<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1997
REGISTRATION NO. 333-33123
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
BELL & HOWELL COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7375 36-3875177
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
5215 OLD ORCHARD ROAD, SKOKIE, ILLINOIS 60077-1076
(847) 470-7660
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JAMES P. ROEMER
BELL & HOWELL COMPANY
5215 OLD ORCHARD ROAD, SKOKIE, ILLINOIS 60077-1076
(847) 470-7660
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
WILLIAM J. MCGRATH, P.C. KIRK A. DAVENPORT, ESQ.
McDermott, Will & Emery Latham & Watkins
227 West Monroe Street 885 Third Avenue
Chicago, Illinois 60606 New York, New York 10022
(312) 372-2000 (212) 906-1200
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT BECOMES
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 29, 1997
PROSPECTUS
[LOGO]
, 1997
4,177,259 SHARES
BELL & HOWELL COMPANY
COMMON STOCK
-------------------
Of the 4,177,259 shares of common stock, par value $.001 per share (the
"Common Stock"), of Bell & Howell Company, a Delaware corporation ("Bell &
Howell" or the "Company"), offered hereby (the "Offering"), 3,861,004 shares
are being sold by the Company and 316,255 shares are being sold by certain
stockholders of the Company (the "Selling Stockholders"). The Company will not
receive any of the net proceeds from the sale of Common Stock by the Selling
Stockholders. All of the net proceeds to the Company from the Offering will be
used by the Company to repay certain outstanding indebtedness. See "Use of
Proceeds."
The Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "BHW." The last reported sale price of the Common Stock on the New
York Stock Exchange Composite Tape on August 27, 1997 was $32 3/8 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- -----------------------------------------------------------------------------------------------
Per share.................. $ $ $ $
Total(3)................... $ $ $ $
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS (AS DEFINED) AGAINST CERTAIN LIABILITIES, INCLUDING
LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT").
(2) THE COMPANY HAS AGREED TO PAY CERTAIN EXPENSES OF THE OFFERING, ESTIMATED
AT $ .
(3) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE GRANTED TO THE UNDERWRITERS
AN OPTION, EXERCISABLE WITHIN 30 DAYS HEREOF, TO PURCHASE UP TO AN
AGGREGATE OF 626,589 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO THE
PUBLIC LESS UNDERWRITING DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF
COVERING OVER-ALLOTMENTS, IF ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION
IN FULL, THE TOTAL PRICE TO THE PUBLIC, UNDERWRITING DISCOUNTS AND
COMMISSIONS, PROCEEDS TO COMPANY AND PROCEEDS TO SELLING STOCKHOLDERS WILL
BE $ , $ , $ , AND $ , RESPECTIVELY. SEE
"UNDERWRITING."
The shares of the Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain prior conditions including the right of the
Underwriters to reject orders in whole or in part. It is expected that
delivery of the shares will be made in New York, New York on or about
, 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
<PAGE>
<TABLE>
<CAPTION>
TRANSPORTATION AND VEHICLE
<C> <S>
For automotive, motorcycle and marine
dealerships in the transportation and vehicle
market, Bell & Howell replaces hard copy
technical and parts manuals with a single
electronic system that integrates text,
graphics and illustrations. Dealers benefit
from increased parts sales, lower inventory
and higher productivity. Bell & Howell's
ability to provide access to information from
multiple manufacturers positions it to benefit
from the recent trends toward consolidation in
[PICTURES] the automotive dealer industry.
EDUCATION AND LIBRARY
For its education and library customers, Bell
& Howell's ProQuest
Direct-Registered Trademark- system provides
on-line access to an intelligent content base
of scientific, technical reference, business,
general interest and other information. The
Company's information database includes 14
million proprietary abstracts and rights to
full text and full image to over 18,000
periodical titles, 7,000 newspaper titles and
1.5 million dissertations. Bell & Howell also
makes this information available on CD-ROM,
magnetic tape, microfilm and paper-- whichever
[PICTURES] media the customer desires.
</TABLE>
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE INDICATES, ALL
REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" OR "BELL & HOWELL" ARE TO BELL &
HOWELL COMPANY AND ITS DIRECT AND INDIRECT WHOLLY-OWNED SUBSIDIARIES, AND ALL
REFERENCES TO "BHOC" ARE TO BELL & HOWELL OPERATING COMPANY, A WHOLLY-OWNED
SUBSIDIARY OF THE COMPANY. BELL & HOWELL COMPANY, INCORPORATED IN DELAWARE IN
FEBRUARY 1993, BENEFICIALLY OWNS ALL OF THE OUTSTANDING CAPITAL STOCK OF BHOC
AND DOES NOT OWN ANY OTHER MATERIAL ASSETS OR CONDUCT ANY BUSINESS OPERATIONS.
THE COMPANY'S FISCAL YEAR ENDS ON THE SATURDAY CLOSEST TO DECEMBER 31ST IN EACH
CALENDAR YEAR. ALL REFERENCES TO "FIRST HALF 1996" AND "FIRST HALF 1997" ARE TO
THE COMPANY'S TWENTY-SIX WEEK PERIODS ENDED JUNE 29, 1996 AND JUNE 28, 1997,
RESPECTIVELY. ALL REFERENCES TO "CONSOLIDATED ANNUAL FINANCIAL STATEMENTS" AND
"CONSOLIDATED INTERIM FINANCIAL STATEMENTS" ARE TO THE COMPANY'S AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR FISCAL YEARS 1994, 1995 AND 1996 AND THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE
29, 1996 AND JUNE 28, 1997, RESPECTIVELY. ALL REFERENCES TO "CONSOLIDATED
FINANCIAL STATEMENTS" ARE TO BOTH THE CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
AND THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS. ALL INFORMATION ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "UNDERWRITING."
THE COMPANY
Bell & Howell is a global provider of systems and services for information
access and high volume mail processing. Within its two business segments,
Information Access and Mail Processing, the Company focuses on well-defined
vertical markets where it is or can become the market leader. Within its
Information Access segment, Bell & Howell develops and markets imaging and
information systems that are focused on the needs of its customers in select
vertical markets, which include transportation and vehicle dealers, libraries of
all kinds (including college and university, elementary and high school as well
as public and corporate), financial institutions, governmental agencies and
other paper intensive industries. Within its Mail Processing segment, the
Company develops and markets a complete range of high volume mail processing
systems, which increasingly utilize the Company's proprietary software to expand
the capabilities and improve the efficiency and effectiveness of customers'
mailing operations. The Company's net sales, EBITDA and earnings before
extraordinary items in 1996 were $902.8 million, $133.6 million and $25.7
million, respectively. The Company's net sales, EBITDA and earnings before
extraordinary items were $418.2 million, $62.6 million and $6.7 million in first
half 1997, respectively, compared to $415.1 million, $53.3 million and $5.2
million in first half 1996, respectively.
The Company's strategy is to attain leadership positions in well-defined,
defensible market niches within select industries or vertical markets where it
believes there are significant opportunities for growth. By focusing on specific
vertical markets, the Company gains an in-depth understanding of its customers
and their industries. The Company believes this additional focus and customer
intimacy gives the Company a competitive advantage in anticipating customer
needs and being first to market with products that will achieve or maintain
market leadership. The Company believes that its industry expertise will provide
for more defensible market positions and additional opportunities for growth.
In 1996, the Information Access segment represented 52% of net sales and 67%
of EBITDA (excluding corporate expenses). The Mail Processing segment
represented 48% of net sales and 33% of EBITDA (excluding corporate expenses).
The Company has historically achieved higher margins in its Information Access
segment due to its significant operating leverage as well as its large base of
recurring revenue with high renewal rates. The Company's two business segments
share a number of important strategic similarities, including strong market
positions, a reputation for high quality products and service excellence, broad
recognition of the Bell & Howell brand name and a significant international
presence. In addition, the Company derives a substantial portion of its net
sales from prepaid subscriptions and service agreements that historically have
had renewal rates in excess of 90%. Bell & Howell markets its products worldwide
with approximately 30% of its net sales in fiscal 1996 to customers outside the
United States.
3
<PAGE>
Furthermore, Bell & Howell is able to leverage certain important technologies
and expertise across its businesses, such as imaging and software technology,
information indexing and organizing capabilities as well as expertise in paper
handling.
INFORMATION ACCESS
Information Access's unique databases, proprietary access tools, value-added
services and image capture/enhancement systems are designed to meet customers'
increasing information needs, which have evolved well beyond the mere
availability of information. Customers' demands for more efficient access to
relevant data for specific information requirements are being driven by their
needs to reduce search time and cost while performing more focused yet
comprehensive searches. Within its Information Access segment, the Company
provides quick and easy access to information in select vertical markets, such
as transportation and vehicle dealers, libraries of all kinds (including college
and university, elementary and high school as well as public and corporate),
financial institutions, governmental agencies and other paper intensive
industries.
TRANSPORTATION AND VEHICLE MARKET. The transportation and vehicle market is
an excellent example of the Company's strategy of market leadership in
well-defined, defensible market niches. The Company serves its customers in this
market through its subsidiary, Bell & Howell Publications Systems Company
("PSC"), which is a leading provider of turnkey systems (including software,
information updates, service as well as hardware) used to manage the parts area
of automotive dealerships and to provide total information systems for
powersports (motorcycle and marine) dealerships.
The Company's automotive customer base consists principally of franchised
dealerships, including General Motors ("GM"), Chrysler, Mercedes Benz, Land
Rover, Porsche, Honda, Nissan, Volvo, Isuzu, Subaru, Hyundai, and most recently,
Ford and Toyota. For the Company's automotive customers, the Company creates and
markets turnkey systems consisting primarily of electronic parts catalogs which
allow automotive dealerships to electronically access manufacturers' proprietary
technical documentation (such as parts catalogs, parts and service bulletins and
other reference materials) and to interface with other important information
systems (such as inventory management and billing) within the dealership. The
Company's products provide significant benefits to dealerships' parts and
service departments (critical profit centers for dealerships), such as increased
automotive parts sales, higher inventory turnover as well as improved labor
productivity. The Company's systems are marketed to automotive dealerships
pursuant to long-term contracts with monthly payments, generally for five year
terms, and are currently used by almost 9,000 of the approximately 22,000
automotive dealerships in the U.S. Management believes its share of installed
automotive dealership customers is significantly larger than any of its
competitors. Outside the U.S., the Company is currently the sole provider of
electronic parts catalogs to over 10,000 GM, Mercedes Benz and Chrysler dealers.
In addition, the Company is the preeminent supplier of complete dealer
management systems and electronic parts catalogs to powersports dealerships.
Similar to its automotive strategy, the Company provides dealerships access to
proprietary technical documentation for most major motorcycle manufacturers,
including Harley Davidson, Honda, Suzuki, Yamaha, Kawasaki, Triumph, BMW and
Ducati as well as most major marine manufacturers, including Mercury, Outboard
Marine and Volvo-Penta. Management believes its installed customer base of over
1,500 powersports dealerships is significantly larger than any of its
competitors. In June 1997, the Company launched a new generation dealer
management system initially targeted to marine dealers.
The Company's strategy for growth includes continuing to penetrate the
global automotive and powersports markets by selling its systems to additional
dealers, expanding its automotive and powersports product offerings, publishing
information from additional automotive and powersports manufacturers as well as
expanding into other markets. Additionally, the Company's unique ability to
offer electronic parts
4
<PAGE>
catalogs of multiple manufacturers, positions it to benefit from the recent
trend toward consolidation in the automotive dealer industry.
The Company estimates that approximately 25% of the estimated 22,000
automotive dealerships in the U.S. do not currently use electronic parts
catalogs. The Company believes that its strong sales force and marketing
abilities, and its ability to provide industry leading solutions for
multi-franchise dealers, will increase its installed base of automotive and
powersports dealerships.
EDUCATION AND LIBRARY MARKET. In the education and library market, the
Company competes through its subsidiary, UMI Company ("UMI"), which the Company
believes is the world's leading aggregator and provider of access to articles
and information from periodicals and newspapers, dissertations, out-of-print
books and other scholarly collections. This information can be accessed via the
Internet, in other electronic media, such as CD-ROM, as well as on magnetic
tape, on microfilm or on paper. The Company aggregates the works of publishers
and authors, creates proprietary abstracts and indices, and customizes this
information in various formats for easy access by its customers. For example,
elementary and high school customers may want on-line information organized by
selected topics, whereas users of academic research libraries require extensive
databases in order to perform thorough research. Bell & Howell believes its
leadership position within the education and library market is attributable to
the depth and breadth of its collection of published materials, strong publisher
and customer relations, high quality abstracts and indices, superior technology
and an effective sales and distribution network.
The Company's comprehensive database consists of over 18,000 periodical
titles, 7,000 newspaper titles, as well as its unique content base including 1.5
million dissertations, 140,000 out-of-print books, 300 research collections,
over 14 million proprietary abstracts for on-line and CD-ROM retrieval. The
ability to provide its customers with the full image as originally published
distinguishes the Company from other information providers which typically store
and provide information in a text-only format, omitting essential charts,
graphs, pictures and other images. A significant amount of the Company's sales
to the education and library market comes from content under exclusive licenses,
making the Company the sole source of such information aside from the original
publisher. In many cases, the Company's database includes the entire publication
history of a periodical or newspaper. For example, the Company's database
includes every edition of THE NEW YORK TIMES published since 1851. In fiscal
1996, approximately 70% of the Company's net sales to the education and library
market were derived from prepaid annual subscriptions with historical renewal
rates in excess of 90%.
The Company is continually offering new ways to enhance each customer's
ability to efficiently access the relevant information in the format or media of
its choice. The Company pioneered electronic access to the full image format of
periodicals and newspapers on CD-ROM in the late 1980s. In 1995, the Company
introduced ProQuest Direct-Registered Trademark-, a proprietary access and
delivery system offering on-line delivery of articles in formats ranging from
text only to the full image as originally published. In 1996, ProQuest Direct
became accessible on the Internet via any Web browser. In fiscal 1996,
approximately 45% of the Company's net sales to the education and library market
were derived from information in electronic format, which has grown at a
compound annual rate of approximately 30% since 1994. The remaining 55% of the
Company's net sales to the education and library market were derived from the
more traditional microfilm and paper formats. Libraries have traditionally
purchased information in the microfilm format for the breadth and depth of its
database as well as for archival and preservation purposes.
IMAGING SOLUTIONS AND COMPONENTS. Bell & Howell's Imaging Solutions and
Components business is a leading designer, integrator and distributor of
non-paper based systems and components that enable users to efficiently file and
access their documents and records. These systems and components are customized
to the needs of select vertical markets, such as financial institutions and
governmental agencies, in order to provide better customer service, enhance
productivity, minimize storage costs and ensure the security and integrity of
their records. These systems, which utilize both electronic and microfilm
technology, consist of the software and hardware, accessories, supplies and
service required to
5
<PAGE>
capture, enhance, duplicate, store, index and retrieve a customer's data and
documents. For example, the Company recently introduced a product targeted to
financial institutions which allows them to instantaneously access and view
complete customer records (including check copies, signature cards and bank
statements) which reside on different customer databases and which may utilize
differing imaging software, in order to provide more timely and efficient
customer service and increased productivity.
The Company's imaging components include production scanners and software
that convert paper documents into electronic files. In 1996, approximately 25%
of net sales for this business were derived from scanner sales which have grown
at an annual rate of approximately 30% since 1994. The Company believes its
market position and strong growth rate in its scanner business result from its
reputation for quality and reliability.
The Company's Imaging Solutions and Components business benefits from a
substantial customer base, as well as a broad product line marketed and serviced
through its extensive sales and service organization. In fiscal 1996,
approximately 25% of net sales within the Imaging Solutions and Components
business were derived from servicing its installed customer base, generally
pursuant to prepaid annual contracts.
The Company's strategy for growth includes capitalizing on the strong growth
in the scanner market by offering an expanded line of scanners, leveraging its
national service organization to provide service for other manufacturers'
products, as well as by providing imaging solutions to financial institutions
and additional vertical markets.
MAIL PROCESSING
Management believes that Bell & Howell is the leading manufacturer and
supplier of high volume mail processing systems to the commercial market. The
commercial market primarily consists of business to consumer mailers and
represented more than 90% of the Mail Processing segment's sales during first
half 1997. These systems, which increasingly utilize proprietary software,
automatically perform a broad range of mail processing functions, from
collating, cutting, bursting, folding and inserting documents (at cycle speeds
ranging up to 18,000 envelopes per hour) to optical scanning, encoding and
sorting of envelopes (at speeds up to 36,000 envelopes per hour). These
software-driven systems allow customers to more efficiently manage mail room
operations as well as convert routine mailings (such as invoices or statements)
into targeted communication and marketing programs by customizing the invoice or
statement and including promotional inserts based on a specific customer
profile. Bell & Howell believes that its leadership position in the commercial
mail processing business is attributable to its substantial installed global
customer base and worldwide service organization of approximately 1,500 service
engineers and support personnel. In fiscal 1996, approximately 40% of commercial
mail processing's net sales were derived from servicing its installed customer
base, generally pursuant to prepaid annual contracts.
In addition to the commercial market, the remaining sales in the Mail
Processing segment stem from governmental contracts for automation equipment and
software for the U.S. Postal Service and foreign postal authorities. The Company
has expertise in high speed feeding of oversized envelopes, high speed labeling
applications and imaging, as well as other software based solutions.
Management believes continued growth in this business will be driven by its
customers' increasing desire to target and personalize mailings to enhance the
marketing capabilities and effectiveness of these communications to their
customers. The Company's strategy for growth includes the continued introduction
of new products, software upgrades for its existing base of installed products,
new software applications which will allow high volume mailers to communicate
more effectively with their customers and new software solutions in response to
the changing regulations and incentives set forth by the U.S. Postal Service as
well as other postal authorities around the world.
6
<PAGE>
THE TRANSACTIONS
In connection with the Offering, the Company intends to engage in a series
of related transactions by the end of the fourth quarter of 1997 (collectively
with the Offering, the "Transactions"), whereby the Company intends to use the
net proceeds from the Offering and borrowings of approximately $427 million
under a new $600 million revolving credit agreement (the "New Revolving Credit
Agreement") to:
(i) retire all of its outstanding 11 1/2% Series B Senior Discount Debentures
due March 1, 2005 (the "11 1/2% Senior Discount Debentures") pursuant to (a)
a tender for all of the outstanding 11 1/2% Senior Discount Debentures and a
related consent solicitation (the "11 1/2% Tender Offer") and (b) in the
event any 11 1/2% Senior Discount Debentures remain outstanding after
completion of the 11 1/2% Tender Offer, a redemption of the remaining
11 1/2% Senior Discount Debentures outstanding (the "11 1/2% Redemption");
(ii) repay the entire balance outstanding under its existing credit agreement
(the "Existing Credit Agreement") which is estimated to be $250 million at
October 1, 1997; and
(iii) redeem all of the outstanding 10 3/4% Series B Senior Subordinated Notes
due October 1, 2002 (the "10 3/4% Senior Subordinated Notes") (the "10 3/4%
Redemption").
The Transactions are designed to increase the number of shares of Common
Stock in the public float, reduce the Company's outstanding indebtedness,
decrease the Company's interest expense, and increase the Company's operating
flexibility. As soon as practicable after completion of the Offering, the
Company intends to simplify its corporate structure by combining the Company
with BHOC (the "Combination"). See "The Transactions" and "Use of Proceeds."
------------------------
Bell & Howell's principal place of business is located at 5215 Old Orchard
Road, Skokie, Illinois 60077-1076; its telephone number is (847) 470-7660; its
e-mail address is [email protected].
7
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THE OFFERING
<TABLE>
<S> <C>
Total shares of Common Stock Offered............... 4,177,259
By the Company................................... 3,861,004
By the Selling Stockholders...................... 316,255
Common Stock outstanding after the Offering(1)..... 22,207,620 shares
Use of Proceeds.................................... To fund (i) the 11 1/2% Tender Offer
(together with proceeds from the New
Revolving Credit Agreement), and (ii)
the 11 1/2% Redemption (in the event
any 11 1/2% Senior Discount Debentures
remain outstanding after the 11 1/2%
Tender Offer).
NYSE symbol........................................ BHW
</TABLE>
- ------------------------
(1) Represents 18,346,616 shares outstanding as of June 28, 1997 plus the shares
issued by the Company in the Offering. Excludes 2,146,200 shares of Common
Stock reserved for issuance under the Company's 1995 Stock Option Plan (the
"Option Plan"). As of June 28, 1997, options with respect to 1,660,600
shares of Common Stock were outstanding under the Option Plan. See
"Management-- Option Plan."
8
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SUMMARY SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
FISCAL FIRST HALF
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA(1):
Net sales.................................... $ 670,039 $ 675,553 $ 720,340 $ 819,889 $ 902,797 $ 415,065 $ 418,168
Operating costs and expenses:
Cost of sales.............................. 434,135 431,420 455,424 511,399 576,417 269,412 264,720
Research and development................... 18,632 18,600 21,556 30,202 38,101 16,454 19,822
Selling and administrative................. 166,644 168,529 173,019 194,839 198,898 97,529 98,509
Restructuring.............................. -- -- 32,893 -- -- -- --
Goodwill write-off......................... -- 174,277 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating costs and expenses....... 619,411 792,826 682,892 736,440 813,416 383,395 383,051
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)...................... 50,628 (117,273) 37,448 83,449 89,381 31,670 35,117
Net interest expense......................... 37,266 49,579 48,954 50,800 45,326 22,742 23,732
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income taxes,
cumulative effect of accounting change and
extraordinary items........................ 13,362 (166,852) (11,506) 32,649 44,055 8,928 11,385
Income tax expense (benefit)................. 8,299 3,991 (2,490) 13,439 18,400 3,731 4,725
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before cumulative effect of
accounting change and extraordinary
items...................................... 5,063 (170,843) (9,016) 19,210 25,655 5,197 6,660
Cumulative effect of accounting change(2).... -- (4,759) -- -- -- -- --
Extraordinary losses(3)...................... (5,004) (6,625) (978) (3,219) (2,585) (2,585) (972)
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss).......................... 59 (182,227) (9,994) 15,991 23,070 2,612 5,688
Dividends on preferred stock................. 22,394 5,820 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) applicable to common
stock...................................... $ (22,335) $(188,047) $ (9,994) $ 15,991 $ 23,070 $ 2,612 $ 5,688
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per common share(4):
Earnings (loss) before cumulative effect of
accounting change and extraordinary
items.................................... $ (1.37) $ (13.89) $ (0.68) $ 1.15 $ 1.38 $ 0.28 $ 0.36
Cumulative effect of accounting change..... -- (0.37) -- -- -- -- --
Extraordinary losses....................... (0.39) (0.52) (0.07) (0.19) (0.14) (0.14) (0.05)
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per common share..... $ (1.76) $ (14.78) $ (0.75) $ 0.96 $ 1.24 $ 0.14 $ 0.31
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PRO FORMA DATA(5):
Net interest expense......................... $ 26,352 $ 13,509 $ 14,912
Earnings before extraordinary items.......... 37,039 10,737 11,952
Extraordinary losses......................... (21,725) (21,725) (21,364)
Net earnings (loss).......................... 15,314 (10,988) (9,412)
Net earnings (loss) per common share(4):
Earnings before extraordinary items........ $ 1.65 $ 0.48 $ 0.54
Extraordinary losses....................... (0.97) (0.97) (0.96)
--------- --------- ---------
Net earnings (loss) per common share....... $ 0.68 $ (0.49) $ (0.42)
--------- --------- ---------
--------- --------- ---------
OTHER DATA:
EBITDA(6).................................... $ 85,504 $ 93,493 $ 103,206 $ 120,788 $ 133,596 $ 53,312 $ 62,635
EBITDA as a percent of net sales............. 12.8% 13.8% 14.3% 14.7% 14.8% 12.8% 15.0%
Gross profit as a percent of net sales(7).... 35.2% 36.1% 36.8% 37.6% 36.2% 35.1% 36.7%
Depreciation and amortization(8)............. $ 34,876 $ 36,489 $ 32,865 $ 37,339 $ 44,215 $ 21,642 $ 27,518
Capital expenditures......................... 30,950 33,191 38,345 44,047 42,744 20,384 17,184
</TABLE>
<TABLE>
<CAPTION>
AT THE END OF
FIRST HALF 1997
AT THE END OF FISCAL ----------------------
----------------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(9)
--------- --------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ (34,417) $ (40,081) $ (62,398) $ (53,502) $ (329) $ 69,935 $ 69,935
Total assets.................................. 756,855 625,481 603,745 682,141 796,786 782,120 776,603
Long-term debt................................ 368,991 549,464 518,687 465,230 548,281 605,185 513,440
Preferred Stock(10)........................... 148,750 -- -- -- -- -- --
Total shareholders' equity (deficit).......... 68,000 (270,553) (278,728) (189,472) (166,892) (162,385) (64,449)
</TABLE>
FOOTNOTES ON FOLLOWING PAGE.
9
<PAGE>
FOOTNOTES TO SUMMARY SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA:
(1) In February 1993, the Company was formed as a holding company, the primary
assets of which are all of the issued and outstanding shares of capital
stock of BHOC. See Note 1 of the Consolidated Annual Financial Statements
included elsewhere in this Prospectus. Data for fiscal 1992 is for BHOC.
(2) Cumulative effect of accounting change represents the effect of adoption of
Statement of Financial Accounting Standards No. 106 "Employers' Accounting
For Postretirement Benefits Other Than Pensions" ("SFAS No. 106") as of the
beginning of fiscal 1993.
(3) Extraordinary losses represent the write-off of unamortized debt issuance
costs and applicable call/debt repurchase premiums related to debt
refinancings. See Note 6 of the Consolidated Annual Financial Statements and
Note 3 of the Consolidated Interim Financial Statements, both included
elsewhere in this Prospectus.
(4) Net earnings (loss) per common share reflects both primary and fully
diluted earnings per common share.
(5) The pro forma results of operations data gives effect to the Transactions
as if they occurred at the beginning of the respective fiscal periods
including that: (i) 3,861,004 shares of Common Stock were issued by the
Company at an assumed offering price of $32.375 per share (the closing price
on the NYSE on August 27, 1997), the net proceeds of which were used to fund
a portion of the 11 1/2% Tender Offer, and (ii) borrowings under the New
Revolving Credit Agreement (at assumed interest rates of 6.5% in 1996 and
7.2% in 1997 which represent LIBOR plus 0.75% plus hedging costs) were used
to fund the remaining portion of the 11 1/2% Tender Offer, the 10 3/4%
Redemption and the repayment of the Existing Credit Agreement.
The debt redemption cost included in the pro forma results of operations
data for the 10 3/4% Redemption represents the applicable call premium. The
debt redemption cost related to the 11 1/2% Tender Offer together with fees
and expenses associated with the Offering are estimated, and actual costs
may differ from these assumptions. The pro forma results of operations data
do not purport to represent what the Company's results of operations would
have been if the Transactions had occurred for the periods indicated, or to
project the Company's results of operations for any future period. The pro
forma adjustments are as follows:
(a) The decrease in net interest expense reflects the use of the net
proceeds from the Offering and borrowings under the New Revolving Credit
Agreement to retire all of the outstanding 11 1/2% Senior Discount
Debentures, repay the balance outstanding under the Existing Credit
Agreement, and redeem all outstanding amounts of the 10 3/4% Senior
Subordinated Notes.
(b) Earnings before extraordinary items reflects the decreased interest
expense described in (a) above, net of income tax benefit.
(c) The extraordinary losses reflect the debt repurchase premiums and
write-off of unamortized debt issuance costs related to the retirement
of the 11 1/2% Senior Discount Debentures, redemption of the 10 3/4%
Senior Subordinated Notes and the repayment of indebtedness under the
Existing Credit Agreement described in (a) above, net of income tax
benefit.
(d) The pro forma weighted average number of shares outstanding of
22,421,329 for fiscal 1996, 22,462,023 for first half 1996 and
22,290,528 for first half 1997 consists of the total number of shares of
Common Stock outstanding, plus 3,861,004 shares to be issued by the
Company in the Offering.
(6) EBITDA is defined as operating income before restructuring expense and
goodwill write-off plus depreciation and amortization, and is generally
accepted as providing useful information regarding a company's financial
performance. Certain covenants in the New Revolving Credit Agreement are
expected to be based on EBITDA. EBITDA should not be considered an
alternative to net income or an alternative to the Company's cash flow from
operating activities as a measure of liquidity.
(7) Gross profit is defined as net sales less cost of sales.
(8) Excludes goodwill write-off in fiscal 1993 and amortization of deferred
financing costs which were as follows for the specified fiscal years and
interim periods: 1992--$3.6 million; 1993--$5.4 million; 1994--$3.8 million;
1995-- $4.0 million; 1996--$3.2 million; first half 1996--$2.1 million; and
first half 1997--$1.4 million.
(9) The pro forma balance sheet data at the end of first half 1997 gives effect
to the Transactions as if they had occurred at June 28, 1997. See footnote 5
above and "Use of Proceeds."
(10) Reflects the accreted value of the BHOC $4.25 Cumulative Exchangeable
Preferred Stock, which was redeemed in March 1993 with the proceeds from the
issuance of the 11 1/2% Senior Discount Debentures.
10
<PAGE>
RISK FACTORS
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES,"
"INTENDS," "EXPECTS" AND WORDS OF SIMILAR IMPORT, CONSTITUTE "FORWARD-LOOKING
STATEMENTS." SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS OF THE COMPANY OR INDUSTRY RESULTS TO BE MATERIALLY DIFFERENT
FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY
SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, THE
FOLLOWING: GENERAL ECONOMIC AND BUSINESS CONDITIONS, BOTH DOMESTIC AND FOREIGN;
PERIODIC FLUCTUATIONS IN THE COMPANY'S OPERATING RESULTS; INDUSTRY CAPACITY;
EXISTING GOVERNMENTAL REGULATIONS AND PROPOSALS; LIABILITY AND OTHER CLAIMS
ASSERTED AGAINST THE COMPANY; COMPETITION; CHANGES IN OPERATING STRATEGY OR
DEVELOPMENT PLANS; THE SIGNIFICANT INDEBTEDNESS OF THE COMPANY AFTER THE
REFINANCING; THE AVAILABILITY AND TERMS OF CAPITAL TO FUND THE EXPANSION OF THE
COMPANY'S BUSINESS; AND OTHER FACTORS REFERENCED IN THIS PROSPECTUS. CERTAIN OF
THESE FACTORS ARE DISCUSSED IN MORE DETAIL ELSEWHERE IN THIS PROSPECTUS,
INCLUDING, WITHOUT LIMITATION, UNDER THE CAPTIONS "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," AND "BUSINESS." GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS
ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS.
THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ANY SUCH FACTORS OR TO PUBLICLY
ANNOUNCE THE RESULT OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN TO REFLECT FUTURE EVENTS OR DEVELOPMENTS. IN EVALUATING THE
COMPANY'S BUSINESS, PROSPECTIVE INVESTORS IN THE COMMON STOCK OFFERED HEREBY
SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS IN ADDITION TO THE OTHER
INFORMATION PRESENTED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
SUBSTANTIAL LEVERAGE
As of June 28, 1997, after giving pro forma effect to the Transactions, the
Company would have had $513.4 million of long-term debt outstanding. See
"Capitalization."
Based on current operations, the Company expects that it will be able to
service its working capital needs and to fund its capital expenditures and other
operating expenses out of cash flow from operations and available borrowings
under its New Revolving Credit Agreement. The Company's future operating
performance and ability to service or refinance its indebtedness will be subject
to future economic conditions and to financial, business and other factors, many
of which are beyond the Company's control, and consequently the Company may be
unable to service all of its debt in the future. There can be no assurance that
the Company's future operating performance and available borrowings under the
New Revolving Credit Agreement will be sufficient to service its indebtedness or
that the Company will be able to refinance its indebtedness in whole or in part.
The degree to which Bell & Howell is leveraged could have important
consequences to holders of the Common Stock, including the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of the principal of and
interest on its existing indebtedness; (iii) the agreements governing Bell &
Howell's long-term indebtedness and bank loans contain, and are expected to
continue to contain, certain restrictive covenants, including certain covenants
that limit the payment of dividends and other distributions, and limit the
ability of the Company to pay dividends and make other distributions to its
stockholders; (iv) the Company's borrowings under the New Revolving Credit
Agreement are at floating rates of interest, which could cause Bell & Howell to
be vulnerable to increases in interest rates; and (v) the Company's substantial
degree of leverage could make it more vulnerable to a downturn in general
economic conditions. See "Description of Certain Financing Agreements and
Certain Indebtedness--New Revolving Credit Agreement."
11
<PAGE>
COMPETITION AND INDUSTRY CONDITIONS
Other companies are engaged in each of the businesses in which the Company
is engaged. Competition in these businesses depends on a number of factors,
including the reputation of the manufacturer, the reliability, quality and price
of its products and the levels of technical service and support. Some of the
market niches served by Bell & Howell are mature and demand for these products
and services has stabilized and perhaps even begun to migrate to other products
(such as the shift from microfilm-based products to electronic-based products in
the Company's Information Access segment). In addition, although the Company
intends to continue to invest in new product research and development, there can
be no assurance as to the future success of these products. In addition, new
technologies could emerge or existing technologies could be adapted in ways
which, although not anticipated, could make the Company's products and services
less competitive. Certain of Bell & Howell's competitors have substantially
greater financial and other resources than the Company. See
"Business--Competition."
PERIODIC FLUCTUATIONS; SEASONALITY
The Company's operating results may fluctuate from period to period and
within periods. These fluctuations could result from a number of factors,
including the timing of customers' capital expenditures, annual budgetary
considerations of customers, new product introductions and general economic
conditions. Such fluctuations are generally more pronounced in the Company's
businesses that sell equipment such as commercial mail processing and Imaging
Solutions and Components. The anticipated sales growth in the second half of
1997 is expected to be generated more by these businesses than in prior periods
which leads to less predictability in the Company's operating results for the
remainder of the year.
Although the Company in general is not affected by seasonal fluctuations,
the buying patterns and funding availability for certain Information Access and
Mail Processing customers cause sales, profitability and cash flow to be higher
in the fourth quarter of the year. Due to this seasonal factor, the Company
requires and expects to have a seasonal working capital credit line to fund cash
requirements primarily during the second and third quarters. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Periodic Fluctuations; Seasonality."
FOREIGN POSTAL CONTRACTS
The Company is a subcontractor to the same general contractor on two
contracts to provide systems to foreign postal authorities. The scope and
performance of these contracts and the Company's ability to be compensated for
additional services are currently being negotiated, and the Company has
accordingly reserved for projected losses on these contracts. Management
believes that the resolution of these negotiations will not have a material
adverse impact upon the consolidated operations or financial condition of the
Company.
FOREIGN OPERATIONS
Bell & Howell has substantial assets located outside the United States and a
substantial portion of the Company's sales and earnings are attributable to
operations conducted abroad. For fiscal 1995 and fiscal 1996, approximately 24%
and 22%, respectively, of the Company's net sales were derived from operations
conducted outside the United States. Foreign operations are subject to special
risks that can materially affect sales and profits, including currency exchange
rate fluctuations, the impact of inflation, exchange controls and other risks.
Changes in certain exchange rates could have an adverse effect on the Company's
ability to meet interest and principal obligations with respect to its United
States dollar-denominated debt. For further discussion, see Note 13 of the
Consolidated Annual Financial Statements included elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations--International Operations."
12
<PAGE>
COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO CASH FLOW OF THE COMPANY
The Company conducts business through BHOC and its subsidiaries and has no
operations of its own. The primary asset of the Company is all of the capital
stock of BHOC. The Company has no cash flow other than from dividends and other
distributions from BHOC and BHOC's subsidiaries. The right of the Company to
participate in any distribution of earnings or assets of BHOC and its
subsidiaries is subject to the prior claims of the creditors of BHOC and such
subsidiaries. In addition, the agreements governing BHOC's bank loans contain
certain restrictive covenants, including certain covenants that limit BHOC's
ability to pay dividends or make other distributions to the Company. In
connection with the Transactions, as soon as practicable after the Offering, the
Company intends to combine with BHOC. See "The Transactions" and "Description of
Certain Financing Agreements and Certain Indebtedness--New Revolving Credit
Agreement."
PRINCIPAL STOCKHOLDERS
Immediately following the Offering, Keystone, Inc., formerly Robert M. Bass
Group, Inc. ("Keystone") and executive officers and directors of the Company
will beneficially own 4,363,000 (19.7%) and 1,863,674 (8.4%) of the outstanding
shares of Common Stock, respectively. As a result of such equity ownership, if
Keystone and the executive officers and directors of the Company were to vote
all of their shares in the same manner, they could significantly influence the
management and policies of the Company. See "Principal and Selling
Stockholders."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on the Common Stock.
The Company currently intends to retain future earnings to fund the development
and growth of its businesses and to repay indebtedness, and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. The Company's
principal source for cash from which to make dividend payments will be dividends
distributed by its operating subsidiaries. The New Revolving Credit Agreement is
expected to contain provisions that limit the ability to pay dividends and make
distributions to the Company and limit the ability of the Company to pay cash
dividends and make other distributions to its stockholders. Any future
determination to declare and pay dividends will be made by the Board of
Directors in light of the Company's earnings, financial position, capital
requirements, credit agreements and such other factors as the Board of Directors
deems relevant. Under Delaware law, the Company is permitted to pay cash
dividends to its stockholders only (i) out of its surplus (the excess of the net
assets of the Company over its capital) or (ii) out of the net profits of the
Company for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. See "Description of Certain Financing Agreements and
Certain Indebtedness--New Revolving Credit Agreement."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon consummation of the Offering, the Company will have outstanding an
aggregate of 22,207,620 shares of Common Stock (22,786,771 shares if the
Underwriters' over-allotment option is exercised in full). Future sales of
substantial amounts of Common Stock by Keystone and executive officers and
directors of the Company after the Offering, or the perception that such sales
could occur, could adversely effect the market price of the Common Stock. No
prediction can be made as to the effect, if any, that future sales of shares, or
the availability of shares for future sale, will have on the market price of the
Common Stock. In addition, the Company has the authority to issue additional
shares of Common Stock and shares of one or more series of Preferred Stock.
Keystone, the Selling Stockholders and all directors and executive officers
of the Company who, immediately following the Offering, will collectively
beneficially own 6,226,674 shares of Common Stock, have each agreed for a period
of 90 days after the date of this Prospectus not to register for sale, offer,
sell
13
<PAGE>
(or contract to sell) or otherwise dispose of any Common Stock (or any
securities convertible into or exercisable or exchangeable for Common Stock) or
grant any options or warrants to purchase Common Stock (other than Common Stock
sold in the Offering) without the prior written consent of DLJ. In addition,
holders of an aggregate of 880,639 shares of Common Stock (which excludes shares
held by Keystone, the Selling Stockholders and all directors and executive
officers) are prohibited by a Registration Rights Agreement dated May 10, 1988
by and among the Company and the stockholders named therein (the "Registration
Rights Agreement") from effecting any public sale or distribution of Common
Stock prior to 90 days from the date of this Prospectus. Sales of substantial
amounts of Common Stock in the public market following the Offering, or the
possibility that such sales may occur, may adversely affect the prevailing
market price of the Common Stock.
Certain stockholders of the Company have certain demand and piggyback
registration rights with respect to an aggregate of 7,107,313 shares of Common
Stock pursuant to the Registration Rights Agreement. Subject to certain
conditions and limitations, such stockholders owning at least 1,955,023 shares
of Common Stock subject to the Registration Rights Agreement may require the
Company to file registration statements with the Securities and Exchange
Commission (the "Commission") under the Securities Act and all stockholders who
are a party to the Registration Rights Agreement have the right to require the
Company to include their shares in any registered offering of the Common Stock
by the Company, including any such registration statement filed pursuant to the
Registration Rights Agreement. In the event that the stockholders of the Company
exercise their registration rights under the Registration Rights Agreement, the
Company is required to bear all expenses, other than underwriting discounts and
selling commissions applicable to such shares, in connection with such
registration and the stockholders and the Company have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act. See "Underwriting" and "Shares Eligible For Future Sale."
14
<PAGE>
THE TRANSACTIONS
In connection with the Offering, the Company intends to engage in the series
of related Transactions described below. The Transactions are designed to
increase the number of shares of Common Stock in the public float, reduce the
Company's outstanding indebtedness, decrease the Company's interest expense and
increase its operating and financial flexibility.
11 1/2% TENDER OFFER
The Company commenced a tender offer to purchase for cash any or all of the
outstanding 11 1/2% Senior Discount Debentures. The 11 1/2% Tender Offer
includes the solicitation of consents for a proposed amendment to the indenture
relating to the 11 1/2% Senior Discount Debentures (the "11 1/2% Indenture") to
remove substantially all of the restrictive covenants and to amend certain other
provisions contained therein. The Company anticipates that it will pay in the
aggregate approximately 110.5% of Accreted Value for the tender consideration
and the consent fee. There is no assurance that the 11 1/2% Tender Offer will be
completed, or if completed, that all of the 11 1/2% Senior Discount Debentures
will be acquired in the 11 1/2% Tender Offer.
11 1/2% REDEMPTION
In the event that the 11 1/2% Tender Offer is not completed, or if
completed, that any 11 1/2% Senior Discount Debentures remain outstanding after
completion of the 11 1/2% Tender Offer, the Company intends to use a portion of
the net proceeds from the Offering and, if necessary, borrowings under the New
Revolving Credit Agreement to redeem the remaining outstanding 11 1/2% Senior
Discount Debentures at a redemption price equal to 110% of Accreted Value
thereof. See "Description of Certain Financing Agreements and Certain
Indebtedness--11 1/2% Senior Discount Debentures."
10 3/4% REDEMPTION
On October 1, 1997, the Company intends to borrow amounts under the New
Revolving Credit Agreement to redeem all of the outstanding 10 3/4% Senior
Subordinated Notes at a call price equal to 104.031% of the outstanding
principal amount of the 10 3/4% Senior Subordinated Notes. See "Description of
Certain Financing Agreements and Certain Indebtedness--New Revolving Credit
Agreement."
NEW REVOLVING CREDIT AGREEMENT
Simultaneous with the completion of the Offering, the Company intends to
enter into the $600 million New Revolving Credit Agreement and to borrow
approximately $427 million under the New Revolving Credit Agreement to (i) repay
the balance outstanding under the Existing Credit Agreement (which is estimated
to be $250 million as of October 1, 1997), (ii) fund a portion of the 11 1/2%
Tender Offer and, if necessary, the 11 1/2% Redemption and (iii) fund the
10 3/4% Redemption. Borrowings under the New Revolving Credit Agreement shall
initially bear interest at LIBOR plus 0.75%. See "Description of Certain
Financing Agreements and Certain Indebtedness--New Revolving Credit Agreement."
COMBINATION
As soon as practicable after completion of the Offering, the Company intends
to simplify its corporate structure by combining the Company with BHOC.
15
<PAGE>
SOURCES AND USES
The sources and uses of the funds received from the Offering and borrowed
under the New Revolving Credit Agreement to complete the Transactions are as
follows (assuming an October 1, 1997 closing date and that all of the 11 1/2%
Senior Discount Debentures are purchased by the Company pursuant to the 11 1/2%
Tender Offer at a tender price equal to 110.5% of Accreted Value):
<TABLE>
<CAPTION>
SOURCES (IN MILLIONS)
- --------------------------------------------------------------
<S> <C>
New Revolving Credit Agreement................................ $ 427.4
Offering...................................................... 125.0
------
Total sources............................................... $ 552.4
------
------
<CAPTION>
USES
- --------------------------------------------------------------
<S> <C>
Repayment of Existing Credit Agreement (estimated)............ $ 250.0
11 1/2% Tender Offer (Accreted Value)......................... 213.5
Estimated premium for 11 1/2% Tender Offer.................... 22.4
10 3/4% Redemption (principal amount)......................... 55.0
Call premium for 10 3/4% Redemption........................... 2.2
Estimated fees and expenses................................... 9.3
------
Total uses.................................................. $ 552.4
------
------
</TABLE>
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, after deducting Underwriters' discounts and commissions and estimated
expenses of the Offering, are estimated to be approximately $118.8 million
(based on a closing market price of $32.375 per share on August 27, 1997).
The Company intends to use the net proceeds from the Offering together with
borrowings under the New Revolving Credit Agreement to fund the 11 1/2% Tender
Offer. In the event that the 11 1/2% Tender Offer is not completed, or if
completed, that any 11 1/2% Senior Discount Debentures remain outstanding after
the completion of the 11 1/2% Tender Offer, the Company intends to use the net
proceeds from the Offering and, if necessary, borrowings under the New Revolving
Credit Agreement to fund the 11 1/2% Redemption. The 11 1/2% Senior Discount
Debentures accrete in value such that the aggregate principal amount of such
outstanding debentures will be $279.5 million on March 1, 2000. Subsequent to
March 1, 2000, the 11 1/2% Senior Discount Debentures will bear interest at the
rate of 11 1/2% per annum. The 11 1/2% Senior Discount Debentures mature on
March 1, 2005. See "The Transactions" and "Description of Certain Financing
Agreements and Certain Indebtedness--11 1/2% Senior Discount Debentures."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on the Common Stock.
The Company currently intends to retain future earnings to fund the development
and growth of its businesses and to repay indebtedness, and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. The Company's
principal source for cash from which to make dividend payments will be dividends
distributed by its operating subsidiaries. The New Revolving Credit Agreement is
expected to contain provisions that limit the ability to pay dividends and make
distributions to the Company and limit the ability of the Company to pay cash
dividends and make other distributions to its stockholders. Any future
determination to declare and pay dividends will be made by the Board of
Directors in light of the Company's earnings, financial position, capital
requirements, credit agreements and such other factors as the Board of Directors
deems relevant. Under Delaware law, the Company is permitted to pay cash
dividends to its stockholders only (i) out of its surplus (the excess of the net
assets of the Company over its capital) or (ii) out of the net profits of the
Company for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
MARKET FOR COMMON STOCK
Since May 2, 1995, the Common Stock has traded on the NYSE under the trading
symbol "BHW." Prior to May 2, 1995, the Common Stock was not listed on or traded
in any organized market system. On August 27, 1997, the last reported sale price
of the Common Stock was $32.375 per share. As of August 27, 1997, there were
approximately 5,500 holders of record of the outstanding shares of Common Stock.
The following table sets forth for the periods indicated the high and low
closing sales price of the Common Stock as reported on the New York Stock
Exchange Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1995
Second Quarter (from May 2, 1995)........................................... $20 1/2 $15 1/2
Third Quarter............................................................... 22 3/4 19 5/8
Fourth Quarter.............................................................. 29 1/4 24 7/8
FISCAL 1996
First Quarter............................................................... $32 3/4 $27 1/8
Second Quarter.............................................................. 35 1/4 30 1/4
Third Quarter............................................................... 32 3/4 26 7/8
Fourth Quarter.............................................................. 31 3/4 22 3/4
FISCAL 1997
First Quarter............................................................... $24 3/8 $19 7/8
Second Quarter.............................................................. 29 3/8 19 3/8
Third Quarter (through August 27, 1997)..................................... 32 3/8 26 7/8
</TABLE>
17
<PAGE>
CAPITALIZATION
The following table sets forth at June 28, 1997 (i) the actual current debt
and consolidated capitalization of the Company, and (ii) the current debt and
consolidated capitalization of the Company as adjusted to reflect the
Transactions (including the completion of Offering and the application of the
net proceeds therefrom (as described in Footnotes 5 and 9 to "Selected
Consolidated Financial and Operation Data")). This table should be read in
conjunction with the Consolidated Financial Statements included elsewhere in
this Prospectus, the "Selected Consolidated Financial and Operating Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AT JUNE 28, 1997
-----------------------------
AS
ACTUAL ADJUSTED(1)(2)
----------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current debt:
Notes payable.................................................................... $ 5,821 $ 5,821
Current maturities of long-term debt............................................. 1,089 1,089
----------- ----------------
Total current debt............................................................. $ 6,910 $ 6,910
----------- ----------------
----------- ----------------
Long-term debt:
Existing Credit Agreement(2)..................................................... $ 259,000 $ --
New Revolving Credit Agreement................................................... -- 429,746
9 1/4% Senior Notes due 2000..................................................... 80,000 80,000
10 3/4% Senior Subordinated Notes due 2002....................................... 54,980 --
Other long-term debt............................................................. 3,694 3,694
11 1/2% Senior Discount Debentures due 2005(1)(2)................................ 207,511 --
----------- ----------------
Total long-term debt........................................................... 605,185 513,440
Shareholders' equity:
Common Stock, par value $.001 per share, 50,000,000 shares authorized, 18,385,909
shares issued and 18,346,616 shares outstanding and 22,207,620 shares
outstanding, as adjusted....................................................... 18 22
Capital surplus.................................................................. 1,713 120,459
Retained earnings (deficit)...................................................... (160,163) (180,977)
Other............................................................................ (3,953) (3,953)
----------- ----------------
Total shareholders' equity (deficit)........................................... (162,385) (64,449)
----------- ----------------
Total capitalization......................................................... $ 442,800 $ 448,991
----------- ----------------
----------- ----------------
</TABLE>
- ------------------------
(1) Assumes 100% of the aggregate principal amount of the 11 1/2% Senior
Discount Debentures are purchased pursuant to the 11 1/2% Tender Offer.
(2) Assumes that the Transactions were completed on June 28, 1997. On a pro
forma basis, assuming that the Transactions are completed on October 1,
1997, amounts outstanding under the Existing Credit Agreement are estimated
to be $250 million and the Accreted Value of 11 1/2% Senior Discount
Debentures will be $213.5 million.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following historical selected consolidated financial and operating data
for fiscal 1992, fiscal 1993, fiscal 1994, fiscal 1995, fiscal 1996, first half
1996 and first half 1997 have been derived from the Consolidated Financial
Statements. The unaudited consolidated pro forma financial data set forth below
illustrate the estimated effects of the Transactions (including the completion
of the Offering and the application of the net proceeds therefrom) as if they
had occurred (i) at the beginning of each of the respective fiscal periods for
purposes of presenting the pro forma results of operations data and (ii) at June
28, 1997 for purposes of presenting the pro forma balance sheet data. The
unaudited consolidated pro forma financial data do not necessarily reflect the
results of operations or the financial position of the Company that actually
would have occurred had the Transactions been consummated as of the date or for
the periods indicated. The following financial data should be read in
conjunction with the Consolidated Financial Statements included elsewhere in
this Prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
FISCAL FIRST HALF
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA(1):
Net sales....................................... $ 670,039 $ 675,553 $ 720,340 $ 819,889 $ 902,797 $ 415,065 $ 418,168
Operating costs and expenses:
Cost of sales................................. 434,135 431,420 455,424 511,399 576,417 269,412 264,720
Research and development...................... 18,632 18,600 21,556 30,202 38,101 16,454 19,822
Selling and administrative.................... 166,644 168,529 173,019 194,839 198,898 97,529 98,509
Restructuring................................. -- -- 32,893 -- -- -- --
Goodwill write-off............................ -- 174,277 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating costs and expenses.......... 619,411 792,826 682,892 736,440 813,416 383,395 383,051
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)......................... 50,628 (117,273) 37,448 83,449 89,381 31,670 35,117
Net interest expense............................ 37,266 49,579 48,954 50,800 45,326 22,742 23,732
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income taxes, cumulative
effect of accounting change and extraordinary
items.......................................... 13,362 (166,852) (11,506) 32,649 44,055 8,928 11,385
Income tax expense (benefit).................... 8,299 3,991 (2,490) 13,439 18,400 3,731 4,725
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before cumulative effect of
accounting change and extraordinary items...... 5,063 (170,843) (9,016) 19,210 25,655 5,197 6,660
Cumulative effect of accounting change(2)....... -- (4,759) -- -- -- -- --
Extraordinary losses(3)......................... (5,004) (6,625) (978) (3,219) (2,585) (2,585) (972)
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)............................. 59 (182,227) (9,994) 15,991 23,070 2,612 5,688
Dividends on preferred stock.................... 22,394 5,820 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) applicable to common
stock.......................................... $ (22,335) $(188,047) $ (9,994) $ 15,991 $ 23,070 $ 2,612 $ 5,688
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per common share(4):
Earnings (loss) before cumulative effect of
accounting change and extraordinary items... $ (1.37) $ (13.89) $ (0.68) $ 1.15 $ 1.38 $ 0.28 $ 0.36
Cumulative effect of accounting change........ -- (0.37) -- -- -- -- --
Extraordinary losses.......................... (0.39) (0.52) (0.07) (0.19) (0.14) (0.14) (0.05)
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per common share........ $ (1.76) $ (14.78) $ (0.75) $ 0.96 $ 1.24 $ 0.14 $ 0.31
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PRO FORMA DATA(5):
Net interest expense............................ $ 26,352 $ 13,509 $ 14,912
Earnings before extraordinary items............. 37,039 10,737 11,952
Extraordinary losses............................ (21,725) (21,725) (21,364)
Net earnings (loss)............................. 15,314 (10,988) (9,412)
Net earnings (loss) per common share(4):
Earnings before extraordinary items........... $ 1.65 $ 0.48 $ 0.54
Extraordinary losses.......................... (0.97) (0.97) (0.96)
--------- --------- ---------
Net earnings (loss) per common share.......... $ 0.68 $ (0.49) $ (0.42)
--------- --------- ---------
--------- --------- ---------
OTHER DATA:
EBITDA(6)....................................... $ 85,504 $ 93,493 $ 103,206 $ 120,788 $ 133,596 $ 53,312 $ 62,635
EBITDA as a percent of net sales................ 12.8% 13.8% 14.3% 14.7% 14.8% 12.8% 15.0%
Gross profit as a percent of net sales(7)....... 35.2% 36.1% 36.8% 37.6% 36.2% 35.1% 36.7%
Depreciation and amortization(8)................ $ 34,876 $ 36,489 $ 32,865 $ 37,339 $ 44,215 $ 21,642 $ 27,518
Capital expenditures............................ 30,950 33,191 38,345 44,047 42,744 20,384 17,184
</TABLE>
<TABLE>
<CAPTION>
AT THE END OF
FIRST HALF 1997
AT THE END OF FISCAL ----------------------
----------------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL ADJUSTED(9)
--------- --------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................... $ (34,417) $ (40,081) $ (62,398) $ (53,502) $ (329) $ 69,935 $ 69,935
Total assets...................................... 756,855 625,481 603,745 682,141 796,786 782,120 776,603
Long-term debt.................................... 368,991 549,464 518,687 465,230 548,281 605,185 513,440
Preferred Stock(10)............................... 148,750 -- -- -- -- -- --
Total shareholders' equity (deficit).............. 68,000 (270,553) (278,728) (189,472) (166,892) (162,385) (64,449)
</TABLE>
FOOTNOTES ON FOLLOWING PAGE.
19
<PAGE>
FOOTNOTES TO THE SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA:
(1) In February 1993, the Company was formed as a holding company, the primary
assets of which are all of the issued and outstanding capital stock of BHOC.
See Note 1 of the Consolidated Annual Financial Statements included
elsewhere in this Prospectus. Data for fiscal 1992 is for BHOC.
(2) Cumulative effect of accounting change represents the effect of adoption of
Statement of Financial Accounting Standards No. 106 "Employers' Accounting
For Postretirement Benefits Other Than Pensions" ("SFAS No. 106") as of the
beginning of fiscal 1993.
(3) Extraordinary losses represent the write-off of unamortized debt issuance
costs and applicable call/debt repurchase premiums related to debt
refinancings. See Note 6 of the Consolidated Annual Financial Statements and
Note 3 of the Consolidated Interim Financial Statements, both included
elsewhere in this Prospectus.
(4) Net earnings (loss) per common share reflects both primary and fully diluted
earnings per common share.
(5) The pro forma results of operations data gives effect to the Transactions as
if they occurred at the beginning of the respective fiscal periods including
that (i) 3,861,004 shares of Common Stock were issued by the Company at an
assumed offering price of $32.375 per share (the closing price on the NYSE
on August 27, 1997), the net proceeds of which were used to fund a portion
of the 11 1/2% Tender Offer, and (ii) borrowings under the New Revolving
Credit Agreement (at assumed interest rates of 6.5% in 1996 and 7.2% in 1997
which represent LIBOR plus 0.75% plus hedging costs) were used to fund the
remaining portion of the 11 1/2% Tender Offer, the 10 3/4% Redemption and
the repayment of the Existing Credit Agreement.
The debt redemption cost included in the pro forma results of operations
data for the 10 3/4% Redemption represents the applicable call premiums. The
debt redemption cost related to the 11 1/2% Tender Offer together with fees
and expenses associated with the Offering are estimated, and actual costs
may differ from these assumptions. The pro forma results of operations data
do not purport to represent what the Company's results of operations would
have been if the Transactions had occurred for the periods indicated, or to
project the Company's results of operations for any future period. The pro
forma adjustments are as follows:
(a) The decrease in net interest expense reflects the use of the net
proceeds from the Offering and borrowings under the New Revolving Credit
Agreement to retire all of the outstanding 11 1/2% Senior Discount
Debentures, repay the balance outstanding under the Existing Credit
Agreement, and redeem all outstanding amounts of the 10 3/4% Senior
Subordinated Notes.
(b) Earnings before extraordinary items reflects the decreased interest
expense described in (a) above, net of income tax benefit.
(c) The extraordinary losses reflect the debt repurchase premiums and
write-off of unamortized debt issuance costs related to the retirement of
the 11 1/2% Senior Discount Debentures, redemption of the 10 3/4% Senior
Subordinated Notes and the repayment of indebtedness under the Existing
Credit Agreement described in (a) above, net of income tax benefit.
(d) The pro forma weighted average number of shares outstanding of
22,421,329 for fiscal 1996, 22,462,023 for first half 1996 and 22,290,528
for first half 1997 consists of the total number of shares of Common
Stock outstanding, plus 3,861,004 shares to be issued by the Company in
the Offering.
(6) EBITDA is defined as operating income before restructuring expense and
goodwill write-off plus depreciation and amortization, and is generally
accepted as providing useful information regarding a company's financial
performance. Certain covenants in the New Revolving Credit Agreement are
expected to be based on EBITDA. EBITDA should not be considered an
alternative to net income or an alternative to the Company's cash flow from
operating activities as a measure of liquidity.
(7) Gross profit is defined as net sales less cost of sales.
(8) Excludes goodwill write-off in fiscal 1993 and amortization of deferred
financing costs which were as follows for the specified fiscal years and
interim periods: 1992--$3.6 million; 1993--$5.4 million; 1994--$3.8 million;
1995-- $4.0 million; 1996--$3.2 million; first half 1996--$2.1 million; and
first half 1997--$1.4 million.
(9) The pro forma balance sheet data at the end of first half 1997 gives effect
to the Transactions as if they had occurred at June 28, 1997. See footnote 5
above and "Use of Proceeds."
(10) Reflects the accreted value of the BHOC $4.25 Cumulative Exchangeable
Preferred Stock, which was redeemed in March 1993 with the proceeds from the
issuance of the 11 1/2% Senior Discount Debentures.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section should be read in conjunction with the "Selected Consolidated
Financial and Operating Data" and the Consolidated Financial Statements and the
Notes thereto set forth elsewhere in this Prospectus.
RESULTS OF OPERATIONS
FIRST HALF 1997 COMPARED TO FIRST HALF 1996
The Company's net sales increased $3.1 million, or 1%, to $418.2 million in
first half 1997. The increase resulted from continued strong sales growth within
Information Access (particularly for the transportation and vehicle and
education and library markets), as well as the commercial portion of Mail
Processing. This was partially offset by lower revenues in the postal
contracting portion of the Mail Processing business due to shipments of
significant one-time contracts to postal authorities in 1996.
Information Access net sales increased $8.3 million, or 4%, to $226.8
million in first half 1997. Within the Information Access businesses, the
Company provides access to information in select vertical markets including the
transportation and vehicle and education and library markets, and also provides
imaging solutions and components to financial institutions, governmental
agencies and other paper intensive industries. Net sales to the transportation
and vehicle market increased $5.7 million, or 12%, to $53.5 million due to
increased sales of electronic parts catalogs and ancillary products to
automotive dealerships, and continued strong sales of dealer management systems
and electronic parts catalogs to powersports dealerships. In addition to
increased new systems placements, the Company continued to experience strong
sales of additional product applications and high contract renewal rates related
to previously placed systems in automotive dealerships. Net sales to the
education and library market increased $8.6 million, or 11%, to $89.6 million
due to a growing electronic subscription base, which continued to reflect high
renewal rates on existing products, new product placements, and the acquisition
of DataTimes Corporation (in September 1996) which added complementary
information content, technology and distribution to the Company's electronic
product offerings. Sales of electronic content increased 36% over the prior year
as customers increasingly demand electronic information solutions and its newer
form of on-line delivery. Net sales of microfilm and paper products to the
education and library market declined slightly versus the prior year as
increased pricing was offset by lower unit volumes. Net sales in the Imaging
Solutions and Components business decreased $6.0 million, or 7%, to $83.7
million as increased sales of production scanners and imaging software systems
were more than offset by the impact of divesting certain low margin product
lines sold in Canada and France. Excluding the impact of the divested product
lines, Imaging Solutions and Components' net sales in first half 1997 would have
increased by 3% over the prior year.
Mail Processing net sales decreased $5.2 million, or 3%, to $191.4 million
in first half 1997. Although order intake for commercial mail processing systems
(which represents 94% of the sales in this segment) increased 18% in first half
1997 reflecting strong market demand, sales increased 8% over the prior year
resulting in a higher level of backlog. Sales of commercial sorting equipment
(which represents 15% of commercial equipment sales) increased $5.8 million, or
62%, to $15.1 million as the U.S. Postal Service guidelines governing the
operating requirements to qualify for certain financial incentives to properly
address, bar code and presort mail have created a more favorable environment for
customers to invest in advanced sorting technology. Service revenues (which are
primarily annuity based and represent 43% of commercial Mail Processing sales)
continue to increase, due to both an expanded customer base and increased
pricing. Sales of customized mail automation equipment and contractual
engineering services to governmental postal authorities decreased $19.0 million
to $12.2 million in first half 1997, primarily as a result of shipments of
significant one-time contracts to the U.S. Postal Service in first half 1996.
The Company's cost of sales decreased $4.7 million, or 2%, to $264.7 million
in first half 1997, with the gross profit (net sales less cost of sales)
percentage increasing by 1.6 percentage points to 36.7% in first
21
<PAGE>
half 1997 as compared to first half 1996. The higher gross profit percentage in
1997 resulted from a shift in sales mix (as the growth rate in higher gross
profit percentage Information Access revenues exceeded the growth rate in lower
gross profit percentage Mail Processing revenues), and additionally reflects
both improved manufacturing productivity and increased pricing.
Research and development expense increased $3.4 million, or 21%, to $19.8
million in first half 1997 as compared to first half 1996 as the Company
continued to increase its investment in new product offerings. Such increase
primarily related to increased development costs for DataTimes, to develop a new
technology platform for the powersports market and to develop enhanced versions
of production scanners. The Company has continually positioned itself to take
advantage of new product/technology opportunities (with an increased emphasis on
software solutions and electronic products) in each of its businesses.
Selling and administrative ("S&A") expense increased $1.0 million, or 1%, to
$98.5 million in first half 1997 reflecting the Company's increased investment
in sales and marketing resources as well as increased distribution costs
associated with the higher sales volumes. The ratio of selling and
administrative expense to net sales of 23.6% in first half 1997 increased by 0.1
percentage points versus the prior year as various expense leveraging
initiatives were offset by the result of the aforementioned shift in sales mix
(as the growth rate in higher S&A expense percentage Information Access revenues
exceeded the growth rate in lower S&A expense percentage Mail Processing
revenues).
EBITDA increased $9.3 million, or 18%, to $62.6 million in first half 1997
resulting from the slightly higher sales level and leveraged operating costs and
expenses. Operating income increased $3.4 million, or 11%, to $35.1 million in
first half 1997.
Information Access EBITDA increased $4.9 million, or 12%, to $47.5 million
in first half 1997. This increase resulted from the higher sales volumes, an
improved gross profit percentage reflecting a sales mix emphasizing the
Company's more profitable products (i.e., a greater proportion of revenues
related to software and publishing and a lower proportion of revenues related to
the sale of hardware) which more than offset the dilutive impact of the
acquisition of DataTimes, and increased research and development costs
associated with new product offerings. Information Access operating income
decreased $0.5 million, or 2%, to $24.6 million in first half 1997 as the EBITDA
increase was offset by both higher depreciation cost on the Company's product
capital investment and goodwill amortization related to the DataTimes
acquisition.
Mail Processing EBITDA increased $4.4 million, or 26%, to $21.6 million in
first half 1997 as a result of the higher sales of commercial mail processing
systems and leveraged operating costs and expenses. Mail Processing operating
income increased $3.9 million, or 29%, to $17.3 million in first half 1997.
Corporate expenses (excluding depreciation and amortization) were constant
at $6.5 million in first half 1997 as productivity improvements offset
inflationary cost increases.
Net interest expense increased $1.0 million, or 4%, to $23.7 million in
first half 1997, primarily reflecting the increased debt resulting from the
DataTimes acquisition, which was partially offset by the impact of the
repurchase in 1996 and 1997 of portions of the 11 1/2% Senior Discount
Debentures and the 10 3/4% Senior Subordinated Notes, which were redeemed with
proceeds from the Existing Credit Agreement. Net interest income of Bell &
Howell Financial Services Company ("BHFS"), the Company's financing subsidiary,
increased $0.5 million to $3.9 million in first half 1997, primarily due to
continued growth in the lease receivables portfolio.
Income tax expense increased in first half 1997 as a result of a higher
level of pretax profit in the current year.
The extraordinary losses of $1.0 million ($1.5 million pretax) in first half
1997 were comprised of the debt repurchase premium and write-off of unamortized
debt issuance costs associated with the repurchase of $15.6 million (accreted
value) of the 11 1/2% Senior Discount Debentures and $2.1 million of the 10 3/4%
22
<PAGE>
Senior Subordinated Notes with proceeds from the Existing Credit Agreement. The
extraordinary losses of $2.6 million ($4.0 million pretax) in first half 1996
were comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $34.2 million (accreted value)
of the 11 1/2% Senior Discount Debentures and $17.9 million of the 10 3/4%
Senior Subordinated Notes with proceeds from the Existing Credit Agreement.
FISCAL 1996 COMPARED TO FISCAL 1995
The Company's net sales increased $82.9 million, or 10%, to $902.8 million
in 1996.
Information Access net sales increased $20.6 million, or 5%, to $470.5
million in 1996. Net sales to the transportation and vehicle market increased
$10.2 million, or 10%, to $110.0 million due to increased sales of electronic
parts catalogs and ancillary products to automotive dealerships, and continued
strong sales of dealer management systems and electronic parts catalogs to
powersports dealerships. In addition to increased new systems placements, the
Company continued to experience strong sales of additional product applications
and high contract renewal rates related to previously placed systems in
automotive dealerships. Net sales to the education and library market increased
$8.4 million, or 5%, to $172.6 million due to a growing electronic subscription
base, which continued to reflect high renewal rates on existing products, new
product placements and the impact of the acquisition of DataTimes Corporation
(in September 1996) which added complementary information content, technology
and distribution to the Company's electronic product offerings. Sales of
electronic content increased 24% over the prior year as customers increasingly
demand electronic information solutions, while they are evaluating the rapid
changes in technology and the evolution of on-line delivery. Net sales of
microfilm and paper products in 1996 decreased slightly versus the prior year as
increased pricing was offset by lower unit volumes. Sales of low margin
electronic equipment continued to decline in 1996 (and represent only 3% of
sales in this market) as on-line delivery and the availability (from other
sources) of standardized computer hardware have allowed the Company to focus on
providing the more valuable information content. Imaging Solutions and
Components net sales increased $2.0 million, or 1%, to $187.9 million as
increased sales of production scanners worldwide and imaging software systems
were partially offset by lower microfilm product sales as a result of a sales
force reduction (reflecting a shift to directly serving only the financial
services market in the U.S.--which increased the profitability of this
business). The acquisition of Protocorp International (in March 1996) allows the
Company to now offer its financial services customers a full range of electronic
information storage and retrieval solutions.
Mail Processing net sales increased $62.3 million, or 17%, to $432.3 million
in 1996. Sales of commercial mail processing systems increased $34.1 million or
11% to $352.5 million reflecting strong market demand for inserting and sorting
systems both domestically and abroad, and increased service revenue (due to both
an expanding customer service base and improved pricing). Sales of commercial
sorting equipment (which represent 12% of commercial equipment sales) increased
$6.5 million, or 35%, to $25.1 million as the U.S. Postal Service guidelines
governing the operating requirements to qualify for incentives to bar code and
presort mail (which became effective July 1, 1996) have created a more favorable
environment for customers to invest in advanced sorting automation technology.
Sales of customized mail automation equipment and contractual engineering
services to governmental postal authorities increased $28.2 million, or 55%, to
$79.8 million, as a result of production contracts for both the German and U.S.
Postal Services.
The Company's cost of sales increased $65.0 million, or 13%, to $576.4
million in 1996, with the gross profit percentage decreasing by 1.4 percentage
points to 36.2% in the current year. The lower gross profit percentage in 1996
resulted from a shift in sales mix (as the growth rate in lower gross profit
percentage Mail Processing revenues exceeded the growth rate in higher gross
profit percentage Information Access revenues), which more than offsets the
impact of improved manufacturing productivity and increased pricing.
23
<PAGE>
Research and development expense increased $7.9 million, or 26%, to $38.1
million in 1996 as the Company continued to increase its investment in new
product offerings. Such increase primarily related to increased investment to
develop higher technology mail processing systems/software and to develop
enhanced versions of production scanners. The Company has continually positioned
itself to take advantage of new product/technology opportunities (with an
increased emphasis on software solutions and electronic products) in each of its
businesses.
Selling and administrative ("S&A") expense increased $4.1 million, or 2%, to
$198.9 million in 1996 reflecting the Company's increased investment in sales
and marketing resources as well as increased distribution costs associated with
the higher sales volumes. The ratio of S&A expense to net sales of 22.0% in 1996
improved by 1.8 percentage points versus the prior year as a result of various
expense leveraging initiatives and a favorable shift in sales mix (as the growth
rate in lower S&A expense percentage Mail Processing revenues exceeded the
growth rate in higher S&A expense percentage Information Access revenues).
EBITDA increased $12.8 million, or 11%, to $133.6 million in 1996 resulting
from the higher sales level and leveraged operating costs and expenses.
Operating income increased $5.9 million, or 7%, to $89.4 million in 1996.
Information Access EBITDA, increased $4.3 million, or 5%, to $98.4 million
in 1996. This increase resulted from the higher sales volumes, an improved gross
profit percentage reflecting a sales mix emphasizing the Company's more
profitable products (i.e., a greater proportion of revenues related to software
and publishing and a lower proportion of revenues related to the sale of
hardware), and the profitability improvement resulting from the domestic
refocusing of the Imaging Solutions and Components sales force on the financial
services market, which more than offset the dilutive impact in 1996 of the
acquisitions of DataTimes Corporation and Protocorp International and increased
research and development costs associated with new product offerings.
Information Access operating income of $62.9 million in 1996 increased slightly
over the prior year as the EBITDA increase was offset by both higher
depreciation cost on the Company's product capital investment and goodwill
amortization related to the aforementioned acquisitions in 1996.
Mail Processing EBITDA increased $9.1 million, or 23%, to $48.1 million in
1996. The increase resulted from the higher sales volumes and leveraged
operating costs and expenses, which included the increased investment in
research and development for higher technology mail processing systems/software.
Mail Processing operating income increased $6.5 million, or 19%, to $40.0
million in 1996.
Corporate expenses (excluding depreciation and amortization) increased $0.6
million, or 5%, to $12.9 million in 1996, reflecting inflationary cost increases
and costs associated with being a publicly traded company.
Net interest expense decreased $5.5 million, or 11%, to $45.3 million in
1996 primarily reflecting the reduction in interest expense resulting from the
initial public equity offering in May of 1995 (the net proceeds of which were
used to retire $50.0 million of the 10 3/4% Senior Subordinated Notes and to
prepay $17.6 million of term loans under the Existing Credit Agreement). Net
interest expense was further reduced by the repurchase in 1996 of $17.9 million
of the 10 3/4% Senior Subordinated Notes and $34.2 million (accreted value) of
the 11 1/2% Senior Discount Debentures, which were redeemed with proceeds from
the Existing Credit Agreement. Net interest income of Bell & Howell Financial
Services Company increased $1.7 million to $6.8 million in 1996 primarily due to
continued growth in the lease receivables portfolio.
Income tax expense increased in 1996 as a result of both a higher level of
pretax profit in the current year and a slightly higher income tax rate related
to the impact of a mix shift of taxable income to/within certain foreign
jurisdictions.
24
<PAGE>
The extraordinary losses of $2.6 million ($4.0 million pretax) in 1996 were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the aforementioned repurchase of the 10 3/4%
Senior Subordinated Notes and the 11 1/2% Senior Discount Debentures. The
extraordinary losses of $3.2 million ($5.0 million pretax) in 1995 were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the aforementioned repurchase of the 10 3/4%
Senior Subordinated Notes and the write-off of unamortized debt issuance costs
associated with the aforementioned prepayment of term loans under the Existing
Credit Agreement, both of which reflected the application of the net proceeds
from the initial public equity offering.
FISCAL 1995 COMPARED TO FISCAL 1994
The Company's net sales increased $99.6 million, or 14%, to $819.9 million
in 1995.
Information Access net sales increased $45.5 million, or 11%, to $449.9
million in 1995. Net sales to the transportation and vehicle market increased
$25.8 million, or 35%, to $99.8 million due to increased sales of electronic
parts catalogs and ancillary products to automotive dealerships, and increased
sales of dealer management systems and electronic parts catalogs to powersports
dealerships. In addition to new system placements, the Company also experienced
strong sales of additional product applications and high contract renewal rates
related to previously placed systems in automotive dealerships. Net sales to the
education and library market increased $12.0 million, or 8%, to $164.1 million
due to a growing electronic subscription base, which continued to reflect high
renewal rates on existing products and new product offerings. Sales of
electronic content increased 27% over the prior year as customers increasingly
demand electronic information solutions. Net sales of microfilm and paper
products in 1995 increased slightly over the prior year as increased pricing
more than offset lower unit volumes. Imaging Solutions and Components net sales
increased $7.7 million, or 4%, to $186.0 million as increased sales of
production scanners worldwide were partially offset by lower service revenue as
certain of the Company's products have become less service intensive.
Mail Processing net sales increased $54.1 million, or 17%, to $370.0 million
in 1995. The revenue growth reflected significantly increased revenues related
to customized equipment and contractual engineering services provided to the
U.S. Postal Service. Additionally contributing to the revenue growth was higher
sales of commercial inserting equipment and increased service revenue (due to
both an expanding customer base serviced and improved pricing). Sales of
commercial sorting equipment was approximately equal with the prior year which
reflected the uncertainty caused by the then existing U.S. Postal Service
proposal to alter the guidelines governing the operating requirements to qualify
for incentives to bar code and presort mail.
The Company's cost of sales increased $56.0 million, or 12%, to $511.4
million in 1995. The gross profit percentage of 37.6% in 1995 increased 0.8
percentage points over the prior year resulting from a sales mix emphasizing the
Company's more profitable products, improved manufacturing productivity and
increased pricing.
Research and development expense increased $8.6 million, or 40%, to $30.2
million in 1995 as the Company continued to increase its investment in new
product offerings. Such increase primarily related to the Company's introduction
in the third quarter of 1995 of the first full format system (ProQuest Direct)
through which customers are able to gain direct on-line access to its extensive
collection of databases. Research and development expenses in 1995 also related
to increased investment to develop higher technology mail processing
systems/software and increased investment to develop enhanced features for
production scanners. The Company has continually positioned itself to take
advantage of new product/ technology opportunities (with an increased emphasis
on software solutions and electronic products) in each of its businesses.
Selling and administrative expense increased $21.8 million, or 13%, to
$194.8 million in 1995 reflecting the Company's increased investment in sales
and marketing resources, increased distribution
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costs associated with higher sales volumes, and $5.2 million for the
continuation of the relocation of Mail Processing Systems headquarters to a new
site in North Carolina.
The Company's restructuring expense of $32.9 million in 1994 resulted from
management's decision to relocate Mail Processing Systems headquarters'
operations and consolidate certain of its domestic Mail Processing Systems
facilities at a new site that will be the base for developing innovative
technology and products (both software and hardware), and to consolidate certain
North American Imaging Solutions and Components administrative and warehouse
facilities in order to more effectively serve its customer base with a reduced
operating expense infrastructure.
EBITDA increased $17.6 million, or 17%, to $120.8 million in 1995 resulting
from the higher sales level and leveraged operating costs and expenses, which
included the significantly increased investment in research and development to
fund new product offerings. Operating income (excluding the 1994 restructuring
expense) increased $13.1 million, or 19%, to $83.4 million in 1995.
Information Access EBITDA increased $16.0 million, or 21%, to $94.1 million
in 1995. This increase resulted from the higher sales volumes and an improved
gross profit percentage reflecting a sales mix emphasizing the Company's more
profitable products (i.e., a greater proportion of revenues related to software
and publishing and a lower proportion of revenues related to the sale of
hardware). Information Access operating income (excluding the 1994 restructuring
expense) increased $11.6 million, or 23%, to $62.8 million in 1995.
Mail Processing EBITDA increased $2.6 million, or 7%, to $39.0 million in
1995. The increase in 1995 resulted from the increased sales associated with the
customized equipment and contractual engineering services for the U.S. Postal
Service and the higher sales volumes of mail processing systems/service,
partially offset by the increased investment in research and development (for
higher technology mail processing systems/software). Mail Processing operating
income (excluding the 1994 restructuring expense) increased $2.5 million, or 8%,
to $33.5 million in 1995.
Corporate expenses (excluding depreciation and amortization) increased $1.0
million, or 9%, to $12.3 million in 1995, reflecting inflationary cost increases
and costs incurred related to the initial public equity offering.
Net interest expense increased $1.8 million, or 4%, to $50.8 million in 1995
reflecting a higher interest rate environment and increased interest accretion
on the 11 1/2% Senior Discount Debentures, which were partially offset by the
reduction in interest costs resulting from the initial public equity offering
(the net proceeds of which were used to repurchase $50.0 million of the 10 3/4%
Senior Subordinated Notes and to prepay $17.6 million of term loans under the
Existing Credit Agreement). Net interest income of BHFS, the Company's financing
subsidiary, decreased $0.5 million to $5.1 million in 1995, as increased
interest income on lease receivables was more than offset by higher financing
costs, reflecting the higher interest rate environment.
Income tax expense increased in 1995 as a result of a higher level of pretax
profit in the current year, and additionally reflects the favorable impact of a
shift in mix of taxable income to certain foreign jurisdictions for which no tax
expense is recorded (as a result of prior foreign net operating losses being
incurred with no corresponding tax benefit previously recorded).
The extraordinary losses of $3.2 million ($5.0 million pretax) in 1995 were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $50.0 million of the 10 3/4%
Senior Subordinated Notes and the write-off of unamortized debt issuance costs
associated with the prepayment of $17.6 million of term loans under the Existing
Credit Agreement, both of which reflect the application of the net proceeds from
the initial public equity offering. The extraordinary loss of $1.0 million ($1.5
million pretax) in 1994 represented the write-off of unamortized debt issuance
costs associated with the prepayment of a term loan included in the Existing
Credit Agreement.
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INTERNATIONAL OPERATIONS
In fiscal 1994, 1995 and 1996, the Company had domestic net sales of $548.4
million, $625.2 million, and $706.0 million respectively, and domestic operating
income (excluding corporate expenses, and the 1994 restructuring expense) of
$71.9 million, $81.4 million, and $86.5 million, respectively. Foreign net sales
in fiscal 1994, 1995 and 1996 were $171.9 million, $194.7 million, and $196.8
million respectively, with foreign operating income (excluding corporate
expenses and the 1994 restructuring expense) of $10.3 million, $14.9 million,
and $16.4 million, respectively. The Company's foreign currency hedging
activities have not and are not anticipated to have a material impact on
operations, and the Company has no significant investments denominated in
foreign currencies.
LIQUIDITY AND CAPITAL RESOURCES
The completion of the Transactions (based upon the assumptions set forth in
footnote 5 to "Selected Consolidated and Operating Data") resulted in a decrease
of $19.0 million and $8.8 million in pro forma interest expense for fiscal 1996
and first half 1997, respectively. Following the completion of the Transactions,
the Company's principal sources of liquidity will be from cash flow generated
from operations and borrowings under the New Revolving Credit Agreement. The New
Revolving Credit Agreement will provide $600 million of revolving credit
availability of which approximately $427 million is expected to be drawn as of
the closing of the Transactions, which is anticipated to occur on October 1,
1997. Management believes that, following the Transactions, cash flow from
operations combined with cash available under the New Revolving Credit Agreement
will be sufficient to fund working capital, capital expenditures, acquisitions
and cash interest and principal requirements through fiscal 1998.
At the end of first half 1997, the Company had $91 million of available
credit under the Existing Credit Agreement and $14.2 million of cash and cash
equivalents. The Existing Credit Agreement requires, and the New Revolving
Credit Agreement will require, maintenance of a minimum fixed charge coverage
ratio, a minimum net worth level, and a maximum leverage ratio. The Company is
currently, and expects to continue to be through the term of the New Revolving
Credit Agreement, in compliance with all such covenants.
Cash used by operations was $21.5 million in first half 1997 versus cash
provided by operations of $0.6 million in first half 1996. Although EBITDA
increased by $9.3 million in first half 1997, the Company's working capital
investment increased in the current year related to higher inventory levels to
support sales growth and the timing of vendor disbursements. Debt (net of cash
and cash equivalents) increased by $55.1 million to $597.9 million in first half
1997, as a result of the cash used by operations (which reflects the seasonal
nature of the Company's cash collections and disbursements), capital
expenditures/acquisitions and continued interest accretion on the 11 1/2% Senior
Discount Debentures.
Cash provided by operations of $78.0 million in fiscal 1996 represented a
$34.0 million improvement over the prior year, resulting from the increase in
EBITDA and proceeds from the sale of Bell & Howell Financial Services Company
receivables, which were partially offset by the increased investment in
inventory in 1996 related to the European postal service contracts. Debt (net of
cash and cash equivalents) increased by $55.2 million to $542.8 million in 1996
as a result of acquisitions (primarily DataTimes Corporation and Protocorp
International), continued capital expenditures, the aforementioned inventory
investment, and continued interest accretion on the 11 1/2% Senior Discount
Debentures.
For the five years subsequent to fiscal 1996, annual maturities of long-term
debt are: 1997-- $1.7 million; 1998--$0.8 million; 1999--$0.4 million;
2000--$83.3 million; and 2001--$195.1 million. On a pro forma basis, assuming
the consummation of the Transactions as of October 1, 1997, annual maturities of
long-term debt are: 1997--$1.7 million; 1998--$0.8 million; 1999--$0.4 million;
2000--$83.3 million; and 2001--zero.
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CAPITAL EXPENDITURES
In fiscal 1994, 1995, 1996, first half 1996 and first half 1997, the Company
had capital expenditures of $38.3 million, $44.0 million, $42.7 million, $20.4
million and $17.2 million, respectively, a significant portion of which
consisted of expenditures for product masters and the creation of electronic
databases for the education and library market. The Company's capital
expenditures in fiscal 1997 are projected to approximate the prior fiscal year
level as the Company continues to invest in each of its businesses.
WORKING CAPITAL
The Company operates with a reduced net working capital level principally as
a result of substantial customer prepayments for annual service contracts in
each of its business segments and prepaid subscriptions in the Information
Access business segment. Further, the Company has extended its total quality
program and cycle time reduction efforts to the management of working capital.
PERIODIC FLUCTUATIONS; SEASONALITY
The Company's operating results may fluctuate from period to period and
within periods. These fluctuations could result from a number of factors,
including the timing of customers' capital expenditures, annual budgetary
considerations of customers, new product introductions and general economic
conditions. Such fluctuations are generally more pronounced in the Company's
businesses that sell equipment such as commercial mail processing and Imaging
Solutions and Components. The anticipated sales growth in the second half of
1997 is expected to be generated more by these businesses than in prior periods
which leads to less predictability in the Company's operating results for the
remainder of the year.
Although the Company in general is not affected by seasonal fluctuations,
the buying patterns and funding availability for certain Information Access and
Mail Processing customers cause sales, profitability and cash flow to be higher
in the fourth quarter of the year. Due to this seasonal factor, the Company
requires and expects to have a seasonal working capital credit line to fund cash
requirements primarily during the second and third quarters. See "Risk
Factors--Periodic Fluctuations; Seasonality."
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." The standard
establishes new methods for computing and presenting earnings per share ("EPS")
and replaces the presentation of primary and fully-diluted EPS with basic and
diluted EPS. The Company is required to adopt the new standard for periods
ending after December 15, 1997. The new methods under this standard do not have
a material impact on the Company's current earnings per share amounts.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." The
Company is required to adopt the new standard for periods ending after fiscal
1997. This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The standard requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence with the
other financial statements. The standard is not expected to have a material
impact on the Company's current presentation of income.
In June 1997, the Financial Accounting Standards Board also issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company is required to adopt this new
standard for periods ending after fiscal 1997. This statement establishes
standards for the way companies are to report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The Company is currently
evaluating the impact of this standard on its financial statements.
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BUSINESS
GENERAL
Bell & Howell is a global provider of systems and services for information
access and high volume mail processing. Within its two business segments,
Information Access and Mail Processing, the Company focuses on well-defined
vertical markets where it is or can become the market leader. Within its
Information Access segment, Bell & Howell develops and markets imaging and
information systems that are focused on the needs of its customers in select
vertical markets, which include transportation and vehicle dealers, libraries of
all kinds (including college and university, elementary and high school as well
as public and corporate), financial institutions, governmental agencies and
other paper intensive industries. Within its Mail Processing segment, the
Company develops and markets a complete range of high volume mail processing
systems, which increasingly utilize the Company's proprietary software to expand
the capabilities and improve the efficiency and effectiveness of customers'
mailing operations. The Company's net sales, EBITDA and earnings before
extraordinary items in 1996 were $902.8 million, $133.6 million and $25.7
million, respectively. The Company's net sales, EBITDA and earnings before
extraordinary items were $418.2 million, $62.6 million and $6.7 million in first
half 1997, respectively, compared to $415.1 million, $53.3 million and $5.2
million in first half 1996, respectively.
The Company's strategy is to attain leadership positions in well-defined,
defensible market niches within select industries or vertical markets where it
believes there are significant opportunities for growth. By focusing on specific
vertical markets, the Company gains an in-depth understanding of its customers
and their industries. The Company believes this additional focus and customer
intimacy gives the Company a competitive advantage in anticipating customer
needs and being first to market with products that will achieve or maintain
market leadership. The Company believes that its industry expertise will provide
for more defensible market positions and additional opportunities for growth.
In 1996, the Information Access segment represented 52% of net sales and 67%
of EBITDA (excluding corporate expenses). The Mail Processing segment
represented 48% of net sales and 33% of EBITDA (excluding corporate expenses).
The Company has historically achieved higher margins in its Information Access
segment due to its significant operating leverage as well as its large base of
recurring revenue with high renewal rates. The Company's two business segments
share a number of important strategic similarities, including strong market
positions, a reputation for high quality products and service excellence, broad
recognition of the Bell & Howell brand name and a significant international
presence. In addition, the Company derives a substantial portion of its net
sales from prepaid subscriptions and service agreements that historically have
had renewal rates in excess of 90%. Bell & Howell markets its products worldwide
with approximately 30% of its net sales in fiscal 1996 to customers outside the
United States. Furthermore, Bell & Howell is able to leverage certain important
technologies and expertise across its businesses, such as imaging and software
technology, information indexing and organizing capabilities as well as
expertise in paper handling.
INFORMATION ACCESS SEGMENT
Information Access's unique databases, proprietary access tools, value-added
services and image capture/enhancement systems are designed to meet customers'
increasing information needs, which have evolved well beyond the mere
availability of information. Customers' demands for more efficient access to
relevant data for specific information requirements are being driven by their
needs to reduce search time and cost while performing more focused yet
comprehensive searches. Within its Information Access segment, the Company
provides quick and easy access to information in select vertical markets, such
as transportation and vehicle dealers, libraries of all kinds (including college
and university, elementary and high school as well as public and corporate),
financial institutions, governmental agencies and other paper intensive
industries.
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TRANSPORTATION AND VEHICLE MARKET
BUSINESS OVERVIEW. The transportation and vehicle market is an excellent
example of the Company's strategy of market leadership in well-defined,
defensible market niches. The Company serves its customers in this market
through its subsidiary, Bell & Howell Publications Systems Company ("PSC"),
which is a leading provider of turnkey systems (including software, information
updates, service as well as hardware) used to manage the parts area of
automotive dealerships and to provide total information systems for powersports
(motorcycle and marine) dealerships.
The Company's automotive customer base consists principally of franchised
dealerships, including General Motors ("GM"), Chrysler, Mercedes Benz, Land
Rover, Porsche, Honda, Nissan, Volvo, Isuzu, Subaru, Hyundai, and most recently,
Ford and Toyota. For the Company's automotive customers, the Company creates and
markets turnkey systems consisting primarily of electronic parts catalogs which
allow automotive dealerships to electronically access manufacturers' proprietary
technical documentation (such as parts catalogs, parts and service bulletins and
other reference materials) and to interface with other important information
systems (such as inventory management and billing) within the dealership.
The Company's products provide significant benefits to dealerships' parts
and service departments (critical profit centers for dealerships), such as
increased automotive parts sales, higher inventory turnover as well as improved
labor productivity. The Company's electronic parts catalogs appeal to dealers
because they link text with graphics, illustrations and charts in one
easy-to-use system designed to locate the desired information. In addition, use
of the Company's systems has significantly reduced the training time needed for
its customers' parts department personnel.
A typical dealer installation consists of one or more workstations and
software to search and display information from the database. In addition to the
revenue from the sale of the workstation and software, the Company's systems
generate ongoing revenues over the term of the contract from publishing database
updates as well as additional revenues from software maintenance and hardware
service contracts. The sale of these systems also generates significant interest
income because the majority of the systems in the United States are financed
through the Company's financing subsidiary Bell & Howell Financial Services
Company.
The Company's systems are marketed to automotive dealerships pursuant to
long-term contracts with monthly payments, generally for five year terms, and
are currently used by almost 9,000 of the approximately 22,000 automotive
dealerships in the U.S. Management believes its share of installed automotive
dealership customers is significantly larger than any of its competitors.
Outside the U.S., the Company is currently the sole provider of electronic parts
catalogs to over 10,000 GM, Mercedes Benz and Chrysler dealers and distributes
its parts catalogs primarily through exclusive OEM agreements with General
Motors Europe, Mercedes Benz and Chrysler.
In addition, the Company is the preeminent supplier of complete dealer
management systems and electronic parts catalogs to powersports dealerships.
Similar to its automotive strategy, the Company provides dealerships access to
proprietary technical documentation for most major motorcycle manufacturers,
including Harley Davidson, Honda, Suzuki, Yamaha, Kawasaki, Triumph, BMW and
Ducati as well as most major marine manufacturers, including Mercury, Outboard
Marine and Volvo-Penta. Management believes its installed customer base of over
1,500 powersports dealerships is significantly larger than any of its
competitors. In June 1997, the Company launched a new generation dealer
management system initially targeted to marine dealers.
The Company sells its automotive systems primarily through a direct sales
force in the U.S. and Canada. Approximately 10% of the Company's sales within
its transportation and vehicle market are pursuant to a long-term distribution
arrangement with the Reynolds & Reynolds Company, a leading supplier of computer
systems and forms to the automotive industry, to market the systems to United
States and Canadian auto dealers. In Europe, the Company distributes its
software and information directly to
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GM and Mercedes Benz, and in Japan the Company markets through Yanase, the
controlling importer in Japan for virtually all the Mercedes Benz and GM/Opel
dealerships. The manufacturers then distribute the software and information to
their dealers. In the powersports business, systems are marketed to dealerships
by a dedicated, direct sales force and through telemarketing.
The Company historically has provided microfilm publication services for
technical reference materials to major manufacturing companies, including GM and
Chrysler. Although microfilm publishing accounted for only 10% of the Company's
net sales to the transportation and vehicle market in fiscal 1996, the Company
considers this segment of strategic importance because it provides an
opportunity for the Company to transition these customers to electronic systems
and requires a relatively small continuing investment.
GROWTH STRATEGIES. The Company intends to pursue growth opportunities in
its established automotive and powersports dealership markets as well as in new
markets through new product development and acquisitions. The Company intends to
pursue the following strategies:
INCREASE SALES TO EXISTING AUTOMOTIVE CUSTOMERS. The Company has enjoyed
strong sales of additional product applications and high contract renewal rates
and intends to continue to market upgrade and replacement hardware and software
products to its large installed base. In addition, the Company continues to add
new features and services such as a vehicle identification number application,
technical service bulletins, and labor time guides which enable it to enhance
its revenue stream from its existing customer base. The Company curently has 14
product applications available up from 4 in 1994, providing additional
opportunities to cross sell applications to its existing customer base.
ATTRACT NEW AUTOMOTIVE DEALERSHIPS. The Company's unique ability to offer
electronic parts catalogs of multiple manufacturers positions it to benefit from
the industry consolidation and the increase in the number of multi-franchise
dealerships. The Company has the rights to more manufacturers' parts databases
than any of its competitors. The Company also intends to increase its installed
base by aggressively seeking database publishing rights from additional
automotive manufacturers. For example, recent agreements with Ford and Toyota
provide the Company with access to a large number of additional dealerships. In
addition, the Company intends to penetrate the approximately 25% of the
estimated 22,000 automotive dealerships in the U.S. which do not currently use
electronic parts catalogs.
INCREASE SALES IN POWERSPORTS AND OTHER MARKETS. The Company has addressed
the growing demand for its products in the powersports market by the June 1997
introduction of an enhanced dealer management software system initially designed
for the needs of the marine dealer. Other markets for the Company's image
intensive database access products include the heavy truck markets as well as
the recreational vehicle and general aviation markets.
COMPETITION. In the automotive market, the Company's principal competitors
are ADP, which sells and services a full range of dealership management systems
and currently publishes electronic parts catalogs for GM and Chrysler
dealerships (and also distributes the parts catalogs for BMW and Nissan), and
EDS, which publishes electronic parts catalogs for GM dealerships. In addition,
certain manufacturers such as Toyota, Honda and Nissan have developed their own
proprietary electronic parts catalogs. Although additional automotive
manufacturers could also elect to develop their own electronic parts catalogs,
the Company believes that it is uniquely positioned to compete with such
manufacturers because it will not be efficient for dealerships to have separate
proprietary systems for each of their automotive lines. Due to the Company's
large installed base, its strong long-term relationships with manufacturers and
the ability of its systems to handle multiple manufacturers' data, the Company
believes it is well positioned to compete with any of its competitors. Certain
of the Company's competitors have greater financial resources than the Company.
See "Risk Factors--Competition."
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EDUCATION AND LIBRARY MARKET
BUSINESS OVERVIEW. In the education and library market, the Company
competes through its subsidiary, UMI Company ("UMI"), which the Company believes
is the world's leading aggregator and provider of access to articles and
information from periodicals and newspapers, dissertations, out-of-print books
and other scholarly collections. This information can be accessed via the
Internet, in other electronic media, such as CD-ROM, as well as on magnetic
tape, on microfilm or on paper. The Company aggregates the works of publishers
and authors, creates proprietary abstracts and indices, and customizes this
information in various formats for easy access by its customers. For example,
elementary and high school customers may want on-line information organized by
selected topics, whereas users of academic research libraries require extensive
databases in order to perform thorough research. Furthermore, libraries have
traditionally purchased information in the microfilm format for the breadth and
depth of the Company's database as well as for archival and preservation
purposes. Bell & Howell believes its leadership position within the education
and library market is attributable to the breadth and depth of its collection of
published materials, strong publisher and customer relations, high quality
abstracts and indices, superior technology and an effective sales and
distribution network.
The Company's comprehensive database consists of over 18,000 periodical
titles, 7,000 newspaper titles, as well as its unique content base including 1.5
million dissertations, 140,000 out-of-print books, 300 research collections,
over 14 million proprietary abstracts for on-line and CD-ROM retrieval. The
ability to provide its customers with the full image as originally published
distinguishes the Company from other information providers which typically store
and provide information in a text-only format, omitting essential charts,
graphs, pictures and other images. A significant amount of the Company's sales
to the education and library market comes from content under exclusive licenses,
making the Company the sole source of such information aside from the original
publisher. In many cases, the Company's database includes the entire publication
history of a periodical or newspaper. For example, the Company's database
includes every edition of THE NEW YORK TIMES published since 1851. The Company
has developed strong long-term relationships with the publishers of such
periodicals and newspapers and with most major universities in North America.
The Company is continually offering new ways to enhance each customer's
ability to efficiently access the relevant information in the format or media of
its choice. The Company pioneered electronic access to the full image format of
periodicals and newspapers on CD-ROM in the late 1980s. In 1995, the Company
introduced ProQuest Direct, a proprietary access and delivery system offering
on-line delivery of articles in formats ranging from text only to the full image
as originally published. In 1996, ProQuest Direct became accessible on the
Internet via any Web browser.
In fiscal 1996, approximately 45% of the Company's net sales to the
education and library market were derived from information in electronic format,
which has grown at a compound annual rate of approximately 30% since 1994.
Initially this growth was fueled by CD-ROM subscriptions. Electronic growth is
currently being driven by a combination of on-line subscriptions, agreements
with information resellers such as Knight-Ridder and Dow Jones, as well as new
CD-ROM databases. Customers today are increasingly computer-oriented and demand
user-friendly access to information at the desktop. The Company has responded by
developing a full line of proprietary electronic products marketed under the
ProQuest brand name. These products include on-line via the Internet, CD-ROM,
magnetic tape and other digitally-based collections of abstracts and indices,
full text and full images, which generally focus on business, general interest,
science and the humanities.
Although overall sales growth has been driven by electronic content,
customers still demand information stored in the more traditional microfilm and
paper formats. In fiscal 1996, approximately 55% of the Company's net sales to
the educational and library market were derived from information republished in
microfilm and paper. Newspapers, magazines and journals are marketed as complete
microfilm sets of both current and back issues. The Company also compiles books,
magazines and journals into thematic
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microfilm collections. Management believes that demand for microfilm products
will continue despite the growing trend towards electronic products, because
microfilm products may be the only source of certain out-of-print information,
microfilm is a less expensive alternative or backup source of content to
electronic media and microfilm is considered to be a more permanent medium than
electronic media for archival and preservation purposes. In addition, paper copy
is provided either as the original medium or by specific requests from
customers. Management believes customers of these traditional media formats are
of strategic importance because they provide a targeted market to which the
Company can offer its electronic products and because continued delivery of
traditional services to such customers requires only nominal continuing
investment to maintain sales and cash flow.
The Company's customers include libraries and information centers in
elementary and high schools, colleges and universities, public, corporate and
government libraries as well as a number of well known information providers
that resell the Company' electronic content primarily within the corporate
desktop user market. In fiscal 1996, approximately 70% of the Company's net
sales to the education and library market were derived from prepaid annual
subscriptions with historical renewal rates in excess of 90%.
The Company has focused its direct sales and marketing efforts on academic
research libraries, large public libraries, elementary and high schools and
corporate libraries. In 1997, the Company curtailed its efforts to sell directly
to the corporate desktop user, opting instead to distribute its content to that
market through corporate resellers such as Knight-Ridder and Dow Jones. The
Company's products are sold outside North America through a network of
independent agents and distributors primarily working exclusively for the
Company.
Also, over the last several years, the Company has increased its development
expenditures and product capital investment to expand and enhance its product
offering of abstracts and indices, full images and full text, as well as to
invest in technology to expand user access. Development expenditures were $4.7
million, $7.8 million and $9.8 million in fiscal 1994, 1995 and 1996,
respectively. Investments in creation of databases were $18.8 million, $18.9
million and $19.4 million in fiscal 1994, 1995 and 1996, respectively.
GROWTH STRATEGIES. The Company believes that the role of the information
aggregator is becoming more important to customers and more central to the
global dissemination of information, and that the Company is well positioned to
capitalize on the combination of its extensive information database and its
powerful data delivery tools to provide customers with accurate, comprehensive,
timely and cost effective information solutions. To capitalize on the existing
growth opportunities in the Information Access market, the Company intends to
address the following market needs:
DEMAND FOR RELEVANT AND COMPREHENSIVE ANSWERS. Over the last several years
the Company has focused significant resources towards creating comprehensive
abstracts and indices to be used as search tools by customers to more
efficiently access the full text image of the desired article. Further, the
Company has provided its information in thematic collections so that users may
search across a very broad, deep cross section of its database. This search
capability has been enhanced by the introduction of the Company's ProQuest
Direct on-line system in 1995 whereby users now have access via the Internet to
the Company's intelligent content base of information.
CUSTOMER REQUIREMENTS FOR EASIER ACCESS. The Company distributes
information in formats according to customers' requirements including on-line,
CD-ROM, magnetic tape, microfilm and paper. Each of these formats allows
customers to access the Company's comprehensive collection of business, general
interest, science and humanities articles and, in the case of on-line users,
utilize easily understood, menu-driven search instructions in a Windows-TM-
based environment.
GROWING DEMAND FOR ELECTRONIC CONTENT IN SCHOOLS & LIBRARIES. There are a
number of well publicized initiatives at both the state and federal levels to
connect schools and libraries to the Internet. In fact, over 80% of high schools
in the U.S. have access to the Internet today. The Company believes that those
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<PAGE>
initiatives will enhance its opportunity to serve these customers because of the
ease of use of the Company's search tools and its ability to provide its content
on a customized basis according to the individual requirements of each school or
district.
GLOBAL DEMAND FOR UNITED STATES CONTENT. The Company's products have gained
wide acceptance in Western Europe, Asia and Australia as the demand for
information generated in the United States has grown. In 1996, approximately
$33.1 million, or 19% of the Company's net sales to the education and library
market were to customers outside the United States. The Company believes that
significant international growth opportunities exist and continues to introduce
new products specifically designed for international customers to capitalize on
such opportunities. The Company has begun to market its ProQuest Direct-TM-
on-line content-base to customers located outside the U.S.
COMPETITION. In providing electronic publishing rights, the Company has
found that publishers prefer republishers/aggregators with whom they have a
long-standing relationship. Many of the Company's publisher relationships were
established over 25 years ago and therefore constitute a key competitive
advantage.
The Company's competition in the microfilm republishing sector comes from
organizations with less expansive publication lists. Microfilm publishers who
compete with the Company include Primary Source Media, NewsBank and Thomson. In
the electronic business, competitors include Dow Jones, EBSCO, Knight-Ridder,
Newsbank, On-Line Computer Library Consortium (OCLC), Reed/Elsevier, SIRS and
Thomson. In addition, original publishers, aggregators, technology companies and
universities are beginning to position themselves as providers of electronic
information directly to the desktop of the customer. All of these entities are
potential competitors of the Company. Several competitors and potential
competitors have greater financial resources than the Company.
IMAGING SOLUTIONS AND COMPONENTS
BUSINESS OVERVIEW. Bell & Howell's Imaging Solutions and Components
business is a leading designer, integrator and distributor of non-paper based
systems and components that enable users to efficiently file and access their
documents and records. These systems and components are customized to the needs
of select vertical markets, such as financial institutions and governmental
agencies, in order to provide better customer service, enhance productivity,
minimize storage costs and ensure the security and integrity of their records.
These systems, which utilize both electronic and microfilm technology, consist
of the software and hardware, accessories, supplies and service required to
capture, enhance, duplicate, store, index and retrieve a customer's data and
documents.
Active business records and management reports are increasingly captured and
stored electronically on optical disks or other electronic media which offer
faster and easier access than microfilm. The Company's products include a line
of electronic storage and retrieval systems which utilize a personal computer in
conjunction with optical or magnetic disk, scanner, laser printer and
proprietary application specific software. The Company's software products are
customized to the needs of targeted vertical markets where Management believes
there is potential to achieve market leadership within that niche. For example,
the Company recently introduced a product targeted to financial institutions
which allows them to instantaneously access and view complete customer records
(including check copies, signature cards and bank statements) which reside on
different customer databases and which may utilize differing imaging software,
in order to provide more timely and efficient customer service and increase
productivity. These market niches include financial institutions with assets of
less than $10 billion, the Department of Defense and the trucking industry.
These systems range in price from $10,000 for a stand-alone system to over
$250,000 for a fully networked system.
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<PAGE>
The Company's imaging components include production scanners and software
that convert paper documents into electronic files. In 1996, approximately 25%
of net sales for this business were derived from scanner sales which have grown
at an annual rate of approximately 30% since 1994. The Company's document
scanners produce digital records from single- and dual-sided documents in a
single pass. The production scanner market (where customers use a dedicated
operator, in a production environment) ranges in speeds from 20 to 200 pages per
minute ("ppm"). The Company has traditionally competed primarily in the
mid-range (which today ranges from 50 to 100 ppm) of the production scanning
market. In second quarter 1997, the Company announced two new lines of scanners,
one aimed at the mid-range and up, while the other is aimed at the lower end of
the production scanning market. The Company believes its market position and
strong growth rate in its scanner business result from its reputation for
quality and reliability.
The Company's microfilm products include a full line of microfilm retrieval
systems, readers, reader/ printers and a family of automated cameras, as well as
other accessories and supplies. Bell & Howell systems are typically sold in the
mid- to low-end of the Imaging Solutions and Components market characterized by
PC-based and stand-alone systems rather than high-end integrated systems.
Microfilm products are used primarily for archival and exception processing
purposes, as well as for certain active business records, such as mortgage and
loan applications or those applications which deal primarily with client files.
Microfilm continues to be an ideal archival medium and provides numerous
advantages over other storage formats. For example, microfilm offers the
capability of storing a document for over 100 years. Microfilm equipment ranges
in price from approximately $100 for a basic reader to over $30,000 for a
sophisticated camera and in excess of $100,000 for a fully networked system.
The Company's Imaging Solutions and Component business benefits from a
substantial customer base, as well as a broad product line marketed and serviced
through its extensive sales and service organization. Customers for the
Company's products are primarily financial institutions (e.g. commercial banks,
credit unions and savings and loans institutions), but also governmental
agencies and trucking companies. Customers for the scanner products are
distributors and OEMs who in turn place the scanners within complete systems via
value added resellers ("VARs") or directly to end users for use with a variety
of imaging solutions. In fiscal 1996, approximately 25% of net sales within the
Imaging Solutions and Components business were derived from servicing its
installed customer base, generally pursuant to prepaid annual contracts.
Customers are served through direct and indirect channels, on a worldwide
basis. In the United States, the direct sales force consists of more than 40
salespeople and agents who are supported by telemarketers. The scanner products
are sold to distributors or to OEMs such as IBM, Filenet and Unisys.
GROWTH STRATEGIES. Bell & Howell intends to pursue growth opportunities for
non-paper based solutions for documents and reports by offering an expanded line
of applications targeted at specific vertical markets including financial
institutions, the Department of Defense and the trucking industry.
The Company expects to leverage upon the strengths of its rapidly growing
scanner product offerings with a range of new and related products and services
including image capture software and enhanced features and functionality
targeted to the needs of customers in additional vertical markets.
While the microfilm market is mature, the Company believes there are
opportunities for continued cash flows derived from sales of products, service
and supplies to its significant customer base and to capitalize on opportunities
to grow market share. The Company will also seek to expand its service revenues
by targeting third party service contracts thereby leveraging its service
capabilities.
COMPETITION. In the traditional microfilm market, the Company primarily
competes with dealers or resellers of Canon, Minolta or Kodak equipment. In the
community banking, credit union and S&L market, the Company's offering of
electronic solutions primarily competes with MacroSoft and Hyland software, two
small privately owned companies, but also with several VARs or integrators
reselling
35
<PAGE>
software from, for example, Filenet or Optika. In the production scanner market,
the Company primarily competes with Fujitsu and Ricoh in the lower end of the
mid-range and with Kodak in the higher end of the mid-range. Several of the
Company's competitors have greater financial resources than the Company. See
"Risk Factors--Competition."
Bell & Howell believes its Imaging Solution and Components business enjoys
several competitive advantages. It has an excellent reputation in the industry
as a leading provider of a broad line of high quality and reliable products. The
Company's large installed customer base provides an opportunity to sell
additional product applications, as well as new products, to existing customers
and provides a predictable revenue stream from maintenance, repair services and
supplies.
MAIL PROCESSING SEGMENT
BUSINESS OVERVIEW. Management believes that Bell & Howell is the leading
manufacturer and supplier of high volume mail processing systems to the
commercial market. The commercial market primarily consists of business to
consumer mailers and represented more than 90% of the Mail Processing segment's
sales during first half 1997. These systems, which increasingly utilize
proprietary software, automatically perform a broad range of mail processing
functions, from collating, cutting, bursting, folding and inserting documents
(at cycle speeds ranging up to 18,000 envelopes per hour) to optical scanning,
encoding and sorting of envelopes (at speeds up to 36,000 envelopes per hour).
These software-driven systems allow customers to more efficiently manage mail
room operations as well as convert routine mailings (such as invoices or
statements) into targeted communication and marketing programs by customizing
the invoice or statement and including promotional inserts based on a specific
customer profile. In addition to the commercial market, the remaining sales in
the Mail Processing segment stem from governmental contracts for automation
equipment and software for the U.S. Postal Service and foreign postal
authorities.
The Company's major product line, mail inserting systems, performs virtually
all mail inserting functions, including cutting and folding continuous
documents, collating and inserting materials into envelopes and postage metering
at speeds ranging up to 18,000 envelopes per hour. Inserting systems generally
range in price from approximately $25,000 to $400,000 (with more complex systems
selling for over $1 million). Customers include financial institutions,
insurance companies, utilities, service bureaus, credit card companies, direct
mail marketers and other companies which generate high volumes of mail.
The Company also designs and manufactures mail sorting equipment which
optically scans characters and prints bar coded zip codes on outgoing mail and
sorts the mail according to destination at speeds up to 36,000 envelopes per
hour. These sorters allow customers with varying volume needs to capitalize on
presorted and bar coded mail discounts which are offered by the U.S. Postal
Service and increasingly by postal services in other countries. Mail sorting
systems range in price from approximately $100,000 to $600,000. Customers
include users of high volume inserters and presort bureaus which aggregate mail
from smaller postal patrons seeking to take advantage of presorted mail
discounts.
Bell & Howell believes that its leadership position in the commercial mail
processing business is attributable to its substantial installed global customer
base and worldwide service organization of approximately 1,500 service engineers
and support personnel. In many locations, the service engineers provide services
seven days a week, 24 hours per day. The majority of commercial mail
processing's equipment is maintained and serviced by the Company pursuant to
annual prepaid service contracts. In fiscal 1996, approximately 40% of
commercial mail processing's net sales were derived from service.
In addition to its commercial inserting and sorting products, Bell & Howell
Postal Systems Company designs, develops and manufactures automation equipment
and software for use by national postal services worldwide including the U.S.
Postal Service. The Company has expertise in high speed feeding of oversized
envelopes, high speed labeling applications and imaging, as well as other
software based solutions. Bell & Howell Mailmobile Company distributes an
automated guided vehicle used to deliver mail within the office.
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<PAGE>
Bell & Howell's commercial mail processing systems are sold in the United
States through a direct sales force of approximately 70 salespeople. Outside the
United States, commercial mail processing systems are marketed directly through
wholly-owned subsidiaries located in Canada, France, Germany, the United
Kingdom, Japan, the Netherlands, Singapore, Switzerland and Austria as well as
through distributors in other geographic areas.
GROWTH STRATEGIES. The Company intends to expand its leadership position by
continuing to introduce new software and hardware solutions to existing and
prospective customers through new product development and acquisitions. In
addition, the Company intends to capitalize upon its customers' need to
personalize their communications and to develop targeted merchandising
initiatives by offering enhanced integrated software solutions.
The Company believes customers will continue to seek integrated systems
solutions that enhance flexibility in customer communications and connect mail
room and document printing operations, while reducing labor requirements and
improving total system accuracy. The Company has invested $9.4 million, $12.9
million and $17.6 million in new product development in fiscal 1994, 1995 and
1996, respectively, for new product lines, system software and systems for large
mail room operations.
In 1996, the Company introduced the BH6000, an 18,000 envelope per hour
system targeted at simple high volume applications. The Company has also
recently introduced the BH4000, an enhanced version of its most popular mailing
system which will increase throughput by utilizing the software and certain
hardware modules used in its fastest system. New inserting product introductions
utilize flexible, modular system designs that are software driven and offer
common interfaces and comprehensive information links to customer operations.
Management believes the modular design will have a number of benefits including
a more cost effective upgrade path for its customers, and lower production
costs.
Mail Processing's inserting product line will be enhanced in the future
primarily through the addition of application software and new hardware that
will increase throughput and reduce operating labor requirements. The Company
believes these new systems will be responsive to the growing demand for
integrated mail processing systems and more effective customer communications.
COMPETITION. Bell & Howell believes that its commercial mail processing
business enjoys several competitive advantages, including its ability to
customize products to meet customer needs and provide high quality maintenance
service. The Company's large installed base provides a significant opportunity
to increase net sales. A substantial portion of the Company's new mail
processing equipment sales are derived from sales of upgrades, add-ons or
replacements. The Company also believes that its extensive service organization
has led to close customer relationships which give the Company the ability to
anticipate customers' future needs. The Company's nearest competitor in the high
volume mail processing business in North America is Pitney Bowes. Outside of
North America, Bell & Howell also competes with Kern AG and Bowe Systec AG,
which are based in Switzerland and Germany, respectively. In the mail sorting
product line, the Company's primary competitors are Siemens, Postal Technologies
and Pitney Bowes. Of these competitors, Pitney Bowes and Siemens have greater
financial resources than the Company. See "Risk Factors--Competition."
FINANCING SUBSIDIARY
Bell & Howell Financial Services Company, the Company's finance subsidiary,
assists the Company in marketing its products by providing lease financing for
the Company's customers, with both full payout and residual payment end-of-lease
options. Bell & Howell Financial Services Company finances its leases on a
stand-alone basis through separate financing arrangements. In fiscal 1996, net
interest income earned at Bell & Howell Financial Services Company was $6.8
million. See "Description of Certain Financing Agreements and Certain
Indebtedness--Bell & Howell Financial Services Company."
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SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company purchases a significant amount of microfilm from two vendors for
its Information Access business. Other materials, including electronic
components, are purchased from a number of suppliers. Management believes that
alternate sources of supply are available for substantially all raw materials
and components. The Company believes that it currently has an adequate supply of
raw materials and component parts to meet its manufacturing requirements and
that the loss of any one of its suppliers would not have a long-term material
adverse effect on the Company.
BACKLOG
Except in its Mail Processing segment, which includes customized products
and assembly of complex systems, the Company fills substantially all customer
orders within 30 days. In the Mail Processing segment, backlog at the end of
first half 1997 totalled $107.5 million as compared to $129.0 million at the end
of first half 1996. Although the backlog in the commercial Mail Processing
business increased by $15.6 million in first half 1997 versus first half 1996,
the backlog relating to the sales to postal authorities decreased by $37.1
million in the same period.
MAJOR CUSTOMERS
The Company is not dependent upon any one customer or a few customers. The
loss of any one customer would not have a material adverse effect on the
Company's businesses. In fiscal 1996, no single customer accounted for 10% or
more of the consolidated net sales of the Company.
RESEARCH AND DEVELOPMENT EXPENSES
The amounts charged to the Company's earnings for research and development
expense in fiscal 1994, 1995, 1996, first half 1996 and first half 1997 were
$21.6 million, $30.2 million, $38.1 million, $16.5 million and $19.8 million,
respectively. New product offerings resulting from the Company's research and
development efforts served to offset declines in certain other product lines, as
the Company positioned itself to take advantage of new product/technology
opportunities (with an increased emphasis on software solutions and electronic
products) in each of its businesses. The Company's research and development
expenditures include expenses primarily for database and software development,
information delivery systems, production scanners and other electronic devices
for the Information Access segment, as well as for increasingly software driven
mail processing systems.
EMPLOYEES
At the end of fiscal 1996, Bell & Howell had 6,110 employees. Approximately
239 employees located at the Company's Allentown, Pennsylvania facility are
represented by a labor union pursuant to an agreement effective January 1, 1997
between Bell & Howell Mail Processing Systems Company and IMMCO Employees
Association, which expires on May 31, 2001. Management believes that its
relations with its employees are good.
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PROPERTIES
Bell & Howell's principal administrative office is located in Skokie,
Illinois. The office space has been leased through 2009. At the Company's
option, the lease may be renewed for an additional five-year period. The
following table provides certain summary information in square feet with respect
to certain facilities that the Company owns or leases in connection with its
businesses:
<TABLE>
<CAPTION>
SQUARE EXPIRATION
LOCATION SEGMENT TITLE FEET DATE
- ------------------------------ ------------------------------------------------ --------- --------- ----------
<S> <C> <C> <C> <C>
Lincolnwood, Illinois Information Access/Mail Processing Owned 338,000 N/A
Allentown, Pennsylvania Mail Processing Owned 196,000 N/A
Ann Arbor, Michigan Information Access Owned 171,000 N/A
Friedberg, Germany Mail Processing Owned 130,000 N/A
Wooster, Ohio Information Access Owned 91,000 N/A
Durham, North Carolina Mail Processing Leased 80,000 5/05
Durham, North Carolina Mail Processing Leased 71,000 9/04
Tucson, Arizona Mail Processing Leased 65,000 5/02
Louisville, Kentucky Information Access Leased 45,000 6/01
Ann Arbor, Michigan Information Access Leased 42,000 3/98
Zion, Illinois Information Access Leased 36,000 6/99
Seven Hills, Ohio Information Access Leased 32,000 7/98
Oklahoma City, Oklahoma Information Access Leased 31,000 8/01
Ann Arbor, Michigan Information Access Leased 27,000 8/98
Salt Lake City, Utah Information Access Owned 22,000 N/A
Monroe, North Carolina Information Access Leased 15,000 9/01
Salt Lake City, Utah Information Access Leased 11,000 3/99
</TABLE>
Bell & Howell also owns or leases facilities in the United States, Canada,
France, United Kingdom, Germany, The Netherlands, Japan, Singapore, Switzerland
and Austria for sales, service and warehouse space. The termination of any one
of the leases, some of which are long-term, would not significantly affect the
results of the Company's operations.
The Company deems the buildings, machinery and equipment used in its
operations, whether owned or leased, generally to be in good condition and
adequate for the purposes for which they are used.
PATENTS AND LICENSES
The Company owns a substantial number of patents and patent rights, but it
does not consider any one patent or group of patents owned by it, or under which
it is licensed, to be material to any of the Company's lines of business.
Royalty income received from licenses is not material.
GOVERNMENT REGULATIONS
The Company is subject to various federal, state, local and foreign
environmental laws and regulations limiting the discharge, storage, handling and
disposal of a variety of substances. The Company's operations also are governed
by laws and regulations relating to workplace safety and worker health,
including the Occupational Safety and Health Act and regulations thereunder. The
Company believes that it has complied in all material respects with applicable
environmental and health and safety laws and regulations.
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The Company also does not believe that future compliance with such laws or
regulations will have a material adverse effect on its results of operations or
financial condition.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incidental to its
business. Management believes that the outcome of such proceedings will not have
a material adverse effect upon the consolidated operations or financial
condition of the Company.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions held by the
directors and executive officers of Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AT THE COMPANY
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
William J. White.................... 59 Chairman of the Board of Directors of the Company and BHOC
James P. Roemer..................... 50 Director, President and Chief Executive Officer of the Company and
BHOC
Nils A. Johansson................... 49 Director, Executive Vice President and Chief Financial Officer of the
Company and BHOC
David Bonderman..................... 54 Director
David G. Brown...................... 40 Director
J. Taylor Crandall.................. 43 Director
Daniel L. Doctoroff................. 39 Director
William E. Oberndorf................ 44 Director
Gary L. Roubos...................... 60 Director
John H. Scully...................... 53 Director
Michael A. Dering................... 46 President and Chief Executive Officer of Bell & Howell Publication
Systems Company
Stuart T. Lieberman................. 45 Vice President, Controller and Chief Accounting Officer of the
Company and BHOC
Ben L. McSwiney..................... 47 President and Chief Executive Officer of Bell & Howell Mail
Processing Systems Company
Kevin B. O'Shea..................... 38 Vice President and Treasurer of the Company and BHOC
Maria T. Rubly...................... 42 Vice President of the Company and BHOC
Gary S. Salit....................... 53 Secretary and Corporate Counsel of the Company and BHOC
</TABLE>
The business experience and certain other information relating to each
director and executive officer of Company is set forth below:
WILLIAM J. WHITE has served as Chairman of the Board and Director of the
Company since its organization in February 1993 and of BHOC since February 1990.
From February 1990 to February 1997, he served as Chief Executive Officer of
both companies. He was President of the Company from February 1993 to February
1995 and President of BHOC from February 1990 to February 1995. Prior to joining
Bell & Howell, Mr. White was President and Chief Executive Officer of Whitestar
Graphics, Inc. (a printing and graphics company) from January 1989 through
January 1990, when it was acquired by the William Blair Leveraged Capital Fund
and Mr. White. Prior to that, he was Executive Vice President of USG Corporation
where he served as president of three different subsidiaries during his tenure.
He is also a Director of TJ International, Inc. and Readers Digest Association,
Inc.
JAMES P. ROEMER has served as Director and President of the Company and BHOC
since February 1995. In February 1997, he was elected Chief Executive Officer of
the Company and BHOC and from February 1995 to February 1997 served as Chief
Operating Officer of both companies. Prior to that, he served as President and
Chief Executive Officer of UMI Company from January 1994 to June 1995.
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<PAGE>
Mr. Roemer joined Bell & Howell as Vice President and PSC as President and Chief
Operating Officer in October 1991, and was promoted to President and Chief
Executive Officer of PSC in September 1993. Prior to joining Bell & Howell, Mr.
Roemer was President of the Michie Group, Mead Data Central from December 1989
to October 1991. From January 1982 to December 1989 he was Vice President and
General Manager of Lexis, an on-line legal information service. From April 1981
to December 1982 he served as acting president for Mead Data Central.
NILS A. JOHANSSON has been a Director of the Company since its organization
in February 1993 and of BHOC since April 1990. Since January 1994, he has held
the office of Executive Vice President and Chief Financial Officer of the
Company and BHOC. Mr. Johansson served as Senior Vice President, Finance and
Chief Financial Officer of the Company from February 1993 to January 1994 and of
BHOC from December 1991 to January 1994. From May 1989 to December 1991, he was
Vice President, Finance, Treasurer and Chief Financial Officer of BHOC. From
February 1981 to May 1989 he held various executive positions with Bell &
Howell, including corporate treasurer and positions in group control, planning
and business development.
DAVID BONDERMAN has been a Director of the Company since its organization in
February 1993 and served as a Director of BHOC from December 1987 until February
1993. He has been a Managing General Partner of Texas Pacific Group (a private
investment company) since December 1993. From August 1992 to December 1993, Mr.
Bonderman was an investor with TPG Partners, L.P. (a private investment
company). From July 1983 through August 1992, he was Vice President and Chief
Operating Officer of Keystone, Inc. (a private investment company). He is also a
Director of Beringer Wine Estates, Inc., Continental Airlines, Credicom Asia,
Denbury Resources, Inc., Ducati Motor Holdings, S.P.A., Realty Information Group
L.P., Ryanair, Ltd., Virgin Cinemas, Ltd., Urogenesys, Inc. and Washington
Mutual Inc.
DAVID G. BROWN has been a Director of the Company since April 1995 and
served as a Director of BHOC from January 1994 to April 1995. He has been a
Principal of Arbor Investors, LLC since September 1995 and a Vice President of
Keystone, Inc. since August of 1993. Prior to joining Arbor Investors, LLC, Mr.
Brown was a Vice President in the Corporate Finance Department of Salomon
Brothers Inc from August 1985 to July 1993. He is a Director of AER Energy
Resources, Inc.
J. TAYLOR CRANDALL has been a Director of the Company since its organization
in February 1993 and was a Director of BHOC from November 1990 until February
1993. He has been Vice President and Chief Financial Officer of Keystone, Inc.
(a private investment company) since October 1986. He also has been President,
Director and sole stockholder of Acadia MGP, Inc. (managing general partner of
Acadia Investment Partners, L.P., the sole general partner of Acadia Partners,
L.P. (an investment partnership)) since 1992. He is also a Director of
Washington Mutual Inc.
DANIEL L. DOCTOROFF has been a Director of the Company since its
organization in February 1993 and served as a Director of BHOC from June 1990
until February 1993. He has served as Managing Director of Oak Hill Partners,
Inc. (successor to Rosecliff, Inc., the management company for Acadia Partners,
L.P. (an investment partnership)) since March 1992. Since October 1992, he has
been a Vice President of Keystone, Inc. (a private investment company) and since
February 1994, he has been a Managing Partner of Insurance Partners Advisors
L.P. He was Director of Rosecliff, Inc. from August 1987 through March 1992. He
is also a Director of Kemper Corporation and Specialty Foods Corporation.
WILLIAM E. OBERNDORF has been a Director of the Company since its
organization in February 1993 and was a Director of BHOC from July 1988 through
February 1993. He has served as Managing Director of SPO Partners & Co. (a
private investment company) since March 1991. He is also a Director of Plum
Creek Timber Co., L.P.
GARY L. ROUBOS has been a Director of the Company since February 1994. He
has been Chairman of the Board of Dover Corporation (a diversified equipment
manufacturer) since August 1989 and was
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President from May 1977 to May 1993. He is also a Director of Dover Corporation
and Omnicom Group, Inc.
JOHN H. SCULLY has been a Director of the Company since its organization in
February 1993 and was a Director of BHOC from July 1988 until February 1993. He
has served as Managing Director of SPO Partners & Co. (a private investment
company) since March 1991. He is also a Director of Plum Creek Timber Co., L.P.
MICHAEL A. DERING has served as President and Chief Executive Officer of PSC
since July 1996. Prior to joining PSC he was President of TAB Products Company
(an office filing systems company) from February 1991 to July 1996. From 1990 to
1991 he was Executive Vice President and Chief Operating Officer of TAB Products
and from 1975 to 1990 he held various offices and positions with TAB Products in
sales and marketing.
STUART T. LIEBERMAN has been Vice President, Controller and Chief Accounting
Officer of the Company since its organization in February 1993 and of BHOC since
January 1990.
BEN L. MCSWINEY has been President and Chief Executive Officer of Bell &
Howell Mail Processing Systems Company since July 1995. Prior to joining Bell &
Howell, he was President and Chief Executive Officer of Duplex Products, Inc. (a
forms manufacturing and distributing company) from September 1993 to June 1995
and President and Chief Executive Officer of Whitestar Graphics, Inc. from April
1991 to September 1993.
KEVIN B. O'SHEA has served as Vice President and Treasurer of the Company
and of BHOC since February 1996. Prior to joining Bell & Howell he served as
Vice President and Treasurer of Spencer Stuart & Associates (an executive search
and consulting firm) from July 1989 to February 1996.
MARIA T. RUBLY has been Vice President of the Company since 1994 and of BHOC
since April 1993. Prior to joining the Company, she spent 13 years with Baxter,
which included five years with American Hospital Supply Corporation until its
merger with Baxter. Her position from January 1991 to April 1993 was Vice
President of the Baxter Management Institute.
GARY S. SALIT is Secretary and Corporate Counsel of the Company, a position
he has held since its organization in February 1993. He has served as a
Secretary of BHOC since January 1993. He has also served as Corporate Counsel of
BHOC since 1985.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------
AWARDS(1)
----------- PAYOUTS(2)
ANNUAL COMPENSATION SECURITIES ----------
FISCAL ---------------------- UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(3) OPTIONS(#) PAYOUTS COMPENSATION
- --------------------------------------- --------- ---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. White ...................... 1996 $ 643,853 $ 294,241 -- -- $ 30,092(4)
Chairman of the Board 1995 614,427 307,501 460,000 -- 34,574(4)
1994 597,696 582,754 -- -- 36,711(4)
James P. Roemer ....................... 1996 510,572 233,331 -- $ 54,384 94,984(5)
President and Chief Executive Officer 1995 405,655 252,689 385,000 -- 21,992(5)
1994 206,000 132,679 -- 431,679 176,758(5)
Nils A. Johansson ..................... 1996 396,162 181,046 -- 79,380 27,069(6)
Executive Vice President and Chief 1995 363,827 216,063 270,000 -- 31,768(6)
Financial Officer 1994 264,092 184,865 -- 184,500 21,200(6)
Ben L. McSwiney ....................... 1996 254,539 107,413 12,000 -- 113,422(8)
President of MPS 1995(7) 140,219 9,363 10,500 -- 2,963(8)
Michael A. Dering ..................... 1996(9) 105,770 75,000 10,000 -- 87,728(10)
President of PSC
</TABLE>
- ------------------------
(1) Amounts reflected in this column are for grants of stock options under the
Option Plan.
(2) For fiscal 1994, consists of amounts earned under Bell & Howell Operating
Company's Long-Term Incentive Plan: 1991-1994 (the "1991-1994 LTIP"). The
1991-1994 LTIP provided long-term incentives to key management employees by
rewarding them for achieving financial targets for the period commencing
fiscal 1991 through fiscal 1994. Messrs. White, McSwiney and Dering did not
participate in the 1991-1994 LTIP. Mr. Roemer earned $287,674 under an
additional long-term incentive plan in 1994. Payments under the 1991-1994
LTIP were made in March 1995.
For fiscal 1996, consists of amounts earned under Bell & Howell Operating
Company's Long-Term Incentive Plan: 1993-1996 (the "1993-1996 LTIP"). The
1993-1996 LTIP initially provided long-term incentives to key management
employees by rewarding them for achieving financial targets for the period
commencing fiscal 1993 through fiscal 1996. The 1993-1996 LTIP was
terminated as of the end of fiscal 1994 and replaced with the 1995 Stock
Option Plan. Amounts earned under the 1993-1996 LTIP were determined based
on performance through the end of fiscal 1994, and prorated payments were
made in February 1997.
(3) Consists of amounts awarded under an employment agreement in respect of Mr.
White and under the Bell & Howell Operating Company's Management Incentive
Bonus Plan (the "MIB") in respect of Messrs. Roemer, Johansson, McSwiney and
Dering. The MIB provides a financial incentive for key management employees
to focus their efforts on, and achieve, annual financial targets. Payments
under the MIB for fiscal 1996 were made in February 1997.
(4) For fiscal 1996, 1995 and 1994, consists of $3,000 in contributions to the
Bell & Howell Profit Sharing Retirement Plan ("PSRP"); $16,027, $20,944 and
$19,953, respectively, in contributions to the Bell & Howell Replacement
Benefit Plan ("RBP") and $11,065, $10,630 and $13,758, respectively, in
imputed life insurance.
44
<PAGE>
(5) For fiscal 1996, 1995 and 1994 consists of $3,000 in contributions to the
PSRP; $3,384, $2,084, and $1,905, respectively, in imputed life insurance;
$12,381, $16,908 and $7,183, respectively, in contributions to the RBP; and
for fiscal 1996 and 1994 consists of $76,219 and $164,670, respectively, for
relocation and related expenses.
(6) For fiscal 1996, 1995 and 1994, consists of $6,000 in contributions to the
PSRP; $18,489, $23,328 and $13,172, respectively, in contributions to the
RBP; and $2,580, $2,440 and $2,028, respectively, in imputed life insurance.
(7) 1995 reflects compensation for the six month period from July 1995, when Mr.
McSwiney's employment by the Company began, through December 1995.
(8) For fiscal 1996 and 1995, consists of $3,000 and $2,308 respectively in
contributions to the PSRP; $3,011 and $655 respectively, in imputed life
insurance; and for fiscal 1996 includes $2,278 in contributions to the RBP;
$59,571 for relocation and related expenses; and $45,562 of income resulting
from the exercise of non-qualified stock options.
(9) Reflects compensation for the six month period from July 1996, when Mr.
Dering's employment by the Company began, through December 1996.
(10) For fiscal 1996, consists of $694 in imputed life insurance and $87,034 for
relocation and related expenses.
COMPENSATION OF DIRECTORS
All non-employee Directors are participants in the Bell & Howell
Non-Employee Directors' Stock Option Compensation Plan (the "Director Plan").
The Director Plan provides for annual stock option grants to each non-employee
director. Each annual grant (the value of which is equivalent to the level of
compensation determined by the Directors to be reasonable and appropriate)
permits each non-employee Director to purchase from the Company Common Stock,
with the exercise price equal to the fair market value of such shares on the
date the option is granted. The stock options have a term of ten years and are
exercisable one year from the date of grant. In fiscal 1996, each non-employee
Director received the option to purchase 1,225 shares of Common Stock at the
existing fair market value of $32.63 per share. Management directors do not
receive any additional compensation for serving as Directors.
45
<PAGE>
OPTION PLAN
The following tables set forth the number of options to purchase Common
Stock granted to each of the named executive officers during fiscal 1995 and
fiscal 1996 (pursuant to the Option Plan) and the potential realizable values of
such options, upon their latest possible expiration date, at assumed annualized
rates of stock price appreciation of 5%, 10% and 20% over the term of the
options. Because actual gains will depend upon, among other things, the actual
dates of exercise of the options and the future performance of the Common Stock
in the market, the amounts reflected in these tables may not reflect the
ultimate values actually realized.
STOCK OPTION GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF STOCK
SECURITIES TOTAL LATEST PRICE APPRECIATION FOR OPTION
UNDERLYING ANNUAL EXERCISE OR POSSIBLE TERM
YEAR OF OPTIONS OPTIONS BASE PRICE EXPIRATION -------------------------------
NAME GRANT GRANTED(#) GRANTED ($/SH) DATE 5% 10% 20%
- -------------------------------- --------- ----------- ----------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. White................ 1995 46,000 $ 15.50 May 2001 $ 242,488 $ 550,123 $1,416,007
1995 46,000 18.50 May 2001 104,488 412,123 1,278,007
1995 92,000 22.25 May 2001 -- 479,246 2,211,013
1995 92,000 26.75 May 2001 -- 65,246 1,797,013
1995 92,000 32.00 May 2001 -- -- 1,314,013
1995 92,000 38.50 May 2001 -- -- 716,013
-----------
460,000 35.4%
James P. Roemer................. 1995 38,500 $ 15.50 May 2001 $ 202,952 $ 460,429 $1,185,136
1995 38,500 18.50 May 2001 87,452 344,929 1,069,636
1995 77,000 22.25 May 2001 -- 401,108 1,850,522
1995 77,000 26.75 May 2001 -- 54,608 1,504,022
1995 77,000 32.00 May 2001 -- -- 1,099,772
1995 77,000 38.50 May 2001 -- -- 599,272
-----------
385,000 29.7%
Nils A. Johansson............... 1995 27,000 $ 15.50 May 2001 $ 142,330 $ 322,898 $ 831,134
1995 27,000 18.50 May 2001 61,330 241,898 750,134
1995 54,000 22.25 May 2001 -- 281,297 1,297,769
1995 54,000 26.75 May 2001 -- 38,297 1,054,769
1995 54,000 32.00 May 2001 -- -- 771,269
1995 54,000 38.50 May 2001 -- -- 420,269
-----------
270,000 20.8%
Ben L. McSwiney(1).............. 1996 12,000 5.3% $ 31.75 May 2006 $ 239,609 $ 607,216 $1,978,052
1995 10,500 0.8% 20.50 July 2005 135,370 343,053 1,117,521
Michael A. Dering(1)............ 1996 10,000 4.4% $ 29.38 July 2006 $ 184,238 $ 468,162 $1,525,073
</TABLE>
- ------------------------
(1) During first half 1997, Messrs. McSwiney and Dering were each granted 12,000
stock options at an exercise price of $21.125, the fair market value on the
date of the grant. The options expire in March 2007.
46
<PAGE>
STOCK OPTION EXERCISES IN 1996 AND
YEAR END STOCK OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
YEAR-END (#) AT YEAR-END ($)(1)
------------------ ---------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------- --------------- ------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
William J. White........................... None N/A None/460,000(2) None/$575,000(2)
James P. Roemer............................ None N/A None/385,000(2) None/481,250(2)
Nils A. Johansson.......................... None N/A None/270,000(2) None/337,500(2)
Ben L. McSwiney............................ None N/A 2,100/8,400(3) $ 4,725/18,900(3)
None/12,000(4) None/None(4)
Michael A. Dering.......................... None N/A None/10,000(5) None/None(4)
</TABLE>
- ------------------------
(1) These amounts have been determined by multiplying the aggregate number of
options by the difference between $22.75, the closing price of the Common
Stock on the NYSE on December 27, 1996 (the last trading day of fiscal
1996), and the exercise price of the options.
(2) These options are exercisable as follows: up to 25% after May 1998, up to
50% after May 1999 and up to 100% after May 2000.
(3) These options are exercisable in annual 20% increments commencing in July of
each year from July 1996 through July 2000.
(4) These options are exercisable in annual 20% increments commencing in May of
each year from May 1997 through May 2001.
(5) These options are exercisable in annual 20% increments commencing in July of
each year from July 1997 through July 2001.
The Option Plan replaced the 1993-1996 LTIP which covered officers and
certain employees, and was to provide payments based on the participants'
participation level (which was either 30% or 60% of the employees' base rate of
pay on January 1, 1993 or the date such participant was designated as eligible
for the 1993-1996 LTIP by the Board of Directors) and the achievement of
established financial targets. Amounts earned under the 1993-1996 LTIP were
determined based on performance through the end of fiscal 1994, and prorated
payments were made in February 1997.
SUPPLEMENTAL RETIREMENT PLAN
The Bell & Howell Supplemental Retirement Plan ("SRP") provides officers and
certain employees with additional pension benefits upon retirement, in order to
supplement social security and other benefits provided under the Bell & Howell
Profit Sharing Retirement Plan ("PSRP") and the Bell & Howell Replacement
Benefit Plan ("RBP"). Generally, the SRP provides for lifetime monthly pension
payments which equal the excess, if any, of (i) up to 50% (the actual percentage
being proportional to length of service) of the participant's average monthly
compensation (which is defined to include salary and annual bonuses up to 150%
of target) during the highest paid four years of the participant's last six
years of employment over (ii) the sum of the aggregate monthly amounts which are
payable under the PSRP, RBP (in each case exclusive of voluntary and mandatory
employee contributions and investment additions thereon) and primary social
security benefits. If a participant is involuntarily terminated for a reason
other than for cause and such terminated employee shall have been a plan
participant for at least five years, he shall be entitled to deferred SRP
payments calculated as if his termination date were his retirement date. If a
participant voluntarily terminates his employment and such terminated employee
shall have been an employee for at least ten years and a plan participant for at
least five years, he shall be entitled to deferred
47
<PAGE>
SRP payments calculated as if his termination date were his retirement date. The
credited years of service at the end of fiscal 1996 for each of the individuals
listed in the Summary Compensation Table are 6 years for Mr. White, 5 years for
Mr. Roemer, 15 years for Mr. Johansson and 1 year for Mr. McSwiney. The Company
estimates that the annual benefits which have accrued through the end of fiscal
1996 and would be payable upon retirement at age 60 pursuant to the SRP would be
$142,950 for Mr. White, $43,600 for Mr. Roemer and $152,475 for Mr. Johansson.
No SRP benefits have yet accrued at the end of fiscal 1996 for Mr. McSwiney or
Mr. Dering.
The following annual benefits would be payable upon retirement at or after
age 60 to persons in the following specified participation levels, compensation
and year-of-service classifications, less amounts received as social security
benefits and benefits under BHOC's other retirement plans:
SUPPLEMENTAL RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------
PARTICIPATION LEVEL I REMUNERATION 15 20 OR MORE
- ---------------------------------------------- ---------- ----------
<S> <C> <C> <C> <C>
$250,000...................................... $ 93,750 $ 125,000
425,000...................................... 159,375 212,500
600,000...................................... 225,000 300,000
775,000...................................... 290,625 387,500
950,000...................................... 356,250 475,000
<CAPTION>
YEARS OF SERVICE
---------------------------------------------
PARTICIPATION LEVEL II REMUNERATION 15 20 25 30 OR MORE
- ---------------------------------------------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
$125,000...................................... $ 34,375 $ 43,750 $ 53,125 $ 62,500
150,000...................................... 41,250 52,500 63,750 75,000
175,000...................................... 48,125 61,250 74,375 87,500
200,000...................................... 55,000 70,000 85,000 100,000
225,000...................................... 61,875 78,750 95,625 112,500
</TABLE>
Participants' may retire between ages 55 and 60 with reduced benefits.
EMPLOYMENT CONTRACTS
BHOC entered into an employment agreement with William J. White dated as of
March 23, 1990. Mr. White's salary and bonus are set by the Compensation
Committee of the Board of Directors. Pursuant to the terms of the employment
agreement, Mr. White is an employee at will. The agreement provides that Mr.
White shall be entitled to severance pay equal to one-half of his annual base
salary at the time of his termination and a prorated bonus if terminated without
cause or if Mr. White resigns for good reason. The agreement contains
noncompetition and confidentiality commitments.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors in fiscal
1996 consisted of Messrs. Oberndorf (Chairman), Bonderman, Crandall, Doctoroff
and Roubos. None of Messrs. Oberndorf, Bonderman, Crandall, Doctoroff and Roubos
were executive officers of the Company during 1996.
48
<PAGE>
CERTAIN TRANSACTIONS
The Company has made loans (the balance of which totaled $1,443,896 at the
end of fiscal 1996) to certain key executives in connection with their purchases
of Common Stock. Pursuant to the terms of such loans, the shares acquired are
pledged as security. The following individuals have loans in excess of $60,000
outstanding at the end of fiscal 1996: Nils A. Johansson ($236,128); Stuart T.
Lieberman ($90,818); Ben L. McSwiney ($356,977); and Maria T. Rubly ($359,987).
Each loan is evidenced by an installment note that bears interest at BHOC's
marginal rate of borrowing (approximately 6% at this time), and are primarily
due on December 31, 1998. Interest and principal may be deferred until that
date.
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information, as of August 27, 1997, with
respect to the beneficial ownership before and after the Offering of the Common
Stock of the Company held by persons known to be the beneficial owners of 5% or
more of any class of voting securities of the Company, by each director and
certain executive officers of the Company, and by all directors and executive
officers as a group, and by each Selling Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
----------------------- SHARES -----------------------
NUMBER OF BEING NUMBER OF
SHARES PERCENT OFFERED SHARES PERCENT
---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND
DIRECTORS:
Keystone, Inc.(1)(2)................................. 4,363,000 23.8% -- 4,363,000 19.7%
Robert M. Bass(1)(2)................................. 4,363,000 23.8% -- 4,363,000 19.7%
David Bonderman(3)(4)................................ 729,760 4.0% 316,255(5) 413,505 1.9%
William J. White(6).................................. 549,540 3.0% -- 549,540 2.5%
Nils A. Johansson.................................... 247,812 1.4% -- 247,812 1.1%
James P. Roemer...................................... 171,555 * -- 171,555 *
John H. Scully(4)(7)................................. 145,187 * -- 145,187 *
J. Taylor Crandall(4)................................ 132,603 * -- 132,603 *
William E. Oberndorf(4).............................. 56,565 * -- 56,565 *
Ben L. McSwiney(8)................................... 20,100 * -- 20,100 *
Daniel L. Doctoroff(4)............................... 13,133 * -- 13,133 *
Gary L. Roubos(4).................................... 4,079 * -- 4,079 *
David G. Brown(4).................................... 2,375 * -- 2,375 *
Michael A. Dering(9)................................. 2,000 * -- 2,000 *
All directors and executive officers as a group (16
persons)(10)....................................... 2,179,929 11.9% 316,255 1,863,674 8.4%
</TABLE>
- ------------------------
* Less than one percent.
(1) Robert M. Bass holds all of the voting stock and serves as president and
sole director of Keystone. Accordingly, Mr. Bass may be deemed to
beneficially own the shares of Common Stock held by Keystone.
(2) The address for this stockholder is 201 Main Street, Suite 3100, Forth
Worth, Texas 76102.
(3) Includes 72,488 shares owned by Group Management, Inc. and 64,483 shares
owned by Bonderman Family Limited Partnership.
(4) Includes options to purchase 2,375 shares that are exercisable within 60
days of August 27, 1997.
(5) Includes 72,488 shares being sold by Group Management, Inc. and 26,884
shares being sold by Bonderman Family Limited Partnership.
(6) Includes 447,300 shares held in a trust of which Mr. White is neither
trustee nor beneficiary but for which he has the power to vote and dispose
of shares.
(7) Includes 142,812 shares owned by Cranberry Lake Partners Limited over which
Mr. Scully exercises investment discretion.
(8) Includes options to purchase 6,600 shares that are exercisable within 60
days of August 27, 1997.
(9) Includes options to purchase 2,000 shares that are exercisable within 60
days of August 27, 1997.
(10) Includes options to purchase 36,225 shares that are exercisable within 60
days of August 27, 1997.
50
<PAGE>
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement dated as of May 10, 1988, by
and among the Company and the stockholders listed therein, certain stockholders
have certain demand and piggyback registration rights with respect to 7,107,313
shares of Common Stock. Under the Registration Rights Agreement, such
stockholders have the right to make up to two written requests for registration
under the Securities Act (each, a "Demand Registration") of all or part of such
stockholder's Common Stock subject to the Registration Rights Agreement
("Registrable Common Stock"); PROVIDED, HOWEVER, that such requests must be made
by stockholders holding (i) in the case of the first registration, at least
1,955,023 shares of Registrable Common Stock at the time of such request and
(ii) in the case of the second registration, at least 1,303,348 shares of
Registrable Common Stock at the time of such request and PROVIDED, FURTHER that
the Board of Directors of the Company must approve such registration. The
Company may delay a Demand Registration otherwise required to be prepared and
filed under the Registration Rights Agreement for up to 60 days under certain
circumstances, including if (a) such Demand Registration would adversely affect
an offering by the Company of its securities or (b) such Demand Registration
would interfere with a pending or contemplated financing, merger, sales of
assets or similar activity of the Company. See "Shares Eligible for Future Sale"
and "Underwriting."
In addition, in connection with any Demand Registration or a registration by
the Company of its Common Stock, the Company is required to notify the
stockholders subject to the Registration Rights Agreement of such registration
and include in such registration all Registrable Common Stock with respect to
which the Company has received written requests for inclusion therein; PROVIDED,
HOWEVER, that the Registrable Common Stock to be included in such registration
may be limited or eliminated under certain circumstances. Under the Registration
Rights Agreement, the Company is required to bear all costs and expenses of each
such registration (other than the Underwriters' commissions or discounts which
are to be borne by the sellers), and the stockholders and the Company have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act.
SHAREHOLDERS AGREEMENT
The terms of the Shareholders Agreement dated as of May 10, 1988, as amended
(the "Shareholders Agreement"), among Bell & Howell Operating Company,
Management Shareholders (as defined therein) and Investor Shareholders (as
defined therein), provide certain restrictions on those shares acquired pursuant
to the Fourth Amendment dated December 23, 1993, which governed the purchase of
255,600 shares in December 1993. Such restrictions provide that (i) no
Management Shareholder may, while employed by the Company, transfer, dispose of
or sell more than 50% of such Management Shareholder's shares restricted thereby
(the "Employee Shares") and (ii) upon a Management Shareholder's termination or
resignation of employment with the Company, such Management Shareholder has the
right to require the Company to repurchase and the Company has the right to
repurchase such Management Shareholder's Employee Shares at the Appraised Value
(as defined therein) or the Investment Value (as defined therein), depending
upon the circumstances surrounding such Management Shareholder's termination or
resignation. The current Management Shareholders include William J. White, James
P. Roemer, Nils A. Johansson, Stuart T. Lieberman and Maria T. Rubly.
DESCRIPTION OF CAPITAL STOCK
The following statements are subject to the detailed provisions of the
Company's Amended and Restated Certificate of Incorporation and By-laws, do not
purport to be complete and are qualified in their entirety by reference thereto.
The authorized capital stock of Bell & Howell Company consists of 50,000,000
shares of Common Stock, $.001 par value, of which 22,207,620 shares will be
outstanding upon completion of the Offering.
51
<PAGE>
COMMON STOCK
Following the Offering, 22,207,620 shares of Common Stock will be
outstanding. In addition, options to acquire 1,660,600 shares are outstanding
and 2,146,200 shares are reserved for issuance under the Option Plan. All of the
issued and outstanding shares of Common Stock are, and upon completion of the
Offering the shares of Common Stock offered hereby will be, fully paid and
non-assessable. Holders of Common Stock are entitled to one vote for each share
on all matters voted upon by stockholders and have no preemptive or other rights
to subscribe for additional securities of the Company. Holders of Common Stock
do not have the right to cumulatively vote their shares in the election of
directors. Each share of Common Stock has an equal and ratable right to receive
dividends when, as and if declared by the Board of Directors out of assets
legally available therefore. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock will be entitled to share
equally and ratably in the distribution of all of the Company's assets remaining
available for distribution after satisfaction of all its liabilities and the
payment of the liquidation preference of any outstanding preferred stock as
described below.
CERTAIN CHARTER AND BY-LAW PROVISIONS
In the event of any vacancy on the Board of Directors, the remaining
Directors may elect a successor to serve for the remainder of the unexpired
term. As permitted by Delaware General Corporation Law ("Delaware GCL"), the
Directors are indemnified against certain expenses and liabilities incurred in
their capacities as Directors of the Company when acting in good faith and
cannot be held personally liable for certain breaches of their fiduciary duty of
care, as described below.
PERSONAL LIABILITY OF DIRECTORS
Delaware GCL authorizes a Delaware corporation to eliminate or limit the
personal liability of a director to the corporation and its stockholders for
monetary damages for breach of certain fiduciary duties as a director. The
Company believes that such a provision is beneficial in attracting and retaining
qualified directors, and accordingly, the Company's Amended and Restated
Certificate of Incorporation includes a provision eliminating liability for
monetary damages for any breach of fiduciary duty as a director, except: (i) for
any breach of the duty of loyalty to the Company or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) for any transaction from which the director
derived an improper personal benefit; or (iv) for willful or negligent payment
of dividends, or approval of stock repurchases or redemptions that are unlawful
under Delaware law. Pursuant to Delaware GCL, directors of the Company are not
insulated from liability for breach of their duty of loyalty (requiring that, in
making a business decision, directors act in good faith and in the honest belief
that the action taken was in the best interest of the corporation), or for
claims arising under the Federal securities laws. The foregoing provision of the
Amended and Restated Certificate of Incorporation may reduce the likelihood of
derivative litigation against directors and may discourage or deter stockholders
or management from bringing a lawsuit against directors for breaches of their
fiduciary duties, even though such an action, if successful, might otherwise
have benefitted the Company and its stockholders.
CERTAIN STATUTORY PROVISIONS
Section 203 of the Delaware GCL contains certain provisions that may make
more difficult the acquisition of control of the Company by means of a tender
offer, open market purchase, proxy fight or otherwise. These provisions are
designed to encourage persons seeking to acquire control of the Company to
negotiate with the Board of Directors. However, these provisions could have the
effect of discouraging a prospective acquirer from making a tender offer or
otherwise attempting to obtain control of the Company. To the extent that these
provisions discourage takeover attempts, they could deprive stockholders of
opportunities to realize takeover premiums for their shares or could depress the
market price of the
52
<PAGE>
shares. Set forth below is a description of the relevant provisions of Section
203 of the Delaware GCL. The description is intended as a summary only and is
qualified in its entirety by reference to Section 203 of the Delaware GCL.
Section 203 of the Delaware GCL prohibits certain "business combination"
transactions between a publicly held Delaware corporation, such as the Company,
and any "interested stockholder" for a period of three years after the date on
which such stockholder became an interested stockholder, unless (i) the Board of
Directors approves, prior to such date, either the proposed business combination
or the proposed acquisition of stock that resulted in the stockholder becoming
an interested stockholder, (ii) upon consummation of the transaction that
results in the stockholder becoming an interested stockholder, the interested
stockholder acquires at least 85% of those shares of the voting stock of the
corporation which are not held by the directors, officers or certain employee
stock plans or (iii) on or subsequent to that date, the business combination
with the interested stockholder is approved by the Board of Directors and also
approved at a stockholders' meeting by the affirmative vote of the holder of at
least two-thirds of the outstanding shares of the corporation's voting stock
other than shares held by the interested stockholder. The Company has opted out
of Section 203 of the Delaware GCL pursuant to its terms.
TRANSFER AGENT AND REGISTRAR
The transfer agent, dividend paying agent and registrar for the Common Stock
is Boston EquiServe, L.P.
53
<PAGE>
DESCRIPTION OF CERTAIN FINANCING AGREEMENTS
AND CERTAIN INDEBTEDNESS
The following summary of the agreements governing the outstanding long-term
indebtedness of the Company does not purport to be complete and is qualified in
its entirety by reference to the various agreements described herein.
Capitalized terms used but not defined herein have the meanings ascribed to them
in the various agreements.
NEW REVOLVING CREDIT AGREEMENT
In connection with the consummation of the Offering, it is expected that
BHOC will enter into the New Revolving Credit Agreement. The New Revolving
Credit Agreement is expected to provide for a $600 million revolving credit line
which will be used, along with net proceeds of the Offering, to complete the
Transactions. Additionally, proceeds may be used, at the Company's option, for
general corporate purposes, including working capital, acquisitions, and letters
of credit. The maturity date of the New Revolving Credit Agreement will be
December 31, 2003.
Borrowings under the New Revolving Credit Agreement will bear interest, at
the Company's option, either at the London Interbank Offering Rate ("LIBOR")
plus a spread ranging from 0.25% to 1.25%, or at the prime rate plus a spread
ranging from 0.0% to 0.25%. The applicable spread is determined by BHOC's
leverage ratio. The New Revolving Credit Agreement will provide for an annual
commitment fee of 0.25% on the amount of the average unused revolving loan
commitment.
Repayment of principal outstanding under the New Revolving Credit Agreement
will be due at maturity. In addition, the New Revolving Credit Agreement may
require commitment reductions in the event of issuance of new debt securities or
Asset Sales (as defined).
The New Revolving Credit Agreement will be secured by a pledge of the
capital stock of BHOC's domestic subsidiaries, except BHFS, and a pledge of
two-thirds of the stock of BHOC's foreign subsidiaries. Certain real property
assets of BHOC's domestic subsidiaries will be also pledged as collateral.
Payments due under the New Revolving Credit Agreement will be guaranteed by the
Company and by each domestic subsidiary of BHOC listed therein. The New
Revolving Credit Agreement will require compliance with net worth, fixed charge
coverage and leverage covenants. In addition, under certain circumstances, the
New Revolving Credit Agreement will limit BHOC's ability to pay dividends or to
repurchase outstanding equity securities.
9 1/4% SENIOR NOTES
The 9 1/4% Senior Notes due July 15, 2000 (the "9 1/4% Senior Notes") are
direct, unsecured obligations of BHOC in an aggregate principal amount of $80
million which mature on July 15, 2000. The 9 1/4% Senior Notes bear interest at
the rate of 9 1/4% per annum, payable semiannually on each January 15 and July
15 to holders of record at the close of business on the January 1 or July 1 next
preceding the interest payment date. The 9 1/4% Senior Notes are redeemable at
the option of BHOC in whole or in part on or after July 15, 1997 and upon the
occurrence of a Change in Control (as defined therein), at a call price ranging
from 104.625% of the principal amount in 1997 and declining to par on July 15,
1999. The payment of principal, premium and interest on the 9 1/4% Senior Notes
is PARI PASSU in right of payment with all amounts outstanding under the New
Revolving Credit Agreement. The indenture governing the 9 1/4% Senior Notes (the
"9 1/4% Indenture") limits the ability of BHOC and its subsidiaries to incur,
issue, assume or guarantee indebtedness and restricts BHOC's ability to pay
dividends, redeem equity securities or repay subordinated Indebtedness (each a
"Restricted Payment"). BHOC is prohibited from declaring or paying any dividend
or making any other Restricted Payments if at the time of such Restricted
Payment the aggregate of all Restricted Payments exceeds the sum of (i) 50% of
BHOC's Consolidated Net Income (as defined in the 9 1/4% Indenture), PLUS (ii)
100% of the aggregate net proceeds received by BHOC from the issuance or sale of
BHOC Equity Interests (as defined in the 9 1/4% Indenture) PLUS (iii) 100% of
the net
54
<PAGE>
proceeds received by BHOC from the issuance or sale (other than to a subsidiary)
of any BHOC debt security or redeemable stock that has been converted into or
exchanged for BHOC Equity Interests, subject to a minimum fixed coverage ratio.
Notwithstanding the above, BHOC may make certain Restricted Payments, including
declaring or paying a dividend to the Company for the purpose of repurchasing
for cash equity securities of the Company from management of BHOC and its
subsidiaries in an aggregate amount up to $5 million, and paying dividends or
making distributions to the Company in an aggregate amount not to exceed
$250,000 per year for the purpose of enabling the Company to pay its accounting
and legal fees and other fees and expenses. BHOC is prohibited from creating any
additional restrictions on the ability of any of BHOC's subsidiaries to pay
dividends, make loans or transfer assets to BHOC or any of its subsidiaries.
Additionally, the 9 1/4% Indenture restricts BHOC and its subsidiaries in their
ability to engage in transactions with affiliates, create liens and participate
in material acquisitions or asset sales. If BHOC defaults in the payment of
principal or interest on the 9 1/4% Senior Notes or any other event of default
occurs under the 9 1/4% Senior Notes, excluding certain events of insolvency,
the 9 1/4% Indenture specifies that the trustee, or the holders of at least 25%
of the principal amount of 9 1/4% Senior Notes outstanding, may declare all
9 1/4% Senior Notes to be due and payable at a price equal to 100% of the
principal amount thereof, plus accrued interest to the date of payment. In the
event of certain events of insolvency with respect to BHOC or any significant
subsidiary, all outstanding 9 1/4% Senior Notes are immediately due and payable
without any declaration or other act on the part of the trustee or any holder.
All of BHOC's direct domestic operating subsidiaries (except Bell & Howell
Financial Services Company) are jointly and severally liable as guarantors of
the 9 1/4% Senior Notes.
10 3/4% SENIOR SUBORDINATED NOTES
The 10 3/4% Senior Subordinated Notes are direct, unsecured obligations of
BHOC in an aggregate principal amount of $55.0 million which mature on October
1, 2002. The 10 3/4% Senior Subordinated Notes bear interest at the rate of
10 3/4% per annum, payable semiannually on each April 1 and October 1 to holders
of record at the close of business on the March 15 or September 15 next
preceding the interest payment date. Subject to certain provisions of the Credit
Agreement, the 10 3/4% Senior Subordinated Notes are redeemable at the option of
BHOC in whole or in part (i) after October 1, 1997, at a call price ranging from
104.031% in 1997 and declining to par on October 1, 2000 and (ii) upon the
occurrence of a Change of Control (as defined therein) at a call price ranging
from 105.375% in 1996 declining to par on October 1, 2000. The payment of
principal, premium and interest on the 10 3/4% Senior Subordinated Notes is
subordinated in right of payment to the prior payment of all Senior Indebtedness
(as defined in the indenture governing the 10 3/4% Senior Subordinated Notes
(the "10 3/4% Indenture")) including indebtedness under the Credit Agreement.
The 10 3/4% Indenture limits the ability of BHOC and its subsidiaries to incur,
issue, assume or guarantee indebtedness and restricts BHOC's ability to pay
dividends, redeem equity securities or repay subordinated indebtedness (each a
"Restricted Payment"). BHOC is prohibited from declaring or paying any dividend
or making any other Restricted Payments if at the time of such Restricted
Payment the aggregate of all Restricted Payments exceeds the sum of (i) 50% of
BHOC's Consolidated Net Income (as defined in the 10 3/4% Indenture), PLUS (ii)
100% of the aggregate net proceeds received by BHOC from the issue or sale of
BHOC Equity Interests (as defined in the 10 3/4% Indenture) PLUS (iii) 100% of
the net proceeds received by BHOC from the issuance or sale (other than to a
subsidiary) of any BHOC debt security or redeemable stock that has been
converted into or exchanged for BHOC Equity Interest, subject to a minimum fixed
coverage ratio. Notwithstanding the above, BHOC may make certain Restricted
Payments, including the repurchase for cash of any equity securities of BHOC
from management of BHOC and its subsidiaries in an aggregate amount up to $5
million, cash payments with respect to BHOC's Intercompany Preferred Stock not
to exceed $500,000, and payment of additional cash dividends to holders of
Preferred Stock not to exceed 10% of BHOC's Consolidated Net Income. BHOC is
prohibited from creating any additional restrictions on the ability of any of
BHOC's subsidiaries to pay dividends, make loans or transfer assets to BHOC or
any of its subsidiaries. Additionally, the 10 3/4% Indenture restricts BHOC and
its subsidiaries in their ability to engage in transactions with affiliates,
55
<PAGE>
create liens and participate in material acquisitions or asset sales. If BHOC
defaults in the payment of principal or interest on the 10 3/4% Senior
Subordinated Notes or any other event of default occurs under the 10 3/4% Senior
Subordinated Notes, excluding certain events of insolvency, the 10 3/4%
Indenture specifies that the trustee or the holders of at least 25% of the
principal amount of 10 3/4% Senior Subordinated Notes outstanding may declare
all 10 3/4% Senior Subordinated Notes to be due and payable at a price equal to
100% of the principal amount thereof, plus accrued interest to the date of
payment. In the event of certain events of insolvency with respect to BHOC or
any significant subsidiary, all outstanding 10 3/4% Senior Subordinated Notes
are immediately due and payable without any declaration or other act on the part
of the trustee or any holder. All of BHOC's direct domestic operating
subsidiaries (except BHFS) are jointly and severally liable as guarantors of the
10 3/4% Senior Subordinated Notes. As part of the Transactions, the Company
intends to purchase all of the outstanding 10 3/4% Senior Subordinated Notes
pursuant to the 10 3/4% Redemption.
11 1/2% SENIOR DISCOUNT DEBENTURES
The 11 1/2% Senior Discount Debentures are direct, unsecured obligations of
the Company in an aggregate principal amount at maturity of $279.5 million which
mature on March 1, 2005. The 11 1/2% Senior Discount Debentures bear interest at
the rate of 11 1/2% per annum, payable semiannually on each March 1 and
September 1 commencing September 1, 2000, to holders of record at the close of
business on the February 15 or August 15 next preceding the interest payment
date. Prior to March 1, 2000, the 11 1/2% Senior Discount Debentures accrete in
value such that the aggregate principal amount of all such debentures initially
issued will be $279.5 million on March 1, 2000. The 11 1/2% Senior Discount
Debentures are redeemable at the option of the Company at 100% of the principal
amount of maturity, plus accrued and unpaid interest if any, to the date of
payment. In addition, the Company may redeem up to 50% of the principal amount
of 11 1/2% Senior Discount Debentures with the gross proceeds from an offering
of certain equity securities of the Company and its subsidiaries prior to March
1, 1998, at 110% of the Accreted Value thereof. In the event of a Change of
Control (as defined therein), the Company may redeem any or all of the 11 1/2%
Senior Discount Debentures at a premium of 10% to March 1, 2000, and at the
principal amount at maturity thereafter. If the 11 1/2% Senior Discount
Debentures become the primary obligation of BHOC, then the payment of principal,
premium and interest on the 11 1/2% Senior Discount Debentures is subordinated
in right of payment to the prior payment of all indebtedness of BHOC, including
all indebtedness outstanding under the New Revolving Credit Agreement, the
10 3/4% Senior Subordinated Notes and the 9 1/4% Senior Notes. The indenture
governing the 11 1/2% Senior Discount Debentures (the "11 1/2% Indenture")
limits the ability of the Company and its subsidiaries to incur, issue, assume
or guarantee indebtedness and restricts the Company's ability to pay dividends,
redeem equity securities or repay subordinated Indebtedness (each, a "Restricted
Payment"). the Company is prohibited from declaring or paying any dividend or
making any other Restricted Payments if at the time of such Restricted Payment
the aggregate of all Restricted Payments exceeds the sum of (i) 50% of the
Company's Consolidated Net Income (as defined in the 11 1/2% Indenture), PLUS
(ii) 100% of the aggregate net proceeds received by the Company from the issue
or sale of the Company Equity Interests (as defined in the 11 1/2% Indenture)
PLUS (iii) 100% of the net proceeds received by the Company from the issuance or
sale (other than to a subsidiary) of any the Company debt security or redeemable
stock that has been converted into or exchanged for the Company Equity
Interests, subject to a minimum fixed coverage ratio. Notwithstanding the above,
BHOC may make certain Restricted Payments, including the repurchase for cash of
any equity securities of the Company from management of the Company and its
subsidiaries in an aggregate amount up to $5 million. The Company is prohibited
from creating any additional restrictions on the ability of any of the Company's
subsidiaries to pay dividends, make loans or transfer assets to the Company or
any of its subsidiaries. Additionally, the 11 1/2% Indenture restricts the
Company in its ability to engage in transactions with affiliates, create liens
and participate in material acquisitions or asset sales. If the Company defaults
in the payment of principal or interest on the 11 1/2% Senior Discount
Debentures or any other event of default occurs, excluding certain events of
insolvency, the 11 1/2% Indenture specifies
56
<PAGE>
that the trustee, or the holders of at least 25% of the principal amount of
11 1/2% Senior Discount Debentures outstanding, may declare all 11 1/2% Senior
Discount Debentures to be due and payable at a price equal to 100% of the
principal amount thereof, plus accrued interest to the date of payment, or
Accreted Value, as applicable. In the event of certain events of insolvency with
respect to the Company or any significant subsidiary, all outstanding 11 1/2%
Senior Discount Debentures are immediately due and payable without any
declaration or other act on the part of the trustee or any Holder. As part of
the Transactions, the Company intends to complete the 11 1/2% Redemption and the
11 1/2% Tender Offer. Those 11 1/2% Senior Discount Debentures not tendered in
the Tender Offer will remain outstanding; HOWEVER, the 11 1/2% Indenture
pursuant to which the 11 1/2% Senior Discount Debentures were issued will be
amended to remove substantially all restrictive covenants.
BELL & HOWELL FINANCIAL SERVICES COMPANY
Bell & Howell Financial Services Company, a wholly owned subsidiary of BHOC,
assists BHOC in the marketing of products by providing lease financing for
BHOC's customers. The leases contain either full payout or fair market value
options at lease expiration. Bell & Howell Financial Services Company finances
its lease receivables on a non-recourse basis through two funding sources. Its
primary funding source is Falcon Asset Securitization Corporation ("Falcon"),
under the Amended and Restated Receivables Purchase Agreement, dated May 20,
1997, as amended (the "Falcon Agreement"). Its secondary funding source is Sanwa
Business Credit Corporation) ("Sanwa"), under the Lease Receivable Purchase and
Sale Agreement dated September 25, 1992, as amended (the "Sanwa Agreement").
Pursuant to each of the Agreements, Bell & Howell Financial Services Company
assigns an interest in a pool of lease contracts. Interests assigned under the
Falcon Agreement may vary in amount, at the request of Bell & Howell Financial
Services Company, up to a maximum of the principal balance of the lease contract
pool (net of loss reserve requirements) which principal balance accrues interest
at the A1/P1 commercial paper rate plus 0.185%. Interests assigned under the
Sanwa Agreement are the present value of the remaining payments in the
underlying lease pools (net of loss reserve requirements) discounted at LIBOR
plus 1.65%. At June 28, 1997, under both agreements, Bell & Howell Financial
Services Company had assigned receivables with a total value of $125.9 million.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding an
aggregate of 22,207,620 shares of Common Stock (22,786,771 shares if the
Underwriters' over-allotment option is exercised in full). The shares of Common
Stock offered hereby will be freely tradeable without restriction or further
registration under the Securities Act, except for shares sold by persons deemed
to be "affiliates" of the Company or acting as "underwriters," as those terms
are defined in the Securities Act. Following the expiration of the lock-up
period described below, all of the remaining outstanding shares of Common Stock
will be freely tradeable subject to the restrictions on resale imposed upon
"affiliates" by Rule 144 under the Securities Act.
In general, under Rule 144 a person (or persons whose shares are required to
be aggregated) who has beneficially owned, for at least one year, shares of
Common Stock that have not been registered under the Securities Act or that were
acquired from an "affiliate" of the Company is entitled to sell within any
three-month period the number of shares of Common Stock which does not exceed
the greater of one percent of the number of then outstanding shares or the
average weekly reported trading volume during the four calendar weeks preceding
the sale. Sales under Rule 144 are also subject to certain notice requirements
and to the availability of current public information about the Company and must
be made in unsolicited brokers' transactions or to a market maker. A person (or
persons whose shares are aggregated) who was not an "affiliate" of the Company
under the Securities Act during the three months preceding a sale and who has
beneficially owned such shares for at least two years is entitled to sell such
shares under Rule 144 without regard to the volume, notice, information and
manner of sale provisions of such Rule.
57
<PAGE>
Keystone, the Selling Stockholders and all directors and executive officers
of the Company who, immediately following the Offering, will collectively
beneficially own 6,226,674 shares of Common Stock, have each agreed for a period
of 90 days after the date of this Prospectus not to register for sale, offer,
sell (or contract to sell) or otherwise dispose of any Common Stock (or any
securities convertible into or exercisable or exchangeable for Common Stock) or
grant any options or warrants to purchase Common Stock (other than Common Stock
sold in the Offering) without the prior written consent of DLJ. In addition,
holders of an aggregate of 880,639 shares of Common Stock (which excludes shares
held by Keystone, the Selling Stockholders and all directors and executive
officers) are prohibited by the Registration Rights Agreement from effecting any
public sale or distribution of Common Stock prior to 90 days from the date of
this Prospectus. Sales of substantial amounts of Common Stock in the public
market following the Offering, or the possibility that such sales may occur, may
adversely affect the prevailing market price of the Common Stock.
Future sales of substantial amounts of Common Stock by Keystone and
executive officers and directors of the Company after the Offering, or the
perception that such sales could occur, could adversely effect the market price
of the Common Stock. No prediction can be made as to the effect, if any, that
future sales of shares, or the availability of shares for future sale, will have
on the market price of the Common Stock. In addition, the Company has the
authority to issue additional shares of Common Stock and shares of one or more
series of Preferred Stock.
REGISTRATION RIGHTS AGREEMENT
Certain stockholders of the Company have certain demand and piggyback
registration rights with respect to an aggregate of 7,107,313 shares of Common
Stock pursuant to the Registration Rights Agreement dated May 10, 1988 by and
among the Company and the stockholders named therein. Subject to certain
conditions and limitations, stockholders owning in the aggregate 1,955,023
shares of Registrable Common Stock may require the Company to file registration
statements with the Securities and Exchange Commission (the "Commission") under
the Securities Act and all stockholders who are a party to the Registration
Rights Agreement have the right to require the Company to include their shares
of Common Stock in any registered offering of the Common Stock by the Company,
including any such registration statement filed pursuant to the Registration
Rights Agreement. In the event that the stockholders of the Company exercise
their registration rights under the Registration Rights Agreement, the Company
is required to bear all expenses, other than underwriting discounts and selling
commissions applicable to such shares, in connection with such registration and
the stockholders and the Company have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
58
<PAGE>
UNDERWRITING
Subject to certain conditions contained in the Underwriting Agreement, dated
, 1997 (the "Underwriting Agreement"), the underwriters named below
(the "Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), Bear, Stearns & Co. Inc., Salomon Brothers Inc and Smith
Barney Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Stockholders all
of the shares of Common Stock offered in the Offering. The number of shares of
Common Stock that each Underwriter has agreed to purchase is set forth opposite
its name below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..............................
Bear, Stearns & Co. Inc..........................................................
Salomon Brothers Inc.............................................................
Smith Barney Inc.................................................................
----------
Total.......................................................................... 4,177,259
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all of the shares of Common Stock offered hereby (other than the shares of
Common Stock covered by the over-allotment option described below) if any are
taken.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the Common Stock to the
public initially at the price to the public set forth on the cover page of this
Prospectus and to certain dealers (who may include the Underwriters) at such
price less a concession not to exceed $ per share. The Underwriters may
allow, and such dealers may reallow, discounts not in excess of $ per share
to certain other dealers.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to 579,151 and 47,438 additional shares of Common Stock, respectively, solely to
cover over-allotments at the public offering price set forth on the cover page
of this Prospectus less underwriting discounts and commissions. The Underwriters
may exercise such option from time to time to purchase additional shares solely
for the purpose of covering over-allotments, if any, incurred in connection with
the sale of the shares offered hereby. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as the
number of shares set forth opposite such Underwriter's name in the preceding
table bears to the total number of shares offered in the Offering.
The Company, the Selling Stockholders and certain subsidiaries of the
Company have agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute payments that
the Underwriters may be required to make in respect thereof.
Keystone, the Selling Stockholders and all directors and executive officers
of the Company who, immediately following the Offering, will collectively
beneficially own 6,226,674 shares of Common Stock, have each agreed for a period
of 90 days after the date of this Prospectus not to register for sale, offer,
sell (or contract to sell) or otherwise dispose of any Common Stock (or any
securities convertible into or exercisable or exchangeable for Common Stock) or
grant any options or warrants to purchase Common Stock (other than Common Stock
sold in the Offering) without the prior written consent of DLJ. In addition,
holders of an aggregate of 880,639 shares of Common Stock (which excludes shares
held by Keystone, the Selling Stockholders and all directors and executive
officers) are prohibited by the Registration Rights Agreement from effecting any
public sale or distribution of Common Stock prior to 90 days from the date of
this Prospectus. Sales of substantial amounts of Common Stock in the public
market
59
<PAGE>
following the Offering, or the possibility that such sales may occur, may
adversely affect the prevailing market price of the Common Stock.
In addition, certain stockholders of the Company have certain demand and
piggyback registration rights with respect to an aggregate of 7,107,313 shares
of Common Stock pursuant to the Registration Rights Agreement. Subject to
certain conditions and limitations, certain stockholders owning at least
1,955,023 shares of Registrable Common Stock may require the Company to file
registration statements with the Commission under the Securities Act and all
stockholders who are a party to the Registration Rights Agreement have the right
to require the Company to include their shares of Common Stock in any registered
offering of the Common Stock by the Company, including any such registration
statement filed pursuant to the Registration Rights Agreement. In the event that
the stockholders of the Company exercise their registration rights under the
Registration Rights Agreement, the Company is required to bear all expenses,
other than underwriting discounts and selling commissions applicable to such
shares, in connection with such registration and the stockholders and the
Company have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot the Offering, creating a syndicate
short position. Underwriters may bid for and purchase shares of Common Stock in
the open market to cover syndicate short positions. In addition, the
Underwriters may bid for and purchase shares of Common Stock in the open market
to stabilize the price of the Common Stock. These activities may stabilize or
maintain the market price of the Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end
these activities at any time.
DLJ has received customary compensation for broker services performed in
connection with certain open market purchases on behalf of the Company of the
11 1/2% Senior Discount Debentures and the 10 3/4% Senior Subordinated Notes.
DLJ is acting as dealer manager for the 11 1/2% Tender Offer and is receiving a
customary fee in connection therewith.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by McDermott, Will
& Emery, Chicago, Illinois. Certain legal matters will be passed upon for the
Underwriters by Latham & Watkins, New York, New York.
EXPERTS
The audited Consolidated Annual Financial Statements of the Company as of
the end of fiscal years 1995 and 1996 and for each of fiscal years 1994, 1995
and 1996 included herein have been so included in reliance on the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Registration Statement and the exhibits thereto as well as the
periodic reports, proxy statements and other information filed by the Company
with the Commission may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at its regional offices located at the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such material can be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at
60
<PAGE>
prescribed rates. In addition, material filed by the Company can be inspected at
the offices of the NYSE at 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-1 under the Securities Act, with respect to the shares of Common Stock offered
hereby. For purposes hereof, the term "Registration Statement" means the
original Registration Statement and any and all amendments thereto. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission. Statements made in
this Prospectus concerning the contents of any documents referred to herein are
not necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and other information filed by the Company with the
Commission are also available at the web site maintained by the Commission on
the World Wide Web at http://www.sec.gov.
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CONSOLIDATED ANNUAL FINANCIAL STATEMENTS:
Independent Auditors' Report............................................................................... F-2
Consolidated Statements of Operations for the fiscal years 1994, 1995 and 1996............................. F-3
Consolidated Balance Sheets at the end of fiscal years 1995 and 1996....................................... F-4
Consolidated Statements of Cash Flows for the fiscal years 1994, 1995 and 1996............................. F-5
Consolidated Statements of Shareholders' Equity for the fiscal years 1994, 1995 and 1996................... F-6
Notes to the Consolidated Annual Financial Statements...................................................... F-7
CONSOLIDATED INTERIM FINANCIAL STATEMENTS:
Consolidated Statements of Operations for the thirteen and twenty-six weeks ended June 29, 1996 and June
28, 1997................................................................................................. F-23
Consolidated Balance Sheets at December 28, 1996 and June 28, 1997......................................... F-24
Consolidated Statements of Cash Flows for the twenty-six weeks ended June 29, 1996 and June 28, 1997....... F-25
Notes to the Consolidated Interim Financial Statements..................................................... F-26
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bell & Howell Company:
We have audited the accompanying consolidated balance sheets of Bell &
Howell Company and subsidiaries (the "Company") as of the end of fiscal years
1995 and 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the fiscal years 1994, 1995 and 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bell &
Howell Company and subsidiaries as of the end of fiscal years 1995 and 1996, and
the results of their operations and their cash flows for the fiscal years 1994,
1995 and 1996 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 19, 1997
F-2
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS 1994, 1995 AND 1996
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
Product.................................................................... $ 542,546 $ 630,454 $ 703,833
Service.................................................................... 177,794 189,435 198,964
---------- ---------- ----------
Total net sales........................................................ 720,340 819,889 902,797
Operating costs and expenses:
Cost of product............................................................ 336,775 385,562 443,014
Cost of service............................................................ 118,649 125,837 133,403
Research and development................................................... 21,556 30,202 38,101
Selling and administrative................................................. 173,019 194,839 198,898
Restructuring.............................................................. 32,893 -- --
---------- ---------- ----------
Total operating costs and expenses..................................... 682,892 736,440 813,416
Operating income............................................................. 37,448 83,449 89,381
Net interest expense:
Interest (income).......................................................... (13,703) (14,391) (18,759)
Interest expense........................................................... 62,657 65,191 64,085
---------- ---------- ----------
Net interest expense................................................... 48,954 50,800 45,326
Earnings (loss) before income taxes and extraordinary items.................. (11,506) 32,649 44,055
Income tax expense (benefit)................................................. (2,490) 13,439 18,400
---------- ---------- ----------
Earnings (loss) before extraordinary items................................... (9,016) 19,210 25,655
Extraordinary losses......................................................... (978) (3,219) (2,585)
---------- ---------- ----------
Net earnings (loss).......................................................... $ (9,994) $ 15,991 $ 23,070
---------- ---------- ----------
---------- ---------- ----------
Net earnings (loss) per common share:
Primary:
Earnings (loss) before extraordinary items............................... $ (.68) $ 1.15 $ 1.38
Extraordinary losses..................................................... (.07) (.19) (.14)
---------- ---------- ----------
Net earnings (loss) per common share......................................... $ (.75) $ .96 $ 1.24
---------- ---------- ----------
---------- ---------- ----------
Fully diluted:
Earnings (loss) before extraordinary items............................... $ (.68) $ 1.15 $ 1.38
Extraordinary losses..................................................... (.07) (.19) (.14)
---------- ---------- ----------
Net earnings (loss) per common share......................................... $ (.75) $ .96 $ 1.24
---------- ---------- ----------
---------- ---------- ----------
Average number of common shares and equivalents outstanding:
Primary.................................................................... 13,267 16,585 18,560
Fully diluted.............................................................. 13,267 16,585 18,560
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
F-3
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT THE END OF FISCAL YEARS 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 7,262 $ 15,500
Accounts receivable, less allowance for doubtful accounts of $4,406 and $5,294,
respectively......................................................................... 181,247 186,862
Inventory:
Finished products.................................................................... 52,760 61,393
Products in process and materials.................................................... 53,158 78,438
---------- ----------
Total inventory.................................................................... 105,918 139,831
Other current assets................................................................... 11,768 11,826
---------- ----------
Total current assets............................................................... 306,195 354,019
Property, plant and equipment:
Land................................................................................... 4,245 4,302
Buildings.............................................................................. 42,840 47,833
Machinery and equipment................................................................ 115,023 137,586
Product masters........................................................................ 153,928 173,294
---------- ----------
Total property, plant and equipment, at cost....................................... 316,036 363,015
Accumulated depreciation................................................................. (171,057) (207,287)
---------- ----------
Net property, plant and equipment.................................................. 144,979 155,728
Long-term receivables.................................................................... 57,062 54,707
Goodwill, net of accumulated amortization................................................ 133,422 189,868
Other assets............................................................................. 40,483 42,464
---------- ----------
Total assets....................................................................... $ 682,141 $ 796,786
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable.......................................................................... $ 14,939 $ 8,397
Current maturities of long-term debt................................................... 14,707 1,667
Accounts payable....................................................................... 65,444 93,135
Accrued expenses....................................................................... 81,717 78,308
Deferred income........................................................................ 176,351 171,698
Accrued income taxes................................................................... 6,539 1,143
---------- ----------
Total current liabilities.......................................................... 359,697 354,348
Long-term liabilities:
Long-term debt......................................................................... 465,230 548,281
Other liabilities...................................................................... 46,686 61,049
---------- ----------
Total long-term liabilities........................................................ 511,916 609,330
Shareholders' equity:
Common Stock, $0.001 par value, 18,336 shares issued and 18,329 shares outstanding at
the end of fiscal 1995, and 18,359 shares issued and 18,309 shares outstanding at the
end of fiscal 1996................................................................... 18 18
Capital surplus........................................................................ 328 1,402
Notes receivable from executives....................................................... (2,054) (1,444)
Retained earnings (deficit)............................................................ (188,921) (165,851)
Cumulative foreign exchange translation adjustments.................................... 1,187 616
Treasury stock......................................................................... (30) (1,633)
---------- ----------
Total shareholders' equity (deficit)............................................... (189,472) (166,892)
Commitments and contingencies............................................................ -- --
---------- ----------
Total liabilities and shareholders' equity......................................... $ 682,141 $ 796,786
---------- ----------
---------- ----------
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
F-4
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net earnings (loss)...................................................... $ (9,994) $ 15,991 $ 23,070
Depreciation and amortization............................................ 36,689 41,386 47,389
Debt accretion........................................................... 20,993 23,476 23,903
Changes in operating assets and liabilities:
Accounts receivable.................................................... 741 (28,891) (5,537)
Inventory.............................................................. 17,301 (27,235) (37,137)
Other current assets................................................... (1,130) (1,220) 436
Long-term receivables.................................................. 30,552 (14,804) 2,355
Income taxes........................................................... (3,340) 10,041 6,003
Accounts payable....................................................... 9,935 9,467 26,166
Accrued expenses....................................................... 7,483 (2,361) (6,302)
Deferred income and other long-term liabilities........................ 11,478 22,568 (1,137)
Other, net............................................................. 11,300 (4,468) (1,258)
----------- ----------- -----------
Net cash provided by operating activities............................ 132,008 43,950 77,951
Investing activities:
Expenditures for property, plant and equipment........................... (38,345) (44,047) (42,744)
Acquisitions............................................................. (18,747) (2,849) (65,314)
----------- ----------- -----------
Net cash used by investing activities................................ (57,092) (46,896) (108,058)
Financing activities:
Proceeds from short-term debt............................................ 20,275 17,786 15,588
Repayment of short-term debt............................................. (24,542) (15,329) (21,650)
Proceeds from long-term debt............................................. 79,985 55,887 237,432
Repayment of long-term debt.............................................. (142,171) (135,200) (192,703)
Proceeds from Common Stock, net.......................................... 519 71,255 71
----------- ----------- -----------
Net cash provided (used) by financing activities..................... (65,934) (5,601) 38,738
Effect of exchange rate changes on cash.................................... 9 (365) (393)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents........................... 8,991 (8,912) 8,238
Cash and cash equivalents, beginning of period............................. 7,183 16,174 7,262
----------- ----------- -----------
Cash and cash equivalents, end of period................................... $ 16,174 $ 7,262 $ 15,500
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
F-5
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FISCAL YEARS 1994, 1995 AND 1996
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
NOTES FOREIGN UNREALIZED
COMMON STOCK RECEIVABLE RETAINED EXCHANGE LOSS ON
---------------------- CAPITAL FROM EARNINGS TRANSLATION MARKETABLE
ISSUED TREASURY SURPLUS EXECUTIVES (DEFICIT) ADJUSTMENTS SECURITIES
----------- --------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, at the end of fiscal 1993
(Common Stock, 13,290 shares;
treasury stock, 112 shares)..... $ 13 $ (194) $ (70,984) $ (2,328) $ (194,918) $ (1,897) $ (245)
Net loss.......................... (9,994)
Common Stock, 47 shares........... 764
Notes receivable from
executives...................... (624)
Treasury stock, net 109
shares.......................... 189
Unrealized loss on marketable
securities...................... (768)
Translation adjustments........... 2,258
--- --------- ---------- ----------- ----------- ----------- -----------
Balance, at the end of fiscal 1994
(Common Stock, 13,336 shares;
treasury stock, 3 shares)....... 13 (5) (70,220) (2,952) (204,912) 361 (1,013)
Net earnings...................... 15,991
Common Stock, 5,000 shares........ 5 70,548
Notes receivable from
executives...................... 898
Treasury stock, net 4 shares...... (25)
Unrealized loss on marketable
securities...................... 1,013
Translation adjustments........... 826
--- --------- ---------- ----------- ----------- ----------- -----------
Balance, at the end of fiscal 1995
(Common Stock, 18,336 shares;
treasury stock, 7 shares)....... 18 (30) 328 (2,054) (188,921) 1,187 --
Net earnings...................... 23,070
Common Stock, 23 shares........... 1,074
Notes receivable from
executives...................... 610
Treasury stock, net 43 shares..... (1,603)
Translation adjustments........... (571)
--- --------- ---------- ----------- ----------- ----------- -----------
Balance, at the end of fiscal 1996
(Common Stock, 18,359 shares;
treasury stock, 50 shares)...... $ 18 $ (1,633) $ 1,402 $ (1,444) $ (165,851) $ 616 $ --
--- --------- ---------- ----------- ----------- ----------- -----------
--- --------- ---------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
F-6
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1--BASIS OF PRESENTATION
Bell & Howell Company (the "Company") is a holding company, the primary
assets of which are all of the issued and outstanding shares of capital stock of
Bell & Howell Operating Company ("BHOC"). The Company conducts business through
Bell & Howell Operating Company and has no operations of its own.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. Bell & Howell Company and its Subsidiaries is a
leading provider of systems and services for information access and
dissemination. The Company consists of two business segments, Information Access
and Mail Processing. Information Access develops and markets imaging and
information services and systems that provide its customers with access
solutions to targeted segments of complex public and private information
databases. Mail Processing develops and markets a complete range of high volume
mail processing systems, which increasingly utilize software to expand the
capabilities and improve the efficiencies and effectiveness of customers'
mailing operations.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Subsequent actual results may differ from those
estimates.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its subsidiaries (collectively, the "Company").
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
FISCAL YEAR. The Company's fiscal year ends on the Saturday nearest to
December 31. References to fiscal 1996 are for the 52 weeks ended December 28,
1996, references to fiscal 1995 are for the 52 weeks ended December 30, 1995,
and references to fiscal 1994 are for the 52 weeks ended December 31, 1994.
REVENUE RECOGNITION. Product sales include sales of equipment, software and
subscriptions. Equipment and software license sales are recorded at the time of
shipment, provided no significant vendor and postcontract customer support
obligations remain outstanding and collection of the resulting receivable is
deemed probable. Sales of customized mail automation equipment under long-term
contracts are recognized at the time of shipment. Revenues from subscriptions
are deferred and recognized in the periods the subscriptions are fulfilled.
Service sales represent amounts earned by providing equipment maintenance
services to customers of the Mail Processing and Information Management
businesses. Where such services are provided under annual agreements, revenues
are recognized on a pro rata basis over the periods of the agreements. Other
service revenues are recognized when the services are performed.
FOREIGN CURRENCY TRANSLATION. The financial position and results of
operations of each of the Company's foreign subsidiaries are measured using the
local currency as the functional currency. Assets and liabilities are translated
into U.S. dollars using the exchange rates at the end of the respective fiscal
periods. Revenues and expenses are translated at average exchange rates
prevailing during the respective fiscal periods. Balance sheet translation
adjustments arising from differences in exchange rates from period to period are
included as a separate component of shareholders' equity.
F-7
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET EARNINGS (LOSS) PER COMMON SHARE. Net earnings (loss) per common share
are determined by dividing net earnings by the weighted average number of common
shares outstanding during the period. If dilutive, stock options are included as
common stock equivalents.
CASH AND CASH EQUIVALENTS. The Company considers all highly liquid
investments with maturities of three months or less (when purchased) to be cash
equivalents. The carrying amount reported in the consolidated balance sheets
approximates fair value.
INVENTORY. Inventory is valued at cost determined by the last-in, first-out
("LIFO") and the first-in, first-out ("FIFO") methods, with the following
balances at the end of fiscal 1995 and 1996:
<TABLE>
<CAPTION>
YEAR END LIFO FIFO TOTAL
- ------------------------------------------------------------ --------- --------- ----------
<S> <C> <C> <C>
1995........................................................ $ 53,601 $ 52,317 $ 105,918
1996........................................................ 67,051 72,780 139,831
</TABLE>
The Company uses the LIFO method of valuing the majority of domestic
inventories. The excess of replacement cost over the LIFO values of inventory
was approximately $4,413 and $4,489 at the end of fiscal 1995 and 1996,
respectively. Inventory cost includes material, labor and overhead and is valued
at the lower of cost or net realizable value.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is recorded at
cost. The straight-line method of depreciation is primarily used, except for
Information Access product masters (which represent the cost to create
electronic and microform master document copies which are subsequently used in
the production process to fulfill customers' information requirements), which
are depreciated on the double declining balance method. Estimated lives range
from 10 to 40 years for buildings and building improvements, 3 to 15 years for
machinery and equipment and 10 years for product masters.
GOODWILL. Goodwill, which represents the excess of purchase price over the
fair value of net assets of acquired businesses, is amortized on a straight-line
basis over the expected future periods to be benefitted. The Company
periodically assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance (for each business) over its
remaining life can be recovered through forecasted future operations.
In fiscal 1996, acquisitions (primarily DataTimes Corporation and Protocorp
International) served to initially increase goodwill by $61,511. Accumulated
amortization at the end of fiscal 1995 and 1996 was $28,489 and $33,632,
respectively.
STOCK OPTION PLAN. Prior to fiscal 1996, the Company accounted for its
stock option plan in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. In fiscal 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25, and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
F-8
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
future years as if the fair-value-based method (defined in SFAS No. 123) had
been applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123
(see Note 12 of the Consolidated Financial Statements).
NOTE 3--BUSINESS SEGMENTS
The Company consists of two business segments, Information Access and Mail
Processing. Information Access develops and markets imaging and information
services and systems that provide its customers with access solutions to
targeted segments of complex public and private information databases. Mail
Processing develops and markets a complete range of high volume mail processing
systems, which increasingly utilize software to expand the capabilities and
improve the efficiencies and effectiveness of customers' mailing operations.
Information concerning the Company's business segments and operations by
geographic area for fiscal 1994, 1995 and 1996 was as follows (dollars in
millions):
<TABLE>
<CAPTION>
EARNINGS (LOSS) BEFORE INCOME
TAXES
SALES AND EXTRAORDINARY ITEMS
------------------------------- -------------------------------
BUSINESS SEGMENTS 1994 1995 1996 1994(1) 1995 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Information Access..................................... $ 404.4 $ 449.9 $ 470.5 $ 46.5 $ 62.8 $ 62.9
Mail Processing........................................ 315.9 370.0 432.3 2.8 33.5 40.0
--------- --------- --------- --------- --------- ---------
Total................................................ 720.3 819.9 902.8 49.3 96.3 102.9
Interest expense, net.................................. (49.0) (50.8) (45.3)
Corporate and other income and expenses................ (11.8) (12.9) (13.5)
--------- --------- --------- --------- --------- ---------
Consolidated........................................... $ 720.3 $ 819.9 $ 902.8 $ (11.5) $ 32.6 $ 44.1
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
IDENTIFIABLE ASSETS CAPITAL EXPENDITURES
------------------------------- -------------------------------
1994 1995 1996 1994 1995 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Information Access..................................... $ 371.3 $ 393.9 $ 451.9 $ 30.5 $ 34.2 $ 31.0
Mail Processing........................................ 159.1 206.4 259.4 6.5 9.6 11.4
--------- --------- --------- --------- --------- ---------
Total................................................ 530.4 600.3 711.3 37.0 43.8 42.4
Corporate.............................................. 73.3 81.8 85.5 1.3 0.2 0.3
--------- --------- --------- --------- --------- ---------
Consolidated........................................... $ 603.7 $ 682.1 $ 796.8 $ 38.3 $ 44.0 $ 42.7
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
F-9
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3--BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION AND
AMORTIZATION(2)
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Information Access..................................... $ 26.9 $ 31.3 $ 35.5
Mail Processing........................................ 5.4 5.5 8.1
--------- --------- ---------
Total................................................ 32.3 36.8 43.6
Corporate.............................................. 0.5 0.6 0.6
--------- --------- ---------
Consolidated........................................... $ 32.8 $ 37.4 44.2
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Includes restructuring expense of $32.9 million ($28.2 million for Mail
Processing and $4.7 million for Information Access).
(2) Excludes amortization of deferred financing costs.
<TABLE>
<CAPTION>
EARNINGS (LOSS) BEFORE INCOME
SALES TAXES AND EXTRAORDINARY ITEMS(1) IDENTIFIABLE ASSETS(2)
------------------------------- --------------------------------- -------------------------------
GEOGRAPHIC SEGMENTS 1994 1995 1996 1994(3) 1995 1996 1994 1995 1996
--------- --------- --------- ----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES:
Unaffiliated customers..... $ 548.4 $ 625.2 $ 706.0
Inter-segment.............. 45.6 51.1 46.6
--------- --------- ---------
Total.................... 594.0 676.3 752.6 $ 42.7 $ 81.4 $ 86.5 $ 439.3 $ 497.0 $ 615.4
--------- --------- --------- ----- --------- --------- --------- --------- ---------
EUROPE:
Unaffiliated customers..... 130.5 145.1 158.2
Inter-segment.............. 1.6 2.0 0.8
--------- --------- ---------
Total.................... 132.1 147.1 159.0 7.8 12.6 13.3 67.8 78.2 81.2
--------- --------- --------- ----- --------- --------- --------- --------- ---------
OTHER:
Unaffiliated customers..... 41.4 49.6 38.6 (1.2) 2.3 3.1 24.3 26.3 16.0
--------- --------- --------- ----- --------- --------- --------- --------- ---------
Eliminations inter-
segment.................. (47.2) (53.1) (47.4) -- -- -- (1.0) (1.2) (1.3)
--------- --------- --------- ----- --------- --------- --------- --------- ---------
Total.................... $ 720.3 $ 819.9 902.8 $ 49.3 $ 96.3 102.9 $ 530.4 $ 600.3 $ 711.3
--------- --------- --------- ----- --------- --------- --------- --------- ---------
--------- --------- --------- ----- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Excludes net interest and corporate expenses.
(2) Excludes corporate identifiable assets.
(3) Includes restructuring expense of $32.9 million ($29.2 million in the United
States, $1.3 million in Europe and $2.4 million in Other).
F-10
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4--RESTRUCTURING
The Company's restructuring expense of $32,893 in fiscal 1994 resulted from
management's decision to relocate Mail Processing Systems headquarters'
operations and consolidate certain of its domestic Mail Processing Systems
facilities at a new site that will be the base for developing innovative
technology and products (both software and hardware), and to consolidate certain
North American Information Management administrative and warehouse facilities in
order to more effectively serve its customer base with a reduced operating
expense infrastructure.
NOTE 5--INCOME TAXES
The pretax income (loss) amounts, before extraordinary items, on which
income taxes were provided in fiscal 1994, 1995 and 1996 were:
<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Domestic.................................................... $ (13,471) $ 27,251 $ 35,850
Foreign..................................................... 1,965 5,398 8,205
---------- --------- ---------
Pretax income (loss)...................................... $ (11,506) $ 32,649 $ 44,055
---------- --------- ---------
---------- --------- ---------
</TABLE>
The provision for income taxes in fiscal 1994, 1995 and 1996 included the
following:
<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Current income tax expense (benefit):
United States............................................. $ 1,814 $ 5,157 $ 1,996
State and local........................................... (62) 513 476
Foreign................................................... (379) 1,849 3,974
---------- --------- ---------
Current income tax expense.............................. 1,373 7,519 6,446
---------- --------- ---------
Deferred income tax expense (benefit):
United States............................................. (3,303) 3,906 9,035
State and local........................................... (147) 1,633 2,208
Foreign................................................... (413) 381 711
---------- --------- ---------
Deferred income tax expense (benefit)..................... (3,863) 5,920 11,954
---------- --------- ---------
Income tax expense (benefit).............................. $ (2,490) $ 13,439 $ 18,400
---------- --------- ---------
---------- --------- ---------
</TABLE>
The significant components of deferred income tax expense (benefit) in
fiscal 1994, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Deferred income tax expense (benefit), exclusive of
components listed below................................... $ (11,230) $ (3,806) $ 12,557
Operating loss carryforwards................................ 5,654 9,974 (414)
Tax credits................................................. 1,713 (248) (189)
---------- --------- ---------
Deferred income tax expense (benefit)..................... $ (3,863) $ 5,920 $ 11,954
---------- --------- ---------
---------- --------- ---------
</TABLE>
F-11
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--INCOME TAXES (CONTINUED)
Deferred income taxes are primarily provided for temporary differences
between the financial reporting bases and the tax bases of the Company's assets
and liabilities. The tax effects of the major temporary differences that gave
rise to the deferred tax asset (liability) at the end of fiscal 1995 and 1996
were as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets are attributable to:
Accrued expenses.................................................... $ 14,889 $ 9,236
Deferred compensation............................................... 8,094 9,194
Postretirement benefits............................................. 3,669 3,476
Accounts receivable................................................. 1,722 2,332
Operating loss carryforwards........................................ 17,934 22,188
Tax credits......................................................... 765 525
Other............................................................... 9,468 82
---------- ----------
Total gross deferred tax assets................................... 56,541 47,033
Valuation allowance............................................... (4,666) (7,049)
---------- ----------
Net deferred tax assets........................................... 51,875 39,984
Deferred tax liabilities are attributable to:
Property, plant and equipment....................................... (13,832) (14,410)
Intangibles......................................................... (16,293) (16,607)
Deferred income..................................................... (21,349) (23,346)
Undistributed foreign earnings...................................... (4,449) (3,305)
---------- ----------
Total gross deferred tax liabilities.............................. (55,923) (57,668)
---------- ----------
Net deferred tax liabilities...................................... $ (4,048) $ (17,684)
---------- ----------
---------- ----------
</TABLE>
Net deferred tax liabilities are classified as other long-term liabilities
in the balance sheet.
At the end of fiscal 1996, the net deferred tax assets of $39,984 are
expected to be realized through both the reversal of taxable temporary
differences as well as the Company's ability to generate future taxable income.
This is on the basis that it is more likely than not that both the timing of
reversal of taxable amounts and the generation of future taxable income allows
for offset with future deductible amounts in the permitted
carryback/carryforward periods.
F-12
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 5--INCOME TAXES (CONTINUED)
The differences between the Company's effective rate for income taxes and
the statutory federal income tax rate in fiscal 1994, 1995 and 1996 were as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate................................... (35.0%) 35.0% 35.0%
Increase (reduction) in taxes resulting from:
State income taxes, net of federal benefit........................ (24.2) 6.3 5.7
Foreign earnings.................................................. (1.9) 1.0 4.4
Amortization of intangibles....................................... 14.5 2.3 2.1
Repatriation of foreign earnings.................................. 19.4 (.8) (1.0)
Other............................................................. 5.6 (2.6) (4.4)
--------- --- ---
Effective income tax rate....................................... (21.6%) 41.2% 41.8%
--------- --- ---
--------- --- ---
</TABLE>
As a result of losses incurred in fiscal 1991 through 1993, domestic net
operating loss ("NOL") carryforwards of $40,007 exist for tax purposes expiring
as follows: $8,552 in 2006, $15,371 in 2007, $15,144 in 2008, $822 in 2009 and
$118 in 2010. Foreign NOL carryforwards of $13,044 exist for tax purposes
expiring as follows: $574 in 1997, $229 in 1998, $66 in 1999, $2,466 in 2000,
$4,789 in 2001, $4,834 in 2002 and $86 in 2003.
The Tax Reform Act of 1986 expanded the corporate alternative minimum tax
("AMT"). Under this Act, the Company's current tax liability is the greater of
its regular tax or AMT. The Company has AMT credits of $6,306 that may be
carried forward indefinitely and used as credits in future tax returns against
regular tax in the event the regular tax expense exceeds the alternative minimum
tax expense, or are available to offset future AMT-NOL's which can be carried
back.
Net income taxes paid for fiscal 1994, 1995 and 1996 were $250, $4,803 and
$10,943, respectively.
NOTE 6--EXTRAORDINARY LOSSES
The fiscal 1996 extraordinary losses of $2,585 ($4,039 pretax) were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $17,920 of the 10 3/4% Senior
Subordinated Notes and $34,158 (accreted value) of the 11 1/2% Senior Discount
Debentures, which were redeemed with proceeds from the amended Credit Agreement
(as defined herein).
The fiscal 1995 extraordinary losses of $3,219 ($5,030 pretax) were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $50,000 of the 10 3/4% Senior
Subordinated Notes and the write-off of unamortized debt issuance costs
associated with the prepayment of $17,628 of term loans under the Credit
Agreement, both of which reflect the application of the net proceeds from the
initial public equity offering.
The fiscal 1994 extraordinary loss of $978 ($1,528 pretax) represents the
write-off of unamortized debt issuance costs associated with the prepayment of a
term loan included in the Credit Agreement.
F-13
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7--DEBT AND LINES OF CREDIT
Debt at the end of fiscal 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Notes payable......................................................... $ 14,939 $ 8,397
---------- ----------
---------- ----------
Long-term debt:
Credit Agreement:
Term loan......................................................... $ 91,765 $ --
Revolving Credit Line due 2001.................................... 5,000 195,100
9 1/4% Senior Notes due 2000...................................... 80,000 80,000
10 3/4% Senior Subordinated Notes due 2002........................ 75,000 57,080
11 1/2% Senior Discount Debentures due 2005....................... 221,930 211,675
Other long-term debt.............................................. 6,242 6,093
---------- ----------
Long-term debt, including current maturities.......................... 479,937 549,948
Less: current maturities.............................................. 14,707 1,667
---------- ----------
Long-term debt.................................................. $ 465,230 $ 548,281
---------- ----------
---------- ----------
</TABLE>
The weighted average interest rates on short-term borrowings at the end of
fiscal 1996 and 1995 were 7.0% and 7.4%, respectively.
The carrying amounts and fair values of certain long-term debt instruments
at the end of fiscal 1996, based on quoted market prices for the 9 1/4% Senior
Notes, the 10 3/4% Senior Subordinated Notes and the 11 1/2% Senior Discount
Debentures were as follows:
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
9 1/4% Senior Notes due 2000.......................................... $ 80,000 $ 81,600
10 3/4% Senior Subordinated Notes due 2002............................ 57,080 60,505
11 1/2% Senior Discount Debentures due 2005........................... 211,675 221,602
---------- ----------
$ 348,755 $ 363,707
---------- ----------
---------- ----------
</TABLE>
At the end of fiscal 1996, the Company had foreign short-term lines of
credit totaling $33,764, of which $25,367 was unused. These short-term credit
lines are primarily denominated in foreign currencies and generally require no
compensating balances or commitment fees.
In fiscal 1996, BHOC amended its Bank Credit Agreement (the "Credit
Agreement") which increased its revolving credit facility to $350,000, reduced
its interest rate and extended the maturity on all outstanding Credit Agreement
borrowings (to April 2001). The interest rates on borrowings under the Credit
Agreement are determined at the time of borrowing, and are based upon the
Company's interest coverage ratio for the preceding four quarters. At December
1996, the interest rate in effect was (at the Company's option) either LIBOR +
.50% or the prime rate. The Credit Agreement requires maintenance of a minimum
fixed charge coverage ratio, a minimum net worth level and a maximum leverage
ratio. The Company and its domestic operating subsidiaries except Bell & Howell
Financial Services Co. ("BHFS"),
F-14
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7--DEBT AND LINES OF CREDIT (CONTINUED)
the Company's financing subsidiary, are jointly and severally liable as
guarantors under the Credit Agreement.
The 9 1/4% Senior Notes are general unsecured obligations of BHOC. The
9 1/4% Senior Notes are redeemable at the option of BHOC in whole or in part on
or after July 15, 1997 or upon the occurrence of a Change of Control (as defined
therein), at a call price ranging from 104.625% in 1997 and declining to par on
July 15, 1999. In addition, BHOC may redeem up to $26,700 of the principal
amount of the 9 1/4% Senior Notes prior to July 15, 1997 with the proceeds from
an offering of equity securities of the Company, BHOC or their subsidiaries at a
call price of 108%. The 9 1/4% Senior Notes are guaranteed by certain of BHOC's
domestic operating subsidiaries, excluding, among others, BHFS.
The 10 3/4% Senior Subordinated Notes are general unsecured obligations of
BHOC. The 10 3/4% Senior Subordinated Notes are redeemable at the option of BHOC
in whole or in part (i) after October 1, 1997, at a call price ranging from
104.031% in 1997 and declining to par on October 1, 2000 or (ii) upon the
occurrence of a Change of Control (as defined therein) at a call price ranging
from 105.375% in 1997 and declining to par on October 1, 2000. The 10 3/4%
Senior Subordinated Notes are guaranteed by certain of BHOC's domestic operating
subsidiaries, excluding, among others, BHFS. In fiscal 1996, BHOC repurchased
$17,920 in principal value of the 10 3/4% Senior Subordinated Notes with
proceeds from the amended Credit Agreement. In fiscal 1995, BHOC repurchased
$50,000 in principal value of the 10 3/4% Senior Subordinated Notes with a
portion of the proceeds of the initial public equity offering of Bell & Howell
Company.
The 11 1/2% Senior Discount Debentures pay no cash interest until September
1, 2000. The 11 1/2% Senior Discount Debentures may be redeemed in whole or in
part, at any time at the option of the Company at a price equal to 100% of the
principal amount at maturity plus accrued interest to the date of redemption.
The principal amount at maturity of the Senior Discount Debentures is $301,500;
at the end of fiscal 1996 the Accreted Value (as defined therein) is $211,675.
In addition, the Company may redeem up to 50% of the original principal amount
of the 11 1/2% Senior Discount Debentures with the proceeds from an offering of
equity securities of the Company and its subsidiaries at any time prior to March
1, 1998, at a price equal to 110% of the Accreted Value thereof. In the event of
a Change of Control (as defined therein), the Company may redeem any or all of
the 11 1/2% Senior Discount Debentures at a price equal to 110% of the Accreted
Value thereof to March 1, 2000, and at the principal amount at maturity
thereafter. The 11 1/2% Senior Discount Debentures are senior, unsecured
obligations of the Company with no claim against the Company's subsidiaries and
are effectively subordinate to all subsidiary debt obligations. In fiscal 1996,
the Company repurchased $34,158 of Accreted Value ($52,000 of Principal Value)
of 11 1/2% Senior Discount Debentures with proceeds from the amended Credit
Agreement.
The Credit Agreement prohibits and the 9 1/4% Senior Notes, the 10 3/4%
Senior Subordinated Notes and the 11 1/2% Senior Discount Debentures restrict
the payment of cash dividends on the Company's Common Stock.
In fiscal 1996, BHFS entered into a new Receivables Purchase Agreement.
Under this agreement and the existing Lease Receivables Financing Agreement
(collectively, the "Agreements"), BHFS sells lease receivables on a non-recourse
basis. Both Agreements are renewable annually and include the buyers' commitment
to purchase new lease receivables. During fiscal 1996, BHFS sold $71.3 million
of lease receivables.
F-15
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7--DEBT AND LINES OF CREDIT (CONTINUED)
For the five years subsequent to 1996, annual maturities of long-term debt
are: 1997--$1,667; 1998-- $790; 1999--$354; 2000--$83,274 and 2001--$195,107.
Interest paid for fiscal 1994, 1995 and 1996 was $38,122, $34,142 and
$30,197, respectively.
NOTE 8--LEASES
LESSOR. The Company provides sales-type leases for its products and
additionally leases products to customers under direct financing leases,
primarily through BHFS. The Company's net investment in sales-type and direct
financing leases at the end of fiscal 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Minimum lease payments receivable..................................... $ 72,510 $ 69,172
Estimated unguaranteed residual values................................ 3,868 4,347
Unearned income....................................................... (17,508) (21,905)
Allowance for doubtful accounts....................................... (2,299) (2,805)
---------- ----------
Net investment...................................................... $ 56,571 $ 48,809
---------- ----------
---------- ----------
</TABLE>
The scheduled maturities for sales-type and direct financing lease
receivables at the end of fiscal 1996 were as follows:
<TABLE>
<S> <C>
1997............................................................... $ 17,092
1998............................................................... 15,148
1999............................................................... 13,299
2000............................................................... 13,490
2001............................................................... 10,143
---------
Total minimum lease payments to be received...................... $ 69,172
---------
---------
</TABLE>
LESSEE. The Company leases certain facilities and equipment for production
and selling and administrative purposes. Future minimum rental payments required
under long-term noncancelable operating leases at the end of fiscal 1996 were as
follows:
<TABLE>
<S> <C>
1997............................................................... $ 14,921
1998............................................................... 11,903
1999............................................................... 9,209
2000............................................................... 6,213
2001............................................................... 4,100
Subsequent to 2001................................................. 16,174
---------
$ 62,520
---------
---------
</TABLE>
Total rental expenses for fiscal 1994, 1995 and 1996 were $12,356, $14,216
and $16,007, respectively.
F-16
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9--PENSION AND PROFIT-SHARING PLANS
Eligible employees of the Company's domestic and Canadian operations who
elect to do so participate in defined contribution profit-sharing retirement
plans. The amounts charged to earnings for fiscal 1994, 1995 and 1996 were
$5,413, $5,591 and $5,819, respectively.
The Company also has defined benefit pension plans covering certain domestic
and most foreign employees. The benefits are primarily based on years of service
and/or compensation during the years immediately preceding retirement. The
Company funds its foreign plans based on local statutes and funds its domestic
plans in amounts that fulfill the funding requirements of the Employee
Retirement Income Security Act of 1974.
Plan assets consist principally of common stocks, fixed income securities
and cash equivalents.
The net pension costs of defined benefit plans for fiscal 1994, 1995 and
1996 were as follows (with 1994 costs including the impact of a pension plan
curtailment resulting from the restructuring of the Mail Processing Systems
business):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost.................................................. $ 2,210 $ 2,062 $ 2,108
Interest cost................................................. 4,098 4,225 4,602
Return on assets.............................................. (4,821) (6,745) (5,513)
Net amortization and deferral................................. 193 1,497 (1,037)
Curtailment loss (included in 1994 restructuring expense)..... 5,431 -- --
--------- --------- ---------
Net pension cost............................................ $ 7,111 $ 1,039 $ 160
--------- --------- ---------
--------- --------- ---------
</TABLE>
The projected benefit obligations were determined using assumed discount
rates of 8.0% to 8.5%, and assumed compensation increase rates of 4.0% to 5.5%.
The assumed long-term rates of return on plan assets are 9.5% to 10.0%.
The status of defined benefit plans at the end of fiscal 1995 and 1996 was
as follows:
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
FUNDED UNFUNDED FUNDED UNFUNDED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Vested benefit obligation..................... $ 38,126 $ 13,848 $ 42,315 $ 16,505
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Accumulated benefit obligation................ $ 38,527 $ 16,000 $ 42,578 $ 16,902
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Projected benefit obligation.................. $ 40,316 $ 17,576 $ 44,792 $ 18,384
Plan assets at fair value..................... 53,359 -- 63,566 --
---------- ---------- ---------- ----------
Plan assets in excess of (less than) projected
benefit obligation.......................... 13,043 (17,576) 18,774 (18,384)
Unrecognized net (gain) loss.................. (10,043) 2,377 (12,585) 2,098
Unrecognized prior service costs.............. 2,460 187 2,131 235
---------- ---------- ---------- ----------
Prepaid (accrued) pension cost.............. $ 5,460 $ (15,012) $ 8,320 $ (16,051)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
F-17
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 10--POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has contributory and non-contributory postretirement medical
benefit plans and a non-contributory postretirement life insurance benefit plan
covering certain domestic employees; all plans are unfunded.
The net postretirement benefit costs in fiscal 1994, 1995 and 1996 were as
follows (with 1994 costs including the impact of a postretirement benefit plan
curtailment resulting from the restructuring of the Mail Processing Systems
business):
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost....................................................... $ 124 $ 41 $ 92
Interest cost...................................................... 764 898 1,033
Net amortization and deferral...................................... 19 49 322
Curtailment loss (included in 1994 restructuring expense).......... 1,446 -- --
--------- --------- ---------
Net postretirement benefit cost.................................. $ 2,353 $ 988 $ 1,447
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accumulated postretirement benefit obligations at the end of fiscal 1995
and 1996 were as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Retirees................................................................... $ 6,833 $ 6,820
Active employees eligible for retirement benefits.......................... 4,418 5,219
Active employees not yet eligible for retirement benefits.................. 296 217
--------- ---------
Accumulated postretirement benefit obligation............................ 11,547 12,256
Unrecognized net loss...................................................... 3,276 3,830
--------- ---------
Accrued postretirement benefit obligation................................ $ 8,271 $ 8,426
--------- ---------
--------- ---------
</TABLE>
For measurement purposes, discount rates of 8.0% and 8.8% were used for 1995
and 1996 respectively, with an assumed constant inflationary health care cost
trend rate of 5.5%. If the health care cost trend rate increased by 1%, the
accumulated postretirement benefit obligation at the end of fiscal 1996 would
increase by $1,506 and the net postretirement benefit cost for fiscal 1996 would
increase by $127.
NOTE 11--COMMON STOCK
The Company has 50,000 authorized shares of Common Stock, ($.001 par value
per share), 18,359 of which were issued and 18,309 outstanding at the end of
fiscal 1996. The Company is restricted from paying dividends on its Common
Stock, and the amount of stock repurchases is limited by the provisions of
certain debt agreements.
NOTE 12--STOCK COMPENSATION PLANS
STOCK OPTION PLAN
In May, 1995, the Company completed its initial public equity offering of
5,000 shares of Common Stock (which were issued at $15.50 per share). Coincident
with the initial public equity offering, the Company adopted the 1995 Stock
Option Plan (the "Option Plan"), under which 2,160 shares of Common
F-18
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12--STOCK COMPENSATION PLANS (CONTINUED)
Stock have been reserved for issuance. The Option Plan is administered by the
Compensation Committee of the Board of Directors which has authority to
determine which officers and key employees of the Company will be granted
options. All options are granted at not less than the fair market value on the
date of the grant.
Additionally coincident with the initial public equity offering, the Company
granted options for 1,115 shares to Messrs. White, Roemer and Johansson (the
"Senior Executive Grantees"), with a series of six option exercise prices (the
first of which equaled the initial public equity offering price, with each
subsequent exercise price set at 120% of the preceding exercise price). The term
for these options is six years, with the options vesting in installments
commencing after year three. Options with respect to the remaining 1,045 shares
reserved under the Option Plan may be granted to other officers and key
employees of the Company (the "Key Executive Grantees"), selected by the
Compensation Committee. At the end of fiscal 1996 the Company had options
outstanding for 366 shares to the Key Executive Grantees. The term for these
options is ten years, vesting in equal annual increments over a five year
period.
Per the provisions of SFAS No. 123, the Company has elected to continue to
apply APB Opinion No. 25 and related Interpretations in accounting for the
Option Plan, and accordingly, no compensation cost has been recognized. Had
compensation cost for the Option Plan been determined based on the fair value of
options granted (consistent with SFAS No. 123), the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Net Income:
As Reported........................................................... $ 15,991 $ 23,070
Pro Forma............................................................. 15,718 22,392
Primary Earnings Per Share:
As Reported........................................................... $ .96 $ 1.24
Pro Forma............................................................. .95 1.22
Fully Diluted Earnings Per Share:
As Reported........................................................... $ .96 $ 1.24
Pro Forma............................................................. .95 1.22
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
volatility of 20%; risk free interest rate of 6%; expected lives of 5 years; and
no dividend yield.
F-19
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12--STOCK COMPENSATION PLANS (CONTINUED)
A summary of the stock option transactions for fiscal 1995 and 1996 is as
follows:
<TABLE>
<CAPTION>
SENIOR EXECUTIVE
KEY EXECUTIVE GRANTEES
GRANTEES
---------------------- ------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at the end of fiscal 1994................... -- -- -- --
1995:
Granted............................................. 1,115 $ 27.30 184 $ 15.99
Exercised........................................... -- -- -- --
Forfeited........................................... -- -- (14) 15.50
--------- ----------- ----- -----------
Options outstanding at the end of fiscal 1995..... 1,115 $ 27.30 170 $ 16.03
--------- ----------- ----- -----------
--------- ----------- ----- -----------
Options exercisable at the end of fiscal 1995....... -- -- -- --
--------- ----------- ----- -----------
Weighted average fair value of options granted
during fiscal 1995................................ $ 1.75 $ 4.96
--------- -----
Balance at the end of fiscal 1995................... 1,115 $ 27.30 170 $ 16.03
1996:
Granted............................................. -- -- 226 31.50
Exercised........................................... -- -- (2) 15.50
Forfeited........................................... -- -- (28) 18.09
--------- ----------- ----- -----------
Options outstanding at the end of fiscal 1996..... 1,115 $ 27.30 366 $ 25.42
--------- ----------- ----- -----------
--------- ----------- ----- -----------
Options exercisable at the end of fiscal 1996....... -- -- 28 $ 16.14
--------- ----------- ----- -----------
Weighted average fair value of options granted
during fiscal 1996................................ -- $ 9.78
--------- -----
</TABLE>
The following table provides additional information with respect to stock
options outstanding at the end of fiscal 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICE (000) LIFE (YEARS) PRICE (000) PRICE
------------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$15.00--$20.00...................................... 351 5.8 $ 16.45 25 $ 15.50
20.01--$25.00...................................... 239 4.6 22.14 3 20.61
25.01--$30.00...................................... 240 4.7 26.89 -- --
30.01--$35.00...................................... 428 6.7 31.87 -- --
35.01--$40.00...................................... 223 4.3 38.50 -- --
-- --
----- ----------- -----------
1,481 5.5 $ 26.84 28 $ 16.14
-- --
-- --
----- ----------- -----------
----- ----------- -----------
</TABLE>
F-20
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 12--STOCK COMPENSATION PLANS (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
In fiscal 1996, the Company's Board of Directors adopted the Associate Stock
Purchase Plan (the "ASPP"), whereby employees are afforded the opportunity to
purchase shares in the Company, by authorizing the sale of up to 500 shares of
Common Stock. The purchase price of the shares is 95% of the lower of the
closing market price at the beginning or end of each quarter. Under SFAS No.
123, the ASPP is a non-compensatory plan.
NOTE 13--FOREIGN CURRENCY TRANSACTIONS
The Company has entered into various contracts to buy or sell foreign
currencies. The contracts have maturity dates extending through May 1997, and
are for an aggregate amount of $12,294 (which approximates the fair value based
on quoted market prices). The Company is exposed to market risk in the event of
nonperformance by the other parties (major international banks) to these
contracts, however, such nonperformance is not anticipated.
Net transaction gains (losses) for fiscal 1994, 1995 and 1996 of ($522),
($322) and $4, respectively, have been included in the earnings of the
respective periods.
NOTE 14--CONTINGENT LIABILITIES
The Company is involved in various legal proceedings incidental to its
business. Management believes that the outcome of such proceedings will not have
a material adverse effect upon the consolidated operations or financial
condition of the Company.
The Internal Revenue Service (the "IRS") has notified the Company of certain
proposed adjustments to its income tax returns for fiscal years 1984 through
1991. The proposed adjustments primarily relate to the potential disallowance of
certain deductions for depreciation and amortization. Certain of these proposed
adjustments would also be applicable to the Company's fiscal years subsequent to
1991 and accordingly could result in further adjustments. The Company cannot now
predict (i) when the examination process will be completed, (ii) the adjustments
that the IRS may ultimately propose or (iii) the final resolution of any
proposed adjustments. Accordingly, the outcome of the audits of the Company's
income tax returns by the IRS is not determinable at this time. However,
management believes that the resolution of these proposed adjustments will not
have a material adverse effect upon the consolidated operations or financial
condition of the Company.
NOTE 15--RELATED PARTY TRANSACTIONS
The Company has made loans (the balance of which totaled $1,444 at the end
of fiscal 1996) to certain key executives in connection with their purchases of
Common Stock. Pursuant to the terms of such loans, the shares acquired are
pledged as security. The following individuals have loans in excess of $60
outstanding at the end of fiscal 1996: Nils A. Johansson ($236), Stuart T.
Lieberman ($91), Maria T. Rubly ($360), Henry G. Riner ($258) and Ben L.
McSwiney ($357). Each loan is evidenced by an installment note which bears
interest at BHOC's marginal rate of borrowing (approximately 6% at this time),
and are primarily due on December 31, 1998. Interest and principal may be
deferred until that date.
F-21
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 16--INTERIM FINANCIAL INFORMATION (UNAUDITED)
The following table presents the Company's quarterly results of operations
for fiscal 1996 and fiscal 1995:
<TABLE>
<CAPTION>
FISCAL QUARTER
----------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996
Net sales............................................ $ 201,092 $ 213,973 $ 218,840 $ 268,892 $ 902,797
Gross profit......................................... 71,199 74,454 77,845 102,882 326,380
Earnings before extraordinary items.................. 1,853 3,344 4,823 15,635 25,655
Extraordinary losses................................. -- (2,585) -- -- (2,585)
---------- ---------- ---------- ---------- ----------
Net earnings....................................... $ 1,853 $ 759 $ 4,823 $ 15,635 $ 23,070
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net earnings per common share(1):
Earnings before extraordinary items................ $ 0.10 $ 0.18 $ 0.26 $ 0.85 $ 1.38
Extraordinary losses............................... -- (0.14) -- -- (0.14)
---------- ---------- ---------- ---------- ----------
Net earnings per common share...................... $ 0.10 $ 0.04 $ 0.26 $ 0.85 $ 1.24
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
1995
Net sales............................................ $ 187,065 $ 190,119 $ 203,009 $ 239,696 $ 819,889
Gross profit......................................... 65,715 69,990 75,051 97,734 308,490
Earnings (loss) before extraordinary items........... (483) 998 3,835 14,860 19,210
Extraordinary losses................................. -- (3,219) -- -- (3,219)
---------- ---------- ---------- ---------- ----------
Net earnings (loss).................................. $ (483) $ (2,221) $ 3,835 $ 14,860 $ 15,991
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net earnings (loss) per common share(1):
Earnings (loss) before extraordinary items......... $ (0.04) $ 0.06 $ 0.21 $ 0.80 $ 1.15
Extraordinary losses............................... -- (0.20) -- -- (0.19)
---------- ---------- ---------- ---------- ----------
Net earnings (loss) per common share............... $ (0.04) $ (0.14) $ 0.21 $ 0.80 $ 0.96
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
- ------------------------
(1) Net earnings (loss) per common share reflects both primary and fully diluted
earnings per common share.
F-22
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------- ----------------------
JUNE 29, JUNE 28, JUNE 29, JUNE 28,
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales........................................................ $ 213,973 $ 218,150 $ 415,065 $ 418,168
Operating costs and expenses:
Cost of sales.................................................. 139,519 135,561 269,412 264,720
Research and development....................................... 8,523 10,206 16,454 19,822
Selling and administrative..................................... 48,426 52,429 97,529 98,509
---------- ---------- ---------- ----------
Total operating costs and expenses......................... 196,468 198,196 383,395 383,051
Operating income................................................. 17,505 19,954 31,670 35,117
Net interest expense:
Interest (income).............................................. (3,994) (5,345) (8,266) (10,357)
Interest expense............................................... 15,794 17,418 31,008 34,089
---------- ---------- ---------- ----------
Net interest expense....................................... 11,800 12,073 22,742 23,732
Earnings before income taxes and extraordinary items............. 5,705 7,881 8,928 11,385
Income tax expense............................................... 2,361 3,271 3,731 4,725
---------- ---------- ---------- ----------
Earnings before extraordinary items.............................. 3,344 4,610 5,197 6,660
Extraordinary losses............................................. (2,585) (67) (2,585) (972)
---------- ---------- ---------- ----------
Net earnings..................................................... $ 759 $ 4,543 $ 2,612 $ 5,688
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per common share:
Primary:
Earnings before extraordinary items.......................... $ 0.18 $ 0.25 $ 0.28 $ 0.36
Extraordinary losses......................................... (0.14) -- (0.14) (0.05)
---------- ---------- ---------- ----------
Net earnings per common share.................................... $ 0.04 $ 0.25 $ 0.14 $ 0.31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully Diluted:
Earnings before extraordinary items.......................... $ 0.18 $ 0.25 $ 0.28 $ 0.36
Extraordinary losses......................................... (0.14) -- (0.14) (0.05)
---------- ---------- ---------- ----------
Net earnings per common share.................................... $ 0.04 $ 0.25 $ 0.14 $ 0.31
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average number of common shares and equivalents outstanding:
Primary........................................................ 18,636 18,473 18,601 18,430
Fully Diluted.................................................. 18,636 18,558 18,626 18,525
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
F-23
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 28,
1997
DECEMBER 28, -----------
1996 (UNAUDITED)
------------
(AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 15,500 $ 14,183
Accounts receivable, less allowance for doubtful accounts of $5,294 and $5,391,
respectively...................................................................... 186,862 164,158
Inventory........................................................................... 139,831 155,256
Other current assets................................................................ 11,826 13,363
------------ -----------
Total current assets.............................................................. 354,019 346,960
Property, plant and equipment, at cost................................................ 363,015 379,755
Accumulated depreciation.............................................................. (207,287) (229,193)
------------ -----------
Net property, plant and equipment................................................. 155,728 150,562
Long-term receivables................................................................. 54,707 52,083
Goodwill, net of accumulated amortization............................................. 189,868 190,835
Other assets.......................................................................... 42,464 41,680
------------ -----------
Total assets...................................................................... $ 796,786 $ 782,120
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable....................................................................... $ 8,397 $ 5,821
Current maturities of long-term debt................................................ 1,667 1,089
Accounts payable.................................................................... 93,135 61,593
Accrued expenses.................................................................... 78,308 62,374
Deferred income..................................................................... 171,698 146,148
Accrued income taxes................................................................ 1,143 --
------------ -----------
Total current liabilities......................................................... 354,348 277,025
Long-term liabilities:
Long-term debt...................................................................... 548,281 605,185
Other liabilities................................................................... 61,049 62,295
------------ -----------
Total long-term liabilities....................................................... 609,330 667,480
Shareholders' equity:
Common Stock, $.001 par value, 18,359 shares issued and 18,309 shares outstanding at
December 28, 1996, and 18,385 shares issued and 18,346 shares outstanding at June
28, 1997.......................................................................... 18 18
Capital surplus..................................................................... 1,402 1,713
Notes receivable from executives.................................................... (1,444) (1,359)
Retained earnings (deficit)......................................................... (165,851) (160,163)
Cumulative foreign exchange translation adjustments................................. 616 (1,347)
Treasury stock...................................................................... (1,633) (1,247)
------------ -----------
Total shareholders' equity (deficit).............................................. (166,892) (162,385)
Commitments and contingencies......................................................... -- --
------------ -----------
Total liabilities and shareholders' equity........................................ $ 796,786 $ 782,120
------------ -----------
------------ -----------
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
F-24
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------
JUNE 29, JUNE 28,
1996 1997
----------- ----------
<S> <C> <C>
Operating Activities:
Net earnings........................................................................... $ 2,612 $ 5,688
Depreciation and amortization.......................................................... 23,791 28,889
Debt accretion......................................................................... 12,252 11,434
Changes in operating assets and liabilities:
Accounts receivable.................................................................. 29,994 23,954
Inventory............................................................................ (33,293) (7,878)
Other current assets................................................................. (1,052) (1,119)
Long-term receivables................................................................ 8,457 2,624
Income taxes......................................................................... (5,239) 847
Accounts payable..................................................................... (4,625) (33,027)
Accrued expenses..................................................................... (5,193) (16,730)
Deferred income and other long-term liabilities...................................... (26,361) (30,864)
Other, net........................................................................... (700) (5,280)
----------- ----------
Net cash provided (used) by operating activities................................... 643 (21,462)
Investing activities:
Expenditures for property, plant and equipment......................................... (20,384) (17,184)
Acquisitions........................................................................... (19,718) (5,753)
----------- ----------
Net cash used by investing activities.............................................. (40,102) (22,937)
Financing activities:
Proceeds from short-term debt.......................................................... 9,224 3,831
Repayment of short-term debt........................................................... (12,235) (6,407)
Proceeds from long-term debt........................................................... 192,050 70,903
Repayment of long-term debt............................................................ (146,602) (25,679)
Proceeds from Common Stock, net........................................................ 25 806
----------- ----------
Net cash provided by financing activities.......................................... 42,462 43,454
Effect of exchange rate changes on cash.................................................. (125) (372)
----------- ----------
Increase (decrease) in cash and cash equivalents......................................... 2,878 (1,317)
Cash and cash equivalents, beginning of period........................................... 7,262 15,500
----------- ----------
Cash and cash equivalents, end of period................................................. $ 10,140 $ 14,183
----------- ----------
----------- ----------
</TABLE>
The accompanying Notes to the Consolidated Financial Statements
are an integral part of these statements.
F-25
<PAGE>
BELL & HOWELL COMPANY AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--BASIS OF PRESENTATION
Bell & Howell Company is a holding company, the primary assets of which are
all of the issued and outstanding shares of capital stock of Bell & Howell
Operating Company. Bell & Howell Company conducts business through Bell & Howell
Operating Company and has no operations of its own.
The consolidated financial statements include the accounts of Bell & Howell
Company and its subsidiaries (collectively the "Company") and have been prepared
without independent audit, except for the balance sheet data as of December 28,
1996.
In the opinion of the Company's management, the consolidated financial
statements include all adjustments necessary to present fairly the information
required to be set forth therein, and such adjustments are of a normal and
recurring nature. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company's management
believes, however, that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the Consolidated Financial Statements and the notes thereto
included in Bell & Howell Company's annual report for the year ended December
28, 1996.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
NET EARNINGS PER COMMON SHARE. Net earnings per common share are determined
by dividing net earnings by the weighted average number of common shares
outstanding during the period. If dilutive, stock options are included as common
stock equivalents.
INVENTORY. The Company uses the last-in, first-out (LIFO) method of valuing
the majority of its domestic inventory. Use of the LIFO method is predicated on
a determination of inventory quantities and costs at the end of each fiscal
year, and therefore interim determinations of LIFO inventory values and results
of operations are by necessity based on management's estimates of expected
year-end inventory quantities and costs. The excess of replacement cost over the
LIFO values of inventory was $4,489 at December 28, 1996, and June 28, 1997.
NOTE 3--EXTRAORDINARY LOSSES
The extraordinary losses of $972 ($1,519 pretax) in first half 1997 were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $15,598 (accreted value) of the
11 1/2% Senior Discount Debentures and $2,100 of the 10 3/4% Senior Subordinated
Notes, which were redeemed with proceeds from the Existing Credit Agreement.
The extraordinary losses of $2,585 ($4,039 pretax) in first half 1996 were
comprised of the debt repurchase premium and write-off of unamortized debt
issuance costs associated with the repurchase of $34,158 (accreted value) of the
11 1/2% Senior Discount Debentures and $17,920 of the 10 3/4% Senior
Subordinated Notes, which were redeemed with proceeds from the Existing Credit
Agreement.
F-26
<PAGE>
IMAGING SOLUTIONS & COMPONENTS
Bell & Howell's "LINKS" solution is an example of customized software
specifically designed for community banks and similar financial institutions. By
providing instantaneous access to different database and imaging systems, it
allows banks to offer better customer service and to benefit from increased
productivity.
MAIL PROCESSING
High volume commercial mailers rely on Bell & Howell's equipment, software,
service, and support to increase the effectiveness of their mailing operations.
New software applications allow customers to add more value into the envelope by
converting routine mailings into targeted communication and marketing programs.
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE AN
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 11
The Transactions............................... 15
Use of Proceeds................................ 17
Dividend Policy................................ 17
Market for Common Stock........................ 17
Capitalization................................. 18
Selected Consolidated Financial and Operating
Data......................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
Business....................................... 29
Management..................................... 41
Certain Transactions........................... 49
Principal and Selling Stockholders............. 50
Description of Capital Stock................... 51
Description of Certain Financing Agreements and
Certain Indebtedness......................... 54
Shares Eligible for Future Sale................ 57
Underwriting................................... 59
Legal Matters.................................. 60
Experts........................................ 60
Available Information.......................... 60
Index to Consolidated Financial Statements..... F-1
</TABLE>
4,177,259 SHARES
BELL & HOWELL COMPANY
COMMON STOCK
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate (except for the SEC Registration
Fee, NASD filing fee and New York Stock Exchange fee) of all expenses, payable
by the Company in connection with the issuance of the securities being
registered.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 43,561
NASD Filing Fee................................................... 14,875
Printing Costs.................................................... *
Accounting Fees and Expenses...................................... *
Printing and Engraving............................................ *
New York Stock Exchange Fee....................................... *
Legal Fees and Expenses (not including Blue Sky).................. *
Blue Sky Fees and Expenses........................................ *
Miscellaneous..................................................... *
---------
Total......................................................... $
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware GCL")
provides that a Delaware corporation may indemnify any person who was or is a
party to or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful,
provided that, in the case of actions brought by or in the right of the
corporation, no indemnification may be made with respect to any matter to which
such person shall have been adjudged liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.
Article Tenth of the Certificate of Incorporation of the Company, as amended
(the "Certificate of Incorporation") provides that each person who was or is
made a party or is threatened to be made a party to or is otherwise involved in
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter, a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the Company
or is or was serving at the request of the Company as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to any employee benefit plan
(hereinafter, an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Company to the fullest extent authorized by the Delaware GCL, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Company to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability and loss
II-1
<PAGE>
(including attorneys' fees, judgments, finds, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith and such indemnification shall continue as to
an indemnitee who has ceased to be a director or officer and shall inure to the
benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided with respect to proceedings to enforce rights
to indemnification, the Company shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors.
The right to indemnification shall include the right to be paid by the
Company for the expenses incurred in defending any proceeding for which such
right to indemnification is applicable in advance of its final disposition
(hereinafter, an "advancement of expenses"); provided, however, that, if the
Delaware GCL requires an advancement of expenses incurred by an indemnitee in
his or her capacity as a director or officer (and not in any other capacity) in
which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan shall be made only upon delivery
to the Company of an undertaking (hereinafter, an "undertaking"), by or on
behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter, a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses.
The rights to indemnification and to the advancement of expenses shall be
contract rights. If a claim for indemnification is not paid in full by the
Company, the indemnitee may at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim, and, if successful in whole
or in part in any such suit, or in a suit brought by the Company to recover an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses, or by the Company to recover
an advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, shall be on the Company.
Article Tenth further provides that the rights to indemnification and to the
advancement of expenses conferred in the Certificate of Incorporation shall not
be exclusive of any other right which any person may have or hereafter acquire
under any statute, the Certificate of Incorporation, any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise. The Company may
maintain insurance, at its expense, to protect itself and any director, officer,
employee or agent of the Company or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not the Company would have the power to indemnify such person against
such expense, liability or loss under the Delaware GCL. The Company may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification, and to the advancement of expenses to any employee or agent of
the Company or to any person serving at the request of the Company as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan, to
the fullest extent of the provisions of the Certificate of Incorporation with
respect to the indemnification and advancement of expenses of directors and
officers of the Company.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for the indemnification of officers and directors of the
Company under certain circumstances in connection with the Offering.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement by and among Bell & Howell Company and
Donaldson, Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co.
Inc., Salomon Brothers Inc and Smith Barney Inc.
+3.1 Form of Amended and Restated Certificate of Incorporation of Bell & Howell
Company is incorporated herein by reference to Exhibit 3.1 to Bell &
Howell Company's Registration Statement on Form S-1, Registration No.
33-59994.
+3.2 By-laws of Bell & Howell Company is incorporated herein by reference to
Exhibit 3.2 to Bell & Howell Company's Registration Statement on Form
S-1 as amended, Registration No. 33-63556.
+4.1 Form of 9 1/4% Senior Note due 2000 of Bell & Howell Company including the
form of notation relating to the Subsidiary Guarantee of Bell & Howell
Documail Systems Company, Bell & Howell Document Management Products
Company, Bell & Howell Publication Systems Company, Bell & Howell
Phillipsburg Company, University Microfilms Inc. and Bell & Howell
Mailmobile Company is incorporated herein by reference to Exhibit 4.1 to
Bell & Howell Company's Registration Statement on Form S-1, as amended,
Registration No. 33-63556.
+4.2 Indenture dated as of June 21, 1993 between Bell & Howell Company, Bell &
Howell Documail Systems Company, Bell & Howell Document Management
Products Company, Bell & Howell Publication Systems Company, Bell &
Howell Phillipsburg Company, University Microfilms Inc., Bell & Howell
Mailmobile Company and The First National Bank of Boston, as Trustee,
relating to the 9 1/4% Senior Notes due 2000 of Bell & Howell Operating
Company is incorporated herein by reference to Exhibit 4.6 to Bell &
Howell Operating Company's Registration Statement on Form S-1, as
amended, Registration No. 33-63556.
+4.3 Form of 11 1/2% Series B Senior Discount Debenture due 2005 of Bell &
Howell Company is incorporated herein by reference to Exhibit 4.1 to
Bell & Howell's Company's Registration Statement on Form S-1, as
amended, Registration No. 33-59994.
+4.4 Indenture dated February 23, 1993 between Bell & Howell Company and The
First National Bank of Boston, as Trustee, relating to the 11 1/2%
Series A and Series B Senior Discount Debentures due 2005 of Bell &
Howell Company is incorporated herein by reference to Exhibit 4.3 to
Bell & Howell Company's Registration Statement on Form S-1, as amended,
Registration No. 33-59994.
+4.5 Form of 10 3/4% Series B Senior Subordinated Note of Bell & Howell
Operating Company, including the form of notation relating to the
Subsidiary Guarantee of Bell & Howell Document Management Products
Company, Bell & Howell Publication Systems Company, Bell & Howell
Phillipsburg Company, University Microfilms Inc. and Bell & Howell
Mailmobile Company is incorporated herein by reference to Exhibit 4.2 to
Bell & Howell Operating Company's Registration Statement on Form S-1, as
amended, Registration No. 33-63556.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
+4.6 Indenture dated as of October 5, 1992 between Bell & Howell Operating
Company, Bell & Howell Document Management Products Company, Bell &
Howell Publications Systems Company, Bell & Howell Phillipsburg Company,
University Microfilms Inc., Bell & Howell Mailmobile Company and The
First National Bank of Boston, as Trustee, relating to the 10 3/4%
Series A and Series B Senior Subordinated Notes due 2002 of Bell &
Howell Operating Company is incorporated herein by reference to Exhibit
4.7 to Bell & Howell Operating Company's Registration Statement on Form
S-1, as amended, Registration No. 33-63556.
5.1 Opinion of McDermott, Will & Emery.
+10.1 Certificate of Designation for the $121.33 Intercompany Preferred Stock of
Bell & Howell Operating Company is incorporated herein by reference to
Exhibit 4.5 to Bell & Howell Operating Company's Registration Statement
on Form S-1, as amended, Registration No. 33-63556.
+10.2 Amended and Restated Profit Sharing Retirement Plan is incorporated herein
by reference to Exhibit 10.1 to Bell & Howell Operating Company's
Registration Statement on Form S-1, as amended, Registration No.
33-63556.
+10.3 Amended and Restated Replacement Benefit Plan is incorporated herein by
reference to Exhibit 10.4 to Bell & Howell Operating Company's
Registration Statement on Form S-1, as amended, Registration No.
33-63556.
+10.4 Supplemental Retirement Plan is incorporated herein by reference to
Exhibit 10.3 to Bell & Howell Operating Company's Registration Statement
on Form S-1, as amended, Registration No. 33-63556.
+10.5 Management Incentive Bonus Plan is incorporated herein by reference to
Exhibit 10.5 to Bell & Howell Operating Company's Registration Statement
on Form S-1, as amended, Registration No. 33-63556.
+10.6 Long Term Incentive Plan II, 1993-1996, is incorporated herein by
reference to Exhibit to Bell & Howell Operating Company's Registration
Statement on Form S-1, as amended, Registration No. 33-89992.
+10.7 Deferred Benefit Trust is incorporated herein by reference to Exhibit
10.10 to Bell & Howell Operating Company's Registration Statement on
Form S-1, as amended, Registration No. 33-63556.
+10.8 Employment Agreement with William J. White dated as of March 23, 1990 is
incorporated herein by reference to Exhibit 10.11 to Bell & Howell
Operating Company's Registration Statement on Form S-1, as amended,
Registration No. 33-63556.
+10.9 Shareholders Agreement dated May 10, 1988, as amended, among certain
Management Stockholders (as defined therein) and Investor Shareholders
(as defined therein) is incorporated herein by reference to Exhibit
10.17 to Bell & Howell Company's Registration Statement on Form S-1, as
amended, Registration No. 33-59994.
+10.10 Registration Rights Agreement dated as of May 10, 1988 by and among Bell &
Howell Group, Inc. and each of the Purchasers referred to therein is
incorporated herein by reference to Exhibit 10.1 to Bell & Howell
Operating Company's Registration Statement on Form S-1, as amended,
Registration No. 33-63556.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
+10.11 Amended and Restated Credit Agreement, dated as of September 4, 1996,
among Bell & Howell Operating Company, the Lenders listed therein and
Bankers Trust Company, as Agent, Registration No. 33-59994.
+10.12 Supplement to Fourth Amendment to the Shareholders Agreement dated May 10,
1988, as amended, among certain Management Stockholders (as defined
therein) and Investor Shareholders (as defined therein) Registration
Statement on Form S-1, as amended, Registration No. 33-89992.
+10.13 Receivables Purchase Agreement dated May 1, 1996, between Bell & Howell
Acceptance Corporation and the First National Bank of Chicago,
Registration No. 33-59994.
+11.1 Computation of Earnings (Loss) per Common Share for the twenty-six weeks
ended June 28, 1997. Computation of Earnings (Loss) per common share for
fiscal 1997 is incorporated herein by reference to Exhibit 11.1 to the
Company's Annual Report on Form 10-K for the year ended December 28,
1997.
+21.1 Subsidiaries of Bell & Howell Company is incorporated by reference to
Exhibit 21.1 of Bell & Howell Company's Annual Report on Form 10-K for
the year ended December 28, 1996.
23.1 Consent of McDermott, Will & Emery (to be included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
+24.1 Powers of Attorney
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
(b) Financial Schedules.
Schedule I--Condensed Financial Information of the Company.
ITEM 17. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) as asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
B. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on this 29th day of August 1997.
<TABLE>
<S> <C> <C>
BELL & HOWELL COMPANY
By: /s/ STUART T. LIEBERMAN
-----------------------------------------
Stuart T. Lieberman
VICE PRESIDENT, CONTROLLER, AND CHIEF
ACCOUNTING OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed by the following persons or their
attorneys-in-fact in the capacities indicated on this 29th day of August 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
*
- ------------------------------ Chairman of the Board
William J. White
*
- ------------------------------ President, Chief Executive
James P. Roemer Officer and Director
* Executive Vice President,
- ------------------------------ Chief Financial Officer
Nils A. Johansson and Director
* Vice President, Controller
- ------------------------------ and Chief Accounting
Stuart T. Lieberman Officer
*
- ------------------------------ Director
David Bonderman
*
- ------------------------------ Director
David G. Brown
*
- ------------------------------ Director
J. Taylor Crandall
*
- ------------------------------ Director
Daniel L. Doctoroff
*
- ------------------------------ Director
William E. Oberndorf
*
- ------------------------------ Director
Gary L. Roubos
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
*
- ------------------------------ Director
John H. Scully
</TABLE>
*By: /s/ STUART T. LIEBERMAN
-------------------------
Stuart T. Lieberman
ATTORNEY-IN-FACT
II-7
<PAGE>
INDEX TO FINANCIAL STATEMENTS SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Financial statement schedules:
Independent Auditors' Report............................................................................... S-2
Schedule I -- Condensed Financial Information.............................................................. S-3
</TABLE>
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bell & Howell Company:
Under date of February 19, 1997, we reported on the consolidated balance
sheets of Bell & Howell Company and subsidiaries (the "Company") as of the end
of fiscal years 1995 and 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for the fiscal years 1994, 1995
and 1996, which are included in the prospectus. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement schedule included in the registration statement. The
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
February 19, 1997
S-2
<PAGE>
SCHEDULE I
BELL & HOWELL COMPANY
CONDENSED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT THE END
OF FISCAL
--------------------
1995 1996
--------- ---------
<S> <C> <C>
CONDENSED BALANCE SHEETS
Assets:
Investment in Bell & Howell Operating Company, at equity.................................. $ 27,191 $ 40,787
Other assets.............................................................................. 5,267 3,996
--------- ---------
Total assets............................................................................ $ 32,458 $ 44,783
--------- ---------
--------- ---------
Liabilities:
11 1/2% Senior Discount Debentures........................................................ $ 221,930 $ 211,675
Shareholders' equity:
Common Stock.............................................................................. 18 18
Capital surplus........................................................................... 328 1,402
Notes receivable from officers............................................................ (2,054) (1,444)
Retained earnings (deficit)............................................................... (188,921) (165,851)
Cumulative translation adjustments........................................................ 1,187 616
Treasury stock............................................................................ (30) (1,633)
--------- ---------
Total shareholders' equity (deficit).................................................... (189,472) (166,892)
--------- ---------
Total liabilities and shareholders' equity.................................................. $ 32,458 $ 44,783
--------- ---------
--------- ---------
<CAPTION>
FISCAL
--------------------
1994 1995
--------- ---------
1996
--
<S> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Equity in net earnings of Bell & Howell Operating Company......................... $ 11,643 $ 40,002 $ 49,121
Operating expenses................................................................ 250 172 250
Net interest expense.............................................................. 21,387 23,839 24,304
Extraordinary losses.............................................................. -- -- 1,497
--------- --------- ---------
Net earnings (loss)............................................................. $ (9,994) $ 15,991 $ 23,070
--------- --------- ---------
--------- --------- ---------
CONDENSED STATEMENTS OF CASH FLOWS
Operating activities:
Net earnings (loss)............................................................... $ (9,994) $ 15,991 $ 23,070
Debt accretion.................................................................... 20,993 23,476 23,903
Equity in net earnings of Bell & Howell Operating Company......................... (11,643) (40,002) (49,121)
Changes in operating assets and liabilities....................................... (173) 1,105 1,886
--------- --------- ---------
Net cash provided (used) by operating activities.................................. (817) 570 (262)
Investing activities:
Investment in Bell & Howell Operating Company..................................... -- (71,660) --
--------- --------- ---------
Net cash used by investing activities............................................. -- (71,660) --
Financing activities:
Proceeds from Common Stock, net................................................... 519 71,255 71
Redemption of Preferred Stock..................................................... -- -- 35,795
Repayment of long-term debt....................................................... -- -- (35,795)
--------- --------- ---------
Net cash provided by financing activities........................................... 519 71,255 71
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.................................... (298) 165 (191)
Cash and cash equivalents, beginning of period...................................... 344 46 211
--------- --------- ---------
Cash and cash equivalents, end of period............................................ $ 46 $ 211 $ 20
--------- --------- ---------
--------- --------- ---------
</TABLE>
S-3
<PAGE>
L&W Draft
August 29, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BELL & HOWELL COMPANY
-------------------------------
___________________ Shares of Common Stock
Underwriting Agreement
________________________, 1997
-------------------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co., Inc.
Salomon Brothers Inc
Smith Barney Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
BELL & HOWELL COMPANY
_________________ Shares
Common Stock
UNDERWRITING AGREEMENT
_______________________, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO., INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
As representatives of the several
Underwriters named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Bell & Howell Company, a Delaware corporation (the "COMPANY") proposes
to issue and sell ______________________ shares of its common stock, par value
$.001 per share (the "COMPANY FIRM SHARES"), and the stockholders of the Company
named in Schedule II hereto (the "SELLING STOCKHOLDERS") propose to sell an
aggregate of _____________________ shares of common stock, par value $.001 per
share (the "SELLING STOCKHOLDER FIRM SHARES" and, together with the Company Firm
Shares, the "FIRM SHARES"), to the several Underwriters named in Schedule I
hereto (the "UNDERWRITERS"). The Company also proposes to issue and sell not
more than ___________________ additional shares of its common stock, par value
$.001 per share (the "COMPANY ADDITIONAL SHARES"), and the stockholders of the
Company named in Schedule II hereto (the "OPTION SELLING STOCKHOLDERS") propose
to sell not more than _______________________ additional shares of common stock,
par value $.001 per share (the "SELLING STOCKHOLDER ADDITIONAL SHARES" and,
together with the Company Additional Shares, the "ADDITIONAL SHARES"), to the
several Underwriters if requested by the Underwriters as provided in Section 2
hereof. The Firm Shares and the Additional Shares are hereinafter referred to
collectively as the "SHARES." The shares of common stock of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the "COMMON STOCK."
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Bear,
Stearns & Co., Inc., Salomon Brothers Inc and Smith Barney Inc. (the
"REPRESENTATIVES") shall act as representatives of the several Underwriters.
1
<PAGE>
The Company and each of the Company's subsidiaries set forth on the
signature pages hereto (each an "INDEMNITOR" and, collectively, the
"INDEMNITORS"), and each of the Selling Stockholders agree with the Underwriters
as follows:
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared
and filed with the Securities and Exchange Commission (the "COMMISSION") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"ACT"), a registration statement on Form S-1, including a prospectus, relating
to the Shares. The registration statement, as amended at the time it became
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Act, is hereinafter referred to as the "REGISTRATION STATEMENT;" and the
prospectus in the form first used to confirm sales of Shares is hereinafter
referred to as the "PROSPECTUS." If the Company has filed or is required
pursuant to the terms hereof to file a registration statement pursuant to Rule
462(b) under the Act registering additional shares of Common Stock (a "RULE
462(b) REGISTRATION STATEMENT"), then, unless otherwise specified, any reference
herein to the term "Registration Statement" shall be deemed to include such Rule
462(b) Registration Statement.
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations and warranties contained in this Agreement, and subject to the
terms and conditions contained herein the Company agrees to sell the Company
Firm Shares to the Underwriters and each Selling Stockholder agrees, severally
and not jointly, to sell a number of Firm Shares equal to the number of Firm
Shares set forth opposite such Selling Stockholder's name on Schedule II hereto
to the Underwriters and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company and the Selling Stockholders at a price
per share of $________________ (the "PURCHASE PRICE"), the number of Firm Shares
set forth in Schedule I hereto opposite the name of such Underwriter.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Company Additional Shares, and each Option Selling Stockholder
agrees to sell the number of Selling Stockholder Additional Shares set forth
opposite such Option Selling Stockholder's name on Schedule III hereto and the
Underwriters shall have the right to purchase, severally and not jointly, the
Additional Shares from the Company and the Option Selling Stockholders at the
Purchase Price. Additional Shares may be purchased solely for the purpose of
covering over-allotments made in connection with the offering of the Firm
Shares. The Underwriters may exercise their right to purchase Additional Shares
in whole or in part from time to time by (i) giving written notice thereof to
the Company within 30 days after the date of this Agreement and (ii) giving
written notice thereof to the Attorney-in-Fact (as hereinafter defined) within
30 days after the date of this Agreement. DLJ shall give any such notice on
behalf of the Underwriters and such notice shall specify the aggregate number of
Additional Shares to be purchased pursuant to such exercise and the date for
payment and delivery thereof, which date shall be a business day (i) no earlier
than two business days after such notice has been given (and, in any event, no
earlier than the Closing Date (as hereinafter defined)) and (ii) no later than
ten business days after such notice has been given. If any Additional Shares
are to be purchased, each Underwriter, severally and not jointly, agrees to
purchase from the Company and the Option Selling Stockholders the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number of
Additional Shares to be purchased from the Company and the Option Selling
Stockholders as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I bears to the total number of Firm Shares.
2
<PAGE>
The Company hereby agrees not to register for sale, offer, sell (or
contract to sell) or otherwise dispose of any Common Stock (or any securities
convertible into or exercisable or exchangeable for Common Stock) or grant any
options, warrants to purchase Common Stock (other than Common Stock sold in the
Offering) for a period of 90 days after the date of the Prospectus without the
prior written consent of DLJ. Notwithstanding the foregoing, during such period
(i) the Company may grant stock options pursuant to the Company's existing stock
option plan and (ii) the Company may issue shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof. The Company also agrees not to file any registration statement
with respect to any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock. The Company shall, prior to or
concurrently with the execution of this Agreement, deliver an agreement executed
by (i) each of the directors and officers of the Company and (ii) each
stockholder listed on Annex I hereto to the effect that such person will not,
during the period commencing on the date such person signs such agreement and
ending 90 days after the date of the Prospectus, without the prior written
consent of DLJ, (x) engage in any of the transactions described in the first
sentence of this paragraph or (y) make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
3. TERMS OF PUBLIC OFFERING. The Company and the Selling
Stockholders are advised by the Representatives that the Underwriters propose
(i) to make a public offering of their respective portions of the Shares as soon
after the execution and delivery of this Agreement as in their judgment is
advisable and (ii) initially to offer the Shares upon the terms set forth in the
Prospectus.
4. DELIVERY AND PAYMENT. Delivery to the Underwriters of and payment
for the Firm Shares shall be made at 10:00 A.M., New York City time, on
________________________, 1997 (the "CLOSING DATE"), at the offices of Latham &
Watkins, 885 Third Avenue, Suite 1000, New York, New York 10022, or at such
other place as you shall designate. The Closing Date and the location of
delivery of and the form of payment for the Firm Shares may be varied by
agreement between DLJ and the Company and/or the Attorney-in-Fact.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at such place as you shall
designate at 10:00 A.M., New York City time, on the date specified in the
applicable exercise notice given pursuant to Section 2 (an "OPTION CLOSING
DATE"). Any such Option Closing Date and the location of delivery of and
payment for such Additional Shares may be varied by agreement between DLJ and
the Company and/or the Attorney-in-Fact.
Certificates for the Shares shall be registered in such names and
issued in such denominations as the Underwriters shall request in writing not
later than two full business days prior to the Closing Date or an Option Closing
Date, as the case may be. Such certificates shall be made available to the
Underwriters for inspection at the offices of DLJ in New York, New York (or such
other place as shall be acceptable to the Underwriters) not later than 9:30
A.M., New York City time, on the business day prior to the Closing Date or an
Option Closing Date, as the case may be. Certificates in definitive form
evidencing the Shares shall be delivered to the Underwriters on the Closing Date
or an Option Closing Date, as the case may be, with any transfer taxes thereon
duly paid by the Company or the respective Selling Stockholders, for the
respective accounts of the several Underwriters against payment of the Purchase
Price therefor by wire transfer of Federal or other funds immediately available
in New York City.
3
<PAGE>
5. AGREEMENTS OF THE COMPANY. The Company agrees with you:
(a) If necessary, to (i) file (A) an amendment to the Registration
Statement or (B) a post-effective amendment to the Registration Statement
pursuant to Rule 430A or Rule 462(b) or (c) under the Act, in either case
as soon as practicable after the execution and delivery of this Agreement;
(ii) provide evidence satisfactory to the Underwriters of such timely
filing; and (iii) use its reasonable best efforts to cause the Registration
Statement or such post-effective amendment to become effective at the
earliest possible time.
(b) To comply fully and in a timely manner with the applicable
provisions of Rule 424, Rule 430A and Rule 462 under the Act.
(c) To advise the Underwriters promptly and, if requested by the
Underwriters, to confirm such advice in writing, (i) when the Registration
Statement has become effective, if and when the Prospectus is sent for
filing pursuant to Rule 424 under the Act and when all post-effective
amendments to it become effective, (ii) of the receipt of any comments from
the Commission or any securities commission or regulatory authority of the
several states or any foreign jurisdiction that relate to the Registration
Statement or requests by the Commission or any securities commission or
regulatory authority of the several states or any foreign jurisdiction for
amendments to the Registration Statement or amendments or supplements to
the Prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares
for offering or sale in any jurisdiction, or the initiation of any
proceeding for such purposes by the Commission or any securities commission
or other regulatory authority of the several states or any foreign
jurisdiction, and (iv) of the happening of any event during the period
referred to in Section 5(f) below which makes any statement of a material
fact made in the Registration Statement untrue or which requires the making
of any additions to or changes in the Registration Statement (as amended or
supplemented from time to time) in order to make the statements therein not
misleading or that makes any statement of a material fact made in the
Prospectus (as amended or supplemented from time to time) untrue or which
requires the making of any additions to or changes in the Prospectus (as
amended or supplemented from time to time) in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption of the Shares under any
securities or Blue Sky laws of the several states or any foreign
jurisdiction, the Company shall use its reasonable best efforts to obtain
the withdrawal or lifting of such order at the earliest possible time.
(d) To promptly furnish to the Underwriters and their counsel, without
charge, five signed copies of each amendment to the Registration Statement
filed with the Commission after the date hereof, including all exhibits
filed therewith and to furnish to the Underwriters such number of conformed
copies of the Registration Statement as first filed and each amendment
thereto as you may reasonably request.
4
<PAGE>
(e) Not to file any amendment or supplement to the Registration
Statement, whether before or after the time when the Registration Statement
becomes effective, or to make any amendment or supplement to the
Prospectus, unless the Underwriters shall previously have been advised
thereof and shall not have objected thereto in writing within five business
days after being furnished with a copy thereof; and to prepare and file
with the Commission, promptly upon the Underwriters' request, any amendment
to the Registration Statement or supplement to the Prospectus that may be
necessary or advisable in connection with the distribution of the Shares by
the Underwriters, and to use its reasonable best efforts to cause the same
to become effective as promptly as possible.
(f) Promptly after the Registration Statement becomes effective and
the public offering of the Shares commences, and from time to time
thereafter for such period as in the opinion of counsel to the Underwriters
a prospectus is required to be delivered in connection with sales of the
Shares by the Underwriters, to furnish to the Underwriters without charge
as many copies of each preliminary prospectus, the Prospectus, the
Registration Statement and all amendments and supplements to such
documents, if any, as such Underwriters may reasonably request. The
Company consents to the use of each preliminary prospectus and the
Prospectus and each amendment or supplement thereto by the Underwriters and
by all dealers to whom the Shares may be sold, both in connection with the
offering and sale of the Shares and for such period of time thereafter as
the Prospectus is required to be delivered in connection therewith.
(g) If during the period specified in Section 5(f) above any event
shall occur as a result of which, in the judgment of the Company or in the
reasonable opinion of counsel to the Underwriters, it becomes necessary or
advisable to amend the Registration Statement in order to make the
statements therein not misleading or amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to any purchaser, not misleading, or if it
is necessary to amend the Registration Statement, to amend or supplement
the Prospectus, forthwith to prepare and file with the Commission an
appropriate amendment to the Registration Statement (in form and substance
satisfactory to the Underwriters) so that the statements therein as so
amended will not be misleading or an appropriate amendment or supplement to
the Prospectus (in form and substance satisfactory to the Underwriters) so
that the statements therein as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so
that the Registration Statement and the Prospectus will comply with law; to
use its reasonable best efforts to have each such amendment to the
Registration Statement declared effective as promptly as possible; and to
furnish to the Underwriters and dealers without charge such number of
copies thereof as they may reasonably request.
(h) To cooperate with the Underwriters and their counsel in connection
with the registration or qualification of the Shares for offer and sale by
the Underwriters under the securities or Blue Sky laws of such states and
foreign jurisdictions as the Underwriters may reasonably request, to
continue such qualification in effect so long as reasonably required for
distribution of the Shares and to file such consents to service of process
or other documents as may be necessary in order to effect such registration
or qualification; PROVIDED, HOWEVER, that the Company shall not be required
to register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of
process in suits or taxation, other than as to matters and transactions
relating to the offer and sale of the Shares, in any jurisdiction where it
is not now so subject.
5
<PAGE>
(i) To mail and make generally available to the Company's stockholders
as soon as reasonably practicable, but not later than 15 months after the
effective date of the Registration Statement, a consolidated earnings
statement of the Company (which need not be audited) covering a period of
at least twelve months beginning with the first quarter after the effective
date of the Registration Statement which shall satisfy the provisions of
Section 11(a) of the Act and Rule 158 promulgated thereunder, and to advise
the Underwriters in writing when such statement has been so made available.
(j) To timely complete all required filings and otherwise fully comply
in a timely manner with all provisions of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT") in connection with the registration
of the Shares thereunder.
(k) Upon the request of DLJ, during a period of five years following
the date of this Agreement, to deliver to the Underwriters promptly upon
their becoming available (i) copies of all current, regular and periodic
reports filed by the Company with any securities exchange or with the
Commission or any governmental authority succeeding to any of the
Commission's functions and (ii) such other information as DLJ may
reasonably request regarding the Company or its subsidiaries.
(l) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement becomes effective or is terminated, to pay
and be responsible for all costs, expenses, fees and taxes incident to and
in connection with: (i) the preparation, printing, filing and distribution
under the Act of the Registration Statement (including, without limitation,
the financial statements and exhibits thereto), each preliminary prospectus
and the Prospectus relating to the Shares and all amendments and
supplements to any of them (but not, however, legal fees and expenses of
counsel to the Underwriters incurred in connection therewith), (ii) the
preparation, printing (including, without limitation, word processing and
duplication costs) and delivery of this Agreement, the Power of Attorney
(as hereinafter defined), all Blue Sky Memoranda and all other agreements,
memoranda, correspondence and other documents printed and delivered in
connection herewith and with the offering of the Shares (but not, however,
legal fees and expenses of counsel to the Underwriters incurred in
connection with any of the foregoing, other than as specified in (iv)
below), (iii) the registration with the Commission and transfer and
delivery by the Company and the Selling Stockholders of the Shares,
(iv) the registration or qualification of the Shares for offer and sale
under the securities or Blue Sky laws of the several states and any foreign
jurisdiction (including, without limitation, the reasonable fees and
disbursements of counsel to the Underwriters relating to such registration
or qualification and memoranda in an amount not to exceed $10,000, and all
filing fees in connection therewith), (v) furnishing such copies of the
Registration Statement, the Prospectus and all preliminary prospectuses,
and all amendments and supplements thereto, as may be reasonably requested
by the Underwriters or by dealers to whom Shares may be sold, (vi) filing
and clearance by the National Association of Securities Dealers, Inc.
("NASD") in connection with the offering of the Shares, including all
filing fees in connection therewith (excluding legal fees and expenses of
counsel for the Underwriters), (vii) fees, disbursements and expenses of
the Company's and the Indemnitors' counsel and accountants, (viii) fees,
disbursements and expenses of one counsel for the Company and one counsel
for the Selling Stockholders incurred in connection with the registration
of the Shares and (ix) the performance by the Company and the Indemnitors
of their other obligations under this Agreement.
6
<PAGE>
(m) To do and perform all things required or necessary to be done and
performed by it under this Agreement that are within its control prior to
and after the Closing Date and to use its reasonable best efforts to
satisfy all conditions precedent to the delivery of the Shares set forth in
Section 10 hereof that are within its control.
(n) For a period of 90 days after the date of the Prospectus, not to
register for sale or offer, sell (or contract to sell) or otherwise dispose
of any Common Stock (or any securities convertible into or exercisable or
exchangeable for Common Stock) or grant any options or warrants to purchase
Common Stock without the prior written consent of DLJ.
(o) Not to take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company or its
subsidiaries to facilitate the sale or resale of the Shares. Except as
permitted by the Act, the Company will not distribute any Registration
Statement, preliminary prospectus or Prospectus or other offering material
in connection with the offering and sale of the Shares.
(p) Prior to the Closing Date, to furnish to the Underwriters, as soon
as they have been prepared, a copy of all consolidated financial statements
of the Company and its subsidiaries for all periods subsequent to the
period covered by the financial statements appearing in the Registration
Statement and the Prospectus.
(q) For a period of at least five years after the date of the
Prospectus, for so long as any Shares are outstanding, to use its
reasonable best efforts to maintain the inclusion of the Shares on the New
York Stock Exchange.
(r) With respect to all officers, directors and stockholders set forth
on Annex I, prior to the Closing Date to deliver to the Underwriters a
lock-up letter (a "LOCK-UP AGREEMENT"), substantially in the form of Annex
II hereto.
(s) To instruct Boston EquiServe, L.P., transfer agent for the Common
Stock, (the "TRANSFER AGENT"), in writing on or prior to the Closing Date
(the "INSTRUCTION") not to transfer, or to register the transfer of, any
shares of Common Stock held by any person subject to (i) the 90-day lock-up
provided for in Section 6(h) hereof, (ii) any Lock-up Agreement, or (ii)
the 90-day lock-up provided for under the Registration Rights Agreement,
dated May 10, 1988 (the "REGISTRATION RIGHTS AGREEMENT"), among Bell &
Howell Group, Inc. and the Purchasers identified therein.
(t) Except to the extent required to permit sales of Shares hereunder,
not to waive the restrictions on transfer contained in Section 8(b)(ii)(D)
of the Fourth Amendment of the Shareholder's Agreement for a period of 120
days after the date of this Agreement.
6. AGREEMENTS OF THE SELLING STOCKHOLDERS. Each of the Selling
Stockholders, severally and not jointly, agrees with each of the Underwriters
and the Company as follows:
(a) To pay or to cause to be paid all transfer taxes with respect to
the Shares to be sold by such Selling Stockholder hereunder.
7
<PAGE>
(b) To deliver to the Attorney-in-Fact such documentation as the
Attorney-in-Fact, the Company or the Underwriters or any of their
respective counsel may reasonably request to effectuate any of the
provisions of this Agreement, the Custody Agreement (as hereinafter
defined) or the Power of Attorney, all of the foregoing in form and
substance reasonably satisfactory to the Attorney-in-Fact.
(c) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, to deliver to the Underwriters prior to or on the Closing
Date or each Option Closing Date a properly completed and executed United
States Treasury Department Form W-9 (or other applicable form statement
specified by Treasury Department regulations in lieu thereof).
(d) Each of the Selling Stockholders specifically agrees that the
Shares represented by the certificates held in custody for such Selling
Stockholder under the Custody Agreement are subject to the interests of the
Underwriters under this Agreement, and that the arrangement made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of each Attorney-in-Fact by the Power of Attorney, are to that
extent irrevocable. Except as expressly provided to the contrary in this
Agreement or the Power of Attorney, each of the Selling Stockholders
specifically agrees that the obligations of the Selling Stockholders
hereunder shall not be terminated by operation of law, by the merger,
consolidation, reorganization, liquidation, dissolution, bankruptcy,
insolvency, death, incapacity or similar event with respect to such Selling
Stockholder or any proceeding in connection therewith, or by the occurrence
of any other event. If any Selling Stockholder should be merged,
consolidated, reorganized, liquidated, dissolved, become bankrupt or
insolvent, die, become incapacitated or if any other event should occur or
proceeding be instituted in connection therewith, before the delivery of
such Selling Stockholder's Shares hereunder, certificates representing such
Shares shall be delivered by or on behalf of such Selling Stockholder in
accordance with the terms and conditions of this Agreement and the Custody
Agreement, and actions taken by the Attorney-in-Fact pursuant to the Power
of Attorney shall be valid as if such merger, consolidation,
reorganization, liquidation, dissolution, bankruptcy, insolvency, death,
incapacity or other event had not occurred, or such proceeding had not been
instituted, regardless of whether the Custodian (as hereinafter defined),
the Attorney-in-Fact, or any of them, shall have received notice thereof.
(e) To notify the Company and the Representatives if, at any time
during the period described in Section 5(f) hereof, such Selling
Stockholder becomes aware of any material change in the information
contained in the Registration Statement, any preliminary prospectus or the
Prospectus.
(f) To take all reasonable actions in cooperation with the Company and
the Underwriters to cause the Registration Statement to become effective at
the earliest possible time, to do and perform all things to be done and
performed under this Agreement by such Selling Stockholder prior to the
Closing Date and each Option Closing Date and to satisfy all conditions
precedent to the delivery of the Shares pursuant to this Agreement.
(g) Upon execution and delivery of this Agreement by such Selling
Stockholder or on behalf of such Selling Stockholder by the
Attorney-in-Fact, as applicable, to be bound by and to perform
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each of the covenants and agreements of such Selling Stockholder provided
for under this Agreement.
(h) For a period of 90 days after the date of this Agreement, not to
offer, sell (or contract to sell) or otherwise dispose of any Common Stock
(or any securities convertible into or exercisable or exchangeable for
Common Stock) or grant any options or warrants to purchase Common Stock
(other than Common Stock sold in the Offerings) except to the Underwriters
pursuant to this Agreement.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
(a) The Company (i) has filed with the Commission prior to the
effectiveness of the Registration Statement, a further amendment thereto,
including therein a final prospectus, (ii) will file with the Commission
after the effectiveness of such Registration Statement, a final prospectus
in accordance with Rules 430A and 424(b)(1) of the Act, or (iii) will file
with the Commission after the effectiveness of such Registration Statement,
a post-effective amendment thereto in accordance with Rule 462 under the
Act; the documents so filed conform, in content and form, to the last
printer's proof thereof furnished to and approved by the Underwriters
immediately prior to such filing; any required filing of the Prospectus, or
any supplement thereto, pursuant to Rule 424(b) under the Act has been or
will be made in the manner and within the time period required thereunder;
any required filing of a post-effective amendment pursuant to Rule 462
under the Act has been or will be made in the manner and within the time
period required thereunder; no stop order suspending or preventing the use
of the Registration Statement or the Prospectus, or any amendment or
supplement thereto, has been issued and no proceedings for such purpose
are, to the knowledge of the Company, pending before or contemplated by the
Commission.
(b)(i) Each prospectus filed as part of the Registration Statement as
originally filed or as part of any amendment thereto, or filed pursuant to
Rule 424 under the Act, complied in all material respects when so filed
with the Act; (ii) when the Registration Statement became or becomes
effective, including at the date of each post-effective amendment, at the
date of the Prospectus (if different) and at the Closing Date and each
Option Closing Date, if any, the Registration Statement and each amendment
thereto complied or will comply with the provisions of the Act and will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; and (iii) the Prospectus and each
amendment and supplement thereto, as of its date, the Closing Date and each
Option Closing Date, if any, will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, except that the representations and warranties
contained in this paragraph (b) shall not apply to statements in or
omissions from the Registration Statement, any preliminary prospectus or
the Prospectus (or any supplement or amendment to them) made in reliance on
and in conformity with information relating to (A) the Underwriters
furnished to the Company in writing by the Underwriters expressly for use
therein or (B) the Selling Stockholders furnished to the Company in writing
by the Selling Stockholders expressly for use therein to the extent
applicable to the preparation of the answers therein to Item 7 of Form S-1.
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(c) Each of the Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all requisite corporate power and
authority to carry on its business and to own and lease its properties, in
each case, as described in the Registration Statement and the Prospectus,
and is duly qualified and in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified or in good
standing would not have a material adverse effect on the business,
condition (financial or other), results of operations, properties or
prospects of the Company and its subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT").
(d) The Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby.
(e) Each Indemnitor has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby.
(f) Except as disclosed in the Registration Statement and the
Prospectus, none of the Company or any of its subsidiaries (i) is in
violation of its respective certificate of incorporation or bylaws, (ii) is
in default in the performance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of
indebtedness or in any indenture or other material agreement to which it is
a party or by which it is bound or to which any of its properties is
subject, including but not limited to the agreements listed in Item 16 of
Part II of the Registration Statement (collectively, the "MATERIAL
AGREEMENTS") or (iii) is in violation of any law, statute, rule,
regulation, judgment or court decree applicable to the Company, or any of
its subsidiaries except, in the case of clauses (ii) and (iii) above, for
such violations or defaults that would not, individually or in the
aggregate, have a Material Adverse Effect. The execution, delivery and
performance of this Agreement by the Company and the Indemnitors,
compliance by the Company and the Indemnitors with all provisions hereof
(as applicable), and the consummation of the transactions contemplated
hereby, will not conflict with, or constitute a breach or a violation of,
any of the terms or provisions of, or a default under, the certificate of
incorporation or bylaws of the Company or any of its subsidiaries, any
Material Agreement or any law, statute, rule, regulation, judgment or court
decree applicable to the Company or any of its subsidiaries. Except as
required under (A) the Act and (B) applicable securities or Blue Sky laws
of any state or foreign jurisdiction (each of which will be obtained or
made on or prior to the Closing Date and any Option Closing Date), no
consent, authorization, approval or order of, or filing or registration
with, or notice to, any court or governmental agency or body is required
for the execution, delivery and performance of this Agreement and the
performance of the obligations of the Company and the Indemnitors
hereunder.
(g) This Agreement has been duly authorized, executed and delivered by
the Company and each Indemnitor and (assuming the due execution and
delivery thereof by the Representatives) is the legally valid and binding
agreement of the Company and each Indemnitor, enforceable against the
Company and each Indemnitor in accordance with its terms, except (i) as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to or
affecting creditors' rights generally; (ii) that the remedies of specific
performance and injunctive and other forms of relief are subject to general
equitable principles, whether enforcement is sought at law or in equity,
and that such enforcement may be subject to the discretion
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of the court before which any proceedings therefor may be brought; and
(iii) as rights to indemnity and contribution may be limited by state or
federal laws relating to securities or by the policies underlying such
laws.
(h) Except as set forth in the Registration Statement and the
Prospectus, subsequent to the respective dates as of which information is
given therein and up to and including the Closing Date and each Option
Closing Date, if any, (i) none of the Company or any of its subsidiaries
has incurred any liabilities or obligations outside of the ordinary course
of business, direct or contingent, that are material to the Company and its
subsidiaries, taken as a whole, (ii) none of the Company or any of its
subsidiaries has entered into any material transactions outside of the
ordinary course of business, (iii) there has not been any material adverse
change in the business, condition (financial or other), results of
operations, properties or prospects of the Company and its subsidiaries,
taken as a whole (a "MATERIAL ADVERSE CHANGE"), and (iv) there has not been
any change in the capital stock or material increase in long-term debt of
the Company or any of its subsidiaries, or any issuance of options or
warrants to purchase capital stock of the Company or any of its
subsidiaries, or any payment or declaration to pay any dividends or other
distribution with respect to the capital stock of the Company.
(i) Except as set forth in the Registration Statement and the
Prospectus, there is no legal or governmental proceeding pending or, to the
knowledge of the Company, threatened to which the Company or any of its
subsidiaries is a party or of which any of them or their respective
properties is the subject that (i) is required to be disclosed in the
Registration Statement or Prospectus and that is not so disclosed or (ii)
if adversely determined, would have a Material Adverse Effect. No
contract, agreement, instrument or document of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement is not so described or filed as
required.
(j) Except as set forth in the Registration Statement and the
Prospectus, the Company and each of its subsidiaries has (i) good title to
all of the properties and assets described in the Registration Statement
and the Prospectus as owned by it, free and clear of all liens (other than
liens for taxes not yet due), charges, encumbrances or restrictions
("LIENS"), except for such Liens as would not, individually or in the
aggregate, have a Material Adverse Effect, (ii) peaceful and undisturbed
possession under all leases to which it is party as lessee, (iii) all
governmental licenses, certificates, permits, authorizations, approvals,
franchises or other rights necessary to engage in the business currently
conducted by it ("LICENSES"), except where the failure to hold such
Licenses would not, individually or in the aggregate, have a Material
Adverse Effect, and (iv) no reason to believe that any governmental body or
agency is considering limiting, suspending or revoking any such License.
All material leases to which the Company or any of its subsidiaries is a
party are valid and binding. None of the Company or any of its
subsidiaries is in default under any lease to which it is a party or by
which its assets are bound, except for such defaults which would not,
individually or in the aggregate, result in a Material Adverse Effect.
(k) No labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the knowledge of the Company is threatened that,
if adversely resolved, would have a Material Adverse Effect; and the
Company is not aware of any existing or threatened labor disturbance by the
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employees of any of its principal suppliers or contractors that might be
expected to result in a Material Adverse Change.
(l) None of the Company or any of its subsidiaries has (i) taken,
directly or indirectly, any action designed to, or that might reasonably be
expected to, cause or result in stabilization or manipulation of the price
of any security of the Company or any of its subsidiaries to facilitate the
sale or resale of the Shares or (ii) since the initial filing of the
Registration Statement (A) sold, bid for, purchased or paid any person any
compensation for soliciting purchases of, the Shares or (B) paid or agreed
to pay to any person any compensation for soliciting another to purchase
any other securities of the Company. Except as permitted by the Act,
neither the Company nor any of its subsidiaries has distributed any
Registration Statement, Prospectus, preliminary prospectus or other
offering material in connection with the offering and sale of the Shares.
(m) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(n) To the knowledge of the Company, KPMG Peat Marwick, the
accountants who have certified or will certify the financial statements
included or to be included as part of the Registration Statement and the
Prospectus or incorporated by reference therein are independent public
accountants with respect to the Company and its subsidiaries, as required
by the Act. The consolidated financial statements, together with the
related notes, set forth in the Registration Statement and the Prospectus
have been prepared and fairly present the financial condition and results
of operations of the Company and its subsidiaries at the respective dates
and for the respective periods indicated, in accordance with generally
accepted accounting principles consistently applied throughout such
periods. The pro forma financial data and the related notes thereto
included in the Registration Statement and the Prospectus have been
prepared in accordance with the applicable requirements of the Act, include
all adjustments necessary to present fairly the pro forma financial
condition and results of operations at the respective dates and for the
respective periods indicated and are based upon good faith estimates and
assumptions believed by the Company to be reasonable at the time made, on
the date hereof, on the Closing Date and any Option Closing Date. The
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus is, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company and its subsidiaries.
(o) Except as set forth in the Registration Statement and the
Prospectus under the caption "Risk Factors--Shares Eligible for Future
Sale; Registration Rights" there are no holders of securities of the
Company or any of its subsidiaries (other than the Selling Stockholders)
who, by reason of the execution by the Company of this Agreement, the sale
of the Shares or the filing of the Registration Statement under the Act,
have the right to request or demand that the Company register under the Act
securities held by them.
(p) Neither the Company nor any of its subsidiaries has dealt with any
broker, finder, commission agent or other person in connection with the
issuance and sale of the Shares and the transactions contemplated by this
Agreement (other than the Underwriters), and none of the Company or any of
its subsidiaries is under any obligation to pay any broker's fee or
commission in
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<PAGE>
connection with such transactions (other than discounts and commissions to
the Underwriters in connection with their purchase and sale of the Shares).
(q) The Company beneficially owns, directly or indirectly, 100% of the
outstanding capital stock or other securities evidencing equity ownership
of each of its subsidiaries free and clear of any security interest, other
than (i) pursuant to the New Revolving Credit Agreement, dated as of
__________________, 1997, among Bell & Howell Operating Company, the
Lenders listed therein and _________________________, as Agent, as amended
(together with all amendments, alterations, modifications and waivers
thereto or to the exhibits or schedules thereto to the date hereof, the
"NEW REVOLVING CREDIT AGREEMENT"), and the pledge agreement entered into in
connection therewith] and (ii) those shares of common stock required under
local law to be owned by a national person, and all of such securities have
been duly authorized, validly issued and are fully paid and non-assessable.
There are no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, any such shares of
capital stock or other equity interest of such subsidiaries.
(r) The authorized, issued and outstanding capital stock of the
Company was, as of June 28, 1997, as set forth in the Registration
Statement and Prospectus under the caption "Capitalization." The
consolidated capitalization table on page 18 of the Registration Statement
and Prospectus sets forth, as of June 28, 1997, and identifies in
reasonable detail as of such date all outstanding short-term (other than
trade payables) and long-term indebtedness of the Company, on a
consolidated basis.
(s) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights. The Shares to be sold
pursuant hereto, when delivered to the Underwriters against payment
therefor as provided in this Agreement, will conform to the description of
Common Stock in the Registration Statement and Prospectus under the caption
"Description of Capital Stock."
(t) The Company has complied with all provisions of Section 517.075,
Florida Statutes, relating to doing business with the Government of Cuba or
with any person or any affiliate located in Cuba.
8. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder severally represents and warrants to each Underwriter and to
the Company that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement and has, and on
the Closing Date and any Option Closing Date will have, good and clear
title to such Shares, free of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever.
(b) Upon delivery of and payment for such Shares pursuant to this
Agreement, good and clear title to such Shares will pass to the
Underwriters, free of all restrictions on transfer, liens, encumbrances,
security interests and claims whatsoever.
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(c) Each Selling Stockholder has, and on the Closing Date and on each
Option Closing Date, if applicable, will have, full legal right, power and
authority to enter into (i) this Agreement, (ii) a Power of Attorney (the
"POWER OF ATTORNEY") in favor of each of Messrs. Johansson, Lieberman and
Salit (each, an "ATTORNEY-IN-FACT") which, in the case of each Selling
Stockholder, relates to the execution of this Agreement and (iii) a Custody
Agreement (the "CUSTODY AGREEMENT") between the Selling Stockholders and
_________________________, as Custodian (the "CUSTODIAN"), and each
amendment to any of them and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Stockholder in the manner provided herein
and therein; this Agreement, the Power of Attorney and the Custody
Agreement have been duly authorized, executed and delivered by such Selling
Stockholder and each of this Agreement, the Power of Attorney and the
Custody Agreement is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except (i) as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to or
affecting creditors' rights generally; (ii) that the remedies of specific
performance and injunctive and other forms of relief are subject to general
equitable principles, whether enforcement is sought at law or in equity,
and that such enforcement may be subject to the discretion of the court
before which any proceedings therefor may be brought; and (iii) as rights
to indemnity and contribution may be limited by state or federal laws
relating to securities or by the policies underlying such laws.
(d) With respect to each Selling Stockholder, pursuant to the Power of
Attorney executed by such Selling Stockholder, such Selling Stockholder has
authorized Nils A. Johansson, Stuart T. Lieberman and Gary S. Salit, or any
one of them, to execute and deliver on his or her behalf this Agreement,
amendments to the Custody Agreement and any other document necessary or
desirable in connection with transactions contemplated hereby and thereby
and to deliver the Shares to be sold by such Selling Stockholder pursuant
to this Agreement.
(e) Such Selling Stockholder has not (i) taken, directly or
indirectly, any action designed to, or that might reasonably be expected
to, cause or result in stabilization or manipulation of the price of any
security of the Company or any of its subsidiaries to facilitate the sale
or resale of the Shares or (ii) since the initial filing of the
Registration Statement (A) sold, bid for, purchased or paid any person any
compensation for soliciting purchases of, the Shares or (B) paid or agreed
to pay to any person (other than the Underwriters) any compensation for
soliciting another to purchase any other securities of the Company. Except
as permitted by the Act, no Selling Stockholder has distributed any
Registration Statement, Prospectus, preliminary prospectus or other
offering material in connection with the offering and sale of the Shares.
(f) The execution, delivery and performance of this Agreement, the
Custody Agreement and the Power of Attorney, by such Selling Stockholder,
compliance by such Selling Stockholder with all the provisions hereof and
thereof and the consummation of the transactions contemplated hereby and
thereby will not conflict with, or constitute a breach or a violation of,
any of the terms or provisions of, or a default under, the organizational
documents of such Selling Stockholder if such Selling Stockholder is not an
individual, any material agreement to which such Selling Stockholder is a
party or by which such Selling Stockholder is bound or any law, statute,
rule, regulation, judgment or court decree applicable to such Selling
Stockholder or its property. Except as required under (A) the Act and (B)
applicable securities or Blue Sky laws of the several states and any
foreign jurisdiction (each of which will be obtained or made on or prior to
the Closing Date and any Option Closing Date), no
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<PAGE>
consent, authorization, approval or order of, or filing or registration
with, or notice to, any court or governmental agency or body is required
for the execution, delivery and performance of this Agreement, the Custody
Agreement, the Power of Attorney, or the valid sale of the Shares and the
performance of the obligations of the Selling Stockholders hereunder and
under the Custody Agreement.
(g) To the extent that any statements or omissions made in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with written information furnished to the Company by such Selling
Stockholder expressly for use therein, such preliminary prospectus and the
Registration Statement did, and the Prospectus and any further amendments
or supplements to the Registration Statement and the Prospectus will, when
they become effective or are filed with the Commission, as the case may be,
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
(h) Certificates in negotiable form representing all of the Shares to
be sold by such Selling Stockholder hereunder have been placed in custody
under the Custody Agreement, in the form heretofore furnished to or
approved by the Underwriters, duly executed and delivered by such Selling
Stockholder to the Custodian, and such Selling Stockholder has duly
appointed Nils A. Johansson, Stuart T. Lieberman and Gary S. Salit and any
of them, as Attorneys-in-Fact with authority, among other things, to
execute and deliver this Agreement on behalf of such Selling Stockholder,
to authorize the delivery of the Shares to be sold by such Selling
Stockholder hereunder and otherwise to act on behalf of such Selling
Stockholder in connection with the transactions contemplated by this
Agreement and the Custody Agreement.
9. INDEMNIFICATION. (a) Each of the Company and each Indemnitor,
jointly and severally agrees to indemnify and hold harmless each Underwriter,
its directors, its officers and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and judgments (including, without limitation, any legal or other expenses
incurred in connection with defending or investigating any matter, including any
action, that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein.
(b) Each Selling Stockholder, jointly and severally agrees to
indemnify and hold harmless each Underwriter, its directors, its officers and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages, liabilities and judgments (including, without
limitation, any legal or other expenses incurred in connection with defending or
investigating any matter, including any action, that could give rise to any such
losses, claims, damages, liabilities or judgments) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), the
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<PAGE>
Prospectus (or any amendment or supplement thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but, only insofar as such losses, claims, damages,
liabilities or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to such
Selling Stockholder and furnished in writing to the Company by or on behalf of
such Selling Stockholder expressly for use therein. Notwithstanding the
foregoing, the aggregate liability of each Selling Stockholder pursuant to the
provisions of this paragraph shall be limited to an amount equal to the
aggregate Purchase Price received by such Selling Stockholder from the sale of
such Selling Stockholder's Shares hereunder.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, each Indemnitor and any person controlling the Company
or such Indemnitor within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, each Selling Stockholder and each person, if any, controlling
such Selling Stockholder within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, to the same extent as the foregoing indemnity from the
Company, the Indemnitors and the Selling Stockholders to such Underwriter but
only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(d) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to paragraph (a) or (b) of
this Section 9 (the "indemnified party"), the indemnified party shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing and the indemnifying party shall assume the defense of such
action, including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of which indemnity
may be sought pursuant to both paragraphs (a) and (b) of this Section 9, the
Underwriter shall not be required to assume the defense of such action pursuant
to this paragraph (c), but may employ separate counsel and participate in the
defense thereof, but the fees and expenses of such counsel, except as provided
below, shall be at the expense of such Underwriter). Any indemnified party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the
indemnifying party, (ii) the indemnifying party shall have failed to assume the
defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by DLJ, in the case
of parties indemnified pursuant to paragraph (a) or (b) of this Section 9, and
by the Company, the Indemnitors or the Selling Stockholders, in the case of
parties indemnified pursuant to paragraph (c) of this Section 9. The
indemnifying party shall indemnify and hold harmless the indemnified
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party from and against any and all losses, claims, damages, liabilities and
judgments by reason of any settlement of any action (i) effected with its
written consent or (ii) effected without its written consent if the settlement
is entered into more than 20 business days after the indemnifying party shall
have received a request from the indemnified party for reimbursement for the
fees and expenses of counsel (in any case where such fees and expenses are at
the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(e) To the extent the indemnification provided for in this Section 9
is unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Indemnitors and/or the Selling Stockholders on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company, the
Indemnitors and/or the Selling Stockholders and the Underwriters in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company, the Indemnitors
and/or the Selling Stockholders and the Underwriters shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company, and the total underwriting
discounts and commissions received by the Underwriters, bear to the total price
to the public of the Shares, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company, the Indemnitors
and/or the Selling Stockholders and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company, the Selling Stockholders, the Indemnitors and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 9(e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or judgments referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses incurred by such indemnified party in connection with investigating or
defending any matter that could have given rise to such losses, claims, damages,
liabilities or judgments. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any
17
<PAGE>
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 9(e) are several in proportion to the
respective number of Shares purchased by each of the Underwriters hereunder and
not joint. Each Selling Stockholder's obligation to contribute pursuant to this
Section 9(e) is several and not joint, is in proportion to the respective number
of Shares sold by such Selling Stockholder and shall be limited to an amount
equal to the aggregate Purchase Price received by such Selling Stockholder from
the sale of such Selling Stockholder's Shares hereunder.
(f) The remedies provided for in this Section 9 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations
of the Underwriters to purchase the Shares under this Agreement are subject to
the satisfaction of each of the following conditions:
(a) All of the representations and warranties of the Company contained
in this Agreement shall be true and correct on the Closing Date and each
Option Closing Date, if any, with the same force and effect as if made on
and as of the Closing Date or such Option Closing Date, as the case may be.
The Company shall have performed or complied with all of the agreements
herein contained and required to be performed or complied with by the
Company at or prior to the Closing Date and each Option Closing Date, if
any.
(b) All the representations and warranties of the Selling Stockholders
contained in this Agreement shall be true and correct on the Closing Date
and each Option Closing Date, if any, with the same force and effect as if
made on and as of the Closing Date or such Option Closing Date, as the case
may be, and the Underwriters shall have received a certificate to such
effect, dated the Closing Date or such Option Closing Date, as the case may
be, from each Selling Stockholder. The Selling Stockholders shall have
performed or complied with all of the agreements herein contained and
required to be performed or complied with by the Selling Stockholders at or
prior to the Closing Date or each Option Closing Date, as the case may be.
(c)(i) The Registration Statement shall have become effective (or if a
post-effective amendment is required to be filed pursuant to Rule 430A or
Rule 462 under the Act, such post-effective amendment shall become
effective) not later than 10:00 A.M., New York City time, on the day
following the date of this Agreement or at such later date and time as the
Underwriters may approve in writing, (ii) at or prior to the Closing Date
and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission and every comment by or request
for additional information on the part of the Commission or any securities
commission or regulatory authority of the several states or any foreign
jurisdiction shall have been responded to or complied with in all material
respects and (iii) no stop order suspending the sale of the Shares in any
jurisdiction designated by the Underwriters pursuant to Section 5(i) hereof
shall have been issued and no proceeding for that purpose shall have been
commenced and be pending before any securities regulators, and the Company
shall not have received notice of the contemplation of any such issuance by
any such securities regulator.
18
<PAGE>
(d)(i) On the Closing Date and each Option Closing Date, if any, no
action shall have been taken and no statute, rule or regulation or order
shall have been enacted, adopted or issued by any governmental agency that
would, as of the Closing Date and each Option Closing Date, if any, prevent
the sale of the Shares; no action, suit or proceeding shall be pending
against or affecting or, to the knowledge of the Company and the Selling
Stockholders, threatened against the Company, any of its subsidiaries or
any Selling Stockholder before any court or arbitrator or any governmental
body, agency or official that, if adversely determined, would prohibit,
interfere with or adversely affect the issuance or sale of the Shares or
would, individually or in the aggregate, have a Material Adverse Effect, or
in any manner draw into question the validity of this Agreement, the
Custody Agreement, the Power of Attorney or the Shares.
(e) Except as set forth in the Registration Statement and Prospectus,
since the date of the latest balance sheet included therein, (i) there
shall not have been a Material Adverse Change, whether or not arising in
the ordinary course of business, (ii) there shall not have been any change
in the capital stock or material increase in the long-term debt of the
Company or its subsidiaries from that set forth in the Registration
Statement and Prospectus and (iii) none of the Company or its subsidiaries
shall have incurred any liability or obligation, other than in the ordinary
course of business, direct or contingent, that shall have a Material
Adverse Effect.
(f) On the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate dated the Closing Date or
each Option Closing Date, as the case may be, signed by the Executive Vice
President and the Chief Financial Officer of the Company, confirming the
matters set forth in paragraphs (a), (c), (d) and (e) of this Section 10.
(g) The Underwriters shall have received on the Closing Date and each
Option Closing Date, an opinion (substantially in the form of Annex III
hereto), dated the Closing Date and each Option Closing Date, if any, of
McDermott, Will & Emery, counsel for the Company and the Indemnitors.
(h) The Underwriters shall have received on the Closing Date and each
Option Closing Date, if any, (i) an opinion (substantially in the form
attached hereto as Annex IV) dated the Closing Date and each Option Closing
Date, if any, of ____________________________, counsel for the Selling
Stockholders.
(i) The Underwriters shall have received on the Closing Date and each
Option Closing Date, if any, an opinion (substantially in the form of Annex
V), dated the Closing Date and each Option Closing Date, if any, of Gary S.
Salit, General Counsel of the Company.
(j) The Underwriters shall have received on the Closing Date and each
Option Closing Date, if any, an opinion, dated the Closing Date or an
Option Closing Date, as the case may be, of Latham & Watkins, counsel for
the Underwriters, in form and substance reasonably satisfactory to the
Underwriters.
(k) Concurrently with the execution hereof and on the Closing Date and
each Option Closing Date, if any, the Underwriters shall have received
comfort letters, substantially in the form
19
<PAGE>
previously approved by the Underwriters, from KPMG Peat Marwick,
independent certified public accountants for the Company and its
subsidiaries, with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus.
(l) Latham & Watkins shall have been furnished with such documents as
they may reasonably require for the purpose of enabling them to review or
pass upon the matters referred to in this Section 10 and in order to
evidence the accuracy, completeness and satisfaction of the
representations, warranties and conditions herein contained.
(m) Each of the officers, directors and stockholders of the
Company set forth in Annex I shall have delivered to DLJ a Lock-up
Agreement, substantially in the form attached hereto as Annex II.
(n) The Underwriters shall have received from each Selling Stockholder
on the Closing Date and each Option Selling Stockholder on each Option
Closing Date, if any, an executed (i) statement pursuant to Section 1445 of
the Internal Revenue Code of 1986, as amended and the Treasury Regulations
thereunder and (ii) Form W-9 (or Form W-8 if such Selling Stockholder is
not a United States citizen), as previously provided by DLJ.
(o) The Company shall have delivered the Instruction to the Transfer
Agent.
(p) The Shares shall have been approved for listing on the New York
Stock Exchange.
(q) The Transfer Agent shall have delivered to the Underwriters a
certificate signed by an authorized officer attesting to (i) the due
authorization, execution and delivery by the Transfer Agent of the Custody
Agreement and (ii) the incumbency of the officers of the Transfer Agent who
signed the Custody Agreement.
All opinions, certificates, letters and other documents required by
this Section 10 to be delivered by the Company and the Selling Stockholders will
be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Underwriters. The Company and the
Selling Stockholders will furnish the Underwriters with such conformed copies of
such opinions, certificates, letters and other documents as the Underwriters or
their counsel shall reasonably request.
11. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement shall
become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Company and the Attorney-in-Fact if any of the
following has occurred: (i) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions or
in the financial markets of the United States or elsewhere that, in your
judgment, is material and adverse and would, in your judgment, make it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus, (ii) the suspension or material limitation of trading in
securities on the New York Stock Exchange, the American Stock Exchange, the
Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago
Board of Trade or the Nasdaq National Market or limitation on prices for
securities on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any
20
<PAGE>
securities of the Company on any exchange or in the over-the-counter market,
(iv) the enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of any court or other governmental
authority which in your opinion materially and adversely affects, or will
materially and adversely affect, the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole, (v)
the declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase on such date; provided that in no event shall the number of Firm Shares
or Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 11
by an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to the
Underwriters, the Company and the Attorney-in-Fact for purchase of such Firm
Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter, the
Company and the Selling Stockholders. In any such case which does not result
in termination of this Agreement, either DLJ, the Company or the Selling
Stockholders shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. If, on an Option Closing Date, any Underwriter or Underwriters
shall fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than one-
tenth of the aggregate number of Additional Shares to be purchased on such date,
the non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase such Additional Shares or (ii) purchase not
less than the number of Additional Shares that such non-defaulting Underwriters
would have been obligated to purchase on such date in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of any such Underwriter
under this Agreement.
12. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company or any
Indemnitor, c/o Bell & Howell Company, 5215 Old Orchard Road, Skokie, Illinois
60077-1076, Attention: Gary S. Salit, with a copy to McDermott, Will & Emery,
227 West Monroe Street, Chicago, Illinois 60606, Attention: William J. McGrath,
P.C., (b) if to the Underwriters, c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New
21
<PAGE>
York 10172, Attention: Syndicate Department, with a copy to Latham & Watkins,
885 Third Avenue, Suite 1000, New York, New York 10022, Attention: Kirk A.
Davenport, Esq., (c) if to a Selling Stockholder, to the address of such Selling
Stockholder listed in the Company's stock register, with a copy to
________________________________________________________________________________
____________________________________________________________,
Attention:____________________ and (d) in any case to such other address as the
person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Indemnitors, their
respective officers and directors, the Selling Stockholders and of the several
Underwriters set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Shares, regardless of (i) any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter or by or on behalf of
the Company and/or Selling Stockholders, the officers or directors of the
Company or any controlling person of the Company and/or Selling Stockholders,
(ii) acceptance of the Shares and payment for them hereunder and (iii)
termination of this Agreement.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Indemnitors, the Selling Stockholders, the Underwriters, any controlling persons
referred to herein and their respective successors and assigns, all as and to
the extent provided in this Agreement, and no other person shall acquire or have
any right under or by virtue of this Agreement, except that counsel to the
parties hereto may rely on the representations and warranties contained herein.
The term "successors and assigns" shall not include a purchaser of any of the
Shares from any of the several Underwriters merely because of such purchase.
Except as otherwise provided herein, as used in this Agreement, the
phrase "to the knowledge" of the Company or any Indemnitor shall refer to all
facts of which Mr. Gary S. Salit, the President or Chief Executive Officer of
any Indemnitor or any officer whose name is set forth in the Registration
Statement or Prospectus under the caption "Management" shall have notice or
actual knowledge.
This Agreement shall be governed and construed in accordance with the
internal laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
[Signature Pages Follow]
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Indemnitors, the Selling Stockholders and the several
Underwriters.
Very truly yours,
BELL & HOWELL COMPANY
By:
------------------------------------------
Name:
Title:
BELL & HOWELL OPERATING COMPANY
By:
------------------------------------------
Name:
Title:
BELL & HOWELL DOCUMENT MANAGEMENT PRODUCTS
COMPANY
By:
------------------------------------------
Name:
Title:
BELL & HOWELL PUBLICATION SYSTEMS COMPANY
By:
------------------------------------------
Name:
Title:
<PAGE>
BELL & HOWELL MAIL PROCESSING SYSTEMS COMPANY
By:
------------------------------------------
Name:
Title:
UMI COMPANY
By:
------------------------------------------
Name:
Title:
<PAGE>
Selling Stockholders
[ ]
By:
------------------------------------------
Name:
Title:
[ ]
By:
------------------------------------------
Name:
Title:
[ ]
By:
------------------------------------------
Name:
Title:
[ ]
By:
------------------------------------------
Name:
Title:
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO., INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
--------------------------
Name:
Title:
<PAGE>
SCHEDULE I
Underwriters Number of Shares
- ------------ ----------------
Donaldson, Lufkin & Jenrette Securities Corporation. . . . . . . . . .
Bear, Stearns & Co., Inc.. . . . . . . . . . . . . . . . . . . . . . .
Salomon Brothers Inc . . . . . . . . . . . . . . . . . . . . . . . . .
Smith Barney Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . .
___________
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
SCHEDULE II
Number of Firm Number of Additional
Name Shares Being Sold Shares Being Sold
- ---- ----------------- -----------------
Total
<PAGE>
ANNEX I
REQUIRED STOCKHOLDER LOCK-UPS
[TO BE UPDATED]
Richard S. Austin Robert A. Nero
David Bonderman William E. Oberndorf
Bonderman Family L.P. Raymond D. Patterson
J. Taylor Crandall James P. Roemer
Daniel L. Doctoroff Gary L. Roubos
Patrick J. Graver Maria T. Rubly
Group Management, Inc. John H. Scully
Nils A. Johansson Dieter E.A. Tannenberg
Keystone, Inc. William J. White
Stuart T. Lieberman
<PAGE>
ANNEX II
FORM OF LOCK-UP AGREEMENT
<PAGE>
ANNEX III
FORM OF OPINION OF MCDERMOTT, WILL & EMERY
(i) the Company and each of its subsidiaries is a corporation validly
existing and in good standing under the laws of Delaware and has all
requisite corporate power to carry on its business and to own and lease its
properties, in each case, as described in the Registration Statement and
the Prospectus;
(ii) each of the Company and the Indemnitors has all requisite
corporate power to execute, deliver and perform its obligations under this
Agreement; this Agreement has been duly authorized, executed and delivered
by each of the Company and the Indemnitors;
(iii) all of the outstanding shares of Common Stock (including the
Additional Shares) have been duly authorized and validly issued and will be
fully paid and non-assessable and the issuance thereof will not have been
subject to any preemptive or similar rights;
(iv) the Company has all requisite corporate power to authorize, issue
and sell the Shares to be sold by it hereunder; the Shares to be issued and
sold by the Company hereunder have been duly authorized and when issued and
delivered to the Underwriters against payment therefor as provided by this
Agreement, will have been validly issued and will be fully paid and non-
assessable and the issuance of such Shares will not be subject to any
preemptive or similar rights;
(v) to such counsel's knowledge (based solely on such counsel's
representation of the Company and without performing any docket searches or
further inquiry), there are no legal or governmental actions, suits,
proceedings or investigations pending or threatened against the Company or
any of its subsidiaries which (i) are required to be disclosed in the
Registration Statement or Prospectus and that are not so disclosed or (ii)
if adversely determined, would prohibit, interfere with or materially and
adversely affect the issuance and sale of the Shares or would, individually
or in the aggregate, result in a Material Adverse Effect, or in any manner
draw into question the validity of this Agreement, the Power of Attorney or
the issuance and sale of the Shares; to such counsel's knowledge, no
contract, agreement, instrument or document of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement is not so described or filed as
required;
(vi) the Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended;
(vii) the authorized capital stock of the Company, including the
Common Stock, conforms in all material respects to the description thereof
in the Registration Statement and Prospectus;
(viii) the statements under (A) the captions "Description of Capital
Stock" and "Description of Certain Financing Agreements and Certain
Indebtedness" in the Prospectus and (B) Item 14 of Part II of the
Registration Statement insofar as such statements constitute a summary of
1
<PAGE>
legal matters, documents or proceedings referred to therein, fairly present
the information called for with respect to such legal matters, documents
and proceedings;
(ix) the execution, delivery and performance of this Agreement by the
Company and the Indemnitors, the issuance and sale of the Shares by the
Company pursuant hereto, compliance by the Company and the Indemnitors with
all provisions hereof, and consummation of the transactions contemplated
hereby, including the issuance and sale of the Shares, will not (A)
conflict with or constitute a violation of the certificate of incorporation
or bylaws of the Company or any of its subsidiaries, (B) conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any Material Agreement, (C) conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any law or statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company, any of its subsidiaries or any of their respective
properties which, in such counsel's experience are normally applicable to
transactions of the type contemplated in the Registration Statement and the
Prospectus, except that such counsel need not express an opinion regarding
the limitation on indemnity and contribution by state and federal laws
relating to securities or by the policies underlying such laws or waiver of
damage remedies;
(x) except as required under applicable securities or Blue Sky laws of
the several states and any foreign jurisdiction, no consent, approval,
authorization or other order from, and no filing with or notice to, any
regulatory body, administrative agency, or other governmental authority is
required for the consummation of the Stock Split, the due authorization,
execution, delivery and performance by the Company of this Agreement and
the issuance and sale of the Shares;
(xi) all of the shares of issued and outstanding capital stock of each
of the Company's subsidiaries have been validly authorized and issued and,
to the knowledge of such counsel, are owned directly or indirectly by the
Company free and clear of any security interest, other than (A) pursuant to
the Credit Agreement and the pledge agreement entered into in connection
therewith and (B) those shares of common stock required by local law to be
owned by a national person; and, to the knowledge of such counsel, there
are no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, any shares of capital stock or other
equity interest in any such subsidiary;
(xii) the Registration Statement, as of its effective date and as of
the Closing Date and any Option Closing Date, and the Prospectus, as of its
date and as of the Closing Date and any Option Closing Date, complied as to
form in all material respects with the requirements of the Act and the
applicable rules and regulations of the Commission thereunder, except that
in each case such counsel expresses no opinion with respect to the
financial statements or other financial data contained in the Registration
Statement or the Prospectus;
(xiii) the Registration Statement has become effective under the Act;
(xiv) to the knowledge of such counsel, each required filing of the
Prospectus and each supplement thereto, pursuant to Rule 424(b) under the
Act has been made in the manner and within the time period required
thereunder and, to the knowledge of such counsel (after due inquiry), no
stop order suspending the effectiveness of the Registration Statement or
any post-effective
2
<PAGE>
amendment thereto has been issued and no proceedings for that purpose are
pending before or contemplated by the Commission;
(xv) assuming the Power of Attorney, as amended, signed by each Option
Selling Stockholder appointing Nils A. Johansson, Stuart T. Lieberman and
Gary S. Salit or any of them, as Attorney-in-Fact to the extent set forth
therein with regard to the transactions contemplated herein and by the
Registration Statement has been duly authorized, executed and delivered by
or on behalf of each Option Selling Stockholder, the Power of Attorney is a
valid and binding instrument of such Option Selling Stockholder enforceable
in accordance with its terms, except that no opinion is expressed as to the
enforceability of Section 2 with respect to the death of any such Selling
Stockholder and Section 8 of the Power of Attorney. Pursuant to such Power
of Attorney, each of the Option Selling Stockholders has authorized Messrs.
Johannson, Lieberman and Salit, or either of them, to execute and deliver
on their behalf this Agreement and any other document necessary or
desirable in connection with transactions contemplated hereby and to
deliver the Shares to be sold by them pursuant to the Underwriting
Agreement.
(xvi) assuming that (i) the Underwriters exercise their option to
purchase the Additional Shares, and (ii) each of the several Underwriters
purchasing Additional Shares pursuant to this Agreement have purchased such
shares in good faith and without notice of any lien, encumbrance, equity or
any other adverse claim within the meaning of the Uniform Commercial Code,
upon delivery of certificates for Additional Shares to be sold pursuant to
this Agreement, each of the several Underwriters who have purchased such
Additional Shares will acquire such Additional Shares free and clear of all
liens, encumbrances equities or any other adverse claims within the meaning
of the Uniform Commercial Code.
In addition, such counsel shall also state that in the course of
preparation by the Company of the Registration Statement and Prospectus, such
counsel has participated in conferences with directors, officers and other
representatives of the Company and its subsidiaries, representatives of KPMG
Peat Marwick, the independent certified public accountants for the Company and
its subsidiaries, representatives of the Underwriters and representatives of
their counsel, at which conferences the contents of the Registration Statement
and Prospectus and related matters were discussed, and, although such counsel
has not independently verified and is not passing upon and assumes no
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus (other than those with
respect to which such counsel is opining pursuant to Section 10(g) of this
Agreement), and noting that they have relied as to materiality to a large extent
upon the statements of directors, officers and other representatives of the
Company and its subsidiaries, nothing has come to such counsel's attention that
has caused such counsel to believe that the Registration Statement, on the
effective date thereof, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading, or that the Prospectus, on
the date thereof or on the date of such opinion, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that such
counsel expresses no view with respect to the financial statements and related
notes, the financial statement schedules and other financial, statistical and
accounting data included in the Registration Statement or Prospectus).
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In rendering the opinions set forth in Section 10(g) of the Underwriting
Agreement, McDermott, Will & Emery may rely as to factual matters upon
certificates or written statements from officers or other appropriate
representatives of the Company and its subsidiaries and upon certificates of
public officials. In addition, in rendering the opinions set forth in Section
10(g) of the Underwriting Agreement, McDermott, Will & Emery may rely as to
matters of law, other than the law of the State of New York, the law of the
State of Illinois, the General Corporation Law of the State of Delaware and the
federal law of the United States, on the opinions of local counsel retained by
it, or by the Company or any of its subsidiaries on behalf of itself, provided
that such counsel is satisfactory to the Underwriters and their counsel and that
a copy of such opinion is delivered with the opinion of McDermott, Will & Emery.
In rendering the opinions set forth above, such counsel may state that
whenever a statement included therein is qualified by "to our knowledge" or a
similar phrase, it is intended to indicate that those attorneys with McDermott,
Will & Emery who have rendered legal services in connection with the offering to
which the Registration Statement and Prospectus relate do not have current
actual knowledge of the inaccuracy of such statement.
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ANNEX IV
FORM OF OPINION OF
<PAGE>
ANNEX IV
FORM OF OPINION OF GARY S. SALIT
(i) the Company and each of the Indemnitors is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power to
carry on its business and to own and lease its properties, in each case, as
described in the Registration Statement and the Prospectus. The Company
and each of the Indemnitors is duly qualified to do business and is in good
standing in all jurisdictions where it is required to be so qualified and
where the failure to be so qualified would, individually or in the
aggregate, prohibit, interfere with or materially and adversely affect the
issuance and sale of the Shares or individually or in the aggregate, result
in material adverse effect on the business or properties of the Company
(collectively, a "Material Adverse Effect");
(ii) All of the outstanding shares of Common Stock have been duly
authorized, validly issued and are fully paid and non-assessable and the
issuance thereof was not subject to any preemptive or similar rights;
(iii) all of the shares of issued and outstanding common stock and
preferred stock, if any, of each Indemnitor have been validly authorized
and issued and are fully paid and non-assessable and all of the shares of
issued and outstanding common stock and preferred stock, if any, of the
Company's subsidiaries listed on EXHIBIT A hereto (each, a "Material
Subsidiary") are owned, directly or indirectly, by the Company, free and
clear of any security interest, other than (i) pursuant to the New
Revolving Credit Agreement and the pledge agreement entered into in
connection therewith and (ii) those shares of common stock required under
law to be owned by a national person; and there are no outstanding rights,
warrants or options to acquire, or instruments convertible into or
exchangeable for, any shares of capital stock or other equity interests in
any subsidiary of the Company;
(iv) each of the Company and each Indemnitor has all requisite
corporate power to execute, deliver and perform its obligations under this
Agreement; this Agreement has been duly authorized, executed and delivered
by the Company and the Indemnitors;
(v) the execution, delivery and performance of this Agreement by the
Company and the Indemnitors, compliance by the Company and the Indemnitors
with all provisions hereof and thereof, and consummation of the
transactions contemplated hereby and thereby, will not (a) conflict with or
constitute a violation of the certificate of incorporation or bylaws of the
Company or any of the Indemnitors, (b) conflict with or result in a breach
or violation of any agreement filed (or incorporated by reference into) the
Registration Statement (each, a "Material Agreement"), (c) contravene the
General Corporation Law of the State of Delaware or any statute, rule or
regulation under the laws of the United States or the State of Illinois
which, in my experience, are normally applicable to transactions of the
type contemplated by the Underwriting Agreement or (d) conflict with or
violate any judgment, decree or order of any court or governmental agency
or body known
1
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to me or any executive officer of the Company applicable to the Company,
the Indemnitors or their respective properties;
(vi) except as disclosed in the Registration Statement and the
Prospectus, there is no action, suit, investigation or proceeding,
governmental or otherwise, pending or, to the knowledge of such counsel,
threatened against the Company or any Indemnitor, that prevents the sale of
the Shares by the Company and the Selling Stockholders; no stop order
preventing the use of the Registration Statement or the Prospectus, or any
amendment or supplement thereto has been issued; and no contract,
agreement, instrument or document of a character required to be described
in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement is not so described or filed as
required;
(vii) no action, suit or proceeding is pending against or affecting
or, to the knowledge of such counsel threatened against, the Company or any
of its subsidiaries before any court or arbitrator or any governmental
body, agency or official that (A) is required to be disclosed in the
Registration Statement or Prospectus and that is not so disclosed or (B) if
adversely determined, would prohibit, interfere with or materially and
adversely affect the sale of the Shares or would, individually or in the
aggregate, have a Material Adverse Effect, or render illegal, invalid or
unenforceable any of this Agreement, the Custody Agreement or the sale of
the Shares;
(viii) no consent, approval, authorization or other order from, and no
filing with or notice to, any regulatory body, administrative agency, or
other governmental authority is required for the due authorization,
execution, delivery and performance by the Company and the Indemnitors of
this Agreement, except (i) as required under the Act (which have been
obtained) or (ii) as required by applicable securities or Blue Sky Laws of
the several states or any foreign jurisdiction (as to which such counsel
need express no opinion);
(ix) (A) none of the Company or any Material Subsidiary (1) is in
violation of its respective certificate of incorporation or bylaws or (2)
is in default in the performance of any Material Agreement and (B) no
notice has been issued and no investigation or review is pending or
threatened by any governmental entity with respect to (1) any alleged
violation by the Company or any Material Subsidiary of any statute, law,
ordinance, rule, regulation, judgment, decree or order of any governmental
entity, agency or body or (2) any alleged failure by the Company or any
Material Subsidiary to have all Licenses required in connection with the
operation of its business, that, with respect to clauses (A)(2) or (B)
above, would individually or in the aggregate (x) render illegal, invalid
or unenforceable any of this Agreement, the Power of Attorney or the
issuance and sale of the Shares or (y) result in a Material Adverse Effect;
(x) based solely upon a review of (a) the stock records of the
Company, (b) the certificate or certificates representing the Shares to be
sold on the Closing Date and any Option Closing Date by the Selling
Stockholders, (c) the representations of such Selling Stockholder contained
in Section 8(a) of the Underwriting Agreement and (d) factual certificates
obtained from each Selling Stockholder, immediately prior to the Closing
Date or such Option Closing Date, the Shares to be sold on such Option
Closing Date under this Agreement are owned of record as set forth on
Schedule A to such opinion.
2
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In addition, such counsel shall also state that in the course of
preparation by the Company of the Registration Statement and Prospectus, such
counsel has participated in conferences with directors, officers and other
representatives of the Company and its subsidiaries, representatives of KPMG
Peat Marwick, the independent certified public accountants for the Company and
its subsidiaries, representatives of the Underwriters and representatives of
their counsel, at which conferences the contents of the Registration Statement
and Prospectus and related matters were discussed and, although such counsel has
not independently verified and is not passing upon and assumes no responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus, and noting that such counsel has relied
as to materiality to a large extent upon the statements of directors, officers
and other representatives of the Company and its subsidiaries, nothing has come
to such counsel's attention that has caused such counsel to believe that the
Registration Statement, on the effective date thereof, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, or that the Prospectus, on the date thereof or on the date of such
opinion, contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading (it
being understood that such counsel expresses no view with respect to the
financial statements and related notes, the financial statement schedules and
other financial, statistical and accounting data included in the Registration
Statement or Prospectus.
In rendering the opinions required by Section 10(i) of the
Underwriting Agreement, such counsel may rely as to factual matters upon
certificates or written statements from officers or other appropriate
representatives of the Company or its subsidiaries or upon certificates of
public officials and need not express any opinion with regard to the laws of any
jurisdiction other than the law of the State of Illinois, the General
Corporation Law of the State of Delaware and the federal law of the United
States.
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Exhibit A
Material Subsidiaries
[UPDATE]
1. Each of the Indemnitors
2. Bell & Howell Acceptance Corporation
3. Bell & Howell A-V Limited
4. Bell & Howell Foreign Sales Corporation
5. Bell & Howell GmbH
6. Bell & Howell International Services Company
7. Bell & Howell Japan Co., Ltd.
8. Bell & Howell Ltd
9. Bell & Howell Mailmobile Company
10. Bell & Howell Nederland BV
11. Bell & Howell Postal Systems Inc.
12. Bell & Howell Protocorp International, Inc.
13. Bell & Howell PW Acquisition Company
14. Bell & Howell PW Licensing Company
15. Bell & Howell France S.A.
<PAGE>
Exhibit 5.1
August 29, 1997
Bell & Howell Company
5215 Old Orchard Road
Skokie, Illinois 60077
Re: Registration Statement on Form S-1
File No. 333-33123
----------------------------------
Ladies and Gentlemen:
You have requested our opinion in connection with the above-referenced
registration statement (the "Registration Statement"), under which (i) Bell &
Howell Company (the "Company") intends to issue and sell in a public offering
3,861,004 shares of Common Stock, par value $.001 per share, of the Company
("Common Stock"), plus up to an additional 579,151 shares of Common Stock
granted to the underwriters by the Company to cover over-allotments (the
"Primary Shares"), and (ii) certain stockholders of the Company intend to
sell in such offering 316, 255 shares of Common Stock, plus up to an
additional 47,438 shares of Common Stock granted to the underwriters by
certain selling stockholders to cover over-allotments (the "Secondary
Shares").
In arriving at the opinion expressed below, we have examined the
Registration Statement and such other documents as we have deemed necessary
to enable us to express the opinion hereinafter set forth. In addition, we
have examined and relied, to the extent we deem proper, on certificates of
officers of the Company as to factual matters, and on the originals or copies
certified or otherwise identified to our satisfaction, of all such corporate
records of the Company and such other instruments and certificates of public
officials and other persons as we have deemed appropriate. In our
examination, we have assumed the authenticity of all documents submitted to us
as originals, the conformity to the original documents of all documents
submitted to us as copies, the genuineness of all signatures on documents
reviewed by us and the legal capacity of natural persons.
<PAGE>
Bell & Howell Company
August 29, 1997
Page 2
Based upon and subject to the foregoing, we are of the opinion that (i)
the Primary Shares have been duly authorized and, when issued in accordance
with the terms and conditions set forth in the Registration Statement
(including the Underwriting Agreement) and upon authorization of the Pricing
Committee of the Board of Directors, will be validly issued, fully paid and
non-assessable (ii) the Secondary Shares have been duly authorized, validly
issued and are fully paid and non-assessable.
We hereby consent to the references to our firm under the caption "Legal
Matters" in the Registration Statement and to the use of this opinion as an
exhibit to the Registration Statement. In giving this consent, we do not
hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
<PAGE>
EXHIBIT 23.2
The Board of Directors
Bell & Howell Company:
We consent to the use of our reports included in this registration statement on
Form S-1 of Bell & Howell Company and to the reference to our firm under the
heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Chicago, Illinois
August 29, 1997
