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Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-75041
PROSPECTUS
VALASSIS COMMUNICATIONS, INC.
OFFER TO EXCHANGE ALL OF OUR OUTSTANDING AND UNREGISTERED
6 5/8% SENIOR NOTES DUE 2009
FOR OUR REGISTERED
6 5/8% SENIOR NOTES DUE 2009
We hereby offer upon the terms and conditions described in this Prospectus
and the accompanying Letter of Transmittal (which together constitute the
"Exchange Offer"), to exchange all of our outstanding and unregistered 6 5/8%
Senior Notes due 2009 ("Old Notes") for our registered 6 5/8% Senior Notes due
2009 ("Exchange Notes"). The Old Notes were issued on January 12, 1999 and, as
of the date of this Prospectus, an aggregate principal amount of $100.0 million
is outstanding. The terms of the Exchange Notes are substantially the same as
the terms of the Old Notes except that the Exchange Notes will be registered
under the Securities Act of 1933, as amended, and except for certain transfer
restrictions, registration rights and terms providing for an increase in the
interest rate on the Old Notes under certain events relating to registration of
the Exchange Notes. The Exchange Notes will evidence the same debt as the Old
Notes and will be issued pursuant to, and entitled to the same benefits of, the
indenture governing the Old Notes. We are making the Exchange Offer in order to
satisfy certain contractual obligations. The Exchange Notes and the Old Notes
are sometimes collectively referred to as the "Notes."
INFORMATION ABOUT THE EXCHANGE NOTES
*PLEASE CONSIDER THE FOLLOWING:
YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON PAGE 6 OF THIS
PROSPECTUS.
Our offer to exchange the Old Notes for Exchange Notes will be open until
5:00 p.m., New York City time, on May 21, 1999, unless we extend the offer.
You should also carefully review the procedures for tendering the Old Notes
beginning on page 20 of this Prospectus.
If you fail to tender your Old Notes, you will continue to hold
unregistered securities and your ability to transfer them could be adversely
affected.
- - MATURITY
The Exchange Notes will mature on January 15, 2009, unless previously
redeemed.
- -SECURITY AND RANKING
The Exchange Notes will not be secured by any collateral.
The Exchange Notes will rank equally with all of our existing and future senior
debt.
The Exchange Notes will rank senior to all of our existing and future
subordinated debt.
- - INTEREST
We will pay interest semiannually on January 15 and July 15 of each year
beginning July 15, 1999.
- - GUARANTEES
None of our subsidiaries will guarantee the Exchange Notes.
- - REDEMPTION
We may redeem some or all of the Exchange Notes at any time.
See page 31 for the redemption prices.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April 21, 1999.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN CONTAIN
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES LAWS. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES,
MANY OF WHICH ARE BEYOND OUR CONTROL. ALL STATEMENTS OTHER THAN STATEMENTS OF
HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, INCLUDING THE STATEMENTS UNDER "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," AND "BUSINESS," AND ELSEWHERE IN THIS PROSPECTUS AND THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN REGARDING OUR STRATEGY, FUTURE OPERATIONS,
FINANCIAL POSITION, ESTIMATED REVENUES, PROJECTED COSTS, PROSPECTS, PLANS AND
OBJECTIVES OF MANAGEMENT ARE FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS
PROSPECTUS OR THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, THE WORDS "WILL,"
"BELIEVE," "ANTICIPATE," "INTEND," "ESTIMATE," "EXPECT," "PROJECT" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, ALTHOUGH NOT
ALL FORWARD-LOOKING STATEMENTS CONTAIN SUCH IDENTIFYING WORDS. ALL
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS OR THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN. WE DO NOT UNDERTAKE ANY OBLIGATION
TO UPDATE OR REVISE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT
OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE. ALTHOUGH WE BELIEVE THAT OUR
PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN OR SUGGESTED BY THE FORWARD-
LOOKING STATEMENTS WE MAKE IN THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT SUCH PLANS,
INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED.
WE DISCLOSE IMPORTANT FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER
MATERIALLY FROM OUR EXPECTATIONS ("CAUTIONARY STATEMENTS") UNDER "RISK FACTORS"
AND ELSEWHERE IN THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: THE ENTRY OF A NEW
COMPETITOR IN OUR CORE FREE-STANDING INSERT BUSINESS AND ANY CONSEQUENT INTENSE
PRICE COMPETITION; NEW TECHNOLOGY THAT WOULD MAKE FREE-STANDING INSERTS LESS
ATTRACTIVE; A SHIFT IN CUSTOMER PREFERENCE FOR DIFFERENT PROMOTIONAL MATERIALS,
PROMOTIONAL STRATEGIES OR COUPON DELIVERY METHODS, INCLUDING IN-STORE
ADVERTISING SYSTEMS AND OTHER FORMS OF COUPON DELIVERY; AN INCREASE IN OUR PAPER
COSTS; OR GENERAL BUSINESS AND ECONOMIC CONDITIONS. THE CAUTIONARY STATEMENTS
QUALIFY ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING ON
OUR BEHALF.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, file
annual and quarterly reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Such reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the SEC's Regional Offices in New York
(Seven World Trade Center, 13th Floor, New York, New York 10048), and Chicago
(500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511). Copies of
these materials may be obtained from the Public Reference Section of the SEC,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You may
obtain information on the operations of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. In addition, the SEC maintains a World Wide Web site on
the Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. Reports, proxy statements and other information concerning the
Company may be inspected at the offices of the New York Stock Exchange, Inc.
(the "NYSE"), 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
BARRY P. HOFFMANN, ESQ., SECRETARY, VALASSIS COMMUNICATIONS, INC., 19975 VICTOR
PARKWAY, LIVONIA, MICHIGAN 48152, TELEPHONE NUMBER (734) 591-3000. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 14,
1999.
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The following documents are incorporated in and are an integral part of
this Prospectus:
(i) our Annual Report on Form 10-K for the year ended December 31,
1998; and
(ii) our current Report on Form 8-K dated January 13, 1999.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, prior to the
consummation of the Exchange Offer are a part of and shall be deemed to be
incorporated by reference in this Prospectus and to be a part thereof from the
date of filing of such document.
All references herein to this "Prospectus" shall be deemed to include all
such materials incorporated by reference herein. 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 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. Any
person receiving a copy of this Prospectus may obtain without charge, upon oral
or written request, a copy of any and all of the documents incorporated by
reference herein (not including exhibits to the information that is incorporated
by reference unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates). Requests should be
directed to Valassis Communications, Inc., Attention: Barry P. Hoffman, Esq.,
Secretary, 19975 Victor Parkway, Livonia, Michigan 48152, telephone number (734)
591-3000.
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PROSPECTUS SUMMARY
The following summary highlights information contained elsewhere in this
Prospectus. It may not contain all of the information that is important to you.
We encourage you to read this entire Prospectus and the documents to which we
have referred you to fully understand the terms of the Exchange Notes and the
Exchange Offer. Unless otherwise specifically indicated, "Valassis," the
"Company," "we," "our," "ours," and "us" each refers to Valassis Communications,
Inc. and its consolidated subsidiaries.
THE COMPANY
We are a leading marketing services company in the field of sales
promotion. We generate most of our revenues by printing and publishing cents-off
coupons and other consumer purchase incentives primarily for package goods
manufacturers. We are one of the country's largest printers and publishers of
these coupons.
We offer a broad array of marketing products, including:
- Free-Standing Inserts ("FSIs") -- four-color promotional booklets
containing the coupons of multiple advertisers that are distributed by us
to nearly 58 million households through Sunday newspapers;
- Valassis Impact Promotions ("VIP") -- solo specialized promotional
programs for single advertisers;
- Valassis Sampling -- newspaper-delivered sampling programs;
- Valassis of Canada -- consumer promotion and direct response
merchandising; and
- Run-of-Press ("ROP") -- advertising on the pages of newspapers.
We produced our first FSI in 1972. In 1998, we inserted our cooperative
FSIs in the Sunday edition of over 500 newspapers with a combined average paid
circulation of approximately 57.7 million on 46 publishing dates. By comparison,
there were approximately 93.3 million households in the United States, according
to information published in 1990 by the U.S. Census Bureau.
BUSINESS STRATEGY
We believe that our existing products put us in a strong position to meet
the mass and geo-demographic targeted needs of our customers. Our strategy is to
build on the strength of our core FSI product to offer a range of integrated
marketing solutions to a broader base of customers. In order to accomplish this,
we will continue our commitment to the FSI segment of our business while
providing high levels of product quality and customer service. In addition, we
will attempt to capitalize on our expertise in consumer promotion to further
develop our existing VIP, Valassis Sampling, and Valassis of Canada divisions
and to expand our business through acquisitions and joint ventures. We will
continue to offer more highly targeted and one-to-one marketing solutions via
direct mail and the Internet utilizing database marketing techniques.
Our principal executive offices are located at 19975 Victor Parkway,
Livonia, Michigan 48152, and our telephone number is (734) 591-3000.
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THE EXCHANGE OFFER
THE EXCHANGE OFFER......... We are offering to exchange $1,000 principal amount
of Exchange Notes for each $1,000 principal amount
of Old Notes. As of the date hereof, $100.0 million
aggregate principal amount of Old Notes are
outstanding. The terms of the Exchange Notes are
substantially the same as the terms of the Old
Notes except that the Exchange Notes will be
registered under the Securities Act of 1933, as
amended, and except for certain transfer
restrictions, registration rights and terms
providing for an increase in the interest rate on
the Old Notes under certain events relating to
registration of the Exchange Notes.
Based on interpretations by the staff of the
Securities and Exchange Commission (the "SEC"), as
set forth in no-action letters issued to certain
third parties unrelated to us in other
transactions, we believe that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold or
otherwise transferred by holders thereof (other
than any holder which is an "affiliate" of the
Company within the meaning of Rule 405 promulgated
under the Securities Act, or a broker-dealer who
purchased Old Notes directly from us to resell
pursuant to Rule 144A or any other available
exemption promulgated under the Securities Act),
without compliance with the registration and
prospectus delivery requirements of the Securities
Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business
and such holders have no arrangement with any
person to engage in a distribution of Exchange
Notes.
However, the SEC has not considered the Exchange
Offer in the context of a no-action letter and we
cannot be sure that the staff of the SEC would make
a similar determination with respect to the
Exchange Offer as in such other circumstances.
Furthermore, each holder, other than a
broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a
distribution of such Exchange Notes and has no
arrangement or understanding to participate in a
distribution of Exchange Notes. Each broker-dealer
that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge
that it will comply with the prospectus delivery
requirements of the Securities Act in connection
with any resale of such Exchange Notes. Broker-
dealers who acquired Old 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 in order to resell the Old Notes.
EXPIRATION DATE............ The Exchange Offer will expire at 5:00 p.m., New
York City time, May 21, 1999 or such later date and
time to which it is extended.
WITHDRAWAL................. The tender of the Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to 5:00 p.m., New York City time, on May 21, 1999,
or such later date and time to which we extend the
offer. Any Old Notes not accepted for exchange for
any reason will be returned without expense to the
tendering holder thereof as soon as practicable
after the expiration or termination of the Exchange
Offer.
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INTEREST ON THE EXCHANGE
NOTES AND THE OLD NOTES.... Interest on the Exchange Notes will accrue from the
date of issuance of the Old Notes (January 12,
1999) for which the Exchange Notes are exchanged or
from the date of the last periodic payment of
interest on the Old Notes, whichever is later.
Interest on the Exchange Notes will be at the same
rate and upon the same terms as interest on the Old
Notes. No additional interest will be paid on Old
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 --Conditions to the
Exchange Offer" beginning on page 25.
PROCEDURES FOR TENDERING
OLD NOTES.................. Each holder of the Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, the copy, together with the
Old Notes and any other required documentation, to
the exchange agent at the address set forth herein.
Persons holding the Old Notes through the
Depository Trust Company, DTC, and wishing to
accept the Exchange Offer must do so pursuant to
the DTC's Automated Tender Offer Program, by which
each tendering participant 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, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person receiving
such Exchange Notes, whether or not such person is
the registered holder of the Old Notes, (ii) the
holder is not engaging in and does not intend to
engage in a distribution of such Exchange Notes,
(iii) the holder does not have an arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes and (iv) the
holder is not an "affiliate," as defined under Rule
405 promulgated under the Securities Act, of the
Company.
We will accept for exchange any and all Old Notes
which are properly tendered (and not withdrawn) in
the Exchange Offer prior to 5:00 p.m., New York
City time, on May 21, 1999. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the expiration date.
See "The Exchange Offer -- Terms of the Exchange
Offer" beginning on page 21.
EXCHANGE AGENT............. The Bank of New York is serving as exchange agent
(sometimes referred to herein as the "Exchange
Agent") in connection with the Exchange Offer.
FEDERAL INCOME TAX
CONSIDERATIONS............. The exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer should not
constitute a sale or an exchange for federal income
tax purposes. See "Certain Federal Income Tax
Considerations" beginning on page 43.
EFFECT OF NOT TENDERING.... Old Notes that are not tendered or that are
tendered but not accepted will, following the
completion of the Exchange Offer, continue to be
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subject to the existing restrictions upon transfer
thereof. We will have no further obligation to
provide for the registration under the Securities
Act of such Old Notes.
USE OF PROCEEDS............ We will not receive any cash from the exchange of
the Old Notes pursuant to the Exchange Offer.
THE EXCHANGE NOTES
ISSUER..................... Valassis Communications, Inc.
SECURITIES OFFERED......... $100.0 million principal amount of 6 5/8% Senior
Notes due 2009
MATURITY................... January 15, 2009
INTEREST PAYMENT DATES..... January 15 and July 15 of each year. The first
payment will be made on July 15, 1999.
OPTIONAL REDEMPTION........ We may redeem some or all of the Exchange Notes at
any time at the redemption price listed under
"Description of Exchange Notes -- Optional
Redemption," plus any interest that is due and
unpaid on the date that we redeem the Exchange
Notes.
SECURITY AND RANKING....... The Exchange Notes will be unsecured and will rank
equally with our existing and future unsecured
senior debt, including:
- our Revolving Credit Facility; and
- our 9.55% Senior Notes due 2003.
The Exchange Notes will rank senior to our existing
and future subordinated debt.
RESTRICTIVE COVENANTS OF
INDENTURE.................. The indenture with The Bank of New York under which
the Old Notes were, and the Exchange Notes are
being, issued contains certain provisions that,
among other things, restrict our ability to:
- sell all or substantially all of our assets or
merge or consolidate with or into other
companies;
- permit certain liens securing debt;
- enter into sale and leaseback transactions; and
- redeem or repurchase shares of our capital
stock.
RISK FACTORS
You should consider carefully all of the information set forth in this
Prospectus and, in particular, you should evaluate the specific factors under
"Risk Factors" before exchanging your Old Notes for Exchange Notes.
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SUMMARY FINANCIAL DATA
The summary financial information set forth below should be read in
conjunction with the Company's consolidated financial statements and related
notes in the documents incorporated by reference in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the selected consolidated financial data set forth elsewhere in
this Prospectus. During the quarter ended March 31, 1998, the Company changed
its method of accounting for inventories from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method. The change in method of
inventory costing has been applied retroactively. Due to the debit balance LIFO
reserves and corresponding lower-of-cost-or-market reserves, the change had no
effect on the balance sheet at December 31, 1997 or the income statement for the
year then ended. The financial statements for year ended December 31, 1996 have
been restated. The effect of this restatement was to reduce net income in 1996
by $3.1 million.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31,
--------------------------------
1996 1997 1998
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $659,108 $675,496 $741,383
Cost of products sold.............................. 478,302 436,174 485,103
-------- -------- --------
Gross profit....................................... 180,806 239,322 256,280
Selling, general and administrative expenses....... 67,127 77,406 77,224
Amortization of intangibles........................ 8,181 8,574 8,097
-------- -------- --------
Operating earnings................................. 105,498 153,342 170,959
Interest expense................................... 39,625 38,312 34,450(1)
-------- -------- --------
Earnings before income taxes and extraordinary
loss............................................. 65,873 115,030 136,509
Income taxes....................................... 26,098 45,100 52,223
-------- -------- --------
Earnings before extraordinary loss................. 39,775 69,930 84,286
Extraordinary loss (net of tax).................... -- -- 13,598
-------- -------- --------
Net earnings....................................... $ 39,775 $ 69,930 $ 70,688
======== ======== ========
OTHER OPERATING DATA:
EBITDA(2).......................................... $120,543 $168,714 $186,678
Ratio of earnings to fixed charges(3).............. 2.61x 3.92x 4.83x
Ratio of EBITDA to interest expense................ 3.04x 4.40x 5.42x
Total debt to EBITDA............................... 3.34x 2.18x 1.82x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets..................................... $177,761 $151,087 $143,059
Current liabilities (excluding current portion of
long-term debt).................................. 154,110 148,453 158,566
Total assets....................................... 273,734 240,885 232,014
Total debt......................................... 403,155 367,075 340,461
Stockholders' deficit.............................. (286,594) (276,967) (268,524)
</TABLE>
- -------------------------
(1) Assuming that the Company had repurchased $125.2 million in aggregate
principal amount of the Company's 9.55% Senior Notes due 2003 as of January
1, 1998 and financed such repurchase with $47.9 million from the Revolving
Credit Facility (assuming an interest rate of 6.29% per annum) and
approximately $98.7 million of net proceeds from the offering of the Old
Notes, interest expense would have been reduced by approximately $2.3
million (assuming interest income on cash balances remained constant).
(2) EBITDA represents operating earnings before interest, taxes, depreciation
and amortization. The Company has included information concerning EBITDA
because the Company understands that it is used by certain investors as a
measure of the Company's historical ability to service its debt. EBITDA does
not represent cash generated from operations as defined by generally
accepted accounting principles and it is not necessarily indicative of cash
available to fund cash needs.
(3) The ratio of earnings to fixed charges was computed by dividing (a) earnings
before fixed charges, income taxes and extraordinary items by (b) fixed
charges, which consist of interest expense, amortization of debt issuance
costs and the interest portion of rent expense.
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RISK FACTORS
You should consider carefully the following specific risk factors, together
with the other information contained and incorporated by reference in this
Prospectus, before you exchange your Old Notes for Exchange Notes.
COMPETITION -- INCREASED COMPETITION CAN HAVE A MATERIAL ADVERSE EFFECT ON
VALASSIS.
We compete in the cooperative FSI business principally with News America
FSI, Inc., a company owned by The News Corporation Limited. This competitor has
substantially greater financial resources than we do. We compete for business
primarily on the basis of the following:
- customer service and sales relationships;
- price; and
- category availability.
We also compete with in-store marketing and other forms of promotional
strategies or coupon delivery and may compete with any new technology that would
make FSIs less attractive to our customers.
In the past, new competitors have tried to establish themselves in the FSI
market. As a result, we have experienced periods of intense price competition.
During such times, the number of total FSI programs increased, which led to a
meaningful decrease in the number of pages per FSI program and, as a result, a
decrease in the average revenue per page. These significant decreases had a
material adverse effect on our financial performance. Business booked under
these pricing conditions severely impacted our results for the fiscal year ended
June 30, 1994 and the six months ended December 31, 1994.
If new competitors enter the FSI market or our existing competitor tries to
increase market share by reducing prices, our financial performance could be
materially adversely affected.
COST OF PAPER -- SIGNIFICANT INCREASES IN THE COST OF PAPER (WHICH WE CANNOT
CONTROL) COULD ADVERSELY AFFECT THE FINANCIAL HEALTH OF VALASSIS AND PREVENT US
FROM FULFILLING OUR OBLIGATIONS UNDER THE EXCHANGE NOTES.
In 1995 and 1996, our paper prices experienced dramatic fluctuations,
increasing nearly 70% in 1995 before returning in early 1997 to levels
approximating those in 1994. Paper prices again increased in 1997 and the first
half of 1998, although at a much lesser rate. Paper costs decreased during the
second half of 1998. We have limited ability to protect ourselves from these
types of fluctuations or to pass increased costs along to our customers. We
maintain on average less than 30 days of paper inventory. Significant increases
in the cost of paper could have a material adverse effect on our financial
performance.
OUR SUBSIDIARIES ARE NOT GUARANTORS -- YOUR RIGHT TO RECEIVE PAYMENTS ON THE
EXCHANGE NOTES COULD BE ADVERSELY AFFECTED IF ANY OF OUR SUBSIDIARIES DECLARE
BANKRUPTCY, LIQUIDATE, OR REORGANIZE.
None of our subsidiaries will guarantee the Exchange Notes. In the event of
a bankruptcy, liquidation or reorganization of any of our subsidiaries, holders
of their indebtedness and their trade creditors will generally be entitled to
payment of their claims from the assets of those subsidiaries before any assets
are made available for distribution to us.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES -- THERE ARE RISKS ASSOCIATED WITH
FAILING TO EXCHANGE THE OLD NOTES.
Holders of the Old Notes who do not exchange their Old Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to restrictions
on transfer and exchange of their Old Notes. In general, the Old Notes may not
be offered or sold, unless they are registered under the Securities Act and
applicable state securities laws. After this Exchange Offer, we do not
anticipate registering any Old Notes
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<PAGE> 10
under the Securities Act. Accordingly, the liquidity of the market for a
holder's Old Notes may be adversely affected upon the completion of the Exchange
Offer if a holder does not participate. See "The Exchange Offer" beginning on
page 20.
NO PRIOR MARKET FOR THE EXCHANGE NOTES -- THERE IS NO ASSURANCE THAT AN ACTIVE
TRADING MARKET WILL DEVELOP FOR THE EXCHANGE NOTES.
There is no active trading market for the Exchange Notes. We do not intend
to apply for listing of the Exchange Notes on any securities exchange or to seek
the admission thereof for trading in the NASDAQ National Market. Bear, Stearns &
Co. Inc. and Wasserstein Perella Securities, Inc., the Initial Purchasers of the
Old Notes, have told us that they intend to make a market in the Exchange Notes.
However, they are not obligated to do so, and any such market making activities
may be discontinued at any time without notice. Therefore, there can be no
assurance that an active market for the Exchange Notes will develop or, if such
a market develops, that it will continue.
YEAR 2000 COMPLIANCE -- THE YEAR 2000 PROBLEM MAY ADVERSELY AFFECT US IF OUR
CUSTOMERS AND SUPPLIERS DO NOT ADEQUATELY ADDRESS THEIR YEAR 2000 CONCERNS.
Many computer software programs refer to years in terms of their final two
digits only. Such programs may interpret the Year 2000 to mean the year 1900
instead. If not corrected, those programs could cause computers to either shut
down or provide incorrect data information.
In response to the Year 2000 issue, we have created two project plans: one
for program modifications and another for implementing new financial software
upgrades. We expect all critical systems to be Year 2000 compliant by the end of
the first quarter of 1999. We estimate the costs related to the implementation
of the program modification plan and the financial software upgrade plan to be
approximately $400,000 and $300,000, respectively. The costs have been, and will
be funded through operating cash flows and expensed as incurred. In addition, we
are asking our vendors, service providers and customers about their progress in
identifying and addressing problems that their computer systems may face in
correctly processing date information related to the Year 2000. The Company
cannot quantify the aggregate cost to the Company with respect to vendors,
service providers and customers with Year 2000 problems, although the Company
does not anticipate it will have a material adverse impact on its business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance."
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USE OF PROCEEDS
The Company will receive no proceeds from the exchange of the Old Notes
pursuant to the Exchange Offer. The Company received approximately $98.7 million
in proceeds from the sale of the Old Notes. The Company used such proceeds to
retire the then outstanding indebtedness under the Company's Revolving Credit
Facility. The Company used borrowings of $70.0 million under the Revolving
Credit Facility and borrowings of $40.0 million under the Company's then
existing credit facility (which borrowings were refinanced at par with
borrowings of $40.0 million under the Revolving Credit Facility) along with
$36.6 million of available cash to repurchase approximately $125.2 million in
aggregate principal amount of the Company's 9.55% Senior Notes due 2003 for
$146.6 million.
The Revolving Credit Facility matures on October 31, 2001. See "Description
of Other Indebtedness -- Description of Revolving Credit Facility."
8
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data presented below as of
and for each of the years ended December 31, 1997 and 1998 are derived from the
consolidated financial statements of the Company, which have been audited by our
independent auditors, Deloitte & Touche LLP. The financial statements as of and
for each of the years ended June 30, 1994 and December 31, 1995 and 1996 and as
of and for the six month period ended December 31, 1994 are derived from our
audited consolidated financial statements which were audited by Ernst & Young
LLP, prior to restatement for the change in accounting for inventory costs
discussed below. During the quarter ended March 31, 1998, the Company changed
its method of accounting for inventories from the last-in, first-out (LIFO)
method to the first-in, first-out (FIFO) method. The change in method of
inventory costing has been applied retroactively. Due to the debit balance LIFO
reserves and corresponding lower-of-cost-or-market reserves, the change had no
effect on the balance sheet at December 31, 1997, December 31, 1994 or June 30,
1994 or the income statements for the periods then ended. The financial
statements for the years ended December 31, 1995 and 1996 have been restated.
The effect of this restatement was to reduce net income in 1996 by $3.1 million
and increase net income and reduce accumulated deficit in 1995 by $3.1 million.
The restatement for the change in inventory costs was audited by Deloitte &
Touche LLP.
The information set forth below should be read in conjunction with the
Company's consolidated financial statements and the related notes thereto in the
documents incorporated by reference in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
JUNE 30, DECEMBER 31, FISCAL YEAR ENDED DECEMBER 31,
----------- ------------ --------------------------------------------
1994 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $542,609 $279,034 $613,752 $659,108 $675,496 $741,383
Cost of products sold............. 432,492 223,456 460,941 478,302 436,174 485,103
-------- -------- -------- -------- -------- --------
Gross profit...................... 110,117 55,578 152,811 180,806 239,322 256,280
Selling, general and
administrative expenses(1)...... 62,625 27,211 58,071 67,127 77,406 77,224
Amortization of intangibles....... 10,902 4,672 26,496(2) 8,181 8,574 8,097
-------- -------- -------- -------- -------- --------
Operating earnings................ 36,590 23,695 68,244 105,498 153,342 170,959
Interest expense(3)............... 38,217 19,623 40,451 39,625 38,312 34,450
-------- -------- -------- -------- -------- --------
Earnings (loss) before income
taxes and extraordinary loss.... (1,627) 4,072 27,793 65,873 115,030 136,509
Income taxes...................... (6,800) 2,149 15,092 26,098 45,100 52,223
Extraordinary loss (net of tax)... -- 4,176 -- -- -- 13,598
-------- -------- -------- -------- -------- --------
Net earnings (loss)............... $ 5,173 $ (2,253) $ 12,701 $ 39,775 $ 69,930 $ 70,688
======== ======== ======== ======== ======== ========
OTHER OPERATING DATA:
EBITDA(4)......................... $ 60,290 $ 33,417 $103,991 $120,543 $168,714 $186,678
Depreciation and Amortization..... 23,700 9,722 35,747 15,045 15,372 15,719
Capital expenditures.............. 4,069 9,173 6,530 7,104 13,023 13,418
Ratio of earnings to fixed
charges(5)...................... -- 1.20x 1.67x 2.61x 3.92x 4.83x
Ratio of EBITDA to interest
expense......................... 1.58x 1.70x 2.57x 3.04x 4.40x 5.42x
Total debt to EBITDA(6)........... 6.95x 6.25x 4.00x 3.34x 2.18x 1.82x
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
AT
AT SIX MONTHS
FISCAL YEAR ENDED
ENDED DECEMBER
JUNE 30, 31, AT DECEMBER 31,
----------- ---------- ---------------------------------------------
1994 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................. $ 117,902 $ 109,281 $ 160,234 $ 177,761 $ 151,087 $ 143,059
Current liabilities (excluding
current portion of long-term
debt)........................ 133,211 130,658 150,826 154,110 148,453 158,566
Total assets................... 239,709 234,330 264,111 273,734 240,885 232,014
Total debt..................... 419,000 417,927 416,034 403,155 367,075 340,461
Stockholders' deficit.......... (316,779) (319,032) (307,222) (286,594) (276,967) (268,524)
</TABLE>
- -------------------------
(1) Includes $(0.3) million and $(1.4) million of minority interests for the six
months ended December 31, 1994 and the fiscal year ended December 31, 1995,
respectively.
(2) Includes writedown of intangibles and loss on the sale of a business of
$16.9 million.
(3) Assuming that the Company had repurchased $125.2 million in aggregate
principal amount of the Company's 9.55% Senior Notes due 2003 as of January
1, 1998 and financed such repurchase with $47.9 million from the Revolving
Credit Facility (assuming an interest rate of 6.29% per annum) and
approximately $98.7 million of net proceeds from the offering of the Old
Notes, interest expense would have been reduced by approximately $2.3
million (assuming interest income on cash balances remained constant).
(4) EBITDA represents operating earnings before interest, taxes, depreciation,
and amortization. The Company has included information concerning EBITDA
because the Company understands that it is used by certain investors as a
measure of the Company's historical ability to service its debt. EBITDA does
not represent cash generated from operations as defined by generally
accepted accounting principles and it is not necessarily indicative of cash
available to fund cash needs.
(5) The ratio of earnings to fixed charges was computed by dividing (a) earnings
before fixed charges, income taxes and extraordinary items by (b) fixed
charges, which consist of interest expense, amortization of debt issuance
costs and the interest portion of rent expense. Earnings were inadequate to
cover fixed charges by $1.6 million for the fiscal year ended June 30, 1994.
(6) In calculating this ratio, EBITDA is annualized by multiplying by two for
the six months ended December 31, 1994.
10
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Valassis derives revenues primarily from the sale of space in promotional
materials printed on the Company's printing presses. The Company's prime cost
components include paper, payments to newspapers for insertion of promotional
materials (media), printing costs (including labor) and shipping.
Paper represents approximately 40% of the cost of products sold for the
Company's FSI business. In 1995 and 1996, the Company's paper prices experienced
dramatic fluctuations, increasing nearly 70% in 1995 before returning in early
1997 to levels approximating those in 1994. Paper prices again increased in 1997
and the first half of 1998, although at a much lesser rate. Paper costs
decreased during the second half of 1998.
Valassis purchases coated ground wood No. 5 sheet from three primary
suppliers. In 1998, Valassis entered into a three-year contract with one of
these suppliers for the purchase of approximately 23% of its paper volume
requirement. This contract limits the amount of increases or decreases (to
approximately 10% in any twelve-month period) of the Company's cost of paper.
Such cost is adjusted quarterly. The remainder of the Company's paper
requirement is bought pursuant to contracts that are typically three to six
months in duration. The Company maintains on average less than 30 days of paper
inventory.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain income
and expense items from continuing operations and the percentages that such items
bear to revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31,
--------------------------------------------------------------
1996 1997 1998
------------------ ------------------ ------------------
% OF % OF % OF
$ REVENUES $ REVENUES $ REVENUES
- -------- - -------- - --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
FSI sales................................. $504.1 76.5% $521.3 77.2% $567.7 76.6%
VIP sales................................. 89.4 13.6 89.2 13.2 103.1 13.9
ROP sales................................. 25.5 3.9 23.8 3.5 17.8 2.4
Other sales............................... 40.1 6.0 41.2 6.1 52.8 7.1
------ ----- ------ ----- ------ -----
Revenues................................ 659.1 100.0 675.5 100.0 741.4 100.0
Cost of products sold..................... 478.3 72.6 436.2 64.6 485.1 65.4
------ ----- ------ ----- ------ -----
Gross profit............................ 180.8 27.4 239.3 35.4 256.3 34.6
Selling, general and administrative
expenses................................ 67.1 10.2 77.4 11.4 77.2 10.4
Amortization of Intangibles............... 8.2 1.2 8.6 1.3 8.1 1.1
------ ----- ------ ----- ------ -----
Operating earnings...................... 105.5 16.0 153.3 22.7 171.0 23.1
Interest expense.......................... 39.6 6.0 38.3 5.7 34.5 4.7
------ ----- ------ ----- ------ -----
Earnings before Income taxes and
Extraordinary loss................... 65.9 10.0 115.0 17.0 136.5 18.4
Income taxes............................ 26.1 4.0 45.1 6.7 52.2 7.1
------ ----- ------ ----- ------ -----
Earnings before Extraordinary loss...... 39.8 6.0 69.9 10.3 84.3 11.3
Extraordinary loss (net of tax)........... -- -- -- -- 13.6 1.8
------ ----- ------ ----- ------ -----
Net earnings............................ $ 39.8 6.0% $ 69.9 10.3% $ 70.7 9.5%
====== ===== ====== ===== ====== =====
</TABLE>
As a result of the acquisition of Valassis in 1986, the Company recorded
significant amounts of intangible assets. As a consequence, the Company's
results of operations include non-cash expenses related to the amortization of
intangible assets, including goodwill.
11
<PAGE> 15
Calendar 1998 Compared to Calendar 1997
Total revenues for 1998 increased 9.8% to $741.4 million from $675.5
million for 1997. This increase was primarily as a result of an 8.9% rise in FSI
revenue from $521.3 million in 1997 to $567.7 million for 1998. The FSI revenue
increase is attributable to overall industry page growth, as well as slightly
higher market share and moderate price increases. In addition, VIP experienced
volume growth resulting in a 15.6% increase in sales during 1998. Also, Valassis
Sampling revenue rose 79.1% in 1998 to $28.3 million, compared to $15.8 million
for 1997 due to increased activity during 1998.
The favorable impact of increases in FSI page volume and higher pricing was
offset by an increase in paper costs during 1998. However, the Company believes
that the effect of paper price increases peaked in the third quarter of 1998.
The Company has already experienced paper price decreases and expects average
paper costs to be down in 1999 versus 1998. Gross margin decreased from 35.4% in
1997 to 34.6% for 1998.
Selling, general and administrative expenses were flat at $77.2 million in
1998. The Company's results for 1998 include a one-time charge of $6.0 million
related to the early retirement of the Company's former CEO, and the results for
1997 include a charge of $7.3 million for a one-time bonus paid to certain of
the Company's executives, funded by Consolidated Press Holdings (CPH), upon the
sale of its interest in the Company in the Company's secondary offering that was
completed in July 1997. Without these one-time charges, SG&A would have
increased 1.6% during 1998, versus the prior year.
Interest expense was down for the year ended December 31, 1998 to $34.5
million from $38.3 million in 1997. The Company retired $129.7 million of its
public debt in 1998 and $36.2 million of its public debt in 1997. During 1998,
the Company repurchased on the open market approximately $125.2 million in
aggregate principal amount of its 9.55% Senior Notes due 2003 for $146.6 million
using approximately $70.0 million under its Revolving Credit Facility,
approximately $40.0 million under its then existing facility (which borrowings
were refinanced at par with the Revolving Credit Facility) and $36.6 million of
cash.
The effective tax rate was 38.3% for the year ended December 31, 1998,
compared with 39.2% for the same period in 1997. The effective tax rate decrease
is the result of a portion of the special one-time charge in 1997, referred to
above, being non-deductible.
Earnings before extraordinary items for the year ended December 31, 1998
were up 20.6% to $84.3 million versus $69.9 million for 1997. This earnings
improvement is primarily the result of increases in FSI page volume and higher
pricing, offset in part by higher paper cost.
In connection with the buyback of the 9.55% Senior Notes due 2003 discussed
above, the Company paid a premium in an amount equal to $21.4 million and wrote
off $0.5 million of unamortized debt issuance costs. Accordingly, the Company
incurred extraordinary charges of $13.6 million (net of tax) due to early
extinguishment of $129.7 million of debt in 1998.
Calendar 1997 Compared to Calendar 1996
Revenues for 1997 were $675.5 million, up 2.5% from $659.1 million in 1996.
FSI revenue increased 3.4% to $521.3 million in 1997. This was due to slightly
higher FSI prices and increased page due to improved market share. VIP revenue
was flat for 1997 at $89.2 million, due largely to the fact that two major
customers reduced spending on print promotions, which offset the growth
experienced from other customers. ROP revenue was down 6.7% to $23.8 million in
1997. Valassis Sampling sales were up 10.5% in 1997.
Gross profit as a percentage of revenue increased to 35.4% in 1997 compared
to 27.4% in 1996. This increase was primarily due to lower average paper costs
in 1997 versus 1996, as well as smaller declines in media and print costs. After
declining throughout 1996 and early 1997, paper prices began to increase during
1997.
Selling, general and administrative expenses increased to $77.4 million in
1997 versus $67.1 million in 1996. SG&A expenses for 1997 include a one-time
charge of $7.3 million for the one-time bonus paid to certain of the Company's
executives, funded by CPH upon the sale of its interest in the Company in July
12
<PAGE> 16
1997. The remaining increase was due to increased advertising and promotional
activity, as well as incentive/reward programs associated with the increased
level of earnings.
Interest expense was down in 1997 to $38.3 million from $39.6 million in
1996. The Company retired $36.2 million and $13.0 million of its public
subordinated debt in 1997 and 1996, respectively.
Net earnings increased 75.6% to $69.9 million in 1997 from $39.8 million in
1996. This increase was due to the strength of the Company's core FSI business,
coupled with a significant decrease in the average cost of paper in 1997 versus
1996.
FINANCIAL CONDITION, LIQUIDITY AND SOURCES OF CAPITAL
The Company's liquidity requirements arise mainly from its working capital
needs, primarily accounts receivable, inventory and debt service requirements.
The Company does not offer financing to its customers. FSI customers are billed
for 75% of each order eight weeks in advance of the publication date and are
billed for the balance immediately prior to the publication date. The Company
inventories its work in progress at cost while it accrues progress billings as a
current liability at full sales value. Although the Company receives
considerable payments from its customers prior to publication of promotions,
revenue is recognized only upon publication dates. Therefore, the progress
billings on the balance sheet include any profits in the related receivables,
and, accordingly, the Company can operate with low, or even negative, working
capital.
Cash and cash equivalents totaled $6.9 million at December 31, 1998, down
$28.5 million from December 31, 1997. This was the result of cash provided by
operating activities of $87.9 million, and cash used in investing activities and
financing activities of $13.9 million and $102.5 million, respectively, in 1998.
Cash flow from operating activities decreased to $87.9 million for the year
ended December 31, 1998 from $90.5 million for the year ended December 31, 1997.
The Company used this cash flow during 1998 in addition to amounts available
under its credit facility then in existence (as discussed more fully above) to
repurchase $129.7 million of its public debt and $105.7 million of its common
stock.
The Company experienced a significant improvement in cash flow during 1997,
due primarily to increased earnings. Cash provided by operating activities was
$90.5 million in 1997, compared with $66.7 million in 1996. The Company used its
available cash to purchase $91.5 million of its common stock and to retire $36.2
million of its 9 3/8% Subordinated Notes due 1999 in 1997.
A portion of the Company's debt (which totaled $340.5 million as of
December 31, 1998), in the amount of $107.7 million, was due on March 15, 1999.
In November 1998, the Company replaced its then existing credit facility with a
$160.0 million Revolving Credit Facility. See "Description of Other
Indebtedness -- Description of Revolving Credit Facility." The Company used
borrowings under the Revolving Credit Facility to retire approximately $125.2
million in aggregate principal amount of its 9.55% Senior Notes due 2003 for
$146.6 million. In January 1999, the Company issued the Old Notes. The Company
used the net proceeds from such offering to retire the then outstanding
indebtedness under the Revolving Credit Facility. The Company borrowed
additional amounts under the Revolving Credit Facility to pay the debt due in
March 1999.
The Company intends to use cash generated by operations to meet interest
and principal repayment obligations, for general corporate purposes, to reduce
its indebtedness and from time to time to repurchase stock through the Company's
stock repurchase program. As of December 31, 1998, the Company had authorization
to repurchase an additional 2.2 million shares of its common stock under its
existing share repurchase program.
Management believes the Company will generate sufficient funds from
operations and will have sufficient lines of credit available to meet currently
anticipated liquidity needs, including interest and required principal payments
on indebtedness.
13
<PAGE> 17
CAPITAL EXPENDITURES
The Company operates three printing facilities. Capital expenditures were
$13.4 million for the year ended December 31, 1998. Management expects future
capital expenditure requirements of approximately $10.0 million to $15.0 million
over each of the next three to five years to meet increased capacity needs and
to replace or rebuild equipment as required. It is expected that equipment will
be purchased using funds provided by operations.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than 2000. This problem could force computers to
either shut down or provide incorrect data or information.
In response to the Year 2000 issue, the Company has implemented a
multi-faceted project plan, which covers both IT and non-IT systems. This plan
encompasses three areas: (1) program modifications; (2) implementing new
financial software upgrades; and (3) testing readiness of vendors and customers.
Phases associated with the project plan are: identification and ranking of
components of the Company's systems and equipment and those of its suppliers
that may be vulnerable to Year 2000 problems; assessment of those components;
remediation or replacement of non-compliant systems and components; testing of
systems and components following remediation; and the development of contingency
plans.
With regard to program modification and implementing new software upgrades,
the Company is currently in the testing phase and expects to have all critical
systems Year 2000 compliant by the end of the first quarter of 1999. With
regards to readiness of vendors and customers, the Company is currently in the
assessment phase and plans to have testing completed by June 30, 1999.
The Company's plans include the development of a full contingency plan. The
Company believes that by June 30, 1999, it will be able to fully determine its
most likely worst case scenarios and will have its contingency plans in place.
Potential sources of risk include the inability of suppliers (principally paper
suppliers) to be Year 2000 compliant in a timely manner, which could result in
delays in product deliveries from such suppliers, the disruption of the
distribution of the Company's products to the consumer, and disruption of the
Company's own production facilities as a result of general failure of necessary
infrastructure such as electricity supply.
The Company estimates the total costs related to the implementation of the
program modification plan and the financial software upgrade plan to be
approximately $400,000 and $300,000, respectively, which will be funded through
operating cash flows and expensed as incurred. To date, expenses have totaled
approximately $300,000 for program modifications and $30,000 for financial
software upgrades. It is not possible to quantify the aggregate cost to the
Company with respect to vendors, service providers and customers who fail to
become Year 2000 compliant. See "Risk Factors -- Year 2000 Compliance."
This is a Year 2000 Readiness Disclosure Statement within the meaning of
the Year 2000 Information and Readiness Disclosure Act (P.L. 105-271).
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued by the
Financial Accounting Standards Board. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
has not determined the impact on its consolidated financial statements. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999.
14
<PAGE> 18
BUSINESS OUTLOOK
The following statements are based on current expectations. These
statements are forward-looking and actual results may differ materially.
- Price and volume increases for the Company's principal product, the FSI,
are expected to result in a modest increase in FSI revenue for 1999.
- The average price of paper, which is a major cost factor in the Company's
business, increased in 1998. However, prices have begun to decrease, and
the average price of paper in 1999 is expected to be lower than the
average in 1998.
The above expectations are forward-looking statements that involve a number
of risks and uncertainties. Among the factors that could affect expectations are
the following: the entry of a new competitor in the Company's core FSI business
and any consequent intense price competition; new technology that would make
FSIs less attractive; a shift in customer preference for different promotional
materials, promotional strategies or coupon delivery methods, including in-store
advertising systems and other forms of coupon delivery; an increase in the
Company's paper costs; or general business and economic conditions. See "Risk
Factors."
15
<PAGE> 19
BUSINESS
THE COMPANY
We are a leading marketing services company in the field of sales
promotion. We generate most of our revenues by printing and publishing cents-off
coupons and other consumer purchase incentives primarily for package goods
manufacturers. We are one of the country's largest printers and publishers of
these coupons.
We offer a broad array of marketing products, including:
- Free-Standing Inserts ("FSIs") -- four-color promotional booklets
containing the coupons of multiple advertisers that are distributed by us
to nearly 58 million households through Sunday newspapers;
- Valassis Impact Promotions ("VIP") -- solo specialized promotional
programs for single advertisers;
- Valassis Sampling -- newspaper-delivered sampling programs;
- Valassis of Canada -- consumer promotion and direct response
merchandising; and
- Run-of-Press ("ROP") -- advertising on the pages of newspapers.
We produced our first FSI in 1972. In 1998, we inserted our cooperative
FSIs in the Sunday edition of over 500 newspapers with a combined average paid
circulation of approximately 57.7 million on 46 publishing dates. By comparison,
there were approximately 93.3 million households in the United States, according
to information published in 1990 by the U.S. Census Bureau.
BUSINESS STRATEGY
We believe that our existing products put us in a strong position to meet
the mass and geo-demographic targeted needs of our customers. Our strategy is to
build on the strength of our core FSI product to offer a range of integrated
marketing solutions to a broader base of customers. In order to accomplish this,
we will continue our commitment to the FSI segment of our business while
providing high levels of product quality and customer service. In addition, we
will attempt to capitalize on our expertise in consumer promotion to further
develop our existing VIP, Valassis Sampling, and Valassis of Canada divisions.
We will continue to offer more highly targeted and one-to-one marketing
solutions via direct mail and the Internet utilizing database marketing
techniques.
THE COMPANY'S PRODUCTS
We print and publish cents-off coupons, refund offers, premiums,
sweepstakes and contests distributed to households throughout the United States.
We offer our customers a variety of consumer promotion alternatives. Depending
upon the particular promotion goal, a customer can choose to include its
promotional materials in FSIs or ROP, can elect to distribute a customized
printed solo insert (VIP), or distribute a product sampling program. We market
our products through our own sales force and rely to a significant extent on
repeat business.
Account Managers personally call on existing customers to maintain
relationships and on potential customers to describe the advantages afforded by
our products compared to other promotion alternatives. In addition,
approximately 25% of each cooperative FSI program is sold to direct mail
marketers who purchase space (referred to as "remnant space") at reduced costs
in exchange for accepting such space on a space-available basis.
FREE-STANDING INSERTS (FSIS)
Most of the consumer purchase incentives that we publish are featured in
cooperative FSIs which are four-color promotional booklets printed by us at our
own facilities and distributed through Sunday newspapers. Cooperative FSIs are
booklets containing promotions from multiple advertisers. We produced our first
FSI in 1972. In 1998, we inserted our cooperative FSIs in the Sunday edition of
over 500 newspapers with a combined average paid circulation of approximately
57.7 million on 46 publishing dates. By comparison, there
16
<PAGE> 20
were approximately 93.3 million households in the United States, according to
information published in 1990 by the U.S. Census Bureau.
Many FSI sales are made significantly in advance of program dates. We
typically announce our annual publication schedule approximately 12 to 18 months
in advance of the first publication date and customers may reserve categories at
any time thereafter. Account Managers work closely with customers to select
their FSI publication dates from our schedule and coordinate all aspects of FSI
printing and publication, as well as to obtain commitments from customers in the
form of signed contracts. Our proprietary order entry and ad placement software
allows us to produce as many different FSI versions as customers require,
typically over 270 different layout versions per publication date. By offering
different versions in different markets, we offer our customers greater
flexibility to target precise geographic areas or tailor promotional offers to
particular markets by varying coupon values, promotion copy and terms of the
promotional offer.
At the end of the selling cycle for each cooperative FSI program, there is
generally space in the booklet that has not been sold. This remnant space is
sold at a discount, primarily to direct mail marketers, who place themselves on
a waiting list for space that may become available. We select direct mail
marketers as remnant space customers on the basis of a number of factors,
including price, circulation, reputation and credit-worthiness. Remnant space
customers are subject to being "bumped" in favor of a regular price customer in
need of space at the last minute. Remnant space sales are included in total
cooperative FSI sales for financial reporting purposes.
Total cooperative FSI sales during the year ended December 31, 1998 were
$567.7 million, or 76.6% of our net sales. The top ten FSI customers accounted
for approximately 25.0% of FSI sales during the year ended December 31, 1998,
and no single customer accounted for more than 10.0% of FSI sales during the
same period.
VALASSIS IMPACT PROMOTIONS (VIP)
VIP offers our customers specialty print promotion products in multiple,
customized formats such as die-cuts, posters and calendars, as well as
traditional FSI formats. Because these promotions feature only one manufacturer
(referred to as "solos"), the customer has the ability to create a completely
individualized promotion. While VIP does produce printed material for direct
mail programs or for shipment to store locations, its primary product is
newspaper-delivered promotions. VIP offers customers the flexibility to run
promotions any day of the year in any newspaper throughout the United States.
VIP specializes in producing turnkey promotions for franchise and retail
marketers, such as fast food chains, allowing orders to be placed on a national,
regional or local basis.
VIP sales during the year ended December 31, 1998 were $103.1 million, or
13.9% of our net sales. VIP customers are made up primarily of franchise food
and retail operations. Two VIP customers accounted for 27.0% of VIP sales for
the year ended December 31, 1998, with the top ten customers accounting for
approximately 61.0% of total VIP sales.
VALASSIS SAMPLING
We offer a newspaper-delivered sampling product that gives manufacturers
the ability to cost-effectively reach up to 58 million households in one
weekend. Samples can either be machine-inserted into newspapers (Newspac(R)),
placed in a polybag alongside the newspaper, or pre-sealed in a pouch that forms
part of the polybag (Newspouch(R)). In 1997, Valassis Sampling expanded its
product line with the addition of Brand Bag(TM) and Brand Bag Plus(TM). This
product offers marketers the opportunity to deliver an impactful advertising
message on a newspaper polybag without a sample included. Both products offer
customers home-delivered newspaper circulation of up to 40 million households in
one weekend. The bags feature the customer's advertising with the option of a
weather-resistant tear-off coupon.
In 1998, Valassis Sampling generated total revenue of $28.3 million, or
3.8% of net sales. The top ten customers accounted for approximately 88.0% of
Valassis Sampling sales during the year ended December 31, 1998, with three
customers accounting for 62.0% of Valassis Sampling sales during the same
period.
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VALASSIS OF CANADA
In March 1995, Valassis acquired McIntyre & Dodd Marketing (now known as
Valassis of Canada), a leader in consumer promotion and direct response
merchandising in Canada. Several challenges were faced in 1995 including an
industry price/market share battle, poor economy, and mail order volume decline.
Since then, we have streamlined or repositioned existing products, dropped
unprofitable offerings and added new products and services to better meet the
needs of our customers.
RUN-OF-PRESS (ROP)
We arrange for the publication of ROP promotions in either a cooperative or
solo format. Cooperative programs, which group the promotions of several
customers together, are sold on a product exclusive basis, and usually run each
week when a newspaper runs its food section. Solo programs, which feature a
single advertiser, offer the marketer the flexibility to run in any newspaper
throughout the United States (including newspapers targeted to specific
demographic groups), on any day of the year and in any section of the newspaper.
Media (newspaper placement fees) is the major cost component of ROP
distribution, which generally accounts for approximately 98.0% of our total
direct ROP costs. We believe that our customers use us to place ROP because of
our ability to negotiate favorable media rates, our well-developed production
and placement capabilities, and our capacity to execute integrated FSI and ROP
programs. We do not project this division to be a growth area, but rather an
additional service offered to our customers.
ROP customers include primarily package goods manufacturers, pharmaceutical
companies and their advertising and promotion agencies. Our total ROP sales were
$17.8 million during the year ended December 31, 1998, or 2.4% of net sales. Our
top ten ROP customers accounted for approximately 85.0% of the ROP sales during
the same period.
COMPETITION
We compete in the cooperative FSI business principally with News America
FSI, Inc., a company owned by The News Corporation Limited. This competitor has
substantially greater financial resources than we do. We compete for business
primarily on the basis of the following:
- customer service and sales relationships;
- price; and
- category availability.
We also compete with in-store marketing and other forms of promotional
strategies or coupon delivery and may compete with any new or products in the
sales promotion field.
In the past, new competitors have tried to establish themselves in the FSI
market. As a result, we experienced periods of intense price competition. During
such times, the number of FSI programs increased which led to a meaningful
decrease in the number of pages per FSI program and, as a result, a decrease in
the average revenue per page. These significant decreases had a material adverse
effect on our financial performance. Business booked under these competitive
pricing conditions severely impacted our results for the fiscal year ended June
30, 1994 and the six months ended December 31, 1994.
If new competitors enter the FSI market or our existing competitor tries to
increase market share by reducing prices, our financial performance could be
materially adversely affected.
Although we believe that cooperative FSIs are currently the most efficient
means of distributing coupons to the public, we compete with other media for the
promotion and marketing dollars of our customers. It is possible that
alternative media or changes in promotional strategies could make FSIs less
attractive to our customers or could cause a shift in their preference to
different promotional materials or coupon delivery modes.
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The VIP division competes with News America FSI, Inc. for package goods and
fast food business, and with commercial printers. VIP continues to add new
services and product formats to meet the needs of an expanding customer base.
We compete with several newspaper network groups in the ROP market. As
there are no significant capital investments associated with this business,
other competitors could easily enter the ROP market. An increase in the number
of ROP competitors could result in a loss of market share for our ROP division.
EMPLOYEES
As of December 31, 1998, we had 1,456 full-time employees: 473 of these
employees are on our sales, sales operations and marketing staff; 867 are
involved in manufacturing; 34 are on our management information systems staff;
and 82 are involved with administration. None of our employees are represented
by a labor union. We consider labor relations with employees to be good and have
not experienced any interruption of our operations due to labor disagreements.
PROPERTIES
Our principal executive offices are located in a leased office complex in
Livonia, Michigan. We also lease sales offices in Los Angeles (Seal Beach),
Chicago (Schaumburg), Atlanta, Dallas, Boston, Minneapolis, Connecticut
(Wilton), and various other localities.
We operate three printing facilities. We own the Livonia printing facility
which consists of approximately 225,000 square feet and includes VIP, printing
and warehouse facilities. We also own printing facilities in Durham, North
Carolina and Wichita, Kansas, consisting of approximately 110,000 square feet
and 138,000 square feet, respectively. In addition, we lease a facility in
Plymouth, Michigan, which houses our pre-press operations. These facilities
generally have sufficient capacity to handle present volumes although, during
periods of unusual demand, we may require services of a contract printer.
LEGAL PROCEEDINGS
On February 24, 1999, we commenced litigation against The News Corporation
Limited and News America Incorporated in the State of Michigan Circuit Court for
the County of Wayne. The complaint seeks $150 million in compensatory damages,
$300 million in punitive damages and injunctive relief based on allegations of
tortious interference with contract, tortious interference with prospective
contractual relations and aiding and abetting a breach of fiduciary duty. The
principal factual allegation is that the defendants induced Arthur Andersen LLP
to repudiate a joint venture agreement with us relating to the development of a
new product. The time for defendants to answer or move with respect to the
complaint has not yet expired. We have also asked Arthur Andersen to pursue ADR
procedures mandated by the joint venture agreement with respect to this dispute.
We are involved in various routine litigation arising in the ordinary
course of business. In our opinion, the ultimate disposition of these matters
will not have a material effect on our financial position, results of operations
or liquidity.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on January 12, 1999, in a private
placement in reliance on Section 4(2) of the Securities Act and immediately
resold by the Initial Purchasers thereof in reliance on Rule 144A under the
Securities Act. In connection with that placement, the Company entered into the
Registration Rights Agreement, which requires that the Company file the
Registration Statement under the Securities Act with respect to the Exchange
Notes and, upon the effectiveness of that Registration Statement, offer to the
holders of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of Exchange 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. The Registration Rights Agreement further
provides that the Company must use its reasonable efforts to (i) cause the
Registration Statement with respect to the Exchange Offer to be declared
effective on or before June 11, 1999 and (ii) consummate the Exchange Offer on
or before July 12, 1999. Except as provided below, upon the completion of the
Exchange Offer, the Company's obligations with respect to the registration of
the Old Notes and the Exchange 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. As a result of the timely filing and the
effectiveness of the Registration Statement, the Additional Interest provided
for in the Registration Rights Agreement will not become payable by the Company.
Following the completion of the Exchange Offer (except as set forth in the
paragraph immediately below), holders of Old Notes not tendered will not have
any further registration rights and those Old Notes will continue to be subject
to certain restrictions on transfer. Accordingly, the liquidity of the market
for the Old Notes could be adversely affected upon consummation of the Exchange
Offer. See "Risk Factors -- Consequences of Failure to Exchange Old Notes."
In order to participate in the Exchange Offer, a holder must represent to
the Company, among other things, that (i) the Exchange Notes acquired pursuant
to the Exchange Offer are being acquired in the ordinary course of business of
the person receiving the Exchange Notes, (ii) neither the holder nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of the Notes within the meaning of the Securities Act and
(iii) neither the holder nor any such other person is an "affiliate," as defined
under Rule 405 promulgated under the Securities Act, of the Company. Pursuant to
the Registration Rights Agreement if (i) the Company determines that it is not
permitted to effect the Exchange Offer as contemplated hereby because of any
applicable law or policy, or (ii) any holder of Transfer Restricted Securities
notifies the Company prior to July 12, 1999 (a) that it is prohibited by law or
SEC policy from participating in the Exchange Offer, (b) that it may not resell
the Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and that this Prospectus is not appropriate or available
for such resales, or (c) that it is a broker-dealer and owns Old Notes acquired
directly from the Company or an affiliate of the Company, the Company is
required to file a "shelf" registration statement for a continuous offering
pursuant to Rule 415 under the Securities Act in respect of the Old Notes. For
purposes of the foregoing, "Transfer Restricted Securities" means each Old Note
until (i) the date on which such Old Note has been exchanged for an Exchange
Note in the Exchange Offer, (ii) the date on which such Old Note has been
electively registered under the Securities Act and disposed of in accordance
with such "shelf" registration statement, (iii) the date on which such Old Note
is sold pursuant to Rule 144 under circumstances in which any legend borne by
such Old Note relating to restrictions on transferability thereof, under the
Securities Act or otherwise, is removed or such Old Note is eligible to be sold
pursuant to paragraph (k) of Rule 144, or (iv) such Old Note shall cease to be
outstanding. Other than as set forth in this paragraph, no holder will have the
right to participate in the "shelf" registration statement nor otherwise require
that the Company register such holder's shares of Old Notes under the Securities
Act. See "-- Procedures for Tendering."
Based on an interpretation by the SEC's staff set forth in no-action
letters issued to third parties unrelated to the Company, the Company believes
that, with the exceptions set forth below, Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise
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transferred by any person receiving such Exchange Notes, whether or not such
person is the registered holder (other than any such holder or such other person
which is (i) an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act or (ii) a broker-dealer that purchased such Old Notes
directly from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (iii) a person participating in the
distribution of the Exchange Notes) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the Exchange
Notes are acquired in the ordinary course of business of the holder or such
other person and neither the holder nor such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. Holders of Old Notes accepting the Exchange Offer will represent
to the Company in the Letter of Transmittal that such conditions have been met.
Any holder who tenders in the Exchange Offer for the purpose of participating in
a distribution of the Exchange Notes cannot rely on this interpretation by the
SEC's staff and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Old Notes
as a result of market-making activities or other trading activities and will
deliver a prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Letter
of Transmittal states that by acknowledging and delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Except as stated above, this Prospectus may not be used for an offer to
resell, resale or other retransfer of Exchange Notes.
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth in the
second paragraph under " -- Purpose and Effect" above), holders of Old Notes not
tendered will not have any further registration rights and those Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for a holder's Old Notes could be adversely affected
upon completion of the Exchange Offer if the holder does not participate in the
Exchange Offer. See "Risk Factors -- Consequences of Failure to Exchange Old
Notes."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000 in principal amount.
The form and terms of the Exchange Notes are substantially the same as the
terms of the Old Notes except that the Exchange Notes have been registered under
the Securities Act and except for certain transfer restrictions, registration
rights and terms providing for an increase in the interest rate on the Old Notes
under certain events relating to registration of the Exchange Notes. The
Exchange Notes will evidence the same
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debt as the Old Notes and will be issued pursuant to, and entitled to the
benefits of, the Indenture pursuant to which the Old Notes were issued.
As of the date of this Prospectus, Old Notes representing $100.0 million
aggregate principal amount were outstanding and there was one registered holder,
a nominee of 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 Old Notes. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has 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 Exchange Notes from the Company. If any
tendered Old 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 Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on May
21, 1999, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date," shall mean the latest date and
time to which the Exchange Offer is extended. In order to extend the Exchange
Offer, the Company will notify the Exchange Agent and each registered holder of
any extension by oral or written notice (which may be by means of a press
release or other public announcement) prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date. In
addition, the Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, 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 or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old 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, (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal prior to the Expiration Date, (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
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 (iii) 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 5:00 p.m., New York
City time, on the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD 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
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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. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR
SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct 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
Old Notes, either make appropriate arrangements to register ownership of the Old
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 (as defined below)
unless Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Issuance Instruction" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) 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 a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by appropriate bond powers, signed by the registered
holder as that registered holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes, the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent, nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old 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 Old 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.
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By tendering, each holder will represent to the Company that, among other
things, (i) the Exchange Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the registered holder, (ii)
neither the holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such Exchange Notes and
(iii) neither the holder nor any such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company.
In all cases, issuance of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old 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 Old Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering holder thereof (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
nonexchanged Old 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 Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old 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 5:00 p.m., New York City time, on 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 Old 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 Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) 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
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in the form provided by the Company (by telegram, telex, facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal, are received by the Exchange Agent within three NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old 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 (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or numbers and principal amount
of such Old Notes), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old 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 Old Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form, and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer; provided, however, that withdrawn
Old Notes may be tendered again following one of the procedures described herein
and in the Letter of Transmittal at any time prior to the Expiration Date. Any
Old 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 Old 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, the Company
shall not be required to accept for exchange, or to issue Exchange Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer if at
any time before the acceptance of such Old Notes for exchange or the exchange of
the Exchange Notes for such Old Notes, the Company determines that the Exchange
Offer violates applicable law, any applicable interpretation of the staff of the
SEC or any order of any governmental agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights 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, the Company will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended. In any such event the
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Company is required to use every reasonable effort to obtain the withdrawal of
any stop order at the earliest possible time.
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. 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
By Registered or Certified Mail:
The Bank of New York
101 Barclay Street
Floor 7-E
New York, NY 10286
Attn: Reorganization Section,
Jacqueline Warren
(212) 815-5924
By Hand or Overnight Delivery before 5:00 p.m.
The Bank of New York
101 Barclay Street
Corporate Trust Services
Ground Level
New York, NY 10286
Attn: Reorganization Section,
Jacqueline Warren
(212) 815-5924
By Facsimile (for Eligible Institutions):
(212) 815-6339
For Information or
Confirmation by Telephone:
(212) 815-5924
(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
The Company 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 officers and employees of the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company including fees and expenses of the Exchange
Agent, accounting, legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register Exchange Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon. See "Certain Federal Income Tax
Considerations."
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be expensed over the term of
the Exchange Notes.
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DESCRIPTION OF OTHER INDEBTEDNESS
DESCRIPTION OF REVOLVING CREDIT FACILITY
The Company is party to a Credit Agreement, dated as of November 16, 1998,
as amended by Amendment No. 1 thereto, dated as of November 25, 1998, with
several financial institutions and Comerica Bank, as Agent for such financial
institutions (the "Credit Agreement"). The Credit Agreement provides the Company
with a $160.0 million unsecured revolving credit facility, including a $10.0
million sublimit for the issuance of letters of credit and a $10.0 million
sublimit for swing line loans (the "Revolving Credit Facility"). The Credit
Agreement matures on October 31, 2001, which maturity date may be extended for
up to two additional one-year periods at the request of the Company and the
approval of all of the banks party thereto.
Revolving credit advances under the Credit Agreement bear interest at an
annual rate, from the original closing date until delivery of the Company's 1998
fiscal year audited financial statements, at either:
- the reserve-adjusted "Eurocurrency-based Rate" plus a margin of
0.725%; or
- the "Prime-based Rate" (which is defined as the greater of (A)
Comerica Bank's "prime rate" and (B) the Federal funds effective
rate plus 0.500%), at the option of the Company.
Thereafter, the margin on revolving credit advances that bear interest at
the Eurocurrency-based Rate will range from 0.525% per annum to 0.875% per
annum, depending on the Company's Funded Debt to EBITDA ratio. There is no
margin on revolving credit advances that bear interest at the Prime-based Rate.
Swing line advances bear interest at either the Prime-based Rate or a rate
quoted by the Swing Line Bank (which is Comerica Bank), at the option of the
Company. Each swing line advance is required to be repaid within 30 days after
the date of such advance.
The Company is required to pay an issuance fee on letters of credit equal
to 0.125% of the face amount and a fee on the undrawn amount of each letter of
credit ranging from 0.525% per annum to 0.875% per annum, depending on the
Company's Funded Debt to EBITDA ratio. The Company is also required to pay a
facility fee on the aggregate amount of commitments under the Credit Agreement
at a rate that ranges from 0.15% per annum to 0.275% per annum, depending on the
Company's Funded Debt to EBITDA ratio. So long as any Event of Default shall
exist, the Company is required to pay default interest on all advances and other
monetary obligations of the Company at a per annum rate equal to 3% in excess of
the interest rate(s) then in effect (and, with respect to Eurocurrency-based
Rate advances, calculated on the basis of the maximum margin chargeable with
respect thereto).
The Credit Agreement contains customary affirmative covenants, including,
without limitation:
- preservation of existence;
- keeping of books and records;
- delivery of financial statements and other information;
- maintenance of a minimum fixed charge coverage ratio;
- maintenance of a maximum funded debt to EBITDA ratio;
- payment of taxes;
- permitting inspection of books, records and properties;
- compliance with leases;
- obtaining necessary governmental approvals;
- maintenance of insurance;
- compliance with laws; and
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- compliance with Year 2000 requirements.
The Credit Agreement also contains customary negative covenants of the
Company and its subsidiaries, including, without limitation:
- a limitation on redemptions of the capital stock of the Company
(such redemptions may not exceed, on any date of determination, the
sum of $75.0 million plus 50% of the Company's consolidated net
income from November 16, 1998 through such date of determination);
- limitations on mergers and dispositions of assets;
- limitations on indebtedness (which includes a cap of $600.0 million
on the aggregate funded debt of the Company and its subsidiaries);
- limitations on liens;
- limitations on acquisitions (which includes a cap of $50.0 million
on certain permitted acquisitions and permitted mergers);
- limitations on the payment of dividends (subject to an exception for
up to $12.5 million in any fiscal quarter so long as no Default or
Event of Default under the Credit Agreement is continuing or would
result therefrom);
- limitations on investments and loans;
- limitations on amendments to the terms of any permitted subordinated
debt; and
- a limitation on existing and future investments in subsidiaries and
joint ventures.
The Credit Agreement contains customary Events of Default, including,
without limitation:
- the non-payment of principal, interest or fees when due;
- the non-payment of other amounts within five business days after
written notice from the Agent that the same is due and payable;
- subject to applicable grace periods in certain circumstances, the
default in the performance of the covenants described above;
- any representation or warranty proves to be untrue or misleading in
any material adverse respect when made;
- cross-default to certain other indebtedness;
- certain events of bankruptcy and insolvency;
- certain judgment defaults; and
- certain changes in control or ownership of the Company.
DESCRIPTION OF OTHER SENIOR NOTES
In November 1994, the Company completed the sale of $255.0 million in
aggregate principal amount of its 9.55% Senior Notes due 2003 (the "2003 Senior
Notes"). Such Notes are general unsecured obligations of the Company and rank
equally in right of payment with all other senior indebtedness of the Company.
As of December 31, 1998, $129.8 million in aggregate principal amount of the
2003 Notes was outstanding. The 2003 Senior Notes mature on December 1, 2003 and
bear interest at the rate per annum of 9.55%. Interest on the 2003 Senior Notes
is payable semiannually on June 1 and December 1 of each year.
The 2003 Senior Notes were issued under an indenture dated November 15,
1994 between the Company and The Bank of New York, as Trustee (the "Senior Notes
Indenture"). The 2003 Senior Notes are subject to all terms of the Senior Notes
Indenture, and holders of the Notes are referred to the Senior Notes Indenture
and the Trust Indenture Act for a statement of such terms. The statements under
this caption
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relating to the 2003 Senior Notes are summaries and do not purport to be
complete and are qualified in their entirety by express reference to the Senior
Notes Indenture which can be obtained as provided under the section in this
Prospectus entitled "Available Information."
The 2003 Senior Notes are not redeemable by the Company prior to maturity.
The Senior Notes Indenture contains certain covenants that affect, and in
certain cases significantly limit or prohibit:
- liens;
- sale and leaseback transactions;
- restricted payments;
- indebtedness;
- transactions with affiliates; and
- asset sales, mergers and consolidations.
In addition, the Senior Notes Indenture provides that upon a "Change of
Control" of the Company (as defined in the Senior Notes Indenture), the Company
will be required to make an offer to purchase the 2003 Senior Notes at a
purchase price equal to 101% of their principal amount, plus accrued interest.
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DESCRIPTION OF THE NOTES
You can find the definitions of certain terms used in this description
under the subheading "-- Certain Definitions."
The Company will issue the Exchange Notes under the Indenture (the
"Indenture") between itself and The Bank of New York, as trustee (the "Trustee")
dated as of January 12, 1999, as amended. The terms of the Exchange Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act.
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
holders of the Exchange Notes. A copy of the Indenture and the form of Exchange
Note is included as an exhibit to the Registration Statement of which this
Prospectus constitutes a part and is available as set forth under "Available
Information."
The following summary applies to both the Old Notes and the Exchange Notes
offered hereby. The terms of the Exchange Notes will be substantially the same
as the terms of the Old Notes except that the Exchange Notes have been
registered under the Securities Act and except for certain transfer
restrictions, registration rights and terms providing for an increase in the
interest rate on the Old Notes under certain events relating to registration of
the Exchange Notes.
BRIEF DESCRIPTION OF THE NOTES
These Notes:
- are unsecured general obligations of the Company;
- rank equally in right of payment with all existing and future
unsecured senior debt of the Company; and
- are senior in right of payment to any existing and future subordinated
debt of the Company.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $350.0 million,
of which $100.0 million will be issued in the Offering. The Company will issue
Notes in fully registered form, without coupons, in denominations of $1,000 and
integral multiples of $1,000. The Notes will mature on January 15, 2009.
Interest on these Notes will accrue at the rate of 6 5/8% per annum and
will be payable semi-annually in arrears on January 15 and July 15, commencing
on July 15, 1999. The Company will make each interest payment to the Holders of
record of these Notes on the immediately preceding January 1 and July 1.
Interest on these Notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder has given wire transfer instructions to the Company, the
Company will make all principal, premium and interest payments on those Notes in
accordance with those instructions. All other payments on these Notes will be
made at the office or agency of the Paying Agent and Registrar within the City
and State of New York unless the Company elects to make interest payments by
check mailed to the Holders at their address set forth in the register of
Holders.
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PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the Holders of
the Notes, and the Company may act as Paying Agent or Registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents. No service charge will
be made for any registration of transfer or exchange of the Notes, but the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before the mailing of a notice of
redemption of the Notes.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
OPTIONAL REDEMPTION
The Company may redeem the Notes, in whole or in part, at any time at the
option of the Company upon not less than 30 nor more than 60 days prior notice
mailed by first-class mail to each Holder's registered address, at a redemption
price equal to the greater of (i) 100% of the principal amount thereof or (ii)
the sum of the present values of the remaining scheduled payments discounted to
the redemption date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate plus 50 basis points, plus, in each
case, accrued and unpaid interest to the date of redemption.
If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption on a pro rata basis, by lot or by such method
as the Trustee shall deem fair and appropriate.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion of
the original Note will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. Unless the Company defaults in payment of the
redemption price, on and after the redemption date, interest will cease to
accrue on Notes or portions of them called for redemption. No Notes of $1,000 or
less shall be redeemed in part.
CERTAIN COVENANTS
The Indenture contains certain covenants including the following:
LIMITATIONS ON MERGER, CONSOLIDATION, AND SALE OF ASSETS
The Company will not directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(1) either: (a) the Company is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, conveyance
or other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of the Company under the Notes and the Indenture pursuant
to agreements reasonably satisfactory to the Trustee; and
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(3) immediately after such transaction no Default or Event of Default
exists.
In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Limitations on Merger, Consolidation,
and Sale of Assets" covenant will not apply to a sale, assignment, transfer,
conveyance or other disposition of assets between or among the Company and any
of its wholly owned Subsidiaries.
LIMITATIONS ON LIENS
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, create, incur, assume or suffer to exist any Lien of any kind on or
with respect to any asset owned or hereafter acquired securing Indebtedness
without making effective provision to secure all the Notes then outstanding by
such Lien, equally and ratably with or, in the event that such other
Indebtedness is subordinated in right of payment to the Notes, prior to any and
all other such Indebtedness thereby secured, so long as such other Indebtedness
is so secured, except that the foregoing restrictions shall not apply to (a)
Permitted Liens or (b) other Liens, if after giving effect thereto, the
aggregate outstanding amount of all such Indebtedness secured by Liens (other
than Permitted Liens) does not exceed the greater of $50.0 million or 15% of
Consolidated Tangible Assets determined in accordance with the Company's most
recent published consolidated balance sheet prepared in accordance with GAAP.
LIMITATIONS ON SALE AND LEASEBACK TRANSACTIONS
The Company will not, nor will it permit any Subsidiary to, enter into any
arrangement with any Person providing for the leasing by the Company of any
property now owned or hereafter acquired which has been or is to be sold or
transferred by the Company to such Person with the intention of taking back a
lease of such property (a "Sale and Leaseback Transaction"); provided that the
Company may enter into a Sale and Leaseback Transaction if:
(1) after giving effect to such Sale and Leaseback Transaction, the
aggregate outstanding amount of all Attributable Debt resulting from all
Sale and Leaseback Transactions does not exceed the greater of $50.0
million or 15% of Consolidated Tangible Assets, determined in accordance
with the Company's most recent published consolidated balance sheet in
accordance with GAAP; or
(2) the Company applies, within twelve months after the sale or
transfer, an amount equal to the net proceeds of the assets sold pursuant
to the Sale and Leaseback Transaction to the voluntary covenant defeasance
or retirement of Indebtedness (other than Indebtedness that is held by the
Company or Indebtedness of the Company that is subordinate in right of
payment to the Notes), which amount will not be less than the fair value
(in the opinion of an executive officer of the Company) of such assets less
an amount equal to the principal amount of such Indebtedness voluntarily
defeased or retired by the Company within such twelve-month period.
Notwithstanding the foregoing, no retirement referred to in clause (2)
above of the preceding sentence may be effected by the payment at maturity or
pursuant to any mandatory sinking fund payment or mandatory payment provision.
LIMITATIONS ON STOCK REDEMPTIONS AND STOCK REPURCHASES
The Company will not, and will not permit any Subsidiary to, directly or
indirectly, make any payments to redeem or repurchase any shares of the
Company's or a Subsidiary's Capital Stock (a "Redemption Payment"), if at the
time the Company or the Subsidiary makes such Redemption Payment:
(1) a Default shall have occurred and be continuing (or would result
from such Redemption Payment); and
(2) the aggregate amount of such Redemption Payment and all other
Redemption Payments since the date of the Indenture would exceed the sum of
(i) $75.0 million, plus (ii) 50% of the Company's Consolidated Net Income
from November 16, 1998 through the date of determination, plus (iii) any
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proceeds from the sale or issuance of shares of the Company's Capital Stock
or securities convertible into shares of the Company's Capital Stock (other
than an issuance or sale to a Subsidiary) and, without duplication,
proceeds received upon the exercise of options, warrants and other rights
to acquire shares of the Company's Capital Stock.
This "Limitations on Stock Redemptions and Stock Repurchases" covenant will
not prohibit (i) any Redemption Payment if, pro forma for such Redemption
Payment, the Funded Debt to EBITDA Ratio would have been equal to or less than
1.0; (ii) the repurchase or other acquisition of shares of, or options or
warrants to purchase shares of, the Company's Capital Stock or any Subsidiary's
Capital Stock from employees, former employees, directors or former directors of
the Company or any Subsidiary (or permitted transferees of such employees,
former employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments thereto) or
other arrangements approved by the board of directors of the Company or the
Subsidiary under which such individuals purchase or sell or are granted the
option to purchase or sell shares of Capital Stock; provided, however, that the
aggregate amount of such repurchases and other acquisitions described in this
clause (ii) shall not exceed $5,000,000 in any calendar year; provided further,
however, that such repurchases and other acquisitions described in this clause
(ii) shall be excluded in the calculation of the amount of Redemption Payments;
(iii) the repurchase or acquisition of shares of the Company's Capital Stock
solely in exchange for other shares of the Company's Capital Stock; provided,
however, that such issuance of shares of the Company's Capital Stock shall not
be included in the calculation of proceeds from the issuance of shares of the
Company's Capital Stock in clause (2)(iii) above; provided further, however,
that such repurchases and other acquisitions described in this clause (iii)
shall be excluded in the calculation of the amount of Redemption Payments; or
(iv) the repurchase or acquisition solely of odd lots of the Company's Capital
Stock.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes to be resold
as set forth herein will initially be issued in the form of one or more Global
Notes (the "Global Notes"). The Global Notes will be deposited on the date of
the closing of the exchange of the Old Notes for the Exchange Notes (the
"Closing Date") with, or on behalf of the Depositary and registered in the name
of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Note Holder").
Notes that are issued as described below under "-- Certificated Notes" will
be issued in the form of registered definitive certificates (the "Certificated
Notes"). Upon the transfer of Certificated Notes, such Certificated Notes may,
unless all Global Notes have previously been exchanged for Certificated Notes,
be exchanged for an interest in the Global Note representing the principal
amount of Notes being transferred, subject to the transfer restrictions set
forth in the Indenture.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Notes and (ii) ownership of the Notes
evidenced by the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of
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some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer Exchange
Notes evidenced by the Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Notes. Beneficial owners of Notes evidenced by the
Global Notes will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depositary to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
CERTIFICATED NOTES
Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Trustee, exchange such beneficial interest
for Notes in the form of Certificated Notes. Upon any such issuance, the Trustee
is required to register such Certificated Notes in the name of, and cause the
same to be delivered to, such person or persons (or the nominee of any thereof).
In addition, if (i) the Company notifies the Trustee in writing that the
Depositary is no longer willing or able to act as a depositary and the Company
is unable to locate a qualified successor within 90 days or (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the issuance
of Notes in the form of Certificated Notes under the Indenture, then, upon
surrender by the Global Note Holder of its Global Note, Notes in such form will
be issued to each person that the Global Note Holder and the Depositary identify
as being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, and interest) be made by
wire transfer of immediately available next day funds to the accounts specified
by the Global Note Holder. With respect to Certificated Notes, the Company will
make all payments of principal, premium, if any, and interest by wire transfer
of immediately available 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. The Company expects that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
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EVENTS OF DEFAULT AND REMEDIES
Each of the following is an "Event of Default":
(1) default for 30 days in the payment when due of interest on the
Notes;
(2) default in payment when due at maturity of the principal of any
Notes, upon declaration or otherwise;
(3) failure by the Company for 30 days after notice to comply with any
of its obligations described under the heading "Certain Covenants" above;
(4) failure by the Company for 60 days after notice to comply with any
of the other agreements in the Indenture;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company (or the payment of which is
guaranteed by the Company) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, if that default
results in the acceleration of such Indebtedness prior to its express
maturity, and, the principal amount of all such Indebtedness which has been
so accelerated aggregates in excess of $25.0 million or its foreign
currency equivalent, without such indebtedness having been discharged or
such acceleration having been rescinded or annulled within 30 days after
notice;
(6) failure by the Company to pay final judgments aggregating in
excess of $25.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days;
(7) the entry of a decree or order for relief in respect of the
Company by a court having jurisdiction in the premises in an involuntary
case under the Federal bankruptcy laws, as now or hereafter constituted, or
any other Federal or state bankruptcy, insolvency or other similar law, or
appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Company or of any
substantial part of the property of the Company, or ordering the winding up
or liquidation of the affairs of the Company, and the continuance of any
such decree or order unstayed and in effect for a period of 60 consecutive
days; or
(8) the commencement by the Company of a voluntary case under the
Federal bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or state bankruptcy, insolvency or other similar law, or
the consent by it to the entry of an order for relief in an involuntary
case under any such law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of
the Company or of any substantial part of the property of the Company, or
the making by the Company of an assignment for the benefit of creditors, or
the admission by the Company in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the
Company in furtherance of any such action.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (3), (4) or (6) above will not constitute
an Event of Default until the Trustee or the holders of at least 25% in
principal amount of the outstanding Notes notify the Company of the default and
the Company does not cure such default within the time specified in clauses (3),
(4) or (6) hereof after receipt of such notice.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company all outstanding Notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Notes may declare all
the Notes to be due and payable immediately.
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Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture, except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes, and, under certain circumstances,
may rescind any acceleration with respect to the Notes and its consequences.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
shall have any liability for any obligations of the Company under the Notes or
the Indenture, or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of 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. The waiver may not be effective to
waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding Notes 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 referred to below;
(2) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost
or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with those covenants 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 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) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, to pay the principal of, premium, if any,
and interest on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date; and
(2) the Company shall have delivered to the Trustee an Opinion of
Counsel reasonably acceptable to the Trustee confirming that the Holders of
the outstanding Notes will not recognize income, gain or
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loss for federal income tax purposes as a result of such 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 defeasance
had not occurred.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company and the Trustee may modify, by adding, changing or eliminating
any provision of, the Indenture with the consent of the Holders of not less than
a majority in principal amount of outstanding Notes. However, without the
consent of each Holder affected, an amendment or waiver may not (with respect to
any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note;
(3) reduce the rate of or change the time for payment of interest on
any Note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the
Notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or premium, if any, or interest on the Notes; or
(7) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(3) to provide for the assumption of the Company's obligations to
Holders of Notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder; or
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Trustee is The Bank of New York. If the Trustee becomes a creditor of
the Company, the Indenture limits its right 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 90 days, apply to the SEC 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 and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise
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any of its rights or powers under the Indenture at the request of any Holder of
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Asset Sale" means, with respect to any Person, any sale, transfer or other
disposition (including, without limitation, dispositions pursuant to any merger,
consolidation or Sale and Leaseback Transaction) by such Person or any of its
subsidiaries to any Person other than such Person or one of its subsidiaries in
any single transaction or series of transactions of (i) any or all of the
Capital Stock in any of the subsidiaries of such Person or (ii) any other
property of such Person or any other Property of its subsidiaries outside the
ordinary course of business of such Person or such subsidiary.
"Attributable Debt" in respect of a Sale and Leaseback Transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
Sale and Leaseback Transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights, warrants or options to acquire an equity interest
in such Person.
"Closing Date" means the date of original issuance of the Notes.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate interest expense of such Person and its subsidiaries for such period
on a consolidated basis, determined in accordance with GAAP, plus, to the extent
not included in such interest expense, and to the extent incurred by such Person
and such subsidiaries, without duplication, (i) interest expense attributable to
capital leases and the interest expense attributable to leases constituting part
of a Sale and Leaseback Transaction, (ii) amortization of debt discount and debt
issuance costs, (iii) capitalized interest, (iv) non-cash interest expenses, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financings, (vi) net costs associated with
Hedging Obligations (including amortization of fees), (vii) dividends payable on
shares of preferred stock issued by such Person or its subsidiaries, other than
shares of such preferred stock held by such Person or its subsidiaries, (viii)
interest accruing on the Indebtedness of any other Person to the extent such
Indebtedness is Guaranteed by such Person or such subsidiaries, and (ix) cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any other Person in connection with Indebtedness incurred by such plan or
trust.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss, as the case may be) of such Person and its
subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP, provided that there shall be excluded therefrom (i) gains and losses
from Asset Sales or reserves relating thereto, (ii) items classified as
extraordinary or nonrecurring (other than the tax benefit of the utilization of
net operating loss carryforwards) and gains from discontinued operations, (iii)
except to the extent of the amount of dividends or distributions paid to such
Person by any other Person during such period, the net income (or loss) of (a)
such other Person other than a subsidiary of such Person and (b) any subsidiary
of such Person to the extent that the payment of the net income of such other
Person as a dividend or other distribution to such Person is restricted by
contract or otherwise and (iv) except to the extent includable pursuant to
clause (iii) hereof, the income (or loss) of any other Person accrued or
attributable to any period prior to the date it becomes a subsidiary of such
Person or is merged into or consolidated with such
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Person or any of such Person's subsidiaries or all or substantially all of such
other Person's property is acquired by such Person or any of its subsidiaries.
"Consolidated Tangible Assets" means, as of any date, the sum of the
property and assets of the Company and its Subsidiaries on a consolidated basis
at such date, after eliminating intercompany items, after deducting from such
total all property and assets that would be classified as intangibles under GAAP
(including, without limitation, goodwill, organizational expenses, trademarks,
trade names, copyrights, patents, licenses and any rights in any thereof), all
reserves and prepaid expenses, deferred charges or authorized debt discount and
expense, each such item determining in accordance with GAAP.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Depositary" means, with respect to any Notes issuable or issued in the
form of one or more Global Notes, the Person designated as Depositary by the
Company pursuant to the Indenture until a successor Depositary shall have become
such pursuant to the applicable provisions of the Indenture, and thereafter
"Depositary" shall mean or include each Person who is then a Depositary
thereunder.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (i) all income tax expense of the
Company and its consolidated Subsidiaries, (ii) depreciation expense of the
Company and its consolidated Subsidiaries, (iii) amortization expense of the
Company and its consolidated Subsidiaries (excluding amortization expense
attributable to a prepaid cash item that was paid in a prior period), and (iv)
all other non-cash charges of the Company and its consolidated Subsidiaries
(excluding any such non-cash charge to the extent that it represents an accrual
of or reserve for cash expenditures in any future period), in each case for such
period.
"Funded Debt" of any Person means, as at any date as of which any
determination thereof is being or is to be made, any Indebtedness of such person
that by its terms (i) will mature more than one year after the date it was
issued, incurred, assumed or Guaranteed by such Person, or (ii) will mature one
year or less after the date it was issued, incurred, assumed or guaranteed by
such Person which Indebtedness, at such date of determination, may be renewed or
extended at the election or option of such Person so as to mature more than one
year after such date of determination.
"Funded Debt to EBITDA Ratio" as of any date of determination means the
ratio of (i) Funded Debt to (ii) the aggregate amount of EBITDA for the period
of the most recent four consecutive fiscal quarters prior to the date of
determination for which internal financial statements are available; provided,
however, that if the Company or any Subsidiary shall have made an acquisition of
assets which constitutes all or substantially all of the assets of a business,
EBITDA for such period shall be calculated after giving pro forma effect to such
acquisition as if such acquisition occurred on the first day of such period.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Government Securities" means securities that are (i) direct obligations of
the United States of America for the payment of which its full faith and credit
is pledged or (ii) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case under clauses
(i) or (ii), are not callable or redeemable at the option of the issuer thereof.
"Guarantee" means any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person in any manner.
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"Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Holder" means any Person in whose name a Note is registered on the records
of the Registrar.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property under conditional sales or other similar agreements which provide
for the deferral of the payment of the purchase price for a period in
excess of one year following the date of such Person's receipt and
acceptance of complete delivery of such property; and
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding (other than Capital Lease
Obligations) as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Liens" means:
(1) Liens in favor of the Company or any Subsidiary;
(2) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Subsidiary;
provided that such Liens were in existence prior to the contemplation of
such merger or consolidation and do not extend to any assets other than
those of the Person merged into or consolidated with the Company or any
Subsidiary;
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(3) Liens on property existing immediately prior to the time of
acquisition thereof by the Company or any Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of
such acquisition;
(4) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(5) Liens arising out of judgements or awards against the Company or
any Subsidiary with respect to which the Company or Subsidiary shall in
good faith be prosecuting an appeal or proceedings for review or Liens
incurred by the Company or any Subsidiary for the purpose of obtaining a
stay or discharge in the course of any legal proceeding to which the
Company or any Subsidiary is a party;
(6) Liens to secure Capital Lease Obligations;
(7) Liens existing on the date of the Indenture;
(8) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) mechanics', materialmen's, carrier's, warehousemen's and similar
Liens arising in the ordinary course of business and securing Obligations
of the Company or any Subsidiary that are not overdue for a period of more
than 60 days or are being contested in good faith by appropriate legal
proceedings diligently pursued; provided that in the case of any such
contest (i) any levy, execution or other enforcement of such Liens shall
have been duly suspended; and (ii) such provision for the payment of such
Liens has been made on the books of the Company or the Subsidiary as may be
required by GAAP;
(10) Liens arising in connection with worker's compensation,
unemployment insurance, old age pensions and social security benefits and
other forms of governmental insurance or similar benefits which are not
overdue or are being contested in good faith by appropriate proceedings
diligently pursued; provided that in the case of any such contest (i) any
levy, execution or other enforcement of such Liens shall have been duly
suspended; and (ii) such provision for the payment of such Liens has been
made on the books of the Company or the Subsidiary as may be required by
GAAP;
(11) Liens in the nature of any minor imperfections of title,
including, but not limited to, easements, covenants, rights-of-way or other
similar restrictions, which, either individually or in the aggregate would
not (i) materially adversely affect the present or future use of the
property to which they relate, (ii) have a material adverse effect on the
sale or lease of such property, or (iii) render title thereto unmarketable;
(12) any interest or title of a lessor under any lease of property to,
or of any consignor of goods consigned to, or of any creditor of any
consignee in goods consigned to such consignee by, the Company or any
Subsidiary;
(13) Liens incurred in the ordinary course of business of the Company,
other than in connection with Indebtedness for borrowed money;
(14) any Lien extending, renewing or replacing any Permitted Lien;
(15) Liens securing only the Notes;
(16) Liens on assets of the Company's Subsidiaries to secure
Obligations of such Subsidiaries to the Company; and
(17) Liens attributable to Sale and Leaseback Transactions.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, joint stock company, unincorporated organization or
government or any agency or political subdivision thereof.
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"SEC" means the Securities and Exchange Commission, as from time to time
constituted, created under the Securities Exchange Act of 1934, as amended, or,
if at any time after the issuance of the Notes such commission is not existing
and performing the duties now assigned to it under the TIA, the body performing
such duties at such time.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means a Person (other than an individual or a government or
any agency or political subdivision thereof) more than 50% of the outstanding
interest of which, is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or which the Company, in accordance with GAAP,
otherwise consolidates as a Subsidiary of the Company.
"Treasury Rate" means, as of any Redemption Date, the yield to maturity as
of such Redemption Date of the Untied States Treasury securities with constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H. 15 (519) that has become publicly available at least two
business days prior to the Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from the Redemption Date to January 15, 2009;
provided, however, that if the period from the Redemption Date to January 15,
2009 is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall be
used.
"Voting Stock" means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
board of directors of such Person.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal income tax
consequences of the Exchange Offer to a holder of Old Notes that purchased the
Old Notes pursuant to their original issue and that holds the Old Notes and will
hold the Exchange Notes as capital assets. It does not address beneficial owners
that may be subject to special tax rules, such as banks, insurance companies,
dealers in securities or currencies, holders that hold the Old Notes or Exchange
Notes as a hedge against currency risks or as part of a straddle with other
investments or as part of a "synthetic security" or other integrated investment
(including a "conversion transaction") comprised of a Note and one or more
investments, or holders that have a "functional currency" other than the U.S.
dollar. This summary is based upon the U.S. federal tax laws and regulations as
now in effect and as currently interpreted and does not take into account
possible changes in such tax laws or such interpretations, any of which may be
applied retroactively. It does not include any description of the tax laws of
any state, local or foreign government that may be applicable to the Exchange
Offer, the Old Notes, the Exchange Notes or the holders thereof.
The exchange of Exchange Notes for the Old Notes pursuant to the Exchange
Offer should not be treated as an "exchange" for federal income tax purposes
because the Exchange Notes will not be considered to differ materially in kind
or extent from the Old Notes. As a result, there should be no federal income tax
consequences to holders of the Old Notes exchanging the Old Notes for the
Exchange Notes pursuant to the Exchange Offer, and therefore: (i) no gain or
loss should be realized by a holder upon receipt of an Exchange Note, (ii) the
holding period of the Exchange Note should include the holding period of the Old
Note exchanged therefor, and (iii) the adjusted tax basis of the Exchange Note
should be the same as the adjusted basis of the Old Note exchanged therefor
immediately before the exchange.
THIS SUMMARY DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF U.S. FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A HOLDER'S DECISION TO EXCHANGE OLD
NOTES FOR EXCHANGE NOTES. EACH HOLDER SHOULD CONSULT WITH ITS OWN TAX ADVISOR
CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS OR OTHER TAX LAWS TO
ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE OLD NOTES FOR
EXCHANGE NOTES.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes pursuant to the Exchange Offer, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180 days
after the consummation of the Exchange Offer or the date on which all
broker-dealers and Initial Purchasers have sold all of the Exchange Notes held
by them, whichever is earlier, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until June 1, 1999, all dealers effecting transactions in
the Exchange Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of]such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any
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profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the consummation of the Exchange Offer or
the date on which all broker-dealers and Initial Purchasers have sold all of the
Exchange Notes held by them, whichever is earlier, 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 not to exceed $25,000) and will indemnify holders of the Old Notes
(including any broker-dealers) against certain liabilities, including certain
liabilities under the Securities Act.
LEGAL MATTERS
Certain matters with respect to the legality of the Exchange Notes will be
passed upon for the Company by McDermott, Will & Emery, New York, New York.
EXPERTS
The consolidated financial statements and related financial statement
schedule for the years ended December 31, 1998 and 1997 incorporated in this
prospectus by reference from the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements and related financial statement
schedule for the year ended December 31, 1996 (prior to restatement for the
change in accounting for inventory costs and the presentation of segment
information) incorporated in this prospectus by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 have been
audited by Ernst & Young LLP, independent auditors, as stated in their report,
which is incorporated herein by reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR
BUY ANY SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN
THIS PROSPECTUS IS CURRENT AS OF APRIL 21, 1999.
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Available Information................. i
Incorporation of Certain Documents by
Reference........................... i
Prospectus Summary.................... 1
Risk Factors.......................... 6
Use of Proceeds....................... 8
Selected Consolidated Financial
Data................................ 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 11
Business.............................. 16
The Exchange Offer.................... 20
Description of Other Indebtedness..... 27
Description of the Notes.............. 30
Certain Federal Income Tax
Considerations...................... 43
Plan of Distribution.................. 43
Legal Matters......................... 44
Experts............................... 44
</TABLE>
UNTIL JUNE 1, 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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VALASSIS COMMUNICATIONS, INC.
$100,000,000
OFFER TO EXCHANGE ALL OF OUR OUTSTANDING AND UNREGISTERED
6 5/8% SENIOR NOTES DUE 2009
FOR OUR REGISTERED
6 5/8% SENIOR NOTES DUE 2009
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PROSPECTUS
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April 21, 1999
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