive advantage over those smaller printers who are unable to
meet this demand.
DISTRIBUTION AND LOGISTICS. We believe that our sophisticated mailing and
distribution capabilities are among the best in the industry. We maintain a
network of strategic regional locations from which we provide customers
important local access to our nationwide services. Nearly all of our printing
facilities dedicated to servicing our magazine, catalog and direct mail
customers are strategically located in the mid-region of the country. We believe
that the size of these printing plants and their central location and close
proximity to each other provide us with a significant advantage in distribution
capabilities, enabling us to distribute a greater volume of product than our
competitors to a wider target market at a lower cost. We also operate facilities
on the west and east coasts which serve more regionalized needs. We use
computerized cost studies to examine the benefits of pooled and palletized
mailing for each customer to develop an efficient and cost effective
distribution plan designed to ensure that the customer's product reaches
consumers at narrowly specified delivery times.
32
<PAGE>
MARKETS AND CUSTOMERS
As illustrated in the charts below, since the appointment of our current
management team in 1991, we have diversified our business mix and expanded into
serving customers in faster growth markets.
OUR BUSINESS MIX
PERCENTAGE OF NET SALES
- ------------------------
* As used herein, "Pro Forma 1998" gives effect to the acquisitions of Magna
Graphic, Inc. (January 1998), Century Graphics Corporation (February 1998),
Dittler Brothers, Incorporated (March 1998), Acme Printing Company, Inc.
(April 1998), Great Western Publishing, Inc. (December 1998) and Infiniti
Graphics, Inc. (January 1999), as if each had occurred on the first day of
fiscal 1998. The Pro Forma 1998 amounts are not necessarily indicative of
the results that would have occurred had the acquisitions been consummated
on the first day of fiscal 1998, or of our or the acquired companies'
individual or combined future results.
COMMERCIAL
We had pro forma 1998 consolidated net sales for the commercial market of
approximately $704.6 million.
We are a premier printer of virtually all of the different kinds of printed
materials used by businesses to promote their goods and services to other
businesses, investors and consumers. We print high quality specialty products,
such as annual reports and automobile and travel brochures, for customers such
as:
<TABLE>
<S> <C>
- - BMG - OUTBACK STEAKHOUSE
- - COLUMBIA PICTURES - PILLSBURY
- - DONNA KARAN/NEW YORK - PRINCESS CRUISES
- - FORD MOTOR - REEBOK
- - GUESS? - TIFFANY
- - MERCEDES BENZ
</TABLE>
We are also a leading printer of product brochures, bill stuffers,
informational marketing materials and other advertising supplements. Our
customers in this area include ADVO, American Express Publishing, Grolier and
Ziff-Davis. We also print freestanding inserts for customers such as News
America and retail inserts for established national and regional retailers such
as Albertson's, Best Buy, Home Depot, J.C. Penney, Rite-Aid, Staples, True Value
and Wal-Mart. We are the second largest offset printer of retail advertising
inserts in the United States. We are also an industry leader in three highly
specialized areas: (1) complex personalized direct response materials; (2)
unique and intricate consumer-involvement promotional materials such as
scratch-off game pieces; and (3) airline guides and hotel directories. Our
long-standing customers include leading players in the direct mail, fast food,
soft drink and other consumer markets.
MAGAZINES
We believe that we are the second largest U.S. consumer magazine printer,
printing over 2 billion magazines annually with approximately 600 titles. We had
approximately $657.2 million in pro forma 1998 consolidated net sales in this
category and believe that our principal competitors consist of three diversified
printing companies.
33
<PAGE>
The magazines that we print are among the best-selling in their class and
include such titles as:
<TABLE>
<S> <C>
- - AMERICAN WAY - MEN'S HEALTH
- - CIGAR AFICIONADO - NATIONAL GEOGRAPHIC
- - EBONY - NEWSWEEK
- - ELLE - ROAD AND TRACK
- - ENTERTAINMENT WEEKLY - SOAP OPERA WEEKLY
- - ESPN MAGAZINE - TEEN
- - FORBES - TV GUIDE
- - GOLF DIGEST - VOGUE
- - GOOD HOUSEKEEPING - WOMAN'S DAY
- - MAXIM
</TABLE>
These magazines are published by leading publishers such as Conde Nast,
Dennis Maxim, Emap Petersen, ESPN, Forbes, Hachette Filipacchi, Hearst, Johnson
Publishing, National Geographic, The New York Times Sports & Leisure Group, News
America Publications, Newsweek, Primedia and Rodale. The popularity of these
magazines makes them less susceptible to cyclical downturns in advertising
spending, which we believe provides us with a significant advantage over
competitors whose customers may be more susceptible to such downturns. A
majority of our magazine printing is performed under contracts with remaining
terms of between one and ten years, the largest of which are with customers with
whom we have had relationships for, on average, more than 20 years. We have
extended a majority of such contracts beyond their initial expiration dates and
intend to continue this practice when economically practical.
CATALOGS
We are a leading printer for the U.S. catalog market, with pro forma 1998
consolidated net sales of approximately $562.2 million in this market. We print
approximately 3 billion catalogs annually.
Our key competitors in this category consist of four diversified commercial
printers whose facilities enable them to compete in the national market and
smaller and local regional printers who compete for regional business. We
currently print many of the most well known catalog titles, including:
<TABLE>
<S> <C>
- - ABERCROMBIE & FITCH - HAMMACHER SCHLEMMER
- - AVON - POTTERY BARN
- - BANANA REPUBLIC - SEARS
- - BLAIR - STARBUCKS
- - CHADWICK'S - VICTORIA'S SECRET
- - CRATE & BARREL - WILLIAMS-SONOMA
- - FRONTGATE
</TABLE>
In addition, our business-to-business catalog printing work spans a broad
range of industries including the computer, home and office furniture, office
products and industrial safety products industries. Our business-to-business
customers include Global DirectMail and Reliable.
DIRECT MAIL
We had pro forma 1998 consolidated net sales for the direct mail printing
market of approximately $210.4 million. Direct mail targeted marketing services
are an important and growing component of many
34
<PAGE>
businesses' marketing programs and overall U.S. advertising expenditures. We
print direct mail materials such as booklets, inserts, bill stuffers and other
advertisements for customers including:
<TABLE>
<S> <C>
- - ADVO - FRITO-LAY
- - BLAIR - NATIONAL GEOGRAPHIC
- - CITICORP - NEW YORK LIFE
- - DISCOVERCARD - PUBLISHER'S CLEARING HOUSE
- - FLEET - QUAKER OATS
- - THE FRANKLIN MINT
</TABLE>
Among the direct mail services provided are direct imaging, personalization
and other lettershop services. We believe we are the only direct mail printer
capable of providing complex personalization for both short and long-run
projects.
BOOKS
We had pro forma 1998 consolidated net sales to the book market of
approximately $230.2 million. We print mass-market, racksize books for customers
including:
<TABLE>
<S> <C>
- - AVON BOOKS - RANDOM HOUSE
- - BANTAM DOUBLEDAY DELL - ST. MARTIN'S PRESS/TOR
- - KENSINGTON PUBLISHING
</TABLE>
We also print hardcover books for the consumer, education and reference
markets on behalf of many of the largest U.S. publishers. Our hardcover book
customers include:
<TABLE>
<S> <C>
- - GROLIER - RODALE
- - RAND MCNALLY - THOMAS PUBLISHING
- - RANDOM HOUSE - TIME WARNER
- - READER'S DIGEST
</TABLE>
DIRECTORIES
We had pro forma 1998 consolidated net sales from directory printing of
approximately $95.0 million. We have printed directories since 1981
predominantly through our relationship with Pacific Bell. We print four-color
white page and yellow page directories for Pacific Bell pursuant to a contract
which extends through the year 2002 and which can be extended by Pacific Bell
for up to an additional three years. We print more than 100 different regional
directory titles for Pacific Bell and certain other customers. We print over 35
million directories annually.
RAW MATERIALS
The price of paper, our primary raw material, is volatile over time and may
cause significant swings in net sales and cost of sales. We generally are able
to pass on increases in the cost of paper to our customers, while declines in
paper costs result in lower prices to our customers. The paper market firmed in
pricing from early 1997 to late 1997. The paper market in 1998 softened from
late 1997. Prices continued to decline throughout 1998 as availability became
plentiful for most grades of paper. We anticipate that this trend will continue
in 1999. We believe we have adequate allocations with our paper suppliers to
meet our customers' needs. Our contracts with our customers generally provide
for price adjustments to reflect price changes for other materials, wages and
outside services. Our net sales include sales to certain customers of paper that
we purchase.
Our materials management program capitalizes on our purchasing power in
order to minimize materials costs while optimizing inventory management. In
addition, our strong commercial relationships with a relatively small number of
suppliers allow us to negotiate favorable price discounts and achieve
35
<PAGE>
more assured sourcing of high quality paper that meet our specifications. We are
not dependent upon any one source for our paper or ink. Given the volume of our
purchases, we are generally able to obtain quality paper, ink and other
materials at competitive prices. We believe that an adequate supply of ink is
available.
EMPLOYEES
As of December 1998 we had over 16,000 employees, approximately 16% of whom
were represented by unions. As of December 1998 approximately 1,600 of such
union employees, in two different facilities, were covered under several
different contracts which are currently under negotiation. The union contracts
under negotiation have expired and have not been extended. No assurance may be
given that any of the contracts will be renewed or extended and work stoppages
may occur at one or both facilities. If work stoppages affect both facilities,
are lengthy and we are unable to transfer a substantial portion of the affected
work to other facilities, such work stoppages could have an adverse effect upon
us.
The balance of the union employees are covered under contracts which expire
during 1999, 2000 and 2002.
ENVIRONMENTAL COMPLIANCE
We are subject to regulation under various and changing federal, state and
local laws relating to the environment and to employee safety and health. These
environmental regulations relate to the generation, storage, transportation,
disposal and emission into the environment of various substances. Permits are
required for operation of our business (particularly air emission permits), and
these permits are subject to renewal, modification and, in certain
circumstances, revocation. We believe that we are in substantial compliance with
such laws and permitting requirements. We are also subject to regulation under
various and changing federal, state and local laws which allow regulatory
authorities to compel (or to seek reimbursement for) clean-up of environmental
contamination at our own sites and at facilities where our waste are or have
been disposed.
We have internal controls and personnel dedicated to compliance with all
applicable environmental laws. We estimate that capital expenditures in 1999
required to comply with federal, state and local provisions for environmental
controls, as well as expenditures for our share of costs for environmental
clean-up, if any, will not be material and will not have a material adverse
effect on us. We expect to incur ongoing capital and operating costs to maintain
compliance with applicable environmental laws, which costs we do not expect to
be, in the aggregate, material.
LEGAL PROCEEDINGS
We do not believe that there are any pending legal proceedings which, if
adversely determined, could have a material adverse effect on our financial
condition or results of operations, taken as a whole.
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the names, ages as of the date of this prospectus
and titles of our executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Robert G. Burton................... 60 Chairman of the Board of Directors and Chief Executive Officer
Jennifer L. Adams.................. 39 Vice Chairman, Chief Legal and Administrative Officer and Secretary
Jerome V. Brofft................... 54 Senior Vice President, Purchasing
Paul B. Carousso................... 29 Vice President, Controller
Robert B. Lewis.................... 35 Executive Vice President, Chief Financial Officer
James E. Lillie.................... 37 Executive Vice President, Investor Relations and Corporate
Communications
Heidi J. Nolte..................... 41 Senior Vice President, Chief Information Officer
Thomas J. Quinlan III.............. 36 Senior Vice President, Treasurer
Marc L. Reisch..................... 43 President
</TABLE>
ROBERT G. BURTON has been Chairman of the Board and Chief Executive Officer
since May 1991.
JENNIFER L. ADAMS has been Vice Chairman, Chief Legal and Administrative
Officer and Secretary since January 1998. Prior to holding that position, Ms.
Adams held the position of Executive Vice President, Chief Legal and
Administrative Officer and Secretary since July 1995 and the position of
Executive Vice President, General Counsel and Secretary of World Color from
October 1993 until July 1995.
JEROME V. BROFFT has been Senior Vice President, Purchasing since October
1995. Prior to holding that position, Mr. Brofft held the position of Vice
President, Purchasing and Logistics from February 1995 until October 1995 and
the position of Vice President, Purchasing from May 1992 until February 1995.
PAUL B. CAROUSSO has been Vice President, Controller since December 1998.
Prior to holding that position, Mr. Carousso was Vice President, Assistant
Controller from July 1998. Mr. Carousso held the position of Assistant
Controller from July 1996 to July 1998 and the position of Manager, Financial
Reporting from October 1994 to July 1996. Prior to joining World Color, Mr.
Carousso was an auditor with Ernst & Young LLP.
ROBERT B. LEWIS has held the position of Executive Vice President, Chief
Financial Officer since December 1998. Prior to holding that position, Mr. Lewis
held the position of Senior Vice President, Controller from December 1997 and
the position of Vice President, Corporate Controller from August 1997 until
December 1997. Mr. Lewis held the position of Vice President, Corporate
Accounting from November 1996 until August 1997 and the position of Vice
President, Strategic Planning since joining World Color in August 1996. Prior to
joining World Color, Mr. Lewis was with L.P. Thebault (a commercial printer)
since 1989, most recently as Vice President, Budgetary Operations.
JAMES E. LILLIE has been Executive Vice President, Investor Relations and
Corporate Communications since September 1998. Prior to holding that position,
Mr. Lillie held the position of Executive Vice President, Operations since
January 1998. Mr. Lillie held the position of Corporate Vice President, Human
Resources from May 1996 until January 1998 and held the position of Regional
Vice President, Human Resources from January through April 1996. Mr. Lillie held
the position of Vice President, General Manufacturing Manager of World Color's
Bradley Printing facility from January 1995 to January 1996 and the position of
Vice President and Senior Human Resources and Administration Executive at Alden
Press, from the time Alden was acquired by World Color in February 1993.
37
<PAGE>
HEIDI J. NOLTE has been Senior Vice President, Chief Information Officer of
World Color since July 1997. Prior to holding that position, Ms. Nolte was Vice
President, Chief Information Officer since joining World Color in September
1994. Prior to joining World Color, Ms. Nolte was Senior Director, MIS at U.S.
Surgical where she had been employed since 1979.
THOMAS J. QUINLAN III has been Senior Vice President, Treasurer since July
1998. Prior to holding that position, Mr. Quinlan held the position of Vice
President, Treasurer since July 1997. Mr. Quinlan was Assistant Treasurer of
World Color from February 1994 until July 1997. Prior to joining World Color,
Mr. Quinlan was Manager of Treasury Administration at Marsh & McLennan Companies
Inc.
MARC L. REISCH was appointed President of World Color in November 1998.
Prior to holding that position, Mr. Reisch held the position of Vice Chairman,
Group President since January 1998. Mr. Reisch held the position of Group
President, Sales and Chief Operating Officer from August 1996 until January
1998, and held the position of Executive Vice President, Chief Operating and
Financial Officer from June 1996 until August 1996. Mr. Reisch held the position
of Executive Vice President, Chief Operating and Financial Officer and Treasurer
from July 1995 until June 1996. Prior to holding that position, Mr. Reisch was
Executive Vice President, Chief Financial Officer and Treasurer since October
1993.
World Color's Board of Directors consists of Gerald S. Armstrong, Mr.
Burton, Patrice M. Daniels, Dr. Mark J. Griffin, Alexander Navab, Jr., Mr.
Reisch, and Scott M. Stuart. Mr. Stuart is a member of KKR LLC. Mr. Stuart is a
General Partner of KKR Associates L.P. ("KKR Associates"), a New York limited
partnership and an affiliate of Kohlberg Kravis Roberts & Co., L.P. ("KKR"). Mr.
Navab is an executive of KKR and a limited partner of KKR Associates. Ms.
Daniels is a managing director of CIBC Oppenheimer Corp.
38
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of January 31, 1999, based on publicly
available information filed with the Securities and Exchange Commission,
including beneficial ownership by (i) each stockholder of World Color who owns
more than 5% of the outstanding shares of our common stock, (ii) each director
of World Color, (iii) the Chief Executive Officer of World Color, (iv) World
Color's four highest paid executive officers (exclusive of the Chief Executive
Officer) and (v) all directors and executive officers of World Color as a group.
Except as otherwise noted, the persons named in the table below have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them. The address for the listed beneficial owners, unless
stated otherwise, is c/o World Color Press, Inc., The Mill, 340 Pemberwick Road,
Greenwich, Connecticut 06831.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
(1)
----------------------
<S> <C> <C>
NAME SHARES PERCENT
- ------------------------------------------------------------------------------------- --------- -----------
KKR Associates (2)................................................................... 9,016,489 23.4%
Scott M. Stuart (2).................................................................. -- --
Alexander Navab, Jr.................................................................. -- --
Gerald S. Armstrong.................................................................. 94,661(3) *
Patrice M. Daniels................................................................... 820 *
Mark J. Griffin...................................................................... 2,200 *
Robert G. Burton..................................................................... 626,846(4) 1.6
Marc L. Reisch....................................................................... 189,140(5) *
Jennifer L. Adams.................................................................... 152,342(6) *
James E. Lillie...................................................................... 9,131(7) *
Robert B. Lewis...................................................................... 6,590(8) *
All directors and executive officers as a group...................................... 1,147,360(9) 2.9
</TABLE>
- ------------------------
* Signifies less than 1%
(1) For purposes of this table "beneficial ownership" includes any shares which
such person has the right to acquire within 60 days of January 31, 1999. For
purposes of computing the percentage of outstanding shares held by each
person or group of persons named above on a given date, any security which
such person or persons has the right to acquire within 60 days after such
date is deemed to be outstanding for purposes of computing the percentage
ownership of such person, but is not deemed to be outstanding in computing
the percentage ownership of any other person.
(2) Shares of the common stock shown as owned by KKR Associates are owned of
record by KKR Associates, APC Associates, L.P. ("APC Associates"), GR
Associates, L.P. ("GR Associates"), WCP Associates, L.P. ("WCP Associates")
and KKR Partners II, L.P. ("KKR Partners II" and, collectively, the "KKR
Partnerships"). The sole general partner of each of APC Associates, GR
Associates, WCP Associates and KKR Partners II is KKR Associates which
possesses sole voting and investment power with respect to the shares of the
common stock shown as owned by KKR Associates. Henry R. Kravis, George R.
Roberts, Scott M. Stuart (a director of World Color), Robert I. MacDonnell,
Paul E. Raether, Michael W. Michelson, Michael T. Tokarz, James H. Greene,
Jr., Edward A. Gilhuly, Perry Golkin and Clifton S. Robbins, as the general
partners of KKR Associates, may be deemed to share beneficial ownership of
the shares of common stock shown as beneficially owned by KKR Associates.
Each of such persons disclaim beneficial ownership of such shares, other
than to the extent of his economic interest in such shares. The address of
KKR Associates is 9 West 57th Street, New York, New York 10019.
(3) Includes an aggregate of 60,397 options that are exercisable within 60 days
of the date hereof as well as an aggregate of 1,500 shares owned of record
by children of Mr. Armstrong, of which shares Mr. Armstrong may be deemed to
have indirect ownership.
(4) Includes an aggregate of 441,941 options that are exercisable within 60 days
of the date hereof as well as 1,000 shares owned of record as joint tenants
by Mr. Burton's wife and son, and 334 shares owned of record by children of
Mr. Burton, all of which shares Mr. Burton may be deemed to have indirect
ownership. Mr. Burton disclaims beneficial ownership of such shares.
(5) Includes an aggregate of 120,539 options that are exercisable within 60 days
of the date hereof.
(6) Includes an aggregate of 107,888 options that are exercisable within 60 days
of the date hereof as well as an aggregate of 1,380 shares owned of record
by children of Ms. Adams, of which shares Ms. Adams may be deemed to have
indirect ownership. Ms. Adams serves as the custodian for such shares.
(7) Includes an aggregate of 2,600 options that are exercisable within 60 days
of the date hereof.
(8) Includes an aggregate of 1,500 options that are exercisable within 60 days
of the date hereof.
(9) Includes an aggregate of 785,573 options that are exercisable within 60 days
of the date hereof as well as the shares that may be deemed to be owned
indirectly by each of Mr. Armstrong, Mr. Burton and Ms. Adams as set forth
in notes (3), (4) and (6).
39
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The summaries contained herein of certain provisions of our indebtedness do
not purport to be complete and are qualified in their entirety by reference to
the provisions of the various agreements and indentures related thereto. See
"Where You Can Find More Information."
CREDIT FACILITY
The credit facility is provided by a syndicate of banks and other financial
institutions. The credit facility currently provides us up to $920.0 million of
loans in three components: (i) a revolving portion of up to $250.0 million with
a final maturity date of December 29, 2002; (ii) a term portion of up to $95.0
million with scheduled quarterly reductions beginning in the fourth quarter of
2000 and ending in the fourth quarter of 2002; and (iii) an acquisition term
loan facility of up to $575.0 million with scheduled quarterly reductions
beginning in the second quarter of 1999 and ending in the fourth quarter of
2002. A portion of the revolving loan component is available for letters of
credit.
Borrowings under the credit facility bear interest at rates that fluctuate
with the prime rate and the Eurodollar rate.
The loans under the credit facility are guaranteed by each of our direct and
indirect subsidiaries other than the receivables financing subsidiary and
certain immaterial subsidiaries. Our obligations with respect to the credit
facility and each guarantor's obligations with respect to the related guaranty
are secured by substantially all of their respective assets, including, without
limitation, inventory, equipment, intercompany debt and, in the case of our
subsidiaries, capital stock, but excluding real property and improvements
thereto and accounts receivable.
The credit facility contains covenants and provisions that restrict, among
other things, our ability to: (i) incur additional indebtedness; (ii) incur
liens on its property; (iii) make investments and advances; (iv) enter into
guarantees and other contingent obligations; (v) merge or consolidate with or
acquire another person or engage in other fundamental changes; (vi) engage in
certain sales of assets; (vii) make capital expenditures; (viii) enter into
leases; (ix) engage in certain transactions with affiliates; and (x) make
certain restricted payments. The credit facility also requires the satisfaction
of certain financial performance criteria (including a consolidated fixed charge
coverage ratio, a leverage ratio and consolidated cash flow available for fixed
charges) and the repayment of loans under the credit facility with proceeds of
certain sales of assets and debt issuances, and with 50% of our Consolidated
Excess Cash Flow (as defined in the credit facility).
The credit facility provides for certain customary events of default,
including a Change of Control (as defined in the credit facility).
6% CONVERTIBLE SENIOR SUBORDINATED NOTES
In October 1997, we issued $151.8 million in aggregate principal amount of
6% Convertible Senior Subordinated Notes due 2007, pursuant to an indenture,
dated as of October 8, 1997, by and among World Color and State Street Bank and
Trust Company, as Trustee all of which remain outstanding. The convertible notes
require payments semiannually in arrears in cash on April 1 and October 1 of
each year at a rate of 6% per annum. The first payment date was April 1, 1998.
The convertible notes are subordinated to all existing and future Senior
Indebtedness (as defined in the indenture) of World Color and are PARI PASSU
with our 8 3/8% Senior Subordinated Notes due 2008 and our 7 3/4% Senior
Subordinated Notes due 2009. The convertible notes will also rank PARI PASSU
with the notes offered hereby. The convertible notes are also effectively
subordinated to all indebtedness and liabilities of the subsidiaries of World
Color. The indenture does not prohibit or limit the incurrence of additional
Senior Indebtedness.
40
<PAGE>
Each of the convertible notes is convertible into shares of our common
stock, at the option of the holder, at any time after 90 days following the
latest date of the original issuance thereof through maturity, unless previously
redeemed or otherwise purchased by us, at the conversion price of $41.47 per
share. The conversion price is subject to adjustment upon the occurrence of
certain events affecting our common stock.
The convertible notes may be redeemed at our option, in whole or in part, at
any time on or after October 4, 2000 at the redemption prices set forth in the
indenture plus accrued and unpaid interest, if any, to the date of redemption.
However, on or after October 4, 2000 and prior to October 4, 2002, the
convertible notes will not be redeemable at our option unless the closing price
of the common stock shall have exceeded $58.06 per share (subject to adjustment
upon occurrence of certain events) for 20 trading days within a period of 30
consecutive trading days ending within five trading days prior to the notice of
redemption.
In the event of a Change of Control (as defined in the indenture), the
holders of the convertible notes will have the right to require us to purchase
the convertible notes, at a price equal to 100% of the principal amount thereof,
plus accrued interest to the repurchase date. The repurchase price is payable in
cash or, at our option, in common stock (valued at 95% of the average closing
price of the common stock for the five trading days immediately preceding and
including the third trading date prior to the repurchase date).
7 3/4% SENIOR SUBORDINATED NOTES
On February 22, 1999, we consummated the private placement of $300.0 million
in aggregate principal amount of 7 3/4% Senior Subordinated Notes due 2009. The
notes bear interest at an annual interest rate of 7 3/4%, and interest payments
will be due semi-annually, commencing August 15, 1999. The 7 3/4% notes will
mature on February 15, 2009. The 7 3/4% notes do not contain any sinking fund
provision.
RANKING
The notes are our general unsecured obligations, subordinate in right of
payment to all Senior Debt (as defined in the indenture), whether outstanding on
the date of the note indenture or thereafter incurred, of World Color and senior
in right of payment to or PARI PASSU with all other of our indebtedness. See
"Capitalization." The notes rank equal to our 6% Convertible Senior Subordinated
Notes due 2008 and will rank equal to the notes offered hereby.
OPTIONAL REDEMPTION
Except as noted below, the notes are not redeemable at our option before
February 15, 2004. Thereafter, the notes will be subject to redemption at any
time at our option, in whole or in part, at specified redemption prices plus
accrued and unpaid interest and Liquidated Damages (as defined in the
registration rights agreement relating to the notes), if any, thereon to the
applicable redemption date. In addition, at any time prior to February 15, 2002,
we may on any one or more occasions redeem up to 40% of the original aggregate
principal amount of the notes at a redemption price of 107.75% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of redemption, with the net proceeds of one or more
offerings of our common equity. However, at least 60% of the original aggregate
principal amount of the notes must remain outstanding immediately after each
occurrence of redemption.
CERTAIN COVENANTS
The indenture contains certain covenants that, among other things,
significantly limit the ability of World Color and our subsidiaries to (a) incur
additional indebtedness, (b) issue preferred stock, (c) pay dividends, (d) make
certain other restricted payments, (e) create certain liens, (f) enter into
certain transactions with affiliates, (g) sell assets of World Color or our
subsidiaries, (h) issue or sell equity interests of the subsidiaries or (i)
enter into certain mergers and consolidations. In addition, under certain
circumstances, we will be required to offer to purchase the notes at a price
equal to 100.0% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase, with the
proceeds of certain asset sales.
41
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT
We sold the unregistered notes on November 20, 1998. In connection with that
placement, we entered into the registration rights agreement, which requires us
to file a registration statement under the Securities Act of 1933 with respect
to the registered notes. Upon the effectiveness of that registration statement,
we are required offer to the holders of the unregistered notes the opportunity
to exchange their unregistered notes for a like principal amount of registered
notes, which will be issued without a restrictive legend and which generally may
be reoffered and resold by the holder without registration under the Securities
Act of 1933.
The registration rights agreement further provides that we must use our
reasonable best efforts to:
- 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
unregistered notes; and
- consummate the exchange offer on or before the 180th day following the
date on which we issued the unregistered notes.
Except as provided below, upon the completion of the exchange offer, our
obligations with respect to the registration of the unregistered notes and the
registered notes will terminate. A copy of the registration rights agreement has
been filed as an exhibit to the registration statement, of which this prospectus
is a part, and the summary herein of the material provisions thereof does not
purport to be complete and is qualified in its entirety by reference thereto.
Following the completion of the exchange offer (except as set forth below),
holders of unregistered notes not tendered will not have any further
registration rights and those unregistered notes will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
the unregistered notes could be adversely affected upon consummation of the
exchange offer.
In order to participate in the exchange offer, a holder must represent to
us, among other things, that:
- the registered notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the holder;
- the holder is not engaging in and does not intend to engage in a
distribution of the registered notes;
- the holder does not have an arrangement or understanding with any person
to participate in a distribution of the registered notes; and
- the holder is not an "affiliate," as defined under Rule 405 promulgated
under the Securities Act of 1933, of the Company.
Pursuant to the registration rights agreement if:
- we determine that it is not permitted to effect the exchange offer as
contemplated hereby because of any change in applicable law or Securities
and Exchange Commission policy, or
- any Holder of Transfer Restricted Securities notifies us prior to the 20th
day following 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 registered 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 unregistered notes acquired directly
from us or our affiliate,
42
<PAGE>
we will 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
unregistered notes. For purposes of the foregoing, "Transfer Restricted
Securities" means each unregistered note until:
- the date on which such note has been exchanged by a person other than a
broker-dealer for a registered note in the exchange offer;
- following the exchange by a broker-dealer in the exchange offer of an
unregistered note for a registered note, the date on which such registered
note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of this prospectus;
- the date on which such unregistered note has been electively registered
under the Securities Act of 1933 and disposed of in accordance with such
"shelf" registration statement; or
- the date on which such unregistered note is distributed to the public
pursuant to Rule 144 under the Act or may be distributed to the public
pursuant to Rule 144(k) under the Act.
Other than as set forth above, no holder will have the right to participate
in the shelf registration statement nor otherwise require that we register such
holder's shares of unregistered notes under the Securities Act of 1933. See
"--Procedures for Tendering."
Based on an interpretation by the Securities and Exchange Commission's staff
set forth in no-action letters issued to third parties unrelated to us, we
believe that, with the exceptions set forth below, registered notes issued
pursuant to the exchange offer in exchange for unregistered notes may be offered
for resale, resold and 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 unregistered 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 provisions of the Securities Act of
1933; PROVIDED that the registered notes are acquired in the ordinary course of
business of the holder and the holder does not have an arrangement or
understanding with any person to participate in the distribution of such
registered notes.
Any holder who tenders in the exchange offer for the purpose of
participating in a distribution of the registered notes cannot rely on this
interpretation by the Securities and Exchange Commission's staff and must comply
with the registration and prospectus delivery requirements of the Securities Act
of 1933 in connection with a secondary resale transaction. Each broker-dealer
that receives registered notes for its own account in exchange for unregistered
notes, where such unregistered notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such
registered notes. See "Plan of Distribution." Broker-dealers who acquired
unregistered 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 sell the unregistered notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the exchange offer (except as set forth under
"--Purpose and Effect" above), holders of unregistered notes not tendered will
not have any further registration rights and those unregistered notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for a holder's unregistered notes could be adversely
affected upon completion of the exchange offer if the holder does not
participate in the exchange offer.
43
<PAGE>
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all unregistered notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
April 14, 1999, or such date and time to which we extend the offer. We will
issue $1,000 principal amount of registered notes in exchange for each $1,000
principal amount of outstanding unregistered notes accepted in the exchange
offer. Holders may tender some or all of their unregistered notes pursuant to
the exchange offer. However, unregistered notes may be tendered only in integral
multiples of $1,000 in principal amount.
The form and terms of the registered notes are substantially the same as the
form and terms of the unregistered notes except that the registered notes have
been registered under the Securities Act of 1933 and will not bear legends
restricting their transfer. The registered notes will evidence the same debt as
the unregistered notes and will be issued pursuant to, and entitled to the
benefits of, the Indenture pursuant to which the unregistered notes were issued.
As of March 18, 1999, unregistered notes representing $300.0 million in
aggregate principal amount were outstanding and there was one registered holder,
a nominee of the DTC. This prospectus, together with the letter of transmittal,
is being sent to such registered holder and to others believed to have
beneficial interests in the unregistered notes. We intend to conduct the
exchange offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
We shall be deemed to have accepted validly tendered unregistered notes
when, as, and if we have given oral or written notice thereof to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purpose of receiving the registered notes from us. If any tendered unregistered
notes are not accepted for exchange because of an invalid tender, the occurrence
of certain other events set forth herein or otherwise, certificates for any such
unaccepted unregistered notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after April 14, 1999, unless
the exchange offer is extended.
Holders who tender unregistered notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
unregistered notes pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date shall be 5:00 p.m., New York City time, on April 14,
1999, unless we, in our sole discretion, extend the exchange offer, in which
case the expiration date shall mean the latest date and time to which the
exchange offer is extended. In order to extend the exchange offer, we will
notify the exchange agent and each registered holder of any extension by oral or
written notice prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting any unregistered notes, to extend the exchange offer
or, if any of the conditions set forth under "--Conditions to Exchange
Offer" shall not have been satisfied, to terminate the exchange offer, by
giving oral or written notice of such delay, extension or termination to
the exchange agent; or
- to amend the terms of the exchange offer in any manner.
In the event that we make a material or fundamental change to the terms of
the exchange offer, we will file a post-effective amendment to the registration
statement.
44
<PAGE>
PROCEDURES FOR TENDERING
Only a holder of unregistered notes may tender the unregistered notes in the
exchange offer. Except as set forth under "--Book Entry Transfer," to tender in
the exchange offer a holder must complete, sign, and date the letter of
transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the letter of transmittal, and mail or otherwise deliver the letter
of transmittal or copy to the exchange agent prior to the expiration date. In
addition:
- certificates for such unregistered notes must be received by the exchange
agent along with the letter of transmittal prior to the expiration date;
- a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such unregistered notes, if that procedure is available,
into the exchange agent's account at DTC (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the exchange agent prior to the expiration
date; or
- the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the letter of transmittal and other required
documents must be received by the exchange agent at the address set forth under
"--Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn before the expiration date will
constitute an agreement between that holder and us in accordance with the terms
and subject to the conditions set forth herein and in the letter of transmittal.
THE METHOD OF DELIVERY OF UNREGISTERED NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
YOU SHOULD NOT SEND ANY LETTER OF TRANSMITTAL OR UNREGISTERED NOTES TO US.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose unregistered notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the letter of transmittal and delivering the owner's
unregistered notes, either make appropriate arrangements to register ownership
of the unregistered notes in the beneficial owner's name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an eligible institution unless unregistered notes
tendered pursuant thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Registration Instruction" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of an eligible institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantee must be by any
eligible guarantor institution that is a member of or participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "eligible institution").
If the letter of transmittal is signed by a person other than the registered
holder of any unregistered notes listed therein, the unregistered notes must be
endorsed or accompanied by a properly completed
45
<PAGE>
bond power, signed by the registered holder as that registered holder's name
appears on the unregistered notes.
If the letter of transmittal or any unregistered notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal unless waived by us.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered unregistered notes will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all unregistered notes
not properly tendered or any unregistered notes that would, in the opinion of
counsel, be unlawful to accept. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular unregistered notes. Our
interpretation of the terms and conditions of the exchange offer (including the
instructions in the letter of transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of unregistered notes must be cured within such time as we shall determine.
Although we intend to notify holders of defects or irregularities with respect
to tenders of unregistered notes, neither we, the exchange agent, nor any other
person shall incur any liability for failure to give such notification. Tenders
of unregistered notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any unregistered 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, unless otherwise provided in the letter of
transmittal, as soon as practicable following April 14, 1999, unless the
exchange offer is extended.
In addition, we reserve the right in our sole discretion to purchase or make
offers for any unregistered notes that remain outstanding after the expiration
date or, as set forth under "--Conditions to the exchange offer," to terminate
the exchange offer and, to the extent permitted by applicable law, purchase
unregistered notes in the open market, in privately negotiated transactions, or
otherwise. The terms of any such purchases or offers could differ from the terms
of the exchange offer.
By tendering, each holder will represent to us that, among other things:
- the registered notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the person receiving such
registered notes, whether or not such person is the registered holder;
- the holder is not engaging in and does not intend to engage in a
distribution of such registered notes;
- the holder does not have an arrangement or understanding with any person
to participate in the distribution of such registered notes; and
- the holder is not our "affiliate," as defined under Rule 405 of the
Securities Act of 1933.
In all cases, issuance of registered notes for unregistered 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 such unregistered notes
or a timely Book-Entry Confirmation of such unregistered notes into the exchange
agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed letter of transmittal (or, with respect to the DTC and its
participants, electronic instructions in which the tendering holder acknowledges
its receipt of and agreement to be bound by the letter of transmittal) and all
other required documents. If any tendered unregistered notes are not accepted
for any reason set forth in the terms and conditions of the exchange offer or if
unregistered notes are submitted for a greater principal amount than the holder
desires to exchange, such unaccepted or non-exchanged unregistered notes will be
returned without expense to the tendering Holder thereof (or, in the case of
unregistered notes tendered by book-entry transfer into the exchange agent's
account at the Book-Entry Transfer
46
<PAGE>
Facility pursuant to the book-entry transfer procedures described below, such
nonexchanged unregistered notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the exchange offer.
Each broker-dealer that receives registered notes for its own account in
exchange for unregistered notes, where such unregistered notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such registered notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account in respect of
the unregistered notes at the Book-Entry Transfer Facility for purposes of the
exchange offer within two business days after the date of this prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of unregistered notes being
tendered by causing the Book-Entry Transfer Facility to transfer such
unregistered notes into the exchange agent's account at the Book-Entry Transfer
Facility in accordance with such Book-Entry Transfer Facility's procedures for
transfer. However, although delivery of unregistered notes may be effected
through book-entry transfer at the Book- Entry Transfer Facility, the letter of
transmittal or copy thereof, with any required signature guarantees and any
other required documents, must, in any case other than as set forth in the
following paragraph, be transmitted to and received by the exchange agent at the
address set forth under "--Exchange Agent" on or prior to the expiration date or
the guaranteed delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the exchange agent. To tender unregistered notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the exchange agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the letter of transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the unregistered notes desires to tender such
unregistered notes and the unregistered notes are not immediately available, or
time will not permit such holder's unregistered 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 such
eligible institution a properly completed and duly executed letter of
transmittal (or a facsimile thereof) and notice of guaranteed delivery,
substantially in the form provided by us (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address
of the holder of unregistered notes and the amount of unregistered notes
tendered, stating that the tender is being made thereby and guaranteeing
that within three New York Stock Exchange, Inc. ("NYSE") trading days
after the date of execution of the notice of guaranteed delivery, the
certificates for all physically tendered unregistered notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, will
be deposited by the eligible institution with the exchange agent; and
- the certificates for all physically tendered unregistered notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, are
received by the exchange agent within three NYSE trading days after the
date of execution of the notice of guaranteed delivery.
47
<PAGE>
WITHDRAWAL RIGHTS
Tenders of unregistered notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the expiration date.
For a withdrawal of a tender of unregistered notes to be effective, a
written or (for DTC participants) electronic ATOP transmission notice of
withdrawal must be received by the exchange agent at its address set forth under
"--Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration
date. Any such notice of withdrawal must:
- specify the name of the person having deposited the unregistered notes to
be withdrawn;
- identify the unregistered notes to be withdrawn (including the certificate
number or numbers and principal amount of such unregistered notes);
- in the case of a written notice of withdrawal, be signed by the holder in
the same manner as the original signature on the letter of transmittal by
which such unregistered notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer
sufficient to have the trustee register the transfer of such unregistered
notes into the name of the person withdrawing the tender; and
- specify the name in which any such unregistered notes are to be
registered, if different from that of the person having deposited the
unregistered notes.
All questions as to the validity, form, and eligibility (including time of
receipt) of such notices will be determined by us. Such determination shall be
final and binding on all parties. Any unregistered notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
exchange offer. Any unregistered notes which have been tendered for exchange but
which are not exchanged for any reason will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender, or termination of the exchange offer. Properly withdrawn unregistered
notes may be retendered by following one of the procedures under "--Procedures
for Tendering" at any time on or prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we are not
required to accept for exchange, or to issue registered notes in exchange for,
any unregistered notes and may terminate or amend the exchange offer if, at any
time before the acceptance of such unregistered notes for exchange or the
exchange of the registered notes for such unregistered notes, we determine that
the exchange offer violates applicable law, any applicable interpretation of the
staff of the Securities and Exchange Commission or any order of any governmental
agency or court of competent jurisdiction.
The foregoing conditions are for the 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 its 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 unregistered notes
tendered, and no registered notes will be issued in exchange for any such
unregistered 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 such event we are required to use
every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
48
<PAGE>
EXCHANGE AGENT
All executed letters of transmittal should be directed to the exchange
agent. The Bank of New York has been appointed as exchange agent for the
exchange offer. Questions, requests for assistance and requests for additional
copies of this prospectus or of the letter of transmittal should be directed to
the exchange agent addressed as follows:
THE BANK OF NEW YORK
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Floor 7-E Corporate Trust Services Window
New York, New York 10286 Ground Level
Attention: Odell Romeo New York, New York 10286
Attention: Odell Romeo
</TABLE>
BY FACSIMILE:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 815-6339
FOR INFORMATION OR
CONFIRMATION BY TELEPHONE:
(212) 815-6337
Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand or by overnight delivery service.
FEES AND EXPENSES
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone by
our officers and employees. We will pay the estimated cash expenses to be
incurred in connection with the exchange offer. We estimate such expenses to be
$300,000, which includes fees and expenses of the exchange agent, accounting,
legal, printing and related fees and expenses.
TRANSFER TAXES
Holders who tender their unregistered notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct us to register registered notes in the name of, or request that
unregistered 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 thereon.
49
<PAGE>
DESCRIPTION OF REGISTERED NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "World
Color" refers only to World Color Press, Inc. and not to any of its
subsidiaries.
World Color will issue the registered notes under an indenture between
itself and The Bank of New York, as trustee. The terms of the registered notes
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate that agreement in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these registered notes. We have filed a copy of the indenture as an
exhibit to the registration statement which includes this prospectus.
BRIEF DESCRIPTION OF THE REGISTERED NOTES
The registered notes:
- are general unsecured obligations of World Color;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of World Color;
- are senior in right of payment to any future subordinated Indebtedness of
World Color; and
- are equal in right of payment with our existing senior subordinated
indebtedness.
Assuming we had completed the February notes offering and the November notes
offering and had applied the respective net proceeds as intended, as of December
27, 1998, World Color would have had total Senior Indebtedness of approximately
$394.3 million. As indicated above and as discussed in detail below under the
subheading "Subordination," payments on the registered notes will be
subordinated to the payment of Senior Indebtedness. The indenture permits us to
incur additional Senior Indebtedness.
As of the date of the indenture, all of our subsidiaries were "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "Certain Covenants--Investments in 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.
Because the operations of World Color are conducted partially through its
subsidiaries, World Color's cash flow and consequent ability to service its
indebtedness, including the registered notes, is partially dependent upon the
earnings of such subsidiaries and the distribution of those earnings to World
Color or upon loans or other payments of funds by such subsidiaries to World
Color. The subsidiaries are separate and distinct legal entities and will have
no obligation, contingent or otherwise, to pay any amounts due with respect to
the registered notes or to make any funds available therefor, whether by
dividends, loans or other payments.
PRINCIPAL, MATURITY AND INTEREST
World Color will issue registered notes with a maximum aggregate principal
amount of $300.0 million. We will issue registered notes in denominations of
$1,000 and integral multiples of $1,000. The registered notes will mature on
November 15, 2008.
Interest on the registered notes will accrue at the rate of 8 3/8% per annum
and will be payable semi-annually in arrears on May 15 and November 15,
commencing on May 15, 1999. We will make each interest payment to the Holders of
record of the registered notes on the immediately preceding May 1 and November
1.
50
<PAGE>
Interest on the registered 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.
Additional interest ("Liquidated Damages") may accrue on the registered
notes in certain circumstances pursuant to the Registration Rights Agreement.
References herein to "interest" shall include Liquidated Damages, if any, due in
respect of the registered notes.
METHODS OF RECEIVING PAYMENTS ON THE REGISTERED NOTES
If a Holder has given wire transfer instructions to World Color, we will
make all principal, premium and interest and Liquidated Damages, if any, on that
Holder's registered notes in accordance with those instructions. All other
payments on the registered notes will be made at the office or agency of the
Paying Agent and Registrar within The City and State of New York unless we elect
to make interest payments by check mailed to the Holders at their address set
forth in the register of Holders.
PAYING AGENT AND REGISTRAR FOR THE REGISTERED NOTES
The Trustee will initially act as Paying Agent and Registrar. World Color
may change the Paying Agent or Registrar without prior notice to the Holders of
the registered notes, and World Color or any of its Subsidiaries may act as
Paying Agent or Registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange registered notes in accordance with the
indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and World
Color may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. World Color is not required to transfer or exchange
any registered note selected for redemption. Also, we are not required to
transfer or exchange any registered note for a period of 15 days before a
selection of registered notes to be redeemed.
The registered Holder of a registered note will be treated as the owner of
it for all purposes.
OPTIONAL REDEMPTION
At any time prior to November 15, 2001, World Color may redeem up to 40% of
the registered notes with the net proceeds from any public offering of Equity
Interests of World Color (other than Redeemable Stock) at a redemption price
equal to 108.375% of the principal thereof, plus accrued and unpaid interest to
the Redemption Date, PROVIDED that:
(1) at least 60% in aggregate principal amount of the registered notes
originally issued must remain outstanding after each such redemption; and
(2) the redemption must occur on or prior to 120 days of the receipt of
the proceeds of such offering of Equity Interests.
Except pursuant to the preceding paragraph, the registered notes will not be
redeemable at World Color's option prior to November 15, 2003. After November
15, 2003, the registered notes are redeemable at World Color's option. The
registered notes will be subject to redemption at the option of World Color, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of the principal amount) set forth
in the table below, plus accrued and unpaid
51
<PAGE>
interest thereon to the applicable Redemption Date, if redeemed during the
twelve-month period beginning:
<TABLE>
<CAPTION>
DATE PERCENTAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
November 15, 2003................................................................ 104.188%
November 15, 2004................................................................ 102.792%
November 15, 2005................................................................ 101.396%
November 15, 2006 and thereafter................................................. 100.000%
</TABLE>
MANDATORY REDEMPTION
Except as set forth below under "Certain Covenants--Limitations on Asset
Sales," World Color is not required to make mandatory redemption or sinking fund
payments with respect to the registered notes.
SELECTION AND NOTICE
In case of a partial redemption, selection of the registered notes or
portion thereof for redemption shall be made by the trustee by lot, pro rata or
in such manner as it shall deem appropriate and fair and in such manner as
complies with any applicable legal requirements. Registered notes may be
redeemed in part in multiples of $1,000 principal amount only. Notice of
redemption will be sent, by first class mail, postage prepaid, at least 30 days
and not more than 60 days prior to the date fixed for redemption to each Holder
whose registered notes are to be redeemed at the last address for such Holder
then shown on the registry books. If any registered note is to be redeemed in
part only, the notice of redemption that relates to such registered note shall
state the portion of the principal amount thereof to be redeemed. A new
registered note in principal amount equal to the unredeemed portion thereof will
be issued in the name of the Holder thereof upon cancellation of the original
registered note. On and after any redemption date, interest will cease to accrue
on the registered notes or part thereof called for redemption as long as World
Color has deposited with the Paying Agent funds in satisfaction of the
redemption price pursuant to the indenture.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
registered notes will be subordinated in right of payment, as set forth in the
indenture, to the prior payment in full in cash or cash equivalents of all
Senior Indebtedness, whether outstanding on the Issue Date or thereafter
incurred, including any interest accruing subsequent to a bankruptcy or other
similar proceeding whether or not such interest is an allowed claim enforceable
against World Color in a bankruptcy case under Title 11 of the United States
Code.
Upon any distribution of assets of World Color of any kind or character,
whether in cash, property or securities upon any dissolution, winding up, total
or partial liquidation or reorganization of World Color (including, without
limitation, in bankruptcy, insolvency, or receivership proceedings or upon any
assignment for the benefit of creditors or any other marshalling of World
Color's assets and liabilities), the holders of Senior Indebtedness shall first
be entitled to receive payment in full in cash or cash equivalents of all
amounts payable under Senior Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness whether or not interest is an allowed claim enforceable
against World Color in any such proceeding) before the holders of registered
notes will be entitled to receive any payment with respect to the registered
notes, and until all Obligations with respect to Senior Indebtedness are paid in
full in cash or cash equivalents, any distribution to which the holders of
registered notes would be entitled shall be made to the holders of Senior
Indebtedness.
No direct or indirect payment by or on behalf of World Color of principal
of, premium, if any, or interest on the registered notes whether pursuant to the
terms of the registered notes or upon acceleration or otherwise shall be made
if, at the time of such payment there exists a default in the payment of all or
any
52
<PAGE>
portion of principal of, premium, if any, or interest on any Designated Senior
Debt (and the trustee has received written notice thereof), and such default
shall not have been cured or waived or the benefits of this sentence waived by
or on behalf of the holders of the Designated Senior Debt. In addition, during
the continuance of any other event of default with respect to:
(1) the Credit Facility pursuant to which the maturity thereof may be
accelerated, upon the occurrence of (a) receipt by the trustee of written
notice from the Credit Agent, or (b) if such event of default results from
the acceleration of the registered notes, the date of such acceleration, no
such payment may be made by World Color upon or in respect of the registered
notes for a period ("Payment Blockage Period") commencing on the earlier of
the date of receipt of such notice or the date of such acceleration and
ending 179 days thereafter (unless such Payment Blockage Period shall be
terminated by written notice to the trustee from the Credit Agent); or
(2) any other Designated Senior Debt, upon receipt by the trustee of
written notice from the trustee or other representative for the holders of
such Designated Senior Debt (or the holders of at least a majority in
principal amount of such other Designated Senior Debt then outstanding), no
such payment may be made by or on behalf of World Color upon or in respect
of the registered notes for a Payment Blockage Period commencing on the date
of receipt of such notice and ending 119 days thereafter (unless such
Payment Blockage Period shall be terminated by written notice to the Trustee
from such trustee or other representative commencing the Payment Blockage
Period).
Notwithstanding anything herein to the contrary, in no event will a Payment
Blockage Period extend beyond 179 days from the date on which such Payment
Blockage Period was commenced. Not more than one Payment Blockage Period may be
commenced with respect to the registered notes during any period of 360
consecutive days; PROVIDED that the commencement of a Payment Blockage Period by
the holders of Designated Senior Debt other than under the Credit Facility shall
not bar the commencement of another Payment Blockage Period by the Credit Agent
within such period of 360 consecutive days. For all purposes of these
subordination provisions, 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 initiating such Payment Blockage Period shall be, or be
made, the basis for the 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.
The indenture will further require that World Color promptly notify holders
of Senior Indebtedness if payment of the registered notes is accelerated because
of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, holders of registered notes may recover less
ratably than creditors of the World Color who are holders of Senior
Indebtedness. On a pro forma basis, after giving effect to the February notes
offering, the November notes offering and the application of the proceeds
therefrom (including the redemption of World Color's 9 1/8% Senior Subordinated
Notes due 2003), the principal amount of Senior Indebtedness outstanding as of
December 27, 1998 would have been approximately $394.3 million. The indenture
limits, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Indebtedness, that World Color and its
subsidiaries can incur. See "--Certain Covenants."
However, the registered notes will be structurally subordinated to all
liabilities of World Color's subsidiaries, including trade payables, capitalized
lease obligations and indebtedness that may be incurred by World Color's
subsidiaries. Any right of World Color to receive assets of any subsidiary upon
such subsidiary's liquidation or reorganization will be structurally
subordinated to the claims of that subsidiary's creditors, except to the extent
that World Color is itself recognized as a creditor of such subsidiary, in which
case the claims of World Color would still be subject to any security interests
in the assets of such subsidiary and any liabilities of such subsidiary senior
to that held by World Color and may otherwise be challenged in a liquidation or
reorganization proceeding.
53
<PAGE>
"DESIGNATED SENIOR DEBT" means (i) the Senior Bank Debt and (ii) any other
Senior Indebtedness permitted under the indenture having a principal amount of
at least $30.0 million that is designated as "Designated Senior Indebtedness" by
written notice from World Color to the trustee.
"SENIOR BANK DEBT" means Indebtedness and all other monetary obligations of
every nature outstanding under the Credit Facility, including letters of credit
and reimbursement obligations in respect thereof and letters of credit and
reimbursement obligations in respect of letters of credit issued by lenders
party to the Credit Facility.
"SENIOR INDEBTEDNESS" means (i) the Senior Bank Debt and (ii) any other
indebtedness permitted to be incurred under the terms of the indenture, unless
the instrument under which such Indebtedness is incurred expressly provides that
it is on a parity with or subordinated in right of payment to the registered
notes. Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness shall not include (a) Indebtedness that is expressly subordinate or
junior in right of payment to any Indebtedness of World Color, (b) Indebtedness
that is represented by Redeemable Stock, (c) any liability for federal, state,
local or other taxes owed or owing by World Color, (d) Indebtedness of World
Color to any Subsidiary or any other Affiliate of World Color, (e) trade
payables, (f) Indebtedness that is incurred in violation of the Indenture (other
than Senior Bank Debt), (g) the 6% Convertible Notes and (h) World Color's
7 3/4% Senior Subordinated Notes due 2009.
CERTAIN COVENANTS
LIMITATIONS ON RESTRICTED PAYMENTS. World Color shall not, and shall not
permit any of its Restricted Subsidiaries to, directly or indirectly:
(w) declare or pay any dividend or make any distribution on account of
World Color's or any of its Restricted Subsidiaries' Capital Stock or other
Equity Interests (other than (A) dividends or distributions payable in
Equity Interests (other than Redeemable Stock) of World Color or such
Restricted Subsidiary of World Color or (B) dividends or distributions
payable by a Restricted Subsidiary of World Color so long as, in the case of
any dividend or distribution payable on any class or series of securities
issued by a Restricted Subsidiary other than a wholly-owned Restricted
Subsidiary, World Color or a Restricted Subsidiary of World Color receives
at least its pro rata share of such dividend or distribution in accordance
with its equity interest in such class or series of securities);
(x) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of World Color or any of its Restricted Subsidiaries (other than
any such Equity Interests purchased from World Color or any of its
Restricted Subsidiaries);
(y) voluntarily prepay any Indebtedness that is subordinated to the
Notes (other than in connection with (A) any extension, refinancing,
renewal, replacement, substitution or refunding thereof permitted by the
terms of the Indenture, (B) Indebtedness between World Color and a
Restricted Subsidiary of World Color or between Restricted Subsidiaries of
World Color or (C) any Indebtedness permitted by clauses (4) and (8) of the
second paragraph of the "Incurrence of Indebtedness" covenant); or
(z) make any Restricted Investments
(the foregoing actions set forth in clauses (w) through (z) being referred
to as "Restricted Payments"), if:
(1) a Default or Event of Default shall have occurred and be continuing
at the time of such Restricted Payment or shall occur as a consequence
thereof; or
(2) immediately after such Restricted Payment and after giving effect
thereto on a pro forma basis, World Color could not incur at least $1.00 of
additional Indebtedness pursuant to the first
54
<PAGE>
paragraph of the "Incurrence of Indebtedness" covenant (without giving
effect to clauses (1) through (17) of the second paragraph thereof); or
(3) such Restricted Payment, together with the aggregate of:
(a) all other Restricted Payments made after the Issue Date; PLUS
(b) the amount, if any, by which the net amount of Investments in all
Unrestricted Subsidiaries (determined by subtracting (A) the aggregate
amount of all Transfers (valued as provided in the definition of
"Investment") from each Unrestricted Subsidiary to World Color or its
Restricted Subsidiaries from and after the Issue Date through and
including the relevant date of determination (calculated in accordance
with the penultimate paragraph of this "Limitations on Restricted
Payments " covenant) from (B) the aggregate amount of all Investments in
such Unrestricted Subsidiary made by World Color and its Restricted
Subsidiaries from and after the Issue Date through and including the
relevant date of determination, but in any case not below zero) exceeds
$40.0 million; EXCEEDS
(c) the sum of:
(A) 50% of the amount of the Adjusted Consolidated Net Income
(other than amounts, if any, included in the preceding clause (3)(b))
of World Color for the period (taken as one accounting period) from
the beginning of the first quarter commencing immediately after the
Issue Date through the end of World Color's fiscal quarter ending
immediately prior to the time of such Restricted Payment (or, if
Adjusted Consolidated Net Income for such period is a deficit, 100%
of such deficit); PLUS
(B) 50% of the aggregate amortization of intangibles for the
period specified in subclause (c)(A) of this clause (3); PLUS
(C) 100% of the aggregate amounts contributed to the capital of
World Color from and after the Issue Date; PLUS
(D) 100% of the aggregate net cash proceeds and the fair market
value, as determined in good faith by the Board of Directors, of
marketable securities received by World Color from (1) the issue or
sale of Equity Interests of World Color (other than such Equity
Interests issued or sold to a Restricted Subsidiary of World Color
and other than Redeemable Stock) or any Indebtedness or security
convertible into or exchangeable for any such Equity Interest that
has been so converted or exchanged, (2) the sale of the stock of an
Unrestricted Subsidiary or the sale of all or substantially all of
the assets of an Unrestricted Subsidiary to the extent that a
liquidating dividend is paid to World Color or any Restricted
Subsidiary of World Color from the proceeds of such sale or (3) the
sale or other disposition of Restricted Investments made by World
Color and its Restricted Subsidiaries, in each case from and after
the Issue Date; PLUS
(E) 100% of the aggregate net cash proceeds received by World
Color from the issue and sale of the 6% Convertible Notes if and to
the extent such 6% Convertible Notes are converted into Common Stock
of the Company.
The foregoing provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration thereof such payment
would have complied with the provisions of the indenture;
(2) (a) the retirement of any Equity Interests of World Color (the
"Retired Equity Interests") either in exchange for or out of the net
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary) of other Equity Interests of World Color (the "Refunding Equity
Interests") other than any Redeemable Stock and (b) if immediately prior to
retirement of any Retired Equity
55
<PAGE>
Interest the declaration and payment of dividends thereon was permitted
under clause (4) of this paragraph, the declaration and payment of dividends
on the Refunding Equity Interest in an aggregate amount per year no greater
than the aggregate amount of dividends per year that was declarable and
payable on such Retired Equity Interest issued in connection with such
retirement immediately prior to such retirement;
(3) the repurchase, redemption or other acquisition or retirement for
value of (a) any Equity Interests of World Color issued to present and
former members of management of World Color and its Subsidiaries and certain
of their former affiliates pursuant to agreements in effect on the Issue
Date and (b) Equity Interests of World Color issued after the Issue Date to
members of management of World Color and its Subsidiaries pursuant to
agreements executed after the Issue Date containing provisions for the
repurchase of such Equity Interests upon death, disability or termination of
employment of such persons which are substantially identical to those
contained in the agreements in effect on the Issue Date;
(4) the declaration and payment of dividends on World Color's Common
Stock of up to 6% per annum of the net proceeds received by World Color in
the initial public offering of its Common Stock and any subsequent public
offerings of World Color's Common Stock;
(5) the repurchase, redemption or other acquisition or retirement for
value of Indebtedness of World Color which is subordinated in right of
payment to the registered notes either in exchange for or out of the
proceeds of the issuance of Equity Interests (other than Redeemable Stock)
of World Color;
(6) the declaration and payment of dividends to holders of any class or
series of World Color's preferred stock issued after the Issue Date
(including, without limitation, the declaration and payment of dividends on
Refunding Equity Interest in excess of the dividends declarable and payable
thereon pursuant to clause (2) of this paragraph); PROVIDED that at the time
of such issuance World Color's Fixed Charge Coverage Ratio, after giving
effect to such issuance, would be greater than 1.25 to 1;
(7) the redemption, repurchase or other acquisition or retirement for
value of any Indebtedness of World Color which is subordinated in right of
payment to the registered notes (a) with the proceeds of, or in exchange
for, Indebtedness incurred pursuant to clause (9) of the second paragraph of
the "Incurrence of Indebtedness" covenant or (b) if, after giving effect to
such redemption, repurchase or retirement, World Color could incur at least
$1.00 of Indebtedness under the first paragraph of the "Incurrence of
Indebtedness" covenant (without giving effect to clauses (1) through (17) of
the second paragraph thereof);
(8) the purchase, redemption or other acquisition or retirement for
value of any Equity Interest of a Restricted Subsidiary of World Color that
is not a wholly owned Subsidiary to the extent such purchase, redemption or
other acquisition or retirement constitutes a Permitted Investment; PROVIDED
that in determining the aggregate amount expended for Restricted Payments in
accordance with paragraph (3) of the first paragraph in this "Limitations on
Restricted Payments" covenant, (a) no amounts expended under clauses (2)(a),
(5), (7) and (8) of this paragraph shall be included and (b) 100% of the
amounts expended under clauses (1), (2)(b), (3), (4) and (6) of this
paragraph shall be included.
In determining the net amount of Investments in Unrestricted Subsidiaries
pursuant to clause (3)(b) of the first paragraph of this "Limitations on
Restricted Payments" covenant on any relevant date of determination, (i) all
Transfers which would not be included in the Adjusted Consolidated Net Income of
World Color for the relevant period will be applied to reduce the aggregate
amount of Investments in Unrestricted Subsidiaries before any Transfer which
would be included in the Adjusted Consolidated Net Income of World Color for the
relevant period shall be so applied AND (ii) no Transfer (or portion thereof)
which would be included in the Adjusted Consolidated Net Income of World Color
for the relevant period
56
<PAGE>
will be applied to reduce the aggregate amount of Investments in Unrestricted
Subsidiaries if, prior to or as a result of the application of such Transfer,
the net amount of Investments in Unrestricted Subsidiaries (after taking into
account all prior applications of Transfers) is or would be $40.0 million or
less.
Not later than the date of making any Restricted Payment, World Color shall
deliver to the trustee an Officer's Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this "Limitations on Restricted Payments" covenant were computed,
which calculations may be based on World Color's latest available internal
financial statements.
INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. World Color shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, make any
Investment in any Unrestricted Subsidiary, if at the time of such Investment:
(1) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof;
(2) the amount of such Investment exceeds the amount then permitted to
be used to make Restricted Payments pursuant to clause (3) of the first
paragraph under "Limitations on Restricted Payments;" or
(3) immediately after such Investment and after giving effect thereto on
a pro forma basis deducting from Consolidated Net Income the amount of any
Investment World Color has made in an Unrestricted Subsidiary during the
four full fiscal quarters last preceding the date of such Investment, World
Color would not be permitted to incur at least $1.00 of Indebtedness
pursuant to the first paragraph of the "Incurrence of Indebtedness" covenant
(without giving effect to clauses (1) through (17) of the second paragraph
thereof).
Notwithstanding clauses (2) or (3) of this paragraph or any other provision
of the Indenture, World Color shall be permitted to make Investments in
Unrestricted Subsidiaries in an aggregate amount not to exceed $40.0 million at
any one time outstanding. The amount by which the aggregate of all Investments
in Unrestricted Subsidiaries exceeds $40.0 million at any one time outstanding
shall be counted in determining the aggregate permissible amount of Restricted
Payments pursuant to clause (3) of the first paragraph under "Limitations on
Restricted Payments" covenant. The net amount of Investments in Unrestricted
Subsidiaries that:
(1) exceeds $40.0 million will be reduced by all Transfers from
Unrestricted Subsidiaries to World Color and its Restricted Subsidiaries in
accordance with clause (3)(b) of the first paragraph and the penultimate
paragraph of the "Limitations on Restricted Payments" covenant; and
(2) is less than or equal to $40.0 million shall be reduced by the
amount of all Transfers which would not be included in the Adjusted
Consolidated Net Income of World Color.
World Color will not permit any Unrestricted Subsidiary to become a
Restricted Subsidiary, except in compliance with the last sentence of the
definition of "Unrestricted Subsidiary."
Not later than the date of making any Investment described above, World
Color will deliver to the trustee an Officer's Certificate stating that such
Investment is permitted and setting forth the basis upon which the calculations
required by the "Investments in Unrestricted Subsidiaries" covenant were
computed, which calculations may be based on World Color's latest available
internal financial statements.
INCURRENCE OF INDEBTEDNESS. World Color will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness unless World Color's Fixed Charge Coverage Ratio for its
four full fiscal quarters ending immediately prior to the date such additional
Indebtedness is created, incurred, issued, assumed or guaranteed would have been
at least 2.25 to 1 determined on a pro forma basis (including a pro forma
application of the net proceeds of such Indebtedness) as if the additional
57
<PAGE>
Indebtedness had been created, incurred, issued, assumed or guaranteed at the
beginning of such four-quarter period.
The foregoing limitations will not apply to the incurrence of:
(1) Indebtedness pursuant to the Credit Facility (PROVIDED that the
principal amount of such Indebtedness shall not exceed the aggregate amount
of the commitments under the Credit Facility on the Issue Date PLUS the
amount of Indebtedness under the Credit Facility incurred (A) as additional
Indebtedness permitted under clause (8) of this paragraph and which reduces
the amount of Indebtedness otherwise permitted under said clause (8), (B) as
additional Indebtedness permitted under the first paragraph of this
"Incurrence of Indebtedness" covenant or (C) as reimbursement obligations
with respect to letters of credit permitted under clause (7) below);
(2) Existing Indebtedness;
(3) Indebtedness represented by the registered notes;
(4) Capital Lease Obligations;
(5) Indebtedness constituting purchase money obligations for property
acquired in the ordinary course of business or other similar financing
transactions;
(6) Indebtedness incurred in connection with capital expenditures;
(7) Indebtedness constituting reimbursement obligations with respect to
letters of credit, including, without limitation, letters of credit in
respect of workers' compensation claims, issued for the account of World
Color or a Restricted Subsidiary of World Color in the ordinary course of
business, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(8) additional Indebtedness in an aggregate principal amount equal to
the greater of (a) $75.0 million in the aggregate at any one time
outstanding for World Color and its Restricted Subsidiaries and (b)(A) 10%
of the Consolidated Net Worth of World Color at the time of incurrence by
World Color and (B) 10% of the Consolidated Net Worth of any Restricted
Subsidiary of World Color at the time of incurrence by such Restricted
Subsidiary;
(9) Indebtedness created, incurred, issued, assumed or given in exchange
for, or the proceeds of which are used to, extend, refinance, renew,
replace, substitute or refund any Indebtedness permitted under the indenture
or any Indebtedness issued to so extend, refinance, renew, replace,
substitute or refund such Indebtedness, including any additional
Indebtedness incurred to pay premiums and fees in connection therewith (the
"Refinancing Indebtedness"); PROVIDED, that (a) the principal amount of such
Refinancing Indebtedness shall not exceed the outstanding principal amount
of Indebtedness (including unused commitments) so extended, refinanced,
renewed, replaced, substituted or refunded PLUS any amounts incurred to pay
premiums and fees in connection therewith, (b) in the case of Refinancing
Indebtedness for Indebtedness permitted under clause (2) of this paragraph,
the Refinancing Indebtedness shall have an Average Life equal to or greater
than the Average Life of the Indebtedness being extended, refinanced,
renewed, replaced, substituted or refunded and (c) to the extent such
Refinancing Indebtedness refinances Indebtedness subordinated to the
registered notes, such Refinancing Indebtedness is subordinated to the
registered notes at least to the same extent as the Indebtedness being
extended, refinanced, renewed, replaced, substituted or refunded; and
PROVIDED FURTHER that subclauses (b) and (c) of this clause (9) will not
apply to any refunding or refinancing of any Senior Indebtedness;
58
<PAGE>
(10) intercompany Indebtedness incurred in connection with Investments
in Unrestricted Subsidiaries; provided that such Investments are permitted
by the "Limitations on Restricted Payments" covenant and the "Investments in
Unrestricted Subsidiaries" covenant;
(11) Indebtedness of any unconsolidated Subsidiary of World Color
created after the Issue Date; PROVIDED that such Indebtedness is nonrecourse
to World Color and its consolidated Restricted Subsidiaries and World Color
and its consolidated Restricted Subsidiaries have no obligations with
respect to such Indebtedness;
(12) Indebtedness under Currency Agreements and Interest Rate
Agreements, PROVIDED that in the case of Currency Agreements which relate to
other Indebtedness, such Currency Agreements do not increase the
Indebtedness of World Color outstanding other than as a result of
fluctuations in foreign currency exchange rates;
(13) 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, which will not be, and will not be deemed
to be, inadvertent) drawn against insufficient funds in the ordinary course
of business;
(14) Indebtedness of an entity at the time it is acquired as a
Restricted Subsidiary; PROVIDED that such Indebtedness was not incurred or
assumed by such entity in connection with or in anticipation of such
acquisition;
(15) Indebtedness between World Color and any Restricted Subsidiary of
World Color or between Restricted Subsidiaries of World Color;
(16) guarantees by Restricted Subsidiaries of World Color of
Indebtedness of World Color or any Restricted Subsidiary of World Color if
the Indebtedness so guaranteed is permitted under the Indenture; and
(17) World Color's Obligations arising from the repurchase, redemption
or other acquisitions of Equity Interests from management investors to the
extent permitted by the "Limitations on Restricted Payments" covenant.
DIVIDENDS AND PAYMENT RESTRICTIONS. World Color shall not, and shall not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock,
or any other interest or participation in, or measured by, its profits,
owned by World Color or any of its Restricted Subsidiaries, or pay any
Indebtedness owed to World Color or any of its Restricted Subsidiaries,
(2) make loans or advances to World Color or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to World Color or any of
its Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason
of:
(A) the terms (as in effect on the Issue Date) of Existing
Indebtedness;
(B) the terms (as in effect on the Issue Date) of the Credit
Facility;
(C) the terms of Indebtedness of World Color incurred in accordance
with the "Incurrence of Indebtedness" covenant; PROVIDED that the terms
of any such Indebtedness constitute no greater encumbrance or restriction
on the ability of any Restricted Subsidiary to pay dividends or make
distributions, make loans or advances or transfer properties or assets
than is otherwise permitted by this covenant at such time;
(D) the terms of the indenture and the registered notes;
59
<PAGE>
(E) applicable law;
(F) customary non-assignment provisions entered into in the ordinary
course of business and consistent with past practices;
(G) the terms of purchase money obligations for property acquired in
the ordinary course of business, but only to the extent that such
purchase money obligations restrict or prohibit the transfer of the
property so acquired;
(H) any encumbrance or restriction with respect to a Subsidiary of
World Color that is not a Subsidiary of World Color on the Issue Date,
which encumbrance or restriction is in existence at the time such person
becomes a Subsidiary of World Color or is created on the date it becomes
a Subsidiary of World Color;
(I) any encumbrance or restriction with respect to a Subsidiary of
World Color imposed pursuant to an agreement which has been entered into
for the sale or disposition of all or substantially all the Capital Stock
or assets of such Subsidiary; or
(J) any encumbrance or restriction existing under any amendment to,
and any agreement which refinances or replaces, the agreements described
in clauses (A), (B), (C) and (D); PROVIDED that the terms and conditions
of any such encumbrances or restrictions contained in any such amendment
or agreement constitute no greater encumbrance or restriction on the
ability of any Restricted Subsidiary to pay dividends or make
distributions, make loans or advances or transfer properties or assets
than those under or pursuant to the agreement evidencing the Indebtedness
or obligations so amended, refinanced or replaced.
Nothing contained in this covenant shall prevent World Color or a Restricted
Subsidiary from entering into any agreement permitting or providing for the
incurrence of Liens otherwise permitted by the "Limitations on Liens" covenant.
LIMITATIONS ON LIENS. World Color shall not, and shall not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien (other than Permitted Liens) upon any asset now owned
or hereafter acquired by it, or any income or profits therefrom or assign or
convey any right to receive income therefrom. Notwithstanding the foregoing,
World Color or any Restricted Subsidiary of World Color may create or assume any
Lien upon its properties or assets if World Color shall cause the registered
notes to be equally and ratably secured with all other Indebtedness secured by
such Lien for so long as such other Indebtedness shall be so secured.
LIMITATIONS ON ASSET SALES. World Color shall not, and shall not permit any
of its Restricted Subsidiaries (other than unconsolidated Restricted
Subsidiaries) to, directly or indirectly, consummate any Asset Sale that results
in Net Proceeds in excess of $45.0 million (including the sale of any of the
stock of any Restricted Subsidiary) unless World Color applies the Net Proceeds
from such Asset Sale to one or more of the following in such combination as it
shall choose:
(1) an investment in another asset or business in the same line of
business as, or a line of business similar to that of, the line of business
of World Color and its Subsidiaries; PROVIDED that such investment occurs on
or prior to the later to occur of (x) if applicable, the date on which such
proceeds are required to be applied pursuant to the express terms of the
Credit Facility as in effect on the Issue Date and without regard to any
waiver of such terms and (y) the 366th day following the date of such Asset
Sale (the "Asset Sale Payment Date"); PROVIDED, FURTHER that if the terms of
the Credit Facility do not restrict the use of such proceeds, the Asset Sale
Payment Date shall be deemed to be the 366th day following the date of such
Asset Sale;
(2) a Net Proceeds Offer (as defined below) expiring on or prior the
Asset Sale Payment Date; or
60
<PAGE>
(3) the purchase, redemption or other prepayment or repayment of
outstanding Senior Indebtedness on or prior the Asset Sale Payment Date;
PROVIDED, HOWEVER, that if the net amount not invested pursuant to clause (1)
above or applied pursuant to clause (3) above is less than $15.0 million (the
"Excess Net Proceeds"), World Color will not be further obligated to offer to
redeem registered notes pursuant to clause (2) above; and PROVIDED FURTHER, that
for purposes of the foregoing calculation of Excess Net Proceeds the Company
shall be required to repay any Senior Indebtedness that by its terms may be so
repaid at the time of such calculation, prior to determining the Excess Net
Proceeds.
For purposes of clause (2) of the preceding paragraph, World Color will
apply that portion of the Net Proceeds of the Asset Sale required to make a
tender offer in accordance with applicable law (a "Net Proceeds Offer") to
repurchase registered notes at a price not less than 100% of the principal
amount thereof plus accrued and unpaid interest to the date of repurchase. Any
Net Proceeds Offer will be made by World Color only if and to the extent
permitted under, and subject to prior compliance with, the terms of any
agreement governing Senior Indebtedness. If World Color commences a Net Proceeds
Offer, securities of World Color ranking PARI PASSU in right of payment with the
registered notes are outstanding at the commencement of such Net Proceeds Offer
and the terms of such securities provide that a similar offer must be made with
respect thereto, then the Net Proceeds Offer for the registered notes shall be
made concurrently with such other offer and securities of each issue will be
accepted pro rata in proportion to the aggregate principal amount of securities
of each issue which the Holder of securities of such issue elect to have
redeemed. After the last date on which Holders of the registered notes are
permitted to tender their registered notes in a Net Proceeds Offer, World Color
will not be restricted under the "Limitations on Asset Sales" covenant of the
indenture as to its use of any remaining Net Proceeds available to make such Net
Proceeds Offer but not used to redeem registered notes pursuant thereto.
Notwithstanding any other provision of the indenture to the contrary, for a
period of 120 days after the last date on which Holders of the registered notes
are permitted to tender their registered notes in the Net Proceeds Offer, World
Color may use any Net Proceeds available to make such Net Proceeds Offer but not
used to redeem registered notes pursuant thereto, to purchase, redeem or
otherwise acquire or retire for value any securities ranking junior in right of
payment to the registered notes at a price, stated as a percentage of the
principal amount of such junior securities, not greater than the price, stated
as a percentage of the principal amount, offered in the Net Proceeds Offer,
PROVIDED that, if the Net Proceeds Offer is for a principal amount (the "Net
Proceeds Offer Amount") of registered notes less than the aggregate principal
amount of registered notes then outstanding, then the Net Proceeds available by
the Company for such a purchase, redemption or other acquisition or retirement
for value of junior securities shall not exceed the Net Proceeds Offer Amount.
The Credit Facility requires that the Company apply the net cash proceeds of
asset sales (after deducting costs of sale, taxes and amounts applied to repay
any indebtedness secured by the assets sold) to repay outstanding obligations
under the Credit Facility, other than with respect to, among other things, (a)
certain intercompany asset sales, (b) sales of residential homes purchased by
the Company to facilitate employee hires or transfers and (c) any other sales of
assets in one or a related series of transactions for less than $15.0 million
(up to a maximum of $75.0 million during the term of the Credit Facility), and
excluding the net cash proceeds from the sale of any printing equipment (as
defined therein) to the extent that such net cash proceeds may be offset against
cash expenditures made or committed by the Company for the purchase of other
printing equipment during the Fiscal Year (as defined in the Credit Facility) in
which such sale occurs or, to the extent such printing equipment is purchased on
or prior to April 15 of the Fiscal Year immediately succeeding the Fiscal Year
in which the printing equipment to be replaced was sold, the immediately
preceding Fiscal Year.
TRANSACTIONS WITH AFFILIATES. World Color shall not, and shall not permit
any of its Restricted Subsidiaries to, directly or indirectly, enter into any
transaction (including, without limitation, the
61
<PAGE>
purchase, sale, lease or exchange of any property or the rendering of any
service) involving aggregate consideration in excess of $5.0 million for any one
transaction with any Affiliate, except for:
(1) transactions (including any investments, loans or advances by or to
any Affiliate) in good faith the terms of which are fair and reasonable to
World Color or such Restricted Subsidiary, as the case may be, and are at
least as favorable as the terms that could be obtained by World Color or
such Restricted Subsidiary, as the case may be, in a comparable transaction
made on an arms' length basis between unaffiliated parties; PROVIDED that
any such transaction will be deemed to be on terms that are fair and
reasonable and that are at least as favorable as the terms that could be
obtained by World Color or such Restricted Subsidiary, as the case may be,
in a comparable transaction made on an arms' length basis between
unaffiliated parties if (a) a majority of the directors of World Color
unaffiliated with such Affiliate or, if there are no such directors, a
majority of the directors of World Color approve such transaction or (b)
World Color or such Restricted Subsidiary, as the case may be, delivers to
the trustee and the Holders a written opinion of a nationally recognized
investment banking firm stating that such transaction is fair to World Color
or such Restricted Subsidiary from a financial point of view;
(2) payments by World Color or any of its Restricted Subsidiaries to KKR
or any affiliate thereof made pursuant to any financial advisory, financing,
underwriting or placement agreement;
(3) any Restricted Payment not otherwise prohibited under the
"Limitations on Restricted Payments" covenant and any Investment not
prohibited by the "Investments in Unrestricted Subsidiaries" covenant;
(4) the payment of reasonable and customary regular fees to directors of
World Color and its Subsidiaries who are not employees of World Color or its
Subsidiaries;
(5) payments to KKR that are not otherwise prohibited by the
"Limitations on Restricted Payments" covenant;
(6) loans to officers, directors and employees of World Color and its
Subsidiaries for business or personal purposes and other loans and advances
made in the ordinary course of business of World Color and its Subsidiaries;
(7) transactions between or among any of World Color and its Restricted
Subsidiaries; and
(8) the payment by World Color of management fees to KKR and/or its
affiliates.
MERGER, CONSOLIDATION OR SALE OF ASSETS. World Color shall not in a single
transaction or a series of related transactions consolidate with, or merge with
or into, or directly or indirectly sell, transfer, lease or convey substantially
all of its properties and assets, to another person (except any Restricted
Subsidiary of World Color existing on the date of the indenture and except any
Restricted Subsidiary of World Color created or acquired after the date of the
indenture with a positive Consolidated Net Worth; PROVIDED that in connection
with any merger of World Color with any such Subsidiary of World Color, no
consideration (other than common stock in the surviving corporation or World
Color) shall be issued or distributed to the stockholders of World Color)
unless:
(1) World Color shall be the continuing person, or the person (if other
than World Color) formed by such consolidation or into which World Color is
merged or to which the properties and assets of World Color are transferred
shall be a corporation or partnership organized and existing under the laws
of the United States or any State thereof or the District of Columbia and
shall expressly assume, by a supplemental indenture, executed and delivered
to the trustee, in form satisfactory to the trustee, all of the obligations
of World Color under the registered notes and the indenture;
(2) immediately after giving effect to such transaction, no Default and
no Event of Default under the indenture shall have occurred and be
continuing;
62
<PAGE>
(3) immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth of the surviving entity is at least equal
to the Consolidated Net Worth of World Color immediately prior to such
transaction; and
(4) immediately after giving effect to such transaction on a pro forma
basis, the Fixed Charge Coverage Ratio of the surviving entity is at least
1:1; PROVIDED that if the Fixed Charge Coverage Ratio of World Color before
giving effect to such transaction is within the range set forth in column
(A) below, then the pro forma Fixed Charge Coverage Ratio of the surviving
entity shall be at least equal to the lesser of (x) the ratio determined by
multiplying the percentage set forth in Column B by the Fixed Charge
Coverage Ratio of World Color prior to such transaction, and (y) the ratio
set forth in Column C below:
<TABLE>
<CAPTION>
(A) (B) (C)
- ----------------- --------- ---------
<S> <C> <C> <C>
1.11:1 to 1.99:1 ................................................................ 90% 1.5:1
2.00:1 to 2.99:1 ................................................................ 80% 2.1:1
3.00:1 to 3.99:1 ................................................................ 70% 2.4:1
4.00:1 or more ................................................................ 60% 2.5:1
</TABLE>
and PROVIDED, FURTHER, that if the pro forma Fixed Charge Coverage Ratio of the
surviving entity is 3:1 or more, the calculation in the preceding proviso shall
be inapplicable and such transaction shall be deemed to have complied with the
requirements of this clause (4).
SENIOR SUBORDINATED DEBT. The indenture provides that World Color shall not
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is expressly by its terms subordinate or junior in right of
payment to any Senior Indebtedness and senior in any respect in right of payment
to the registered notes.
SUPPLEMENTAL INDENTURES
The indenture permits World Color and the Trustee, without notice to or the
consent of the Holders, to enter into one or more indentures supplemental hereto
for certain specified purposes, including, without limitation:
(1) to cure ambiguities, defects or inconsistencies (PROVIDED that such
action shall not adversely affect the interests of the Holders in any
respect);
(2) to add additional covenants for the benefit of the Holders or to
surrender any right or power conferred upon World Color in the indenture or
to make any other change that does not adversely affect the rights of any
Holder;
(3) to provide for collateral for the registered notes;
(4) to evidence the succession of another person to World Color and the
assumption by any such successor of the obligations of World Color in
accordance with Article V of the indenture and the reigstered notes;
(5) to provide for uncertificated registered notes; and
(6) to effect or maintain the qualification of the indenture under the
TIA.
Subject to the absolute and unconditional right of Holders to receive
principal, premium and interest, other modifications, amendments or supplements
to the indenture or the registered notes may be made with the consent of the
Holders of not less than a majority in aggregate principal amount of the then
outstanding registered notes and unregistered notes, taken as a whole, and such
modifications, amendments or supplemental indentures will be binding on every
Holder whether or not such Holder has consented thereto, PROVIDED that no such
modification, amendment or supplemental indenture shall,
63
<PAGE>
without the consent of Holders of each outstanding registered note or
unregistered note affected thereby, among other things:
(1) change the percentage of principal amount of registered notes whose
Holders must consent to an amendment, supplement or waiver of any provision
of this indenture or the registered notes;
(2) reduce the rate or extend the time for payment of interest on any
registered note;
(3) reduce the principal amount of any registered note or reduce the
Purchase Price or the Redemption Price;
(4) change the stated maturity of any registered note;
(5) alter the redemption provisions of the indenture or the purchase
price in connection with any repurchase of registered notes described in the
"Limitations on Asset Sales" covenant in any manner adverse to any Holder;
(6) make any changes in the provisions concerning waivers of Defaults or
Events of Default by Holders or the rights of Holders to recover the
principal or premium of, interest on, or redemption payment with respect to,
any registered note;
(7) make any changes relating to (a) the right of the trustee to file
proof of claim in any bankruptcy or similar proceeding, or (b) the
limitation on the right of Holders to direct the trustee to institute legal
proceedings with respect to the indenture or to such provision;
(8) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the registered notes or that resulted
from a failure to comply with the "Limitations on Asset Sales" covenant;
(9) make the principal of, or the interest on, any registered note
payable with anything or in any manner other than as provided for in this
indenture and the registered notes as in effect on the date hereof; or
(10) make the registered notes subordinated in right of payment to any
extent or under any circumstances to any other indebtedness, except to the
extent no less favorable to the Holders than would be consistent with the
indenture as in effect on the Issue Date.
EVENTS OR DEFAULT AND REMEDIES
Events of Default under the indenture include the following:
(1) a default in the payment of interest on any registered notes when
the same shall become due and payable and the continuance of such default
for a period of 30 days;
(2) a default in the payment of all or any part of the principal of (or
premium, if any, on), the registered notes when and as the same shall become
due and payable at maturity, or upon acceleration, redemption or otherwise
including default in the payment of the purchase price required to be
offered in a Net Proceeds Offer;
(3) a failure by the Company to comply with any of the other agreements
or covenants in or provisions of the registered notes or the indenture which
failure continues for a period of 30 days after written notice specifying
such failure and demanding that World Color remedy the same has been given
to World Color by the trustee or to World Color and the trustee by Holders
of at least 30% in aggregate principal amount of registered notes then
outstanding;
(4) a failure to pay the final scheduled principal installment in an
amount of at least $20.0 million at the stated maturity date thereof (after
giving effect to any applicable grace periods) under any mortgage, indenture
or instrument under which there may be issued or evidenced any Indebtedness
64
<PAGE>
for borrowed money by World Color or any of its Restricted Subsidiaries (or
the payment of which is guaranteed by World Color or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee is now existing or
hereafter created;
(5) a default under any mortgage, indenture or instrument under which
there may be issued or evidenced any Indebtedness for borrowed money by
World Color or any of its Restricted Subsidiaries (or the payment of which
is guaranteed by World Color or any of its Restricted Subsidiaries) whether
such Indebtedness or guarantee is now existing or hereafter created if, as a
result of such default, the maturity of such Indebtedness has been
accelerated prior to its express maturity, and the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness with respect to which the principal amount remains unpaid upon
its final maturity (after giving effect to any extension of such maturity
date by the holder of such Indebtedness and the expiration of any applicable
grace period) or the maturity of which has been so accelerated, aggregates
$20.0 million or more;
(6) a final judgment or final judgments for the payment of money, or the
issuance of any warrant of attachment against any portion of the property or
the assets of World Color or any of its Restricted Subsidiaries, that in the
aggregate, equal or exceed $10.0 million at any one time shall be entered
against World Color or any of its Restricted Subsidiaries and such judgment
or judgments or warrant of attachment shall not be discharged, satisfied,
stayed, annulled or rescinded within 60 days of being entered, or in the
case of any final judgment which provides for payment over time, from any
applicable payment date; or
(7) certain events of bankruptcy, insolvency or reorganization.
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 a notice of the
Default or Event of Default within 30 days after it occurs or, if later, within
10 days after such Default or Event of Default becomes known to the trustee,
unless such Default or Event of Default has been cured. Except in the case of a
Default or Event of Default in the payment of principal of, premium, if any, or
interest on any registered note, 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 the Holders of the registered
notes.
If an Event of Default (other than an Event of Default described in clause
(7) of the second preceding paragraph), shall occur and be continuing then, and
in every such case, unless the principal of all the registered notes shall have
already become due and payable, either the trustee or the Holders of not less
than 30% (or 25% in the case of an Event of Default with respect to payment of
principal of or interest on the registered notes and unregistered notes, taken
as a whole) in aggregate principal amount of the then outstanding registered
notes and unregistered notes, taken as a whole, by notice in writing to World
Color (and to the trustee if given by Holders) may declare all of the unpaid
principal of, premium if any, and accrued interest thereon to be due and payable
immediately, PROVIDED, HOWEVER, that if any Senior Indebtedness is outstanding
pursuant to the Credit Facility, upon a declaration of acceleration, such
principal and interest shall be due and payable upon the earlier of (x) the day
that is five business days after the provision to World Color and the Credit
Agent of such written notice, unless such Event of Default is cured or waived
prior to such date and (y) the date of acceleration of any Senior Indebtedness
under the Credit Facility. In the event of a declaration of acceleration because
of an Event of Default described in clause (4) or (5) of the second preceding
paragraph has occurred and is continuing, such declaration of acceleration shall
be automatically annulled if such payment default is cured or waived or the
holders of the Indebtedness which is the subject of such event of default have
rescinded their declaration of acceleration in respect of such Indebtedness
within 60 days thereof and the trustee has received written notice of such cure,
waiver or rescission and no other Event of Default described in clause (4) or
(5) of the second preceding paragraph has occurred that has not been cured or
waived within 60 days of the declaration of such acceleration in respect
thereof. If an Event of Default specified in clause (7)
65
<PAGE>
above occurs, all principal of, premium applicable to, and accrued interest on,
all outstanding Notes shall become immediately due and payable without any
declaration or other act on the part of the trustee or any Holder.
The provisions described in the preceding paragraphs, however, are subject
to the condition that if, at any time after a declaration of acceleration has
been made and before a judgment or decree for payment of the money due has been
obtained, the Holders of a majority in aggregate principal amount of the then
outstanding registered notes and unregistered notes, taken as a whole, by
written notice to World Color and the trustee, may waive, on behalf of all
Holders, a Default or an Event of Default if:
(1) World Color has paid or deposited with the trustee a sum sufficient
to pay (i) all overdue interest on all registered notes and unregistered
notes, taken as a whole, (ii) the principal of (and premium, if any,
applicable to) any registered notes and unregistered notes, taken as a
whole, which would become due otherwise than by such declaration of
acceleration, and interest thereon at the rate borne by the registered notes
and unregistered notes, taken as a whole, (iii) to the extent that payment
of such interest is lawful, interest upon overdue interest at the rate borne
by the registered notes and unregistered notes, taken as a whole and (iv)
all sums paid or advanced by the trustee under the indenture and the
compensation, expenses, disbursements and advances of the trustee, its
agents and counsel; and
(2) all Events of Default, other than the nonpayment of the principal of
registered notes and unregistered notes, taken as a whole which have become
due solely by such declaration of acceleration, have been cured or waived.
Notwithstanding the previous sentence, no waiver shall be effective for any
Default or Event of Default in the payment of the principal of, premium, if
any, or interest on any note held by a nonconsenting Holder or any Default
or Event of Default with respect to any covenant or provision which cannot
be modified or amended without the consent of the Holder of each then
outstanding note, unless all such affected Holders agree, in writing, to
waive such Default or Event of Default. No such waiver shall cure or waive
any subsequent default or impair any right consequent thereon.
Prior to the declaration of acceleration of the maturity of the registered
notes and unregistered notes, taken as a whole, the Holder or Holders of not
less than a majority in aggregate principal amount of the registered notes and
unregistered notes, taken as a whole at the time outstanding by written notice
to World Color and the trustee may waive on behalf of all the Holders any past
default under the indenture and its consequence, except a default in the payment
of principal of, or interest on any note or a default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding note affected. 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 security or indemnity. Subject to all the provisions of the
indenture and applicable law, the Holders of a majority in aggregate principal
amount of the registered notes and unregistered notes, taken as a whole at the
time outstanding 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 upon the trustee.
World Color is required to furnish the trustee, forthwith upon becoming
aware of any Default or Event of Default under the indenture, an Officers'
Certificate specifying such default and within 120 days after the end of each
fiscal year, an Officers' Certificate to the effect that the officers executing
the same have conducted, or supervised, a review of the activities of World
Color and its Subsidiaries and of performance under the indenture and that, to
such officer's knowledge, based on their review, World Color has fulfilled all
of its obligations under the indenture, or, if there has been a failure to
comply with such obligations, describing such failure with particularity.
66
<PAGE>
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The indenture will provide that World Color may, at its option and at any
time, elect to have its obligations discharged with respect to the outstanding
notes ("Legal Defeasance"). Such Legal Defeasance means that World Color shall
be deemed to have paid and discharged the entire Indebtedness represented by,
and the indenture shall cease to be of further effect as to, all outstanding
notes except as to (1) rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on such notes when such payments are
due from the trust funds; (2) World Color's obligations with respect to such
notes concerning issuing temporary notes, registration of notes, mutilated,
destroyed, lost or stolen notes, and the maintenance of an office or agency for
payment and money for security payments held in trust; (3) the rights, powers,
trust, duties, and immunities of the trustee, and World Color's obligations in
connection therewith; and (4) the Legal Defeasance provisions of the indenture.
In addition, World Color may, at its option and at any time, elect to have the
obligations of World Color 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 notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and other insolvency events) described under "Events of Default"
will no longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) World Color must irrevocably deposit with the trustee, in trust, for
the benefit of the Holders of the notes, U.S. legal tender, 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 such
notes on the stated date for payment thereof or on the redemption date of
such principal or installment of principal of, premium, if any, or interest
on such notes, and the trustee, for the exclusive benefit of the Holders of
the notes, must have a valid, perfected, exclusive security interest in such
trust;
(2) in the case of Legal Defeasance before the date that is one year
prior to the stated maturity of the notes, World Color shall have delivered
to the trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that (A) World Color 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 of
such notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance before the date that is one year
prior to the stated maturity of the notes, World Color shall have delivered
to the trustee an opinion of counsel in the United States reasonably
acceptable to such trustee confirming that the Holders of such notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit 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 World Color or any of its
Subsidiaries is a party or by which World Color or any of its Subsidiaries
is bound;
67
<PAGE>
(6) World Color shall have delivered to the trustee an Officers'
Certificate stating that the deposit was not made by World Color with the
intent of preferring the Holders of such notes over any other creditors of
World Color or with the intent of defeating, hindering, delaying or
defrauding any other creditors of World Color or others; and
(7) World Color shall have delivered to the trustee an Officers'
Certificate and an opinion of counsel, each stating that the conditions
precedent provided for in, in the case of the Officers' Certificate, clauses
(1) through (6) and, in the case of the opinion of counsel, clauses (1)
(with respect to the validity and perfection of the security interest), (2),
(3) and (5) of this paragraph have been complied with.
If the funds deposited with the trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of premium, if any,
and interest on the notes when due, then the obligations of World Color under
the indenture will be revived and no such defeasance will be deemed to have
occurred.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of World Color, as such, shall have any liability for any
obligations of World Color under the indenture or the notes or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of the notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Securities and Exchange
Commission (the "Commission") that such a waiver is against public policy.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the trustee,
should it become a creditor of World Color, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The trustee will be permitted to engage in other
transactions; HOWEVER, if it acquires any conflicting interest it must eliminate
such conflict within ninety days, apply to the Commission for permission to
continue or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur (which shall not be cured), the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to such provisions, the trustee will
be under no obligation to exercise any of its rights or powers under the
indenture at the request of any of the Holders, unless they shall have offered
to the trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
The indenture provides that World Color 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 report and of the information,
documents and other reports, if any, which World Color is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The
indenture further provides that, notwithstanding that World Color may not be
required to remain subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, World Color shall continue to file with the Commission and
provide the trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. World Color shall also comply with the other provisions of TIA Section
314(a).
68
<PAGE>
CERTAIN DEFINITIONS
"ADJUSTED CONSOLIDATED NET INCOME" means, with respect to any person for
any period, (1) the Consolidated Net Income of such person for such period, plus
(2) in the case of World Color and its Restricted Subsidiaries, all cash
received during such period by World Color or any Restricted Subsidiary from its
Unrestricted Subsidiaries from the payment of dividends or distributions
(including tax sharing payments and loans or advances which are junior in right
of payment to the notes and have a longer Average Life than the notes), but only
to the extent such cash payments are not otherwise included in "Adjusted
Consolidated Net Income." Each item of Adjusted Consolidated Net Income will be
determined in conformity with GAAP, except that, for purposes of the application
of Accounting Principles Board Opinions Nos. 16 and 17, such person may select
an amortization practice allowable by GAAP up to 40 years, notwithstanding the
use of a different amortization in such person's consolidated financial
statements. Any designation of a Subsidiary of World Color as a Restricted
Subsidiary or Unrestricted Subsidiary at or prior to the time of the calculation
of Adjusted Consolidated Net Income of a Subsidiary will be treated as if it had
occurred at the beginning of the applicable period.
"AFFILIATE" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. A person shall be deemed to "control"
(including the correlative meanings, the terms "controlling," "controlled by,"
and "under common control with") another person if the controlling person
possesses, directly or indirectly the power to direct or cause the direction of
the management or policies, of the controlled person, whether through ownership
of voting securities, by agreement or otherwise.
"ASSET SALE" means, with respect to any person, in one or a series of
related transactions, the sale, lease, conveyance, disposition or other transfer
by the referent person of any of its assets (including by way of a
sale-and-leaseback and including the sale or other transfer or issuance of any
of the Capital Stock of any Subsidiary of the referent person); PROVIDED, that
notwithstanding the foregoing, the term "Asset Sale" shall not include the sale,
lease, conveyance, disposition or other transfer of (1) all or substantially all
of the assets of World Color, as permitted pursuant to the "Merger,
Consolidation or Sale of Assets" covenant, (2) any assets between World Color or
any Restricted Subsidiary, (3) any sale, conveyance, disposition or other
transfer of (a) cash and cash equivalents, (b) inventory in the ordinary course
of business and (c) any other tangible or intangible asset, in each case in the
ordinary course of business of World Color or its Subsidiaries, or (4) the sale
or discount, in each case without recourse, of accounts receivable arising in
the ordinary course of business, but only in connection with the compromise or
collection thereof.
"AVERAGE LIFE" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (1) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal payment or, in the case of Redeemable Stock,
each successive scheduled mandatory redemption payment of such security or
instrument multiplied by the amount of such principal payment or, in the case of
Redeemable Stock, mandatory redemption payment by (2) the sum of all such
principal payments or, in, the case of Redeemable Stock, mandatory redemption
payment.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease which
would at such time be required to be capitalized on the balance sheet in
accordance with GAAP.
"CAPITAL STOCK" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock.
"CONSOLIDATED CASH FLOW" means, with respect to any person for any period,
the Adjusted Consolidated Net Income of such person for such period plus:
69
<PAGE>
(1) provision for taxes based on income or profits to the extent such
provision for taxes was included in computing Adjusted Consolidated Net
Income; plus
(2) consolidated Interest Expense, whether paid or accrued, to the
extent such expense was deducted in computing Adjusted Consolidated Net
Income (including amortization of original issue discount and non-cash
interest payments); plus
(3) depreciation, amortization and other non-cash charges to the extent
such depreciation, amortization and other non-cash charges were deducted in
computing Adjusted Consolidated Net Income (including amortization of
goodwill and other intangibles);
PROVIDED, with respect to the calculation of World Color's Fixed Charge Coverage
Ratio, that if, during such period, (a) such person or any of its Subsidiaries
shall have made any Asset Sales (other than, in the case of World Color and its
Subsidiaries, sales of the Capital Stock of or any assets of Unrestricted
Subsidiaries which constitute Asset Sales), Consolidated Cash Flow of such
person and its Subsidiaries for such period shall be reduced by an amount equal
to the Consolidated Cash Flow (if positive), to the extent such Consolidated
Cash Flow was included in computing Consolidated Cash Flow, directly
attributable to the assets or Capital Stock which are the subject of such Asset
Sales for such period or increased by an amount equal to the Consolidated Cash
Flow (if negative), to the extent such Consolidated Cash Flow was included in
computing Consolidated Cash Flow, directly attributable thereto for such period
and (b) such person or any of its Subsidiaries (other than, in the case of World
Color and its Subsidiaries, Unrestricted Subsidiaries) has made any acquisition
of assets or Capital Stock (occurring by merger or otherwise), including,
without limitation, any acquisition of assets or Capital Stock occurring in
connection with a transaction causing a calculation to be made hereunder,
Consolidated Cash Flow of such person and its Subsidiaries shall be calculated
(notwithstanding clause (3) of the definition of Consolidated Net Income)
excluding any expenses which, in the good faith estimate of management, will be
eliminated as a result of such acquisition, as if such acquisition of assets or
Capital Stock (including the incurrence of any Indebtedness in connection with
any such acquisition and the application of the proceeds thereof) took place on
the first day of such period.
"CONSOLIDATED FIXED CHARGES" means, with respect to any person for any
period, the (1) consolidated Interest Expense, whether paid or accrued, to the
extent such expense was deducted in computing Adjusted Consolidated Net Income
(including amortization of original issue discount and non-cash interest
payments) and (2) amount of all cash dividend payments on all series of
preferred stock, other than cash dividends on preferred stock of Unrestricted
Subsidiaries and cash dividends paid to such person or its Subsidiaries (other
than in the case of World Color and its Restricted Subsidiaries, Unrestricted
Subsidiaries); PROVIDED that if, during such period (a) such person or any of
its Subsidiaries shall have made any Asset Sales (other than in the case of
World Color and its Subsidiaries, sales of the Capital Stock of or any assets of
Unrestricted Subsidiaries which constitute Asset Sales), Consolidated Fixed
Charges of such person and its Subsidiaries for such period shall be reduced by
an amount equal to the Consolidated Fixed Charges directly attributable to the
assets which are the subject of such Asset Sales for such period and (b) such
person or any of its Subsidiaries (other than in the case of World Color and its
Subsidiaries, Unrestricted Subsidiaries) has made any acquisition of assets or
Capital Stock (occurring by merger or otherwise), including, without limitation,
any acquisition of assets or Capital Stock occurring in connection with the
transaction causing a calculation to be made hereunder, Consolidated Fixed
Charges of such person and its Subsidiaries shall be calculated on a pro forma
basis as if such acquisition of assets or Capital Stock (including the
incurrence of any Indebtedness in connection with any such acquisition and the
application of the proceeds thereof) took place on the first day of such period;
PROVIDED, HOWEVER, that with respect to World Color, its Consolidated Fixed
Charges for any period shall be calculated as if the Refinancing had occurred at
the beginning of such period.
"CONSOLIDATED NET INCOME" means, with respect to any person for any period,
the aggregate net income (or loss) of such person and its Subsidiaries (other
than, in the case of World Color and its Subsidiaries, Unrestricted
Subsidiaries) for such period, on a consolidated basis, determined in accordance
70
<PAGE>
with GAAP; PROVIDED that (1) the net income (or loss) of any person which is not
a Subsidiary or is accounted for by the equity method of accounting shall be
included only to the extent of the amount of cash dividends or distributions
(including tax sharing payments and loans or advances which are junior in right
of payment to the notes and have a longer Average Life than the notes) paid to
the referent person or a Subsidiary of the referent person (other than, in the
case of World Color and its Restricted Subsidiaries, Unrestricted Subsidiaries),
(2) except to the extent includible pursuant to the foregoing clause (1), the
income (or loss) of any person accrued prior to the date it becomes a Subsidiary
of such person or is merged into or consolidated with such person or any of its
Subsidiaries or that person's assets are acquired by such person or any of its
Subsidiaries shall be excluded, (3) any gains or losses attributable to Asset
Sales net of related tax costs or tax benefits, as the case may be, shall be
excluded, (4) after-tax items classified as extraordinary gains or losses shall
be excluded and (5) the cumulative effect of changes in accounting principles
shall be excluded.
"CONSOLIDATED NET WORTH" means, at any date of determination, the sum of
the Capital Stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) of the referent person and its Subsidiaries on a
consolidated basis, less amounts attributable to Redeemable Stock, each item to
be determined in conformity with GAAP (excluding the effects of (1) foreign
currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52 and (2) the application of
Accounting Principles Board Opinions Nos. 16 and 17 and related
interpretations).
"CREDIT AGENT" means the agent or representative of the lenders under the
Credit Facility.
"CREDIT FACILITY" means the Second Amended and Restated Credit Agreement,
dated as of June 6, 1996, as amended, by and among World Color, certain
financial institutions parties thereto and Bankers Trust Company, as
Administrative Agent, BA Securities, Inc., as Syndication Agent, and Citibank,
N.A., as Documentation Agent, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case as amended, modified, supplemented, renewed,
refunded, refinanced, restructured or replaced from time to time (including
without limitation, any extension of maturity thereof, or the inclusion of
additional borrowers or guarantors thereunder).
"CURRENCY AGREEMENT" means the obligations of any person pursuant to any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such person or any of its subsidiaries against
fluctuations in currency values.
"EQUITY INTERESTS" means Capital Stock, warrants, options or other rights
to acquire Capital Stock (but excluding any debt security which is convertible
into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means Indebtedness of World Color and its
Subsidiaries (other than the Credit Facility) in existence on the Issue Date,
until such amounts are repaid.
"FIXED CHARGE COVERAGE RATIO" means the ratio of Consolidated Cash Flow to
Consolidated Fixed Charges.
"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 ("FASB") or in such other statements by
such other entity as approved by a significant segment of the accounting
profession which are in effect in the United States at the time when and for the
period as to which such accounting principles are to be applied.
"HOLDER" means a person in whose name a note is registered. The Holder of a
note will be treated as the owner of such note for all purposes.
"INDEBTEDNESS" means, with respect to any person, any indebtedness,
contingent or otherwise, in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such person or only to a
portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or
71
<PAGE>
letters of credit (or reimbursement obligations with respect thereto) or
representing the balance deferred and unpaid of the purchase price of any
property (including pursuant to financing leases), if and to the extent any of
the foregoing indebtedness would appear as a liability upon a balance sheet of
such person prepared in accordance with GAAP (except that any such balance that
constitutes a trade payable and/or an accrued liability arising in the ordinary
course of business shall not be considered Indebtedness), and shall also
include, to the extent not otherwise included, any Capital Lease Obligations,
the maximum fixed repurchase price of any Redeemable Stock, indebtedness secured
by a Lien to which the property or assets owned or held by such person is
subject, whether or not the obligations secured thereby shall have been assumed,
guarantees of items that would be included within this definition to the extent
of such guarantees (exclusive of whether such items would appear upon such
balance sheet), and net liabilities in respect of Currency Agreements and
Interest Rate Agreements. For purposes of the preceding sentence, the maximum
fixed repurchase price of any Redeemable Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock as if such Redeemable Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture,
PROVIDED that if such Redeemable Stock is not then permitted to be repurchased,
the repurchase price shall be the book value of such Redeemable Stock. The
amount of Indebtedness of any person at any date shall be without duplication
(1) the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability of any such contingent obligations at
such date and (2) in the case of Indebtedness of others secured by a Lien to
which the property or assets owned or held by such person is subject, the lesser
of the fair market value at such date of any asset subject to a Lien securing
the Indebtedness of others and the amount of the Indebtedness secured.
"INTEREST EXPENSE" means, with respect to any person, for any period, the
aggregate amount of interest in respect of Indebtedness (including all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and the net cost (benefit)
associated with Interest Rate Agreements, and excluding amortization of deferred
finance fees and interest recorded as accretion in the carrying value of
liabilities (other than Indebtedness) recorded at a discounted value) and all
but the principal component of rentals in respect of Capital Lease Obligations,
paid, accrued or scheduled to be paid or accrued by such person during such
period.
"INTEREST RATE AGREEMENTS" means the obligations of any person pursuant to
any interest rate swap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect such person or any of its
subsidiaries against fluctuations in interest rates.
"INVESTMENT" means any direct or indirect advance, loan (other than
advances to customers in the ordinary course of business, which are recorded as
accounts receivable on the balance sheet of any person or its Subsidiaries) or
other extension of credit 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 of Capital Stock,
bonds, notes, debentures or other securities issued by any other person. For the
purposes of the "Limitations on Restricted Payments" and "Investments in
Unrestricted Subsidiaries" covenants described above, (1) "Investment" shall
include and be valued at the fair market value of the net assets of any
Restricted Subsidiary at the time that such Restricted Subsidiary is designated
an Unrestricted Subsidiary and shall exclude the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (2) any property
transferred to or from an Unrestricted Subsidiary shall be valued at fair market
value at the time of such transfer, in each case as determined by the Board of
Directors of World Color in good faith.
"ISSUE DATE" means the date of first issuance of the notes under the
indenture.
"LIEN" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or
72
<PAGE>
give any security interest in and any filing or other agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"NET PROCEEDS" means, with respect to any Asset Sale, the aggregate amount
of U.S. Legal Tender (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or similar
account established in connection with any such Asset Sale, but, in each such
case, only as and when so received) received by World Color or any of its
Subsidiaries in respect of such Asset Sale, net of (1) the cash expenses of such
sale (including, without limitation, the payment of principal, premium, if any,
and interest on Indebtedness required to be paid as a result of such Asset Sale
(other than pursuant to the "Limitations on Asset Sales" covenant) and legal,
accounting and investment banking fees and sales commissions), (2) taxes paid or
payable as a result thereof, (3) any portion of cash proceeds which World Color
determines in good faith should be reserved for post-closing adjustments, it
being understood and agreed that on the day that all such post-closing
adjustments have been determined, the amount (if any) by which the reserved
amount in respect of such Asset Sale exceeds the actual post closing adjustments
payable by World Color or any of its Subsidiaries shall constitute Net Proceeds
on such date and (4) any relocation expenses and pension, severance and shutdown
costs incurred as a result thereof.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED INVESTMENTS" means:
(1) cash or Cash Equivalents;
(2) investments that are in persons at least a majority of whose
revenues are derived from commercial printing or prepress services or
ancillary operations related thereto and that have the purpose of furthering
the business operations of World Color;
(3) advances to employees not in excess of $5.0 million at any one time
outstanding;
(4) accounts receivable created or acquired in the ordinary course of
business;
(5) obligations or shares of stock received in connection with any good
faith settlement or bankruptcy proceeding involving a claim relating to a
Permitted Investment;
(6) evidences of Indebtedness, obligations or other investments not
exceeding $5.0 million in the aggregate held at any one time by World Color
or any of its Restricted Subsidiaries; and
(7) Currency Agreements and other similar agreements designed to hedge
against fluctuations in foreign exchange rates entered into in the ordinary
course of business in connection with the operation of World Color's or its
Subsidiaries businesses.
"PERMITTED LIENS" means:
(1) Liens for taxes, assessments, governmental charges or claims which
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(2) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings,
if a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor;
73
<PAGE>
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(4) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return of money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(5) easements, rights-of-way, zoning or other restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
not interfering in any material respect with the business of World Color or
any of its Subsidiaries incurred in the ordinary course of business;
(6) Liens (including extensions, renewals and replacements thereof) upon
real or tangible personal property acquired after the date of the indenture,
PROVIDED, that (a) any such Lien is created solely for the purpose of
securing Indebtedness representing, or incurred to finance, refinance or
refund, the cost (including the cost of construction) of the item of
property subject thereto, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such cost, (c) such Lien does
not extend to or cover any other property other than such item of property
and any improvements on such item and (d) the incurrence of such
Indebtedness is permitted by the "Incurrence of Indebtedness" covenant;
(7) Liens securing reimbursement obligations with respect to letters of
credit which encumber documents and other property relating to such letters
of credit and the products and proceeds thereof;
(8) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(9) judgment and attachment Liens not giving rise to an Event of
Default;
(10) leases or subleases granted to others not interfering in any
material respect with the business of World Color or any of its Restricted
Subsidiaries;
(11) Liens encumbering customary initial deposits and margin deposits,
and other Liens incurred in the ordinary course of business and which are
within the general parameters customary in the industry, in each case
securing Indebtedness under Interest Rate Agreements and Currency
Agreements;
(12) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of World Color
or its Subsidiaries;
(13) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by World Color or any of its Subsidiaries in the
ordinary course of business of World Color and its Subsidiaries;
(14) any interest or title of a lessor in the property subject to any
Capital Lease Obligation or operating lease;
(15) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(16) Liens permitted by the Credit Facility as in effect on the Issue
Date;
(17) Liens securing Indebtedness described in clause (14) of the second
paragraph of the "Incurrence of Indebtedness" covenant;
(18) Liens securing Senior Indebtedness;
(19) Liens between World Color and any Restricted Subsidiary or between
Restricted Subsidiaries;
(20) Liens securing letters of credit in an amount not to exceed $10.0
million in the aggregate at any one time;
74
<PAGE>
(21) additional Liens at any one time outstanding with respect to assets
of World Color and its Restricted Subsidiaries the fair market value of
which does not exceed $10.0 million on the date of determination;
(22) Liens existing on the Issue Date and any extensions, renewals or
replacements thereof; and
(23) the Lien granted to the Trustee under the Indenture and any
substantially equivalent Lien granted to any trustee or similar institution
under any indenture for Indebtedness permitted by the terms of the
Indenture.
"REDEEMABLE STOCK" means any Equity Interest which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable before the stated maturity of the notes), or upon the happening of
any event, matures or is mandatorily redeemable, in whole or in part, prior to
the stated maturity of the notes, or is, by its terms or upon the happening of
any event, redeemable at the option of the Holder thereof, in whole or in part,
at any time prior to the stated maturity of the notes, except for Equity
Interests of World Color issued to present and former members of management of
World Color and its Subsidiaries and certain of their former affiliates pursuant
to agreements in effect on the Issue Date and Equity Interests of World Color
issued after the Issue Date to members of management of World Color and its
Subsidiaries pursuant to agreements containing provisions for the repurchase of
such Equity Interests upon death, disability or termination of employment of
such persons which are substantially identical to those contained in the
agreements in effect on the Issue Date.
"RESTRICTED INVESTMENT" means any investment in, capital contribution, loan
or advance to or purchase of Equity Interests in, any person that is not a
wholly owned Subsidiary, or other transfer of assets to Subsidiaries or
Affiliates that are not wholly owned (other than any such other transfer of
assets to Subsidiaries or Affiliates that are not wholly owned in transactions
the terms of which are fair and reasonable to the transferor and are at least as
favorable as the terms that could be obtained by the transferor in a comparable
transaction made on an arms' length basis between unaffiliated parties (1) as
conclusively determined, for any such transfer involving aggregate consideration
in excess of $5.0 million, by (a) a majority of the directors of the transferor
that are unaffiliated with the transferee or, if there are no such directors, by
a majority of the directors of the transferor or (b) an opinion of a nationally
recognized investment banking firm stating that such transaction is fair to the
transferor from a financial point of view, and (2) otherwise as conclusively
determined by World Color), except in each case for Permitted Investments and
any such Investments existing on the Issue Date.
"RESTRICTED SUBSIDIARY" means any Subsidiary of World Color which at the
time of determination is not an Unrestricted Subsidiary. The Board of Directors
of World Color may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if, immediately after giving effect to such designation, World
Color could incur at least $1.00 of additional Indebtedness pursuant to the
first paragraph of the "Incurrence of Indebtedness" covenant (without giving
effect to clauses (1) through (17) of the second paragraph thereof), on a pro
forma basis taking into account such designation.
"SUBSIDIARY" of any person means any entity of which shares of the Capital
Stock or other equity interests (including partnership interests) entitled to
cast at least a majority of the votes that may be cast by all shares or equity
interest having ordinary voting power for the election of directors or other
governing body of such entity are owned by such person directly and/or through
one or more Subsidiaries.
"TRANSFERS" means (1) any payment of interest on Indebtedness, dividends or
repayments of loans or advances and (2) any other transfers of assets, in each
case from an Unrestricted Subsidiary to World Color or any of its Restricted
Subsidiaries.
"UNRESTRICTED SUBSIDIARY" means (1) any Subsidiary of World Color which at
the time of determination is an Unrestricted Subsidiary (as designated by the
Board of Directors of World Color, as PROVIDED below) and (2) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of World Color may designate
any Subsidiary of World Color (including any newly acquired or newly formed
75
<PAGE>
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns, or holds any Lien on, any property of, any other
Subsidiary of World Color which is not a Subsidiary of the Subsidiary to be so
designated; PROVIDED that (1) World Color certifies that such designation
complies with the covenants described above under "Limitations on Restricted
Payments" and "Investments in Unrestricted Subsidiaries" and (2) each Subsidiary
to be so designated and each of its Subsidiaries has not at the time of
designation, and does not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect to any Indebtedness
pursuant to which the lender has recourse to any of the assets of World Color or
any of its Restricted Subsidiaries. The Board of Directors of World Color may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED,
that immediately after giving effect to such designation, World Color could
incur at least $1.00 of additional Indebtedness pursuant to the "Incurrence of
Indebtedness" covenant (without giving effect to clauses (1) through (17) of the
second paragraph thereof) on a pro forma basis, giving effect to such
designation.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The notes will be in the form of one or more registered global notes without
interest coupons (collectively, the "Global Notes"). Upon issuance, the Global
Notes will be deposited with the trustee, as custodian for The Depository Trust
Company ("DTC"), in New York, New York, and registered in the name of DTC or its
nominee, in each case for credit to the accounts of DTC's Direct and Indirect
participants (as defined below).
Transfer of beneficial interests in any Global Notes will be subject to the
applicable rules and procedures of DTC and its Direct or Indirect Participants
(including, if applicable, those of Euroclear and CEDEL), which may change from
time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for notes in certificated form in certain limited circumstances. See "--Transfer
of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised World Color that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers (including the initial purchasers), banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and Cedel. Access to DTC's system is also available to other entities
that clear through or maintain a direct or indirect custodial relationship with
a Direct Participant (collectively, the "Indirect Participants"). DTC may hold
securities beneficially owned by other persons only through the Direct
Participants or Indirect Participants and such other person's ownership interest
and transfer of ownership interest will be recorded only on the records of the
Direct Participant and/or Indirect Participant, and not on the records
maintained by DTC.
DTC has also advised World Color that, pursuant to DTC's procedures, DTC
will credit the accounts of the Direct Participants designated by the Initial
Purchasers with portions of the principal amount of the Global Notes allocated
by the Initial Purchasers to such Direct Participants, and (ii) DTC will
maintain records of the ownership interests of such Direct Participants in the
Global Notes and the transfer of ownership interests by and between Direct
Participants. DTC will not maintain records of the ownership interests of, or
the transfer of ownership interests by and between, Indirect Participants or
other owners of beneficial interest in the Global Notes. Direct Participants and
Indirect Participants must maintain their
76
<PAGE>
own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global Notes.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interest in a Global Note to such
persons. Because DTC can act only on behalf of Direct Participants, which in
turn act on behalf of Indirect Participants and others, the ability of a person
having a beneficial interest in a Global Note to pledge such interest to persons
or entities that are not Direct Participants in DTC, or to otherwise take action
in respect of such interests, may be affected by the lack of physical
certificates evidencing such interests. For certain other restrictions on the
transferability of the Notes see "-- Transfers of Interests in Global Notes for
Certificated Notes."
Except as described in "--Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the Global Notes will not
have Notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
Under the terms of the Indenture, World Color and the trustee will treat the
persons in whose names the Notes are registered (including notes represented by
Global Notes) as the owners thereof for the purpose of receiving payments and
for any and all other purposes whatsoever. Payments in respect of the principal,
premium, Liquidated Damages, if any, and interest on Global Notes registered in
the name of DTC or its nominee will be payable by the Trustee to DTC or its
nominee as the registered holder under the indenture. Consequently, neither
World Color or the Trustee nor any agent of World Color or the trustee has or
will have any responsibility or liability for (i) any aspect of DTC's records or
any Direct Participant's or Indirect Participant's records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising, or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (ii) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
DTC has advised World Color that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the Notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
trustee or World Color. Neither World Color nor the trustee will be liable for
any delay by DTC or its Direct Participants or Indirect Participants in
identifying the beneficial owners of the notes, and World Color and the trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the notes through Euroclear or CEDEL) who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the notes through Euroclear and CEDEL will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between Direct Participants in DTC, on
the one hand, and Indirect Participants who hold interests in the Notes through
Euroclear or CEDEL, on the other hand, will be effected by Euroclear or CEDEL's
respective Nominee through DTC in accordance with DTC's rules on behalf of
Euroclear or
77
<PAGE>
CEDEL; HOWEVER, delivery of instructions relating to cross-market transactions
must be made directly to Euroclear or CEDEL, as the case may be, by the
counterparty in accordance with the rules and procedures of Euroclear or CEDEL
and within their established deadlines (Brussels time for Euroclear and UK time
for CEDEL). Indirect Participants who hold interests in the Notes through
Euroclear and CEDEL may not deliver instructions directly to Euroclear's or
CEDEL's Nominee. Euroclear or CEDEL will, if the transaction meets its
settlement requirements, deliver instructions to its respective Nominee to
deliver or receive interests on Euroclear's or CEDEL's behalf in the relevant
Global Note in DTC, and make or receive payment in accordance with normal
procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or CEDEL during
the European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York, Euroclear and CEDEL customers will not have access to the cash
amount credited to their accounts as a result of a sale of an interest in a Reg
S Permanent Global Note to a DTC Participant until the European business day for
Euroclear or CEDEL immediately following DTC's settlement date.
DTC has advised World Color that it will take an action permitted to be
taken by a holder of Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the notes
as to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for legended Notes in certificated form, and to
distribute such certificated forms of Notes to its Direct Participants. See
"--Transfers of Interests in Global Notes for Certificated Notes."
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that World Color
believes to be reliable, but World Color takes no responsibility for the
accuracy thereof.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC (x)
notifies World Color that it is unwilling or unable to continue as depositary
for the Global Notes or (y) has ceased to be a clearing agency registered under
the Exchange Act, and, in either case, World Color thereupon fails to appoint a
successor depositary within 90 days, (ii) World Color, at its option, notifies
the trustee in writing that it elects to cause the issuance of Certificated
Notes or (iii) there shall have occurred and be continuing a Default or an Event
of Default with respect to the notes. In any such case, World Color will notify
the trustee in writing that, upon surrender by the Direct and Indirect
Participants of their interest in such Global Note, Certificated Notes will be
issued to each person that such Direct and Indirect Participants and the DTC
identify as being the beneficial owner of the related notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interests in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
Neither World Color nor the Trustee will be liable for any delay by the
holder of the Global Notes or DTC in identifying the beneficial owners of Notes,
and World Color and the Trustee may conclusively rely on, and will be protected
in relying on, instructions from the holder of the Global Note or DTC for all
purposes.
78
<PAGE>
SAME DAY SETTLEMENT AND PAYMENT
The indenture will require that payments in respect of the notes represented
by the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
same day funds to the accounts specified by the holder of interests in such
Global Note. With respect to Certificated Notes, World Color will make all
payments of principal, premium, if any, interest and Liquidated Damages, if any,
by wire transfer of immediately available same day funds to the accounts
specified by the holders thereof or, if no such account is specified, by mailing
a check to each such holder's registered address. World Color expects that
secondary trading in the Certificated Notes will also be settled in immediately
available funds.
79
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax
considerations relevant to the exchange of unregistered notes for registered
notes. The discussion is based upon the Internal Revenue Code of 1986, as
amended, Treasury regulations, Internal Revenue Service rulings and
pronouncements, and judicial decisions now in effect, all of which are subject
to change at any time by legislative, judicial or administrative action. Any
such changes may be applied retroactively in a manner that could adversely
affect a holder of the registered notes. The description does not consider the
effect of any applicable foreign, state, local or other tax laws or estate or
gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING UNREGISTERED NOTES FOR REGISTERED NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF UNREGISTERED NOTES FOR REGISTERED NOTES
The exchange of unregistered notes for registered notes pursuant to the
exchange offer should not constitute a sale or an exchange for federal income
tax purposes. The holder will have a basis for the registered notes equal to the
basis of the unregistered notes and the holder's holding period for the
registered notes will include the period during which the unregistered notes
were held. Accordingly, such exchange should have no federal income tax
consequences to holders of unregistered notes.
80
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives registered notes for its own account in
exchange for unregistered notes pursuant to the exchange offer, where such
unregistered notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such registered
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 registered notes
received in exchange for unregistered notes where such unregistered notes were
acquired as a result of market-making activities or other trading activities.
The Company has agreed that, for a period of 180 days after the consummation of
the exchange offer, it will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of registered notes
by broker-dealers. Registered 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 registered 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 or the purchasers of any such registered notes. Any broker-dealer
that resells registered 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 registered notes may be deemed to be an "underwriter"
within the meaning of the Securities Act of 1933, and any profit on any such
resale of registered notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act of 1933. 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 of
1933.
For a period of 180 days after the registration statement is declared
effective, the Company will promptly send additional copies of this prospectus
and any amendment or supplement to this prospectus to any broker-dealer that
requests such documents in the letter of transmittal or otherwise. The Company
has agreed to pay all expenses incident to the exchange offer (including the
expenses of one counsel for the holders of the notes) other than commissions or
concessions of any broker-dealers and will indemnify holders of the unregistered
notes (including any broker-dealers) against certain liabilities, including
certain liabilities under the Securities Act of 1933.
81
<PAGE>
LEGAL MATTERS
The validity of the registered notes will be passed upon for us by Latham &
Watkins, New York, New York. Certain partners of Latham & Watkins, members of
their families, related persons and others have an indirect interest, through
limited partnerships, in less than 1% of the common stock of World Color. Such
persons do not have the power to vote or dispose of such shares of common stock.
In addition, Latham & Watkins has in the past provided, and may continue to
provide, legal services to KKR and its affiliates.
EXPERTS
The consolidated financial statements as of December 29, 1996 and December
28, 1997 and for each of the three years in the period ended December 28, 1997
included in this prospectus and the related financial statement schedule
incorporated by reference from World Color's Annual Report on Form 10-K for the
year ended December 28, 1997 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are included and
incorporated by reference herein, and have been so included and incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
82
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PAGE
---------
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 27, 1998 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 28, 1997 AND SEPTEMBER 27, 1998 (UNAUDITED)
Condensed Consolidated Balance Sheet (Unaudited) as of September 27, 1998................................ F-2
Condensed Consolidated Statements of Operations (Unaudited) for the Nine Months Ended September 28, 1997
and September 27, 1998................................................................................. F-3
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 28, 1997
and September 27, 1998................................................................................. F-4
Notes to Condensed Consolidated Financial Statements (Unaudited)......................................... F-5
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28,
1997
Independent Auditors' Report............................................................................. F-7
Consolidated Balance Sheets as of December 29, 1996 and December 28, 1997................................ F-8
Consolidated Statements of Operations for the Years Ended December 31, 1995, December 29, 1996 and
December 28, 1997...................................................................................... F-9
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, December 29, 1996
and December 28, 1997.................................................................................. F-10
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, December 29, 1996 and
December 28, 1997...................................................................................... F-11
Notes to Consolidated Financial Statements............................................................... F-12
</TABLE>
F-1
<PAGE>
WORLD COLOR PRESS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER
27,
1998
------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents....................... $ 23,621
Accounts receivable--net........................ 213,785
Inventories..................................... 329,478
Deferred income taxes........................... 16,473
Other........................................... 46,350
------------
Total current assets........................ 629,707
Property, plant and equipment, at cost.......... 1,611,854
Accumulated depreciation and amortization....... (698,976 )
------------
Property, plant and equipment--net............ 912,878
Goodwill--net................................... 668,580
Other........................................... 92,041
------------
TOTAL ASSETS...................................... $ 2,303,206
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses........... $ 343,626
Current maturities of long-term debt............ 37,881
------------
Total current liabilities................... 381,507
Long-term debt.................................. 1,077,961
Deferred income taxes........................... 101,331
Other long-term liabilities..................... 102,018
------------
Total liabilities........................... 1,662,817
------------
Stockholders' Equity:
Common stock, $.01 par value--shares authorized,
100,000,000 at September 27, 1998; shares
outstanding, 38,589,142 at September 27,
1998.......................................... 386
Additional paid-in capital...................... 715,060
Accumulated deficit............................. (66,923 )
Treasury stock, at cost: 185,100 shares......... (5,609 )
Unamortized restricted stock compensation....... (2,525 )
------------
Total stockholders' equity.................. 640,389
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 2,303,206
------------
------------
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
WORLD COLOR PRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED
----------------------------
SEPTEMBER 28, SEPTEMBER 27,
1997 1998
------------- -------------
<S> <C> <C>
NET SALES...................................................................... $ 1,441,266 $ 1,732,890
COST OF SALES.................................................................. 1,179,198 1,424,069
------------- -------------
Gross profit............................................................... 262,068 308,821
Selling, general and administrative expenses................................... 138,287 161,202
------------- -------------
OPERATING INCOME............................................................... 123,781 147,619
INTEREST EXPENSE AND SECURITIZATION FEES....................................... 61,099 65,368
------------- -------------
INCOME BEFORE INCOME TAXES..................................................... 62,682 82,251
INCOME TAX PROVISION........................................................... 26,326 34,134
------------- -------------
NET INCOME..................................................................... $ 36,356 $ 48,117
------------- -------------
------------- -------------
Net income per common share--basic............................................. $ 1.08 $ 1.25
Net income per common share--diluted........................................... $ 1.05 $ 1.21
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
WORLD COLOR PRESS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED
----------------------------
SEPTEMBER 28, SEPTEMBER 27,
1997 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................................... $ 36,356 $ 48,117
Adjustments to reconcile net income to net cash flows provided by operating
activities:
Depreciation and amortization.............................................. 100,498 104,848
Deferred income tax provision.............................................. 9,402 11,762
Changes in operating assets and liabilities:
Proceeds from sale of accounts receivable................................ 170,000 --
Other changes in accounts receivable--net................................ (21,787) (606)
Inventories.............................................................. (60,237) (112,078)
Accounts payable and accrued expenses.................................... (32,930) (3,009)
Other assets and liabilities--net........................................ (49,545) (68,709)
------------- -------------
Net cash provided by (used in) operating activities.................... 151,757 (19,675)
------------- -------------
INVESTING ACTIVITIES:
Additions to property, plant and equipment--net.............................. (72,247) (88,055)
Acquisitions of businesses, net of cash acquired............................. (172,539) (190,095)
------------- -------------
Net cash used in investing activities.................................. (244,786) (278,150)
------------- -------------
FINANCING ACTIVITIES:
Net borrowings on debt....................................................... 83,966 291,449
Proceeds from issuance of common stock....................................... 83 1,989
Repurchases of common stock.................................................. -- (9,668)
------------- -------------
Net cash provided by financing activities.............................. 84,049 283,770
------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS.......................................... (8,980) (14,055)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................................. 33,182 37,676
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................................... $ 24,202 $ 23,621
------------- -------------
------------- -------------
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated interim financial statements have
been prepared by World Color Press, Inc. (along with its subsidiaries, the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission and reflect normal and recurring adjustments, which are, in the
opinion of the Company, considered necessary for a fair presentation. As
permitted by these regulations, these statements do not include all information
required by generally accepted accounting principles to be included in an annual
set of financial statements, however, the Company believes that the disclosures
made are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's latest Annual Report on Form 10-K.
During the nine month period ended September 27, 1998, the Company acquired
certain businesses whose contributions were not significant to the Company's
results of operations for the period presented, nor are they expected to have a
material effect on the Company's results on a continuing basis.
2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 27,
1998
-------------
<S> <C>
Work-in-process.................................................... $ 187,298
Raw materials...................................................... 142,180
-------------
Total............................................................ $ 329,478
-------------
-------------
</TABLE>
3. NET INCOME PER COMMON SHARE
The following represents the weighted average common and common equivalent
shares utilized to calculate net income per common share - basic and diluted:
<TABLE>
<CAPTION>
NINE MONTHS
----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Weighted average common shares outstanding..................... 33,748,531 38,365,261
Common equivalent shares:
Stock options................................................ 847,870 1,037,245
Convertible debt............................................. -- 3,660,477
------------- -------------
Weighted average common and common equivalent shares
outstanding................................................... 34,596,401 43,062,983
------------- -------------
------------- -------------
</TABLE>
Interest charges on convertible debt, net of tax, of $4,172 have been added
back to net income for the calculation of net income per common share - diluted
for the nine month period ended September 27, 1998.
Options to purchase 25,000 shares of common stock were not included in the
computation of net income per common share - diluted for the nine month period
ended September 27, 1998 because the exercise price of the options was greater
than the average market price of the common shares.
F-5
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. SALE-LEASEBACK OF EQUIPMENT
In July 1998, the Company entered into an agreement for the sale and
leaseback of certain printing equipment for which it received approximately
$60,700 of proceeds. The proceeds have been reflected in additions to property,
plant and equipment--net in the condensed consolidated statements of cash flows
for the nine months ended September 27, 1998. The lease, which expires in July
2010, has been classified as an operating lease.
In October 1998, the Company received proceeds of approximately $27,800 for
the sale and leaseback of additional equipment.
5. TREASURY STOCK
In August 1998, the Board of Directors authorized the repurchase of up to
1,800,000 shares of the Company's common stock. The repurchase of shares
commenced in August 1998 and may occur over the next three years in the open
market at prevailing market prices or in negotiated transactions, depending on
market conditions. The shares will be repurchased to satisfy commitments under
certain employee benefit plans. The Company reissues treasury shares using the
weighted average cost method. The excess of repurchase cost over reissuance
price is applied to the Company's accumulated deficit.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
WORLD COLOR PRESS, INC.:
We have audited the accompanying consolidated balance sheets of World Color
Press, Inc. and subsidiaries as of December 29, 1996 and December 28, 1997 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 28, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of World Color Press, Inc. and
subsidiaries at December 29, 1996 and December 28, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 28, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
February 4, 1998
F-7
<PAGE>
WORLD COLOR PRESS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 33,182 $ 37,676
Accounts receivable--net of allowances for doubtful accounts of $8,476 and $9,287,
respectively...................................................................... 311,478 166,747
Inventories......................................................................... 140,160 204,889
Deferred income taxes............................................................... 32,944 31,297
Other............................................................................... 24,843 33,625
------------ ------------
Total current assets.............................................................. 542,607 474,234
Property, plant and equipment--net.................................................. 818,157 857,195
Goodwill--net....................................................................... 423,880 535,416
Other............................................................................... 37,788 66,726
------------ ------------
TOTAL ASSETS.......................................................................... $ 1,822,432 $ 1,933,571
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 172,013 $ 163,710
Accrued expenses.................................................................... 134,854 132,802
Current maturities of long-term debt................................................ 8,672 8,970
------------ ------------
Total current liabilities......................................................... 315,539 305,482
Long-term debt...................................................................... 889,195 810,143
Deferred income taxes............................................................... 91,555 100,045
Other long-term liabilities......................................................... 111,211 118,132
------------ ------------
Total liabilities................................................................. 1,407,500 1,333,802
------------ ------------
Stockholders' equity:
Common stock, $.01 par value -authorized, 100,000,000 shares in 1996 and 1997;
shares outstanding, 33,744,531 in 1996 and 38,353,853 in 1997..................... 337 384
Additional paid-in capital.......................................................... 583,721 711,292
Accumulated deficit................................................................. (169,126) (111,907)
------------ ------------
Total stockholders' equity........................................................ 414,932 599,769
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................ $ 1,822,432 $ 1,933,571
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
WORLD COLOR PRESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES............................................................... $ 1,295,582 $ 1,641,412 $ 1,981,225
COST OF SALES........................................................... 1,074,785 1,349,130 1,613,938
------------ ------------ ------------
Gross profit........................................................ 220,797 292,282 367,287
------------ ------------ ------------
OTHER OPERATING EXPENSES:
Selling, general and administrative................................... 125,539 153,071 188,688
Streamlining charge................................................... 40,900 -- --
------------ ------------ ------------
Total other operating expenses...................................... 166,439 153,071 188,688
------------ ------------ ------------
OPERATING INCOME........................................................ 54,358 139,211 178,599
INTEREST EXPENSE AND SECURITIZATION FEES................................ 37,897 58,417 80,039
------------ ------------ ------------
INCOME BEFORE INCOME TAXES.............................................. 16,461 80,794 98,560
INCOME TAX PROVISION.................................................... 6,584 33,533 41,341
------------ ------------ ------------
NET INCOME.............................................................. $ 9,877 $ 47,261 $ 57,219
------------ ------------ ------------
------------ ------------ ------------
Net income per common share--basic...................................... $ 0.31 $ 1.40 $ 1.65
Net income per common share--diluted.................................... $ 0.29 $ 1.35 $ 1.60
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
WORLD COLOR PRESS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT
----------- ---------- ------------
<S> <C> <C> <C>
BALANCE, DECEMBER 25, 1994................................................... $ 257 $ 500,120 $ (226,264)
Net income................................................................. -- -- 9,877
Common stock issued........................................................ 65 74,711 --
----- ---------- ------------
BALANCE, DECEMBER 31, 1995................................................... 322 574,831 (216,387)
Net income................................................................. -- -- 47,261
Common stock issued........................................................ 15 8,890 --
----- ---------- ------------
BALANCE, DECEMBER 29, 1996................................................... 337 583,721 (169,126)
Net income................................................................. -- -- 57,219
Common stock issued........................................................ 47 127,571 --
----- ---------- ------------
BALANCE, DECEMBER 28, 1997................................................... $ 384 $ 711,292 $ (111,907)
----- ---------- ------------
----- ---------- ------------
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
WORLD COLOR PRESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................... $ 9,877 $ 47,261 $ 57,219
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 74,668 104,493 131,710
Streamlining charge.................................................... 40,900 -- --
Deferred income tax provision (benefit)................................ (766) 13,573 14,272
Changes in operating assets and liabilities:
Proceeds from sale of accounts receivable............................ -- -- 200,000
Other changes in accounts receivable--net............................ (31,097) (30,062) (13,812)
Inventories.......................................................... (51,083) 29,495 (53,936)
Accounts payable and accrued expenses................................ (7,650) 35,178 (43,577)
Other assets and liabilities--net.................................... (28,105) (53,355) (52,571)
----------- ----------- -----------
Net cash provided by operating activities.......................... 6,744 146,583 239,305
----------- ----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment............................... (120,339) (70,639) (93,145)
Proceeds from sale of property, plant and equipment...................... 7,959 1,345 2,006
Acquisitions of businesses, net of cash acquired......................... (108,738) (167,283) (172,539)
----------- ----------- -----------
Net cash used in investing activities.............................. (221,118) (236,577) (263,678)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings................................................. 214,037 562,120 285,775
Payments on long-term debt............................................... (90,365) (456,751) (384,526)
Proceeds from issuance of common stock................................... 74,776 8,905 127,618
----------- ----------- -----------
Net cash provided by financing activities.......................... 198,448 114,274 28,867
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... (15,926) 24,280 4,494
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............................... 24,828 8,902 33,182
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR..................................... $ 8,902 $ 33,182 $ 37,676
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION
World Color Press, Inc. and subsidiaries (the "Company") specializes in the
production and distribution of data for customers in the magazine, catalog,
commercial, book, direct mail and directory markets.
Prior to November 20, 1995, the Company was wholly-owned by Printing
Holdings, L.P. ("PHLP"), a nonoperating affiliate of Kohlberg Kravis Roberts &
Co. L.P. ("KKR"), whose holdings consisted solely of the Company. On November
20, 1995, PHLP was merged with and into the Company, with the Company as the
survivor (the "Merger"). In connection with the Merger, PHLP partnership units
(aggregating approximately 65,500,000 units) were converted into approximately
32,200,000 shares of the Company's common stock, principally at a ratio of one
PHLP partnership unit to 0.50 shares of common stock. Accordingly, the common
stock and additional paid-in capital amounts presented on the consolidated
statements of stockholders' equity have been restated to reflect the change in
the Company's capital structure pursuant to the Merger. Also pursuant to the
Merger, the shares of the Company's common stock owned by PHLP immediately prior
to the Merger were canceled. On November 20, 1995, the Company also amended and
restated its Certificate of Incorporation increasing the authorized number of
shares of common stock to 100,000,000 shares and newly authorizing 50,000,000
shares of preferred stock, par value $0.01 per share. At December 29, 1996 and
December 28, 1997, there were no shares of preferred stock issued or
outstanding.
On January 25, 1996, 15,861,568 shares of the Company's common stock were
sold at $19 per share in an initial public equity offering (the "Offering"). All
of the shares in the Offering were sold by existing stockholders. The Company
did not receive any of the proceeds from the sale of the shares, except that
certain members of former management elected to participate in the Offering by
exercising certain stock options granted to them by the Company. An aggregate of
1,531,290 shares underlying such options were sold in the Offering, generating
proceeds to the Company of approximately $8,900. These proceeds were used to pay
expenses of the Offering and for general corporate purposes.
On October 8, 1997, the Company issued 4,600,000 common shares through a
public offering, resulting in net proceeds of approximately $127,600. These
proceeds were utilized to repay certain indebtedness under the Credit Agreement
(as defined in Note 2).
2. BUSINESS ACQUISITIONS
In March 1995, the Company acquired three companies that operate in the
commercial, digital and direct mail market sectors (the "1995 Acquisitions") for
an aggregate purchase price of approximately $108,000. In addition, the Company
liquidated approximately $44,500 of the acquired companies' indebtedness. The
1995 Acquisitions and liquidation of indebtedness were funded using proceeds
from the Company's credit facility. The 1995 Acquisitions were accounted for as
purchases and the consolidated financial statements include the results of their
operations from the respective acquisition dates. The excess of purchase cost
over estimated fair value of net assets acquired was approximately $81,700,
which is being amortized using the straight-line method over 35 years.
In June 1996, the Company acquired from Ringier A.G. all of the issued and
outstanding capital stock of Krueger Acquisition Corporation, including all of
the issued and outstanding capital stock of Ringier Holdings, Inc., Ringier
America, Inc., Krueger Ringier, Inc., Ringier Print U.S., Inc. and W.A. Krueger
Co.
F-12
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. BUSINESS ACQUISITIONS (CONTINUED)
Olathe (collectively, "Ringier America"), for approximately $128,000 (the
"Acquisition"). In addition, the Company assumed approximately $287,000 of
Ringier America's indebtedness, of which approximately $281,000 was liquidated
upon consummation of the Acquisition. Ringier America was a leading diversified
commercial printer whose business included the printing of catalogs, magazines
and mass-market, racksize books. The Acquisition and liquidation of certain
indebtedness were funded using proceeds from acquisition term loans under the
Second Amended and Restated Credit Agreement dated as of June 6, 1996, as
amended (the "Credit Agreement"), among the Company and the lenders and agents
party thereto. The Acquisition was accounted for as a purchase and the
consolidated financial statements include the results of Ringier America's
operations from the acquisition date. The excess of purchase cost over estimated
fair value of net assets acquired was approximately $160,000, and is being
amortized using the straight-line method over 35 years.
During 1995 and 1996, the Company acquired certain other businesses whose
contributions were not significant to the Company's results of operations for
the periods presented, nor are they expected to have a material effect on the
Company's results on a continuing basis.
In 1997, the Company acquired two businesses operating in the book, magazine
and catalog markets. These companies were acquired for the aggregate purchase
price of approximately $173,000, primarily funded using proceeds from the
Company's credit facility. The Company liquidated approximately $20,000 of the
acquired companies' indebtedness. These acquisitions were accounted for as
purchases and the consolidated financial statements include the results of their
operations from the respective acquisition dates. The excess of purchase cost
over estimated fair value of net assets acquired was approximately $126,000 and
is being amortized using the straight-line method over 35 years.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of World Color Press, Inc. and its subsidiaries. Intercompany
transactions have been eliminated.
CASH AND CASH EQUIVALENTS--Cash equivalents consist of highly liquid
instruments with original maturities of three months or less.
ACCOUNTING PERIOD--The Company's fiscal year is the 52 or 53-week period
ending on the last Sunday in December. Fiscal year 1995 included 53 weeks.
Fiscal years 1996 and 1997 each included 52 weeks.
CONSOLIDATED STATEMENTS OF CASH FLOWS--During 1995, 1996 and 1997, the
Company borrowed and repaid $318,700, $407,200 and $563,200, respectively,
pursuant to the terms of credit agreements. See also Note 7. Such amounts have
not been reflected in the consolidated statements of cash flows because of the
short-term nature of the borrowings.
Cash paid for interest by the Company during the years 1995, 1996 and 1997
was $37,193, $54,037 and $75,738, respectively, net of capitalized interest of
$1,810, $252 and $941, respectively. Cash paid for taxes during the years 1995,
1996 and 1997 was $8,305, $18,068 and $28,266, respectively.
REVENUE RECOGNITION--In accordance with trade practice, sales are recognized
by the Company on the basis of production and service activity at the pro rata
billing value of work completed.
F-13
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES--The Company's raw materials of paper and ink and the related
raw material component of work-in-process are valued at the lower of cost, as
determined using the first-in, first-out ("FIFO") method, or market. The
remainder of the work-in-process is valued at the pro rata billing value of work
completed.
DEPRECIATION AND AMORTIZATION--Property, plant and equipment is stated at
cost. Depreciation is recorded principally on the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the lesser of the useful life of the improvement
or the lease term. Estimated useful lives used in computing depreciation and
amortization expense are 3 to 15 years for machinery and equipment and 15 to 40
years for buildings and leasehold improvements.
GOODWILL--Goodwill is amortized using the straight-line method primarily
over 35 years. Amortization of goodwill for the years 1995, 1996 and 1997 was
$7,275, $10,757 and $16,424, respectively, and is included in selling, general
and administrative expenses. Accumulated amortization of goodwill was $34,804
and $51,228 as of year-end 1996 and 1997, respectively.
NET INCOME PER COMMON SHARE--In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," which establishes new standards for computing and
presenting net income per common share. The Company adopted SFAS No. 128 in the
fourth quarter 1997, and has calculated "net income per common share - basic"
based on the weighted average common shares outstanding during each period and
"net income per common share--diluted" based on the weighted average common and
dilutive common equivalent shares outstanding during each period. Weighted
average shares were adjusted to give effect to the change in the Company's
capital structure pursuant to the Merger and the Options Adjustments, as
described in Notes 1 and 11.
RECLASSIFICATIONS--Certain reclassifications have been made to prior years'
amounts to conform with the current presentation.
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. Actual results could differ from those estimates.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS--In March 1995, the
Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 establishes the accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable intangibles to be
disposed. The Company adopted SFAS No. 121 for the year ended December 29, 1996.
Accordingly, the Company evaluates long-lived assets, including goodwill,
periodically to determine if there has been an impairment of value by reviewing
current and estimated undiscounted cash flows. The carrying amounts of such
long-lived assets will be adjusted if and
F-14
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
when it has been determined that a permanent impairment has occurred. There were
no adjustments to the carrying value of these assets for 1996 or 1997.
ACCOUNTING FOR STOCK-BASED COMPENSATION--In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 encourages companies to account for stock
compensation awards based on their fair value at the date they are granted. The
resulting compensation cost would be shown as an expense on the income
statement. Companies choosing not to apply the new accounting method are
permitted to continue following current accounting requirements, however, they
are required to disclose in the notes to the financial statements the effect on
net income and earnings per share had the new accounting method been applied.
The Company has adopted only the disclosure provisions of SFAS No. 123.
Accordingly, the Company has disclosed in Note 11 the pro forma effect on net
income and net income per common share--basic and diluted.
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
effective for the fiscal year ended 1998. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. The Company does not expect the adoption of SFAS No. 130
to have a material effect on its consolidated financial statements. SFAS No. 131
establishes standards for reporting information on operating segments in the
financial statements. The Company is currently evaluating the impact SFAS No.
131 may have on additional disclosure, if any, to its consolidated financial
statements.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
which standardizes the disclosure for pensions and other postretirement
benefits. The Company will adopt this statement for the fiscal year ended 1998.
The Company is currently evaluating the impact SFAS No. 132 may have on
additional disclosure, if any, to its consolidated financial statements.
4. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Work-in-process....................................................... $ 73,747 $ 111,326
Raw materials......................................................... 66,413 93,563
---------- ----------
Total............................................................... $ 140,160 $ 204,889
---------- ----------
---------- ----------
</TABLE>
F-15
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Land........................................................................ $ 14,822 $ 16,252
Buildings and leasehold improvements........................................ 247,806 292,092
Machinery and equipment..................................................... 1,075,349 1,180,297
Leased property under capitalized leases.................................... 8,519 6,692
------------ ------------
1,346,496 1,495,333
Accumulated depreciation and amortization................................... 528,339 638,138
------------ ------------
Total..................................................................... $ 818,157 $ 857,195
------------ ------------
------------ ------------
</TABLE>
Depreciation expense related to property, plant and equipment was $65,526,
$91,186 and $114,819 for the years 1995, 1996 and 1997, respectively.
6. ACCRUED EXPENSES
Accrued expenses are as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Compensation................................................................ $ 48,447 $ 50,239
Employee health and welfare benefits........................................ 16,593 9,696
Deferred revenue............................................................ 16,105 10,956
Interest.................................................................... 8,493 10,368
Other....................................................................... 45,216 51,543
------------ ------------
Total..................................................................... $ 134,854 $ 132,802
------------ ------------
------------ ------------
</TABLE>
7. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Senior Subordinated Notes................................................... $ 150,000 $ 150,000
Convertible Senior Subordinated Notes....................................... -- 151,800
Borrowings under credit agreements.......................................... 672,000 450,500
Notes payable, average of 9.17% due 2004--2005.............................. 40,129 36,729
Capitalized lease obligations, weighted average imputed interest rate of
9.27% due through 2003.................................................... 5,067 3,540
Other debt, average of 8.46% due 1998--2004................................. 30,671 26,544
------------ ------------
Total..................................................................... 897,867 819,113
Less current maturities..................................................... 8,672 8,970
------------ ------------
Noncurrent portion.......................................................... $ 889,195 $ 810,143
------------ ------------
------------ ------------
</TABLE>
F-16
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT (CONTINUED)
At December 28, 1997, the fair value of the Senior Subordinated Notes and
Convertible Senior Subordinated Notes was approximately $156,188 and $146,108,
respectively, based on quoted market prices. The fair value of the Company's
remaining debt approximated its carrying value, based upon the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
SENIOR SUBORDINATED NOTES--On May 10, 1993, Senior Subordinated Notes (the
"Notes") were issued in the aggregate principal amount of $150,000. Interest on
the Notes is payable semi-annually at the annual rate of 9.125%. The Notes have
no required principal payments prior to maturity on March 15, 2003.
CONVERTIBLE SENIOR SUBORDINATED NOTES--On October 8, 1997, the Company
issued $151,800 aggregate principal amount of Convertible Senior Subordinated
Notes (the "Convertible Notes"), receiving net proceeds of approximately
$147,900. Interest on the Convertible Notes is payable semi-annually at the
annual rate of 6.00%. The Convertible Notes have no required principal payments
prior to maturity on October 1, 2007. The Convertible Notes in the aggregate are
convertible into 3,660,477 shares of the Company's common stock at $41.47 per
share, subject to adjustment upon the occurrence of certain events. The
Convertible Notes are redeemable at the option of the holder at any time and at
the option of the Company, at specified prices, subsequent to October 4, 2000.
The net proceeds from the Convertible Notes offering were utilized to repay
certain indebtedness incurred under the Credit Agreement.
BORROWINGS UNDER CREDIT AGREEMENTS--On June 6, 1996, an amendment was made
to the Company's credit facility to provide for an additional $566,000 of
commitments and to extend the maturity date two years to December 31, 2002. In
June and October 1997, concurrent with the liquidation of indebtedness utilizing
proceeds from the Asset Securitization (as defined in Note 8), equity offering
and Convertible Notes offering, the Credit Agreement was amended to provide and
subsequently maintain the aggregate total commitments of $920,000, comprised of
$95,000 in term loan commitments, $250,000 of revolving loan commitments and
$575,000 in acquisition term loan commitments. All other significant financial
provisions of the Credit Agreement remained substantially unchanged. The Credit
Agreement requires varying semi-annual reductions in commitments, and the
borrowings bear interest at rates that fluctuate with the prime rate and the
Eurodollar rate which ranged from 6.25% to 8.50% in 1996 and 6.25% to 8.63% in
1997. The Credit Agreement includes a commitment fee of .25% per annum based on
the daily average unutilized revolving credit commitment. At December 28, 1997,
$272,000 of acquisition term loan commitments and $181,929 of the revolving loan
commitments were unutilized. The amount unutilized under the revolving loan
commitments has been reduced by outstanding letters of credit of $15,571, not
reflected in the accompanying consolidated financial statements, for which the
Company was contingently liable under the Credit Agreement. Such letters of
credit primarily guarantee various insurance reserves.
Borrowings under the terms of the Credit Agreement are secured by pledges of
various assets of the Company. The Credit Agreement has covenants which, among
other things, restrict the incurrence of additional indebtedness by the Company
and limit its ability to make payments to affiliated parties. The Credit
Agreement also restricts the payment of dividends or other distributions of
capital. The Company was in compliance with these covenants as of December 28,
1997.
F-17
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. LONG-TERM DEBT (CONTINUED)
Aggregate annual maturities of long-term debt subsequent to December 28,
1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 8,970
1999.............................................................................. 25,209
2000.............................................................................. 75,733
2001.............................................................................. 96,427
2002.............................................................................. 289,718
2003 and thereafter............................................................... 320,512
----------
816,569
Noncurrent portion of capitalized lease obligations............................... 2,544
----------
Total............................................................................. $ 819,113
----------
----------
</TABLE>
8. ASSET SECURITIZATION
In conjunction with the amended Credit Agreement described in Note 7, on
June 30, 1997, the Company entered into an agreement to sell, on a revolving
basis for a period of up to five years, certain of its accounts receivable to a
wholly-owned subsidiary, which entered into an agreement to transfer, on a
revolving basis, an undivided percentage ownership interest in a designated pool
of accounts receivable to a maximum of $204,000 (the "Asset Securitization"). At
December 28, 1997, $200,000 of accounts receivable had been sold and reflected
as a reduction of accounts receivable. Fees arising from the securitization
transaction of $5,133 are included in interest expense and securitization fees
in the consolidated statement of operations for the year ended December 28,
1997. These fees vary based on commercial paper rates plus a margin, providing a
lower effective rate than that available under the Company's Credit Agreement.
The Company maintains an allowance for doubtful accounts based on the expected
collectibility of all accounts receivable, including receivables sold.
9. LEASES
CAPITAL LEASES--The Company is a lessee under several noncancellable capital
lease agreements for certain fixed assets. The leases extend for periods up to 6
years and contain purchase provisions.
OPERATING LEASES--The Company leases certain equipment, warehouse facilities
and office space under noncancellable operating leases which expire over the
next 11 years. Most of these operating leases provide the Company with the
option, after the initial lease term, either to purchase the equipment or renew
its lease based upon the fair value of the property at the option date.
F-18
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. LEASES (CONTINUED)
Future minimum rental payments required under noncancellable leases at
December 28, 1997 were as follows:
<TABLE>
<CAPTION>
YEAR CAPITAL OPERATING
- ------------------------------------------------------------------------ --------- ----------
<S> <C> <C>
1998.................................................................... $ 1,465 $ 47,795
1999.................................................................... 1,181 45,808
2000.................................................................... 556 42,076
2001.................................................................... 556 38,212
2002.................................................................... 556 22,153
2003 and thereafter..................................................... 231 52,585
--------- ----------
Total minimum lease payments............................................ 4,545 $ 248,629
----------
----------
Less imputed interest................................................... 1,005
---------
Capitalized lease obligations........................................... 3,540
Less current maturities................................................. 996
---------
Noncurrent portion...................................................... $ 2,544
---------
---------
</TABLE>
Rental expense for operating leases was $31,948, $36,299 and $44,703 for the
years 1995, 1996 and 1997, respectively. Assets recorded under capital leases
amounted to $5,342 and $4,828, net of accumulated amortization of $3,177 and
$1,864 at the end of 1996 and 1997, respectively.
F-19
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. INCOME TAXES
The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal..................................................... $ 6,540 $ 16,542 $ 21,178
State....................................................... 810 3,418 5,891
--------- --------- ---------
7,350 19,960 27,069
--------- --------- ---------
Deferred:
Federal..................................................... (944) 12,491 14,525
State....................................................... 178 1,082 (253)
--------- --------- ---------
(766) 13,573 14,272
--------- --------- ---------
Total................................................... $ 6,584 $ 33,533 $ 41,341
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effects of significant items comprising the Company's net deferred
tax liability as of December 29, 1996 and December 28, 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- -----------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards....................................... $ 15,161 $ 8,219
Tax credit carryforwards........................................... 21,241 39,602
Postemployment benefits............................................ 22,106 20,906
Postretirement benefits other than pensions........................ 11,450 10,867
Pension accrual.................................................... 7,668 7,232
Vacation accrual................................................... 5,390 7,172
Other differences.................................................. 21,585 10,119
---------- -----------
Gross deferred tax assets........................................ 104,601 104,117
---------- -----------
Deferred tax liabilities:
Differences between book and tax bases of property................. (138,116) (138,066)
Other differences.................................................. (18,256) (27,959)
---------- -----------
Gross deferred tax liabilities................................... (156,372) (166,025)
---------- -----------
Deferred tax asset valuation allowance............................... (6,840) (6,840)
---------- -----------
Net deferred tax liability........................................... (58,611) (68,748)
Less current deferred tax asset...................................... 32,944 31,297
---------- -----------
Noncurrent deferred tax liability.................................... $ (91,555) $ (100,045)
---------- -----------
---------- -----------
</TABLE>
The 1996 and 1997 amounts above include a valuation allowance of $6,840
relating to a capital loss carryforward that is not expected to be realized for
tax purposes and for the limitations of certain state net operating loss
carryforwards.
F-20
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. INCOME TAXES (CONTINUED)
The following table reconciles the difference between the U.S. federal
statutory tax rates and the rates used by the Company in the determination of
net income:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Income tax provision, at 35%.................................. $ 5,761 $ 28,278 $ 34,496
State and local income taxes, net of federal income tax
benefit..................................................... 642 2,941 3,665
Deferred tax asset valuation allowance........................ (1,160) -- --
Other, primarily goodwill amortization........................ 1,341 2,314 3,180
--------- --------- ---------
Total..................................................... $ 6,584 $ 33,533 $ 41,341
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 28, 1997, the Company has net operating loss carryforwards for
federal income tax purposes of $14,875 available to reduce future taxable
income, expiring primarily in 2000. The Company also has federal tax credits of
$2,495 expiring primarily from 1999 to 2002 and state tax credits of $2,575
expiring from 2001 to 2012. In addition, the Company has alternative minimum tax
carryover credits of $34,532 which do not expire and may be applied against
regular tax in the future, in the event that the regular tax expense exceeds the
alternative minimum tax.
11. EMPLOYEE BENEFIT PLANS
PENSION PLANS--The Company has defined benefit pension plans in effect which
cover certain employees who meet minimum eligibility requirements and who are
not covered by multiemployer plans. The Company contributes annually amounts
sufficient to satisfy the government's minimum standards.
Net periodic pension cost is determined based upon years of service and
compensation levels, using the projected unit credit method. Prior year service
costs and unrecognized gains and losses are amortized over the estimated future
service periods of active employees in the respective plan.
Effective January 1, 1997, several of the Company's defined benefit plans
were merged into the World Color Press, Inc. Retirement Plan, which was then
amended to form the World Color Press Cash Balance Plan (the "Cash Balance
Plan"), which provides for a new benefit formula applicable to all participants.
Under the Cash Balance Plan, each participant's account is credited with both
interest and a fixed percentage of the participant's annual compensation.
The components of net periodic pension cost are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost (for benefits earned during the year)............. $ 2,270 $ 4,927 $ 5,201
Interest cost on projected benefit obligation.................. 5,010 9,218 14,066
Actual return on plan assets................................... (7,751) (12,467) (14,947)
Net amortization and deferral.................................. 1,800 2,295 (1,712)
--------- --------- ---------
Net periodic pension cost...................................... $ 1,329 $ 3,973 $ 2,608
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-21
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of the Company's pension plans at year-end, which reflects
the aforementioned mergers and amendment, is presented below.
<TABLE>
<CAPTION>
1996 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
(PLANS IN WHICH)
<CAPTION>
ACCUMULATED ASSETS ACCUMULATED
BENEFITS EXCEED BENEFITS
EXCEED ACCUMULATED EXCEED
ASSETS BENEFITS ASSETS
------------ ------------ ------------
<S> <C> <C> <C>
Actuarial present value of plan benefits:
Vested.................................................................. $ 27,774 $ 83,262 $ 170,732
Nonvested............................................................... 1,273 5,723 8,026
------------ ------------ ------------
Accumulated benefit obligation.......................................... 29,047 88,985 178,758
Effect of projected future salary increases............................. 2,822 12,201 13,091
------------ ------------ ------------
Projected benefit obligation............................................ 31,869 101,186 191,849
Plan assets at fair value............................................... 26,260 109,669 168,625
------------ ------------ ------------
Plan assets greater than (less than) the projected benefit obligation... (5,609) 8,483 (23,224)
Unrecognized net loss (gain)............................................ (245) (18,520) 15,474
Unrecognized net transition obligation (asset).......................... 347 (982) (408)
Unrecognized prior service cost (credit)................................ 694 (6,508) (11,125)
Adjustment required to recognize minimum liability...................... (1,477) -- (3,484)
------------ ------------ ------------
Accrued pension liability............................................... $ (6,290) $ (17,527) $ (22,767)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The unrecognized net transition asset or obligation is being amortized over
the average expected future service periods of employees. The market value of
plan assets was used to calculate the assumed return on plan assets. At the end
of 1996 and 1997, an additional minimum pension liability for unfunded
accumulated benefit obligations of $1,477 and $3,484, respectively, was
recognized. The weighted average discount rate and rate of increase in future
compensation levels used in determining actuarial present value of the projected
benefit obligation for the Company's plans were 8.0% and 3.5% in 1996 and 7.5%
and 3.5% in 1997, respectively. The expected long-term rate of return on plan
assets used was 9.0%, 10.0% and 10.0% for 1995, 1996 and 1997, respectively.
Plan assets consist principally of common stocks and U.S. government and
corporate obligations. At December 28, 1997, the plans' assets included an
aggregate of $4,614 of the Company's common stock.
Certain union employees of the Company participate in multiemployer plans.
Amounts charged to benefit expense relating to the multiemployer plans for 1995,
1996 and 1997 totaled $3,049, $3,185 and $3,352, respectively. In addition, the
Company has various deferred savings and profit sharing plans for certain
employees who meet eligibility requirements. Amounts charged to benefit expense
related to these plans for 1995, 1996 and 1997 totaled $1,186, $1,044 and
$1,977, respectively.
F-22
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
POSTRETIREMENT BENEFIT PLANS--The Company provides postretirement medical
benefits to eligible employees. The Company's postretirement health care plans
are unfunded. The status of the plans is as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Actuarial present value of plan benefits:
Retirees................................................................ $ 15,349 $ 17,263
Fully eligible active plan participants................................. 2,274 6,783
Other active plan participants.......................................... 8,503 20,619
--------- ---------
Total accumulated benefit obligation.................................... 26,126 44,665
Unrecognized net deferrals.............................................. 5,172 (584)
--------- ---------
Accrued postretirement benefits......................................... $ 31,298 $ 44,081
--------- ---------
--------- ---------
</TABLE>
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service Cost................................................... $ 511 $ 839 $ 1,365
Interest Cost.................................................. 1,192 1,596 3,158
Amortization of unrecognized prior service cost................ (1,289) (1,289) (1,289)
Amortization of unrecognized net gain.......................... (194) -- --
--------- --------- ---------
Net periodic postretirement benefit cost....................... $ 220 $ 1,146 $ 3,234
--------- --------- ---------
--------- --------- ---------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 7% and 5% at the end of 1996 and 1997,
respectively, after which it remains constant at 5%. A one percentage point
increase in the assumed health care cost trend rate would increase the
accumulated postretirement benefit obligation as of December 28, 1997 by $3,409
and the annual postretirement benefit expense by approximately $392. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 8.0% and 7.5% in 1996 and 1997, respectively.
STOCK OPTION PLANS--Upon consummation of the Merger described in Note 1, the
Stock Option Committee of the Board of Directors (the "Stock Option Committee")
adjusted all of the outstanding options so that each option became exercisable
for five times the number of shares of common stock for which it had been
exercisable immediately prior to the Merger at an exercise price per share equal
to one-fifth of the exercise price per share immediately prior to the Merger
(the "Options Adjustments"). Accordingly, the following stock option data has
been presented on a post-Merger basis.
The Company has stock option plans that permit the Stock Option Committee to
grant up to an aggregate of 5,250,000 options to purchase shares of the
Company's common stock to certain key employees of the Company. Options granted
under the plans generally vest ratably over a five-year period.
F-23
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
Vested options may generally be exercised up to ten years from the date of
grant. Information related to the Company's stock option plans is presented
below.
<TABLE>
<CAPTION>
NUMBER OF OPTION
OPTIONS PRICE
----------- ------------------
<S> <C> <C>
Outstanding at December 25, 1994............................ 3,406,000 $5.49 to $10.30
Granted................................................... 640,555 $11.20 to $15.00
Exercised................................................. (26,575) $5.49
Rescinded/Canceled........................................ (204,660) $6.89 to $10.30
-----------
Outstanding at December 31, 1995............................ 3,815,320 $5.49 to $15.00
-----------
Granted................................................... 354,000 $22.00
Exercised................................................. (1,532,290) $5.49 to $6.95
Rescinded/Canceled........................................ (74,725) $8.97 to $15.00
-----------
Outstanding at December 29, 1996............................ 2,562,305 $5.49 to $22.00
-----------
Granted................................................... 804,000 $23.75 to $26.75
Exercised................................................. (12,000) $6.89
Rescinded/Canceled........................................ (45,365) $11.20 to $22.00
-----------
Outstanding at December 28, 1997............................ 3,308,940 $5.49 to $26.75
-----------
</TABLE>
<TABLE>
<CAPTION>
RESERVED
FOR
FUTURE
EXERCISABLE GRANTS
---------- -----------
<S> <C> <C>
December 31, 1995................................................... 2,810,910 1,434,680
December 29, 1996................................................... 1,655,640 1,155,405
December 28, 1997................................................... 1,861,934 396,770
</TABLE>
As permitted by SFAS No. 123, the Company has not recorded compensation
expense for stock options granted to employees, but rather has determined the
pro forma net income and net income per common share--basic and diluted amounts
for fiscal years 1995, 1996 and 1997, had compensation expense been recorded for
options granted during those years under the applicable fair value method
described in the statement.
For options granted during 1995, the fair value was estimated using the
minimum value method. Under this method, the expected volatility of the
Company's common stock is not estimated, as prior to the Offering there was no
market for the Company's common stock in which to monitor stock price
volatility. For options granted during 1996 and 1997, the fair value at the date
of grant was estimated using the Black-Scholes option pricing model. Under the
Black-Scholes model, a volatility factor of 0.312 and 0.310 was used for 1996
and 1997, respectively.
The following weighted average assumptions were used in calculating the fair
value of the options granted in 1995, 1996 and 1997, respectively: risk-free
interest rates of 6.41%, 6.80% and 6.33%; an assumed dividend yield of zero; and
an expected life of the options of ten years.
F-24
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
For purposes of the pro forma disclosures, the estimated fair value of the
options granted is amortized to compensation expense over the options' vesting
period. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income:
As reported................................................. $ 9,877 $ 47,261 $ 57,219
Pro forma................................................... $ 9,746 $ 46,688 $ 55,893
Net income per common share--basic:
As reported................................................. $ 0.31 $ 1.40 $ 1.65
Pro forma................................................... $ 0.30 $ 1.39 $ 1.61
Net income per common share--diluted:
As reported................................................. $ 0.29 $ 1.35 $ 1.60
Pro forma................................................... $ 0.28 $ 1.34 $ 1.57
Weighted average fair value of options granted during the
year:....................................................... $ 7.01 $ 12.81 $ 14.39
</TABLE>
F-25
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. NET INCOME PER COMMON SHARE
The following represents the reconciliation between net income per common
share--basic and diluted: (In thousands, except per share data)
<TABLE>
<CAPTION>
PER
INCOME SHARES SHARE
--------- --------- ---------
<S> <C> <C> <C>
For the year ended 1995:
Net income per common share--basic............................. $ 9,877 32,218 $ 0.31
Effect of dilutive securities:
Stock options................................................ -- 2,223
--------- ---------
Net income per common share--diluted........................... $ 9,877 34,441 $ 0.29
--------- ---------
--------- ---------
For the year ended 1996:
Net income per common share--basic............................. $ 47,261 33,642 $ 1.40
Effect of dilutive securities:
Stock options................................................ -- 1,361
--------- ---------
Net income per common share--diluted........................... $ 47,261 35,003 $ 1.35
--------- ---------
--------- ---------
For the year ended 1997:
Net income per common share--basic............................. $ 57,219 34,773 $ 1.65
Effect of dilutive securities:
Stock options................................................ -- 863
Convertible debt............................................. 1,264 815
--------- ---------
Net income per common share--diluted........................... $ 58,483 36,451 $ 1.60
--------- ---------
--------- ---------
</TABLE>
Options to purchase 429,000 shares of common stock were issued and
outstanding in 1997, but were not included in the computation of net income per
common share--diluted because the exercise price of the options was greater than
the average market price of the common shares.
13. TRANSACTIONS WITH AFFILIATES
The Company has incurred expenses of $850, $750 and $750 in 1995, 1996 and
1997, respectively, for management services provided by affiliated companies. In
addition, the Company paid $3,735 in advisory fees in 1995 associated with the
acquisitions described in Note 2, to affiliated companies.
14. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to legal proceedings and other claims arising in the
ordinary course of operations. In the opinion of management, ultimate resolution
of proceedings currently pending will not have a material effect on the results
of operations or financial position of the Company.
15. STREAMLINING CHARGE
In the fourth quarter of 1995, the Company finalized and committed to a plan
to realign certain business operations, resulting in a charge of $40,900. The
major components of this realignment plan were
F-26
<PAGE>
WORLD COLOR PRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, DECEMBER 29, 1996 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. STREAMLINING CHARGE (CONTINUED)
to close a facility and to consolidate certain digital prepress operations and
functions. The financial statement effects of this decision were a writedown of
assets to net realizable value of $30,700, a provision for severance costs of
$8,000 and a provision for certain other related costs of $2,200. The facility
referred to above was exited and the consolidation of the operations and
functions were substantially complete at the end of 1996. At December 28, 1997,
substantially all of the amounts provided for as severance and other related
costs had been paid.
16. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NET INCOME NET INCOME
PER PER
COMMON COMMON
GROSS SHARE- SHARE-
QUARTER ENDED NET SALES PROFIT NET INCOME BASIC DILUTED
- ---------------------------------- ------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
March 31, 1996.................... $ 329,111 $ 52,286 $ 5,939 $ 0.18 $ 0.17
June 30, 1996..................... 342,266 57,942 6,056 0.18 0.17
September 29, 1996................ 487,804 96,406 19,217 0.57 0.55
December 29, 1996................. 482,231 85,648 16,049 0.48 0.46
------------ ----------- -----------
$ 1,641,412 $ 292,282 $ 47,261 $ 1.40 $ 1.35
------------ ----------- -----------
------------ ----------- -----------
March 30, 1997.................... $ 458,351 $ 75,315 $ 6,903 $ 0.20 $ 0.20
June 29, 1997..................... 425,647 76,052 6,580 0.19 0.19
September 28, 1997................ 557,268 110,701 22,873 0.68 0.66
December 28, 1997................. 539,959 105,219 20,863 0.55 0.53
------------ ----------- -----------
$ 1,981,225 $ 367,287 $ 57,219 $ 1.65 $ 1.60
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
F-27
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
OFFER TO EXCHANGE
ALL OUTSTANDING
8 3/8% SENIOR SUBORDINATED NOTES
DUE 2008
FOR
8 3/8% SENIOR SUBORDINATED NOTES
DUE 2008
We have not authorized anyone to give you any information or to make any
representations about the transactions we discuss in this prospectus other than
those contained herein or in the documents we incorporate herein by reference.
If you are given any information or representations about these matters that is
not discussed or incorporated in this prospectus, you must not rely on that
information. This prospectus is not an offer to sell or a solicitation of an
offer to buy securities anywhere or to anyone where or to whom we are not
permitted to offer or sell securities under applicable law. The delivery of this
prospectus offered hereby does not, under any circumstances, mean that there has
not been a change in our affairs since the date hereof. It also does not mean
that the information in this prospectus or in the documents we incorporate
herein by reference is correct after this date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for violations of the
director's fiduciary duty, except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payments of dividends of unlawful stock purchase or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.
Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who is,
or is threatened to be made, party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the corporation's best interest and, for
criminal proceedings, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify any officer or director in an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses that
such officer or director actually and reasonably incurred.
Article VIII of the Amended and Restated By-laws of the Company (filed as
Exhibit 3.1) provides for indemnification of the officers and directors to the
full extent permitted by applicable law.
The limited partnership agreements pursuant to which APC Associates, L.P.,
GR Associates, L.P., WCP Associates, L.P. and KKR Partners II, L.P. were
organized provide that such partnerships shall indemnify and hold harmless KKR
Associates, L.P., the general partner of each of such partnerships, against any
action, suit or proceeding to which it may be made a party or otherwise involved
or with which it shall be threatened by reason of its being the general partner
of such partnership except for liability arising out of any act or omission of
the general partner judicially determined to have been grossly negligent,
fraudulent or to have constituted willful misconduct. The limited partnership
agreement of KKR Associates, L.P. provides substantially identical indemnity to
its general partners, which include Scott M. Stuart, a director of the Company.
Mr. Armstrong is indemnified for liabilities arising prior to February 2,
1996, pursuant to Merrill Lynch & Co.'s corporate charter which provides that,
to the extent he is not so indemnified by the Company, Mr. Armstrong will be
indemnified by Merrill Lynch & Co., in his capacity as a director of World Color
Press, Inc., to the fullest extent permitted by Delaware law.
II-1
<PAGE>
ITEM 21. EXHIBITS.
(a) Exhibits:
The following exhibits are filed pursuant to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
**1.1 Purchase Agreement relating the unregistered notes, dated as of November 12, 1998, among World Color
Press, Inc., BT Alex. Brown Incorporated and CIBC Oppenheimer Corp.
**1.2 Purchase Agreement relating the 7 3/4% Senior Subordinated Notes, dated as of February 16, 1999, among
World Color Press, Inc., Morgan, Stanley & Co. Incorporated, ABN AMRO Incorporated, BancBoston Robertson
Stephens, Inc., CIBC Oppenheimer Corp. and Fleet Securities, Inc.
3.1 Amended and Restated Certificate of Incorporation of World Color Press, Inc., incorporated by reference
to Exhibit 3.1 to World Color's Registration Statement on Form S-1 (No. 33-99676) under the Securities
Act of 1933.
3.2 Amended and Restated By-Laws of World Color Press, Inc., incorporated by reference to Exhibit 3.2 to
World Color's Annual Report on Form 10-K for the fiscal year ended December 29, 1996.
**4.1 Indenture between World Color Press, Inc. and The Bank of New York, as trustee, relating to World
Color's 8 3/8% Senior Subordinated Notes due 2008.
**4.2 Specimen of World Color's 8 3/8% Senior Subordinated Notes due 2008 (included in the Indenture filed as
Exhibit 4.1).
**4.3 Indenture between World Color Press, Inc. and The Bank of New York, as trustee, relating to World
Color's 7 3/4% Senior Subordinated Notes due 2009.
**4.4 Specimen of World Color's 7 3/4% Senior Subordinated Notes due 2009 (included in the Indenture filed as
Exhibit 4.3).
*4.5 Registration Rights Agreement dated November 20, 1998, among the Company, BT Alex. Brown Incorporated
and CIBC Oppenheimer Corporation, relating to the Company's 8 3/8% Senior Subordinated Notes due 2008.
*4.6 Registration Rights Agreement dated February 22, 1998, among the Company, Morgan, Stanley & Co.
Incorporated, ABN AMRO Incorporated, BancBoston Roberston Stephens Incorporated, CIBC Oppenheimer
Corporation and Fleet Securities Inc., relating to the Company's 7 3/4% Senior Subordinated Notes due
2008.
**5.1 Form of Opinion of Latham & Watkins regarding the legality of the securities being registered.
**10.1 Sixth Amendment to Second Amended and Restated Credit Agreement dated as of November 11, 1998, by and
among World Color Press, Inc., the Lenders party to the Second Amended and Restated Credit Agreement, as
amended, Bankers Trust Company, as Administrative Agent, and the Guarantors listed on the signature
pages, incorporated by reference to Exhibit 10.4 to the World Color Quarterly Report on Form 10-Q for
the quarterly period ended June 28, 1998.
**10.2 Seventh Amendment to Second Amended and Restated Credit Agreement dated as of November 23, 1998, by and
among World Color Press, Inc., the Lenders party to the Second
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
Amended and Restated Credit Agreement, as amended, Bankers Trust Company, as Administrative Agent, and
the Guarantors listed on the signature pages, incorporated by reference to Exhibit 10.4 to the World
Color Quarterly Report on Form 10-Q for the quarterly period ended June 28, 1998.
<C> <S>
**10.3 Limited Consent and Eighth Amendment to Second Amended and Restated Credit Agreement dated as of
February 3, 1999, by and among World Color Press, Inc., the Lenders party to the Second Amended and
Restated Credit Agreement, as amended, Bankers Trust Company, as Administrative Agent, and the
Guarantors listed on the signature pages, incorporated by reference to Exhibit 10.4 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended June 28, 1998.
**12.1 Statement regarding computation of ratios.
**21.1 Subsidiaries of the Registrant.
*23.1 Consent of Deloitte & Touche LLP.
**23.2 Consent of Latham & Watkins (included in Exhibit 5.1 hereto).
**24.1 Powers of Attorney (included above the signature block to the Registration Statement).
**25.1 Statement of Eligibility of Trustee.
</TABLE>
* Filed herewith.
** Previously filed.
ITEM 22. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 20
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expense 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 against the registrant by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's Annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's Annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration 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.
C. 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.
II-3
<PAGE>
D. 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.
E. (1) 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, 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.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933, as amended,
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.
II-4
<PAGE>
SIGNATURES
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 Greenwich, State of
Connecticut on March 17, 1999.
WORLD COLOR PRESS, INC.
By: /s/ JENNIFER L. ADAMS
-------------------------------------
Name: Jennifer L. Adams
Title: Vice Chairman, Chief Legal and
Administrative Officer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed on the 17th day of March, 1999 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------- ----------------------------------------
<C> <S>
* Chairman of the Board of Directors,
- ----------------------------- Chief Executive Officer (Principal
Robert G. Burton Executive Officer)
* Executive Vice President, Chief
- ----------------------------- Financial Officer (Principal Financial
Robert B. Lewis Officer and Principal Accounting
Officer)
* President and Director
- -----------------------------
Marc L. Reisch
* Director
- -----------------------------
Gerald S. Armstrong
* Director
- -----------------------------
Patrice M. Daniels
* Director
- -----------------------------
Dr. Mark J. Griffin
* Director
- -----------------------------
Alexander Navab, Jr.
* Director
- -----------------------------
Scott M. Stuart
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JENNIFER L. ADAMS
-------------------------
Jennifer L. Adams
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
**1.1 Purchase Agreement relating the unregistered notes, dated as of November 12, 1998, among World Color
Press, Inc., BT Alex. Brown Incorporated and CIBC Oppenheimer Corp.
**1.2 Purchase Agreement relating the 7 3/4% Senior Subordinated Notes, dated as of February 16, 1999, among
World Color Press, Inc., Morgan, Stanley & Co. Incorporated, ABN AMRO Incorporated, BancBoston Robertson
Stephens, Inc., CIBC Oppenheimer Corp. and Fleet Securities, Inc.
3.1 Amended and Restated Certificate of Incorporation of World Color Press, Inc., incorporated by reference
to Exhibit 3.1 to World Color's Registration Statement on Form S-1 (No. 33-99676) under the Securities
Act of 1933.
3.2 Amended and Restated By-Laws of World Color Press, Inc., incorporated by reference to Exhibit 3.2 to
World Color's Annual Report on Form 10-K for the fiscal year ended December 29, 1996.
**4.1 Indenture between World Color Press, Inc. and The Bank of New York, as trustee, relating to World
Color's 8 3/8% Senior Subordinated Notes due 2008.
**4.2 Specimen of World Color's 8 3/8% Senior Subordinated Notes due 2008 (included in the Indenture filed as
Exhibit 4.1).
**4.3 Indenture between World Color Press, Inc. and The Bank of New York, as trustee, relating to World
Color's 7 3/4% Senior Subordinated Notes due 2009.
**4.4 Specimen of World Color's 7 3/4% Senior Subordinated Notes due 2009 (included in the Indenture filed as
Exhibit 4.3).
*4.5 Registration Rights Agreement dated November 20, 1998, among the Company, BT Alex. Brown Incorporated
and CIBC Oppenheimer Corporation, relating to the Company's 8 3/8% Senior Subordinated Notes due 2008.
*4.6 Registration Rights Agreement dated February 22, 1998, among the Company, Morgan, Stanley & Co.
Incorporated, ABN AMRO Incorporated, BancBoston Roberston Stephens Incorporated, CIBC Oppenheimer
Corporation and Fleet Securities Inc., relating to the Company's 7 3/4% Senior Subordinated Notes due
2008.
**5.1 Form of Opinion of Latham & Watkins regarding the legality of the securities being registered.
**10.1 Sixth Amendment to Second Amended and Restated Credit Agreement dated as of November 11, 1998, by and
among World Color Press, Inc., the Lenders party to the Second Amended and Restated Credit Agreement, as
amended, Bankers Trust Company, as Administrative Agent, and the Guarantors listed on the signature
pages, incorporated by reference to Exhibit 10.4 to the World Color Quarterly Report on Form 10-Q for
the quarterly period ended June 28, 1998.
**10.2 Seventh Amendment to Second Amended and Restated Credit Agreement dated as of November 23, 1998, by and
among World Color Press, Inc., the Lenders party to the Second Amended and Restated Credit Agreement, as
amended, Bankers Trust Company, as Administrative Agent, and the Guarantors listed on the signature
pages, incorporated by reference to Exhibit 10.4 to the World Color Quarterly Report on Form 10-Q for
the quarterly period ended June 28, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
**10.3 Limited Consent and Eighth Amendment to Second Amended and Restated Credit Agreement dated as of
February 3, 1999, by and among World Color Press, Inc., the Lenders party to the Second Amended and
Restated Credit Agreement, as amended, Bankers Trust Company, as Administrative Agent, and the
Guarantors listed on the signature pages, incorporated by reference to Exhibit 10.4 to the World Color
Quarterly Report on Form 10-Q for the quarterly period ended June 28, 1998.
**12.1 Statement regarding computation of ratios.
**21.1 Subsidiaries of the Registrant.
*23.1 Consent of Deloitte & Touche LLP.
**23.2 Consent of Latham & Watkins (included in Exhibit 5.1 hereto).
**24.1 Powers of Attorney (included above the signature block to the Registration Statement).
**25.1 Statement of Eligibility of Trustee.
</TABLE>
* Filed herewith.
** Previously filed.
<PAGE>
Exhibit 4.5
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of November 20, 1998
by and among
World Color Press, Inc.
and
BT Alex. Brown Incorporated
CIBC Oppenheimer Corp.
- --------------------------------------------------------------------------------
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of November 20, 1998, by and among World Color Press, Inc., a Delaware
corporation (the "COMPANY"), and BT Alex. Brown Incorporated and CIBC
Oppenheimer Corp. (each an "INITIAL PURCHASER" and, collectively, the "INITIAL
Purchasers"), each of whom has agreed to purchase the Company's 8_% Senior
Subordinated Notes due 2008 (the "SERIES A NOTES") pursuant to the Purchase
Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated November
12, 1998 (the "PURCHASE AGREEMENT"), by and among the Company and the Initial
Purchasers. In order to induce the Initial Purchasers to purchase the Series A
Notes, the Company has agreed to provide the registration rights set forth in
this Agreement. The execution and delivery of this Agreement is a condition to
the obligations of the Initial Purchasers set forth in Section 2 of the Purchase
Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
ACT: The Securities Act of 1933, as amended.
BUSINESS DAY: Any day except a Saturday, Sunday or other day in the City
of New York, or in the city of the corporate trust office of the Trustee (as
defined below), on which banks are authorized to close.
BROKER-DEALER: Any broker or dealer registered under the Exchange Act.
BROKER-DEALER TRANSFER RESTRICTED SECURITIES: Series B Notes that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Series A Notes
that such Broker-Dealer acquired for its own account as a result of market
making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its affiliates).
CERTIFICATED SECURITIES: As defined in the Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for purposes
of this Agreement upon the occurrence of (a) the filing and effectiveness under
the Act of the Exchange Offer Registration Statement relating to the Series B
Notes to be issued in the Exchange Offer, (b) the maintenance of such
Registration Statement continuously effective and the keeping of the Exchange
Offer open for a period not less than the minimum period required pursuant to
Section 3(b) hereof and (c) the delivery by the Company to the Registrar under
the Indenture of Series B Notes in the same aggregate principal amount as the
aggregate principal amount of Series A Notes tendered by Holders thereof
pursuant to the Exchange Offer.
1
<PAGE>
DAMAGES PAYMENT DATE: With respect to the Series A Notes, each Interest
Payment Date.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The registration by the Company under the Act of the
Series B Notes pursuant to the Exchange Offer Registration Statement pursuant to
which the Company shall offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities for Series B Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement relating
to the Exchange Offer, including the related Prospectus.
GLOBAL NOTEHOLDER: As defined in the Indenture.
HOLDERS: As defined in Section 2 hereof.
INDEMNIFIED HOLDER: As defined in Section 8(a) hereof.
INDENTURE: The Indenture, dated the Closing Date, among the Company and
The Bank of New York, as trustee (the "TRUSTEE"), pursuant to which the Notes
are to be issued, as such Indenture is amended or supplemented from time to time
in accordance with the terms thereof.
INTEREST PAYMENT DATE: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
NOTES: The Series A Notes and the Series B Notes.
PERSON: An individual, partnership, corporation, limited liability
company, trust, unincorporated organization, or a government or agency or
political subdivision thereof.
PROSPECTUS: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECORD HOLDER: With respect to any Damages Payment Date, each Person who
is a Holder of Notes on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company relating
to (a) an offering of Series B Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, in each case, (i) which is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and
2
<PAGE>
supplements thereto (including post-effective amendments) and all exhibits and
material incorporated by reference therein.
RESTRICTED BROKER-DEALER: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.
SERIES B NOTES: The Company's 8_% Senior Subordinated Notes due 2008 to be
issued pursuant to the Indenture (i) in the Exchange Offer or (ii) upon the
request of any Holder of Series A Notes covered by a Shelf Registration
Statement, in exchange for such Series A Notes.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as
in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Note, until the earliest to occur of
(a) the date on which such Note is exchanged in the Exchange Offer and entitled
to be resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Act, (b) the date on which such Note has
been disposed of in accordance with a Shelf Registration Statement, (c) the date
on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.
UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Company shall (i) cause to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 90 days after the
Closing Date, the Exchange Offer Registration Statement, (ii) use its best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 150 days after the
Closing Date, (iii) in connection with the foregoing, (A) file all pre-effective
amendments to such Exchange Offer Registration Statement as may be necessary in
order to cause such Exchange Offer Registration Statement to become effective,
(B) file, if applicable, a post-effective amendment to such Exchange Offer
Registration Statement pursuant to Rule 430A under the Act and (C) cause all
necessary filings, if any, in connection with the registration and qualification
of the Series B Notes to be made under the Blue Sky laws of such jurisdictions
as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such Exchange Offer Registration Statement, commence
3
<PAGE>
and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series B Notes to be offered in
exchange for the Series A Notes that are Transfer Restricted Securities and to
permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange Offer
Registration Statement to be effective continuously, and shall keep the Exchange
Offer open for a period of not less than the minimum period required under
applicable federal and state securities laws to Consummate the Exchange Offer;
PROVIDED, HOWEVER, that in no event shall such period be less than 20 Business
Days. The Company shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Notes shall be
included in the Exchange Offer Registration Statement. The Company shall use its
best efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 180 days after the Closing Date.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Series A Notes that are
Transfer Restricted Securities and that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Series A Notes (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Series B Note received by such Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers that the Commission may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Notes held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of 180 days from the date on which the Exchange Offer is
Consummated.
The Company shall promptly provide sufficient copies of the latest version
of such Prospectus to such Restricted Broker-Dealers promptly upon request, and
in no event later than one day after such request, at any time during such
one-year period in order to facilitate such sales.
4
<PAGE>
SECTION 4. SHELF REGISTRATION
(a) SHELF REGISTRATION. If (i) the Company is not required to file an
Exchange Offer Registration Statement with respect to the Series B Notes because
the Exchange Offer is not permitted by applicable law (after the procedures set
forth in Section 6(a)(i) below have been complied with) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 Business Days
following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the Series B Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A
Notes acquired directly from the Company or one of its affiliates, then the
Company shall (x) cause to be filed on or prior to 30 days after the date on
which the Company determines that it is not required to file the Exchange Offer
Registration Statement pursuant to clause (i) above or 30 days after the date on
which the Company receives the notice specified in clause (ii) above a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"SHELF REGISTRATION STATEMENT")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and shall (y) use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to 90 days after the date
on which the Company becomes obligated to file such Shelf Registration
Statement. If, after the Company has filed an Exchange Offer Registration
Statement which satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer shall not be permitted under applicable federal law,
then the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above. Such an event shall have no effect
on the requirements of clause (y) above. The Company shall use its best efforts
to keep the Shelf Registration Statement discussed in this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, until
the earlier of one year (as extended pursuant to Section 6(c)(i)) following the
date on which such Shelf Registration Statement first becomes effective under
the Act, or such date on which all Transfer Restricted Securities registered
under such Shelf Registration Statement have been sold in the manner set forth
in and as contemplated by the Shelf Registration Statement.
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH THE
SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in item 507 of Regulation S-K under the Act for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have used its best efforts to provide all such information.
Each Holder as to which any Shelf Registration Statement 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 Holder not materially misleading.
5
<PAGE>
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the date specified for such filing in this
Agreement, (ii) any such Registration Statement has not been declared effective
by the Commission on or prior to the date specified for such effectiveness in
this Agreement, (iii) an Exchange Offer Registration Statement becomes effective
but the Exchange Offer has not been Consummated within 180 days after the
Closing Date or (iv) any Registration Statement required by this Agreement is
filed and declared effective but shall thereafter cease to be effective or fail
to be usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately (each such event referred to
in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the interest rate
borne by the Transfer Restricted Securities shall be increased by one-quarter of
one percent per annum with respect to the first 90-day period immediately
following the occurrence of such Registration Default, for each week or portion
thereof that the Registration Default continues. The amount of the liquidated
damages shall increase by an additional one-quarter of one percent per annum
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, provided that the aggregate increase in such annual interest
rate may in no event exceed one percent per annum. Notwithstanding anything to
the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made usable
in the case of (iv) above, the liquidated damages payable with respect to the
Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or
(iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Global Note Holder by
wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities at the office or agency of the Company
maintained for such purpose in the Borough of Manhattan, The City of New York,
or by mailing checks to their registered addresses on each Damages Payment Date.
All obligations of the Company set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such security shall have been
satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the Exchange
Offer, the Company shall comply with all applicable provisions of Section 6(c)
below, shall use its best efforts to effect such exchange and to permit the sale
of Broker-Dealer Transfer Restricted Securities being sold in accordance with
the intended method or methods of distribution thereof, and shall comply with
all of the following provisions:
(i) If, following the date hereof there has been published a change in
Commission policy with respect to exchange offers such as the Exchange
Offer, such that in the reasonable opinion of counsel to the Company there
is a substantial question as to whether the Exchange Offer is permitted
6
<PAGE>
by applicable federal law, the Company hereby agrees to seek a no-action
letter or other favorable decision from the Commission allowing the Company
to Consummate an Exchange Offer for such Series A Notes. The Company hereby
agrees to pursue the issuance of such a decision to the Commission staff
level. In connection with the foregoing, the Company hereby agrees to take
all such other actions as are reasonably requested by the Commission or
otherwise required in connection with the issuance of such decision,
including without limitation (A) participating in telephonic conferences
with the Commission, (B) delivering to the Commission staff an analysis
prepared by counsel to the Company setting forth the legal bases, if any,
upon which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursuing a resolution (which need not be
favorable) by the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to the Company
(which may be contained in the letter of transmittal contemplated by the
Exchange Offer Registration Statement) to the effect that (A) it is not an
affiliate of the Company, (B) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Series B Notes to be issued in the
Exchange Offer and (C) it is acquiring the Series B Notes in its ordinary
course of business. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to participate
in a distribution of the securities to be acquired in the Exchange Offer
(1) could not under Commission policy as in effect on the date of this
Agreement rely on the position of the Commission enunciated in MORGAN
STANLEY AND CO., INC. (available June 5, 1991) and EXXON CAPITAL HOLDINGS
CORPORATION (available May 13, 1988), as interpreted in the Commission's
letter to Shearman & Sterling dated July 2, 1993, and similar no-action
letters (including, if applicable, any no-action letter obtained pursuant
to clause (i) above), and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection with a secondary
resale transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K if the resales are of Series B Notes obtained by such Holder
in exchange for Series A Notes acquired by such Holder directly from the
Company or an affiliate thereof.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in EXXON CAPITAL
HOLDINGS CORPORATION (available May 13, 1988), MORGAN STANLEY AND CO., INC.
(available June 5, 1991) and, if applicable, any no-action letter obtained
pursuant to clause (i) above, (B) including a representation that the
Company has not entered into any arrangement or understanding with any
Person to distribute the Series B Notes to be received in the Exchange
Offer and that, to the best of the Company's information and belief, each
Holder participating in the Exchange Offer is acquiring the Series B Notes
in its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Series B Notes
received in the Exchange Offer and (C) any other undertaking or
representation reasonably required by the Commission as set forth in any
no-action letter obtained pursuant to clause (i) above.
(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf Registration
Statement, the Company shall comply with all the provisions of Section 6(c)
below and shall use its reasonable best efforts
7
<PAGE>
to effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company will prepare
and file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form shall be
available for the sale of the Transfer Restricted Securities in accordance with
the intended method or methods of distribution thereof within the time periods
and otherwise in accordance with the provisions hereof.
(c) GENERAL PROVISIONS. In connection with any Registration Statement and
any related Prospectus required by this Agreement to permit the sale or resale
of Transfer Restricted Securities (including, without limitation, any Exchange
Offer Registration Statement and the related Prospectus, to the extent that the
same are required to be available to permit sales of Broker-Dealer Transfer
Restricted Securities by Restricted Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for resale
of Transfer Restricted Securities during the period required by this
Agreement, the Company shall file promptly an appropriate amendment to such
Registration Statement, (1) in the case of clause (A), correcting any such
misstatement or omission, and (2) in the case of clauses (A) and (B), use
its reasonable best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as practicable
thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary
to keep the Registration Statement effective for the applicable period set
forth in Section 3 or 4 hereof, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration
Statement have been sold; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 under the Act, and to comply fully with Rules 424, 430A and
462, as applicable, under the Act in a timely manner; and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
sellers thereof set forth in such Registration Statement or supplement to
the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders promptly
and, if requested by such Persons, confirm such advice in writing, (A) when
the Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to any Registration Statement or any
post-effective amendment thereto, when the same has become effective, (B)
of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement under
the Act or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or sale in
any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening of
any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement
8
<PAGE>
thereto or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Registration
Statement in order to make the statements therein not misleading, or that
requires the making of any additions to or changes in the Prospectus in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state securities
or Blue Sky laws, the Company shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(iv) furnish to the Initial Purchasers, each selling Holder named in
any Registration Statement or Prospectus and each of the underwriter(s) in
connection with such sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holders and underwriter(s) in
connection with such sale, if any, for a period of at least five Business
Days, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by
reference) to which the selling Holders of the Transfer Restricted
Securities covered by such Registration Statement or the underwriter(s) in
connection with such sale, if any, shall reasonably object within five
Business Days after the receipt thereof. A selling Holder or underwriter,
if any, shall be deemed to have reasonably objected to such filing if such
Registration Statement, amendment, Prospectus or supplement, as applicable,
as proposed to be filed, contains a material misstatement or omission or
fails to comply with the applicable requirements of the Act;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s) in connection with such sale, if any, make the Company's
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the selling
Holders, any managing underwriter participating in any disposition pursuant
to such Registration Statement and any attorney or accountant retained by
such selling Holders or any of such underwriter(s), all financial and other
records, pertinent corporate documents and properties of the Company and
cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Holder, underwriter, attorney
or accountant in connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing thereof and prior
to its effectiveness;
(vii) if requested by any selling Holders or the underwriter(s) in
connection with such sale, if any, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to such underwriter(s), the
9
<PAGE>
purchase price being paid therefor and any other terms of the offering of
the Transfer Restricted Securities to be sold in such offering; and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(viii) furnish to each selling Holder and each of the underwriter(s)
in connection with such sale, if any, without charge, at least one copy of
the Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(ix) deliver to each selling Holder and each of the underwriter(s), if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company hereby consents to the use (in
accordance with law) of the Prospectus and any amendment or supplement
thereto by each of the selling Holders and each of the underwriter(s), if
any, in connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(x) enter into such agreements (including an underwriting agreement)
and make such representations and warranties and take all such other
actions in connection therewith in order to expedite or facilitate the
disposition of the Transfer Restricted Securities pursuant to any
Registration Statement contemplated by this Agreement as may be reasonably
requested by any Holder of Transfer Restricted Securities or underwriter in
connection with any sale or resale pursuant to any Registration Statement
contemplated by this Agreement, and in such connection, whether or not an
underwriting agreement is entered into and whether or not the registration
is an Underwritten Registration, the Company shall:
(A) furnish (or in the case of paragraphs (2) and (3), use its best
efforts to furnish) to each selling Holder and each underwriter, if any,
upon the effectiveness of the Shelf Registration Statement and to each
Restricted Broker-Dealer upon Consummation of the Exchange Offer:
(1) a certificate, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, signed on behalf of the Company by (x)
the President or any Vice President and (y) a principal financial or
accounting officer of the Company, confirming, as of the date thereof,
the matters set forth in paragraphs (a) through (c) of Section 9 of
the Purchase Agreement and such other similar matters as the Holders,
underwriter(s) and/or Restricted Broker Dealers may reasonably
request;
(2) an opinion, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the Company covering
matters similar to those set forth in paragraph (d) of Section 9 of
the Purchase Agreement and such other matter as the Holders,
underwriters and/or Restricted Broker Dealers may reasonably request,
and in any event including a statement to the effect that such counsel
has participated in conferences with officers and other
representatives of the Company, representatives of the independent
public accountants for the Company and have considered the matters
required to be stated therein and the statements contained therein,
although such counsel has not independently verified the accuracy,
completeness
10
<PAGE>
or fairness of such statements; and that such counsel advises that, on
the basis of the foregoing (relying as to materiality to a large
extent upon facts provided to such counsel by officers and other
representatives of the Company and without independent check or
verification), no facts came to such counsel's attention that caused
such counsel to believe that the applicable Registration Statement, at
the time such Registration Statement or any post-effective amendment
thereto became effective and, in the case of the Exchange Offer
Registration Statement, as of the date of Consummation of the Exchange
Offer, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus
contained in such Registration Statement as of its date and, in the
case of the opinion dated the date of Consummation of the Exchange
Offer, as of the date of Consummation, contained an untrue statement
of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Without
limiting the foregoing, such counsel may state further that such
counsel assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data included in
any Registration Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement or the date of
Consummation of the Exchange Offer, as the case may be, from the
Company's independent accountants, in the customary form and covering
matters of the type customarily covered in comfort letters to
underwriters in connection with primary underwritten offerings, and
affirming the matters set forth in the comfort letters delivered
pursuant to Section 9(g) of the Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference in the underwriting
agreement, if any, in connection with any sale or resale pursuant to any
Shelf Registration Statement the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be reasonably
requested by the selling Holders, the underwriter(s), if any, and
Restricted Broker Dealers, if any, to evidence compliance with clause
(A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (x).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any
time the representations and warranties of the Company contemplated in
(A)(1) above cease to be true and correct, the Company shall so advise the
underwriter(s), if any, the selling Holders and each Restricted
Broker-Dealer promptly and if requested by such Persons, shall confirm such
advice in writing;
(xi) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of
the Transfer Restricted Securities under the securities or Blue Sky laws of
such jurisdictions as the selling Holders or underwriter(s), if any, may
request and do any and all other acts
11
<PAGE>
or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; PROVIDED, HOWEVER, that the Company
shall not be required to register or qualify as a foreign corporation where
it is not now so qualified or to take any action that would subject it to
the service of process in suits or to taxation, other than as to matters
and transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xii) issue, upon the request of any Holder of Series A Notes
covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to
the aggregate principal amount of Series A Notes surrendered to the
Company by such Holder in exchange therefor or being sold by such Holder;
such Series B Notes to be registered in the name of such Holder or in the
name of the purchaser(s) of such Notes, as the case may be; in return, the
Series A Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and delivery
of certificates representing Transfer Restricted Securities to be sold and
not bearing any restrictive legends; and to register such Transfer
Restricted Securities in such denominations and such names as the Holders
or the underwriter(s), if any, may request at least two Business Days
prior to such sale of Transfer Restricted Securities;
(xiv) use its best efforts to cause the disposition of the
Transfer Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof or
the underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xi)
above;
(xv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have occurred,
prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
(xvi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under
the Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with the Depository
Trust Company;
(xvii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that
is required to be retained in accordance with the rules and regulations of
the NASD, and use its best efforts to cause such Registration Statement to
become effective and approved by such governmental agencies or authorities
as may be necessary to enable the Holders
12
<PAGE>
selling Transfer Restricted Securities to consummate the disposition of
such Transfer Restricted Securities;
(xviii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xix) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required
by this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders of Notes to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the
terms of the TIA; and execute and use its best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
and
(xx) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof,
or until it is advised in writing by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus (the "Advice"). If
so directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of either such notice. In the
event the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section 6(c)(i)
or Section 6(c)(iii)(D) hereof to and including the date when each selling
Holder covered by such Registration Statement shall have received the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof
or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made by any
Purchaser or Holder with the NASD (and, if applicable, the fees and expenses of
any "qualified independent underwriter") and its counsel that may be required by
the rules and regulations of the NASD); (ii) all fees and expenses of compliance
with federal securities and state Blue Sky or securities laws; (iii) all
expenses
13
<PAGE>
of printing (including printing certificates for the Series B Notes to be issued
in the Exchange Offer and printing of Prospectuses), messenger and delivery
services and telephone; (iv) all fees and disbursements of counsel for the
Company and the Holders of Transfer Restricted Securities; (v) all application
and filing fees in connection with listing the Notes on a national securities
exchange or automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of
the Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Purchasers and the Holders of Transfer Restricted Securities being tendered in
the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant to
the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each Holder and
(ii) each person, if any, who controls (within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act) any Holder (any of the persons referred
to in this clause (ii) being hereinafter referred to as a "controlling person")
and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"INDEMNIFIED HOLDER"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Holder) directly or indirectly caused by, related to, based upon,
arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto),
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by an untrue statement or omission or alleged untrue statement or
omission that is made in reliance upon and in conformity with information
relating to any of the Holders furnished in writing to the Company by any of the
Holders expressly for use therein.
In case any action or proceeding (including any governmental or regulatory
investigation or proceeding) shall be brought or asserted against any of the
Indemnified Holders with respect to which indemnity may be sought against the
Company, such Indemnified Holder (or the Indemnified Holder
14
<PAGE>
controlled by such controlling person) shall promptly notify the Company in
writing (PROVIDED, that the failure to give such notice shall not relieve the
Company of its obligations pursuant to this Agreement). Such Indemnified Holder
shall have the right to employ its own counsel in any such action and the fees
and expenses of such counsel shall be paid, as incurred, by the Company
(regardless of whether it is ultimately determined that an Indemnified Holder is
not entitled to indemnification hereunder). The Company shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) at any time for such Indemnified Holders, which firm shall be
designated by the Holders. The Company shall be liable for any settlement of any
such action or proceeding effected with the Company's prior written consent,
which consent shall not be withheld unreasonably, and the Company agrees to
indemnify and hold harmless each Indemnified Holder from and against any loss,
claim, damage, liability or expense by reason of any settlement of any action
effected with the written consent of the Company. The Company shall not, without
the prior written consent of each Indemnified Holder, settle or compromise or
consent to the entry of judgment in or otherwise seek to terminate any pending
or threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Holder is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Holder from all liability arising out of such action, claim, litigation or
proceeding.
(b) Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Company and its directors,
officers, and any person controlling (within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act) the Company, and the respective officers,
directors, partners, employees, representatives and agents of each such person,
to the same extent as the foregoing indemnity from the Company to each of the
Indemnified Holders, but only with respect to claims and actions based on
information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the Company, or its directors or officers or
any such controlling person in respect of which indemnity may be sought against
a Holder of Transfer Restricted Securities, such Holder shall have the rights
and duties given the Company, and the Company, such directors or officers or
such controlling person shall have the rights and duties given to each Holder by
the preceding paragraph. In no event shall any Holder be liable or responsible
for any amount in excess of the amount by which the total received by such
Holder with respect to its sale of Transfer Restricted Securities pursuant to a
Registration Statement exceeds (i) the amount paid by such Holder for such
Transfer Restricted Securities and (ii) the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.
(c) If the indemnification provided for in this Section 8 is unavailable
to an indemnified party under Section 8(a) or Section 8(b) hereof (other than by
reason of exceptions provided in those Sections) in respect of any losses,
claims, damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Holders, on the other hand, from their sale of
Transfer Restricted Securities or if such allocation is not permitted by
applicable law, the relative fault of the Company, on the one hand, and of the
Indemnified Holder, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations.
15
<PAGE>
The relative fault of the Company, on the one hand, and of the Indemnified
Holder, on the other hand, 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 or by the Indemnified Holder and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in the second paragraph
of Section 8(a), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Company and each Holder of Transfer Restricted Securities agree that
it would not be just and equitable if contribution pursuant to this Section 8(c)
were determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, no Holder or
its related Indemnified Holders shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total received by
such Holder with respect to the sale of its Transfer Restricted Securities
pursuant to a Registration Statement exceeds the sum of (A) the amount paid by
such Holder for such Transfer Restricted Securities PLUS (B) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(c) are several in proportion to the respective
principal amount of Series A Notes held by each of the Holders hereunder and not
joint.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company is not subject to Section 13 or 15(d) of the Securities Exchange Act, to
make available, upon request of any Holder of Transfer Restricted Securities, to
any Holder or beneficial owner of Transfer Restricted Securities in connection
with any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
16
<PAGE>
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or investment bankers
and manager or managers for any Underwritten Offering that will administer such
offering will be selected by the Holders of a majority in aggregate principal
amount of the Transfer Restricted Securities included in such offering. Such
investment bankers and managers are referred to herein as the "underwriters."
SECTION 12. MISCELLANEOUS
(a) REMEDIES. Each Holder, in addition to being entitled to exercise all
rights provided herein, in the Indenture, the Purchase Agreement or granted by
law, including recovery of liquidated or other damages, will be entitled to
specific performance of its rights under this Agreement. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company will not, on or after the date
of this Agreement, enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into any agreement granting any registration rights with respect to its
securities to any Person, except for pursuant to (i) the Registration Rights
Agreement dated November 20, 1995 by and between the Company, APC Associates,
L.P., G.R. Associates L.P. and WCP Associates, L.P. and (ii) certain agreements
with members of the Company's management as in effect on the date 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
securities under any agreement in effect on the date hereof.
(c) ADJUSTMENTS AFFECTING THE NOTES. The Company will not take any action,
or voluntarily permit any change to occur, with respect to the Notes that would
materially and adversely affect the ability of the Holders to Consummate any
Exchange Offer.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 12(d)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities. Notwithstanding the foregoing, a waiver or consent to
departure from the provisions hereof that relates exclusively to the rights of
Holders whose securities are being tendered pursuant to the Exchange Offer and
that does not affect directly or indirectly the rights of other Holders whose
securities are not being tendered pursuant to such Exchange Offer may be given
by the Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities subject to such Exchange Offer.
17
<PAGE>
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
World Color Press, Inc.
The Mill
340 Pemberwick Road
Greenwich, CT 06831
Telecopier No.: _______
Attention: ___________
With a copy to:
Latham & Watkins
885 Third Avenue, Suite 1000
New York, NY 10022-4800
Telecopier No.: (212) 751-4364
Attention: Steven Della Rocca
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
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 specified in the Indenture.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities; 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 acquired
Transfer Restricted Securities directly from such Holder.
(g) 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.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
18
<PAGE>
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
WORLD COLOR PRESS, INC.
By: /s/ Jennifer Adams
---------------------------------------
Name: Jennifer Adams
Title: EVP & Chief Legal &
Admin. Officer
BT ALEX. BROWN INCORPORATED
CIBC OPPENHEIMER CORP.
BY: BT ALEX. BROWN INCORPORATED
By: /s/ Michael R. Duckworth
--------------------------------
Name: Michael R. Duckworth
Title: Managing Director
20
<PAGE>
<PAGE>
Exhibit 4.6
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of February 22, 1999
by and among
World Color Press, Inc.
and
Morgan Stanley & Co. Incorporated
ABN AMRO Incorporated
BancBoston Robertson Stephens Inc.
CIBC Oppenheimer Corp.
Fleet Securities Inc.
- --------------------------------------------------------------------------------
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of February 22, 1999, by and among World Color Press, Inc., a
Delaware corporation (the "COMPANY"), and Morgan Stanley & Co. Incorporated, ABN
AMRO Incorporated, BancBoston Robertson Stephens Inc., CIBC Oppenheimer Corp.
and Fleet Securities Inc.(each an "INITIAL PURCHASER" and, collectively, the
"INITIAL PURCHASERS"), each of whom has agreed to purchase the Company's 7 3/4%
Senior Subordinated Notes due 2009 (thE "SERIES A NOtes") pursuant to the
Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
February 16, 1999 (the "PURCHASE AGREEMENT"), by and among the Company and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Series A Notes, the Company has agreed to provide the registration rights set
forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 2 of
the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
BUSINESS DAY: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee
(as defined below), on which banks are authorized to close.
BROKER-DEALER: Any broker or dealer registered under the Exchange
Act.
BROKER-DEALER TRANSFER RESTRICTED SECURITIES: Series B Notes that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Series A Notes
that such Broker-Dealer acquired for its own account as a result of market
making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its affiliates).
CERTIFICATED SECURITIES: As defined in the Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series A Notes tendered by
Holders thereof pursuant to the Exchange Offer.
1
<PAGE>
DAMAGES PAYMENT DATE: With respect to the Series A Notes, each
Interest Payment Date.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The registration by the Company under the Act of the
Series B Notes pursuant to the Exchange Offer Registration Statement pursuant to
which the Company shall offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities for Series B Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
GLOBAL NOTEHOLDER: As defined in the Indenture.
HOLDERS: As defined in Section 2 hereof.
INDEMNIFIED HOLDER: As defined in Section 8(a) hereof.
INDENTURE: The Indenture, dated the Closing Date, among the Company
and The Bank of New York, as trustee (the "TRUSTEE"), pursuant to which the
Notes are to be issued, as such Indenture is amended or supplemented from time
to time in accordance with the terms thereof.
INTEREST PAYMENT DATE: As defined in the Indenture and the Notes.
LIQUIDATED DAMAGES: liquidated damages payable pursuant to Section 5.
NASD: National Association of Securities Dealers, Inc.
NOTES: The Series A Notes and the Series B Notes.
PERSON: An individual, partnership, corporation, limited liability
company, trust, unincorporated organization, or a government or agency or
political subdivision thereof.
PROSPECTUS: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECORD HOLDER: With respect to any Damages Payment Date, each Person
who is a Holder of Notes on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted
2
<PAGE>
Securities pursuant to the Shelf Registration Statement, in each case, (i) which
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
RESTRICTED BROKER-DEALER: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.
SERIES B NOTES: The Company's 7 3/4% Senior Subordinated Notes due
2009 to be issued pursuant to the Indenture (i) in the Exchange Offer or (ii)
upon the request of any Holder of Series A Notes covered by a Shelf Registration
Statement, in exchange for such Series A Notes.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been disposed of in accordance with a Shelf Registration Statement, (c) the
date on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan
of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.
UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company shall (i) cause to be filed with the Commission
after the Closing Date the Exchange Offer Registration Statement, (ii) use its
best efforts to cause such Exchange Offer Registration Statement to become
effective, (iii) in connection with the foregoing, (A) file all pre-effective
amendments to such Exchange Offer Registration Statement as may be necessary in
order to cause such Exchange Offer Registration Statement to become effective,
(B) file, if applicable, a post-effective amendment to such Exchange Offer
Registration Statement pursuant to Rule 430A under the Act and (C) cause all
necessary filings, if any, in connection with the registration and qualification
of the Series B Notes to be made under the Blue Sky laws of such jurisdictions
as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such
3
<PAGE>
Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange Offer shall be on the appropriate form permitting
registration of the Series B Notes to be offered in exchange for the Series A
Notes that are Transfer Restricted Securities and to permit sales of
Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers as
contemplated by Section 3(c) below.
(b) The Company shall use its best efforts to cause the Exchange
Offer Registration Statement to be effective continuously, and shall keep the
Exchange Offer open for a period of not less than the minimum period required
under applicable federal and state securities laws to Consummate the Exchange
Offer; PROVIDED, HOWEVER, that in no event shall such period be less than 20
Business Days. The Company shall cause the Exchange Offer to comply with all
applicable federal and state securities laws. No securities other than the Notes
shall be included in the Exchange Offer Registration Statement. The Company
shall use its best efforts to cause the Exchange Offer to be Consummated on the
earliest practicable date after the Exchange Offer Registration Statement has
become effective, but in no event later than 180 days after the Closing Date.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Series A Notes that are
Transfer Restricted Securities and that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Series A Notes (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Series B Note received by such Broker-Dealer in the Exchange Offer,
which prospectus delivery requirement may be satisfied by the delivery by such
Broker-Dealer of the Prospectus contained in the Exchange Offer Registration
Statement. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers that the Commission may require in order
to permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Notes held by any such
Broker-Dealer, except to the extent required by the Commission as a result of a
change in policy after the date of this Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of 180 days from the date on which the Exchange Offer is
Consummated.
The Company shall promptly provide sufficient copies of the latest
version of such Prospectus to such Restricted Broker-Dealers promptly upon
request, and in no event later than one day after such request, at any time
during such one-year period in order to facilitate such sales.
4
<PAGE>
SECTION 4. SHELF REGISTRATION
(a) SHELF REGISTRATION. If (i) the Company is not required to file an
Exchange Offer Registration Statement with respect to the Series B Notes because
the Exchange Offer is not permitted by applicable law (after the procedures set
forth in Section 6(a)(i) below have been complied with) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 Business Days
following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the Series B Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A
Notes acquired directly from the Company or one of its affiliates, then the
Company shall (x) cause to be filed on or prior to 30 days after the date on
which the Company determines that it is not required to file the Exchange Offer
Registration Statement pursuant to clause (i) above or 30 days after the date on
which the Company receives the notice specified in clause (ii) above a shelf
registration statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either event, the
"SHELF REGISTRATION STATEMENT")), relating to all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant to
Section 4(b) hereof, and shall (y) use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to 90 days after the date
on which the Company becomes obligated to file such Shelf Registration
Statement. If, after the Company has filed an Exchange Offer Registration
Statement which satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer shall not be permitted under applicable federal law,
then the filing of the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above. Such an event shall have no effect
on the requirements of clause (y) above. The Company shall use its best efforts
to keep the Shelf Registration Statement discussed in this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, until
the earlier of one year (as extended pursuant to Section 6(c)(i)) following the
date on which such Shelf Registration Statement first becomes effective under
the Act, or such date on which all Transfer Restricted Securities registered
under such Shelf Registration Statement have been sold in the manner set forth
in and as contemplated by the Shelf Registration Statement.
(b) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH
THE SHELF REGISTRATION STATEMENT. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in item 507 of Regulation S-K under the Act for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have used its best efforts to provide all such information.
Each Holder as to which any Shelf Registration Statement 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 Holder not materially misleading.
5
<PAGE>
SECTION 5. LIQUIDATED DAMAGES
If (i) the Shelf Registration Statement required by this Agreement is
not filed with the Commission on or prior to the date specified for such filing
in this Agreement, (ii) if the Shelf Registration Statement has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) an Exchange Offer Registration Statement
becomes effective but the Exchange Offer has not been Consummated within 180
days after the Closing Date or (iv) any Registration Statement required by this
Agreement is filed and declared effective but shall thereafter cease to be
effective or fail to be usable for its intended purpose without being succeeded
immediately by a post-effective amendment to such Registration Statement that
cures such failure and that is itself declared effective immediately (each such
event referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then
the interest rate borne by the Transfer Restricted Securities shall be increased
by one-quarter of one percent per annum with respect to the first 90-day period
immediately following the occurrence of such Registration Default, for each week
or portion thereof that the Registration Default continues. The amount of the
liquidated damages shall increase by an additional one-quarter of one percent
per annum with respect to each subsequent 90-day period until all Registration
Defaults have been cured, provided that the aggregate increase in such annual
interest rate may in no event exceed one percent per annum. Notwithstanding
anything to the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made usable
in the case of (iv) above, the liquidated damages payable with respect to the
Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or
(iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Global Note
Holder by wire transfer of immediately available funds or by federal funds check
and to Holders of Certificated Securities at the office or agency of the Company
maintained for such purpose in the Borough of Manhattan, The City of New York,
or by mailing checks to their registered addresses on each Damages Payment Date.
All obligations of the Company set forth in the preceding paragraph that are
outstanding with respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall survive until such
time as all such obligations with respect to such security shall have been
satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) EXCHANGE OFFER REGISTRATION STATEMENT. In connection with the
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) below, shall use its best efforts to effect such exchange and to
permit the sale of Broker-Dealer Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all of the following provisions:
(i) If, following the date hereof there has been published a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, such that in the reasonable opinion of counsel to the
Company there is a substantial question as to whether the Exchange Offer
is permitted
6
<PAGE>
by applicable federal law, the Company hereby agrees to seek a no-action
letter or other favorable decision from the Commission allowing the
Company to Consummate an Exchange Offer for such Series A Notes. The
Company hereby agrees to pursue the issuance of such a decision to the
Commission staff level. In connection with the foregoing, the Company
hereby agrees to take all such other actions as are reasonably requested
by the Commission or otherwise required in connection with the issuance of
such decision, including without limitation (A) participating in
telephonic conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to the Company setting
forth the legal bases, if any, upon which such counsel has concluded that
such an Exchange Offer should be permitted and (C) diligently pursuing a
resolution (which need not be favorable) by the Commission staff of such
submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation of the Exchange Offer, a written representation
to the Company (which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to the effect
that (A) it is not an affiliate of the Company, (B) it is not engaged in,
and does not intend to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of the Series B Notes to
be issued in the Exchange Offer and (C) it is acquiring the Series B Notes
in its ordinary course of business. Each Holder hereby acknowledges and
agrees that any Broker-Dealer and any such Holder using the Exchange Offer
to participate in a distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in effect on the
date of this Agreement rely on the position of the Commission enunciated
in MORGAN STANLEY AND CO., INC. (available June 5, 1991) and EXXON CAPITAL
HOLDINGS CORPORATION (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and similar
no-action letters (including, if applicable, any no-action letter obtained
pursuant to clause (i) above), and (2) must comply with the registration
and prospectus delivery requirements of the Act in connection with a
secondary resale transaction and that such a secondary resale transaction
must be covered by an effective registration statement containing the
selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of Series B Notes
obtained by such Holder in exchange for Series A Notes acquired by such
Holder directly from the Company or an affiliate thereof.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange Offer
in reliance on the position of the Commission enunciated in EXXON CAPITAL
HOLDINGS CORPORATION (available May 13, 1988), MORGAN STANLEY AND CO.,
INC. (available June 5, 1991) and, if applicable, any no-action letter
obtained pursuant to clause (i) above, (B) including a representation that
the Company has not entered into any arrangement or understanding with any
Person to distribute the Series B Notes to be received in the Exchange
Offer and that, to the best of the Company's information and belief, each
Holder participating in the Exchange Offer is acquiring the Series B Notes
in its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Series B Notes
received in the Exchange Offer and (C) any other undertaking or
representation reasonably required by the Commission as set forth in any
no-action letter obtained pursuant to clause (i) above.
(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its reasonable best efforts
7
<PAGE>
to effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company will prepare
and file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form shall be
available for the sale of the Transfer Restricted Securities in accordance with
the intended method or methods of distribution thereof within the time periods
and otherwise in accordance with the provisions hereof.
(c) GENERAL PROVISIONS. In connection with any Registration Statement
and any related Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Exchange Offer Registration Statement and the related Prospectus, to the extent
that the same are required to be available to permit sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for
the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for resale
of Transfer Restricted Securities during the period required by this
Agreement, the Company shall file promptly an appropriate amendment to
such Registration Statement, (1) in the case of clause (A), correcting any
such misstatement or omission, and (2) in the case of clauses (A) and (B),
use its reasonable best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as practicable
thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, or such shorter period as will
terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act, and to comply fully with
Rules 424, 430A and 462, as applicable, under the Act in a timely manner;
and comply with the provisions of the Act with respect to the disposition
of all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when the
same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information relating thereto, (C) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement under the Act or of the suspension by any
state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement
8
<PAGE>
thereto or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Registration
Statement in order to make the statements therein not misleading, or that
requires the making of any additions to or changes in the Prospectus in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities under
state securities or Blue Sky laws, the Company shall use its best efforts
to obtain the withdrawal or lifting of such order at the earliest possible
time;
(iv) furnish to the Initial Purchasers, each selling Holder
named in any Registration Statement or Prospectus and each of the
underwriter(s) in connection with such sale, if any, before filing with
the Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such Registration
Statement or Prospectus (including all documents incorporated by reference
after the initial filing of such Registration Statement), which documents
will be subject to the review and comment of such Holders and
underwriter(s) in connection with such sale, if any, for a period of at
least five Business Days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to any
such Registration Statement or Prospectus (including all such documents
incorporated by reference) to which the selling Holders of the Transfer
Restricted Securities covered by such Registration Statement or the
underwriter(s) in connection with such sale, if any, shall reasonably
object within five Business Days after the receipt thereof. A selling
Holder or underwriter, if any, shall be deemed to have reasonably objected
to such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Act;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s) in connection with such sale, if any, make the Company's
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any managing underwriter participating in any disposition
pursuant to such Registration Statement and any attorney or accountant
retained by such selling Holders or any of such underwriter(s), all
financial and other records, pertinent corporate documents and properties
of the Company and cause the Company's officers, directors and employees
to supply all information reasonably requested by any such Holder,
underwriter, attorney or accountant in connection with such Registration
Statement or any post-effective amendment thereto subsequent to the filing
thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the underwriter(s)
in connection with such sale, if any, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to such underwriter(s), the
9
<PAGE>
purchase price being paid therefor and any other terms of the offering of
the Transfer Restricted Securities to be sold in such offering; and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be included in such Prospectus supplement or post-effective
amendment;
(viii) furnish to each selling Holder and each of the
underwriter(s) in connection with such sale, if any, without charge, at
least one copy of the Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(ix) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such Persons reasonably may request; the Company hereby
consents to the use (in accordance with law) of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and each of
the underwriter(s), if any, in connection with the offering and the sale
of the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(x) enter into such agreements (including an underwriting
agreement) and make such representations and warranties and take all such
other actions in connection therewith in order to expedite or facilitate
the disposition of the Transfer Restricted Securities pursuant to any
Registration Statement contemplated by this Agreement as may be reasonably
requested by any Holder of Transfer Restricted Securities or underwriter
in connection with any sale or resale pursuant to any Registration
Statement contemplated by this Agreement, and in such connection, whether
or not an underwriting agreement is entered into and whether or not the
registration is an Underwritten Registration, the Company shall:
(A) furnish (or in the case of paragraphs (2) and (3), use its
best efforts to furnish) to each selling Holder and each underwriter,
if any, upon the effectiveness of the Shelf Registration Statement
and to each Restricted Broker-Dealer upon Consummation of the
Exchange Offer:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed on behalf of
the Company by (x) the President or any Vice President and (y) a
principal financial or accounting officer of the Company,
confirming, as of the date thereof, the matters set forth in
paragraphs (a) through (c) of Section 9 of the Purchase
Agreement and such other similar matters as the Holders,
underwriter(s) and/or Restricted Broker Dealers may reasonably
request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company covering matters similar to those set forth in paragraph
(d) of Section 9 of the Purchase Agreement and such other matter
as the Holders, underwriters and/or Restricted Broker Dealers
may reasonably request, and in any event including a statement
to the effect that such counsel has participated in conferences
with officers and other representatives of the Company,
representatives of the independent public accountants for the
Company and have considered the matters required to be stated
therein and the statements contained therein, although such
counsel has not independently verified the accuracy,
completeness
10
<PAGE>
or fairness of such statements; and that such counsel advises
that, on the basis of the foregoing (relying as to materiality
to a large extent upon facts provided to such counsel by
officers and other representatives of the Company and without
independent check or verification), no facts came to such
counsel's attention that caused such counsel to believe that the
applicable Registration Statement, at the time such Registration
Statement or any post-effective amendment thereto became
effective and, in the case of the Exchange Offer Registration
Statement, as of the date of Consummation of the Exchange Offer,
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the
Prospectus contained in such Registration Statement as of its
date and, in the case of the opinion dated the date of
Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact
or omitted to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading. Without limiting the
foregoing, such counsel may state further that such counsel
assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the
financial statements, notes and schedules and other financial
data included in any Registration Statement contemplated by this
Agreement or the related Prospectus; and
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement or the date of
Consummation of the Exchange Offer, as the case may be, from the
Company's independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters to underwriters in connection with primary underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 9(g) of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, in connection with any sale or resale
pursuant to any Shelf Registration Statement the indemnification
provisions and procedures of Section 8 hereof with respect to all
parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by the selling Holders, the underwriter(s), if
any, and Restricted Broker Dealers, if any, to evidence compliance
with clause (A) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the
Company pursuant to this clause (x).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any
time the representations and warranties of the Company contemplated in
(A)(1) above cease to be true and correct, the Company shall so advise the
underwriter(s), if any, the selling Holders and each Restricted
Broker-Dealer promptly and if requested by such Persons, shall confirm
such advice in writing;
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities
or Blue Sky laws of such jurisdictions as the selling Holders or
underwriter(s), if any, may request and do any and all other acts
11
<PAGE>
or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; PROVIDED, HOWEVER, that the Company
shall not be required to register or qualify as a foreign corporation
where it is not now so qualified or to take any action that would subject
it to the service of process in suits or to taxation, other than as to
matters and transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xii) issue, upon the request of any Holder of Series A Notes
covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to
the aggregate principal amount of Series A Notes surrendered to the
Company by such Holder in exchange therefor or being sold by such Holder;
such Series B Notes to be registered in the name of such Holder or in the
name of the purchaser(s) of such Notes, as the case may be; in return, the
Series A Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and delivery
of certificates representing Transfer Restricted Securities to be sold and
not bearing any restrictive legends; and to register such Transfer
Restricted Securities in such denominations and such names as the Holders
or the underwriter(s), if any, may request at least two Business Days
prior to such sale of Transfer Restricted Securities;
(xiv) use its best efforts to cause the disposition of the
Transfer Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof or
the underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xi)
above;
(xv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have occurred,
prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
(xvi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under
the Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with the Depository
Trust Company;
(xvii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter") that
is required to be retained in accordance with the rules and regulations of
the NASD, and use its best efforts to cause such Registration Statement to
become effective and approved by such governmental agencies or authorities
as may be necessary to enable the Holders
12
<PAGE>
selling Transfer Restricted Securities to consummate the disposition of
such Transfer Restricted Securities;
(xviii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xix) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required
by this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders of Notes to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the
terms of the TIA; and execute and use its best efforts to cause the
Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
and
(xx) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 or
Section 15(d) of the Exchange Act.
(d) RESTRICTIONS ON HOLDERS. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof,
or until it is advised in writing by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus (the "Advice"). If
so directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of either such notice. In the
event the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section 6(c)(i)
or Section 6(c)(iii)(D) hereof to and including the date when each selling
Holder covered by such Registration Statement shall have received the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof
or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including filings
made by any Purchaser or Holder with the NASD (and, if applicable, the fees and
expenses of any "qualified independent underwriter") and its counsel that may be
required by the rules and regulations of the NASD); (ii) all fees and expenses
of compliance with federal securities and state Blue Sky or securities laws;
(iii) all expenses
13
<PAGE>
of printing (including printing certificates for the Series B Notes to be issued
in the Exchange Offer and printing of Prospectuses), messenger and delivery
services and telephone; (iv) all fees and disbursements of counsel for the
Company and the Holders of Transfer Restricted Securities; (v) all application
and filing fees in connection with listing the Notes on a national securities
exchange or automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of
the Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Purchasers and the Holders of Transfer Restricted Securities being tendered in
the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant to
the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen by the Holders
of a majority in principal amount of the Transfer Restricted Securities for
whose benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each Holder
and (ii) each person, if any, who controls (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act) any Holder (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person") and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"INDEMNIFIED HOLDER"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to any
Indemnified Holder) directly or indirectly caused by, related to, based upon,
arising out of or in connection with any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto),
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by an untrue statement or omission or alleged untrue statement or
omission that is made in reliance upon and in conformity with information
relating to any of the Holders furnished in writing to the Company by any of the
Holders expressly for use therein.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which indemnity may be sought against
the Company, such Indemnified Holder (or the Indemnified Holder
14
<PAGE>
controlled by such controlling person) shall promptly notify the Company in
writing (PROVIDED, that the failure to give such notice shall not relieve the
Company of its obligations pursuant to this Agreement). Such Indemnified Holder
shall have the right to employ its own counsel in any such action and the fees
and expenses of such counsel shall be paid, as incurred, by the Company
(regardless of whether it is ultimately determined that an Indemnified Holder is
not entitled to indemnification hereunder). The Company shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) at any time for such Indemnified Holders, which firm shall be
designated by the Holders. The Company shall be liable for any settlement of any
such action or proceeding effected with the Company's prior written consent,
which consent shall not be withheld unreasonably, and the Company agrees to
indemnify and hold harmless each Indemnified Holder from and against any loss,
claim, damage, liability or expense by reason of any settlement of any action
effected with the written consent of the Company. The Company shall not, without
the prior written consent of each Indemnified Holder, settle or compromise or
consent to the entry of judgment in or otherwise seek to terminate any pending
or threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Holder is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Holder from all liability arising out of such action, claim, litigation or
proceeding.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and its directors,
officers, and any person controlling (within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act) the Company, and the respective officers,
directors, partners, employees, representatives and agents of each such person,
to the same extent as the foregoing indemnity from the Company to each of the
Indemnified Holders, but only with respect to claims and actions based on
information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the Company, or its directors or officers or
any such controlling person in respect of which indemnity may be sought against
a Holder of Transfer Restricted Securities, such Holder shall have the rights
and duties given the Company, and the Company, such directors or officers or
such controlling person shall have the rights and duties given to each Holder by
the preceding paragraph. In no event shall any Holder be liable or responsible
for any amount in excess of the amount by which the total received by such
Holder with respect to its sale of Transfer Restricted Securities pursuant to a
Registration Statement exceeds (i) the amount paid by such Holder for such
Transfer Restricted Securities and (ii) the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.
(c) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Holders, on the other hand, from their sale of
Transfer Restricted Securities or if such allocation is not permitted by
applicable law, the relative fault of the Company, on the one hand, and of the
Indemnified Holder, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations.
15
<PAGE>
The relative fault of the Company, on the one hand, and of the Indemnified
Holder, on the other hand, 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 or by the Indemnified Holder and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in the second paragraph
of Section 8(a), any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The Company and each Holder of Transfer Restricted Securities agree
that it would not be just and equitable if contribution pursuant to this Section
8(c) were determined by pro rata allocation (even if the Holders were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, no Holder or
its related Indemnified Holders shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total received by
such Holder with respect to the sale of its Transfer Restricted Securities
pursuant to a Registration Statement exceeds the sum of (A) the amount paid by
such Holder for such Transfer Restricted Securities PLUS (B) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Holders' obligations to contribute
pursuant to this Section 8(c) are several in proportion to the respective
principal amount of Series A Notes held by each of the Holders hereunder and not
joint.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding and during any period in which
the Company is not subject to Section 13 or 15(d) of the Securities Exchange
Act, to make available, upon request of any Holder of Transfer Restricted
Securities, to any Holder or beneficial owner of Transfer Restricted Securities
in connection with any sale thereof and any prospective purchaser of such
Transfer Restricted Securities designated by such Holder or beneficial owner,
the information required by Rule 144A(d)(4) under the Act in order to permit
resales of such Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
16
<PAGE>
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering. Such investment bankers and managers are referred to herein as
the "underwriters."
SECTION 12. MISCELLANEOUS
(a) REMEDIES. Each Holder, in addition to being entitled to exercise
all rights provided herein, in the Indenture, the Purchase Agreement or granted
by law, including recovery of liquidated or other damages, will be entitled to
specific performance of its rights under this Agreement. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into any agreement granting any registration rights with respect to its
securities to any Person, except for pursuant to (i) the Registration Rights
Agreement dated November 20, 1995 by and between the Company, APC Associates,
L.P., G.R. Associates L.P. and WCP Associates, L.P. and (ii) certain agreements
with members of the Company's management as in effect on the date 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
securities under any agreement in effect on the date hereof.
(c) ADJUSTMENTS AFFECTING THE NOTES. The Company will not take any
action, or voluntarily permit any change to occur, with respect to the Notes
that would materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 12(d)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities. Notwithstanding the foregoing, a waiver or consent to
departure from the provisions hereof that relates exclusively to the rights of
Holders whose securities are being tendered pursuant to the Exchange Offer and
that does not affect directly or indirectly the rights of other Holders whose
securities are not being tendered pursuant to such Exchange Offer may be given
by the Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities subject to such Exchange Offer.
17
<PAGE>
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
World Color Press, Inc.
The Mill
340 Pemberwick Road
Greenwich, CT 06831
Telecopier No.: (203) 532-4248
Attention: Executive Vice President, Chief Legal and
Administrative Officer
With a copy to:
Latham & Watkins
885 Third Avenue, Suite 1000
New York, NY 10022-4800
Telecopier No.: (212) 751-4364
Attention: Steven Della Rocca
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
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 specified in the Indenture.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; 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 acquired
Transfer Restricted Securities directly from such Holder.
(g) 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.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
18
<PAGE>
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
WORLD COLOR PRESS, INC.
By: /s/ Thomas J. Quinlan
--------------------------------
Name: Thomas J. Quinlan
Title: Senior Vice President and
Treasurer
MORGAN STANLEY & CO. INCORPORATED
ABN AMRO INCORPORATED
BANCBOSTON ROBERTSON STEPHENS INC.
CIBC OPPENHEIMER CORP.
FLEET SECURITIES INC.
By: MORGAN STANLEY & CO.
INCORPORATED
By: /s/ Jonathan A. Knee
-----------------------------------------
Name: Jonathan A. Knee
Title: Principal
20
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment No. 1 to Registration Statement No. 333-74087
of World Color Press, Inc. on Form S-4 of our reports dated February 4, 1998,
included and incorporated by reference in the Annual Report on Form 10-K of
World Color Press, Inc. for the year ended December 28, 1997, and to the use of
our report dated February 4, 1998, appearing in this Registration Statement. We
also consent to the reference to us under the headings "Selected Financial Data"
and "Experts" in such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
New York, New York
March 17, 1999
