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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1998
REGISTRATION NO.
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
DIMAC CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 2677 13-4013426
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or Classification Code Number)
organization)
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5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
(404) 256-1123
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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MR. EDWARD LAZAROWITZ
CHIEF FINANCIAL OFFICER
DIMAC CORPORATION
5775 PEACHTREE DUNWOODY ROAD
SUITE C-150
ATLANTA, GEORGIA 30342
(404) 256-1123
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPY TO:
Frank L. Schiff, Esq.
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
(212) 819-8752
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered in
connection with the information of a holding company and there is compliance
with General Instruction G, check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH OFFERING AGGREGATE
NOTE OF SECURITIES AMOUNT TO BE PRICE PER OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED NOTE(1) PRICE(1) REGISTRATION FEE
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12 1/2% Senior Subordinated Notes
due 2008............................. $100,000,000 100% $100,000,000 $27,800
Guarantees of each of the
Guarantors(2)........................ (3) (3) (3) None(3)
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(1) In accordance with Rule 457(f)(2), the registration fee is calculated based
on the book value, which has been computed as of November 12, 1998, of the
outstanding 12 1/2% Senior Subordinated Notes Due 2008 of DIMAC Corporation
to be cancelled in the exchange transaction hereunder.
(2) The 12 1/2% Senior Subordinated Notes Due 2008 of DIMAC Corporation being
registered will be guaranteed by DIMAC Marketing Corporation, DIMAC DIRECT,
Inc., Palm Coast Data Inc., The McClure Group Inc., Wilcox & Associates
Inc., MBS/Multimode Inc., AmeriComm Holdings, Inc. and AmeriComm Direct
Marketing, Inc.
(3) No additional consideration will be paid by the recipients of the 12 1/2%
Senior Subordinated Notes Due 2008 for the Guarantees. Pursuant to Rule
437(n) under the Securities Act of 1933, no separate fee is payable for the
Guarantees.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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OTHER REGISTRANTS
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PRIMARY STANDARD ADDRESS, INCLUDING ZIP
JURISDICTION INDUSTRIAL IRS EMPLOYER CODE AND TELEPHONE NUMBER,
OF CLASSIFICATION CODE IDENTIFICATION INCLUDING AREA CODE, OF
NAME OF CORPORATION INCORPORATION NUMBER NUMBER PRINCIPAL EXECUTIVE OFFICE
- --------------------- ------------- ------------------- ------------- --------------------------
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AmeriComm Direct Delaware 2677 23-2574778 5775 Peachtree Dunwoody
Marketing, Inc. Road,
Suite C-150
Altanta, GA 30342
(404) 256-1123
Americomm Holdings, Delaware 2677 52-1668844 5775 Peachtree Dunwoody
Inc. Road,
Suite C-150
Atlanta, GA 30342
(404) 256-1123
DIMAC DIRECT, Inc. Missouri 2677 43-0690811 One Corporate Woods Drive
Bridgeton, Missouri 63044
(314) 344-8000
DIMAC Marketing Delaware 2677 43-1464284 One Corporate Woods Drive
Corporation Bridgeton, Missouri 63044
(314) 344-8000
Palm Cast Data Inc. Missouri 2677 43-1706955 11 Commerce Boulevard
Palm Coast, FL 32164
(904) 445-4662
The McClure Group Missouri 2677 43-1723272 1325 Morris Dr.
Inc. Wayne, PA 19087
(610) 407-0407
Wilcox & Associates Missouri 2677 43-1737508 420 Lexington Ave.
Inc. 22d Floor
New York, NY 10170
(212) 551-2900
MBS/Multimode Inc. Missouri 2677 43-1743899 570 S. Research Pl.
Central Islip, NY 11722
(516) 851-5000
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS WILL BE AMENDED OR COMPLETED;
DATED NOVEMBER 12, 1998
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PROSPECTUS
DIMAC CORPORATION [LOGO]
EXCHANGE OFFER FOR
12 1/2% SENIOR SUBORDINATED NOTES DUE 2008
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GUARANTEED BY:DIMAC MARKETING CORPORATION
DIMAC DIRECT, INC.
PALM COAST DATA INC.
THE MCCLURE GROUP INC.
WILCOX & ASSOCIATES INC.
MBS/MULTIMODE INC.
AMERICOMM HOLDINGS, INC.
AMERICOMM DIRECT MARKETING, INC.
INVESTMENT IN THE NEW NOTES BEING OFFERED INVOLVES CERTAIN RISKS. IT IS
IMPORTANT THAT YOU READ THE SECTION LABELED "RISK FACTORS" BEGINNING ON PAGE 17
FOR A MORE DETAILED DISCUSSION OF THESE RISKS.
TERMS OF THE EXCHANGE OFFER
/ / The Exchange Offer expires at 5:00 p.m., New York City time, on ,
199 , unless extended.
/ / The Exchange Offer is not subject to any conditions other than that the
registered New Notes be freely tradeable and that the interests of
holders of outstanding Old Notes not be materially adversely affected by
consummation of the Exchange Offer.
/ / We will exchange all outstanding Old Notes that are validly tendered and
not validly withdrawn.
/ / You may withdraw tenders of outstanding Old Notes at any time prior to
the expiration of the Exchange Offer.
/ / The exchange of outstanding Old Notes for New Notes will not be a
taxable event for federal income tax purposes.
/ / We will not receive any proceeds from the Exchange Offer.
/ / The terms of the New Notes are substantially identical to the
outstanding Old Notes, except that the New Notes will be freely
tradeable.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
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TABLE OF CONTENTS
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Prospectus Summary.................................................... 1
Risk Factors.......................................................... 17
Company History....................................................... 26
The Acquisitions...................................................... 27
The Refinancing....................................................... 27
Use of Proceeds of the New Notes...................................... 28
Capitalization........................................................ 29
The Exchange Offer.................................................... 30
DIMAC Corporation Unaudited Pro Forma Consolidated Statements......... 40
Selected Historical Financial Data AmeriComm Holdings, Inc............ 54
Selected Historical Financial Data DIMAC Marketing Corporation........ 56
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 58
Business.............................................................. 70
Management............................................................ 86
Security Ownership.................................................... 90
Certain Relationships and Related Transactions........................ 91
Description of Other Indebtedness..................................... 96
Description of Notes.................................................. 97
Certain United States Federal Tax Considerations...................... 131
Old Notes Registration Rights Agreement............................... 132
Book-Entry; Delivery and Form......................................... 135
Plan of Distribution.................................................. 138
Legal Matters......................................................... 139
Experts............................................................... 139
Index to Financial Statements......................................... F-1
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PROSPECTUS SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. This
Prospectus includes specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage you
to read this Prospectus in its entirety.
THE EXCHANGE OFFER
On October 22, 1998, we completed the private offering of our 12 1/2% Senior
Subordinated Notes Due 2008. The Notes were sold for an aggregate purchase price
of $100.0 million. The Notes are guaranteed by all of our subsidiaries, which
are as follows:
- DIMAC Marketing Corporation;
- DIMAC DIRECT, Inc.;
- Palm Coast Data Inc.;
- The McClure Group Inc.;
- Wilcox & Associates Inc.;
- MBS/Multimode Inc.;
- AmeriComm Holdings, Inc.; and
- AmeriComm Direct Marketing, Inc.
We entered into a Registration Rights Agreement with the initial purchasers
in a private offering in which we agreed, among other things, to deliver to you
this Prospectus and to complete the Exchange Offer on or prior to April 20,
1999. In the Exchange Offer, you are entitled to exchange your outstanding Old
Notes for registered New Notes with substantially identical terms. If we do not
timely file a registration statement or complete the Exchange Offer, the
interest rate on the Old Notes will be increased as follows:
- 0.50% per year for the first 90 day period during which we do not comply
with our registration obligations; and
- 0.50% per year for each subsequent 90 day period until either we comply with
our registration obligations or the interest rate on the Old Notes has
increased by 2.0% per year.
You should read the discussion under the headings "The Exchange Offer" and
"Description of Notes" for further information regarding the New Notes.
We believe that, subject to certain conditions, you may resell the New Notes
issued in the Exchange Offer without complying with the registration and
prospectus delivery provisions of the Securities Act of 1933. You should read
the discussion under the heading "The Exchange Offer" for further information
regarding the Exchange Offer and resale of the New Notes.
THE COMPANY
OVERVIEW
DIMAC Corporation acquired AmeriComm Holdings, Inc. and DIMAC Marketing
Corporation on June 26, 1998. Consequently, we had to redeem or repay certain
indebtedness that we assumed when we acquired these two companies.
In the Refinancing, we:
- repaid certain existing indebtedness of AmeriComm Holdings and its
subsidiary, AmeriComm Direct Marketing, Inc. (including the repurchase of
all $100.0 million of AmeriComm Direct Marketing outstanding 11 5/8% Senior
Notes due 2002 through a tender offer and consent solicitation);
- repaid the amount of revolving loans outstanding under our senior secured
credit facility; and
- paid fees and expenses related to our Senior Subordinated Notes offering and
the AmeriComm Direct Marketing tender offer and consent solicitation.
WHO WE ARE
We provide a comprehensive range of direct marketing services that
emphasizes cost-effective production of large, complex, highly personalized
direct mail campaigns. Through our nationwide network of 21 production
facilities, we offer direct mail customers a wide variety of formats, printing
and converting capabilities, personalization and customization alternatives and
mailing and distribution services. We mail approximately
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1.7 billion direct mail packages each year. We believe that this makes us one of
the largest direct mailers in the United States.
WHAT WE DO
We offer a complete range of pre- and post-production direct marketing
services such as
- information services (information processing and database management);
- program development services (strategic market planning, creative
development and program evaluation); and
- fulfillment and telemarketing services (fulfillment, telemarketing and
tracking)
to complement and drive our production volume and to attract higher margin
business. In addition, to support our direct marketing products and services, we
offer other printing and converting products such as custom pressure sensitive
labels and custom mailers.
HOW WE HAVE DONE
Our pro forma net sales and pro forma EBITDA for the twelve-month period
ended June 30, 1998 would have been $384.4 million and $56.8 million,
respectively. Our pro forma net sales and pro forma EBITDA give retroactive
effect to the following transactions as if each of these transactions occurred
on January 1, 1997:
- our acquisitions of AmeriComm Holdings and DIMAC Marketing;
- the Refinancing;
- the AmeriComm Holdings Acquisitions of the following companies:
- AmeriComm Direct Marketing, Inc.;
- Cardinal Marketing, Inc. and Cardinal Marketing of New Jersey, Inc.; and
- Label America, Inc.
PRO FORMA INFORMATION. Pro forma information does not indicate actual
results and may not indicate future results. We have presented both historical
and pro forma information throughout this Prospectus, however, because of the
changes to our business during 1998, we believe that the pro forma information
may be more meaningful to you.
DIRECT MAIL INDUSTRY
OVERVIEW
Direct mail advertising is the second largest segment of the direct
marketing industry. Direct mail expenditures increased from $25.4 billion in
1992 to $37.4 billion in 1997. This represents a compound annual rate of 8.0%.
Industry sources forecast that such expenditures will grow to $51.0 billion by
the end of 2002. This represents a compound annual rate of 6.4%.
Direct mail is often regarded as more effective than other forms of mass
advertising, such as television, newspapers, and magazines. Through direct mail,
companies can direct their advertising specifically to a target market and the
response can be measured. This allows a direct mail program to be continually
refined to increase its effectiveness. Companies use direct mail for a variety
of purposes, including:
- attracting new customers;
- enhancing existing customer relationships; and
- exploring market potential for new products and services.
CURRENT MARKET CONDITIONS
The direct mail industry is highly fragmented, with relatively few national
providers capable of offering comprehensive direct mail marketing. We believe
this fragmentation, coupled with continued customer outsourcing and expectations
of single-source, cost-effective direct mail solutions, provides a competitive
advantage for national full service providers such as our company.
INDUSTRY DATA
We obtained the industry data used throughout this Prospectus from industry
publications. We have not independently verified this information.
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BUSINESS STRATEGY
Our business strategy is to enhance our competitive position and increase
net sales and profitability through the following initiatives:
EMPHASIZE COMPREHENSIVE DIRECT MAIL SOLUTIONS
An increasingly important factor in clients' selection of a direct mail
service provider is the availability of "one-stop shopping" for all of their
direct mail needs. Because of our comprehensive range of direct mail products
and pre- and post-production services, we are well positioned to offer clients
"one-stop shopping". We believe that as a "single-source" supplier offering
comprehensive solutions, we will save our clients both time and money.
LEVERAGE LARGE SCALE AND NATIONAL PRESENCE TO ATTRACT NEW HIGH VOLUME, NATIONAL
CLIENTS
The size and scope of a direct mail company's operations are increasingly
important factors for large, national accounts in the selection of a direct mail
service provider. We have the capabilities and scale to service national, high
volume accounts requiring access to multiple distribution points. Based on our
previous experience in securing national business from our clients, we believe
that we can further leverage our strong franchise, large scale, wide breadth of
operations and national presence to secure new high-volume, high-margin
business.
REALIZE BENEFITS FROM INTEGRATION
We believe the integration of AmeriComm Holdings and DIMAC Marketing
presents additional margin enhancement opportunities. These include:
- in-sourcing certain product requirements;
- relocating certain production equipment;
- procuring raw materials on a combined basis; and
- sharing certain technological and software capabilities.
PURSUE STRATEGIC ACQUISITIONS
The trend towards consolidation in the highly fragmented direct marketing
industry provides opportunities for continued growth through selected strategic
acquisitions. We intend to pursue potential acquisitions that:
- complement our product offerings;
- increase our production capabilities;
- provide entry into new markets;
- expand our customer base; or
- create new cross-selling opportunities.
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ORGANIZATIONAL CHART
The following chart depicts, as of October 31, 1998, the organizational
structure of DIMAC Holdings and DIMAC Corporation and their subsidiaries, the
percentage ownership of each subsidiary by its direct parent, the indebtedness
and capital leases of each of these companies (excluding intercompany
indebtedness) and the equity contribution made to DIMAC Holdings.
[CHART]
- ------------------------
(a) Borrowings of up to $75.0 million were available under our revolving credit
facility for working capital and general corporate purposes.
(b) Net of original issue discount of $2.8 million.
4
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CONTROLLING STOCKHOLDER
The controlling stockholder of DIMAC Holdings is McCown De Leeuw & Co.,
Inc., a private equity investment firm based in Menlo Park, California and New
York City. McCown De Leeuw has significant previous experience in the direct
mail industry. McCown De Leeuw's experience in the direct mail industry results
from its ownership of AmeriComm Holdings from 1989 until June 1998 through
McCown De Leeuw & Company II, L.P. and its affiliates, and its previous
ownership of DIMAC Marketing from November 1993 through February 1996.
5
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SUMMARY OF THE EXCHANGE OFFER
The New Notes....... The forms and terms of the New Notes are identical in all
material respects to those of the Old Notes. The New
Notes, however, will not contain certain transfer restric-
tions, registration rights and liquidated damages
provisions relating to the Old Notes. The Old Notes may be
exchanged for New Notes under the Exchange Offer described
in the "Description of Notes" and "Old Notes Registration
Rights Agreement" sections of this Prospectus.
The Exchange
Offer............. We are offering to exchange up to $100,000,000 aggregate
principal amount of the New Notes for up to $100,000,000
aggregate principal amount of Old Notes. Old Notes may be
exchanged only in integral multiples of $1,000.
Expiration Date;
Withdrawal of
Tender............ The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 199 , or such later date and time to
which we extend it. Your tender of Old Notes pursuant to
the Exchange Offer may be withdrawn at any time prior to
, 199 . The expiration date for the Exchange
Offer will not in any event be extended to a date later
than , 199 . Any Old Notes not accepted for
exchange for any reason will be returned without expense
to the tendering holder promptly after the expiration or
termination of the Exchange Offer.
Certain Conditions
to the Exchange
Offer............. The Exchange Offer is subject to customary conditions,
which we may waive. Please read the section "The Exchange
Offer--Certain Conditions to the Exchange Offer" of this
Prospectus for more information regarding conditions to
the Exchange Offer.
Procedures for
Tendering Old
Notes............. Each holder of Old Notes that wishes to accept the
Exchange Offer must complete, sign and date the Letter of
Transmittal, or a facsimile of the Letter of Transmittal,
according to the instructions contained in this Prospectus
and the Letter of Transmittal. Such holder must also mail
or otherwise deliver the Letter of Transmittal, or a
facsimile of the Letter of Transmittal, together with the
Old Notes and any other required documents to the Exchange
Agent at the address set forth on the cover page of the
Letter of Transmittal. By signing the Letter of
Transmittal, each holder will represent to us that, among
other things:
- any New Notes which the holder receives will be acquired
in the ordinary course of its business;
- the holder has no arrangements or understanding with any
person or entity to participate in the distribution of
the New Notes;
- the holder is not an "affiliate," as defined in Rule 405
of the Securities Act, of DIMAC Corporation (or, if
6
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the holder is an affiliate, it will comply with any
applicable registration and prospectus delivery
requirements of the Securities Act);
- if the holder is not a broker-dealer, that it is not
engaged in, and does not intend to engage in the dis-
tribution of the New Notes; and
- if the holder is a broker-dealer, that it will receive
New Notes for its own account in exchange for Old Notes
that were acquired as a result of market-making activi-
ties or other trading activities and that it will be
required to acknowledge that it will deliver a prospec-
tus in connection with any resale of New Notes.
Each holder whose Old Notes are held through The Depos-
itory Trust Company and who wishes to participate in the
Exchange Offer may do so through The Depository Trust
Company's Automated Tender Offer Program. Under this
program, each tendering participant will agree to be bound
by the Letter of Transmittal as though each holder had
signed the Letter of Transmittal.
Interest on the New
Notes............. Interest on the New Notes will accrue from the date they
are issued at the rate of 12 1/2% each year, and will be
payable semi-annually in arrears on each April 1 and
October 1, beginning on April 1, 1999. Holders of the New
Notes will also receive an amount equal to the accrued
interest on the Old Notes on April 1, 1999. Interest on
the Old Notes accepted for exchange will stop accruing
when the New Notes are issued.
Special Procedures
for Beneficial
Owners............ Any beneficial owner whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company
or other nominee, and who wishes to tender such Old Notes
in the Exchange Offer, should contact such registered
holder promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on his own behalf, such
owner must, prior to completing and executing the Letter
of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old
Notes in his name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time and may
not be able to be completed prior to , 199 .
Guaranteed Delivery
Procedure......... Holders of Old Notes who wish to tender their Old Notes
and whose Old Notes are not immediately available or who
cannot deliver their Old Notes, the Letter of Transmittal
or any other documents required by the Letter of
Transmittal, prior to , 199 , must tender their
Old Notes according to the guaranteed delivery procedures
set forth in
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this Prospectus under "The Exchange Offer--Guaranteed
Delivery Procedures".
Registration
Requirements...... Under the Exchange Offer, we will offer holders of the Old
Notes an opportunity to exchange their Old Notes for New
Notes. We will issue the New Notes without legends
restricting their transfer. In the event that applicable
Securities and Exchange Commission interpretations do not
permit us to effect the Exchange Offer or in certain other
circumstances, we have agreed to file a Shelf Registration
Statement covering resales of the Old Notes and to use our
reasonable best efforts to cause the SEC to declare the
Shelf Registration Statement effective under the
Securities Act and, subject to certain exceptions, keep
the Shelf Registration Statement effective until October
22, 2000 (two years after the date the Notes were issued).
If we fail to consummate the Exchange Offer on or prior to
April 20, 1999 or, in the event that we are not in
compliance with certain obligations under the Registration
Rights Agreement, we will be obligated to pay additional
interest to holders of the Old Notes. Please read the "Old
Notes Registration Rights Agreement" section of this
Prospectus for more information regarding your rights as a
holder of the Old Notes.
Certain Federal Tax
Considerations.... For a discussion of certain federal income tax considera-
tions relating to the exchange of the New Notes for the
Old Notes, see the "Certain United States Federal Tax
Considerations" section of this Prospectus.
Use of Proceeds..... We will receive no proceeds from the exchange of Old Notes
under the Exchange Offer.
Exchange Agent...... Wilmington Trust Company is the Exchange Agent. The
address and telephone number of the Exchange Agent are set
forth in the "The Exchange Offer--Exchange Agent" section
of this Prospectus.
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TERMS OF THE NOTES
The form and terms of the New Notes are substantially the same as the form
and terms of the Old Notes except that the New Notes are registered under the
Securities Act. Therefore, the New Notes will not bear legends restricting their
transfer and will not contain the registration rights and additional interest
provisions relating to the Old Notes. It is important that you read the sections
"Description of Notes" and "Old Notes Registration Rights Agreement" of this
Prospectus for more information regarding the Old Notes and New Notes and your
rights as a holder of these notes.
FORWARD-LOOKING STATEMENTS
Certain of the information contained in this Prospectus, including
information with respect to our plans and strategy for our business and its
financing, are forward-looking statements. For a discussion of important factors
that could cause actual results to differ materially from the forward-looking
statements, see the "Risk Factors" section of this Prospectus.
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RISK FACTORS
For a discussion of certain factors that you should consider in connection
with your investment in the New Notes to be issued in the Exchange Offer, see
"Risk Factors" immediately following this summary.
OUR HISTORY
We were incorporated in May 1998 under the laws of the State of Delaware. We
acquired DIMAC Marketing and AmeriComm Holdings on June 26, 1998.
PRINCIPAL EXECUTIVE OFFICE
Our headquarters are located at 5775 Peachtree Dunwoody Road, Suite C-150,
Atlanta, Georgia 30342 (telephone number 404-256-1123).
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-4 under the
Securities Act, covering the New Notes to be issued in the Exchange Offer.
Please note that this Prospectus does not contain all of the information
included in the Registration Statement. Any statement made in this Prospectus
concerning the contents of any contract, agreement or other document is not
necessarily complete. If we have filed any such contract, agreement or other
document as an exhibit to the Registration Statement, you should read the
exhibit for a more complete understanding of the document or matter involved.
Each statement in this Prospectus regarding a contract, agreement or other
document is qualified in its entirety by reference to the actual document.
Following the Exchange Offer, we will be required to file periodic reports
and other information with the SEC under the Securities Exchange Act of 1934.
Our obligation to file periodic reports with the SEC will be suspended if the
New Notes issued in the Exchange Offer are held of record by fewer than 300
holders as of the beginning of any year. However, the indenture governing the
Notes nevertheless requires us to file financial and other information with the
SEC for public availability. In addition, the Notes Indenture requires us to
deliver to you, at our expense, copies of all reports that we file with the SEC.
We will also furnish such other reports as we may determine or as the law
requires.
You may read and copy the Registration Statement, including the attached
exhibits, and any reports, statements or other information that we file with the
SEC, at the SEC's public reference rooms in Washington, D.C., Chicago, Illinois
and New York, New York. You can request copies of these documents, upon payment
of a duplicating fee, by writing the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. Our SEC
filings will also be posted on the SEC Internet site (http://www.sec/gov).
You should rely only on the information provided in this Prospectus. No
person is authorized to provide you with different information.
We are not making an offer to exchange Old Notes in any jurisdiction where
the offer is prohibited.
The information in this Prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this Prospectus
is accurate as of any other date.
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SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
We are providing the following summary unaudited pro forma consolidated
financial data for our company to give you a better picture of what our business
might have looked like if certain transactions had occurred. The pro forma
information is derived from, and you should read it along with, the "DIMAC
Corporation Unaudited Pro Forma Consolidated Financial Statements" that gives
pro forma effect to
- the following AmeriComm Holdings Acquisitions of:
- Americomm Direct Marketing, Inc.;
- Cardinal Marketing, Inc. and Cardinal Marketing of New Jersey, Inc.; and
- Label America, Inc.;
- our acquisitions of AmeriComm Holdings and DIMAC Marketing; and
- the Refinancing.
The pro forma statement of operations and other financial data for the year
ended December 31, 1997 give effect to the above listed transactions as if they
were consummated on January 1, 1997. The pro forma statement of operations and
other financial data for the six months ended June 30, 1998 give effect to the
following transactions, as if they were consummated on January 1, 1997:
- AmeriComm Holdings' acquisition of Cardinal Marketing and Cardinal Marketing
of New Jersey;
- our acquisitions of AmeriComm Holdings and DIMAC Marketing; and
- the Refinancing.
The pro forma balance sheet data gives effect to the Refinancing as if it
were consummated on June 30, 1998. The pro forma financial data do not purport
to represent what the financial position or results of operations of our company
and our subsidiaries would actually have been had the AmeriComm Holdings
Acquisitions, our acquisitions of AmeriComm Holdings and DIMAC Marketing, and
the Refinancing in fact been completed on the assumed dates. Nor do the data
purport to project the financial position or results of operations of our
company and our subsidiaries for any future period or date.
It is important that you read the summary unaudited pro forma consolidated
financial information presented below along with "Management's Discussion and
Analysis of Financial Condition and Results of Operations--AmeriComm Holdings,
Inc.," "Management's Discussion and Analysis of Financial Condition and Results
of Operations--DIMAC Marketing Corporation" and the consolidated financial
statements and the related notes for our company, AmeriComm Holdings and DIMAC
Marketing included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1998(A)
------------ ----------- --------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales.............................................................. $ 386,665 $ 189,918 $ 384,366
Cost of products sold.................................................. 257,840 128,367 257,420
------------ ----------- --------------
Gross profit......................................................... 128,825 61,551 126,946
Selling, general and administrative expenses........................... 99,781 48,906 97,342
------------ ----------- --------------
Operating income..................................................... 29,044 12,645 29,604
Interest expense....................................................... 34,207 17,043 34,342
------------ ----------- --------------
Loss from continuing operations before income taxes.................. (5,163) (4,398) (4,738)
Income tax provision (benefit)......................................... 954 (392) 1,084
------------ ----------- --------------
Loss from continuing operations...................................... $ (6,117) $ (4,006) $ (5,822)
------------ ----------- --------------
------------ ----------- --------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1998(A)
------------ ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(b).............................................................. $ 56,534 $ 26,153 $ 56,782
Depreciation and amortization(c)....................................... 27,490 13,508 27,178
Ratio of total debt to EBITDA.......................................... 5.3x
Ratio of EBITDA to cash interest expense(d)............................ 1.8x
Ratio of earnings to fixed charges(e).................................. -- -- --
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
AS OF JUNE
30,
1998
-------------
<S> <C>
(IN
BALANCE SHEET DATA (END OF PERIOD): THOUSANDS)
Total assets....................................................................................... $ 513,966
Total debt (including current portion of long-term debt)........................................... 303,326
Stockholder's equity............................................................................... 128,350
</TABLE>
- ------------------------
(a) The pro forma data for the Twelve Months Ended June 30, 1998 was derived
from combining the Unaudited Pro Forma Consolidated Financial Statements
included elsewhere in this Prospectus and represent the pro forma results of
operations from July 1, 1997 to June 30, 1998. Data for the Twelve Months
Ended June 30, 1998 was derived by subtracting the pro forma results of
operations for the six months ended June 30, 1997 from the pro forma results
of operations for the Year Ended December 31, 1997 and then adding the pro
forma results of operations for the Six Months Ended June 30, 1998 to such
pro forma December 31, 1997 results of operations. See "DIMAC Corporation
Unaudited Pro Forma Financial Statements."
(b) EBITDA is defined as operating income plus depreciation (including loss on
disposal of equipment) and amortization. EBITDA is presented because we
believe that it provides additional indications of the financial performance
of our company and provides useful information regarding our ability to
service debt and meet certain debt covenants under the Notes Indenture.
EBITDA does not represent cash flows from operations or investing and
financing activities as defined by generally accepted accounting principles.
EBITDA does not measure whether cash flows will be sufficient to fund all
cash flow needs, including principal and interest payments on debt and
capital lease obligations, capital expenditures or other investing and
financing activities. You should not construe EBITDA as an alternative to
our operating income, net income or cash flows from operating activities (as
determined in accordance with generally accepted accounting principles); nor
should you construe it as an indication of our operating performance or as a
measure of our liquidity. In addition, items excluded from EBITDA, such as
depreciation and amortization, interest and income tax provision (benefit),
are significant components in understanding and assessing our financial
performance. Our definition of EBITDA may be different from the definition
of EBITDA used by other companies. For a complete discussion of our future
prospects related to net income, cash flows from operations and investing
and financing activities, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--AmeriComm Holdings, Inc." and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--DIMAC Marketing Corporation" included elsewhere in this
Prospectus.
(c) Amounts do not include amortization of financing costs and original issue
discount, which is included in interest expense.
(d) Cash interest expense excludes amortization of financing costs and original
issue discount.
11
<PAGE>
(e) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as loss from continuing operations before income taxes, plus
fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of financing costs and the estimated interest
portion of rental expenses. For the year ended December 31, 1997, six months
ended June 30, 1998 and the twelve months ended June 30, 1998, earnings were
insufficient to cover fixed charges by $5.2 million, $4.4 million, and $4.7
million, respectively.
12
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF AMERICOMM HOLDINGS, INC.
The following summary historical financial data of AmeriComm Holdings as of
and for each of three fiscal years in the period ended December 31, 1997 has
been derived from AmeriComm Holdings' audited consolidated financial statements
and the related notes. Summary historical financial data as of and for the six
months ended June 30, 1997 and June 26, 1998 has been derived from AmeriComm
Holdings' unaudited consolidated financial statements and, in the opinion of
management, includes all adjustments (consisting of only normal recurring
adjustments) that are necessary for a fair presentation of the operating results
for such interim periods. Results for the interim periods do not necessarily
indicate of the results for the full fiscal year or for any future periods.
It is important that you read the summary historical financial data
presented below along with "Management's Discussion and Analysis of Financial
Condition and Results of Operations--AmeriComm Holdings, Inc." and the
consolidated financial statements of AmeriComm Holdings included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
--------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
JUNE 30, JUNE 26,
1995 1996(A) 1997(B) 1997(B) 1998(C)
--------- ---------- ---------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... $ 71,257 $ 111,342 $ 191,091 $ 86,602 $ 93,081
Cost of products sold................................... 55,708 80,215 133,598 60,808 67,813
--------- ---------- ---------- --------- ---------
Gross profit.......................................... 15,549 31,127 57,493 25,794 25,268
Selling, general and administrative expenses............ 13,410 25,200 44,985 21,575 23,438
--------- ---------- ---------- --------- ---------
Operating income...................................... $ 2,139 $ 5,927 $ 12,508 $ 4,219 $ 1,830
OTHER FINANCIAL DATA:
EBITDA(d)............................................... $ 5,913 $ 12,772 $ 25,277 $ 10,114 $ 9,114
Depreciation and amortization(f)........................ 3,774 6,845 12,769 5,895 7,284
Net cash provided by (used for):
Operating activities.................................. (217) 7,147 1,574 3,174 5,245
Investing activities.................................. (1,939) (79,838) (38,881) (37,565) (10,407)
Financing activities.................................. 2,317 74,225 36,640 33,695 6,548
Ratio (deficiency) of earnings to fixed charges(e)...... -- -- -- -- --
Capital expenditures.................................... 2,308 3,490 4,563 3,313 5,666
BALANCE SHEET DATA (END OF PERIOD):
Working capital......................................... $ 7,182 $ 18,840 $ 26,604 $ 24,064 $ 26,002
Total assets............................................ 38,116 132,498 176,618 173,499 178,113
</TABLE>
- ------------------------
(a) Reflects the acquisition of Transkrit Corporation and its subsidiaries on
June 28, 1996. We accounted for this acquisition as a purchase.
(b) Reflects the acquisitions of Label America, Inc. and AmeriComm Direct
Marketing, Inc. on February 21, 1997 and April 24, 1997, respectively. We
accounted for these acquisitions as purchases.
(c) Reflects the acquisitions of Cardinal Marketing, Inc. and Cardinal Marketing
of New Jersey, Inc. on March 16, 1998. We accounted for these acquisitions
as purchases.
(d) EBITDA is defined as operating income plus depreciation (including loss on
disposal of equipment) and amortization. EBITDA is presented because we
believe that it provides additional indications of the historical financial
performance of AmeriComm Holdings and provides useful information regarding
our ability to service debt and meet certain debt covenants under the Notes
Indenture. EBITDA does not represent cash flows from operations or investing
and financing activities as defined by generally accepted accounting
principles. EBITDA does not measure whether cash flows will be sufficient to
fund all cash flow needs, including principal and interest
13
<PAGE>
payments on debt and capital lease obligations, capital expenditures or
other investing and financing activities. You should not construe EBITDA as
an alternative to operating income, net income or cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles); nor should you construe it as an indication of operating
performance or as a measure of our liquidity. In addition, items excluded
from EBITDA, such as depreciation and amortization, interest and income tax
provision (benefit), are significant components in understanding and
assessing financial performance. Our definition of EBITDA may be different
from the definition of EBITDA used by other companies. For a complete
discussion of our future prospects related to net income, cash flows from
operations and investing and financing activities, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
AmeriComm Holdings, Inc." included elsewhere in this Prospectus.
(e) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income (loss) from continuing operations before income taxes,
plus fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of financing costs and the estimated interest
portion of rental expenses. For the years ended December 31, 1995 through
1997 and the six months ended June 30, 1997 and June 26, 1998, earnings were
insufficient to cover fixed charges by $1.0 million, $2.2 million, $4.5
million, $3.2 million and $7.8 million, respectively.
(f) Amounts do not include amortization of financing costs, which is included in
interest expense.
14
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA OF DIMAC MARKETING CORPORATION
The following summary historical financial data of DIMAC Marketing as of and
for the fiscal year ended December 31, 1995 and the twelve months ended December
31, 1996 has been derived from DIMAC Marketing's consolidated financial
statements and related notes. The summary historical financial data for the
twelve months ended December 31, 1996 is derived by combining the financial
results of DIMAC Marketing from January 1, 1996 through January 31, 1996 (while
under prior ownership) and the eleven month period from February 1, 1996 through
December 31, 1996 (following the purchase of DIMAC Marketing by Heritage Media),
including purchase accounting adjustments for the Heritage Media purchase (see
the accompanying Notes to the Consolidated Financial Statements of DIMAC
Marketing). The financial data for DIMAC Marketing before and after the Heritage
Media purchase is not comparable in all material respects. The summary pro forma
financial data for the year ended December 31, 1997 is derived from the
historical financial results of DIMAC Marketing from January 1, 1997 through
August 31, 1997 (while under Heritage Media ownership) and the period from
September 1, 1997 through December 31, 1997 (following the News Corporation
purchase of Heritage Media) adjusted to give pro forma effect to the News
Corporation purchase of Heritage Media, including purchase accounting
adjustments, as if it were consummated on January 1, 1997. The summary pro forma
financial data for the year ended December 31, 1997 is not comparable in all
material respects to DIMAC Marketing's historical financial results, and does
not purport to represent what the actual results of operations would have been
had the transaction occurred on such date or to project the results of
operations for any future date or period. Summary historical financial
information as of and for the six months ended June 30, 1997 and June 26, 1998
has been derived from DIMAC Marketing's unaudited condensed consolidated
financial statements and, in the opinion of management, includes all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the operating results for such interim periods. Results for the
interim periods are not necessarily indicative of the results for the full
fiscal year or for any future periods.
It is important that you read the summary historical and pro forma financial
data presented below along with "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- DIMAC Marketing Corporation,"
the consolidated financial statements of DIMAC Marketing and the unaudited pro
forma financial statements of our company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
------------------------------------- SIX MONTHS ENDED
1996 ----------------------
1995 COMBINED 1997 JUNE 30, JUNE 26,
HISTORICAL HISTORICAL PRO FORMA 1997 1998
---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales.................................................. $ 126,518 $ 178,447 $ 177,947 $ 91,421 $ 93,208
Cost of sales.......................................... 82,818 115,635 117,542 60,270 61,806
---------- ---------- ------------- ---------- ----------
Gross profit......................................... 43,700 62,812 60,405 31,151 31,402
Selling, general and administrative expenses........... 30,837(a) 50,821 53,225 29,043 26,615
---------- ---------- ------------- ---------- ----------
Operating income..................................... $ 12,863 $ 11,991 $ 7,180 $ 2,108 $ 4,787
OTHER FINANCIAL DATA:
EBITDA(b).............................................. $ 17,394 $ 24,870 $ 20,240 $ 9,657 $ 11,864
Depreciation and amortization(c)....................... 4,531 12,879 13,060 7,549 7,077
Capital expenditures................................... 3,796 9,504 21,605 11,344 3,166
Net cash provided by (used for): Operating
activities........................................... 7,485 11,470 (1,396) 1,961
Net cash provided by (used for) Investing activities... (33,666) (45,118) (15,083) (6,387)
Net cash provided by (used for) Financing activities... 26,181 33,648 16,479 4,426
Ratio of earnings to fixed charges(d).................. 2.1x 1.4x -- -- --
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
------------------------------------- SIX MONTHS ENDED
1996 ----------------------
1995 COMBINED 1997 JUNE 30, JUNE 26,
HISTORICAL HISTORICAL PRO FORMA 1997 1998
---------- ---------- ------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit).............................. $ 3,477 $ (2,540) $ 7,558 $ 4,658 $ 14,714
Total assets........................................... 98,918 350,003 260,836 351,705 261,940
</TABLE>
- ------------------------
(a) Includes nonrecurring merger costs of $2.4 million.
(b) EBITDA is defined as operating income plus depreciation (including loss on
disposal of equipment) and amortization. EBITDA is presented because we
believe that it provides additional indications of the historical financial
performance of DIMAC Marketing and provides useful information regarding our
ability to service debt and meet certain debt covenants under the Notes
Indenture. EBITDA does not represent cash flows from operations or investing
and financing activities as defined by generally accepted accounting
principles. EBITDA does not measure whether cash flows will be sufficient to
fund all cash flow needs, including principal and interest payments on debt
and capital lease obligations, capital expenditures or other investing and
financing activities. You should not construe EBITDA as an alternative to
operating income, net income or cash flows from operating activities (as
determined in accordance with generally accepted accounting principles); nor
should you construe it as in indication of operating performance or as a
measure of our liquidity. In addition, items excluded from EBITDA, such as
depreciation amortization, interest and income tax provision (benefit), are
significant components in understanding and assessing financial performance.
Our definition of EBITDA may be different from the definition of EBITDA used
by other companies. For a complete discussion of our future prospects
related to net income, cash flows from operations and investing and
financing activities, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--DIMAC Marketing Corporation" included
elsewhere in this Prospectus.
(c) Amounts do not include amortization of financing costs, which is included in
interest expense.
(d) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income (loss) from continuing operations before income taxes,
plus fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of financing costs and the estimated interest
portion of rental expenses. For the pro forma fiscal year ended December 31,
1997 and the six months ended June 30, 1997, earnings were insufficient to
cover fixed charges by $1.7 million and $2.5 million, respectively.
16
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER
INFORMATION APPEARING IN THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE
OFFER.
THIS PROSPECTUS INCLUDES "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. THESE
FORWARD-LOOKING STATEMENTS INCLUDE, IN PARTICULAR, THE STATEMENTS ABOUT OUR
PLANS, STRATEGIES, AND PROSPECTS UNDER THE HEADINGS "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," AND "BUSINESS." ALTHOUGH WE BELIEVE THAT OUR PLANS, INTENTIONS AND
EXPECTATIONS REFLECTED IN OR SUGGESTED BY SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, WE CANNOT ASSURE YOU THAT WE WILL ACHIEVE SUCH PLANS, INTENTIONS OR
EXPECTATIONS. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE FORWARD LOOKING STATEMENTS WE MAKE IN THIS PROSPECTUS ARE
SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO US OR PERSONS ACTING ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN
THEIR ENTIRETY BY THE FOLLOWING CAUTIONARY STATEMENTS.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THESE
NOTES.
We have a significant level of indebtedness. As of June 30, 1998, after
giving pro forma effect to the Refinancing, we would have had outstanding $303.3
million of consolidated indebtedness (excluding trade payables and other
liabilities) and unused revolving commitments of $72.8 million under our senior
secured credit facility. Although the indenture governing the Notes limits our
ability to borrow additional money, we are allowed to borrow a significant
amount of additional money under certain circumstances. For more information
about our indebtedness, see the "Description of Other Indebtedness--Senior
Secured Credit Facility" and "Description of Notes" sections of this Prospectus.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
these Notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital expenditures,
acquisitions and other general corporate requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, acquisitions and other general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
And, failing to comply with those covenants could result in an event of
default which, if not cured or waived, could have a material adverse
effect on us.
ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MAY
FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to refinance the Notes and to satisfy
our other debt obligations will depend upon our ability to generate cash in the
future. This, to a certain extent is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control. We anticipate that our operating cash flow and amounts available under
our senior secured
17
<PAGE>
credit facility will cover our operating expenses and our debt service
requirements in the foreseeable future. We cannot assure you, however, that our
business will generate sufficient cash flow from operations, that currently
anticipated cost savings and operating improvements will be realized on schedule
or that future borrowings will be available to us under our senior secured
credit facility in an amount sufficient to enable us to pay our indebtedness,
including these Notes, or to fund our other liquidity needs. For example, for
the year ended December 31, 1997 and the six months ended June 30, 1997 and
1998, after giving effect to the AmeriComm Holdings Acquisitions, our
acquisitions of AmeriComm Holdings and DIMAC Marketing, and the Refinancing (as
if they occurred at the beginning of such periods) and the application of the
net proceeds from these transactions, our earnings would have been insufficient
to cover fixed charges by approximately $5.2 million, $4.8 million and $4.4
million, respectively.
If we are unable to service our indebtedness, we will be forced to adopt an
alternative strategy. Possible alternative strategies include:
- reducing or delaying capital expenditures;
- selling assets;
- restructuring or refinancing our indebtedness; or
- seeking additional equity capital.
We cannot assure you that we would be able to effect any of these strategies
on satisfactory terms, if at all. For example, our senior secured credit
facility, our Notes Indenture and the indenture governing DIMAC Holdings'
15 1/2% Senior Notes Due 2009 contain covenants that restrict our ability to
take certain of these actions, including selling assets and using the proceeds
from the sale.
We may need to refinance all or a portion of our indebtedness, including
these Notes on or before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness, including our senior secured credit facility
and these Notes, on commercially reasonable terms or at all.
SUBSTANTIAL RESTRICTIONS AND COVENANTS--RESTRICTIONS AND COVENANTS IN OUR DEBT
AGREEMENTS LIMIT OUR ABILITY TO TAKE CERTAIN ACTIONS.
Our debt agreements governing the Notes and DIMAC Holdings' Senior Notes
contain a number of significant restrictions and covenants. These covenants
limit our ability, among other things to:
- borrow more money;
- incur liens;
- pay dividends or make certain other restricted payments;
- sell certain assets;
- enter into certain transactions with affiliates; and
- impose restrictions on the ability of any of our subsidiaries to:
- pay dividends or make certain payments to us;
- merge or consolidate with any other person; or
- sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets; and
- make certain acquisitions.
18
<PAGE>
In addition, our senior secured credit facility contains other more
restrictive covenants, including covenants that require us to maintain certain
financial ratios. If we are unable to comply with these covenants, there would
be a default under our debt agreements. Such a default would also result in a
default under our master lease agreement with General Electric Capital
Corporation, relating to the financing of a $3.1 million equipment line and our
lease agreement with the CIT Group, relating to the financing of a $2.6 million
equipment line. If we were unable to repay the amounts owed under our debt
agreements and our lease agreements, such defaults, if not waived, could result
in acceleration of our indebtedness and our bankruptcy. For more information,
see "Description of Notes--Certain Covenants", "Description of Other
Indebtedness--Senior Secured Credit Facility" and "--Holdings Notes."
RANKING OF THE NOTES--YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS JUNIOR TO
ALL SENIOR INDEBTEDNESS OF OUR COMPANY OR THE APPLICABLE SUBSIDIARY GUARANTOR.
According to our Notes Indenture, the payment of the principal, any premium
and interest on the Notes and each subsidiary guaranty of the Notes is
subordinate in right of payment to the prior payment in full of all senior
indebtedness of our company or the applicable subsidiary guarantor. Our senior
indebtedness includes our obligations under, and the subsidiary guarantors'
guarantees of our obligations with respect to our senior secured credit
agreement.
As a result, upon any distribution to our creditors or the creditors of the
guarantors in a bankruptcy, liquidation or reorganization or similar proceeding
relating to us or the guarantors or our or their property, the holders of senior
indebtedness of our company and the guarantors will be entitled to be paid in
full in cash before any payment may be made with respect to these Notes or the
subsidiary guarantees.
In addition, all payments on the Notes and the guarantees will be blocked in
the event of a payment default on senior indebtedness and may be blocked for
certain periods of time in the event of certain non-payment defaults on senior
indebtedness.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to our company or the guarantors, Noteholders will
participate with all other holders of subordinate indebtedness of our company
and the guarantors in the assets remaining after we and the subsidiary
guarantors have paid all of our senior indebtedness. However, because the
indenture requires that amounts otherwise payable to Noteholders in a bankruptcy
or similar proceeding be paid to holders of senior indebtedness instead,
Noteholders may receive less, ratably, than holders of senior indebtedness in
any such proceeding. In any of these cases, we and the subsidiary guarantors may
not have sufficient funds to pay all of our creditors and holders of notes may
receive less, ratably than the holders of senior debt.
Assuming we had completed the Refinancing on June 30, 1998, these Notes and
the subsidiary guarantees would have been subordinated to approximately $206.1
million of senior indebtedness. We will be permitted to borrow substantial
additional indebtedness, including senior indebtedness, in the future under the
terms of our Notes Indenture.
RISKS RELATING TO THE ACQUISITIONS AND RATIONALIZATION OF OPERATIONS--WE MAY NOT
BE ABLE TO INTEGRATE SUCCESSFULLY THE OPERATIONS OF AMERICOMM HOLDINGS AND
DIMAC MARKETING.
We were recently formed for the purpose of acquiring AmeriComm Holdings and
DIMAC Marketing. The process of integrating these businesses may result in
unforeseen operating difficulties and may require substantial attention from
members of our senior management. We cannot assure you that we will be able to
integrate successfully the operations of these businesses.
We intend to realize cost savings by rationalizing our operations. As a
result of our acquisitions of AmeriComm Holdings and DIMAC Marketing, we expect
to reduce our operating expenses by:
- consolidating redundant facilities;
19
<PAGE>
- rationalizing the functions of overlapping offices and operating units;
- meeting more of our production requirements from within the company; and
- reducing our overhead expenses.
We also expect to reduce our operating expenses from, among other things:
- improved capacity utilization;
- relocating our production equipment; and
- purchasing raw materials in larger and more cost-effective quantities.
Although we believe that our strategies are reasonable, we cannot assure you
that we will be able to implement our plans on schedule. When implementing these
initiatives, we could encounter unanticipated problems, and we cannot assure you
that we will attain our goal of reducing our operating expenses. Finally, we
note that our plans will require substantial attention from members of our
management, which may limit the amount of time they can devote to our day-to-day
operations.
DEPENDENCE UPON AT&T PROGRAMS--WE ARE RELIANT ON AT&T AS A CUSTOMER. THE LOSS OF
CERTAIN AT&T PROGRAMS COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
AT&T Corp. accounted for approximately 8.6% and 9.0% of our revenue in 1997,
and the first six months of 1998, respectively, on a pro forma basis after
giving effect to the AmeriComm Holdings' Acquisitions, our acquisitions of
AmeriComm Holdings and DIMAC Marketing, and the Refinancing. We service separate
programs at AT&T, each of which is independently managed within AT&T. The number
of separate programs at AT&T that we produce has grown from 31 in 1993 to 37 as
of December 31, 1997. The four largest AT&T programs (not necessarily the same
four programs in each period) comprised approximately 5.7% and 5.4% of our pro
forma revenue in 1997, and the first six months of 1998, respectively. Because
of our dependence on the AT&T programs, the loss of any large (or significant
number of smaller) AT&T programs could have a material adverse effect on
business, financial condition or results of operation.
YEAR 2000 RISKS--ALTHOUGH WE EXPECT TO BE YEAR 2000 COMPLAINT BY THE END OF THE
FIRST QUARTER OF 1999, WE ARE NOT SO AT THIS TIME. YEAR 2000 ISSUES MAY
NEGATIVELY AFFECT US.
We have developed plans to address our exposure in all critical information
technology ("IT") and non-IT systems to computer programs which identify years
with two digits instead of four. Such programs may recognize the year 2000 as
the year 1900. We are also assessing the year 2000 capabilities of our critical
suppliers, customers and key service providers to determine, to the extent
possible, whether our operations will be adversely impacted by such companies.
We primarily rely on packaged software applications which are year 2000
compliant. We have either tested these applications or expect to have done so by
the end of the first quarter of 1999. We are also testing all internally
developed IT software for year 2000 compliance. We anticipate that this process
will be completed by the end of the second quarter of 1999.
We are continuing to assess all critical non-IT systems for year 2000
compliance. (Non-IT systems include, among other things, manufacturing
equipment, telephone systems and heating and cooling systems.) We are preparing
an inventory of all critical non-IT systems and are contacting manufacturers to
determine year 2000 compliance. We anticipate that this process will be
completed by the end of the first quarter of 1999.
As of June 30, 1998, the costs we have incurred and expect to incur to
remedy our year 2000 conversion are immaterial. Our year 2000 remediation effort
has not postponed any IT projects the
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<PAGE>
delay of which would have a material adverse effect on our business, financial
condition or results of operations.
We are not entirely year 2000 compliant at this time; but we have targeted
the end of the first quarter of 1999 to have critical business and production
processes ready. Although we are striving to be completely year 2000 compliant,
year 2000 issues may still negatively affect us. Based on our progress to date,
however, we believe that such impact, if any, will not have a material adverse
effect on our business, financial condition or results of operations, however
there can be no such assurances.
Although we have contacted critical suppliers, customers and key service
providers to determine their level of year 2000 compliance, these companies
could adversely impact our operations. The full extent of any such adverse
impact (if any) is impossible to determine. We are attempting to mitigate any
possible adverse impact by identifying alternate suppliers where possible. We
will also increase our inventory of crucial materials in anticipation of
possible disruptions.
We are developing contingency plans for all critical business and production
processes. We anticipate that these plans should be completed by the end of the
second quarter of 1999.
EXPOSURE TO FLUCTUATIONS IN PAPER COSTS AND SUPPLY--AN INTERRUPTION OF PAPER
SUPPLY OR RISING PAPER PRICES COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our principal raw material is paper. Paper, which on a pro forma basis
represented approximately 24% of our cost of products sold in 1997, has a
historical pattern of cyclical price change based upon industry capacity versus
market demand. Although supply has historically been available, paper companies
may place customers on allocation, which limits the short term supply available.
In addition, prices during these periods tend to increase, sometimes by
significant amounts. Although we maintain multiple sources of supply in all
grades of paper, the cyclical nature of the paper industry could result in an
interruption of paper supply or escalating paper prices that could adversely
effect us. Historically, we have successfully passed increases in the price of
paper through to our customers. However, we may not be able to do so in the
future. For example, a substantial increase in paper prices could affect the
advertising budgets of our customers and have a material adverse effect on our
business, financial conditions or results of operations.
SEASONALITY AND QUARTERLY FLUCTUATIONS--WE ARE AFFECTED BY A SEASONAL PATTERN.
AN ADVERSE TREND IN NET SALES DURING AN OFF-SEASON COULD HAVE A MATERIAL
ADVERSE EFFECT UPON US.
Our business is affected by a seasonal pattern where we generate a greater
volume of sales and are more profitable in the third and fourth quarters of each
year. We experience this fluctuation because many of our larger customers are
retailers whose own businesses are affected by these seasonal patterns. During
1997, approximately 56% of our combined pro forma EBITDA, after giving effect to
the AmeriComm Holdings Acquisitions and our acquisitions of AmeriComm Holdings
and DIMAC Marketing, occurred in the third and fourth quarters. Accordingly, any
adverse trend in net sales for such period could have a material adverse effect
upon our business, financial condition or results of operations.
POSTAL INVESTIGATION--ALTHOUGH WE ARE SEEKING A CONSENSUAL RESOLUTION WITH THE
GOVERNMENT, A POSTAL INVESTIGATION OF US AND ITS RELATED COSTS COULD HAVE A
MATERIAL ADVERSE EFFECT ON US.
In June 1997, the United States Attorney's Office for the Eastern District
of Missouri informed DIMAC Marketing that its St. Louis facility was the subject
of a grand jury investigation based upon information supplied by the United
States Postal Service. The investigation concerns whether violations of civil or
criminal statutes may have occurred in connection with DIMAC Marketing's bulk
mailing practices at this facility. We have been engaged in discussions with the
Government which have included a possible consensual resolution of this matter;
however, as of the date of this Prospectus, no
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<PAGE>
settlement has been reached. It is our position that our bulk mailing practices
complied with applicable laws and regulations.
During the acquisition of DIMAC Marketing, we entered into an
indemnification agreement with Heritage Media and DIMAC Marketing under which
Heritage Media agreed to indemnify us for certain costs, including settlements,
judgments and related fees, in relation to the investigation. We cannot assure
you, however, that the investigation and its related costs will not have a
material adverse effect on our business, financial condition or results of
operations.
GOVERNMENTAL REGULATION AND POSTAL RATES--A CHANGE IN THE POSTAL RATES OR A
POSTAL STRIKE COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Certain aspects of the direct marketing industry depend upon the services
provided by the United States Postal Service. For example, any change in the
rate structure or postal rates, including the proposed rate increase scheduled
to take effect in January 1999, could reduce the demand for direct marketing
services. A postal strike could also have a material adverse effect on our
business, financial condition or results of operations.
In July 1997, the Postal Service granted DIMAC Marketing's St. Louis
facility a postal privilege that enables the Postal Service to accept our
documentation with regard to counts and specific mail classification weights.
This process allows us to bypass the time-consuming and complex process of
documenting the exact weight of each specific package and saves us substantial
time on large volume jobs. Any withdrawal or adverse modification of this
approval could have a material adverse effect on our business, financial
condition or results of operations.
FINANCING CHANGE OF CONTROL OFFER--WE MAY NOT HAVE THE ABILITY TO RAISE THE
NECESSARY FUNDS TO PAY FOR THE NOTES SHOULD WE BE REQUIRED TO REPURCHASE.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to make an offer to repurchase the Notes at 101% of their
principal amount plus accrued interest. However, it is possible that we will not
have sufficient funds at the time of the change of control to make the required
repurchase of Notes or that restrictions in our senior secured credit facility
will not allow such repurchases. For more information, see the section
"Description of Notes--Change of Control." Even if we did have sufficient funds
to carry out such a repurchase, the financial effect of the repurchase could
cause us to default on our other indebtedness. Finally, the DIMAC Holdings
Senior Notes Indenture contains similar change of control provisions and
consequences similar to those presented here could occur. See the "Description
of Notes--Change of Control" and "Description of Other Indebtedness--Holdings
Notes" section of this Prospectus for more information.
COMPETITION--INCREASED COMPETITION IN THE FUTURE COULD HAVE A MATERIAL ADVERSE
EFFECT ON US.
The direct marketing industry is fragmented and highly competitive. We
compete with other national and local manufacturers in many product lines. We
are more highly leveraged than some of our principal competitors and,
consequently, we may have less financing and operating flexibility. We could
encounter increased competition in the future. This increased competition could
have a material adverse effect on our business, financial condition or results
of operations. For more information about our competitors, see the
"Business--Competition" section of this Prospectus.
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<PAGE>
RISKS ASSOCIATED WITH ACQUISITION STRATEGY--WE INTEND TO PURSUE FURTHER
ACQUISITIONS. MANAGING THE GROWTH RESULTING FROM THOSE ACQUISITIONS COULD POSE
DIFFICULTIES WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON US.
We plan to continue to pursue acquisitions which:
- complement existing product offerings;
- increase our production capabilities;
- provide entry into new markets; and
- expand our customer base or create new cross-selling opportunities.
We cannot assure you that we will be able to identify additional
acquisitions. Even if we identify such acquisitions, the anticipated benefits
may fail to materialize. In order to capitalize on future acquisition
opportunities, we may need to obtain additional financing and federal or state
regulatory approvals. We cannot guarantee the availability of additional
acquisition financing and such financing could be substantially limited by terms
of our senior secured credit agreement or our Notes Indenture. Our possible
future acquisitions could result in our incurring additional debt, contingent
liabilities and amortization expenses, all of which could materially adversely
affect our financial condition or results of operations. We cannot assure you
that we will be able to obtain the necessary regulatory approvals or the
additional financing. The inability to obtain such regulatory approvals or
financing could have a material adverse effect on our ability to implement our
acquisition strategy.
Managing the growth expected to result from future acquisitions, together
with the process of integrating acquired operations into our existing
operations, may
- result in unforeseen operating difficulties;
- require substantial attention from members of our senior management; and
- require significant financial resources that would otherwise be available
for the ongoing development or expansion of our existing operations.
We cannot assure you that we will succeed in managing future growth.
Moreover, the failure to manage such growth or assimilate any such acquisitions
may have a material adverse effect on our business, financial condition or
results of operation.
HOLDING COMPANY STRUCTURE--OUR STATUS AS A HOLDING COMPANY MAKES US DEPENDENT ON
THE CASH FLOWS OF OUR SUBSIDIARIES TO MEET OUR OBLIGATIONS.
We are a holding company and conduct almost all of our operations through
our subsidiaries. We have no significant assets other than the stock of our
subsidiaries. Accordingly, we are dependent on the cash flows of our
subsidiaries to meet our obligations, including the payment of the principal and
interest on the Notes.
IMPACT OF ENVIRONMENTAL REGULATION--OUR BUSINESS, BY ITS NATURE, EXPOSES US TO
CERTAIN ENVIRONMENTAL HEALTH AND PROTECTION MATTERS INCLUDING POTENTIAL COSTS
AND LIABILITIES.
Our operations and properties are subject to a wide variety of federal,
state and local laws and regulations relating to the environmental protection
and human health and safety including those governing:
- the use, storage, handling, generation, treatment, emission, release,
discharge and disposal of, and exposure to, hazardous and non-hazardous
materials, substances and wastes;
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<PAGE>
- the remediation of contaminated soil and groundwater; and
- the health and safety of employees.
The nature of our operations exposes us to the risk of claims related to
environmental protection and health and safety matters, and we may incur
material costs or liabilities because of any of these claims.
In addition, AmeriComm Holdings has been designated as a potentially
responsible party under the 1980 "Superfund" Act relating to the disposal of
hazardous substances at one off-site location. AmeriComm Holdings could be found
liable for the costs of environmental investigation and cleanup at this site.
Based upon our experience to date, which includes the recent settlement of a
similar claim at a second off-site disposal location, we believe, but cannot
guarantee, that the future cost of compliance with existing environmental
protection and health and safety laws and regulations, and liability for known
claims relating to such matters, will not have a material adverse effect on our
business, financial condition or results of operations. However, future events,
such as changes in existing laws and regulations or their interpretation, or
more vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could have a material adverse effect
on our business, financial condition or results of operations. For more
information about the impact of environmental regulation on our company, see the
"Business--Environmental, Health and Safety Matters" section of this Prospectus.
DEPENDENCE ON KEY MANAGEMENT--OUR SUCCESS WILL CONTINUE TO DEPEND TO A
SIGNIFICANT EXTENT ON OUR EXECUTIVES AND OTHER KEY MANAGEMENT PERSONNEL.
We may not be able to retain our executive officers and key personnel or
attract additional qualified management in the future. In addition, the success
of certain of our acquisitions may depend, in part, on our ability to retain
management personnel and to integrate the operations of the acquired companies.
CONTROLLING STOCKHOLDER--AFFILIATES OF MCCOWN DE LEEUW WILL OWN ENOUGH OF OUR
STOCK TO INDIRECTLY CONTROL OUR AFFAIRS AND THOSE OF OUR SUBSIDIARIES.
Certain affiliates of McCown De Leeuw own a substantial majority of the
voting stock of DIMAC Holdings, which is our sole stockholder. By virtue of such
stock ownership, they will directly control the election of the Board of
Directors and the direction of the affairs of DIMAC Holdings and its
subsidiaries. Consequently, they will indirectly control the election of the
Board of Directors and the direction of our affairs and those of our
subsidiaries. See the "Security Ownership" section of this Prospectus for more
information.
ABSENCE OF PUBLIC MARKET FOR THE NOTES--YOU CANNOT BE SURE THAT AN ACTIVE
TRADING MARKET WILL DEVELOP FOR THESE NOTES.
We do not intend to apply for listing or quotation of the New Notes on any
exchange. The Notes are, however, eligible for trading in PORTAL. Credit Suisse
First Boston Corporation, First Union Capital Markets and Warburg Dillon Read
LLC have advised us that they intend to make a market in the New Notes, subject
to the limits imposed by the securities laws. However, they are not obligated to
do so, and they may discontinue any market making at any time without notice.
Therefore, we do not know the extent to which investor interest will lead to the
development of a trading market or how liquid that market might be.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. The market for the New Notes may be
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<PAGE>
subjected to similar disruptions. Any such disruptions may have an adverse
effect on the New Note holders.
ORIGINAL ISSUE DISCOUNT--THE ISSUANCE OF THE NOTES WILL RESULT IN ADDITIONAL
INTEREST INCOME INCLUDABLE IN U.S. HOLDERS' GROSS INCOME FOR FEDERAL INCOME
TAX PURPOSES.
The Notes will be considered to be issued with original issue discount for
U.S. federal income tax purposes. Original issue discount will accrue from the
issue date of the Notes and generally will be includable as interest income in a
U.S. holder's gross income for U.S. federal income tax purposes in advance of
the cash payments to which the income is attributable.
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<PAGE>
COMPANY HISTORY
McCown De Leeuw formed DIMAC Corporation in May 1998 to combine the
businesses of DIMAC Marketing and AmeriComm Holdings and create a direct mail
industry leader.
DIMAC Marketing was founded in 1921 as a commercial printer. In August 1987,
DIMAC Marketing was sold to management and Golder, Thoma & Cressey, a private
equity firm. Golder, Thoma & Cressey and management owned DIMAC Marketing until
November 1993, at which time the business was sold to affiliates of McCown De
Leeuw. Under McCown De Leeuw's ownership, DIMAC Marketing completed an initial
public offering in August 1994 and was ultimately sold to Heritage Media in
February 1996. In August 1997, News Corporation acquired Heritage Media,
including DIMAC Marketing. On June 26, 1998, we bought DIMAC Marketing from
Heritage Media.
Affiliates of McCown De Leeuw have owned AmeriComm Holdings since 1989.
AmeriComm Holdings' predecessor company was formed in 1989 to acquire National
Fiberstok Corporation, a manufacturer of custom file folders. In 1997, National
Fiberstok changed its name to that of a company it acquired, AmeriComm Direct
Marketing, Inc. On June 26, 1998, McCown De Leeuw combined AmeriComm Holdings
with DIMAC Marketing to form DIMAC Corporation.
The following table outlines the recent acquisition history of DIMAC
Marketing and AmeriComm Holdings:
<TABLE>
<CAPTION>
ENTITY
PURCHASER ACQUIRED DATE EXPERTISE
- -------------- ---------------------------------------- ---------------- -------------------------------------
<S> <C> <C> <C>
DIMAC Direct Marketing Group, Inc. May 1994 Strategic and creative services,
MARKETING information processing services
and production.
Palm Coast Data Inc. May 1995 Fulfillment/subscription
management.
The McClure Group Inc. October 1995 Program development services with
an insurance and healthcare
industry specialization.
Wilcox & Associates Inc. March 1996 Transitional marketing services,
primarily for the banking
industry.
MBS/Multimode Inc. May 1996 Database marketing services,
primarily to retail and catalog
industries.
AMERICOMM Transkrit Corporation June 1996 Direct mail, custom mailers and
HOLDINGS custom pressure sensitive labels.
Label America, Inc. February 1997 Custom pressure sensitive labels.
AmeriComm Direct Marketing, Inc. April 1997 Direct marketing products and
services.
Cardinal Marketing, Inc. and Cardinal March 1998 Customer profiling and response
Marketing of New Jersey, Inc. analysis primarily to the
financial services and retail
industries.
</TABLE>
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AmeriComm Holdings' acquisitions of Label America, Inc., AmeriComm Direct
Marketing, Inc. and Cardinal Marketing, Inc. and Cardinal Marketing of New
Jersey, Inc. (collectively, "Cardinal") are referred to in this Prospectus as
the "AmeriComm Holdings Acquisitions." AmeriComm Holdings' acquisition of
Cardinal is referred to in this Prospectus as the "Cardinal Acquisition."
THE ACQUISITIONS
On June 26, 1998, we acquired:
- AmeriComm Holdings in a merger transaction for aggregate consideration of
approximately $203.8 million (including assumed indebtedness); and
- DIMAC Marketing by purchasing all of its issued and outstanding capital
stock for aggregate consideration of approximately $204.0 million
(including assumed indebtedness).
The total consideration for the acquisitions was $425.8 million including
assumed indebtedness and fees and expenses relating to the acquisitions.
We financed the acquisitions of AmeriComm Holdings and DIMAC Marketing and
related fees and expenses through:
- cash equity capital of $100.0 million provided to DIMAC Holdings by
certain affiliates of McCown De Leeuw;
- term loans of $150.0 million and revolving loans of $7.6 million (net of
cash available), in each case under our senior secured credit facility;
and
- assumed indebtedness of $168.2 million.
For a more detailed discussion of how we financed these acquisitions, please
read the sections "Security Ownership" and "Description of Other
Indebtedness--Senior Secured Credit Facility".
THE REFINANCING
The purpose of the Refinancing was to redeem or repay certain indebtedness
assumed in connection with our acquisitions of AmeriComm Holdings and DIMAC
Marketing.
The sources of funds for the Refinancing were:
- the proceeds from our Senior Subordinated Notes offering:
- additional equity from:
- $10.0 million of equity provided to DIMAC Holdings from affiliates of
McCown De Leeuw and other equity investors;
- $29.3 million of net proceeds received by DIMAC Holdings from the
issuance of $30.0 million aggregate principal amount of its 15 1/2%
Senior Notes due 2009; and
- $45.0 million of additional term loans under our senior secured credit
facility.
We used these proceeds:
- to pay off the following existing indebtedness of AmeriComm Holdings and
its subsidiary, AmeriComm Direct Marketing:
- the AmeriComm Direct Marketing 11 5/8% Senior Notes tendered pursuant
to a tender offer and consent solicitation and the associated tender
premium and consent fee;
- the AmeriComm Holdings 12 1/2% Senior Notes and the associated premium;
and
- the existing AmeriComm Direct Marketing credit agreement;
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- to repay the amount of revolving loans outstanding under our senior
secured credit facility; and
- to pay certain fees and expenses related to our Senior Subordinated Notes
offering and AmeriComm Direct Marketing's tender offer and consent
solicitation.
USE OF PROCEEDS OF THE NEW NOTES
This Exchange Offer is intended to satisfy our obligations under the
Registration Rights Agreement. We will not receive any proceeds from the
issuance of the New Notes. In consideration for issuing the New Notes as
contemplated in this Prospectus, we will receive, in exchange, Old Notes in like
principal amount. The form and terms of the New Notes are identical in all
material respects to the form and terms of the Old Notes except as otherwise
described in this Prospectus under the heading "The Exchange Offer--Terms of the
Exchange Offer". The Old Notes surrendered in exchange for the New Notes will be
retired and cancelled and will not be reissued. Accordingly, we will not
increase our outstanding debt as a result of the Exchange Offer.
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CAPITALIZATION
The following table sets forth, as of June 30, 1998:
- our actual capitalization; and
- our capitalization after giving pro forma effect to the Refinancing.
It is important that you read the table presented below along with "DIMAC
Corporation Unaudited Pro Forma Financial Statements," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of our company, DIMAC Marketing and AmeriComm
Holdings included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
------------------------
<S> <C> <C>
HISTORICAL AS ADJUSTED
----------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Cash..................................................................................... $ 1.7 $ --
----------- -----------
----------- -----------
Debt of our company's subsidiaries (including current maturities):
Existing AmeriComm Direct Marketing credit agreement................................... $ 18.2 $ --
AmeriComm Direct Marketing Senior Notes................................................ 100.0 --
AmeriComm Holdings Senior Notes........................................................ 40.5 --
Capital leases......................................................................... 8.9 8.9
----------- -----------
Total subsidiary debt.............................................................. 167.6 8.9
Debt of our company:
Senior secured credit facility
Revolving loans...................................................................... 6.4 2.2(a)
Term loans........................................................................... 150.0 195.0(b)
----------- -----------
Total senior debt of our company................................................... 324.0 206.1
Notes.................................................................................. -- 97.2(c)
----------- -----------
Total debt of our company.......................................................... 324.0 303.3
Common stock............................................................................. -- --
Additional paid-in capital............................................................... 100.0 139.3
Accumulated deficit...................................................................... (0.1) (11.0)(d)
----------- -----------
Total stockholder's equity......................................................... 99.9 128.3
----------- -----------
Total capitalization............................................................. $ 423.9 $ 431.6
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(a) Borrowings of up to $72.8 million would have been available under the
revolving credit facility.
(b) Consists of $55.0 million of Term A loans, $80.0 million of Term B loans and
$60.0 million of Term C loans.
(c) Net of original issue discount of $2.8 million.
(d) Reflects write off of existing deferred financing costs, tender premium and
consent fee associated with the early retirement of the AmeriComm Direct
Marketing Senior Notes and the AmeriComm Holdings Senior Notes, net of tax
benefit.
Our equity, as adjusted, includes $29.3 million which DIMAC Holdings
contributed to us from the net proceeds DIMAC Holdings received from issuing its
Senior Notes. Interest on its Senior Notes is not payable in cash until December
31, 2003. After this date, DIMAC Holdings will rely on us to provide it with
cash to meet its obligations under its Senior Notes.
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<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into a Registration Rights Agreement in which we agreed to
file a registration statement (within 60 days after the issuance of the Old
Notes) relating to an offer to exchange the Old Notes for New Notes on or before
December 21, 1998. The Old Notes were issued on October 22, 1998. We also agreed
to use our reasonable best efforts to cause the Registration Statement to become
effective under the Securities Act on or before March 22, 1999. The New Notes
will have terms substantially identical to the Old Notes except that the New
Notes will not contain terms with respect to transfer restrictions, registration
rights and liquidated damages.
Under certain circumstances, we will use our reasonable best efforts to
cause the SEC to declare effective a shelf registration statement with respect
to the resale of the Old Notes and keep the statement effective until October
22, 2002 (two years after the issuance of the Old Notes). These circumstances
include:
- if the SEC's applicable interpretations prohibit us from effecting the
Exchange Offer as contemplated by the Registration Statement;
- if for any other reason the Exchange Offer is not consummated on or
before April 20, 1999;
- if the initial purchasers of the Old Notes so request with respect to Old
Notes not eligible to be exchanged for New Notes pursuant to the Exchange
Offer; or
- if any holder of the Old Notes is not eligible to participate in the
Exchange Offer or does not receive freely tradable New Notes in exchange
for tendered Old Notes pursuant to the exchange offer.
In the event that we fail to comply with certain obligations under the
Registration Rights Agreement, we will be required to pay additional interest to
holders of the Old Notes. For more details regarding the Registration Rights
Agreement, see the section "Registration Rights Agreement".
Each holder of Old Notes that wishes to exchange such Old Notes for freely
transferable New Notes in the Exchange Offer will be required to represent that:
- any New Notes will be acquired in the ordinary course of its business;
- such holder has no arrangements or understanding with any person to
participate in the distribution of the New Notes;
- such holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, or if such holder is an affiliate, that it will comply
with applicable registration and prospectus delivery requirements of the
Securities Act;
- if such holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the New Notes; and
- if such holder is a broker-dealer, that it will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities and that it
acknowledges that it will deliver a prospectus in connection with any
resale of such New Notes.
RESALE OF NEW NOTES
Based on the SEC's interpretations as set forth in no-action letters issued
to third-parties, we believe that New Notes issued under the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any New Note holder without compliance with the registration and
prospectus delivery provisions of the Securities Act, if:
- the holder of New Notes is not an "affiliate" of our company within the
meaning of Rule 405 under the Securities Act.
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<PAGE>
- such New Notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of such New
Notes.
Any holder who tenders in the Exchange Offer with the intention of
participating in any manner in a distribution of the New Notes
- cannot rely on such SEC interpretations; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute New Notes should be covered by an effective
registration statement containing the selling security holder's information
required by Item 507 of Regulation S-K under the Securities Act. This Prospectus
may be used for an offer to resell, resale or other retransfer of New Notes only
as specifically set forth in this Prospectus. Only broker-dealers who acquired
the Old Notes as a result of market-making activities or other trading
activities may participate in the Exchange Offer. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such
broker-dealer acquired such Old Notes as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the New Notes. For more details regarding the
transfer of New Notes, see the section "Plan of Distribution".
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions set forth in this Prospectus and in the
Letter of Transmittal, we will accept for exchange any Old Notes properly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on
,199 . We will issue $1,000 principal amount of New Notes in exchange for each
$1,000 principal amount of outstanding Old Notes surrendered under the Exchange
Offer. Old Notes may be tendered only in integral multiples of $1,000.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except the New Notes will be registered under the Securities
Act and will not bear legends restricting their transfer. The New Notes will
evidence the same debt as the Old Notes. The New Notes will be issued under and
entitled to the benefits of the Notes Indenture, which also authorized the
issuance of the Old Notes. Consequently, both series will be treated as a single
class of debt securities under the Notes Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
As of the date of this Prospectus, $100.0 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus and the Letter of Transmittal
are being sent to all registered holders of Old Notes. There will be no fixed
record date for determining registered holders of Old Notes entitled to
participate in the Exchange Offer.
We intend to conduct the Exchange Offer in accordance with the provisions of
the Registration Rights Agreement, the applicable requirements of the Exchange
Act and the rules and regulations of the SEC. Old Notes which are not tendered
for exchange in the Exchange Offer will remain outstanding and continue to
accrue interest and will be entitled to the rights and benefits such holders
have under the Notes Indenture and the Registration Rights Agreement.
We will be deemed to have accepted for exchange properly tendered Old Notes
when we have given oral or written notice of the acceptance to the Exchange
Agent and complied with the provisions of Section 1 of the Registration Rights
Agreement. The Exchange Agent will act as agent for the tendering holders for
the purposes of receiving the New Notes from us. We expressly reserve the right
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<PAGE>
to amend or terminate the Exchange Offer, and not to accept for exchange any Old
Notes not previously accepted for exchange, upon the occurrence of any of the
conditions specified below in the section "--Certain Conditions to the Exchange
Offer."
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes. We
will pay all charges and expenses, other than certain applicable taxes described
below, related to the Exchange Offer. It is important that you read the section
"--Fees and Expenses" for more details regarding fees and expenses incurred in
the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time on
, 199 , unless, in our sole discretion, we extend it.
In order to extend the Exchange Offer, we will notify the Exchange Agent
orally or in writing of any extension. We will mail notice of the extension to
the registered holders of Old Notes no later than 9:00 a.m., New York City time,
on the next business day after the then-expiration date.
We reserve the right, in our sole discretion:
- to delay accepting any Old Notes;
- to extend or terminate the Exchange Offer if any of the conditions set
forth below under "--Certain Conditions to the Exchange Offer" will not
have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent; or
- to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice of the delay to
the registered holders of Old Notes. If we amend the Exchange Offer in a manner
which we determine to constitute a material change, we will promptly disclose
such amendment through a Prospectus supplement. The supplement will be
distributed to the registered holders. Depending upon the significance of the
amendment and the manner of disclosure to the registered holders, we will extend
the Exchange Offer if it would otherwise expire during such period.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at a rate of 12 1/2% per year, payable
semi-annually, on April 1 and October 1 of each year, beginning on April 1,
1999. Holders of New Notes will receive interest on April 1, 1999 from the date
of initial issuance of the New Notes, plus an amount equal to the accrued
interest on the Old Notes. Interest on the Old Notes accepted for exchange will
cease to accrue upon issuance of the New Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the Exchange Offer, we will not be required to
accept for exchange, or exchange any New Notes for, any Old Notes, and we may
terminate the Exchange Offer as provided in this Prospectus before accepting any
Old Notes for exchange, if in our reasonable judgment:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency relating to the Exchange Offer which
might materially impair our ability to proceed with the Exchange Offer;
or
- any law, rule or regulation is proposed, adopted or enacted, or any
existing law, rule or regulation is interpreted by the SEC, which might
materially impair our ability to proceed with the Exchange Offer; or
32
<PAGE>
- we have not obtained any governmental approval which we deem necessary
for the consummation of the Exchange Offer as contemplated in this
Prospectus.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the Exchange Offer is open. Consequently, we may
delay acceptance of any Old Notes by giving oral or written notice of such
extension to their holders. During any such extensions, all Old Notes previously
tendered will remain subject to the Exchange Offer, and we may accept them for
exchange. We will return any Old Notes that we do not accept for exchange for
any reason without expense to their tendering holder as promptly as practicable
after the expiration or termination of the Exchange Offer.
We expressly reserve the right to amend or terminate the Exchange Offer, and
to reject for exchange any Old Notes not previously accepted for exchange, upon
the occurrence of any of the conditions of the Exchange Offer specified above
under this section "--Certain Conditions to the Exchange Offer." We will give
oral or written notice of any extension, amendment, non-acceptance or
termination to the holders of the Old Notes as promptly as practicable. In the
case of any extension, such notice will be issued no later than 9:00 a.m., New
York City time, on the next business day after the then-expiration date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances which may give rise to them or waive them in whole or in
part at any time or at various times in our sole discretion. If we fail at any
time to exercise any of the rights outlined in this section, this failure will
not constitute a waiver of any such right. Each such right will be deemed an
ongoing right which we may assert at any time or at various times.
In addition, we will not accept for exchange any Old Notes tendered, and
will not issue New Notes in exchange for any such Old Notes, if at such time any
stop order will be threatened or in effect with respect to the Registration
Statement of which this Prospectus constitutes a part or the qualification of
the Notes Indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must:
- complete, sign and date the Letter of Transmittal (or a facsimile of the
Letter of Transmittal); have the signature on the Letter of Transmittal
guaranteed if the Letter of Transmittal so requires; and mail or deliver
such Letter of Transmittal (or facsimile of the Letter of Transmittal) to
the Exchange Agent prior to 5:00 p.m., New York City time, on
, 199 ; or
- comply with The Depository Trust Company's Automated Tender Offer Program
procedures described below.
In addition, either:
- the Exchange Agent must receive Old Notes along with the Letter of
Transmittal; or
- the Exchange Agent must receive, prior to , 199 :
- a timely confirmation of book-entry transfer of such Old Notes, if such
procedure is available, into the Exchange Agent's account at The
Depository Trust Company according to the procedure for book-entry
transfer described below; or
- properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
33
<PAGE>
For tender to be effective, the Exchange Agent must receive the Letter of
Transmittal and other required documents at the address set forth below under
"The Exchange Offer--Exchange Agent" prior to 5:00 p.m., New York City time, on
, 199 , the expiration date.
The tender by a holder which is not withdrawn prior to , 199 will
constitute an agreement between such holder and us in accordance with the terms
and subject to the conditions set forth in this Prospectus and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE HOLDER'S ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT HOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE , 199 , THE EXPIRATION DATE.
HOLDERS SHOULD NOT SEND THE LETTER OF TRANSMITTAL OR OLD NOTES TO US. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct it to tender on the
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Old Notes, either:
- make appropriate arrangements to register ownership of the Old Notes in
such owner's name; or
- obtain a properly completed bond power from the registered holder of Old
Notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to , 199 , the expiration date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below must be guaranteed by an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act, which is a member of one of the
recognized signature guarantee programs identified in the Letter of Transmittal,
unless the Old Notes tendered pursuant thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal; or
- for the account of an eligible guarantor institution.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal are required to be guaranteed, the guarantor must be:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States; or
- an eligible guarantor institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed in the Old Notes, such Old Notes must be endorsed
or accompanied by a properly completed bond power. The registered holder must
sign the bond power as the registered holder's name appears on the Old Notes.
Also, an eligible guarantor institution must guarantee the signature on the bond
power.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. Unless waived by us, they should also
submit evidence satisfactory to us of their authority to deliver the Letter of
Transmittal.
The Exchange Agent and The Depository Trust Company have confirmed that any
financial institution that is a participant in The Depository Trust Company's
system may use its Automated Tender
34
<PAGE>
Offer Program to tender. Participants in this program may, instead of physically
completing and signing the Letter of Transmittal and delivering it to the
Exchange Agent, transmit their acceptance of the Exchange Offer electronically.
They may do so by causing The Depository Trust Company to transfer the Old Notes
to the Exchange Agent according to its procedures for transfer. The Depository
Trust Company will then send an Agent's Message to the Exchange Agent.
The term "Agent's Message" means a message transmitted by The Depository
Trust Company received by the Exchange Agent and forming part of the book-entry
confirmation, which states that:
- The Depository Trust Company has received an express acknowledgement from
a participant in its Automated Tender Offer Program that is tendering Old
Notes which are the subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of the
Letter of Transmittal (or, in the case of an Agent's Message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable Notice of Guaranteed Delivery); and
- the agreement may be enforced against such participant.
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance and withdrawal of
tendered Old Notes. Our determination will be final and binding. We reserve the
absolute right to reject any Old Notes not properly tendered or any Old Notes
our acceptance of which would, in the opinion of our counsel, be unlawful. We
also reserve the right to waive any defects, irregularities or conditions of
tender as to particular Old Notes. Our interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as we shall determine. Although we intend to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither we, the
Exchange Agent nor any other person will incur any liability for failure to give
such notification. Tenders of Old Notes will not be deemed made until such
defects or irregularities have been cured or waived. Any Old Notes received by
the Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned to the tendering
holder, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the expiration date.
In all cases, we will issue New Notes for Old Notes that we have accepted
for exchange under the Exchange Offer only after the Exchange Agent timely
receives:
- Old Notes or a timely Book-Entry Confirmation of such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility; and
- a properly completed and duly executed Letter of Transmittal and all
other required documents.
If we do not accept any tendered Old Notes for exchange for any reason set
forth in the terms and conditions of the Exchange Offer, or if the holder
submits Old Notes for a greater principal amount than the holder desires to
exchange, we will return the unaccepted or non-exchanged Old Notes without
expense to their tendering holder. In the case of Old Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility according to the procedures described below, we will credit such
non-exchanged Notes to an account maintained with such Book-Entry Transfer
Facility. These actions will occur as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution participating in the Book-Entry Transfer Facility's
35
<PAGE>
system may make book-entry delivery of Old Notes by causing the Book-Entry
Transfer Facility to transfer such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility according to such Book-Entry Transfer
Facility's procedures for transfer. Although Old Notes may be delivered through
book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other required documents, must, in any case, be transmitted to the Exchange
Agent at the address set forth below under "--Exchange Agent" on or prior to
, 199 (or, if the guaranteed delivery procedures described below are to
be complied with, within the time period provided under such procedures). Please
note that delivery of documents to the Book-Entry Transfer Facility does not
constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their Old Notes but whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to
, 199 , may tender if:
- the tender is made through an eligible guarantor institution;
- prior to , 199 , the Exchange Agent receives from such eligible
guarantor institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery):
- setting forth the name and address of the holder, the registered
number(s) of such Old Notes and the principal amount of Old Notes
tendered;
- stating that the tender is being made thereby; and
- guaranteeing that, within three (3) New York Stock Exchange trading
days after , 199 , the eligible guarantor institution will
deposit the Letter of Transmittal (or facsimile thereof) together with
the Old Notes or a Book-Entry Confirmation, and any other documents
required by the Letter of Transmittal with the Exchange Agent; and
- the Exchange Agent receives the properly completed and executed Letter of
Transmittal (or facsimile thereof), or properly transmitted Agent's
Message as well as all tendered Old Notes in proper form for transfer or
a Book-Entry Confirmation, and all other documents required by the Letter
of Transmittal, within three (3) New York Stock Exchange trading days
after , 199 .
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this Prospectus, holders of Old Notes may
withdraw their tenders at any time prior to 5:00 p.m., New York City time, on
, 199 .
For a withdrawal to be effective:
- the Exchange Agent must receive a written notice of withdrawal at one of
the addresses set forth below under "--Exchange Agent"; or
- holders must comply with the appropriate procedures of The Depository
Trust Company's Automated Tender Offer Program system.
Any such notice of withdrawal must:
- specify the name of the person who tendered the Old Notes to be
withdrawn;
- identify the Old Notes to be withdrawn (including the principal amount of
such Old Notes); and
36
<PAGE>
- where certificates for Old Notes have been transmitted, specify the name
in which such Old Notes were registered, if different from that of the
withdrawing holder.
If certificates for Old Notes have been delivered or otherwise identified to
the Exchange Agent, then, prior to the release of such certificates, the
withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution.
If Old Notes have been tendered according to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Old Notes and otherwise comply with the procedures of such
facility. We will determine all questions as to the validity, form and
eligibility (including time of receipt) of such notices; and our determination
shall be final and binding on all parties. We will deem any Old Notes so
withdrawn not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes which have been tendered for exchange but which
are not exchanged for any reason will be returned to their holder without cost
to the holder (or, in the case of Old Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility according to
the procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering" above at any time on or
prior to , 199 .
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent of the
Exchange Offer. You should direct questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notice of Guaranteed Delivery to the Exchange Agent
addressed as follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL OR BY BY HAND:
OVERNIGHT COURIER:
Wilmington Trust Company Wilmington Trust Company
Attn: Kristin Long Attn: Corporate Trust Operations
Corporate Trust & Administration Window c/o Harris Trust Company of New York,
1100 North Market Street as Agent
Rodney Square North 75 Water Street
Wilmington, Delaware 19890-0001 New York, New York 10004
BY FACSIMILE:
Wilmington Trust Company
Corporate Trust Administration
Facsimile: (302) 651-1079
Confirm by Telephone: (302) 651-1562
</TABLE>
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We are making the principal
solicitation; however, we may make additional solicitation by telegraph,
telephone or in person by our officers and regular employees and those of our
affiliates.
37
<PAGE>
We have not retained any dealer-manager in connection with the Exchange
Offer. We will not make any payments to broker-dealers or others soliciting
acceptances of the Exchange Offer. We will, however, pay the Exchange Agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the Exchange
Offer. The expenses are estimated in the aggregate to be approximately $0.2
million. They include:
- registration fees;
- fees and expenses of the Exchange Agent and Trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of Old
Notes under the Exchange Offer. The tendering holder, however, will be required
to pay any transfer taxes (whether imposed on the registered holder or any other
person) if:
- certificates representing Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of Old Notes
tendered; or
- tendered Old Notes are registered in the name of any person other than
the person signing the Letter of Transmittal; or
- a transfer tax is imposed for any reason other than the exchange of Notes
under the Exchange Offer.
If satisfactory evidence of payment of such taxes is not submitted with the
Letter of Transmittal, the amount of such transfer taxes will be billed directly
to that tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes under
the Exchange Offer will remain subject to the restrictions on transfer of such
Old Notes:
- as set forth in the legend printed on the notes as a consequence of the
issuance of the Old Notes according to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
- as otherwise set forth in the Offering Circular dated October 16, 1998
distributed in connection with the Offering.
In general, you may not offer or sell the Old Notes unless they are
registered under the Securities Act or the offer or sale is exempt from the
Securities Act and applicable state securities laws. We do not currently
anticipate that we will register the Old Notes under the Securities Act. Based
on SEC interpretations, holders may offer for resale, resell or otherwise
transfer their New Notes issued under the Exchange Offer (except for any holder
which is our "affiliate" within the meaning of Rule 405 under the Securities
Act) without complying with the registration and prospectus delivery provisions
of the Securities Act, provided that the holders acquired the New Notes in the
ordinary course of the holders' business and the holders have no arrangement or
understanding with respect to the distribution of the New Notes which they will
acquire in the Exchange Offer. Any holder who tenders in the Exchange Offer for
the purpose of participating in a distribution of the New Notes:
- cannot rely on the applicable interpretations of the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
38
<PAGE>
DIMAC CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
The following unaudited pro forma consolidated financial statements are
based on our historical financial statements and those of DIMAC Marketing and
AmeriComm Holdings included elsewhere in this Prospectus, adjusted to give
effect to our acquisitions of AmeriComm Holdings and DIMAC Marketing and the
Refinancing described in this Prospectus. The financial statements of AmeriComm
Holdings were also adjusted to give pro forma effect to the AmeriComm Holdings
Acquisitions consummated during 1997 and 1998, as if they had occurred on
January 1, 1997. AmeriComm Holdings acquired:
- Label America on February 21, 1997;
- AmeriComm Direct Marketing on April 24, 1997; and
- Cardinal on March 16, 1998.
Accordingly, AmeriComm Holdings' historical consolidated statements of
operations include the results of operations of Label America, AmeriComm Direct
Marketing, Inc. and Cardinal beginning on February 22, 1997, April 25, 1997, and
March 17, 1998, respectively.
The Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1997 and six months ended June 30, 1997 give effect to the
AmeriComm Holdings Acquisitions, our acquisitions of AmeriComm Holdings and
DIMAC Marketing, and the Refinancing as if they had occurred on January 1, 1997.
The Unaudited Pro Forma Consolidated Statement of Operations for the six months
ended June 30, 1998 give effect to the AmeriComm Holdings Acquisitions, our
acquisitions of AmeriComm Holdings and DIMAC Marketing, and the Refinancing as
if they had occurred on January 1, 1997. The Unaudited Pro Forma Consolidated
Balance Sheet gives effect to the Refinancing as if it had occurred as of June
30, 1998.
The AmeriComm Holdings Acquisitions, our acquisitions of AmeriComm Holdings
and DIMAC Marketing, and the Refinancing and the related adjustments are
described in the accompanying notes. The pro forma adjustments are based upon
available information and certain assumptions that management believes are
reasonable. The pro forma financial statements do not purport to represent what
our results of operations or financial condition would actually have been had
our acquisitions of AmeriComm Holdings and DIMAC Marketing, and the Refinancing
in fact occurred on such dates. Neither do they purport to project our results
of operations or financial condition for any future period or date. It is
important that you read the pro forma financial statements along with our
historical financial statements and those of DIMAC Marketing, AmeriComm
Holdings, Transkrit and AmeriComm Direct Marketing included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The pro forma information with respect to our acquisitions of AmeriComm
Holdings and DIMAC Marketing is based on our historical financial statements,
and those of DIMAC Marketing and AmeriComm Holdings. We have accounted for our
acquisitions of AmeriComm Holdings and DIMAC Marketing under the purchase method
of accounting. The total purchase price for such acquisitions has been allocated
to the tangible and identifiable intangible assets and liabilities of the
acquired business based upon our preliminary estimates of their fair value with
the remainder allocated to goodwill. The allocation of purchase price for such
acquisitions is subject to revision when we obtain additional information
concerning asset and liability valuations.
We refer to the adjustments presented in the unaudited pro forma financial
statements below for our acqusitions of the AmeriComm Holdings and DIMAC
Marketing as "Acquisitions Adjustments."
39
<PAGE>
DIMAC CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICOMM
AMERICOMM HOLDINGS DIMAC
HOLDINGS ACQUISITIONS MARKETING COMPANY
HISTORICAL PRO FORMA PRO FORMA ACQUISITIONS REFINANCING PRO FORMA
CONSOLIDATED COMBINED(A) CONSOLIDATED(B) ADJUSTMENTS ADJUSTMENTS CONSOLIDATED
------------ ----------- -------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................ $ 191,091 $ 17,627 $ 177,947 $ -- $ -- $ 386,665
Cost of products sold............ 133,598 11,497 117,542 (5,061)(c) -- 257,840
264(d)
------------ ----------- -------------- ----------- ----------- ------------
Gross profit................... 57,493 6,130 60,405 4,797 -- 128,825
Selling, general and
administrative expenses........ 44,985 4,490 53,225 (3,351)(c) -- 99,781
432(d)
------------ ----------- -------------- ----------- ----------- ------------
Operating income............... 12,508 1,640 7,180 7,716 -- 29,044
Interest expense (income)........ 17,023 1,747 8,908 8,117(f) (1,588)(h) 34,207
------------ ----------- -------------- ----------- ----------- ------------
Income (loss) from continuing
operations before income
taxes........................ (4,515) (107) (1,728) (401) 1,588 (5,163)
Income tax provision (benefit)... (688) 55 706 246(g) 635(i) 954
------------ ----------- -------------- ----------- ----------- ------------
Income (loss) from continuing
operations................... $ (3,827) $ (162) $ (2,434) $ (647) $ 953 $ (6,117)
------------ ----------- -------------- ----------- ----------- ------------
------------ ----------- -------------- ----------- ----------- ------------
OTHER DATA:
EBITDA (j)....................... $ 25,277 $ 2,605 $ 20,240 $ 8,412 $ -- $ 56,534
Depreciation and amortization
(k)............................ $ 12,769 $ 965 $ 13,060 $ 696 $ -- $ 27,490
Ratio of earnings to fixed
charges (l).................... --
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
40
<PAGE>
DIMAC CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICOMM AMERICOMM HOLDINGS DIMAC
HOLDINGS ACQUISITIONS MARKETING COMPANY
HISTORICAL PRO FORMA HISTORICAL ACQUISITIONS REFINANCING PRO FORMA
CONSOLIDATED COMBINED(A) CONSOLIDATED ADJUSTMENTS ADJUSTMENTS CONSOLIDATED
------------ -------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ 86,602 $ 14,194 $ 91,421 $ -- $ -- $ 192,217
Cost of products sold... 60,808 9,558 60,270 (2,486)(c) -- 128,787
637(d)
------------ ------- ------------ ----------- ----------- ------------
Gross profit.......... 25,794 4,636 31,151 1,849 -- 63,430
Selling, general and
administrative
expenses.............. 21,575 3,397 29,043 (1,653)(c) -- 51,345
(1,017)(d)
------------ ------- ------------ ----------- ----------- ------------
Operating income...... 4,219 1,239 2,108 4,519 -- 12,085
Interest expense
(income).............. 7,402 1,639 4,633 3,822(f) (588) (h) 16,908
------------ ------- ------------ ----------- ----------- ------------
Income (loss) from
continuing
operations before
income taxes........ (3,183) (400) (2,525) 697 588 (4,823)
Income tax provision
(benefit)............. (644) (83) 17 (47) (g) 235(i) (522)
------------ ------- ------------ ----------- ----------- ------------
Income (loss) from
continuing
operations.......... $ (2,539) $ (317) $ (2,542) $ 744 $ 353 $ (4,301)
------------ ------- ------------ ----------- ----------- ------------
------------ ------- ------------ ----------- ----------- ------------
OTHER DATA:
EBITDA (j).............. $ 10,114 $ 1,995 $ 9,657 $ 4,139 $ -- $ 25,905
Depreciation and
amortization (k)...... $ 5,895 $ 756 $ 7,549 $ (380) $ -- $ 13,820
Ratio of earnings to
fixed charges (l)..... --
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
41
<PAGE>
DIMAC CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTH PERIOD ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DIMAC
CORPORATION
AMERICOMM DIMAC HISTORICAL
HOLDINGS MARKETING CONSOLIDATED
HISTORICAL HISTORICAL OPERATING
CONSOLIDATED CONSOLIDATED PERIOD
FROM FROM FROM
JANUARY 1, AMERICOMM JANUARY 1, JUNE 27,
1998 TO HOLDINGS 1998 TO 1998 TO
JUNE 26, ACQUISITIONS JUNE 26, JUNE 30, ACQUISITIONS REFINANCING
1998 PRO FORMA(A) 1998 1998 ADJUSTMENTS ADJUSTMENTS
------------- --------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................ $ 93,081 $ 770 $ 93,208 $ 2,859 $ -- $ --
Cost of products sold.... 67,813 452 61,806 1,977 (2,555)(c) --
(1,126)(d)
------------- ----- ------------- ------ ------------- -------------
Gross profit........... 25,268 318 31,402 882 3,681 --
Selling, general and
administrative
expenses............... 23,438 369 26,615 784 (1,849)(c) --
(66)(d)
(385)(e)
------------- ----- ------------- ------ ------------- -------------
Operating income....... 1,830 (51) 4,787 98 5,981 --
Interest expense
(income)............... 9,677 72 4,583 208 3,666(f) (1,163)(h)
------------- ----- ------------- ------ ------------- -------------
Income (loss) from
continuing operations
before income
taxes................ (7,847) (123) 204 (110) 2,315 1,163
Income tax provision
(benefit).............. (2,195) (42) 585 (15) 810(g) 465(i)
------------- ----- ------------- ------ ------------- -------------
Income (loss) from
continuing
operations........... $ (5,652) $ (81) $ (381) $ (95) $ 1,505 $ 698
------------- ----- ------------- ------ ------------- -------------
------------- ----- ------------- ------ ------------- -------------
OTHER DATA:
EBITDA (j)............... $ 9,114 $ 28 $ 11,864 $ 358 $ 4,789 $ --
Depreciation and
amortization (k)....... $ 7,284 $ 79 $ 7,077 $ 260 $ (1,192) $ --
Ratio of earnings to
fixed charges (l)......
<CAPTION>
COMPANY
PRO FORMA
CONSOLIDATED
------------
<S> <C>
Net sales................ $ 189,918
Cost of products sold.... 128,367
------------
Gross profit........... 61,551
Selling, general and
administrative
expenses............... 48,906
------------
Operating income....... 12,645
Interest expense
(income)............... 17,043
------------
Income (loss) from
continuing operations
before income
taxes................ (4,398)
Income tax provision
(benefit).............. (392)
------------
Income (loss) from
continuing
operations........... $ (4,006)
------------
------------
OTHER DATA:
EBITDA (j)............... $ 26,153
Depreciation and
amortization (k)....... $ 13,508
Ratio of earnings to
fixed charges (l)...... --
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
42
<PAGE>
DIMAC CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(a) AMERICOMM HOLDINGS ACQUISITIONS PRO FORMA COMBINED
YEAR ENDED DECEMBER 31, 1997
Represents historical results for Label America, AmeriComm Direct Marketing,
Inc., and Cardinal for the period from January 1, 1997 through February 21,
1997, the period from January 1, 1997 through April 24, 1997 and the period
from January 1, 1997 through December 31, 1997, respectively, on a combined
basis, assuming the AmeriComm Holdings Acquisitions had each occurred on
January 1, 1997, adjusted as follows:
<TABLE>
<CAPTION>
AMERICOMM
DIRECT
LABEL AMERICA MARKETING, INC. CARDINAL
HISTORICAL HISTORICAL HISTORICAL AMERICOMM
FROM FROM FROM AMERICOMM HOLDINGS
1/1/97 1/1/97 1/1/97 HOLDINGS ACQUISITIONS
THROUGH THROUGH THROUGH ACQUISITIONS PRO FORMA
2/21/97 4/24/97 12/31/97 ADJUSTMENTS COMBINED
--------------- ----------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 2,313 $ 8,096 $ 7,218 $ -- $ 17,627
Cost of products sold............... 1,716 5,450 4,331 -- 11,497
------ ------ ----------- ------------- -------------
Gross profit.................... 597 2,646 2,887 -- 6,130
Selling, general and administrative
expenses.......................... 639 2,617 1,957 (723)(1) 4,490
------ ------ ----------- ------------- -------------
Operating income................ (42) 29 930 723 1,640
Interest (income) expense........... 44 (39) (95) 1,837(2) 1,747
Income (loss) from continuing
operations before income
taxes......................... (86) 68 1,025 (1,114) (107)
Income tax provision (benefit)...... 1 -- 3 51(3) 55
------ ------ ----------- ------------- -------------
Income (loss) from continuing
operations.................... $ (87) $ 68 $ 1,022 $ (1,165) $ (162)
------ ------ ----------- ------------- -------------
------ ------ ----------- ------------- -------------
OTHER DATA:
EBITDA (j).......................... $ 16 $ 299 $ 1,034 $ 1,256 $ 2,605
Depreciation and amortization (k)... $ 58 $ 270 $ 104 $ 533 $ 965
</TABLE>
----------------------------
(1) Reflects the following:
<TABLE>
<S> <C>
Elimination of compensation expense of former owners that were terminated upon
acquisition by our company............................................................... $ (528)
Elimination of expenses incurred in connection with a phantom stock plan that was
terminated upon acquisition by our company............................................... (608)
Additional amortization of goodwill...................................................... 235
Additional amortization of noncompete agreements......................................... 298
Elimination of non-recurring acquisition expenses incurred in contemplation of the
AmeriComm Holdings Acquisitions.......................................................... (120)
-------------
$ (723)
-------------
-------------
</TABLE>
(2) Reflects additional interest expense associated with borrowings
incurred in connection with the AmeriComm Holdings Acquisitions.
(3) Reflects the net additional income tax provision as a result of the
historical Label America, AmeriComm Direct Marketing, Inc. and Cardinal
results and the AmeriComm Holdings Acquisitions Adjustments, excluding
nondeductible goodwill amortization, at an effective tax rate of 40%.
43
<PAGE>
DIMAC CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
(a) AMERICOMM HOLDINGS ACQUISITIONS PRO FORMA COMBINED (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997
Represents historical results for Label America, AmeriComm Direct Marketing,
Inc., and Cardinal for the period from January 1, 1997 through February 21,
1997, the period from January 1, 1997 through April 24, 1997 and the period
from January 1, 1997 through June 30, 1997, respectively, on a combined
basis assuming the AmeriComm Holdings Acquisitions had occurred on January
1, 1997, adjusted as follows:
<TABLE>
<CAPTION>
AMERICOMM
DIRECT
LABEL AMERICA MARKETING, INC. CARDINAL
HISTORICAL HISTORICAL HISTORICAL AMERICOMM
FROM FROM FROM AMERICOMM HOLDINGS
1/1/97 1/1/97 1/1/97 HOLDINGS ACQUISITIONS
THROUGH THROUGH THROUGH ACQUISITIONS PRO FORMA
2/21/97 4/24/97 6/30/97 ADJUSTMENTS COMBINED
--------------- ----------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 2,313 $ 8,096 $ 3,785 $ -- $ 14,194
Cost of products sold.............. 1,716 5,450 2,392 -- 9,558
------ ------ ----------- ------------- -------------
Gross profit................... 597 2,646 1,393 -- 4,636
Selling, general and administrative
expenses......................... 639 2,617 877 (736)(1) 3,397
------ ------ ----------- ------------- -------------
Operating income............... (42) 29 516 736 1,239
Interest (income) expense.......... 44 (39) (26) 1,660(2) 1,639
------ ------ ----------- ------------- -------------
Income (loss) from continuing
operations before income
taxes........................ (86) 68 542 (924) (400)
Income tax provision (benefit)..... 1 -- -- (84)(3) (83)
------ ------ ----------- ------------- -------------
Income (loss) from continuing
operations................... $ (87) $ 68 $ 542 $ (840) $ (317)
------ ------ ----------- ------------- -------------
------ ------ ----------- ------------- -------------
OTHER DATA:
EBITDA(j).......................... $ 16 $ 299 $ 568 $ 1,112 $ 1,995
Depreciation and amortization(k)... $ 58 $ 270 $ 52 $ 376 $ 756
</TABLE>
----------------------------------
(1) Reflects the following:
<TABLE>
<S> <C>
Elimination of compensation expense of former owners that were terminated upon
acquisition by our company.............................................................. $ (384)
Elimination of expenses incurred in connection with a phantom stock plan that was
terminated upon acquisition by our company.............................................. (608)
Additional amortization of goodwill...................................................... 189
Additional amortization of noncompete agreements......................................... 187
Elimination of acquisition expenses incurred in contemplation of the AmeriComm Holdings
Acquisitions............................................................................ (120)
-------------
$ (736)
-------------
-------------
</TABLE>
(2) Reflects additional interest expense associated with borrowings incurred
in connection with the AmeriComm Holdings Acquisitions.
(3) Reflects the net additional income tax benefit as a result of the
historical Label America, AmeriComm Direct Marketing, Inc. and Cardinal
results and the AmeriComm Holdings Acquisitions Adjustments, excluding
nondeductible goodwill amortization, at an effective tax rate of 40%.
44
<PAGE>
DIMAC CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
(a) AMERICOMM HOLDINGS ACQUISITIONS PRO FORMA (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1998
Represents historical results for Cardinal for the period from January 1,
1998 through March 16, 1998, assuming the Cardinal Acquisition had occurred
on January 1, 1998, adjusted as follows:
<TABLE>
<CAPTION>
CARDINAL
HISTORICAL AMERICOMM
FROM CARDINAL HOLDINGS
1/1/98 TO ACQUISITION ACQUISITIONS
3/16/98 ADJUSTMENTS PRO FORMA
----------- --------------- ---------------
<S> <C> <C> <C>
Net sales........................................................... $ 770 $ -- $ 770
Cost of products sold............................................... 452 -- 452
----- ----- -----
Gross profit.................................................... 318 -- 318
Selling, general and administrative expenses........................ 539 (170)(1) 369
----- ----- -----
Operating income................................................ (221) 170 (51)
Interest (income) expense........................................... (8) 80(2) 72
----- ----- -----
Income (loss) from continuing operations before income taxes.... (213) 90 (123)
Income tax benefit.................................................. -- (42)(3) (42)
----- ----- -----
Income (loss) from continuing operations........................ $ (213) $ 132 $ (81)
----- ----- -----
----- ----- -----
OTHER DATA:
EBITDA(j)........................................................... $ (217) $ 245 $ 28
Depreciation and amortization(k).................................... $ 4 $ 75 $ 79
</TABLE>
----------------------------
(1) Reflects the following:
<TABLE>
<S> <C>
Elimination of compensation expense of former owners that were terminated upon acquisition
by our company............................................................................. $ (185)
Additional amortization of goodwill........................................................ 19
Additional amortization of noncompete agreements........................................... 56
Elimination of non-recurring acquisition expenses incurred in contemplation of the Cardinal
Acquisition................................................................................ (60)
-----
$ (170)
-----
-----
</TABLE>
(2) Reflects additional interest expense associated with borrowings incurred
in connection with the Cardinal Acquisition.
(3) Reflects the net additional income tax benefit as a result of the
historical Cardinal results and the Cardinal Acquisition Adjustments,
excluding nondeductible goodwill amortization, at an effective tax rate
of 40%.
45
<PAGE>
DIMAC CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
(b) Represents DIMAC Marketing's Statement of Operations for the eight months
ended August 31, 1997 (while under Heritage Media ownership) and DIMAC
Marketing's Statement of Operations for the four months ended December 31,
1997 (while under News Corporation ownership) adjusted to give pro forma
effect to the News Corporation purchase of Heritage Media (the "News
Corporation Acquisition"), including purchase accounting adjustments, as if
the News Corporation Acquisition was consummated on January 1, 1997 as
follows:
<TABLE>
<CAPTION>
DIMAC MARKETING
HISTORICAL CONSOLIDATED DIMAC MARKETING
---------------------------- PRO FORMA
EIGHT MONTHS FOUR MONTHS NEWS CORPORATION CONSOLIDATED
ENDED ENDED ACQUISITION YEAR ENDED
8/31/97 12/31/97 ADJUSTMENTS 12/31/97
------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Sales..................................... $ 118,747 $ 59,200 $ -- $ 177,947
Cost of sales............................. 77,820 39,722 -- 117,542
------------- ------------- -------- --------
Gross profit.......................... 40,927 19,478 -- 60,405
Selling, general and administrative
expenses.................................... 37,867 17,083 (1,725)(1) 53,225
------------- ------------- -------- --------
Operating income...................... 3,060 2,395 1,725 7,180
Interest (income) expense................. 6,188 2,248 472(2) 8,908
------------- ------------- -------- --------
Income (loss) from continued
operations before income taxes...... (3,128) 147 1,253 (1,728)
Income tax provision...................... 122 395 189(3) 706
------------- ------------- -------- --------
Income (loss) from continuing
operations.......................... $ (3,250) $ (248) $ 1,064 $ (2,434)
------------- ------------- -------- --------
------------- ------------- -------- --------
OTHER DATA:
EBITDA (j)................................ $ 13,315 $ 6,925 $ -- $ 20,240
Depreciation and amortization (k)......... $ 10,255 $ 4,530 $ (1,725) $ 13,060
</TABLE>
----------------------------
(1) Reflects decrease in goodwill amortization based on $144.0 million of
estimated goodwill over estimated useful life of 40 years.
(2) Reflects additional interest expense associated with intercompany
borrowings from News Corporation.
(3) Reflects the net additional income tax provision as a result of the News
Corporation Acquisition Adjustments, excluding nondeductible goodwill
amortization, at an effective tax rate of 40%.
46
<PAGE>
DIMAC CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
ACQUISITIONS ADJUSTMENTS
(c) Reflects estimated cost savings as a result of our acquisitions of AmeriComm
Holdings and DIMAC Marketing from the closing of certain duplicative
facilities, the production of certain inventory internally that prior to
these acquisitions were outsourced, the elimination of certain overlapping
and duplicative production, selling, general and administrative functions
and reductions or increases in external administrative and operating
expenses, such as insurance, freight, and telecommunications. The estimated
cost savings below reflect personnel terminations that have occurred or that
have been formally communicated to employees, production changes that have
occurred, closings of duplicate facilities that have occurred and reductions
in external administrative and operating expenses that have been negotiated.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
1997 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Cost of products sold adjustment:
Related to our acquisitions of AmeriComm Holdings and DIMAC
Marketing:
Closing of duplicative facilities (1)....................... $ (1,419) $ (710) $ (710)
Reduction of salaries and benefits resulting from personnel
terminations (2).......................................... (1,563) (736) (805)
Consolidation of certain insurance programs (3)............. (898) (449) (449)
Reduction of external administrative and operating expenses
(4)....................................................... (302) (151) (151)
Reduction in costs due to production changes that have
occurred (5).............................................. (879) (440) (440)
------------- ------------- -------------
$ (5,061) $ (2,486) $ (2,555)
------------- ------------- -------------
------------- ------------- -------------
Selling, general and administrative expense adjustment:
Related to our acquisitions of AmeriComm Holdings and DIMAC
Marketing:
Closing of duplicative facilities (1)....................... $ (1,153) $ (577) $ (577)
Reduction of salaries and benefits from personnel
terminations (2).......................................... (2,014) (984) (1,180)
Consolidation of certain insurance programs (3)............. (204) (102) (102)
Reduction of external administrative and operating expenses
(4)....................................................... (180) (90) (90)
Management fees (6)......................................... 200 100 100
------------- ------------- -------------
$ (3,351) $ (1,653) $ (1,849)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
----------------------------------
(1) Effective June 1998, we closed one of our facilities enabling us to
consolidate such functions to other facilities. This has resulted in the
elimination of certain fixed facility and payroll costs. We believe that
the facility closing will result in approximately $2.6 million in savings
on an annualized basis ($1.4 million in cost of sales and $1.2 million in
selling, general and administrative expenses).
(2) We have reduced or identified reductions in the number of full-time
employees by approximately 60 persons in a variety of departments. We
believe such reductions will result in savings of approximately $3.6
million on an annualized basis ($1.6 million in cost of sales and $2.0
million in selling, general and administrative expenses).
(3) We have consolidated the property and casualty insurance policies in
place for DIMAC Marketing and AmeriComm Holdings resulting in savings of
$0.5 million. In addition, we have identified approximately $0.6 million
of savings on an annualized basis, related to the consolidation of
employee benefit insurance programs based upon certain insurance carrier
commitments for a combined reduction of $0.9 million in cost of sales and
$0.2 million in selling, general and administrative expenses.
(4) We have negotiated lower rates for our telecommunications services. In
addition, we have standardized our overnight delivery service at the best
rate used historically by either AmeriComm Holdings or DIMAC Marketing.
We believe that such consolidation of services will result in
approximately $0.5 million of savings on an annualized basis ($0.3
million in cost of sales and $0.2 million in selling, general and
administrative expenses).
47
<PAGE>
DIMAC CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
(5) Prior to the acquisitions of AmeriComm Holdings and DIMAC Marketing,
certain components (i.e. envelopes, mailers and labels) used in the
manufacturing of DIMAC Marketing's and AmeriComm Holdings' products were
purchased from third party envelope, mailer and label manufacturers.
Effective June 1998, we began manufacturing these components internally
as incremental volume. We believe that this will save us $0.9 million on
an annualized basis.
(6) We maintain an Advisory Services Agreement with MDC Management Company
IV, LLC. Effective June 26, 1998, the fees associated with these services
have been increased by approximately $0.2 million.
(d) Reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
1997 JUNE 30, 1997 JUNE 30, 1998
--------------- ------------- -------------
<S> <C> <C> <C>
Increase (decrease) in amortization and depreciation expense based
on the preliminary purchase price allocation made in connection
with the acquisitions of AmeriComm Holdings and DIMAC Marketing:
Cost of products sold adjustment:
Represents increase (decrease) in depreciation expense based
on $78.1 million estimated fair value of property, plant and
equipment overestimated useful lives of 3-40 years.......... $ (191) $ 167 $ (1,126)
Represents increase in amortization expense based on $5.7
million estimated fair market value of resident address
lists (other intangible assets) over estimated useful life
of 4 years.................................................. 455 470 --
------ ------------- -------------
$ 264 $ 637 $ (1,126)
------ ------------- -------------
------ ------------- -------------
Selling, general and amortization expense adjustment:
Represents increase (decrease) in goodwill amortization based
on $260.7 million of estimated goodwill over estimated
useful life of 40 years..................................... $ 1,017 $ (814) $ 347
Represents decrease in amortization expense based on $32.7
million estimated fair value of other intangible assets over
estimated useful lives of 3-7 years......................... (537) (245) (131)
Represents increase (decrease) in depreciation expense based
on $19.5 million estimated fair value of property, plant and
equipment over estimated useful lives 3-40 years............ (48) 42 (282)
------ ------------- -------------
$ 432 $ (1,017) $ (66)
------ ------------- -------------
------ ------------- -------------
</TABLE>
(e) Reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
1997 JUNE 30, 1997 JUNE 30, 1998
------------------- ----------------- -----------------
<S> <C> <C> <C>
Elimination of certain non-recurring expenses previously
incurred in connection with the closing of duplicative
facilities................................................. $ -- $ -- $ (385)
----- ----- -----
----- ----- -----
</TABLE>
48
<PAGE>
DIMAC CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
(f) Reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
1997 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Interest and debt financing associated with borrowings under the
senior secured credit facility in connection with the
acquisitions of AmeriComm Holdings and DIMAC Marketing:
Interest expense associated with Term A loans ($55,000 @ 8.49%,
8.44% and 8.42% at December 31, 1997, June 30, 1997 and June
30, 1998, respectively)....................................... $ 4,670 $ 2,321 $ 2,235
Interest expense associated with Term B loans ($70,000 @ 8.99%,
8.94% and 8.92% at December 31, 1997, June 30, 1997 and June
30, 1998, respectively)....................................... 6,293 3,129 3,037
Interest expense associated with Term C loans ($25,000 @ 9.24%,
9.20% and 9.18% at December 31, 1997, June 30, 1997 and June
30, 1998, respectively)....................................... 2,310 1,149 1,147
Interest expense associated with revolving loans ($12,400 @
8.49%, 8.44% and 8.42% at December 31, 1997, June 30, 1997 and
June 30, 1998, respectively).................................. 1,053 523 507
Additional debt financing amortization associated with the
senior secured credit facility................................ 2,236 999 1,118
Commitment fees associated with the senior secured credit
facility...................................................... 313 157 157
Elimination of historical DIMAC Marketing interest expense
associated with intercompany debt which we did not assume..... (8,758) (4,456) (4,535)
------------- ------------- -------------
$ 8,117 $ 3,822 $ 3,666
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
A change of 0.125% for the interest rate on the term loans and the revolving
loans would have an impact on pro forma interest expense of $0.2 million,
$0.1 million and $0.3 million for the year ended December 31, 1997 and for
the six month periods ended June 30, 1997 and 1998, respectively.
(g) Reflects the additional income tax benefit resulting from the Acquisitions
Adjustments, excluding non-deductible items, at an effective tax rate of
40%.
49
<PAGE>
DIMAC CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
REFINANCING ADJUSTMENTS
(h) Reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
1997 JUNE 30, 1997 JUNE 30, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Interest expense associated with the Notes ($100,000 @ 12.5%)..... $ 12,500 $ 6,250 $ 6,250
Amortization of debt discount associated with the Notes........... 273 137 137
Interest expense associated with the additional Term B loans
($10,000 @ 8.99%, 8.94% and 8.92% at December 31, 1997, June 30,
1997 and June 30, 1998, respectively)........................... 899 447 446
Interest expense associated with the additional Term C loans
($35,000 @ 9.24%, 9.20% and 9.18% at December 31, 1997, June 30,
1997 and June 30, 1998, respectively)........................... 3,234 1,608 1,606
Elimination of interest expense on debt repaid in connection with
the Refinancing:
Existing AmeriComm Direct Marketing credit agreement, AmeriComm
Holdings Senior Notes and AmeriComm Direct Marketing Senior
Notes......................................................... (15,406) (6,898) (8,879)
AmeriComm Holdings Acquisitions (June 1998, Cardinal
Acquisition).................................................. (1,837) (1,538) (80)
Revolving loans................................................. (866) (431) (430)
Additional commitment fees associated with the senior secured
credit facility................................................. 51 26 26
Reduction in debt financing amortization in connection with
repayment of the AmeriComm Holdings Senior Notes, the AmeriComm
Direct Marketing Senior Notes and the existing AmeriComm Direct
Marketing credit agreement, offset by additional debt financing
amortization in connection with the Notes and the Term C
loans........................................................... (436) (189) (239)
------------- ------------- -------------
$ (1,588) $ (588) $ (1,163)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
(i) Reflects the additional income tax expense as a result of the Refinancing
Adjustments at an effective tax rate of 40%.
(j) EBITDA is defined as operating income plus depreciation (including loss on
disposal of equipment) and amortization. EBITDA is presented because we
believe that it provides additional indications of our financial performance
and provides useful information regarding our ability to service debt and
meet certain debt covenants under the Notes Indenture. EBITDA does not
represent cash flows from operations or investing and financing activities
as defined by generally accepted accounting principles. EBITDA does not
measure whether cash flows will be sufficient to fund all cash flow needs,
including principal and interest payments on debt and capital lease
obligations, capital expenditures or other investing and financing
activities. You should not construe EBITDA as an alternative to our
operating income, net income or cash flows from operating activities (as
determined in accordance with generally accepted accounting principles); nor
should you construe it as an indication of our operating performance or as a
measure of our liquidity. In addition, items excluded from EBITDA, such as
depreciation and amortization, interest and income tax provision (benefit),
are significant components in understanding and assessing our financial
performance. Our definition of EBITDA may be different from the definition
of EBITDA used by other companies. For a complete discussion of our future
prospects related to net income, cash flows from operations and investing
and financing activities, see "Management's
50
<PAGE>
DIMAC CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(IN THOUSANDS)
Discussion and Analysis of Financial Condition and Results of
Operations--AmeriComm Holdings, Inc.," "Management's Discussion and Analysis
of Financial Condition and Results of Operations-- DIMAC Marketing
Corporation" included elsewhere in this Prospectus.
(k) Amounts do not include amortization of financing costs and original issue
discount, which is included in interest expense.
(l) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income (loss) from continuing operations before income taxes,
plus fixed charges. Fixed charges consist of interest expense on all
indebtedness, amortization of financing costs and the estimated interest
portion of rental expense. For the year ended December 31, 1997 and the six
months ended June 30, 1997 and 1998, earnings were insufficient to cover
fixed charges by $5.2 million, $4.8 million and $4.4 million, respectively.
51
<PAGE>
DIMAC CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY COMPANY
HISTORICAL PRO FORMA PRO FORMA
CONSOLIDATED ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
Current assets:
Cash............................................................... $ 1,700 $ (1,700)(a) $ --
Accounts receivable, net........................................... 65,112 -- 65,112
Inventories........................................................ 14,310 -- 14,310
Deferred income taxes and other current assets..................... 12,140 -- 12,140
------------ ----------- ------------
Total current assets........................................... 93,262 (1,700) 91,562
------------ ----------- ------------
Property and equipment, net.......................................... 97,119 -- 97,119
Goodwill and other intangibles, net.................................. 319,740 1,722(b) 321,462
Other assets......................................................... 3,823 3,823
------------ ----------- ------------
Total assets................................................... $ 513,944 $ 22 $ 513,966
------------ ----------- ------------
------------ ----------- ------------
Current liabilities:
Current portion of long-term debt.................................. $ 2,692 $ -- $ 2,692
Outstanding checks................................................. 5,325 -- 5,325
Accounts payable................................................... 9,458 -- 9,458
Accrued expenses and others........................................ 54,250 (484)(a) 53,766
------------ ----------- ------------
Total current liabilities...................................... 71,725 (484) 71,241
------------ ----------- ------------
Noncurrent liabilities............................................... 4,187 -- 4,187
------------ ----------- ------------
Deferred income taxes................................................ 16,790 (7,236)(c) 9,554
------------ ----------- ------------
Long-term debt....................................................... 321,337 (20,703)(d) 300,634
------------ ----------- ------------
Stockholder's equity:
Common stock....................................................... -- -- --
Additional paid-in capital......................................... 100,000 39,300(a) 139,300
Accumulated deficit................................................ (95) (10,855)(c) (10,950)
------------ ----------- ------------
99,905 28,445 128,350
------------ ----------- ------------
Total liabilities and stockholder's equity..................... $ 513,944 $ 22 $ 513,966
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
balance sheet.
52
<PAGE>
DIMAC CORPORATION
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
The Pro Forma Consolidated Balance Sheet reflects the Refinancing as if it
had occurred as of June 30, 1998 as follows:
<TABLE>
<S> <C> <C>
(a) A summary of the sources and uses of proceeds in connection with the Refinancing is as
follows:
Sources of Proceeds:
Issuance of the Notes, net of original issue discount of $2,767.......... $ 97,233
Additional equity........................................................ 39,300
Available cash........................................................... 1,700
Capital leases........................................................... 8,900
Senior secured credit facility........................................... 45,000
---------
Total sources of proceeds.............................................. $ 192,133
---------
---------
Uses of Proceeds:
Purchase of AmeriComm Direct Marketing Senior Notes (including tender
premium and consent fee)............................................... $ 110,980
Repayment of interest accrued on the AmeriComm Direct Marketing Senior
Notes.................................................................. 484
Purchase of AmeriComm Holdings Senior Notes (including premium).......... 43,074
Repayment of revolving loans............................................. 4,205
Capital leases........................................................... 8,900
Repayment of existing AmeriComm Direct Marketing credit agreement........ 18,190
Deferred financing costs................................................. 6,300
---------
Total uses of proceeds................................................. $ 192,133
---------
---------
(b) Reflects the following:
Deferred financing costs related to the Refinancing...................... $ 6,300
Write off of existing deferred financing costs upon retirement of
AmeriComm Direct Marketing Senior Notes and AmeriComm Holdings Senior
Notes.................................................................. (4,578)
---------
$ 1,722
---------
---------
(c) Reflects the following:
Tender premium and consent fee associated with early retirement of the
AmeriComm Direct Marketing Senior Notes and the AmeriComm Holdings
Senior Notes........................................................... $ (13,513)
Write off of existing deferred financing costs upon retirement of
AmeriComm Direct Marketing Senior Notes and AmeriComm Holdings Senior
Notes.................................................................. (4,578)
Tax benefit from the above adjustments................................... 7,236
---------
$ (10,855)
---------
---------
Reflects the issuance of the Notes and proceeds from borrowings under our senior
secured credit facility, net of repayment of the AmeriComm Direct Marketing Senior
(d) Notes, the AmeriComm Holdings Senior Notes and the Existing AmeriComm Direct Marketing
credit agreement:
Issuance of the Notes, net of original issue discount of $2,767.......... $ 97,233
Proceeds from senior secured credit facility............................. 45,000
---------
142,233
Less repayment of:
AmeriComm Direct Marketing Senior Notes................................ (100,000)
AmeriComm Holdings Senior Notes........................................ (40,541)
Revolving loans........................................................ (4,205)
Existing AmeriComm Direct Marketing credit agreement................... (18,190)
---------
Net adjustment to long-term debt................................... $ (20,703)
---------
---------
</TABLE>
53
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
AMERICOMM HOLDINGS, INC.
We derived the following selected historical financial data of AmeriComm
Holdings as of and for each of three fiscal years in the period ended December
31, 1997 from AmeriComm Holdings' audited consolidated financial statements and
the notes thereto. We derived the selected historical financial data as of and
for each of the two years in the period ended December 31, 1994 and as of and
for the six months ended June 30, 1997 and June 26, 1998 from AmeriComm
Holdings' unaudited consolidated financial statements and, in the opinion of
management, it includes all adjustments (consisting of only normal recurring
adjustments) that are necessary for a fair presentation of the operating results
for such periods. Results for the interim periods do not necessarily indicate
the results for the full fiscal year or for any future periods. It is important
that you read the selected historical financial data presented below along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--AmeriComm Holdings, Inc." and the consolidated financial statements
of AmeriComm Holdings included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JUNE 30, JUNE 26,
1993 1994 1995 1996(A) 1997(B) 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $ 64,545 $ 65,998 $ 71,257 $ 111,342 $ 191,091 $ 86,602 $ 93,081
Cost of products sold.......................... 51,384 52,610 55,708 80,215 133,598 60,808 67,813
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................. 13,161 13,388 15,549 31,127 57,493 25,794 25,268
Selling, general and administrative expenses... 12,930 12,428 13,410 25,200 44,985 21,575 23,438
Provision for plant shutdown cost.............. 2,251 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)........................ (2,020) 960 2,139 5,927 12,508 4,219 1,830
Interest expense............................... 2,873 2,975 3,179 8,138 17,023 7,402 9,677
--------- --------- --------- --------- --------- --------- ---------
Loss before income taxes and extraordinary
item......................................... (4,893) (2,015) (1,040) (2,211) (4,515) (3,183) (7,847)
Income tax provision (benefit)................. (1,343) -- (1,900) (627) (688) (644) (2,195)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) before extraordinary item.... (3,550) (2,015) 860 (1,584) (3,827) (2,539) (5,652)
Extraordinary loss on early retirement of debt,
net of income tax benefit of $461............ -- -- -- (798) -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).............................. $ (3,550) $ (2,015) $ 860 $ (2,382) $ (3,827) $ (2,539) $ (5,652)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
EBITDA (c)..................................... $ 1,222 $ 4,386 $ 5,913 $ 12,772 $ 25,277 $ 10,114 $ 9,114
Depreciation and amortization (d).............. 3,242 3,426 3,774 6,845 12,769 5,895 7,284
Net cash provided by (used in) operating
activities................................... 1,847 1,203 (217) 7,147 1,574 3,174 5,245
Net cash provided by (used in) investing
activities................................... (1,283) (268) (1,939) (79,838) (38,881) (37,565) (10,407)
Net cash provided by (used in) financing
activities................................... (1,158) (858) 2,317 74,225 36,640 33,695 6,548
Ratio of earnings to fixed charges (e)......... -- -- -- -- -- -- --
Capital expenditures........................... 1,179 940 2,308 3,490 4,563 3,313 5,666
BALANCE SHEET DATA (END OF PERIOD):
Working capital................................ $ 7,190 $ 7,152 $ 7,182 $ 18,840 $ 26,604 $ 24,064 $ 26,002
Total assets................................... 39,607 37,837 38,116 132,498 176,618 173,499 178,113
Long-term debt, less current maturities........ 22,541 21,776 21,412 102,353 152,943 148,655 162,983
</TABLE>
- ------------------------------
(a) Reflects the acquisition of Transkrit on June 28, 1996. The acquisition was
accounted for as a purchase.
(b) Reflects the acquisitions of Label America and AmeriComm Direct Marketing,
Inc. on February 21, 1997 and April 24, 1997, respectively. The acquisitions
were accounted for as purchases.
(c) We define EBITDA as operating income plus depreciation (including loss on
disposal of equipment) and amortization. EBITDA is presented because we
believe that it provides additional indications of the historical financial
performance of AmeriComm Holdings and provides useful information regarding
our ability to service debt and meet certain debt covenants under the Notes
Indenture. EBITDA does not represent cash flows from
54
<PAGE>
operations or investing and financing activities as defined by generally
accepted accounting principles. EBITDA does not measure whether cash flows
will be sufficient to fund all cash flow needs, including principal and
interest payments on debt and capital lease obligations, capital
expenditures or other investing and financing activities. You should not
construe EBITDA as an alternative to operating income, net income or cash
flows from operating activities (as determined in accordance with generally
accepted accounting principles); nor should you construe it as an indication
of operating performance or as a measure of our liquidity. In addition,
items excluded from EBITDA, such as depreciation and amortization, interest
and income tax provision (benefit), are significant components in
understanding and assessing financial performance. Our definition of EBITDA
may be different from the definition of EBITDA used by other companies. For
a complete discussion of our future prospects related to net income, cash
flows from operations and investing and financing activities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-AmeriComm Holdings, Inc." included elsewhere in this Prospectus.
(d) Amounts do not include amortization of financing costs, which is included in
interest expense.
(e) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as loss before income taxes and extraordinary item, plus fixed
charges. Fixed charges consist of interest expense on all indebtedness,
amortization of financing costs and the estimated interest portion of rental
expenses. For the years ended December 31, 1993 through 1997 and the six
months ended June 30, 1997 and June 26, 1998, earnings were insufficient to
cover fixed charges by $4.9 million, $2.0 million, $1.0 million, $2.2
million, $4.5 million, $3.2 million and $7.8 million, respectively.
55
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
DIMAC MARKETING CORPORATION
We derived the following selected historical financial data of DIMAC
Marketing as of and for each of three fiscal years in the period ended December
31, 1997 from DIMAC Marketing's audited consolidated financial statements and
the notes thereto. We derived selected historical financial data as of and for
each of the two years in the period ended December 31, 1994 and as of and for
the six months ended June 30, 1997 and June 26, 1998 from DIMAC Marketing's
unaudited consolidated financial statements and, in the opinion of management,
it includes all adjustments (consisting of only normal recurring adjustments)
that are necessary for a fair presentation of the operating results for such
periods. Results for the interim periods do not necessarily indicate the results
for the full fiscal year or for any future periods. The financial position and
results of operations of DIMAC Marketing for the period from January 1, 1993 to
January 31, 1996, the period from February 1, 1996 to August 31, 1997, and the
period from September 1, 1997 to June 26, 1998 are not comparable in all
material respects since each period reflects certain purchase accounting
adjustments that are further discussed in the notes to DIMAC Marketing's
consolidated financial statements included elsewhere in this Offering Circular.
It is important that you read the selected historical financial data presented
below along with "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- DIMAC Marketing Corporation" and the consolidated
financial statements of DIMAC Marketing included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
EIGHT FOUR
ONE MONTH ELEVEN MONTHS MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
------------------------------- JANUARY 31, DECEMBER 31, AUGUST 31, DECEMBER 31,
1993 1994(A) 1995(B) 1996 1996(C)(D) 1997(C) 1997(E)
--------- --------- --------- ----------- ------------- ----------- -------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales.................................... $ 63,800 $ 100,012 $ 126,518 $ 10,254 $ 168,193 $ 118,747 $ 59,200
Cost of sales............................ 41,899 68,223 82,818 6,900 108,735 77,820 39,722
--------- --------- --------- ----------- ------------- ----------- -------------
Gross profit............................. 21,901 31,789 43,700 3,354 59,458 40,927 19,478
Selling, general and administrative
expenses............................... 15,701 22,224 28,478 3,176 47,645 37,867 17,083
Compensation element of
recapitalization....................... 1,091 -- -- -- -- -- --
Nonrecurring merger costs................ -- -- 2,359 -- -- -- --
--------- --------- --------- ----------- ------------- ----------- -------------
Operating income......................... 5,109 9,565 12,863 178 11,813 3,060 2,395
Interest expense, net.................... 1,417 6,069 5,174 532 7,525 6,188 2,248
--------- --------- --------- ----------- ------------- ----------- -------------
Income (loss) before income taxes and
discontinued operations................ 3,692 3,496 7,689 (354) 4,288 (3,128) 147
Income tax provision (benefit)........... 1,433 1,309 4,193 (131) 3,789 122 395
--------- --------- --------- ----------- ------------- ----------- -------------
Income (loss) before discontinued
operations and extraordinary item...... 2,259 2,187 3,496 (223) 499 (3,250) (248)
Loss from discontinued operations (net of
income tax benefit of $13, $3,523 and
$489).................................. -- -- -- -- (18) (4,669) --
Extraordinary loss on early retirement
debt (net of income tax benefit of
$1,459 and $1,087, respectively)....... -- (3,157) (2,379) -- -- -- --
--------- --------- --------- ----------- ------------- ----------- -------------
Net income (loss)........................ $ 2,259 $ (970) $ 1,117 $ (223) $ 481 $ (7,919) $ (248)
--------- --------- --------- ----------- ------------- ----------- -------------
--------- --------- --------- ----------- ------------- ----------- -------------
OTHER DATA:
EBITDA (f)............................... $ 7,411 $ 12,665 $ 17,394 $ 642 $ 24,228 13,315 $ 6,925
Depreciation and amortization (g)........ 2,302 3,100 4,531 464 12,415 10,255 4,530
Net cash provided by (used for):
Operating activities................... 6,289 6,381 7,485 3,661 7,809 4,323 1,310
Investing activities................... (2,530) (16,760) (33,666) (240) (44,878) (19,944) (7,620)
Financing activities................... (4,208) 8,442 26,181 (3,421) 37,069 15,621 6,310
Capital expenditures..................... 2,530 4,178 3,796 222 9,282 15,885 5,720
Ratio of earnings to fixed charges (h)... 2.5x 1.5x 2.1x -- 1.4x -- 1.1x
BALANCE SHEET DATA (END OF PERIOD):
Working capital.......................... $ 3,655 $ 6,141 $ 3,477 $ 95 $ (2,540) $ 10,582 $ 7,558
Total assets............................. 41,426 64,109 98,918 97,180 350,003 356,108 260,836
Long-term debt, less current
maturities............................. 49,017 36,159 61,925 58,506 113,715 134,879 141,647
<CAPTION>
SIX SIX
MONTHS MONTHS
ENDED ENDED
JUNE 30, JUNE 26,
1997(C) 1998(E)
----------- ---------
STATEMENT OF OPERATIONS DATA:
Sales.................................... $ 91,421 $ 93,208
Cost of sales............................ 60,270 61,806
----------- ---------
Gross profit............................. 31,151 31,402
Selling, general and administrative
expenses............................... 29,043 26,615
Compensation element of
recapitalization....................... -- --
Nonrecurring merger costs................ -- --
----------- ---------
Operating income......................... 2,108 4,787
Interest expense, net.................... 4,633 4,583
----------- ---------
Income (loss) before income taxes and
discontinued operations................ (2,525) 204
Income tax provision (benefit)........... 17 585
----------- ---------
Income (loss) before discontinued
operations and extraordinary item...... (2,542) (381)
Loss from discontinued operations (net of
income tax benefit of $13, $3,523 and
$489).................................. (649) --
Extraordinary loss on early retirement
debt (net of income tax benefit of
$1,459 and $1,087, respectively)....... -- --
----------- ---------
Net income (loss)........................ $ (3,191) $ (381)
----------- ---------
----------- ---------
OTHER DATA:
EBITDA (f)............................... $ 9,657 $ 11,864
Depreciation and amortization (g)........ 7,549 7,077
Net cash provided by (used for):
Operating activities................... (1,396) 1,961
Investing activities................... (15,083) (6,387)
Financing activities................... 16,479 4,426
Capital expenditures..................... 11,344 3,166
Ratio of earnings to fixed charges (h)... -- 1.0x
BALANCE SHEET DATA (END OF PERIOD):
Working capital.......................... $ 4,658 $ 14,714
Total assets............................. 351,705 261,940
Long-term debt, less current
maturities............................. 125,911 146,131
</TABLE>
- ------------------------
(a) Reflects the acquisition of Direct Marketing Group, Inc. in May 1994. The
acquisition was accounted for as a purchase.
(b) Reflects the acquisitions of Palm Coast and McClure in May and October 1995,
respectively. Both acquisitions were accounted for as purchases.
(c) Reflects a new basis of accounting after the acquisition of DIMAC Marketing
by Heritage Media.
(d) Reflects the acquisitions of Wilcox in March 1996 and MBS/Multimode in May
1996. Both were accounted for as purchases.
(e) Reflects a new basis of accounting after the News Corporation Acquisition.
56
<PAGE>
(f) EBITDA is defined as operating operating income income plus depreciation
(including loss on disposal of equipment) and amortization. EBITDA is
presented because we believe that EBITDA provides additional indications of
the historical financial performance of DIMAC Marketing and provides useful
information regarding our ability to service debt and meet certain debt
covenants under the Indenture. EBITDA does not represent cash flows from
operations or investing and financing activities as defined by generally
accepted accounting principles. EBITDA does not measure whether cash flows
will be sufficient to fund all cash flow needs, including principal and
interest payments on debt and capital lease obligations, capital
expenditures or other investing and financing activities. You should not
construe EBITDA as an alternative to operating income, net income or cash
flows from operating activities (as determined in accordance with generally
accepted accounting principles); nor should you construe it as an indication
of operating performance or as a measure of our liquidity. In addition,
items excluded from EBITDA, such as depreciation amortization, interest and
income tax provision (benefit), are significant components in understanding
and assessing financial performance. Our definition of EBITDA may be
different from the definition of EBITDA used by other companies. For a
complete discussion of our future prospects related to net income, cash
flows from operations and investing and financing activities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-DIMAC Marketing" included elsewhere in this Prospectus.
(g) Amounts do not include amortization of financing costs, which is included in
interest expense.
(h) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income (loss) before income taxes and discontinued
operations, plus fixed charges. Fixed charges consist of interest expense on
all indebtedness, amortization of financing costs and the estimated interest
portion of rental expenses. For the one month ended January 31, 1996, the
eight months ended August 31, 1997 and the six months ended June 30, 1997,
earnings were insufficient to cover fixed charges by $0.4 million, $3.1
million and $2.5 million, respectively.
57
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion along with the consolidated
financial statements of AmeriComm Holdings and DIMAC Marketing appearing
elsewhere in this Prospectus. For information regarding the pro forma financial
condition of DIMAC Corporation, please read the section labeled "DIMAC
Corporation Unaudited Pro Forma Financial Statements" included in this
Prospectus.
The financial results of DIMAC Marketing for all periods prior to January
31, 1996 reflect the operations of DIMAC Marketing under a prior owner. The
consolidated financial statements for the period from February 1, 1996 to
December 31, 1996 reflect the financial results of DIMAC Marketing under a new
basis of accounting that reflects the fair value of assets acquired and
liabilities assumed, the related financing costs, and all debt incurred in
connection with the purchase of DIMAC Marketing by Heritage Media. Accordingly,
the financial information for DIMAC Marketing before and after the Heritage
Media purchase is not directly comparable in all material respects. We derived
the information relating to DIMAC Marketing's twelve months ended December 31,
1996 by combining the financial results of DIMAC Marketing for the period from
January 1, 1996 to January 31, 1996 (while under prior ownership) and for the
period from February 1, 1996 to December 31, 1996 (following the Heritage Media
purchase), including purchase accounting adjustments for the Heritage Media
purchase.
The consolidated financial statements for the period from September 1, 1997
to December 31, 1997 reflect the financial results of DIMAC Marketing under a
new basis of accounting that reflects the fair value of assets acquired and
liabilities assumed in connection with the purchase of Heritage Media by News
Corporation. Accordingly, the financial information for DIMAC Marketing before
and after the News Corporation purchase are not directly comparable in all
material respects. We derived the information relating to DIMAC Marketing's
twelve months ended December 31, 1997 by combining the financial results of
DIMAC Marketing for the period from January 1, 1997 to August 31, 1997 (while
under Heritage Media ownership) and for the period from September 1, 1997 to
December 31, 1997 (following the News Corporation purchase), including purchase
accounting adjustments for the News Corporation purchase.
OVERVIEW
On June 26, 1998 we completed the acquisitions of AmeriComm Holdings and
DIMAC Marketing for aggregate consideration of $425.8 million (including fees
and expenses relating to these acquisitions and assumed indebtedness). We
financed these acquisitions with $100.0 million of cash equity contributed by
affiliates of McCown De Leeuw, $157.6 million of borrowings under our senior
secured credit facility and $168.2 million of assumed indebtedness.
We refinanced certain of the assumed indebtedness with the proceeds of our
Notes offering, an additional equity contribution and $45.0 million of
additional term loans under the senior secured credit facility. As of June 30,
1998, after giving pro forma effect to the Refinancing, we would have had debt
outstanding of $303.3 million, consisting of approximately $197.2 million out of
a total of $270.0 million senior secured credit facility, $100.0 million
aggregate principal amount of Notes and $8.9 million of capital leases.
58
<PAGE>
The following table sets forth 1997 net sales by product line:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HISTORICAL PRO FORMA
-------------------------- -------------------------------------------
% OF 1997 % OF 1997 % OF 1997
SALES NET SALES % OF 1997 TOTAL
PRODUCTS/ DIMAC AMERICOMM DIRECT MAIL COMPANY
SERVICES MARKETING HOLDINGS NET SALES NET SALES
- ------------------------------------ ----------- ------------- ----------- -----------
1997
NET SALES
-----------------
(DOLLARS IN
MILLIONS)
DIRECT MARKETING
Production services................. 47.6% 45.2% 64.4% 48.6% $ 187.9
Information services................ 14.4 4.5 12.0 9.1 35.1
Program development services........ 15.3 0.0 9.4 7.0 27.3
Fulfillment and telemarketing
services.......................... 22.7 0.7 14.2 10.8 41.7
----- ----- ----- ----- ------
Subtotal........................ 100.0 50.4 100.0 75.5 292.0
OTHER PRINTING AND CONVERTING
Custom pressure sensitive labels.... -- 26.7 -- 13.2 51.0
Custom mailers...................... -- 22.9 -- 11.3 43.7
----- ----- ----- ----- ------
Subtotal........................ -- 49.6 -- 24.5 94.7
----- ----- ----- ----- ------
Total............................... 100.0% 100.0% 100.0% 100.0% $ 386.7
----- ----- ----- ----- ------
----- ----- ----- ----- ------
</TABLE>
The historical results of AmeriComm Holdings and DIMAC Marketing provide a
historical review of each of the two companies' operations without consideration
of the anticipated cost savings described under "DIMAC Corporation Unaudited Pro
Forma Financial Statements."
AMERICOMM HOLDINGS
OVERVIEW
Historically, AmeriComm Holdings has managed its operations by four product
lines: direct mail products, mailer systems, custom pressure sensitive labels
and custom envelopes. Net sales from these product lines are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 JUNE 30, 1997 JUNE 26, 1998
--------- --------- --------- --------------- ---------------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Direct mail products.................................... $ 13.1 $ 13.4 $ 45.6 $ 16.0 $ 27.1
Mailer systems.......................................... -- 26.8 43.7 21.4 20.4
Custom pressure sensitive labels........................ 3.6 21.3 51.0 24.4 23.8
Custom envelopes........................................ 54.6 49.8 50.8 24.8 21.8
--------- --------- --------- ----- -----
$ 71.3 $ 111.3 $ 191.1 $ 86.6 $ 93.1
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
AmeriComm Holdings' net sales in 1994 were $66.0 million. Since then,
AmeriComm Holdings has pursued an acquisition campaign to enhance its product
offerings. For the period ending December 31,
59
<PAGE>
1997, net sales had grown to $191.1 million, an increase over 1994 levels of
189.5%. The following table outlines AmeriComm Holdings' acquisitions since
1994.
<TABLE>
<CAPTION>
ENTITY ACQUIRED DATE EXPERTISE
- ----------------------------------------------- ---------------- -----------------------------------------------
<S> <C> <C>
Transkrit...................................... June 1996 Direct mail, custom mailers, custom pressure
sensitive labels.
Label America, Inc............................. February 1997 Custom pressure sensitive labels.
AmeriComm Direct Marketing, Inc................ April 1997 Direct marketing products and services.
Cardinal....................................... March 1998 Customer profiling and response analysis
primarily to the financial services and retail
industries.
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 26, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
NET SALES for the six month period ended June 26, 1998 increased $6.5
million to $93.1 million, or 7.5%, from the comparable 1997 period. The overall
increase in net sales was due to the acquisitions of AmeriComm Direct Marketing,
Inc. and Cardinal. Specifically, the increase in net sales for direct mail
products was due to the above-mentioned acquisitions. Net sales for mailer
systems decreased $1.0 million to $20.4 million from the comparable 1997 period.
Mailer systems net sales decreased due to an
overall decline in core commercial products net sales as a result of soft market
conditions and reduced prices due to falling paper prices. Net sales for custom
pressure sensitive labels decreased $0.6 million to $23.8 million from the
comparable 1997 period. The decrease for custom pressure sensitive labels was
due to the decrease in volume from a significant customer partially offset by
the impact of AmeriComm Holdings' acquisition of Label America. Net sales for
custom envelopes decreased $3.0 million to $21.8 million from the comparable
1997 period. The decrease in net sales for custom envelopes has been impacted by
a decline in the underlying paper prices and units shipped reflecting a mildly
softer envelope market.
GROSS PROFIT for the six months ended June 26, 1998 decreased $0.5 million
to $25.3 million, or 1.9%, from the comparable 1997 period. Gross profit, as a
percentage of net sales, decreased to 27.2% for the six month period ended June
26, 1998 from 29.8% for the comparable 1997 period. The decrease in gross profit
is primarily due to the reduction in net sales and reduced margins for mailer
systems, custom pressure sensitive labels and custom envelopes product lines.
These decreases were partially offset by the increase in gross profit due to the
increase in net sales for direct mail products and services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the six month period ended
June 26, 1998 increased $1.8 million to $23.4 million, or 8.3%, from the
comparable 1997 period. Selling, general and administrative expenses, as a
percentage of net sales, increased to 25.1% for the six month period ended June
26, 1998 from 24.9% for the comparable 1997 period. The increase in these costs
is attributable to the amortization of certain intangible assets recorded in
conjunction with the above-mentioned acquisitions and a planned increase in
staffing direct mail account executives to execute our direct mail strategy.
INCOME FROM OPERATIONS for the six month period ended June 26, 1998 was $1.8
million or 1.9% of net sales, as compared to $4.2 million or 4.8% for the
comparable 1997 period. The decrease in operating income is due to the decrease
in gross profit and increase in selling, general and administrative expenses,
discussed above.
60
<PAGE>
EBITDA for the six month period ended June 26, 1998 was $9.1 million, or
9.8% of net sales, as compared to $10.1 million, or 11.7% of net sales for, the
comparable 1997 period. The decrease in EBITDA is due to the decrease in
operating income.
INTEREST EXPENSE for the six month period ended June 26, 1998 was $9.7
million, or 10.4% of net sales, as compared to $7.4 million, or 8.5% of net
sales, for the comparable 1997 period. The increase in interest expense is due
to the increased borrowings on the line of credit to finance the Cardinal
Acquisition and to fund the purchase of certain direct mail production equipment
and the issuance of the AmeriComm Holdings Senior Notes on April 24, 1997 to
fund AmeriComm Holdings' acquisition of AmeriComm Direct Marketing, Inc. The
weighted average interest rate for the six month period ended June 26, 1998 and
June 30, 1997 was 12.3% and 12.0%, respectively. The increase in the weighted
average interest rate is due to the AmeriComm Holdings Senior Notes borrowings.
INCOME TAX BENEFIT for the six month period ended June 26, 1998 was $2.2
million as compared to $0.6 million for the comparable 1997 period resulting in
effective tax rates of 28% and 20%, respectively. As of December 31, 1997, our
tax net operating loss carryforward was $8.6 million.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES for the year ended December 31, 1997 increased $79.8 million to
$191.1 million, or 71.7%, from the comparable 1996 period. The overall increase
in net sales was due to AmeriComm Holdings' acquisitions of Transkrit, Label
America and AmeriComm Direct Marketing Net sales for mailer systems products
increased 63.1%, or $16.9 million, from 1996 to 1997 due to the Transkrit
Acquisition. Net sales for direct mail products increased 240.3%, or $32.2
million, due to AmeriComm Holdings' acquisition of AmeriComm Direct Marketing
Net sales for custom pressure sensitive labels increased 139.4%, or $29.7
million, due to the acquisitions of Label America and Transkrit. Net sales for
custom envelopes increased 2.0%, or $1.0 million from 1996 to 1997.
GROSS PROFIT for the year ended December 31, 1997 increased $26.4 million to
$57.5 million, or 84.9%, from the comparable 1996 period. In addition, gross
profit as a percentage of net sales, increased from 27.9% for 1996 to 30.0% for
1997. The increase in gross profit in dollars and as percent of net sales is
mostly attributable to the product lines acquired in AmeriComm Holdings'
acquisitions of Label America. and AmeriComm Direct Marketing in 1997 and
Transkrit in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased $19.8 million from
1996 to 1997 due to the acquisitions of Transkrit, Label America and AmeriComm
Direct Marketing. Selling, general and administrative expenses, as a percent of
net sales, increased to 23.5% from 22.6% from the comparable 1996 period. The
increase in selling, general and administrative expenses is the result of the
acquisitions of Transkrit, Label America and AmeriComm Direct Marketing which
historically incur a higher percentage of these costs.
INCOME FROM OPERATIONS for the year ended December 31, 1997 was $12.5
million, or 6.5% of net sales as compared to $5.9 million or 5.3% of net sales
for the comparable 1996 period. The increase of $6.6 million is the result of
AmeriComm Holdings' acquisitions of Transkrit, Label America and
AmeriComm Direct Marketing. The increase in income from operations as a percent
of net sales from 1996 to 1997 is due to the increase in gross profit from the
acquired product lines reduced, to a lesser extent, by the increase in selling,
general and administrative expenses.
EBITDA, as a percentage of net sales, increased to 13.2% for the year ended
December 31, 1997 from 11.5% for the comparable 1996 period. EBITDA for the year
ended December 31, 1997 increased to $25.3 million from $12.8 million for the
comparable 1996 period due to AmeriComm Holdings' acquisitions of Transkrit,
Label America and AmeriComm Direct Marketing.
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INTEREST EXPENSE for the year ended December 31, 1997 increased $8.9
million, or 109.9%, to $17.0 million from $8.1 million for 1996. The weighted
average interest rate for the year ended December 31, 1997 was 12.5% as compared
to 12.2% for the comparable 1996 period. The increase in the weighted average
interest rate from 1996 to 1997 is due to the issuance of the $100.0 million
AmeriComm Direct Marketing Senior Notes on June 28, 1996.
INCOME TAX EXPENSE (benefit) for the years ended December 31, 1997 and 1996
was $(0.7) million and $(0.6) million, respectively, resulting in effective tax
rates of 15.2% and 28.3%, respectively. The decrease in the effective tax rate
is primarily related to non-deductible amortization and other expenses and
certain minimum state income taxes.
As of December 31, 1997, $7.3 million of cumulative net operating loss
carryforward benefits have been recognized based upon the expected reversals of
temporary differences into taxable income and management's estimate of taxable
income within the period prior to the expiration of the net operating loss
carryforwards. We expect to generate taxable income prior to the expiration of
the net operating loss carryforward. Taxable income of $7.3 million would have
to be realized prior to the year ended December 31, 2011 to ensure realizability
of the net operating loss carryforward prior to their expiration for federal
income tax purposes. The cumulative net operating loss carryforward, generated
from 1989 through 1996, will begin to expire in 2004 and continue through 2011.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES for the year ended December 31, 1996 increased $40.0 million to
$111.3 million, or 56.1%, from the comparable 1995 period. Net sales of custom
envelopes decreased 8.8%, or $4.8 million, from 1996 to 1995. While the average
unit price for envelope sales increased 0.8%, the total number of units shipped
decreased 11.2%. The decrease in the number of envelope units shipped is the
result of a managed change in the mix of products sold and, to a lesser extent,
weak industry conditions. AmeriComm Holdings has changed the mix of products
sold in the envelope business toward value-added, higher margin products (see
discussion regarding envelope gross profits below). The increase in mailer
systems, direct mail products and custom pressure sensitive label net sales is
the result of AmeriComm Holdings' acquisition of Transkrit. Net sales for direct
mail products increased 2.3%, or $0.3 million, from 1995 to 1996. Net sales for
custom pressure sensitive labels increased 491.7%, or $17.7 million, from 1995
to 1996.
GROSS PROFIT for the year ended December 31, 1996 increased $15.6 million to
$31.1 million, or 100.6%, from the comparable 1995 period. In addition, gross
profit, as a percent of net sales, increased from 21.7% for the year ended
December 31, 1995 to 27.9% for the comparable 1996 period. The increase in gross
profit in absolute dollars and as a percent of net sales is mostly attributable
to the product lines acquired from AmeriComm Holdings' acquisition of Transkrit.
The acquired product lines of mailer systems, direct mail products and custom
pressure sensitive labels generate higher gross profit margins than the
historical product lines of AmeriComm Holdings. Gross profit for custom
envelopes remained relatively unchanged from 1995 to 1996 even though net sales
decreased 8.8%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, as a percentage of net sales,
increased from 18.8% of net sales for the year ended December 31, 1995 to 22.6%
of net sales for the comparable 1996 period. The $11.8 million increase in these
expenses is due to AmeriComm Holdings' acquisition of Transkrit on June 28,
1996. The acquired product lines from the Transkrit acquisition historically
incur a higher percentage of selling, general and administrative expenses as a
percent of net sales.
INCOME FROM OPERATIONS for the year ended December 31, 1996 was $5.9
million, or 5.3% of net sales as compared to $2.1 million or 2.9% of net sales
for the comparable 1995 period. The increase of $3.8 million of income from
operations is the result of AmeriComm Holdings' acquisition of Transkrit. The
increase in income from operations as a percent of revenues from 1995 to 1996 is
due to the
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increase in gross profit from the acquired product lines reduced by, to a lesser
extent, the increase in selling, general and administrative expenses.
EBITDA, as a percentage of net sales, increased to 11.5% for the year ended
December 31, 1996 from 8.3% for the comparable 1995 period. EBITDA for the year
ended December 31, 1996 increased to $12.8 million from $5.9 million for the
comparable 1995 period. The increase in EBITDA from 1995 to 1996 is the result
of AmeriComm Holdings' acquisition of Transkrit.
INTEREST EXPENSE for the year ended December 31, 1996 increased $4.9
million, or 153.1%, to $8.1 million from $3.2 million for the year ended
December 31, 1995 on significantly higher average debt balances for the period
ended December 31, 1996. The weighted average interest rate for the year ended
December 31, 1996 was 11.7% as compared to 13.8% for the comparable 1995 period.
The increase in the average debt balances from 1995 to 1996 is due to the
issuance of $100.0 million of AmeriComm Direct Marketing Senior Notes issued to
purchase Transkrit partially offset by the payoff and termination of the
revolving line of credit, bank long-term debt and subordinated debt outstanding
as of June 28, 1996. The weighted average interest rate decreased from 1995 to
1996 due to the lower borrowing rate of the AmeriComm Direct Marketing Senior
Notes of 11 5/8% versus 1995 long-term debt and subordinated debt stated
interest rates ranging from 10.25% to 14.0%.
INCOME TAX BENEFIT for the years ended December 31, 1996 and 1995 was $0.6
million and $1.9 million, respectively, resulting in an effective tax rate of
28% and 183% respectively. The income tax benefit recorded in 1995 is the result
of benefiting the cumulative net operating losses as of December 31, 1995
previously not recognized.
As of December 31, 1996, $10.9 million of cumulative net operating loss
carryforward benefits have been recognized based upon the expected reversals of
temporary differences into taxable income and management's estimate of taxable
income within the period prior to the expiration of the net operating loss
carryforwards.
DIMAC MARKETING
OVERVIEW
Historically, DIMAC Marketing managed its operations by the following
business units. Sales from these business units are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
JUNE 30, JUNE 26,
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
DIMAC Marketing-St. Louis....................................... $ 82.1 $ 81.6 $ 80.3 $ 42.1 $ 43.9
DIMAC Marketing-East(a)......................................... 16.8 18.0 19.6 9.9 7.5
McClure......................................................... 9.4 37.3 41.6 21.4 20.4
Palm Coast...................................................... 10.9 20.3 22.2 11.4 11.6
MBS/Multimode................................................... -- 11.0 17.4 8.5 9.9
Wilcox.......................................................... -- 10.1 11.3 6.0 7.5
DIMAC Marketing-West............................................ 10.6 10.7 -- -- --
Eliminations.................................................... (3.3) (10.6) (14.5) (7.9) (7.6)
--------- --------- --------- ----- -----
$ 126.5 $ 178.4 $ 177.9 $ 91.4 $ 93.2
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
- ------------------------
(a) Formerly Direct Marketing Group, Inc.
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Until May 1994, DIMAC Marketing's business consisted primarily of an
operations facility in St. Louis. In addition to production, DIMAC Marketing-St.
Louis offered program development services (E.G., creative development and
market planning) and information processing. Sales for 1994 were $100.0 million
and centered primarily around the AT&T account. Since 1994, DIMAC Marketing has
embarked upon a strategy to increase its offerings in St. Louis by acquiring
companies that enhanced its direct mail product offerings and by building a more
diverse client base. For the twelve months ending December 31, 1997, DIMAC
Marketing had $177.9 million in sales, a 77.9% increase over fiscal 1994.
The following table sets forth the acquisitions DIMAC Marketing has
completed since 1994:
<TABLE>
<CAPTION>
ENTITY ACQUIRED DATE EXPERTISE
- -------------------------------------- --------------- --------------------------------------------------------
<S> <C> <C>
Direct Marketing Group, Inc........... May 1994 Strategic and creative services, information processing
services, production.
Palm Coast............................ May 1995 Fulfillment/subscription management.
McClure............................... October 1995 Full complement of program development services with an
insurance and healthcare industry specialization.
Wilcox................................ March 1996 Transitional marketing services, primarily for the
banking industry.
MBS/Multimode......................... May 1996 Database marketing services, primarily to retail and
catalog industries.
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 26, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
SALES for the six months ended June 26, 1998 increased 2.0% to $93.2 million
compared to $91.4 million for the comparable 1997 six month period. Sales growth
in the first six months of 1998 was primarily due to servicing certain new
assignments, primarily at MBS/Multimode. In addition, DIMAC Marketing-East's
revenues decreased and Wilcox's revenues increased in an equal amount,
reflecting the fact that certain agency services were reclassified from DIMAC
Marketing-East to Wilcox effective January 1, 1998.
GROSS PROFIT for the six months ended June 26, 1998 increased 0.6% to $31.4
million compared to $31.2 million for the comparable period in 1997. Gross
profit as a percentage of sales decreased from 34.1% in the first six months of
1997 to 33.7% in the first six months of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the six months ended June
26, 1998 decreased 8.3% to $26.6 million compared to $29.0 million for the
comparable 1997 six month period. As a percent of sales selling, general and
administration expenses decreased from 31.7% in the first six months of 1997 to
28.5% in the first six months of 1998. The decrease in these costs is primarily
attributable to the $1.4 million decrease in amortization of intangible assets.
When News Corporation purchased DIMAC Marketing in August 1997, the recorded
goodwill was reduced by approximately $102.2 million and has resulted in lower
amortization charges in the subsequent periods.
OPERATING INCOME for the six months ended June 26, 1998 increased 128.6% to
$4.8 million compared to $2.1 million for the comparable 1997 six month period.
As a percent of sales, income from operations increased from 2.3% in the first
six months of 1997 to 5.1% in the first six months of 1998. The increase in
operating income is primarily due to the closure of the Hayward production
facility in 1997 (which had losses of $1.3 million in the first six-months of
1997) combined with the decrease in selling, general and administrative expenses
discussed above.
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EBITDA for the six months ended June 26, 1998 increased from $9.7 million to
$11.9 million for the comparable 1997 six month period. EBITDA as a percentage
of sales increased from 10.6% in the first six months of 1997 to 12.7% in the
first six months of 1998. The increase in EBITDA is due to the increase in
operating income.
INTEREST EXPENSE for the six months ended June 26, 1998, at $4.6 million,
was relatively stable compared to the comparable 1997 six month period.
INCOME TAX EXPENSE for the six month period ended June 26, 1998 was $0.6
million as compared to $0.0 million for the comparable 1997 period. After giving
consideration to the portion of amortization of intangibles which is
nondeductible for income tax purposes, the effective tax rates for both periods
are relatively consistent.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1996
SALES in 1997 decreased 0.3% to $177.9 million compared to $178.4 million in
1996. The decrease in 1997 sales was primarily attributable to a reduction in
program spending from DIMAC Marketing's most significant customer, AT&T. In
addition, in order to secure a longer term contract and a potential for higher
margin services, DIMAC Marketing implemented a lower pricing grid for the AT&T
account. These decreases were in part offset by increases at McClure, reflecting
the full year effect of new business generated toward the end of 1996 and the
full year effect of DIMAC Marketing's acquisition of MBS/Multimode.
GROSS PROFIT in 1997 decreased 3.8% to $60.4 million compared to $62.8
million in 1996. Gross profit as a percentage of sales declined from 35.2% in
1996 to 33.9% in 1997. This decline resulted primarily from lower pricing and
volumes from AT&T and certain other of DIMAC Marketing's customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES in 1997 increased to $54.9
million compared to $50.8 million in 1996. As a percentage of sales, selling,
general and administrative expenses increased from 28.5% in 1996 to 30.9% in
1997. The addition of sales and client service personnel contributed to the
increase along with higher commission expense. Additionally, general and
administrative expenses grew by 8.1% in 1997 versus 1996 due to a combination of
increased headcount in support functions, salary increases and higher employee
benefit costs.
OPERATING INCOME for the year ended December 31, 1997, was $5.5 million, or
3.1% of sales as compared to $12.0 million or 6.7% of sales for the comparable
1996 period. The decrease in income from operations as a percent of sales from
1997 to 1996 is due to the factors mentioned above.
EBITDA, as a percentage of sales, decreased to 11.4% for the year ended
December 31, 1997 from 13.9% for the comparable 1996 period. EBITDA for the year
ended December 31, 1997, decreased to $20.2 million from $24.9 million for the
comparable 1996 period primarily due to the pricing reduction associated with
the AT&T account, as well as increased selling, general and administrative
expenses.
INTEREST EXPENSE in 1997 increased to $8.4 million, compared to $8.1 million
in 1996.
INCOME TAX EXPENSE for the years ended December 31, 1997, and 1996, was $0.5
million and $3.7 million, respectively. After giving consideration to the
portion of amortization of intangibles which is nondeductible for income tax
purposes, the effective tax rates for both periods are relatively consistent.
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
SALES in 1996 increased 41.0% to $178.4 million compared to $126.5 million
in 1995. Sales growth in 1996 was primarily attributable to the full year effect
of DIMAC Marketing's acquisitions of several companies including McClure and
Palm Coast Data (which were acquired in 1995 but had full year
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effects in 1996) and MBS/Multimode and Wilcox (which were acquired in 1996).
These increases were offset by reductions in AT&T sales volumes at DIMAC
Marketing-St. Louis. AT&T canceled its Universal Card Program and did not
replace it with a similar program.
GROSS PROFIT in 1996 increased 43.7% to $62.8 million compared to $43.7
million in 1995. DIMAC Marketing's gross profit as a percentage of sales
increased from 34.5% in 1995 to 35.2% in 1996, largely as a result of DIMAC
Marketing's acquisitions set forth above, which carried higher gross profit
margins than the base business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased to $50.8 million in
1996 compared to $28.5 million in 1995. As a percentage of sales, selling,
general and administrative expenses increased from 22.5% in 1995 to 28.5% in
1996. This increase was due primarily to the nature of the acquired businesses,
which required greater selling expenses.
OPERATING INCOME for the year ended December 31, 1996, was $12.0 million, or
6.7% of sales as compared to $12.9 million or 10.2% of sales for the comparable
1995 period. The decrease in income from operations as a percent of sales from
1996 to 1995 is due to the factors set forth above.
EBITDA, as a percentage of sales, increased to 13.9% for the year ended
December 31, 1996, from 13.7% for the comparable 1995 period. EBITDA for the
year ended December 31, 1996, increased to $24.9 million from $17.4 million for
the comparable 1995 period. The increase in EBITDA in 1996 as compared to 1995
was attributable to a combination of the favorable impact of DIMAC Marketing's
strategic acquisitions discussed above partially offset by the discontinuation
of an AT&T Universal Card Program.
INTEREST EXPENSE in 1996 increased to $8.1 million, compared to $5.2 million
in 1995. The increase in interest expense is due to increased average borrowings
in 1996 versus 1995 to finance the acquisitions in 1995 and 1996.
INCOME TAX EXPENSE for the years ended December 31, 1996, and 1995, was $3.7
million and $4.2 million, respectively. After giving consideration to the
portion of amortization of intangibles which is nondeductible for income tax
purposes, the effective tax rates for both periods are relatively consistent.
LIQUIDITY AND CAPITAL RESOURCES OF OUR COMPANY FOLLOWING OUR ACQUISITIONS OF
AMERICOMM HOLDINGS AND DIMAC MARKETING AND THE REFINANCING
Following our acquisitions of AmeriComm Holdings and DIMAC Marketing and the
Refinancing, our debt capitalization will consist of $100.0 million aggregate
principal amount of the Notes and a committed $270.0 million senior secured
credit facility of which $72.8 million would have been available, on a pro forma
basis, as of June 30, 1998 for liquidity requirements. The borrowings under the
senior secured credit facility and the Notes will increase debt service costs.
The Notes will accrue interest at 12 1/2% per year and will be payable
semi-annually commencing April 1, 1999. The Notes will mature on October 1,
2008. The senior secured credit facility and the Notes Indenture will limit our
ability to incur additional debt, to pay dividends, to redeem capital stock and
to sell certain assets. We may incur additional indebtedness as long as our
Consolidated Coverage Ratio is greater than certain minimum levels or if such
additional indebtedness fits within certain exceptions. The senior secured
credit facility bears interest at various interest rates ranging from the
Reserve Adjusted Eurodollar rate plus a margin of 2.75% to 3.50%. Loans under
the senior secured credit facility will mature from June 2004 to December 2006.
Interest on the Holdings Notes is not payable in cash until December 31, 2003.
Thereafter, DIMAC Holdings will rely on us to provide it with cash to meet its
principal and interest payment requirements. Management believes that based on
current financial performance and anticipated growth, cash flow from operations,
together with the available sources of funds including borrowings under the
senior secured credit facility, will be adequate to make required payments of
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interest on our indebtedness, to fund anticipated capital expenditures and
working capital requirements and to enable us to comply with the terms of our
debt agreements. Actual capital requirements may change, particularly as a
result of acquisitions we may make, although we are not currently contemplating
any acquisitions. We expect that capital expenditures (exclusive of
acquisitions) will be approximately $15.0 to $17.0 million annually from 1998
and 2003. We believe that these capital expenditures will be sufficient to
maintain high quality equipment and to provide additional manufacturing
capabilities and upgrades. Our future operating performance and ability to
service or refinance the Notes and to extend or refinance the senior secured
credit facility will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond our control.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES
AMERICOMM HOLDINGS
Net cash provided by operating activities was $5.2 million, $3.2 million,
$1.6 million and $7.1 million for the six month periods ended June 26, 1998 and
June 30, 1997 and the years ended December 31, 1997 and 1996, respectively. The
increase in cash provided by operating activities for the six month period ended
June 26, 1998 as compared to June 30, 1997 was attributable to a $3.7 million
decrease in working capital, partially offset by an increase of $1.7 million in
net loss before noncash charges. The decrease in net cash provided by operating
activities for the year ended December 31, 1997 as compared to December 31, 1996
was due to the increase in working capital of $12.5 million partially offset by
the decrease of $7.0 million of net loss before noncash charges.
Net cash used in investing activities was $10.4 million, $37.6 million,
$38.9 million and $79.8 million for the six month periods ended June 26, 1998
and June 30, 1997 and the years ended December 31, 1997 and 1996, respectively.
The decrease in net cash used in investing activities for the six month period
ended June 26, 1998 as compared to June 30, 1997 is due to AmeriComm Holdings'
acquisitions of Label America and AmeriComm Direct Marketing during 1997. The
decrease in net cash used in investing activities for the year ended December
31, 1997 as compared to December 31, 1996 is mostly due to AmeriComm Holdings'
acquisition of Label America for $9.5 million and AmeriComm Direct Marketing for
$25.0 million during the year ended December 31, 1997 as compared to AmeriComm
Holdings' acquisition of Transkrit for $79.4 million during the year ended
December 31, 1996.
Capital expenditures, excluding acquisitions (but including purchases under
capital leases), were $5.7 million, $3.3 million and $7.7 million for the six
month periods ended June 26, 1998 and June 30, 1997 and for the year ended
December 31, 1997.
Net cash provided by financing activities was $6.5 million, $33.7 million,
$36.6 million and $74.2 million for the six month periods ended June 26, 1998
and June 30, 1997 and for the years ended December 31, 1997 and 1996,
respectively. The decrease in the net cash provided by financing activities for
the six month period ended June 26, 1998 as compared to June 30, 1997 is mostly
due to the issuance of certain notes totaling $34.5 million during 1997. The
decrease in net cash provided by financing activities for the year ended
December 31, 1997 as compared to December 31, 1996 is mostly due to the issuance
of certain notes during 1996 totaling $100 million.
DIMAC MARKETING
Net cash provided by operating activities was $2.0 million for the six month
period ended June 26, 1998 and net cash used in operating activities for the six
month period ended June 30, 1997 was $1.4 million. The increase in net cash
provided by operating activities is due primarily to the increase in operating
income as discussed above.
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Net cash used in investing activities was $6.4 million and $15.1 million for
the six month periods ended June 26, 1998 and June 30, 1997, respectively. The
decrease in net cash used in investing activities is primarily due to
substantial construction activity on the facility in Central Islip, New York
during the six months ended June 30, 1997.
Net cash provided by financing activities was $4.4 million and $16.5 million
for the six month periods ended June 26, 1998 and June 30, 1997, respectively.
The decrease in net cash provided by financing activities is due to the
reduction of borrowings under revolving credit facilities as a result of the
increase in net cash provided by operating activities as described above and due
to the completion of the Central Islip facility in the fourth quarter of 1997.
As of June 26, 1998, DIMAC Marketing had $143.9 million payable to News
Corporation in the form of intercompany borrowings. As a subsidiary of News
Corporation, funding needs for fluctuations in working capital or investing
activities were satisfied through intercompany borrowings. DIMAC Marketing had
no lines of credit or committed funding sources with external lending
institutions.
Net cash provided by operating activities for the years ended December 31,
1997 and 1996, was $5.6 million and $11.5 million, respectively. The decrease in
net cash provided by operating activities is primarily a result of the decrease
in operating income discussed above, reduced by an improvement in cash provided
by working capital.
Net cash used in investing activities was $27.6 million and $45.1 million
for the years ended December 31, 1997 and 1996, respectively. The decrease in
net cash in investing activities is due to DIMAC Marketing's acquisitions of
Wilcox and MBS/Multimode in 1996, reduced by higher construction expenditures in
1997 on the Central Islip facility.
Net cash provided by financing activities for the years ended December 31,
1997 and 1996, was $21.9 million and $33.6 million, respectively. Concurrent
with the sale of Heritage Media to News Corporation, the existing credit
agreement was paid off with intercompany borrowings from News Corporation.
Capital expenditures, excluding acquisitions (but including purchases under
capital leases), were $3.2 million, $11.3 million and $21.6 million for the six
month periods ended June 26, 1998 and June 30, 1997 and for the year ended
December 31, 1997, respectively.
INFLATION AND PRICE CHANGES
We believe that inflation, exclusive of paper price increases, has not had a
material impact on our results of operations for the three years ended December
31, 1997. We have not engaged in hedges to offset changes in the cost of paper.
YEAR 2000 RISKS
We have developed plans to address our exposure in all critical information
technology ("IT") and non-IT systems to computer programs which identify years
with two digits instead of four. Such programs may recognize the year 2000 as
the year 1900. We are also assessing the year 2000 capabilities of our critical
suppliers, customers and key service providers to determine, to the extent
possible, whether our operations will be adversely impacted by such companies.
We primarily rely on packaged software applications which are year 2000
compliant. We have either tested these applications or expect to have done so by
the end of the first quarter of 1999. We are also testing all internally
developed IT software for year 2000 compliance. We anticipate that this process
will be completed by the end of the second quarter of 1999.
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We are continuing to assess all critical non-IT systems for year 2000
compliance. (Non-IT systems include, among other things, manufacturing
equipment, telephone systems and heating and cooling systems). We are preparing
an inventory of all critical non-IT systems and are contacting manufacturers to
determine year 2000 compliance. We anticipate that this process will be
completed by the end of the first quarter of 1999.
As of June 30, 1998, the costs we have incurred and expect to incur to
remedy our year 2000 conversion are immaterial. Our year 2000 remediation effort
has not postponed any IT projects the delay of which would have a material
adverse effect on our business, financial condition or results of operations.
We are not entirely year 2000 compliant at this time; but we have targeted
the end of the first quarter of 1999 to have critical business and production
processes ready. Although we are striving to be completely year 2000 compliant,
year 2000 issues may still negatively affect us. Based on our progress to date,
however, we believe that such impact, if any, will not have a material adverse
effect on our business, financial condition or results of operations.
Although we have contacted critical suppliers, customers and key service
providers to determine their level of year 2000 compliance, these companies
could adversely impact our operations. The full extent of any such adverse
impact (if any) is impossible to determine. We are attempting to mitigate any
possible adverse impact by identifying alternate suppliers where possible. We
will also increase our inventory of crucial materials in anticipation of
possible disruptions.
We are developing contingency plans for all critical business and production
processes. We anticipate that these plans should be completed by the end of the
second quarter of 1999.
SEASONALITY AND QUARTERLY FLUXTUATIONS
Our business is affected by a seasonal pattern where we generate a greater
volume of sales and are more profitable in the third and fourth quarters of each
year. We experience this fluctuation because many of our larger customers are
retailers whose own businesses are affected by these seasonal patterns. During
1997, approximately 56% of our combined pro forma EBITDA, after giving effect to
the AmeriComm Holdings Acquisitions and our acquisitions of AmeriComm Holdings
and DIMAC Marketing, occurred in the third and fourth quarters. Accordingly, any
adverse trend in net sales for such period could have a material adverse effect
upon our business, financial condition or results of operations.
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BUSINESS
GENERAL
Our company consists of the businesses of DIMAC Marketing and AmeriComm
Holdings. We provide a comprehensive range of direct marketing services that
emphasize cost-effective production of large, complex, highly personalized
direct mail campaigns. Through our nationwide network of 21 production
facilities, we offer our direct mail customers a wide variety of formats,
printing and converting capabilities, personalization and customization
alternatives and mailing and distribution services. We mail approximately 1.7
billion direct mail packages each year. Management believes this makes us one of
the largest direct mailers in the United States.
To complement and drive our production volume and to attract higher margin
business, we offer a complete range of pre- and post-production direct marketing
services such as:
- information services (information processing and database management);
- program development services (strategic market planning, creative
development and program evaluation); and
- fulfillment and telemarketing services (fulfillment, telemarketing and
tracking).
In addition, to support our direct marketing products and services, we offer
other printing and converting products such as custom pressure sensitive labels
and custom mailers. For the twelve-month period ended June 30, 1998, on a pro
forma basis after giving effect to our acquisitions of AmeriComm Holdings and
DIMAC Marketing, the Refinancing and the Cardinal Acquisition, we would have had
net sales and EBITDA of $384.4 million and $56.8 million, respectively. See
"DIMAC Corporation Unaudited Pro Forma Financial Statements."
Our ability to provide comprehensive direct mail products and services
affords our clients "one-stop shopping" and the flexibility to tailor campaigns
to reach specific target audiences. We can work with our clients from initial
conception through production, tracking and analysis, including:
- creating a direct mail advertising campaign;
- precisely targeting a specific customer or prospect list;
- producing and distributing the mail packages; and
- tracking and reacting to customer responses.
Clients also benefit from our ability to provide the most timely and
cost-efficient point-of-entry into the United States Postal Service distribution
network facilitated by on-site Postal Service substations located in most of our
production facilities and by our extensive experience with strategic
distribution of mail. Our St. Louis facility's "Optional Procedures" privilege
granted by the Postal Service allows us to process mail more quickly into the
postal system resulting in faster delivery and, consequently, faster response
activity for clients. With this broad range of capabilities, we provide our
clients with cost-effective, single-source solutions for their direct mail
requirements.
We primarily target companies that have sophisticated, mid- to high-volume
direct mail requirements. We serve clients in a broad range of industries,
including banking and financial services, telecommunications, publishing,
retail, healthcare, not-for-profit and insurance. Our top 20 clients, which
would have comprised 32.2% of 1997 pro forma net sales after giving effect to
the AmeriComm Holdings Acquisitions, our acquisitions of AmeriComm Holdings and
DIMAC Marketing, and the Refinancing, on average have been purchasing products
or services from us for over eight years.
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DIRECT MAIL INDUSTRY
Direct mail advertising is the second largest segment of the direct
marketing industry. Direct mail expenditures increased from $25.4 billion in
1992 to $37.4 billion in 1997, a compound annual rate of 8.0%, Industry Sources
forecast that direct mail expenditures will grow to $51.0 billion by the end of
2002, a compound annual rate of 6.4%.
Direct mail is often regarded as more effective than other forms of mass
advertising, such as television, newspapers, and magazines, because it can be
specifically directed to a target market and the response can be analyzed. This
allows us to refine continually a direct mail program to increase its
effectiveness. Companies use direct mail for a variety of purposes, including
attracting new customers, enhancing existing customer relationships and
exploring market potential for new products and services.
The direct mail industry is highly fragmented, with relatively few national
providers capable of comprehensive direct mail marketing. Management believes
the fragmentation of the direct mail industry, coupled with continued customer
outsourcing and expectations of single-source, cost-effective direct mail
solutions, provides a competitive advantage for national full service providers
such as ourselves.
RATIONALE FOR THE ACQUISITION; BUSINESS STRATEGY
We believe that the combination of DIMAC Marketing and AmeriComm Holdings
creates a unique platform for increasing the profitability and growth of our
business. These acquisitions combine DIMAC Marketing's strengths in creative
development, database services and high-volume lettershop and mail services with
AmeriComm Holdings' strengths in printing, converting and specialized product
development. We offer a comprehensive range of direct mail products and services
that address all aspects of a client's direct mail campaign from initial
conception through production, tracking and analysis. By providing this
comprehensive range of products and services, we believe we are strategically
positioned to capitalize on customer trends towards outsourcing and our
customers' preference for doing business with fewer suppliers.
The combination of DIMAC Marketing and AmeriComm Holdings will provide us
with immediate cost-savings totaling over $8.0 million. The savings will result
from:
- consolidation of redundant facilities;
- rationalization of duplicative head office and operating unit functions;
- in-sourcing of certain product requirements; and
- reduction of certain overhead expenditures.
Furthermore, we expect to realize additional margin-enhancement by:
- relocation certain production equipment to improve capacity utilization;
- procuring raw materials in more cost-effective quantities; and
- sharing certain technological and software capabilities.
For more information, see "DIMAC Corporation Unaudited Pro Forma Consolidated
Statements of Operations."
Our business strategy is to enhance our competitive position and to increase
net sales and profitability through the following initiatives:
EMPHASIZE COMPREHENSIVE DIRECT MAIL SOLUTIONS. The ability to provide
"one-stop shopping" for all of our client's direct mail needs is an increasingly
important factor in clients' selection of a direct mail service provider. We are
well positioned to offer clients "one-stop shopping" because of our
comprehensive range of direct mail products and pre- and post-production
services. This range of services
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allows us to cross-sell products and services to customers who previously
purchased them from third parties (such as selling DIMAC Marketing creative
development services to an AmeriComm Holdings printing client). In addition, our
broad range of capabilities allows us to in-source products previously purchased
from third-party suppliers (such as DIMAC Marketing using AmeriComm
Holdings-produced envelopes for a client's direct mail campaign instead of
purchasing these envelopes from a third party). In order to ensure that we
continue to offer comprehensive solutions, we intend to enhance our product and
service offerings by targeted investments in new equipment, new product
development and the acquisition of complementary or niche capabilities.
Management believes as a "single source" supplier offering comprehensive
solutions, we will save our clients both time and money.
LEVERAGE LARGE SCALE AND NATIONAL PRESENCE TO ATTRACT NEW HIGH VOLUME,
NATIONAL CLIENTS. The size and scope of a direct mail company's operations are
increasingly important factors for large, national accounts in the selection of
a direct mail service provider. National accounts often have multiple and
complex campaigns requiring access to multiple distribution points. Few of our
competitors have comparable capabilities and scale to service and support these
national, high volume accounts. Based on our previous experience in securing
national business from companies such as AT&T, The Chase Manhattan Bank and
American Express, we believe that we can further leverage our strong franchise,
large scale, wide breadth of operations and national presence to secure new high
volume, high margin business.
REALIZE BENEFITS FROM INTEGRATION. We believe a number of our initiatives
present additional margin-enhancement opportunities. These initiatives include:
- in-sourcing certain product requirements;
- relocating certain production equipment;
- procuring raw materials on a combined basis; and
- sharing certain technological and software capabilities.
For example, relocating certain DIMAC Marketing offset printing equipment to
an AmeriComm Holdings facility is expected to lower overall costs and enable us
to better coordinate the production of several pieces of a single direct mail
campaign. In addition, DIMAC Marketing expects to capitalize on specialized
AmeriComm Holdings information systems which allow more effective monitoring of
the production process, and, in turn, facilitate higher productivity with lower
waste.
PURSUE STRATEGIC ACQUISITIONS. The trend towards consolidation in the
highly fragmented direct marketing industry provides opportunities for continued
growth through selected strategic acquisitions. We intend to pursue potential
acquisitions that:
- complement our product offerings;
- increase our production capabilities;
- provide entry into new markets;
- expand our customer base; or
- create new cross-selling opportunities.
PRODUCTS AND SERVICES
We offer our customers comprehensive direct marketing services, including
production services, information services, program development services and
fulfillment and telemarketing. We also offer other printing and converting
services, including custom pressure sensitive labels and custom mailers. This
broad array of products and services enables us to control all aspects of a
direct mail campaign
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and provide our customers with a variety of cost- and time-effective solutions
for their direct mail requirements.
The following table sets forth the pro forma 1997 net sales of our principal
product lines after giving effect to the AmeriComm Holdings Acquisitions and our
acquisitions of AmeriComm Holdings and DIMAC Marketing:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
PRO FORMA 1997 PRO FORMA 1997
NET SALES NET SALES PRODUCTS/SERVICES OFFERED
--------------- ----------------- ----------------------------------
<S> <C> <C> <C>
(IN MILLIONS)
DIRECT MARKETING
Production services........................... $ 187.9 48.6% Web and sheet offset printing
Envelope converting
Complex personalization
Bindery services
Lettershop services
Information services.......................... 35.1 9.1 Data entry and file processing
Database management
List rental
Analytical services
Program development services.................. 27.3 7.0 Marketing, strategic, creative
and client services
Transition marketing
Database and decision support
Television production
Targeted list services
Broadcast, print and insert
media
41.7 10.8 Subscription management
Fulfillment and telemarketing services........
Fulfillment services
Remittance processing
Telemarketing
Tracking
------ -----
Subtotal...................................... 292.0 75.5
------ -----
OTHER PRINTING AND CONVERTING
Custom pressure sensitive labels.............. 51.0 13.2 Flexographic custom labels
Thermal/laser labels
Short-run labels
Custom mailers................................ 43.7 11.3 Impact mailers
Non-impact mailers
------ -----
Subtotal...................................... 94.7 24.5
------ -----
TOTAL....................................... $ 386.7 100.0%
------ -----
------ -----
</TABLE>
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DIRECT MARKETING (75.5% OF 1997 PRO FORMA NET SALES). We provide
comprehensive direct marketing services to our clients, including production
services, information services, program development services and fulfillment and
telemarketing services.
[LOGO]
PRODUCTION SERVICES. Our range of production services allows us to provide
a variety of formats and direct mail package designs to meet each customer's
direct mail marketing needs. Pro forma for our acquisitions of AmeriComm
Holdings and DIMAC Marketing, we produce over 3.7 billion direct mail pieces per
year. These pieces (other than those sent to other mailers, such as catalog
binderies, for ultimate mailing), together with pieces received from third
parties, are collated and assembled into the approximately 1.7 billion direct
mail packages we mailed last year. This mailing volume ranks us as one of the
largest direct mail companies in the United States.
PRINTING AND CONVERTING. We print direct mail materials on our own
presses which include multi-color heat-set and non heat-set webs as well as
a broad range of two-, four- and five-color
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sheet-fed presses and Halm envelope presses. Our extensive bindery equipment
allows us to produce a variety of self-mailer and traditional envelope
package formats to fulfill our clients' direct marketing needs.
We are capable of producing and printing a wide variety of envelopes.
Our equipment allows us to print and fold on high-speed web machines or
print envelopes in full color and convert (i.e., fold paper into envelopes)
after printing. Product capabilities range from simple one-color direct mail
envelopes to complex remittance envelopes, film mailers and file-folder
products. Accordingly, we can satisfy almost all of the envelope needs of
our clients.
PERSONALIZATION. We use state-of-the-art personalization technologies,
including a wide range of laser printers and ink-jet systems, to personalize
our clients' direct mail packages. These technologies enable us to
personalize the broadest possible array of direct mail products including
letters, envelopes, labels, order forms, inserts, applications and other
components of direct mail packages to ensure optimal response rates for our
clients.
MAILING. We use a wide range of systems and software, much of it
proprietary, to sort and distribute mail in ways that maximize postage
discounts while minimizing delivery times. Our production operations allow
for high-speed inserting, stamping or metering of multiple sizes and
configurations of direct mail pieces. In most of our production facilities,
an in-house Postal Service substation accepts the mail, which expedites the
mail through the postal system. Our "Optional Procedures" designation in the
St. Louis facility eliminates the need to weigh mail before it enters the
postal system, reducing our cost for this labor-intensive and time-consuming
process.
INFORMATION SERVICES. The goal of our information services division is to
use sophisticated data analysis and manipulation to support direct mail
marketing strategies. Advanced data management capabilities are an integral
element in transforming generic mass-marketing campaigns into complex, targeted,
highly personalized direct mail programs. We use our experience and capabilities
to service our customers in a variety of ways ranging from the development and
implementation of customized databases to processing each customer's direct mail
program for maximum deliverability. In addition, we monitor consumer responses
to measure the effectiveness of the direct mail program against client goals and
can capture this information for future client use.
In general, we provide our information services by developing, managing, or
amending databases for discrete direct mail campaigns and then assisting our
clients in evaluating the effectiveness of the mailing by analyzing response
data according to various criteria.
INFORMATION PROCESSING. Generally, our information processing function
begins with mailing databases. We use several kinds of databases in
developing targeted mailing lists for our clients, including:
SPECIALIZED CLIENT DATABASES provided by the client and based on its
customers, subscribers or other information.
RESIDENTIAL ADDRESS DATABASES, which comprise all deliverable
addresses in a given geographic area. We own a residential address
database comprising approximately 39% of the deliverable addresses in the
continental United States. In addition, through our membership in the
National Association of Advertising Distributors (the "NAAD"), we have
access to the remainder of the U.S. residential addresses. We are the
largest owner of the NAAD database.
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COMPILED NAME DATABASES, which attach names to residential addresses.
We do not own any of these databases and pay fees to database compilers
to use them. In general, these databases are based on the local white
page listings.
We are able to merge different databases and purge them of duplicative
addresses or addressees, as well as to remove from outdated customer
databases addresses or addressees that are no longer valid. These abilities
enable us to minimize postage costs for our clients.
DATABASE MANAGEMENT. We also help our clients analyze response data to
their campaigns. In some situations, we will provide this analysis to our
clients by tracking responses based on data such as coupon use or response
rate in the form of customized reports. In other situations, clients will
use our desktop data access tool, Klondike, which allows clients to perform
complex ad hoc queries to analyze data, to refine their own direct mail
strategies. Klondike is a relational database designed to hold all
transaction data, generally for retail stores. Since we house the data, it
ties us closely to our clients and creates cross-selling opportunities. In
addition, this data feeds back into our program development and other
information processing units.
We believe that the most effective direct mail campaigns mix-and-match among
these database sources using relational database technology to create a mailing
list comprising addresses which meet a number of criteria. In addition, we
append other demographic data such as age, gender, income level, car ownership,
and other lifestyle and demographic data to these databases, creating a target
audience that meets the client's needs.
We believe that AmeriComm Holdings' and DIMAC Marketing's information
services capabilities are highly complementary. AmeriComm Holdings has focused
on sophisticated manipulation of residential databases by appending demographic
data which allows targeted, address-based mailings; whereas DIMAC Marketing has
focused on individual customer data for clients, which allows for very specific
mailings directed at individuals. Both types of mailings can be effective and
useful to clients, and often the same client will use different strategies in
different situations.
PROGRAM DEVELOPMENT SERVICES. We provide strategic planning and full-scale
direct response agency services to help clients develop their brands and
increase their sales. In the initial stages of a client's direct marketing
program, our marketing professionals:
- analyze a client's business objectives;
- formulate strategies;
- identify target markets defined by demographic, psychographic, and
behavioral criteria;
- devise compelling, measurable offers; and
- develop creative concepts,
All in support of our clients' overall marketing goals. Our creative
department refines the marketing messages and designs and writes the
communications to achieve maximum impact. Our research and media departments
play an integral role in this process, providing list and media recommendations
to target high-potential buyers, and formulating statistically valid testing
plans.
Our program development services include strategic market planning, creative
development and program evaluation.
STRATEGIC MARKET PLANNING: In the initial stage of the development of a
customer's direct mail program, our strategic planning professionals
- analyze the market situation and business goals;
- identify a customer's objectives;
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- establish a program's goals; and
- identify a target market.
Depending on our client's needs, we then develop a marketing or
communications plan and media plan, encompassing mail and other media as
appropriate.
CREATIVE DEVELOPMENT: Creative services range from developing the
overall strategies and concepts for an entire program to creating the
specific copy, layout and art work for a single direct mail piece. We use
advanced graphic arts technology to create high quality "proofs" that can be
repeatedly and rapidly revised for a highly flexible yet cost-effective
product. Further, we have developed our use of this technology so that the
direct mail piece can be directly transmitted from the "proof" stage to the
print stage without the cost and time that were previously required for such
revisions, enabling customers to re-define or re-focus their campaign prior
to its launch.
PROGRAM EVALUATION: Our media and research professionals are involved
throughout the design, production and execution of the client's message. At
the start of a program, these professionals assist the identification of
potential consumers through the use of qualitative research such as focus
groups and in-depth interviews, as well as quantitative research such as
customer and product segmentation analyses. These professionals then provide
list and media recommendations that identify the most appropriate target
market. Additionally, these professionals are typically involved in
designing and coordinating a pre-test of a direct mail campaign to measure
its effectiveness.
The range of our services can be illustrated by a program developed for The
Chase Manhattan Bank. In February 1996, Chase appointed us to coordinate
communications with customers of the newly acquired Chemical Bank. We carried
out a detailed impact assessment of the transaction on customers of both banks,
recommended a coherent communication program and developed creative layouts and
art work, which when printed, was mailed to four million Chase and Chemical Bank
customers. We worked closely with marketing executives at Chase and Chemical
Bank to understand their product lines in order to create messages targeted to
particular customers according to their specific combination of accounts and
product needs. In order to ensure accurate targeting, we worked closely with the
information services group to import the customer account databases of Chase and
Chemical Bank and to map the overall communication program to each customer.
Finally, we sent numerous follow-on mailings to ensure a smooth transition for
all customers.
FULFILLMENT AND TELEMARKETING SERVICES. We offer a wide array of
fulfillment and telemarketing services to meet the needs of our clients. We
design and operate customized fulfillment programs for clients that involve
sending samples, literature and coupons to those customers who have responded to
a solicitation. We also provide a broad range of fulfillment and invoice,
subscription and renewal processing services for the publishing industry and
provide inbound and outbound telemarketing services.
FULFILLMENT. We offer fulfillment services primarily from our St. Louis
and Palm Coast locations. In St. Louis, these services include distribution
of premiums (i.e., gifts) and negotiable instruments such as checks and
certificates in as many as ten different languages. In addition, we
specialize in rapid processing, and have the ability to turn around a
project in as little as twelve hours.
In Palm Coast, we provide a full range of fulfillment services to
magazine publishing clients including receiving and opening subscriber mail,
entering transaction data and storing and retrieving that data on a
mainframe system. We also handle over 2.5 million inbound fulfillment calls
annually, ranging from customer inquiries to address changes. In addition,
we have recently developed an internet capability, enabling our clients to
fill orders over the world-wide web, and have
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developed modeling capabilities, enabling magazine publishers to anticipate
subscriber attrition, analyze means of reducing subscriber defections and
replace lost subscribers based on historical tendencies.
TELEMARKETING. We provide clients with in-bound and out-bound
telemarketing in support of their marketing programs, including sales
support and customer service applications. Our telemarketing services are
specifically dedicated to consulting, training, developing and managing
telemarketing programs for clients nationwide. We also provide on-site
programs for auditing the effectiveness and efficiencies of existing
telephone and sales programs.
In 1995, we created American Teledirect ("ATD"), a full-service
telemarketing center located in Houston, Texas. ATD maintains 72 work
stations, and features highly-trained service representatives. ATD's
telephone sales representatives, many of whom are licensed insurance agents,
are equipped to handle customer service calls and to place follow-up calls
to recipients of direct mail solicitations. In addition, we operate a
telemarketing center in Clifton, New Jersey. This facility supports a range
of our direct mail campaigns.
TRACKING. We have complemented our fulfillment and telemarketing
services with a tracking system which enables us to monitor and review the
effectiveness of our direct marketing campaigns via telephone, internet, fax
or mail. We leverage our tracking services as a means of generating
additional long-term revenue by using the tracking results to create new
campaigns and refine existing campaigns.
OTHER PRINTING AND CONVERTING (24.5% OF 1997 PRO FORMA NET SALES)
We also manufacture and sell custom pressure sensitive labels and custom
mailers which complement and support our direct marketing products and services.
These production activities also provide incremental benefits to our direct mail
manufacturing activities through increased raw material purchasing leverage,
graphic pre-press support and printing technology transfer.
CUSTOM PRESSURE SENSITIVE LABELS. We are one of the largest producers of
custom pressure sensitive labels in the United States. The U.S. pressure
sensitive label market is estimated at $3.7 billion in 1997. Its growth has been
driven primarily by the advantages that pressure sensitive labels have over
traditional glue-applied labels, such as reduced wrinkling and superior adhesion
and durability. Pressure sensitive labels have a variety of end-use purposes,
including grocery shelf marking, product identification and distribution bar
coding. Pressure sensitive labels are also widely used as components and
enhancements of direct mail pieces. For example, one of our largest label
customers uses high quality pressure sensitive return address labels as a
premium component of a direct mail package.
Our custom pressure sensitive label products are offered in three
categories--short-run orders, catalog sales and large custom orders. Short-run
orders are typically turned around in a 24-hour time frame and usually include
basic labels with one or two plain colors, a limited number of inks and base
label materials. These are primarily sold to quick printers such as Sir Speedy
Printing, Kwik Copy, Minuteman Press and Kinko's. We also produce labels which
are offered in sales catalogs in combinations of predetermined sizes, colors,
materials, and inks, and are generally processed in less than five days. Large
custom orders can be produced in any quantity, design, color, size or material
that the customer requires. In addition to our flexographic labels, we have
introduced a line of stock thermal and laser labels which are two of the fastest
growing products in the label industry. Thermal and laser labels are used for a
wide variety of applications from baggage tags to labeling of grocery products.
Through our relationship with market leaders such as Winn-Dixie and Sysco and
our innovative products, we have become a recognized participant in the retail
shelf label market.
CUSTOM MAILERS. We compete in the U.S. mailer market, which includes both
impact and non-impact mailers and integrated labels. Impact mailers are
ready-to-mail, multi-part spot carbon or
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carbonless forms which are widely used to print account statements, invoices,
tax notices and utility bills as well as a range of other applications, and can
be printed without opening or sealing the envelope. Our technology and unique
equipment allow us to manufacture some of the most complete and the most complex
impact mailers in the industry. Management believes that we have a significant
competitive advantage because of our research and development efforts which have
produced a number of patented products. In addition, many of our custom mailer
customers are increasingly seeking to outsource the personalization of these
forms. This desire leads to opportunities for us to cross-sell our direct mail
services including personalization, printing and lettershop services.
In addition to multi-part custom impact mailers, we also produce and sell a
proprietary line of single sheet non-impact mailers under the trademark
InfoSeal-Registered Trademark-, which are used in conjunction with laser
printers. Non-impact mailers are laser printer compatible self-mailer forms
which are printed, folded, sealed and mailed for such applications as payroll
checks, direct deposit statements, vendor remittances, invoice statements, and
university grade reports. In addition to marketing non-impact mailer products,
we also market a range of patented folding and sealing machinery. Unlike
competitive products, our InfoSeal-Registered Trademark- technology allows us to
customize our mailers with additional functions and colors, such as windows,
tipped-on cards, personalization, high-color, and blown-on labels. An example of
this is a new line of "ID card" applications, which is a technology that allows
cards to be attached to a one-piece mailer, and then printed with a laser
printer.
Since the early 1990s, the impact mailer market has decreased in size due to
the rapid growth of laser, ink-jet and other non-impact printers which are not
compatible with impact mailers. We expect the non-impact market to continue to
grow more rapidly than impact mailers over the next several years due to their
ease of use and simplicity for a variety of applications. Accordingly, we have
re-focused our product mix on higher growth, non-impact mailers.
Integrated labels are manufactured by combining a custom paper form and a
self-adhesive label. The integrated label system replaces two or more separate
documents, which provides a significant cost advantage to customers, and has a
wide range of applications. We have invested in technology which will allow us
to capitalize on the expected growth of integrated labels. Major customers of
this technology include FAO Schwarz, J. Crew and Rite Aid.
SALES AND MARKETING
DIRECT MARKETING
We market our direct marketing capabilities to customers in a number of
ways. First, each of our divisions typically employs a full complement of sales
professionals whose primary responsibility is to sell the direct marketing
services provided by that division. These account representatives also provide
us with broader opportunities to sell our other direct marketing services. We
expect that these opportunities will increase due to our wider breadth of
capabilities after giving effect to our acquisitions of AmeriComm Holdings and
DIMAC Marketing.
In addition to these significant divisional resources, we have a growing
number of professionals primarily responsible for aggressively pursuing national
accounts that require multiple products and services. These individuals actively
cross-sell all of our direct marketing capabilities, emphasizing the potential
for increased cost effectiveness, reliability and control which result from
supplying multiple services from a single source.
In order to support the divisional and national sales representatives, we
have developed a centralized sales support unit which prices and processes
orders which include a combination of products and services. Once product
specifications have been determined, the unit then monitors and coordinates all
aspects of the execution of the campaign. In addition to relieving the sales
force from certain administrative functions, this unit also acts as a customer
service center which works directly with customers to
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close sales, provide updates on the progress of campaigns and respond to
customer inquiries. We currently have one such center but intend to establish
one or more additional units as necessary to ensure a high level of customer
service and sales support.
OTHER PRINTING AND CONVERTING
CUSTOM PRESSURE SENSITIVE LABELS. Our label business division sells
approximately 42% of its sales directly to customers using a dedicated sales
force which focuses on larger companies such as Winn-Dixie, Polaroid and USA
Today. The remainder of our pressure sensitive label sales are to independent
distributors through regional sales managers based in Atlanta, Boston, Chicago,
Dallas, Philadelphia and San Francisco. In addition, the business unit has a
telemarketing team that supports sales of custom pressure sensitive labels.
Our label marketing organization focuses primarily on marketing to
distributors through trade show attendance (approximately 65 per year), trade
publications advertising, and direct mail campaigns.
CUSTOM MAILERS. The custom mailer business unit sells to more than 3,000
accounts in the independent distributor market. Senior sales representatives are
responsible for calling on the largest custom mailer distributors while a
telemarketing team is responsible for calling on smaller distributors. The
telemarketing team also supports the senior sales representatives by following
up with customers on price quotes and securing orders.
Custom mailer marketing activities are centered in a marketing department
which is used jointly by both the mailer and direct mail businesses. The
marketing activity primarily consists of developing and launching new products,
distributing samples, developing education and training programs, supporting
approximately 30 trade shows per year, conducting product seminars, creating and
placing advertising in trade publications, and distributing monthly newsletters.
In addition, over the last several years, we have entered into several
marketing alliances which have resulted in new opportunities. Alliances with
Wallace Computer Services and Xerox have opened up additional channels of
distribution, have led to new customer relationships, and have created
significant potential for our non-impact mailer and ID-card products.
CLIENT BASE
Over time, we have built solid relationships with key customers across all
of our products and services. For our direct mail products and services, we
primarily target companies that have sophisticated, mid- to high-volume direct
mail requirements. In other printing and converting services, we primarily
target larger national accounts and independent distributors.
We provide services to clients in a broad range of industries, including
banking and financial services, telecommunications, publishing, retail,
healthcare, not-for-profit and insurance. We generally enjoy long-standing
relationships with customers including AT&T, American Express, The Chase
Manhattan Bank, NationsBank, Time Warner, Bloomingdales, Macy's, Blue Cross/Blue
Shield and approximately one-half of all of United States public television
stations.
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On a combined basis, after giving effect to the AmeriComm Holdings
Acquisitions, our acquisitions of AmeriComm Holdings and DIMAC Marketing, and
the Refinancing, we estimate that our pro forma 1997 net sales were realized
from the following customer industries:
<TABLE>
<CAPTION>
% OF 1997
CUSTOMER INDUSTRY PRO FORMA NET SALES
- ------------------------------------------------------------------------- ---------------------
<S> <C>
Banking and financial services........................................... 20%
Publishing............................................................... 17%
Retail and catalogue..................................................... 15%
Healthcare............................................................... 13%
Telecommunications....................................................... 10%
Not-for-Profit........................................................... 8%
Insurance................................................................ 6%
Other.................................................................... 11%
-----
Total................................................................ 100%
-----
-----
</TABLE>
Our largest customer, AT&T, which would have comprised 8.6% of 1997 pro
forma net sales after giving pro forma effect to the AmeriComm Holdings
Acquisitions, our acquisitions of AmeriComm Holdings and DIMAC Marketing, and
the Refinancing, has been purchasing products and services for over thirteen
years. Over this thirteen year period, our relationship with AT&T has developed
such that we now produce 37 independently managed campaigns within AT&T. No
other customer accounted for more than approximately 5% of 1997 pro forma net
sales, after giving effect to the AmeriComm Holdings Acquisitions, our
acquisitions of AmeriComm Holdings and DIMAC Marketing, and the Refinancing.
Furthermore, our top 20 clients, which would have comprised 32.2% of 1997 pro
forma net sales, after giving effect to the AmeriComm Holdings Acquisitions, our
acquisitions of AmeriComm Holdings and DIMAC Marketing, and the Refinancing,
have been purchasing products or services from us for over eight years on
average.
COMPETITION
Given our diverse and full-service production capabilities, there are few
true competitors for every service offered. Many of our competitors offer one or
more services that are similar to those we offer, but few offer the same
comprehensive range of direct marketing services.
DIRECT MARKETING
PRODUCTION SERVICES. Competitors range from smaller, single-plant
operations that provide individual products or services (such as printing,
binding or lettershop capabilities), to larger ones which offer a greater
breadth of products or services. Management believes that few other companies
offer the range of direct mail products and services that we offer in our
production services business unit.
Certain production services competitors include Harte-Hanks, North American
Communications, Moore, CCI, Fala Direct, Webcraft, Wallace, World Color,
Quebecor and R.R. Donnelley.
INFORMATION SERVICES. Our information processing services most closely
compete with Advo, Anchor Computer, Direct Tech and Triplex. Our database
processing services compete most directly with Harte-Hanks, Epsilon and Acxiom
(including May & Speh, which Acxiom recently acquired). Few information services
competitors have a breadth of direct mail capabilities comparable to ours.
PROGRAM DEVELOPMENT SERVICES. Our program development services most closely
compete with direct response agencies such as Blau, Wunderman, Ogilvy One, Gray
Direct, Bronner & Schlossberg and Devon Direct. These competitors offer services
that are similar to ours in terms of program
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development but generally sub-contract the production, information services and
fulfillment and telemarketing services.
FULFILLMENT AND TELEMARKETING SERVICES. Our fulfillment services most
closely compete with Neodata, CDS and Kable. Our telemarketing services most
closely compete with APAC, Sitel, West Telemarketing, ICT and TeleSpectrum.
OTHER PRINTING AND CONVERTING
CUSTOM PRESSURE SENSITIVE LABELS. We and our competitors sell products
directly to end-use customers or through independent distributors. The major
competitors that sell custom pressure sensitive labels directly to end-users
include Standard Register, Moore and Wallace Computer Services. These companies
generally produce commodity labels in addition to custom pressure sensitive
labels. With respect to custom pressure sensitive labels sold through
independent distributors for resale, major competitors include Discount Labels,
Data Labels, Continental Datalabel, Rittenhouse and Lancer Label. Other
competitors in this channel are typically smaller regional and privately-owned
operators with a single production facility.
CUSTOM MAILERS. We sell custom mailers to independent distributors for
resale to end-users. Our main competitors in the independent distributor market
include Poser Business Forms, Goodwin Graphics and Perry Printing Company, none
of which have a product breadth similar to ours. Large manufacturers, which
include Wallace Computer Services, Moore and Standard Register, dominate the
direct channel. These manufacturers generally offer a full range of business
form products and supplement their product offering with mailers produced by
third parties including us. Other competitors are smaller companies that have
recently introduced pressure seal self-mailer products to the distributor
channel.
Our ability to produce large and medium-size runs in custom mailers gives us
a capacity and pricing advantage when compared to those competitors who sell to
distributors. This advantage results from distributor demand being heavily
concentrated in smaller run sizes made on narrow web presses.
SUPPLIERS
We have a broad base of high quality, national suppliers. Our primary raw
materials are uncoated, coated and specialty papers, plastic films, inks and
adhesives. Paper products of a variety of types represent our single largest
category of raw materials. We have had long-term relationships with most of
these suppliers, which provides for reliability in supply and competitive
prices. Our top ten suppliers include Fasson, International Paper, Union Camp,
Georgia-Pacific, Schweitzer-Maudit, Shaughnessy-Kniep-Hawe, Appleton Papers,
Boise Cascade, UniSource and Intelligence Print. Fasson is the only supplier
from whom we purchased more than 10% of our total 1997 supplies.
While paper represents a large component of material expense and overall
cost, we mitigate the effects of paper price increases through pricing
conventions and purchasing strategies. Long-term customer contracts under which
we supply our products generally include escalator clauses under which price
changes are passed on to the customer. Another strategy employed is obtaining a
commitment for a specific tonnage of paper at a predetermined price, which is
designed to match the price charged to a customer, thereby eliminating our
exposure to such price fluctuations. Additionally, a significant percentage of
the paper we purchased (e.g., carbonizing bond and pressure sensitive label
stock) is not subject to the same price fluctuations experienced in the more
cyclical uncoated free sheet paper market.
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MANUFACTURING
DIRECT MARKETING
PRINTING AND CONVERTING. We print direct mail products on a wide variety of
web and sheet offset presses in six different facilities. These include fourteen
web offset presses, five of which utilize ultraviolet drying units for high
color applications. We also run four high volume heat set web offset presses
which have integrated finishing equipment in line. Finally, we operate 11
sheetfed offset presses, including a state-of-the-art Komori press in our St.
Louis facility.
Envelope converting equipment includes eight high speed web and more than 40
die cut envelope printing and folding machines in three facilities located in
the eastern United States. These plants also include a variety of support
equipment such as programmable die cutters, label affixing units and finished
envelope printers.
We also operate 18 forms collators, including five in our Roanoke, Virginia
plant which are virtually dedicated to direct mail applications. A recently
installed new off-line finishing line will convert offset printed materials into
direct mail pieces, thereby increasing our capacity and flexibility to respond
to requests for short-to-medium run complex self mailers.
PERSONALIZATION. We personalize mail in eight production facilities and
through a number of technologies. These technologies include sheet fed and
continuous laser, inkjet and impact printing and ion deposition lasers. In
total, we operate in excess of 80 different pieces of personalization printing
equipment.
MAILING. Consistent with the personalization capabilities noted above, we
provide mailing services in eight plants. These services include high speed
letter inserting, stamping or metering of multiple sizes and configurations of
direct mail pieces. We perform bindery operations, which are not typically
required for in-line formats such as self-mailers, in six facilities. These
services include equipment such as folders, bursters and document converters. We
also have the ability to pre-sort commingled mail in our Norfolk, Virginia
facility.
OTHER PRINTING AND CONVERTING
CUSTOM PRESSURE SENSITIVE LABELS. We produce pressure sensitive labels in
four plants located strategically throughout the United States. All of these
plants are equipped with flexographic presses and have unique, customized
letterpress equipment designed to cost-effectively produce labels in small order
quantities with quick turnaround. We operate 26 high-speed flexographic presses,
including two presses purchased in 1997. These presses range in size from 6.5"
to 18" in width and print in two to eight colors. A number of these presses can
produce true process printing and are equipped with in-line hot foil stamping
units. In addition to the high speed printing capability, we have ten smaller
customized presses which can be utilized for shorter runs with fewer colors.
CUSTOM MAILERS. We produce custom mailers in two plants. Our Ft. Smith,
Arkansas plant is dedicated to this product line while our Roanoke, Virginia
plant utilizes its equipment base for both direct mail and mailer products.
Together, these plants include 21 web offset printing presses ranging in width
from 20.5" to 30.5". Printed rolls from these presses are then further converted
in multi-ply mailer sets on one of eighteen high-speed collators or into the
proprietary laser-compatible non-impact mailer on one of five converting lines.
Additional major pieces of equipment include three MICR routing encryption lines
and two integrated label lines, one of which was purchased in 1997.
Both the custom pressure sensitive label and custom mailer product lines are
supported by state of the art pre-press and printing platemaking equipment. The
hardware architecture for our pre-press systems is primarily Macintosh. We
utilize a wide range of popular image manipulation and color separation
software.
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FACILITIES
At June 30, 1998, we operated 35 manufacturing, warehouse, sales,
distribution and administrative facilities in the U.S. located in 14 states with
a total floor area of approximately 1,714,000 square feet. Of this total floor
area, approximately 619,000 square feet are owned and approximately 1,095,000
square feet are leased under leases expiring from 1998 through 2011.
EMPLOYEES
As of June 30, 1998, we employed approximately 4,000 people. Approximately
3,000 people work in manufacturing facilities, 525 work in sales/service
functions, 470 work in administration and eight work in corporate functions. As
of June 30, 1998, 108 employees of our 800 employees in our St. Louis facility
were represented by the Graphic Communications International Union ("GCIU"). The
current GCIU contract expires in October 1999. In the summer and fall of 1997,
the GCIU attempted to organize approximately 175 mail plant employees in the St.
Louis facility. The GCIU initiative was defeated in December 1997. A similar
initiative was defeated in 1993, when the GCIU attempted to organize the
information services department in the St. Louis facility. We believe our
relations with employees are good but there can be no assurances that the GCIU
will not attempt to organize other employees in the St. Louis facility or our
other facilities in the future.
LEGAL PROCEEDINGS
In June 1997, the United States Attorney's Office for the Eastern District
of Missouri informed us that we were the subject of a grand jury investigation
based upon information supplied by the United States Postal Service. The
investigation concerns whether violations of civil or criminal statutes may have
occurred in connection with our bulk mailing practices. We have been engaged in
a dialogue with the Government, which discussions have included a possible
consensual resolution of this matter. However, as of the date of this
Prospectus, no settlement has been reached. It is our position that our bulk
mailing practices comply with applicable laws and regulations. In connection
with our acquisition of DIMAC Marketing, we have entered into an indemnification
agreement with Heritage Media and DIMAC Marketing under which Heritage Media has
agreed to indemnify us for certain costs, including settlements, judgments and
related fees, in relation to the USPS investigation. We cannot assure you,
however, that the investigation and the costs associated with them will not have
a material adverse effect on our business, financial condition or results of
operations.
We are a party to various other litigation matters incidental to the conduct
of our business. We do not believe that the outcome of any such matters in which
we are currently involved will have a material adverse effect on our financial
condition or results of operations.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
Our operations and properties are subject to a wide variety of federal,
state and local laws and regulations relating to environmental protection and
human health and safety, including those governing the use, storage, handling,
generation, treatment, emission, release, discharge and disposal of, and
exposure to, hazardous and non-hazardous materials, substances and wastes, the
cleanup of contaminated soil and groundwater, and the health and safety of
employees. As such, the nature of our operations expose us to the risk of claims
with respect to environmental protection and health and safety matters. We
cannot assure you that material costs or liabilities will not be incurred in
connection with such claims.
In January 1988, the United States Environmental Protection Agency (the
"EPA") notified us that we were potentially liable for costs incurred by the EPA
in connection with the Dixie Caverns County Landfill Superfund Site in Roanoke
County, Virginia. Subsequently, Roanoke County filed suit against the twelve
potentially responsible parties ("PRP's"), which included us, to recover the
funds it
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expended in cleaning the site at the date of the suit and for any additional
sums it would expend in the future. Under the Comprehensive Environmental
Response, Compensation, and Liability Act, PRPs may be held strictly, jointly
and severally liable for the costs of investigation and cleanup; however
management believes that our potential liability in connection with this site
will not be material, based upon the amount and nature of waste alleged to be
attributable to us, the number of other financially viable PRP's and the total
estimated cleanup costs.
Although liabilities, claims and requirements relating to environmental and
health and safety matters have not materially affected us to date, we cannot
assure you that such matters will not have a material adverse effect on our
business, financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and those of DIMAC Holdings are elected annually by the
respective shareholders to serve during the ensuing year or until a successor is
duly elected and qualified. Our executive officers and those of DIMAC Holdings
are duly elected by the respective Board of Directors to serve until their
respective successors are elected and qualified. The following table sets forth
certain information regarding our directors and executive officers and those of
DIMAC Holdings following our acquisitions of Americomm Holdings and DIMAC
Marketing.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Martin R. Lewis........................................ 69 Chairman of the Board of Directors and Chief
Executive Officer
Timothy Beffa.......................................... 47 Director
David E. De Leeuw...................................... 54 Director
David E. King.......................................... 39 Director
George E. McCown....................................... 63 Director
Benjamin L. McSwiney................................... 48 Director
John D. Weil........................................... 50 Director
James L. Wu............................................ 29 Director, Vice President and Assistant Secretary
Robert M. Miklas....................................... 46 President
Edward D. Lazarowitz................................... 45 Chief Financial Officer
John F. Meneough....................................... 50 Executive Vice President
Jack Resnick........................................... 50 Executive Vice President
Scott P. Ebert......................................... 34 Vice President and Controller
Michael J. Speichinger................................. 31 Vice President and Chief Financial Officer of DIMAC
Marketing
</TABLE>
MARTIN R. LEWIS -- Chairman of the Board of Directors and Chief Executive
Officer of our company since June 1998. Mr. Lewis is the former Chief Executive
Officer of Williamhouse-Regency, Inc., a manufacturer and printer of specialty
paper products. Mr. Lewis led Williamhouse-Regency as a public company from 1961
to 1982. In 1982, through a leveraged recapitalization, he led the management
buyout of Williamhouse-Regency, Inc., and other subsequent refinancings and
recapitalizations. He ran Williamhouse-Regency, Inc. as a highly-leveraged
entity until it was sold to a strategic buyer in 1995. He currently serves as a
director of AmeriComm Direct Marketing.
TIMOTHY BEFFA -- Director of our company and DIMAC Holdings since August,
1998. Mr. Beffa currently serves as President and Chief Executive Officer of
Outsourcing Solutions, Inc. From May 1989 to August 1996, Mr. Beffa served as
President and Chief Operating Officer of DIMAC Marketing Corporation. Mr. Beffa
joined DIMAC Marketing Corporation as Senior Vice President and Chief Financial
Officer. From April 1981 to May 1989, he served as Vice President of Finance for
the International Division of Pet Inc. Prior to April 1981, Mr. Beffa was
employed by Ernst & Young. He currently serves as a director of AmeriComm Direct
Marketing.
DAVID E. DE LEEUW -- Director of our company and DIMAC Holdings since May
1998. Mr. De Leeuw is a managing director of McCown De Leeuw & Co., Inc. Mr. De
Leeuw co-founded McCown De Leeuw & Co., Inc. with George McCown in 1984. He
currently serves as a director of American Residential Investment Trust, Inc.
and Aurora Foods Inc. (both public companies), and other privately held
companies including AmeriComm Direct Marketing.
DAVID E. KING -- Director of our company and DIMAC Holdings since August
1998. Mr. King is a managing director of McCown De Leeuw & Co., Inc. Mr. King
has been associated with McCown
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De Leeuw & Co., Inc. since 1990. He currently serves as director of several
privately held companies including AmeriComm Direct Marketing.
GEORGE E. MCCOWN -- Director of our company and DIMAC Holdings since August
1998. Mr. McCown is a managing director of McCown De Leeuw & Co., Inc. Mr.
McCown co-founded McCown De Leeuw & Co., Inc. with David De Leeuw in 1984. He
currently serves as Chairman of Building Materials Holding Corporation,
Vice-Chairman of Vans, Inc. and Vice-Chairman of FiberMark, Inc. He also serves
as the director of several privately-held companies.
BENJAMIN L. MCSWINEY -- Director of our company and DIMAC Holdings since
August, 1998. Mr. McSwiney is the former President and Chief Executive Officer
of Bell & Howell Worldwide Mail Handling Systems, a global provider of messaging
solutions including mail inserters and sorters with revenues of $400 million.
Prior to joining Bell & Howell, Mr. McSwiney served as President and Chief
Executive Officer of Duplex Products, a $290 million forms producer, and
WhiteStar Graphics, a holding company with subsidiaries in forms production and
textbook typesetting. Mr. McSwiney also served as Vice President and General
Manager of Williamhouse, a subsidiary of Williamhouse-Regency, Inc. a
manufacturer and printer of specialty paper products. He currently serves as
Executive in Residence at North Carolina State University where he gives
instruction in Strategic Planning and Implementation at both the graduate and
undergraduate levels.
JOHN D. WEIL -- Director of our company and DIMAC Holdings since August,
1998. Mr. Weil joined McCown De Leeuw & Co., Inc. as an operating affiliate to
assist in portfolio management in 1995. From 1991 to 1994, Mr. Weil served as
President and Chief Executive Officer of American Envelope Company. Between 1983
and 1994, Mr. Weil served as a director of the Envelope Manufacturers
Association (the "EMA"), as Chairman of the EMA's Public Affairs Committee and
has served on its Technical, Training, Plant Operations and Finance Committees.
He currently serves as Chairman of the Board of Directors of AmeriComm Direct
Marketing and as a director of FiberMark, Inc., International Data Response
Corporation and Sage Enterprises, Inc.
JAMES L. WU -- Director, Vice President and Assistant Secretary of our
company and DIMAC Holdings since May 1998, Mr. Wu is an associate at McCown De
Leeuw & Co., Inc. Mr. Wu has been associated with McCown De Leeuw & Co., Inc.
since 1992. Previously, he worked as an investment banker with Morgan Stanley &
Co., Inc.
ROBERT M. MIKLAS -- President of our company since June 1998. Prior to
joining us, Mr. Miklas worked for 15 years with the $350 million annual revenue
consumer packaging division of Boise Cascade Corporation and its successive
owner, Sonoco Products Company. He began his 12-year assignment with Boise
Cascade in 1975, attaining positions of increasing responsibility. With the 1987
purchase of the Boise Cascade consumer packaging division by Sonoco, Mr. Miklas
became a division vice president of Sonoco, where he was responsible for merging
common operations of the two companies. As division vice president, Mr. Miklas
was also in charge of business development with a focus on technology and market
development. His most recent assignment before joining us was senior vice
president and one of the three executives in the office of the president of the
Sonoco Graham Company, at the time one of the largest consumer packaging
manufacturers in the U.S.
EDWARD D. LAZAROWITZ -- Chief Financial Officer of our company and DIMAC
Holdings since September 1998. Prior to joining us, Mr. Lazarowitz served as
Senior Vice President of Finance and Chief Financial Officer for eight years
with the direct marketing division of Harte-Hanks, Inc. In addition to his
financial responsibilities, Mr. Lazarowitz was also responsible for the
operations of certain direct marketing businesses, the operations of the
management information systems group and the development of Harte-Hanks' order
management system. From 1988 to December 1990, Mr. Lazarowitz served as Vice
President of Finance and Administration and Chief Financial Officer of Anderson
& Lembke, Inc., a business to business advertising agency. Mr. Lazarowitz began
his career with Price Waterhouse.
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JOHN F. MENEOUGH -- Executive Vice President of our company since May 1998.
Prior to joining Palm Coast Data in 1996 as President and Chief Operating
Officer, Mr. Meneough was chief operating officer for Communications Data
Services ("CDS"), one of the leading providers of fulfillment services in the
country. Mr. Meneough joined CDS in 1980 as an account manager in publisher
services when CDS was serving 85 magazines and 39 million subscribers. He was
named vice president of the magazine division in 1985 and executive vice
president and chief operating officer in 1986, by which time CDS was serving 105
magazines and 90 million subscribers.
JACK RESNICK -- Executive Vice President of our company since May 1998.
Prior to our acquisitions of AmeriComm Holdings and DIMAC Marketing, and the
consummation of the Refinancing, Mr. Resnick was Executive Vice President of
AmeriComm Holdings and served as head of direct mail operations of Americomm
Direct Marketing. Mr. Resnick was President of the Wheeler Group, the direct
marketing division of Pitney Bowes, and has had extensive executive leadership
experience in the direct mail marketing and business forms industry with Wallace
Computer Services, Uarco, and Torrington Product Ventures, where he served as
president and vice chairman.
SCOTT P. EBERT -- Vice President and Controller of our company and DIMAC
Holdings since June 1998. Mr. Ebert has been the Vice President and Controller
of AmeriComm Holdings since May 1993, where his responsibilities include
maintenance of lender and public relations, review of acquisition opportunities,
external and internal financial reporting, integration of acquired businesses
and working capital management. Previously, Mr. Ebert was a Manager at Arthur
Andersen LLP where he began his service in August 1985.
MICHAEL J. SPEICHINGER -- Vice President and Chief Financial Officer of
DIMAC Marketing since July 1998. Mr. Speichinger joined DIMAC Marketing in
September 1996 as Director of Financial Analysis and was promoted to Corporate
Controller of DIMAC Marketing in November 1997. Mr. Speichinger's
responsibilities include financial reporting, budgeting, and forecasting,
capital allocation and project analysis, enhancements to the management
reporting systems and development of revenue and new business forecasting tools.
Prior to joining DIMAC Marketing, Mr. Speichinger was a senior manager with KPMG
Peat Marwick, serving mid-size to Fortune 500 clients out of the St. Louis
office.
DIRECTOR COMPENSATION
Directors who are officers, employees or otherwise affiliates of DIMAC
Holdings or our company do not receive compensation for their services as
directors. Directors of DIMAC Holdings or our company are entitled to
reimbursement of their reasonable out-of-pocket expenses in connection with
their travel to and attendance at meetings of the board of directors or
committees thereof. No determination has yet been made with respect to annual
fees or board attendance fees, if any, to be paid to directors of DIMAC Holdings
or our company who are not also officers, employees or otherwise affiliates of
DIMAC Holdings or our company, respectively.
EXECUTIVE OFFICER EMPLOYMENT AGREEMENTS
AmeriComm Direct Marketing and Robert M. Miklas entered into an agreement
dated June 28, 1996 which sets forth certain terms of the employment of Mr.
Miklas as President and CEO of AmeriComm Direct Marketing and AmeriComm
Holdings. This agreement provides for an annual base salary of $250,000 which
may be increased subject to the approval of the Compensation Committee of the
Board of Directors of AmeriComm Holdings and AmeriComm Direct Marketing. Mr.
Miklas is eligible to receive bonus compensation as determined from time to time
by the Board of Directors of AmeriComm Holdings and AmeriComm Direct Marketing.
In the event that AmeriComm Direct Marketing terminates Mr. Miklas' employment
under certain circumstances, Mr. Miklas shall be entitled to continuation of his
base compensation for a period of one year.
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DIMAC DIRECT and John F. Meneough entered into an agreement dated December
18, 1997 which sets forth certain terms of employment of Mr. Meneough. This
agreement provides for an annual base salary of $200,000 and a guaranteed
minimum bonus of $40,000. In the event that DIMAC DIRECT terminates Mr.
Menough's employment under certain circumstances, Mr. Meneough shall be entitled
to receive an amount equal to his annual base salary plus a pro-rata bonus for
the calendar year in which he is terminated.
AmeriComm Direct Marketing and Jack Resnick entered into an agreement dated
June 28, 1996 which sets forth certain terms of the employment of Mr. Resnick as
Senior Vice President of AmeriComm Direct Marketing and AmeriComm Holdings and
as President and CEO -- Transkrit Division. This agreement provides for an
annual base salary of $225,000 which may be increased subject to the approval of
the Compensation Committee of the Board of Directors of AmeriComm Direct
Marketing and AmeriComm Holdings. Mr. Resnick is eligible to receive bonus
compensation as determined under an agreed-upon plan. In the event that
AmeriComm Direct Marketing terminates Mr. Resnick's employment under certain
circumstances, Mr. Resnick will be entitled to continuation of his base
compensation for a period of one year.
AmeriComm Direct Marketing and Scott Ebert entered into an agreement dated
May 18, 1998 which sets forth certain terms of employment of Mr. Ebert as Vice
President and Controller of AmeriComm Direct Marketing and AmeriComm Holdings.
This agreement provides for an annual base salary of $115,000 which may be
increased pursuant to an agreed-upon plan subject to the approval of the
Compensation Committee of the Board of Directors of AmeriComm Holdings and
AmeriComm Direct Marketing. The agreement also provides for bonus compensation
based upon Mr. Ebert's performance and the overall profitability of AmeriComm
Direct Marketing with a guaranteed minimum bonus of $20,000 for calendar year
1998. In the event that AmeriComm Direct Marketing terminates Mr. Ebert's
employment under certain circumstances, or if Mr. Ebert terminates his
employment with our company, Mr. Ebert shall be entitled to continuation of his
base compensation for a period of nine months.
DIMAC DIRECT and Michael Speichinger entered into an agreement dated
December 18, 1997 which sets forth certain terms of employment of Mr.
Speichinger. This agreement provides for an annual base salary of $90,000 and a
guaranteed minimum bonus of $30,000. In the event that DIMAC DIRECT terminates
Mr. Speichinger's employment under certain circumstances, Mr. Speichinger shall
be entitled to receive an amount equal to his annual base salary plus a pro-rata
bonus for the calendar year in which he is terminated.
STOCK OPTION PLAN
DIMAC Holdings adopted a stock option plan which is administered by the
Compensation Committee of DIMAC Holdings' Board of Directors (or such other
committee of the Holdings Board as it may designate) (the "Holdings Committee").
Under its stock option plan the Holdings Committee may grant options to purchase
up to 16% of DIMAC Holdings common stock, which may be either "incentive stock
options", within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or stock options other than incentive stock options to
executive and other employees, including officers, directors (whether or not
also employees) and consultants of DIMAC Holdings and its subsidiaries,
including DIMAC Corporation, and affiliates designated by the Holdings
Committee.
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SECURITY OWNERSHIP
THE COMPANY
Our authorized capital stock consists of 100 shares of common stock, par
value $0.001 per share, all of which shares are issued and outstanding, have
voting rights and are presently held by DIMAC Holdings.
HOLDINGS
The authorized capital stock of DIMAC Holdings consists of 2,000,000 shares
of voting common stock, par value $0.001 per share, of which 1,092,000 shares
were issued and outstanding as of October 22, 1998, and 200,000 shares of
non-voting common stock, par value $0.001 per share, of which 8,000 shares were
issued and outstanding as of October 22, 1998.
The following table sets forth as of the date hereof the number and
percentage of shares of common stock beneficially owned by (i) each person known
to DIMAC Holdings to be the beneficial owner of more than 5% of any class of
DIMAC Holdings' equity securities, (ii) each director and each executive officer
of DIMAC Holdings or our company, and (iii) all directors and executive officers
of DIMAC Holdings as a group.
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
HOLDINGS OF
COMMON STOCK HOLDINGS
BENEFICIALLY COMMON STOCK
OWNED (1) OUTSTANDING
-------------- ------------
<S> <C> <C>
McCown De Leeuw & Co. IV, L.P. (2)................................................. 735,500 66.86%
McCown De Leeuw & Co. IV Associates, L.P. (2)...................................... 735,500 66.86%
Delta Fund LLC (2)................................................................. 735,500 66.86%
State of Michigan Retirement Systems (3)........................................... 150,000 13.64%
First Union Investors, Inc. (4).................................................... 62,000 5.64%
George E. McCown (2)............................................................... 735,500 66.86%
David E. De Leeuw (2).............................................................. 735,500 66.86%
David E. King (2).................................................................. 735,500 66.86%
James L. Wu (2).................................................................... 735,500 66.86%
Martin R. Lewis.................................................................... 30,000 2.73%
Jack Resnick....................................................................... 2,500 *
Timothy Beffa...................................................................... 250 *
Benjamin L. McSwiney............................................................... 250 *
All directors and executive officers as a group.................................... 768,500 69.86%
</TABLE>
- ------------------------
* Represents less than 1.0%.
(1) Common stock is the only class of capital stock of DIMAC Holdings which has
voting rights. Beneficial ownership is determined in accordance with the
rules of the SEC. Shares of capital stock subject to options, warrants and
convertible securities currently exercisable or convertible, or exercisable
or convertible within 60 days, are deemed outstanding for computing the
percentage of the person holding such options but are not deemed outstanding
for computing the percentage of any other person. Except as indicated by
footnote, the persons named in the table above have sole voting and
investment power with respect to all shares of capital stock indicated as
beneficially owned by them.
(2) Includes 709,390 shares of common stock owned by McCown De Leeuw & Co. IV,
L.P., an investment partnership whose general partner is MDC Management
Company IV, LLC ("MDC IV"), 15,078 shares of common stock owned by McCown De
Leeuw & Co. IV Associates, L.P., an investment partnership whose general
partner is MDC IV, and 11,032 shares of common stock
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owned by Delta Fund LLC, a California limited liability company. The voting
members of Delta Fund LLC are George E. McCown, David E. De Leeuw, David E.
King, Robert B. Hellman, Jr., Charles Ayres and Steven A. Zuckerman, who are
also the only managing members of MDC IV. Voting and dispositive decisions
regarding the securities are made by a vote or consent of all of the
managing members of MDC IV. Voting and dispositive decisions regarding
securities owned by Delta Fund LLC are made by a vote or consent of a
majority in number of the voting members of Delta Fund LLC. Messrs. McCown,
De Leeuw, King, Hellman, Ayres and Zuckerman have no direct ownership of any
securities and disclaim beneficial ownership of such shares except, in the
case of Delta Fund LLC, to the extent of their proportionate membership
interests. The address of each of the above referenced entities is c/o
McCown De Leeuw & Co., Inc., 3000 Sand Hill Road, Building 3, Suite 290,
Menlo Park, CA 94025.
(3) The Michigan Department of Treasury, Bureau of Investments manages the State
of Michigan Retirement Systems. The managed funds are: the State Police
Retirement Fund, the State Employees' Retirement Fund, the Public School
Employees' Retirement Fund and the Judges' Retirement Fund. The address of
each of these funds is Michigan Department of Treasury, Bureau of
Investments, P.O. Box 15128, Lansing, MI 48901.
(4) Includes 54,000 shares of voting common stock and 8,000 shares of non-voting
common stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ADVISORY SERVICES AGREEMENT
We maintain an Advisory Services Agreement with MDC Management Company IV,
LLC ("MDC IV"), an affiliate. Under the Advisory Services Agreement, MDC IV
provides certain consulting, financial, and managerial functions to us for an
annual fee equal to the greater of (i) $550,000 and (ii) 1.06% of our pro forma
EBITDA for the immediately preceding fiscal year (such EBITDA to be calculated
without any deduction of the annual fee payable to MDC IV for such fiscal year).
In no event may the annual fee exceed $1,000,000 in any year. Despite this, the
annual fee for the period prior to the fiscal year commencing January 1, 1999
will be an amount equal to $550,000 pro rated by the amount of days the Advisory
Services Agreement has been in effect during the 1998 calendar year. In
addition, under the Advisory Services Agreement, we have paid MDC IV a fee equal
to $9,900,000 for services rendered in the acquisition of our company by certain
MDC Entities. The Advisory Services Agreement expires June 26, 2003 and is
renewable annually after this date, unless we terminate it for justifiable
cause, as defined in the Advisory Services Agreement. We believe that the fees
received for the professional services rendered are at least as favorable to us
as those which could be negotiated with a third party.
AMERICOMM HOLDINGS AGREEMENT AND PLAN OF MERGER
Under an Agreement and Plan of Merger dated as of May 18, 1998, AmeriComm
Holdings, which was majority owned by McCown De Leeuw & Co. II, L.P. and certain
of its affiliates, merged into one of our wholly-owned subsidiaries, which at
the time of such acquisition was wholly-owned by McCown De Leeuw & Co. IV, L.P.
and certain of its affiliates. McCown De Leeuw II, L.P. and McCown De Leeuw IV,
L.P. are affiliates and under common control. The Agreement and Plan of Merger
was the result of arms length negotiations and both we and AmeriComm Holdings
believe that the terms of the Agreement and Plan of Merger were at least as
favorable to each such party as those that could be negotiated with a third
party. In addition, we and AmeriComm Holdings each received an opinion from an
investment bank which stated that, subject to certain assumptions contained
therein, the transaction was fair to the stockholders of such entity from a
financial point of view.
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DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR SECURED CREDIT FACILITY
The following description briefly outlines the provisions of our senior
secured credit facility. We have filed a copy of the senior secured credit
agreement as an exhibit to the registration statement which includes this
Prospectus. To find out how to locate the senior secured credit agreement,
please read the section labelled "Where You Can Find More Information" under the
heading "Prospectus Summary."
The description set forth below is not complete and is qualified in its
entirety by reference to certain agreements setting forth the principal terms
and conditions of our senior secured credit facility.
We and DIMAC Holdings entered into a credit agreement dated as of June 26,
1998 among our company, DIMAC Holdings, the financial institutions party thereto
and Credit Suisse First Boston, New York Branch (as amended, supplemented,
restated or otherwise modified). In connection with such financing, Credit
Suisse First Boston is acting as Administrative Agent.
The senior secured credit facility consists of
- a senior secured term facility providing for term loans in an aggregate
principal amount of $195.0 million, consisting of:
- $55.0 million of Term A loans;
- $80.0 million of Term B loans; and
- $60.0 million of Term C loans;
- a senior secured revolving credit facility providing for revolving loans
and the issuance of letters of credit for our account, in an aggregate
principal and stated amount at any time not to exceed $75.0 million (of
which not more than $5.0 million may be represented by letters of
credit).
The Term A loans mature six years, the Term B loans mature eight years and
the Term C loans mature eight and one-half years after June 26, 1998. The term
loans will be paid quarterly until final maturity as shown in the following
table.
<TABLE>
<CAPTION>
SCHEDULED QUARTERLY SCHEDULED QUARTERLY SCHEDULED QUARTERLY
REPAYMENT OF TERM A REPAYMENT OF TERM B REPAYMENT OF TERM C
QUARTERS ENDING: LOANS LOANS LOANS
- ----------------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
March 31, 2000-June 30, 2001................... 4.00% 0.25% 0.25%
September 30, 2001-December 31, 2001........... 4.25% 0.25% 0.25%
March 31, 2002-December 31, 2002............... 6.125% 0.25% 0.25%
March 31, 2003-December 31, 2003............... 6.75% 0.25% 0.25%
March 31, 2004-June 30, 2004................... 8.00% 0.25% 0.25%
September 30, 2004-June 30, 2005............... 7.50% 0.25%
September 30, 2005-March 31, 2006.............. 16.00% 0.25%
June 30, 2006.................................. 17.50% 0.25%
September 30, 2006-December 31, 2006........... 46.75%
</TABLE>
Revolving loans and letters of credit are fully revolving and available at
any time until June 30, 2004. The amount of available revolving loans will be
reduced by $15.0 million on June 30, 2003.
We are required to make mandatory prepayments on our senior secured credit
facility under certain circumstances, including upon certain asset sales or
issuance of debt or equity securities. We are also required to make prepayments
on the senior secured credit facility and permanently reduce commitments under
the revolving credit facility in an amount equal to a percentage of our
Consolidated
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Excess Cash Flow (as such term is defined in our senior secured credit
agreement) and upon receipt of cash proceeds from property and casualty
insurance or condemnation awards. At our option, loans may be prepaid, and
revolving credit commitments or letters of credit may be permanently reduced, in
whole or in part at any time without premium or penalty except for break-funding
costs.
Our obligations under our senior secured credit facility are unconditionally
and irrevocably guaranteed by our present and future domestic subsidiaries and
by DIMAC Holdings. In addition, our senior secured credit facility is secured by
a first priority or equivalent security interest in all of our capital stock and
each of our present and future domestic subsidiaries and the tangible and
intangible assets of us and our guarantors.
At our option, the interest rate per year applicable to loans under our
senior secured credit facility will be either a rate (grossed-up for maximum
statutory reserve requirements for eurocurrency liabilities) determined by
reference to the British Bankers' Association Interest Settlement Rates for
deposits in dollars for a period equal to an interest period of one, two, three
or six months (as selected by us) (the "Adjusted Eurodollar Rate") or the Base
Rate, in each case plus a margin. Until the later of:
- six months after June 26, 1998; and
- the day on which the financial statements covering the period ending
September 30, 1998 are delivered to the lenders (the "Margin Date"),
the interest rate per year applicable to revolving loans will be either the
Adjusted Eurodollar Rate plus a margin of 2.75% or the Base Rate plus a margin
of 1.75%.
Until the Margin Date,
- the interest rate per year applicable to Term A loans will be either the
Adjusted Eurodollar Rate plus a margin of 2.75% or the Base Rate plus a
margin of 1.75%;
- the interest rate per year applicable to Term B loans will be either the
Adjusted Eurodollar Rate plus a margin of 3.25% or the Base Rate plus a
margin of 2.25% and;
- the interest rate per year applicable to Term C loans will be either the
Adjusted Eurodollar Rate plus a margin of 3.50% or the Base Rate plus a
margin of 2.50%.
After the Margin Date, the applicable margin will be subject to a grid based
upon our leverage. The Base Rate is the higher of:
- the rate of interest publicly announced by Credit Suisse First Boston as
its prime commercial lending rate in effect at its principal office in
New York City; and
- the federal funds effective rate plus 0.5%.
We will pay an annual fee equal to 0.5% on the undrawn portion of the
commitments in respect of our revolving credit facility until the Margin Date.
After the Margin Date the annual fee will be subject to a grid based upon our
leverage. We will also pay an annual fee on the face amount of all outstanding
letters of credit equal to the applicable margin then in effect with respect to
loans under our revolving credit facility bearing interest based upon the
Adjusted Eurodollar Rate.
Our senior secured credit facility contains a number of significant
covenants that, among other things, restrict our ability as well as our
subsidiaries' ability to:
- dispose of assets;
- incur additional indebtedness;
- repay other indebtedness or amend other debt instruments;
- pay dividends;
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- create liens on assets;
- enter into leases or guarantees;
- make capital expenditures;
- make investments or acquisitions;
- engage in mergers or consolidations; and
- engage in certain transactions with subsidiaries and affiliates and
otherwise restrict corporate activities.
In addition, under our senior secured credit facility, we are required to comply
with specified financial ratios and tests, including minimum interest coverage,
minimum fixed charge coverage and maximum leverage ratios and a limitation on
capital expenditures.
Our senior secured credit facility also contains provisions that prohibit
any modification of the Notes Indenture in any manner adverse to the lenders and
that will limit our ability to refinance the Notes without the consent of such
lenders.
DIMAC HOLDINGS SENIOR NOTES
On October 22, 1998, DIMAC Holdings issued $30.0 million aggregate principal
amount of its 15 1/2% Senior Notes due 2009. Senior Note holders also received
warrants to purchase 28,205 shares of DIMAC Holdings common stock at a nominal
exercise price. The Senior Notes are unsecured senior obligations of Holdings
and will mature on October 22, 2009. The Senior Notes bear interest at a rate of
15 1/2% per year. Interest on the Senior Notes will accrue and be payable
quarterly on March 31, June 30, September 30 and December 31 of each year
beginning December 31, 1998, or if any such day is not a business day, on the
next succeeding business day. For each installment of interest due on or prior
to September 30, 2003, instead of paying all of such installment of interest in
cash, DIMAC Holdings may pay all of such installment (or a portion) by issuing
additional Senior Notes in an aggregate principal amount equal to the amount of
interest due on the applicable interest payment date and not paid in cash.
Interest on the Senior Notes will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from the date of
issuance.
Except as set forth below, the Senior Notes are not redeemable at the option
of DIMAC Holdings prior to October 22, 2002. DIMAC Holdings may redeem the
Senior Notes, in whole or in part, at any time on or after October 22, 2002. The
redemption price of the Senior Notes is equal to the percentages of the
principal amount of the Senior Notes set forth below, plus accrued and unpaid
interest to the redemption date, if redeemed during the 12-month period
beginning October 22 of the years indicated below.
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2002........................................................................ 109.300%
2003........................................................................ 107.750%
2004........................................................................ 106.200%
2005........................................................................ 104.650%
2006........................................................................ 103.100%
2007........................................................................ 101.550%
2008........................................................................ 100.000%
</TABLE>
At any time prior to October 22, 2002, DIMAC Holdings may redeem, in whole
or in part, the Holdings Notes with the proceeds of one or more equity offerings
at a redemption price of 107.75% of the principal amount of the Senior Notes
plus accrued and unpaid interest, if any, to the redemption
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date (subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date).
Upon the occurrence of a Change of Control (as defined in the Senior Notes
Indenture), DIMAC Holdings is required to repurchase all or any part of such
holder's Senior Notes at a purchase price in cash equal to 101% of the principal
amount of the Senior Notes plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date).
The Senior Notes Indenture imposes certain affirmative covenants and other
requirements on DIMAC Holdings and us and also contains certain negative
covenants that include, among other things, limitations on:
- the amount of indebtedness DIMAC Holdings and its subsidiaries may incur;
- certain payments DIMAC Holdings and its subsidiaries may make;
- restrictions on distributions from subsidiaries;
- sales of assets by DIMAC Holdings and its subsidiaries;
- affiliate transactions;
- investments;
- DIMAC Holdings' ability to merge or consolidate or transfer all or
substantially all of its assets; and
- certain acquisitions by DIMAC Holdings and its subsidiaries.
The Senior Notes Indenture contains customary events of defaults, including
default in any payment of principal and interest on any Senior Notes when due.
If an event of default occurs and is continuing, the holders of a majority in
principal amount of the outstanding Senior Notes by notice to DIMAC Holdings may
declare the principal of and accrued and unpaid interest or all of the then-
outstanding Senior Notes to be due and payable. Upon such a declaration, such
principal and accrued and unpaid interest shall be due and payable immediately.
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DESCRIPTION OF NOTES
GENERAL
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions".
We issued the Notes under an Indenture, dated as of October 15, 1998,
between our company, our subsidiary guarantors and Wilmington Trust Company, as
Trustee. The terms of the Notes include those stated in the Notes Indenture and
those made part of the Notes Indenture by reference to the Trust Indenture Act
of 1939.
The following description is a summary of the material provisions of the
Indenture. It does not restate that agreement in its entirety. We urge you to
read the Indenture and its appendix; because it, and not this description,
defines your rights as a holder of these Notes.
We have filed a copy of the Indenture and its appendix as an exhibit to the
registration statement which includes this Prospectus. To find out how to locate
the Notes Indenture and its appendix, please read the section labelled "Where
You Can Find More Information" under the heading "Prospectus Summary". You may
also review the Notes Indenture at the Trustee's offices at 1100 North Market
Street, Rodney Square North, Wilmington, Delaware.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of DIMAC
Corporation in the Borough of Manhattan, The City of New York, except that, at
our option, payment of interest may be made by check mailed to the address of
the holders as such address appears in the Note Register. Any Old Notes that
remain outstanding after the completion of the Exchange Offer, together with the
New Notes issued in the Exchange Offer, will be treated as a single class of
securities under the Notes Indenture. For more information about the Exchange
Offer, read the sections labeled "The Exchange Offer" and "Old Notes
Registration Rights Agreement" in this Prospectus.
The New Notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple of $1,000. No service
charge will be made for any registration of transfer or exchange of Notes, but
the Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes will be unsecured senior subordinated obligations of the Company
and will mature on October 1, 2008. Each Note will bear interest:
- at the rate per annum shown on the front cover of this Prospectus from
the date of issuance; or
- from the most recent date to which interest has been paid or provided
for, payable semiannually on October 1 and April 1 of each year
commencing April 1, 1999
to holders of record at the close of business on September 15 or March 15
immediately preceding the interest payment date. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
The Company initially issued $100.0 million aggregate principal amount of
the Notes, but the Indenture permits the Company to issue up to $300.0 million
aggregate principal amount of Notes. All Notes issued under the Indenture will
have the same terms and will be treated as the same class for all purposes,
including voting rights.
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OPTIONAL REDEMPTION
Except as set forth below, the Notes will not be redeemable at the option of
the Company prior to October 1, 2003. On and after such date, the Notes will be
redeemable, at the Company's option, in whole or in part, at any time upon not
less than 30 nor more than 60 days prior notice mailed by first-class mail to
the registered address of each holder of Notes to be redeemed, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
If redeemed during the 12 month period commencing on October 1 of the years
set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
2003........................................................................ 106.250%
2004........................................................................ 104.167
2005........................................................................ 102.083
2006 and thereafter......................................................... 100.000
</TABLE>
In addition, at any time and from time to time prior to October 1, 2001 the
Company may redeem up to 35% of the aggregate principal amount of the Notes
issued under the Indenture with the proceeds of one or more Equity Offerings
(provided that if the Equity Offering is an offering by Holdings, a portion of
the Net Cash Proceeds thereof equal to the amount required to redeem any such
Notes is contributed to the equity capital of the Company), at a redemption
price (expressed as a percentage of principal amount) of 112.5% plus accrued and
unpaid interest, if any, to the redemption date (subject to the right of holders
of record on the relevant record date to receive interest due on the relevant
interest payment date); PROVIDED, HOWEVER, that
- at least 65% of the aggregate principal amount of the Notes issued under
the Indenture remains outstanding after each such redemption; and
- such redemption shall occur within 60 days of such Equity Offering.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less will be redeemed
in part. If any Note is to be redeemed in part only, the notice of redemption
relating to such Note shall state the portion of the principal amount thereof to
be redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancelation of the
original Note.
GUARANTIES
The obligations of the Company pursuant to the Notes, including the
repurchase obligation resulting from a Change of Control, will be
unconditionally guaranteed, jointly and severally, on a senior subordinated
basis, by each of the Subsidiary Guarantors. Each Subsidiary Guaranty will be
limited in amount to an amount not to exceed the maximum amount that can be
guaranteed by the applicable Subsidiary Guarantor without rendering the
Subsidiary Guaranty, as it relates to such Subsidiary Guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally. If a Subsidiary
Guaranty were to be rendered voidable, it could be subordinated by a court to
all other indebtedness (including guarantees and other contingent liabilities)
of the applicable Subsidiary Guarantor, and, depending on the amount of such
indebtedness, a Subsidiary Guarantor's liability on its Subsidiary Guaranty
could be reduced to zero. See "Risk Factors--Ranking of the Notes."
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Pursuant to the Indenture, a Subsidiary Guarantor may
- consolidate with;
- merge with or into; or
- transfer all or substantially all its assets to
any other Person to the extent described below under "--Certain
Covenants--Merger and Consolidation"; PROVIDED, HOWEVER, that if such other
Person is not the Company or a Subsidiary Guarantor, such Subsidiary Guarantor's
obligations under its Subsidiary Guaranty must be expressly assumed by such
other Person. However, upon the sale or other disposition (including by way of
consolidation or merger) of a Subsidiary Guarantor or the sale or disposition of
all or substantially all the assets of a Subsidiary Guarantor (in each case
other than to the Company or an Affiliate of the Company) permitted by the
Indenture, such Subsidiary Guarantor and person acquiring the property of such
Subsidiary Guarantor will be released and relieved from all its obligations
under its Subsidiary Guaranty.
In addition, if at any time a Subsidiary Guarantor no longer has any Senior
Indebtedness outstanding, such Subsidiary Guarantor will be released and
relieved from all its obligations under its Subsidiary Guaranty.
RANKING
The indebtedness evidenced by the Notes and the Subsidiary Guaranties will
be senior subordinated obligations of the Company and the Subsidiary Guarantors,
as the case may be. The payment of the principal of, premium (if any) and
interest on the Notes and the payment of any Subsidiary Guaranty are
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full in cash or Cash Equivalents of all Senior Indebtedness of the
Company or the relevant Subsidiary Guarantor, as the case may be. However,
payment from the money or the proceeds of U.S. Government Obligations held in
any defeasance trust described under "--Defeasance" below is not subordinate to
any Senior Indebtedness or subject to the restrictions described herein. As of
June 30, 1998, after giving pro forma effect to the Transactions:
- the Company would have had approximately $206.1 million of outstanding
Senior Indebtedness and the Company would have been able to incur
revolving loans of $72.8 million under the Senior Credit Agreement,
which, when borrowed, will be Senior Indebtedness; and
- the Subsidiary Guarantors would have had $206.1 million of outstanding
Senior Indebtedness, substantially all of it represented by guarantees of
Senior Indebtedness of the Company under the Senior Credit Agreement.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company and the Subsidiary Guarantors may Incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness. See "--Certain
Covenants--Limitation on Indebtedness".
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary Guaranty
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guaranty will in all respects rank PARI PASSU with all other Senior
Subordinated Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively. Each of the Company and the Subsidiary Guarantors agreed in the
Indenture that it will not incur, directly or indirectly, any Indebtedness that
is subordinate or junior in ranking in any respect to Senior Indebtedness unless
such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness
merely because it is unsecured.
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The Company may not pay principal of, premium (if any), or interest on, the
Notes or make any deposit pursuant to the provisions described under
"--Defeasance" below and may not otherwise purchase or retire any Notes
(collectively, "pay the Notes") if:
- any Senior Indebtedness is not paid when due in cash or Cash Equivalents;
or
- any other default on Senior Indebtedness occurs and the maturity of such
Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Senior Indebtedness has been paid in
full in cash or Cash Equivalents. However, the Company may pay any such amounts
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the Senior Indebtedness
with respect to which either of the events set forth in the immediately
preceding bullet points has occurred and is continuing. During the continuance
of any default (other than a default described in the immediately preceding
bullet points) with respect to any Designated Senior Indebtedness pursuant to
which the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, the Company may not pay any amounts
in respect of the Notes for a period (a "Payment Blockage Period") commencing
upon the receipt by the Trustee (with a copy to the Company) of written notice
(a "Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Indebtedness or from the holders of such Designated
Senior Indebtedness specifying an election to effect a Payment Blockage Period
and ending 179 days thereafter, or earlier if such Payment Blockage Period is
terminated:
- by written notice to the Trustee and the Company from the Person or
Persons who gave such Blockage Notice;
- because the default giving rise to such Blockage Notice is no longer
continuing; or
- because such Designated Senior Indebtedness has been repaid in full in
cash or Cash Equivalents.
Notwithstanding the provisions described in the immediately preceding
sentence, unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, the Company may resume payments on the Notes after the end
of such Payment Blockage Period. Not more than one Blockage Notice may be given
in any consecutive 360 day period, irrespective of the number of defaults with
respect to Designated Senior Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial:
- liquidation;
- dissolution;
- reorganization;
- bankruptcy of; or
- similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness of
the Company will be entitled to receive payment in full in cash or Cash
Equivalents of such Senior Indebtedness before the holders of the Notes are
entitled to receive any payment, and until such Senior Indebtedness is paid in
full in cash or Cash Equivalents (and in the case of Senior Indebtedness in
respect of letters of credit not yet drawn upon in full, fully secured by cash
collateral), any payment or distribution to which holders would be entitled but
for the subordination provisions of the Indenture will be made to holders
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of such Senior Indebtedness as their interests may appear. If a distribution is
made to the Trustee or holders of the Notes that, due to the subordination
provisions in the Indenture, should not have been made to them, the Trustee and
such holders are required to hold it in trust for the holders of such Senior
Indebtedness and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
Neither the Company nor any Subsidiary Guarantor may pay the Notes until five
Business Days after such holders or the Representative of the Designated Senior
Indebtedness receive notice of such acceleration and, thereafter, may pay the
Notes only if the subordination provisions of the Indenture otherwise permit
payment at that time.
The obligations of a Subsidiary Guarantor under its Subsidiary Guaranty are
senior subordinated obligations. As such, the rights of holders of the Notes to
receive payment by a Subsidiary Guarantor pursuant to its Subsidiary Guaranty
will be subordinated in right of payment to the rights of holders of Senior
Indebtedness of such Subsidiary Guarantor. The terms of the subordination
provisions described above with respect to the Company's obligations under the
Notes apply equally to a Subsidiary Guarantor and the obligations of such
Subsidiary Guarantor under its Subsidiary Guaranty.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency:
- creditors of the Company or a Subsidiary Guarantor who are holders of
Senior Indebtedness of the Company or a Subsidiary Guarantor, as the case
may be, may recover more, ratably, than the Noteholders; and
- creditors of the Company or a Subsidiary Guarantor who are not holders of
Senior Indebtedness or of Senior Subordinated Indebtedness of the Company
or a Subsidiary Guarantor, as the case may be (including the Notes), may
recover less, ratably, than holders of Senior Indebtedness and may
recover more, ratably, than the holders of Senior Subordinated
Indebtedness.
BOOK-ENTRY, DELIVERY AND FORM
The Notes sold will be issued in the form of a Global Note. The Global Note
will be:
- deposited with, or on behalf of, the Depository; and
- registered in the name of the Depository or its nominee.
Except as set forth below, the Global Note may be transferred, in whole and not
in part, only to:
- the Depository; or
- another nominee of the Depository.
Investors may hold their beneficial interests in the Global Note:
- directly through the Depository if they have an account with the
Depository; or
- indirectly through organizations which have accounts with the Depository.
Upon the transfer of a Note in definitive form, such Note will, unless the
Global Note has previously been exchanged for Notes in definitive form, be
exchanged for an interest in the Global Note representing the principal amount
of Notes being transferred.
The Depository has advised the Company as follows: The Depository is:
- a limited-purpose trust company and organized under the laws of the State
of New York;
- a member of the Federal Reserve System;
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- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
- "a clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
The Depository was created to:
- hold securities of institutions that have accounts with the Depository
("participants"); and
- facilitate the clearance and settlement of securities transactions among
its participants in such securities through electronic book-entry changes
in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates.
The Depository's participants include:
- securities brokers and dealers (which may include the Initial
Purchasers);
- banks;
- trust companies;
- clearing corporations; and
- certain other organizations.
Access to the Depository's book-entry system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, whether directly or
indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. The accounts to
be credited shall be designated by the Initial Purchasers of such Notes.
Ownership of beneficial interests in the Global Note will be limited to:
- participants; or
- persons that may hold interests through participants.
Ownership of beneficial interests in the Global Note will be shown on, and
the transfer of those ownership interests will be effected only through, records
maintained by the Depository (with respect to participants' interest) and such
participants (with respect to the owners of beneficial interests in the Global
Note other than participants). The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for all
purposes of such Notes and the Indenture. Except as set forth below, owners of
beneficial interests in the Global Note:
- will not be entitled to have the Notes represented by the Global Note
registered in their names;
- will not receive or be entitled to receive physical delivery of
certificated Notes in definitive form; and
- will not be considered to be the owners or holders of any Notes under the
Global Note.
The Company understands that under existing industry practice, in the event
an owner of a beneficial interest in the Global Note desires to take any action
that the Depository, as the holder of the Global Note, is entitled to take, the
Depository would authorize the participants to take such action,
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and that the participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Payment of principal of and interest on Notes represented by the Global Note
registered in the name of and held by the Depository or its nominee will be made
to the Depository or its nominee, as the case may be, as the registered owner
and holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Note held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants. The
Company will not have any responsibility or liability:
- for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the Global Note for any Note; or
- for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests; or
- for any other aspect of the relationship between the Depository and its
participants or the relationship between such participants and the owners
of beneficial interests in the Global Note owning through such
participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Note may not be transferred except as a whole:
- by the Depository to a nominee of such Depository; or
- by a nominee of such Depository to such Depository; or by a nominee of
such Depository to another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
The Notes represented by the Global Note are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of $1,000
and integral multiples thereof if:
- the Depository notifies the Company that it is unwilling or unable to
continue as Depository for the Global Note or if at any time the
Depository ceases to be a clearing agency registered under the Exchange
Act and a successor Depository is not appointed by the Company within 90
days;
- the Company in its discretion at any time determines not to have all of
the Notes represented by the Global Note; or
- an Event of Default has occurred and is continuing.
Any Note that is exchangeable pursuant to the preceding sentence is
exchangeable for certificated Notes issuable in authorized denominations and
registered in such names as the Depository shall direct. Subject to the
foregoing, the Global Note is not exchangeable, except for a Global Note of the
same
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aggregate denomination to be registered in the name of the Depository or its
nominee. In addition, such certificates will bear the legend referred to under
"Transfer Restrictions" (unless the Company determines otherwise in accordance
with applicable law) subject, with respect to such Notes, to the provisions of
such legend.
Neither the Company nor the Trustee shall be liable for any delay by the
Depository or any participant in identifying the beneficial owners of the
related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from the Depository for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Notes to be issued).
SAME-DAY PAYMENT
The Indenture will require that payments in respect of Notes (including
principal, premium and interest) be made:
- by wire transfer of immediately available funds to the accounts specified
by the holders thereof; or (if no such account is specified)
- by mailing a check to each such holder's registered address.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
The Company has agreed pursuant to a registration rights agreement (the
"Registration Rights Agreement") with the Initial Purchasers, for the benefit of
the holders of the Notes, that the Company will, at its cost:
- within 60 days after the Issue Date of the Notes, file a registration
statement (the "Exchange Offer Registration Statement") with the SEC with
respect to a registered offer to exchange the Notes for new notes of the
Company (the "New Notes") having terms substantially identical in all
material respects to the Old Notes (except that the New Notes will not
contain terms with respect to transfer restrictions); and
- use its reasonable best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 150
days after the Issue Date of the Notes.
Upon the effectiveness of the Exchange Offer Registration Statement, the
Company will offer (the "Exchange Offer") the New Notes in exchange for
surrender of the Old Notes. The Company will keep the Registered Exchange Offer
open for not less than 30 days (or longer if required by applicable law) after
the date notice of the Registered Exchange Offer is mailed to the holders of the
Notes. For each Note surrendered to the Company pursuant to the Registered
Exchange Offer, the holder of such Note will receive a New Note having a
principal amount equal to that of the surrendered Note. Interest on each
Exchange Note will accrue from the last interest payment date on which interest
was paid on the Note surrendered in exchange thereof or, if no interest has been
paid on such Note, from the date of its original issue. Under existing SEC
interpretations, the Exchange Notes would be freely transferable by holders
other than affiliates of the Company after the Registered Exchange Offer without
further registration under the Securities Act if the holder of the Exchange
Notes represents:
- that it is acquiring the Exchange Notes in the ordinary course of its
business;
- that it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes; and
- that it is not an affiliate of the Company, as such terms are interpreted
by the SEC;
PROVIDED, HOWEVER, that broker-dealers ("Participating Broker-Dealers")
receiving Exchange Notes in the Registered Exchange Offer will have a prospectus
delivery requirement with respect to resales of such
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Exchange Notes. The SEC has taken the position that Participating Broker-Dealers
may fulfill their prospectus delivery requirements with respect to Exchange
Notes (other than a resale of an unsold allotment from the original sale of the
Notes) with the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company is required to
allow Participating Broker-Dealers and other persons, if any, with similar
prospectus delivery requirements to use the prospectus contained in the Exchange
Offer Registration Statement in connection with the resale of such Exchange
Notes.
A holder of Notes (other than certain specified holders) who wishes to
exchange such Notes for Exchange Notes in the Registered Exchange Offer will be
required to represent:
- that any Exchange Notes to be received by it will be acquired in the
ordinary course of its business;
- that at the time of the commencement of the Registered Exchange Offer it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange
Notes; and
- that it is not an "affiliate" of the Company, as defined in Rule 405 of
the Securities Act; (or if it is an affiliate, that it will comply with
the registration and prospectus delivery requirements of the Securities
Act to the extent applicable).
If:
- applicable interpretations of the staff of the SEC do not permit the
Company to effect such a Registered Exchange Offer;
- for any other reason the Registered Exchange Offer is not consummated
within 180 days of the Issue Date;
- if the Initial Purchasers so request with respect to Notes not eligible
to be exchanged for Exchange Notes in the Registered Exchange Offer; or
- any holder of Notes is not eligible to participate in the Registered
Exchange Offer or does not receive freely tradeable Exchange Notes in the
Registered Exchange Offer,
the Company will, at its cost:
- as promptly as practicable, file a shelf registration statement (a "Shelf
Registration Statement") covering resales of the Notes or the Exchange
Notes, as the case may be;
- use its reasonable best efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act; and
- keep the Shelf Registration Statement effective until the time when the
Notes covered by the Shelf Registration Statement can be sold pursuant to
Rule 144 without any limitations under clauses (c), (e), (f) and (h) of
Rule 144.
The Company will, in the event a Shelf Registration Statement is filed,
among other things:
- provide to each holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement;
- notify each such holder when the Shelf Registration Statement has become
effective; and
- take certain other actions as are required to permit unrestricted resales
of the Notes or the Exchange Notes, as the case may be.
A holder selling such Notes or Exchange Notes pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
security holder in the related prospectus and to
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deliver a prospectus to purchasers, will be required to deliver information to
be used in connection with the Shelf Registration Statement in order to have its
Notes included in the Shelf Registration Statement, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such holder (including certain indemnification
obligations).
If:
- by December 21, 1998 (60 days after the Issue Date), neither the Exchange
Offer Registration Statement nor the Shelf Registration Statement has
been filed with the SEC;
- by April 20, 1999 (180 days after the Issue Date), the Registered
Exchange Offer is not consummated and, if applicable, the Shelf
Registration Statement is not declared effective; or
- after either the Exchange Offer Registration Statement or the Shelf
Registration Statement is declared effective, such Registration Statement
thereafter ceases to be effective or usable (subject to certain
exceptions) in connection with resales of Notes or Exchange Notes in
accordance with and during the periods specified in the Registration
Rights Agreement (each such event referred to in the immediately
preceding bullet points a "Registration Default"),
additional cash interest (the "Additional Interest") will accrue on the
applicable Notes and the Exchange Notes from and including the date on which any
such Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. The rate of the Additional Interest will
be 0.50% per annum for the first 90-day period immediately following the
occurrence of a Registration Default, and such rate will increase by an
additional 0.50% per annum with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum Additional Interest
rate of 2.0% per annum. Such Additional Interest will be payable on each regular
interest payment date and is in addition to any other interest payable from time
to time with respect to the Notes and the Exchange Notes.
If the Company effects the Registered Exchange Offer, it will be entitled to
close the Registered Exchange Offer 30 days after the commencement thereof
provided that it has accepted all Notes theretofore validly tendered in
accordance with the terms of the Registered Exchange Offer.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each holder of the Notes will have the right to require the Company
to repurchase all or any part of such holder's Notes at a purchase price in cash
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant interest
payment date):
(i) prior to the first public offering of Voting Stock of the Company or
Holdings, as the case may be, the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of majority voting power of the
Voting Stock of the Company, whether as a result of issuance of
securities of the Company or Holdings, as the case may be, any merger,
consolidation, liquidation or dissolution of the Company or Holdings, as
the case may be, any direct or indirect transfer of securities by any
Permitted Holder or otherwise (for purposes of this clause (i) and clause
(ii) below, the Permitted Holders will be deemed to beneficially own any
Voting Stock of a Person (the "specified corporation") held by any other
Person (the "parent corporation") so long as the
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Permitted Holders beneficially own (as so defined), directly or
indirectly, a majority of the voting power of the Voting Stock of the
parent corporation);
(ii) following the first public offering of Voting Stock of the Company or
Holdings, as the case may be, any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more
Permitted Holders, is or becomes the beneficial owner (as defined in
clause (i) above, except that a Person shall be deemed to have
"beneficial ownership" of all shares that any such Person has the right
to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Company or Holdings, as the
case may be; PROVIDED, HOWEVER, that the Permitted Holders beneficially
own (as defined in clause (i) above), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting
Stock of the Company or Holdings, as the case may be, than such other
person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the board of
directors of the Company or Holdings, as the case may be (for purposes of
this clause (ii), such other person shall be deemed to beneficially own
any Voting Stock of a specified corporation held by a parent corporation,
if such other person "beneficially owns" (as defined in this clause
(ii)), directly or indirectly, more than 35% of the voting power of the
Voting Stock of such parent corporation and the Permitted Holders
"beneficially own" (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of
the Voting Stock of such parent corporation and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent
corporation);
(iii) individuals who on the Issue Date constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors on the Issue Date
or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors
then in office; or
(iv) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of
all or substantially all the assets of the Company to another Person
(other than a Person that is controlled by the Permitted Holders), and,
in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of
the Company are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are changed
into or exchanged for, in addition to any other consideration, securities
of the surviving corporation that represent immediately after such
transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving corporation.
Within 30 days following any Change of Control, unless the Company has
mailed a redemption notice with respect to all the outstanding Notes in
connection with such Change of Control, the Company shall mail a notice to each
holder of record of the Notes with a copy to the Trustee stating:
- that a Change of Control has occurred and that such holder has the right
to require the Company to purchase such holder's Notes at a purchase
price in cash equal to 101% of the principal amount thereof plus accrued
and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on a record date to receive interest on the
relevant interest payment date);
- the circumstances and relevant facts and financial information concerning
such Change of Control;
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- the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
- the procedures determined by the Company, consistent with the Indenture,
that a holder must follow in order to have its Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the Indenture, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations described in the Indenture by virtue thereof.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Senior Credit Agreement. Future
indebtedness of the Company and its subsidiaries may contain prohibitions of
certain events that would constitute a Change of Control or require such
indebtedness to be repaid or repurchased upon a Change of Control. Moreover, the
exercise by the holders of their right to require the Company to repurchase the
Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the holders upon a
repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when necessary
to make any required repurchases. Even if sufficient funds were otherwise
available, the terms of the Senior Credit Agreement generally prohibit the
Company's prepayment of the Notes prior to their scheduled maturity.
Consequently, if the Company is not able to prepay amounts then outstanding
under the Senior Credit Agreement and any of its other Senior Indebtedness
containing similar restrictions or obtain requisite consents or waivers, as
described above, the Company will be unable to fulfill its repurchase
obligations if holders of Notes exercise their repurchase rights following a
Change of Control, thereby resulting in a default under the Indenture.
CERTAIN COVENANTS
The Indenture contains certain covenants including, among others, the
following:
LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
PROVIDED, HOWEVER, that the Company and any Restricted Subsidiary may Incur
Indebtedness if on the date thereof the Consolidated Coverage Ratio would be
greater than 2.00 to 1.00 if such Indebtedness is Incurred prior to October 1,
2001, or 2.25 to 1.00 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Bank Indebtedness provided that the aggregate principal amount of
Indebtedness Incurred pursuant to this clause (i) does not exceed an amount
outstanding at any time equal to $270.0 million less the aggregate amount of
permanent reductions of commitments to extend credit thereunder and
repayments of principal thereof (without duplication of repayments required
as a result of such reductions of commitments);
(ii) Indebtedness (A) of the Company owed to and held by any Wholly
Owned Subsidiary and (B) of any Restricted Subsidiary owed to and held by
the Company or any Wholly Owned Subsidiary; PROVIDED, HOWEVER, that (i) any
subsequent issuance or transfer of any Capital Stock which results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or a
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the obligor thereon and (ii) if the
Company is the obligor on such Indebtedness, such Indebtedness is
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expressly subordinated to the prior payment in full in cash of all
obligations with respect to the Notes;
(iii) Indebtedness represented by the Notes, any Indebtedness (other
than the Indebtedness described in clauses (i)-(ii) above) outstanding on
the date of the Indenture (including any outstanding notes of AmeriComm
Direct Marketing, Inc.) and any Refinancing Indebtedness Incurred in respect
of any Indebtedness described in this clause (iii) or paragraph (a) above;
(iv) Indebtedness represented by Guarantees of Indebtedness Incurred
pursuant to clause (i) above;
(v) Indebtedness under Currency Agreements and Interest Rate Agreements
which are entered into for bona fide hedging purposes of the Company or its
Restricted Subsidiaries (as determined in good faith by the Board of
Directors or senior management of the Company) and correspond in terms of
notional amount, duration, currencies and interest rates, as applicable, to
Indebtedness of the Company or the Restricted Subsidiaries Incurred without
violation of the Indenture or to business transactions of the Company or the
Restricted Subsidiaries on customary terms entered into in the ordinary
course of business;
(vi) Indebtedness of the Company or any of its Restricted Subsidiaries
attributable to Capitalized Lease Obligations, or Incurred to finance the
acquisition, construction or improvement of fixed or capital assets, or
constituting Attributable Indebtedness in respect of Sale/Leaseback
Transactions, in an aggregate principal amount at any one time outstanding
not in excess of $10.0 million;
(vii) Subsidiary Guaranties of the Subsidiary Guarantors;
(viii) Permitted Seller Paper in an aggregate principal amount at any
one time outstanding not in excess of $25.0 million; and
(ix) Indebtedness of the Company or any of the Restricted Subsidiaries
(which may comprise Bank Indebtedness) in an aggregate principal amount at
any time outstanding not in excess of $10.0 million.
(c) Notwithstanding any other provision of this covenant, the Company and
its Restricted Subsidiaries shall not Incur any Indebtedness (i) pursuant to
paragraph (b) above if the proceeds thereof are used, directly or indirectly, to
repay, prepay, redeem, defease, retire, refund or refinance any Subordinated
Obligations of the Company or any Restricted Subsidiary unless such Indebtedness
shall be subordinated to the Notes or the applicable Subsidiary Guaranty, as the
case may be, to at least the same extent as such Subordinated Obligations or
(ii) pursuant to paragraph (a) or (b) if such Indebtedness is subordinate or
junior in ranking in any respect to any Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness.
(d) Notwithstanding any other provision of this covenant, the Company and
its Restricted Subsidiaries shall not Incur any Secured Indebtedness which is
not Senior Indebtedness of the obligor unless contemporaneously therewith
effective provision is made to secure the Notes or the applicable Subsidiary
Guaranty, as the case may be, equally and ratably with such Secured Indebtedness
for so long as such Secured Indebtedness is secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay
any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) except (A) dividends or distributions payable in its Capital Stock
(other than Disqualified Stock) and (B) dividends or distributions payable to
the Company or another Restricted
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Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned Subsidiary,
to its other stockholders on a pro rata basis), (ii) purchase, redeem, retire or
otherwise acquire for value any Capital Stock of the Company or any Restricted
Subsidiary held by Persons other than the Company or another Restricted
Subsidiary, (iii) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition) or
(iv) make any Investment (other than a Permitted Investment) in any Person (any
such dividend, distribution, purchase, redemption, repurchase, defeasance, other
acquisition, retirement or Investment being herein referred to as a "Restricted
Payment"), if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); or (2) the Company could not Incur at least an
additional $1.00 of Indebtedness pursuant to paragraph (a) under "--Limitation
on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared (the amount so expended, if other than in
cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a resolution of the Board of
Directors) or made subsequent to the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period (treated as
one accounting period) from the beginning of the fiscal quarter during
which the Issue Date occurs to the end of the most recent fiscal quarter
ending prior to the date of such Restricted Payment as to which financial
results are available (but in no event more than 135 days prior to the
date of such Restricted Payment) (or, in case such Consolidated Net
Income shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from the issue
or sale of its Capital Stock (other than Disqualified Stock) or other
cash contributions to its capital subsequent to the Issue Date (other
than an issuance or sale to a Subsidiary of the Company or an employee
stock ownership plan or other trust established by the Company or any of
its Subsidiaries);
(C) aggregate Net Cash Proceeds from the issue or sale of its Capital Stock
to an employee stock ownership plan or similar trust; PROVIDED, HOWEVER,
that if such plan or trust Incurs any Indebtedness to or Guaranteed by
the Company to finance the acquisition of such Capital Stock, such
aggregate amount shall be limited to any increase in the Consolidated Net
Worth of the Company resulting from principal repayments made by such
plan or trust with respect to Indebtedness Incurred by it to finance the
purchase of such Capital Stock;
(D) the amount by which Indebtedness of the Company or its Subsidiaries is
reduced on the Company's balance sheet upon the conversion or exchange
(other than by a Subsidiary) subsequent to the Issue Date of any
Indebtedness of the Company or its Subsidiaries convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the
Company (less the amount of any cash, or other property, distributed by
the Company or any Subsidiary upon such conversion or exchange); and
(E) $5.0 million.
(b) The provisions of paragraph (a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated Obligations
of the Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or other trust established by the Company or any of its
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Subsidiaries); PROVIDED, HOWEVER, that (A) such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments and (B) the Net
Cash Proceeds from such sale shall be excluded from clause (3)(B) of paragraph
(a);
(ii) any purchase or redemption of Subordinated Obligations of the Company
or any Restricted Subsidiary made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Subordinated Obligations of the Company or any
Restricted Subsidiary as the case may be; PROVIDED, HOWEVER, that such purchase
or redemption shall be excluded in the calculation of the amount of Restricted
Payments;
(iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under "--Limitation on Sales of Assets"
below; PROVIDED, HOWEVER, that such purchase or redemption shall be excluded in
the calculation of the amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration if at such
date of declaration such dividend would have complied with this provision;
PROVIDED, HOWEVER, that such dividend shall be included in the calculation of
the amount of Restricted Payments;
(v) dividends to Holdings to the extent required to pay non-deferrable
scheduled cash interest when due on the Holdings Notes; PROVIDED, HOWEVER, that
(A) no Default shall have occurred and be continuing (or would result
therefrom), (B) Holdings shall immediately apply any such dividend to make such
cash interest payment and (C) immediately after giving effect to any such
dividend, the Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of the covenant described under "--Limitation on
Indebtedness"; PROVIDED FURTHER, HOWEVER, that such dividends shall be excluded
from the calculation of the amount of Restricted Payments;
(vi) payment of dividends or other distributions by the Company for the
purposes set forth in clauses (A) and (B) below; PROVIDED, HOWEVER, that any
such dividend or distribution described in clause (A) will be excluded in the
calculation of the amount of Restricted Payments and any such dividend or
distribution described in clause (B) will be included in the calculation of the
amount of Restricted Payments: (A) in amounts equal to the amounts required for
Holdings to pay franchise taxes and other fees required to maintain its legal
existence and provide for audit, accounting, legal and other operating costs of
up to $1.0 million per fiscal year; and (B) in amounts equal to amounts expended
by the Company or Holdings to repurchase Capital Stock of the Company or
Holdings owned by employees (including former employees) of the Company or its
Subsidiaries or their assigns, estates and heirs; PROVIDED FURTHER, HOWEVER,
that the aggregate amount paid, loaned or advanced pursuant to this clause (B)
shall not, in the aggregate, exceed the sum of $2.5 million per fiscal year plus
any amounts contributed by Holdings to the Company as a result of resales of
such repurchased shares of Capital Stock;
(vii) any repurchase of equity interest deemed to occur upon exercise of
stock options if such equity interests represent a portion of the exercise price
of such options; PROVIDED, HOWEVER, that such repurchase shall be excluded in
the calculation of the amount of Restricted Payments;
(viii) payments required to be made by the Company and any of its
Subsidiaries pursuant to the Tax Sharing Agreement; PROVIDED, HOWEVER, that such
payments shall be excluded in the calculation of the amount of Restricted
Payments; or
(ix) payments required in respect of any Permitted Seller Paper; PROVIDED,
HOWEVER, that such payments shall be excluded in the calculation of the amount
of Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any such Restricted Subsidiary to
(i) pay dividends or make any other distributions on its Capital Stock or pay
any Indebtedness or other
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obligation owed to the Company or a Restricted Subsidiary, (ii) make any loans
or advances to the Company or its subsidiaries or (iii) transfer any of its
property or assets to the Company or any other Restricted Subsidiary; except:
(A) any encumbrance or restriction pursuant to an agreement in effect on the
Issue Date, including those arising under the Senior Credit Documents, the
Indenture, the Holdings Notes Indenture, the Notes and the Holdings Notes; (B)
any encumbrance or restriction with respect to a Restricted Subsidiary pursuant
to an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary
prior to the date on which such Restricted Subsidiary was acquired by the
Company (other than Indebtedness Incurred as consideration in, or to provide all
or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary was acquired by the Company); (C) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement effecting a
refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clauses (A) or (B) or this clause (C) or contained in any amendment, supplement
or modification (including an amendment and restatement) to an agreement
referred to in clauses (A) or (B) or this clause (C); PROVIDED, HOWEVER, that
the encumbrances and restrictions contained in any such refinancing agreement or
amendment taken as a whole are no less favorable to the holders of the Notes in
any material respect than encumbrances and restrictions contained in such
agreements; (D) in the case of clause (iii), any encumbrance or restriction (1)
that restricts in a customary manner the subletting, assignment or transfer of
any property or asset that is subject to a lease, license, or similar contract,
(2) by virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by the Indenture, or (3) contained in
security agreements securing Indebtedness of a Restricted Subsidiary to the
extent such encumbrance or restrictions restrict the transfer of the property
subject to such security agreements; (E) any such restriction imposed by
applicable law; (F) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and (G) purchase money
obligations for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired.
LIMITATION ON SALES OF ASSETS. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, make any Asset Disposition unless (i) the
Company or such Restricted Subsidiary receives consideration (including by way
of relief from, or by any other Person assuming sole responsibility for, any
liabilities, contingent or otherwise) at the time of such Asset Disposition at
least equal to the fair market value of the shares and assets subject to such
Asset Disposition, (ii) at least 80% of the consideration thereof received by
the Company or such Restricted Subsidiary is in the form of cash and (iii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
FIRST, to the extent the Company elects (or is required by the terms of any
Senior Indebtedness of the Company or Indebtedness (other than Preferred Stock)
of a Wholly Owned Subsidiary), to prepay, repay or purchase Senior Indebtedness
of the Company or such Indebtedness (other than Preferred Stock) of a Wholly
Owned Subsidiary (in each case other than Indebtedness owed to the Company or an
Affiliate of the Company) within 360 days after the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (B) SECOND, to the
extent of the balance of Net Available Cash after application in accordance with
clause (A), to the extent the Company or such Restricted Subsidiary elects, to
reinvest in Additional Assets (including by means of an Investment in Additional
Assets by a Restricted Subsidiary with Net Available Cash received by the
Company or another Restricted Subsidiary) within 360 days after the later of the
date of such Asset Disposition or the receipt of such Net Available Cash; (C)
THIRD, to the extent of the balance of such Net Available Cash after application
in accordance with clauses (A) and (B), to make an offer to purchase the Notes
and any other Notes outstanding under the Indenture pursuant and subject to the
conditions of the Indenture to the Noteholders at a purchase price of 100% of
the principal amount thereof plus accrued and unpaid interest to the purchase
date; and (D)
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FOURTH, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), to (x) acquire
Additional Assets (other than Indebtedness and Capital Stock) or (y) prepay,
repay or purchase Indebtedness of the Company (other than Indebtedness owed to
an Affiliate of the Company and other than Disqualified Stock of the Company) or
Indebtedness of any Restricted Subsidiary (other than Indebtedness owed to the
Company or an Affiliate of the Company), in each case described in this clause
(D) within one year from the receipt of such Net Available Cash or, if the
Company has made an Offer pursuant to clause (C), six months from the date such
Offer is consummated; PROVIDED, HOWEVER, that, in connection with any
prepayment, repayment or purchase of Indebtedness pursuant to clause (A), (C) or
(D) above, the Company or such Restricted Subsidiary shall retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so prepaid,
repaid or purchased. Notwithstanding the foregoing provisions, the Company and
its Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance herewith except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with this covenant at any time exceed $1.0 million. The Company shall not be
required to make an offer for Notes pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds as provided
in clauses (A) and (B)) is less than $10.0 million for any particular Asset
Disposition (which lesser amounts shall be carried forward for purposes of
determining whether an offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition).
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption of Indebtedness (other than Disqualified Stock) of the
Company or any Restricted Subsidiary and the release of the Company or such
Restricted Subsidiary from all liability on such Indebtedness in connection with
such Asset Disposition and (y) securities received by the Company or any
Restricted Subsidiary of the Company from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes pursuant to clause (a)(iii)(C), the Company will be required to purchase
the Notes tendered pursuant to an offer by the Company for the Notes at a
purchase price of 100% of their principal amount plus accrued interest to the
purchase date in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the Indenture. If the aggregate purchase
price of the Notes tendered pursuant to the offer is less than the Net Available
Cash allotted to the purchase of the Notes, the Company will apply the remaining
Net Available Cash in accordance with clause (a)(iii)(D) above.
(c) The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the
Indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under the Indenture by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Company (an
"Affiliate Transaction") unless (i) the terms of such Affiliate Transaction are
no less favorable to the Company or such Restricted Subsidiary, as the case may
be, than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $1.0
million, the terms of such transaction have been approved by a majority of the
members of the Board of Directors of the Company and by a majority of the
disinterested members of such Board, if any (and such majority or majorities, as
the case may be, determines that such Affiliate Transaction satisfies the
criteria in (i) above); and (iii) in the event such Affiliate Transaction
involves an aggregate amount in excess of
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$5.0 million, the Company has received a written opinion from an independent
investment banking firm of nationally recognized standing that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"--Limitation on Restricted Payments" (and in the case of Permitted Investments,
only those described in clauses (v), (vi) and (ix) of the definition of
Permitted Investments), (ii) the performance of the Company's or Restricted
Subsidiary's obligations under any employment contract, collective bargaining
agreement, employee benefit plan, related trust agreement or any other similar
arrangement heretofore or hereafter entered into in the ordinary course of
business, (iii) payment of compensation to, and indemnity provided on behalf of,
employees, officers, directors or consultants (excluding the Management Services
Agreement) in the ordinary course of business, (iv) maintenance in the ordinary
course of business of benefit programs or arrangements for employees, officers
or directors, including vacation plans, health and life insurance plans,
deferred compensation plans, and retirement or savings plans and similar plans,
(v) any transaction between the Company and a Wholly Owned Subsidiary or between
Wholly Owned Subsidiaries, (vi) the payment of fees and expenses under the
Management Services Agreement as in effect on the Issue Date, (vii) payments by
the Company and any of its Restricted Subsidiaries pursuant to the Tax Sharing
Agreement or (viii) the issuance or sale of any Capital Stock (other than
Disqualified Stock) of the Company.
LIMITATION ON SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. The Company
will not sell or otherwise dispose of any Capital Stock of a Restricted
Subsidiary, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell or otherwise dispose of any of its Capital Stock
except (i) to the Company or a Wholly Owned Subsidiary, (ii) directors'
qualifying shares, (iii) if, immediately after giving effect to such issuance,
sale or other disposition, neither the Company nor any of its Subsidiaries own
any Capital Stock of such Restricted Subsidiary or (iv) if, immediately after
giving effect to such issuance, sale or other disposition, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any investment
in such Person remaining after giving effect thereto would have been permitted
to be made under the covenant described under "--Limitation on Restricted
Payments" if made on the date of such issuance, sale or other disposition.
SEC REPORTS. (a) Notwithstanding that the Company may not be required to be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall (i) file with the Commission and (ii) provide to the
Trustee and the holders (at their addresses as set forth in the register of
Notes) (A) within 15 days after such reports are filed, if the Company is
required to be subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, or (B) concurrently with the filing of such reports, if the
Company is not required to be subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, the annual reports and the information,
documents and other reports which are otherwise required pursuant to Sections 13
and 15(d) of the Exchange Act. Such requirements may also be satisfied, prior to
December 21, 1998, with the filing with the Commission of a registration
statement under the Securities Act that contains the foregoing information
(including financial statements) and by providing copies thereof to the Trustee
and the holders. In addition, following the registration of the common stock of
the Company pursuant to Section 12(b) or 12(g) of the Exchange Act, the Company
shall furnish to the Trustee and the holders, promptly upon their becoming
available, copies of the Company's annual report to stockholders and any other
information provided by the Company to its public stockholders generally.
(b) So long as is required for an offer or sale of the Notes to qualify for
an exemption under Rule 144A, the Company shall, upon request provide the
information required by clause (d)(4) thereunder to each holder and to each
beneficial owner and prospective purchaser of Notes identified by any holder of
Notes.
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FUTURE GUARANTORS. The Company shall cause each domestic Restricted
Subsidiary that Incurs any Senior Indebtedness to execute and deliver to the
Trustee a Guaranty Agreement pursuant to which such Restricted Subsidiary will
Guarantee payment of the Notes on the terms and conditions set forth in the
Indenture.
LIMITATION ON LINES OF BUSINESS. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business, other than the business
engaged in by the Company on the Issue Date and such other business activities
which are incidental or related thereto.
MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") is a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) expressly assumes, by supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Subsidiary of the Successor Company as a result of such transaction as having
been Incurred by the Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Successor Company would
be able to Incur at least an additional $1.00 of Indebtedness pursuant to
paragraph (a) of "--Limitation on Indebtedness"; (iv) immediately after giving
effect to such transaction, the Successor Company will have a Consolidated Net
Worth in an amount which is not less than the Consolidated Net Worth of the
Company immediately prior to such transaction; and (v) the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, conveyance, transfer or lease and
such supplemental indenture (if any) comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of the Company under the Indenture, but the
predecessor Company in the case of a lease of all or substantially all its
assets will not be released from the obligation to pay the principal of and
interest on the Notes.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), (1) any
Restricted Subsidiary of the Company may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or another
Wholly Owned Subsidiary of the Company and (2) the Company may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Company in
another jurisdiction to realize tax or other benefits.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person (other
than the Company or a Subsidiary Guarantor) unless: (i) the resulting, surviving
or transferee Person (if not such Subsidiary) shall be a Person organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia and such Person shall expressly assume, by a Guaranty
Agreement, in a form satisfactory to the Trustee, all the obligations of such
Subsidiary, if any, under its Subsidiary Guaranty; (ii) immediately after giving
effect to such transaction or transactions on a pro forma basis (and treating
any Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been issued by such
Person at the time of such transaction), no Default shall have occurred and be
continuing; and (iii) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and such Guaranty Agreement, if any,
complies with the Indenture; PROVIDED, HOWEVER, that the foregoing shall not be
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applicable if such consolidation, merger, conveyance, transfer or lease is in
compliance with the covenants under "--Limitation on Sale of Assets" and the
Subsidiary Guarantor will be released from its obligations under the Subsidiary
Guaranty as described under "--Guaranties".
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under "--Certain
Covenants-- Merger and Consolidation" above, (iv) the failure by the Company to
comply for 30 days after notice with any of its obligations under the covenants
described under "--Change of Control" above or under the covenants described
under "--Certain Covenants" above (in each case, other than (x) a failure to
purchase Notes which shall constitute an Event of Default under clause (ii)
above or (y) a failure to comply with the covenant described under "--Merger and
Consolidation" which shall constitute an Event of Default under clause (iii)
above), (v) the failure by the Company to comply for 60 days after notice with
its other agreements contained in the Indenture, (vi) Indebtedness of the
Company or any Restricted Subsidiary is not paid within any applicable grace
period after final maturity or is accelerated by the holders thereof because of
a default and the total amount of such Indebtedness unpaid or accelerated
exceeds $3.0 million and such failure to pay shall not have been cured or such
acceleration rescinded within a 10-day period (the "cross acceleration
provision"), (vii) certain events of bankruptcy, insolvency or reorganization of
the Company or a Significant Subsidiary (the "bankruptcy provisions"), (viii)
any judgment or decree for the payment of money in excess of $3.0 million (not
adequately covered by insurance as to which a solvent and unaffiliated insurance
company has acknowledged coverage) is rendered against the Company or a
Significant Subsidiary and such judgment or decree shall remain undischarged or
unstayed for a period of 60 days after such judgment becomes final and
nonappealable (the "judgment default provision") or (ix) the failure of any
Subsidiary Guaranty to be in full force and effect (except as contemplated by
the terms thereof) or the denial or disaffirmation by any Subsidiary Guarantor
of its obligations under its Subsidiary Guaranty if such default continues for
10 days. However, a default under clauses (iv) and (v) will not constitute an
Event of Default until the Trustee or the holders of at least 25% in principal
amount of the outstanding Notes notify the Company of the default and the
Company does not cure such default within the time specified in clauses (iv) and
(v) hereof after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes by notice to the
Company may declare the principal of and accrued and unpaid interest on all the
Notes to be due and payable. Upon such a declaration, such principal and accrued
and unpaid interest shall be due and payable immediately. If an Event of Default
relating to certain events of bankruptcy, insolvency or reorganization of the
Company occurs and is continuing, the principal of and accrued and unpaid
interest on all the Notes will become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holders. Under
certain circumstances, the holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy,
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(iii) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense, (iv) the Trustee has not complied with
such request within 60 days after the receipt of the request and the offer of
security or indemnity and (v) the holders of a majority in principal amount of
the outstanding Notes have not given the Trustee a direction that, in the
opinion of the Trustee, is inconsistent with such request within such 60 day
period. Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Indenture, the Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium (if any) or interest on any Note, the Trustee may
withhold notice if and so long as a committee of its Trust officers in good
faith determines that withholding notice is in the interests of the holders of
the Notes. In addition, the Company is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company also is required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of any events which would
constitute certain Defaults, their status and what action the Company is taking
or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of a majority in principal amount of the Notes then outstanding
and any past default or compliance with any provisions may be waived with the
consent of the holders of a majority in principal amount of the Notes then
outstanding. However, without the consent of each holder of an outstanding Note
affected, no amendment may, among other things, (i) reduce the amount of Notes
whose holders must consent to an amendment, (ii) reduce the rate of or extend
the time for payment of interest on any Note, (iii) reduce the principal of or
extend the Stated Maturity of any Note, (iv) reduce the premium payable upon the
redemption or repurchase of any Note or change the time at which any Note may be
redeemed as described under "--Optional Redemption" above, (v) make any Note
payable in money other than that stated in the Note, (vi) make any change to the
subordination provisions of the Indenture that adversely affects the rights of
any holder of the Notes, (vii) impair the right of any holder to receive payment
of principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes, (viii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions or
(ix) make any change in any Subsidiary Guaranty that would adversely affect the
Noteholders.
Without the consent of any holder, the Company and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add Guarantees with respect to the Notes, to secure the Notes, to add
to the covenants of the Company for the benefit of the Noteholders or to
surrender any right or power conferred upon the Company, to make any change that
does not adversely affect the rights of any holder or to comply with any
requirement of the Commission in
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connection with the qualification of the Indenture under the Trust Indenture
Act. However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
of the Company or the Subsidiary Guarantors then outstanding unless the holders
of such Senior Indebtedness (or any group or representative thereof authorized
to give a consent) consent to such change.
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The consent of the holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to the holders a notice briefly describing such amendment.
However, the failure to give such notice to all the holders, or any defect
therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "--Change of
Control" and under the covenants described under "--Certain Covenants" (other
than "--Merger and Consolidation"), the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment default provision described under "--Events of Default" above
and the limitations contained in clauses (iii) and (iv) under of the first
paragraph "--Certain Covenants--Merger and Consolidation" above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries), (viii) or (ix) under "--Events of Default" above or
because of the failure of the Company to comply with clause (iii) or (iv) of the
first paragraph under "--Certain Covenants--Merger and Consolidation" above. If
the Company exercises its legal defeasance option or its covenant defeasance
option, each Subsidiary Guarantor will be released from all of its obligations
with respect to its Subsidiary Guaranty.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
Wilmington Trust Company is to be the Trustee under the Indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; PROVIDED, HOWEVER, if it acquires any conflicting interest it must
either eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
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The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Acquisition Closing Date" means June 26, 1998.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; PROVIDED, HOWEVER, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any Person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants described under "--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock", "--Limitations on Restricted Payments"
and "--Limitation on Affiliate Transactions" only, "Affiliate" shall also mean
any beneficial owner of shares representing 5% or more of the total voting power
of the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any Restricted Subsidiary (including any
disposition by means of a merger, consolidation or similar transaction) other
than (i) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a
disposition of inventory or Temporary Cash Investments in the ordinary course of
business, (iii) a disposition of obsolete equipment or equipment that is no
longer useful in the conduct of the business of the Company or the applicable
Restricted Subsidiary and that is disposed of in each case in the ordinary
course of business, (iv) the sale of other assets so long as the fair market
value of the assets disposed of pursuant to this clause (iv) does not exceed
$1.0 million in the aggregate in any fiscal year and $5.0 million in the
aggregate prior to the
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maturity date of the Notes, (v) for the purposes of the covenant described under
"--Certain Covenants--Limitation on Sales of Assets" only, a disposition subject
to the covenant described under "-- Limitation on Restricted Payments" and (vi)
the disposition of all or substantially all of the assets of the Company in the
manner permitted pursuant to the provisions described under "--Certain
Covenants--Merger and Consolidation" or any disposition that constitutes a
Change of Control pursuant to the Indenture.
"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to Preferred Stock multiplied by the
amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Senior Credit Documents and any Indebtedness that is incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) Indebtedness under such Senior Credit Documents
including Indebtedness that refinances such Indebtedness, as amended from time
to time, including principal, premium (if any), interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for postfiling
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable thereunder or in respect
thereof (including, without limitation, cash collateralization of letters of
credit).
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York City or Wilmington, Delaware are authorized
or required by law to close.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government, or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any domestic commercial bank the long-term debt of which is
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rated at the time of acquisition thereof at least "A" or the equivalent thereof
by Standard & Poor's Ratings Group, or "A" or the equivalent thereof by Moody's
Investors Service, Inc., and having capital and surplus in excess of $500.0
million; (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (i), (ii) and (iii)
entered into with any bank meeting the qualifications specified in clause (iii)
above; (v) commercial paper rated at the time of acquisition thereof at least
"A-2" or the equivalent thereof by Standard & Poor's Ratings Group or "P-2" or
the equivalent thereof by Moody's Investors Service, Inc., or carrying an
equivalent rating by a nationally recognized rating agency, if both of the two
named rating agencies cease publishing ratings of investments, and in either
case maturing within 270 days after the date of acquisition thereof; and (vi)
interests in any investment company which invests solely in instruments of the
type specified in clauses (i) through (v) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Cash Flow" for any period means the Consolidated Net Income
for such period, plus, to the extent deducted in calculating such Consolidated
Net Income, (i) income tax expense, (ii) Consolidated Interest Expense, (iii)
depreciation expense, (iv) amortization expense, in each case for such period
and (v) other noncash charges reducing Consolidated Net Income (excluding any
such noncash charge to the extent that it represents an accrual of or reserve
for cash charges in any future period or amortization of a prepaid cash expense
that was paid in a prior period), in each case for such period less, to the
extent not deducted in calculating such Consolidated Net Income, (vi) the
aggregate amount of contingent and "earnout" payments in respect of any
acquisition by the Company or any Restricted Subsidiary that are paid in cash
during such period. Notwithstanding the foregoing, the provision for taxes based
on the income or profits of, and the depreciation and amortization and non-cash
charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated Cash Flow for the period of
the most recent four consecutive fiscal quarters ending prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; PROVIDED, HOWEVER, Consolidated Cash Flow and Consolidated Interest
Expense shall be calculated using the pro forma consolidated statements of
operations of the Company contained in the Offering Circular, which pro forma
statements of operations shall give effect to the acquisition of AmeriComm
Holdings, Inc. and DIMAC Marketing Corporation and their respective subsidiaries
as if they occured at the beginning of such period; PROVIDED, HOWEVER, that (1)
if the Company or any of its Restricted Subsidiaries has incurred any
Indebtedness since the beginning of such period that remains outstanding or if
the transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Incurrence of Indebtedness, or both, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been Incurred on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid, repurchased,
defeased or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced or the related commitment
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permanently reduced) on the date of the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated on a pro forma
basis as if such repayment, repurchase, defeasance or discharge had occurred on
the first day of such period and as if the Company or such Restricted Subsidiary
has not earned the interest income actually earned during such period in respect
of cash or Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness, (3) if since the beginning of such period
the Company or any of its Restricted Subsidiaries shall have made any Asset
Disposition, Consolidated Cash Flow for such period shall be reduced by an
amount equal to the Consolidated Cash Flow (if positive) attributable to the
assets which are the subject of such Asset Disposition for such period or
increased by an amount equal to the Consolidated Cash Flow (if negative)
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
attributable to any Indebtedness of the Company or any of its Restricted
Subsidiaries repaid, repurchased, defeased or otherwise discharged with respect
to the Company and its continuing Restricted Subsidiaries in connection with
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no longer
liable for such Indebtedness after such sale), (4) if since the beginning of
such period the Company or any of its Restricted Subsidiaries (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of assets,
including any Investment in a Restricted Subsidiary or any acquisition of assets
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit of a
business, Consolidated Cash Flow and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness and including the pro forma expenses and cost
reductions calculated on a basis consistent with Regulation S-X of the
Securities Act (it being understood that all cost reductions set forth in note
(c) to the unaudited pro forma consolidated statements of operations contained
in the Offering Circular shall be deemed to be calculated on a basis consistent
with Regulation S-X)) as if such Investment or acquisition occurred on the first
day of such period and (5) if since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition or any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if made by
the Company or a Restricted Subsidiary during such period, Consolidated Cash
Flow and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Restricted Subsidiaries, plus, to the extent not
included in such interest expense but Incurred by the Company or its Restricted
Subsidiaries, (i) interest expense attributable to Capitalized Lease Obligations
and imputed interest with respect to Attributable Indebtedness, (ii)
amortization of debt discount and debt issuance cost (other than those debt
discounts and debt issuance costs incurred on the Acquisition Closing Date, the
Issue Date and the date of issuance of any other Notes under the
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Indenture), (iii) capitalized interest, (iv) noncash interest expense, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) interest actually paid by the
Company or any such Restricted Subsidiary under any Guarantee of Indebtedness or
other obligation of any other Person, (vii) net costs associated with Currency
Agreements and Interest Rate Agreements (including amortization of fees), (viii)
the product of (A) all Preferred Stock dividends in respect of all Preferred
Stock of Restricted Subsidiaries of the Company and Disqualified Stock of the
Company held by Persons other than the Company or a Wholly Owned Subsidiary
multiplied by (B) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined Federal, state and local
statutory tax rate of the Company, expressed as a decimal, in each case,
determined on a consolidated basis in accordance with GAAP and (ix) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its consolidated Restricted Subsidiaries; PROVIDED, HOWEVER,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such Person is not a Restricted Subsidiary,
except that (A) subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income (loss) of any person acquired
by the Company or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition; (iii) any net income (loss) of any
Restricted Subsidiary (other than AmeriComm Holdings, Inc. or AmeriComm Direct
Marketing, Inc. for the period prior to the Issue Date) if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary, directly
or indirectly, to the Company, except that (A) subject to the limitations
contained in (iv) below, the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash that could have been distributed by
such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend that
could have been made to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain (but not loss) realized upon the sale or
other disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) which are not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) any extraordinary gain or loss; and (vi) the cumulative effect of a change
in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending prior to the taking of any action for the
purpose of which the determination is being made as (i) the par or stated value
of all outstanding Capital Stock of the Company plus (ii) paid in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
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"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
after repayment in full of the Bank Indebtedness, any other Senior Indebtedness
of the Company which, at the date of determination, has an aggregate principal
amount outstanding of, or under which, at the date of determination, the holders
thereof are committed to lend up to, at least $25.0 million and is specifically
designated by the Company in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of holder) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable at the
option of the holder for Indebtedness or Disqualified Stock or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to 123 days after the Stated Maturity of the Notes.
"Equity Investors" means the equity owners of Holdings on the Issue Date.
"Equity Offering" means any public or private sales of equity securities
(excluding Disqualified Stock) of the Company or Holdings.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time, including those set forth in (i) the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (ii) statements and pronouncements of
the Financial Accounting Standards Board, and (iii) such other statements by
such other entity as approved by a significant segment of the accounting
profession. All ratios and computations based on GAAP contained in the Indenture
shall be computed in conformity with GAAP as in effect on the Issue Date.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of any other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness of the payment thereof or
to protect such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the
Company's obligations with respect to the Notes on the terms provided for in the
Indenture.
"Holdings" means DIMAC Holdings, Inc., a Delaware corporation.
"Holdings Notes" means the 15 1/2% Senior Notes due 2009 of Holdings issued
on or prior to the Issue Date in the aggregate principal amount of $30.0 million
and any other Indebtedness of Holdings that Refinances such Holdings Notes;
PROVIDED, HOWEVER, that such other Indebtedness does not require the payment of
cash interest or the repayment of principal (or the repurchase of such
Indebtedness) in an amount in excess of the amounts thereof provided for in such
Holdings Notes being Refinanced or
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at a time prior to the time such amounts would have been payable as provided for
in such Holdings Notes being Refinanced.
"Holdings Notes Indenture" means the Indenture pursuant to which the
Holdings Notes will be issued.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money, (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii) and (v)) entered into in the ordinary
course of business of such Person to the extent that such letters of credit are
not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed
no later than the third business day following receipt by such Person of a
demand for reimbursement following payment on the letter of credit), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services (other than (A) Trade Payables and accrued expenses
incurred in the ordinary course of business and (B) contingent and "earnout"
payments in respect of any acquisition by the Company or any Restricted
Subsidiary so long as, following the occurence of the contingency giving rise to
the obligation connected therewith, payment thereof is made when due), which
purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, (v) all Capitalized Lease Obligations and all Attributable
Indebtedness of such Person, (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person; PROVIDED, HOWEVER, that the amount of Indebtedness of such Person
shall be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons,
(vii) all Indebtedness of other Persons to the extent Guaranteed by such Person,
(viii) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of the Company, any Preferred Stock (but excluding, in
each case, any accrued dividends) and (ix) to the extent not otherwise included
in this definition, obligations of such Person under Currency Agreements and
Interest Rate Agreements. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above as such amount would be reflected on a balance sheet in
accordance with GAAP and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person) or other extension
of credit (including by way of Guarantee or similar arrangement, but excluding
any debt or extension of credit represented by a bank deposit other than a time
deposit) or capital contribution to (by means of any transfer of cash or other
property to others or any
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payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments", (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Services Agreement" means the Advisory Services Agreement dated
as of June 26, 1998 between the Company and MDC Management Company IV, LLC.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien upon
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to any Person owning a beneficial interest in assets subject
to sale or minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition, (iv) the deduction of appropriate amounts to
be provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the assets disposed of in such Asset Disposition and
retained by the Company or any Restricted Subsidiary of the Company after such
Asset Disposition and (v) any portion of the purchase price from an Asset
Disposition placed in escrow (whether as a reserve for adjustment of the
purchase price, for satisfaction of indemnities in respect of such Asset
Disposition or otherwise in connection with such Asset Disposition); PROVIDED,
HOWEVER, that upon the termination of such escrow, Net Available Cash shall be
increased by any portion of funds therein released to the Company or any
Restricted Subsidiary.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock
or Indebtedness, means the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"Officer" means the Chairman of the Board, the President, the Chief
Executive Officer, any Vice President, the Treasurer, the Chief Financial
Officer, or the Secretary or any Assistant Secretary of the Company.
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"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means the Equity Investors and their respective
Affiliates.
"Permitted Investment" means (i) any Investment in a Restricted Subsidiary
or a Person which will, upon making such Investment, become a Restricted
Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted
Subsidiary is a Related Business; (ii) any Investment in another Person if as a
result of such Investment such other Person is merged or consolidated with or
into, or transfers or conveys all or substantially all its assets to, the
Company or a Restricted Subsidiary of the Company; PROVIDED, HOWEVER, that such
Person's primary business is a Related Business; (iii) any Investment in
Temporary Cash Investments; (iv) receivables owing to the Company or any of its
Restricted Subsidiaries, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
(v) payroll, travel and similar advances to cover matters that are expected at
the time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business of the Company or
such Restricted Subsidiary; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments or claims;
(viii) Investments the payment for which consists exclusively of equity
securities (exclusive of Disqualified Stock) of the Company; (ix) loans or
advances to employees and directors to purchase equity securities of the Company
or Holdings; PROVIDED that the aggregate amount of such loans and advances shall
not exceed $2.0 million at any time outstanding; (x) any Investment in another
Person to the extent such Investment is received by the Company or any
Restricted Subsidiary as consideration for Asset Disposition effected in
compliance with the covenant under "--Certain Covenants--Limitations on Sales of
Assets"; (xi) prepayment and other credits to suppliers made in the ordinary
course of business consistent with the past practices of the Company and its
Restricted Subsidiaries; (xii) Investments in connection with pledges, deposits,
payments or performance bonds made or given in the ordinary course of business
in connection with or to secure statutory, regulatory or similar obligations,
including obligations under health, safety or environmental obligations; and
(xiii) any Investment in another Person; PROVIDED, HOWEVER, that the aggregate
amount of all such Investments made pursuant to this clause (xiii) shall not
exceed in the aggregate $5.0 million at any one time outstanding (measured as of
the date made and without giving effect to subsequent changes in value).
"Permitted Seller Paper" means Indebtedness of the Company and or any
Restricted Subsidiary Incurred in connection with an acquisition of a business
or assets in respect of the balance deferred and unpaid of the purchase price of
any property and payable to the seller in connection therewith.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Refinance" means, in respect of any Indebtedness, to refinance, replace,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
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"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness existing on the date of the Indenture or Incurred in compliance
with the Indenture (including Indebtedness of the Company that Refinances
Refinancing Indebtedness; PROVIDED, HOWEVER, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being refinanced and (iii)
such Refinancing Indebtedness is Incurred in an aggregate principal amount (or
if issued with original issue discount, an aggregate issue price) that is equal
to or less than the sum of the aggregate principal amount (or if issued with
original issue discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced (plus the amount of any premium required to be
paid in connection therewith and plus reasonable fees and expenses in connection
therewith); PROVIDED FURTHER that Refinancing Indebtedness shall not include (x)
Indebtedness of a Subsidiary which Refinances Indebtedness of the Company or (y)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Business" means the business engaged in by the Company on the Issue
Date and such other business activities which are incidental or related thereto.
"Representative" means any trustee, agent or representative (if any) of an
issue of Senior Indebtedness of the Company.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Agreement" means the Amended and Restated Credit Agreement
dated as of October 22, 1998, among the Company, Holdings, the lenders parties
thereto, and Credit Suisse First Boston, as administrative agent and arranger,
UBS AG, Stamford Branch, as syndication agent, and First Union National Bank, as
documentation agent, as such Senior Credit Agreement has been or may be amended,
supplemented or otherwise modified.
"Senior Credit Documents" means the collective reference to the Senior
Credit Agreement and the Notes issued pursuant thereto (each as defined in the
Senior Credit Agreement) and each of the mortgages and other security
agreements, guarantees and other instruments and documents executed and
delivered pursuant to any of the foregoing, in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including (i) increasing the amounts of available borrowing
thereunder; PROVIDED, HOWEVER, that such increase in borrowing is permitted by
the covenant described under the caption "--Certain Covenants --Limitation on
Indebtedness" or (ii) adding Restricted Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement
whether by the same or any other agent, lender or group of lenders.
"Senior Indebtedness" means, with respect to any Person, the principal of,
premium (if any), and interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization of such Person
regardless of whether post-filing interest is allowed in such proceeding) on,
and fees and other amounts owing in respect of, the Bank Indebtedness and all
other Indebtedness of such
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Person, whether outstanding on the Issue Date or thereafter issued, unless, in
the instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that the obligations in respect of such Indebtedness
are not superior in right of payment to the Notes; PROVIDED, HOWEVER, that
Senior Indebtedness will not include (i) any obligation of such Person to any
Subsidiary of such Person, (ii) any liability for Federal, state, foreign, local
or other taxes owed or owing by such Person, (iii) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities), (iv)
any Indebtedness, Guarantee or obligation of such Person that is expressly
subordinate or junior in right of payment to any other Indebtedness, Guarantee
or obligation of such Person, including any Senior Subordinated Indebtedness and
any Subordinated Obligations or (v) any Capital Stock.
"Senior Subordinated Indebtedness" means (i) with respect to the Company,
the Notes and any other Indebtedness of the Company that ranks PARI PASSU with
the Notes in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of the Company which is not
Senior Indebtedness of the Company and (ii) with respect to each Subsidiary
Guarantor, its Subsidiary Guaranty of the Notes and any other Indebtedness of
such Person that ranks PARI PASSU with its applicable Subsidiary Guaranty in
respect of payment and is not subordinated by its terms in respect of payment to
any Indebtedness or other obligation of such Person which is not Senior
Indebtedness of such Person.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"Subordinated Obligation" means any Indebtedness of the Company or any
Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment, in the case of the
Company, to the Notes or, in the case of a Subsidiary Guarantor, its Subsidiary
Guaranty pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person. Unless otherwise specified herein, each reference to a Subsidiary shall
refer to a Subsidiary of the Company.
"Subsidiary Guarantor" means any domestic Restricted Subsidiary of the
Company that Guarantees the Company's obligations with respect to the Notes
pursuant to the terms of the Indenture.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes pursuant to the terms of the
Indenture.
"Tax Sharing Agreement" means the existing agreement among the Company and
Holdings and any other tax allocation agreement among the Company, any of its
Subsidiaries or any direct or indirect shareholder of the Company with respect
to consolidated or combined tax returns including the Company or any of its
Subsidiaries but only to the extent that amounts payable from time to time by
the Company or any such Subsidiary under any such agreement do not exceed the
corresponding tax payments that the Company or such Subsidiary would have been
required to make to any relevant taxing authority had the Company or such
Subsidiary not joined in such consolidated or combined return, but instead had
filed returns including only the Company or its Subsidiaries.
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"Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) Investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and undivided profits
aggregating in excess of $250.0 million (or the foreign currency equivalent
thereof) and whose long-term debt, or whose parent holding company's long-term
debt, is rated "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act), (iii) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) Investments in commercial paper, maturing not more than 180
days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "A-1" (or higher) according to Moody's Investors Service, Inc. or "P-1" (or
higher) according to Standard and Poor's Ratings Group.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or new formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any Restricted Subsidiary of the Company that is not a Subsidiary of
the Subsidiary to be so designated; PROVIDED, HOWEVER, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "--Certain Covenants--Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED, HOWEVER, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"--Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company, all
of the Capital Stock of which (other than directors' qualifying shares) is owned
by the Company or another Wholly Owned Subsidiary.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
In the opinion of White & Case LLP, our special tax counsel, the following
is a description of the principal U.S. federal income tax consequences relating
to the exchange of Old Notes for New Notes. This discussion is based upon the
provisions of the Internal Revenue Code of 1986, as amended, the Treasury
Regulations promulgated under the code and judicial and administrative
interpretations thereof, all as in effect and available as of the date hereof
and all of which are subject to change (possibly on a retroactive basis) or
different interpretation. The opinion of White & Case LLP is not binding on the
Internal Revenue Service. We cannot assure you that the Internal Revenue Service
will not challenge one or more of the tax consequences described in this
Prospectus. We have not obtained, nor do we intend to obtain, a ruling from the
Internal Revenue Service with respect to the U.S. federal income tax
consequences of the Exchange Offer. This discussion does not purport to address
all aspects of U.S. federal income taxation that may be relevant to particular
holders in light of their personal circumstances or to holders subject to
special treatment under the Internal Revenue Code (for example, life insurance
companies, tax exempt organizations, financial institutions, dealers or traders
in securities or currencies, holders subject to the alternative minimum tax,
holders holding Old Notes or that will hold New Notes as a part of a position in
a straddle or as part of a hedging, conversion or integrated transaction for
U.S. federal income tax purposes, or holders with a functional currency other
than the U.S. dollar). This discussion does not address the effect of any
applicable U.S. federal estate and gift tax laws or state, local or foreign tax
laws. Moreover, this description addresses only the U.S. federal income tax
considerations of an initial purchaser that purchased Old Notes for their
original issue price, holds such Old Notes as capital assets and will hold the
New Notes as capital assets. INVESTORS ARE URGED TO CONSULT THEIR OWN TAX
ADVISOR TO DETERMINE THEIR PARTICULAR TAX CONSEQUENCES OF THE EXCHANGE OFFER
UNDER U.S. FEDERAL AND APPLICABLE STATE, LOCAL AND OTHER TAX LAWS.
For purposes of this summary, a "U.S. Holder" means a beneficial owner of
Old Notes or New Notes that is for U.S. federal income tax purposes:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any State thereof (including the District of
Columbia);
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source;
- a trust if:
- a court within the United States is able to exercise primary
supervision over the administration of the trust; and
- one or more United States persons have the authority to control all
substantial decisions of the trust; or
- a person that otherwise is subject to U.S. federal income tax on a net
income basis with respect to the Old Notes.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not constitute a taxable exchange for U.S. federal income tax purposes. A holder
will not recognize gain or loss upon the receipt of New Notes pursuant to the
Exchange Offer and a U.S. Holder will be subject to U.S. federal income tax on
the same amount and in the same manner and at the same times as such U.S. Holder
would have been under the Old Notes. A U.S. Holder's holding period of the New
Notes will include the holding period of the Old Notes exchanged therefor, and
such holder's adjusted basis of the
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New Notes will be the same as the basis of the Old Notes exchanged therefor
immediately before the exchange.
THE DESCRIPTION IS INCLUDED IN THIS PROSPECTUS FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS CONCERNING THE U.S.
FEDERAL TAX CONSEQUENCES OF THE EXCHANGE OFFER WITH RESPECT TO YOUR PARTICULAR
SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME AND OTHER TAX LAWS.
OLD NOTES REGISTRATION RIGHTS AGREEMENT
DIMAC Corporation and Credit Suisse First Boston Corporation, First Union
Capital Markets and Warburg Dillon Read LLC entered into a Registration Rights
Agreement on October 16, 1998. Under the Registration Rights Agreement, we
agreed to:
- file a registration statement for an exchange of the notes under the
Securities Act on Form S-1 or Form S-4 (if these forms are in use at the
relevant time) with the Securities and Exchange Commission by December
21, 1998; and
- use our reasonable best efforts to cause the SEC to declare the
registration statement effective under the Securities Act by March 22,
1999.
As soon as practicable after the registration statement becomes effective, we
will offer the Old Notes holders (who are not prohibited by any law or policy of
the SEC from participating in this exchange offer) the opportunity to exchange
their Old Notes for New Notes registered under the Securities Act that are
identical in all material respects to the Old Notes (except that the New Notes
will not contain terms with respect to transfer restrictions, registration
rights and penalties). We will keep this exchange offer open for at least 30
days (and longer if the law requires) after we mail the exchange offer notice to
the holders of the Old Notes.
Under the following circumstances we will use our reasonable best efforts to
file with the SEC a Shelf Registration Statement to cover resales of the Old
Notes by those holders who satisfy certain conditions relating to the provision
of information in connection with that Shelf Registration Statement:
- if we are not permitted to effect this Exchange Offer because of a change
in law or applicable interpretations of the law by the SEC's staff;
- if any notes validly tendered under this Exchange Offer are not exchanged
for New Notes by April 20, 1999;
- if Credit Suisse, First Union or Warburg Dillon Read so requests with
respect to Old Notes which are ineligible for exchange under this
Exchange Offer;
- if any holder is ineligible to participate in the Exchange Offer; or
- if anyone who participates in the Exchange Offer does not receive freely
transferable New Notes in exchange for tendered Old Notes.
In the preceding paragraphs the term "Old Notes" means each note until:
- the date on which that Note has been exchanged by a person other than a
broker dealer for a freely transferable New Note in this Exchange Offer;
- the note has been sold to a purchaser who received a copy of this
Prospectus on or before the sale from a broker dealer that exchanged the
notes in the Exchange Offer;
- the date on which the note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement; or
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- the date on which the note is distributed to the public according to Rule
144 of the Securities Act or is saleable under Rule 144(k) of the
Securities Act.
We will use our reasonable best efforts to have the SEC declare the Exchange
Offer Registration Statement or, if applicable, the Shelf Registration
Statement, effective as promptly as practicable after filing it. We will use our
reasonable best efforts to consummate the Exchange Offer as promptly as
practicable, but no later than April 20, 1999. If applicable, we will use our
reasonable best efforts to keep the Shelf Registration Statement effective until
October 22, 2002.
If any Registration Default occurs, we will be obligated to pay additional
interest to each holder of Old Notes during the period of default as follows:
- 0.50% per year for the first 90 days after the default; and
- 0.50% per year for each subsequent 90 day period until all defaults have
been cured or the interest rate on the Old Notes has increased by 2.0%
per year.
A Registration Default occurs if:
- by December 21, 1998 the Exchange Offer registration statement or Shelf
Registration Statement is not filed with the SEC;
- by April 20, 1999 the Exchange Offer is not consummated or the Shelf
Registration Statement is not declared effective; or
- after either the Exchange Offer registration statement or the Shelf
Registration Statement is declared effective, the applicable registration
statement ceases to be effective or the applicable registration statement
or the related prospectus ceases to be useable to resell the Old Notes.
The Registration Rights Agreement also provides that we will make this
Prospectus available for 90 days after the consummation of the Exchange Offer to
any broker-dealer to use in connection with any resale of any New Notes. The
Registration Rights Agreement further obligates us to pay all expenses connected
to the Exchange Offer (including the expense of one counsel to the holders of
the notes) and to indemnify certain holders of the notes (including any
broker-dealer) against certain liabilities, including liabilities under the
Securities Act. A broker-dealer which delivers this Prospectus to purchasers in
connection with such resales will be subject to the relevant civil liability
provisions of the Securities Act and will be bound by the provisions of the
Registration Rights Agreement (including certain indemnification rights and
obligations).
Each holder of Old Notes who wishes to exchange the Old Notes for New Notes
in the Exchange Offer will be required to make certain representations,
including:
- that any New Notes that such holder will receive will be acquired in the
ordinary course of business;
- that such holder has no arrangements or understanding with any person to
participate in the distribution of the New Notes;
- that such holder is not an "affiliate" of our company (as defined in Rule
405 under the Securities Act), or if such holder is an affiliate, that it
will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable;
- if such holder is not a broker-dealer, that it is not engaged in, and
does not intend to engage in, distribution of the New Notes; and
- if such holder is a broker-dealer, that it will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other
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trading activities and it will be required to acknowledge that it will
deliver a prospectus in connection with any resale of those New Notes.
Holders of the Old Notes will be required to make these representations to
us in order to participate in the Exchange Offer and will be required to deliver
information to be used in connection with the Shelf Registration Statement in
order to have their notes included in the Shelf Registration Statement and
benefit from the provisions regarding additional interest set forth in the
preceding paragraphs. A holder who sells Old Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers. Such a holder will also be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder, including certain indemnification obligations.
For so long as the Notes are outstanding, we will continue to provide to
holders of the notes and to their prospective purchasers the information
required by Rule 144A(d)(4) under the Securities Act.
The description of the Registration Rights Agreement contained in this
section is a summary only. For more information, you may review the provisions
of the Registration Rights Agreement that we filed with the SEC as an exhibit to
the Registration Statement of which this Prospectus is a part.
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BOOK-ENTRY; DELIVERY AND FORM
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTE
Except as set forth below, the New Notes will be represented by one
permanent global registered note in global form, without interest coupons. The
global note will be deposited with, or on behalf of, The Depository Trust
Company and registered in the name of Cede & Co., as nominee of The Depository
Trust Company, or will remain in the custody of the Trustee according to the
FAST Balance Certificate Agreement between The Depository Trust Company and the
Trustee.
We are providing the following descriptions of the operations and procedures
of The Depository Trust Company, Euroclear and Cedel solely as a matter of
convenience. These operations and procedures are solely within the control of
the respective settlement systems and are subject to change by them from time to
time. Neither we nor Credit Suisse First Boston Corporation, First Union Capital
Markets and Warburg Dillon Read LLC take any responsibility for these operations
or procedures. If you wish to discuss these matters, we urge you to contact the
relevant system or its participants directly.
The Depository Trust Company has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended; and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
The Depository Trust Company was created to hold securities for its
participants. It facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants. This system eliminates the need for physical
transfer and delivery of certificates. The Depository Trust Company's
participants include:
- securities brokers and dealers (including Credit Suisse First Boston
Corporation, First Union Capital Markets and Warburg Dillon Read LLC);
- banks and trust companies;
- clearing corporations; and
- certain other organizations.
Indirect access to The Depository Trust Company's system is also available
to other entities. These indirect participants include banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly. Investors who are not participants
may beneficially own securities held by or on behalf of The Depository Trust
Company only through participants or indirect participants.
We expect that under the procedures established by The Depository Trust
Company:
- upon deposit of the global note, The Depository Trust Company will credit
the accounts of participants designated by Credit Suisse First Boston
Corporation, First Union Capital Markets and Warburg Dillon Read LLC with
an interest in the global note; and
- ownership of the Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by The
Depository Trust Company (with respect to the interests of participants)
and the records of participants and the indirect participants (with
respect to the interests of persons other than participants).
135
<PAGE>
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by the
global note to such persons may be limited. In addition The Depository Trust
Company can act only on behalf of its participants, who in turn act on behalf of
persons who hold interests through participants. Consequently, the ability of a
person having an interest in Notes represented by the global note to pledge or
transfer such interest to persons or entities that do not participate in The
Depository Trust Company's system, or to otherwise take actions in respect of
such interest, may be affected by the lack of a physical definitive security in
respect of such interest.
So long as The Depository Trust Company or its nominee is the registered
owner of the global note, The Depository Trust Company or its nominee, as the
case may be, will be considered the sole owner or holder of the Notes
represented by the global note for all purposes under the Notes Indenture.
Except as provided below, owners of beneficial interests in the global note:
- will not be entitled to have Notes represented by the global note
registered in their names;
- will not receive or be entitled to receive physical delivery of
certificated Notes; and
- will not be considered the owners or holders thereof under the Notes
Indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in the global note
must rely on the procedures of The Depository Trust Company. If the holder is
not a participant or an indirect participant, then it must rely on the
procedures of the participant through which such holder owns its interest in
order to exercise any rights of a Note holder under the Notes Indenture or the
global note. We understand that under existing industry practice, in the event
that we request any action of Note holders, or a holder that is an owner of a
beneficial interest in the global note desires to take any action that The
Depository Trust Company, as the holder of the global note, is entitled to take,
The Depository Trust Company would authorize the participants to take such
action and the participants would authorize holders owning through such
participants to take such action or would otherwise act upon the instruction of
such holders. Neither our company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Notes by The Depository Trust Company, or for maintaining,
supervising or reviewing any records of The Depository Trust Company relating to
such Notes.
Payments with respect to the principal of, and premium, if any, and interest
on, any Notes represented by the global note registered in the name of The
Depository Trust Company or its nominee on the applicable record date will be
payable by the Trustee to, or at the direction of, The Depository Trust Company
or its nominee in its capacity as the registered holder of the global note
representing such Notes under the Notes Indenture. Under the terms of the Notes
Indenture, we and the Trustee may treat the persons in whose names the Notes,
including the global note, are registered as the owners of the Notes for the
purpose of receiving payment on the Notes and for any and all other purposes
whatsoever. Accordingly, neither our company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to owners of
beneficial interests in a global note (including principal, premium, if any, and
interest). Payments by the participants and the indirect participants to the
owners of beneficial interests in a global note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the participants or the indirect participants and The Depository Trust Company.
Transfers between participants in The Depository Trust Company will be
effected in accordance with The Depository Trust Company's procedures, and will
be settled in same-day funds. Transfers between participants in Euroclear or
Cedel will be effected in the ordinary way in accordance with their respective
rules and operating procedures.
136
<PAGE>
Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between the participants in The Depository Trust
Company and Euroclear or Cedel participants will be effected through The
Depository Trust Company in accordance with its rules on behalf of Euroclear or
Cedel by its respective depositary. However, such cross-market transactions will
require delivery of instructions to Euroclear or Cedel by the counterparty in
such system in accordance with the rules and procedures and within the
established deadlines (Brussels time) of such system. Euroclear or Cedel will,
if the transaction meets its settlement requirements, deliver instructions to
its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant global notes in The
Depository Trust Company, and making or receiving payment in accordance with
normal procedures for same-day funds settlement applicable to The Depository
Trust Company. Euroclear participants and Cedel participants may not deliver
instructions directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in the global note from a participant
in The Depository Trust Company will be credited, and any such crediting will be
reported to the relevant Euroclear or Cedel participant, during the securities
settlement processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of The Depository Trust Company. Cash
received in Euroclear or Cedel as a result of sales of interest in the global
note by or through a Euroclear or Cedel participant to a participant in The
Depository Trust Company will be received with value on the settlement date of
The Depository Trust Company but will be available in the relevant Euroclear or
Cedel cash account only as of the business day for Euroclear or Cedel following
The Depository Trust Company's settlement date.
Although The Depository Trust Company, Euroclear and Cedel have agreed to
the foregoing procedures to facilitate transfers of interests in the global note
among participants in The Depository Trust Company, Euroclear and Cedel, they
are under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. Neither our company nor the
Trustee will have any responsibility for the performance by The Depository Trust
Company, Euroclear or Cedel or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED NOTES
Certificated Notes will be issued to each person that The Depository Trust
Company identifies as the beneficial owner of the Notes represented by the
global Note if the following events occur:
- The Depository Trust Company notifies us that it is no longer willing or
able to act as a depositary or The Depository Trust Company ceases to be
registered as a clearing agency under the Exchange Act and a successor
depositary is not appointed within 90 days of such notice or cessation;
- we, at our option, notify the Trustee in writing that we elect to cause
the issuance of certificated Notes under the Notes Indenture; or
- if an event of default, as provided in the Notes Indenture, occurs and is
continuing, then, upon surrender by The Depository Trust Company of the
global note.
Upon any such issuance, the Trustee shall register such certificated Notes in
the name of such person or persons, or any nominee, and deliver the certificated
Notes as instructed.
Neither us nor the Trustee shall be liable for any delay by The Depository
Trust Company or any participant or indirect participant in identifying the
beneficial owners of the related Notes. Each person may conclusively rely on,
and shall be protected in relying on, instructions from The Depository Trust
Company for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).
137
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the SEC set forth in no-action letters issued to
third parties, we believe that New Notes issued under the Exchange Offer in
exchange for the Old Notes may be transferred by holders other than any holder
which is:
- an "affiliate" within the meaning of Rule 405 under the Securities Act;
- a broker-dealer who acquired Notes directly from us; or
- a broker-dealer who acquired Notes as a result of market-making or other
trading activities without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that:
- the holder acquires the New Notes in the ordinary course of that
holders' business; and
- the holders are not engaged in, and do not intend to engage in, and
have no arrangement or understanding with any person to participate in,
a distribution of such New Notes;
provided that broker-dealers receiving New Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to
resales of the New Notes.
To date, the SEC has taken the position that participating broker-dealers
may fulfill their prospectus delivery requirements with respect to transactions
involving an exchange of securities such as this Exchange Offer (other than a
resale of an unsold allotment from the sale of the Old Notes to Credit Suisse
First Boston Corporation, First Union Capital Markets, and Warburg Dillon Reed
LLC) with the prospectus contained in the Exchange Offer registration statement.
Pursuant to the Registration Rights Agreement, we have agreed to permit
participating broker-dealers to use this Prospectus in connection with the
resale of New Notes. We have agreed that, for a period of 90 days after the
expiration of the Exchange Offer, we will make this Prospectus, and any
amendment or supplement to this Prospectus, available to any broker-dealer that
requests such documents in the Letter of Transmittal.
Each holder of the Old Notes who wishes to exchange its Old Notes for New
Notes in the Exchange Offer will be required to make certain representations to
us as set forth in "The Exchange Offer--Purpose and Effect of the Exchange
Offer" of this Prospectus. In addition, each holder who is a broker-dealer and
who receives New Notes for its own account in exchange for Old Notes that were
acquired by it as a result of market-making activities or other trading
activities, will be required to acknowledge that it will deliver a prospectus in
connection with any resale by it of such New Notes.
We will not receive any proceeds from any sale of New Notes by
broker-dealers. Broker-dealers who receive New Notes for their own account
pursuant to the Exchange Offer may sell them from time to time in one or more
transactions in the over-the-counter market:
- in negotiated transactions;
- through the writing of options on the New Notes or a combination of such
methods of resale;
- at market prices prevailing at the time of resale; or
- at prices related to such prevailing market prices or negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any broker-dealer or the purchasers of any New Notes. Any broker-dealer
that resells New Notes it received for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such New
Notes may be deemed to be an "underwriter" within the meaning of the Securities
Act and any profit on any resale of New Notes and any commissions or concessions
received by any persons may be deemed to be
138
<PAGE>
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the Exchange Offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in the
Registration Rights Agreement.
LEGAL MATTERS
The validity of the New Notes offered in this Prospectus will be passed upon
for DIMAC Corporation by White & Case LLP, New York, New York.
EXPERTS
The audited consolidated financial statements of DIMAC Corporation and
subsidiaries as of June 30, 1998 and for the period from Inception (May 12,
1998) to June 30, 1998, included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included in this Prospectus in reliance upon the authority of said firm as
experts in giving said report.
The audited consolidated financial statements of DIMAC Marketing Corporation
and subsidiaries as of December 31, 1996 and 1997 and for the year ended
December 31, 1995, one month ended January 31, 1996, eleven months ended
December 31, 1996, eight months ended August 31, 1997 and four months ended
December 31, 1997, included in this Prospectus and elsewhere in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included in this Prospectus in reliance upon the authority of said firm as
experts in giving said reports.
The audited consolidated financial statements of AmeriComm Holdings, Inc.
and subsidiary as of December 31, 1996 and 1997 and for each of the three years
in the period ended December 31, 1997, included in this Prospectus and elsewhere
in this Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included in this Prospectus in reliance upon the authority of
said firm as experts in giving said report.
The consolidated financial statements of AmeriComm Direct Marketing, Inc. as
of December 31, 1995 and 1996 and for each of the three years in the period
ended December 31, 1996 included in this Prospectus and elsewhere in the
registration statement have been audited by Deloitte & Touche LLP, independent
certified public accountants, as indicated in their report with respect thereto,
and are included in this Prospectus in reliance upon the authority of said firm
as experts in giving said report.
The consolidated financial statements of Transkrit as of December 31, 1994
and 1995 and for each of the years in the two-year period ended December 31,
1995 included in this Prospectus and elsewhere in the registration statement
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as indicated in their report with respect thereto, and are included
in this Prospectus in reliance upon the authority of said firm as experts in
accounting and auditing.
139
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
DIMAC CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants................................................................. F-3
Consolidated Balance Sheet as of June 30, 1998........................................................... F-4
Consolidated Statement of Operations for the period from Inception (May 12, 1998) to
June 30, 1998.......................................................................................... F-6
Consolidated Statement of Stockholder's Equity for the period from Inception (May 12, 1998) to June 30,
1998................................................................................................... F-7
Consolidated Statement of Cash Flows for the period from Inception (May 12, 1998) to
June 30, 1998.......................................................................................... F-8
Notes to Consolidated Financial Statements............................................................... F-9
DIMAC MARKETING CORPORATION AND SUBSIDIARIES
(Predecessor to our company)
The unaudited consolidated financial statements for the six month period ended June 30, 1997 reflect the
operations of DIMAC Marketing following its purchase by Heritage Media, but prior to the acquisition of Heritage
Media by News Corporation in August 1997, and the unaudited consolidated financial statements for the six month
period ended June 26, 1998 reflect the operations of DIMAC Marketing following the purchase of Heritage Media by
News Corporation.
Consolidated Balance Sheets as of June 26, 1998 (unaudited).............................................. F-25
Consolidated Statements of Operations for the six-month periods ended June 30, 1997 and June 26, 1998
(unaudited)............................................................................................ F-26
Consolidated Statements of Cash Flows for the six-month periods ended June 30, 1997 and June 26, 1998
(unaudited)............................................................................................ F-27
Notes to Consolidated Financial Statements (unaudited)................................................... F-28
The consolidated financial statements for the four-month period ended December 31, 1997 reflect the financial
results of DIMAC Marketing under a new basis of accounting that reflects the fair value of assets acquired and
liabilities assumed in connection with the purchase of Heritage Media by News Corporation.
Report of Independent Public Accountants................................................................. F-31
Consolidated Balance Sheet as of December 31, 1997....................................................... F-32
Consolidated Statement of Operations for the four-month period ended December 31, 1997................... F-33
Consolidated Statement of Stockholder's Equity for the four-month period ended
December 31, 1997...................................................................................... F-34
Consolidated Statement of Cash Flows for the four-month period ended December 31, 1997................... F-35
Notes to Consolidated Financial Statements............................................................... F-36
The consolidated financial statements for the eleven-month period ended December 31, 1996 and for the
eight-month period ended August 31, 1997 reflect the financial results of DIMAC Marketing under a new basis of
accounting that reflects the fair value of assets acquired and liabilities assumed, the related financing costs, and
all debt incurred in connection with purchase of DIMAC Marketing by Heritage Media.
Report of Independent Public Accountants................................................................. F-44
Consolidated Balance Sheet as of December 31, 1996....................................................... F-45
Consolidated Statements of Operations for the eleven-month period ended December 31, 1996 and for the
eight-month period ended August 31, 1997............................................................... F-46
Consolidated Statements of Stockholder's Equity for the eleven-month period ended December 31, 1996 and
for the eight-month period ended August 31, 1997....................................................... F-47
Consolidated Statements of Cash Flows for the eleven-month period ended December 31, 1996 and for the
eight-month period ended August 31, 1997............................................................... F-48
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Notes to Consolidated Financial Statements............................................................... F-49
The consolidated financial statements for all periods prior to January 31, 1996 reflect the operations of DIMAC
Marketing under a prior owner.
Report of Independent Public Accountants................................................................. F-58
Consolidated Statements of Operations for the year ended December 31, 1995 and for the one-month period
ended January 31, 1996................................................................................. F-59
Consolidated Statements of Stockholder's Equity for the year ended December 31, 1995 and for the
one-month period ended January 31, 1996................................................................ F-60
Consolidated Statements of Cash Flows for the year ended December 31, 1995 and for the one-month period
ended January 31, 1996................................................................................. F-61
Notes to Consolidated Financial Statements............................................................... F-62
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
(Predecessor to our Company)
Report of Independent Public Accountants................................................................. F-67
Consolidated Balance Sheets as of December 31, 1996 and 1997 and June 26, 1998 (unaudited)............... F-68
Consolidated Statements of Operations for the years ended December 31, 1995, 1996 and 1997 and for the
six-month periods ended June 30, 1997 and June 26, 1998 (unaudited).................................... F-70
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995, 1996 and
1997 and for the six-month period ended June 26, 1998 (unaudited)...................................... F-71
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for the
six-month periods ended June 30, 1997 and June 26, 1998 (unaudited).................................... F-72
Notes to Financial Statements............................................................................ F-74
AMERICOMM DIRECT MARKETING, INC.
(Acquired by AmeriComm Holdings, Inc. on April 24, 1997)
Independent Auditors' Report............................................................................. F-90
Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited)........................... F-91
Statements of Income for the years ended December 31, 1994, 1995 and 1996 and for the three-month periods
ended March 31, 1996 and 1997 (unaudited).............................................................. F-92
Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996.................. F-93
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and for the three-month
periods ended March 31, 1996 and 1997 (unaudited)...................................................... F-94
Notes to Financial Statements............................................................................ F-95
TRANSKRIT CORPORATION AND SUBSIDIARIES
(Acquired by AmeriComm Holdings, Inc. on June 28, 1996)
Independent Auditors' Report............................................................................. F-101
Consolidated Balance Sheets as of December 31, 1994 and 1995............................................. F-102
Consolidated Statements of Income for the years ended December 31, 1994 and 1995 and for the six months
ended June 30, 1995 and June 28, 1996 (unaudited)...................................................... F-104
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1994 and
1995................................................................................................... F-105
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the six
months ended June 30, 1995 and June 28, 1996 (unaudited)............................................... F-106
Notes to Consolidated Financial Statements............................................................... F-107
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DIMAC Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheet of DIMAC
Corporation (a Delaware corporation) and subsidiaries as of June 30, 1998 and
the related consolidated statements of operations, stockholder's equity and cash
flows for the period from Inception (May 12, 1998) to June 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DIMAC Corporation and
subsidiaries as of June 30, 1998 and the results of their operations and their
cash flows for the period from Inception (May 12, 1998) to June 30, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 6, 1998
F-3
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................................ $ 1,700
Accounts receivable, net of allowance for doubtful accounts of $1,772....... 65,112
Inventories................................................................. 14,310
Deferred income taxes....................................................... 7,133
Other....................................................................... 5,007
-----------
Total current assets...................................................... 93,262
-----------
PROPERTY AND EQUIPMENT:
Land........................................................................ 5,200
Buildings................................................................... 27,176
Machinery and equipment..................................................... 47,728
Office equipment, furniture and fixtures.................................... 11,006
Leasehold improvements...................................................... 2,099
Vehicles.................................................................... 133
Construction in progress.................................................... 3,873
-----------
97,215
Less accumulated depreciation............................................... (96)
-----------
Total property and equipment, net......................................... 97,119
-----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $72............................ 269,446
Other intangible assets, net of accumulated amortization of $116............ 50,294
Other....................................................................... 3,823
-----------
Total other assets........................................................ 323,563
-----------
Total assets............................................................ $ 513,944
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-4
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.............................................. $ 2,692
Outstanding checks............................................................. 5,324
Accounts payable............................................................... 9,458
Advances from customers........................................................ 13,586
Accrued employee compensation.................................................. 11,473
Other accrued expenses......................................................... 29,192
-----------
Total current liabilities.................................................... 71,725
-----------
DEFERRED INCOME TAXES............................................................ 16,790
-----------
NONCURRENT LIABILITIES........................................................... 4,187
-----------
LONG-TERM DEBT................................................................... 321,337
-----------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDER'S EQUITY:
Common stock $.001 par value, 100 shares authorized, issued and outstanding.... --
Additional paid-in capital..................................................... 100,000
Accumulated deficit............................................................ (95)
-----------
Total stockholder's equity................................................... 99,905
-----------
Total liabilities and stockholder's equity................................... $ 513,944
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-5
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Net sales........................................................................ $ 2,859
Cost of products sold............................................................ 1,977
---------
Gross profit..................................................................... 882
---------
Operating expenses:
Selling........................................................................ 309
General and administrative..................................................... 475
---------
Total operating expenses....................................................... 784
---------
Income from operations........................................................... 98
Interest expense................................................................. 208
---------
Loss before income tax benefit................................................... (110)
Income tax benefit............................................................... (15)
---------
Net loss......................................................................... $ (95)
---------
---------
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-6
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
----------- ---------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, INCEPTION (MAY 12, 1998)..................... -- $ -- $ -- $ -- $ --
Issuance of common stock.............................. 100 -- 100,000 -- 100,000
Net loss.............................................. -- -- -- (95) (95)
--- ---------- ---------- --- ----------
BALANCE, JUNE 30, 1998................................ 100 $ -- $ 100,000 $ (95) $ 99,905
--- ---------- ---------- --- ----------
--- ---------- ---------- --- ----------
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-7
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................... $ (95)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 284
Deferred income tax benefit................................................ (15)
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable...................................................... (2,859)
Inventories.............................................................. 1,885
Accrued expenses and other............................................... 800
-----------
Net cash provided by operating activities.............................. --
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for the purchase of the outstanding stock of AmeriComm Holdings,
Inc., net of cash acquired................................................. (37,387)
Payment for the purchase of the outstanding stock of DIMAC Marketing Corp,
net of cash acquired....................................................... (203,959)
-----------
Net cash used in investing activities.................................. (241,346)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in outstanding checks, net.......................................... 615
Net borrowings on revolving loan facilities.................................. 5,785
Proceeds from issuance of common stock....................................... 100,000
Proceeds from issuance of Term Loans A and B................................. 150,000
Payments of deferred financing costs......................................... (13,354)
-----------
Net cash provided by financing activities.............................. 243,046
-----------
NET INCREASE IN CASH........................................................... 1,700
CASH, INCEPTION (MAY 12, 1998)................................................. --
-----------
CASH, JUNE 30, 1998............................................................ $ 1,700
-----------
-----------
SUPPLEMENTAL DISCLOSURES:
Assets acquired by assuming liabilities...................................... $ 168,200
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-8
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
1. BACKGROUND
DIMAC Corporation (the "Company"), a wholly owned subsidiary of DIMAC
Holdings, Inc. ("Holdings"), was formed on May 12, 1998 ("Inception") for the
purpose of acquiring DIMAC Marketing Corporation and its subsidiaries (DIMAC
Direct, Inc., Wilcox and Associates, The McClure Group, Palm Coast Data, Inc.
and MBS/Multimode, Inc., collectively referred to as "DIMAC Marketing"), and
AmeriComm Holdings, Inc. and its subsidiary (AmeriComm Direct Marketing, Inc. or
"ADMI", collectively referred to as "AHI"). On June 26, 1998, the Company
acquired the outstanding capital stock of DIMAC Marketing for $200,000 plus
transaction costs and assumed indebtedness of $4,000. Simultaneous with the
DIMAC Marketing acquisition, the Company acquired the outstanding capital stock
of AHI for $35,849 plus transaction costs and assumed indebtedness of $164,200.
The acquisitions were funded through revolving and term loan facilities with
Credit Suisse First Boston (Note 3) and a capital contribution from Holdings
(Note 5).
Both acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the results of operations of DIMAC Marketing and
AHI have been included in the results of operations of the Company since June
27, 1998. The total purchase price for DIMAC Marketing and AHI has been
preliminarily allocated to the tangible and identifiable intangible assets and
liabilities of the acquired companies based on the Company's preliminary
estimates of their fair value with the remainder allocated to goodwill. The
excess of the consideration paid for DIMAC Marketing and AHI over the estimated
fair value of net assets acquired of $160,142 and $100,613, respectively, has
been preliminarily recorded as goodwill and is being amortized on the
straight-line basis over 40 years. The allocation of purchase price for the
acquisitions is subject to revision when additional information concerning asset
and liability valuations is obtained.
INTEGRATION PLAN
In conjunction with the acquisitions of AHI and DIMAC Marketing, management
has approved and committed the Company to a plan to combine and integrate the
operations of AHI and DIMAC Marketing (the "Integration Plan"). The Integration
Plan will result in the elimination of duplicative functions and will
standardize business practices and policies. The Company expects to achieve
approximately $8 million of cost savings on an annual basis beginning by March
1999 as a result of the Integration Plan.
The Integration Plan will result in the elimination of 159 positions during
1998 and 1999 of which 152 employees had been involuntary terminated pursuant to
the Integration Plan as of October 31, 1998. The employee groups that are
primarily affected include executive management, finance, information systems,
sales management and representatives and manufacturing supervision.
The Integration Plan will also include the closure of two facilities which
will be consolidated into other existing facilities and the consolidation of
insurance and other third-party provided services.
The Company has recorded approximately $6.4 million of liabilities related
to the Integration Plan all of which have been recorded as part of the purchase
price allocation of AHI and DIMAC Marketing. Of this amount, $5.7 million
represented termination benefits and $0.7 million represented other exit costs.
F-9
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
1. BACKGROUND (CONTINUED)
The following presents, on an unaudited pro forma basis, the Company's
summary results of operations for the year ended December 31, 1997 and the six
months ended June 30, 1998 as though the acquisitions of DIMAC Marketing and
AHI, AHI's previous acquisitions of Label America, Inc., AmeriComm Direct
Marketing, Inc., Cardinal Marketing, Inc., and Cardinal Marketing of New Jersey,
Inc., and related transactions occurred on January 1, 1997 (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Net sales............................................................. $ 386,665 $ 189,918
Income from operations................................................ 29,044 12,645
Loss before income taxes.............................................. (6,751) (5,561)
Net loss.............................................................. (7,070) (4,704)
</TABLE>
The Company (consisting of the operations of DIMAC Marketing and AHI)
provides a comprehensive range of direct marketing services that emphasize
cost-effective production of large, complex, highly personalized direct mail
campaigns. Through its nationwide network of production facilities, the Company
offers its direct mail customers a wide variety of formats, printing and
converting capabilities, personalization and customization alternatives and
mailing and distribution services. To complement and help drive its production
volume and to obtain the benefits of high margin business, the Company offers a
complete range of pre- and post-production direct marketing services such as
Information Services (information processing and database management), Program
Development Services (strategic market planning, creative development and
program evaluation) and Fulfillment and Telemarketing Services. In addition, to
support its direct marketing products and services, the Company offers other
printing and converting products such as custom pressure sensitive labels and
custom mailers. The Company markets its products and services to customers
throughout the United States primarily through its major facilities in the
following locations: Fort Smith, AR, San Carlos, CA, Denver, CO, Gainsville and
Palm Coast, FL, Austell and Tucker, GA, Louisville, KY, St. Louis, MO, Wilton,
NH, Mountainside, NJ, Central Islip and New York, NY, Philadelphia, PA, Houston,
TX and Norfolk and Roanoke, VA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany transactions and
balances have been eliminated.
FISCAL PERIOD
The Company will end its fiscal year on December 31.
REVENUE RECOGNITION
Revenues are recorded as products are shipped or as services are performed,
except for certain sales for which revenue is recognized when the customer is
billed based on passage of legal title at the date of billing. Such 'bill and
hold' sales are not material to the Company's results of operations.
F-10
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of financial statements as well as during the reporting period. Actual
results could differ from these estimates.
ACCOUNTS RECEIVABLE
The Company provides an allowance for doubtful accounts for the estimated
losses that will be incurred in the collection of receivables. The estimated
losses are based on historical collection experience coupled with a review of
the current status of the existing receivables. Included in accounts receivable
is $9,272 representing unbilled revenues for services performed prior to June
30, 1998.
A summary of changes in the allowance for doubtful accounts is as follows:
<TABLE>
<S> <C>
Balance at Inception................................................................ $ --
Acquired balance from AHI........................................................... 707
Acquired balance from DIMAC Marketing............................................... 1,065
---------
Balance, June 30, 1998.............................................................. $ 1,772
---------
---------
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost or market. Cost of raw materials
are determined using the first-in, first-out (FIFO) method. Costs (net of an
obsolescence reserve) of work in process, finished goods, and customized stock
(consisting of products which have been produced and held for certain customers
under short-term delayed-shipping arrangements) are determined using the average
cost (which approximates FIFO), or FIFO method.
Inventories consist of the following at June 30, 1998:
<TABLE>
<S> <C>
Raw materials...................................................................... $ 8,041
Work in process.................................................................... 2,070
Finished goods..................................................................... 2,617
Customized stock................................................................... 1,582
---------
Balance, June 30, 1998............................................................. $ 14,310
---------
---------
</TABLE>
F-11
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost or at estimated fair value at
date of acquisition (Note 1), if acquired as part of a business combination, and
are depreciated using the straight-line method over the following lives:
<TABLE>
<S> <C>
25 to 40
Buildings.................................................................... years
3 to 11
Machinery and equipment...................................................... years
Office equipment, furniture and fixtures..................................... 3 to 7 years
Vehicles..................................................................... 3 to 5 years
</TABLE>
Leasehold improvements are depreciated over the lesser of the useful lives
of the assets or the lease term.
The Company's policy is to remove the cost and accumulated depreciation of
retirements from the accounts and recognize the related gain or loss upon the
disposition of assets. Depreciation expense for the period from Inception to
June 30, 1998 was $96.
INTANGIBLE ASSETS
The Company continually evaluates the propriety of the carrying amount of
goodwill and other long-lived assets as well as the related depreciation or
amortization periods to determine whether current events and circumstances
warrant adjustments to the carrying values and/or revised estimates of useful
lives. This evaluation is based on the Company's projection of the undiscounted
operating income before depreciation, amortization and interest over the
remaining useful lives of the related goodwill and other long-lived assets. The
projections are based on the historical trend line of actual results since the
commencement of operations and adjusted for expected changes in operating
results. To the extent such projections indicate that the undiscounted operating
income (as defined above) is not expected to be adequate to recover the carrying
amounts of goodwill and other long-lived assets, such carrying amounts are
written down by charges to expense in amounts equal to the excess of the
carrying amount of the related assets over their estimated fair value. The
Company believes that no significant impairment of the the related assets has
occurred and that no reduction of the estimated useful lives is warranted.
GOODWILL Goodwill represents the cost of the acquired businesses in excess
of net identifiable assets and is amortized on a straight-line basis over 40
years.
PATENTS The Company has acquired several patents related to certain
products through the acquisition of DIMAC Marketing and AHI. These patents have
been recorded at their estimated fair value at the date of acquisition. These
amounts are being amortized on a straight-line basis over the life (one to
nineteen years) of the patents. The carrying value of patents at June 30, 1998
was $15,262.
COVENANTS NOT TO COMPETE Covenants not to compete have been recorded at
cost and are being amortized on a straight-line basis over the terms (three to
four years) of the agreements. The carrying values of the covenants not to
compete at June 30, 1998 was $2,167.
F-12
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
RESIDENT ADDRESS LISTS The Company has acquired and maintains national
residential address lists used by its customers in making saturation or targeted
mailings. Resident address lists have been recorded at their estimated fair
value at the date of acquisition. These amounts are being amortized on a
straight-line basis over the life (four years) of the resident address lists.
The carrying value of the resident address lists at June 30, 1998 was $18,214.
TRAINED WORK FORCE The Company acquired a trained work force in connection
with the Acquisition of DIMAC Marketing and AHI that have been recorded at their
estimated fair value at the date of Acquisition. These amounts are being
amortized on a straight-line basis over six years. The carrying value of the
trained work force at June 30, 1998 was $2,752.
DEFERRED FINANCING COSTS Deferred financing costs represent costs incurred
to raise financing and are amortized over the related terms of the borrowings
(Note 3). The carrying value of the deferred financing costs at June 30, 1998
was $11,900.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
for recognition of deferred tax consequences of temporary differences, net
operating losses, and tax credits by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable and debt. The carrying amounts of cash, accounts
receivable, and accounts payable approximate their fair values because of the
short-term maturity of such instruments. The carrying value of long-term debt
approximate its fair value, because interest rates on such debt are periodically
adjusted and approximate current market rates.
F-13
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board recently issued SFAS No. 130
"Reporting Comprehensive Income," which establishes standards for reporting and
disclosure of comprehensive income and its components; SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information," which establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas, and
major customers; SFAS No. 132 "Employers' Disclosures about Pension and Other
Postretirement Benefits," which standardizes the disclosure requirements for
pensions and other postretirement benefits and expands disclosures on changes in
benefit obligations and fair values of plan assets; and SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities," which requires that all
derivatives be recognized as either assets or liabilities in the statement of
financial position at fair value unless specific hedge criteria are met. The
Company is required to adopt the provisions of SFAS 130, 131 and 132 in 1998 and
SFAS 133 in 2000. Adoption of these statements is not expected to significantly
impact the Company's consolidated financial position, results of operations or
cash flows, and any effect will be limited primarily to the form and content of
its disclosures.
F-14
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
3. LONG-TERM DEBT
Long-term debt consists of the following as of June 30, 1998:
<TABLE>
<S> <C>
Term A loans ("Term Loans A") payable with Credit Suisse First Boston, Inc.,
("CSFB") $0 bearing interest at the Eurodollar rate plus 2.25% (7.94% at June
30, 1998) and $75,000 bearing interest at Prime plus 1.25% (9.75% at June 30,
1998). Quarterly principal payments commence March 31, 2000, as defined......... $ 75,000
Term B loans ("Term Loans B") with CSFB $0 bearing interest at the Eurodollar rate
plus 2.75% (8.44% at June 30, 1998) and $75,000 bearing interest at Prime plus
1.75% (10.25% at June 30, 1998). Quarterly principal payments commence March 31,
2000, as defined................................................................ 75,000
Revolving loan facility ("Revolving Loan Facility") with CSFB, principal payable
in full upon the earlier of termination, as defined, or June 30, 2004, $0
bearing interest at the Eurodollar rate plus 2.25% (7.94% at June 30, 1998) and
$6,400 bearing interest at Prime plus 1.25% (9.75% at June 30, 1998)............ 6,400
11.625% senior unsecured notes (the "AmeriComm Senior Notes"), interest payable
semi-annually, maturing June 28, 2001........................................... 100,000
12.5% senior notes (the "AmeriComm Holdings Senior Notes"), including "Payment in
Kind" ("PIK Notes") notes, interest payable quarterly, maturing April 24,
2003............................................................................ 40,541
Revolving loan facility with Heller Financial, Inc. ("Heller"), principal payable
in full upon the earlier of termination, as defined, or June 28, 2001, $17,000
bearing interest at the 30 to 180 day LIBOR plus 2.25% (7.91% at June 30, 1998)
and $1,190 bearing interest at Prime plus 1% (9.5% at June 30, 1998)............ 18,190
Capital lease payable to The CIT Group/Equipment Financing, Inc. ("CIT"), monthly
principal and interest payments of $48 through June 2001 with a balloon payment
of $513 due June 2001, interest at 10.2%........................................ 1,869
Capital leases payable to General Electric Capital Corporation ("GE"), monthly
principal and interest payments of $54 through November 1999, declining to $44
commencing December 1999 through October 2001 with a balloon payment of $1,615
due November 2001, interest at 9.36%............................................ 2,830
Capital leases payable to Leasetec Corporation ("LTC"), monthly principal and
interest payments ranging from $4 to $92 until lease termination on December
2000, interest ranging from 8.25% to 9.75%...................................... 1,250
Other............................................................................. 2,949
---------
324,029
Less current portion.............................................................. 2,692
---------
$ 321,337
---------
---------
</TABLE>
F-15
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
3. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt and capital lease obligations at June 30, 1998
for the remaining six months of 1998 and the fiscal years thereafter are as
follows:
<TABLE>
<S> <C>
1998.............................................................................. $ 1,532
1999.............................................................................. 2,570
2000.............................................................................. 14,481
2001.............................................................................. 34,240
2002.............................................................................. 119,265
2003 and thereafter............................................................... 151,941
---------
$ 324,029
---------
---------
</TABLE>
Concurrent with the consummation of the acquisitions of AHI and DIMAC
Marketing discussed in Note 1, the Company entered into a credit agreement (the
"Credit Agreement") with CSFB. Under the terms of the Credit Agreement, the
Company entered into Term Loans A and B. In addition, the terms of the Credit
Agreement provide for the Revolving Loan Facility whereby the Company can borrow
a maximum of $75,000 reduced by the amount outstanding under any letter of
credits or swing line loans, as defined. The maximum allowable borrowing on the
Revolving Loan Facility is reduced to $60,000 effective June 30, 2003.
Additional borrowings under the Revolving Loan Facility may only be used for
DIMAC Marketing and its subsidiaries working capital needs or for future
acquisitions made by the Company. Borrowings outstanding under the Credit
Agreement are guaranteed by Holdings, and each subsidiary of the Company
excluding AHI and ADMI. In addition, borrowings under the Credit Agreement are
secured by essentially all of the assets of the Company and its subsidiaries
excluding AHI and ADMI. The initial interest rate on Term Loans A and the
Revolving Loan Facility is the Applicable Base Rate (the higher of Prime Rate or
the rate which is 1/2% in excess of the Federal Funds Effective Rate, hereafter
referred to as "ABR") plus 1.25% or the Applicable Eurodollar Rate (British
Bankers' Association Interest Settlement Rate, hereafter referred to "AER") plus
2.25% and can be adjusted downward to the ABR plus 0.50% or AER plus 1.50% based
upon the Company's leverage ratio, as defined, commencing no later then December
26, 1998. The initial interest rate on Term Loans B is the ABR plus 1.75% or the
AER plus 2.75% and can be adjusted downward to the ABR plus 1.50% or AER plus
2.50% based upon the Company's leverage ratio, as defined, commencing no later
then December 26, 1998. Borrowings under the Credit Agreement are subject to
certain financial covenants that include, among others, limitations on
additional indebtedness and capital expenditures, minimum interest and fixed
charge coverage ratios and maximum leverage ratio, as defined and limitations on
the payments of dividends, as defined. In addition, the Credit Agreement may
require prepayments, as defined. (See Note 9--Subsequent Events).
On June 28, 1996, ADMI issued $100,000 aggregate principal amount of the
AmeriComm Senior Notes due June 15, 2002. Interest is payable semi-annually on
June 15th and December 15th. The AmeriComm Senior Notes are senior obligations
of ADMI and will be PARI PASSU in right of payment to all ADMI future senior
indebtedness. The indenture to the AmeriComm Senior Notes limits the incurrence
of additional debt by ADMI, does not allow ADMI to pay any common stock
dividends and limits ADMI's ability to redeem any capital stock and to sell its
assets, as defined. ADMI may incur
F-16
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
3. LONG-TERM DEBT (CONTINUED)
additional indebtedness, as defined, as long as its fixed charge coverage ratio,
as defined, is greater than certain minimum levels. (See Note 9--Subsequent
Events).
On April 24, 1997, AHI issued $35,000 aggregate principal amount of the
AmeriComm Holdings Senior Notes due April 24, 2003. The AmeriComm Holdings
Senior Notes place certain restrictions on the AHI's and ADMI's ability to incur
additional indebtedness or make future acquisitions. In addition, future
interest and principal payments by AHI are dependent primarily on the operations
of ADMI through payments to AHI as permitted under the AmeriComm Senior Notes.
As a result, AHI may pay a portion or all of any six quarterly interest
installments prior to April 24, 1999 by issuing additional PIK Notes with
interest ranging from 12.5% to 13%. The initial interest installments due each
quarter commencing June 30, 1997 through June 30, 1998 were paid by the issuance
of PIK Notes. The PIK Notes must be redeemed prior to April 24, 2003. Borrowings
under the AmeriComm Holdings Senior Notes are subject to certain covenants which
include, among others, a minimum fixed charge coverage, as defined. (See Note
9--Subsequent Events.)
The Company maintains a revolving loan facility with Heller. The facility
provides borrowings based on the lesser of qualified accounts receivable and
inventories, as defined, or $25,000. Borrowings under the revolving loan
facility are subject to certain financial covenants that include, among others,
minimum fixed charge coverage and total indebtedness to operating cash flow
ratio, as defined. As of June 30, 1998, $6,680 was available on the revolving
loan facility. (See Note 9--Subsequent Events.)
Under the CIT capital lease payable, CIT has a first-perfected security
interest in certain equipment. At the end of the lease term, the Company will
have the option to purchase the equipment for $513. Under the GE capital leases
payable, GE has a first-perfected security interest in certain equipment. At the
end of each lease term, the Company will have the option to purchase the
equipment for an aggregate of $1,615. The CIT and GE capital leases are
cross-defaulted with other loan agreements if such default is not cured within
90 days following the default.
Under the LTC capital lease payable, LTC has a first-perfected security
interest in certain equipment. At the end of the lease term, the Company will
have the option to purchase the equipment for fair market value, as defined.
4. INCOME TAXES
The income tax benefit for the period ended June 30, 1998 represents the
income tax benefit from operating losses. As a result, the income tax benefit
presented consists of deferred tax benefits.
F-17
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
4. INCOME TAXES (CONTINUED)
The reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate for the period from Inception to June 30, 1998 is as
follows:
<TABLE>
<S> <C>
Federal tax benefit at statutory rate................................. $ (37)
State, net of federal benefit......................................... (7)
Non-deductible amortization........................................... 29
---
Actual income tax benefit............................................. $ (15)
---
---
Effective tax rate.................................................... (14%)
---
---
</TABLE>
Significant components of the Company's net deferred tax liabilities as of
June 30, 1998 are as follows:
DEFERRED TAX ASSETS (LIABILITIES):
<TABLE>
<S> <C>
Net operating loss carryforwards.................................. $ 4,801
Book basis in property over tax basis............................. (12,674)
Resident address lists............................................ (6,687)
Patents........................................................... (820)
Inventories....................................................... (356)
Goodwill.......................................................... (2,241)
Prepaid pension cost.............................................. (1,199)
Trained work force................................................ (1,145)
Covenants not-to-compete.......................................... 1,319
Interest paid with in-kind notes.................................. 1,821
Employee benefit accruals......................................... 4,155
Liabilities not currently deductible.............................. 3,549
Allowance for doubtful accounts................................... 722
Deferred revenue.................................................. (713)
Other, net........................................................ (189)
---------
Net deferred tax liabilities...................................... $ (9,657)
---------
---------
</TABLE>
The net operating loss carryforwards will be used to offset future taxable
income of certain subsidiaries of the Company, subject to their expirations,
beginning in 2004 and continuing through 2013. Any future issuance of stock by
the Company could result in an ownership change, as defined by the Tax Reform
Act of 1986, and could limit utilization of net operating loss carryforwards.
Also, benefits derived from using net operating loss carryforwards to offset any
taxes calculated as alternative minimum tax could be less than the recorded
amount of the net operating loss carryforwards. Although realization is not
assured, management believes all net operating loss carryforwards will be
realized.
F-18
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
5. CAPITAL STOCK
Concurrent with the acquisitions of DIMAC Marketing and AHI (Note 1),
Holdings made a capital contribution of $100,000 to the Company for 100 shares
of common stock.
6. RELATED-PARTY TRANSACTIONS
FEES TO AFFILIATE
Effective July 1, 1998, the Company entered into an Advisory Services
Agreement (the "Agreement") with MDC Management Company IV, L.P. ("MDC") an
affiliate of the Company. Under the Agreement, MDC provides certain consulting,
financial, and managerial functions for a fee. The annual fee for the period
from July 1, 1998 to December 31, 1998 will be $275. Thereafter, the annual fee
will equal the greater of (i) $550 and (ii) 1.06% of the pro forma EBITDA of the
Company for the immediate preceding fiscal year, as defined. No payments shall
be made by the Company to MDC under the Agreement if there is an event of
default, as defined, under certain loan agreements (Note 3). The Agreement
expires July, 2003 and is renewable thereafter, unless terminated by the Company
for justifiable cause, as defined.
For services related to the acquisitions of DIMAC and AHI (Note 1), the
Company paid MDC and its affiliates $11,231 which has been recorded as goodwill.
7. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
The Company has a defined benefit pension plan ("The Employees' Retirement
Plan of National Fiberstok Corporation") covering certain employees. On December
20, 1993, the Company amended the plan, freezing future participation by any new
employee of the Company effective December 31, 1993. Effective December 31,
1994, the Company again amended the plan, freezing future accrual of benefits
for all participants. In conjunction with this amendment, all participants of
the plan were retroactively vested.
The funded status of the plan as of June 30, 1998 is as follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Accumulated projected benefit obligation......................................... $ 18,355
Plan assets at fair value........................................................ 19,963
---------
Plan assets greater than projected benefit obligation.............................. $ 1,608
---------
---------
</TABLE>
The weighted average discount rate used to measure the accumulated projected
benefit obligation was 7%. The expected long-term rates of return on assets was
9%.
The company has another defined benefit pension plan ("The Transkrit
Corporation Employees' Pension Plan") covering certain employees. Effective
April 30, 1997, the company amended the plan, freezing future benefits for
participants at certain locations. In conjunction with this amendment, the
participants with frozen future benefits were retroactively vested. Normal
retirement age is 65, but a
F-19
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
provision is made for early retirement. Benefits are based on the employee's
compensation level and years of service.
The funded status of the plan as of June 30, 1998 is as follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Accumulated projected benefit obligation, including vested benefits of $2,576....... $ 2,720
---------
---------
Projected benefit obligation........................................................ $ 4,503
Plan assets at fair value........................................................... 6,052
---------
Plan assets greater than projected benefit obligation............................... $ 1,549
---------
---------
</TABLE>
The weighted average discount rate used to measure the accumulated projected
benefit obligation was 7%. The expected long-term rates of return on assets was
9%.
MULTI-EMPLOYER PENSION PLAN
The Company is also a member of a multi-employer pension plan covering 108
union employees. The plan is not administered by the Company and contributions
are determined in accordance with provisions of a negotiated labor contract. The
Company's share of the actuarial present value of accumulated plan benefits and
net assets available for benefits is not available.
DEFINED CONTRIBUTION PLANS
The Company sponsors several voluntary 401(k) savings plans covering all
eligible, non-union, employees at certain locations. The plans include
provisions which allow employees to make pretax contributions ranging from 1% to
20% of the employee's wages. Maximum pretax contributions are capped at percents
ranging from 6% to 15% of wages, depending on the location. The Company matches
between 10% and 100% of employee contributions up to 6% to 10% of eligible
employee's wages, which varies by location. Company matching contributions vest,
at periods ranging from immediately to six years.
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has certain non-cancelable operating leases for office and plant
facilities and office equipment. Minimum annual rental payments remaining under
non-cancelable operating leases as of June 30, 1998 for the remaining six months
of 1998 and the fiscal years thereafter are as follows:
<TABLE>
<S> <C>
1998............................................................................... $ 3,084
1999............................................................................... 5,130
2000............................................................................... 4,127
2001............................................................................... 3,083
2002............................................................................... 2,737
2003 and thereafter................................................................ 7,053
---------
$ 25,214
---------
---------
</TABLE>
F-20
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
ENVIRONMENTAL LIABILITIES
In January 1988 the Company was notified by the United States Environmental
Protection Agency ("EPA") that it was potentially liable for costs incurred by
the EPA in responding to the Dixie Caverns County Landfill in Roanoke County,
Virginia. Subsequently, Roanoke County filed suit against the twelve potentially
responsible parties ("PRP's"), which included the Company, to recover the funds
it had expended in cleaning the site at the date of the suit and for any
additional sums it would expend in the future. While under the Comprehensive
Environmental Response, Compensation and Liability Act, PRPs may be held jointly
and severally liable for the costs of cleanup. Management believes that the
Company's potential liability in connection with this site will not be material,
based upon the amount and nature of the waste alleged to be attributable to it,
the number of other financially viable PRP's and the total estimated cleanup
costs.
LEGAL PROCEEDINGS
In June 1997 the Company was informed by the United States Attorney's Office
for the Eastern District of Missouri that it was the subject of a grand jury
investigation based upon information supplied by the United States Postal
Service. The investigation concerns whether violations of civil or criminal
statutes may have occurred in connection with the Company's bulk mailing
practices. The Company has been engaged in a dialogue with the Government, which
discussions have included a possible consensual resolution of this matter;
however as of the date hereof, no settlement has been reached. It is the
Company's position that its bulk mailing practices comply with applicable laws
and regulations. In connection with the DIMAC Marketing Acquisition, Heritage,
the Company and DIMAC Marketing entered into an indemnification agreement
pursuant to which Heritage has agreed to indemnify the Company for certain
costs, including settlements, judgments and related fees, in relation to the
USPS investigation. There can be no assurance, however, that the investigation
and the costs associated therewith will not have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company is a party to various other litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any
such matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company.
9. SUBSEQUENT EVENTS
AMENDMENTS TO SENIOR SECURED CREDIT AGREEMENT
On July 29, 1998, the Company and CSFB amended the Credit Agreement creating
a tranche C term loans ("Term Loans C"); whereby, effective with the amendment,
Term Loans A was reduced by $20,000 to $55,000, Term Loans B was reduced by
$5,000 to $70,000 and Term Loans C had an outstanding balance of $25,000. In
addition, under the terms of the amendment, an additional $25,000 of Term Loans
C is available. The initial interest rate on Term Loans C is the ABR plus 2.00%
or the AER plus 3.00% and can be adjusted downward to the ABR plus 1.75% or to
the AER plus 2.75% based upon the Company's leverage ratio, as defined,
commencing no later than December 26, 1998.
Concurrent with the issuance of the $100,000 Senior Subordinated Notes, the
Company and CSFB entered into the Amended and Restated Credit Agreement,
whereby, the initial interest rate on Term
F-21
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
9. SUBSEQUENT EVENTS (CONTINUED)
Loans A and the Revolving Loan Facility is the ABR plus 1.75% or the AER plus
2.75% and can be adjusted downward to the ABR plus 1.00% or the AER plus 2.00%
based upon the Company's leverage ratio, as defined. The initial interest rate
on Term Loans B is the ABR plus 2.25% or the AER plus 3.25% and can be adjusted
downward to the ABR plus 2.00% or the AER plus 3.00% based upon the Company's
leverage ratio, as defined. The initial interest rate on Term Loans C is ABR
plus 2.50% or AER plus 3.50% and can be adjusted downward to the ABR plus 2.25%
or the AER plus 3.25% based upon the Company's leverage ratio, as defined.
$100,000 SENIOR SUBORDINATED NOTES
On October 22, 1998, the Company completed the offering (the "Offering") of
$100,000 aggregate principal amount of 12.5% senior subordinated notes (the
"Notes") due 2008. Net proceeds from the Offering were $97.2 million, net of
original issue discount of $2.8 million. Interest on the Notes is payable
semi-annually. The Notes represent senior obligations of the Company and rank
PARI PASSU in right of payment to all existing subsidiaries of the Company and
future senior indebtedness. The Notes are guaranteed by each of the existing
subsidiaries of the Company.
Concurrently with the Offering, the Company and its subsidiaries, as
applicable, entered into certain transactions. Holdings contributed additional
equity capital to the Company of approximately $39,300 and the Company made a
$10,000 and $35,000 draw down on Term Loans B and Term Loans C, respectively.
The Company repaid the AmeriComm Senior Notes, the AmeriComm Holdings Senior
Notes and all amounts due under the revolving loan facility with Heller (Note
3). Subsequent to the Offering, the revolving loan facility with Heller was
terminated.
The $39,300 of additional equity provided by Holdings consisted of $10,000
of additional equity provided to Holdings from affiliates of McCown De Leeuw and
certain other investors and $29,300 of net proceeds received by Holdings from
the issuance of $30,000 aggregate principal amount of its 15.5% Senior Notes due
2009 (the "Holdings Notes"). In addition to the issuance of the Holding Notes,
Holdings issued warrants to the Holdings Notes holders to purchase 28,205 shares
of common stock at an exercise price of $.01 per share. The Company has reserved
28,205 shares of common stock for the exercise of these warrants. Interest on
the Holdings Notes is not payable in cash until December 31, 2003. Thereafter,
Holdings will be reliant upon the Company to provide it with cash to meet its
obligations under the Holdings Notes.
STOCK OPTION PLAN
Effective October 22, 1998, the board of directors adopted the DIMAC
Holdings, Inc. 1998 Stock Option Plan (the "Plan") for directors, certain
employees and consultants of the Company. The Plan allows for 119,242 shares of
Holdings' common stock to be granted. The options vest based on time and based
upon the profitability of the Company or in the event of a change in control of
the Company, as defined. No options have been granted as of November 6, 1998.
The Company accounts for its stock option plan in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 123. "Accounting for Stock-Based Compensation" for disclosure
purposes. In accordance with the disclosure requirements of SFAS No. 123, the
F-22
<PAGE>
DIMAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD FROM INCEPTION (MAY 12, 1998) TO JUNE 30, 1998
(DOLLARS IN THOUSANDS)
9. SUBSEQUENT EVENTS (CONTINUED)
Company will be required to calculate pro forma compensation cost of all stock
options granted using an option pricing model.
STOCKHOLDERS' AGREEMENT
Certain officers and key employees of the Company purchased and own an
aggregate of 32,500 shares of Holdings common stock. The stock was purchased at
a price of $100 per share, the fair value at the date of such purchases.
Certain stockholders are subject to the terms of a stockholders' agreement.
This agreement restricts the stockholders' ability to sell, transfer, and assign
the common stock, with Holdings having the first right of purchase. The holders
of the stock may be required to sell their shares of common stock to the
Holdings under certain conditions. In addition, upon expiration of a
stockholder's employment with the Company, the Holdings has the option to buy
back the stockholder's common stock at a specified price based on a stated
return of 5% per annum over the cost of the shares of Holdings.
F-23
<PAGE>
DIMAC MARKETING CORPORATION AND SUBSIDIARIES
The unaudited consolidated financial statements for the six month period
ended June 30, 1997 reflect the operations of DIMAC Marketing Corporation
following its purchase by Heritage, but prior to the acquisition of Heritage by
News Corporation in August 1997, and the unaudited consolidated financial
statements for the six month period ended June 26, 1998 reflect the operations
of DIMAC Marketing following the purchase of Heritage by News Corporation.
F-24
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 26,
DECEMBER 31, 1998
1997 (UNAUDITED)
------------ ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ -- $ --
Accounts receivable, net of allowance for doubtful accounts of $972 and
$1,065....................................................................... 35,916 37,977
Inventories.................................................................... 3,452 2,284
Income taxes receivable -- Parent Company...................................... 3,816 6,016
Deferred income taxes.......................................................... 8,376 4,206
Other current assets........................................................... 1,560 1,502
------------ --------
Total current assets......................................................... 53,120 51,985
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS................................... 45,119 44,792
INTANGIBLE ASSETS................................................................ 162,597 162,022
------------ --------
$ 260,836 $ 258,799
------------ --------
------------ --------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................... $ 7,815 $ 5,072
Advances from customers........................................................ 10,087 13,586
Accrued liabilities............................................................ 25,878 19,981
Current maturities of long-term capital lease obligations...................... 1,782 1,773
------------ --------
Total current liabilities.................................................... 45,562 40,412
LONG-TERM CAPITAL LEASE OBLIGATIONS.............................................. 2,822 2,225
DEFERRED LEASE LIABILITY......................................................... 2,004 1,955
DEFERRED INCOME TAXES............................................................ 14,071 13,130
PAYABLE TO PARENT COMPANY........................................................ 138,825 143,906
------------ --------
Total liabilities............................................................ 203,284 201,628
------------ --------
STOCKHOLDER'S EQUITY:
Series preferred stock, $.01 par value; 10,000,000 shares authorized; none
issued....................................................................... -- --
Common stock, $.01 par value; 20,000,000 shares authorized; issued 1,000....... -- --
Additional paid-in capital..................................................... 57,800 57,800
Retained deficit............................................................... (248) (629)
------------ --------
Total stockholder's equity................................................... 57,552 57,171
------------ --------
$ 260,836 $ 258,799
------------ --------
------------ --------
</TABLE>
F-25
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
THE SIX MONTHS ENDED JUNE 26, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, JUNE 26,
1997 1998
(UNAUDITED) (UNAUDITED)
--------------- ---------------
SALES.......................................................................... $ 91,421 $ 93,208
COST OF SALES.................................................................. 60,270 61,806
------- -------
Gross profit............................................................... 31,151 31,402
------- -------
OPERATING EXPENSES:
Sales expenses............................................................... 10,390 10,180
General and administrative expenses.......................................... 13,472 12,639
Amortization of intangibles.................................................. 5,181 3,796
------- -------
29,043 26,615
------- -------
Operating income......................................................... 2,108 4,787
------- -------
INTEREST EXPENSE............................................................... 4,633 4,583
------- -------
Income (loss) before income taxes and discontinued operations............ (2,525) 204
INCOME TAX PROVISION........................................................... 17 585
------- -------
Loss before discontinued operations...................................... (2,542) (381)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued joint venture (net of income tax benefit
of $489)................................................................... (649) --
------- -------
Net loss................................................................. $ (3,191) $ (381)
------- -------
------- -------
</TABLE>
F-26
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
THE SIX MONTHS ENDED JUNE 26, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 26,
1997 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.............................................................................. $ (3,191) $ (381)
Adjustments to reconcile net loss to net cash provided by operating activities-
Loss from discontinued operations................................................... 649 --
Depreciation and amortization expense............................................... 7,549 7,077
Deferred taxes...................................................................... 361 1,029
Changes in net assets and liabilities-
Accounts receivable............................................................... (718) (2,061)
Inventories....................................................................... (187) 1,168
Other current assets.............................................................. (561) 58
Accounts payable.................................................................. (1,641) (2,743)
Advances from customers........................................................... (1,394) 3,499
Accrued liabilities............................................................... (1,833) (5,685)
Income taxes payable.............................................................. (430) --
----------- -----------
Net cash (used in) provided by operating activities............................. (1,396) 1,961
----------- -----------
INVESTING ACTIVITIES:
Payments for contingent consideration and other intangibles........................... (3,739) (3,221)
Purchase of property, equipment and leasehold improvements............................ (11,344) (3,166)
----------- -----------
Net cash used in investing activities........................................... (15,083) (6,387)
----------- -----------
FINANCING ACTIVITIES:
Payments on capital lease obligations................................................. (1,020) (655)
Net borrowings under revolving credit facilities...................................... 46,566 --
Net borrowings from Parent Company.................................................... (29,067) 5,081
----------- -----------
Net cash provided by financing activities....................................... 16,479 4,426
----------- -----------
Net change in cash and cash equivalents......................................... -- --
CASH AND CASH EQUIVALENTS, beginning of period.......................................... -- --
----------- -----------
CASH AND CASH EQUIVALENTS, end of period................................................ $ -- $ --
----------- -----------
----------- -----------
</TABLE>
F-27
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION:
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated financial statements for the six month period
ended June 30, 1997 reflect the operations of DIMAC Marketing Corporation
following its purchase by Heritage, but prior to the acquisition of Heritage by
News Corporation in August 1997. The unaudited consolidated financial statements
for the six month period ended June 26, 1998 reflect the operations of DIMAC
Marketing Corporation following the purchase of Heritage by News Corporation. As
a result of the change in basis of accounting between the six month periods
ended June 30, 1997 and June 26, 1998, the operating results may not be
comparable or indicative of future periods.
In the opinion of management, the unaudited financial statements contain all
the normal and recurring adjustments necessary to present fairly the financial
position of the Company as of June 26, 1998 and the results of the Company's
operations and its cash flows for the six months ended June 30, 1997 and June
26, 1998 in conformity with generally accepted accounting principles. The
results of operations for the six month period ended June 26, 1998 are not
necessarily indicative of the results to be expected for the year.
2. INVENTORIES:
The composition of inventories at June 26, 1998, is as follows:
<TABLE>
<S> <C>
Raw materials....................................................... $766
Work-in-process..................................................... 284
Finished goods...................................................... 25
Postage............................................................. 1,209
---------
Total $2,284
---------
---------
</TABLE>
3. NEW ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board recently issued SFAS No. 130
"Reporting Comprehensive Income," which establishes standards for reporting and
disclosure of comprehensive income and its components; SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information," which establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas, and
major customers; SFAS No. 132 "Employers' Disclosures about Pension and Other
Postretirement Benefits," which standardizes the disclosure requirements for
pensions and other postretirement benefits and expands disclosures on changes in
benefit obligations and fair values of plan assets; and SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities," which requires that all
derivatives be recognized as either assets or liabilities in the statement of
financial position at fair value unless specific hedge criteria are met. The
Company is required to adopt the provisions of SFAS 130, 131 and 132 in 1998 and
SFAS 133 in 2000. Adoption of these statements is not expected to significantly
impact the Company's consolidated financial position, results of operations or
cash flows, and any effect will be limited primarily to the form and content of
its disclosures.
F-28
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES
In June 1997 the Company was informed by the United States Attorney's Office
for the Eastern District of Missouri that it was the subject of a grand jury
investigation based upon information supplied by the United States Postal
Service. The investigation concerns whether violations of civil or criminal
statutes may have occurred in connection with the Company's bulk mailing
practices. The Company has been engaged in a dialogue with the Government, which
discussions have included a possible consensual resolution of this matter,
however, as of the date hereof, no settlement has been reached. It is the
Company's position that its bulk mailing practices comply with applicable laws
and regulations. In connection with the DIMAC Marketing Acquisition, Heritage,
the Company and DIMAC Marketing entered into an indemnification agreement
pursuant to which Heritage has agreed to indemnify the Company for certain
costs, including settlements, judgments and related fees, in relation to the
USPS investigation. There can be no assurance, however, that the investigation
and the costs associated therewith will not have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company is a party to various other litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any
such matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company.
F-29
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
The consolidated financial statements for the four month period ended
December 31, 1997 reflect the financial results of DIMAC Marketing Corporation
under a new basis of accounting that reflects the fair value of assets acquired
and liabilities assumed in connection with the purchase of Heritage by News
Corporation.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DIMAC Marketing Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheet of DIMAC
Marketing Corporation and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the four months ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
DIMAC Marketing Corporation and Subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their cash flows for the four
months ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
July 2, 1998
F-31
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ --
Accounts receivable, net of allowance for doubtful accounts of $972............. 35,916
Inventories..................................................................... 3,452
Income taxes receivable -- Parent Company....................................... 3,816
Deferred income taxes........................................................... 8,376
Other current assets............................................................ 1,560
---------
Total current assets.......................................................... 53,120
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.................................... 45,119
INTANGIBLE ASSETS................................................................. 162,597
---------
$ 260,836
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 7,815
Advances from customers......................................................... 10,087
Accrued liabilities............................................................. 25,878
Current maturities of long-term capital lease obligations....................... 1,782
---------
Total current liabilities..................................................... 45,562
LONG-TERM CAPITAL LEASE OBLIGATIONS............................................... 2,822
DEFERRED LEASE LIABILITY.......................................................... 2,004
DEFERRED INCOME TAXES............................................................. 14,071
PAYABLE TO PARENT COMPANY......................................................... 138,825
---------
Total liabilities............................................................. 203,284
---------
STOCKHOLDER'S EQUITY:
Series preferred stock, $.01 par value; 10,000,000 shares authorized; none
issued........................................................................ --
Common stock, $.01 par value; 20,000,000 shares authorized; issued 1,000........ --
Additional paid-in capital...................................................... 57,800
Retained deficit................................................................ (248)
---------
Total stockholder's equity.................................................... 57,552
---------
$ 260,836
---------
---------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-32
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
SALES.............................................................................. $ 59,200
COST OF SALES...................................................................... 39,722
---------
Gross profit................................................................... 19,478
---------
OPERATING EXPENSES:
Sales expenses................................................................... 6,404
General and administrative expenses.............................................. 8,011
Amortization of intangibles...................................................... 2,668
---------
17,083
---------
Operating income............................................................... 2,395
INTEREST EXPENSE................................................................... 2,248
---------
Income before income taxes..................................................... 147
INCOME TAX PROVISION............................................................... 395
---------
Net loss....................................................................... $ (248)
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-33
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL
COMMON COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 1, 1997............................. 1,000 $ -- $ 57,800 $ -- $ 57,800
Net loss............................................... -- -- -- (248) (248)
----- ----------- ----------- ----- ---------
BALANCE AT DECEMBER 31, 1997............................. 1,000 $ -- $ 57,800 $ (248) $ 57,552
----- ----------- ----------- ----- ---------
----- ----------- ----------- ----- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-34
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss......................................................................... $ (248)
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization expense.......................................... 4,530
Deferred income tax benefit.................................................... 289
Changes in net assets and liabilities-
Accounts receivable.......................................................... 234
Inventories.................................................................. 349
Other current assets......................................................... 507
Accounts payable............................................................. 665
Advances from customers...................................................... 171
Accrued liabilities.......................................................... (5,187)
---------
Net cash provided by operating activities.................................. 1,310
---------
INVESTING ACTIVITIES:
Payments for contingent consideration and other intangibles...................... (1,900)
Purchase of property, equipment and leasehold improvements....................... (5,720)
---------
Net cash used in investing activities...................................... (7,620)
---------
FINANCING ACTIVITIES:
Payments of capital lease obligations............................................ (432)
Net borrowings from Parent Company............................................... 6,742
---------
Net cash provided by financing activities.................................. 6,310
---------
Net change in cash and cash equivalents.................................... --
CASH AND CASH EQUIVALENTS, beginning of period..................................... --
---------
CASH AND CASH EQUIVALENTS, end of period........................................... $ --
---------
---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.................................................................... $ 2,321
---------
---------
Income taxes paid................................................................ $ --
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement.
F-35
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
DIMAC Marketing Corporation (DIMAC or the Company) is one of the largest
full-service, vertically integrated direct marketing services companies in the
United States. DIMAC creates and implements comprehensive, custom-tailored
marketing programs that enable clients nationwide to focus their marketing
expenditures on a highly targeted potential customer base. As a full-service,
vertically integrated firm, DIMAC provides every component of a complete direct
marketing program, including customized market research, strategic and creative
planning, creation and management of relational data bases, telemarketing, media
buying, production services, fulfillment services and subsequent program
analysis.
The consolidated financial statements include the accounts of DIMAC and its
wholly owned subsidiary DIMAC DIRECT Inc. (DIMAC DIRECT) (including its wholly
owned subsidiaries Palm Coast Data Inc., The McClure Group Inc., Wilcox &
Associates Inc. and MBS/Multimode Inc.). DIMAC's operations are located in St.
Louis, New York, Palm Coast, Philadelphia, Houston, Los Angeles and Boston. All
significant intercompany balances and transactions have been eliminated.
In August 1997, all of the common stock of Heritage Media Corporation
(Heritage), the parent company of DIMAC, was acquired by News America
Corporation Ltd. (News Corp.) in a cash purchase transaction. The acquisition by
News Corp. has been accounted for as a purchase and the purchase price allocated
to DIMAC of approximately $190,000 has been pushed down to the Company. Goodwill
of approximately $145,000 resulting from this acquisition is being amortized on
a straight-line basis over 40 years.
The consolidated financial statements as of December 31, 1997 and for the
four months then ended include an amount due to News Corp. of $138,825, and
intercompany interest expense to News Corp. of $2,123. Intercompany interest is
charged at 8.5%, calculated monthly.
CASH AND CASH EQUIVALENTS
All highly liquid debt investments purchased with a maturity of three months
or less are classified as cash equivalents.
ACCOUNTS RECEIVABLE
The Company provides an allowance for doubtful accounts for the estimated
losses that will be incurred in the collection of receivables. The estimated
losses are based on historical collection experience coupled with a review of
the current status of the existing receivables. Included in receivables is
$13,336 representing unbilled revenues for services performed prior to December
31, 1997.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market, and include appropriate elements of material, labor and overhead.
F-36
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost.
Property and equipment are depreciated using the straight-line method over the
respective asset's estimated useful life. Leasehold improvements are amortized
using the straight-line method over the lesser of the respective asset's
estimated useful life or the lease term.
The Company continually evaluates the propriety of the carrying amounts of
property and equipment and the estimated useful lives used for depreciation.
INTANGIBLE ASSETS
The cost of acquired companies is allocated first to identifiable assets and
liabilities based on estimated fair market values. The excess of cost over
identifiable assets and liabilities is recorded as goodwill with amortization
over 40 years. Costs allocated to identifiable intangible assets are amortized
over the remaining estimated useful lives of the assets as determined by
underlying contract terms or independent appraisals.
The Company continually reevaluates the propriety of the carrying amount of
goodwill as well as the related amortization period to determine whether current
events and circumstances warrant adjustments to the carrying values or revised
estimates of useful lives. This evaluation is based on the Company's projection
of the undiscounted operating income before depreciation, amortization and
interest over the remaining lives of the amortization periods of related
goodwill. The projections are based on the historical trend line of actual
results since the commencement of operations and adjusted for expected changes
in operating results. To the extent such projections indicate that the
undiscounted operating income (as defined above) is not expected to be adequate
to recover the carrying amounts of goodwill, such carrying amounts are written
down by charges to expense in amounts equal to the excess of the carrying amount
of intangible assets over the related fair value of the assets. The Company
believes that no significant impairment of the goodwill and other intangibles
has occurred and that no reduction of the estimated useful lives is warranted.
REVENUE RECOGNITION
The Company performs work in accordance with individual client projects.
Revenues are recognized as services are performed on projects and the Company
can determine the completion stage of those projects, to the extent that revenue
is billable to the clients at that stage of completion.
FAIR VALUE OF FINANCIAL INSTRUMENTS
A financial instrument is defined as cash or a contract that imposes on one
entity a contractual obligation to deliver cash or another financial instrument
to a second entity, and conveys to that second entity a contractual right to
receive cash or another financial instrument from the first entity. The carrying
amount of accounts receivable, accounts payable and accrued liabilities
approximates fair value due to the short-term maturity of these instruments.
F-37
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
Income tax expense is reported as the total of current year income tax
liability and the change in deferred taxes which are provided for temporary
differences. Deferred income taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
current enacted tax rates.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. INVENTORIES:
Inventories consist of the following:
<TABLE>
<S> <C>
Raw materials....................................................... $ 1,000
Work-in-process..................................................... 1,062
Finished goods...................................................... 38
Postage............................................................. 1,352
---------
$ 3,452
---------
---------
</TABLE>
3. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
The estimated useful lives and the amounts of property, equipment and
leasehold improvements are as follows:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS
-----------
<S> <C> <C>
Land -- $ 3,790
Buildings and leasehold improvements................................... 10-40 16,497
Machinery and equipment................................................ 3-11 19,266
Furniture and fixtures................................................. 5-7 4,125
Data processing software............................................... 3-5 2,778
---------
46,456
Less--Accumulated depreciation......................................... 1,862
---------
44,594
Construction-in-process................................................ 525
---------
$ 45,119
---------
---------
</TABLE>
F-38
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS
-----------
<S> <C> <C>
Goodwill............................................................. 40 $ 147,203
Customer list........................................................ 8-11 14,493
Other intangibles.................................................... 5-8 3,569
----------
165,265
Less--Accumulated amortization....................................... 2,668
----------
$ 162,597
----------
----------
</TABLE>
5. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
<TABLE>
<S> <C>
Accruals related to discontinued operations........................ $ 2,626
Compensation....................................................... 3,967
Accrued production costs........................................... 4,323
Other.............................................................. 14,962
---------
$ 25,878
---------
---------
</TABLE>
6. CAPITAL LEASE OBLIGATIONS AND LONG-TERM DEBT:
Maturities of capital leases at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES
---------
<S> <C>
1998................................................................................. $ 2,578
1999................................................................................. 1,568
2000................................................................................. 716
2001................................................................................. 196
2002................................................................................. 91
Thereafter........................................................................... --
---------
Total payments..................................................................... 5,149
Less--Amounts representing interest.................................................. 545
---------
Present value of minimum lease payments............................................ 4,604
Less--Current portion................................................................ 1,782
---------
$ 2,822
---------
---------
</TABLE>
F-39
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes, and the amounts used for income tax purposes.
The components of the income tax provision are as follows:
<TABLE>
<S> <C>
Current:
Federal............................................................ $ --
State.............................................................. --
---------
--
---------
Deferred:
Federal............................................................ 343
State.............................................................. 52
---------
395
---------
$ 395
---------
---------
</TABLE>
Differences between the amount of the income tax provision recorded and the
amount computed by applying the federal income tax statutory rate to income
before income taxes are explained as follows:
<TABLE>
<S> <C>
Provision at statutory rates......................................... $ 51
State and local taxes................................................ 9
Nondeductible expenses (primarily goodwill).......................... 335
---------
Income tax provision............................................... $ 395
---------
---------
</TABLE>
Significant components of the Company's deferred income tax liabilities and
assets are as follows:
<TABLE>
<S> <C>
Deferred income tax liabilities:
Other intangibles (excluding goodwill).......................... $ (8,618)
Tax over book depreciation and amortization..................... (5,016)
Deferred revenue................................................ (437)
---------
(14,071)
---------
Deferred income tax assets:
Accrued liabilities............................................. 7,879
Other........................................................... 497
---------
8,376
---------
Net deferred tax liability.................................... $ (5,695)
---------
---------
</TABLE>
F-40
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. EMPLOYEE BENEFIT PLAN:
The Company has defined contribution plans which provide retirement benefits
to substantially all employees not covered by collective bargaining agreements.
The Company matches a portion of employee contributions to the plans. Company
contributions to these plans charged to expense were $369 for the four month
period ended December 31, 1997.
9. LEASE COMMITMENTS:
Equipment acquired under capital leases is included in property, equipment
and leasehold improvements, and the related obligations are in capital lease
obligations (see Note 6). Related amortization is included in depreciation.
Total rental expense for office and warehouse space, including short-term
rentals and rentals under noncancelable operating leases (primarily office and
warehouse space and production equipment), was $1,916 for the four month period
ended December 31, 1997.
The Company's landlord granted lease incentives to the Company in 1990,
amounting to approximately $1,700, as an inducement to enter into the lease of
the St. Louis facility. Rent payments on the St. Louis facility, net of the
lease incentive, are scheduled to increase periodically and are recognized as
expense on a straight-line basis over the life of the lease. The difference
between rent payments made and rental expense is recorded as deferred lease
liability.
The future minimum rental commitments required under noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1998............................................................................... $ 3,776
1999............................................................................... 3,387
2000............................................................................... 2,772
2001............................................................................... 2,501
2002............................................................................... 2,386
Thereafter......................................................................... 6,596
---------
$ 21,418
---------
---------
</TABLE>
10. TRANSACTIONS WITH MAJOR CUSTOMERS:
The Company provides creative, media, printing, mailing services and
magazine subscription fulfillment to companies in diversified industries. The
Company performs periodic credit evaluations of its customers' financial
condition, and requires advance payments for postage and other services.
Transactions with one customer, which is a Fortune 50 company involved in
the communication industry, accounted for 15% of sales for the four month period
ended December 31, 1997. Accounts receivable from this customer amounted to
$4,325 as of December 31, 1997.
F-41
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
11. COMMITMENTS AND CONTINGENCIES:
The Company has contingent payment obligations based on the attainment of
certain financial performance targets of businesses acquired in prior years. For
the four months ended December 31, 1997, total contingent consideration paid
related to all acquisitions was $1,900. Contingent payment obligations are
accounted for as additional goodwill and are payable through December 1999.
In June 1997 the Company was informed by the United States Attorney's Office
for the Eastern District of Missouri that it was the subject of a grand jury
investigation based upon information supplied by the United States Postal
Service. The investigation concerns whether violations of civil or criminal
statutes may have occurred in connection with the Company's bulk mailing
practices. The Company has been engaged in a dialogue with the Government, which
discussions have included a possible consensual resolution of this matter,
however, as of the date hereof, no settlement has been reached. It is the
Company's position that its bulk mailing practices comply with applicable laws
and regulations. In connection with the DIMAC Marketing Acquisition, Heritage,
the Company and DIMAC Marketing entered into an indemnification agreement
pursuant to which Heritage has agreed to indemnify the Company for certain
costs, including settlements, judgments and related fees, in relation to the
USPS investigation. There can be no assurance, however, that the investigation
and the costs associated therewith will not have a material adverse effect on
the Company's business, financial condition or results of operations.
The Company is a party to various other litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any
such matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company.
12. SUBSEQUENT EVENTS:
On June 26, 1998, News Corp. sold their interest in the Company, including
the payable to Parent Company, to McCown De Leeuw & Co. for $204,000, including
$4,000 of assumed indebtedness.
F-42
<PAGE>
DIMAC MARKETING CORPORATION AND SUBSIDIARIES
The consolidated financial statements for the eleven month period ended
December 31, 1996 and for the eight month period ended August 31, 1997 reflect
the financial results of DIMAC Marketing Corporation under a new basis of
accounting that reflects the fair value of assets acquired and liabilities
assumed, the related financing costs, and all debt incurred in connection with
purchase of DIMAC Marketing Corporation by Heritage.
F-43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DIMAC Marketing Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheet of DIMAC
Marketing Corporation and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the eleven months ended December 31, 1996 and the eight months ended August 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
DIMAC Marketing Corporation and Subsidiaries as of December 31, 1996, and the
consolidated results of their operations and their cash flows for the eleven
months ended December 31, 1996 and the eight months ended August 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
July 2, 1998
F-44
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ --
Accounts receivable, net of allowance for doubtful accounts of $862............. 37,033
Inventories..................................................................... 4,419
Deferred income taxes........................................................... 1,932
Other current assets............................................................ 1,690
---------
Total current assets.......................................................... 45,074
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS.................................... 34,124
INTANGIBLE ASSETS................................................................. 270,805
---------
$ 350,003
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 10,675
Advances from customers......................................................... 9,602
Accrued liabilities............................................................. 19,867
Income taxes payable............................................................ 430
Current maturities of long-term capital lease obligations....................... 2,040
Current maturities of long-term debt............................................ 5,000
---------
Total current liabilities..................................................... 47,614
LONG-TERM CAPITAL LEASE OBLIGATIONS............................................... 3,613
LONG-TERM DEBT.................................................................... 76,000
DEFERRED LEASE LIABILITY.......................................................... 2,104
DEFERRED INCOME TAXES............................................................. 11,089
PAYABLE TO PARENT COMPANY......................................................... 34,102
---------
Total liabilities............................................................. 174,522
---------
STOCKHOLDER'S EQUITY:
Series preferred stock, $.01 par value; 10,000,000 shares authorized; none
issued........................................................................ --
Common stock, $.01 par value; 20,000,000 shares authorized; issued 1,000........ --
Additional paid-in capital...................................................... 175,000
Retained earnings............................................................... 481
---------
Total stockholder's equity.................................................... 175,481
---------
$ 350,003
---------
---------
</TABLE>
The accompanying notes an integral part of this sheet.
F-45
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1996 AND
THE EIGHT MONTHS ENDED AUGUST 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
SALES.................................................................................. $ 168,193 $ 118,747
COST OF SALES.......................................................................... 108,735 77,820
------------ ----------
Gross profit....................................................................... 59,458 40,927
------------ ----------
OPERATING EXPENSES:
Sales expenses....................................................................... 17,859 13,767
General and administrative expenses.................................................. 20,688 17,151
Amortization of intangibles.......................................................... 9,098 6,949
------------ ----------
47,645 37,867
------------ ----------
Operating income................................................................... 11,813 3,060
------------ ----------
INTEREST EXPENSE....................................................................... 7,525 6,188
------------ ----------
Income (loss) before income taxes and discontinued operations...................... 4,288 (3,128)
INCOME TAX PROVISION................................................................... 3,789 122
------------ ----------
Net income (loss) before discontinued operations................................... 499 (3,250)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued joint venture (net of income tax benefit of $13
and $581).......................................................................... (18) (770)
Loss on disposal of discontinued joint venture, including provision for operating
losses during phase-out period (net of income tax benefit of $2,942)............... -- (3,899)
------------ ----------
Net income (loss).................................................................. $ 481 $ (7,919)
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-46
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1996 AND
THE EIGHT MONTHS ENDED AUGUST 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL RETAINED
COMMON COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT) TOTAL
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1996............................ 1,000 $ -- $ 175,000 $ -- $ 175,000
Net income........................................... -- -- -- 481 481
----- ----- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996........................... 1,000 -- 175,000 481 175,481
Net loss............................................. -- -- -- (7,919) (7,919)
----- ----- ---------- ---------- ----------
BALANCE AT AUGUST 31, 1997............................. 1,000 $ -- $ 175,000 $ (7,438) $ 167,562
----- ----- ---------- ---------- ----------
----- ----- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-47
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1996 AND
THE EIGHT MONTHS ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
AUGUST 31,
DECEMBER 31, 1996 1997
----------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................................... $ 481 $ (7,919)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities--
Loss from discontinued operations......................................... 18 770
Loss on disposal of discontinued operations............................... -- 3,899
Depreciation and amortization............................................. 12,827 10,414
Deferred income tax benefit............................................... 2,480 1,884
Other..................................................................... 25 --
Changes in net assets and liabilities, net of acquisitions--
Accounts receivable..................................................... (7,750) (733)
Inventories............................................................. 66 340
Other current assets.................................................... 522 (541)
Accounts payable........................................................ (428) (3,445)
Advances from customers................................................. 1,872 314
Accrued liabilities..................................................... (3,584) (660)
Income taxes............................................................ 1,280 --
-------- --------------
Net cash provided by operating activities............................. 7,809 4,323
-------- --------------
INVESTING ACTIVITIES:
Net assets of acquired businesses........................................... (28,678) --
Proceeds from sale of fixed assets.......................................... 58 --
Payments for contingent consideration and other intangibles................. (6,976) (4,059)
Purchase of property, equipment and leasehold improvements.................. (9,282) (15,885)
-------- --------------
Net cash used in investing activities................................. (44,878) (19,944)
-------- --------------
FINANCING ACTIVITIES:
Payments to extinguish credit agreement..................................... -- (50,000)
Payments to capital lease obligations....................................... (1,653) (1,360)
Net borrowings (payments) under revolving credit facilities................. 31,000 (31,000)
Net borrowings from Parent Company.......................................... 7,722 97,981
-------- --------------
Net cash provided by financing activities............................. 37,069 15,621
-------- --------------
Net change in cash and cash equivalents............................... -- --
CASH AND CASH EQUIVALENTS, beginning of period................................ -- --
-------- --------------
CASH AND CASH EQUIVALENTS, end of period...................................... $ -- $ --
-------- --------------
-------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................................... $ 7,314 $ 6,321
-------- --------------
-------- --------------
Income taxes paid........................................................... $ 730 $ 59
-------- --------------
-------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
DIMAC Marketing Corporation (DIMAC or the Company) is one of the largest
full-service, vertically integrated direct marketing services companies in the
United States. DIMAC creates and implements comprehensive, custom-tailored
marketing programs that enable clients nationwide to focus their marketing
expenditures on a highly targeted potential customer base. As a full-service,
vertically integrated firm, DIMAC provides every component of a complete direct
marketing program, including customized market research, strategic and creative
planning, creation and management of relational data bases, telemarketing, media
buying, production services, fulfillment services and subsequent program
analysis.
The consolidated financial statements include the accounts of DIMAC and its
wholly owned subsidiary DIMAC DIRECT Inc. (DIMAC DIRECT) (including its wholly
owned subsidiaries Palm Coast Data Inc., The McClure Group Inc., Wilcox &
Associates Inc., MBS/Multimode Inc. and the accounts of KCET/DIMAC Communication
LLC, in which DIMAC DIRECT has a 60% interest). DIMAC's operations are located
in St. Louis, San Francisco, New York, Palm Coast, Philadelphia, Houston, Los
Angeles and Boston. All significant intercompany balances and transactions have
been eliminated.
On February 21, 1996, all of the common stock of the Company was acquired by
Heritage Media Corporation (Heritage), effective February 1, 1996, for cash of
approximately $190,000. The acquisition has been accounted for as a purchase and
the purchase accounting has been pushed down to the Company. Goodwill resulting
from this transaction of approximately $220,000 is being amortized on a
straight-line basis over 40 years.
The consolidated financial statements include an amount due to Heritage of
$34,102 as of December 31, 1996 and intercompany interest expense of $1,439 and
$922 for the eleven months ended December 31, 1996 and the eight months ended
August 31, 1997, respectively.
CASH AND CASH EQUIVALENTS
All highly liquid debt investments purchased with a maturity of three months
or less are classified as cash equivalents.
ACCOUNTS RECEIVABLE
The Company provides an allowance for doubtful accounts for the estimated
losses that will be incurred in the collection of receivables. The estimated
losses are based on historical collection experience coupled with a review of
the current status of the existing receivables. Receivables include $7,587
representing unbilled revenues for services performed prior to December 31,
1996.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market, and include appropriate elements of material, labor and overhead.
F-49
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost.
Property and equipment are depreciated using the straight-line method over the
respective asset's estimated useful life. Leasehold improvements are amortized
using the straight-line method over the lesser of the respective asset's
estimated useful life or the lease term.
The Company continually evaluates the propriety of the carrying amounts of
property and equipment and the estimated useful lives used for depreciation.
INTANGIBLE ASSETS
The cost of acquired companies is allocated first to identifiable assets and
liabilities based on estimated fair market values. The excess of cost over
identifiable assets and liabilities is recorded as goodwill with amortization
over periods ranging from 25 to 40 years. Costs allocated to identifiable
intangible assets are amortized over the remaining estimated useful lives of the
assets as determined by underlying contract terms or independent appraisals.
The Company continually reevaluates the propriety of the carrying amount of
goodwill as well as the related amortization period to determine whether current
events and circumstances warrant adjustments to the carrying values or revised
estimates of useful lives. This evaluation is based on the Company's projection
of the undiscounted operating income before depreciation, amortization and
interest over the remaining lives of the amortization periods of related
goodwill. The projections are based on the historical trend line of actual
results since the commencement of operations and adjusted for expected changes
in operating results. To the extent such projections indicate that the
undiscounted operating income (as defined above) is not expected to be adequate
to recover the carrying amounts of goodwill, such carrying amounts are written
down by charges to expense in amounts equal to the excess of the carrying amount
of intangible assets over the related fair value of the assets. The Company
believes that no significant impairment of the goodwill and other intangibles
has occurred, and that no reduction of the estimated useful lives is warranted.
REVENUE RECOGNITION
The Company performs work in accordance with individual client projects.
Revenues are recognized as services are performed on projects and the Company
can determine the completion stage of those projects, to the extent that revenue
is billable to the clients at that stage of completion.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company discloses estimated fair values for its financial instruments. A
financial instrument is defined as cash or a contract that imposes on one entity
a contractual obligation to deliver cash or another financial instrument to a
second entity, and conveys to that second entity a contractual right to receive
cash or another financial instrument from the first entity. The carrying amount
of accounts receivable, accounts payable and accrued liabilities approximates
fair value due to the short-term maturity of these instruments. The carrying
amount of long-term debt approximates fair value due to the variable interest
rates attached to the debt.
F-50
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This standard
requires that long-lived assets, certain intangibles and goodwill related to
those assets to be held and used, be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. This standard also requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell. The Company adopted this statement in
fiscal 1996. See Note 3 for the estimated loss on disposal of the Company's
investment in joint venture operations. The Company determined that no
additional impairment loss needs to be recognized.
INCOME TAXES
Income tax expense is reported as the total of current year income tax
liability and the change in deferred taxes which are provided for temporary
differences. Deferred income taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
current enacted tax rates.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. ACQUISITIONS:
On February 28, 1996, DIMAC DIRECT acquired substantially all of the assets
of Wilcox & Associates, Inc. (Wilcox). Wilcox was a subchapter S corporation
with marketing offices in New York and San Francisco primarily providing direct
response services to financial institutions. The purchase price for the
acquisition was $3,905 plus certain contingent payment obligations based on the
attainment of certain financial performance targets by the newly formed Wilcox &
Associates subsidiary over the next four years. Goodwill resulting from the
purchase price allocation of $3,214 is being amortized over 25 years. Future
contingent payment obligations, if any, will be accounted for as additional
goodwill as the payments are made. The acquisition was accounted for as a
purchase and the Company has included the financial results of Wilcox beginning
March 1, 1996.
On April 30,1996, DIMAC DIRECT acquired substantially all of the assets of
MBS/Multimode, Inc. (MBS). MBS was a subchapter S corporation located in Long
Island, New York, providing database marketing services primarily to the retail
industry. The purchase price for the acquisition was $24,714. Goodwill resulting
from the purchase price allocation of $22,767 is being amortized over 25 years.
The acquisition was accounted for as a purchase and the Company has included the
financial results of MBS beginning May 1, 1996.
F-51
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. ACQUISITIONS: (CONTINUED)
In addition to the two contingent payment obligations described above, DIMAC
has similar obligations related to acquisitions of companies completed in prior
years based on attainment of certain financial performance targets by the
acquired entities. Total contingent consideration paid related to all
acquisitions was $4,451 for the eleven months ended December 31, 1996 and $3,968
for the eight months ended August 31, 1997. These contingent payment obligations
have been accounted for as additional goodwill and extend for various periods
through December 1999.
Pro forma information relating to the acquisitions has not been presented as
their impact on the financial statements is insignificant.
3. DISCONTINUED JOINT VENTURE:
In September 1996, DIMAC DIRECT and Community Television of Southern
California (CTSC), a public television station, formed a joint venture to
provide videotape distribution and fund-raising services for public television
stations and not-for-profit clients. DIMAC DIRECT has a 60% interest in the
joint venture and contributed a license agreement purchased for $2,000. Certain
contingent payment obligations are due based on the attainment of certain
financial performance targets over the next for years.
During 1997, the Company adopted a plan to discontinue the joint venture.
Accordingly, the Company's interest in the joint venture is reported as a
discontinued operation for all periods presented.
The estimated loss on disposal of the Company's investment in the joint
venture is $3,899 (net of income tax benefit of $2,942), consisting of an
estimated loss on disposal of the investment of $3,461 and a provision of $438
for anticipated losses until disposal. Net revenues of the joint venture were
$4,074 and $6,317 for the eleven months ended December 31, 1996 and the eight
months ended August 31, 1997, respectively.
4. INVENTORIES:
Inventories as of December 31, 1996, consist of the following:
<TABLE>
<S> <C>
Raw materials....................................................... $ 1,323
Work-in-process..................................................... 1,101
Finished goods...................................................... 885
Postage............................................................. 1,110
---------
$ 4,419
---------
---------
</TABLE>
F-52
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
The estimated useful lives and the amounts of property, equipment and
leasehold improvements as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS
-------------
<S> <C> <C>
Land.................................................................. -- $ 414
Buildings and leasehold improvements.................................. 10-40 4,300
Machinery and equipment............................................... 3-11 20,734
Furniture and fixtures................................................ 5-7 4,610
Data processing software.............................................. 3-5 2,503
---------
32,561
Less-Accumulated depreciation......................................... 2,972
---------
29,589
Construction-in-process............................................... 4,535
---------
$ 34,124
---------
---------
</TABLE>
6. INTANGIBLE ASSETS:
Intangible assets as of December 31, 1996, consist of the following:
<TABLE>
<CAPTION>
USEFUL LIFE
IN YEARS
-------------
<S> <C> <C>
Goodwill............................................................. 25-40 $ 252,884
Customer list........................................................ 8-11 18,324
Other intangibles.................................................... 5-8 8,914
----------
280,122
Less--Accumulated amortization....................................... 9,317
----------
$ 270,805
----------
----------
</TABLE>
7. ACCRUED LIABILITIES:
Accrued liabilities as of December 31, 1996, consist of the following:
<TABLE>
<S> <C>
Compensation....................................................... $ 5,497
Accrued production costs........................................... 2,591
Other.............................................................. 11,779
---------
$ 19,867
---------
---------
</TABLE>
8. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
On February 21, 1996, the Company entered into a $175,000 bank credit
facility (the DIMAC Credit Agreement) with a group of banks. The DIMAC Credit
Agreement was comprised of a $50,000
F-53
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS: (CONTINUED)
term loan and a $125,000 reducing revolving credit facility. Loans under the
DIMAC Credit Agreement accrued interest at rates based on the agent bank's base
rate or a Eurodollar rate plus a margin depending on DIMAC's total leverage
ratio (as defined). At December 31, 1996, $50,000 of the term loan and $31,000
of the revolver were outstanding at the Eurodollar rate of 6.7%. Loans under the
DIMAC Credit Agreement were guaranteed by Heritage and DIMAC subsidiaries and
were secured by a pledge of the capital stock of DIMAC and its subsidiaries.
Maturities of long-term debt and capital leases at December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
CAPITAL
DEBT LEASES
--------- ---------
<S> <C> <C>
1997..................................................................... $ 5,000 $ 2,528
1998..................................................................... 8,750 2,321
1999..................................................................... 8,750 1,206
2000..................................................................... 10,000 458
2001..................................................................... 10,000 73
Thereafter............................................................... 38,500 --
--------- ---------
Total payments..................................................... 81,000 6,586
Less-Amounts representing interest....................................... 933
---------
Present value of minimum lease payments............................ 5,653
Less-Current portion..................................................... 5,000 2,040
--------- ---------
$ 76,000 $ 3,613
--------- ---------
--------- ---------
</TABLE>
9. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes, and the amounts used for income tax purposes.
The components of the income tax provision attributable to continuing
operations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ -----------
<S> <C> <C>
Current:
Federal.......................................................... $ 1,074 $ --
State............................................................ 235 --
------------ -----
1,309 --
------------ -----
Deferred:
Federal.......................................................... 2,354 106
State............................................................ 126 16
------------ -----
2,480 122
------------ -----
$ 3,789 $ 122
------------ -----
------------ -----
</TABLE>
F-54
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
9. INCOME TAXES: (CONTINUED)
Differences between the amount of the income tax provision (benefit)
recorded and the amount computed by applying the federal income tax statutory
rate to income (loss) before income taxes and discontinued operations are
explained as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ -----------
<S> <C> <C>
Provision (benefit) at statutory rates............................. $ 1,458 $ (1,063)
State and local taxes.............................................. 189 (138)
Nondeductible expenses (primarily goodwill)........................ 2,142 1,323
------------ -----------
Income tax provision......................................... $ 3,789 $ 122
------------ -----------
------------ -----------
</TABLE>
Significant components of the Company's deferred income tax liabilities and
assets as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
Deferred income tax liabilities:
Other intangibles (excluding goodwill)........................... $ (7,615)
Tax over book depreciation and amortization...................... (3,267)
Deferred revenue................................................. (1,767)
Other............................................................ (316)
---------
(12,965)
---------
Deferred income tax assets:
Accrued liabilities.............................................. 3,073
Alternative minimum tax credit carryforwards..................... 425
Other............................................................ 310
---------
3,808
---------
Net deferred tax liability......................................... $ (9,157)
---------
---------
</TABLE>
10. EMPLOYEE BENEFIT PLAN:
The Company has defined contribution plans which provide retirement benefits
to substantially all employees not covered by collective bargaining agreements.
The Company matches a portion of employee contributions to the plans. Company
contributions to these plans charged to expense were $598 and $764 for the
eleven month period ended December 31, 1996, and the eight month period ended
August 31, 1997, respectively.
11. LEASE COMMITMENTS:
Equipment acquired under capital leases is included in property, equipment
and leasehold improvements, and the related obligations are in capital lease
obligations (see Note 8). Related amortization is included in depreciation.
Total rental expense for office and warehouse space, including short-term
rentals and rentals under noncancelable operating leases (primarily office and
warehouse space and production equipment), was
F-55
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
11. LEASE COMMITMENTS: (CONTINUED)
$6,049 and $4,008 for the eleven month period ended December 31, 1996, and the
eight month period ended August 31, 1997, respectively.
The Company's landlord granted lease incentives to the Company in 1990,
amounting to approximately $1,700, as an inducement to enter into the lease of
the St. Louis facility. Rental payments on the St. Louis facility, which are
scheduled to increase periodically, net of the lease incentive, are recognized
as expense on a straight-line basis over the life of the lease. The difference
between rental payments made and rental expense is recorded as a deferred lease
liability.
The future minimum rental commitments required under noncancelable operating
leases as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
1997............................................................................... $ 5,058
1998............................................................................... 4,692
1999............................................................................... 4,261
2000............................................................................... 3,608
2001............................................................................... 3,082
Thereafter......................................................................... 9,141
---------
................................................................................... $ 29,842
---------
---------
</TABLE>
12. TRANSACTIONS WITH MAJOR CUSTOMERS:
The Company provides creative, media, printing, mailing services and
magazine subscription fulfillment to companies in diversified industries. The
Company performs periodic credit evaluations of its customers' financial
condition, and requires advance payments for postage and other services.
Transactions with one customer, which is a Fortune 50 company involved in
the communication industry, accounted for 24% and 21 % of sales for the eleven
month period ended December 31, 1996, and the eight month period ended August
31, 1997, respectively. Accounts receivable from this customer amounted to
$5,838 as of December 31, 1996.
13. COMMITMENTS AND CONTINGENCIES:
During the normal course of business, the Company is involved in various
lawsuits which, in the opinion of management, are not expected to have a
material effect on either the financial position or operating results of the
Company.
14. ACQUISITION OF PARENT COMPANY:
In August 1997, the common stock of Heritage Media Corporation was acquired
by News America Corporation Ltd.
F-56
<PAGE>
DMAC MARKETING CORPORATION
AND SUBSIDIARIES.
The consolidated financial statements for all periods prior to January 31,
1996 reflect the operations of DIMAC Marketing Corporation under prior
ownership.
F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DIMAC Marketing Corporation and Subsidiaries:
We have audited the accompanying consolidated statements of operations,
stockholder's equity and cash flows of DIMAC Marketing Corporation and
Subsidiaries for the year ended December 31, 1995 and the one month ended
January 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of DIMAC Marketing Corporation and Subsidiaries for the year
ended December 31, 1995 and the one month ended January 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
July 2, 1998
F-58
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE ONE MONTH ENDED JANUARY 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996
------------ -----------
<S> <C> <C>
SALES................................................................................. $ 126,518 $ 10,254
COST OF SALES......................................................................... 82,818 6,900
------------ -----------
Gross profit...................................................................... 43,700 3,354
------------ -----------
OPERATING EXPENSES:
Sales expenses...................................................................... 13,057 1,322
General and administrative expenses................................................. 13,846 1,673
Amortization of intangibles......................................................... 1,575 181
Nonrecurring merger costs........................................................... 2,359 --
------------ -----------
30,837 3,176
------------ -----------
Operating income.................................................................. 12,863 178
------------ -----------
INTEREST EXPENSE...................................................................... 5,174 532
------------ -----------
Income (loss) before income taxes and extraordinary item.......................... 7,689 (354)
INCOME TAX PROVISION (BENEFIT)........................................................ 4,193 (131)
------------ -----------
Income (loss) before extraordinary item........................................... 3,496 (223)
EXTRAORDINARY ITEM, net of income tax benefit of $1,087............................... (2,379) --
------------ -----------
Net income (loss)................................................................. $ 1,117 $ (223)
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-59
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE ONE MONTH ENDED JANUARY 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
TREASURY COMMON COMMON PAID -IN RETAINED TREASURY
STOCK STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
----------- ------------ ----------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994............ (5,631,418) 12,122,823 $ 121 $ 19,182 $ 12,313 $ (32,871) $ (1,255)
Net income.............................. -- -- -- -- 1,117 -- 1,117
----------- ------------ ----- ----------- ---------- ---------- ---------
BALANCE AT DECEMBER 31, 1995............ (5,631,418) 12,122,823 121 19,182 13,430 (32,871) (138)
Net loss................................ -- -- -- -- (223) -- (223)
----------- ------------ ----- ----------- ---------- ---------- ---------
BALANCE AT JANUARY 31, 1996............. (5,631,418) 12,122,823 $ 121 $ 19,182 (13,207) $ (32,871) $ (361)
----------- ------------ ----- ----------- ---------- ---------- ---------
----------- ------------ ----- ----------- ---------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements
F-60
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE ONE MONTH ENDED JANUARY 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 31,
1995 1996
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................................................... $ 1,117 $ (223)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities-
Depreciation and amortization expense............................................. 4,841 502
Extraordinary item................................................................ 2,379 --
Deferred income tax benefit....................................................... 601 --
Other............................................................................. 45 (8)
Changes in net assets and liabilities, net of acquisitions
Accounts receivable............................................................. 2,438 2,985
Inventories..................................................................... (84) (1,717)
Other current assets............................................................ (292) 208
Accounts payable................................................................ (704) (3,362)
Advances from customers......................................................... (4,947) 5,552
Accrued liabilities............................................................. 1,445 (276)
Income taxes.................................................................... 646 --
------------ -----------
Net cash provided by operating activities..................................... 7,485 3,661
------------ -----------
INVESTING ACTIVITIES:
Net assets of acquired businesses................................................... (27,649) --
Proceeds from sale of fixed assets.................................................. 66 --
Payments for contingent consideration and other intangibles......................... (2,287) (18)
Purchase of property, equipment and leasehold improvements.......................... (3,796) (222)
------------ -----------
Net cash used in investing activities......................................... (33,666) (240)
------------ -----------
FINANCING ACTIVITIES:
Payments of long-term debt (4,663) (46)
Payments for extinguishment of debt................................................. (26,133) --
Net payments under revolving credit facilities...................................... (7,828) (3,375)
Debt issuance fees.................................................................. (2,341) --
Proceeds from note payable to bank.................................................. 67,146 --
------------ -----------
Net cash provided by (used in) financing activities........................... 26,181 (3,421)
------------ -----------
Net change in cash and cash equivalents....................................... -- --
CASH AND CASH EQUIVALENTS, beginning of period........................................ -- --
------------ -----------
CASH AND CASH EQUIVALENTS, end of period.............................................. $ -- $ --
------------ -----------
------------ -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid....................................................................... $ 5,227 $ 557
------------ -----------
------------ -----------
Income taxes paid................................................................... $ 2,818 --
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-61
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
DIMAC Marketing Corporation (DIMAC or the Company) is one of the largest
full-service, vertically integrated direct marketing services companies in the
United States. DIMAC creates and implements comprehensive, custom-tailored
marketing programs that enable clients nationwide to focus their marketing
expenditures on a highly targeted potential customer base. As a full-service,
vertically integrated firm, DIMAC provides every component of a complete direct
marketing program, including customized market research, strategic and creative
planning, creation and management of relational data bases, telemarketing, media
buying, production services, fulfillment services and subsequent program
analysis.
The consolidated financial statements include the accounts of DIMAC and its
wholly owned subsidiary DIMAC DIRECT Inc. (DIMAC DIRECT) (including its wholly
owned subsidiaries Palm Coast Data Inc. and The McClure Group Inc.) whose
operations are located in St. Louis, San Francisco, New York, Palm Coast,
Philadelphia, Houston, Los Angeles and Boston. All significant intercompany
balances and transactions have been eliminated.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are recorded at cost.
Property and equipment are depreciated using the straight-line method over the
respective asset's estimated useful life. Leasehold improvements are amortized
using the straight-line method over the lesser of the respective asset's
estimated useful life or the lease term.
The Company continually evaluates the propriety of the carrying amounts of
property and equipment and the estimated useful lives used for depreciation.
INTANGIBLE ASSETS
The cost of acquired companies is allocated first to identifiable assets and
liabilities based on estimated fair market values. The excess of cost over
identifiable assets and liabilities is recorded as goodwill with amortization
over periods ranging from 25 to 40 years. Costs allocated to identifiable
intangible assets are amortized over the remaining estimated useful lives of the
assets as determined by underlying contract terms or independent appraisals.
The Company continually reevaluates the propriety of the carrying amount of
goodwill as well as the related amortization period to determine whether current
events and circumstances warrant adjustments to the carrying values or revised
estimates of useful lives. This evaluation is based on the Company's projection
of the undiscounted operating income before depreciation, amortization and
interest over the remaining lives of the amortization periods of related
goodwill. The projections are based on the historical trend line of actual
results since the commencement of operations and adjusted for expected changes
in operating results. To the extent such projections indicate that the
undiscounted operating income (as defined above) is not expected to be adequate
to recover the carrying amounts of goodwill, such carrying amounts are written
down by charges to expense in amounts equal to the excess of the carrying amount
of intangible assets over the related fair value of the assets. The Company
F-62
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
believes that no significant impairment of the goodwill and other intangibles
has occurred, and that no reduction of the estimated useful lives is warranted.
REVENUE RECOGNITION
The Company performs work in accordance with individual client projects.
Revenues are recognized as services are performed on projects and the Company
can determine the completion stage of those projects, to the extent that revenue
is billable to the clients at that stage of completion.
COMPENSATORY STOCK OPTIONS
Certain employees and nonemployee directors of the Company have been granted
options to purchase shares of the Company's voting common stock. Differences
between the stock option exercise price and the estimated market value at the
date of grant are considered unearned compensation and are amortized over the
option vesting period of three years.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The Company
adopted this statement in the first quarter of 1996 with no impact on the
financial statements.
INCOME TAXES
Income tax expense is reported as the total of current year income tax
liability and the change in deferred taxes which are provided for temporary
differences. Deferred income taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
current enacted tax rates.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. ACQUISITIONS:
On May 1, 1995, DIMAC DIRECT Inc. acquired substantially all of the assets
of Palm Coast Data, Ltd. (PCD). PCD was a limited partnership providing direct
marketing data services to the publishing industry. PCD had a marketing office
and production facility in Palm Coast, Florida. The purchase price for the
acquisition was $13,030 plus certain contingent payment obligations based on the
attainment of certain financial performance targets by the newly formed Palm
Coast subsidiary over the next three years. Goodwill resulting from the purchase
price allocation of $5,878 is being amortized
F-63
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. ACQUISITIONS: (CONTINUED)
over 25 years. The acquisition was accounted for as a purchase, and the Company
has included the financial results of PCD beginning May 1, 1995. Future
contingent payment obligations, if any, will be accounted for as additional
goodwill as the payments are made.
On October 2, 1995, the Company acquired the assets of certain affiliated
corporations operating under various business and trade names including "The
McClure Group" (McClure). The McClure Group consisted of seven Subchapter S
corporations and operated as an independent full-service, multimedia marketing
agency headquartered in Valley Forge, Pennsylvania, with primary offices in
northern Florida and Houston. The purchase price for the acquisition was $16,448
plus certain contingent payment obligations based on certain financial and
operational performance targets by the newly formed McClure Group subsidiary
over the next four years. Goodwill resulting from the purchase price allocation
of $15,629 is being amortized over 25 years. The acquisition was accounted for
as a purchase, and the Company has included the financial results of McClure
beginning October 2, 1995. Future contingent payment obligations, if any, will
be accounted for as additional goodwill as the payments are made.
The unaudited pro forma consolidated financial data presented below gives
pro forma effect to the PCD acquisition and the McClure acquisition as if such
transactions had occurred as of January 1, 1995. The unaudited pro forma results
have been prepared for comparative purposes only and do not necessarily reflect
the results of operations of the Company that actually would have occurred had
the acquisitions been consummated as of January 1, 1995, nor do they give effect
to any transactions other than the acquisitions.
<TABLE>
<CAPTION>
1995
PRO FORMA
(UNAUDITED)
-----------
<S> <C>
Sales............................................................................ $ 153,727
-----------
-----------
Income before extraordinary item................................................. $ 4,154
Extraordinary item, net of tax benefit........................................... (2,379)
-----------
Net income..................................................................... $ 1,775
-----------
-----------
</TABLE>
3. NONRECURRING MERGER COSTS:
Nonrecurring merger costs of $2,359 for the year ended December 31, 1995,
were incurred for investment banking, legal and other professional fees arising
from the sale of the Company to Heritage Media Corporation.
4. EXTRAORDINARY ITEM:
On March 31,1995, the Company completed a $75,000 financing commitment from
a group of banks. Under this financing commitment, a five year, $40,000 term
loan was established to refinance the existing revolver loan and to redeem the
remaining $25,000, 12 % Series B Senior Notes. The debt extinguishment resulted
in an extraordinary charge of $2,379 consisting of the premium paid on the
$25,000 principal amount of the Series B Senior Notes of $1,133 plus the
write-off of the unamortized
F-64
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. EXTRAORDINARY ITEM: (CONTINUED)
debt issuance costs associated with the redeemed Series B Senior Notes and
refinanced credit facility of $2,333 less tax benefit of $1,087.
5. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes, and the amounts used for income tax purposes.
The components of the income tax provision (benefit) attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1995 1996
------------ -----------
<S> <C> <C>
Current:
Federal.......................................................... $ 2,887 $ --
State............................................................ 705 --
------------ -----
3,592 --
------------ -----
Deferred:
Federal.......................................................... 480 (114)
State............................................................ 121 (17)
------------ -----
601 (131)
------------ -----
$ 4,193 $ (131)
------------ -----
------------ -----
</TABLE>
Differences between the amount of the income tax provision (benefit)
recorded and the amount computed by applying the federal income tax statutory
rate to income (loss) before income taxes and extraordinary item are explained
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 JANUARY 31, 1996
----------------- -----------------
<S> <C> <C>
Provision (benefit) at statutory rates................... $ 2,614 $ (120)
State and local taxes.................................... 630 (25)
Nondeductible expenses (primarily goodwill).............. 77 14
Nonrecurring merger costs................................ 677 --
Other.................................................... 195 --
------- -----
Income tax provision (benefit)......................... $ 4,193 $ (131)
------- -----
------- -----
</TABLE>
6. EMPLOYEE BENEFIT PLAN:
The Company has defined contribution plans which provide retirement benefits
to substantially all employees not covered by collective bargaining agreements.
The Company matches a portion of employee contributions to the plans. Company
contributions to these plans charged to expense were $303 for the year ended
December 31, 1995, and $89 for the one month ended January 31, 1996.
F-65
<PAGE>
DIMAC MARKETING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
7. LEASE COMMITMENTS:
Equipment acquired under capital leases is included in property, equipment
and leasehold improvements, and the related obligations are in capital lease
obligations. Related amortization is included in depreciation.
Total rental expense for office and warehouse space, including short-term
rentals and rentals under noncancelable operating leases (primarily office and
warehouse space and production equipment), was $6,094 for the year ended
December 31, 1995, and $630 for the one month ended January 31, 1996.
The future minimum rental commitments required under noncancelable operating
leases as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------------------------------------- ---------
<S> <C>
1996................................................................................................... $ 6,415
1997................................................................................................... 4,538
2008................................................................................................... 3,781
2009................................................................................................... 2,944
2000................................................................................................... 2,522
Thereafter............................................................................................. 9,447
---------
$ 29,647
---------
---------
</TABLE>
8. TRANSACTIONS WITH MAJOR CUSTOMERS:
The Company provides creative, media, printing, mailing services and
magazine subscription fulfillment to companies in diversified industries. The
Company performs periodic credit evaluations of its customers' financial
condition, and requires advance payments for postage and other services.
Transactions with one customer, which is a Fortune 50 company involved in
the communication industry, accounted for 39% of sales for the year ended
December 31, 1995, and 25% of sales for the one month ended January 31, 1996.
9. COMMITMENTS AND CONTINGENCIES:
During the normal course of business, the Company is involved in various
lawsuits which, in the opinion of management, are not expected to have a
material effect on either the financial position or operating results of the
Company.
10. SUBSEQUENT EVENT:
In February 1996, the common stock of the Company was acquired by Heritage
Media Corporation for cash of approximately $190,000. Under terms of the merger,
each share of the Company's common stock was purchased for $28.00.
F-66
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AmeriComm Holdings, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of AmeriComm
Holdings, Inc. (a Delaware corporation, formerly known as DEC International,
Inc.) and subsidiary as of December 31, 1996 and 1997 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AmeriComm Holdings, Inc. and
subsidiary as of December 31, 1996 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 27, 1998
(except with respect to
the matters discussed in
Note 10, as to which the
date is June 26, 1998)
F-67
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 26,
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 1,979,493 $ 1,313,618 $ 2,553,406
Accounts receivable, net of allowance for doubtful accounts of
$611,170, $963,130, and $706,575 respectively............... 17,384,354 27,943,109 24,450,910
Income taxes receivable....................................... 547,944 497,565 486,408
Inventories................................................... 11,261,155 13,330,921 13,910,371
Deferred income taxes......................................... 304,599 508,664 802,238
Other......................................................... 1,835,674 3,037,262 3,059,245
-------------- -------------- --------------
Total current assets........................................ 33,313,219 46,631,139 45,262,578
-------------- -------------- --------------
PROPERTY AND EQUIPMENT:
Land.......................................................... 1,852,686 1,852,686 1,852,686
Buildings..................................................... 12,020,573 12,149,009 12,174,183
Machinery and equipment....................................... 36,970,991 45,571,274 48,624,016
Office equipment, furniture, and fixtures..................... 2,993,039 5,375,241 6,599,299
Leasehold improvements........................................ 1,045,565 1,201,024 1,376,971
Vehicles...................................................... 166,677 219,703 228,416
Construction in progress...................................... 1,809,007 1,708,944 3,389,387
-------------- -------------- --------------
56,858,538 68,077,881 74,244,958
Less accumulated depreciation and amortization................ (9,491,356) (16,884,196) (21,477,598)
-------------- -------------- --------------
Net property and equipment.................................. 47,367,182 51,193,685 52,767,360
-------------- -------------- --------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $1,290,028,
$2,253,195 and $2,548,766, respectively..................... 25,079,097 46,172,983 49,639,925
Patents, net of accumulated amortization of $1,038,940,
$3,119,740 and $4,160,140, respectively..................... 18,405,060 16,324,260 15,283,860
Resident address lists, net of accumulated amortization of $0,
$971,471 and $1,684,286, respectively....................... 0 6,314,552 5,601,737
Deferred financing costs, net of accumulated amortization of
$478,283, $1,544,515 and $2,096,785, respectively........... 5,260,429 5,130,124 4,577,854
Covenants not to compete, net of accumulated amortization of
$5,703,213 $6,050,824 and $6,160,778, respectively.......... 487,304 1,840,000 2,172,810
Prepaid pension cost.......................................... 1,931,101 2,078,067 1,997,767
Other......................................................... 655,056 932,815 1,027,081
-------------- -------------- --------------
Total other assets.......................................... 51,818,047 78,792,801 80,301,034
-------------- -------------- --------------
Total assets................................................ $ 132,498,448 $ 176,617,625 $ 178,330,972
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-68
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 26,
1998
1996 1997 (UNAUDITED)
-------------- -------------- --------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt............................. $ 446,037 $ 864,487 $ 919,673
Bank overdraft................................................ 1,505,703 4,624,033 3,577,183
Accounts payable.............................................. 4,337,366 4,898,701 6,070,751
Accrued employee compensation................................. 2,873,080 4,872,591 3,168,975
Other accrued expenses........................................ 5,310,772 4,767,493 5,343,708
-------------- -------------- --------------
Total current liabilities................................... 14,472,958 20,027,305 19,080,290
-------------- -------------- --------------
NONCURRENT LIABILITIES.......................................... 4,426,790 6,501,250 4,745,507
-------------- -------------- --------------
LONG-TERM DEBT:
11.625% senior unsecured notes................................ 100,000,000 100,000,000 100,000,000
12.5% Senior Notes............................................ 0 37,697,372 40,198,501
Revolving loan facility....................................... 0 10,761,083 18,804,833
Other......................................................... 2,352,881 4,484,145 3,979,976
-------------- -------------- --------------
Total long-term debt........................................ 102,352,881 152,942,600 162,983,310
-------------- -------------- --------------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
9% REDEEMABLE CUMULATIVE PREFERRED STOCK:
$.0001 par value; 250,000 shares authorized, 10,000 and 0
shares issued and outstanding, respectively, liquidation
value of $10,900,000, $0 and $0, respectively............... 9,421,537 0 0
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock:
Class A, $.0001 par value, 4,000,000 shares authorized,
2,541,419, 2,752,287 and 2,752,287 shares issued and
2,457,125, 2,690,467 and 2,690,467 shares outstanding,
respectively.............................................. 254 275 275
Class B, $.0001 par value, 300,000 shares authorized, no
shares issued or outstanding.............................. 0 0 0
Additional paid-in capital.................................... 13,460,969 13,957,185 13,957,185
Warrants outstanding.......................................... 320,000 347,465 347,465
Accumulated deficit........................................... (11,566,520) (16,285,167) (21,937,416)
Treasury stock, at cost (84,294, 61,820 and 61,820 shares of
Class A common stock, respectively)......................... (390,421) (286,345) (286,345)
Notes receivable due from stockholders........................ 0 (586,943) (559,299)
-------------- -------------- --------------
Total stockholders' equity (deficit)........................ 1,824,282 (2,853,530) (8,478,135)
-------------- -------------- --------------
Total liabilities and stockholders' equity (deficit)........ $ 132,498,448 $ 176,617,625 $ 178,330,972
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-69
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
AND THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------- JUNE 30, JUNE 26,
1995 1996 1997 1997 1998
------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
NET SALES......................... $ 71,257,112 $ 111,342,230 $ 191,090,864 $ 86,601,909 $ 93,081,183
COST OF PRODUCTS SOLD............. 55,708,018 80,215,498 133,598,403 60,807,691 67,813,463
------------- -------------- -------------- ------------- -------------
Gross profit.............. 15,549,094 31,126,732 57,492,461 25,794,218 25,267,720
------------- -------------- -------------- ------------- -------------
OPERATING EXPENSES:
Selling......................... 6,760,438 10,716,599 18,194,512 9,807,124 9,818,593
General and administrative...... 4,833,618 11,949,210 23,399,281 10,118,669 11,698,435
Amortization:
Goodwill...................... 236,113 459,560 963,167 474,083 613,397
Patents....................... 0 1,038,940 2,080,800 1,039,211 1,040,400
Covenants not to compete...... 1,439,607 1,035,472 347,611 136,177 267,190
Other......................... 140,000 0 0 0 0
------------- -------------- -------------- ------------- -------------
Total operating expenses.... 13,409,776 25,199,781 44,985,371 21,575,264 23,438,015
------------- -------------- -------------- ------------- -------------
INCOME FROM OPERATIONS............ 2,139,318 5,926,951 12,507,090 4,218,954 1,829,705
INTEREST EXPENSE.................. 3,179,328 8,138,110 17,022,604 7,402,444 9,677,101
------------- -------------- -------------- ------------- -------------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM.............. (1,040,010) (2,211,159) (4,515,514) (3,183,490) (7,847,396)
INCOME TAX BENEFIT................ (1,900,000) (626,739) (688,330) (644,123) (2,195,147)
------------- -------------- -------------- ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM............................ 859,990 (1,584,420) (3,827,184) (2,539,367) (5,652,249)
EXTRAORDINARY LOSS ON RETIREMENT
OF DEBT, NET OF TAX BENEFIT OF
$460,864........................ 0 (797,903) 0 0 0
------------- -------------- -------------- ------------- -------------
NET INCOME (LOSS)................. 859,990 (2,382,323) (3,827,184) (2,539,367) (5,652,249)
REDEEMABLE CUMULATIVE PREFERRED
STOCK ACCRETION AND DIVIDENDS... 0 488,000 864,000 864,000 0
------------- -------------- -------------- ------------- -------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCK.................... $ 859,990 $ (2,870,323) $ (4,691,184) $ (3,403,367) $ (5,652,249)
------------- -------------- -------------- ------------- -------------
------------- -------------- -------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-70
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
AND THE SIX-MONTH PERIOD ENDED JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
SHARES PAR VALUE ADDITIONAL
-------------------------- -------------------------- PAID-IN WARRANTS
CLASS A CLASS B CLASS A CLASS B CAPITAL OUTSTANDING
--------- --------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994........... 2,512,551 0 $ 251 $ 0 $13,434,703 $1,132,902
Warrant accretion.................. 0 0 0 0 0 164,390
Net income attributable to common
stock............................ 0 0 0 0 0 0
- --
--------- ----- ----------- ------------
BALANCE, December 31, 1995........... 2,512,551 0 251 0 13,434,703 1,297,292
Purchase of outstanding warrants... 0 0 0 0 0 (1,297,292)
Issuance of warrants to purchase
132,240 shares of Class A common
stock............................ 0 0 0 0 0 320,000
Purchase of 84,294 shares of Class
A common stock for treasury...... 0 0 0 0 0 0
Issuance of 28,868 shares of Class
A common stock upon exercise of
options.......................... 28,868 0 3 0 26,266 0
Net loss attributable to common
stock............................ 0 0 0 0 0 0
- --
--------- ----- ----------- ------------
BALANCE, December 31, 1996........... 2,541,419 0 254 0 13,460,969 320,000
Issuance of 210,868 shares of Class
A common stock................... 210,868 0 21 0 499,979 0
Issuance of warrants to purchase
11,349 shares of Class A common
stock............................ 0 0 0 0 0 27,465
Purchase of stockholder notes
receivable....................... 0 0 0 0 0 0
Accrued interest on stockholder
notes receivable................. 0 0 0 0 0 0
Acceptance of notes receivable from
stockholders..................... 0 0 0 0 0 0
Issuance of 22,474 shares of Class
A common stock from treasury..... 0 0 0 0 (3,763) 0
Net loss attributable to common
stock............................ 0 0 0 0 0 0
- --
--------- ----- ----------- ------------
BALANCE, December 31, 1997........... 2,752,287 0 275 0 13,957,185 347,465
Net loss attributable to common
stock............................ 0 0 0 0 0 0
Payment by stockholders on notes
receivable....................... 0 0 0 0 0 0
Accrued interest on stockholder
notes receivable................. 0 0 0 0 0 0
- --
--------- ----- ----------- ------------
BALANCE, June 26, 1998 (unaudited)... 2,752,287 0 $ 275 $ 0 $13,957,185 $ 347,465
- --
- --
--------- ----- ----------- ------------
--------- ----- ----------- ------------
<CAPTION>
NOTES
RECEIVABLE
ACCUMULATED DUE FROM TREASURY
DEFICIT STOCKHOLDERS STOCK TOTAL
------------- ------------- --------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994........... $(8,750,627) $ 0 $ 0 $ 5,817,229
Warrant accretion.................. (164,390) 0 0 0
Net income attributable to common
stock............................ 859,990 0 0 859,990
------------- ------------- --------- -----------
BALANCE, December 31, 1995........... (8,055,027) 0 0 6,677,219
Purchase of outstanding warrants... (641,170) 0 0 (1,938,462)
Issuance of warrants to purchase
132,240 shares of Class A common
stock............................ 0 0 0 320,000
Purchase of 84,294 shares of Class
A common stock for treasury...... 0 0 (390,421) (390,421)
Issuance of 28,868 shares of Class
A common stock upon exercise of
options.......................... 0 0 0 26,269
Net loss attributable to common
stock............................ (2,870,323) 0 0 (2,870,323)
------------- ------------- --------- -----------
BALANCE, December 31, 1996........... (11,566,520) 0 (390,421) 1,824,282
Issuance of 210,868 shares of Class
A common stock................... 0 0 0 500,000
Issuance of warrants to purchase
11,349 shares of Class A common
stock............................ (27,465) 0 0 0
Purchase of stockholder notes
receivable....................... 0 (493,132) 0 (493,132)
Accrued interest on stockholder
notes receivable................. 0 (15,745) 0 (15,745)
Acceptance of notes receivable from
stockholders..................... 0 (78,066) 0 (78,066)
Issuance of 22,474 shares of Class
A common stock from treasury..... 0 0 104,076 100,313
Net loss attributable to common
stock............................ (4,691,182) 0 0 (4,691,182)
------------- ------------- --------- -----------
BALANCE, December 31, 1997........... (16,285,167) (586,943) (286,345) (2,853,530)
Net loss attributable to common
stock............................ (5,652,249) 0 0 (5,652,249)
Payment by stockholders on notes
receivable....................... 0 40,742 0 40,742
Accrued interest on stockholder
notes receivable................. 0 (13,098) 0 (13,098)
------------- ------------- --------- -----------
BALANCE, June 26, 1998 (unaudited)... $(21,937,416) $ (559,299) $(286,345) $(8,478,135)
------------- ------------- --------- -----------
------------- ------------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-71
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
AND THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 26,
---------------------------------- ---------- ----------
1995 1996 1997 1997 1998
--------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 859,990 $(2,382,323) $(3,827,182) $(2,539,367) $(5,652,249)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Extraordinary loss on early retirement of
debt, net of income tax benefit............. 0 797,903 0 0 0
Depreciation and amortization................. 4,004,992 7,409,137 13,145,739 6,077,147 7,809,672
Deferred income tax benefit................... (1,900,000) (626,739) (894,649) (644,123) (2,195,147)
Interest paid with in-kind notes.............. 0 0 3,074,676 802,357 2,465,930
Net (gain) loss on disposal of property and
equipment................................... (173,646) (294,000) 440,898 321,852 23,959
Amortization of prepaid pension asset......... (180,310) (45,865) (149,699) 75,369 80,300
Imputed interest.............................. 130,172 72,757 106,422 0 35,199
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable......................... 216,782 2,045,704 (5,747,677) (1,395,456) 3,946,791
Income taxes receivable..................... 0 0 717,202 626,789 11,157
Inventories................................. 141,682 1,017,197 (610,123) (335,123) (475,978)
Other assets................................ (7,436) (226,946) (948,166) (400,951) (444,790)
Accounts payable............................ (2,143,754) 534,704 (1,560,048) 145,429 1,045,421
Accrued expenses and other.................. (1,165,768) (1,153,699) (2,173,188) 440,450 (1,551,580)
--------- ----------- ---------- ---------- ----------
Net cash (used in) provided by operating
activities.............................. (217,296) 7,147,830 1,574,205 3,174,373 5,098,685
--------- ----------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............. (2,308,105) (3,490,447) (4,562,731) (3,313,136) (5,666,368)
Proceeds from sale of property and equipment.... 369,194 423,428 106,123 172,147 12,509
Proceeds from investment securities............. 0 2,620,000 0 0 0
Payment for the purchase of the outstanding
stock of Transkrit Corporation, net of cash
acquired...................................... 0 (79,390,682) 0 0 0
Payment for the purchase of the outstanding
stock of AmeriComm Direct Marketing, Inc., net
of cash acquired.............................. 0 0 (24,954,538) (24,955,131) 0
Payment for the purchase of the outstanding
stock of Label America, Inc., net of cash
acquired...................................... 0 0 (9,469,418) (9,469,322) 0
Payment for the purchase of the outstanding
stock of Cardinal Marketing, Inc. and Cardinal
Marketing of New Jersey, Inc., net of cash
acquired...................................... 0 0 0 0 (4,752,955)
--------- ----------- ---------- ---------- ----------
Net cash used in investing activities..... (1,938,911) (79,837,701) (38,880,564) (37,565,442) (10,406,814)
--------- ----------- ---------- ---------- ----------
</TABLE>
F-72
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
AND THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 26,
---------------------------------- ---------- ----------
1995 1996 1997 1997 1998
--------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdraft, net...... 2,354,437 (2,758,170) 3,118,330 (737,563) (1,046,850)
Payments on term loans.......................... (50,000) (16,900,000) 0 0 0
Dividends paid on redeemable cumulative
preferred stock............................... 0 (450,000) (285,000) (285,000) 0
Payment on officer note......................... 0 (61,647) 0 0 0
Purchase of outstanding warrants................ 0 (1,938,462) 0 0 0
Proceeds from issuance of Class A common
stock......................................... 0 26,269 500,000 0 0
Purchase of Class A common stock for treasury... 0 (390,421) 0 0 0
Redemption of redeemable cumulative preferred
stock......................................... 0 0 (10,000,000) (10,000,000) 0
Purchase of stockholder notes receivable........ 0 0 (493,132) (492,637) 0
Proceeds from issuance of treasury stock........ 0 0 22,247 0 0
Payments on capital leases...................... (37,130) (216,888) (546,767) (235,437) (448,983)
Net borrowings (payments) on revolving loan
facilities.................................... 50,000 (7,050,000) 10,761,083 11,782,166 8,043,750
Increase in deferred financing costs............ 0 (5,738,712) (936,277) (836,255) 0
Proceeds from issuance of notes................. 0 100,000,000 34,500,000 34,500,000 0
Proceeds from issuance of redeemable cumulative
preferred stock and warrants, net of issuance
costs......................................... 0 9,702,973 0 0 0
--------- ----------- ---------- ---------- ----------
Net cash provided by financing
activities.............................. 2,317,307 74,224,942 36,640,484 33,695,274 6,547,917
--------- ----------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... 161,100 1,535,071 (665,875) (695,795) 1,239,788
CASH AND CASH EQUIVALENTS, beginning of year...... 283,322 444,422 1,979,493 1,979,493 1,313,618
--------- ----------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year............ $ 444,422 $ 1,979,493 $1,313,618 $1,283,698 $2,553,406
--------- ----------- ---------- ---------- ----------
--------- ----------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.......................... $2,821,000 $ 7,744,000 $12,835,000 $6,162,553 $6,699,000
--------- ----------- ---------- ---------- ----------
--------- ----------- ---------- ---------- ----------
Cash paid for income taxes...................... $ 0 $ 0 $ 107,000 $ 67,022 $ 55,000
--------- ----------- ---------- ---------- ----------
--------- ----------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations incurred.............. $ 0 $ 2,799,000 $3,085,000 $ 0 $ 0
--------- ----------- ---------- ---------- ----------
--------- ----------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-73
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
1. BACKGROUND
AmeriComm Holdings, Inc. ("AHI," formerly known as DEC International, Inc.)
and its wholly owned subsidiary, AmeriComm Direct Marketing, Inc. ("AmeriComm,"
formerly known as National Fiberstok Corporation) (collectively or individually,
the "Company"), is a leading provider of products and services focused primarily
on the direct marketing industry. The Company's principal strategy is to offer a
comprehensive line of direct marketing products and services while continuing to
participate in the rapidly growing markets for custom pressure sensitive labels
and nonimpact self-mailers. The Company markets its products to customers
throughout the United States through operations in Norfolk, Roanoke, and Salem,
Virginia; Austell, and Tucker, Georgia; Louisville, Kentucky; Gainesville,
Florida; Wilton, New Hampshire; Sparks, Nevada; San Carlos, California; Fort
Smith, Arkansas; Mountainside, New Jersey; and Denver, Colorado.
On June 28, 1996, the Company acquired all of the issued and outstanding
capital stock of Transkrit for $86,500,000 plus transaction costs. Subsequent to
the acquisition, Transkrit and all of its subsidiaries were merged into the
Company. The Transkrit acquisition has been accounted for using the purchase
method of accounting, and accordingly, the results of operations of Transkrit
have been included in the results of operations of the Company since June 29,
1996. The purchase price was allocated to assets and liabilities based on their
estimated fair value as of the date of the acquisition. The excess of the
consideration paid over the estimated fair value of net assets acquired of
$17,542,000 has been recorded as goodwill and is being amortized on the
straight-line basis over 40 years.
On February 21, 1997, the Company acquired all of the issued and outstanding
capital stock of Label America, Inc. ("LAI") for $8,500,000, less outstanding
indebtedness, plus transaction costs. Additional consideration of $700,000 was
paid to the principal stockholder for a noncompete agreement. Upon consummation
of the acquisition, LAI was merged into the Company. The LAI acquisition has
been accounted for using the purchase method of accounting, and accordingly, the
results of operations of LAI have been included in the results of operations of
the Company since February 22, 1997. The excess of the consideration paid over
the estimated fair value of net assets acquired of $6,636,000 has been recorded
as goodwill and is being amortized on the straight-line basis over 40 years.
On April 24, 1997, the Company acquired all of the issued and outstanding
stock of AmeriComm Direct Marketing, Inc. ("ADMI") for $23,635,000 plus
transaction costs. Additional consideration of $1,000,000 was paid to the
principal stockholder for a noncompete agreement. Upon consummation of the
acquisition, ADMI was merged into the Company. The ADMI acquisition has been
accounted for using the purchase method of accounting, and accordingly, the
results of operations of ADMI have been included in the results of operations of
the Company since April 25, 1997. The excess of the consideration paid over the
estimated fair value of net assets acquired of $15,273,000 has been recorded as
goodwill and is being amortized on the straight-line basis over 40 years.
The following presents, on an unaudited pro forma basis, the Company's
results of operations for the years ended December 31, 1995, 1996, and 1997 as
though the acquisition of Transkrit and related
F-74
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
1. BACKGROUND (CONTINUED)
transactions had occurred on January 1, 1995 and the acquisitions of LAI and
ADMI and related transactions had occurred on January 1, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................ $ 168,760 $ 202,033 $ 201,500
Operating income......................................... 12,347 11,740 13,171
Net income (loss) before extraordinary item.............. 2,364 (539) (4,842)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
AHI and its subsidiary. All significant intercompany transactions and balances
have been eliminated.
REVENUE RECOGNITION
Sales are recorded as products are shipped, except for certain sales for
which revenue is recognized when the customer is billed based on passage of
legal title at the date of billing. Such "bill and hold" sales are not material
to the Company's results of operations.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as during the reporting period.
Actual results could differ from these estimates.
CASH EQUIVALENTS
For purposes of the reporting of cash flows, the Company considers all
highly liquid debt instruments with a maturity at date of purchase of three
months or less to be cash equivalents.
The Company does not believe it is exposed to any significant credit risk on
money market funds with commercial banks because its policy is to make such
deposits only with highly rated institutions.
F-75
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
ACCOUNTS RECEIVABLE
A summary of changes in the allowance for doubtful accounts for the years
ended December 31, 1995, 1996, and 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year............................... $ 141,841 $ 171,950 $ 611,170
Acquired balance from Transkrit (Note 1)................. 0 495,154 0
Acquired balance from ADMI (Note 1)...................... 0 0 209,789
Acquired balance from LAI (Note 1)....................... 0 0 47,176
Provisions............................................... 78,089 215,455 385,282
Recoveries............................................... 18,679 75,028 40,148
Write-offs............................................... (66,659) (346,417) (330,435)
---------- ---------- ----------
Balance, end of year..................................... $ 171,950 $ 611,170 $ 963,130
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost or market. Costs of raw
materials are determined using the first-in, first-out ("FIFO") method. Costs
(net of an obsolescence reserve) of work in process, finished goods, and
customized stock (consisting of products which have been produced and held for
certain customers under short-term delayed-shipping arrangements) are determined
using the average cost (which approximates FIFO) or FIFO method.
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
------------- ------------- JUNE 26,
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials................................... $ 5,837,794 $ 7,351,264 $ 7,409,275
Work in process................................. 1,288,685 1,585,171 1,399,235
Finished goods.................................. 2,834,589 3,350,315 3,520,247
Customized stock................................ 1,300,087 1,044,171 1,581,614
------------- ------------- -------------
$ 11,261,155 $ 13,330,921 $ 13,910,371
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-76
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost or at estimated fair value at
date of acquisition (Note 1), if acquired as part of a business combination, and
are depreciated using the straight-line method over the following lives:
<TABLE>
<S> <C>
25 to 30
Buildings.................................................... years
Machinery and equipment...................................... 3 to 7 years
Office equipment, furniture and fixtures..................... 3 to 7 years
Vehicles..................................................... 3 to 5 years
</TABLE>
Leasehold improvements are depreciated over the lesser of the useful lives
of the assets or the lease term.
The Company's policy is to remove the cost and accumulated depreciation of
retirements from the accounts and recognize the related gain or loss upon the
disposition of assets. Depreciation expense in 1995, 1996, and 1997 was
approximately $2,020,000, $4,313,000, and $7,717,000, respectively.
GOODWILL
Goodwill represents the cost of acquired businesses in excess of net
identifiable assets and is amortized over 15 to 40 years using the straight-line
method. The recoverability of goodwill is periodically reviewed by management
based on current and anticipated conditions. The amount of goodwill considered
realizable, however, could be reduced in the near term if changes occur in
anticipated conditions. Based on a review of projected undiscounted cash flow
from operations and other pertinent information, management is of the opinion
that there has been no diminution in the value assigned to goodwill.
PATENTS
The Company has been granted several patents related to certain products
manufactured by the Company. Patents acquired through the acquisition of
Transkrit were recorded at their estimated fair value at date of acquisition.
These amounts are being amortized on a straight-line basis over the life (4 to
12 years) of the patents.
COVENANTS NOT TO COMPETE
Covenants not to compete have been recorded at cost and are being amortized
on a straight-line basis over the terms (three to five years) of the agreements.
RESIDENT ADDRESS LISTS
The Company has purchased and maintains national residential address lists
used by its customers in making saturation or targeted mailings. Resident
address lists acquired through the acquisition of ADMI were recorded at their
estimated fair value at the date of acquisition. These amounts are being
amortized on a straight-line basis over the life (six years) of the resident
address lists. Amortization
F-77
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
expense for 1997 of $971,471 is included in costs of products sold in the
accompanying consolidated statement of operations.
DEFERRED FINANCING COSTS
Deferred financing costs represent costs incurred to raise financing and are
amortized over the related terms of the borrowings (Note 3).
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
for recognition of deferred tax consequences of temporary differences, net
operating losses, and tax credits by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts, and to the tax bases of existing assets and liabilities.
CONCENTRATION OF RISK
During 1995, 1996, and 1997, the Company's ten largest customers accounted
for 25%, 18%, and 16%, respectively, of total Company sales. No individual
customer accounted for more than 6% of sales in any year. In management's
opinion, a loss of any one individual customer would not have a material impact
on the Company's financial position or results of operations.
The Company's largest purchased raw material is paper. While the Company
utilizes multiple paper suppliers, two suppliers provided 67%, 30%, and 41% of
its requirements in 1995, 1996, and 1997, respectively. Further, the supply and
price of paper are cyclical in nature. As a result, the Company is subject to
the risk that pricing may significantly impact results of operations and that it
may be unable to purchase sufficient quantities of paper to meet production
requirements during times of tight supply. While the Company believes that it
could obtain other suppliers of paper, paper industry conditions may have a
material effect on the Company's results of operations.
VACATION POLICY
In 1995, the Company revised its vacation policy for certain locations,
whereby employees must take vacation earned during the year prior to January 1
or forfeit the balance. As a result of this change in policy, a vacation accrual
is no longer required as of December 31, 1995 and approximately $575,000 of
accrued vacation was reversed and is reflected as a reduction in cost of
products sold in 1995.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable, and debt. The carrying amounts of cash, accounts
receivable, and accounts payable approximate their fair values because of the
short-term maturity of such instruments. The fair value of the senior unsecured
notes (Note 3) at December 31, 1996 and 1997 was approximately $106,000,000 and
was estimated using a quote from a broker. At December 31, 1996 and 1997, the
carrying value of the other
F-78
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
long-term debt approximated its fair value, because interest rates on such debt
are periodically adjusted or approximated current market rates.
INTERIM UNAUDITED DATA FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 26, 1998
In the opinion of management, the unaudited financial statements contain all
the normal and recurring adjustments necessary to present fairly the financial
position of the Company as of June 26, 1998 and the results of the Company's
operations and its cash flows for the six months ended June 30, 1997 and June
26, 1998 in conformity with generally accepted accounting principles. The
results of operations for the six month period ended June 26, 1998 are not
necessarily indicative of the results to be expected for the year.
F-79
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
3. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
11.625% senior unsecured notes, interest payable semiannually commencing December
15, 1996....................................................................... $ 100,000,000 $ 100,000,000
12.5% senior notes, including PIK notes, interest payable quarterly commencing
June 30, 1997, net of unamortized discount of $377,304......................... 0 37,697,372
Revolving loan facility with Heller Financial, Inc., principal payable in full
upon the earlier of termination, as defined, or June 28, 2001, bearing interest
at the 30 to 180 day London Interbank Offered Rate plus 2.25% or Prime plus 1%
(8.35% and 9.5% at December 31, 1997, respectively)............................ 0 10,761,083
Capital lease payable to The CIT Group/Equipment Financing, Inc. (CIT), monthly
principal and interest payments of $48,250 commencing July 1996 through June
2001 with a balloon payment of $513,485 due June 2001, interest at 10.2%....... 2,405,831 2,056,883
Capital leases payable to General Electric Capital Corporation (GE), monthly
principal and interest payments of $53,867 commencing December 1997 through
November 1999, declining to $44,073 commencing December 31, 1999 through
October 2001 with a balloon payment of $1,615,077 due November 2001, interest
at 9.36%....................................................................... 0 3,025,154
Other............................................................................ 393,087 266,595
-------------- --------------
102,798,918 153,807,087
Less current portion............................................................. (446,037) (864,487)
-------------- --------------
$ 102,352,881 $ 152,942,600
-------------- --------------
-------------- --------------
</TABLE>
Maturities of long-term debt and capital lease obligations at December
31,1997 are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 864,487
1999............................................................. 985,265
2000............................................................. 819,774
2001............................................................. 13,440,189
2002 and thereafter.............................................. 138,074,676
-----------
$154,184,391
-----------
-----------
</TABLE>
Prior to the issuance of the 11.625% senior unsecured notes (the "Senior
Notes"), the Company maintained agreements under which the Company had certain
term loans and a revolving line-of-credit
F-80
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
3. LONG-TERM DEBT (CONTINUED)
facility (the "Line"). As additional consideration for the term loans and the
Line, the Company issued stock warrants to purchase 413,457 and 254,435 shares
of Class A and Class B common stock, respectively (Note 6). Concurrent with the
issuance of the Senior Notes on June 28, 1996 discussed below, the Company
repaid the term loans and the Line, purchased the outstanding warrants, and paid
a prepayment penalty, all of which aggregated to approximately $25,100,000. As a
result of the early retirement of debt, the Company incurred an extraordinary
loss of $797,903, net of income tax benefit of $460,864, during 1996.
Subsequently, the agreements were terminated.
Concurrent with the consummation of the Transkrit acquisition discussed in
Note 1, AmeriComm issued $100,000,000 aggregate principal amount of Senior Notes
due June 15, 2002. Interest is payable semiannually commencing December 31,
1996. The Senior Notes are senior obligations of AmeriComm and will be PARI
PASSU in right of payment to all future senior indebtedness. The indenture to
the Senior Notes limits the incurrence of additional debt by AmeriComm, does not
allow AmeriComm to pay any common stock dividends, and limits AmeriComm's
ability to redeem capital stock and to sell its assets, as defined. AmeriComm
may incur additional indebtedness, as defined, as long as its fixed charge
coverage ratio, as defined, is greater than certain minimum levels.
Concurrent with the ADMI acquisition on April 24, 1997 as discussed in Note
1, AHI issued $35,000,000 aggregate principal amount of 12.5% senior notes
("Notes") due April 24, 2003. As inducement for accepting the Notes, the holders
of the Notes were issued 210,868 shares of Class A common stock (Note 6). The
common stock was valued at its fair value of $500,000 and recorded as a discount
to the face value of the Notes. The proceeds from the Notes were used to
purchase the outstanding 9% redeemable cumulative preferred stock (the
"Preferred Stock") (Note 5), pay transaction costs, and fund the ADMI
acquisition. The effective interest rate on the Notes, after considering the
above discount, is 12.74%.
The Notes place certain restrictions on the Company's ability to incur
additional indebtedness or make future acquisitions. In addition, future
interest and principal payments by AHI are dependent primarily on the operations
of AmeriComm through payments to AHI as permitted under the Senior Notes. As a
result, the Company may pay a portion or all of any six quarterly interest
installments prior to April 24, 1999 by issuing additional notes ("PIK Notes")
with interest rates ranging from 12.5% to 13%. The initial interest installments
due June 30, 1997, September 30, 1997, and December 31, 1997 were paid by the
issuance of PIK Notes at 12.5% interest. The PIK Notes must be redeemed prior to
April 24, 2003. Borrowings under the Notes are subject to a financial covenant
with which the Company was in compliance as of December 31, 1997.
Concurrent with the consummation of the Transkrit acquisition discussed in
Note 1, the Company entered into a revolving loan facility with Heller. The
facility provides borrowings based on the lesser of qualified accounts
receivable and inventories, as defined, or $25,000,000. Borrowings under the
revolving loan facility are subject to certain financial covenants that include,
among others, minimum fixed-charge coverage and total indebtedness to operating
cash flow ratio, as defined. The Company was in compliance with each covenant as
of December 31, 1997. As of December 31, 1997, $14,238,917 was available on the
revolving loan facility.
F-81
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
3. LONG-TERM DEBT (CONTINUED)
Under the CIT capital lease payable, CIT has a first-perfected security
interest in certain equipment. At the end of the lease term, the Company will
have the option to purchase the equipment for $513,485. Under the GE capital
leases payable, GE has a first-perfected security interest in certain equipment.
At the end of each lease term, the Company will have the option to purchase the
equipment for an aggregate of $1,615,077. The capital leases are cross-defaulted
with other loan agreements if such default is not cured within 90 days following
the default.
Interest expense on long-term debt and capital leases in 1995, 1996, and
1997 was approximately $3,179,000, $8,138,000, and $17,023,000, respectively,
including $231,000, $564,000, and $1,067,000, respectively, of deferred finance
cost amortization.
4. INCOME TAXES
The income tax benefits for the years ended December 31, 1995, 1996, and
1997 represent the income tax benefit from operating losses. For the years ended
December 31, 1995 and 1996, income tax benefits presented consist of deferred
tax benefits. For the year ended December 31, 1997, the income tax benefit
presented consists of a deferred tax benefit of $894,649 and a current tax
provision of $206,319.
The reconciliation of the federal statutory income tax rate to the Company's
effective income tax rate for the 1995, 1996 and 1997 benefit for income taxes
is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ----------- -------------
<S> <C> <C> <C>
Federal tax benefit at statutory rate.................................. $ (353,600) $ (751,794) $ (1,535,275)
State, net of federal benefit.......................................... (34,000) (59,378) 206,669
Change in valuation allowance.......................................... (1,485,000) 0 0
Nondeductible amortization............................................. 0 164,139 367,460
Nondeductible expenses................................................. 0 42,854 69,920
Other, net............................................................. (27,400) (22,560) 202,896
------------- ----------- -------------
Actual income tax benefit.............................................. $ (1,900,000) $ (626,739) $ (688,330)
------------- ----------- -------------
------------- ----------- -------------
Effective tax rate..................................................... 183% 29% 15%
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
F-82
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
Significant components of the Company's net deferred tax liabilities as of
December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards.................................................. $ 4,127,000 $ 3,038,000
Book basis in property over tax basis............................................. (6,703,000) (6,932,000)
Resident address lists............................................................ 0 (2,400,000)
Patents........................................................................... (1,457,000) (998,000)
Inventories....................................................................... (712,000) (497,000)
Goodwill.......................................................................... (185,000) (261,000)
Prepaid pension cost.............................................................. (692,000) (774,000)
Covenant not-to-compete........................................................... 1,556,000 1,413,000
Interest paid with in-kind notes.................................................. 0 1,169,000
Employee benefit accruals......................................................... 903,000 917,000
Liabilities not currently deductible.............................................. 548,000 402,000
Allowance for doubtful accounts................................................... 155,000 309,000
Other, net........................................................................ 2,377 (159,954)
------------- -------------
Net deferred tax liabilities...................................................... $ (2,457,623) $ (4,773,954)
------------- -------------
------------- -------------
</TABLE>
The net operating loss carryforwards will be used to offset future taxable
income, subject to their expirations, beginning in 2004 and continuing through
2012. Any future issuance of stock by the Company could result in an ownership
change, as defined by the Tax Reform Act of 1986, and could limit utilization of
net operating loss carryforwards. Also, benefits derived from using net
operating loss carryforwards to offset any taxes calculated as alternative
minimum tax could be less than the recorded amount of the net operating loss
carryforwards. Although realization is not assured, management believes all net
operating loss carryforwards will be realized.
5. 9% REDEEMABLE CUMULATIVE PREFERRED STOCK
On June 28, 1996, the Company issued 10,000 shares of 9% redeemable
cumulative preferred stock and warrants (Note 6) to the preferred shareholders
for $10,000,000, less issuance costs. The Preferred Stock had no voting rights
and was recorded at fair value on the date of the issuance, less transaction
costs. The excess of the liquidation preference over the carrying value was
being accreted over the life of the Preferred Stock resulting in charges of
approximately $38,000 and $19,000 for the year ended December 31, 1996 and 1997,
respectively. Dividends of $450,000 and $285,000 were paid in 1996 and 1997,
respectively.
In conjunction with the issuance of the Notes, the Preferred Stock was
redeemed for $10,000,000. As a result of the redemption of the Preferred Stock,
the Company incurred a charge of approximately $560,000 for the excess of the
liquidation value over the carrying value which was reflected in the
consolidated statements of operations as additional dividends.
F-83
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
6. CAPITAL STOCK AND WARRANTS
Each share of Class B common stock is convertible into one share of Class A
common stock at the option of the holder. All dividends declared by the board of
directors are shared ratably by Class A and B stockholders. Upon liquidation,
the Class A and B stockholders would share ratably in any proceeds. Class B
common stock is nonvoting.
In conjunction with a certain credit agreements existing prior to June 28,
1996, the Company issued warrants to purchase 413,457, and 254,435 shares of
Class A and Class B common stock, respectively, at an exercise price of $.01
(Note 3). The warrants were valued at their fair value, as determined by the
board of directors on the date of grant. The difference between the fair market
value of the warrants at the issue date and the estimated redemption value was
accreted as a direct charge to accumulated deficit. In conjunction with the
issuance of the Senior Notes on June 28, 1996 (Note 3), the Company purchased
the outstanding warrants for $1,938,402 and recorded a charge of $641,170 to
accumulated deficit.
In conjunction with the issuance of 10,000 shares of Preferred Stock (Note
5), the Company issued warrants to the preferred shareholders to purchase
132,240 shares of Class A common stock. The warrants were valued at their fair
value, as determined by the board of directors on the date of the grant, and
recorded as a discount to the Preferred Stock. In conjunction with the issuance
of the Notes (Note 3), the Company issued additional warrants to purchase 11,349
shares of Class A common stock. The warrants were valued at their fair value, as
determined by the board of directors, on the date of the grant and were recorded
as a charge to accumulated deficit. The 143,589 warrants may be exercised at any
time through June 30, 2004 at $.01 per share, subject to adjustment pursuant to
the terms of the warrant agreement. The Company has reserved 143,589 shares of
its Class A common stock for the exercise of these warrants.
During 1997, the Company purchased aggregate principle and interest 6%
nonrecourse notes from MDC Management Company II, L.P. ("MDC"), an affiliate,
for $493,132. The holders of these notes are shareholders of the Company, and
accordingly, the notes and all accrued interest have been recorded as an
increase to stockholders' deficit.
Effective June 28, 1996, the board of directors adopted the AmeriComm
Holdings, Inc. 1996 Stock Option Plan. During 1996 and 1997, the board of
directors granted options to purchase 244,889 and 39,265 shares, respectively,
of Class A common stock at an exercise price ranging from $2.62 to $5.38 per
share, the estimated fair value at the date of grant, to certain employees and
directors of the Company. As of December 31, 1997, there are 255,286 options
outstanding. The options vest based on time and based upon the profitability and
the liquidation value of the Company if it is sold to a third party. During 1996
and 1997, 28,868 and 0 options vested and were exercised, respectively.
Effective January 28, 1997, the board of directors adopted the AmeriComm
Holdings, Inc. 1997 Stock Option Plan for Directors. During 1997, the board of
directors granted options to purchase 10,350 shares of Class A common stock at
an exercise price of $5.38 per share, the estimated fair value at the date of
grant, to certain directors of the Company. The options vest based on time or in
the event of a change in control of the Company, as defined. As of December 31,
1997, 2,898 options were vested and are exercisable.
F-84
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
6. CAPITAL STOCK AND WARRANTS (CONTINUED)
The Company accounts for its stock option plans in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," under which no compensation was recognized during 1996 and 1997.
In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," for disclosure
purposes. In accordance with the disclosure requirements of SFAS No. 123, the
Company is required to calculate pro forma compensation cost of all stock
options granted using an option pricing model. Accordingly, the fair value of
the stock option grants has been estimated as of the grant dates under the
minimum value method using the following weighted average assumptions for 1996
and 1997: a risk-free interest rate of approximately 6.4%, dividend yield of 0%,
volatility of 0%, and expected life of 4.5 years. Using these assumptions, the
fair value of the stock options at the dates of grant was $0. As a result, there
is no pro forma compensation expense.
7. RELATED-PARTY TRANSACTIONS
FEES TO AFFILIATE
The Company maintains an Advisory Services Agreement (the "Agreement") with
MDC. Under the Agreement, MDC provides certain consulting, financial, and
managerial functions for a $250,000 annual fee through June 28, 1996 and a
$350,000 annual fee thereafter. In 1995, 1996, and 1997, $187,500, $862,000 (of
which $562,000 was accrued as of December 31, 1995), and $350,000, respectively,
were paid. No payments shall be made by the Company to MDC under the Agreement
if there is an event of default, as defined, under the revolving loan facility,
Senior Notes, or the Notes (Note 3). As of December 31, 1997, there are no such
events of default. The Agreement expires December 31, 2000 and is renewable
thereafter, unless terminated by the Company for justifiable cause, as defined.
During 1996, for services related to the acquisition of Transkrit (Note 1)
and the issuance of the Senior Notes (Note 3), the Company paid MDC $500,000, of
which $350,000 has been recorded as deferred financing costs. In addition, for
services related to the acquisition of ADMI in 1997 (Note 1) and the issuance of
the Senior Notes (Note 3), the Company paid MDC $652,000, of which $100,000 has
been recorded as deferred financing costs.
STOCKHOLDERS' AGREEMENT
Certain officers and former officers of the Company purchased and own as of
December 31, 1996 and 1997, an aggregate of 236,947 and 259,421, respectively,
shares of Class A common stock, representing 10% of the voting common stock of
the Company for 1996 and 1997. The stock was purchased at a price ranging from
$4.33 to $4.63 per share, the fair value at the date of such purchases. Such
stock was purchased through a cash payment and the acceptance of 6% nonrecourse
notes by MDC in 1996 and prior and by the Company in 1997 (Note 6).
All stockholders are subject to the terms of a stockholders' agreement. This
agreement restricts the stockholders' ability to sell, transfer, and assign the
common stock, with the Company having the first right of purchase. The holders
of the stock may be forced to sell the shares to the Company under certain
conditions. In addition, on expiration of a stockholder's employment with the
Company, the
F-85
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
7. RELATED-PARTY TRANSACTIONS (CONTINUED)
Company has the option to buy back the stockholder's common stock at a specified
price primarily based on either the cost of the shares or the book value of the
Company.
8. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
The Company has a defined benefit pension plan ("The Employees' Retirement
Plan of National Fiberstok Corporation") covering certain employees. On December
20, 1993, the Company amended the plan, freezing future participation to any new
employees of the Company effective December 31, 1993. Effective December 31,
1994, the Company again amended the plan, freezing future accrual of benefits
for all participants. In conjunction with this agreement, all participants of
the plan were retroactively vested.
The funded status of the plan as of December 31, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated projected benefit obligation........................................ $ (16,991,377) $ (18,292,100)
Plan assets at fair value....................................................... 17,320,422 19,510,900
-------------- --------------
Plan assets greater than projected benefit obligation............................. 329,045 1,218,800
Unrecognized net loss from past experience........................................ 784,056 209,300
-------------- --------------
Prepaid pension cost.............................................................. $ 1,113,101 $ 1,428,100
-------------- --------------
-------------- --------------
</TABLE>
The weighted average discount rates used to measure the accumulated
projected benefit obligation were 7.5% and 7.25 % for 1996 and 1997,
respectively. The expected long-term rates of return on assets were 8.75% and 9
% for 1996 and 1997, respectively.
Net periodic pension costs for 1995, 1996, and 1997 include the following:
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Service cost-benefits earned during the period....................... $ 0 $ 0 $ 0
Interest cost on projected benefit obligation........................ 1,230,610 1,266,209 1,242,200
Actual return on plan assets......................................... (1,772,831) (1,252,658) (1,556,899)
Net amortization on plan assets...................................... 361,915 (204,216) 0
------------- ------------- -------------
$ (180,306) $ (190,665) $ (314,699)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The Company has another defined benefit pension plan ("The Transkrit
Corporation Employees' Pension Plan") covering certain employees. Effective
April 30, 1997, the Company amended the plan, freezing future benefits for
participants at certain locations. In conjunction with this agreement, the
participants with frozen future benefits were retroactively vested. Normal
retirement age is 65, but a provision is made for early retirement. Benefits are
based on the employee's compensation level and years of service. The Company
makes annual contributions to the plan equal to the maximum amount that can be
deducted for income tax purposes.
F-86
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
The 1996 and 1997 projected benefit obligation was computed using the
projected unit credit method, assuming a discount rate on benefit obligations of
7.5% and 7.25% in 1996 and 1997, respectively. The expected long-term rate of
return on plan assets is 9% for 1996 and 1997 and, annual salary increases is 4%
over the remaining service lives of the employees in the plan for 1996 and 1997.
The funded status of the plan as of December 31, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated projected benefit obligation, including vested benefits of $2,144,000
and $2,679,000, respectively.................................................... $ (2,243,000) $ (2,817,000)
------------- -------------
------------- -------------
Projected benefit obligation........................................................ $ (3,924,000) $ (4,470,000)
Plan assets at fair value........................................................... 5,137,000 5,631,000
------------- -------------
Plan assets greater than projected benefit obligation............................... 1,213,000 1,161,000
Unrecognized net gain............................................................... (395,000) (508,000)
------------- -------------
Prepaid pension cost................................................................ $ 818,000 $ 653,000
------------- -------------
------------- -------------
</TABLE>
Net periodic pension costs for 1996 and 1997 include the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Service cost-benefits earned during the period.......................................... $ 230,000 $ 415,000
Interest cost on projected benefit obligation........................................... 143,000 287,000
Actual return on plan assets............................................................ (227,000) (444,000)
Recognition of curtailment gain......................................................... 0 (93,000)
Net amortization on plan assets......................................................... 52,000 0
----------- -----------
$ 198,000 $ 165,000
----------- -----------
----------- -----------
</TABLE>
DEFERRED COMPENSATION PLANS
The Company has unfunded deferred compensation plans that provide retirement
benefits to certain current and former employees. The plans provide retirement
benefits generally based on the service provided by the employees to the
Company. Benefits are vested as service is provided. The Company provides for
these plans during the related service lives of the participants at amounts
sufficient to accrue the present value of benefits earned to their retirement
dates. Effective December 31, 1994, the Company froze future benefit accruals
under certain of these deferred compensation agreements. Included in the
accompanying consolidated balance sheets are liabilities of $587,000 and
$592,000 for these plans as of December 31, 1996 and 1997, respectively.
DEFINED CONTRIBUTION PLANS
The Company sponsors several voluntary 401(k) savings plans covering all
eligible employees at certain locations. The plans include provisions which
allow employees to make pretax contributions ranging from 1% to 15% of the
employee's wages. Maximum pretax contributions are capped at 10%
F-87
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
or 15% of the employee's wages, depending on the location. The Company matches
between 15% and 60% of employee contributions up to 4% to 6% of the eligible
employee's wages, which varies by location. The Company recorded an expense of
approximately $283,000, $421,000, and $979,000 in 1995, 1996, and 1997,
respectively, as a result of contributions to the plan.
Effective January 1, 1998, the Company consolidated its various 401(k)
savings plans into a single plan. Substantially all of the benefits available to
participants of the plan have been standardized as of January 1, 1998, with the
exception of the Company's matching contribution, which varies by location.
POSTRETIREMENT BENEFITS
The Company provides certain health care and life insurance benefits for
certain retired individuals. The Company accounts for these benefits in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." The plan was frozen in 1993, and all eligible participants
in the plan are retired. The accrued postretirement benefit obligation at
December 31, 1996 and 1997 was $711,000 and $478,000, respectively.
Assumptions used in the computation of postretirement benefit expense and
the related obligation are as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Discount rate used to determine accumulated postretirement benefit obligation..................... 8% 7.75%
Initial health care cost trend rate............................................................... 13% 13%
Ultimate health care cost trend rate.............................................................. 5% 5%
Year ultimate health care cost trend rate reached................................................. 2009 2009
</TABLE>
If the health care trend rates increased 1% for all future years, the
accumulated postretirement benefit obligation as of December 31, 1997 would have
increased by 4%. The effect of such a change on the interest cost for 1997 would
have been an increase of approximately $17,000.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has certain noncancelable operating leases for office and plant
facilities and office equipment. The total rental expense was $351,000,
$826,000, and $1,669,000 in 1995, 1996, and 1997, respectively. Minimum annual
rental payments remaining under noncancelable operating leases as of December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................... $1,338,000
1999............................................................... 854,000
2000............................................................... 674,000
2001............................................................... 444,000
2002............................................................... 273,000
---------
$3,583,000
---------
---------
</TABLE>
F-88
<PAGE>
AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND JUNE 26, 1998 (UNAUDITED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
ENVIRONMENTAL LIABILITY
In January 1988 the Company was notified by the United States Environmental
Protection Agency ("EPA") that it was potentially liable for costs incurred by
the EPA in responding to the Dixie Caverns County Landfill in Roanoke County,
Virginia. Subsequently, Roanoke County filed suit against the twelve potentially
responsible parties ("PRP's"); which included the Company, to recover the funds
it has expended in cleaning the site at the date of the suit and for any
additional sums it would expend in the future. While under the Comprehensive
Environmental Response, Compensation and Liability Act, PRPs may be held jointly
and severally liable for the costs of cleanup. Management believes that the
Company's potential liability in connection with this site will not be material,
based upon the amount and nature of the waste alleged to be attributable to it,
the number of other financially viable PRP's and the total estimated clean up
costs.
LITIGATION
The Company is party to various litigation matters incidental to the conduct
of its business. The Company does not believe that the outcome of any of the
matters in which it is currently involved will have a material adverse effect on
the financial condition or results of operations of the Company.
10. SUBSEQUENT EVENTS
PURCHASE OF CARDINAL MARKETING, INC. AND CARDINAL MARKETING OF NEW JERSEY, INC.
On March 16, 1998, the Company acquired all of the issued and outstanding
capital stock of Cardinal Marketing, Inc. and Cardinal Marketing of New Jersey,
Inc. (collectively referred to as "Cardinal") for $4,000,000 plus transaction
costs, which was funded through borrowings on its revolving loan facility.
Additional consideration of $600,000 will be paid to the stockholders of
Cardinal for noncompete agreements, of which $200,000 was paid on March 16, 1998
and the remaining $400,000 will be paid in two equal annual installments
commencing March 16, 1999. Upon consummation of this acquisition, Cardinal was
merged into the Company.
SALE OF AMERICOMM HOLDINGS, INC. AND SUBSIDIARY
On May 12, 1998, McCown De Leeuw & Co. IV, L.P. ("MDC IV"), an affiliated
fund of the Company's majority shareholder, formed DIMAC Holdings Inc.,
("Holdings"). Holdings then formed a wholly owned subsidiary, DIMAC Corporation
("DIMAC"). In addition, DIMAC formed a wholly owned subsidiary, DMAC Merger
Corp. ("DMC"). On June 26, 1998, DMC acquired all of the issued and outstanding
capital stock of the Company for $203.8 million plus transaction costs,
including assumed indebtedness of $164.2 million. DMC then merged into the
Company.
F-89
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
AmeriComm Direct Marketing, Inc.
We have audited the accompanying balance sheets of AmeriComm Direct
Marketing, Inc. as of December 31, 1995 and 1996, and the related statements of
income, stockholders' equity and of cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of AmeriComm Direct Marketing, Inc. as of
December 31, 1995 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Louisville, Kentucky
February 21, 1997
F-90
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND MARCH 31, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31,
-------------------- 1997
1995 1996 (UNAUDITED)
--------- --------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 770 $ 3,836 $ 4,373
Debt security................................................................ 1,073
Receivables:
Trade (net of allowance for doubtful accounts of $211, $169 and $202,
respectively)............................................................ 3,520 4,266 3,594
Other...................................................................... 106 132 119
Postage permits, meters and deposits......................................... 642 383 690
Supply inventory............................................................. 445 340 251
Deferred tax assets.......................................................... 242 -- --
Other........................................................................ 107 125 148
--------- --------- -----------
Total current assets....................................................... 6,905 9,082 9,175
PROPERTY AND EQUIPMENT--net.................................................... 1,920 2,066 2,153
INVESTMENT IN EQUITY SECURITIES................................................ 707 1,072 1,048
OTHER ASSETS................................................................... 552 364 304
--------- --------- -----------
TOTAL.......................................................................... $ 10,084 $ 12,584 $ 12,680
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................. $ 1,340 $ 1,900 $ 1,572
Accrued expenses............................................................. 807 1,135 1,009
Customer postage advances.................................................... 702 499 690
Current maturities of:
Obligations under capital leases........................................... 45 26 19
Notes payable.............................................................. 134 133 133
--------- --------- -----------
Total current liabilities................................................ 3,028 3,693 3,423
--------- --------- -----------
LONG-TERM DEBT:
Obligations under capital leases............................................. 29 -- --
Notes payable................................................................ 268 138 105
--------- --------- -----------
Total long-term debt....................................................... 297 138 105
--------- --------- -----------
Total liabilities.......................................................... 3,325 3,831 3,528
--------- --------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par; 3 shares authorized.................................... 5 5 5
Retained earnings............................................................ 6,754 8,748 9,147
--------- --------- -----------
Total stockholders' equity................................................. 6,759 8,753 9,152
--------- --------- -----------
TOTAL........................................................................ $ 10,084 $ 12,584 $ 12,680
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-91
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES..................................................... $ 17,441 $ 21,013 $ 26,485 $ 5,714 $ 6,524
COST OF SALES................................................ 13,103 14,937 18,140 4,002 4,421
--------- --------- --------- --------- ---------
GROSS PROFIT................................................. 4,338 6,076 8,345 1,712 2,103
SELLING EXPENSES............................................. 1,620 2,129 2,439 515 606
GENERAL AND ADMINISTRATIVE EXPENSES.......................... 1,995 2,319 3,376 665 866
--------- --------- --------- --------- ---------
OPERATING INCOME............................................. 723 1,628 2,530 532 631
--------- --------- --------- --------- ---------
OTHER INCOME (EXPENSES):
Consulting and other fees.................................. 809 1,325 21 21 --
Interest expense........................................... (62) (50) (45) (14) (6)
Other...................................................... 66 (18) 140 20 (26)
--------- --------- --------- --------- ---------
Net other income (expense)............................... 813 1,257 116 27 (32)
--------- --------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES..................... 1,536 2,885 2,646 559 599
PROVISION FOR INCOME TAXES................................... 445 1,100 390 390 --
--------- --------- --------- --------- ---------
NET INCOME................................................... $ 1,091 $ 1,785 $ 2,256 $ 169 $ 599
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-92
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
NUMBER OF RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994............................................... 1 $ 5 $ 3,878 $ 3,883
Net income........................................................... -- 1,091 1,091
----- ----- ----------- ---------
BALANCE, DECEMBER 31, 1994............................................. 1 5 4,969 4,974
Net income........................................................... -- 1,785 1,785
----- ----- ----------- ---------
BALANCE, DECEMBER 31, 1995............................................. 1 5 6,754 6,759
Distributions to stockholder......................................... -- (262) (262)
Net income........................................................... -- 2,2562 2,256
----- ----- ----------- ---------
BALANCE, DECEMBER 31, 1996............................................. 1 $ 5 $ 8,748 $ 8,753
----- ----- ----------- ---------
----- ----- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-93
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1996 AND 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 1,091 $ 1,785 $ 2,256 $ 599 $ 169
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred taxes................................................. (194) (61) 390 -- 390
(Gain) loss on sales of property and equipment................. 10 (4) 5 50 --
Depreciation and amortization.................................. 729 605 754 172 159
Changes in assets and liabilities:
Receivables.................................................... (221) (459) (772) 685 (391)
Postage permits, meters and deposits........................... (109) (167) 259 (307) (87)
Supply inventory............................................... 2 (172) 105 89 22
Other current assets........................................... 17 32 (18) (23) (34)
Other assets................................................... 119 (359) 3
Accounts payable............................................... (82) 879 560 (328) 62
Accrued expenses............................................... (244) (181) 328 (126) (116)
Customer postage advances...................................... (22) 156 (203) 191 214
--------- --------- --------- --------- ---------
Net cash provided by operating activities.................... 1,096 2,054 3,667 1,002 388
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of debt security........................................ -- -- 1,073 -- 1,073
Proceeds from the sales of property and equipment................ 88 8 1 0 0
Purchases of equipment........................................... (552) (797) (869) (249) (425)
Purchases of investments......................................... (332) (1,423) (365) 24 (45)
--------- --------- --------- --------- ---------
Net cash used in investing activities............................ (796) (2,212) (160) (225) 603
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments:
Notes payable.................................................. (256) (100) (131) (33) (31)
Obligations under capital leases............................... (91) (94) (48) (7) (14)
Proceeds from issuance of notes payable.......................... 400 135 -- -- --
Distributions to stockholder..................................... -- -- (262) (200) --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities.............. 53 (59) (441) (240) (45)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. 353 (217) 3,066 537 946
CASH AND CASH EQUIVALENTS:
Beginning of period............................................ 634 987 770 3,836 770
--------- --------- --------- --------- ---------
End of period.................................................. $ 987 $ 770 $ 3,836 $ 4,373 $ 1,716
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL INFORMATION:
Cash paid for interest......................................... $ 100 $ 50 $ 45
--------- --------- ---------
--------- --------- ---------
Cash paid for income taxes..................................... $ 663 $ 1,277
--------- ---------
--------- ---------
Acquisition of property and equipment financed by capital lease
obligations.................................................. $ 121
---------
---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-94
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--AmeriComm Direct Marketing, Inc. (Company) provides direct
mail services, including database management and printing, to a widely dispersed
customer base concentrated primarily in the retail and advertising industries
and the not-for-profit sector. Credit sales are generally made on an
uncollateralized basis.
The Company conducts its operations primarily in Virginia, New Jersey,
Kentucky and Colorado. The Company began its New Jersey operations in 1995. In
connection therewith, the Company acquired certain assets for a purchase price
of approximately $430.
Prior to January 1, 1996, the Company's operations were conducted through
four wholly-owned subsidiary corporations. Effective January 1, 1996, the
Company elected to be treated as a Subchapter S Corporation for income tax
purposes. Concurrent with this election, the Company merged its wholly-owned
subsidiaries into the parent company and dissolved the related corporations. The
1994 and 1995 financial statements include the accounts of AmeriComm Direct
Marketing, Inc. and its wholly-owned subsidiaries, with all significant
intercompany transactions eliminated.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash in banks
and securities having original maturities when acquired of ninety days or less.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Beginning balance........................................ $ 59,246 $ 176,285 $ 211,571
Provisions............................................... 144,858 128,184 215,550
Recoveries............................................... (792) (2,400) (10,859)
Write-offs............................................... (27,027) (90,498) (246,893)
---------- ---------- ----------
Ending balance........................................... $ 176,285 $ 211,571 $ 169,369
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
INVESTMENTS--All equity securities are classified as available for sale and
are reported at fair value which approximates cost. The debt security is
classified as held-to-maturity and is reported at amortized cost.
SUPPLY INVENTORY--Supply inventory is stated at the lower of cost (first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is provided on the straight-line method over the estimated useful
lives of the respective assets, which range from three to seven years. Leasehold
improvements and equipment under capital leases are amortized over the life of
the leases or the estimated useful life of the improvements or lease, whichever
is shorter. Repairs and maintenance are charged to operations when incurred and
are approximately $510, $570, and $600 in 1994, 1995, and 1996, respectively.
RESIDENT ADDRESS LISTS--Resident address lists, which are included in other
assets, are stated at cost and are amortized using the straight-line method over
ten years.
F-95
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS--In 1996, the Company adopted Statement of Financial
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of," which establishes accounting standards for
the impairment of property and equipment and resident address lists, whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. There was no effect of the standard on the Company's
financial statements.
USE OF ESTIMATES--Financial statements prepared in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
RECLASSIFICATIONS--Certain reclassifications were made to the 1994 and 1995
financial statements to conform with the 1996 presentation, primarily to record
brokered sales revenues and operating expenses at gross amounts.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Building and leasehold improvements........................................ $ 351 $ 480
Equipment.................................................................. 4,888 5,349
Equipment under capital lease.............................................. 208 208
--------- ---------
Total...................................................................... 5,447 6,037
Less accumulated depreciation and amortization............................. 3,527 3,971
--------- ---------
Net........................................................................ $ 1,920 $ 2,066
--------- ---------
--------- ---------
</TABLE>
3. INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Debt security: U.S. Treasury Bill, due 1/12/96, 7.10%...................... $ 1,073
---------
---------
Equity securities:
Investment in Gibraltar Bank common stock................................ $ 384 $ 384
Investment with McCown De Leeuw & Co., III, L.P.......................... 323 688
--------- ---------
Total equity securities.................................................... $ 707 $ 1,072
--------- ---------
--------- ---------
</TABLE>
At December 31, 1996, the Company has a five year commitment to invest up to
$1,000 with McCown De Leeuw & Co., III, L.P. (Partnership). At December 31,
1996, the Company had invested $688 in the Partnership. The balance is due
within 60 days of request from the Partnership. The
F-96
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
Partnership's objective is to invest in equity securities of companies with the
potential for increased shareholder value.
4. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Resident address lists, net of accumulated amortization of $25 and $62, in
1995 and 1996, respectively................................................. $ 350 $ 313
Net deferred non-current tax assets........................................... 148 --
Rental property............................................................... 50 50
Other......................................................................... 4 1
--------- ---------
Total......................................................................... $ 552 $ 364
--------- ---------
--------- ---------
</TABLE>
5. DEBT
At December 31,1996, the Company had no borrowings outstanding under a
$1,000 line of credit that expires on May 3, 1997, which bears interest at a
rate of prime (8.25% at December 31, 1996). Amounts, if any, outstanding under
the line of credit are secured by accounts receivable.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Note payable to bank, interest at prime (8.25% at December 31, 1996) plus
1/2%........................................................................ $ 268 $ 168
Note payable to bank, interest at 8.4%........................................ 134 103
--------- ---------
Total......................................................................... 402 271
Less current maturities....................................................... 134 133
--------- ---------
Long-term maturities.......................................................... $ 268 $ 138
--------- ---------
--------- ---------
</TABLE>
The notes payable to bank are secured by certain property and equipment. The
Company is required to comply with covenants under the note agreements including
a restriction on the sale of the Company's assets other than in the normal
course of business. The Company was in compliance with its covenants at December
31, 1996.
F-97
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
5. DEBT (CONTINUED)
At December 31, 1996, maturities of long-term debt were as follows:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
1997.................................................................................. $ 133
1998.................................................................................. 103
1999.................................................................................. 35
---------
Total................................................................................. $ 271
---------
---------
</TABLE>
The carrying amount of debt approximates its fair value.
6. LEASES
The Company leases operating facilities, office space and equipment under
long-term noncancelable operating leases with various renewal terms and a
capital lease. Rent expense under operating leases was approximately $480, $580,
and $920 in 1994, 1995, and 1996, respectively.
Future minimum lease payments under the capital lease and noncancelable
operating leases consist of the following at December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
----------- -----------
<S> <C> <C>
1997......................................................................................... $ 27 $ 976
1998......................................................................................... -- 979
1999......................................................................................... -- 509
2000......................................................................................... -- 214
--- -----------
Total minimum lease payments................................................................. 27 $ 2,678
-----------
-----------
Less amounts representing interest and executory costs....................................... 1
---
Present value of net minimum lease payments.................................................. 26
Less current maturities...................................................................... 26
---
Long-term maturities......................................................................... $ --
---
---
</TABLE>
The Company is also the lessor of a building and land under a noncancelable
operating lease for a period of five and one half years. At the end of the lease
term, the lessee is required to purchase, and the Company is required to sell,
the leased property for $450 in cash. The Company may not encumber the property
during the term of the lease in an amount in excess of $450. The rental income
from such lease was $60 for 1994, 1995 and 1996. Remaining annual rentals are
$60 in 1997 and $20 in 1998.
F-98
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
7. INCOME TAXES
The provision for income taxes includes the following components:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Current............................................................. $ 639 $ 1,161
Deferred............................................................ (194) (61) $ 390
--------- --------- ---------
Provision for income taxes.......................................... $ 445 $ 1,100 $ 390
--------- --------- ---------
--------- --------- ---------
</TABLE>
Due to the election of Subchapter S Corporation status in 1996, deferred tax
assets of $390 were eliminated from the Company's balance sheet, resulting in an
income tax expense of $390.
The tax effects of the significant temporary differences, which comprise the
deferred tax assets and liabilities at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Deferred current tax assets:
Accrued vacation.................................................................... $ 86
Allowance for doubtful accounts..................................................... 99
Accrued health self-insurance....................................................... 44
Phantom stock agreements............................................................ 13
---------
Total deferred current tax assets..................................................... $ 242
---------
---------
Deferred non-current tax asset--
Rental property treated as an installment sale for tax purposes..................... $ 198
Deferred long-term tax liability--Depreciation........................................ (50)
---------
Net deferred non-current tax asset, included in other assets.......................... $ 148
---------
---------
</TABLE>
The Company's income tax expense for the years ended December 31, 1994 and
1995, differed from amounts computed by applying the U.S. Federal income tax
rate of 34% to the Company's income before income taxes as a result of the
following:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Statutory income tax expense................................................. $ 522 $ 981
Increase in (reduction of) income tax expense resulting from:
State and other tax expense................................................ 68 110
Other, net................................................................. (145) 9
--------- ---------
Reported income tax expense.................................................. $ 445 $ 1,100
--------- ---------
--------- ---------
</TABLE>
F-99
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (IN THOUSANDS)
8. BENEFIT PLAN
On January 6, 1995, the Company established a defined contribution savings
plan under the provisions of Section 401(k) of the Internal Revenue Code that
provides benefits to substantially all employees. The Company's contribution,
which is based upon management discretion, was approximately $95 and $150 in
1995 and 1996, respectively.
Prior to January 6, 1995, the Company sponsored a defined contribution plan
that covered substantially all employees. The Company's annual contribution to
the Plan, in an amount up to 25% of the Company's income before income taxes,
was determined by its Board of Directors. Profit sharing contribution expense
recorded in 1994 was approximately $60.
9. PHANTOM STOCK AGREEMENTS
The Company has entered into Phantom Stock Agreements (Agreements) with
certain executives of the Company. The Agreements allow the executives to earn
additional amounts based on the performance of the Company. Compensation under
the Agreements is based on the difference between the executives' interest in
the value of the Company, as defined in the Agreements, and the executives'
basis in their interests. Amounts are deferred until termination of the
executive or sale of the Company. Compensation expense recorded under these
Agreements was approximately $20, $10, and $120 in 1994, 1995, and 1996,
respectively.
10. SELF-INSURANCE HEALTH CARE PLAN
The Company maintains a self-insurance program for that portion of
employees' health care costs not covered by the Company's stop loss insurance
policy, which sets the maximum cash outlays for annual claims for each employee
or employee's dependents at $30 and for aggregate annual claims up to $450 at
December 31, 1996. Health care costs recorded in 1994, 1995, and 1996 were
approximately $295, $215, and $400, respectively.
11. SALE OF COMPANY
On February 20, 1997, the Company and National Fiberstok Corporation (now
known as AmeriComm Direct Marketing, Inc.) entered into a Stock Purchase
Agreement (Agreement) whereby National Fiberstok Corporation will acquire all of
the outstanding common stock of the Company for cash. The Agreement stipulates
that prior to closing, the Company's cash balances, as determined under the
Agreement, investment in equity securities and certain other assets of the
Company will be distributed by, or assigned by, the Company to the stockholders
of the Company. The Agreement also stipulates that on or prior to the closing,
the Company will satisfy certain liabilities of the Company. The Agreement can
be terminated any time prior to the closing by written mutual consent of
National Fiberstok Corporation and the Company.
F-100
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TRANSKRIT Corporation:
We have audited the accompanying consolidated balance sheets of TRANSKRIT
Corporation and subsidiaries as of December 31, 1994 and 1995, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1995.
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 audits to obtain
reasonable assurance about whether the consolidated 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 TRANSKRIT
Corporation and subsidiaries as of December 31, 1994 and 1995, and the results
of their operations and their cash flows for each of the years in the two-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Roanoke, Virginia
May 24, 1996
F-101
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 759 $ 280
Accounts receivable, less allowance of $704 in 1994 and $495 in 1995..................... 11,432 11,923
Inventories.............................................................................. 5,089 4,118
Prepaid expenses and other current assets................................................ 1,560 1,407
Deferred income taxes.................................................................... 662 1,649
Notes and other receivables from affiliates, net......................................... -- 5,528
Investment securities.................................................................... -- 2,508
--------- ---------
Total current assets................................................................... 19,502 27,413
Investment securities.................................................................... 2,299 --
Property, plant and equipment, net....................................................... 25,822 23,735
Goodwill and other intangible assets, net................................................ 9,026 8,436
Notes receivable from affiliates......................................................... 7,711 --
Deferred income taxes.................................................................... 7,994 7,117
Other assets............................................................................. 348 341
--------- ---------
Total assets........................................................................... $ 72,702 $ 67,042
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-102
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................................................ $ 45 $ 2
Bank overdraft........................................................................... 1,494 1,455
Accounts payable......................................................................... 3,216 2,218
Accrued relocation expenses.............................................................. 754 --
Other accrued expenses................................................................... 4,493 4,120
Income taxes payable to parent........................................................... 1,096 --
Income taxes payable..................................................................... 283 133
Deferred gain from sale of real estate................................................... -- 358
--------- ---------
Total current liabilities.............................................................. 11,381 8,286
--------- ---------
Long-term debt, excluding current portion.................................................. 7,944 2,036
Deferred gain from sale of real estate..................................................... 2,426 --
Compensation liability..................................................................... 1,573 3,735
Other liabilities.......................................................................... 205 256
--------- ---------
Total liabilities...................................................................... 23,529 14,313
--------- ---------
Shareholders' equity:
Common stock, $1 par value:
Authorized shares, 10,000; issued and outstanding shares, 8,709 in 1994 and 8,897 in
1995................................................................................. 9 9
Class B common stock, $1 par value:
Authorized shares, 10,000; issued and outstanding shares, none......................... -- --
Additional paid-in capital............................................................... 11,622 12,122
Notes receivable from shareholder........................................................ (500) (1,000)
Retained earnings........................................................................ 38,042 41,598
--------- ---------
Total shareholders' equity............................................................. 49,173 52,729
Commitments and contingencies
--------- ---------
Total liabilities and shareholders' equity............................................. $ 72,702 $ 67,042
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial staements.
F-103
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
-------------------- ----------------------------
1994 1995 JUNE 30, 1995 JUNE 28, 1996
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Net sales..................................................... $ 98,124 $ 97,681 $ 46,966 $ 48,004
Cost of products sold......................................... 64,851 64,223 31,646 30,685
--------- --------- ------------- -------------
Gross profit.................................................. 33,273 33,458 15,320 17,319
Operating expenses:
Selling, general and administrative expenses................ 30,700 29,412 14,888 14,381
Relocation expenses......................................... 413 657 542 --
--------- --------- ------------- -------------
Operating income (loss)....................................... 2,160 3,389 (110) 2,938
Other income (expense):
Interest expense to parent, net............................. (820) -- -- --
Other interest expense...................................... (102) (399) (265) (25)
Interest income............................................. 209 1,096 543 466
Gain on disposal of product lines........................... 2,829 389 395 --
Gain on disposal of property, plant and equipment........... 23 169 424 306
Other, net.................................................. 207 313 144 --
--------- --------- ------------- -------------
Other income (expense), net................................... 2,346 1,568 1,241 747
--------- --------- ------------- -------------
Income before income taxes.................................... 4,506 4,957 1,131 3,685
Income taxes.................................................. 1,799 1,380 445 1,062
--------- --------- ------------- -------------
Net income.................................................... $ 2,707 $ 3,577 $ 686 $ 2,623
--------- --------- ------------- -------------
--------- --------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-104
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
ADDITIONAL RECEIVABLE
COMMON PAID-IN FROM RETAINED
STOCK CAPITAL SHAREHOLDER EARNINGS TOTAL
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993........................... $ 8 $ 2,580 $ -- $ 35,512 $ 38,100
Net income.............................................. -- -- -- 2,707 2,707
Dividends paid ($20.90 per share)....................... -- -- -- (177) (177)
Capital contributions................................... -- 8,543 -- -- 8,543
Issuance of common stock (239 shares)................... 1 499 (500) -- --
----------- ----------- ----------- --------- ---------
Balances at December 31, 1994........................... 9 11,622 (500) 38,042 49,173
Net income.............................................. -- -- -- 3,577 3,577
Issuance of common stock (188 shares)................... -- 500 (500) -- --
Other deductions........................................ -- -- -- (21) (21)
----------- ----------- ----------- --------- ---------
Balances at December 31, 1995........................... $ 9 $ 12,122 $ (1,000) $ 41,598 $ 52,729
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-105
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, SIX MONTHS ENDED
-------------------- ----------------------
<S> <C> <C> <C> <C>
JUNE 30, JUNE 28,
1994 1995 1995 1996
--------- --------- --------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................ $ 2,707 $ 3,577 $ 686 $ 2,623
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of property, plant and equipment...... 6,163 5,434 2,632 2,487
Amortization of goodwill and other intangible assets................ 613 590 295 285
Loss on disposal of product line fixed assets....................... 131 -- -- --
Gain on disposal of property, plant and equipment................... (23) (169) (424) (282)
Deferred income taxes............................................... (8,041) (110) (142) 2,002
Accrued interest receivable on investment securities................ (191) (209) (105) (112)
(Increase) decrease in:
Accounts receivable, net.......................................... (1) (491) 1,092 1,407
Inventories....................................................... 705 971 (389) (572)
Prepaid expenses and other assets................................. (686) 160 325 501
Other receivables from affiliates, net............................ -- (425) 19 425
Increase (decrease) in:
Accounts payable and accrued expenses............................. (1,022) (2,125) (1,705) 1,249
Income taxes payable.............................................. 1,007 (1,246) (153) (1,549)
Due to parent..................................................... (422) -- -- --
Compensation liability............................................ 1,072 2,162 557 (2,735)
Other liabilities................................................. 205 51 -- (13)
--------- --------- --------- -----------
Net cash provided by operating activities............................... 2,217 8,170 2,688 5,716
--------- --------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................ (7,187) (4,172) (2,907) (1,792)
Proceeds from disposal of property, plant and equipment............... 338 327 260 7
Proceeds from disposal of product line fixed assets................... 369 -- -- --
Collections of notes receivable from affiliates....................... -- 1,207 1,207 5,103
--------- --------- --------- -----------
Net cash provided by (used in) investing activities..................... (6,480) (2,638) (1,440) 3,318
--------- --------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdraft, net............................ (607) (39) (171) 426
Capital contribution.................................................. 8,543 -- -- --
Proceeds from long-term debt.......................................... 17,486 18,188 9,404 5,236
Principal payments on long-term debt.................................. (10,242) (24,139) (10,841) (7,274)
Principal payments on long-term advances from parent.................. (10,973) -- -- --
Other deductions...................................................... -- (21) (21) (10)
Dividends paid........................................................ (177) -- -- --
--------- --------- --------- -----------
Net cash provided by (used in) financing activities..................... 4,030 (6,011) (1,629) (1,622)
--------- --------- --------- -----------
Net increase (decrease) in cash and cash equivalents.................... (233) (479) (381) 7,412
Cash and cash equivalents at beginning of the period.................... 992 759 759 280
--------- --------- --------- -----------
Cash and cash equivalents at end of the period.......................... $ 759 $ 280 $ 378 $ 7,692
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-106
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(1) OWNERSHIP AND CORPORATE REORGANIZATION
TRANSKRIT Corporation (the "Company") is headquartered in Roanoke, Virginia
and is a national manufacturer of business forms, labels and other printed
products for the trade. The Company has been operating in the United States
since 1938. Effective December 22, 1994, upon the acquisition of Maclean Hunter,
Ltd. (MHL), a Canadian corporation, by Rogers Communications, Inc. (Rogers), a
Canadian corporation, the Company became an 89.2 percent owned subsidiary of
Rogers. Prior to December 22, 1994, the Company was an 89.2 percent owned
subsidiary of Maclean Hunter, Inc. (MHI), a wholly-owned subsidiary of MHL. As
of December 31, 1995, Rogers owns 87.3 percent of the Company's outstanding
common shares. The Company's financial statements have been presented on a
historical cost basis and do not reflect a basis adjustment for the purchase
method of accounting. The parent company did not incur any expenses on behalf of
the Company. Accordingly, the consolidated statements of income of the Company
reflect all of its costs of doing business.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION
The Company's results have been consolidated with its subsidiaries, Label
Art, Inc. (Label Art), InfoSeal-Registered Trademark- International, Inc.,
Putnam Graphic Innovations, Inc., and Government Forms and Systems, Inc. All
significant related intercompany balances and transactions have been eliminated
in consolidation.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with a maturity at date of purchase
of three months or less to be cash equivalents.
The Company does not believe it is exposed to any significant credit risk on
money market funds with commercial banks because its policy is to make such
deposits only with highly rated institutions.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out method.
INVESTMENT SECURITIES
Investment securities at December 31, 1994 and 1995 consist of zero-coupon
municipal debt securities which are classified as held-to-maturity. Management
determines the appropriate classification of debt securities at the time of
purchase. Debt securities are classified as held-to-maturity when the Company
has the positive intent and the ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost. Interest income on securities
classified as held-to-maturity is recognized when earned.
F-107
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation of property, plant and equipment is
calculated using both straight-line and accelerated methods over the estimated
useful lives of the assets. Estimated useful lives are 25 to 33 years for
buildings, 8 years for building improvements, 3 to 8 years for machinery and
equipment and 5 to 7 years for furniture and fixtures. Leasehold improvements
are amortized over the shorter of the lease term or estimated life of the asset.
Maintenance, repairs and minor replacements are charged to expense as incurred;
major renewals and betterments are capitalized. The cost and related accumulated
depreciation or amortization on property, plant and equipment are eliminated
from the accounts upon disposal, and any resulting gain or loss is included in
the determination of net income.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, which represents the excess of purchase price over fair value of
assets acquired, is amortized on a straight-line basis over 15 to 40 years and
relates to the acquisitions of subsidiaries. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
Other intangible assets include various noncompete agreements which are
amortized over the lives of the agreements (5 to 10 years) using the
straight-line method.
REVENUE RECOGNITION
Sales and cost of products sold are recognized primarily upon shipment of
products.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. For the years ended
December 31, 1994 and 1995, research and development costs charged to expense
were approximately $50,000 and $30,000, respectively.
INCOME TAXES
The Company computes its provision for income taxes on a stand-alone basis.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
F-108
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
ADVERTISING COSTS
Advertising costs consist of various marketing expenses, including
advertisements, and are expensed as incurred.
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. Actual results could differ from these estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements to place them on a comparable basis.
UNAUDITED INTERIM INFORMATION
The financial information with respect to the six months ended June 30, 1995
and June 28, 1996 is unaudited. In the opinion of management, such information
contains all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of such periods.
The results of operations for the six months ended June 28, 1996 are not
necessarily indicative of the results to be expected for the full year.
(3) ALLOWANCE FOR ACCOUNTS RECEIVABLE
A summary of the changes in the allowance for accounts receivable follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Balances, beginning of period................................................ $ 782 $ 704
Provisions................................................................... 134 (3)
Recoveries................................................................... 6 6
Write-offs................................................................... (218) (212)
--------- ---------
Balances, end of Period...................................................... $ 704 $ 495
--------- ---------
--------- ---------
</TABLE>
F-109
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(4) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies................................................. $ 2,341 $ 1,880
Work in process............................................................ 560 843
Finished products.......................................................... 2,188 1,395
--------- ---------
$ 5,089 $ 4,118
--------- ---------
--------- ---------
</TABLE>
If the first-in, first-out method of inventory accounting had been used,
inventories would have been approximately $1,692,000 and $3,094,000 higher than
reported at December 31, 1994 and 1995, respectively. During the years ended
December 31, 1994 and 1995, the Company liquidated a portion of its LIFO
inventory resulting in a liquidation loss of approximately $15,000, net of
income tax effect, in 1994 and a liquidation gain of approximately $245,000, net
of income tax effect, in 1995.
(5) INVESTMENT SECURITIES
The following is a summary of held-to-maturity securities (in thousands):
<TABLE>
<CAPTION>
GROSS ESTIMATED
UNREALIZED FAIR
COST GAINS VALUE
--------- ------------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1994
Debt securities................................................................. $ 2,299 $ 111 $ 2,410
--------- ----- -----------
--------- ----- -----------
DECEMBER 31, 1995
Debt securities................................................................. $ 2,508 $ 69 $ 2,577
--------- ----- -----------
--------- ----- -----------
</TABLE>
The above securities mature in July 1996.
F-110
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Land........................................................................................ $ 1,285 $ 1,285
Buildings and improvements.................................................................. 12,411 12,479
Machinery and equipment..................................................................... 45,479 41,564
Furniture and fixtures...................................................................... 2,506 2,395
Leasehold improvements...................................................................... 2,326 2,629
Construction in progress.................................................................... 1,492 1,946
--------- ---------
65,499 62,298
Less accumulated depreciation and amortization.............................................. 39,677 38,563
--------- ---------
Property, plant and equipment, net.......................................................... $ 25,822 $ 23,735
--------- ---------
--------- ---------
</TABLE>
(7) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets, net of accumulated amortization,
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Goodwill.................................................................................... $ 9,783 $ 9,783
Noncompete agreements....................................................................... 1,161 1,161
--------- ---------
10,944 10,944
Less accumulated amortization............................................................... 1,918 2,508
--------- ---------
Goodwill and other intangible assets, net................................................... $ 9,026 $ 8,436
--------- ---------
--------- ---------
</TABLE>
F-111
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(8) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Note payable to financial institution.......................................................... $ 7,943 $ 2,036
Other.......................................................................................... 46 2
--------- ---------
7,989 2,038
Less current portion........................................................................... 45 2
--------- ---------
Long-term debt, excluding current portion...................................................... $ 7,944 $ 2,036
--------- ---------
--------- ---------
</TABLE>
The note payable to financial institution represents an unsecured revolving
credit arrangement with First Union National Bank of Virginia (the "Bank") in
the original amount of $17,500,000 that reduced to $16,250,000 on December 31,
1995, reduces further to $15,000,000 on December 31, 1996, and has a maturity
date of January 31, 1997. Interest is based upon the 30-day London Interbank
Offered Rate (LIBOR) plus .95 percent (6.92 percent at December 31, 1995) due
and payable every 30 days in arrears. The Company is required to provide the
Bank with certain financial information on a quarterly basis and has agreed to
certain financial covenants which are also reported to the Bank quarterly. At
December 31, 1995, the Company was in violation of a debt covenant. The Bank has
waived this specific event of default through January 31, 1997, the maturity
date of the note payable.
Interest paid for the years ended December 31, 1994 and 1995 was $920,000
and $424,000, respectively.
(9) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The adoption of
this statement did not have a significant effect on the Company's consolidated
financial statements.
F-112
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(9) INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal................................................................. $ 8,125 $ 1,408
State................................................................... 1,715 82
--------- ---------
9,840 1,490
--------- ---------
Deferred:
Federal................................................................. (6,614) (134)
State................................................................... (1,427) 24
--------- ---------
(8,041) (110)
--------- ---------
Total income taxes........................................................ $ 1,799 $ 1,380
--------- ---------
--------- ---------
</TABLE>
The Company's income tax expense for the years ended December 31, 1994 and
1995, differed from amounts computed by applying the U.S. Federal income tax
rate of 34 percent to the Company's income before income taxes as a result of
the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Computed expected income tax expense...................................... $ 1,532 $ 1,685
Increase in (reduction of) income tax expense resulting from:
Decrease in beginning-of-the-year balance of the valuation allowance for
deferred tax assets................................................... (1,174) --
Expiration of state investment tax credit carryforwards................. 1,174 --
State tax expense, net of federal impact................................ 232 242
Adjustment of current tax liability..................................... (64) (520)
Tax-exempt interest income.............................................. (65) (71)
Goodwill amortization................................................... 43 43
Nondeductible meals and entertainment................................... 52 44
Other, net.............................................................. 69 (43)
--------- ---------
Reported income tax expense............................................... $ 1,799 $ 1,380
--------- ---------
--------- ---------
</TABLE>
F-113
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(9) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Tax basis of InfoSeal-Registered Trademark- intangible assets in excess
of book basis.......................................................... $ 6,617 $ 6,073
Deferred gain from sale of real estate................................... 949 143
Tax basis of receivables from affiliate in excess of book basis.......... -- 541
Equity share plan accruals and other compensation plans.................. 694 1,604
Relocation accrual....................................................... 291 --
Accounts receivable allowance............................................ 160 124
Inventories, due to additional costs inventoried for tax purposes........ 71 67
Vacation accrual......................................................... 114 160
Pension and welfare plans................................................ 11 34
Other.................................................................... 138 138
--------- ---------
Total gross deferred tax assets............................................ 9,045 8,884
Less valuation allowance................................................... -- --
--------- ---------
Net deferred tax assets.................................................... 9,045 8,884
--------- ---------
Deferred tax liabilities:
Depreciation............................................................. $ (270) $ (109)
Pension and welfare plans................................................ (118) (9)
Other.................................................................... (1) --
--------- ---------
Total gross deferred tax liabilities....................................... (389) (118)
--------- ---------
Net deferred tax asset, including current net asset of $622 in 1994 and
$1,649 in 1995........................................................... $ 8,656 $ 8,766
--------- ---------
--------- ---------
</TABLE>
Based on the Company's historical and current pretax earnings, management
believes that it is more likely than not that the recorded deferred tax assets
will be realized.
Income taxes paid, net of refunds received, for the years ended December 31,
1994 and 1995 were $8,833,000 and $2,736,000, respectively.
(10) PENSION AND OTHER EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN
The Company maintains a noncontributory defined benefit pension plan
covering all eligible employees. Normal retirement age is 65, but a provision is
made for early retirement. Benefits are based on the employee's compensation and
years of service. The Company makes annual contributions
F-114
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(10) PENSION AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
to the plan equal to the maximum amount that can be deducted for income tax
purposes. Plan assets consist principally of equity and debt securities.
The 1994 and 1995 projected benefit obligation was computed using the
"projected unit credit method," assuming a discount rate on benefit obligations
of 8 and 7.25 percent, respectively, an expected long-term rate of return on
plan assets of 9 percent and annual salary increases of 5 and 4 percent,
respectively, over the average remaining service lives of employees in the
plans.
The following sets forth the funded status of the plan and amounts
recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of $2,832 and $2,011,
respectively............................................................................. $ 2,895 $ 2,147
--------- ---------
--------- ---------
Projected benefit obligations................................................................ (4,993) (3,854)
Plan assets at fair value.................................................................... 5,802 5,107
--------- ---------
Projected benefit obligation less than plan assets........................................... 809 1,253
Unrecognized net gain........................................................................ (253) (945)
Unrecognized prior service cost.............................................................. 113 105
Unrecognized net asset at January 1, 1986 being amortized over 15 years...................... (558) (465)
--------- ---------
(Accrued) prepaid pension costs included in other noncurrent (liabilities) assets............ $ 111 $ (52)
--------- ---------
--------- ---------
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1994 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Service cost............................................................. $ 494 $ 406
Interest cost on projected benefit obligation............................ 350 334
Return on assets......................................................... 386 (1,435)
Net amortization and deferral............................................ (1,145) 858
--------- ---------
Net pension cost......................................................... $ 85 $ 163
--------- ---------
--------- ---------
</TABLE>
DEFINED CONTRIBUTION PLAN
The Company has a salary reduction plan covering all eligible employees
under Section 401(k) of the Internal Revenue Code. The Plan includes a provision
which allows employees to make pretax
F-115
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(10) PENSION AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
contributions. The Company matches between 15 to 45 percent of employee
contributions up to 4 to 6 percent of the employee's salary. The Company
recognized contribution expense of $303,000 and $260,000 for the years ended
December 31, 1994 and 1995, respectively.
HEALTH AND WELFARE
The Company's independently administered self-insurance program provides
health insurance coverage for employees and their dependents on a
cost-reimbursement basis. Under the program, the Company is obligated for claims
payments. A stop loss insurance contract executed with an insurance carrier
covers claims in excess of $100,000 per covered individual per year. During the
years ended December 31, 1994 and 1995, total claims expense of $3,348,000 and
$2,658,000, respectively, was incurred, which represents claims processed,
premium expenses, administration fees and an estimate for claims incurred but
not reported.
The Company is also self-insured for workers' compensation. Workers'
compensation expense was $687,000 and $556,000 for the years ended December 31,
1994 and 1995, respectively.
(11) COMPENSATION PLANS
EQUITY SHARE PLAN
The Company's Label Art subsidiary has an Equity Share Plan which awards
shares simulating equity ownership to key employees. These equity shares do not
represent common stock or any rights associated with stock ownership of Label
Art. The units vest immediately to the employees and the value of a share is
determined annually based on Label Art's operating performance or net worth, as
defined in the plan. At December 31, 1994 and 1995, there were 345,944 shares
outstanding. Provisions of approximately $1,271,000 and $2,138,000 were charged
against income related to this plan for the years ended December 31, 1994 and
1995, respectively. As of December 31, 1994 and 1995, the compensation liability
included $1,358,000 and $3,224,000, respectively, related to this plan.
CLASS B COMMON STOCK INCENTIVE PLAN
The Company has a long-term incentive plan which provides for a cash payment
at retirement, death or disability based on the difference between (a) the entry
level price per Class B common share adjusted for cumulative earnings per share
and (b) the price per share paid to Class B shareholders in connection with a
1980 redemption of Class B common shares compounded at 6 percent per annum.
Provision of $5,000 was charged against income related to this plan for the year
ended December 31, 1995. For the year ended December 31, 1994, there were no
charges to income for this plan. As of December 31, 1994 and 1995, the
compensation liability included $215,000 and $220,000, respectively, related to
this plan.
F-116
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(11) COMPENSATION PLANS (CONTINUED)
STOCK CREDITS
At December 31, 1995, there were 220.5 stock credits outstanding to the
Company's President. This executive is entitled to receive additional stock
credits, if employed by the Company, on March 1, 1997. These stock credits do
not represent common stock or any rights associated with stock ownership of the
Company. The calculation of stock credits is determined by dividing 500,000 by
the product of the preceding fiscal year's earnings per share, as adjusted,
multiplied by 13.
Upon death, disability or other termination of employment, other than for
cause, the Company shall redeem the stock credits and pay the executive or his
heirs additional compensation equal to the appreciation in the value of the
stock credits, if any. This is calculated by the product of the executive's
outstanding stock credits and the most recent fiscal year's earnings per share,
as adjusted, multiplied by 13 less the cumulative value of the stock credits at
the time they were awarded to the executive.
In addition, the executive shall be entitled to receive additional
compensation in lieu of dividends that would have been paid to the executive had
he owned a number of common shares equal to the number of stock credits credited
to his account.
The interest of the executive in and the right to redeem stock credits
cannot be assigned or pledged by the executive. Provisions of $5,000 and
$319,000 were charged against income related to the appreciation of the value of
the stock credits and additional compensation in lieu of dividends for the years
ended December 31, 1994 and 1995, respectively. As of December 31, 1995, the
compensation liability included $291,000 related to stock credits.
STOCK PURCHASE AGREEMENT
Under the Stock Purchase Agreement described in note 21, the Company is
required to satisfy all liabilities related to the above compensation
arrangements prior to the closing date of the transaction described in note 21.
(12) LEASES
The Company rents facilities and equipment under noncancelable operating
lease agreements. Total rental expense for all operating leases was $666,000 and
$1,399,000 for the years ended December 31, 1994 and 1995, respectively.
F-117
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(12) LEASES (CONTINUED)
Future minimum lease payments under all noncancelable operating leases at
December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1996................................................................................. $ 577
1997................................................................................. 523
1998................................................................................. 311
1999................................................................................. 122
2000................................................................................. 59
---------
$ 1,592
---------
---------
</TABLE>
(13) CORPORATE RELOCATION EXPENSES
On May 27, 1993, the Board of Directors decided to relocate corporate
facilities from Brewster, New York to Roanoke, Virginia. As a result, the
Company has taken a charge to operations of approximately $413,000 and $657,000
for the years ended December 31, 1994 and 1995, respectively. The relocation
charge for the six months ended June 30, 1995 was approximately $542,000. The
initial phase of this relocation occurred on February 18, 1994 and was
substantially completed by the end of the first quarter, 1995. This process
contributed to the voluntary severance of approximately 163 employees. Included
in relocation charges to operations are $413,000 and $514,000 in 1994 and 1995,
respectively, which relates to severance for employees who elected not to
relocate to Roanoke, Virginia. The remaining relocation charges relate to moving
and other expenses incurred by the Company and its employees to relocate from
Brewster, New York.
(14) RELATED PARTY TRANSACTIONS
In accordance with the terms of certain agreements with MHI and MHL, which
expired on December 22, 1994, the Company charged interest on advances made to
MHI, paid interest on advances from MHI and reimbursed MHL for management
advisory services rendered to the Company. Net interest expense paid to MHI was
$820,000 in 1994. The rate of interest charged on advances to MHI was based on
independent quotes of 30-day commercial paper. The Company paid MHI the current
prime rate less 1 percent for advances to the Company for 1994. There were no
amounts due to/from MHI as of December 31, 1994.
The Company paid $564,000 to MHL for the cost of management services in
1994. The 1994 expense includes $286,000 related to a one-time charge related to
the acquisitions of MHL by Rogers.
Pursuant to the terms of certain agreements with Rogers, the Company was
charged an amount for management advisory services by Rogers on a monthly basis
through December 31, 1995 based on the greater of $25,000 or a percentage of net
sales, as defined. During 1995, the Company incurred $300,000 for the cost of
management services, of which $25,000 payable to Rogers has been netted against
other receivables from affiliates at December 31, 1995. The cost of management
services was
F-118
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(14) RELATED PARTY TRANSACTIONS (CONTINUED)
$150,000 and $448,000 for the six months ended June 30, 1995 and June 28, 1996,
respectively. There were no amounts directly due to/from Rogers as of December
31, 1994.
On December 22, 1994, the Company sold certain real property located in
Brewster, New York and Miami, Florida to affiliated real estate subsidiaries
(Rogers Realty Corporation of New York and Rogers Realty Corporation of Florida)
which are indirectly owned by Rogers. As a result of these transactions, the
Company recorded notes receivable of $7.7 million and deferred gains of $2.4
million which are not reflected on the 1994 consolidated statement of cash
flows. These properties were leased by the Company on a month-to-month basis
pursuant to sale and leaseback arrangements with these affiliates of Rogers. For
the six months ended June 30, 1995 and the year ended December 31, 1995, total
rent expense incurred on these related party leases totaled $399,000 and
$765,000, respectively. Effective December 31, 1995, these lease arrangements
were terminated.
On March 31, 1995, Rogers Realty Corporation of Florida sold its real
property in Miami, Florida to an unrelated party. Consequently, the Company was
paid in full for its outstanding note receivable of $1.2 million and all accrued
interest thereon. As a result, the deferred gain on the sale of $667,000,
recorded in 1994 when such real property was sold to Rogers Realty Corporation
of Florida, has been recognized as income for the six months ended June 30, 1995
and the year ended December 31, 1995. Total interest income recorded on these
related party notes receivable totaled $765,000, $399,000 and $244,000 for the
year ended December 31, 1995 and the six months ended June 30, 1995 and June 28,
1996, respectively.
During 1995, Rogers Realty Corporation of New York entered into a sales
agreement with an unrelated party to purchase the Brewster, New York real
property. In order to refurbish the facility to improve its marketability, the
Company advanced $504,000 to Rogers Realty Corporation of New York during 1995
to pay for building improvements and environmental remediation costs and has
recorded these advances as a receivable from the affiliate as of December 31,
1995. Based on the estimated net proceeds of approximately $5.6 million expected
from the pending sale of the Brewster facility, the Company has determined that
a portion of the aggregate receivable from this affiliate will not be collected.
Accordingly, the deferred gain determined as of December 22, 1994 and the
aggregate receivable have been reduced by approximately $1.4 million as of
December 31, 1995. This has not been reflected on the consolidated statements of
cash flows.
Effective December 22, 1994, the Company formed a new operating subsidiary,
InfoSeal-Registered Trademark- International, Inc.
(InfoSeal-Registered Trademark-), that is 99 percent owned by the Company. The
Company transferred principally all of the tangible and intangible assets of its
InfoSeal-Registered Trademark- business to InfoSeal-Registered Trademark-. The
transfer of assets to InfoSeal-Registered Trademark- and sale of real property
to affiliated entities described above resulted in a taxable event under the
Internal Revenue Code.
As of December 31, 1994 and 1995, prepaid expenses and other current assets
includes $62,000 and $47,000, respectively, due from officers and employees, and
other noncurrent assets includes notes and accrued interest receivable from
officers in the amount of $107,000 and $235,000, respectively, of
F-119
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(14) RELATED PARTY TRANSACTIONS (CONTINUED)
which $15,000 and $77,000, respectively, represents accrued interest receivable
on notes receivable from shareholder (see note 15).
(15) SHAREHOLDERS' EQUITY
On July 11, 1994, the Company sold 239 common shares to the Company's
President and accepted a $500,000 note receivable in return. On March 1, 1995,
the Company sold 188 shares to the same Company executive and accepted a
$500,000 note receivable. These notes receivable are due and payable upon death,
disability or termination of employment, bear interest compounded semiannually
on June 30 and December 31 at an annual rate equal to the greater of 6 percent
or the applicable federal rate on each semiannual date per the Internal Revenue
Code and are recorded as a reduction of shareholders' equity. These transactions
are not reflected on the accompanying consolidated statements of cash flows.
Included in interest income for the years ended December 31, 1994 and 1995 was
$15,000 and $62,000, respectively, related to these notes.
The Company's President, if employed by the Company, has the option of
purchasing additional common shares for $500,000 during the three-year period
commencing March 1, 1998. The amount of shares that can be purchased during the
three-year period will be calculated based on a defined formula. This option
will terminate upon the closing of the transaction described in note 21.
The Company has a Stock Redemption Agreement with its two minority
shareholders who own a total of 12.7 percent of the Company's outstanding common
stock. Under this agreement, the redemption price per share is calculated by the
average consolidated earnings per share of the two preceding fiscal years, as
adjusted, prior to the date of redemption multiplied by 13. Upon death,
disability or termination, the minority shareholders must sell to the Company,
and the Company must purchase, any and all option shares outstanding. The Stock
Redemption Agreement will terminate upon the closing of the transaction
described in note 21.
(16) DISPOSAL OF PRODUCT LINES
On December 2, 1994, the Company sold certain assets of its Flat Division
product line to The Reynolds and Reynolds Company ("Reynolds") resulting in a
net gain of $2,829,000 in 1994. In 1995, the Company recognized additional costs
of $16,000 relating to the disposal of its Flat Division. The asset purchase
agreement provided, among other things, that the Company covenant not to compete
with Reynolds in the pegboard, one-write accounting system and HCFA medical
claim form businesses for a period of five years from the date of sale.
On April 19, 1995, the Company sold certain assets of its Tax Forms Business
product line to Taylor Corporation ("Taylor") resulting in a net gain of
$405,000. The asset purchase agreement provided, among other things, that the
Company covenant not to compete with Taylor in the manufacturing or imprinting,
and sale or distribution of generic or custom tax forms in the U.S. for a period
of
F-120
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(16) DISPOSAL OF PRODUCT LINES (CONTINUED)
five years from the date of sale. In addition, on April 19, 1995, the Company
entered into a manufacturing agreement with Taylor whereby Taylor will purchase
no less than 75 percent of its tax form mailer requirements for a period of five
years up to an agreed-upon maximum dollar value.
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires the Company to disclose estimated fair
values of its financial instruments. SFAS 107 defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments: The carrying amounts reported in the
consolidated balance sheet for cash, notes receivable and long-term debt
approximate fair value. The fair value of long-term debt is estimated by
discounting the future cash flows of each instrument at rates currently offered
to the Company for similar debt instruments of comparable maturities by the
Company's bank. The fair values of investment securities (see note 5) are based
on dealer quotes at the reporting date for those or similar investments.
(18) CONTINGENCIES
In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims. Such matters are subject to many uncertainties, and
outcomes are not predictable with assurance. There are no legal proceedings,
lawsuits or other claims pending against or involving the Company which, in the
opinion of management, will have a material adverse impact upon the consolidated
financial position, results of operations or liquidity of the Company.
(19) BUSINESS AND CREDIT CONCENTRATIONS
The Company provides credit, in the normal course of business, to industry
dealers and distributors. Concentration of credit risk with respect to trade
receivables is limited due to the Company's large number of customers. The
Company also performs ongoing credit evaluations of its customers. Management
believes that credit risks at December 31, 1994 and 1995 have been adequately
provided for in the consolidated financial statements.
The Company's raw materials are readily available, and the Company is not
dependent on a single supplier or only a few suppliers.
(20) NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS 121 requires
companies to review long-lived assets and certain identifiable
F-121
<PAGE>
TRANSKRIT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 28, 1996
(INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND JUNE 28, 1996 IS UNAUDITED)
(20) NEW ACCOUNTING STANDARD (CONTINUED)
intangibles to be held, used or disposed of, for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company adopted this statement effective January 1, 1996.
The adoption of this statement did not have a significant effect on the
Company's consolidated financial statements.
(21) SUBSEQUENT EVENT (UNAUDITED)
On April 25, 1996, Rogers and AmeriComm Direct Marketing, Inc. (formerly
known as National Fiberstok Corporation) signed a letter of intent whereby
AmeriComm Direct Marketing, Inc. would acquire the Company. It is the further
intention of both parties and the Company's two minority shareholders, to enter
into a Stock Purchase Agreement (the "Agreement") which contemplates a
transaction in which AmeriComm Direct Marketing, Inc. will purchase from the
Sellers, and the Sellers will sell to AmeriComm Direct Marketing, Inc., all of
the outstanding capital stock of the Company in return for cash. In addition,
the Agreement stipulates that on or prior to the closing date of the
transaction, the Company shall satisfy all liabilities under and terminate each
of the compensation arrangements described in note 11.
F-122
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or to represent anything not contained in this Prospectus. You must
not rely on any unauthorized information. This Prospectus does not offer to sell
or to buy any of the securities in any jurisdiction where it is unlawful. The
information in this Prospectus is current as of , 199 .
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 17
Company History................................. 26
The Acquisitions................................ 27
The Refinancing................................. 27
Use of Proceeds of the New Notes................ 28
Capitalization.................................. 29
The Exchange Offer.............................. 30
DIMAC Corporation Unaudited Pro Forma
Consolidated Statements of Operations......... 40
Selected Historical Financial Data AmeriComm
Holdings, Inc................................. 55
Selected Historical Financial Data DIMAC
Marketing Corporation......................... 57
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 59
Business........................................ 71
Management...................................... 87
Security Ownership.............................. 91
Certain Relationships and Related
Transactions.................................. 92
Description of Other Indebtedness............... 93
Description of Notes............................ 97
Certain United States Federal Income Tax
Considerations................................ 131
Old Notes Registration Rights Agreement......... 132
Book-Entry; Delivery and Form................... 135
Plan of Distribution............................ 138
Legal Matters................................... 139
Experts......................................... 139
Index to Financial Statements................... F-1
</TABLE>
Until , 199 (25 days after the date of this Prospectus) all
dealers that buy, sell or trade these securities, whether or not participating
in this offering, may be required to deliver a prospectus. This is in addition
to the dealers' obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
[LOGO]
Offer to Exchange
12 1/2% Series B Senior
Subordinated Notes
Due 2008
for all outstanding
12 1/2% Senior
Subordinated Notes
due 2008
-----------------------
PROSPECTUS
-----------------------
, 199
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The information below briefly outlines the provisions of Section 102(b)(7)
of the General Corporation Law of the State of Delaware, Article Eight of our
Certificate of Incorporation and Article IV of our By-Laws. For more
information, you may review the provisions of our Certificate of Incorporation
and By-Laws that we filed with the SEC. To find out how to locate our
Certificate of Incorporation and By-Laws, please read the section labelled
"Where You Can Find More Information" under the heading "Prospectus Summary."
ELIMINATION OF LIABILITY
Section 102(b)(7) of Delaware's corporation law gives each Delaware
corporation the power to eliminate or limit its directors' personal liability to
the corporation or its stockholders for monetary damages for certain breaches of
fiduciary duty as a director, except:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions in bad faith, or involving intentional misconduct
or a knowing violation of the law;
- under Section 174 of Delaware's corporation law (providing for liability
of directors for the unlawful payment of dividends or unlawful stock
purchases or redemptions); or
- for any transaction from which a director derived an improper personal
benefit.
You should know that our Certificate of Incorporation eliminates the
personal liability of our directors to the fullest extent permitted by Section
102(b)(7) of Delaware's corporation law.
INDEMNIFICATION
Section 145 of Delaware's corporation law grants each Delaware corporation
the power to indemnify its directors and officers against liability for certain
of their acts.
Our By-Laws provide, among other things, that under certain circumstances we
are required or permitted to indemnify any officer or director of our company
(or such person's estate):
- who was or is a party (or is threatened to be made a party) to a
threatened, pending or completed action, suit or other proceeding;
- whether or not the action, suit or other proceeding was or is in the
right of our company;
- regardless of whether the suit or other proceeding was or is civil,
criminal, administrative or investigative in nature; and
- by reason of the fact that he or she is or was one of our directors or
officers, or is or was serving at our request as a director or officer of
another corporation, partnership or other enterprise.
Unless otherwise permitted by applicable laws, our By-Laws require us to
make a case-specific determination, in accordance with applicable laws, that
indemnification is proper in the circumstances. Our by-laws only require us to
indemnify an officer or director if he or she acted in good faith and in a
manner he or she reasonably believed to be consistent with our best interests.
Moreover, with respect to any criminal action or proceeding, one of our officers
or directors is only entitled to indemnification if he or she had no reasonable
cause to believe his or her conduct was unlawful. We are not required
II-1
<PAGE>
to indemnify, or advance expenses to any person in connection with any action,
suit or other proceeding (including any counterclaim) initiated by or on his or
her behalf.
You should know, however, that in the event that an officer or director of
our company is entitled to indemnification under our By-Laws, we may be required
to indemnify him or her against expenses (including, for example, attorneys'
fees, judgments, penalties, fines and settlement amounts actually and reasonably
incurred and not recovered related to such officer or director's investigation,
preparation to defend or defense of such action, suit, or other proceeding). You
should also know that, to the extent permitted by our By-Laws, our By-Laws
authorize us to pay any such expenses in advance of the final disposition of the
action, suit or other proceeding in question. Our By-Laws also authorize us to
make, to the extent permitted by law, such advance payments even if the officer
or director in question is alleged to have failed to meet the "good faith"
standard of conduct discussed above, or is alleged to have committed conduct
which, if true, would prevent us from indemnifying such officer or director.
Before making any advance payment, our By-Laws require us to receive an
undertaking by or on behalf of the director or officer in question to repay the
advance if it is ultimately determined that he or she is not entitled to
indemnification.
Finally, our By-Laws authorize us, to the extent permitted by law, to
purchase and maintain insurance for any person who may be entitled to
indemnification thereunder.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Purchase Agreement, dated as of October 16, 1998, among Credit Suisse First Boston Corporation, First
Union Capital Markets and Warburg Dillon Read LLC.
2.1* Stock Purchase Agreement, dated as of May 17, 1998, by and between, Heritage Media Corporation and DIMAC
Corporation (formerly DMAC Acquisition Corp.).
2.2* Agreement and Plan of Merger, dated as of May 18, 1998, by and among DIMAC Holdings, Inc. (formerly DMAC
Holdings, Inc.), DMAC Merger Corp. and AmeriComm Holdings, Inc.
2.3 Certificate of Merger, dated June 26, 1998, of DMAC Merger Corp. with and into AmeriComm Holdings, Inc.
3.1 Certificate of Incorporation of DIMAC Corporation, filed with the Secretary of State of the State of
Delaware.
3.2 By-Laws of DIMAC Corporation.
4.1 Indenture, dated as of October 15, 1998, between DIMAC Corporation, the subsidiary guarantors named
therein and Wilmington Trust Company.
4.2 Specimen Certificates of the 12 1/2% Senior Subordinated Note Due 2008 and 12 1/2% Series B Senior
Subordinated Note Due 2008 (included in Exhibit 4.1 hereto).
4.3* Registration Rights Agreement, dated as of October 16, 1998, among DIMAC Corporation, the subsidiary
guarantors named therein and Credit Suisse First Boston Corporation, First Union Capital Markets and
Warburg Dillon Read LLC.
5.1 Opinion of White & Case LLP regarding the legality of the New Notes.
8.1 Opinion of White & Case LLP regarding certain tax matters.
</TABLE>
- ---------
* To be filed by amendment.
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.1 Employment Agreement, dated June 28, 1996, between Robert M. Miklas and AmeriComm Direct Marketing, Inc.
10.2 Employment Agreement, dated December 18, 1997, between John F. Meneough and DIMAC DIRECT, Inc.
10.3 Employment Agreement, dated June 28, 1996, between Jack Resnick and AmeriComm Direct Marketing, Inc.
10.4* Employment Agreement, dated June 15, 1995, between Scott Ebert and National Fiberstok Corporation.
</TABLE>
<TABLE>
<C> <S>
10.5 Employment Agreement, dated May 19, 1998, between Scott Ebert and AmeriComm Direct
Marketing, Inc.
10.6 Employment Agreement, dated December 18, 1997, between Michael Speichinger and DIMAC
DIRECT, Inc.
10.7* Amended and Restated Credit Agreement, dated as of October 22, 1998, by and among
DIMAC Corporation, as Borrower, the Lenders listed therein, Credit Suisse First
Boston Corporation, as Administrative Agent and Arranger, Warburg Dillon Read LLC,
as Syndication Agent and First Union National Bank, as Documentation Agent.
10.8* Securities Purchase Agreement, dated as of October 22, 1998, by and among DIMAC
Holdings, Inc., DIMAC Corporation and the Purchasers listed on the signature pages
thereto.
10.9 Subordination Agreement, dated as of October 22, 1998, among DIMAC Corporation and
the purchasers listed therein.
10.10 Advisory Services Agreement, dated as of June 26, 1998, by and between DMAC
Acquisition Corp. and MDC Management Company IV, LLC.
10.11* DIMAC Holdings, Inc. 1998 Stock Option Plan
10.12* Tax Sharing Agreement, dated as of October 18, 1998, between DIMAC Holdings, Inc.,
DIMAC Corporation, DIMAC Marketing Corporation, AmeriComm Holdings, Inc., DIMAC
DIRECT, Inc., The McClure Group Inc., MBS/Multimode Inc., Wilcox & Associates
Inc., Palm Coast Data Inc. and AmeriComm Direct Marketing, Inc.
12.1 Statement re computation of ratios.
21.1 Subsidiaries of DIMAC Corporation.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of White & Case LLP (included in Exhibit 5.1 hereto).
23.6 Consent of White & Case LLP (included in Exhibit 8.1 hereto).
24.1 Power of Attorney (see pages II-5 through II-14).
25.1 Statement of eligibility of trustee.
99.1 Form of Letter of Transmittal for New Notes.
99.2 Form of Notice of Guaranteed Delivery for New Notes.
</TABLE>
- ---------
* To be filed by amendment.
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- ------------------------------------------------------------------------------------
<C> <S> <S>
99.3 Letter to Brokers.
99.4 Letter to Clients.
99.5 Instructions to Registered Holder and/or Book Entry Transfer Participant from Beneficial Owner.
99.6 Guidelines for Certificate of Taxpayer Identification Number on substitute Form W-9.
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) We hereby undertake that insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Act") may be
permitted to directors, officers and controlling persons of DIMAC Corporation
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
Should a claim of indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by a director, officer or controlling
person of the DIMAC Corporation in the successful defense of any action, suit or
proceeding) be asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(b) We hereby undertake to respond to requests for information that is
incorporated by reference into this Prospectus pursuant to Item 4, 10(b), 11, or
13 of this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this Registration Statement through the date of responding to
the request.
(c) We hereby undertake to supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the Registration Statement
when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, Georgia, on November 12, 1998.
<TABLE>
<S> <C> <C>
DIMAC CORPORATION
By: /s/ MARTIN R. LEWIS
-----------------------------------------
Martin R. Lewis
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes David E. De Leeuw, Martin R. Lewis and James Wu and each of
them, as attorney-in-fact, to sign on such person's behalf, individually and in
each capacity stated below, and to file any amendments, including post effective
amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 12, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board and
/s/ MARTIN R. LEWIS Chief Executive Officer
- ------------------------------ (Principal Executive
Martin R. Lewis Officer)
Chief Financial Officer
/s/ EDWARD D. LAZAROWITZ (Principal Financial
- ------------------------------ Officer and
Edward D. Lazarowitz Principal Accounting
Officer)
/s/ JAMES WU
- ------------------------------ Director
James Wu
/s/ TIMOTHY BEFFA
- ------------------------------ Director
Timothy Beffa
/s/ DAVID E. DE LEEUW
- ------------------------------ Director
David E. De Leeuw
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ DAVID E. KING
- ------------------------------ Director
David E. King
/s/ GEORGE E. MCCOWN
- ------------------------------ Director
George E. McCown
- ------------------------------ Director
Benjamin McSwiney
/s/ JOHN D. WEIL
- ------------------------------ Director
John D. Weil
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, Georgia, on November 12, 1998.
<TABLE>
<S> <C> <C>
AMERICOMM HOLDINGS, INC.
By: /s/ JAMES L. WU
-----------------------------------------
James L. Wu
VICE PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes David E. De Leeuw, Martin R. Lewis and James Wu and each of
them, as attorney-in-fact, to sign on such person's behalf, individually and in
each capacity stated below, and to file any amendments, including post effective
amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 12, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Director, President and
/s/ DAVID E. DE LEEUW Treasurer
- ------------------------------ (Principal Executive
David E. De Leeuw Officer)
Controller
/s/ SCOTT P. EBERT (Principal Financial
- ------------------------------ Officer and
Scott P. Ebert Principal Accounting
Officer)
/s/ JAMES WU
- ------------------------------ Director
James Wu
/s/ MARTIN R. LEWIS
- ------------------------------ Director
Martin R. Lewis
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, Georgia, on November 12, 1998.
<TABLE>
<S> <C> <C>
AMERICOMM DIRECT MARKETING, INC.
By: /s/ JAMES L. WU
-----------------------------------------
James L. Wu
VICE PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes David E. De Leeuw, Martin R. Lewis and James Wu and each of
them, as attorney-in-fact, to sign on such person's behalf, individually and in
each capacity stated below, and to file any amendments, including post effective
amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 12, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Director, President and
/s/ DAVID E. DE LEEUW Treasurer
- ------------------------------ (Principal Executive
David E. De Leeuw Officer)
Controller
/s/ SCOTT P. EBERT (Principal Financial
- ------------------------------ Officer and
Scott P. Ebert Principal Accounting
Officer)
/s/ JAMES WU
- ------------------------------ Director
James Wu
/s/ MARTIN R. LEWIS
- ------------------------------ Director
Martin R. Lewis
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of St. Louis, Missouri, on November 12, 1998.
<TABLE>
<S> <C> <C>
DIMAC MARKETING CORPORATION
By: /s/ MARTIN R. LEWIS
-----------------------------------------
Martin R. Lewis
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes David E. De Leeuw, Martin R. Lewis and James Wu and each of
them, as attorney-in-fact, to sign on such person's behalf, individually and in
each capacity stated below, and to file any amendments, including post effective
amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 12, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
President and Chief
/s/ MARTIN R. LEWIS Executive Officer
- ------------------------------ (Principal Executive
Martin R. Lewis Officer)
Treasurer
/s/ MICHAEL J. SPEICHINGER (Principal Financial
- ------------------------------ Officer and
Michael J. Speichinger Principal Accounting
Officer)
/s/ JAMES WU
- ------------------------------ Director
James Wu
/s/ DAVID E. DE LEEUW
- ------------------------------ Director
David E. De Leeuw
/s/ MARTIN R. LEWIS
- ------------------------------ Director
Martin R. Lewis
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of St. Louis, Missouri, on November 12, 1998.
<TABLE>
<S> <C> <C>
DIMAC DIRECT, INC.
By: /s/ MARTIN R. LEWIS
-----------------------------------------
Martin R. Lewis
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes David E. De Leeuw, Martin R. Lewis and James L. Wu and each of
them, as attorney-in-fact, to sign on such person's behalf, individually and in
each capacity stated below, and to file any amendments, including post effective
amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 12, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board and
/s/ MARTIN R. LEWIS Chief Executive Officer
- ------------------------------ (Principal Executive
Martin R. Lewis Officer)
Treasurer and Chief
Financial Officer
/s/ MICHAEL J. SPEICHINGER (Principal Financial
- ------------------------------ Officer and
Michael J. Speichinger Principal Accounting
Officer)
/s/ JAMES WU
- ------------------------------ Director
James Wu
/s/ DAVID E. DE LEEUW
- ------------------------------ Director
David E. De Leeuw
/s/ MARTIN R. LEWIS
- ------------------------------ Director
Martin R. Lewis
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Wayne, Pennsylvania, on November 12, 1998.
<TABLE>
<S> <C> <C>
THE MCCLURE GROUP INC.
By: /s/ JOHN F. MENEOUGH
-----------------------------------------
John F. Meneough
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes David E. De Leeuw, Martin R. Lewis and James L. Wu and each of
them, as attorney-in-fact, to sign on such person's behalf, individually and in
each capacity stated below, and to file any amendments, including post effective
amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 12, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board and
/s/ THOMAS R. MCCLURE Chief Executive Officer
- ------------------------------ (Principal Executive
Thomas R. McClure Officer)
Chief Financial Officer
/s/ JOSEPH M. MUSTILLI (Principal Financial
- ------------------------------ Officer and
Joseph M. Mustilli Principal Accounting
Officer)
/s/ JAMES WU
- ------------------------------ Director
James Wu
/s/ MARTIN R. LEWIS
- ------------------------------ Director
Martin R. Lewis
/s/ DAVID E. DE LEEUW
- ------------------------------ Director
David E. De Leeuw
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Coast, Florida, on November 12, 1998.
<TABLE>
<S> <C> <C>
PALM COAST DATA INC.
By: /s/ JOHN F. MENEOUGH
-----------------------------------------
John F. Meneough
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes David E. De Leeuw, Martin R. Lewis and James L. Wu and each of
them, as attorney-in-fact, to sign on such person's behalf, individually and in
each capacity stated below, and to file any amendments, including post effective
amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 12, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ JOHN F. MENEOUGH Chief Executive Officer
- ------------------------------ (Principal Executive
John F. Meneough Officer)
Vice President, Treasurer
and Secretary
/s/ MICHAEL SPEICHINGER (Principal Financial
- ------------------------------ Officer and
Michael Speichinger Principal Accounting
Officer)
/s/ JAMES WU
- ------------------------------ Director
James Wu
/s/ MARTIN R. LEWIS
- ------------------------------ Director
Martin R. Lewis
/s/ DAVID E. DE LEEUW
- ------------------------------ Director
David E. De Leeuw
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Central Islip, New York, on November 12, 1998.
<TABLE>
<S> <C> <C>
MBS/MULTIMODE INC.
By: /s/ JOHN F. MENEOUGH
-----------------------------------------
John F. Meneough
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes David E. De Leeuw, Martin R. Lewis and James L. Wu and each of
them, as attorney-in-fact, to sign on such person's behalf, individually and in
each capacity stated below, and to file any amendments, including post effective
amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 12, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ JOHN F. MENEOUGH Chief Executive Officer
- ------------------------------ (Principal Executive
John F. Meneough Officer)
Vice President
/s/ MICHAEL J. SPEICHINGER (Principal Financial
- ------------------------------ Officer and
Michael J. Speichinger Principal Accounting
Officer)
/s/ JAMES WU
- ------------------------------ Director
James Wu
/s/ MARTIN R. LEWIS
- ------------------------------ Director
Martin R. Lewis
/s/ DAVID E. DE LEEUW
- ------------------------------ Director
David E. De Leeuw
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, New York, on November 12, 1998.
<TABLE>
<S> <C> <C>
WILCOX & ASSOCIATES INC.
By: /s/ JOHN F. MENEOUGH
-----------------------------------------
John F. Meneough
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes David E. De Leeuw, Martin R. Lewis and James L. Wu and each of
them, as attorney-in-fact, to sign on such person's behalf, individually and in
each capacity stated below, and to file any amendments, including post effective
amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 12, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ ROBERT B. WILCOX Chief Executive Officer
- ------------------------------ (Principal Executive
Robert B. Wilcox Officer)
Vice President
/s/ MICHAEL J. SPEICHINGER (Principal Financial
- ------------------------------ Officer and
Michael J. Speichinger Principal Accounting
Officer)
/s/ JAMES WU
- ------------------------------ Director
James Wu
/s/ MARTIN R. LEWIS
- ------------------------------ Director
Martin R. Lewis
/s/ DAVID E. DE LEEUW
- ------------------------------ Director
David E. De Leeuw
</TABLE>
II-14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------- -----
<C> <S> <C>
1.1 Purchase Agreement, dated as of October 16, 1998, among Credit Suisse First Boston Corporation,
First Union Capital Markets and Warburg Dillon Read LLC. ......................................
2.1* Stock Purchase Agreement, dated as of May 17, 1998, by and between, Heritage Media Corporation
and DIMAC Corporation (formerly DMAC Acquisition Corp.). ......................................
2.2* Agreement and Plan of Merger, dated as of May 18, 1998, by and among DIMAC Holdings, Inc.
(formerly DMAC Holdings, Inc.), DMAC Merger Corp. and AmeriComm Holdings, Inc. ................
2.3 Certificate of Merger, dated June 26, 1998, of DMAC Merger Corp. with and into AmeriComm
Holdings, Inc. ................................................................................
3.1 Certificate of Incorporation of DIMAC Corporation, filed with the Secretary of State of the State
of Delaware. ..................................................................................
3.2 By-Laws of DIMAC Corporation. ...................................................................
4.1 Indenture, dated as of October 15, 1998, between DIMAC Corporation, the subsidiary guarantors
named therein and Wilmington Trust Company. ...................................................
4.2 Specimen Certificates of the 12 1/2% Senior Subordinated Note Due 2008 and 12 1/2% Series B
Senior Subordinated Note Due 2008 (included in Exhibit 4.1 hereto). ...........................
4.3* Registration Rights Agreement, dated as of October 16, 1998, among DIMAC Corporation, the
subsidiary guarantors named therein and Credit Suisse First Boston Corporation, First Union
Capital Markets and Warburg Dillon Read LLC. ..................................................
5.1 Opinion of White & Case LLP regarding the legality of the New Notes. ............................
8.1 Opinion of White & Case LLP regarding certain tax matters. ......................................
10.1 Employment Agreement, dated June 28, 1996, between Robert M. Miklas and AmeriComm Direct
Marketing, Inc. ...............................................................................
10.2 Employment Agreement, dated December 18, 1997, between John F. Meneough and DIMAC DIRECT,
Inc. ..........................................................................................
10.3 Employment Agreement, dated June 28, 1996, between Jack Resnick and AmeriComm Direct Marketing,
Inc. ..........................................................................................
10.4* Employment Agreement, dated June 15, 1995, between Scott Ebert and National Fiberstok
Corporation. ..................................................................................
10.5 Employment Agreement, dated May 19, 1998, between Scott Ebert and AmeriComm Direct Marketing,
Inc. ..........................................................................................
10.6 Employment Agreement, dated December 18, 1997, between Michael Speichinger and DIMAC DIRECT,
Inc. ..........................................................................................
10.7* Amended and Restated Credit Agreement, dated as of October 22, 1998, by and among DIMAC
Corporation, as Borrower, the Lenders listed therein, Credit Suisse First Boston Corporation,
as Administrative Agent and Arranger, Warburg Dillon Read LLC, as Syndication Agent and First
Union National Bank, as Documentation Agent. ..................................................
10.8* Securities Purchase Agreement, dated as of October 22, 1998, by and among DIMAC Holdings, Inc.,
DIMAC Corporation and the Purchasers listed on the signature pages thereto. ...................
</TABLE>
- ---------
* To be filed by amendment.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------- -----
<C> <S> <C>
10.9 Subordination Agreement, dated as of October 22, 1998, among DIMAC Corporation and the purchasers
listed therein. ...............................................................................
10.10 Advisory Services Agreement, dated as of June 26, 1998, by and between DMAC Acquisition Corp. and
MDC Management Company IV, LLC. ...............................................................
10.11* DIMAC Holdings, Inc. 1998 Stock Option Plan .....................................................
10.12* Tax Sharing Agreement, dated as of October18, 1998, between DIMAC Holdings, Inc., DIMAC
Corporation, DIMAC Marketing Corporation, AmeriComm Holdings, Inc., DIMAC DIRECT, Inc., The
McClure Group Inc., MBS/Multimode Inc., Wilcox & Associates Inc., Palm Coast Data Inc. and
AmeriComm Direct Marketing, Inc. ..............................................................
12.1 Statement regarding computation of ratios. ......................................................
21.1 Subsidiaries of DIMAC Corporation. ..............................................................
23.1 Consent of Arthur Andersen LLP. .................................................................
23.2 Consent of Arthur Andersen LLP. .................................................................
23.3 Consent of Deloitte & Touche LLP. ...............................................................
23.4 Consent of KPMG Peat Marwick LLP. ...............................................................
23.5 Consent of White & Case LLP (included in Exhibit 5.1 hereto). ...................................
23.6 Consent of White & Case LLP (included in Exhibit 8.1 hereto). ...................................
24.1 Power of Attorney (see pages II-5 through II-14). ...............................................
25.1 Statement of eligibility of trustee. ............................................................
99.1 Form of Letter of Transmittal for New Notes. ....................................................
99.2 Form of Notice of Guaranteed Delivery for New Notes. ............................................
99.3 Letter to Brokers. ..............................................................................
99.4 Letter to Clients. ..............................................................................
99.5 Instructions to Registered Holder and/or Book Entry Transfer Participant from Beneficial
Owner. ........................................................................................
99.6 Guidelines for Certificate of Taxpayer Identification Number on substitute Form W-9. ............
</TABLE>
- ---------
* To be filed by amendment.
<PAGE>
Exhibit 1.1
EXECUTION COPY
$100,000,000
DIMAC CORPORATION
12-1/2% Senior Subordinated Notes Due 2008
PURCHASE AGREEMENT
October 16, 1998
CREDIT SUISSE FIRST BOSTON CORPORATION
FIRST UNION CAPITAL MARKETS, A DIVISION
OF WHEAT FIRST SECURITIES, INC.
WARBURG DILLON READ LLC
C/O CREDIT SUISSE FIRST BOSTON CORPORATION
ELEVEN MADISON AVENUE,
NEW YORK, NY 10010-3629
Dear Sirs:
1. Introductory. DIMAC Corporation, a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the several initial purchasers named in Schedule A hereto (the
"Purchasers") $100,000,000 aggregate principal amount of its 12-1/2% Senior
Subordinated Notes Due 2008 (the "Offered Securities"). The Offered Securities
will be unconditionally guaranteed on a senior subordinated basis (the
"Subsidiary Guaranties") by each domestic subsidiary of the Company signatory
hereto (the "Subsidiary Guarantors"). The Offered Securities will be issued
under an indenture dated as of October 15, 1998 (the "Indenture"), among the
Company, the Subsidiary Guarantors and Wilmington Trust Company, as trustee (the
"Trustee"). The United States Securities Act of 1933 is herein referred to as
the "Securities Act."
The Offered Securities are being issued and sold in connection with a
Refinancing (as defined below) by the Company pursuant to which the Company
intends to (i) purchase $100.0 million outstanding 11-5/8% Senior Notes Due 2002
(the "AmeriComm Senior Notes") of AmeriComm Direct Marketing, Inc., ("ADMI"), a
subsidiary of the Company, through a tender offer and consent solicitation (the
"Tender Offer and Consent Solicitation"), (ii) purchase 12-1/2% Senior Notes Due
2003 (the "AmeriComm Holdings Senior Notes") of AmeriComm Holdings, Inc., a
subsidiary of the Company, (iii) repay senior bank indebtedness of ADMI under
its existing credit agreement, (iv) reduce its amount of revolving loans
outstanding under its senior secured credit agreement and (v) pay certain fees
and expenses incurred in connection with the offering of the Offered Securities
and the Tender Offer and Consent Solicitation (collectively, together with the
Tender Offer and Consent Solicitation, the "Refinancing").
The Company hereby agrees with the several Purchasers as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Purchasers that:
(a) A preliminary offering circular and an offering circular
relating to the Offered Securities have been prepared by
<PAGE>
the Company. Such preliminary offering circular (the "Preliminary
Offering Circular") and offering circular, (the "Offering Circular")
as both are supplemented as of the date of this Agreement, together
with any other document approved by the Company for use in connection
with the contemplated resale of Offered Securities are hereinafter
collectively referred to as the "Offering Document". On the date of
each such document, the Offering Document does not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
preceding sentence does not apply to statements in or omissions from
the Offering Document based upon written information furnished to the
Company by any Purchaser through Credit Suisse First Boston
Corporation ("CSFBC") specifically for use therein, it being
understood and agreed that the only such information is that described
as such in Section 7(b).
(b) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware
with the corporate power and authority to own its properties and
conduct its business as described in the Offering Document; and the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification, except where the failure to so qualify could not
reasonably be expected to have a material adverse effect upon the
condition (financial or other), results of operations, business affairs
or business prospects of the Company and its subsidiaries taken as a
whole (a "Material Adverse Effect").
(c) Each subsidiary of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with the corporate power and
authority to own its properties and conduct its business as described
in the Offering Document, and each subsidiary of the Company is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification except where
the failure to so qualify could not reasonably be expected to have a
Material Adverse Effect; all of the issued and outstanding capital
stock of each subsidiary of the Company has been duly authorized and
validly issued and is fully paid and nonassessable; and, except as
disclosed in the Offering Document, the capital stock of each
subsidiary owned by the Company, directly or through subsidiaries, is
owned free from liens, encumbrances and defects.
(d) The Indenture has been duly authorized by the Company; the
Offered Securities have been duly authorized by the Company; and when
the Offered Securities are delivered and paid for pursuant to this
Agreement on the Closing Date (as defined below), the Indenture will
have been duly executed and delivered, such Offered Securities will
have been duly executed, authenticated, issued and delivered and will
conform in all material respects to the description thereof contained
in the Offering Document and the Indenture and such Offered Securities
will constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors'
rights and to general equity principles (regardless of whether
enforcement is sought in a proceeding at equity or law).
2
<PAGE>
(e) Except as disclosed in the Offering Document, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or any
Purchaser for a brokerage commission, finder's fee or other like
payment in connection with the issuance and sale of the Offered
Securities.
(f) The Registration Rights Agreement dated the date hereof
(the "Registration Rights Agreement") has been duly authorized,
executed and delivered by the Company, and conforms in all material
respects to the description thereof contained in the Offering Document.
The Registration Rights Agreement constitutes a valid and legally
binding obligation of the Company, and is enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles (regardless of whether enforcement is sought in a proceeding
at equity or law) and, as to rights of indemnification or contribution,
to principles of public policy or federal or state securities laws
relating thereto.
(g) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by the Offering Document,
this Agreement and the Registration Rights Agreement in connection with
the issuance and sale of the Offered Securities by the Company, other
than those that have been obtained or made, or as may be required under
the Securities Act and the Rules and Regulations of the Commission
thereunder with respect to the Registration Rights Agreement and the
transactions contemplated thereunder and such as may be required by
securities or blue sky laws of any state of the United States or of any
foreign jurisdiction in connection with the offer and sale of the
Offered Securities.
(h) The execution, delivery and performance of the Indenture,
the Registration Rights Agreement, this Agreement and the issuance and
sale of the Offered Securities and compliance with the terms and
provisions thereof will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under, (i) any
statute, any rule, regulation or order of any governmental agency or
body or any court, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their properties, (ii) any
agreement or instrument to which the Company or any of its respective
subsidiaries is a party or by which the Company or any of its
respective subsidiaries is bound or to which any of the properties of
the Company or any of its respective subsidiaries is subject; except,
in the case of clause (i) and (ii) above, for such breaches, defaults
or violations that individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect or (iii) the
charter or by-laws of the Company or any of its respective subsidiaries
and the Company has the requisite corporate power and authority to
authorize, issue and sell the Offered Securities as contemplated by
this Agreement.
(i) This Agreement has been duly authorized, executed and
delivered by the Company.
(j) Except as disclosed in the Offering Document, the Company
and its subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each
case free from liens, encumbrances and defects that would materially
affect the value thereof or materially interfere with the use made or
to be made thereof by them; and except as
3
<PAGE>
disclosed in the Offering Document, the Company and its subsidiaries
hold any material leased real or personal property under valid and
enforceable leases with no exceptions that would materially
interfere with the use made or to be made thereof by them.
(k) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by
them and have not received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or any of its respective
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect.
(l) No labor dispute with the employees of the Company or its
subsidiaries exists or, to the knowledge of the Company, is imminent
that could reasonably be expected to individually or in the aggregate
have a Material Adverse Effect.
(m) The Company and its subsidiaries own, possess or can
acquire on reasonable terms, adequate trademarks, trade names and other
rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property (collectively,
"intellectual property rights") necessary to conduct the business now
operated by them, or presently employed by them, and have not received
any notice of infringement of or conflict with asserted rights of
others with respect to any intellectual property rights that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
(n) Except as disclosed in the Offering Document, neither the
Company nor any of its subsidiaries is in violation of any statute, any
rule, regulation, decision or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection
or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "environmental laws"), owns or operates
any real property contaminated with any substance that is subject to
any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation,
contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect; and neither the Company nor
any of its subsidiaries is aware of any pending investigation which
might lead to such a claim.
(o) Except as disclosed in the Offering Document, there are no
pending actions, suits or proceedings against or affecting the Company,
any of its subsidiaries or any of their respective properties that, are
reasonably likely to individually or in the aggregate have a Material
Adverse Effect, or would materially and adversely affect the ability of
the Company to perform its obligations under the Indenture, the
Registration Rights Agreement or this Agreement, or which are otherwise
material in the context of the sale of the Offered Securities; and no
such actions, suits or proceedings are threatened or contemplated.
(p) The financial statements included in the Offering Document
present fairly in all material respects the financial position of the
Company and its consolidated subsidiaries as of the dates shown and
their results of operations and cash flows for the periods shown, and
such financial statements have been
4
<PAGE>
prepared in conformity with the generally accepted accounting
principles in the United States applied on a consistent basis; and the
assumptions used in preparing the pro forma financial statements
included in the Offering Document provide a reasonable basis for
presenting the significant effects directly related to the
transactions or events described therein, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro
forma columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement
amounts.
(q) Except as disclosed in the Offering Document, since the
date of the latest audited financial statements included in the
Offering Document there has been no material adverse change, nor any
development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results
of operations of the Company or its subsidiaries taken as a whole, and,
except as disclosed in or contemplated by the Offering Document, there
has been no dividend or distribution of any kind declared, paid or made
by the Company on any class of its capital stock.
(r) The Company is not an open-end investment company, unit
investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the United States
Investment Company Act of 1940 (the "Investment Company Act") ; and the
Company is not and, after giving effect to the offering and sale of the
Offered Securities and the application of the proceeds thereof as
described in the Offering Document, the Company will not be an
"investment company" as defined in the Investment Company Act.
(s) No securities of the same class (within the meaning of
Rule 144A(d)(3) under the Securities Act) as the Offered Securities are
listed on any national securities exchange registered under Section 6
of the Exchange Act or quoted in a U.S. automated inter-dealer
quotation system.
(t) The offer and sale of the Offered Securities in the manner
contemplated by this Agreement will be exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereof
and Regulation S thereunder; and it is not necessary to qualify an
indenture in respect of the Offered Securities under the United States
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
(u) Neither the Company, nor any of its affiliates, nor any
person acting on their behalf (i) has, within the six-month period
prior to the date hereof, offered or sold in the United States or to
any U.S. person (as such terms are defined in Regulation S under the
Securities Act) the Offered Securities or any security of the same
class or series as the Offered Securities or (ii) has offered or will
offer or sell the Offered Securities (A) in the United States by means
of any form of general solicitation or general advertising within the
meaning of Rule 502(c) under the Securities Act or (B) with respect to
any securities sold in reliance on Rule 903 of Regulation S by means of
any directed selling efforts within the meaning of Rule 902(b) of
Regulation S. The Company, its affiliates and any person acting on
their behalf have complied and will comply with the offering
restrictions requirement of Regulation S. The Company has not entered
and will not enter into any contractual arrangement with respect to the
distribution of the Offered Securities except for this Agreement and
the Registration Rights Agreement.
5
<PAGE>
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Purchasers, and the Purchasers agree to purchase from the Company, at a purchase
price of 94.233% of the principal amount thereof plus accrued interest, if any,
from October 22, 1998 to the Closing Date (as hereinafter defined), $100,000,000
aggregate principal amount of the Offered Securities.
The Company will deliver against payment of the purchase price the
Offered Securities in the form of one or more permanent global Securities in
definitive form (the "Global Securities") deposited with the Trustee as
custodian for The Depository Trust Company ("DTC") and registered in the name of
Cede & Co., as nominee for DTC. Interests in any permanent Global Securities
will be held only in book-entry form through DTC, except in the limited
circumstances described in the Offering Document. Payment for the Offered
Securities shall be made by the Purchasers in Federal (same day) funds by wire
transfer to an account at a bank acceptable to CSFBC at the office of Cravath,
Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, New York
10019-7475, at 9:00 A.M. (New York time), on October 22, 1998 or at such other
time not later than seven full business days thereafter as CSFBC and the Company
determine, such time being herein referred to as the "Closing Date", against
delivery to the Trustee as custodian for DTC of the Global Securities
representing all of the Offered Securities. The Offered Securities will be made
available for checking at the above office of Cravath, Swaine & Moore at least
24 hours prior to the Closing Date.
4. Representations by Purchasers; Resale by Purchasers. (a) Each
Purchaser severally represents and warrants to the Company that it is an
"accredited investor" within the meaning of Regulation D under the Securities
Act.
(b) Each Purchaser severally acknowledges that the Offered Securities
have not been registered under the Securities Act and may not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons
except in accordance with Regulation S or pursuant to an exemption from the
registration requirements of the Securities Act. Each Purchaser severally
represents and agrees that it has offered and sold the Offered Securities and
will offer and sell the Offered Securities (i) as part of its distribution at
any time and (ii) otherwise until the later of the commencement of the offering
and the Closing Date, only in accordance with Rule 144A ("Rule 144A") or Rule
903 under the Securities Act. Accordingly, neither such Purchaser nor its
affiliates, nor any persons acting on its behalf, have engaged or will engage in
any directed selling efforts with respect to the Offered Securities, and such
Purchaser, its affiliates and all persons acting on its behalf have complied and
will comply with the offering restrictions requirement of Regulation S. Each
Purchaser severally agrees that, at or prior to confirmation of sale of the
Offered Securities, other than a sale pursuant to Rule 144A, such Purchaser will
have sent to each distributor, dealer or person receiving a selling concession,
fee or other remuneration that purchases the Offered Securities from it during
the restricted period a confirmation or notice to substantially the following
effect:
6
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"The Securities covered hereby have not been registered under
the U.S. Securities Act of 1933 (the "Securities Act") and may
not be offered or sold within the United States or to, or for
the account or benefit of, U.S. persons (i) as part of their
distribution at any time or (ii) otherwise until 40 days after
the later of the date of the commencement of the offering and
the closing date, except in either case in accordance with
Regulation S (or Rule 144A if available) under the Securities
Act. Terms used above have the meanings given to them by
Regulation S."
Terms used in this subsection (b) have the meanings given to them by
Regulation S.
(c) Each Purchaser severally agrees that it and each of its affiliates
has not entered and will not enter into any contractual arrangement with respect
to the distribution of the Offered Securities except with the prior written
consent of the Company.
(d) Each Purchaser severally agrees that it and each of its affiliates
will not offer or sell the Offered Securities by means of any form of general
solicitation or general advertising, within the meaning of Rule 502(c) under the
Securities Act, including, but not limited to (i) any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, or (ii) any seminar or meeting
whose attendees have been invited by any general solicitation or general
advertising. Each Purchaser also severally agrees, with respect to resales made
in reliance on Rule 144A of any of the Offered Securities, to deliver either
with the confirmation of such resale or otherwise prior to settlement of such
resale a notice to the effect that the resale of such Offered Securities has
been made in reliance upon the exemption from the registration requirements of
the Securities Act provided by Rule 144A.
5. Certain Agreements of the Company. The Company agrees with the
several Purchasers that:
(a) The Company will advise CSFBC promptly of any proposal to
amend or supplement the Offering Document and will not effect such
amendment or supplementation without CSFBC's consent, which such
consent shall not be unreasonably withheld or delayed. If, at any time
prior to the completion of the resale of the Offered Securities by the
Purchasers, any event occurs as a result of which the Offering Document
as then amended or supplemented would include an 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, or if it is necessary at any such
time to amend or supplement the Offering Document to comply with any
applicable law, the Company will notify CSFBC promptly of such event
and will prepare promptly, at its own expense, an amendment or
supplement which will correct such statement or omission or effect such
compliance. Neither CSFBC's consent to, nor the Purchasers' delivery to
offerees or investors of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 6.
(b) The Company will furnish to CSFBC copies of, the Offering
Document and all amendments and supplements to such documents, in each
case as soon as available and in such quantities as CSFBC reasonably
requests, and the Company will furnish to CSFBC on the date hereof four
copies of the Offering Document signed by a duly authorized officer of
the Company, one of which will include the independent accountants'
reports therein manually signed by such independent accountants. At any
time when
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the Company is not subject to Section 13 or 15(d) of the Exchange
Act, the Company promptly will furnish or cause to be furnished to CSFBC
and, upon request of holders and prospective purchasers of the Offered
Securities, to such holders and purchasers, copies of the information
required to be delivered to holders and prospective purchasers of the
Offered Securities pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto) in order to permit compliance with
Rule 144A in connection with resales by such holders of the Offered
Securities. The Company will pay the expenses of preparing, printing and
distributing all such documents.
(c) The Company will use its reasonable best efforts to
arrange for the qualification of the Offered Securities for sale and
the determination of their eligibility for investment under the laws of
such states in the United States as CSFBC designates and will continue
such qualifications in effect so long as required for the resale of the
Offered Securities by the Purchasers, provided that neither the Company
nor any Subsidiary Guarantor will be required to qualify as a foreign
corporation or to file a general consent to service of process in any
such state.
(d) During the period of five years hereafter, the Company
will furnish to CSFBC and, upon request, to each of the other
Purchasers, (i) as soon as available, a copy of each report or other
document furnished to the Commission pursuant to Rule 12g3-2(b) under
the Exchange Act and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company are
consolidated in reports furnished to its shareholders generally or to
the Commission).
(e) During the period of two years after the Closing Date, the
Company will, upon request, furnish to CSFBC and any holder of Offered
Securities a copy of the restrictions on transfer applicable to the
Securities.
(f) During the period of two years after the Closing Date, the
Company will not, and will not permit any of its affiliates (as defined
in Rule 144 under the Securities Act) to, resell any of the Offered
Securities that have been reacquired by any of them.
(g) During the period of two years after the Closing Date, the
Company will not be or become an open-end investment company, unit
investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the Investment Company
Act.
(h) The Company will pay all expenses incidental to the
performance of its obligations under this Agreement and the Indenture,
including (i) the fees and expenses of the Trustee and its professional
advisers; (ii) all expenses in connection with the execution, issue,
authentication, packaging and initial delivery of the Offered
Securities, the preparation of this Agreement, the Offered
Securities, the Indenture, the Offering Document and amendments and
supplements thereto, the Registration Rights Agreement and any other
document relating to the issuance, offer, sale and delivery of the
Offered Securities (not including fees of counsel to the Purchasers);
(iii) the cost of qualifying the Offered Securities for trading in The
Portal-SM- Market ("PORTAL") of The Nasdaq Stock Market, Inc. and any
expenses incidental thereto; (iv) the cost of any advertising requested
by the Company in connection with the issue of the Offered
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Securities; (v) any expenses (including fees and disbursements of
counsel) incurred in connection with qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and the printing of memoranda relating thereto; (vi) any
fees charged by investment rating agencies for the rating of the
Offered Securities and (vii) expenses incurred in distributing the
Offering Document (including any amendments and supplements thereto)
to the Purchasers. The Company will also pay or reimburse the
Purchasers (to the extent incurred by them) for all travel expenses
of the Company's officers and employees and any other expenses of the
Company in connection with attending or hosting meetings with
prospective purchasers of the Offered Securities from the Purchasers.
(i) In connection with the offering, until CSFBC shall have
notified the Company of the completion of the resale of the Offered
Securities, neither the Company nor any of its affiliates has or will,
either alone or with one or more other persons, bid for or purchase for
any account in which it or any of its affiliates has a beneficial
interest any Offered Securities or attempt to induce any person to
purchase any Offered Securities; and neither it nor any of its
affiliates will make bids or purchases for the purpose of creating
actual, or apparent, active trading in, or of raising the price of, the
Offered Securities.
(j) For a period of 180 days after the date of the initial
offering of the Offered Securities by the Purchasers, the Company will
not offer, sell, contract to sell, pledge, or otherwise dispose of,
directly or indirectly, any United States dollar-denominated debt
securities issued or guaranteed by the Company and having a maturity of
more than one year from the date of issue or publicly disclose the
intention to make such offer, sale, pledge or disposal without the
prior consent of CSFBC. The Company will not at any time offer, sell,
contract to sell, pledge or otherwise dispose of, directly or
indirectly, any securities under circumstances where such offer, sale,
pledge, contract or disposition would cause the exemption afforded by
Section 4(2) of the Securities Act or the safe harbor of Regulation S
thereunder, to cease to be applicable to the offer and sale of the
Offered Securities.
6. Conditions of the Obligations of the Purchasers. The obligations of
the several Purchasers to purchase and pay for the Offered Securities will be
subject to the accuracy of the representations and warranties on the part of the
Company herein, to the accuracy of the statements of officers of the Company
made pursuant to the provisions hereof, to the performance by the Company of
their obligations hereunder and to the following additional conditions
precedent:
(a) The Purchasers shall have received a letter, dated the
date of this Agreement, of Arthur Andersen LLP, in agreed form,
confirming that they are independent certified public accountants with
respect to AmeriComm Holdings, Inc. ("AmeriComm") under Rule 101 of the
AICPA's Code of Professional Conduct and to the effect that:
(i) in their opinion, their review of the financial
statements of AmeriComm included in the Offering Circular is
substantially consistent with the due diligence review process
they would have performed if the placement of securities were
being registered pursuant to the Act;
(ii) they have performed the procedures specified by
the American Institute of Certified Public Accountants for a
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<PAGE>
review of interim financial information as described in the
Statement of Auditing Standards No. 71, Interim Financial
Information, on the unaudited financial statements included in
the Offering Circular;
(iii) on the basis of a reading of the latest
available interim financial statements of AmeriComm, inquiries
of officials of AmeriComm who have responsibility for
financial and accounting matters and other specified
procedures, nothing came to their attention that caused them
to believe that:
(A) any material modifications should be
made to the unaudited consolidated financial
statements included in the Offering Document for them
to be in conformity with generally accepted
accounting principles;
(B) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of this Agreement,
there was any change in the capital stock or increase
in long-term debt of AmeriComm and its consolidated
subsidiaries or, at the date of the latest available
balance sheet read by such accountants, there was any
decrease in consolidated total assets or increase in
stockholders' equity (deficit), as compared with
amounts shown on the latest balance sheet included in
the Offering Circular; or
(C) for the period from the closing date of
the latest income statement included in the Offering
Circular to the closing date of the latest available
income statement read by such accountants, there were
decreases, as compared with the corresponding period
of the previous year and with the period of
corresponding length ended the date of the latest
income statement included in the Offering Circular,
in operating income or net income (loss) before
extraordinary item.
except in all cases set forth in clauses (B) and (C)
above for changes, increases or decreases which are described
in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Offering Document (in
each case to the extent that such dollar amounts, percentages
and other financial information are derived from the general
accounting records of AmeriComm subject to the internal
controls of AmeriComm's accounting system or are derived
directly from such records by analysis or computation) with
the results obtained from inquiries, a reading of such general
accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and
other financial information to be in agreement with such
results, except as otherwise specified in such letter;
(b) The Purchasers shall have received a letter dated the date
of this Agreement of Arthur Andersen LLP, in agreed form, confirming
that they are independent certified public accountants with respect to
DIMAC Direct Marketing Corporation ("DIMAC
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<PAGE>
Marketing") under Rule 101 of the AICPA's Code of Professional
Conduct and to the effect that:
(i) in their opinion, their review of the financial
statements of DIMAC Marketing included in the Offering
Circular is substantially consistent with the due diligence
review process they would have performed if the placement of
securities were being registered pursuant to the Act;
(ii) on the basis of a reading of the latest
available interim financial statements of DIMAC Marketing,
inquiries of officials of DIMAC Marketing who have
responsibility for financial and accounting matters and other
specified procedures, nothing came to their attention that
caused them to believe that:
(A) any material modifications should be
made to the unaudited consolidated financial
statements included in the Offering Circular for them
to be in conformity with generally accepted
accounting principles;
(B) at the date of the latest available
balance sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of this Agreement,
there was any change in the capital stock or increase
in long-term debt of DIMAC Marketing and its
consolidated subsidiaries or, at the date of the
latest available balance sheet read by such
accountants, there was any decrease in consolidated
total assets or increase in stockholders' equity
(deficit), as compared with amounts shown on the
latest balance sheet included in the Offering
Circular; or
(C) for the period from the closing date of
the latest income statement included in the Offering
Circular to the closing date of the latest available
income statement read by such accountants, there were
any decreases, as compared with the corresponding
period of the previous year and with the period of
corresponding length ended the date of the latest
income statement included on the Offering Circular,
in operating income or net income (loss) before
extraordinary item.
except in all cases set forth in clauses (B) and (C)
above for changes, increases or decreases which are described
in such letter;
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Offering Circular (in
each case to the extent that such dollar amounts, percentages
and other financial information are derived from the general
accounting records of DIMAC Marketing and its subsidiaries
subject to the internal controls of DIMAC Marketing's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and
other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to
be in agreement with such results, except as otherwise
specified in such letter;
(c) The Purchasers shall have received a letter dated the
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date of this Agreement of Arthur Andersen LLP, in agreed form, to
the effect that:
(A) they have read the summary unaudited
pro forma combined consolidated balance sheets and
unaudited pro forma combined consolidated statements
of operations of the Company for the year ended
December 31, 1997, the six months ended June 30, 1998
and the twelve months ended June 30, 1998;
(B) inquired of certain officials of the
Company who have responsibility for financial and
accounting matters about the basis for their
determination of the pro forma adjustments; and
(C) proved the arithmetic accuracy of the
application of the pro forma adjustments.
Based on the procedures described in the preceding sentence,
nothing came to their attention that caused them to believe that the
pro forma adjustments have not been properly applied to the historical
amounts in the compilation of the unaudited pro forma combined
consolidated financial statements.
(d) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) a change in U.S. or
international financial, political or economic conditions or currency
exchange rates or exchange controls as would, in the judgment of CSFBC,
be likely to prejudice materially the success of the proposed issue,
sale or distribution of the Offered Securities, whether in the primary
market or in respect of dealings in the secondary market, or (ii) (A)
any change, or any development or event involving a prospective change,
in the condition (financial or other), business, properties or results
of operations of the Company or its subsidiaries which, in the judgment
of the Purchasers is material and adverse and makes it impractical or
inadvisable to proceed with completion of the offering or the sale of
and payment for the Offered Securities; (B) any downgrading in the
rating of any debt securities of the Company by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g) under the Securities Act), or any public announcement that
any such organization has under surveillance or review its rating of
any debt securities of the Company (other than an announcement with
positive implications of a possible upgrading, and no implication of a
possible downgrading, of such rating); (C) any suspension or limitation
of trading in securities generally on the New York Stock Exchange or
any setting of minimum prices for trading on such exchange, or any
suspension of trading of any securities of the Issuers on any exchange
or in the over-the-counter market; (D) any banking moratorium declared
by U.S. Federal or New York authorities; or (E) any outbreak or
escalation of major hostilities in which the United States is involved,
any declaration of war by Congress or any other substantial national or
international calamity or emergency if, in the judgment of the
Purchasers, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed
with completion of the offering or sale of and payment for the Offered
Securities.
(e) The Purchasers shall have received an opinion, dated the
Closing Date, of counsel for the Company, that:
(i) Each of the Company and its subsidiaries has been
duly incorporated and is an existing corporation in good
standing under the laws of its jurisdiction of
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incorporation, with corporate power and authority to own its
properties and conduct its business as described in the
Offering Document; and each of the Company and its respective
subsidiaries is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in
which its ownership or lease of property or the conduct of
its business requires such qualification;
(ii) The Indenture has been duly authorized, executed
and delivered by the Company; the Offered Securities have been
duly authorized, executed, issued and delivered by the Company
and conform in all material respects to the description
thereof contained in the Offering Document; and assuming due
authorization, execution and delivery of the Indenture by the
Trustee and the due authentication of the Offered Securities
by the Trustee, the Indenture and the Offered Securities
constitute valid and binding obligations of the Company
enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity
principles (regardless of whether enforcement is sought in a
proceeding in equity or at law);
(iii) The Company is not and, after giving effect to
the offering and sale of the Offered Securities and the
application of the proceeds thereof as described in the
Offering Document, will not be an "investment company" as
defined in the Investment Company Act of 1940;
(iv) No consent, approval, authorization or order of,
or filing with, any Federal, New York or Delaware governmental
agency or body or any court is required for the consummation
of the transactions contemplated by this Agreement in
connection with the issuance or sale of the Offered Securities
by the Company, and the consummation of the transactions under
the Registration Rights Agreement, other than as may be
required under the Securities Act and the Rules and
Regulations of the Commission thereunder with respect to the
Registration Rights Agreement and the transactions
contemplated thereunder and such as may be required by
securities or blue sky laws of the various states of the
United States;
(v) The execution, delivery and performance of the
Indenture, the Registration Rights Agreement and this
Agreement and the issuance and sale of the Offered Securities
and compliance with the terms and provisions thereof will not
result in a breach or violation of any of the terms and
provisions of, or constitute a default under (i) any New York,
Delaware or federal statute, any rule, regulation or order of
any governmental agency or body or any court having
jurisdiction over the Company or any subsidiary of the Company
or any of their properties, (ii) any agreement or instrument
of which counsel is aware to which the Company or any such
subsidiary is a party or by which the Company or any such
subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject or (iii) the charter
or by-laws of the Company or any such subsidiary, and the
Company has the requisite corporate power and authority to
authorize, issue and sell the Offered Securities as
contemplated by this Agreement;
(vi) Although such counsel has not independently
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verified the accuracy, completeness or fairness of such
statements, such counsel does not believe that the Offering
Circular, or any amendment or supplement thereto, as of the
date hereof and as of such the Closing Date (other than the
financial and market data and statistical information
contained or incorporated by reference therein, as to which
such counsel expresses no opinion), contained any untrue
statement of a material fact or omitted to state any material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(vii) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and conforms
in all material respects to the description thereof contained
in the Offering Document and constitutes a valid and binding
obligation of the Company enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and
to general equity principles (regardless of whether
enforcement is sought in a proceeding in equity or at law);
(viii) This Agreement has been duly authorized,
executed and delivered by the Company; and
(ix) It is not necessary in connection with (i) the
offer, sale and delivery of the Offered Securities by the
Company to the Purchasers pursuant to this Agreement or (ii)
the resales of the Offered Securities by the Purchasers in the
manner contemplated hereby to register the Offered Securities
under the Securities Act or to qualify an indenture in respect
thereof under the Trust Indenture Act, in each case assuming
(a) the accuracy of the representations, warranties and
agreements of the Company and of the Purchasers in this
Agreement and (b) that the persons who buy the offered
Securities in the initial resale thereof are QIB's or purchase
such Offered Securities outside the United States in reliance
on Regulation S under the Securities Act.
(x) To their knowledge, except as disclosed in the
Offering Document, there are no pending actions, suits or
proceedings against or affecting the Company or any of its
subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its
subsidiaries, would constitute a Material Adverse Effect.
(f) The Purchasers shall have received from Cravath, Swaine &
Moore, counsel for the Purchasers, such opinion or opinions, dated the
Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities, the Offering Document, the
exemption from registration for the offer and sale of the Offered
Securities by the Company to the Purchasers and the resales by the
Purchasers as contemplated hereby and other related matters as CSFBC
may require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to
pass upon such matters.
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(g) The Purchasers shall have received a certificate, dated
the Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable
investigation, shall state that the representations and warranties of
the Company in this Agreement are true and correct, that the Company
has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder at or prior to such the
Closing Date, and that, subsequent to the dates of the most recent
financial statements in the Offering Document there has been no
material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or
other), business, properties or results of the Company or any
subsidiary except as set forth in or contemplated by the Offering
Document or as described in such certificate.
(h) The Purchasers shall have received letters, dated the
Closing Date, of Arthur Andersen LLP which meet the requirements of
subsection (a) and (b) of this Section, except that the specified date
referred to in such subsection will be a date not more than three
business days prior to the Closing Date for the purposes of this
subsection.
(i) Concurrently with or prior to the issue and sale of the
Offered Securities by the Company, (i) DIMAC Holdings, Inc.
("Holdings") shall have contributed $39.3 million of additional equity
to the Company (consisting of $10.0 million of additional equity to be
provided to Holdings by certain investors and $29.3 million of net
proceeds from the issuance of $30.0 million aggregate principal amount
of 15-1/2% Senior Notes due 2009 (the "Holdings Notes")) (ii) the
Company shall have borrowed $45.0 million of additional term loans
under the Senior Secured Credit Facility (as defined in the Offering
Document).
(j) Concurrently with or prior to the issue and sale of the
Offered Securities by the Company, the Company and all parties thereto
shall have consummated the Refinancing.
(k) On the Closing Date, the Company shall deliver to the
Initial Purchasers executed copies of the indenture relating to the
Holdings Notes, which indenture shall be in form and substance
satisfactory to the Initial Purchasers.
(l) On or prior to the Closing Date, to the extent the Company
or any of its subsidiaries has any obligations relating to any claims
arising under or related to the issue and sale of the Holdings Notes,
the Initial Purchasers shall have received a subordination agreement
relating to such claims, which subordination agreement shall be in form
and substance satisfactory to the Initial Purchasers.
The Company will furnish the Purchasers with such conformed copies of
such opinions, certificates, letters and documents as the Purchasers reasonably
request. CSFBC may in its sole discretion waive compliance with any conditions
to the obligations of the Purchasers hereunder, whether in respect of the
Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company and the Subsidiary
Guarantors will jointly and severally indemnify and hold harmless the Purchasers
against any losses, claims, damages or liabilities, joint or several, to which
the Purchasers may become subject, under the Securities Act or the Exchange Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any breach of any of the
15
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representations and warranties of the Company contained herein or any untrue
statement or alleged untrue statement of any material fact contained in the
Offering Document, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and will reimburse the Purchasers
for any legal or other expenses reasonably incurred by the Purchasers in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information furnished
to the Company by CSFBC specifically for use therein, it being understood and
agreed that the only such information consists of the information described as
such in subsection (b) below.
(b) The Purchasers will severally and not jointly indemnify and hold
harmless the Company and the Subsidiary Guarantors against any losses, claims,
damages or liabilities to which the Company may become subject, under the
Securities Act or the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Offering Document, or any amendment or supplement thereto, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by
CSFBC specifically for use therein, and will reimburse any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred, it being understood and agreed that the only such information
furnished by the Purchasers consists of (i) the following information in the
Offering Document: the last paragraph at the bottom of the cover page concerning
the terms of the offering by the Purchasers, the legend concerning
over-allotments and stabilizing on the inside front cover page, the first
paragraph under the caption "Plan of Distribution" and the statements under the
captions "Risk Factors - Absence of Public Market for the Notes" and "Transfer
Restrictions" regarding the intention of the Purchasers to make a market in the
Offered Securities.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under subsection (a) or (b) above, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under subsection (a) or (b) above except to the extent
materially prejudiced thereby. In case any such action is brought against any
indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and,
to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party
16
<PAGE>
under this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Purchasers on the other from the offering of the Offered
Securities 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 on the one hand and the Purchasers on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Purchasers on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company bear to the total discounts and commissions received by the
Purchasers from the Company under this Agreement and as set forth in the
Offering Documents. The relative fault 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 Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), the
Purchasers shall not be required to contribute any amount in excess of the
amount by which the total price at which the Offered Securities purchased by it
were resold exceeds the amount of any damages which the Purchasers has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the
Purchasers within the meaning of the Securities Act or the Exchange Act; and the
obligations of the Purchasers under this Section shall be in addition to any
liability which the Purchasers may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act.
8. Default of Purchasers. If any Purchaser or Purchasers default in
their obligations to purchase Securities hereunder and the aggregate principal
amount of the Offered Securities that such defaulting Purchaser or Purchasers
agreed but failed to purchase does not exceed 10% of the total principal amount
of the Offered Securities, CSFBC may make arrangements satisfactory to the
Company for the purchase of such Offered Securities by other persons, including
any of the Purchasers,
17
<PAGE>
but if no such arrangements are made by the Closing Date, the non-defaulting
Purchasers shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Offered Securities that such defaulting
Purchasers agreed but failed to purchase. If any Purchaser or Purchasers so
default and the aggregate principal amount of Offered Securities with respect to
which such default or defaults occur exceeds 10% of the total principal amount
of the Offered Securities and arrangements satisfactory to CSFBC and the Company
for the purchase of such Offered Securities by other persons are not made within
36 hours after such default, this Agreement will terminate without liability on
the part of any non-defaulting Purchaser or the Company, except as provided in
Section 9. As used in this Agreement, the term "Purchaser" includes any person
substituted for a Purchaser under this Section. Nothing herein will relieve a
defaulting Purchaser from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Purchasers set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Purchaser, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Purchasers is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5(h) and the
respective obligations of the Company and the Purchasers pursuant to Section 7
shall remain in effect. If the purchase of the Offered Securities by the
Purchasers is not consummated for any reason other than solely because of the
occurrence of any event specified in clause (C), (D) or (E) of Section 6(d)(ii),
the Company will reimburse the Purchasers for all out-of-pocket expenses
(including fees and disbursements of counsel) reasonably incurred by it in
connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Purchasers will be mailed, delivered or telegraphed and confirmed to
Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y.
10010-3629, Attention: Investment Banking Department Transactions Advisory
Group, or, if sent to the Company, will be mailed, delivered or telegraphed and
confirmed to them at DIMAC Corporation, 5775 Peachtree Dunwoody Road, Suite
C-150, Atlanta, Georgia 30342, Attention: Scott Ebert.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
controlling persons referred to in Section 7, and no other person will have any
right or obligation hereunder, except that holders of Offered Securities shall
be entitled to enforce the agreements for their benefit contained in the second
and third sentences of Section 5(b) hereof against the Company as if such
holders were parties hereto.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
13. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York without regard to
principles of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of
18
<PAGE>
the Federal and state courts in the Borough of Manhattan in The City of New York
in any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
19
<PAGE>
If the foregoing is in accordance with the Purchasers' understanding of
our agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement between the Company and the
Purchasers in accordance with its terms.
Very truly yours,
DIMAC CORPORATION,
by /s/ James Wu
------------------------------------
Name: James Wu
Title: Assistant Secretary
SUBSIDIARY GUARANTORS:
DIMAC MARKETING CORPORATION,
by /s/ James Wu
------------------------------------
Name: James Wu
Title: Assistant Secretary
DIMAC DIRECT, INC.,
by /s/ James Wu
------------------------------------
Name: James Wu
Title: Assistant Secretary
PALM COAST DATA INC.,
by /s/ James Wu
------------------------------------
Name: James Wu
Title: Assistant Secretary
THE McCLURE GROUP INC.,
by /s/ James Wu
------------------------------------
Name: James Wu
Title: Assistant Secretary
WILCOX & ASSOCIATES INC.,
by /s/ James Wu
------------------------------------
Name: James Wu
Title: Assistant Secretary
20
<PAGE>
MBS/MULTIMODE INC.,
by /s/ James Wu
------------------------------------
Name: James Wu
Title: Assistant Secretary
AMERICOMM HOLDINGS, INC.,
by /s/ James Wu
------------------------------------
Name: James Wu
Title: Assistant Secretary
AMERICOMM DIRECT MARKETING, INC.,
by /s/ James Wu
------------------------------------
Name: James Wu
Title: Assistant Secretary
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
CREDIT SUISSE FIRST BOSTON
CORPORATION
FIRST UNION CAPITAL MARKETS
WARBURG DILLON READ LLC
Acting on behalf of themselves and
as the Representatives of the
several Purchasers
By: CREDIT SUISSE FIRST BOSTON
CORPORATION
By: /s/ Richard Gallent
-----------------------------------------------
Name: Richard Gallent
Title: Managing Director
21
<PAGE>
Schedule A
<TABLE>
<CAPTION>
Principal Amount
at maturity of
Purchaser Offered Securities
--------- ------------------
<S> <C>
Credit Suisse First Boston Corporation..................................... $ 60,000,000
First Union Capital Markets, a division of Wheat
First Securities, Inc...................................................... 20,000,000
Warburg Dillon Read LLC.................................................... 20,000,000
------------------
Total................................................. $100,000,000
------------------
------------------
</TABLE>
22
<PAGE>
Exhibit 2.3
CERTIFICATE OF MERGER
OF
DMAC MERGER CORP.
(a Delaware Corporation)
INTO
AMERICOMM HOLDINGS, INC.
(a Delaware Corporation)
--------------------------
Pursuant to Section 251 of the General
Corporation Law of the State of Delaware
--------------------------
AmeriComm Holdings, Inc. a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify:
1. The names and states of incorporation of each of the constituent
corporations are as follows: AmeriComm Holdings, Inc. is a corporation duly
organized and existing under the laws of the State of Delaware. DMAC Merger
Corp. ("DMAC") is a corporation duly organized and existing under the laws of
the State of Delaware.
2. Section 251 of the General Corporation Law of the State of
Delaware permits the merger of two corporations organized and existing under the
laws of the State of Delaware.
3. By Unanimous Written Consent of the Board of Directors of the
Corporation on May 16, 1998, the Board of Directors of the Corporation duly
adopted resolutions approving the Agreement and Plan of Merger by and among DMAC
Holdings, Inc., DMAC and the Corporation (the "Agreement and Plan of Merger"),
which was executed by the parties thereto as of May 18, 1998 and pursuant to
which DMAC will be merged with and into the Corporation.
<PAGE>
4. By Unanimous Written Consent of the Board of Directors of DMAC
on May 16, 1998, the Board of Directors of DMAC duly adopted resolutions
approving the Agreement and Plan of Merger.
5. By Written Consent of the Sole Shareholder of DMAC dated as of
May 16, 1998, the shareholder of DMAC duly approved the Agreement and Plan of
Merger in accordance with the requirements of the General Corporation Law of the
State of Delaware.
6. The Agreement and Plan of Merger was approved, adopted,
certified, executed and acknowledged by each of DMAC and the Corporation in
accordance with the requirements of Section 251 of the General Corporation Law
of the State of Delaware.
7. The name of the surviving corporation shall be AmeriComm
Holdings, Inc. The certificate of incorporation of the surviving corporation
shall be the certificate of incorporation of AmeriComm Holdings, Inc. which
shall be amended as follows:
Article FOURTH is hereby amended by deleting such Article in its entirety
and replacing in lieu thereof the following:
"FOURTH: The total authorized capital stock of the Corporation shall
be 100 shares of Common Stock, all of which are $0.001 par value."
9. The executed Agreement and Plan of Merger is on file at the
principal place of business of the surviving corporation at AmeriComm Holdings,
Inc., 5775 Peachtree Dunwoody Road, Suite C150, Atlanta, Georgia 30342.
10. A copy of the Agreement and Plan of Merger will be furnished by
the Corporation, on request and without cost, to any stockholder of either the
Corporation or DMAC.
-2-
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate
to be signed by its President and Chief Executive Officer this 26th day of June,
1998.
AMERICOMM HOLDINGS, INC.
By /s/ Robert M. Miklas
---------------------------
Name: Robert M. Miklas
Title: President and Chief Executive
Officer
-3-
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
DMAC ACQUISITION CORP.
--------------------
I, THE UNDERSIGNED, in order to form a corporation for the
purposes hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, as from time to time amended, do
hereby certify as follows:
FIRST: The name of the Corporation is
DMAC Acquisition Corp.
SECOND: The registered office of the
Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801, County of New Castle.
The name of its registered agent in the State of Delaware at
such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage, directly
or indirectly, in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware as from
time to time in effect.
FOURTH: The total authorized capital
stock of the Corporation shall be 100 shares of Common Stock, par value $.001
per share.
<PAGE>
FIFTH: The name and mailing address of the incorporator
is as follows:
Name Mailing Address
---- ---------------
Eric S. Klee 1155 Avenue of the Americas
New York, New York 10036
SIXTH: The business of the Corporation shall be managed under
the direction of the Board of Directors except as otherwise provided by law. The
number of Directors of the Corporation shall be fixed from time to time by, or
in the manner provided in, the By-Laws. Election of Directors need not be by
written ballot unless the By-Laws of the Corporation shall so provide.
SEVENTH: The Board of Directors may make, alter or repeal
the By-Laws of the Corporation except as otherwise provided in the By-Laws
adopted by the Corporation's stockholders.
EIGHTH: The Directors of the Corporation shall be protected
from personal liability, through indemnification or otherwise, to the fullest
extent permitted under the General Corporation Law of the State of Delaware
as from time to time in effect.
1. A Director of the Corporation shall under no
circumstances have any personal liability to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a Director
except for those breaches and acts or omissions with respect to which the
General Corporation Law of the State of Delaware, as from time to time
amended, expressly provides that this provision shall not eliminate or limit
such personal liability of Directors. Neither the modification or repeal of
this paragraph 1 of Article EIGHTH nor any amendment to said General
Corporation Law that does not have retroactive application shall limit the
right of Directors hereunder to exculpation from personal liability for any
act or omission occurring prior to such amendment, modification or repeal.
2
<PAGE>
2. The Corporation shall indemnify each Director and Officer
of the Corporation to the fullest extent permitted by applicable law, except as
may be otherwise provided in the Corporation's By-Laws, and in furtherance
hereof the Board of Directors is expressly authorized to amend the Corporation's
By-Laws from time to time to give full effect hereto, notwithstanding possible
self interest of the Directors in the action being taken. Neither the
modification or repeal of this paragraph 2 of Article EIGHTH nor any amendment
to the General Corporation Law of the State of Delaware that does not have
retroactive application shall limit the right of Directors and Officers to
indemnification hereunder with respect to any act or omission occurring prior to
such modification, amendment or repeal.
NINTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
3
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this 12th day
of May, 1998.
/s/ Eric S. Klee
----------------
Eric S. Klee
Incorporator
4
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
BE IT REMEMBERED, that on the 12th day of May , 1998,
personally came before me, James Bragg, a Notary Public in and for the State and
County aforesaid, Eric S. Klee, the party to the foregoing Certificate of
Incorporation, known to me personally to be such, and acknowledged the said
Certificate to be his act and deed, and that the facts therein stated are truly
set forth.
GIVEN under my hand and seal of office the day and year
aforesaid.
/s/ James Bragg
-------------------------
Notary Public
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF DMAC ACQUISITION CORP.
DMAC Acquisition Corp., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is DMAC Acquisition Corp. (the
"Corporation"). The Corporation was originally incorporated in the State of
Delaware on the 12th day of May, 1998 pursuant to a Certificate of Incorporation
filed with the Secretary of State of the State of Delaware on that date.
2. This Certificate of Amendment amends the
Certificate of Incorporation filed with the Secretary of State of the State of
Delaware on May 12, 1998. This Certificate of Amendment has been adopted by the
Corporation and by its sole stockholder pursuant to Section 242 of the General
Corporation Law of the State of Delaware.
3. On August 7, 1998, Directors of the Corporation
duly adopted resolutions authorizing the following amendment of the Certificate
of Incorporation of the Corporation, declaring such amendment to be advisable
and in the best interests of the Corporation and its sole stockholder and
authorizing the appropriate officers to solicit written consent of the sole
shareholder of the Corporation in accordance with the provisions of Section 228
of the General Corporation Law of the State of Delaware. Thereafter, pursuant to
resolutions of the Board of Directors, in lieu of a meeting and vote of the sole
stockholder, the sole stockholder representing all of the issued and outstanding
shares of capital stock of the Corporation adopted the following amendment of
the Certificate of Incorporation of the Corporation.
4. The Certificate of Incorporation of the
Corporation is amended by deleting the text contained in ARTICLE FIRST in its
entirety and inserting in lieu thereof the following:
"The name of the Corporation is DIMAC Corporation."
<PAGE>
IN WITNESS WHEREOF, said Corporation has caused this Certificate of
Amendment of Certificate of Incorporation of DMAC Acquisition Corp. to be
executed by its officer thereunto duly authorized this 10th day of August, 1998.
DMAC ACQUISITION CORP.
By: /s/ James Wu
----------------
Name: James Wu
Title: Vice President and Assistant
Secretary
<PAGE>
Exhibit 3.2
BY-LAWS
OF
DMAC ACQUISITION CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
STOCKHOLDERS.............................................................................................1
Section 1. Annual Meeting...............................................................................1
Section 2. Special Meetings.............................................................................1
Section 3. Notice of Meetings...........................................................................1
Section 4. Quorum.......................................................................................1
Section 5. Organization of Meetings.....................................................................2
Section 6. Voting.......................................................................................2
Section 7. Inspectors of Election.......................................................................2
Section 8. Action by Consent............................................................................2
ARTICLE II
DIRECTORS................................................................................................3
Section 1. Number, Quorum, Term, Vacancies, Removal.....................................................3
Section 2. Meetings, Notice.............................................................................3
Section 3. Committees...................................................................................4
Section 4. Action by Consent............................................................................4
Section 5. Compensation.................................................................................4
ARTICLE III
OFFICERS.................................................................................................4
Section 1. Titles and Election..........................................................................4
Section 2. Terms of Office..............................................................................4
Section 3. Removal......................................................................................5
Section 4. Resignations.................................................................................5
Section 5. Vacancies....................................................................................5
Section 6. Chairman of the Board........................................................................5
Section 7. President....................................................................................5
Section 8. Vice Presidents..............................................................................5
Section 9. Secretary....................................................................................5
Section 10. Treasurer....................................................................................6
Section 11. Duties of Officers may be Delegated..........................................................6
ARTICLE IV
INDEMNIFICATION..........................................................................................6
Section 1. Actions by Others............................................................................6
Section 2. Actions by or in the Right of the Corporation................................................6
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 3. Successful Defense...........................................................................7
Section 4. Specific Authorization.......................................................................7
Section 5. Advance of Expenses..........................................................................7
Section 6. Right of Indemnity not Exclusive.............................................................7
Section 7. Insurance....................................................................................8
Section 8. Invalidity of any Provisions of this Article.................................................8
ARTICLE V
CAPITAL STOCK............................................................................................8
Section 1. Certificates.................................................................................8
Section 2. Transfer.....................................................................................8
Section 3. Record Dates.................................................................................8
Section 4. Lost Certificates............................................................................9
ARTICLE VI
CHECKS, NOTES, ETC.......................................................................................9
Section 1. Checks, Notes, Etc...........................................................................9
ARTICLE VII
MISCELLANEOUS PROVISIONS.................................................................................9
Section 1. Offices......................................................................................9
Section 2. Fiscal Year..................................................................................9
Section 3. Corporate Seal...............................................................................9
Section 4. Books.......................................................................................10
Section 5. Voting of Stock.............................................................................10
ARTICLE VIII
AMENDMENTS..............................................................................................10
</TABLE>
3
<PAGE>
BY-LAWS
OF
DMAC CORPORATION
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of the
stockholders of the Corporation shall be held either within or without the State
of Delaware, at such place as the Board of Directors may designate in the call
or in a waiver of notice thereof, on the first Monday in May of each year
beginning with the year 1999 (or if such day be a legal holiday, then on the
next succeeding day not a holiday) at 10 a.m., for the purpose of electing
directors and for the transaction of such other business as may properly be
brought before the meeting.
Section 2. Special Meetings. Special Meetings of the
stockholders may be called by the Board of Directors or by the
President, and shall be called by the President or by the Secretary upon the
written request of the holders of record of at least twenty-five per cent (25%)
of the shares of stock of the Corporation, issued and outstanding and entitled
to vote, at such times and at such place either within or without the State of
Delaware as may be stated in the call or in a waiver of notice thereof.
Section 3. Notice of Meetings. Notice of the time, place
and purpose of every meeting of stockholders shall be delivered personally or
mailed not less than ten days nor more than sixty days previous thereto to each
stockholder of record entitled to vote, at his post office address appearing
upon the records of the Corporation or at such other address as shall be
furnished in writing by him to the Corporation for such purpose. Such further
notice shall be given as may be required by law or by these By-Laws. Any meeting
may be held without notice if all stockholders entitled to vote are present in
person or by proxy, or if notice is waived in writing, either before or after
the meeting, by those not present.
Section 4. Quorum. The holders of record of at least a
majority of the shares of the stock of the Corporation, issued and outstanding
and entitled to vote, present in person or by proxy, shall, except as otherwise
provided by law or by these By-Laws, constitute a quorum at all meetings of the
stockholders; if there be no such quorum, the holders of a majority of such
shares so present or represented may adjourn the meeting from time to time until
a quorum shall have been obtained.
Section 5. Organization of Meetings. Meetings of the
stockholders shall be presided over by the Chairman of the Board, if there be
one, or if he is not present by the
4
<PAGE>
President, or if he is not present, by a chairman to be chosen at the meeting.
The Secretary of the Corporation, or in his absence an Assistant Secretary,
shall act as Secretary of the meeting, if present.
Section 6. Voting. At each meeting of stockholders, except
as otherwise provided by statute or the Certificate of Incorporation, every
holder of record of stock entitled to vote shall be entitled to one vote in
person or by proxy for each share of such stock standing in his name on the
records of the Corporation. Elections of directors shall be determined by a
plurality of the votes cast thereat and, except as otherwise provided by
statute, the Certificate of Incorporation, or these By-Laws, all other action
shall be determined by a majority of the votes cast at such meeting. Each proxy
to vote shall be in writing and signed by the stockholder or by his duly
authorized attorney.
At all elections of directors, the voting shall be by ballot
or in such other manner as may be determined by the stockholders present in
person or by proxy entitled to vote at such election. With respect to any other
matter presented to the stockholders for their consideration at a meeting, any
stockholder entitled to vote may, on any question, demand a vote by ballot.
A complete list of the stockholders entitled to vote at each
such meeting, arranged in alphabetical order, with the address of each, and the
number of shares registered in the name of each stockholder, shall be prepared
by the Secretary and shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 7. Inspectors of Election. The Board of Directors in
advance of any meeting of stockholders may appoint one or more Inspectors of
Election to act at the meeting or any adjournment thereof. If Inspectors of
Election are not so appointed, the chairman of the meeting may, and on the
request of any stockholder entitled to vote, shall appoint one or more
Inspectors of Election. Each Inspector of Election, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of Inspector of Election at such meeting with strict impartiality and
according to the best of his ability. If appointed, Inspectors of Election shall
take charge of the polls and, when the vote is completed, shall make a
certificate of the result of the vote taken and of such other facts as may be
required by law.
Section 8. Action by Consent. Any action required or
permitted to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if, prior to such action, a
written consent or consents thereto, setting forth such action, is signed by the
holders of record of shares of the stock of the Corporation, issued and
outstanding and entitled to vote thereon, having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
5
<PAGE>
ARTICLE II
DIRECTORS
Section 1. Number, Quorum, Term, Vacancies, Removal. The
Board of Directors of the Corporation shall consist of at least two but no more
than five persons. The number of directors may be changed by a resolution passed
by a majority of the whole Board or by a vote of the holders of record of at
least a majority of the shares of stock of the Corporation, issued and
outstanding and entitled to vote.
A majority of the members of the Board of Directors then
holding office (but not less than one-third of the total number of directors nor
less than two directors) shall constitute a quorum for the transaction of
business, but if at any meeting of the Board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum shall have been obtained.
Directors shall hold office until the next annual election and
until their successors shall have been elected and shall have qualified, unless
sooner displaced.
Whenever any vacancy shall have occurred in the Board of
Directors, by reason of death, resignation, or otherwise, other than removal of
a director with or without cause by a vote of the stockholders, it shall be
filled by a majority of the remaining directors, though less than a quorum
(except as otherwise provided by law), or by the stockholders, and the person so
chosen shall hold office until the next annual election and until his successor
is duly elected and has qualified.
Any one or more of the directors of the Corporation may be
removed either with or without cause at any time by a vote of the holders of
record of at least a majority of the shares of stock of the Corporation, issued
and outstanding and entitled to vote, and thereupon the term of the director or
directors who shall have been so removed shall forthwith terminate and there
shall be a vacancy or vacancies in the Board of Directors, to be filled by a
vote of the stockholders as provided in these By- Laws.
Section 2. Meetings, Notice. Meetings of the Board of
Directors shall be held at such place either within or without the State of
Delaware, as may from time to time be fixed by resolution of the Board, or as
may be specified in the call or in a waiver of notice thereof. Regular meetings
of the Board of Directors shall be held at such times as may from time to time
be fixed by resolution of the Board, and special meetings may be held at any
time upon the call of two directors, the Chairman of the Board, if one be
elected, or the President, by oral, telegraphic or written notice, duly served
on or sent or mailed to each director not less than two days before such
meeting. A meeting of the Board may be held without notice immediately after the
annual meeting of stockholders at the same place at which such meeting was held.
Notice need not be given of regular meetings of the Board. Any meeting may be
held without notice, if all directors are present, or if notice is waived in
writing, either before or after the meeting, by those not present. Any member of
the Board of Directors, or any committee thereof, may participate in a
6
<PAGE>
meeting by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other and
participation in a meeting by such means shall constitute presence in person at
such meeting.
Section 3. Committees. The Board of Directors may, in its
discretion, by resolution passed by a majority of the whole Board, designate
from among its members one or more committees which shall consist of two or more
directors. The Board may designate one or more directors as alternate members of
any such committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committees shall have and may exercise such
powers as shall be conferred or authorized by the resolution appointing them. A
majority of any such committee may determine its action and fix the time and
place of its meetings, unless the Board of Directors shall otherwise provide.
The Board shall have power at any time to change the membership of any such
committee, to fill vacancies in it, or to dissolve it.
Section 4. Action by Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if prior to such action a
written consent or consents thereto is signed by all members of the Board, or of
such committee as the case may be, and such written consent or consents is filed
with the minutes of proceedings of the Board or committee.
Section 5. Compensation. The Board of Directors may determine,
from time to time, the amount of compensation which shall be paid to its
members. The Board of Directors shall also have power, in its discretion, to
allow a fixed sum and expenses for attendance at each regular or special meeting
of the Board, or of any committee of the Board; in addition the Board of
Directors shall also have power, in its discretion, to provide for and pay to
directors rendering services to the Corporation not ordinarily rendered by
directors, as such, special compensation appropriate to the value of such
services, as determined by the Board from time to time.
ARTICLE III
OFFICERS
Section 1. Titles and Election. The officers of the
Corporation, who shall be chosen by the Board of Directors at its first meeting
after each annual meeting of stockholders, shall be a President, a Treasurer and
a Secretary. The Board of Directors from time to time may elect a Chairman of
the Board, one or more Vice Presidents, Assistant Secretaries, Assistant
Treasurers and such other officers and agents as it shall deem necessary, and
may define their powers and duties. Any number of offices may be held by the
same person.
Section 2. Terms of Office. The officer shall hold office
until their successors are chosen and qualify.
Section 3. Removal. Any officer may be removed, either with or
without cause, at any time, by the affirmative vote of a majority of the Board
of Directors.
7
<PAGE>
Section 4. Resignations. Any officer may resign at any time
by giving written notice to the Board of Directors or to the Secretary. Such
resignation shall take effect at the time specified therein, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 5. Vacancies. If the office of any officer or agent
becomes vacant by reason of death, resignation, retirement, disqualification,
removal from office or otherwise, the directors may choose a successor, who
shall hold office for the unexpired term in respect of which such vacancy
occurred.
Section 6. Chairman of the Board. The Chairman of the Board
of Directors, if one be elected, shall preside at all meetings of the Board of
Directors and of the stockholders, and he shall have and perform such other
duties as from time to time may be assigned to him by the Board of Directors.
Section 7. President. The President shall be the Chief
Executive Officer of the Corporation and, in the absence of the Chairman, shall
preside at all meetings of the Board of Directors, and of the stockholders. He
shall exercise the powers and perform the duties usual to the chief executive
officer and, subject to the control of the Board of Directors, shall have
general management and control of the affairs and business of the Corporation;
he shall appoint and discharge employees and agents of the Corporation (other
than officers elected by the Board of Directors) and fix their compensation; and
he shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall have the power to execute bonds, mortgages and
other contracts, agreements and instruments of the Corporation, and shall do and
perform such other duties as from time to time may be assigned to him by the
Board of Directors.
Section 8. Vice Presidents. If chosen, the Vice Presidents,
in the order of their seniority, shall, in the absence or disability of the
President, exercise all of the powers and duties of the President. Such Vice
Presidents shall have the power to execute bonds, notes, mortgages and other
contracts, agreements and instruments of the Corporation, and shall do and
perform such other duties incident to the office of Vice President and as the
Board of Directors, or the President shall direct.
Section 9. Secretary. The Secretary shall attend all sessions
of the Board and all meetings of the stockholders and record all votes and the
minutes of proceedings in a book to be kept for that purpose. He shall give, or
cause to be given, notice of all meetings of the stockholders and of the Board
of Directors, and shall perform such other duties as may be prescribed by the
Board of Directors. The Secretary shall affix the corporate seal to any
instrument requiring it, and when so affixed, it shall be attested by the
signature of the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer who may affix the seal to any such instrument in the event
of the absence or disability of the Secretary. The Secretary shall have and be
the custodian of the stock records and all other books, records and papers of
the Corporation (other than financial) and shall see that all books, reports,
statements, certificates and other documents and records required by law are
properly kept and filed.
Section 10. Treasurer. The Treasurer shall have the custody
of the corporate funds
8
<PAGE>
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
Corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the Corporation as may be ordered by
the Board, taking proper vouchers for such disbursements, and shall render to
the directors whenever they may require it, an account of all his transactions
as Treasurer and of the financial condition of the Corporation.
Section 11. Duties of Officers may be Delegated. In case of
the absence or disability of any officer of the Corporation, or for any other
reason that the Board may deem sufficient, the Board may delegate, for the time
being, the powers or duties, or any of them, of such officer to any other
officer, or to any director.
ARTICLE IV
INDEMNIFICATION
Section 1. Actions by Others. The Corporation (1) shall
indemnify any person who was or is a party 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
or an officer of the Corporation and (2) except as otherwise required by Section
3 of this Article, may indemnify any person who was or is a party 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 an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee,
agent of or participant in another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts 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. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which 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
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor 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, agent of or participant in another corporation,
partnership, joint venture, trust or other enterprise
9
<PAGE>
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit 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 except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Delaware Court of Chancery or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Delaware Court of Chancery or such other court shall deem proper.
Section 3. Successful Defense. To the extent that a person
who is or was a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1 or Section 2 of this Article, or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Section 4. Specific Authorization. Any indemnification under
Section 1 or Section 2 of this Article (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in said Sections 1 and 2. Such determination shall be made (1) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 5. Advance of Expenses. Expenses incurred by any
person who may have a right of indemnification under this Article in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation pursuant to this Article.
Section 6. Right of Indemnity not Exclusive. The
indemnification provided by this Article shall not be deemed exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
Section 7. Insurance. The Corporation may purchase and
maintain insurance on
10
<PAGE>
behalf of any person who 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 or participant in another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article,
Section 145 of the General Corporation Law of the State of Delaware or
otherwise.
Section 8. Invalidity of any Provisions of this Article. The
invalidity or unenforceability of any provision of this Article shall not affect
the validity or enforceability of the remaining provisions of this Article.
ARTICLE V
CAPITAL STOCK
Section 1. Certificates. The interest of each stockholder of
the Corporation shall be evidenced by certificates for shares of stock in such
form as the Board of Directors may from time to time prescribe. The certificates
of stock shall be signed by the President or a Vice President and by the
Secretary, or the Treasurer, or an Assistant Secretary, or an Assistant
Treasurer, and countersigned and registered in such manner, if any, as the Board
of Directors may by resolution prescribe. Where any such certificate is
countersigned by a transfer agent other than the Corporation or its employee, or
registered by a registrar other than the Corporation or its employee, the
signature of any such officer may be a facsimile signature. In case any officer
or officers who shall have signed, or whose facsimile signature or signatures
shall have been used on, any such certificate or certificates shall cease to be
such officer or officers of the Corporation, whether because of death,
resignation or otherwise, before such certificate or certificates shall have
been delivered by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures shall have been used thereon had not ceased to
be such officer or officers of the Corporation.
Section 2. Transfer. The shares of stock of the Corporation
shall be transferred only upon the books of the Corporation by the holder
thereof in person or by his attorney, upon surrender for cancellation of
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof of
the authenticity of the signature as the Corporation or its agents may
reasonably require.
Section 3. Record Dates. The Board of Directors may fix in
advance a date, not less than ten nor more than sixty days preceding the date of
any meeting of stockholders, or the date for the payment of any dividend, or the
date for the distribution or allotment of any rights, or the date when any
change, conversion or exchange of capital stock shall go into effect, as a
record date for the determination of the stockholders entitled to notice of, and
to vote at, any such meeting, or entitled to receive payment of any such
dividend, or to receive any distribution
11
<PAGE>
or allotment of such rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, and in such case only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting, or to receive
payment of such dividend, or to receive such distribution or allotment or
rights or to exercise such rights, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such record
date fixed as aforesaid.
Section 4. Lost Certificates. In the event that any
certificate of stock is lost, stolen, destroyed or mutilated, the Board of
Directors may authorize the issuance of a new certificate of the same tenor and
for the same number of shares in lieu thereof. The Board may in its discretion,
before the issuance of such new certificate, require the owner of the lost,
stolen, destroyed or mutilated certificate, or the legal representative of the
owner to make an affidavit or affirmation setting forth such facts as to the
loss, destruction or mutilation as it deems necessary, and to give the
Corporation a bond in such reasonable sum as it directs to indemnify the
Corporation.
ARTICLE VI
CHECKS, NOTES, ETC.
Section 1. Checks, Notes, Etc. All checks and drafts on the
Corporation's bank accounts and all bills of exchange and promissory notes, and
all acceptances, obligations and other instruments for the payment of money, may
be signed by the President or any Vice President and may also be signed by such
other officer or officers, agent or agents, as shall be thereunto authorized
from time to time by the Board of Directors.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Offices. The registered office of the Corporation
shall be located at the office of The Corporation Trust Company, in the City of
Wilmington, County of New Castle, in the State of Delaware and said Corporation
shall be the registered agent of this Corporation in charge thereof. The
Corporation may have other offices either within or without the State of
Delaware at such places as shall be determined from time to time by the Board of
Directors or the business of the Corporation may require.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall be determined by the Board of Directors.
Section 3. Corporate Seal. The seal of the Corporation
shall be circular in form and contain the name of the Corporation, and the year
and state of its incorporation. Such seal may be altered from time to time at
the discretion of the Board of Directors.
12
<PAGE>
Section 4. Books. There shall be kept at such office of the
Corporation as the Board of Directors shall determine, within or without the
State of Delaware, correct books and records of account of all its business and
transactions, minutes of the proceedings of its stockholders, Board of Directors
and committees, and the stock book, containing the names and addresses of the
stockholders, the number of shares held by them, respectively, and the dates
when they respectively became the owners of record thereof, and in which the
transfer of stock shall be registered, and such other books and records as the
Board of Directors may from time to time determine.
Section 5. Voting of Stock. Unless otherwise specifically
authorized by the Board of Directors, all stock owned by the Corporation, other
than stock of the Corporation, shall be voted, in person or by proxy, by the
President or any Vice President of the Corporation on behalf of the Corporation.
ARICLE VIII
AMENDMENTS
Section 1. Amendments. The vote of the holders of at least a
majority of the shares of stock of the Corporation, issued and outstanding and
entitled to vote, shall be necessary at any meeting of stockholders to amend or
repeal these By-Laws or to adopt new by-laws. These By-Laws may also be amended
or repealed, or new by-laws adopted, at any meeting of the Board of Directors by
the vote of at least a majority of the entire Board; provided that any by-law
adopted by the Board may be amended or repealed by the stockholders in the
manner set forth above.
Any proposal to amend or repeal these By-Laws or to adopt new
by-laws shall be stated in the notice of the meeting of the Board of Directors
or the stockholders, or in the waiver of notice thereof, as the case may be,
unless all of the directors or the holders of record of all of the shares of
stock of the Corporation, issued and outstanding and entitled to vote, are
present at such meeting.
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Exhibit 4.1
EXECUTION COPY
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
DIMAC Corporation
Issuer
12 1/2% Senior Subordinated Notes Due 2008
THE SUBSIDIARY GUARANTORS NAMED HEREIN
Subsidiary Guarantors
--------------------
INDENTURE
Dated as of October 15, 1998
---------------------
Wilmington Trust Company
Trustee
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- -------- ---------
<S> <C>
310(a)(1) ..............................7.10
(a)(2) ..............................7.10
(a)(3) ..............................7.10
(a)(4) ..............................N/A
(b) ..............................7.08, 7.10
(c) ..............................N.A.
311(a) ..............................7.11
(b) ..............................7.11
(c) ..............................N.A.
312(a) ..............................2.05
(b) ..............................13.03
(c) ..............................13.03
313(a) ..............................7.06
(b)(1) ..............................N.A.
(b)(2) ..............................7.06
(c) ..............................7.06, 13.02
(d) ..............................7.06
314(a) ..............................4.02, 4.12,
13.02
(b) ..............................N.A.
(c)(1) ..............................13.04
(c)(2) ..............................13.04
(c)(3) ..............................N.A.
(d) ..............................N.A.
(e) ..............................13.05
(f) ..............................4.12
315(a) ..............................7.01
(b) ..............................7.05, 13.02
(c) ..............................7.01
(d) ..............................7.01
(e) ..............................6.11
316(a)(last sentence) .............................13.06
(a)(1)(A) ..............................6.05
(a)(1)(B) ..............................6.04
(a)(2) ..............................N.A.
(b) ..............................6.07
317(a)(1) ..............................6.08
(a)(2) ..............................6.09
(b) ..............................2.04
318(a) ..............................13.01
</TABLE>
N.A. means Not Applicable.
- ------------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1 Page
----
<S> <C>
Definitions and Incorporation by Reference
SECTION 1.01. Definitions ........................................................... 1
SECTION 1.02. Other Definitions ..................................................... 26
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act ...................................................... 26
SECTION 1.04. Rules of Construction ................................................. 27
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating ....................................................... 28
SECTION 2.02. Execution and Authentication .......................................... 28
SECTION 2.03. Registrar and Paying Agent ............................................ 29
SECTION 2.04. Paying Agent To Hold Money in Trust ................................... 30
SECTION 2.05. Securityholder Lists .................................................. 30
SECTION 2.06. Transfer and Exchange ................................................. 30
SECTION 2.07. Replacement Securities ................................................ 31
SECTION 2.08. Outstanding Securities ................................................ 31
SECTION 2.09. Temporary Securities .................................................. 32
SECTION 2.10. Cancelation ........................................................... 32
SECTION 2.11. Defaulted Interest .................................................... 32
SECTION 2.12. CUSIP Numbers ......................................................... 33
SECTION 2.13. Issuance of Additional Securities ..................................... 33
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee .................................................... 33
SECTION 3.02. Selection of Securities To Be
Redeemed ............................................................ 33
SECTION 3.03. Notice of Redemption .................................................. 34
SECTION 3.04. Effect of Notice of Redemption ........................................ 35
SECTION 3.05. Deposit of Redemption Price ........................................... 35
SECTION 3.06. Securities Redeemed in Part............................................ 35
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities ................................................. 35
SECTION 4.02. SEC Reports ........................................................... 35
SECTION 4.03. Limitation on Indebtedness ............................................ 36
SECTION 4.04. Limitation on Restricted Payments ..................................... 39
SECTION 4.05. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries ........................................................ 42
SECTION 4.06. Limitation on Sales of Assets ......................................... 43
SECTION 4.07. Limitation on Affiliate
Transactions ........................................................ 47
SECTION 4.08. Limitation on the Sale of Capital
Stock of Restricted Subsidiaries .................................... 48
SECTION 4.09. Change of Control ..................................................... 49
SECTION 4.10. Future Guarantors ..................................................... 50
SECTION 4.11. Limitation on Lines of Business ....................................... 51
SECTION 4.12. Compliance Certificate ................................................ 51
SECTION 4.13. Further Instruments and Acts .......................................... 51
ARTICLE 5
Successor Company
SECTION 5.01. When Company May Merge or Transfer
Assets .............................................................. 51
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default ..................................................... 53
SECTION 6.02. Acceleration .......................................................... 56
SECTION 6.03. Other Remedies ........................................................ 56
SECTION 6.04. Waiver of Past Defaults ............................................... 56
SECTION 6.05. Control by Majority ................................................... 57
SECTION 6.06. Limitation on Suits ................................................... 57
SECTION 6.07. Rights of Holders To Receive Payment .................................. 58
SECTION 6.08. Collection Suit by Trustee ............................................ 58
SECTION 6.09. Trustee May File Proofs of Claim ...................................... 58
SECTION 6.10. Priorities ............................................................ 59
SECTION 6.11. Undertaking for Costs ................................................. 59
SECTION 6.12. Waiver of Stay or Extension Laws ...................................... 59
</TABLE>
<PAGE>
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<TABLE>
<S> <C>
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee ..................................................... 60
SECTION 7.02. Rights of Trustee ..................................................... 61
SECTION 7.03. Individual Rights of Trustee .......................................... 62
SECTION 7.04. Trustee's Disclaimer .................................................. 62
SECTION 7.05. Notice of Defaults .................................................... 62
SECTION 7.06. Reports by Trustee to Holders ......................................... 63
SECTION 7.07. Compensation and Indemnity ............................................ 63
SECTION 7.08. Replacement of Trustee ................................................ 64
SECTION 7.09. Successor Trustee by Merger ........................................... 65
SECTION 7.10. Eligibility; Disqualification 65
SECTION 7.11. Preferential Collection of Claims
Against Company ..................................................... 65
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securities;
Defeasance 66
SECTION 8.02. Conditions to Defeasance .............................................. 67
SECTION 8.03. Application of Trust Money ............................................ 68
SECTION 8.04. Repayment to Company .................................................. 68
SECTION 8.05. Indemnity for Government
Obligations ......................................................... 69
SECTION 8.06. Reinstatement ......................................................... 69
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders ............................................ 69
SECTION 9.02. With Consent of Holders ............................................... 70
SECTION 9.03. Compliance with Trust Indenture Act ................................... 72
SECTION 9.04. Revocation and Effect of Consents
and Waivers ......................................................... 72
SECTION 9.05. Notation on or Exchange of
Securities .......................................................... 72
</TABLE>
<PAGE>
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<TABLE>
<S> <C>
SECTION 9.06. Trustee To Sign Amendments ............................................ 72
SECTION 9.07. Payment for Consent ................................................... 73
ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate .............................................. 73
SECTION 10.02. Liquidation, Dissolution,
Bankruptcy .......................................................... 73
SECTION 10.03. Default on Senior Indebtedness ........................................ 74
SECTION 10.04. Acceleration of Payment of
Securities .......................................................... 75
SECTION 10.05. When Distribution Must Be Paid
Over ................................................................ 75
SECTION 10.06. Subrogation ........................................................... 75
SECTION 10.07. Relative Rights ....................................................... 76
SECTION 10.08. Subordination May Not Be Impaired
by Company .......................................................... 76
SECTION 10.09. Rights of Trustee and Paying
Agent ............................................................... 76
SECTION 10.10. Distribution or Notice to
Representative ...................................................... 77
SECTION 10.11. Article 10 Not To Prevent Events of
Default or Limit Right To
Accelerate .......................................................... 77
SECTION 10.12. Trust Moneys Not Subordinated ......................................... 77
SECTION 10.13. Trustee Entitled To Rely .............................................. 77
SECTION 10.14. Trustee To Effectuate
Subordination ....................................................... 78
SECTION 10.15. Trustee Not Fiduciary for Holders
of Senior Indebtedness .............................................. 78
SECTION 10.16. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions .......................................................... 78
SECTION 10.17. Changes in Senior Indebtedness
Not to Affect Subordination ......................................... 79
ARTICLE 11
Subsidiary Guaranties
SECTION 11.01. Guaranties ............................................................ 79
SECTION 11.02. Limitation on Liability ............................................... 81
</TABLE>
<PAGE>
5
<TABLE>
<S> <C>
SECTION 11.03. Successors and Assigns ................................................ 82
SECTION 11.04. No Waiver ............................................................. 82
SECTION 11.05. Modification .......................................................... 82
SECTION 11.06. Release of Subsidiary Guarantor ....................................... 82
ARTICLE 12
Subordination of Subsidiary Guaranties
SECTION 12.01. Agreement To Subordinate .............................................. 83
SECTION 12.02. Liquidation, Dissolution, Bankruptcy .................................. 83
SECTION 12.03. Default on Senior Indebtedness
of Subsidiary Guarantor ............................................. 84
SECTION 12.04. Demand for Payment .................................................... 84
SECTION 12.05. When Distribution Must Be Paid Over ................................... 85
SECTION 12.06. Subrogation ........................................................... 85
SECTION 12.07. Relative Rights ....................................................... 85
SECTION 12.08. Subordination May Not Be Impaired by
Company ............................................................. 85
SECTION 12.09. Rights of Trustee and Paying Agent .................................... 86
SECTION 12.10. Distribution or Notice to Representative .............................. 86
SECTION 12.11. Article 12 Not To Prevent Defaults
Under a Subsidiary Guaranty or
Limit Right To Demand Payment ....................................... 86
SECTION 12.12. Trustee Entitled To Rely .............................................. 86
SECTION 12.13. Trustee To Effectuate Subordination ................................... 87
SECTION 12.14. Trustee Not Fiduciary for Holders
of Senior Indebtedness of Subsidiary
Guarantor ........................................................... 87
SECTION 12.15. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions .......................................................... 88
ARTICLE 13
Miscellaneous
SECTION 13.01. Trust Indenture Act Controls .......................................... 88
SECTION 13.02. Notices ............................................................... 88
SECTION 13.03. Communication by Holders with
Other Holders ....................................................... 89
SECTION 13.04. Certificate and Opinion as to
Conditions Precedent ................................................ 89
</TABLE>
<PAGE>
6
<TABLE>
<S> <C>
SECTION 13.05. Statements Required in Certificate
or Opinion .......................................................... 90
SECTION 13.06. When Securities Disregarded ........................................... 90
SECTION 13.07. Rules by Trustee, Paying Agent and
Registrar ........................................................... 90
SECTION 13.08. Legal Holidays ........................................................ 90
SECTION 13.09. Governing Law ......................................................... 91
SECTION 13.10. No Recourse Against Others ............................................ 91
SECTION 13.11. Successors ............................................................ 91
SECTION 13.12. Multiple Originals .................................................... 91
SECTION 13.13. Table of Contents; Headings ........................................... 91
Exhibit A - Form of Security
</TABLE>
<PAGE>
INDENTURE dated as of October 15, 1998,
among DIMAC Corporation, a Delaware corporation (the
"Company"), the Subsidiary Guarantors (as defined
herein) and Wilmington Trust Company, a Delaware
banking corporation, as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Company's 12
1/2% Senior Subordinated Notes Due 2008 (the "Initial Securities") and, if and
when issued pursuant to a registered exchange for Initial Securities, the
Company's 12 1/2% Senior Subordinated Notes Due 2008 (the "Exchange Securities")
and if and when issued pursuant to a private exchange for Initial Securities,
the Company's 12 1/2% Senior Subordinated Notes Due 2008 (the "Private Exchange
Securities", together with the Exchange Securities and the Initial Securities,
the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Acquisition Closing Date" means June 26, 1998.
"Additional Assets" means (i) any property or assets (other
than Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; provided, however, that, in the case of clauses (ii) or (iii), such
Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means (i) any other
Person, directly or indirectly, controlling or controlled by or under direct or
indirect common control with such specified Person or (ii) any Person who is a
director or officer (a) of such Person, (b) of any
<PAGE>
2
Subsidiary of such Person or (c) of any Person described in clause (i) above.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of Sections 4.04, 4.06 and
4.07 only, "Affiliate" shall also mean any beneficial owner of shares
representing 5% or more of the total voting power of the Voting Stock (on a
fully diluted basis) of the Company or of rights or warrants to purchase such
Voting Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer, issuance
or other disposition (or series of related sales, leases, transfers, issuances
or dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by the Company or any Restricted Subsidiary (including any
disposition by means of a merger, consolidation or similar transaction) other
than (i) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (ii) a
disposition of inventory or Temporary Cash Investments in the ordinary course of
business, (iii) a disposition of obsolete equipment or equipment that is no
longer useful in the conduct of the business of the Company or the applicable
Restricted Subsidiary and that is disposed of in each case in the ordinary
course of business, (iv) the sale of other assets so long as the fair market
value of the assets disposed of pursuant to this clause (iv) does not exceed
$1.0 million in the aggregate in any fiscal year and $5.0 million in the
aggregate prior to the maturity date of the Securities, (v) for purposes of
Section 4.06 only, a disposition subject to Section 4.04 and (vi) the
disposition of all or substantially all of the assets of the Company in the
manner permitted pursuant to the provisions of Section 5.01 or any disposition
that constitutes a Change of Control pursuant to this Indenture.
"Attributable Indebtedness" in respect of a Sale/Leaseback
Transaction means, as at the time of
<PAGE>
3
determination, the present value (discounted at the interest rate borne by the
Securities, compounded annually) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determina tion, with
respect to any Indebtedness or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to Preferred
Stock multiplied by the amount of such payment by (ii) the sum of all such
payments.
"Banks" has the meaning specified in the Senior
Credit Agreement.
"Bank Indebtedness" means any and all amounts payable under or
in respect of the Senior Credit Documents and any Indebtedness that is incurred
to refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) Indebtedness under such Senior Credit
Documents including Indebtedness that refinances such Indebtedness, as amended
from time to time, including principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for postfiling
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable thereunder or in respect
thereof (including, without limitation, cash collateralization of letters of
credit).
"Board of Directors" means the Board of Directors of the
Company or any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or
other day on which commercial banks in New York City or Wilmington, Delaware are
authorized or required by law to close.
"Capital Stock" of any Person means any and all shares,
interests, rights to purchase, warrants, options,
<PAGE>
4
participations or other equivalents of or interests in (however designated)
equity of such Person, including any Preferred Stock, but excluding any debt
securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is
required to be classified and accounted for as a capitalized lease for financial
reporting purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP and the Stated Maturity thereof
shall be the date of the last payment of rent or any other amount due under such
lease prior to the first date such lease may be terminated without penalty.
"Cash Equivalents" means (i) securities issued or directly and
fully guaranteed or insured by the United States Government, or any agency or
instrumentality thereof, having maturities of not more than one year from the
date of acquisition; (ii) marketable general obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a credit
rating of "A" or better from either Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.; (iii) certificates of deposit, time deposits,
eurodollar time deposits, overnight bank deposits or bankers' acceptances having
maturities of not more than one year from the date of acquisition thereof issued
by any domestic commercial bank (including Wilmington Trust Company) the
long-term debt of which is rated at the time of acquisition thereof at least "A"
or the equivalent thereof by Standard & Poor's Ratings Group, or "A" or the
equivalent thereof by Moody's Investors Service, Inc., and having capital and
surplus in excess of $500.0 million; (iv) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clauses (i), (ii) and (iii) entered into with any bank meeting the
qualifications specified in clause (iii) above; (v) commercial paper rated at
the time of acquisition thereof at least "A-2" or the equivalent thereof by
Standard & Poor's Ratings Group or "P-2" or the equivalent thereof by Moody's
Investors Service, Inc., or carrying an equivalent rating by a nationally
recognized rating agency,
<PAGE>
5
if both of the two named rating agencies cease publishing ratings of
investments, and in either case maturing within 270 days after the date of
acquisition thereof; and (vi) interests in any investment company which invests
solely in instruments of the type specified in clauses (i) through (v) above.
"Change of Control" means the occurrence of any of
the following events:
(i) prior to the first public offering of Voting Stock of the
Company or Holdings, as the case may be, the Permitted Holders cease to
be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act), directly or indirectly, of a majority voting power
of the Voting Stock of the Company, whether as a result of issuance of
securities of the Company or Holdings, as the case may be, any merger,
consolidation, liquidation or dissolution of the Company or Holdings,
as the case may be, any direct or indirect transfer of securities by
any Permitted Holder or otherwise (for purposes of this clause (i) and
clause (ii) below, the Permitted Holders will be deemed to beneficially
own any Voting Stock of a Person (the "specified corporation") held by
any other Person (the "parent corporation") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, a
majority of the voting power of the Voting Stock of the parent
corporation);
(ii) following the first public offering of Voting Stock of
the Company or Holdings, as the case may be, any "person" (as such term
issued in Sections 13(d) and 14(d) of the Exchange Act), other than one
or more Permitted Holders, is or becomes the beneficial owner (as
defined in clause (i) above, except that a Person shall be deemed to
have "beneficial ownership" of all shares that any such Person has the
right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 35% of
the total voting power of the Voting Stock of the Company or Holdings,
as the case may be; provided, however, that the Permitted Holders
beneficially own (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting
power of the Voting Stock of the Company or Holdings, as the case may
be,
<PAGE>
6
than such other person and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election
a majority of the board of directors of the Company or Holdings, as
the case may be (for purposes of this clause (ii), such other person
shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person
"beneficially owns" (as defined in this clause (ii)), directly or
indirectly, more than 35% of the voting power of the Voting Stock of
such parent corporation and the Permitted Holders "beneficially own"
(as defined in clause (i) above), directly or indirectly in the
aggregate a lesser percentage of the voting power of the Voting Stock
of such parent corporation and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election
a majority of the board of directors of such parent corporation);
(iii) individuals who on the Issue Date constituted the Board
of Directors (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders
of the Company was approved by a vote of a majority of the directors of
the Company then still in office who were either directors on the Issue
Date or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office; or
(iv) the merger or consolidation of the Company with or into
another Person or the merger of another Person with or into the
Company, or the sale of all or substantially all the assets of the
Company to another Person (other than a Person that is controlled by
the Permitted Holders), and, in the case of any such merger or
consolidation, the securities of the Company that are outstanding
immediately prior to such transaction and which represent 100% of the
aggregate voting power of the Voting Stock of the Company are changed
into or exchanged for cash, securities or property, unless pursuant to
such transaction such securities are changed into or exchanged for, in
addition to any other consideration, securities of the surviving
corporation that represent immediately after such transaction, at least
a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
<PAGE>
7
"Code" means the Internal Revenue Code of 1986, as
amended.
"Company" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor and, for
purposes of any provision contained herein and required by the TIA, each other
obligor on the indenture securities.
"Consolidated Cash Flow" for any period means the Consolidated
Net Income for such period, plus, to the extent deducted in calculating such
Consolidated Net Income, (a)(i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization expense, in each case for
such period, and (v) other noncash charges reducing Consolidated Net Income
(excluding any such noncash charge to the extent that it represents an accrual
of or reserve for cash charges in any future period or amortization of a prepaid
cash expense that was paid in a prior period), in each case for such period
less, to the extent not deducted in calculating such Consolidated Net Income,
(b) the aggregate amount of contingent and "earnout" payments in respect of any
acquisition by the Company or any Restricted Subsidiary that are paid in cash
during such period. Notwithstanding the foregoing, the provision for taxes based
on the income or profits of, and the depreciation and amortization and non-cash
charges of, a Restricted Subsidiary shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Consolidated Coverage Ratio" as of any date of determination
means the ratio of (i) the aggregate amount of Consolidated Cash Flow for the
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination to (ii) Consolidated Interest Expense for
<PAGE>
8
such four fiscal quarters; provided, however, Consolidated Cash Flow and
Consolidated Interest Expense shall be calculated using the pro forma
consolidated statements of operations of the Company contained in the Offering
Circular, which pro forma statements of operations shall give effect to the
acquisition of AmeriComm Holdings, Inc. and DIMAC Marketing Corporation and
their respective subsidiaries as if they occurred at the beginning of such
period; provided, however, that (1) if the Company or any of its Restricted
Subsidiaries has incurred any Indebtedness since the beginning of such period
that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, Consolidated Cash Flow and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (2) if the Company or
any Restricted Subsidiary has repaid, repurchased, defeased or otherwise
discharged any Indebtedness since the beginning of such period or if any
Indebtedness is to be repaid, repurchased, defeased or otherwise discharged (in
each case other than Indebtedness Incurred under any revolving credit facility
unless such Indebtedness has been permanently repaid and has not been replaced
or the related commitment permanently reduced) on the date of the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio,
Consolidated Cash Flow and Consolidated Interest Expense for such period shall
be calculated on a pro forma basis as if such repayment, repurchase, defeasance
or discharge had occurred on the first day of such period and as if the Company
or such Restricted Subsidiary has not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments used to
repay, repurchase, defease or otherwise discharge such Indebtedness, (3) if
since the beginning of such period the Company or any of its Restricted
Subsidiaries shall have made any Asset Disposition, Consolidated Cash Flow for
such period shall be reduced by an amount equal to the Consolidated Cash Flow
(if positive) attributable to the assets which are the subject of such Asset
Disposition for such period or increased by an amount equal to the Consolidated
Cash Flow (if negative) attributable thereto for such period, and Consolidated
<PAGE>
9
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense attributable to any Indebtedness of the Company or
any of its Restricted Subsidiaries repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense of such period directly attributable to the Indebtedness for
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (4) if since the beginning of such period the Company or any of its
Restricted Subsidiaries (by merger or otherwise) shall have made an Investment
in any Restricted Subsidiary (or any person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any Investment in a
Restricted Subsidiary or any acquisition of assets occurring in connection with
a transaction causing a calculation to be made hereunder, which constitutes all
or substantially all of an operating unit of a business, Consolidated Cash Flow
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Indebtedness
and including the pro forma expenses and cost reductions calculated on a basis
consistent with Regulation S-X of the Securities Act (it being understood that
all cost reductions set forth in note (c) to the unaudited pro forma
consolidated statements of operations contained in the Offering Circular shall
be deemed to be calculated on a basis consistent with Regulation S-X)) as if
such Investment or acquisition occurred on the first day of such period and (5)
if since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset
Disposition or any Investment or acquisition of assets that would have required
an adjustment pursuant to clause (3) or (4) above if made by the Company or a
Restricted Subsidiary during such period, Consolidated Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred
<PAGE>
10
in connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months).
"Consolidated Interest Expense" means, for any period, the
total interest expense of the Company and its Restricted Subsidiaries, plus, to
the extent not included in such interest expense but Incurred by the Company or
its Restricted Subsidiaries, (i) interest expense attributable to Capitalized
Lease Obligations and imputed interest with respect to Attributable
Indebtedness, (ii) amortization of debt discount and debt issuance cost (other
than those debt discounts and debt issuance costs incurred on the Acquisition
Closing Date, the Issue Date and the date of issuance of any other Notes under
the Indenture), (iii) capitalized interest, (iv) noncash interest expense, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) interest actually paid by the
Company or any such Restricted Subsidiary under any Guarantee of Indebtedness or
other obligation of any other Person, (vii) net costs associated with Currency
Agreements and Interest Rate Agreements (including amortization of fees), (viii)
the product of (A) all Preferred Stock dividends in respect of all Preferred
Stock of Restricted Subsidiaries of the Company and Disqualified Stock of the
Company held by Persons other than the Company or a Wholly Owned Subsidiary
multiplied by (B) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined Federal, state and local
statutory tax rate of the Company, expressed as a decimal, in each case,
determined on a consolidated basis in accordance with GAAP and (ix) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than the Company) in connection with Indebtedness Incurred
by such plan or trust.
"Consolidated Net Income" means, for any period, the net
income (loss) of the Company and its consolidated
<PAGE>
11
Restricted Subsidiaries; provided, however, that there shall not be included in
such Consolidated Net Income: (i) any net income (loss) of any Person if such
Person is not a Restricted Subsidiary, except that (A) subject to the
limitations contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution to a Restricted Subsidiary, to the limitations contained in clause
(iii) below) and (B) the Company's equity in a net loss of any such Person for
such period shall be included in determining such Consolidated Net Income; (ii)
any net income (loss) of any person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (loss) of any Restricted Subsidiary (other
than AmeriComm Holdings, Inc. or AmeriComm Direct Marketing, Inc. for the period
prior to the Issue Date) if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the limitations contained in (iv) below, the
Company's equity in the net income of any such Restricted Subsidiary for such
period shall be included in such Consolidated Net Income up to the aggregate
amount of cash that could have been distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a dividend
(subject, in the case of a dividend that could have been made to another
Restricted Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Restricted Subsidiary for such period
shall be included in determining such Consolidated Net Income; (iv) any gain
(but not loss) realized upon the sale or other disposition of any assets of the
Company or its consolidated Subsidiaries (including pursuant to any
Sale/Leaseback Transaction) which are not sold or otherwise disposed of in the
ordinary course of business and any gain or loss realized upon the sale or other
disposition of any Capital Stock of any Person; (v) any extraordinary gain or
loss; and (vi) the cumulative effect of a change in accounting principles.
"Consolidated Net Worth" means the total of the amounts shown
on the balance sheet of the Company and its
<PAGE>
12
consolidated subsidiaries, determined on a consolidated basis in accordance with
GAAP, as of the end of the most recent fiscal quarter of the Company ending
prior to the taking of any action for the purpose of which the determination is
being made as (i) the par or stated value of all outstanding Capital Stock of
the Company plus (ii) paid in capital or capital surplus relating to such
Capital Stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit and (B) any amounts attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank
Indebtedness and (ii) after repayment in full of the Bank Indebtedness, any
other Senior Indebtedness of the Company which, at the date of determination,
has an aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $25.0
million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any
Capital Stock of such Person which by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable at the option of
holder) or upon the happening of any event (i) matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, (ii) is
convertible or exchangeable at the option of the holder for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to 123 days after the Stated
Maturity of the Securities.
"Equity Investors" means the equity owners of
Holdings on the Issue Date.
<PAGE>
13
"Equity Offering" means any public or private sales of equity
securities (excluding Disqualified Stock) of the Company or Holdings.
"Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time, including those set
forth in (i) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, and (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations based on GAAP contained in
the Indenture shall be computed in conformity with GAAP as in effect on the
Issue Date.
"Guarantee" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any other
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of any other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Guaranty Agreement" means a supplemental indenture, in a form
satisfactory to the Trustee, pursuant to which a Subsidiary Guarantor guarantees
the Company's obligations with respect to the Securities on the terms provided
for in the Indenture.
"Hedging Obligations" of any Person means the obligations of
such Person pursuant to any Interest Rate Agreement or Currency Agreement.
<PAGE>
14
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Holdings" means DIMAC Holdings, Inc., a Delaware
corporation.
"Holdings Notes" means the 15 1/2% Senior Notes Due 2009 of
Holdings issued on or prior to the Issue Date in the principal amount of $30.0
million and any additional 15 1/2% Senior Notes Due 2009 of Holdings issued in
lieu of a payment of cash interest on previously issued 15 1/2% Senior Notes Due
2009 of Holdings and any other Indebtedness of Holdings that Refinances such
Holdings Notes; provided, however, that such other Indebtedness does not require
the payment of cash interest or the repayment of principal (or the repurchase of
such Indebtedness) in an amount in excess of the amounts thereof provided for in
such Holdings Notes being Refinanced or at a time prior to the time such amounts
would have been payable as provided for in such Holdings Notes being Refinanced.
"Holdings Notes Indenture" means the Indenture dated as of
October 22, 1998 between Holdings and Wilmington Trust Company, as Trustee.
"Holdings Notes Purchase Agreement" means the purchase
agreement pursuant to which the Holdings Notes will be issued.
"Incur" means issue, assume, Guarantee, incur or otherwise
become liable for; provided, however, that any Indebtedness or Capital Stock of
a Person existing at the time such person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence"
when used as a noun shall have a correlative meaning. The accretion of principal
of a non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person
on any date of determination (without duplication),
(i) the principal of and premium (if any) in
respect of indebtedness of such Person for borrowed money;
<PAGE>
15
(ii) the principal of and premium (if any) in respect of
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
(iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto) (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i), (ii) and
(v)) entered into in the ordinary course of business of such Person to the
extent that such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third business day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit);
(iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services (other than (A) Trade Payables and
accrued expenses incurred in the ordinary course of business and (B) contingent
and "earnout" payments in respect of any acquisition by the Company or any
Restricted Subsidiary so long as, following the occurrence of the contingency
giving rise to the obligation connected therewith, payment thereof is made when
due), which purchase price is due more than six months after the date of placing
such property in service or taking delivery and title thereto or the completion
of such services;
(v) all Capitalized Lease Obligations and all Attributable
Indebtedness of such Person;
(vi) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of Indebtedness of such Person shall
be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(vii) all Indebtedness of other Persons to the extent
Guaranteed by such Person,
(viii) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to
<PAGE>
16
any Subsidiary of the Company, any Preferred Stock (but excluding, in each case,
any accrued dividends); and
(ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above as such amount would be reflected on a balance sheet in
accordance with GAAP and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date.
"Indenture" means this Indenture as amended or
supplemented from time to time.
"Initial Purchasers" means Credit Suisse First Boston
Corporation, First Union Capital Markets, a division of Wheat First Securities,
Inc., and Warburg Dillon Read LLC.
"Interest Rate Agreement" means, with respect to any Person
any interest rate protection agreement, interest rate future agreement, interest
rate option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge agreement or
other similar agreement or arrangement as to which such Person is party or a
beneficiary.
"Investment" in any Person means any direct or indirect
advance, loan (other than advances to customers in the ordinary course of
business that are recorded as accounts receivable on the balance sheet of such
Person) or other extension of credit (including by way of Guarantee or similar
arrangement, but excluding any debt or extension of credit represented by a bank
deposit other than a time deposit) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary", the definition of
"Restricted Payment" and Section 4.04, (i) "Investment" shall include the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of
<PAGE>
17
any Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issue Date" means the date on which the
Securities are originally issued.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or other
title retention agreement or lease in the nature thereof).
"Management Services Agreement" means the Advisory Services
Agreement dated as of June 26, 1998 between the Company and MDC Management
Company IV, LLC.
"Net Available Cash" from an Asset Disposition means cash
payments received (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to the properties or assets that are the subject of such
Asset Disposition or received in any other noncash form) therefrom, in each case
net of (i) all legal, title and recording tax expenses, commissions and other
fees and expenses incurred, and all Federal, state, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law, be
repaid out of
<PAGE>
18
the proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to any Person owning a beneficial interest in
assets subject to sale or minority interest holders in Subsidiaries or joint
ventures as a result of such Asset Disposition, (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition and retained by the Company or any Restricted Subsidiary
of the Company after such Asset Disposition and (v) any portion of the purchase
price from an Asset Disposition placed in escrow (whether as a reserve for
adjustment of the purchase price, for satisfaction of indemnities in respect of
such Asset Disposition or otherwise in connection with such Asset Disposition);
provided, however, that upon the termination of such escrow, Net Available Cash
shall be increased by any portion of funds therein released to the Company or
any Restricted Subsidiary.
"Net Cash Proceeds", with respect to any issuance or sale of
Capital Stock or Indebtedness, means the cash proceeds of such issuance or sale
net of attorneys' fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result of such issuance or sale.
"Offering Circular" means the Confidential Offering Circular
dated October 16, 1998, relating to the issue and sale of the Company's 12 1/2%
Senior Subordinated Notes Due 2008.
"Officer" means the Chairman of the Board, the President, the
Chief Executive Officer, any Vice President, the Treasurer, the Chief Financial
Officer, the Secretary or any Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed
by two Officers.
"Opinion of Counsel" means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
<PAGE>
19
"Permitted Holders" means the Equity Investors and
their respective Affiliates.
"Permitted Investment" means (i) any Investment in a
Restricted Subsidiary or a Person which will, upon making such Investment,
become a Restricted Subsidiary; provided, however, that the primary business of
such Restricted Subsidiary is a Related Business; (ii) any Investment in another
Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary of the Company; provided,
however, that such Person's primary business is a Related Business; (iii) any
Investment in Temporary Cash Investments; (iv) receivables owing to the Company
or any of its Restricted Subsidiaries, if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; (v) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business; (vi)
loans or advances to employees made in the ordinary course of business of the
Company or such Restricted Subsidiary; (vii) stock, obligations or securities
received in settlement of debts created in the ordinary course of business and
owing to the Company or any Restricted Subsidiary or in satisfaction of
judgments or claims; (viii) Investments the payment for which consists
exclusively of equity securities (exclusive of Disqualified Stock) of the
Company; (ix) loans or advances to employees and directors to purchase equity
securities of the Company or Holdings; provided that the aggregate amount of
such loans and advances shall not exceed $2.0 million at any time outstanding;
(x) any Investment in another Person to the extent such Investment is received
by the Company or any Restricted Subsidiary as consideration for Asset
Disposition effected in compliance with Section 4.06; (xi) prepayment and other
credits to suppliers made in the ordinary course of business consistent with the
past practices of the Company and its Restricted Subsidiaries; (xii) Investments
in connection with pledges, deposits, payments or performance bonds made or
given in the ordinary course of business in connection with or to secure
statutory, regulatory or similar obligations, including obligations under
health, safety or environmental obligations; and (xiii) any Investment in
another Person; provided, however, that the aggregate amount of all such
<PAGE>
20
Investments made pursuant to this clause (xiii) shall not exceed in the
aggregate $5.0 million at any one time outstanding (measured as of the date made
and without giving effect to subsequent changes in value).
"Permitted Seller Paper" means Indebtedness of the Company or
any Restricted Subsidiary Incurred in connection with an acquisition of a
business or assets in respect of the balance deferred and unpaid of the purchase
price of any property and payable to the seller in connection therewith.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any
Person, means Capital Stock of any class or classes (however designated) which
is preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over shares of Capital Stock of any other class of such Person.
"Principal" of a Security means the principal of the Security
plus the premium, if any, payable on the Security which is due or overdue or is
to become due at the relevant time.
"Refinance" means, in respect of any Indebtedness, to
refinance, replace, extend, renew, refund, repay, prepay, redeem, defease or
retire, or to issue other Indebtedness in exchange or replacement for, such
indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances
any Indebtedness existing on the date of the Indenture or Incurred in compliance
with this Indenture (including Indebtedness of the Company that Refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the
<PAGE>
21
Indebtedness being refinanced and (iii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the sum of the
aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding of the Indebtedness being refinanced
(plus the amount of any premium required to be paid in connection therewith and
plus reasonable fees and expenses in connection therewith); provided further
that Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary
that Refinances Indebtedness of the Company or (y) Indebtedness of the Company
or a Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Registration Rights Agreement" means the Registration Rights
Agreement dated October 15, 1998, among the Company, the Subsidiary Guarantors
and the Initial Purchasers.
"Related Business" means the business engaged in by the
Company on the Issue Date and such other business activities that are incidental
or related thereto.
"Representative" means any trustee, agent or representative
(if any) of an issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the
declaration or payment of any dividends or the making of any distributions by
the Company in respect of its Capital Stock (including any payment in connection
with any merger or consolidation involving the Company) except (A) dividends or
distributions payable in its Capital Stock (other than Disqualified Stock) and
(B) dividends or distributions payable to the Company or another Restricted
Subsidiary (and, if such Restricted Subsidiary is not a Wholly Owned Subsidiary,
to its other stockholders on a pro rata basis), (ii) the purchase, redemption,
retirement or other acquisition for value of any Capital Stock of the Company or
any Restricted Subsidiary held by Persons other than the Company or another
Restricted Subsidiary, (iii) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase, or other acquisition of
Subordinated
<PAGE>
22
Obligations purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of the
date of acquisition) or (iv) the making of any Investment (other than a
Permitted Investment) in any Person.
"Restricted Subsidiary" means any Subsidiary of
the Company that is not an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired whereby the Company or a Restricted
Subsidiary transfers such property to a Person and the Company or a Restricted
Subsidiary leases it from such Person.
"SEC" or "Commission" means the Securities and
Exchange Commission.
"Secured Indebtedness" means any Indebtedness of
the Company secured by a Lien.
"Securities" means the Securities issued under
this Indenture.
"Securities Act" means the Securities Act of 1933,
as amended.
"Senior Credit Agreement" means the Amended and Restated
Credit Agreement dated as of October 22, 1998, among the Company, Holdings, the
lenders parties thereto, Credit Suisse First Boston, as administrative agent and
arranger, Warburg Dillon Read LLC, as syndication agent, and First Union
National Bank, as documentation agent, as such Senior Credit Agreement has or
may be amended, supplemented or otherwise modified.
"Senior Credit Documents" means the collective reference to
the Senior Credit Agreement and the Notes issued pursuant thereto (as defined in
the Senior Credit Agreement) and each of the mortgages and other security
agreements, guarantees and other instruments and documents executed and
delivered pursuant to any of the foregoing, in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including (i) increasing the amounts of available borrowing
thereunder; provided,
<PAGE>
23
however, that such increase in borrowing is permitted by Section 4.03 or (ii)
adding Restricted Subsidiaries of the Company as additional borrowers or
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement whether by the same or any
other agent, lender or group of lenders.
"Senior Indebtedness" means, with respect to any Person, the
principal of, premium (if any), and interest (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization of such
Person regardless of whether post-filing interest is allowed in such proceeding)
on, and fees and other amounts owing in respect of, the Bank Indebtedness and
all other Indebtedness of such Person, whether outstanding on the Issue Date or
thereafter issued, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that the obligations
in respect of such Indebtedness are not superior in right of payment to the
Securities; provided, however, that Senior Indebtedness will not include (i) any
obligation of such Person to any Subsidiary of such Person, (ii) any liability
for Federal, state, foreign, local or other taxes owed or owing by such Person,
(iii) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), (iv) any Indebtedness, Guarantee or obligation of
such Person that is expressly subordinate or junior in right of payment to any
other Indebtedness, Guarantee or obligation of such Person, including any Senior
Subordinated Indebtedness and any Subordinated Obligations or (v) any Capital
Stock.
"Senior Subordinated Indebtedness" means (i) with respect to
the Company, the Securities and any other Indebtedness of the Company that ranks
pari passu with the Securities in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness of the Company and (ii) with respect to
each Subsidiary Guarantor, its Subsidiary Guaranty of the Securities and any
other Indebtedness of such Person that ranks pari passu with its applicable
Subsidiary Guaranty in respect of payment and is not subordinated by its terms
in respect of payment to any Indebtedness or other obligation of such Person
which is not Senior Indebtedness of such Person.
<PAGE>
24
"Significant Subsidiary" means any Restricted Subsidiary that
would be a "significant subsidiary" of the Company as defined in Article 1 of
Rule 1-02 under Regulation S-X, promulgated pursuant to the Securities Act, as
such Regulation is in effect on the Issue Date by the SEC.
"Stated Maturity" means, with respect to any security, the
date specified in such security as the fixed date on which the payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision.
"Subordinated Obligation" means any Indebtedness of the
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment, in the case of the Company, to the
Securities or, in the case of a Subsidiary Guarantor, its Subsidiary Guaranty
pursuant to a written agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person. Unless otherwise specified herein, each reference
to a Subsidiary shall refer to a Subsidiary of the Company.
"Subsidiary Guarantor" means any domestic Restricted
Subsidiary of the Company that Guarantees the Company's obligations with respect
to the Securities pursuant to the terms of this Indenture.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary
Guarantor of the Company's obligations with respect to the Securities pursuant
to the terms of this Indenture.
"Tax Sharing Agreement" means the existing agreement among the
Company and Holdings and any other tax allocation agreement among the Company,
any of its Subsidiaries or any direct or indirect shareholder of the
<PAGE>
25
Company with respect to consolidated or combined tax returns including the
Company or any of its Subsidiaries but only to the extent that amounts payable
from time to time by the Company or any such Subsidiary under any such agreement
do not exceed the corresponding tax payments that the Company or such Subsidiary
would have been required to make to any relevant taxing authority had the
Company or such Subsidiary not joined in such consolidated or combined return,
but instead had filed returns including only the Company or its Subsidiaries.
"Temporary Cash Investments" means any of the following: (i)
any Investment in direct obligations of the United States of America or any
agency thereof or obligations Guaranteed by the United States of America or any
agency thereof, (ii) Investments in time deposit accounts, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company (including Wilmington
Trust Company) which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America having capital, surplus and undivided profits aggregating in
excess of $250.0 million (or the foreign currency equivalent thereof) and whose
long-term debt, or whose parent holding company's long-term debt, is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act), (iii) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) Investments in commercial paper, maturing not more than 180 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "A-1"
(or higher) according to Moody's Investors Service, Inc. or "P-1" (or higher)
according to Standard and Poor's Ratings Group.
"Trade Payables" means, with respect to any Person, any
accounts payable or any indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed
<PAGE>
26
by such Person arising in the ordinary course of business in connection with the
acquisition of goods or services.
"TIA" means the Trust Indenture Act of 1939
(15 U.S.C. SectionSection77aaa-77bbbb) as in effect on the date of this
Indenture.
"Trustee" means the party named as such in this Indenture
until a successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President
or any other officer or assistant officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary of the Company (including any newly acquired or new formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on
any property of, the Company or any Restricted Subsidiary of the Company that is
not a Subsidiary of the Subsidiary to be so designated; provided, however, that
either (A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets greater than $1,000, such designation would
be permitted under Section 4.04. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could Incur
$1.00 of additional Indebtedness under paragraph (a) of Section 4.03 and (y) no
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
<PAGE>
27
"U.S. Government Obligations" means direct obliga tions (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock
or other interests (including partnership interests) of such Person then
outstanding and normally entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the
Company, all of the Capital Stock of which (other than directors' qualifying
shares) is owned by the Company or another Wholly Owned Subsidiary.
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
"Affiliate Transaction" ......................................... 4.07
"Bankruptcy Law" ................................................ 6.01
"Blockage Notice" ............................................... 10.03
"covenant defeasance option" .................................... 8.01(b)
"Custodian" ..................................................... 6.01
"Event of Default" .............................................. 6.01
"legal defeasance option" ....................................... 8.01(b)
"Legal Holiday" ................................................. 13.08
"Obligations" ................................................... 11.01
"Offer" ......................................................... 4.06(a)
"Offer Amount" .................................................. 4.06(c)(2)
"Offer Period" .................................................. 4.06(c)(2)
"pay the Securities" ............................................ 10.03
"Paying Agent" .................................................. 2.03
"Payment Blockage Period" ....................................... 10.03
"Purchase Date".................................................. 4.06(c)(1)
"Registrar"...................................................... 2.03
"Successor Company" ............................................. 5.01
</TABLE>
<PAGE>
28
SECTION 1.03. Incorporation by Reference of Trust Indenture
Act. This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC;
"indenture securities" means the Securities;
"indenture security holder" means a
Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee"
means the Trustee; and
"obligor" on the indenture securities means the
Company and any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule have
the meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the
context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has
the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limita
tion;
(5) words in the singular include the plural and
words in the plural include the singular;
(6) unsecured Indebtedness shall not be deemed to be
subordinate or junior to Secured Indebtedness merely by virtue of its
nature as unsecured Indebtedness;
<PAGE>
29
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof
that would be shown on a balance sheet of the issuer dated such date
prepared in accordance with GAAP;
(8) the principal amount of any Preferred Stock shall be (i)
the maximum liquidation value of such Preferred Stock or (ii) the
maximum mandatory redemp tion or mandatory repurchase price with
respect to such Preferred Stock, whichever is greater; and
(9) all references to the date the Securities were originally
issued shall refer to the date the Initial Securities were originally
issued.
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating. Provisions relating to the
Initial Securities, the Private Exchange Securities and the Exchange Securities
are set forth in the Rule 144A/Regulation S Appendix attached hereto (the
"Appendix") which is hereby incorporated in and expressly made part of this
Indenture. The Initial Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit 1 to the Appendix
which is hereby incorporated in and expressly made a part of this Indenture.
Exchange Securities, the Private Exchange Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in the Appendix and Exhibit A are part of
the terms of this Indenture.
SECTION 2.02. Execution and Authentication. Two
Officers shall sign the Securities for the Company by manual
or facsimile signature.
<PAGE>
30
If an Officer whose signature is on a Security no longer holds
that office at the time the Trustee authenticates the Security, the Security
shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
written order of the Company signed by two Officers or by an Officer and either
an Assistant Treasurer or an Assistant Secretary of the Company authenticate and
deliver Securities for original issue in the aggregate principal amount
specified in such order, provided that the Trustee shall be entitled to receive
an Officer's Certificate and an Opinion of Counsel of the Company that it may
reasonably request in connection with such authentication and delivery of
Securities. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated and in the case of an issuance of Securities pursuant to Section
2.13 after the date of execution of this Indenture, shall certify that such
Issuance is in compliance with Section 4.03. The aggregate principal amount of
Securities outstanding at any time may not exceed that amount except as provided
in Section 2.07.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Securities. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Registrar, Paying Agent or agent
for service of notices and demands.
SECTION 2.03. Registrar and Paying Agent. The Company shall
maintain an office or agency where Securities may be presented for registration
of transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying
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31
Agent"). The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may have one or more co-registrars and one or
more additional paying agents. The term "Paying Agent" includes any additional
paying agent.
The Company shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co-registrar not a party to this Indenture,
which shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall be
entitled to appropriate compensation therefor pursuant to Section 7.07. The
Company or any of its domestically incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and
Paying Agent in connection with the Securities.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to
each due date of the principal and interest on any Security, the Company shall
deposit with the Paying Agent a sum sufficient to pay such principal and
interest when so becoming due. The Company shall require each Paying Agent
(other than the Trustee) to agree in writing that the Paying Agent shall hold in
trust for the benefit of Securityholders or the Trustee all money held by the
Paying Agent for the payment of principal of or interest on the Securities and
shall notify the Trustee of any default by the Company in making any such
payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate
the money held by it as Paying Agent and hold it as a separate trust fund. The
Company at any time may require a Paying Agent (other than the Trustee) to pay
all money held by it to the Trustee and to account for any funds disbursed by
the Paying Agent. Upon complying with this Section 2.04, the Paying Agent shall
have no further liability for the money delivered to the Trustee.
SECTION 2.05. Securityholder Lists. The Trustee shall preserve
in as current a form as is reasonably practicable the most recent list available
to it of the names and addresses of Securityholders. If the Trustee is
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32
not the Registrar, the Company shall furnish to the Trustee, in writing at least
five Business Days before each interest payment date and at such other times as
the Trustee may request in writing, a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of
Securityholders.
SECTION 2.06. Transfer and Exchange. The Securities shall be
issued in registered form and shall be transferable only upon the surrender of a
Security for registration of transfer. When a Security is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the requirements of Section 8-401(1)
of the Uniform Commercial Code are met. When Securities are presented to the
Registrar or a co-registrar with a request to exchange them for an equal
principal amount of Securities of other denominations, the Registrar shall make
the exchange as requested if the same requirements are met. To permit
registration of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities at the Registrar's or co-registrar's
request. The Company may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with any transfer or
exchange pursuant to this Section. The Company shall not be required to make and
the Registrar need not register transfers or exchanges of Securities selected
for redemption (except, in the case of Securities to be redeemed in part, the
portion thereof not to be redeemed) or any Securities for a period of 15 days
before a selection of Securities to be redeemed or 15 days before an interest
payment date.
Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant
to the terms of this Indenture will evidence the same debt and will be entitled
to the same
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33
benefits under this Indenture as the Securities surrendered upon such transfer
or exchange.
SECTION 2.07. Replacement Securities. If a mutilated Security
is surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss which any of them
may suffer if a Security is replaced. The Company and the Trustee may charge the
Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.08. Outstanding Securities. Securities outstanding
at any time are all Securities authenticated by the Trustee except for those
canceled by it, those delivered to it for cancelation and those described in
this Section as not outstanding. A Security does not cease to be outstand ing
because the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases
to be outstanding unless the Trustee and the Company receive proof satisfactory
to them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or maturity date, money
sufficient to pay all principal and interest payable on that date with respect
to the Securities (or portions thereof) to be redeemed or maturing, as the case
may be, and the Paying Agent is not prohibited from paying such money to the
Securityholders on that date pursuant to the terms of this Indenture, then on
and after that date such Securities (or portions thereof) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive
Securities are ready for delivery, the Company
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34
may prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities and deliver them in exchange for temporary
Securities.
SECTION 2.10 Cancelation. The Company at any time may deliver
Securities to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancelation and deliver a certificate of such destruction to the Company unless
the Company directs the Trustee to deliver canceled Securities to the Company.
The Company may not issue new Securities to replace Securities it has redeemed,
paid or delivered to the Trustee for cancelation.
SECTION 2.11. Defaulted Interest. If the Company defaults on a
payment of interest on the Securities, the Company shall pay defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the
Securities may use "CUSIP" numbers (if then generally in use) and, if so, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers.
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35
SECTION 2.13. Issuance of Additional Securities. The Company
may, subject to Section 4.03, issue up to an additional $200.0 million aggregate
principal amount of Securities under this Indenture that will have identical
terms as the Securities issued on the Issue Date other than with respect to the
Issue Date, issue price and first payment of interest. The Securities issued on
the Issue Date and any additional Securities subsequently issued shall be
treated as a single class for all purposes under this Indenture.
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to
redeem Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
The Company shall give each notice to the Trustee provided for
in this Section at least 60 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein.
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer
than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed pro rata or by lot or by a method that complies with
applicable legal and securities exchange requirements, if any, and that the
Trustee in its sole discretion shall deem to be fair and appropriate and in
accordance with methods generally used at the time of selection by fiduciaries
in similar circumstances. The Trustee shall make the selection from outstanding
Securities not previously called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have denominations
larger than $1,000. Securities and portions of them the Trustee selects shall be
in amounts of
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36
$1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption. The Trustee shall notify the Company promptly of the Securities or
portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not
more than 60 days before a date for redemption of Securities, the Company shall
mail a notice of redemption by first-class mail to each Holder of Securities to
be redeemed at such Holder's registered address.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must
be surrendered to the Paying Agent to collect the
redemption price;
(5) if fewer than all the outstanding Securities
are to be redeemed, the identification and principal
amounts of the particular Securities to be redeemed;
(6) that, unless the Company defaults in making such
redemption payment or the Paying Agent is prohibited from making such
payment pursuant to the terms of this Indenture, interest on Securities
(or portion thereof) called for redemption ceases to accrue on and
after the redemption date; and
(7) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed
on the Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for
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37
redemption become due and payable on the redemption date and at the redemption
price stated in the notice. Upon surrender to the Paying Agent, such Securities
shall be paid at the redemption price stated in the notice, plus accrued
interest to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the related interest payment
date). Failure to give notice or any defect in the notice to any Holder shall
not affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to the
redemption date, the Company shall deposit with the Paying Agent (or, if the
Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust)
money sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to the
Trustee for cancelation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities. The Company shall
promptly pay the principal of and interest on the Securities on the dates and in
the manner provided in the Securities and in this Indenture. Principal and
interest shall be considered paid on the date due if on such date the Trustee or
the Paying Agent holds in accordance with this Indenture money sufficient to pay
all principal and interest then due and the Trustee or the Paying Agent, as the
case may be, is not prohibited from paying such money to the Securityholders on
that date pursuant to the terms of this Indenture.
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38
The Company shall pay interest on overdue princi pal at the
rate specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC Reports. (a) Notwithstanding that the
Company may not be subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall (i) file with the Commission and (ii)
provide to the Trustee and the holders (at their addresses as set forth in the
register of Securities) (A) within 15 days after such reports are filed, if the
Company is required to be subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, or (B) concurrently with the filing of such reports,
if the Company is not required to be subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the annual reports and the information,
documents and other reports which are otherwise required pursuant to Sections 13
and 15(d) of the Exchange Act. Such requirements may also be satisfied, prior to
December 21, 1998, with the filing with the SEC of a registration statement
under the Securities Act that contains the foregoing information (including
financial statements) and by providing copies thereof to the Trustee and
Securityholders. In addition, following the registration of the common stock of
the Company or Holdings pursuant to Section 12(b) or 12(g) of the Exchange Act,
the Company or Holdings, as the case may be, shall furnish to the Trustee and
the Securityholders, promptly upon their becoming available, copies of the
Company's or Holdings', as the case may be, annual report to stockholders and
any other information provided by the Company to its public stockholders
generally. The Company also shall comply with the other provisions of TIA
Section 314(a).
(b) So long as is required for an offer or sale of the
Securities to qualify for an exemption under Rule 144A, the Company shall, upon
request, provide the information required by clause (d)(4) thereunder to each
Holder and to each beneficial owner and prospective purchaser of Securities
identified by any Holder.
SECTION 4.03. Limitation on Indebtedness. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, Incur, directly or
indirectly, any Indebtedness; provided, however, that the Company and any
Restricted Subsidiary may Incur Indebtedness if on the date
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39
thereof the Consolidated Coverage Ratio would be greater than 2.00 to 1.00 if
such Indebtedness is Incurred prior to October 1, 2001, or 2.25 to 1.00 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a),
the Company and its Restricted Subsidiaries may Incur the following
Indebtedness:
(i) Bank Indebtedness provided that the aggregate principal amount
of Indebtedness Incurred pursuant to this clause (i) does not
exceed an amount outstanding at any time equal to $270.0 million less
the aggregate amount of permanent reductions of commitments to extend
credit thereunder and repayments of principal thereof (without
duplication of repayments required as a result of such reductions of
commitments);
(ii) Indebtedness (A) of the Company owed to and held by any Wholly
Owned Subsidiary and (B) of any Restricted Subsidiary owed to and held
by the Company or any Wholly Owned Subsidiary; provided, however, that
(i) any subsequent issuance or transfer of any Capital Stock which
results in any such Wholly Owned Subsidiary ceasing to be a Wholly
Owned Subsidiary or any subsequent transfer of such Indebtedness (other
than to the Company or a Wholly Owned Subsidiary) shall be deemed, in
each case, to constitute the Incurrence of such Indebtedness by the
obligor thereon and (ii) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all obligations with respect to the
Securities;
(iii) Indebtedness represented by the Securities issued on the Issue
Date, any Indebtedness (other than the Indebtedness described in
clauses (i)-(ii) above) outstanding on the date of the Indenture
(including any outstanding notes of AmeriComm Direct Marketing, Inc.)
and any Refinancing Indebtedness Incurred in respect of any
Indebtedness described in this clause (iii) or paragraph (a) above;
(iv) Indebtedness represented by Guarantees of Indebtedness
Incurred pursuant to clause (i) above;
(v) Indebtedness under Currency Agreements and Interest Rate
Agreements which are entered into for
<PAGE>
40
bona fide hedging purposes of the Company or its Restricted
Subsidiaries (as determined in good faith by the Board of Directors
or senior management of the Company) and correspond in terms of
notional amount, duration, currencies and interest rates, as
applicable, to Indebtedness of the Company or the Restricted
Subsidiaries Incurred without violation of the Indenture or to
business transactions of the Company or the Restricted Subsidiaries
on customary terms entered into in the ordinary course of business;
(vi) Indebtedness of the Company or any of its Restricted
Subsidiaries attributable to Capitalized Lease Obligations, or Incurred
to finance the acquisition, construction or improvement of fixed or
capital assets, or constituting Attributable Indebtedness in respect of
Sale/Leaseback Transactions, in an aggregate principal amount at any
one time outstanding not in excess of $10.0 million;
(vii) Subsidiary Guaranties of the Subsidiary Guarantors;
(viii) Permitted Seller Paper in an aggregate principal amount at any
one time outstanding not in excess of $25.0 million; and
(ix) Indebtedness of the Company or any of the Restricted
Subsidiaries (which may comprise Bank Indebtedness) in an aggregate
principal amount at any time outstanding not in excess of $10.0
million.
(c) Notwithstanding any other provision of this Section, the Company
and its Restricted Subsidiaries shall not Incur any Indebtedness (i) pursuant to
paragraph (b) above if the proceeds thereof are used, directly or indirectly, to
repay, prepay, redeem, defease, retire, refund or refinance any Subordinated
Obligations of the Company or any Restricted Subsidiary unless such Indebtedness
shall be subordinated to the Securities or the applicable Subsidiary Guaranty,
as the case may be, to at least the same extent as such Subordinated Obligations
or (ii) pursuant to paragraph (a) or (b) if such Indebtedness is subordinate or
junior in ranking in any respect to any Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness.
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41
(d) Notwithstanding any other provision of this Section, the Company
and its Restricted Subsidiaries shall not Incur any Secured Indebtedness which
is not Senior Indebtedness of the obligor unless contemporaneously therewith
effective provision is made to secure the Securities or the applicable
Subsidiary Guaranty, as the case may be, equally and ratably with such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
SECTION 4.04. Limitation on Restricted Payments. (a) The
Company shall not make, and shall not permit any Restricted Subsidiary, directly
or indirectly, to make, a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be
continuing (or would result therefrom);
(2) the Company could not Incur at least an additional $1.00
of Indebtedness under Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment and all
other Restricted Payments declared (the amount so expended, if other
than in cash, to be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a resolution
of the Board of Directors) or made subsequent to the Issue Date would
exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during
the period (treated as one accounting period) from the
beginning of the fiscal quarter during which the Issue Date
occurs to the end of the most recent fiscal quarter ending
prior to the date of such Restricted Payment as to which
financial results are available (but in no event more than 135
days prior to the date of such Restricted Payment) (or, in
case such Consolidated Net Income shall be a deficit, minus
100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the
Company from the issue or sale of its
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42
Capital Stock (other than Disqualified Stock) or other
cash contributions to its capital subsequent to the Issue
Date (other than an issuance or sale to a Subsidiary of the
Company or an employee stock ownership plan or other trust
established by the Company or any of its Subsidiaries);
(C) aggregate Net Cash Proceeds from the issue or
sale of its Capital Stock to an employee stock ownership plan
or similar trust; provided, however, that if such plan or
trust Incurs any Indebtedness to or Guaranteed by the Company
to finance the acquisition of such Capital Stock, such
aggregate amount shall be limited to any increase in the
Consolidated Net Worth of the Company resulting from principal
repayments made by such plan or trust with respect to
Indebtedness Incurred by it to finance the purchase of such
Capital Stock;
(D) the amount by which Indebtedness of the Company
or its Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary)
subsequent to the Issue Date of any Indebtedness of the
Company or its Subsidiaries convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash, or any other property,
distributed by the Company or any Subsidiary upon such
conversion or exchange); and
(E) $5.0 million.
(b) The provisions of Section 4.04(a) shall not
prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
or an employee stock ownership plan or other trust established by the Company or
any of its Subsidiaries); provided, however, that (A) such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds
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43
from such sale shall be excluded from clause (3)(B) of Section 4.04(a);
(ii) any purchase or redemption of Subordinated Obligations of the
Company or any Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Subordinated Obligations of
the Company or any Restricted Subsidiary as the case may be; provided, however,
that such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments;
(iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under Section 4.06 provided, however,
that such purchase or redemption shall be excluded in the calculation of the
amount of Restricted Payments;
(iv) dividends paid within 60 days after the date of declaration if at
such date of declaration such dividend would have complied with this provision;
provided, however, that such dividend shall be included in the calculation of
the amount of Restricted Payments;
(v) dividends to Holdings to the extent required to pay non-deferrable
scheduled cash interest when due on the Holdings Notes; provided, however, that
(A) no Default shall have occurred and be continuing (or would result
therefrom), (B) Holdings shall immediately apply any such dividend to make such
cash interest payment and (C) immediately after giving effect to any such
dividend, the Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) of Section 4.03; provided further, however, that such
dividends shall be excluded from the calculation of the amount of Restricted
Payments;
(vi) payment of dividends or other distributions by the Company for the
purposes set forth in clauses (A) and (B) below; provided, however, that any
such dividend or distribution described in clause (A) will be excluded in the
calculation of the amount of Restricted Payments and any such dividend or
distribution described in clause (B) will be included in the calculation of the
amount of Restricted Payments: (A) in amounts equal to the amounts required for
Holdings to pay franchise taxes and other fees required to maintain its legal
existence and provide for audit, accounting, legal and other operating costs of
up to
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$1.0 million per fiscal year; and (B) in amounts equal to amounts expended by
the Company or Holdings to repurchase Capital Stock of the Company or Holdings
owned by employees (including former employees) of the Company or its
Subsidiaries or their assigns, estates and heirs; provided further, however,
that the aggregate amount paid, loaned or advanced pursuant to this clause (B)
shall not, in the aggregate, exceed the sum of $2.5 million per fiscal year plus
any amounts contributed by Holdings to the Company as a result of resales of
such repurchased shares of Capital Stock;
(vii) any repurchase of equity interest deemed to occur upon
exercise of stock options if such equity interest represent a portion of the
exercise price of such options; provided, however, that such repurchase shall
be excluded in the calculation of the amount of Restricted Payments;
(viii) payments required to be made by the Company and any of its
Subsidiaries pursuant to the Tax Sharing Agreement; provided, however, that
such payments shall be excluded in the calculation of the amount of
Restricted Payments; or
(ix) payments required in respect of any Permitted Seller Paper,
provided, however, that such payments shall be excluded in the calculation of
the amount of Restricted Payments.
SECTION 4.05. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any such Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligation owed to the Company or a
Restricted Subsidiary, (ii) make any loans or advances to the Company or its
Subsidiaries or (iii) transfer any of its property or assets to the Company or
any other Restricted Subsidiary except:
(A) any encumbrance or restriction pursuant to an
agreement in effect on the Issue Date, including those arising
under the Senior Credit Documents, this Indenture, the
Holdings Notes Purchase Agreement, the Securities, the
Holdings Notes and the Holdings Notes Indenture; (B) any
encumbrance or restriction with respect to a
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45
Restricted Subsidiary pursuant to an agreement relating
to any Indebtedness Incurred by a Restricted Subsidiary
prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to
which such Restricted Subsidiary was acquired by the
Company); (C) any encumbrance or restriction with respect to
a Restricted Subsidiary pursuant to an agreement effecting a
refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clauses (A) or (B) or this clause
(C) or contained in any amendment, supplement or modification
(including an amendment and restatement) to an agreement
referred to in clauses (A) or (B) or this clause (C);
provided, however, that the encumbrances and restrictions
contained in any such refinancing agreement or amendment taken
as a whole are no less favorable to the holders of the
Securities in any material respect than encumbrances and
restrictions contained in such agreements; (D) in the case of
clause (iii), any encumbrance or restriction (1) that
restricts in a customary manner the subletting, assignment or
transfer of any property or asset that is subject to a lease,
license, or similar contract, (2) by virtue of any transfer
of, agreement to transfer, option or right with respect to, or
Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by this
Indenture, or (3) contained in security agreements securing
Indebtedness of a Restricted Subsidiary to the extent such
encumbrance or restrictions restrict the transfer of the
property subject to such security agreements; (E) any such
restriction imposed by applicable law; (F) any restriction
with respect to a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or
disposition; and (G) purchase money obligations for property
acquired in the ordinary course of business that impose
restrictions of the
<PAGE>
46
nature described in clause (iii) above on the property so
acquired.
SECTION 4.06. Limitation on Sales of Assets. (a) The Company
shall not, and shall not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value of the shares
and assets subject to such Asset Disposition, (ii) at least 80% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash and (iii) an amount equal to 100% of the Net Available Cash
from such Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) (A) first, to the extent the Company elects (or
is required by the terms of any Senior Indebtedness of the Company or
Indebtedness (other than Preferred Stock) of a Wholly Owned Subsidiary), to
prepay, repay or purchase Senior Indebtedness of the Company or such
Indebtedness (other than Preferred Stock) of a Wholly Owned Subsidiary (in each
case other than Indebtedness owed to the Company or an Affiliate of the Company)
within 360 days after the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; (B) second, to the extent of the balance of
Net Available Cash after application in accordance with clause (A), to the
extent the Company or such Restricted Subsidiary elects, to reinvest in
Additional Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company or another
Restricted Subsidiary) within 360 days after the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; (C) third, to the extent
of the balance of such Net Available Cash after application in accordance with
clauses (A) and (B), to make an offer to purchase the Securities (an "Offer")
outstanding under this Indenture pursuant and subject to the conditions of this
Indenture to the Holders at a purchase price of 100% of the principal amount
thereof plus accrued and unpaid interest to the purchase date; and (D) fourth,
to the extent of the balance of such Net Available Cash after application in
accordance with Section 4.06(a) (A), (B) and (C), to (x) acquire Additional
Assets (other than Indebtedness and Capital Stock) or (y) prepay, repay or
purchase Indebtedness
<PAGE>
47
of the Company (other than Indebtedness owed to an Affiliate of the Company and
other than Disqualified Stock of the Company) or Indebtedness of any Restricted
Subsidiary (other than Indebtedness owed to the Company or an Affiliate of the
Company), in each case described in this clause (D) within one year from the
receipt of such Net Available Cash or, if the Company has made an Offer pursuant
to clause (C), six months from the date such Offer is consummated; provided,
however, that, in connection with any prepayment, repayment or purchase of
Indebtedness pursuant to clause (A), (C) or (D) above, the Company or such
Restricted Subsidiary shall retire such Indebtedness and shall cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions of this Section 4.06, the Company and its Restricted Subsidiaries
shall not be required to apply any Net Available Cash in accordance herewith
except to the extent that the aggregate Net Available Cash from all Asset
Dispositions which are not applied in accordance with this Section 4.06(a) at
any time exceed $1.0 million. The Company shall not be required to make an offer
for Securities pursuant to this Section 4.06(a) if the Net Available Cash
available therefor (after application of the proceeds as provided in clauses (A)
and (B)) is less than $10.0 million for any particular Asset Disposition (which
lesser amounts shall be carried forward for purposes of determining whether an
offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition).
For the purposes of this Section 4.06(a), the following will
be deemed to be cash: (x) the assumption of Indebtedness (other than
Disqualified Stock) of the Company or any Restricted Subsidiary and the release
of the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition and (y) securities
received by the Company or any Restricted Subsidiary of the Company from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the
purchase of Securities pursuant to clause (a)(iii)(C), the Company will be
required to purchase Securities tendered pursuant to an offer by the Company for
Securities at a purchase price of 100% of their principal amount plus accrued
interest to the purchase date in
<PAGE>
48
accordance with the procedures (including prorating in the event of
oversubscription) set forth in Section 4.06(c). If the aggregate purchase price
of Securities tendered pursuant to the offer is less than the Net Available Cash
allotted to the purchase of Securities, the Company will apply the remaining Net
Available Cash in accordance with clause (a)(iii)(D) above.
(c) (1) Promptly, and in any event within 10 days after the
Company becomes obligated to make an Offer, the Company shall be obligated to
deliver to the Trustee and send, by first-class mail to each Holder, a written
notice stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorating as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price. The notice shall
specify a purchase date not less than 30 days nor more than 60 days after the
date of such notice (the "Purchase Date") and shall contain such information
concerning the business of the Company which the Company in good faith believes
will enable such Holders to make an informed decision (which at a minimum will
include (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report, other than Current
Reports describing Asset Dispositions otherwise described in the offering
materials (or corresponding successor reports), (ii) a description of material
developments in the Company's business subsequent to the date of the latest of
such Reports, and (iii) if material, appropriate pro forma financial
information) and all instructions and materials necessary to tender Securities
pursuant to the Offer, together with the information contained in clause (3).
(2) Not later than the date upon which written notice of an
Offer is delivered to the Trustee as provided below, the Company shall deliver
to the Trustee an Officers' Certificate as to (i) the amount of the Offer (the
"Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.06(a). On such date, the
Company shall also irrevocably deposit with the Trustee or with a paying agent
(or, if the Company is acting as its own paying
<PAGE>
49
agent, segregate and hold in trust) in Temporary Cash Investments, maturing on
the last day prior to the Purchase Date or on the Purchase Date if funds are
immediately available by open of business, an amount equal to the Offer Amount
to be held for payment in accordance with the provi sions of this Section. Upon
the expiration of the period for which the Offer remains open (the "Offer
Period"), the Company shall deliver to the Trustee for cancelation the
Securities or portions thereof which have been properly tendered to and are to
be accepted by the Company. The Trustee shall, on the Purchase Date, mail or
deliver payment to each tendering Holder in the amount of the purchase price. In
the event that the aggregate purchase price of the Securities delivered by the
Company to the Trustee is less than the Offer Amount applicable to the
Securities, the Trustee shall deliver the excess to the Company immediately
after the expiration of the Offer Period for application in accordance with this
Section.
(3) Holders electing to have a Security purchased shall be
required to surrender the Security, with an appro priate form duly completed, to
the Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders shall be entitled to withdraw their election
if the Trustee or the Company receives not later than one Business Day prior to
the Purchase Date, a telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Security which was delivered for
purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased. If at the expiration of the Offer
Period the aggregate principal amount of Securities (and any other Senior
Subordinated Indebtedness included in the Offer) surrendered by holders thereof
exceeds the Offer Amount, the Company shall select the Securities and the other
Senior Subordinated Indebtedness to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only Securities
and the other Senior Subordinated Indebtedness in denominations of $1,000, or
integral multiples thereof, shall be purchased). Holders whose Securities are
purchased only in part shall be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee
which are to be accepted for purchase, the Company shall also deliver an
Officers' Certificate stating
<PAGE>
50
that such Securities are to be accepted by the Company pursuant to and in
accordance with the terms of this Section. A Security shall be deemed to have
been accepted for purchase at the time the Trustee, directly or through an
agent, mails or delivers payment therefor to the surrendering Holder.
(d) The Company shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 4.07. Limitation on Affiliate Transactions. (a) The
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into or conduct any transaction (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless (i) the terms of
such Affiliate Transaction are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained at
the time of such transaction in arm's length dealings with a Person who is not
such an Affiliate, (ii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $1.0 million, the terms of such transaction have
been approved by a majority of the members of the Board of Directors of the
Company and by a majority of the disinterested members of such Board, if any
(and such majority or majorities, as the case may be, determines that such
Affiliate Transaction satisfies the criteria in (i) above); and (iii) in the
event such Affiliate Transaction involves an aggregate amount in excess of $5.0
million, the Company has received a written opinion from an independent
investment banking firm of nationally recognized standing that such Affiliate
Transaction is fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view.
(b) The provisions of the foregoing paragraph (a) will not
prohibit (i) any Restricted Payment permitted to be paid pursuant to Section
4.04 (and in the case of Permitted
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51
Investments, only those described in clauses (v), (vi) and (ix) of the
definition of Permitted Investments), (ii) the performance of the Company's or
Restricted Subsidiary's obligations under any employment contract, collective
bargaining agreement, employee benefit plan, related trust agreement or any
other similar arrangement heretofore or hereafter entered into in the ordinary
course of business, (iii) payment of compensation to, and indemnity provided on
behalf of, employees, officers, directors or consultants (excluding the
Management Services Agreement) in the ordinary course of business, (iv)
maintenance in the ordinary course of business of benefit programs or
arrangements for employees, officers or directors, including vacation plans,
health and life insurance plans, deferred compensation plans, and retirement or
savings plans and similar plans, (v) any transaction between the Company and a
Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, (vi) the payment
of fees and expenses under the Management Services Agreement as in effect on the
Issue Date, (vii) payments by the Company and any of its Restricted Subsidiaries
pursuant to the Tax Sharing Agreement or (viii) the issuance or sale of any
Capital Stock (other than Disqualified Stock) of the Company.
SECTION 4.08. Limitation on the Sale of Capital Stock of
Restricted Subsidiaries. The Company shall not sell or otherwise dispose of any
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
of its Capital Stock except (i) to the Company or a Wholly Owned Subsidiary,
(ii) directors' qualifying shares, (iii) if, immediately after giving effect to
such issuance, sale or other disposition, neither the Company nor any of its
Subsidiaries own any Capital Stock of such Restricted Subsidiary or (iv) if,
immediately after giving effect to such issuance, sale or other disposition,
such Restricted Subsidiary would no longer constitute a Restricted Subsidiary
and any investment in such Person remaining after giving effect thereto would
have been permitted to be made under Section 4.04 if made on the date of such
issuance, sale or other disposition.
SECTION 4.09. Change of Control. (a) Upon the occurrence of a
Change of Control, each Holder shall have the right to require that the Company
repurchase such Holder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid
<PAGE>
52
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest on the relevant interest
payment date), in accordance with the terms contemplated in Section 4.09(b). In
the event that at the time of such Change of Control the terms of the Senior
Indebtedness of the Company restrict or prohibit the repurchase of Securities
pursuant to this Section, then prior to the mailing of the notice to Holders
provided for in Section 4.09(b) below but in any event within 30 days following
any Change of Control, the Company shall (i) repay in full all such Senior
Indebtedness or offer to repay in full all such Senior Indebtedness and repay
such Senior Indebtedness of each lender who has accepted such offer or (ii)
obtain the requisite consent under the agreements governing such Senior
Indebtedness to permit the repurchase of the Securities as provided for in
Section 4.09(b).
(b) Within 30 days following any Change of Control, unless the
Company has mailed a redemption notice with respect to all the outstanding
Securities in connection with such Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee (the "Change of Control Offer")
stating:
(1) that a Change of Control has occurred and that such Holder
has the right to require the Company to purchase such Holder's
Securities at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of Holders of record on the relevant
record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts and financial
information regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed); and
(4) the procedures determined by the Company, consistent with
this Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased will be
required to surrender the Security, with an appropriate form duly completed, to
the Company at the
<PAGE>
53
address specified in the notice at least three Business Days prior to the
purchase date. Holders will be entitled to withdraw their election if the
Trustee or the Company receives not later than one Business Day prior to the
purchase date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Security which was delivered
for purchase by the Holder and a statement that such Holder is withdrawing his
election to have such Security purchased.
(d) On the purchase date, all Securities pur chased by the
Company under this Section shall be delivered by the Trustee for cancelation,
and the Company shall pay the purchase price plus accrued and unpaid interest,
if any, to the Holders entitled thereto.
(e) Notwithstanding the foregoing provisions of this Section,
the Company will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in Section
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
(f) The Company shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
this Section. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 4.10. Future Guarantors. The Company shall cause each
domestic Restricted Subsidiary that Incurs any Senior Indebtedness to execute
and deliver to the Trustee a Guaranty Agreement pursuant to which such
Restricted Subsidiary will Guarantee payment of Securities on the terms and
conditions set forth in this Indenture.
SECTION 4.11. Limitation on Lines of Business. The Company
will not, and will not permit any Restricted Subsidiary to, engage in any
business, other than the business engaged in by the Company on the Issue Date
and
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54
such other business activities which are incidental or related thereto.
SECTION 4.12. Compliance Certificate. The Company shall
deliver to the Trustee within 45 days after the end of each fiscal quarter and
within 90 days after the end of each fiscal year of the Company an Officers'
Certificate stating that in the course of the performance by the signers of
their duties as Officers of the Company they would normally have knowledge of
any Default and whether or not the signers know of any Default that occurred
during such period. If they do, the certificate shall describe the Default, its
status and what action the Company is taking or proposes to take with respect
thereto. The Company also shall comply with TIA Section 314(a)(4).
SECTION 4.13. Further Instruments and Acts. Upon request of
the Trustee, the Company will execute and deliver such further instruments and
do such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
ARTICLE 5
Successor Company
SECTION 5.01. When Company May Merge or Transfer Assets. (a)
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the
"Successor Company") is a corporation organized and existing under the
laws of the United States of America, any State thereof or the District
of Columbia and the Successor Company (if not the Company) shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary of the Successor Company as a result of such
transaction as having been Incurred by the Successor
<PAGE>
55
Company or such Subsidiary at the time of such transac tion), no
Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur at least an additional $1.00
of Indebtedness pursuant to Section 4.03(a);
(iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount that
is not less than the Consolidated Net Worth of the Company immediately
prior to such transaction; and
(v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and such
supplemental indenture (if any) comply with this Indenture.
The Successor Company shall be the successor to the Company
and shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture, but the predecessor Company in the
case of a lease of all or substantially all its assets shall not be released
from the obligation to pay the principal of and interest on the Securities.
Notwithstanding the foregoing clauses (ii), (iii) and (iv),
(1) any Restricted Subsidiary of the Company may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or another
Wholly Owned Subsidiary of the Company and (2) the Company may merge with an
Affiliate incorporated solely for the purpose of reincorporating the Company in
another jurisdiction to realize tax or other benefits.
(b) The Company shall not permit any Subsidiary Guarantor to
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or series of transactions, all or substantially all of its assets to
any Person (other than the Company or a Subsidiary Guarantor) unless: (i) the
resulting, surviving or transferee Person (if not such Subsidiary) shall be a
Person organized and existing under the laws of the United States of America, or
<PAGE>
56
any State thereof or the District of Columbia and such Person shall expressly
assume, by a Guaranty Agreement, in a form acceptable to the Trustee, all the
obligations of such Subsidiary, if any, under its Subsidiary Guaranty; (ii)
immediately after giving effect to such transaction or transactions on a pro
forma basis (and treating any Indebtedness which becomes an obligation of the
resulting, surviving or transferee Person as a result of such transaction as
having been issued by such Person at the time of such transaction), no Default
shall have occurred and be continuing; and (iii) the Company delivers to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, conveyance, transfer or lease and such Guaranty
Agreement, if any, complies with this Indenture; provided, however, that the
foregoing shall not be applicable if such consolidation, merger, conveyance,
transfer or lease is in compliance with Section 4.06 and the Subsidiary
Guarantor will be released from its obligations under the Subsidiary Guaranty
pursuant to Section 11.01.
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of
Default" occurs if:
(1) the Company defaults in any payment of interest on any
Security when the same becomes due and payable, whether or not such
payment shall be prohibited by Article 10, and such default continues
for a period of 30 days;
(2) the Company (i) defaults in the payment of the principal
of any Security when the same becomes due and payable at its Stated
Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment shall be
prohibited by Article 10 or (ii) fails to redeem or purchase Securities
when required pursuant to this Indenture or the Securities, whether or
not such redemption or purchase shall be prohibited by Article 10;
<PAGE>
57
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04,
4.05, 4.06, 4.07, 4.08 or 4.09, (other than a failure to purchase
Securities when required under Section 4.06 or 4.09) and such failure
continues for 30 days after the notice specified below;
(5) the Company fails to comply with any of its agreements
contained in the Securities or this Indenture (other than those
referred to in clause (1), (2), (3) or (4) above) and such failure
continues for 60 days after the notice specified below;
(6) Indebtedness of the Company or any Restricted Subsidiary
is not paid within any applicable grace period after final maturity or
is accelerated by the holders thereof because of a default and the
total amount of such Indebtedness unpaid or accelerated exceeds $3.0
million and such failure to pay shall not have been cured or such
acceleration rescinded within a 10-day period after the notice
specified below;
(7) the Company or any Significant Subsidiary
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for
relief against it in an involuntary case;
(C) consents to the appointment of a
Custodian of it or for any substantial part of
its property; or
(D) makes a general assignment for the
benefit of its creditors;
or takes any comparable action under any foreign laws
relating to insolvency;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Subsidiary in an involuntary case;
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58
(B) appoints a Custodian of the Company or
any Significant Subsidiary or for any substantial
part of its property; or
(C) orders the winding up or liquidation of
the Company or any Significant Subsidiary;
or any similar relief is granted under any foreign laws
and the order or decree remains unstayed and in effect
for 60 days; or
(9) any judgment or decree for the payment of money in excess
of $3.0 million or its foreign currency equivalent(not adequately
covered by insurance as to which a solvent and unaffiliated insurance
company has acknowledged coverage) at the time is rendered against the
Company or any Significant Subsidiary and remains undischarged or
unstayed for a period of 60 days after such judgment becomes final and
nonappealable; or
(10) a Subsidiary Guaranty ceases to be in full force and
effect (other than in accordance with the terms of such Subsidiary
Guaranty) or a Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty if such default continues for
10 days; or.
The foregoing will constitute Events of Default whatever the
reason for any such Event of Default and whether it is voluntary or involuntary
or is effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body.
The term "Bankruptcy Law" means Title 11, United States Code,
or any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clauses (4) or (5) is not an Event of Default
until the Trustee or the holders of at least 25% in principal amount of the
outstanding Securities notify the Company of the Default and the Company does
not cure such Default within the time specified after receipt of such notice.
Such notice must specify the Default, demand that
<PAGE>
59
it be remedied and state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after
the occurrence thereof, written notice in the form of an Officers' Certificate
of any Event of Default under clause (6) or (10) and any event which with the
giving of notice or the lapse of time would become an Event of Default under
clause (4), (5) or (9), its status and what action the Company is taking or
proposes to take with respect thereto. In addition, the Company is required to
provide to the Trustee, within 45 days after the end of each fiscal quarter and
within 90 days after the end of each fiscal year, an officers' certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year.
SECTION 6.02. Acceleration. If an Event of Default (other than
an Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in principal amount of the Securities by notice to the
Company, may declare the principal of and accrued but unpaid interest on all the
Securities to be due and payable. Upon such a declaration, such principal and
accrued and unpaid interest shall be due and payable immediately. If an Event of
Default specified in Section 6.01(7) or (8) with respect to the Company occurs
and is continuing, the principal of and interest on all the Securities shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Securityholders. The Holders of a
majority in principal amount of the Securities by notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
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60
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquies cence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a
majority in principal amount of the Securities by notice to the Trustee may
waive an existing Default and its consequences except (i) a Default in the
payment of the principal of or interest on a Security (ii) a Default arising
from the failure to redeem or purchase any Security when required pursuant to
this Indenture or (iii) a Default in respect of a provision that under Section
9.02 cannot be amended without the consent of each Securityholder affected. When
a Default is waived, it is deemed cured, but no such waiver shall extend to any
subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority
in principal amount of the Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.06. Limitation on Suits. Except to enforce the right
to receive payment of principal, premium (if any) or interest when due, no
Securityholder may pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder gives to the Trustee written notice
stating that an Event of Default is continuing;
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(2) the Holders of at least 25% in principal amount of the
outstanding Securities make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer to the Trustee
reasonable security or indemnity against any loss,
liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of security or
indemnity; and
(5) the Holders of a majority in principal amount of the
outstanding Securities do not give the Trustee a direction that, in the
opinion of the Trustee, is inconsistent with the request during such
60-day period.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over
another Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Inden ture, the right of any Holder
to receive payment of princi pal of and interest on the Securities held by such
Holder, on or after the respective due dates expressed in the Secu rities, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default specified in Section 6.01(1) or (2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company for the whole amount then due and owing (together with
interest on any unpaid interest to the extent lawful) and the amounts provided
for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders
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in any election of a trustee in bankruptcy or other Person performing similar
functions, and any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make payments to the Trustee and, in the event that
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 7.07.
SECTION 6.10. Priorities. If the Trustee col
lects any money or property pursuant to this Article 6, it
shall pay out the money or property in the following order:
FIRST: to the Trustee for amounts due under
Section 7.07;
SECOND: to holders of Senior Indebtedness of the
Company to the extent required by Article 10;
THIRD: to Securityholders for amounts due and
unpaid on the Securities for principal and interest,
ratably, without preference or priority of any kind,
according to the amounts due and payable on the
Securities for principal and interest, respectively;
and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any
payment to Securityholders pursuant to this Section. At least 15 days before
such record date, the Company shall mail to each Securityholder and the Trustee
a notice that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This
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63
Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to
Section 6.07 or a suit by Holders of more than 10% in principal amount of the
Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company
(to the extent it may lawfully do so) shall not at any time insist upon, or
plead, or in any manner whatso ever claim or take the benefit or advantage
of, any stay or extension law wherever enacted, now or at any time hereafter
in force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and shall not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of
Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
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(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of
paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on
any document believed by it to be genuine and to have been signed or presented
by the proper person. The Trustee need not investigate any fact or matter stated
in the document.
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65
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it here under
in good faith and in accordance with the advice or opinion of such counsel.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
Subject to certain restrictions, the holders of a majority in
principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other holder or that would involve the Trustee in personal liability.
Prior to taking any action under the Indenture, the Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
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66
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Secur ities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in the Inden ture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to a Trust Officer of the Trustee, the Trustee
shall mail to each Securityholder notice of the Default within 90 days after it
occurs. Except in the case of a Default in payment of principal of or interest
on any Security (including payments pursuant to the mandatory redemption
provisions of such Security, if any), the Trustee may withhold the notice if and
so long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interests of Securityholders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as
practicable after each November 15 beginning with the November 15 following the
date of this Indenture, and in any event prior to January 15 in each year, the
Trustee shall mail to each Securityholder a brief report dated as of such
November 15 that complies with TIA Section 313(a). The Trustee also shall comply
with TIA Section 313(b). The Trustee shall also transmit by mail all reports
required by TIA Section 313(c).
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock exchange (if any) on
which the Securities are listed. The Company agrees to notify promptly the
Trustee whenever the Securities become listed on any stock exchange and of any
delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall
pay to the Trustee from time to time rea sonable compensation for its services.
The Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reim burse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or made by it,
including costs of
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collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Trustee's agents, counsel, accountants and experts. The Company
shall indemnify the Trustee against any and all loss, liability or expense
(including reasonable attorneys' fees) incurred by it in connection with the
administration of this trust and the performance of its duties hereunder. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve the
Company of its obligations hereunder. The Company shall defend the claim and the
Trustee may have separate counsel and the Company shall pay the fees and
expenses of such counsel. The Company need not reimburse any expense or
indemnify against any loss, liability or expense incurred by the Trustee through
the Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this Section,
the Trustee shall have a lien prior to the Securities on all money or property
held or collected by the Trustee other than money or property held in trust to
pay principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section
shall survive the discharge of this Indenture. When the Trustee incurs expenses
after the occurrence of a Default specified in Section 6.01(7) or (8) with
respect to the Company, the expenses are intended to constitute expenses of
administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign
at any time by so notifying the Company. The Holders of a majority in principal
amount of the Secur ities may remove the Trustee by so notifying the Trustee and
may appoint a successor Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes
charge of the Trustee or its property; or
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(4) the Trustee otherwise becomes incapable of
acting.
If the Trustee resigns, is removed by the Company or by the
Holders of a majority in principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee or the
Holders of 10% in principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appoint ment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to
this Section, the Company's obligations under Section 7.07 shall continue for
the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust busi ness or assets to, another corporation or banking
associa tion, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee
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69
shall succeed to the trusts created by this Indenture, any of the Securities
shall have been authenticated but not delivered, any such successor to the
Trustee may adopt the certificate of authentication of any predecessor trustee,
and deliver such Securities so authenticated; and in case at that time any of
the Securities shall not have been authenticated, any successor to the Trustee
may authenticate such Securities either in the name of any predecessor hereunder
or in the name of the successor to the Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Securities or
in this Indenture provided that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall
at all times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. The Trustee shall comply with
TIA Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Company are out standing if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against
Company. The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
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ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securi ties;
Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.07) for
cancelation or (ii) all outstanding Securities have become due and payable,
whether at maturity or as a result of the mailing of a notice of redemption
pursuant to Article 3 hereof and the Company irrevocably deposits with the
Trustee funds suffi cient to pay at maturity or upon redemption all outstanding
Securities, including interest thereon to maturity or such redemption date
(other than Securities replaced pursuant to Section 2.07), and if in either case
the Company pays all other sums payable hereunder by the Company, then this
Indenture shall, subject to Sections 8.01(c), cease to be of further effect. The
Trustee shall acknowledge satisfaction and discharge of this Indenture on demand
of the Company accompanied by an Officers' Certificate and an Opinion of Counsel
and at the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any
time may terminate (i) all its obligations under the Securities and this
Indenture ("legal defeasance option") or (ii) its obligations under Sections
4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08 and 4.09 and the operation of Sections
6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections
6.01(7) and (8), with respect only to Significant Subsidiaries) and the
limitations contained in Sections 5.01(a)(iii) and (iv) ("covenant defeasance
option"). The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment
of the Securities may not be accelerated because of an Event of Default with
respect thereto. If the Company exercises its covenant defeasance option,
payment of the Securities may not be accelerated because of an Event of Default
specified in Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in
the case of Sections 6.01(7) and (8), with respect only to Significant
Subsidiaries) or because of the failure of the Company to comply with Section
5.01(a)(iii) or (iv). If the Company exercises its legal defeasance option or
its covenant defeasance option,
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each Subsidiary Guarantor, if any, shall be released from all its obligations
with respect to its Subsidiary Guaranty.
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 7.07 and 7.08 and in
this Article 8 shall survive until the Securities have been paid in full.
Thereafter, the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive.
SECTION 8.02. Conditions to Defeasance. The Company may
exercise its legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations for the payment of
principal of and interest on the Securities to maturity or
redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and
without reinvestment on the deposited U.S. Government Obligations plus
any deposited money without investment will provide cash at such times
and in such amounts as will be sufficient to pay principal and interest
when due on all the Securities to maturity or redemption, as the case
may be;
(3) 123 days pass after the deposit is made and during the
123-day period no Default specified in Sections 6.01(7) or (8) with
respect to the Company occurs which is continuing at the end of the
period;
(4) the deposit does not constitute a default
under any other agreement binding on the Company and is
not prohibited by Article 10;
(5) the Company delivers to the Trustee an Opinion of Counsel
to the effect that the trust resulting from the deposit does not
constitute, or is qualified as, a
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regulated investment company under the Investment Company Act of 1940;
(6) in the case of the legal defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (ii) since the date of this
Indenture there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Securityholders will not recognize
income, gain or loss for Federal income tax purposes as a result of
such defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Security holders will not recognize income, gain or loss for
Federal income tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
covenant defeasance had not occurred; and
(8) the Company delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Securities as
contemplated by this Article 8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall
hold in trust money or U.S. Government Obligations deposited with it pursuant to
this Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities. Money
and securities so held in trust are not subject to Article 10.
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SECTION 8.04. Repayment to Company. The Trustee and the Paying
Agent shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to the Company upon request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to the
Company for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The
Company shall pay and shall indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against deposited U.S. Government Obligations or
the principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, if the
Company has made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money or U.S. Government Obligations held by the Trustee or Paying Agent.
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ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders. The Company and the
Trustee may amend this Indenture or the Securities without notice to or consent
of any Securityholder:
(1) to cure any ambiguity, omission, defect or
inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or
in place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article 10 that would limit or
terminate the benefits available to any holder of Senior Indebtedness
(or Representatives therefor) under Article 10;
(5) to add Guarantees with respect to the Securities,
including any Subsidiary Guaranties, or to secure the Securities;
(6) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Company;
(7) to comply with any requirements of the SEC in connection
with qualifying, or maintaining the qualification of, this Indenture
under the TIA; or
(8) to make any change that does not adversely
affect the rights of any Securityholder.
An amendment under this Section may not make any change that
adversely affects the rights under Article 10 of any holder of Senior
Indebtedness of the Company or the Subsidiary Guarantors then outstanding unless
the holders of such Senior Indebtedness (or any group or representative
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75
thereof authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 9.02. With Consent of Holders. The Company and the
Trustee may amend this Indenture or the Securities without notice to any
Securityholder but with the written consent of the Holders of at least a
majority in principal amount of the Securities then outstanding (including
consents obtained in connection with a tender offer or exchange for the
Securities). However, without the consent of each Securityholder affected
thereby, an amendment may not:
(1) reduce the amount of Securities whose Holders
must consent to an amendment;
(2) reduce the rate of or extend the time for
payment of interest on any Security;
(3) reduce the principal of or extend the Stated
Maturity of any Security;
(4) reduce the premium payable upon the redemption of any
Security or change the time at which any Security may be redeemed in
accordance with Article 3;
(5) make any Security payable in money other than
that stated in the Security;
(6) make any change in Article 10 that adversely
affects the rights of any Securityholder under
Article 10; or
(7) make any change in Section 6.04 or 6.07 or the
second sentence of this Section; or
(8) impair the right of any Securityholder to receive payment
of principal of and interest on such Securities on or after the due
dates therefor or to institute suit for the enforcement of any payment
on or with respect to such Holder's Securities; or
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(9) make any change in any Subsidiary Guaranty (including the
subordination provisions of such Subsidiary Guaranty) that would
adversely affect the Securityholders.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that
adversely affects the rights under Article 10 of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
After an amendment under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing such
amendment. The failure to give such notice to all Securityholders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every
amendment to this Indenture or the Securities shall comply with the TIA as then
in effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as to such Holder's
Security or portion of the Security if the Trustee receives the notice of
revocation before the date the amendment or waiver becomes effective. After an
amendment or waiver becomes effective, it shall bind every Securityholder. An
amendment or waiver becomes effective upon the execution of such amendment or
waiver by the Trustee.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the
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Securityholders entitled to give their consent or take any other action
described above or required or permitted to be taken pursuant to this Indenture.
If a record date is fixed, then notwithstanding the immediately preceding
paragraph, those Persons who were Securityholders at such record date (or their
duly designated proxies), and only those Persons, shall be entitled to give such
consent or to revoke any consent previously given or to take any such action,
whether or not such Persons continue to be Holders after such record date. No
such consent shall be valid or effective for more than 120 days after such
record date.
SECTION 9.05. Notation on or Exchange of Securities. If an
amendment changes the terms of a Security, the Trustee may require the Holder of
the Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall
sign any amendment authorized pursuant to this Article 9 if the amendment does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing such
amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such amendment is authorized or permitted by this Indenture.
SECTION 9.07. Payment for Consent. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
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ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate. The Company agrees,
and each Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article 10, to the prior payment of all
Senior Indebtedness of the Company and that the subordination is for the benefit
of and enforceable by the holders of such Senior Indebtedness. The Securities
shall in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company and only Indebtedness of the Company which is Senior
Indebtedness shall rank senior to the Securities in accordance with the
provisions set forth herein. All provisions of this Arti cle 10 shall be subject
to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any
payment or distribution of the assets of the Company to creditors upon a total
or partial liquidation or a total or partial dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property:
(1) holders of Senior Indebtedness of the Company shall be
entitled to receive payment in full, in cash or Cash Equivalents, of
such Senior Indebtedness before Securityholders shall be entitled to
receive any payment of principal of or interest on the Securities;
and
(2) until such Senior Indebtedness is paid in full in cash or
Cash Equivalents (and in the case of Senior Indebtedness in respect of
Letters of Credit not yet drawn upon in full, fully secured by cash
collateral), any payment or distribution to which Securityholders would
be entitled but for this Article 10 shall be made to holders of such
Senior Indebtedness as their interests may appear, except that
Securityholders may receive shares of stock and any debt securities
that are subordinated to such Senior Indebtedness to at least the same
extent as the Securities.
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SECTION 10.03. Default on Senior Indebtedness. The Company may
not pay the principal of, premium (if any) or interest on the Securities or make
any deposit pursuant to Section 8.01 and may not repurchase, redeem or otherwise
retire any Securities (collectively, "pay the Securities") if (i) any Senior
Indebtedness is not paid when due in cash or Cash Equivalents, or (ii) any other
default on Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
(x) the default has been cured or waived and any such acceleration has been
rescinded or (y) such Senior Indebtedness has been paid in full in cash or Cash
Equivalents; provided, however, that the Company may pay any such amounts
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of such Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) has occurred and is continuing. During the continuance of any default
(other than a default described in clause (i) or (ii) of the preceding sentence)
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be accelerated immediately without further notice (except
such notice as may be required to effect such acceleration) or the expiration of
any applicable grace periods, the Company may not pay the Securities for a
period (a "Payment Blockage Period") commencing upon the receipt by the Trustee
(with a copy to the Company) of written notice (a "Blockage Notice") of such
default from the Representative of such Designated Senior Indebtedness or from
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing
or (iii) because such Designated Senior Indebtedness has been repaid in full in
cash or Cash Equivalents). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the provisions contained in the
first sentence of this Section), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders shall have accelerated the
maturity of such Designated Senior Indebtedness, the Company may resume payments
on the Securities after termination of such Payment Blockage Period. Not more
than one Blockage Notice may be given in any consecutive 360-day
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period, irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. For purposes of this Section, no default or
event of default which existed or was continuing on the date of the commencement
of any Payment Blockage Period with respect to the Designated Senior
Indebtedness, initiating such Payment Blockage Period shall be, or be made, the
basis of the commencement of a subsequent Payment Blockage Period by the
Representative of such Designated Senior Indebtedness, whether or not within a
period of 360 consecutive days, unless such default or event of default shall
have been cured or waived for a period of not less than 90 consecutive days.
SECTION 10.04. Acceleration of Payment of Securities. If
payment of the Securities is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representatives) of the acceleration. The Company
may not pay the Securities until five Business Days after such holders or the
Representatives of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Securities only if the provisions of
this Article 10 otherwise permit payment at the time.
SECTION 10.05. When Distribution Must Be Paid Over. If a
distribution is made to the Trustee or the Securityholders that because of this
Article 10 should not have been made to them, the Trustee or Securityholders who
receive the distribution shall hold it in trust for holders of Senior
Indebtedness of the Company and pay it over to them as their interests may
appear.
SECTION 10.06. Subrogation. After all Senior Indebtedness of
the Company is paid in full and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of such Senior
Indebtedness to receive distributions applicable to such Senior Indebtedness. A
distribution made under this Article 10 to holders of such Senior Indebtedness
which otherwise would have been made to Securityholders is not, as between the
Company and Securityholders, a payment by the Company on such Senior
Indebtedness.
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SECTION 10.07. Relative Rights. This Article 10 defines the
relative rights of Securityholders and holders of Senior Indebtedness of the
Company. Nothing in this Indenture shall:
(1) impair, as between the Company and Secu rityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms; or
(2) prevent the Trustee or any Securityholder from exercising
its available remedies upon a Default, subject to the rights of holders
of Senior Indebtedness of the Company to receive distributions
otherwise payable to Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company.
No right of any holder of Senior Indebtedness of the Company to enforce the
subordination of the Indebtedness evidenced by the Securities shall be impaired
by any act or failure to act by the Company or by its failure to comply with
this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent.
Notwithstanding Section 10.03, the Trustee or Paying Agent may continue to make
payments on the Securities and shall not be charged with knowledge of the
existence of facts that would prohibit the making of any such payments unless,
not less than two Business Days prior to the date of such payment, a Trust
Officer of the Trustee receives notice satisfactory to it that payments may not
be made under this Article 10. The Company, the Registrar or co-registrar, the
Paying Agent, a Representative or a holder of Senior Indebtedness may give the
notice; provided, however, that, if an issue of Senior Indebtedness of the
Company has a Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness of the Company with the same rights it would have if it were
not Trustee. The Registrar and co-registrar and the Paying Agent may do the
same with like rights. The Trustee shall be entitled to all the rights set forth
in this Article 10 with respect to any Senior Indebtedness of the Company which
may at any time be held by it, to the same extent as any other holder of such
Senior Indebtedness; and nothing in Article 7 shall deprive
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the Trustee of any of its rights as such holder. Nothing in this Article 10
shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 7.07.
SECTION 10.10. Distribution or Notice to Repre sentative.
Whenever a distribution is to be made or a notice given to holders of Senior
Indebtedness of the Company, the distribution may be made and the notice given
to their Representative (if any).
SECTION 10.11. Article 10 Not To Prevent Events of Default or
Limit Right To Accelerate. The failure to make a payment pursuant to the
Securities by reason of any provision in this Article 10 shall not be construed
as preventing the occurrence of a Default. Nothing in this Article 10 shall have
any effect on the right of the Securityholders or the Trustee to accelerate the
maturity of the Securities.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article 8 by the Trustee for
the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Indebtedness or subject to the
restrictions set forth in this Article 10, and none of the Securityholders shall
be obligated to pay over any such amount to the Company or any holder of Senior
Indebtedness of the Company or any other creditor of the Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 10.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Security holders or (iii) upon the Representatives for the holders of Senior
Indebtedness of the Company for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of such Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 10. In the event that the
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Trustee determines, in good faith, that evidence is required with respect to the
right of any Person as a holder of Senior Indebtedness of the Company to
participate in any payment or distribution pursuant to this Article 10, the
Trustee may request such Person to furnish evidence to the reasonable
satisfaction of the Trustee as to the amount of such Senior Indebtedness held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and other facts pertinent to the rights of such Person
under this Article 10, and, if such evidence is not furnished, the Trustee may
defer any payment to such Person pending judicial determination as to the right
of such Person to receive such payment. The provisions of Sections 7.01 and 7.02
shall be applicable to all actions or omissions of actions by the Trustee
pursuant to this Article 10.
SECTION 10.14. Trustee To Effectuate Subordina tion. Each
Securityholder by accepting a Security author izes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness of the Company as provided in this Article 10 and appoints
the Trustee as attorney-in-fact for any and all such purposes.
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness of the Company and shall not be liable to any
such holders if it shall mistakenly pay over or distribute to Securityholders or
the Company or any other Person, money or assets to which any holders of Senior
Indebtedness of the Company shall be entitled by virtue of this Article 10 or
otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
Subordination Provisions. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness of the Company, whether such Senior Indebtedness was created or
acquired before or after the issuance of the Securities, to acquire and continue
to hold, or to continue to hold, such Senior Indebtedness and such holder of
such Senior Indebtedness shall be deemed conclusively to have relied on such
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subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Indebtedness.
SECTION 10.17. Changes in Senior Indebtedness Not to Affect
Subordination. No right of any holder of Senior Indebtedness of the Company to
enforce the subordination of the Indebtedness evidenced by the Securities shall
be impaired by any extension, renewal, modification, waiver or amendment to the
terms of such Senior Indebtedness or by the exercise by any such holder of its
rights under the terms of such Senior Indebtedness.
ARTICLE 11
Subsidiary Guaranties
SECTION 11.01. Guaranties. Each Subsidiary Guarantor hereby
unconditionally and irrevocably guarantees, jointly and severally, to each
Holder and to the Trustee and its successors and assigns (a) the full and
punctual payment of principal of and interest on the Securities when due,
whether at maturity, by acceleration, by redemption or otherwise, and all other
monetary obligations of the Company under this Indenture and the Securities and
(b) the full and punctual performance within applicable grace periods of all
other obligations of the Company under this Indenture and the Securities (all
the foregoing being hereinafter collectively called the "Obligations"). Each
Subsidiary Guarantor further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice or further assent from such
Subsidiary Guarantor and that such Subsidiary Guarantor will remain bound under
this Article 11 notwithstanding any extension or renewal of any Obligation.
Each Subsidiary Guarantor waives presentation to, demand of,
payment from and protest to the Company of any of the Obligations and also
waives notice of protest for nonpayment. Each Subsidiary Guarantor waives notice
of any default under the Securities or the Obligations. The obligations of each
Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Company or any other Person under this Indenture, the
Securities or any other agreement or otherwise; (b) any extension or renewal of
any thereof; (c) any rescission, waiver, amendment or modification of any
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of the terms or provisions of this Indenture (other than this Article 11), the
Securities or any other agreement; (d) the release of any security held by any
Holder or the Trustee for the Obligations or any of them; (e) the failure of any
Holder or the Trustee to exercise any right or remedy against any other
guarantor of the Obligations; or (f) any change in the ownership of such
Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary
Guaranty herein constitutes a guarantee of payment, performance and compliance
when due (and not a guarantee of collection) and waives any right to require
that any resort be had by any Holder or the Trustee to any security held for
payment of the Obligations.
Each Subsidiary Guaranty is, to the extent and in the manner
set forth in Article 12, subordinated and subject in right of payment to the
prior payment in full of the principal of and premium, if any, and interest on
all Senior Indebtedness of the Subsidiary Guarantor giving such Subsidiary
Guaranty and each Subsidiary Guaranty is made subject to such provisions of this
Indenture.
Except as expressly set forth in Sections 8.01(b), 11.02 and
11.06, the obligations of each Subsidiary Guarantor hereunder shall not be
subject to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
shall not be subject to any defense of setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Subsidiary Guarantor herein
shall not be discharged or impaired or otherwise affected by the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any remedy
under this Indenture, the Securities or any other agreement, by any waiver or
modification of any thereof, by any default, failure or delay, willful or
otherwise, in the performance of the Obligations, or by any other act or thing
or omission or delay to do any other act or thing which may or might in any
manner or to any extent vary the risk of such Subsidiary Guarantor or would
otherwise operate as a discharge of such Subsidiary Guarantor as a matter of law
or equity.
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Each Subsidiary Guarantor further agrees that its Guarantee
herein shall continue to be effective or be reinstated, as the case may be, if
at any time payment, or any part thereof, of principal of or interest on any
Obligation is rescinded or must otherwise be restored by any Holder or the
Trustee upon the bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any
other right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay
the principal of or interest on any Obligation when and as the same shall become
due, whether at maturity, by acceleration, by redemption or otherwise, or to
perform or comply with any other Obligation, each Subsidiary Guarantor hereby
promises to and will, upon receipt of written demand by the Trustee, forthwith
pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal
to the sum of (i) the unpaid amount of such Obligations, (ii) accrued and unpaid
interest on such Obligations (but only to the extent not prohibited by law) and
(iii) all other monetary Obligations of the Company to the Holders and the
Trustee.
Each Subsidiary Guarantor agrees that it shall not be entitled
to any right of subrogation in respect of any Obligations guaranteed hereby
until payment in full of all Obligations and all obligations to which the
Obligations are subordinated as provided in Article 12. Each Subsidiary
Guarantor further agrees that, as between it, on the one hand, and the Holders
and the Trustee, on the other hand, (x) the maturity of the Obligations
Guaranteed hereby may be accelerated as provided in Article 6 for the purposes
of such Subsidiary Guarantor's Subsidiary Guaranty herein, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect of
the Obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such Obligations as provided in Article 6, such Obligations
(whether or not due and payable) shall forthwith become due and payable by such
Subsidiary Guarantor for the purposes of this Section.
Each Subsidiary Guarantor also agrees to pay any and all costs
and expenses (including reasonable attorneys' fees) incurred by the Trustee or
any Holder in enforcing any rights under this Section.
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SECTION 11.02. Limitation on Liability. Any term or provision
of this Indenture to the contrary notwithstanding, the maximum, aggregate amount
of the Obligations guaranteed hereunder by any Subsidiary Guarantor shall not
exceed the maximum amount that can be hereby guaranteed without rendering this
Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
SECTION 11.03. Successors and Assigns. This Article 11 shall
be binding upon each Subsidiary Guarantor and its successors and assigns and
shall enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in this
Indenture and in the Securities shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions of this
Indenture.
SECTION 11.04. No Waiver. Neither a failure nor a delay on the
part of either the Trustee or the Holders in exercising any right, power or
privilege under this Article 11 shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
right, power or privilege. The rights, remedies and benefits of the Trustee and
the Holders herein expressly specified are cumulative and not exclusive of any
other rights, remedies or benefits which either may have under this Article 11
at law, in equity, by statute or otherwise.
SECTION 11.05. Modification. No modification, amendment or
waiver of any provision of this Article 11, nor the consent to any departure by
any Subsidiary Guarantor therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Trustee, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on any Subsidiary Guarantor in any case
shall entitle such Subsidiary Guarantor to any other or further notice or demand
in the same, similar or other circumstances.
SECTION 11.06. Release of Subsidiary Guarantor. Upon the sale
(including any sale pursuant to any exercise
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of remedies by a holder of Senior Indebtedness) or other disposition (including
by way of consolidation or merger) of a Subsidiary Guarantor or the sale or
disposition of all or substantially all the assets of such Subsidiary Guarantor
(in each case other than to the Company or an Affiliate of the Company), such
Subsidiary Guarantor shall be deemed released from all obligations under this
Article 11 without any further action required on the part of the Trustee or any
Holder. At the request of the Company, the Trustee shall execute and deliver an
appropriate instrument evidencing such release. In addition, if at any time a
Subsidiary Guarantor no longer has any Senior Indebtedness outstanding, such
Subsidiary Guarantor will be released and relieved from all its obligations
under its Subsidiary Guaranty.
ARTICLE 12
Subordination of Subsidiary Guaranties
SECTION 12.01. Agreement To Subordinate. Each Subsidiary
Guarantor agrees, and each Securityholder by accepting a Security agrees, that
the Obligations of such Subsidiary Guarantor are subordinated in right of
payment, to the extent and in the manner provided in this Article 12, to the
prior payment of all Senior Indebtedness of such Subsidiary Guarantor and that
the subordination is for the benefit of and enforceable by the holders of such
Senior Indebtedness. The Obligations of a Subsidiary Guarantor shall in all
respects rank pari passu with all other Senior Subordinated Indebtedness of such
Subsidiary Guarantor and only Senior Indebtedness of such Subsidiary Guarantor
(including such Subsidiary Guarantor's Guarantee of Senior Indebtedness of the
Company) shall rank senior to the Obligations of such Subsidiary Guarantor in
accordance with the provisions set forth herein.
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SECTION 12.02. Liquidation, Dissolution, Bank ruptcy. Upon any
payment or distribution of the assets of any Subsidiary Guarantor to creditors
upon a total or partial liquidation or a total or partial dissolution of such
Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Subsidiary Guarantor or its
property:
(1) holders of Senior Indebtedness of such Subsidiary
Guarantor shall be entitled to receive payment in full of such Senior
Indebtedness in cash or cash equivalents before Securityholders shall
be entitled to receive any payment pursuant to any Obligations of such
Subsidiary Guarantor; and
(2) until the Senior Indebtedness of any Subsidiary Guarantor
is paid in full in cash or Cash Equivalents (and in the case of Senior
Indebtedness in respect of Letters of Credit not yet drawn upon in
full, fully secured by cash collateral), any payment or distribution to
which Securityholders would be entitled but for this Article 12 shall
be made to holders of such Senior Indebtedness as their interests may
appear, except that Securityholders may receive shares of stock and
any debt securities of such Subsidiary Guarantor that are subordinated
to Senior Indebtedness, and to any debt securities received by holders
of Senior Indebtedness, of such Subsidiary Guarantor to at least the
same extent as the Obligations of such Subsidiary Guarantor are
subordinated to Senior Indebtedness of such Subsidiary Guarantor.
SECTION 12.03. Default on Senior Indebtedness of Subsidiary
Guarantor. No Subsidiary Guarantor may make any payment pursuant to any of its
Obligations or repurchase, redeem or otherwise retire or defease any Securities
or other Obligations (collectively, "pay its Subsidiary Guaranty") if (i) any
Designated Senior Indebtedness of the Company is not paid when due or (ii) any
other default on Designated Senior Indebtedness of the Company occurs and the
maturity of such Designated Senior Indebtedness is accelerated in accordance
with its terms unless, in either case, (x) the default has been cured or waived
and any such acceleration has been rescinded or (y) such Designated Senior
Indebtedness has been paid in full in cash or Cash Equivalents; provided,
however, that any Subsidiary
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Guarantor may pay any such amounts without regard to the foregoing if such
Subsidiary Guarantor and the Trustee receive written notice approving such
payment from the Representatives of holders of the Designated Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) has occurred and is continuing. No Subsidiary Guarantor may pay its
Subsidiary Guaranty during the continuance of any Payment Blockage Period after
receipt by the Company and the Trustee of a Payment Notice under Section 10.03.
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this Section),
unless the holders of Designated Senior Indebtedness giving such Payment Notice
or the Representative of such holders shall have accelerated the maturity of
such Designated Senior Indebtedness, any Subsidiary Guarantor may resume
payments pursuant to its Subsidiary Guaranty after termination of such Payment
Blockage Period.
SECTION 12.04. Demand for Payment. If a demand for payment is
made on a Subsidiary Guarantor pursuant to Article 11, the Trustee shall
promptly notify the holders of the Designated Senior Indebtedness (or their
Representatives) of such demand. The Subsidiary Guarantors may not make any such
payment until five Business Days after such holders or the Representatives of
the Designated Senior Indebtedness receive notice of such demand and,
thereinafter may only pay the Securities if the provisions of this Article 12
otherwise permit payment at the time.
SECTION 12.05. When Distribution Must Be Paid Over. If a
distribution is made to the Trustee or the Securityholders that because of this
Article 12 should not have been made to them, the Trustee or the Securityholders
who receive the distribution shall hold it in trust for holders of the relevant
Senior Indebtedness and pay it over to them or their Representatives as their
interests may appear.
SECTION 12.06. Subrogation. After all Senior Indebtedness of a
Subsidiary Guarantor is paid in full and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of such Senior
Indebtedness to receive distributions applicable to Senior Indebtedness. A
distribution made under this Article 12 to holders of such Senior Indebtedness
which otherwise would
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have been made to Securityholders is not, as between the relevant Subsidiary
Guarantor and Securityholders, a payment by such Subsidiary Guarantor on such
Senior Indebtedness.
SECTION 12.07. Relative Rights. This Article 12 defines the
relative rights of Securityholders and holders of Senior Indebtedness of a
Subsidiary Guarantor. Nothing in this Indenture shall:
(1) impair, as between a Subsidiary Guarantor and
Securityholders, the obligation of such Subsidiary Guarantor, which is
absolute and unconditional, to pay the Obligations to the extent set
forth in Article 11 or the relevant Subsidiary Guaranty; or
(2) prevent the Trustee or any Securityholder from exercising
its available remedies upon a default by such Subsidiary Guarantor
under the Obligations, sub ject to the rights of holders of Senior
Indebtedness of such Subsidiary Guarantor to receive distributions
otherwise payable to Securityholders.
SECTION 12.08. Subordination May Not Be Impaired by Company.
No right of any holder of Senior Indebtedness of any Subsidiary Guarantor to
enforce the subordination of the Obligations of such Subsidiary Guarantor shall
be impaired by any act or failure to act by such Subsidiary Guarantor or by its
failure to comply with this Indenture.
SECTION 12.09. Rights of Trustee and Paying Agent.
Notwithstanding Section 12.03, the Trustee or Paying Agent may continue to make
payments on any Subsidiary Guaranty and shall not be charged with knowledge of
the existence of facts that would prohibit the making of any such payments
unless, not less than two Business Days prior to the date of such payment, a
Trust Officer of the Trustee receives written notice satisfactory to it that
payments may not be made under this Article 12. The Company, the relevant
Subsidiary Guarantor, the Registrar or co-registrar, the Paying Agent, a
Representative or a holder of Senior Indebtedness of any Subsidiary Guarantor
may give the notice; provided, however, that, if an issue of Senior Indebtedness
of any Subsidiary Guarantor has a Representative, only the Representative may
give the notice.
The Trustee in its individual or any other capa city may hold
Senior Indebtedness of the Subsidiary
<PAGE>
92
Guarantor with the same rights it would have if it were not the Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
rights. The Trustee shall be entitled to all the rights set forth in this
Article 12 with respect to any Senior Indebtedness of any Subsidiary Guarantor
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any
of its rights as such holder. Nothing in this Article 12 shall apply to claims
of, or payments to, the Trustee under or pursuant to Section 7.07.
SECTION 12.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of Senior
Indebtedness of any Subsidiary Guarantor, the distribution may be made and the
notice given to their Representative (if any).
SECTION 12.11. Article 12 Not To Prevent Defaults Under a
Subsidiary Guaranty or Limit Right To Demand Payment. The failure to make a
payment pursuant to a Subsidiary Guaranty by reason of any provision in this
Article 12 shall not be construed as preventing the occurrence of a default
under such Subsidiary Guaranty. Nothing in this Article 12 shall have any effect
on the right of the Securityholders or the Trustee to make a demand for payment
on any Subsidiary Guarantor pursuant to Article 11 or the relevant Subsidiary
Guaranty.
SECTION 12.12. Trustee Entitled To Rely. Upon any payment or
distribution pursuant to this Article 12, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section 12.02
are pending, (ii) upon a certificate of the liquidating trustee or agent or
other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness of any Subsidiary Guarantor for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
such Senior Indebtedness and other indebtedness of such Subsidiary Guarantor,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 12. In the
event that the Trustee determines, in good faith, that evidence is required with
respect to the right of any Person
<PAGE>
93
as a holder of Senior Indebtedness of any Subsidiary Guarantor to participate in
any payment or distribution pursuant to this Article 12, the Trustee may request
such Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Senior Indebtedness of such Subsidiary Guarantor held by such
Person, the extent to which such Person is entitled to participate in such
payment or distribution and other facts pertinent to the rights of such Person
under this Article 12, and, if such evidence is not furnished, the Trustee may
defer any payment to such Person pending judicial determination as to the right
of such Person to receive such payment. The provisions of Sections 7.01 and 7.02
shall be applicable to all actions or omissions of actions by the Trustee
pursuant to this Article 12.
SECTION 12.13. Trustee To Effectuate Subordination. Each
Securityholder by accepting a Security authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness of any Subsidiary Guarantor as provided in this Article 12
and appoints the Trustee as attorney-in-fact for any and all such purposes.
SECTION 12.14. Trustee Not Fiduciary for Holders of Senior
Indebtedness of Subsidiary Guarantor. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Indebtedness of any Subsidiary Guarantor
and shall not be liable to any such holders if it shall mistakenly pay over or
distribute to Securityholders or the Company or any other Person, money or
assets to which any holders of such Senior Indebtedness shall be entitled by
virtue of this Article 12 or otherwise.
SECTION 12.15. Reliance by Holders of Senior Indebtedness on
Subordination Provisions. Each Securityholder by accepting a Security
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness of any Subsidiary Guarantor, whether such Senior Indebtedness was
created or acquired before or after the issuance of the Securities, to acquire
and continue to hold, or to continue to hold, such Senior Indebtedness and such
holder of Senior Indebtedness shall be deemed conclusively to have relied on
such
<PAGE>
94
subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Indebtedness.
ARTICLE 13
Miscellaneous
SECTION 13.01. Trust Indenture Act Controls. If any provision
of this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 13.02. Notices. Any notice or communication shall be
in writing and delivered in person or mailed by first-class mail addressed as
follows:
if to the Company or any Subsidiary Guarantor:
DIMAC Corporation
5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
Attention of: Scott P. Ebert
if to the Trustee:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
The Company or the Trustee by notice to the other may
designate additional or different addresses for subse quent notices or
communications.
Any notice or communication mailed to a Securityholder shall
be mailed to the Securityholder at the Securityholder's address as it appears on
the registration
<PAGE>
95
books of the Registrar and shall be sufficiently given if so mailed within the
time prescribed.
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Company to the Trustee to take
or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such
certificate or opinion has read such covenant or
condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
<PAGE>
96
(3) a statement that, in the opinion of such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 13.06. When Securities Disregarded. In determining
whether the Holders of the required principal amount of Securities have
concurred in any direction, waiver or consent, Securities owned by the Company
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Company shall be disregarded and
deemed not to be outstanding, except that, for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities which the Trustee knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar and the Paying Agent may make reasonable rules
for their functions.
SECTION 13.08. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday or a day on which banking institutions are not required to be
open in the State of New York or the State of Delaware. If a payment date is a
Legal Holiday, payment shall be made on the next succeeding day that is not a
Legal Holiday, and no interest shall accrue for the intervening period. If a
regular record date is a Legal Holiday, the record date shall not be affected.
SECTION 13.09. Governing Law. This Indenture and the
Securities shall be governed by, and construed in accordance with, the laws of
the State of New York but without giving effect to applicable principles of
conflicts of law to the extent that the application of the laws of another
jurisdiction would be required thereby.
SECTION 13.10. No Recourse Against Others. A director,
officer, employee or stockholder, as such, of the
<PAGE>
97
Company shall not have any liability for any obligations of the Company under
the Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder shall waive and release all such liability. The waiver and
release shall be part of the consideration for the issue of the Securities.
SECTION 13.11. Successors. All agreements of the Company in
this Indenture and the Securities shall bind its successors. All agreements of
the Trustee in this Indenture shall bind its successors.
SECTION 13.12. Multiple Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough to
prove this Indenture.
SECTION 13.13. Table of Contents; Headings. The table of
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
<PAGE>
98
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
DIMAC CORPORATION,
by /s/ James Wu
--------------------------------------
Name: James Wu
Title: Assistant Secretary and
Vice President
Subsidiary Guarantors:
DIMAC MARKETING CORPORATION,
by /s/ James Wu
-------------------------------------
Name: James Wu
Title: Vice President and
Assistant Secretary
DIMAC DIRECT, INC.,
by /s/ James Wu
-------------------------------------
Name: James Wu
Title: Vice President and
Assistant Secretary
PALM COAST DATA INC.,
by /s/ James Wu
-------------------------------------
Name: James Wu
Title: Vice President and
Assistant Secretary
THE McCLURE GROUP INC.,
by /s/ James Wu
-------------------------------------
Name: James Wu
Title: Vice President and
Assistant Secretary
<PAGE>
99
WILCOX & ASSOCIATES INC.,
by /s/ James Wu
-------------------------------------
Name: James Wu
Title: Vice President and
Assistant Secretary
MBS/MULTIMODE INC.,
by /s/ James Wu
-------------------------------------
Name: James Wu
Title: Vice President and
Assistant Secretary
AMERICOMM HOLDINGS, INC.,
by /s/ James Wu
-------------------------------------
Name: James Wu
Title: Vice President and
Assistant Secretary
AMERICOMM DIRECT MARKETING,
INC.,
by /s/ James Wu
-------------------------------------
Name: James Wu
Title: Vice President and
Assistant Secretary
WILMINGTON TRUST COMPANY,
as Trustee
by /s/ Donald G. MacKelcan
-------------------------------------
Name: Donald G. MacKelcan
Title: Assistant Vice President
<PAGE>
RULE 144A/REGULATION S APPENDIX
PROVISIONS RELATING TO INITIAL SECURITIES,
PRIVATE EXCHANGE SECURITIES
AND EXCHANGE SECURITIES
1. Definitions
1.1 Definitions
For the purposes of this Appendix the following terms shall have the
meanings indicated below:
"Additional Series" means the 12 1/2% Senior Subordinated Notes Due
2008 issued under this Indenture pursuant to Section 2.13.
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Exchange Securities" means the 12 1/2% Senior Subordinated Notes Due
2008 to be issued pursuant to this Indenture in connection with a Registered
Exchange Offer pursuant to the Registration Rights Agreement.
"Initial Purchasers" means (i) with respect to the Initial Series,
Credit Suisse First Boston Corporation, First Union Capital Markets, a division
of Wheat First Securities, Inc. and Warburg Dillon Read LLC and (ii) with
respect to each Additional Series, the Persons purchasing such Additional Series
under the related Purchase Agreement.
"Initial Securities" means (i) the Initial Series and (ii) each
Additional Series.
"Initial Series" means the 12 1/2% Senior Subordinated Notes Due 2008,
issued under this Indenture on or about the date hereof.
"Private Exchange" means the offer by the Company, pursuant to the
Registration Rights Agreement, to the Initial Purchasers to issue and deliver to
each Initial Purchaser, in exchange for the Initial Securities held by the
Initial Purchasers as part of its initial distribution, a like aggregate
principal amount of Private Exchange Securities.
"Purchase Agreement" means (i) with respect to the Initial Series, the
Purchase Agreement dated October 16, 1998 among the Company, the subsidiary
guarantors named
<PAGE>
therein and the Initial Purchasers and (ii) with respect to each Additional
Series, the Purchase Agreement between the Company and the Persons purchasing
such Additional Series.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registered Exchange Offer" means the offer by the Company, pursuant
to the Registration Rights Agreement, to certain Holders of Initial Securities,
to issue and deliver to such Holders, in exchange for the Initial Securities, a
like aggregate principal amount of Exchange Securities registered under the
Securities Act.
"Registration Rights Agreement" means (i) with respect to the Initial
Series, the Registration Rights Agreement dated October 16, 1998, among the
Company, the subsidiary guarantors named therein and the Initial Purchasers and
(ii) with respect to each Additional Series, the Registration Rights Agreement
among the Company and the Persons purchasing such Additional Series under the
related Purchase Agreement.
"Securities" means the Initial Securities, the Exchange Securities and
the Private Exchange Securities, treated as a single class.
"Securities Act" means the Securities Act of 1933.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depository), or any successor person thereto and
shall initially be the Trustee.
"Shelf Registration Statement" means the registration statement issued
by the Company, in connection with the offer and sale of Initial Securities or
Private Exchange Securities, pursuant to the Registration Rights Agreement.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.3(b) hereto.
1.2 Other Definitions
<TABLE>
<CAPTION>
Defined in
Term Section:
---- --------
<S> <C>
"Agent Members".............................................. 2.1(b)
"Global Security"............................................ 2.1(a)
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
Defined in
Term Section:
---- --------
<S> <C>
"Regulation S"............................................... 2.1(a)
"Rule 144A".................................................. 2.1(a)
</TABLE>
2. The Securities.
2.1 Form and Dating. The Initial Securities are being offered and sold
by the Company pursuant to the Purchase Agreement.
(a) Global Securities. Initial Securities offered and sold to a QIB in
reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance on
Regulation S under the Securities Act ("Regulation S"), in each case as provided
in the Purchase Agreement, shall be issued initially in the form of one or more
permanent global Securities in definitive, fully registered form without
interest coupons with the global securities legend and restricted securities
legend set forth in Exhibit 1 hereto (each, a Global Security"), which shall be
deposited on behalf of the purchasers of the Initial Securities represented
thereby with the Trustee, at its New York office, as custodian for the
Depository (or with such other custodian as the Depository may direct), and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depository or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a
Global Security deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (i) shall be registered in the name of the Depository for such
Global Security or Global Securities or the nominee of such Depository and (ii)
shall be delivered by the Trustee to such Depository or pursuant to such
Depository's instructions or held by the Trustee as custodian for the
Depository.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository or by the Trustee as the custodian of the
Depository or under such Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of
<PAGE>
4
the Company or the Trustee as the absolute owner of such Global Security for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depository or impair, as between the Depository and its Agent Members, the
operation of customary practices of such Depository governing the exercise of
the rights of a holder of a beneficial interest in any Global Security.
(c) Certificated Securities. Except as provided in this Section 2.1 or
Section 2.3 or 2.4, owners of beneficial interests in Global Securities will not
be entitled to receive physical delivery of certificated Securities.
2.2 Authentication. The Trustee shall authenticate and deliver: (1)
Initial Securities for original issue in an aggregate principal amount specified
in the written order of the Company issued pursuant to Section 2.02 in this
Indenture and (2) Exchange Securities or Private Exchange Securities for issue
only in a Registered Exchange Offer or a Private Exchange, respectively,
pursuant to the Registration Rights Agreement, for a like principal amount of
Initial Securities, in each case upon written order of the Company signed by two
Officers or by an Officer and either an Assistant Treasurer or an Assistant
Secretary of the Company. Such order shall specify the amount of the Securities
to be authenticated and the date on which the original issue of Securities is to
be authenticated and whether the Securities are to be Initial Securities,
Exchange Securities or Private Exchange Securities. The aggregate principal
amount of Securities outstanding at any time may not exceed $100.0 million
except as provided in Section 2.07 and Section 2.13 in this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Global
Securities. (i) The transfer and exchange of Global Securities or beneficial
interests therein shall be effected through the Depository, in accordance with
this Indenture (including applicable restrictions on transfer set forth herein,
if any) and the procedures of the Depository therefor. A transferor of a
beneficial interest in a Global Security shall deliver to the Registrar a
written order given in accordance with the Depositary's procedures containing
information regarding the participant account of the Depositary to credited with
a beneficial interest in the Global Security. The Registrar shall, in accordance
with such
<PAGE>
5
instructions instruct the Depositary to credit to the account of the Person
specified in such instructions a beneficial interest in the Global Security and
to debit the account of the Person making the transfer the beneficial interest
in the Global Security being transferred.
(ii) Notwithstanding any other provisions of this Appendix (other than
the provisions set forth in Section 2.4), a Global Security may not be
transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(iii) In the event that a Global Security is exchanged for Securities
in definitive registered form pursuant to Section 2.4 or Section 2.09 of
this Indenture, prior to the consummation of a Registered Exchange Offer or
the effectiveness of a Shelf Registration Statement with respect to such
Securities, such Securities may be exchanged only in accordance with such
procedures as are substantially consistent with the provisions of this
Section 2.3 (including the certification requirements set forth on the
reverse of the Initial Securities intended to ensure that such transfers
comply with Rule 144A or Regulation S, as the case may be) and such other
procedures as may from time to time be adopted by the Company.
(b) Legend.
(i) Except as permitted by the following paragraphs (ii), (iii) and
(iv), each Security certificate evidencing the Global Securities (and all
Securities issued in exchange therefor or in substitution thereof) shall
bear a legend in substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY
NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE
<PAGE>
6
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT (A)
THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (I) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE UNITED STATES IN A
TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (IV) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (V)
TO THE COMPANY, IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND
(B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY
ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED
TO IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act, in the case of any
Transfer Restricted Security that is represented by a Global Security, the
Registrar shall permit the Holder thereof to exchange such Transfer
Restricted Security for a certificated Security that does not bear the
legend set forth above and rescind any restriction on the transfer of such
Transfer Restricted Security, if the Holder certifies in writing to the
Registrar that its request for such exchange was made in reliance on Rule
144 (such certification to be in the form set forth on the reverse of the
Security).
(iii) After a transfer of any Initial Securities or Private Exchange
Securities during the period of the effectiveness of a Shelf Registration
Statement with respect to such Initial Securities or Private Exchange
Securities, as the case may be, all requirements pertaining to legends on
such Initial Security or such Private Exchange Security will cease to
apply, the requirements requiring any such Initial Security or such Private
Exchange Security issued to certain Holders be
<PAGE>
7
issued in global form will cease to apply, and a certificated Initial
Security or Private Exchange Security without legends will be available to
the transferee of the Holder of such Initial Securities or Private Exchange
Securities upon exchange of such transferring Holder's certificated Initial
Security or Private Exchange Security or directions to transfer such
Holder's interest in the Global Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with respect
to the Initial Securities pursuant to which Holders of such Initial
Securities are offered Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in global form will
cease to apply and certificated Initial Securities with the restricted
securities legend set forth in Exhibit 1 hereto will be available to
Holders of such Initial Securities that do not exchange their Initial
Securities, and Exchange Securities in certificated or global form will be
available to Holders that exchange such Initial Securities in such
Registered Exchange Offer.
(v) Upon the consummation of a Private Exchange with respect to the
Initial Securities pursuant to which Holders of such Initial Securities are
offered Private Exchange Securities in exchange for their Initial
Securities, all requirements pertaining to such Initial Securities that
Initial Securities issued to certain Holders be issued in global form will
still apply, and Private Exchange Securities in global form with the
Restricted Securities Legend set forth in Exhibit 1 hereto will be
available to Holders that exchange such Initial Securities in such Private
Exchange.
(c) Cancelation or Adjustment of Global Security. At such time as all
beneficial interests in a Global Security have either been exchanged for
certificated Securities in definitive form, redeemed, repurchased or canceled,
such Global Security shall be returned to the Depository for cancelation or
retained and canceled by the Trustee. At any time prior to such cancelation, if
any beneficial interest in a Global Security is exchanged for certificated
Securities in definitive form, redeemed, repurchased or canceled, the principal
amount of Securities represented by such Global Security shall be reduced and an
adjustment shall be made on the books and records of the Trustee (if it is then
the
<PAGE>
8
Securities Custodian for such Global Security) with respect to such Global
Security, by the Trustee or the Securities Custodian, to reflect such reduction.
(d) Obligations with Respect to Transfers and Exchanges of Securities.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate certificated Securities in
definitive form and Global Securities at the Registrar's or co-registrar's
request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, assessments, or similar governmental charge payable
in connection therewith (other than any such transfer taxes, assessments or
similar governmental charge payable upon exchange or transfer pursuant to
Sections 3.06, 4.09 and 9.05 of this Indenture).
(iii) The Registrar or co-registrar shall not be required to register
the transfer of or exchange of (a) any certificated or Definitive Security
selected for redemption in whole or in part pursuant to Article 3 of this
Indenture, except the unredeemed portion of any certificated or Definitive
Security being redeemed in part, or (b) any Security for a period beginning
15 Business Days before the mailing of a notice of an offer to repurchase
or redeem Securities or 15 Business Days before an interest payment date.
(iv) Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and for all
other purposes whatsoever, whether or not such Security is overdue, and
none of the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar shall be affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same
<PAGE>
9
benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
(e) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Security, a member of, or a participant in the
Depository or other Person with respect to the accuracy of the records of
the Depository or its nominee or of any participant or member thereof, with
respect to any ownership interest in the Securities or with respect to the
delivery to any participant, member, beneficial owner or other Person
(other than the Depository) of any notice (including any notice of
redemption) or the payment of any amount, under or with respect to such
Securities. All notices and communications to be given to the Holders and
all payments to be made to Holders under the Securities shall be given or
made only to or upon the order of the registered Holders (which shall be
the Depository or its nominee in the case of a Global Security). The rights
of beneficial owners in any Global Security shall be exercised only through
the Depository subject to the applicable rules and procedures of the
Depository. The Trustee may rely and shall be fully protected in relying
upon information furnished by the Depository with respect to its members,
participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depository participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so
if and when expressly required by, the terms of this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements hereof.
2.4 Certificated Securities. (a) A Global Security deposited with the
Depository or with the Trustee as custodian for the Depository pursuant to
Section 2.1 shall be transferred to the beneficial owners thereof in the form of
certificated Securities in an aggregate principal amount equal to the principal
amount of such Global Security, in exchange
<PAGE>
10
for such Global Security, only if such transfer complies with Section 2.3 and
(i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository for such Global Security or if at any time such
Depository ceases to be a "clearing agency" registered under the Exchange Act
and a successor depositary is not appointed by the Company within 90 days of
such notice, or (ii) an Event of Default has occurred and is continuing or (iii)
the Company, in its sole discretion, notifies the Trustee in writing that it
elects to cause the issuance of certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to this Section shall be surrendered by the Depository to the
Trustee located in the Borough of Manhattan, The City of New York, to be so
transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Security, an equal aggregate principal amount of certificated
Initial Securities of authorized denominations. Any portion of a Global Security
transferred pursuant to this Section shall be executed, authenticated and
delivered only in denominations of $1,000 and any integral multiple thereof and
registered in such names as the Depository shall direct. Any certificated
Initial Security delivered in exchange for an interest in the Global Security
shall bear the restricted securities legend set forth in Exhibit 1 hereto
(unless the Company determines otherwise in accordance with applicable law),
except as otherwise provided by Section 2.3(b).
(c) Subject to the provisions of Section 2.4(b), the registered Holder
of a Global Security may grant proxies and otherwise authorize any Person,
including Agent Members and Persons that may hold interests through Agent
Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of either of the events specified
in Section 2.4(a), the Company will promptly make available to the Trustee a
reasonable supply of certificated Securities in definitive, fully registered
form without interest coupons.
(e) Neither the Company nor the Trustee shall be liable for any delay
by the Depository or any participant in identifying the beneficial owners of the
related Securities and each such person may conclusively rely on, and shall be
<PAGE>
11
protected in relying on, instructions from the Depository for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Securities to be issued).
2.5 Additional Series and Registered Offer. If any Additional Series
is issued pursuant to a registration statement under the Securities Act, the
Initial Securities relating to such Additional Series shall, at the option of
the Company, be issued initially in (i) the form of one or more global
Securities in definitive, fully registered form without interest coupons or (ii)
certificated form. All requirements pertaining to legends on such Initial
Security shall not apply and the requirements requiring any such Initial
Security issued to certain Holders be issued and held in global form shall not
apply.
<PAGE>
EXHIBIT 1
To
RULE 144A/REGULATION S APPENDIX
[FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
"THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES
ACT OF 1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY
NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER
THAT (A) THIS NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (I) INSIDE THE U.S. TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (II) OUTSIDE THE U.S. IN A
<PAGE>
2
TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (III) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (IV)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, OR (V) TO THE COMPANY, IN EACH OF CASES (I) THROUGH (IV) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE
RESTRICTIONS REFERRED TO IN (A) ABOVE."
<PAGE>
3
DIMAC CORPORATION
No. 001 $
CUSIP NO. 253914 AA 3
ISIN NO. US253914AA32
12-1/2% Senior Subordinated Note Due 2008
DIMAC CORPORATION, a Delaware corporation, promises to pay to
, or registered assigns, the principal sum of on October 1, 2008.
Interest Payment Dates: October 1 and April 1.
Record Dates: September 15 and March 15.
Additional provisions of this Security are set forth on the
other side of this Security.
Dated:
DIMAC CORPORATION,
by
-------------------------------------
Name:
Title:
-------------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
WILMINGTON TRUST COMPANY,
as Trustee, certifies that
this is one of the Securities
referred to in the Indenture.
by
-----------------------------------
Authorized Signatory
<PAGE>
4
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
12 1/2% Senior Subordinated Note Due 2008
1. Interest
DIMAC Corporation, a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above; provided, however,
that if a Registration Default (as defined in the Registration Rights Agreement)
occurs, interest will accrue on this Security at a rate of 13% per annum from
and including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured. The
Company will pay interest semiannually on October 1 and April 1 of each year.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from October 22, 1998.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. Method of Payment
<PAGE>
5
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered holders of Securities at
the close of business on the September 15 or March 15 next preceding the
interest payment date even if Securities are canceled after the record date and
on or before the interest payment date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the
Securities represented by a Global Security (including principal, premium and
interest) will be made by wire transfer of immediately available funds to the
accounts specified by The Depository Trust Company. The Company will make all
payments in respect of a certificated Security (including principal, premium and
interest) by mailing a check to the registered address of each Holder
thereof; provided, however, that payments on a certificated Security will be
made by wire transfer to a U.S. dollar account maintained by the payee with a
bank in the United States if such Holder elects payment by wire transfer by
giving written notice to the Trustee or the Paying Agent to such effect
designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the Trustee may accept in
its discretion).
3. Paying Agent and Registrar
Initially, Wilmington Trust Company, a Delaware banking
corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may
appoint and change any Paying Agent, Registrar or co-registrar without notice.
The Company or any of its domestically incorporated Wholly Owned Subsidiaries
may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as
of October 15, 1998 ("Indenture"), among the Company, the Subsidiary Guarantors
and the Trustee. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date
of the Indenture (the "Act"). Terms defined in the Indenture and not defined
herein have the meanings ascribed
<PAGE>
6
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the Act for a statement of
those terms.
The Securities are general unsecured obligations of the
Company. The Company may, subject to Section 4.03 of the Indenture issue
additional Securities under the Indenture. The Indenture will contain certain
covenants that, among other things, will limit (i) the Incurrence of additional
Indebtedness by the Company and its Restricted Subsidiaries, (ii) the payment of
dividends and other restricted payments by the Company and its Restricted
Subsidiaries, (iii) the creation of restrictions on distributions from
Restricted Subsidiaries, (iv) asset sales, (v) transactions with affiliates,
(vi) sales or issuances of Restricted Subsidiary capital stock and (vii) mergers
and consolidations.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may
not be redeemed prior to October 1, 2003. On and after that date, the Company
may redeem the Securities in whole at any time or in part from time to time at
the following redemption prices (expressed in percentages of principal amount),
plus accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
related interest payment date):
if redeemed during the 12-month period beginning
October 1,
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2003................................. 106.250%
2004................................. 104.167%
2005................................. 102.083%
2006 and thereafter.................. 100.000%
</TABLE>
In addition, at any time prior to October 1, 2001, the Company may
redeem up to 35% of the aggregate principal amount of Securities issued under
the Indenture (including any additional Securities issued after the Issue Date
pursuant to Section 2.13 of the Indenture) with the proceeds of one or more
Equity Offerings (provided that if the Equity Offering is an offering by
Holdings, a portion of the Net Cash Proceeds thereof equal to the amount
required to redeem any such
<PAGE>
7
Securities is contributed to the equity capital of the Company) following which
there is a Public Market, at any time or from time to time, at a redemption
price (expressed as a percentage of principal amount) of 112.5% plus accrued and
unpaid interest to the redemption date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment dates; provided, however, that (i) at least 65% of the
aggregate principal amount of the Securities issued under the Indenture remains
outstanding after each such redemption and (ii) such redemption shall occur
within 60 days of such Equity Offering.
In the case of any partial redemption, selection of Securities
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such other method as the Trustee in its sole discretion shall deem to be fair
and appropriate, although no Security of $1,000 in original principal amount or
less will be redeemed in part. If any Security is to be redeemed in part only,
the notice of redemption relating to such Security shall state the portion of
the principal amount thereof to be redeemed. A new Security in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancelation of the original Securities.
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest on all Securities
(or portions thereof) to be redeemed on the redemption date is deposited with
the Paying Agent on or before the redemption date and certain other conditions
are satisfied, on and after such date interest ceases to accrue on such
Securities (or such portions thereof) called for redemption.
<PAGE>
8
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right, subject to certain conditions, to cause the Company to repurchase all
or any part of the Securities of such Holder at a repurchase price equal to 101%
of the principal amount of the Securities to be repurchased plus accrued
interest to the date of repurchase (subject to the right of holders of record on
the relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company agrees,
and each Securityholder by accepting a Security agrees, to the subordination
provisions contained in the Indenture and authorizes the Trustee to give it
effect and appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the
owner of it for all purposes.
<PAGE>
9
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Securities and the Indenture
if the Company deposits with the Trustee money or U.S. Government Obligations
for the payment of principal and interest on the Securities to redemption or
maturity, as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to add guarantees with respect to the Securities or to secure the Securities,
or to add additional covenants or surrender rights and powers conferred on the
Company, or to comply with any request of the SEC in connection with qualifying
the Indenture under the Act, or to make certain changes in the subordination
provisions, or to make any change that does not adversely affect the rights of
any Securityholder.
<PAGE>
10
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph
5 of the Securities, upon acceleration or otherwise, or failure by the Company
to redeem or purchase Securities when required; (iii) failure by the Company to
comply with other agreements in the Indenture or the Securities, in certain
cases subject to notice and lapse of time; (iv) certain accelerations (including
failure to pay within any grace period after final maturity) of other
Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds
$3.0 million; (v) certain events of bankruptcy or insolvency with respect to the
Company and the Significant Subsidiaries; (vi) certain judgments or decrees for
the payment of money in excess of $3.0 million and (vii) default for 10 days by
a Subsidiary Guarantor with respect to its obligations under its Subsidiary
Guarantee. If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities may declare all
the Securities to be due and payable immediately. Certain events of bankruptcy
or insolvency are Events of Default which will result in the Securities being
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
Default (except a Default in payment of principal or interest) if it determines
that withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee.
<PAGE>
11
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
19. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
20. Governing Law.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
<PAGE>
12
The Company will furnish to any Securityholder upon written
request and without charge to the Securityholder a copy of the Indenture which
has in it the text of this Security in larger type. Requests may be made to:
DIMAC Corporation
5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
Attention of: Scott P. Ebert
<PAGE>
13
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another
to act for him.
- -------------------------------------------------------------------------------
Date: Your Signature:
-------------------------- -------------------------------
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by the Company or any Affiliate of the Company, the undersigned confirms
that such Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) / / to the Company; or
(2) / / pursuant to an effective registration statement
under the Securities Act of 1933; or
(3) / / inside the United States to a "qualified
institutional buyer" (as defined in Rule 144A
under the Securities Act of 1933) that
<PAGE>
14
purchases for its own account or for the account
of a qualified institutional buyer to whom
notice is given that such transfer is being made
in reliance on Rule 144A, in each case pursuant
to and in compliance with Rule 144A under the
Securities Act of 1933; or
(4) / / outside the United States in an offshore
transaction within the meaning of Regulation S
under the Securities Act in compliance with
Rule 904 under the Securities Act of 1933; or
(5) / / pursuant to another available exemption from
registration provided by Rule 144 under the
Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register
any of the Securities evidenced by this certificate in the name of any
person other than the registered holder thereof; provided, however,
that if box (4) or (5) is checked, the Trustee may require, prior to
registering any such transfer of the Securities, such legal opinions,
certifications and other information as the Company has reasonably
requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, such as the exemption
provided by Rule 144 under such Act.
------------------------
Signature
Signature Guarantee:
- ------------------------------ --------------------------
Signature must be guaranteed Signature
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
<PAGE>
15
The undersigned represents and warrants that it is purchasing
this Security for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is a
"qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:
---------------------------------- -----------------------------------
NOTICE: To be executed by
an executive officer
<PAGE>
16
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security
have been made:
<TABLE>
<CAPTION>
Date of Amount of decrease Amount of increase Principal amount Signature of
Exchange in Principal in Principal of this Global authorized officer
- -------- Amount of this Amount of this Security following of Trustee or
Global Security Global Security such decrease or Securities
------------------- ------------------- increase) Custodian
------------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
17
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.06 or 4.09 of the Indenture, check the box:
/ /
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.06 or 4.09 of the Indenture,
state the amount in principal amount: $
Date: Your Signature:
------------------------ -----------------------------
(Sign exactly as your name
appears on the other side
of this Security.)
Signature Guarantee:
----------------------------------------------------
(Signature must be guaranteed)
<PAGE>
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY
OR PRIVATE EXCHANGE SECURITY]
DIMAC CORPORATION
No. $
CUSIP NO.
12 1/2% Senior Subordinated Notes Due 2008
DIMAC Corporation, a Delaware corporation, promises to pay to
_________________, or registered assigns, the principal sum of _________________
Dollars on October 1, 2008.
Interest Payment Dates: October 1 and April.
Record Dates: September 15 and March 15.
Additional provisions of this Security are set forth on the
other side of this Security.
Dated:
DIMAC CORPORATION,
by
-------------------------------------
President
-------------------------------------
Secretary
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
WILMINGTON TRUST COMPANY,
as Trustee, certifies that
this is one of the Securities
referred to in the Indenture.
- ---------------------------------------
Authorized Signatory
<PAGE>
2
[*/]
[**/]
- ------------------------------------
*/ [If the Security is to be issued in global form add the Global
Securities Legend from Exhibit 1 to Appendix A and the attachment from
such Exhibit 1 captioned "[TO BE ATTACHED TO GLOBAL SECURITIES] -
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY".]
<PAGE>
3
**/ [If the Security is a Private Exchange Security issued in a Private
Exchange to an Initial Purchaser holding an unsold portion of its
initial allotment, add the Restricted Securities Legend from Exhibit 1
to Appendix A and replace the Assignment Form included in this Exhibit
A with the Assignment Form included in such Exhibit 1.]
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY
OR PRIVATE EXCHANGE SECURITY]
12 1/2% Senior Subordinated
Note Due 2008
1. Interest
DIMAC Corporation, a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay interest on the principal
amount of this Security at the rate per annum shown above [; provided, however,
that if a Registration Default (as defined in the Registration Rights Agreement)
occurs, interest will accrue on this Security at a rate of 13% per annum from
and including the date on which any such Registration Default shall occur to but
excluding the date on which all Registration Defaults have been cured] ***/. The
Company will pay interest semiannually on October 1 and April 1 of each year.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from October 22, 1998.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne by
the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
- --------
***/ Insert if at the time of issuance of the Exchange Security or Private
Exchange Security (as the case may be) neither the Registered Exchange Offer has
been consummated nor a Shelf Registration Statement has been declared
<PAGE>
4
2. Method of Payment
The Company will pay interest on the Securities (except
defaulted interest) to the Persons who are registered holders of Securities at
the close of business on the September 15 or March 15 next preceding the
interest payment date even if Securities are canceled after the record date and
on or before the interest payment date. Holders must surrender Securities to a
Paying Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of
Securities (including principal, premium and interest) will be made by wire
transfer of immediately available funds to the accounts specified by the holders
thereof or, if no U.S. dollar account maintained by the payee with a bank in the
United States is designated by any holder to the Trustee or the Paying Agent at
least 30 days prior to the relevant due date for payment (or such other date as
the Trustee may accept in its discretion), by mailing a check to the registered
address of such holder.
3. Paying Agent and Registrar
Initially, Wilmington Trust Company, a Delaware banking
corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may
appoint and change any Paying Agent, Registrar or co-registrar without notice.
The Company or any of its domestically incorporated Wholly Owned Subsidiaries
may act as Paying Agent, Registrar or co-registrar.
- --------------------------------------------------------------------------------
effective in accordance with the Registration Rights Agreement.
<PAGE>
5
4. Indenture
The Company issued the Securities under an Indenture dated as
of October 15, 1998 ("Indenture"), among the Company, the Subsidiary Guarantors
and the Trustee. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date
of the Indenture (the "Act"). Terms defined in the Indenture and not defined
herein have the meanings ascribed thereto in the Indenture. The Securities are
subject to all such terms, and Securityholders are referred to the Indenture and
the Act for a statement of those terms.
The Securities are general unsecured obligations of the
Company. The Company may, subject to Section 4.03 of the Indenture, issue
additional Securities under the Indenture. The Indenture will contain certain
covenants that, among other things, will limit (i) the Incurrence of additional
Indebtedness by the Company and its Restricted Subsidiaries, (ii) the payment of
dividends and other restricted payments by the Company and its Restricted
Subsidiaries, (iii) the creation of restrictions on distributions from
Restricted Subsidiaries, (iv) asset sales, (v) transactions with affiliates,
(vi) sales or issuances of Restricted Subsidiary capital stock and (vii) mergers
and consolidations.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may
not be redeemed prior to October 1, 2003. On and after that date, the Company
may redeem the Securities in whole at any time or in part from time to time at
the following redemption prices (expressed in percentages of principal amount),
plus accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the related
interest payment date):
if redeemed during the 12-month period beginning
October 1,
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
2003................................. 106.250%
2004................................. 104.167%
2005................................. 102.083%
2006 and thereafter.................. 100.000%
</TABLE>
<PAGE>
6
In addition, at any time prior to October 1, 2001, the Company
may redeem up to 35% of the aggregate principal amount of Securities issued
under the Indenture (including any additional Securities issued after the Issue
Date pursuant to Section 2.13 of the Indenture) with the proceeds of one or more
Equity Offerings (provided that if the Equity Offering is an offering by
Holdings, a portion of the Net Cash Proceeds thereof equal to the amount
required to redeem any such Securities is contributed to the equity capital of
the Company) following which there is a Public Market, at any time or from time
to time, at a redemption price (expressed as a percentage of principal amount)
of 112.5% plus accrued and unpaid interest to the redemption date (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment dates; provided, however, that (i) at least
65% of the aggregate principal amount of the Securities issued under the
Indenture remains outstanding after each such redemption and (ii) such
redemption shall occur within 60 days of such Equity Offering.
In the case of any partial redemption, selection of the
Securities for redemption will be made by the Trustee on a pro rata basis, by
lot or by such other method as the Trustee in its sole discretion shall deem to
be fair and appropriate, although no Security of $1,000 in original principal
amount or less will be redeemed in part. If any Security is to be redeemed in
part only, the notice of redemption relating to such Security shall state the
portion of the principal amount thereof to be redeemed. A new Security in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancelation of the original Security.
<PAGE>
7
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days but not
more than 60 days before the redemption date to each Holder of Securities to be
redeemed at his registered address. Securities in denominations larger than
$1,000 may be redeemed in part but only in whole multiples of $1,000. If money
sufficient to pay the redemption price of and accrued interest on all Securities
(or portions thereof) to be redeemed on the redemption date is deposited with
the Paying Agent on or before the redemption date and certain other conditions
are satisfied, on and after such date interest ceases to accrue on such
Securities (or such portions thereof) called for redemption.
7. Put Provisions
Upon a Change of Control, any Holder of Securities will have
the right, subject to certain conditions, to cause the Company to repurchase all
or any part of the Securities of such Holder at a repurchase price equal to 101%
of the principal amount of the Securities to be repurchased plus accrued
interest to the date of repurchase (subject to the right of holders of record on
the relevant record date to receive interest due on the related interest payment
date) as provided in, and subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness, as
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Securities may be paid. The Company agrees,
and each Securityholder by accepting a Security agrees, to the subordination
provisions contained in the Indenture and authorizes the Trustee to give it
effect and appoints the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
<PAGE>
8
The Securities are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Securities in accordance with the Indenture. The Registrar may require
a Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the
owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall pay the money back to
the Company at its request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Company and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may
terminate some or all of its obligations under the Securities and the Indenture
if the Company deposits with the Trustee money or U.S. Government Obligations
for the payment of principal and interest on the Securities to redemption or
maturity, as the case may be.
<PAGE>
9
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company and the Trustee may amend
the Indenture or the Securities to cure any ambiguity, omission, defect or
inconsistency, or to comply with Article 5 of the Indenture, or to provide for
uncertificated Securities in addition to or in place of certificated Securities,
or to add guarantees with respect to the Securities or to secure the Securities,
or to add additional covenants or surrender rights and powers conferred on the
Company, or to comply with any request of the SEC in connection with qualifying
the Indenture under the Act, or to make certain changes in the subordination
provisions, or to make any change that does not adversely affect the rights of
any Securityholder.
<PAGE>
10
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for
30 days in payment of interest on the Securities; (ii) default in payment of
principal on the Securities at maturity, upon redemption pursuant to paragraph
5 of the Securities, upon acceleration or otherwise, or failure by the Company
to redeem or purchase Securities when required; (iii) failure by the Company to
comply with other agreements in the Indenture or the Securities, in certain
cases subject to notice and lapse of time; (iv) certain accelerations (including
failure to pay within any grace period after final maturity) of other
Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds
$3.0 million; (v) certain events of bankruptcy or insolvency with respect to the
Company and the Significant Subsidiaries; (vi) certain judgments or decrees for
the payment of money in excess of $3.0 million and (vii) default for 10 days by
a Subsidiary Guarantor with respect to its obligations under its Subsidiary
Guarantee. If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities may declare all
the Securities to be due and payable immediately. Certain events of bankruptcy
or insolvency are Events of Default which will result in the Securities being
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may refuse to
enforce the Indenture or the Securities unless it receives reasonable indemnity
or security. Subject to certain limitations, Holders of a majority in principal
amount of the Securities may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Securityholders notice of any continuing
Default (except a Default in payment of principal or interest) if it determines
that withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with and collect
obligations owed to it by the Company or its Affiliates and may otherwise deal
with the Company or its Affiliates with the same rights it would have if it were
not Trustee.
<PAGE>
11
16. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Company or the Trustee shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creation. By accepting a
Security, each Securityholder waives and releases all such liability. The waiver
and release are part of the consideration for the issue of the Securities.
17. Authentication
This Security shall not be valid until an authorized signatory
of the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT
(=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship
and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to
Minors Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers
to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
20. Holders' Compliance with Registration Rights Agreement.
Each Holder of a Security, by acceptance hereof, acknowledges
and agrees to the provisions of the Registration Rights Agreement, including,
without limitation, the obligations of the Holders with respect to a
registration and the indemnification of the Company to the extent provided
therein.
<PAGE>
12
21. Governing Law.
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO
APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF
THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
The Company will furnish to any Securityholder upon written
request and without charge to the Security holder a copy of the Indenture which
has in it the text of this Security in larger type. Requests may be made to:
DIMAC Corporation
5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
Attention of: Scott P. Ebert
<PAGE>
13
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent
may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: Your Signature:
------------------------ ---------------------------------
- -------------------------------------------------------------------------------
Sign exactly as your name appears on the other side of this Security.
<PAGE>
14
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section [4.06] or [4.09] of the Indenture, check the box:
/ /
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section [4.06] or [4.09] of the Indenture,
state the amount:
$
Date: Your Signature:
----------------------- -----------------------------------
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:
-----------------------------------------------------------
(Signature must be guaranteed by a member
firm of the New York Stock Exchange or a
commercial bank or trust company)
<PAGE>
Exhibit 5.1
_________ __, 199__
DIMAC Corporation
5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
Ladies and Gentlemen:
We have acted as special counsel to DIMAC Corporation (the "Company")
in connection with the Registration Statement on Form S-4 (the "Registration
Statement") to be filed with the Securities and Exchange Commission in
connection with the registration under the Securities Act of 1933, as
amended, of $100 million aggregate principal amount of 12 1/2% Series B
Senior Subordinated Notes Due 2008 of the Company (the "New Notes") to be
offered and issued by the Company under an Indenture dated as of October 15,
1998 by and among the Company, the subsidiary guarantors named therein and
Wilmington Trust Company, as Trustee.
Upon the basis of the foregoing, we are of the opinion that, upon issuance
thereof in the manner described in the Registration Statement, the New Notes
will be valid and binding obligations of the Company, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization
and by general equitable principles (regardless of whether the issue of
enforceability is considered in a proceeding in equity or at law).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus which is part of the Registration Statement.
Very truly yours,
/s/ White & Case LLP
<PAGE>
Exhibit 8.1
__________ ___, 199_
DIMAC Corporation
5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
Ladies and Gentlemen:
We have acted as your special tax counsel in connection with the
transactions described in the Registration Statement on Form S-4 (Registration
No.___________) (the "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), on _______________, 1998 by DIMAC
Corporation, a Delaware corporation (the "Company"), and described in the
Company's Offer to Exchange 12 1/2% Series B Senior Subordinated Notes Due 2008
(the "New Notes") for all outstanding 12 1/2% Senior Subordinated Notes Due 2008
(the "Old Notes") set forth in the Prospectus (the "Prospectus") contained
within the Registration Statement. Capitalized terms used but not otherwise
defined herein shall have the meaning ascribed thereto in the Registration
Statement.
Our opinion is based on an examination of the Registration
Statement, the Prospectus, and such other documents, corporate records and
materials as we have deemed necessary or appropriate for the purposes of this
opinion. We assume that all transactions relating to the exchange pursuant to
the Exchange Offer will be carried out in accordance with the terms of the
governing documents without any amendments thereto or waiver of any terms
thereof, and that such documents represent the entire agreement of the parties
thereto. We understand the relevant facts to be as follows:
The Old Notes were originally issued and sold on October 22, 1998 in
a transaction not registered under the Securities Act, in reliance upon the
exemptions provided in Rule 144A and Regulation S under the Securities Act.
Accordingly, the Old Notes are generally subject to substantial transfer
restrictions unless such notes are registered pursuant to the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. Pursuant to a Registration Rights Agreement, dated
as of October 16, 1998 (the "Registration Rights Agreement"), between the
Company and Credit Suisse First Boston Corporation, First Union Capital Markets
and Warburg Dillon Read LLC, as the initial purchasers (the "Initial
Purchasers"), with respect to the Old Notes, the Company agreed to file within
60 days of the initial sales of the Old Notes to the Initial Purchasers, a
registration statement relating to the Exchange Offer, pursuant to which holders
of the Old Notes would be offered an opportunity to exchange their Old Notes for
the New Notes which would be issued
<PAGE>
Page 2
without legends restricting the transfer thereof. The Company has agreed to use
its reasonable best efforts to cause such filing to become effective within 150
days after the date of issuance of the Old Notes. Alternatively, under certain
circumstances, the Company agreed to file a Shelf Registration Statement
covering resales of the Old Notes and to use its reasonable best efforts to
cause such Shelf Registration Statement to be declared effective under the
Securities Act. Failure of the Company to comply with the requirements of the
Registration Rights Agreement could result in the Company becoming obligated to
pay to the holders of the Old Notes additional interest at a rate of 0.50% per
year for the first 90-day period following a registration default; and such rate
shall increase by an additional 0.50% per year for each subsequent 90-day period
until all registration defaults have been cured or the rate shall have increased
by 2.0% per year. The New Notes will not be subject to such additional interest
payments. In general, the New Notes will be freely transferable after the
Exchange Offer without further registration under the Securities Act. Except as
noted above, the terms of the New Notes are identical to those of the Old Notes.
Based on the foregoing and subject to the assumptions,
qualifications and limitations contained herein, we hereby confirm that the
statements set forth in the Prospectus under the heading "Certain United States
Federal Tax Considerations" constitute our opinion with respect to the principal
United States Federal income tax consequences of the exchange pursuant to the
Exchange Offer by certain holders who hold such notes as capital assets. The
possibility exists that contrary positions may be taken by the Internal Revenue
Service and that a court may agree with such contrary position.
The foregoing opinion is specific to the transactions and the
documents referred to herein, and is based upon the facts known to us as of the
date hereof.
The foregoing opinion is predicated upon the Internal Revenue Code,
the Treasury Regulations thereunder, the administrative and judicial
interpretations of the Internal Revenue Code and the Treasury Regulations, in
each case as in effect and available on the date hereof. Any change in
applicable law or in any of the facts or other assumptions upon which we have
relied, may adversely affect such opinion.
We hereby consent to the filing with the Securities and Exchange
Commission of this opinion as an exhibit to DIMAC Corporation's Registration
Statement on Form S-4 relating to the exchange of the Old Notes for the New
Notes and to the reference to our firm under the heading "Certain United States
Federal Tax Considerations" in the Prospectus. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act.
Very truly yours
/s/ White & Case LLP
<PAGE>
June 28, 1996
Mr. Robert M. Miklas
4982 Carol Lane NW
Atlanta, Georgia 30327
Dear Rob:
I am delighted to be able to confirm the continuing offer of employment as
President & CEO of NFC/DEC as provided for in the attached document. Over the
past fifteen months I have developed a significant appreciation of your
leadership and operating skills, and I personally am delighted to be a part of
the DEC team.
I'd like to take this opportunity to formally acknowledge your skillful
leadership and the personal contributions you have made to DEC over the past
years as well as relative to the recent acquisition of Transkrit. In my
judgment, your knowledge of the business and superior communication skills were
the principal reasons why we were able to obtain a favorable rate on the Senior
Notes and complete the transaction without a significant hitch.
In a relatively short period of time, and despite some foreboding impediments,
you have guided DEC from the bottom of the pile to a position where the top of
the heap is within our sights, and I am envious of the new and exciting
challenges you face. I want you to know that I will be there beside you and
behind you to provide leadership and assistance in whatever way possible to help
ensure the future growth and prosperity of the organization.
Cordially,
/s/ John D. Weil
John D. Weil
cc: David King
Sandy Kaynor
<PAGE>
June 28, 1996
Mr. Robert M. Miklas
4982 Carol Lane NW
Atlanta, Georgia 30327
Dear Rob;
Confirming the various discussions you have had with David King and myself,
effective as of the date of this letter, you will continue your employment with
National Fiberstok Corporation ("NFC") as President & Chief Executive Officer.
You will also carry the identical titles for DEC International, Inc. ("DEC").
RESPONSIBILITIES
In your capacity as President & CEO, you will report directly to the Board of
Directors of NFC and DEC, and maintain your principal physical office at the
Corporate Offices located in Atlanta, Georgia. As President & CEO, you shall
have the ultimate responsibility for providing the necessary planning and
leadership skills to ensure the future success of the Corporation. Your
principal responsibilities shall include:
- Continuing oversight, responsibility and management of all aspects
of the business of DEC, NFC and their subsidiaries;
Development and implementation of the plan to integrate Transkrit
Corporation and its affiliates into DEC and NFC;
Assistance in the development of corporate strategies to maximize
shareholder value of DEC and NFC and their subsidiaries;
Assistance in the identification and analysis of suitable acquisition
targets and other prospective business combinations;
- Determine an optimal organization structure and ensure that all key
management positions are staffed with superior talent;
Define responsibilities and reporting relationships for key Corporate
and Division personnel. Set goals and develop performance measurements for
Corporate and Division direct reports. Follow up on performance and hold
subordinates accountable for measurable results;
<PAGE>
Mr. Robert M. Miklas
Page 4
Develop key manager profiles for direct reports and evaluate
candidates against the profiles and make changes as warranted;
Communicate periodically with all levels of the organization and
provide the necessary leadership to ensure the organization meets its goals and
objectives;
Provide for the delegation of authority to the lowest necessary levels
in the organization;
Provide direction and ensure compliance with the Corporation's safety
programs;
Other responsibilities as assigned by the Board of Directors of DEC
and NFC, from time to time.
CASH COMPENSATION
As it has been since March 1, 1996, your base compensation will continue to be
$200,000 (two-hundred thousand dollars) per year, paid on a bi-weekly basis in
accordance with the normal payroll policies of the Corporation.
An appraisal of your performance pursuant to an agreed upon annual plan will
form the basis for any future increase in this base cash compensation. Any such
increase(s) will be subject to approval by the Compensation Committee of the
Board of Directors of NFC and DEC (the "Compensation Committee") currently
comprised of David King, Glenn McKenzie and John Weil, and whose membership
shall be subject to change at the sole discretion of the Corporation's Board of
Directors.
INCENTIVE COMPENSATION
You will be eligible to earn incentive compensation as determined by the Board
of Directors of DEC and NFC.
INSURANCE AND RETIREMENT BENEFITS
You will be eligible to participate in all insurance, retirement and other
benefit plans which are generally available to other executive employees of NFC
at the then current contribution and/or co-payment levels.
You are eligible for four weeks of company-paid vacation per year.
SEVERANCE
This offer of continued employment is at the will of the parties. Should NFC
choose to terminate your employment for any reason other than an illegal act,
you shall be entitled to continuation of your then current base cash
compensation for a period of one year
<PAGE>
Mr. Robert M. Miklas
Page 5
from the effective date of termination.
BOARD OF DIRECTORS
You will be a member of the Board of Directors of NFC and DEC.
I believe this constitutes an accurate summary of the discussions regarding your
employment with NFC that you have had with various Board members. If you are in
agreement with the provisions of the offer, please indicate by countersigning
this letter. A copy of the countersigned letter will be provided for your
files.
Rob, we are extremely pleased to know that you will continue as the President &
CEO of NFC and DEC. The acquisition of Transkrit will substantially expand the
scale and scope of the organization that you have successfully developed to
date. We are confident that your prospective efforts will continue to have a
positive impact on the future growth and prosperity of the Corporation.
Cordially,
NATIONAL FIBERSTOK CORPORATION
/s/ John D. Weil
John D. Weil
Chairman of the Board of Directors
Accepted By:
/s/ Robert M. Miklas
- --------------------------------
Robert M. Miklas
07/15/96
- --------------------------------
Date
<PAGE>
JOHN D. WEIL
Five Revere Drive Suite 200 - Northbrook, Illinois 60062 - 847.509.5980 -
Fax 847.509.5981 - [email protected]
March 5, 1997
Mr. Robert Miklas
President & CEO
DEC INTERNATIONAL, INC
5775 Peachtree Dunwoody Road Suite C-150
Atlanta, Georgia 30342
Dear Rob:
The Compensation Committee of DEC International, Inc. has authorized an increase
in your base compensation from $200,000 per year to $250,000 per year, effective
March 1, 1997.
As previously discussed, I am preparing a formal review of your 1996
performance. In conjunction with this review, I would like you to identify at
least five strategic initiatives that you expect to undertake in 1997, and at
least five tactical initiatives that you expect to complete in 1997, which
collectively will form the basis for your personal goals and targets for the
coming year. These should be "bold stroke" initiatives which will have a
substantive impact on the Company's performance in 1997. To the extent that
they are not presently contemplated in the 1997 business plan, so much the
better!
I look forward to sitting down with you and discussing your review as quickly as
I can complete it, and to a mutual evaluation of the initiatives you identify
that hopefully will have a positive impact on DEC. It has been a pleasure
working with you this past year and despite our performance deficiencies, I
believe a great deal has been accomplished.
Cordially,
/s/ John D. Weil
John D. Weil
Chairman
cc: David E. King
Robert Webster
AN OPERATING AFFILIATE OF MCCOWN DE LEEUW & CO.
New York Office - 101 East 52nd Street, 31st Floor - New York, NY 10022
- 212.355.5500 - Fax 212.355.6283
California Office - 3000 Sand Hill Road, Building 3, Suite 290 -
Menlo Park, CA 94025 - 415.854.6000 - Fax 415.854.0853
<PAGE>
December 18, 1997
PERSONAL AND CONFIDENTIAL
- -------------------------
Mr. John Meneough
12 Tide Water
Ormand, FL 32174
Dear John:
This letter will confirm your continuing employment with DIMAC through
December 31, 1998.
Your base salary, effective January 1, 1998 shall be $200,000, and your
guaranteed minimum bonus for calendar year 1998 shall be $40,000.
In the event you are terminated within twelve months of a change of control
in the ownership of DIMAC, other than for just cause (in which event you will
receive base salary only, through the date of termination), you shall be
entitled to an amount equal to the sum of (i) one year's base salary, PLUS (ii)
your pro-rata bonus for the calendar year (such bonus amount in 1998 being no
less than the guaranteed minimum bonus), payable within 15 days of termination.
"Just Cause" for purposes of this letter shall be defined as moral turpitude,
commission of a felony, or other serious crime, or inability or failure to
perform your duties as an employee of DIMAC.
Very truly yours,
DIMAC DIRECT Inc.
By:/s/ Paul V. Carlucci
--------------------
Paul V. Carlucci
cc: Gene M. Henderson, President & CEO
DIMAC Marketing Corporation
Boston - St. Louis - San Francisco
<PAGE>
Exhibit 10.3
NATIONAL FIBERSTOK CORPORATION
5775 PEACHTREE DUNWOODY ROAD
SUITE C-150
ATLANTA, GEORGIA 30342
June 28, 1996
Mr. Jack Resnick
5300 Fox Ridge Road
Roanoke, VA 24014
Dear Jack:
Confirming our various discussions, effective with the date of this letter,
you will be Senior Vice President of National Fiberstok Corporation ("NFC")
and DEC International, Inc. ("DEC"). In addition, you will be President and
Chief Executive Officer - Transkrit Division ("Transkrit").
RESPONSIBILITIES
In your new capacity, you will report directly to me and maintain your
primary physical office at the Transkrit corporate office in Roanoke,
Virginia. Your responsibilities will include:
- continuing oversight and management of all activities of
Transkrit and Label Art, Inc. (including Short Run Labels, Inc.);
assistance in the development of corporate strategies to maximize
shareholder value of DEC, NFC and its subsidiaries;
assistance in the identification, analysis and purchase of suitable
acquisition targets, other business combinations and/or outsourcing
candidates; and
other responsibilities as assigned by me or the Board of Directors
of DEC or NFC.
CASH COMPENSATION
Your base compensation expressed in annual terms will be $225,000, paid
weekly. An appraisal of your performance pursuant to an agreed upon annual
plan will form the basis for any increase in this base compensation. Such an
increase will be subject to approval by the Compensation Committee of the
Board of Directors of DEC or NFC ("Compensation Committee").
You will be eligible to earn incentive cash compensation on an annual basis
of up to a maximum of 40% of your base compensation. Such incentive cash
compensation will be determined on a pro rated basis for the remainder of
fiscal year 1996 and annually thereafter. The payout under
<PAGE>
Mr. Jack Resnick
Page 2
this plan will be determined by your performance against a mutually agreed
upon incentive performance plan. This plan, a sample form of which is
attached, will include EBITDA (excluding any extraordinary gains and losses
for unplanned acquisitions that would affect planned EBITDA) of Transkrit
(including Label Art, Inc. and Short Run Labels, Inc.) and other performance
targets, with a significant emphasis on the former measure. Payout will begin
upon achievement of a minimum of 70% of target, with a maximum payout of 40%
of base compensation for performance equal to or exceeding target. All
payments under this plan are normally made in the first quarter of each
fiscal year after the close and audit of the prior fiscal year's operating
performance, and are subject to approval by the Compensation Committee.
INSURANCE, RETIREMENT AND
OTHER BENEFITS
You will continue to participate in all insurance, retirement and other
benefit plans including the use of a company automobile as provided by
Transkrit prior to the acquisition by NFC and which were not terminated at the
closing of the acquisition, in each case at the same contribution and/or
co-pay levels as existed prior to the acquisition.
You will be eligible for four weeks of company-paid vacation per year.
STOCK OPTION AND STOCK OWNERSHIP
You will also be granted 58,485 shares of DEC Class A Common Stock, par value
.0001 per share ("Shares"), pursuant to the provisions of the DEC 1996 Stock
Incentive Plan (the "Plan") and award agreements issued under the Plan (the
"Award Agreements"). Vesting will be in accordance with the terms of the Award
Agreements and Plan. A copy of the Plan and the Award Agreements are enclosed
herewith.
In addition, in the event that DEC is able to repurchase existing Shares from
retired or other stockholders, you will be offered the opportunity to
purchase for cash up to 10,000 Shares at a price equal to the price paid by
DEC for the repurchase of those shares.
Any ownership of Shares will be subject to all terms and conditions of the
Award Agreements and the DEC Stockholders Agreement, a copy of which is
enclosed herewith.
SEVERANCE; NONCOMPETITION
This offer of employment is at the will of the parties. Should NFC choose to
terminate your employment for any reason other than an illegal act or willful
refusal to follow instructions, you would be entitled to continuation of your
then current base compensation for a period of one (1) year from the date of
termination.
You agree to devote your entire business time and attention to the business
of the DEC and NFC and, during the term of your employment with NFC, not to
be engaged in any other business activity other than passive investments in
businesses or enterprises that are not competitive with any business then
engaged in by the DEC or NFC. At no time, whether during the term, or after
<PAGE>
Mr. Jack Resnick
Page 3
the termination, of your employment by NFC shall you disclose to others or use
(other than for the benefit of the DEC and NFC) any information concerning
the DEC or NFC or its finances, its products, procedures or business
practices, except to the extent required in the course of performing duties
to NFC during the term of your employment.
In the event of termination of your employment for whatever reason, you
shall not, for a period of 18 months after termination, directly or
indirectly, in any capacity work for, or otherwise have a financial interest
or be engaged in, any business that prints business forms or direct mail
promotional material.
PARTICIPATION AT BOARD OF DIRECTORS MEETINGS
You will have the opportunity to attend all Board of Directors meetings as a
non-voting participant, unless specifically restricted from doing so by the
order of the Chairman of the Board of Directors.
I believe this constitutes a complete summary of our discussions regarding your
employment with NFC. If you are in agreement with the provisions of this
offer, please indicate by countersigning this letter. A copy of the
countersigned letter will be provided for your files.
Jack, I am extremely pleased that you have agreed to remain with Transkrit
and to join the key management team at NFC. I am looking forward to working
with you and am confident that your efforts will have a major positive impact
on the continued development of the value of the DEC and NFC.
Sincerely,
NATIONAL FIBERSTOK CORPORATION
/s/ Robert M. Miklas
Robert M. Miklas
President & CEO
/s/ Jack Resnick
- ------------------------
Jack Resnick
Date: 06/28/96
<PAGE>
<TABLE>
<CAPTION>
DEC INTERNATIONAL, INC.
1996 INCENTIVE COMPENSATION PLAN
EXECUTIVE: JACK RESNICK INCENTIVE MAXIMUM: 40%
PRESIDENT & CEO - TRANSKRIT ------------------------
CATEGORY COMPONENT 1995 THRESHOLD TARGET INTERIM PROJECTED
WEIGHT ACTUAL (MINIMUM) (MAXIMUM) YTD EST AWARD
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EBITDA (TRANSKRIT/ 70.0% .70*TARGET
LABEL ART)
ALL OTHER 30.0%
SAFETY
ACQUISITIONS
DISCRETIONARY
----------
NOTE: NO AWARD CAN BE EARNED ON "ALL OTHER" GOAL COMPONENTS TOTAL 0.0%
UNLESS DIVISION THRESHOLD EBITDA IS ATTAINED. ------------------------
</TABLE>
<PAGE>
Exhibit 10.5
AMERICOMM HOLDINGS INC.
May 19, 1998
Mr. Scott P, Ebert
1105 Autumn Chase Court
Marietta, GA 30064
Dear Scott,
I am very pleased to offer the following amendments to your existing employment
letter dated June 15, 1995 (the "Original Letter"). Unless specifically amended
by a provision of this letter, all provisions of that letter will remain
applicable and in force,
ANNUAL BASE COMPENSATION
Effective upon acceptance of the provisions of this letter, your base
compensation expressed on an annual basis will be increased to $115,000.
Furthermore, once the organizational structure of DMAC Holdings, Inc. ("DMAC")
and your full range of responsibilities are defined, your new position will be
surveyed to determine whether an upward adjustment in your annual base
compensation is warranted. In no case will the results of this survey result in
a downward reduction of your then current base compensation.
Your annual base compensation will continue to be subject to review on an annual
basis, beginning in January 1999. Any increase in base compensation will be
subject to the approval of the Compensation Committee of the Board of Directors
(the "Compensation Committee").
INCENTIVE COMPENSATION
Effective upon acceptance of the provisions of this letter, your maximum
incentive compensation award will be increased from 20% to 30% of base
compensation.
An award under this incentive compensation plan will continue to be based on
certain individual and company wide performance results. However, for the 1998
incentive plan year, you will be guaranteed a minimum incentive compensation
award of $20,000, regardless of the calculated award under the 1998 plan.
For 1999 and subsequent years, any award will be as calculated under the then
current plan and will be subject to the approval of the Compensation Committee.
SEVERANCE PROVISION
The period of base compensation continuation under the severance provisions of
Original Letter will be increased from six months to nine months.
In addition, this severance provision will be applicable to either voluntary or
involuntary termination, excepting termination for cause and / or commission of
an illegal act.
5775 PEACHTREE DUNWOODY ROAD SUITE C-150 - ATLANTA, GA 30342-1505
404.256.1123 - FAX 404.705.9929
<PAGE>
MR. SCOTT P. EBERT
MAY 19, 1998
CONTINUING EDUCATION
As we discussed, it is in the best interests of the company for you to broaden
your general management education. Therefore, the company will provide 50% of
the tuition and reimburse all expenses associated with an appropriate executive
education program. It is understood that this program will be of the type that
requires several periods of offsite classroom activity.
STOCK OPTION
Although the exact form of the plan is not yet fully known, you will be included
in the DMAC stock option plan. This plan will most likely take the form of
other plans in place at McCown De Leeuw & Company (MDC) portfolio companies. As
such, the plan will attempt to provide for an approximate amount of liquidation
proceeds for each option holder. The target amount of such proceeds for your
option holding will be approximately $1,000,000, based on the financial model
prepared by MDC for DMAC.
Naturally, you understand that no return is guaranteed and that the eventual
proceeds under any option plan are dependent on the performance of the company,
market conditions and timing. Nonetheless, you should regard the amount of
target proceeds as an indicator of your perceived worth and importance to the
success of DMAC.
I sincerely hope that these amendments are attractive to you and that you choose
to continue with AHI and DMAC. I have enjoyed our relationship and look forward
to continuing it in this highly attractive opportunity. Please indicate the
acceptance of the provisions of this letter by countersigning the letter and
returning it to me.
Sincerely,
AMERICOMM HOLDINGS, INC.
/s/ Robert M. Miklas
- --------------------
Robert M. Miklas
President & CEO
/s/ Scott P. Ebert May 19, 1998
- --------------------------------
Scott P. Ebert Date
-2-
<PAGE>
Exhibit 10.6
DIMAC DIRECT-Registered Trademark
A DIMAC Company
One Corporate Woods Drive
Bridgeton, Missouri 63044-3838
Telephone 314-344-8000
Fax 314-344-8099
December 18, 1997
PERSONAL AND CONFIDENTIAL
- -------------------------
Mr. Michael Speichinger
11149 Clarissa Drive
St. Louis, MO 63141
Dear Mike:
This letter will confirm your continuing employment with DIMAC through
December 31, 1998.
Your base salary, effective January 1, 1998 shall be $90,000, and your
guaranteed minimum bonus for calendar year 1998 shall be $30,000.
In the event you are terminated within twelve months of a change of
control in the ownership of DIMAC, other than for just cause (in which event
you will receive base salary only, through the date of termination), you
shall be entitled to an amount equal to the sum of (i) one year's base
salary, plus (ii) your pro-rata bonus for the calendar year (such bonus
amount in 1998 being no less than the guaranteed minimum bonus) payable within
15 days of termination. "Just Cause" for purposes of this letter shall be
defined as moral turpitude, commission of a felony, or other serous crime, or
inability or failure to perform your duties as an employee of DIMAC.
Very truly yours,
DIMAC DIRECT Inc.
By:/s/Paul V. Carlucci
------------------------
Paul V. Carlucci
<PAGE>
cc: Gene M. Henderson, President & CEO
DIMAC Marketing Corporation
Boston - St. Louis - San Francisco
2
<PAGE>
Exhibit 10.9
SUBORDINATION AGREEMENT
This Subordination Agreement dated as of October 22, 1998 (as amended,
restated, supplemented or otherwise modified, this "Agreement") among DIMAC
Corporation, a Delaware corporation (the "Company"), and the purchasers of the
Company's securities listed on the signature pages hereto (the "Purchasers").
WHEREAS, the Company has entered into that certain Amended and Restated
Credit Agreement dated as of October 22, 1998 (as amended, restated,
supplemented or otherwise modified, the "Senior Credit Agreement") among the
Company, DIMAC Holdings Inc., as Guarantor ("DIMAC Holdings"), the lenders party
thereto (the "Lenders"), Credit Suisse First Boston, as Administrative Agent and
Arranger, Warburg Dillon Read LLC, as Syndication Agent and First Union National
Bank, as Documentation Agent, pursuant to which the Lenders have agreed to
advance certain Loans (as defined therein) to the Company;
WHEREAS, the Company has entered into that certain Indenture, dated as
of October 15, 1998 (as amended, restated, supplemented or otherwise modified,
the "DIMAC Operating Notes Indenture") among the Company, the Subsidiary
Guarantors (as defined therein) and Wilmington Trust Company, a Delaware banking
corporation, as Trustee;
WHEREAS, the Company has entered into that certain Purchase Agreement,
dated as of October 16, 1998 (the "DIMAC Operating Notes Purchase Agreement")
among (i) the Company, (ii) the Subsidiary Guarantors and (iii) Credit Suisse
First Boston Corporation, First Union Capital Markets and Warburg Dillon Read
LLC (collectively, the "DIMAC Operating Notes Purchasers"), pursuant to which
the DIMAC Operating Notes Purchasers have agreed to purchase the DIMAC Operating
Notes from the Company;
WHEREAS, the Company has entered into that certain Securities Purchase
Agreement, dated as of October 22, 1998 (as amended, restated, supplemented or
otherwise modified, the "Securities Purchase Agreement") among the Company,
DIMAC Holdings and the Purchasers;
WHEREAS, the Company and the Purchasers, wish to provide for the
benefit of the holders of Senior Indebtedness, the DIMAC Operating Noteholders
and the Lenders, that the Purchasers' rights against the Company arising out of
obligations incurred by the Company pursuant to the Securities Purchase
Agreement (such obligations, the "Subordinated Obligations") shall be
subordinated to the rights of holders of Senior Indebtedness (as defined in the
DIMAC Operating Notes Indenture) of the Company and the rights of the Lenders
and the DIMAC Operating Noteholders against the Company arising out of
obligations incurred by the Company pursuant to the Senior Credit Documents (as
defined in the DIMAC Operating Notes Indenture), the DIMAC Operating Notes
Indenture, the DIMAC Operating Notes, the DIMAC Operating Registration Rights
Agreement, the DIMAC Operating Notes Purchase Agreement and any other document
governing Senior Indebtedness of the Company (such obligations, the "Senior
Obligations"), to the extent and as provided herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchasers
hereby agree as follows:
Section 1. Definitions. The following capitalized terms shall
have the meanings set forth below in this Section 1:
1
<PAGE>
"Cash Equivalents" shall have the meaning given to such term in the
DIMAC Operating Notes Indenture.
"Company" shall have the meaning given to such term in the introductory
paragraph hereof.
"DIMAC Holdings" shall have the meaning given to such term in the
recitals hereof.
"DIMAC Operating Noteholder" shall mean any holder of DIMAC Operating
Notes.
"DIMAC Operating Notes" shall have the meaning given to such term in
the Securities Purchase Agreement.
"DIMAC Operating Notes Indenture" shall have the meaning given to such
term in the recitals hereof.
"DIMAC Operating Notes Purchase Agreement" shall have the meaning given
to such term in the recitals hereof.
"DIMAC Operating Registration Rights Agreement" shall mean the
Registration Rights Agreement dated as of October 16, 1998 among the Company,
the Subsidiary Guarantors and the DIMAC Operating Notes Purchasers.
"Lenders" shall have the meaning given to such term in the recitals
hereof.
"Loans" shall have the meaning given to such term in the Senior Credit
Agreement.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Representative" means any trustee, agent or representative (if any)
with respect to the Senior Obligations.
"Securities" shall have the meaning given to such term in the
Securities Purchase Agreement.
"Securities Purchase Agreement" shall have the meaning given to such
term in the recitals hereof.
"Securityholder" shall mean each Purchaser (so long as it holds any
Securities) and any other holder of any of the Securities.
"Senior Credit Agreement" shall have the meaning given to such term in
the recitals hereof.
"Senior Credit Documents" shall have the meaning given to such term in
the recitals hereof.
"Senior Indebtedness" shall have the meaning given to such term in the
DIMAC Operating Notes Indenture.
"Senior Obligations" shall have the meaning given to such term in the
recitals hereof.
2
<PAGE>
"Subordinated Obligations" shall have the meaning given to such term in
the recitals hereof.
"Subsidiary Guarantors" shall have the meaning given to such term in
the DIMAC Operating Notes Indenture.
Section 2. Agreement To Subordinate. The Company agrees, and each
Securityholder by accepting a Security agrees, that any claim that any
Securityholder may have against the Company arising out of obligations incurred
by the Company pursuant to the Securities Purchase Agreement shall be
subordinated in right of payment, to the extent and in the manner provided in
this Agreement, to the prior payment in full in cash of all Senior Obligations,
and that the subordination is for the benefit of and enforceable by the holders
of such Senior Indebtedness, the DIMAC Operating Noteholders or the Lenders, as
the case may be.
Section 3. Payment of Senior Obligations. The Company may not
make any payment of the Subordinated Obligations until such time as all Senior
Obligations are paid in full in cash.
Section 4. When Distribution Must Be Paid Over. If a distribution is
made to Securityholders that because of this Agreement should not have been made
to them, the Securityholders who receive the distribution shall hold it in trust
for holders of Senior Indebtedness of the Company, the DIMAC Operating
Noteholders or the Lenders, as the case may be, and pay it over to them as their
interests may appear.
Section 5. Subrogation. After all Senior Obligations of the Company are
paid in full in cash and until the Securities are paid in full, with respect to
payments required to be made by the Company of any Subordinated Obligations,
Securityholders shall be subrogated to the rights of holders of such Senior
Indebtedness of the Company, the DIMAC Operating Noteholders and the Lenders to
receive distributions applicable to the Senior Obligations. A distribution made
under this Agreement to holders of such Senior Indebtedness of the Company,
DIMAC Operating Noteholders or the Lenders which otherwise would have been made
to Securityholders is not, as between the Company and Securityholders, a payment
by the Company on the Senior Obligations.
Section 6. Relative Rights. This Agreement defines the relative rights
of Securityholders and the holders of Senior Indebtedness of the Company, DIMAC
Operating Noteholders and the Lenders. Nothing in this Agreement shall impair,
as between the Company and Securityholders, the obligation of the Company, which
is absolute and unconditional, to perform any of the Subordinated Obligations.
Section 7. Subordination May Not Be Impaired by Company. No right of
any holder of Senior Indebtedness of the Company, any DIMAC Operating Noteholder
or any Lender to enforce the subordination of the Subordinated Obligations shall
be impaired by any act or failure to act by the Company or by its failure to
comply with this Agreement.
Section 8. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness
of the Company, DIMAC Operating Noteholders or Lenders, as the case may be, the
distribution may be made and the notice given to their Representatives (if any).
Section 9. Reliance by Holders of Senior Indebtedness, DIMAC Operating
Noteholders and the Lenders on Subordination Provisions. Each Securityholder by
accepting a Security acknowledges and agrees that the foregoing subordination
provisions are, and are intended to be, an inducement and a
3
<PAGE>
consideration to each holder of any Senior Indebtedness of the Company, each
DIMAC Operating Noteholder and each Lender, whether the Senior Obligation was
created or acquired before or after the issuance of the Securities, to acquire
and continue to hold, or to continue to hold, such Senior Indebtedness or DIMAC
Operating Note, and such holder of such Senior Indebtedness of the Company,
DIMAC Operating Noteholder or Lender, as the case may be, shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
continuing to hold, or in continuing to hold, such Senior Indebtedness or DIMAC
Operating Note, as the case may be.
Section 10. Payment in Full. For all purposes hereof, the Senior
Obligations shall not be deemed paid in full until all obligations in respect
thereof shall have been fully satisfied in cash denominated in U.S.
dollars.
Section 11. Prohibition of Certain Actions. Until all Senior
Obligations are paid in full in cash, no holder of Subordinated Obligations may
commence, or join with any other person in commencing, any assignment for the
benefit of creditors or any proceeding against the Company, its successors or
assigns or any other person with respect to the Subordinated Obligations under
any bankruptcy, reorganization, readjustment of debt, dissolution, receivership,
liquidation or insolvency law or statute now or hereafter in effect in any
jurisdiction (provided that each holder of Subordinated Obligations shall be
entitled to file a proof of claim in respect of the Subordinated Obligations in
any such proceeding so long as such proof of claim shall state that the
Subordinated Obligations are subordinated to the extent and in the manner set
forth in this Agreement).
Section 12. Amendments. No change may be made to this Agreement that
would adversely affect the rights under this Agreement of any holder of Senior
Indebtedness, the DIMAC Operating Noteholders or the Lenders unless such persons
consent to such change.
Section 13. Headings. Section headings are used herein for
convenience of reference only, are not part of this Agreement and shall not
affect the construction of or be taken into in consideration in interpreting,
this Agreement.
Section 14. Waivers; Amendments. Neither this Agreement nor any
terms hereof may be amended, changed or waived unless such amendment, change or
waiver is in writing signed by each of the parties hereto.
Section 15. Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties.
Section 16. Counterparts; Integration; Effectiveness. This Agreement
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement constitutes
the entire contract among the parties relating to the subject matter hereof and
supersedes any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. Delivery of an executed counterpart of a
signature page of this Agreement by facsimile shall be as effective as delivery
of a manually executed counterpart of this Agreement.
Section 17. Severability. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining
4
<PAGE>
provisions hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.
Section 18. Notices. All notices and communications to be given under
this Agreement shall be given or made in writing to the intended recipient at
the address specified below or, as to any party, at such other address as shall
be designated by such party in a notice to each other party. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telecopier, personally delivered or, in the case
of a mailed notice, upon receipt, in each case, given or addressed as provided
in this Section 18:
To the Company: DIMAC Corporation
5775 Peachtree Dunwoody Road, Suite C-150
Atlanta, Georgia 30342
Attention: Chief Financial Officer
Telecopier No: (404) 705-9929
With a copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: Frank L. Schiff
Telecopier No: (212) 354-8113
To the Purchasers: TCW/Crescent Mezzanine, L.L.C.
11100 Santa Monica Boulevard, Suite 2000
Los Angeles, California 90025
Attention: Jean-Marc Chapus
Telecopier No: (310) 235-5967
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Suite 3400
Los Angeles, California 90071
Attention: Rodrigo A. Guerra, Jr., Esq.
Telecopier No: (213) 687-5600
Section 19. Governing Law; Submission to Jurisdiction. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW EXCEPT
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement under seal with the intent that this be a sealed instrument, as of the
day and year first above written.
DIMAC CORPORATION, INC.
By: /s/ Martin R. Lewis
--------------------------
Name: Martin R. Lewis
-------------------------
Title: Chief Executive Officer
------------------------
6
<PAGE>
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVESTMENT
PARTNERS, L.P.
By: TCW/CRESCENT MEZZANINE L.L.C.
its general partner or managing owner
By: /s/ Jean-Marc Chapus
---------------------------------
Name: Jean-Marc Chapus
-------------------------------
Title: Managing Director
------------------------------
By: /s/ John C. Rocchio
---------------------------------
Name: John C. Rocchio
-------------------------------
Title: Managing Director
------------------------------
7
<PAGE>
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW ADVISORS (BERMUDA), LIMITED,
as General Partner
By: /s/ Jean-Marc Chapus
---------------------------------
Name: Jean-Marc Chapus
-------------------------------
Title: Managing Director
------------------------------
By: TCW INVESTMENT MANAGEMENT
COMPANY, as Investment Advisor
By: /s/ John C. Rocchio
---------------------------------
Name: John C. Rocchio
-------------------------------
Title: Managing Director
------------------------------
8
<PAGE>
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW INVESTMENT MANAGEMENT
COMPANY, its investment advisor
By: /s/ Jean-Marc Chapus
---------------------------------
Name: Jean-Marc Chapus
-------------------------------
Title: Managing Director
------------------------------
By: /s/ John C. Rocchio
---------------------------------
Name: John C. Rocchio
-------------------------------
Title: Managing Director
------------------------------
9
<PAGE>
Exhibit 10.10
ADVISORY SERVICES AGREEMENT
THIS ADVISORY SERVICES AGREEMENT (this "Agreement") is entered into as
of June 26, 1998, by and between DMAC ACQUISITION CORP., a Delaware corporation
(the "Company") and MDC MANAGEMENT COMPANY IV, LLC, a California limited
liability company ("MDC").
A. Contemporaneously with the execution of this Agreement, certain
affiliates of MDC will acquire general control of the Company.
B. Execution and delivery of this agreement is a condition precedent
to consummation of the foregoing described transactions.
NOW, THEREFORE, in consideration of the mutual promises of the parties
hereinafter set forth, MDC and the Company hereto agree as follows:
1. Retention as Advisor. Subject to each of the terms, conditions
and provisions of this Agreement, the Company hereby retains MDC to perform,
and MDC hereby agrees to perform, those financial, advisory and managerial
functions set forth in Section 4 of this Agreement.
2. Term.
2.1. Subject to the provisions for termination set forth herein,
this Agreement shall be effective as of the date hereof and expire on the
fifth anniversary of the date hereof; provided, however, that this Agreement
shall be renewable automatically annually for one-year terms unless MDC
receives notice of the termination prior to the renewal date.
2.2. The Company, by written notice to MDC, authorized by a
majority of the directors other than those who are representatives of MDC,
may terminate this Agreement for justifiable cause, which shall mean any of
the following events: (i) material breach by MDC of any of its obligations
hereunder; (ii) misappropriation by MDC of funds or property of the Company
or other willful breach in the course of the consultantcy; or (iii) gross
neglect by MDC in the fulfillment of its obligations hereunder.
2.3. MDC, by thirty (30) days prior written notice to the Company,
may terminate this Agreement at any time.
3. Change of Control Payment. Notwithstanding any other provision
herein, upon the occurrence of a Change of Control (as such term is
hereinafter defined), this Agreement shall terminate and all amounts, which
but for such termination would otherwise have become due and payable to MDC
during the remaining term of this Agreement (in the case of the annual fee
under Section 4.2, based upon the annual fee than in existence) shall become
due and
<PAGE>
payable by the Company on the effective date of such termination. For purposes
of this Section, a "Change of Control" shall be defined as (i) a stock sale,
merger, consolidation, combination, reorganization or other transaction
resulting in more than fifty percent (50%) of the combined voting power of the
surviving or resulting entity being owned, directly or indirectly by persons
other than the stockholders of the Company immediately prior to any such
transaction (other than in connection with a public offering of common stock of
the Company pursuant to a registration statement declared effective under the
Securities Act), or (ii) the liquidation or dissolution of the Company or the
sale or other disposition of all or substantially all of the assets or business
of the Company
4. Compensation.
4.1. For services rendered in connection with the acquisition of
the Company, the Company shall pay to MDC a transaction fee equal to
$9,900,000, payable upon the execution and delivery of this Agreement.
4.2. As compensation to MDC for its management and advisory
services to the Company under this Agreement, the Company agrees to pay to
MDC an annual fee equal to the greater of (i) $550,000 per annum and (ii)
1.06% of the pro forma EBITDA of the Company for the immediately preceding
fiscal year (such EBITDA to be calculated without any deduction in respect of
the annual fee payable to MDC in respect of such fiscal year); it being
understood that prior to the fiscal year commencing January 1, 1999 the
annual fee payable to MDC pursuant to this Agreement shall be $550,000
multiplied by a fraction, the numerator of which shall be the number of days
in the period beginning on the date hereof and ending on and including
December 31, 1998, and the denominator of which shall be 360. From and after
January 1, 1999, such fee shall be recalculated at the beginning of each
fiscal year of the Company in accordance with the immediately preceding
sentence; provided that in no event shall the annual fee exceed $1,000,000 in
any year. Such fee shall be payable in advance (a) on the date hereof for the
period from the date hereof through September 30, 1998, and (b) thereafter in
quarterly installments, on or before the first day of January, April, July
and October, which payment shall be prorated for the actual number of days in
such fiscal quarter that this Agreement is in effect.
4.3. From time to time, the Company may request MDC to provide
significant additional services, such as in connection with a major
acquisition, debt restructuring or an initial public offering. MDC will be
entitled to receive additional compensation for such services. The Company
and MDC agree to negotiate in good faith concerning the scope and
compensation for such additional services, based upon compensation
customarily received by independent investment banking firms for providing
similar assistance. Any agreement regarding additional compensation shall be
in writing and signed by MDC and the Company.
4.4. The Company agrees to pay actual and direct out-of-pocket
expenses (including, but not limited to, reasonable fees and disbursements of
attorneys, accountants and other professionals and consultants retained by
MDC in connection with the services provided hereunder) incurred by MDC and
its personnel in performing services hereunder to the Company and its
subsidiaries which shall be reimbursed to it by the Company upon MDC's
rendering of an
2
<PAGE>
invoice statement therefor together with such supporting data as the Company
reasonably shall require.
4.5. Notwithstanding any other provision of this Section, the
Company shall not be required to pay any of the foregoing fees, or make the
foregoing reimbursements, if and to the extent such is payment expressly
prohibited by the provisions of any credit, stock, financing or other
agreements or instruments binding upon the Company, its subsidiaries or their
properties; provided, however, that if, as a result of the operation of such
prohibitions, nonpayments or postponements, payments otherwise owed hereunder
are not made, such payments shall not be canceled but rather shall accrue,
and shall be payable by the Company promptly when, and to the extent, that
the Company is no longer prohibited from making such payments.
5. Duties as Advisor.
MDC's duties as a financial and management advisor to the Company
under the provisions of this Agreement shall include providing services in
obtaining equity, debt, lease and acquisition financing, as well as providing
other financial, advisory and consulting services for the operation and growth
of the Company at any time during the term of this Agreement (the "Services").
Such Services shall be rendered upon the reasonable request of the Company. MDC
shall devote as much time as reasonably necessary to the affairs of the Company.
6. Decisions.
The Company reserves the right to make all decisions with regard to
any matter upon which MDC has rendered its advice and consultation, and there
shall be no liability to MDC for any such advice accepted by the Company
pursuant to the provisions of this Agreement.
7. Authority of Advisor.
MDC shall have authority only to act as a consultant and advisor to
the Company. MDC shall have no authority to enter into any agreement or to make
any representation, commitment or warranty binding upon the Company or to obtain
or incur any right, obligation or liability on behalf of the Company. Nothing
contained herein shall be interpreted as restricting, modifying or waiving the
rights, privileges or obligations of MDC or any of its affiliates as a
shareholder, director or officer of the Company.
8. Independent Contractor.
Except as may be expressly provided elsewhere in this Agreement, MDC
shall act as an independent contractor and shall have complete charge of its
personnel engaged in the performance of the Services.
3
<PAGE>
9. Books and Records.
MDC's books and records with respect to the Services ("Books and
Records") shall be kept at MDC's office located at 3000 Sand Hill Road, Building
3, Suite 290, Menlo Park, California 94025. The Books and Records shall be kept
in accordance with recognized accounting principles and practices, consistently
applied, and shall be made available for the Company or the Company's
representatives' inspection and copying at all times during regular office
hours. MDC shall not be required to maintain the Books and Records for more than
three (3) years after termination of this Agreement.
10. Confidential Information.
The parties acknowledge that during the course of provision of the
Services, the Company may disclose information to MDC or its affiliated
companies. MDC shall treat such information as the Company's confidential
property and safeguard and keep secret all such information about the Company,
including reports and records, customer lists, trade lists, trade practices, and
prices pertaining to the Company's business coming to the attention or knowledge
of MDC because of any activities conducted by MDC under or pursuant to this
Agreement; provided, however, that nothing contained herein shall be construed
as prohibiting MDC from disclosing information regarding the Company to its
investors and other affiliates as MDC may deem necessary, advisable or
convenient.
11. Notices and Communications.
11.1. All communications relating to the day-to-day activities
necessary to render the Services shall be exchanged between the respective
representatives of the Company and MDC, who will be designated by the parties
promptly upon commencement of the Services.
11.2. All other notices, demands, and communications required or
permitted hereunder shall be in writing and shall be delivered personally to
the respective representatives of the Company and MDC set forth below or
shall be mailed by registered mail, postage prepaid, return receipt
requested. Notices, demands and communications hereunder shall be effective:
(i) if delivered personally, on delivery; or (ii) if mailed, forty-eight (48)
hours after deposit thereof in the United States mail addressed to the party
to whom such notice, demand, or communication is given. Until changed by
written notice, all such notices, demands and communications shall be
addressed as follows:
If to the Company: DMAC Acquisition Corp.
5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
Attn: Chief Financial Officer
4
<PAGE>
If to MDC: McCown De Leeuw & Co.
65 East 55th Street
36th Floor
New York, New York 10022
Attn: David E. King
and
McCown De Leeuw & Co.
3000 Sand Hill Road
Building 3, Suite 290
Menlo Park, California 94025
Attn: Steven A. Zuckerman
With copies to: White & Case
1155 Avenue of the Americas
New York, New York 10036
Attn: Frank L. Schiff
12. Assignments.
MDC shall not assign this Agreement in whole or in part without the
prior written consent of the Company; provided, however, that such consent shall
not be unreasonably withheld with respect to assignments to MDC's affiliates or
wholly-owned subsidiaries.
Subject to the foregoing, all the terms and conditions contained
herein shall inure to the benefit of and shall be binding upon the parties
hereto and their respective heirs, personal representatives, successors and
assigns.
13. Limitation of Liability; Indemnity.
MDC shall have no liability to the Company on account of any advice
which it rendered to the Company provided MDC believed in good faith that such
advice was useful or beneficial to the Company at the time it was rendered. The
Company will indemnify and hold harmless MDC and its affiliates, and each of
their respective directors, officers, partners, principals, employees, agents
and representatives, from and against any actual or threatened claims, lawsuits,
actions or liabilities (including the fees and expenses of counsel and other
litigation costs) of any kind or nature, arising as a result of or in connection
with this Agreement and their services, activities and decisions hereunder,
except that the Company will not be obligated to so indemnify any indemnified
party if, and to the extent that, such claims, lawsuits, actions or liabilities
against such indemnified party directly result from the gross negligence or
willful misconduct of such indemnified party as admitted in any settlement by
such indemnified party or held in any final, non-appealable judicial or
administrative decision. In connection with such indemnification, the Company
will promptly remit or pay to MDC any amounts which
5
<PAGE>
MDC certifies to the Company in writing are payable to MDC or other indemnified
parties hereunder.
14. Applicable Law and Severability.
This document shall, in all respects, be governed by the laws of the
State of California applicable to agreements executed and to be wholly performed
within the State of California. Nothing contained herein shall be construed so
as to require the commission of any act contrary to law, and wherever there is
any conflict between any provisions contained herein and any contrary present or
future statute, law, ordinance or regulation, the latter shall prevail, but the
provision of this document which is affected shall be curtailed and limited only
to the extent necessary to bring it within the requirements of the law.
15. Further Assurances.
Each of the parties hereto shall execute and deliver any and all
additional papers, documents and other assurances, and shall do any and all acts
and things reasonably necessary in connection with the performance of their
obligations hereunder and to carry out the intent of the parties hereto.
16. Attorneys' Fees and Costs.
The prevailing party in any proceeding brought to enforce or interpret
any provision of this Agreement shall be entitled to recover its reasonable
attorneys' fees, costs and disbursements incurred in connection with such
proceeding, including but not limited to the reasonable costs of experts,
accountants and consultants and all other reasonable costs and services related
to the proceeding, including those incurred in any appeal, jointly and
severally, from the nonprevailing party or parties.
17. Time of the Essence.
Time is of the essence of this Agreement and all the terms,
provisions, covenants and conditions hereof.
18. Captions.
The captions appearing at the commencement of the Sections hereof are
descriptive only and for convenience and reference. Should there be any
conflicts between any such caption and the Section at the head of which it
appears, the Section and not such caption shall control and govern in the
construction of this document.
19. Modifications or Amendments.
No amendment, change or modification of this document shall be valid
unless it is in writing and signed by all the parties hereto and expressly
states that it is an amendment, change or modification of this Agreement is
intended.
6
<PAGE>
20. Separate Counterparts.
This document may be executed in one or more separate counterparts,
each of which, when so executed, shall be deemed to be an original. Such
counterparts shall, together, constitute and be one and the same.
21. Entire Agreement.
This Agreement shall constitute the entire understanding and agreement
between the parties hereto and shall supersede the Amended and Restated Advisory
Services Agreement, dated as of June 28, 1996 by and between AmeriComm Direct
Marketing, Inc. (formerly National Fiberstok Corporation), MDC Management
Company II, L.P. and MDC Management Company, and any and all letters of intent,
whether written or oral, pertaining to the subject matter of this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers on the date first appearing above.
DMAC ACQUISITION CORP.
By: /s/ James Wu
------------------------------------------
Name: James Wu
Title: Assistant Secretary
MDC MANAGEMENT COMPANY IV,
LLC, a California limited liability company
By: /s/ Tyler T. Zachem
------------------------------------------
Name: Tyler T. Zachem
Title:Member
8
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.1
AmeriComm Direct Marketing, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
Six months Six months
Year Ended December 31, ended ended
-------------------------------------------------------- June 30, June 26,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $ (4,893) $ (2,015) $ (1,040) $ (2,211) $ (4,515) $ (3,183) $ (7,847)
-------- -------- -------- -------- -------- -------- --------
Fixed charges:
Interest on indebtedness 2,873 2,975 3,179 8,138 17,023 7,402 9,677
Portion of rents representative
of interest expense 263 214 117 275 556 224 265
-------- -------- -------- -------- -------- -------- --------
Total fixed charges 3,136 3,189 3,296 8,413 17,579 7,626 9,942
-------- -------- -------- -------- -------- -------- --------
Ratio computation:
Earnings (4,893) (2,015) (1,040) (2,211) (4,515) (3,183) (7,847)
Fixed charges 3,136 3,189 3,296 8,413 17,579 7,626 9,942
-------- -------- -------- -------- -------- -------- --------
Earnings before fixed charges (1,757) 1,174 2,256 6,202 13,064 4,443 2,095
Fixed charges 3,136 3,189 3,296 8,413 17,579 7,626 9,942
-------- -------- -------- -------- -------- -------- --------
Ratio of earnings (deficiency)
to fixed charges (4,893) (2,015) (1,040) (2,211) (4,515) (3,183) (7,847)
</TABLE>
DIMAC Marketing Corporation, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Eleven Eight Four Six Six
One Month months months months months months
Year Ended December 31, ended ended ended ended ended ended
---------------------------- January 31, December 31, August 31, December 31, June 30, June 26,
1993 1994 1995 1996 1996 1997 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
income taxes $ 3,692 $ 3,496 $ 7,689 $ (354) $ 4,288 $(3,128) $ 147 $(2,525) $ 204
------- ------- ------- ------- ------- ------- ------- ------- -------
Fixed charges:
Interest on indebtedness 1,417 6,069 5,174 532 7,525 6,188 2,248 4,633 4,583
Portion of rents
representative of
interest expense 972 1,459 2,031 210 2,016 1,336 639 1,027 920
------- ------- ------- ------- ------- ------- ------- ------- -------
Total fixed charges 2,389 7,528 7,205 742 9,541 7,524 2,887 5,660 5,503
------- ------- ------- ------- ------- ------- ------- ------- -------
Ratio computation:
Earnings 3,692 3,496 7,689 (354) 4,288 (3,128) 147 (2,525) 204
Fixed charges 2,389 7,528 7,205 742 9,541 7,524 2,887 5,660 5,503
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings before
fixed charges 6,081 11,024 14,894 388 13,829 4,396 3,034 3,135 5,707
Fixed charges 2,389 7,528 7,205 742 9,541 7,524 2,887 5,660 5,503
------- ------- ------- ------- ------- ------- ------- ------- -------
Ratio of earnings
(deficiency) to
fixed charges 2.55 1.46 2.07 (354) 1.45 (3,128) 1.05 (2,525) 1.04
</TABLE>
<PAGE>
DIMAC Corporation Inc.
Compution of Ratio of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
-------------------------------------------------------
Year Six Months Six Months
Ended Ended Ended
December 31, 1997 June 30, 1997 June 30, 1998
----------------- ------------- -------------
<S> <C> <C> <C>
Income (loss) before income taxes $ (5,163) $ (4,823) $ (4,398)
----------------- ------------- -------------
Fixed charges
Interest on indebtness 34,207 16,908 17,043
Portion of rents representative of interest expense 904 1,292 1,185
----------------- ------------- -------------
Total fixed charges 35,111 18,200 18,228
----------------- ------------- -------------
Ratio computation
Earnings (5,163) (4,823) (4,398)
Fixed charges 35,111 18,200 18,228
----------------- ------------- -------------
Earnings before fixed charges 29,948 13,377 13,830
Fixed charges 35,111 18,200 18,228
----------------- ------------- -------------
Ratio of earnings (deficiency) to fixed charges (5,163) (4,823) (4,398)
</TABLE>
<PAGE>
EXHIBIT 21.1
------------
SUBSIDIARIES OF DIMAC CORPORATION
---------------------------------
DIMAC Marketing Corporation
DIMAC DIRECT, Inc.
Palm Coast Data Inc.
The McClure Group Inc.
Wilcox & Associates Inc.
MBS/Multimode Inc.
AmeriComm Holdings, Inc.
AmeriComm Direct Marketing, Inc.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated November 6, 1998 on the audited consolidated financial
statements of DIMAC Corporation and subsidiaries, our report dated
February 27, 1998 (except with respect to the matters discussed in Note 10,
as to which the date is June 26, 1998) on the audited consolidated financial
statements of AmeriComm Holdings, Inc. and subsidiary and to all references to
our Firm included in or made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
November 10, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated July 2, 1998 on the audited consolidated financial statements
of DIMAC Marketing Corporation and subsidiaries and to all references to our
Firm included in or made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
November 10, 1998
<PAGE>
Exhibit 23.3
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
We consent to the use in this Registration Statement of DIMAC Corporation on
Form S-4 of our report dated February 21, 1997, on the financial statements
of AmeriComm Direct Marketing, Inc. as of December 31, 1995 and 1996, and for
each of the three years in the period ended December 31, 1996, appearing in
the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Louisville, Kentucky
November 10, 1998
<PAGE>
Exhibit 23.4
[KPMG PEAT MARWICK LETTERHEAD]
ACCOUNTANTS' CONSENT
The Board of Directors
DIMAC Corporation:
We consent to the use of our report, on the consolidated financial statements
of TRANSKRIT Corporation, included herein and to the reference to our firm
under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Roanoke, Virginia
November 10, 1998
<PAGE>
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
DIMAC CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 13-4013426
(State of incorporation) (I.R.S. employer identification no.)
5775 Peachtree Dunwoody Road
Suite C-150
Atlanta, Georgia 30342
(Address of principal executive offices) (Zip Code)
12-1/2% Senior Subordinated Notes Due 2008
(Title of the indenture securities)
<PAGE>
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the trustee
and upon information furnished by the obligor, the obligor is not an
affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section
321(b) of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 5th day
of November, 1998.
WILMINGTON TRUST COMPANY
[SEAL]
Attest: /s/ Donald G. MacKelcan By: /s/ Emmett R. Harmon
------------------------ ---------------------
Assistant Secretary Name: Emmett R. Harmon
Title: Vice President
2
<PAGE>
EXHIBIT A
AMENDED CHARTER
Wilmington Trust Company
Wilmington, Delaware
As existing on May 9, 1987
<PAGE>
Amended Charter
or
Act of Incorporation
of
Wilmington Trust Company
Wilmington Trust Company, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "Wilmington Trust Company" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
First: - The name of this corporation is Wilmington Trust Company.
Second: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is Wilmington
Trust Company whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
Third: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court
of law or equity and to make and use a common seal, and
alter the seal at pleasure, to hold, purchase, convey,
mortgage or otherwise deal in real and personal estate and
property, and to appoint such officers and agents as the
business of the
<PAGE>
Corporation shall require, to make by-laws not
inconsistent with the Constitution or laws of the United
States or of this State, to discount bills, notes or other
evidences of debt, to receive deposits of money, or
securities for money, to buy gold and silver bullion and
foreign coins, to buy and sell bills of exchange, and
generally to use, exercise and enjoy all the powers,
rights, privileges and franchises incident to a
corporation which are proper or necessary for the
transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property
of every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other
persons and individuals, and from all corporations whether
state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage,
bond or other instrument issued by any state, municipality,
body politic, corporation, association or person, either
alone or in conjunction with any other person or persons,
corporation or corporations.
2
<PAGE>
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any
trust, office, duty, contract or agreement, either by itself
or in conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record
within the State of Delaware or elsewhere, or which may now
or hereafter be required by any law, judge, officer or court
in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of
interest, dividends and income upon and from any of the
bonds, mortgages, debentures, notes, shares of capital
stock, securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages,
debentures, notes, shares of
3
<PAGE>
capital stock, securities, obligations, contracts,
evidences of indebtedness and other property, any and all
the rights, powers and privileges of individual owners
thereof, including the right to vote thereon; to invest
and deal in and with any of the moneys of the Corporation
upon such securities and in such manner as it may think
fit and proper, and from time to time to vary or realize
such investments; to issue bonds and secure the same by
pledges or deeds of trust or mortgages of or upon the
whole or any part of the property held or owned by the
Corporation, and to sell and pledge such bonds, as and
when the Board of Directors shall determine, and in the
promotion of its said corporate business of investment and
to the extent authorized by law, to lease, purchase, hold,
sell, assign, transfer, pledge, mortgage and convey real
and personal property of any name and nature and any
estate or interest therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or transferable
instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell,
4
<PAGE>
convey or otherwise dispose of, real and personal property,
of every class and description, in any State, District,
Territory or Colony of the United States, and in any foreign
country or place.
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the clauses of this
paragraph shall be regarded as independent objects, purposes
and powers.
Fourth: - (a) The total number of shares of all classes of stock which
the Corporation shall have authority to issue is forty-one million
(41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article Fourth, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions
of such series, including, but without limiting the generality of
the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by
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<PAGE>
like action of the Board of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable on any other class or classes, or series of the same
or other class of stock and whether such dividends shall be
cumulative or non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article Fourth), if any, shall
have been met and after the Corporation shall have complied with all
the requirements, if any, with respect to the setting aside of sums
as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article
Fourth), and subject further to any conditions which may be fixed in
accordance with the provisions of section (b) of this Article
Fourth, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to
time by the Board of Directors.
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(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article Fourth), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to receive all of the
remaining assets of the Corporation, tangible and
intangible, of whatever kind available for distribution to
stockholders ratably in proportion to the number of shares
of Common Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article Fourth, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case,
be as fixed from time to time by the Board of Directors in the
resolution or resolutions adopted pursuant to authority granted in
section (b) of this Article Fourth and the consent, by class or
series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other
series of Preferred Stock whether or not the powers, preferences and
rights of such other series shall be fixed by the Board of Directors
as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of
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<PAGE>
them; provided, however, that the Board of Directors may provide in
the resolution or resolutions as to any series of Preferred Stock
adopted pursuant to section (b) of this Article Fourth that the
consent of the holders of a majority (or such greater proportion as
shall be therein fixed) of the outstanding shares of such series
voting thereon shall be required for the issuance of any or all
other series of Preferred Stock.
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
Fifth: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of
one class expiring each year. At the annual meeting of
stockholders in 1982, directors of the first class shall be
elected to hold office for a term expiring at the next succeeding
annual meeting, directors of the second class shall be elected to
hold office for a term expiring at the second succeeding annual
meeting and directors of the third class shall be elected to hold
office for a term expiring at the third succeeding annual meeting.
Any vacancies in the Board of Directors for any reason, and any
newly created directorships resulting from any increase in the
directors, may be filled by the Board of Directors, acting by a
majority of the directors then in office until the next annual
election of directors. At such election, the stockholders shall
elect a successor to such director to hold office
8
<PAGE>
until the next election of the class for which such director shall
have been chosen and until his successor shall be elected and
qualified. No decrease in the number of directors shall shorten the
term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the ByLaws of the Corporation),
any director or the entire Board of Directors of the Corporation may
be removed at any time without cause, but only by the affirmative
vote of the holders of two-thirds or more of the outstanding shares
of capital stock of the Corporation entitled to vote generally in
the election of directors (considered for this purpose as one class)
cast at a meeting of the stockholders called for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Notice of nominations which
are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
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Sixth: - The Directors shall choose such officers, agent and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
Seventh: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
Eighth: - This Act shall be deemed and taken to be a private Act.
Ninth: - This Corporation is to have perpetual existence.
Tenth: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
Eleventh: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
Twelfth: - The Corporation may transact business in any part of the
world.
Thirteenth: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class).
Fourteenth: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
Fifteenth: - (a) In addition to any affirmative vote required by
law, and except as otherwise expressly provided in sections (b) and
(c) of this Article Fifteenth:
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(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair
market value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the Corporation or any
Subsidiary to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities
or other property (or a combination thereof) having an
aggregate fair market value of $1,000,000 or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder, or any Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article Fifteenth as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article Fifteenth shall mean any transaction which is
referred to any one or more of clauses (A) through (E) of
paragraph 1 of the section (a).
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(b) The provisions of section (a) of this Article Fifteenth
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article Fifteenth:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on such business
combination, or immediately prior to the consummation of any such
transaction:
(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
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<PAGE>
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
(6) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect in December 31, 1981) is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article Fifteenth on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to any
business combination or the consideration received for the
issuance or transfer of securities by the Corporation, or
any Subsidiary has an aggregate fair market value of
$1,000,000 or more.
(e) Nothing contained in this Article Fifteenth shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
Sixteenth: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter
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or repeal any provision of Articles Fifth, Thirteenth, Fifteenth
or Sixteenth of this Charter or Act of Incorporation.
Seventeenth: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification."
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EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
As existing on January 16, 1997
<PAGE>
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
Stockholders' Meetings
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
Directors
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its members, or
<PAGE>
at the call of the Chairman of the Board of Directors or the President.
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
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<PAGE>
ARTICLE III
Committees
Section 1. Executive Committee
(A) The Executive Committee shall be composed of not
more than nine members who shall be selected by the Board of Directors from its
own members and who shall hold office during the pleasure of the Board.
(B) The Executive Committee shall have all the powers of
the Board of when it is not in session to transact all business for and in
behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee
shall be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend
all investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as the
Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time for that purpose, and
any provisions of these By-Laws (other than this Section) and any
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<PAGE>
resolutions which are contrary to the provisions of this Section or to the
provisions of any such implementary Resolutions shall be suspended during such a
disaster period until it shall be determined by any interim Executive Committee
acting under this section that it shall be to the advantage of the Company to
resume the conduct and management of its affairs and business under all of the
other provisions of these By-Laws.
Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more
than thirteen members who shall be selected by the Board of Directors, a
majority of whom shall be members of the Board of Directors and who shall hold
office during the pleasure of the Board.
(B) The Trust Committee shall have general supervision
over the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members or at the call of its chairman. A
majority of its members shall be necessary to constitute a quorum for the
transaction of business.
(D) Minutes of each meeting of the Trust Committee shall
be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five
members who shall be selected by the Board of Directors from its own members,
none of whom shall be an officer of the Company, and shall hold office at the
pleasure of the Board.
(B) The Audit Committee shall have general supervision
over the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of examination
of the Company made by any governmental agency or such independent auditor
employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the Company as it shall deem desirable.
4
<PAGE>
(C) The Audit Committee shall meet whenever and wherever
the majority of its members shall deem it to be proper for the transaction of
its business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
(A) The Compensation Committee shall be composed of not
more than five (5) members who shall be selected by the Board of Directors from
its own members who are not officers of the Company and who shall hold office
during the pleasure of the Board.
(B) The Compensation Committee shall in general advise
upon all matters of policy concerning the Company brought to its attention by
the management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called
at any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be
elected by the Board of Directors as an associate director, to serve during the
pleasure of the Board.
(B) An associate director shall be entitled to attend
all directors meetings and participate in the discussion of all matters brought
to the Board, with the exception that he would have no right to vote. An
associate director will be eligible for appointment to Committees of the
Company, with the exception of the Executive Committee, Audit Committee and
Compensation Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of
any Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absence or disqualified member.
ARTICLE IV
Officers
5
<PAGE>
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of Directors shall preside at all meetings of the Board of Directors at
which the Chairman of the Board shall not be present and shall have such further
authority and powers and shall perform such duties as the Board of Directors or
the Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or
6
<PAGE>
indebtedness and of all the transactions of the Company. He shall have general
supervision of the expenditures of the Company and shall report to the Board of
Directors at each regular meeting of the condition of the Company, and perform
such other duties as may be assigned to him from time to time by the Board of
Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
Stock and Stock Certificates
Section 1. Shares of stock shall be transferrable on the books of
the Company and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 2. Certificate of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary
7
<PAGE>
or Treasurer or an Assistant Secretary, and the seal of the corporation shall be
engraved thereon. Each certificate shall recite that the stock represented
thereby is transferrable only upon the books of the Company by the holder
thereof or his attorney, upon surrender of the certificate properly endorsed.
Any certificate of stock surrendered to the Company shall be cancelled at the
time of transfer, and before a new certificate or certificates shall be issued
in lieu thereof. Duplicate certificates of stock shall be issued only upon
giving such security as may be satisfactory to the Board of Directors or the
Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of any dividend, or to any allotment or
rights, or to exercise any rights in respect of any change, conversion or
exchange of capital stock, or in connection with obtaining the consent of
stockholders for any purpose, which record date shall not be more than 60 nor
less than 10 days proceeding the date of any meeting of stockholders or the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining such consent.
ARTICLE VI
Seal
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words "Wilmington
Trust Company" within the inner circle the words
"Wilmington, Delaware."
ARTICLE VII
Fiscal Year
Section 1. The fiscal year of the Company shall be the calendar
year.
8
<PAGE>
ARTICLE VIII
Execution of Instruments of the Company
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
ARTICLE IX
Compensation of Directors and Members of Committees
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
Indemnification
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was
9
<PAGE>
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust, enterprise or non-profit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
reasonably incurred by such person. The Corporation shall indemnify a person in
connection with a proceeding initiated by such person only if the proceeding was
authorized by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director officer in his capacity as a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
(C) If a claim for indemnification or payment of
expenses, under this Article X is not paid in full within ninety days after a
written claim therefor has been received by the Corporation the claimant may
file suit to recover the unpaid amount of such claim and, if successful in whole
or in part, shall be entitled to be paid the expense of prosecuting such claim.
In any such action the Corporation shall have the burden of proving that the
claimant was not entitled to the requested indemnification of payment of
expenses under applicable law.
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing
provisions of this Article X shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to the
time of such repeal or modification.
ARTICLE XI
Amendments to the By-Laws
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
10
<PAGE>
EXHIBIT C
Section 321(b) Consent
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: November 5, 1998 By: /s/ Emmett R. Harmon
---------------------
Name: Emmett R. Harmon
Title: Vice President
<PAGE>
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings
banks with state publication requirements. It has not been approved by
any state banking authorities. Refer to your appropriate state banking
authorities for your state publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- ----------------------------------------------------------- ---------------
Name of Bank City
in the State of DELAWARE , at the close of business on June 30, 1998.
--------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Thousands of dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins.............................................232,976
Interest-bearing balances........................................................................... 0
Held-to-maturity securities................................................................................ 195,579
Available-for-sale securities.............................................................................1,416,957
Federal funds sold and securities purchased under agreements to resell......................................150,100
Loans and lease financing receivables:
Loans and leases, net of unearned income. . . . . . . 3,978,706
LESS: Allowance for loan and lease losses. . . . . . 63,164
LESS: Allocated transfer risk reserve. . . . . . . . 0
Loans and leases, net of unearned income, allowance, and reserve..............................3,915,542
Assets held in trading accounts...................................................................................0
Premises and fixed assets (including capitalized leases)....................................................135,596
Other real estate owned...................................................................................... 1,696
Investments in unconsolidated subsidiaries and associated companies...........................................1,066
Customers' liability to this bank on acceptances outstanding......................................................0
Intangible assets............................................................................................55,759
Other assets................................................................................................103,586
Total assets..............................................................................................6,208,857
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits:
In domestic offices.......................................................................................4,568,934
Noninterest-bearing . . . . . . . . 838,655
Interest-bearing. . . . . . . . . . 3,730,279
Federal funds purchased and Securities sold under agreements to repurchase................................. 418,382
Demand notes issued to the U.S. Treasury.....................................................................99,350
Trading liabilities (from Schedule RC-D)..........................................................................0
Other borrowed money:.......................................................................................///////
With original maturity of one year or less......................................................524,000
With original maturity of more than one year.....................................................43,000
Bank's liability on acceptances executed and outstanding..........................................................0
Subordinated notes and debentures.................................................................................0
Other liabilities (from Schedule RC-G).................................................................... 91,728
Total liabilities.........................................................................................5,745,394
EQUITY CAPITAL
Perpetual preferred stock and related surplus.....................................................................0
Common Stock....................................................................................................500
Surplus (exclude all surplus related to preferred stock).....................................................62,118
Undivided profits and capital reserves......................................................................394,325
Net unrealized holding gains (losses) on available-for-sale securities........................................6,520
Total equity capital........................................................................................463,463
Total liabilities, limited-life preferred stock, and equity capital.......................................6,208,857
</TABLE>
<PAGE>
Exhibit 99.1
Letter of Transmittal
FOR
Tender of 12 1/2% Senior Subordinated Notes Due 2008
IN EXCHANGE FOR
12 1/2% Series B Senior Subordinated Notes Due 2008
DIMAC CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON _________, 199 _, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
DELIVER TO THE EXCHANGE AGENT:
WILMINGTON TRUST COMPANY
BY REGISTERED OR CERTIFIED
MAIL OR BY OVERNIGHT COURIER: BY HAND:
Wilmington Trust Company Wilmington Trust Company
Attn: Kristin Long Attn: Corporate Trust Operations
Corporate Trust & c/o Harris Trust Company
Administration Window of New York, as Agent
1100 North Market Street 75 Water Street
Rodney Square North New York, NY 10004
Wilmington, DE 19890-0001
BY FACSIMILE:
Wilmington Trust Company
Corporate Trust Administration
FACSIMILE:
(302) 651-1079
CONFIRM BY TELEPHONE:
(302) 651-8869
Kristin Long
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
<PAGE>
The undersigned hereby acknowledges receipt and review of the Prospectus
dated _______ __, 199_ (the "Prospectus") of DIMAC Corporation (the "Company")
and this Letter of Transmittal (the "Letter of Transmittal"), which together
describe the Company's offer (the "Exchange Offer") to exchange its 12 1/2%
Series B Senior Subordinated Notes due October 1, 2008 (the "New Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
is a part, for a like principal amount of its issued and outstanding 12 1/2%
Senior Subordinated Notes due October 1, 2008 (the "Old Notes"). Capitalized
terms used but not defined herein have the respective meaning given to them in
the Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date in which the Exchange Offer is extended.
The Company shall notify the holders of the Old Notes of any extension by oral
or written notice prior to 9:00 A.M., New York City time, on the next business
day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a Holder (as defined) of Old
Notes either if original Old Notes are to be forwarded herewith or if delivery
of Old Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer-Book-Entry Transfer." Holders
of Old Notes whose Old Notes are not immediately available, or who are unable to
deliver their Old Notes and all other documents required by this Letter of
Transmittal to the Exchange Agent on or prior to the Expiration Date, or who are
unable to complete the procedure for book-entry transfer on a timely basis, must
tender their Old Notes according to the guaranteed delivery procedures set forth
in the Prospectus under the caption "The Exchange Offer-Guaranteed Delivery
Procedures." See Instruction 2. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space below is inadequate, list the registered numbers and principal amounts
on a separate signed schedule and affix the list to this Letter of Transmittal.
<PAGE>
DESCRIPTION OF OLD NOTES TENDERED
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S) AGGREGATE
EXACTLY AS NAME(S) APPEAR(S) PRINCIPAL AMOUNT
ON OLD NOTES REGISTERED REPRESENTED PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBERS* BY NOTE(S) TENDERED**
Total
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, any tendering Holder of Old Notes will be
deemed to have tendered the entire aggregate principal amount
represented by such Old Notes. All tenders must be in integral multiples
of $1,000.
<PAGE>
/ / CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE
INSTITUTIONS ONLY):
Name of Tendering Institution:
Account Number:
Transaction Code Number:
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR
USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Old Notes:
Date of Execution of Notice of Guaranteed Delivery:
Window Ticket Number (if available):
Name of Eligible Institution that Guaranteed Delivery:
Account Number (if delivered by book-entry transfer):
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities that it will deliver a
prospectus in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
<PAGE>
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Old Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned hereby exchanges, assigns and transfers to the
Company all right, title and interest in and to the Old Notes tendered for
exchange hereby. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent, the agent and attorney-in-fact of the undersigned (with full
knowledge that the Exchange Agent also acts as the agent of the Company in
connection with the Exchange Offer) with respect to the tendered Old Notes with
full power of substitution to (i) deliver such Old Notes, or transfer ownership
of such Old Notes on the account books maintained by the Book-Entry Transfer
Facility, to the Company and deliver all accompanying evidences of transfer and
authenticity, and (ii) present such Old Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of beneficial
ownership of such Old Notes, all in accordance with the terms of the Exchange
Offer. The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and to acquire the New Notes issuable upon the exchange of such
tendered Old Notes, and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim, when the same are accepted
for exchange by the Company.
The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission") that the New Notes issued in exchange for the Old Notes pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such Holders' business and such Holders are not engaging
in and do not intend to engage in a distribution of the New Notes and have no
arrangement or understanding with any person to participate in a distribution of
such New Notes. The undersigned hereby further represent(s) to the Company that
(i) any New Notes acquired in exchange for Old Notes tendered hereby are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not the undersigned, (ii) neither the undersigned nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, (iii) neither the Holder nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company or, if it is an affiliate, it will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable, and (iv) if the undersigned is not a broker-dealer,
neither the undersigned nor any such other person is engaging in or intends to
engage in a distribution of the New Notes, (v) if the undersigned is a
broker-dealer, such person is receiving New Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, and it will acknowledge that it is
required to deliver a prospectus in connection with any resale of such New
Notes.
If the undersigned or the person receiving the New Notes is a broker-dealer
that is receiving New Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making activities or other trading
activities, the undersigned acknowledges that it or such other person will
deliver a prospectus in connection with any resale of such New Notes; however,
by so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that the undersigned or such other person is an "underwriter"
within the meaning of the Securities Act. The undersigned acknowledges that if
the undersigned is participating in the Exchange Offer for the purpose of
distributing the New Notes (i) the undersigned cannot rely on the position of
the staff of the Commission in certain no-action letters and, in the absence of
an exemption therefrom, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the New Notes, in which case the registration statement
must contain the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the Commission, and (ii) failure
to comply with such requirements in such instance could result in the
undersigned incurring liability under the
<PAGE>
Securities Act for which the undersigned is not indemnified by the Company.
If the undersigned or the person receiving the New Notes is an "affiliate"
(as defined in Rule 405 under the Securities Act), the undersigned represents to
the Company that the undersigned understands and acknowledges that the New Notes
may not be offered for resale, resold or otherwise transferred by the
undersigned or such other person without registration under the Securities Act
or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered hereby, including the transfer of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Old Notes when, as and if the Company
gives oral or written notice thereof to the Exchange Agent. Any tendered Old
Notes that are not accepted for exchange pursuant to the Exchange Offer for any
reason will be returned, without expense, to the undersigned at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Old Notes pursuant to the procedures described under the caption "The
Exchange Offer-Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the New Notes issued in exchange for the Old Notes accepted for exchange
and return any Old Notes not tendered or not exchanged, in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail or deliver the New Notes issued in exchange for the
Old Notes accepted for exchange and any Old Notes not tendered or not exchanged
(and accompanying documents, as appropriate) to the undersigned at the address
shown below the undersigned's signature(s). In the event that both "Special
Issuance Instructions" and "Special Delivery Instructions" are completed, please
issue the New Notes issued in exchange for the Old Notes accepted for exchange
in the name(s) of, and return any Old Notes not tendered or not exchanged to,
the person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Old Notes from the name of the registered
holder(s) thereof if the Company does not accept for exchange any of the Old
Notes so tendered for exchange.
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if Old Notes in a principal amount not tendered,
or New Notes issued in exchange for Old Notes accepted for exchange, are to be
issued in the name of someone other than the undersigned, or (ii) if Old Notes
tendered by book-entry transfer which are not exchanged are to be returned by
credit to an account maintained at the Book-Entry Transfer Facility. Issue New
Notes and/or Old Notes to:
Name(s):
(PLEASE TYPE OR PRINT)
Address:
(INCLUDE ZIP CODE)
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(COMPLETE SUBSTITUTE FORM W-9)
/ / CREDIT UNEXCHANGED OLD NOTES DELIVERED BY BOOK-ENTRY TRANSFER TO THE
BOOK-ENTRY TRANSFER FACILITY SET FORTH BELOW:
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
Date
Date
Area Code and Telephone Number:
The above lines must be signed by the registered Holder(s) of Old Notes as
name(s) appear(s) on the Old Notes or on a security position listing, or by
person(s) authorized to become registered Holder(s) by a properly completed bond
power from the registered Holder(s), a copy of which must be transmitted with
this Letter of Transmittal. If Old Notes to which this Letter of Transmittal
relate are held of record by two or more joint Holders, then all such Holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then such person must
(i) set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority to so
act. See Instruction 5 regarding the completion of this Letter of Transmittal,
printed below.
Name(s):
(PLEASE TYPE OR PRINT)
<PAGE>
Capacity:
Address:
(INCLUDE ZIP CODE)
<PAGE>
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
(AUTHORIZED SIGNATURE)
(TITLE)
(NAME OF FIRM)
(ADDRESS, INCLUDE ZIP CODE)
(AREA CODE AND TELEPHONE NUMBER)
Dated: , 19
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if Old Notes in a principal amount not tendered, or New
Notes issued in exchange for Old Notes accepted for exchange, are to be mailed
or delivered to someone other than the undersigned, or to the undersigned at an
address other than that shown below the undersigned's signature.
Mail or deliver New Notes and/or Old Notes to:
Name:
(PLEASE TYPE OR PRINT)
Address:
(INCLUDE ZIP CODE)
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
Tender of 12 1/2% Senior Subordinated Notes Due 2008
IN EXCHANGE FOR
12 1/2% Series B Senior Subordinated Notes Due 2008
DIMAC CORPORATION
This form or one substantially equivalent hereto must be used by a holder
to accept the Exchange Offer of DIMAC Corporation, a Delaware corporation (the
"Company"), who wishes to tender 121/2% Senior Subordinated Notes Due 2008 (the
"Old Notes") to the Exchange Agent pursuant to the guaranteed delivery
procedures described in "The Exchange Offer-Guaranteed Delivery Procedures" of
the Company's Prospectus, dated _______ __, 199_ (the "Prospectus") and in
Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender Old Notes pursuant to such guaranteed delivery procedures must ensure
that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date (as defined below) of the Exchange Offer. Capitalized terms
used but not defined herein have the meanings ascribed to them in the Prospectus
or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
___________, 199_, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED
IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
WILMINGTON TRUST COMPANY
BY REGISTERED OR CERTIFIED
MAIL OR BY OVERNIGHT COURIER: BY HAND:
Wilmington Trust Company Wilmington Trust Company
Attn: Kristin Long Attn: Corporate Trust Operations
Corporate Trust & c/o Harris Trust Company
Administration Window of New York, as Agent
1100 North Market Street 75 Water Street
Rodney Square North New York, NY 10004
Wilmington, DE 19890-0001
BY FACSIMILE:
Wilmington Trust Company
Corporate Trust Administration
FACSIMILE:
(302) 651-1079
CONFIRM BY TELEPHONE:
(302) 651-8869
Kristin Long
___________
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE BOX ON
THE LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Old Notes listed below:
CERTIFICATE NUMBER(S) AGGREGATE AGGREGATE
(IF KNOWN) OF OLD NOTES OR PRINCIPAL PRINCIPAL
ACCOUNT NUMBER AT THE AMOUNT AMOUNT
BOOK-ENTRY FACILITY REPRESENTED TENDERED
PLEASE SIGN AND COMPLETE
Signatures of Registered Holder(s) or Authorized Signatory:
Date:
Address:
Name(s) of Registered Holder(s):
Area Code and Telephone No.:
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Names(s):
Capacity:
Address(es):
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934,
guarantees deposit with the Exchange Agent of the Letter of Transmittal (or
facsimile thereof), together with the Old Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility described in
the Prospectus under the caption "The Exchange Offer-Guaranteed Delivery
Procedures" and in the Letter of Transmittal and any other required documents,
all by 5:00 p.m., New York City time, within three New York Stock Exchange
trading days following the Expiration Date.
Name of Firm:
(AUTHORIZED SIGNATURE)
Address:
(INCLUDE ZIP CODE) Name:
Area Code and Tel. Number: Title:
(PLEASE TYPE OR PRINT)
Date:______________________ , 19
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES MUST BE
MADE PURSUANT TO, AND BE ACCOMPANIED BY A PROPERLY COMPLETED AND DULY EXECUTED
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In
all cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Old Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the
registered holder(s) appears on the Old Notes or signed as the name of the
participant shown on the Book-Entry Transfer Facility's security position
listing.
If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a
corporation, or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing and submit with the
Letter of Transmittal evidence satisfactory to the Company of such person's
authority to so act.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
<PAGE>
Exhibit 99.3
Letter to Brokers
FOR
Tender of 12 1/2% Senior Subordinated Notes Due 2008
IN EXCHANGE FOR
12 1/2% Series B Senior Subordinated Notes Due 2008
DIMAC CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON ___________, 199_, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the
offer by DIMAC Corporation (the "Company"), a Delaware corporation, to
exchange its 12 1/2% Series B Senior Subordinated Notes Due 2008, (the "New
Notes"), which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of its issued and
outstanding 12 1/2% Senior Subordinated Notes Due 2008 (the "Old Notes") upon
the terms and subject to the conditions set forth in the Company's
Prospectus, dated _______ __, 199_, and the related Letter of Transmittal
(which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated _______ __, 199_;
2. Letter of Transmittal (together with accompanying Substitute Form W-9
Guidelines);
3. Notice of Guaranteed Delivery; and
4. Letter which may be sent to your clients for whose account you hold Old
Notes in your name or in the name of your nominee, with space provided for
obtaining such client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the
Exchange Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
undersigned, (ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
within the meaning of the Securities Act of such New Notes, (iii) if the
undersigned is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, neither the undersigned
nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the undersigned nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if the undersigned is an "affiliate," that the
undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Old Notes, it represents that such
Old Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
The enclosed Letter to Clients contains an authorization by the beneficial
owners of the Old Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Old Notes to it, except as otherwise provided in Instruction 7 of the
enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
WILMINGTON TRUST COMPANY
<PAGE>
Exhibit 99.4
Letter to Clients
FOR
Tender of 12 1/2% Senior Subordinated Notes Due 2008
IN EXCHANGE FOR
12 1/2% Series B Senior Subordinated Notes Due 2008
DIMAC CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON ____________, 199_, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Our Clients:
We are enclosing herewith a Prospectus, dated _______ __, 199_, of DIMAC
Corporation (the "Company"), a Delaware corporation, and a related Letter of
Transmittal (which together constitute the "Exchange Offer") relating to the
offer by the Company, to exchange its 12 1/2% Series B Senior Subordinated
Notes Due 2008 (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount of its issued and outstanding 12 1/2% Senior Subordinated
Notes Due 2008 (the "Old Notes"), upon the terms and subject to the
conditions set forth in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
We are the holder of record of Old Notes held by us for your own account.
A tender of such Old Notes can be made only by us as the record holder and
pursuant to your instructions. The Letter of Transmittal is furnished to you
for your information only and cannot be used by you to tender Old Notes held by
us for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes held by us for your account pursuant to the terms and conditions of
the Exchange Offer. We also request that you confirm that we may on your behalf
make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
undersigned, (ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
within the meaning of the Securities Act of such New Notes, (iii) if the
undersigned is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, neither the undersigned
nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the undersigned nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if the undersigned is an "affiliate," that the
undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Old Notes, it represents that such
Old Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Very truly yours,
WILMINGTON TRUST COMPANY
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES OR BOOK-ENTRY
CONFIRMATIONS. All physically delivered Old Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. The method of delivery of the tendered Old Notes, this Letter
of Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and, except as otherwise provided below, the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. Instead of delivery by mail, it is recommended that the Holder
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or Old Notes should be sent to the Company.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Old
Notes and (a) whose Old Notes are not immediately available, or (b) who cannot
deliver their Old Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date or (c) who
are unable to complete the procedure for book-entry transfer on a timely basis,
must tender their Old Notes according to the guaranteed delivery procedures set
forth in the Prospectus. Pursuant to such procedures: (i) such tender must be
made by or through a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or a trust company having an office or correspondent in the
United States (an "Eligible Institution"); (ii) prior to the Expiration Date,
the Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
Holder of the Old Notes, the registration number(s) of such Old Notes and the
principal amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three (3) New York Stock Exchange, Inc.
("NYSE") trading days after the Expiration Date, this Letter of Transmittal (or
facsimile hereof) together with the Old Notes (or a Book-Entry Confirmation) in
proper form for transfer, must be received by the Exchange Agent within three
(3) NYSE trading days after the Expiration Date; and (iii) the certificates for
all physically tendered shares of Old Notes, in proper form for transfer, or
Book-Entry Confirmation, as the case may be, and all other documents required by
this Letter are received by the Exchange Agent within three (3) NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
Any Holder of Old Notes who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice
of Guaranteed Delivery will be sent to Holders who wish to tender their Old
Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer-Guaranteed Delivery Procedures" section of the
Prospectus.
3. TENDER BY HOLDER. Only a Holder of Old Notes may tender such Old Notes
in the Exchange Offer. Any beneficial Holder of Old Notes who is not the
registered Holder and who wishes to tender should arrange with the registered
Holder to execute and deliver this Letter of Transmittal on his behalf or must,
prior to completing and executing this Letter of Transmittal and delivering his
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in such Holder's name or obtain a properly completed bond power from the
registered Holder.
4. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Old Notes is tendered, the tendering Holder should fill in the principal amount
tendered in the fourth column of the box entitled "Description of Old Notes
Tendered" above. The entire principal amount of Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
If the entire principal amount of all Old Notes is not tendered, then Old Notes
for the principal amount of Old Notes not tendered and New Notes
<PAGE>
issued in exchange for any Old Notes accepted will be sent to the Holder at his
or her registered address, unless a different address is provided in the
appropriate box on this Letter of Transmittal, promptly after the Old Notes are
accepted for exchange.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
MEDALLION GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile
hereof) is signed by the record Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever. If this Letter
of Transmittal is signed by a participant in the Book-Entry Transfer Facility,
the signature must correspond with the name as it appears on the security
position listing as the Holder of the Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Old Notes listed and tendered hereby and the New
Notes issued in exchange therefor are to be issued (or any untendered principal
amount of Old Notes are to be reissued) to the registered Holder, the said
Holder need not and should not endorse any tendered Old Notes, nor provide a
separate bond power. In any other case, such Holder must either properly
endorse the Old Notes tendered or transmit a properly completed separate bond
power with this Letter of Transmittal, with the signatures on the endorsement or
bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers, in each case
signed as the name of the registered Holder or Holders appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Old Notes tendered herewith (or by a
participant in the Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of the tendered Old Notes) and the issuance of New
Notes (and any Old Notes not tendered or not accepted) are to be issued directly
to such registered holder(s) (or, if signed by a participant in the Book-Entry
Transfer Facility, any New Notes or Old Notes not tendered or not accepted are
to be deposited to such participant's account at such Book-Entry Transfer
Facility) and neither the box entitled "Special Delivery Instructions" nor the
box entitled "Special Registration Instructions" has been completed, or (ii)
such Old Notes are tendered for the account of an Eligible Institution. In all
other cases, all signatures on this Letter of Transmittal must be guaranteed by
an Eligible Institution.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders
should indicate, in the applicable box or boxes, the name and address (or
account at the Book-Entry Transfer Facility) to which New Notes or substitute
Old Notes for principal amounts not tendered or not accepted for exchange are to
be issued or sent, if different from the name and address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the
taxpayer identification or social security number of the person named must also
be indicated.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, New Notes or Old Notes for principal amounts not tendered or accepted
for exchange are to be delivered to, or are to be registered or issued in the
name of, any person other than the registered Holder of the Old Notes tendered
hereby, or if tendered Old Notes are registered in the name of any person other
than the person signing this Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
<PAGE>
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder of any Old Notes which are accepted for exchange must provide the Company
(as payor) with its correct taxpayer identification number ("TIN"), which, in
the case of a holder who is an individual is his or her social security number.
If the Company is not provided with the correct TIN, the Holder may be subject
to a $50 penalty imposed by Internal Revenue Service. (If withholding results in
an over-payment of taxes, a refund may be obtained.) Certain holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these backup withholding and reporting requirements. See the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Old Notes are registered in more than one name or are not in the name of
the actual owner, see the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for information on which TIN to
report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of tendered Old Notes
will be determined by the Company, in its sole discretion, which determination
will be final and binding. The Company reserves the right to reject any and all
Old Notes not validly tendered or any Old Notes, the Company's acceptance of
which would, in the opinion of the Company or its counsel, be unlawful. The
Company also reserves the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Old Notes as to any ineligibility of any
holder who seeks to tender Old Notes in the Exchange Offer. The interpretation
of the terms and conditions of the Exchange Offer (includes this Letter of
Transmittal and the instructions hereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes,
but shall not incur any liability for failure to give such notification.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive, in whole or part, any of the conditions to the Exchange Offer set forth
in the Prospectus.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular or
contingent tender of Old Notes on transmittal of this Letter of Transmittal will
be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED OLD NOTES AND ISSUANCE OF NEW NOTES; RETURN OF
OLD NOTES. Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes as soon as
practicable after the Expiration Date and will issue New Notes therefor as soon
as practicable thereafter. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted tendered Old Notes when, as and if the Company
has given written and oral notice thereof to the Exchange Agent. If any
tendered Old Notes are not exchanged pursuant to the
<PAGE>
Exchange Offer for any reason, such unexchanged Old Notes will be returned,
without expense, to the undersigned at the address shown above (or credited to
the undersigned's account at the Book-Entry Transfer Facility designated above)
or at a different address as may be indicated under the box entitled "Special
Delivery Instructions."
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer-Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
HEREOF (TOGETHER WITH THE OLD NOTES WHICH MUST BE DELIVERED BY BOOK-ENTRY
TRANSFER OR IN ORIGINAL HARD COPY FORM) OR THE NOTICE OF GUARANTEED DELIVERY
MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION TIME.
(TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5))
PAYER'S NAME: WILMINGTON TRUST COMPANY
SUBSTITUTE EMPLOYER
FORM W-9 SOCIAL SECURITY NUMBER OR IDENTIFICATION NUMBER
DEPARTMENT OF THE TREASURY PART I-Taxpayer Identification No.-For all
INTERNAL REVENUE SERVICE accounts, enter your taxpayer identification
PAYER'S REQUEST FOR number in the appropriate box. For most
TAXPAYER IDENTIFICATION individuals and sole proprietors, this
NUMBER is your social security number. For other
entities, it is your Employer Identification
Number. If you do not have a number, see How to
Obtain a TIN in the enclosed Guidelines. Note: If
the account is in more than one name, see Employer
Identification Number the chart on page 2 of the
enclosed Guidelines to determine what number to
enter.
PART II-For Payees Exempt From Backup Withholding
(see enclosed Guidelines)
CERTIFICATION-UNDER PENALTIES OF PERJURY, I
CERTIFY THAT:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me), and either (a) I
have mailed or delivered an application to receive
a taxpayer identification number to the
appropriate Internal Revenue Service Center or
Social Security Administration Office or (b) I
intend to mail or deliver an application in the
near future. I understand that if I do not
provide a taxpayer identification number within
sixty (60) days, 31% of all reportable payments
made to me thereafter will be withheld until I
provide a number;
(2) I am not subject to backup withholding either
because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal
Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup
withholding; and
(3) Any other information provided on this form
is true, correct and complete.
SIGNATURE DATE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU WITH RESPECT TO THE NEW
NOTES. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
<PAGE>
Exhibit 99.6
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER --
Social Security numbers have nine digits separated by two hyphens: I.E.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: I.E. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GIVE THE
GIVE THE SOCIAL EMPLOYER
SECURITY IDENTIFICATION
FOR THIS TYPE OF ACCOUNT NUMBER OF: FOR THIS TYPE OF ACCOUNT NUMBER OF:
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 6. A valid trust, estate, or Legal entity (Do not furnish the
pension trust taxpayer identification number of the
personal representative or trustee
unless the legal entity itself is not
designated in the account title).(4)
2. Two or more individuals The actual owner of the 7. Corporate account The corporation
(joint account) account or, if combined
funds, the first
individual on the
account(1)
3. Custodian account of a The minor(2) 8. Association, club, religious, The organization
minor (Uniform Gift to charitable, educational or
Minors Act) other tax-exempt organization
account
4. a. The usual revocable The grantor-trustee(1) 9. Partnership account The partnership
savings trust account
(grantor is also trustee)
The actual owner(1) 10. A broker or registered The broker or nominee
nominee
b. So-called trust account
that is not a legal or valid
trust under State law
5. Sole proprietorship account The owner(3) 11. Account with the Department The public entity
of Agriculture in the name of
a public entity (such as a
State or local government,
School district or prison) that
receives agricultural program
payments
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number
or employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name listed, the number
will be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
HOW TO OBTAIN A TIN
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card for
individuals, or Form SS-4, Application for Employer Identification Number (for
business and other entities), or Form W-7, Application for IRS Individual
Taxpayer Identification Number (for certain resident aliens), at the local
office of the Social Security Administration or the Internal Revenue Service and
apply for a number.
If you return the Substitute Form W-9 with the "Awaiting TIN" box checked in
Part 3, you must provide the payer with a Certificate of Awaiting Taxpayer
Identification Number and, within 60 days, a TIN. If you do not provide the TIN
by the date of payment, 31% of all reportable payments will be withheld. If
your certified TIN is received within the 60-day period and you were not subject
to backup withholding during that period, the amounts withheld will be refunded
to you. If no certified TIN is provided to the payer within 60 days, the
amounts withheld will be paid to the IRS.
AS SOON AS YOU RECEIVE YOUR TIN, COMPLETE ANOTHER SUBSTITUTE FORM W-9, INCLUDE
YOUR TIN, SIGN AND DATE THE FORM, AND GIVE IT TO THE PAYER.
For interest, dividends and broker transactions, you must sign the certification
or backup withholding will apply. If you are subject to backup withholding and
you are merely providing your correct TIN to a payer, you must cross out item 2
in the certification before signing the form.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments by the
payer include the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(b)(7) if the
account satisfies the requirements of Section 401(f)(2).
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States
or any political subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
- An international organization or any agency or instrumentality
thereof.
- A registered dealer in securities or commodities registered in the
U.S., the District of Columbia or a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section
1441.
- Payments to partnerships not engaged in a trade or business in the
U.S. and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid
in money.
Payments made by certain foreign organizations.
- Section 404(K) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You
are subject to information reporting if this interest is $600 or more
and is paid in the course of the payer's trade or business and backup
withholding if you have not provided your correct TIN to the payer.
Payments of tax-exempt interest (including exempt interest dividends
under section 852).
- Payments described in section 6049(b) (5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Mortgage interest paid by you.
Exempt payees described above should file Substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TIN,
WRITE "EXEMPT" ON THE FACE OF THE FORM IN PART 2, SIGN AND DATE THE FORM, AND
RETURN IT TO THE PAYER.
Certain payments, other than interest, dividends and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A and 6050N and the regulations thereunder.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend, interest
or other payments to give their correct TIN to payers who must report the
payments to the IRS. The IRS uses the numbers for identification purposes and
to help verify the accuracy of tax returns. The IRS may also provide this
information to the Department of Justice for civil and criminal litigation and
to cities, states and the District of Columbia to carry out their tax laws.
Payers must be given the TIN whether or not recipients are required to file tax
returns. Payers must generally withhold 31% of taxable interest, dividend and
certain other payments to a payee who does not furnish a taxpayer identification
number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TIN. -- If you fail to furnish your correct
TIN to a payer, you are subject to a penalty of $50 for each such failure unless
your failure is due to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
(4) MISUSE OF TINS. -- If the payer discloses or uses TIN's in violation of
Federal law, the payer may be subject to civil and criminal penalties.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
