<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to ______________
Commission File Number 0-29474
BIG FLOWER HOLDINGS, INC.
---------------
Commission File Number 1-14084
BIG FLOWER PRESS HOLDINGS, INC.
(Exact Names of Registrants as Specified in Their Charters)
<TABLE>
<S> <C>
DELAWARE 13-397-1556
DELAWARE 13-376-8322
(State of (I.R.S. Employer
incorporation)
Identification
Nos.)
</TABLE>
3 East 54th Street
New York, New York 10022
(212) 521-1600
(Address and telephone number of Registrants' Principal Executive Offices)
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
As of May 8, 1998, there were approximately 19,693,000 shares of Big Flower
Holdings Inc.'s Common Stock, par value $0.01 per share, outstanding. There is
no market for the common stock of Big Flower Press Holdings, Inc., all
outstanding shares of which are owned by Big Flower Holdings, Inc.
- --------------------------------------------------------------------------------
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<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents.......................................................... $ 3,775 $ 5,307
Accounts receivable, net of allowance for doubtful accounts of $11,237 and
$12,342.......................................................................... 135,516 140,112
Inventories........................................................................ 49,910 46,510
Deferred income taxes and income tax receivable.................................... 19,180 19,827
Prepaid expenses and other current assets.......................................... 7,369 4,625
------------ ------------
Total current assets............................................................. 215,750 216,381
Property, plant and equipment, net................................................... 394,902 384,848
Goodwill, net........................................................................ 433,829 415,601
Intangibles and other assets, net.................................................... 46,276 42,217
------------ ------------
Total Assets..................................................................... $ 1,090,757 $1,059,047
------------ ------------
------------ ------------
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable................................................................... $ 134,260 $ 133,648
Compensation and benefits payable.................................................. 41,327 45,281
Accrued interest................................................................... 8,290 13,775
Other current liabilities.......................................................... 43,218 41,145
------------ ------------
Total current liabilities........................................................ 227,095 233,849
Long-term debt, net of current portion............................................... 630,701 590,045
Deferred income taxes................................................................ 27,660 27,811
Other long-term liabilities.......................................................... 20,775 20,804
------------ ------------
Total liabilities................................................................ 906,231 872,509
------------ ------------
Company obligated mandatorily redeemable convertible preferred securities of a
subsidiary trust whose sole assets are the convertible subordinated debentures of
the Company........................................................................ 115,000 115,000
Stockholders' equity:
Preferred stock....................................................................
Common stock....................................................................... 194 195
Additional paid-in capital......................................................... 137,686 140,798
Accumulated deficit................................................................ (67,463) (68,548)
Other.............................................................................. (891) (907)
------------ ------------
Total stockholders' equity....................................................... 69,526 71,538
------------ ------------
Total Liabilities and Equity..................................................... $ 1,090,757 $1,059,047
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Net sales................................................................................. $ 383,902 $ 297,501
---------- ----------
Operating expenses:
Costs of production..................................................................... 295,188 235,245
Selling, general and administrative..................................................... 48,437 31,150
Depreciation............................................................................ 14,889 11,429
Amortization of intangibles............................................................. 5,868 4,101
---------- ----------
364,382 281,925
---------- ----------
Operating income.......................................................................... 19,520 15,576
---------- ----------
Other expenses (income):
Interest expense........................................................................ 13,029 9,710
Amortization of deferred financing costs................................................ 429 555
Interest income......................................................................... (120) (120)
Preferred dividends of a subsidiary trust............................................... 1,725
Other, net.............................................................................. 2,447 2,135
---------- ----------
17,510 12,280
---------- ----------
Income before income taxes................................................................ 2,010 3,296
Income tax expense........................................................................ 925 1,615
---------- ----------
Net income................................................................................ $ 1,085 $ 1,681
---------- ----------
---------- ----------
Earnings per share:
Basic................................................................................... $ 0.06 $ 0.09
---------- ----------
---------- ----------
Diluted................................................................................. 0.05 0.09
---------- ----------
---------- ----------
Weighted average shares outstanding:
Basic................................................................................... 19,455 18,584
---------- ----------
---------- ----------
Diluted................................................................................. 20,563 19,296
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................................................. $ 1,085 $ 1,681
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 20,757 15,530
Deferred income taxes................................................................. 567 (1,004)
Other................................................................................. 3,269 3,316
Changes in operating assets and liabilities (excluding effect of acquisitions):
Decrease in accounts receivable..................................................... 9,586 20,274
Increase in inventories............................................................. (2,831) (2,960)
Increase in prepaid expenses and other assets....................................... (4,189) (152)
Decrease in accounts payable and other liabilities.................................. (13,166) (18,002)
---------- ----------
Net cash provided by operating activities................................................. 15,078 18,683
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired......................................... (24,399) (474)
Capital expenditures.................................................................... (19,560) (15,343)
Software development costs capitalized.................................................. (733)
Other investing activities.............................................................. (3,282) 78
---------- ----------
Net cash used in investing activities..................................................... (47,974) (15,739)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under lines of credit.................................................... 40,160 19,700
Repayments of long-term debt............................................................ (3,672) (177)
Decrease in outstanding checks drawn on controlled disbursement accounts................ (1,726) (19,755)
Repurchase of common stock.............................................................. (3,384) (2,559)
Other................................................................................... (14) 287
---------- ----------
Net cash provided by (used in) financing activities....................................... 31,364 (2,504)
---------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents...................................... (1,532) 440
Cash and Cash Equivalents at Beginning of Year............................................ 5,307 4,200
---------- ----------
Cash and Cash Equivalents at End of Period................................................ $ 3,775 $ 4,640
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
THE FOLLOWING FINANCIAL STATEMENTS PRESENT THE FINANCIAL POSITION AND
RESULTS OF OPERATIONS OF BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES AS
ISSUER OF 8 7/8% SENIOR SUBORDINATED NOTES DUE 2007.
BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents.......................................................... $ 3,758 $ 5,307
Accounts receivable, net of allowance for doubtful accounts of $11,237 and
$12,342.......................................................................... 135,487 140,112
Inventories........................................................................ 49,910 46,510
Deferred income taxes and income tax receivable.................................... 19,180 19,827
Prepaid expenses and other current assets.......................................... 7,369 4,625
------------ ------------
Total current assets........................................................... 215,704 216,381
Due from parent...................................................................... 3,294
Property, plant and equipment, net................................................... 394,902 384,848
Goodwill, net........................................................................ 433,829 415,601
Intangibles and other assets, net.................................................... 40,721 37,438
------------ ------------
Total Assets................................................................... $ 1,088,450 $1,054,268
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable................................................................... $ 134,260 $ 133,648
Compensation and benefits payable.................................................. 41,327 45,281
Accrued interest................................................................... 8,290 13,775
Other current liabilities.......................................................... 44,031 40,196
------------ ------------
Total current liabilities...................................................... 227,908 232,900
Due to parent........................................................................ 3,466
Long-term debt, net of current portion............................................... 630,701 590,045
Deferred income taxes................................................................ 27,660 27,811
Other long-term liabilities.......................................................... 20,775 20,804
------------ ------------
Total liabilities.............................................................. 907,044 875,026
------------ ------------
Stockholder's equity:
Accumulated deficit................................................................ (65,719) (67,643)
Other.............................................................................. 247,125 246,885
------------ ------------
Total stockholder's equity..................................................... 181,406 179,242
------------ ------------
Total Liabilities and Stockholder's Equity..................................... $ 1,088,450 $1,054,268
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
-------------------
<S> <C>
Net sales.................................................................................... $ 383,902
--------
Operating expenses:
Costs of production........................................................................ 295,188
Selling, general and administrative........................................................ 45,176
Depreciation............................................................................... 14,820
Amortization of intangibles................................................................ 5,713
--------
360,897
--------
Operating income............................................................................. 23,005
--------
Other expenses (income):
Interest expense........................................................................... 13,152
Amortization of deferred financing costs................................................... 387
Interest income............................................................................ (120)
Other, net................................................................................. 2,447
--------
15,866
--------
Income before income taxes................................................................... 7,139
Income tax expense........................................................................... 3,284
--------
Net income................................................................................... $ 3,855
--------
--------
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
-------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................................. $ 3,855
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................................ 20,533
Deferred income taxes.................................................................... 567
Other.................................................................................... 3,233
Changes in operating assets and liabilities (excluding effect of acquisitions):
Decrease in accounts receivable........................................................ 9,586
Increase in inventories................................................................ (2,831)
Increase in prepaid expenses and other assets.......................................... (3,902)
Decrease in accounts payable and other liabilities..................................... (17,598)
--------
Net cash provided by operating activities.................................................... 13,443
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired............................................ (24,399)
Capital expenditures....................................................................... (19,560)
Software development costs capitalized..................................................... (733)
Other investing activities................................................................. (3,282)
--------
Net cash used in investing activities........................................................ (47,974)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under lines of credit....................................................... 40,160
Repayments of long-term debt............................................................... (3,672)
Decrease in outstanding checks drawn on controlled disbursement accounts................... (1,726)
Dividends paid to parent................................................................... (1,679)
Other...................................................................................... (101)
--------
Net cash provided by financing activities.................................................... 32,982
--------
Net Decrease in Cash and Cash Equivalents.................................................... (1,549)
Cash and Cash Equivalents at Beginning of Year............................................... 5,307
--------
Cash and Cash Equivalents at End of Period................................................... $ 3,758
--------
--------
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Big Flower Holdings, Inc. ("Holdings", and together with its subsidiaries,
the "Company") is the parent of Big Flower Press Holdings, Inc. ("Press"). The
Company's operations are conducted through Press which, in turn, conducts its
operations through its operating subsidiaries. On October 17, 1997, the Company
reorganized its legal structure and the common shares of Press, the previous
parent company, were automatically exchanged for common shares of Holdings. As a
result of this reorganization, Press became a wholly-owned subsidiary of
Holdings. Prior to the formation of Holdings, the consolidated financial
statements of the Company represented the accounts of Press and its
subsidiaries. Separate footnote information is not presented for the financial
statements of Press and its subsidiaries as that information is substantially
equivalent to that presented below. Earnings per share data is not provided for
the operating results of Press and its subsidiaries as they are wholly-owned
subsidiaries of Holdings.
The Company is responsible for the unaudited financial statements included
in this document. The financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") and include all normal and
recurring adjustments that the Company considers necessary for the fair
presentation of its financial position and operating results. The Company
prepared the condensed financial statements following the requirements of the
Securities and Exchange Commission for interim reporting. As permitted under
those rules, the Company condensed or omitted certain footnotes or other
financial information that are normally required by GAAP. As these are condensed
financial statements, one should also read the financial statements and notes in
the Company's latest Form 10-K.
Revenues, expenses, assets and liabilities can vary during each quarter of
the year. Therefore, the results and trends in these interim financial
statements may not be the same as those for the full year.
Certain amounts for prior periods have been reclassified to conform to the
current period presentation.
2. ACQUISITIONS
The Company completed six acquisitions in the fall of 1997 and another in
the first quarter of 1998. The timing of these acquisitions affects the
comparability of the Company's financial results.
Between September and November 1997, the Company acquired Olwen Direct Mail,
Ltd. ("Olwen"), the assets of companies operating as Riverside County Publishing
Company ("RCPC"), Columbine JDS Systems, Inc. ("Columbine"), the assets of Gamma
One, Inc. ("Gamma One"), the assets of IMPCO Enterprises, Inc. ("IMPCO") and
Broadcast Systems Software Limited ("BSS").
On March 13, 1998, the Company acquired Troypeak Limited and Pismo Limited
(together, the "Fusion Group"). Goodwill arising in connection with this
acquisition was approximately $21 million. The amounts and allocations of costs
recorded may require adjustment based upon information that is not currently
available to the Company.
8
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
The following unaudited pro forma information reflects the Company's results
adjusted to include the results of the acquired businesses as though all the
acquisitions had occurred at the beginning of 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales............................................................. $ 388,511 $ 365,056
Net income............................................................ 850 1,604
Earnings per share--basic and diluted................................. $ 0.04 $ 0.08
</TABLE>
3. INVENTORIES
Inventories as of March 31, 1998, and December 31, 1997, are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
MARCH 31,
1998
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Paper............................................................. $ 37,483 $ 34,324
Ink and chemicals................................................. 4,808 5,447
Other............................................................. 7,619 6,739
----------- ------------
$ 49,910 $ 46,510
----------- ------------
----------- ------------
</TABLE>
4. SEGMENT INFORMATION
The Company operates in four business segments. Each segment offers
different products or services requiring different production and marketing
strategies. The four segments are:
- Insert Advertising & Newspaper Services, including advertising inserts and
circulation-building newspaper products such as Sunday comics, TV listing
guides, Sunday magazine sections and special supplements.
- Direct Marketing Services, including highly customized direct mail
products and direct marketing services such as database management and
response fulfillment services.
- Digital Services, including outsourced digital premedia, image content
management and broadcast management services.
- Specialty Products & Commercial Printing, including fragrance samplers,
coatings and chemical production, and commercial printing.
9
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SEGMENT INFORMATION (CONTINUED)
Following is unaudited information regarding the Company's segments:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
<S> <C> <C> <C>
1998 1997
------------ ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales Insert Advertising & Newspaper Services $ 251,027 $ 202,742
Direct Marketing Services 62,794 44,347
Digital Services 47,601 19,879
Specialty Products & Commercial Printing 24,230 31,726
Elimination of Intersegment Sales (1,750) (1,193)
------------ ------------
Consolidated $ 383,902 $ 297,501
------------ ------------
------------ ------------
Operating Income Insert Advertising & Newspaper Services $ 10,823 $ 8,750
Direct Marketing Services 6,104 4,721
Digital Services 4,732 1,546
Specialty Products & Commercial Printing 1,788 3,942
General Corporate (3,927) (3,383)
------------ ------------
Consolidated $ 19,520 $ 15,576
------------ ------------
------------ ------------
Depreciation Insert Advertising & Newspaper Services $ 8,125 $ 6,458
Direct Marketing Services 3,074 2,550
Digital Services 2,822 1,372
Specialty Products & Commercial Printing 725 937
General Corporate 143 112
------------ ------------
Consolidated $ 14,889 $ 11,429
------------ ------------
------------ ------------
Amortization of Intangibles Insert Advertising & Newspaper Services $ 3,888 $ 3,442
Direct Marketing Services 501 206
Digital Services 1,169 318
Specialty Products & Commercial Printing 185 135
General Corporate 125
------------ ------------
Consolidated $ 5,868 $ 4,101
------------ ------------
------------ ------------
</TABLE>
10
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Additions to Long Lived Assets Insert Advertising & Newspaper Services
(excluding acquisitions) $ 10,734 $ 10,300
Direct Marketing Services 4,526 1,540
Digital Services 4,240 2,678
Specialty Products & Commercial Printing 517 294
General Corporate 276 531
------------ ------------
Consolidated $ 20,293 $ 15,343
------------ ------------
------------ ------------
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C> <C>
Identifiable Assets Insert Advertising & Newspaper Services $ 524,598 $ 538,745
Direct Marketing Services 192,545 196,849
Digital Services 223,414 185,783
Specialty Products & Commercial Printing 58,449 59,613
General Corporate 91,751 78,057
------------ ------------
Consolidated $ 1,090,757 $1,059,047
------------ ------------
------------ ------------
</TABLE>
5. COMPREHENSIVE INCOME
During the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components in a set of financial statements. Comprehensive income
is defined as net income plus other changes in equity from non-stockholder
sources. At present, the only components of comprehensive income for the Company
other than net income are foreign currency translation adjustments. Such
adjustments were immaterial for the quarter ended March 31, 1998, and
non-existent for the quarter ended March 31, 1997. Therefore, no separate
presentation of comprehensive income has been made.
11
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933. IN ADDITION, WHEN USED IN THIS REPORT, THE
WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO A NUMBER
OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY
FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY
FACTORS OUTSIDE THE CONTROL OF BIG FLOWER HOLDINGS, INC., INCLUDING FLUCTUATIONS
IN THE COST OF RAW MATERIALS USED BY THE COMPANY, CHANGES IN THE ADVERTISING,
MARKETING AND INFORMATION SERVICES MARKETS, THE FINANCIAL CONDITION OF THE
COMPANY'S CUSTOMERS, THE GENERAL CONDITION OF THE UNITED STATES AND OTHER
ECONOMIES AND MATTERS SET FORTH IN THIS DOCUMENT GENERALLY. CONSEQUENTLY, SUCH
FORWARD-LOOKING STATEMENTS SHOULD BE REGARDED SOLELY AS THE COMPANY'S CURRENT
PLANS, ESTIMATES AND BELIEFS. THE COMPANY DOES NOT UNDERTAKE AND SPECIFICALLY
DECLINES ANY OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO
THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS
OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS OR TO REFLECT THE OCCURRENCE
OF ANTICIPATED OR UNANTICIPATED EVENTS.
RESULTS OF OPERATIONS
The Company is a leading advertising, marketing and information services
company with four business segments: Insert Advertising & Newspaper Services,
Direct Marketing Services, Digital Services and Specialty Products & Commercial
Printing. The following table presents the major components from the Condensed
Consolidated Statements of Operations and cash flow information for the
three-month periods ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1998 1997
--------- ---------
<CAPTION>
(PERCENTAGES OF NET
SALES)
<S> <C> <C>
Net sales.................................................................................. 100.0% 100.0%
--------- ---------
Operating expenses:
Costs of production...................................................................... 76.9 79.1
Selling, general and administrative...................................................... 12.6 10.5
Depreciation............................................................................. 3.9 3.8
Amortization of intangibles.............................................................. 1.5 1.4
--------- ---------
94.9 94.8
--------- ---------
Operating income........................................................................... 5.1% 5.2%
--------- ---------
--------- ---------
EBITDA..................................................................................... 10.5% 10.5%
--------- ---------
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
EBITDA..................................................................................... $ 40,277 $ 31,106
--------- ---------
--------- ---------
Net cash provided by operating activities.................................................. $ 15,078 $ 18,683
Net cash used in investing activities...................................................... 47,974 15,739
Net cash provided by (used in) financing activities........................................ 31,364 (2,504)
</TABLE>
12
<PAGE>
"EBITDA" represents the sum of operating income, depreciation and
amortization of intangibles. EBITDA is presented here to provide additional
information regarding the Company's ability to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not a measure
of financial performance in accordance with GAAP and should not be considered an
alternative to net income as a measure of operating performance or to cash flows
from operating activities as a measure of liquidity.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 WITH THE THREE MONTHS ENDED
MARCH 31, 1997
Net sales increased to $383.9 million for the three months ended March 31,
1998 from $297.5 million for the three months ended March 31, 1997, an increase
of 29.0%. Adjusting to include the operations of businesses acquired in 1997 and
1998 for the entire comparable periods, net sales increased approximately 6% for
the quarter. These results reflect the positive growth trends of the Company's
principal business segments, offset by continued softness and timing of certain
government and fragrance printing jobs in the Specialty Products & Commercial
Printing segment.
Operating income for the three months ended March 31, 1998 increased 25.3%
over the prior year period, while the increase was approximately 5% including
businesses acquired in 1997 and 1998 for the entire comparable periods. Actual
operating income as a percentage of net sales decreased to 5.1% from 5.2% last
year due to the first quarter being the seasonally smallest contributor to
profits while absorbing a relatively equal share of acquisition expenses
reflected in depreciation and intangibles amortization.
Costs of production as a percentage of net sales decreased to 76.9% for the
current quarter from 79.1% last year, due principally to increased demand for
the Company's higher margin products and the inclusion of the recent
acquisitions where paper is less of a component of costs. Paper costs were 34.5%
of the Company's net sales for the three months ended March 31, 1998 as compared
to 35.9% of net sales for the three months ended March 31, 1997.
Selling, general and administrative expenses increased to 12.6% of net sales
in the three months ended March 31, 1998 from 10.5% in the comparable 1997
period. This increase is due to the changing mix of businesses as the Direct
Marketing Services and Digital Services segments, where the costs are related
more to selling than to production, grow to represent a larger proportion of the
total Company. Depreciation and amortization of intangibles increased to 5.4% of
sales in 1998 compared to 5.2% last year as a result of acquisitions and
increased capital expenditures.
Net interest expense for the three months ended March 31, 1998, including
the amortization of deferred financing fees, was $13.3 million compared to $10.1
million for the comparable period in 1997. The higher expense in 1998 is due to
higher debt levels related primarily to acquisitions, although the average rate
of interest incurred decreased to an annualized rate of 8.39% of average
borrowings compared to 8.61% in the 1997 period. Including the effect of
redeemable convertible preferred securities, the average cost of funds was an
annualized rate of 8.02% in the 1998 quarter.
The effective income tax rates of 46.0% and 49.0% for the three-month
periods ended March 31, 1998 and 1997, respectively, exceeded the federal
statutory rate due primarily to state income taxes and amortization of certain
goodwill which is not deductible for income tax purposes. The lower effective
tax rate in 1998 reflects the proportionally lower level of non-deductible
goodwill expense in relation to expected taxable income for the year.
Diluted earnings per share for the three months ended March 31, 1998, were
five cents compared to nine cents in the first quarter of 1997. The diluted
earnings per share calculation for the 1998 period does not reflect the
potential issuance of 4.0 million shares and the exclusion of $1.0 million
(after tax) of preferred dividends related to the potential conversion of
redeemable convertible preferred securities as the effect of such a conversion
would be anti-dilutive.
13
<PAGE>
RESULTS BY SEGMENT
Net sales in the Insert Advertising & Newspaper Services segment increased
23.8% over the prior year period, reflecting organic growth and the acquisition
of RCPC in October 1997. Adjusted to include RCPC for the comparable period in
1997, sales in this segment increased approximately 10%. Operating income
increased 23.7% over 1997, with an increase of approximately 20% including RCPC
in both periods. The sales results reflect the steady growth of TC Advertising's
customer base, with the largest increases in the categories of advertising
inserts for specialty, grocery and furniture stores, as well as television
magazines. The revenue growth yielded a higher rate of operating income growth
as operating synergies with RCPC yielded lower production costs for the combined
business.
Net sales in the Direct Marketing Services segment increased 41.6% over the
first quarter of 1997. Adjusting to include Olwen and IMPCO for the full
comparable periods, sales increased approximately 10%, reflecting increased
demand from customers in the publishing, financial services, retail,
fund-raising and non-profit and telecommunications categories. Operating income
in this segment increased 29.3% over the prior year period, with an increase of
approximately 5% when adjusted to include the acquired businesses for both
periods. The smaller increase in operating profit reflects the costs associated
with the recent acquisitions and the comparison to a very favorable performance
in the prior year period.
The Digital Services segment reported a net sales gain of 139.5% over the
first quarter of 1997, attributable principally to the acquisitions of Columbine
and Gamma One in October 1997 as well as the addition of the Fusion Group in
March 1998. Adjusting to include these businesses in both periods, net sales
increased approximately 15% for the quarter. This increase was achieved by
responding to increased customer demand in the packaging and retail premedia
services lines and growth in fee and consulting revenues related to large
software contracts in both domestic and international markets. Operating income
in this segment increased 206.1% over the 1997 period, while the growth based on
comparable businesses was in excess of 50%. The increased profitability reflects
the flowthrough effect of sales gains coupled with strong expense control.
Net sales and operating income in the Specialty Products & Commercial
Printing segment declined by 23.6% and 54.6%, respectively, from the prior year
quarter. The decreases reflect the timing of business in the fragrance and
government printing product lines, large orders for which were filled in the
first quarter of 1997 while comparable business is expected in the second
quarter of 1998, and the continued softness in catalog printing.
LIQUIDITY AND CAPITAL RESOURCES
The operations of the Company historically have been funded with internally
generated funds, term loans, borrowings under revolving credit facilities and
utilization of an accounts receivable securitization facility. At March 31,
1998, the Company had available borrowings of $140.1 million under its revolving
credit facilities. Of the amount available, $53.1 million was utilized in April
and May 1998 for investment and acquisition transactions. Management believes
that the facilities in place will be sufficient to meet the Company's
operational needs for the near future.
At March 31, 1998, the Company's current liabilities exceeded current assets
by $11.3 million compared to $17.5 million at December 31, 1997. Adjusting for
assets removed from the balance sheet in connection with the accounts receivable
securitization facility, net working capital was $83.7 million at March 31, 1998
(yielding a current ratio of 1.37 to 1) compared to $83.6 million at December
31, 1997 (a current ratio of 1.36 to 1).
Cash flows provided by operating activities for the first quarter of 1998
were $15.1 million, compared to $18.7 million in the first quarter of 1997.
Although net earnings before depreciation and amortization in the 1998 quarter
increased in comparison to the prior year period, the cash flows from operations
were lower because of increased working capital assets.
14
<PAGE>
Cash from operations and borrowings under existing credit facilities funded
capital expenditures of $19.6 million and $15.3 million for the three months
ended March 31, 1998 and 1997, respectively.
Big Flower has grown through acquisitions and continues to seek similar or
complementary businesses. Such acquisitions are likely to require the incurrence
and/or assumption of indebtedness and other obligations, the issuance of equity
securities or some combination thereof. In addition, Big Flower may from time to
time determine to sell or otherwise dispose of certain of its existing
businesses. However, Big Flower cannot predict if any transactions will be
consummated, or the terms or forms of consideration required in such
transactions.
SEASONALITY AND OTHER FACTORS
While the insert advertising portion of the Company's Insert Advertising &
Newspaper Services segment is seasonal in nature, the growth of other segments
has reduced the overall seasonality of the Company's revenues. On a pro forma
basis, assuming all businesses owned at March 31, 1998 had been owned for all of
1997, the net sales percentages for the Company for the year ended December 31,
1997 would have been 23% in the first quarter, 24% in the second, 26% in the
third and 27% in the fourth. Profitability, however, continues to follow a more
seasonal pattern for all segments and lower margins in the first quarter do not
fully absorb fixed depreciation, amortization, interest and preferred dividend
costs that are incurred evenly throughout the year. Based on its historical
experience and projected operations, the Company expects its operating results
in the near future to be highest in the fourth quarter and lowest in the first.
The cost of paper is a principal factor in pricing to customers of the
Insert Advertising & Newspaper Services segment. As this is the Company's
largest segment, fluctuations in the cost of paper significantly affect the
Company's consolidated net sales. The Company is generally able to pass
increases in the cost of paper to that segment's customers, while decreases in
paper costs generally result in lower prices to customers. Volatility in paper
costs results in a corresponding volatility in the Company's net sales, but
generally has not affected volume or profits to any significant extent.
15
<PAGE>
PART II--OTHER INFORMATION
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS--
No reportable developments occurred with respect to legal proceedings during
the quarter ended March 31, 1998.
ITEM 2. CHANGES IN SECURITIES--
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS--
None.
ITEM 5. OTHER INFORMATION--
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K--
(a) Exhibits
<TABLE>
<C> <S>
10.1 Third Amendment to the Credit Agreement, dated as of January 14, 1998, among Big
Flower Holdings, Inc., the banks from time to time party thereto, Bank of America NT
& SA and the Industrial Bank of Japan, Limited as Co-Agents, Credit Suisse First
Boston as Documentation Agent and Bankers Trust Company as Administrative Agent.
10.2 Fourth Amendment to the Credit Agreement, dated as of March 12, 1998, among Big
Flower Holdings, Inc., the banks from time to time party thereto, Bank of America NT
& SA and the Industrial Bank of Japan, Limited as Co-Agents, Credit Suisse First
Boston as Documentation Agent and Bankers Trust Company as Administrative Agent.
10.3 Amendment letter No. 5, dated March 13, 1998, to Sterling Pound Credit Facility
letter provided by Bankers Trust Company (London Branch) to Big Flower Limited and
Olwen Direct Mail Limited.
27.1-2 Financial Data Schedules.
</TABLE>
(b) Reports on Form 8-K
During the three months ended March 31, 1998, the Registrant filed the following
report on Form 8-K:
(i) Current report on Form 8-K, dated March 13, 1998, concerning
Registrant's acquisition of Troypeak Limited and Pismo Limited.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
BIG FLOWER HOLDINGS, INC.
By: /s/ RICHARD L. RITCHIE
-----------------------------------------
Richard L. Ritchie
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER (PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
</TABLE>
DATE: May 15, 1998
<TABLE>
<S> <C> <C>
BIG FLOWER PRESS HOLDINGS, INC.
By: /s/ RICHARD L. RITCHIE
-----------------------------------------
Richard L. Ritchie
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER (PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
</TABLE>
DATE: May 15, 1998
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
- -------------
<C> <S>
10.1 Third Amendment to the Credit Agreement, dated as of January 14, 1998, among Big Flower Holdings,
Inc., the banks from time to time party thereto, Bank of America NT & SA and the Industrial Bank of
Japan, Limited as Co-Agents, Credit Suisse First Boston as Documentation Agent and Bankers Trust
Company as Administrative Agent.
10.2 Fourth Amendment to the Credit Agreement, dated as of March 12, 1998, among Big Flower Holdings,
Inc., the banks from time to time party thereto, Bank of America NT & SA and the Industrial Bank of
Japan, Limited as Co-Agents, Credit Suisse First Boston as Documentation Agent and Bankers Trust
Company as Administrative Agent.
10.3 Amendment letter No. 5, dated March 13, 1998, to Sterling Pound Credit Facility letter provided by
Bankers Trust Company (London Branch) to Big Flower Limited and Olwen Direct Mail Limited.
27.1-2 Financial Data Schedules.
</TABLE>
18
<PAGE>
Exhibit 10.4
THIRD AMENDMENT TO CREDIT AGREEMENT
THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated
as of January 14, 1998, among BIG FLOWER PRESS HOLDINGS, INC. (the "Borrower"),
the financial institutions party to the Credit Agreement referred to below (the
"Banks"), BANK OF AMERICA NT & SA and THE INDUSTRIAL BANK OF JAPAN, LIMITED, as
Co-Agents (the "Co-Agents"), CREDIT SUISSE FIRST BOSTON, as Documentation Agent
(the "Documentation Agent"), and BANKERS TRUST COMPANY, as Administrative Agent
(the "Administrative Agent") for the Banks. All capitalized terms used herein
and not otherwise defined shall have the respective meanings provided such terms
in the Credit Agreement as amended hereby.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Co-Agents, the
Documentation Agent and the Administrative Agent are parties to a Credit
Agreement, dated as of June 12, 1997 (as amended, modified or supplemented
through the date hereof, the "Credit Agreement");
WHEREAS, Treasure Chest, Webcraft Inc. (formerly known as
Webcraft Technologies, Inc.) ("Webcraft") and Big Flower Digital Services, Inc.
("BF Digital"), each a Wholly-Owned Subsidiary of the Borrower, wish to create a
limited liability company which shall be an Unrestricted Subsidiary (the
"Special Unrestricted Leasing Subsidiary"), which, in turn, will create an
Unrestricted Subsidiary (the "Special Purpose Leasing Trust") for the purpose of
entering into certain leasing transactions as described herein;
WHEREAS, in connection with the creation of the Special
Unrestricted Leasing Subsidiary and the Special Purpose Leasing Trust, the
Borrower has requested that the Administrative Agent and the Banks waive certain
requirements for the creation of an Unrestricted Subsidiary contained in the
Credit Agreement and grant certain consents and make certain amendments to the
Credit Agreement as set forth herein; and
WHEREAS, the parties hereto wish to amend the Credit Agreement
and grant the waivers and consents as herein provided;
NOW, THEREFORE, it is agreed:
I. Amendments, Waivers and Consents to Credit Agreement.
1. Notwithstanding anything to the contrary contained in
Sections 9.05, 9.11 and 9.13(a) of the Credit Agreement and the definition of
Unrestricted Subsidiary contained therein but subject to the proviso to this
Section 1 below, the Banks acknowledge
<PAGE>
and agree that (i) Treasure Chest, Webcraft and BF Digital shall be permitted to
form the Special Unrestricted Leasing Subsidiary which shall be deemed to be an
Unrestricted Subsidiary for all purposes of the Credit Agreement, (ii) the
Special Unrestricted Leasing Subsidiary shall not be required to engage in a
Media Business and (iii) Treasure Chest, Webcraft and BF Digital shall be
permitted to make initial Investments in the Special Unrestricted Leasing
Subsidiary in an aggregate amount for all such entities not to exceed
$7,500,000, so long as the proceeds of such Investments are used by the Special
Unrestricted Leasing Subsidiary as soon as reasonably practicable to make an
Investment in the Special Purpose Leasing Trust, which, in turn, shall as soon
as reasonably practicable use the proceeds thereof to make an advance payment on
rent owing by it pursuant to lease agreements to be entered into between it and
a foreign corporation in respect of certain property located outside the United
States (the "Lease Documents") (it being understood that the Investments
referred to in clause (iii) above are independently permitted hereby and shall
not be applied to reduce the Available Basket Amount as provided in the
definition of Unrestricted Subsidiary); provided that (w) at the time of the
creation of the Special Unrestricted Leasing Subsidiary, all of the equity
interests in the Special Unrestricted Leasing Subsidiary shall be owned by
Treasure Chest, Webcraft and BF Digital and shall be pledged to the Collateral
Agent pursuant to the Pledge and Security Agreement, (x) the Special
Unrestricted Leasing Subsidiary shall (and shall be permitted to) become a party
to an amended Tax Sharing Agreement (the "Amended Tax Sharing Agreement"),
providing, inter alia, that Treasure Chest, Webcraft and BF Digital (and, at the
option of the Borrower, any other Credit Party) shall be jointly and severally
obligated to make payments to (or Investments in) the Special Unrestricted
Leasing Subsidiary from time to time to the extent necessary to ensure that the
Special Unrestricted Leasing Subsidiary shall have sufficient funds to pay
interest, principal and other amounts owing pursuant to the SULS Loan Agreement
as and when due, (y) the Special Unrestricted Leasing Subsidiary shall not
engage (directly or indirectly) in any business other than (1) the ownership of
all of the equity interests in the Special Purpose Leasing Trust, (2) entering
into and performing its obligations under the Lease Documents and (3) activities
incidental thereto and to (I) the maintenance of its existence in compliance
with applicable law and (II) related legal, tax and accounting matters and (z)
all Investments made by Treasure Chest, Webcraft and BF Digital in the Special
Unrestricted Leasing Subsidiary and by the Special Unrestricted Leasing
Subsidiary in the Special Purpose Leasing Trust pursuant to clause (iii) above
(but not pursuant to clause (x) of the proviso thereto) shall be made on or
prior to March 31, 1998.
2. Notwithstanding anything to the contrary contained in
Sections 9.05, 9.11 and 9.13(a) of the Credit Agreement and the definition of
Unrestricted Subsidiary contained therein but subject to the proviso to this
Section 2 below, the Banks acknowledge and agree that the Special Purpose
Leasing Trust (i) shall be an Unrestricted Subsidiary for all purposes of the
Credit Agreement and (ii) shall not be required to engage in a Media Business;
provided that (x) at the time of its creation, the Special Purpose Leasing Trust
shall become a party to the Amended Tax Sharing Agreement and (y) the Special
Purpose Leasing Trust shall not engage (directly or indirectly) in any business
other than the entering
2
<PAGE>
into, and performance of its obligations under, the Lease Documents, and
activities incidental thereto and to (I) the maintenance of its existence in
compliance with applicable law and (II) related legal, tax and accounting
matters.
3. Section 9.03(ii) of the Credit Agreement is hereby amended
by inserting the text "or any family members of any such individuals"
immediately after the text "directors, executive officers, members of management
or employees of Parent or any of its Affiliates" appearing in said Section.
4. Section 9.04(ix) of the Credit Agreement is hereby amended
by inserting the text ", Treasure Chest, Webcraft, BF Digital or any other
Credit Party" immediately after the text "the Borrower" appearing in said
Section.
5. Section 9.04(xvii) of the Credit Agreement is hereby
amended by deleting the amount "$75,000,000" appearing in said Section and
inserting the amount "$100,000,000" in lieu thereof.
6. Section 9.04 of the Credit Agreement is hereby further
amended by (i) deleting the word "and" appearing at the end of clause (xvi) of
said Section, (ii) deleting the period at the end of clause (xvii) of said
Section and inserting the text "; and" in lieu thereof, (iii) inserting the
following new clause (xviii) at the end of said Section:
"(xviii) Guaranties of Parent and/or any of its
Subsidiaries of the payment of principal, interest and all
other amounts owing by the Special Unrestricted Leasing
Subsidiary pursuant to the SULS Loan Agreement."
and (iv) deleting the amount "$115,000,000" appearing in the last paragraph
thereof and inserting in lieu thereof the amount "$140,000,000".
7. Section 9.05 of the Credit Agreement is hereby amended by
(i) deleting the word "and" appearing at the end of clause (xviii) of said
Section, (ii) deleting the period at the end of clause (xix) of said Section and
inserting the text "; and" in lieu thereof and (iii) inserting the following new
clause (xx) at the end of said Section:
"(xx) Treasure Chest, Webcraft, BF Digital and any
other Credit Party may make Investments in the Special
Unrestricted Leasing Subsidiary pursuant to the Amended Tax
Sharing Agreement or any other Guaranty referred to in Section
9.04(xviii) in such amounts as may be required to enable the
Special Unrestricted Leasing Subsidiary to pay principal,
interest and other amounts owing pursuant to the SULS Loan
Agreement when and as due."
8. Section 9.06 of the Credit Agreement is hereby amended by
(i) adding the following phrase at the end of clause (i) thereof:
3
<PAGE>
"or, at any time and to the extent that any Dividend is permitted to be
paid by the Borrower to Parent pursuant Section 9.03(iii) or (vi), the
Borrower, Treasure Chest, Webcraft, BF Digital and/or any other Credit
Party may, in lieu of the Borrower paying the amounts permitted to be
paid as a Dividend pursuant to such Sections, pay management fees to
Parent so long as all proceeds of the respective management fees are
used by Parent to make the payments which would be required to be made
by it if such amount had been paid as a Dividend pursuant to, and in
accordance with the requirements of, Section 9.03(iii) or (vi), as the
case may be; provided that such management fees shall be alternative to
and not duplicative of any Dividends paid (and permitted to be paid)
pursuant to said subsections",
and (ii) deleting the text "Without limiting the foregoing provisions of"
appearing in the last sentence of said Section and inserting the text "Except as
otherwise permitted by" in lieu thereof.
9. The definition of "Consolidated Debt" appearing in Section
11 of the Credit Agreement is hereby amended by inserting the text "and any
Guaranty by the Borrower, Treasure Chest, Webcraft, BF Digital and any other
Credit Party of any amounts owing by the Special Unrestricted Leasing Subsidiary
pursuant to SULS Loan Agreement as provided in the Amended Tax Sharing Agreement
or any other Guaranty of the SULS Loan Agreement referred to in Section
9.04(xviii)" immediately after the text "(other than unreimbursed drawings)"
appearing in said definition.
10. The definition of "Consolidated Net Interest Expense"
appearing in Section 11 of the Credit Agreement is hereby amended by inserting
the following new sentence immediately at the end thereof:
"Notwithstanding anything to the contrary contained above, to the
extent any amounts are paid to, or invested in, the Special
Unrestricted Leasing Subsidiary as contemplated by Section 9.05(xx),
such amounts shall not be included as a component of Consolidated Net
Interest Expense and, to the extent such amounts would otherwise be so
included therein, such amounts shall be excluded therefrom."
11. Section 10 of the Credit Agreement is hereby amended by
(i) deleting the definition of "WTI" appearing in said Section in its entirety
and (ii) inserting the following new definitions in appropriate alphabetical
order:
"Amended Tax Sharing Agreement" shall mean the Tax Sharing
Agreement, dated as of March 19, 1996, as amended as contemplated by Section 1
of the Third Amendment.
"BF Digital" shall mean Big Flower Digital Services, Inc. a
Delaware corporation.
4
<PAGE>
"Special Purpose Leasing Trust" shall mean a special purpose
Delaware business trust to be formed by (and thereafter to be a direct
Wholly-Owned Subsidiary of) the Special Unrestricted Leasing Subsidiary.
"Special Unrestricted Leasing Subsidiary" shall mean a
Delaware limited liability company to be formed by Treasure Chest, Webcraft and
BF Digital (and thereafter to be a direct subsidiary of Treasure Chest, Webcraft
and BF Digital and an indirect Wholly-Owned Subsidiary of the Borrower).
"SULS Loan Agreement" shall mean the Loan Agreement to be
entered into between Bankers Trust Company (and/or one or more other lenders)
and the Special Unrestricted Leasing Subsidiary, which Loan Agreement shall make
available to the Special Unrestricted Leasing Subsidiary on the terms provided
therein loans in an aggregate principal amount not to exceed $17,500,000 at any
time outstanding; and any refinancing (or successive refinancing) thereof which
does not increase the principal amount thereof from the amount outstanding at
the time of such refinancing.
"Third Amendment" shall mean the Third Amendment to this
Agreement, dated as of January 14, 1998.
"Webcraft" shall mean Webcraft Inc., a Delaware corporation,
formerly known as Webcraft Technologies, Inc.
12. The Credit Agreement is hereby amended by deleting each
reference to "WTI" appearing therein and inserting the word "Webcraft" in lieu
thereof.
II. Miscellaneous Provisions.
I. In order to induce the Banks to enter into this Amendment,
the Borrower hereby represents and warrants that:
(a) no Default or Event of Default exists as of the Third
Amendment Effective Date, both before and immediately after giving
effect to this Amendment; and
(b) all of the representations and warranties contained in the
Credit Agreement and the other Credit Documents are true and correct in
all material respects on the Third Amendment Effective Date both before
and immediately after giving effect to this Amendment, with the same
effect as though such representations and warranties had been made on
and as of the Third Amendment Effective Date (it being understood that
any representation or warranty made as of a specific date shall be true
and correct in all material respects as of such specific date).
5
<PAGE>
2. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
3. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Administrative Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the
"Third Amendment Effective Date") when the Borrower and the Required Banks shall
have signed a counterpart hereof (whether the same or different counterparts)
and shall have delivered (including by way of facsimile transmission) the same
to the Administrative Agent at its Notice Office.
6. From and after the Third Amendment Effective Date, all
references in the Credit Agreement and each of the other Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement as
modified hereby.
* * *
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
BIG FLOWER PRESS HOLDINGS, INC.
By----------------------------------------
Title:
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By----------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON,
Individually
By----------------------------------------
Title:
By----------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON,
as Documentation Agent
By----------------------------------------
Title:
By----------------------------------------
Title:
ABN AMRO BANK N.V.,
7
<PAGE>
NEW YORK BRANCH
By----------------------------------------
Title:
By----------------------------------------
Title:
ALLIED IRISH BANK
By----------------------------------------
Title:
BANK OF AMERICA NT & SA
By----------------------------------------
Title:
BANKBOSTON, N.A.
By----------------------------------------
Title:
BANK OF MONTREAL
By----------------------------------------
Title:
8
<PAGE>
THE BANK OF NEW YORK
By----------------------------------------
Title:
BANQUE PARIBAS
By----------------------------------------
Title:
CORESTATES BANK, N.A.
By----------------------------------------
Title:
CAISSE NATIONALE DE CREDIT
AGRICOLE
By----------------------------------------
Title:
CITY NATIONAL BANK
By----------------------------------------
Title:
9
<PAGE>
CREDIT LYONNAIS NEW YORK
BRANCH
By----------------------------------------
Title:
DAI-ICHI KANGYO BANK, LIMITED
By----------------------------------------
Title:
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES
By----------------------------------------
Title:
By----------------------------------------
Title:
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By----------------------------------------
Title:
10
<PAGE>
GIROCREDIT BANK AG DER
SPARKASSEN, GRAND CAYMAN
ISLAND BRANCH
By----------------------------------------
Title:
By----------------------------------------
Title:
IMPERIAL BANK
By----------------------------------------
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By----------------------------------------
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD. NEW YORK BRANCH
11
<PAGE>
By----------------------------------------
Title:
NATIONSBANK, N.A.
By----------------------------------------
Title:
SUMITOMO BANK OF CALIFORNIA
By----------------------------------------
Title:
THE TOKAI BANK, LIMITED
By----------------------------------------
Title:
TOYO TRUST & BANKING CO., LTD
By----------------------------------------
Title:
UNION BANK OF CALIFORNIA, N.A.
By----------------------------------------
Title:
THE YASUDA TRUST & BANKING
CO., LTD., NY BRANCH
By----------------------------------------
Title:
<PAGE>
Exhibit 10.5
FOURTH AMENDMENT TO CREDIT AGREEMENT
FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated
as of March 12, 1998, among BIG FLOWER PRESS HOLDINGS, INC. (the "Borrower"),
the financial institutions party to the Credit Agreement referred to below (the
"Banks"), BANK OF AMERICA NT & SA and THE INDUSTRIAL BANK OF JAPAN, LIMITED, as
Co-Agents (the "Co-Agents"), CREDIT SUISSE FIRST BOSTON, as Documentation Agent
(the "Documentation Agent"), and BANKERS TRUST COMPANY, as Administrative Agent
(the "Administrative Agent") for the Banks. All capitalized terms used herein
and not otherwise defined shall have the respective meanings provided such terms
in the Credit Agreement as amended hereby.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, the Co-Agents, the
Documentation Agent and the Administrative Agent are parties to a Credit
Agreement, dated as of June 12, 1997 (as amended, modified or supplemented
through the date hereof, the "Credit Agreement");
WHEREAS, the parties hereto wish to amend the Credit Agreement
as herein provided;
NOW, THEREFORE, it is agreed:
I. Amendments to Credit Agreement.
1. The Banks hereby acknowledge and agree that the reference
to "March 31, 1998" appearing in clause (z) of the proviso to Section 1 of the
Third Amendment (as defined below) shall be deemed to be "April 30, 1998".
2. Section 10.12 of the Credit Agreement is hereby amended by
(i) inserting the text ", liabilities and/or Indebtedness under the Lease
Documents consisting of a performance guaranty of the obligations of the Special
Purpose Leasing Trust under the covenants contained in the Lease Documents"
immediately after the text "the Parent Rights Plan" appearing in clause (i) of
said Section and (ii) inserting the text ", the Lease Documents" immediately
after the text "Convertible QUIPS Documents" appearing in clause (z) of the
proviso to clause (i) of said Section.
3. Section 11 of the Credit Agreement is hereby amended by
inserting the following new definitions in appropriate alphabetical order:
"Lease Documents" shall have the meaning provided in the Third
<PAGE>
Amendment.
"Third Amendment" shall mean the Third Amendment to the Credit
Agreement, dated as of January 14, 1998.
II. Miscellaneous Provisions.
I. In order to induce the Banks to enter into this Amendment,
the Borrower hereby represents and warrants that:
(a) no Default or Event of Default exists as of the Fourth
Amendment Effective Date, both before and immediately after giving
effect to this Amendment; and
(b) all of the representations and warranties contained in the
Credit Agreement and the other Credit Documents are true and correct in
all material respects on the Fourth Amendment Effective Date both
before and immediately after giving effect to this Amendment, with the
same effect as though such representations and warranties had been made
on and as of the Fourth Amendment Effective Date (it being understood
that any representation or warranty made as of a specific date shall be
true and correct in all material respects as of such specific date).
2. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
3. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Administrative Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.
5. This Amendment shall become effective on the date (the
"Fourth Amendment Effective Date") when the Borrower and the Required Banks
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Administrative Agent at its Notice Office.
6. From and after the Fourth Amendment Effective Date, all
references in
2
<PAGE>
the Credit Agreement and each of the other Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement as
modified hereby.
* * *
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
BIG FLOWER PRESS HOLDINGS, INC.
By--------------------------------------
Title:
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By--------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON,
Individually
By--------------------------------------
Title:
By--------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON,
as Documentation Agent
By--------------------------------------
Title:
By--------------------------------------
Title:
ABN AMRO BANK N.V.,
4
<PAGE>
NEW YORK BRANCH
By--------------------------------------
Title:
By--------------------------------------
Title:
ALLIED IRISH BANK
By--------------------------------------
Title:
BANK OF AMERICA NT & SA
By--------------------------------------
Title:
BANKBOSTON, N.A.
By--------------------------------------
Title:
BANK OF MONTREAL
By--------------------------------------
Title:
5
<PAGE>
THE BANK OF NEW YORK
By--------------------------------------
Title:
BANQUE PARIBAS
By--------------------------------------
Title:
CORESTATES BANK, N.A.
By--------------------------------------
Title:
CAISSE NATIONALE DE CREDIT
AGRICOLE
By--------------------------------------
Title:
CITY NATIONAL BANK
By--------------------------------------
Title:
6
<PAGE>
CREDIT LYONNAIS NEW YORK
BRANCH
By--------------------------------------
Title:
DAI-ICHI KANGYO BANK, LIMITED
By--------------------------------------
Title:
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES
By--------------------------------------
Title:
By--------------------------------------
Title:
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By--------------------------------------
Title:
7
<PAGE>
GIROCREDIT BANK AG DER
SPARKASSEN, GRAND CAYMAN
ISLAND BRANCH
By--------------------------------------
Title:
By--------------------------------------
Title:
IMPERIAL BANK
By--------------------------------------
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By--------------------------------------
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD. NEW YORK BRANCH
By--------------------------------------
Title:
8
<PAGE>
NATIONSBANK, N.A.
By--------------------------------------
Title:
SUMITOMO BANK OF CALIFORNIA
By--------------------------------------
Title:
THE TOKAI BANK, LIMITED
By--------------------------------------
Title:
TOYO TRUST & BANKING CO., LTD
By--------------------------------------
Title:
UNION BANK OF CALIFORNIA, N.A.
By--------------------------------------
Title:
THE YASUDA TRUST & BANKING
CO., LTD., NY BRANCH
By--------------------------------------
Title:
9
<PAGE>
BANK POLSKA KASA OPIEKI, S.A.
By--------------------------------------
Title:
10
<PAGE>
EXHIBIT 10.6
AMENDMENT LETTER NO. 5
Big Flower Limited
c/o Ashurst Morris Crisp
Broadwalk House
5 Appold Street
London EC2A 2HA
Attention of Jeffrey Sultoon
Olwen Direct Mail Limited
c/o Ashurst Morris Crisp
Broadwalk House
5 Appold Street
London EC2A 2HA
Attention of Jeffrey Sultoon
Big Flower Press Holdings, Inc.
c/o Ashurst Morris Crisp
Broadwalk House
5 Appold Street
London EC2A 2HA
Attention of Jeffrey Sultoon
13th March 1998
c.c.: Big Flower Press Holdings, Inc.
3 East 54th Street
17th Floor
New York
NY 10022
Attention of Mark Angelson
Dear Sirs,
We write with reference to the facility letter dated 18th September 1997 from
ourselves to Big Flower Limited (the "Original Facility Letter") to which Olwen
Direct Mail Limited became an acceding borrower by a deed of accession dated
18th September, 1997 (the "Deed of Accession") and as amended by an amendment
letter dated 25th November, 1997 (the "Amendment Letter"), an amendment letter
dated 23rd December, 1997 ("Amendment Letter No. 2"), an amendment letter dated
5th February, 1998 ("Amendment Letter No. 3") and the amendment letter dated
26th February 1998 ("Amendment Letter No. 4") (the Original Facility Letter as
amended being the "Facility Letter").
1. It is hereby agreed by each of the parties hereto that, with effect
on and from the Effective Date (as hereinafter defined), the Facility
Letter shall be, and is hereby amended and
1
<PAGE>
restated in the form set out in Exhibit A to this letter so that the
rights and obligations of the parties shall on and from the Effective
Date be governed by the Facility Letter as so amended and restated.
2. On and as from the Effective Date, all references in the Facility
Letter to "this letter", the "Facility Letter", "hereunder", "herein"
and all similar terms shall be construed as including a reference to
this letter and to the Facility Letter as so amended and restated.
3. The Borrowers agree to pay an up-front facility fee of L28,750
in respect of the increase in the Facility Amount upon signing this
letter.
4. This letter shall take effect on the date of delivery to us (the
"Effective Date") of a copy of this letter duly executed as a deed by
Big Flower Limited, Olwen Direct Mail Limited and acknowledged by Big
Flower Press Holdings, Inc.
5. In executing this letter, Big Flower Digital Services Limited shall
accede to and be bound by the Facility Letter and each other party to
this letter agrees that it may so accede and shall be so bound.
6. Save as amended and restated as aforesaid, the Facility Letter and
all our rights, powers and discretions thereunder remain in full
force and effect.
7. Terms defined in the Facility Letter shall have the same meaning in
this letter unless otherwise defined herein.
8. This letter shall be executed as a deed.
9. This letter may be executed in any number of counterparts and all
such counterparts taken together shall be deemed to constitute one
and the same instrument.
10. This letter shall be governed by and construed in accordance with
English law.
Signed as a deed
By--------------------------
BANKERS TRUST COMPANY
We confirm our agreement to the terms of the letter set out above.
- ---------------------------- ----------------------------
By By
and------------------------- and-------------------------
BIG FLOWER LIMITED BIG FLOWER DIGITAL SERVICES
LIMITED
2
<PAGE>
- ----------------------------
By
and------------------------- By-----------------------------
OLWEN DIRECT MAIL LIMITED BIG FLOWER PRESS HOLDINGS, INC.
3
<PAGE>
EXHIBIT A
Amended and Restated Facility Letter
Big Flower Limited
c/o Ashurst Morris Crisp
5 Appold Street
London EC2A 2HA
Olwen Direct Mail Limited
c/o Ashurst Morris Crisp
5 Appold Street
London EC2A 2HA
Big Flower Digital Services Limited
c/o Ashurst Morris Crisp
5 Appold Street
London EC2A 2HA
c.c: Big Flower Press Holdings, Inc.
3 East 54th Street
17th Floor
New York
NY 10022
Attn: Mark Angelson
Date: 13th March 1998
Dear Sirs,
We, Bankers Trust Company acting through our branch at London (the "Bank"), set
out below the terms and conditions on which we are prepared to provide you, Big
Flower Limited ("Big Flower"), Big Flower Digital Services Limited ("BFDSL") and
Olwen Direct Mail Limited ("Olwen") (together the "Borrowers" and each
individually a "Borrower") and to Troypeak Limited and Pismo Limited, provided
that each of Troypeak Limited, Pismo Limited, the Bank and the Borrowers execute
the Deed of Accession attached to this letter as Appendix C, the following loan
facility.
1. Amount and Commitment Period
The amount of the facility is L50,000,000 (the "Facility
Amount") such amount being comprised of two tranches, the first
tranche in an amount of L27,000,000 ("Tranche A") and the
second tranche in an amount of L23,000,000 ("Tranche B"). The
facility shall be available to Big Flower for an initial drawing of
L23,287,685.84 under Tranche A and an initial drawing by BFDSL
of L16,145,437.42 under Tranche B and, in each case, thereafter
by any Borrower and/or any Acceding Borrower for any other subsequent
drawing, each of a minimum of L200,000 (except where the
remaining undrawn amount of the facility is less than L200,000
in which case the amount available up to the Facility Amount may be
drawn)
4
<PAGE>
and an integral multiple of L200,000 on any day on which
banks in London are open and on which Sterling deposits may be dealt
in on the London inter-bank market and on which commercial banks and
foreign exchange markets are open for business in London and New York
City (a "Business Day") during the period (the "Commitment Period")
ending on 29th April, 1998 if:-
1.1 with respect to the initial drawing under Tranche A, the conditions
precedent listed in Clause 7.1 are fulfilled to the Bank's
satisfaction, and with respect to the initial drawing under Tranche
B, the conditions precedent listed in clause 7.2 are fulfilled to the
Bank's satisfaction; and
1.2 not later than 5 p.m. (London time) on the Business Day preceding the
date of the relevant drawing, the Bank has received from the Borrower
or Acceding Borrower, as the case may be, a notice of drawing in the
form attached as Appendix A except that in the case of the initial
drawing under Tranche B of the facility, BFDSL may submit its notice
of drawing not later than 2 p.m. on the Business Day of such drawing.
2. Purpose
Big Flower shall use the entire proceeds of the initial drawing made
by it under Tranche A for the acquisition of Olwen and/or the
refinancing of existing indebtedness of Olwen and BFDSL shall use the
entire proceeds of the initial drawing made by it under Tranche B for
the acquisition of Troypeak Limited and/or Pismo Limited and/or the
refinancing of existing indebtedness of Troypeak Limited and/or Pismo
Limited and each of the Borrowers shall use all other drawings made
by it for the general corporate purposes of itself and its
subsidiaries (including working capital) and each of the Acceding
Borrower shall use the entire proceeds of each drawing made by it for
the general corporate purposes of itself and its subsidiaries
(including working capital) but the Bank need not check that any
Borrower or Acceding Borrower does so.
3. Repayment, Prepayment and Cancellation
3.1 Subject as otherwise provided in this letter, the principal amount of
all outstanding drawings shall be repaid on 30th April 1998 (the
"Final Maturity Date").
3.2 Any Borrower may prepay any drawing or any part thereof which is a
minimum of L200,000 and an integral multiple of L200,000,
on the last day of any period for determining interest in relation to
that drawing in accordance with Clause 4 (each such period and each
period for determining interest in accordance with Clause 10.3, an
"Interest Period") if such Borrower provides the Bank with not less
than one Business Day's prior notice of the date and amount of the
prepayment.
3.3 Any notice of prepayment under this letter will oblige the Borrower
to prepay in accordance with that notice. No Borrower may repay or
prepay all or part of the loan except as expressly provided in this
letter. Any amount prepaid may be reborrowed.
3.4 Any repayment or prepayment shall be made together with all unpaid
interest accrued on the amount of that repayment or prepayment and
any other sum then due under this letter.
3.5 The Borrowers, acting together, may by not less than one Business
Day's prior notice to the Bank cancel all or any part (but if in part
in a minimum principal amount of L200,000
5
<PAGE>
and in an amount which is an integral multiple of L200,000) of
the Bank's unutilised commitment hereunder.
4. Interest
4.1 Interest will be calculated and payable on each drawing by reference
to successive Interest Periods. Interest accrued during an Interest
Period shall be paid to the Bank on the last day of that Interest
Period unless provided otherwise in this letter. Each Interest Period
shall be of one, two, three or four weeks' duration, as selected in a
notice received by the Bank not later than 2 p.m. (London time) on
the Business Day immediately preceding the beginning of that Interest
Period except that:-
(a) any Interest Period which would otherwise end on a
non-Business Day shall instead end on the next Business
Day unless it would thereby end in the next calendar
month, in which case it shall end on the immediately
preceding Business Day and each subsequent Interest
Period shall end on the last Business Day in the
appropriate month;
(b) subject to the above exceptions, any Interest Period
for which no effective selection notice is received by
the Bank shall be of one week's duration;
(c) if an Interest Period would otherwise overrun the Final
Maturity Date, such Interest Period shall be shortened
so that it ends on the Final Maturity Date.
4.2
(a) The rate of interest applicable in relation to any
Interest Period shall be the rate per annum (as
determined by the Bank) equal to the sum (rounded up to
the nearest four decimal points) of:-
(i) the Margin (namely 1.25%); and
(ii) LIBOR (being on any date the rate at which the
Bank is offered Sterling deposits by prime banks
in the London inter-bank market at or about
11.00 a.m. on such date in an amount equivalent
to the relevant drawing and with a maturity
equivalent to the duration of such Interest
Period) in effect on the first day of such
Interest Period; and
(iii) the MLA Costs in relation to that Interest
Period or part thereof as determined in
accordance with Appendix B. The Bank shall
notify the Borrowers of the MLA Costs applicable
to that Interest Period as soon as practicable
after the determination thereof.
(b) However, in relation to any Interest Period for which (i) the
Bank is not offered deposits as contemplated by Clause
4.2.1(a) or (ii) the Bank determines that the deposits so
offered to the Bank are not sufficient to enable the Bank to
fund (having regard to its other funding requirements) the
amount to which that Interest Period relates, then the Bank
shall, as soon as practicable, notify the Borrowers and shall
for a period of up to five Business Days negotiate with the
Borrowers in good faith with a view to agreeing a substitute
basis for determining the rate of interest applicable during
that particular Interest Period. If a substitute basis is
agreed, it shall take effect retrospectively from the
commencement of that Interest Period. If a substitute basis is
not agreed then with retrospective effect from the
commencement of that Interest Period, the rate of interest
applicable to that
6
<PAGE>
Interest Period shall be calculated in accordance with Clause
4.2(a) except that there shall be substituted for the rate
referred to in Clause 4.2(a)(ii) the percentage per annum
reasonably determined by the Bank to be that which expresses
the cost to the Bank of funding the relevant drawing for that
Interest Period by whatever means the Bank reasonably
determines to be appropriate.
5. Payments
5.1 Each payment by a Borrower under this letter shall be made in
Sterling so as to be received by the Bank in immediately available
cleared funds, free and clear of any restriction or condition, not
later than 2 p.m. (London time) on the due date by transfer to such
account of the Bank as the Bank may from time to time designate.
5.2 Each such payment pursuant to Clause 5.1 shall be made without any
set-off or counterclaim or any deduction or withholding on account of
United Kingdom tax except to the extent required by law, in which
event the Borrowers shall pay the Bank such additional sum as will
result in the Bank receiving on the due date of the relevant payment
(free from any liability in relation to any such deduction or
withholding) a net sum equal to the full amount which would have been
receivable had no such deduction or withholding been required. The
Borrowers shall on request supply the Bank with evidence reasonably
satisfactory to the Bank of the relevant deduction or withholding.
However no such additional sum shall be payable if the Bank ceases to
be a bank as defined in Section 840A of the Income and Corporation
Taxes Act 1988 and which is within the charge to UK corporation tax
as regards any interest received by it hereunder otherwise than as a
result of the introduction of, change in, or any change in the
interpretation, administration or application of, any law or
regulation or any practice or concession of the UK Inland Revenue
occurring after the date of this letter. Without prejudice to the
foregoing provisions of this Clause 5.2, if the Bank is required to
make any payment in respect of taxes on or in relation to any sum
received or receivable hereunder by the Bank or any liability in
respect of any such payment is asserted, imposed, levied or assessed
against the Bank, upon demand by the Bank, the Borrowers shall
indemnify the Bank against such payment or liability, together with
any interest, penalties and expenses payable or incurred in
connection therewith provided that this indemnity shall not extend to
any liability of the Bank arising from UK corporation tax.
5.3 Any payment which would otherwise be due on a non-Business Day
shall instead be due on the next Business Day.
6. Illegality and Increased Costs
6.1 If (a) the adoption of any applicable law, rule or regulation, any
change therein or any change in the interpretation or administration
thereof, after the date of this letter would make it unlawful for the
Bank to perform all or any of its obligations under this letter or
(b) compliance by the Bank (or its holding company) with any request
or directive (whether or not having the force of law) issued after
the date of this letter by any central bank or fiscal or other
monetary authority with which it is customary for banks in the
relevant jurisdiction to comply would prevent the Bank from
performing all or any part of its obligations under this letter, its
commitment hereunder shall be cancelled upon prior written
notification by the Bank to the Borrowers of the relevant
circumstances, whereupon the Borrowers shall, on the date specified
in such notice, repay the outstanding drawings hereunder together
with all accrued interest and all other amounts owing hereunder to
the Bank.
7
<PAGE>
6.2 Subject to Clause 6.3, the Borrowers shall on demand by the Bank pay
to the Bank the amount of any increased cost reasonably determined by
the Bank to be incurred by it (or its holding company) as a result of
the introduction of or any change in, or any change in the
interpretation or application of, any law or regulation or directive
(including without limitation any law or regulation or directive
relating to taxation, or reserve asset, special deposit, cash ratio,
liquidity or capital adequacy requirements or any other form of
banking or monetary control).
In this Letter "increased cost" means (i) an additional cost incurred
by the Bank (or its holding company) as a result of the Bank having
entered into, or performing, maintaining or funding its obligations
under, this Letter; or (ii) a reduction in any amount payable to the
Bank or the effective return to the Bank under this Letter or to the
Bank (or its holding company) on its capital; or (iii) the amount of
any payment made by the Bank or the amount of any interest or other
return foregone by it calculated by reference to any amount received
or receivable by it from the Borrowers.
6.3 Clause 6.2 does not apply to any increased cost (a) compensated for
pursuant to Clause 5.2, or (b) attributable to any change in the rate
of tax on the overall net income of the Bank imposed in the
jurisdiction in which its principal office for the time being is
situate or (c) compensated for by the MLA Costs.
7. Conditions Precedent and Drawdown
7.1 The Bank shall not be obliged to advance any drawing under Tranche A
of this facility unless:-
(a) before a Borrower requests any drawing, the Bank has
received the following, in form and substance satisfactory
to the Bank acting reasonably (and has notified the
Borrowers upon such receipt that all the conditions set out
in this Clause 7.1 have been met to the satisfaction of the
Bank acting reasonably):
(i) the enclosed copy of this letter,
countersigned and dated on each of the
Borrower's behalf;
(ii) a guarantee from Big Flower Press Holdings, Inc.
(the "Guarantor"), in form and substance agreed
between the Bank and Big Flower;
(iii) a certificate of incumbency in form and substance
satisfactory to the Bank acting reasonably,
certified to the Bank's reasonable satisfaction,
attaching:-
(A) Big Flower's Memorandum and Articles of
Association;
(B) a resolution of Big Flower's Board of
Directors approving this letter and
authorising the countersignature of the
enclosed copy of this letter and the
Share Charge and the giving of any
notice or the taking of any other action
under or in connection with this letter
and the Share Charge;
(C) the names, titles and specimen
signatures of the persons authorised to
take action as specified in Clause
7.1(a)(iii)(B) above and those
authorised to operate the facility;
8
<PAGE>
(iv) a certificate of incumbency in form and substance
satisfactory to the Bank acting reasonably,
certified to the Bank's reasonable satisfaction,
attaching:-
(A) the Guarantor's certificate of
incorporation and bylaws;
(B) a resolution of the Guarantor's Board of
Directors approving the Guarantee and
authorising its execution and the giving
of any notice of the taking of any other
action under or in connection with the
Guarantee;
(v) a legal opinion in form and substance agreed
between the Bank and the Borrowers from Ashurst
Morris Crisp, legal advisers to the Borrowers in
England;
(vi) a legal opinion in form and substance agreed
between the Bank and the Borrowers from the
General Counsel of the Guarantor in New York;
(vii) evidence that Ashurst Morris Crisp has irrevocably
accepted its designation as the Guarantor's agent
to receive service of process as provided in
Section 16.2 of the Guarantee, satisfactory in
form and substance to the Bank acting reasonably;
and
(viii) within 45 days of this letter, management accounts
of Big Flower; and
(ix) a certificate issued by the Guarantor to the Bank
certifying compliance with the Credit Agreement
or, in the case of any breach under the Credit
Agreement, certifying that such breach has been
waived, in the agreed form attached hereto as
Appendix C;
(b) no Event of Default specified in Clause 10.2 (nor any event
which, with the giving of any notice, and/or the expiry of
any grace period, provided for in Clause 10.2, would
constitute an Event of Default (hereinafter referred to as
a "Default")) has occurred on or before the proposed date
of the relevant drawing or will occur as a result of the
relevant drawing being made.
7.2 The Bank shall not be obliged to advance any drawing under Tranche B of
this facility unless:-
(a) before a Borrower requests any drawing, the Bank has
received the following, in form and substance satisfactory
to the Bank acting reasonably (and has notified the
Borrowers upon such receipt that all the conditions set out
in this Clause 7.2 have been met to the satisfaction of the
Bank acting reasonably):
(i) the enclosed copy of this letter,
countersigned and dated on each of the
Borrower's behalf;
(ii) a supplemental guarantee (the "Supplemental
Guarantee" being a guarantee from the Guarantor to
the Bank dated the date hereof and in the form and
substance agreed between the Bank and the
Guarantor), duly executed by the Guarantor and a
deed of amendment to the Share Charge
9
<PAGE>
(the "Share Charge" being a share charge from Big
Flower in favour of the Bank over the shares of
Olwen dated 18th September 1997) in form and
substance agreed between the Bank and Big Flower,
duly executed by Big Flower;
(iii) a certificate of incumbency in form and substance
satisfactory to the Bank acting reasonably,
certified to the Bank's reasonable satisfaction,
attaching:-
(A) BFDSL's Memorandum and Articles of
Association;
(B) a resolution of BFDSL's Board of
Directors approving this letter and
authorising the countersignature of the
enclosed copy of this letter and the New
Share Charge and the giving of any
notice or the taking of any other action
under or in connection with this letter
and the New Share Charge;
(C) the names, titles and specimen
signatures of the persons authorised to
take action as specified in Clause
7.2(a)(iii)(B) above and those
authorised to operate the facility;
(iv) a copy, certified to the Bank's satisfaction, of
the resolution of Big Flower's Board of
Directors approving this letter and authorising
the countersignature of the enclosed copy of
this letter and the deed of amendment to the
Share Charge and the giving of any notice or the
taking of any other action under or in
connection with this letter and the deed of
amendment to the Share Charge;
(v) a copy, certified to the Bank's satisfaction, of
the resolution of Olwen's Board of Directors
approving this letter and authorising the
countersignature of the enclosed copy of this
letter and the giving of any notice or the
taking of any other action under or in
connection with this letter;
(vi) a copy, certified to the Bank's satisfaction, of
the resolution of the Guarantor's Board of
Directors approving the Supplemental Guarantee
and authorising its execution and the giving of
any notice of the taking of any other action
under or in connection with the Guarantee;
(vii) a legal opinion in form and substance agreed
between the Bank and the Borrower from Ashurst
Morris Crisp, legal advisers to the Borrowers in
England;
(viii) a legal opinion in form and substance agreed
between the Bank and the Borrowers from the
General Counsel of the Guarantor in New York;
(ix) a certificate issued by the Guarantor to the
Bank certifying compliance with the Credit
Agreement or, in the case of any breach under
the Credit Agreement, certifying that such
breach has been waived, in the agreed form
attached thereto as Appendix C;
10
<PAGE>
(b) no Event of Default specified in Clause 10.2 (nor any event
which, with the giving of any notice, and/or the expiry of
any grace period, provided for in Clause 10.2, would
constitute an Event of Default (hereinafter referred to as
a "Default")) has occurred on or before the proposed date
of the relevant drawing or will occur as a result of the
relevant drawing being made.
7.3 The proceeds of each drawing will be made available to the relevant
Borrower or as such Borrower directs in immediately available cleared
funds, free and clear of any restriction or condition, not later than
2 pm (London time) on the due date by transfer to such account of the
Borrower with such bank in London as such Borrower shall have
specified in the Notice of Drawing.
8. Representation and Warranties
By countersigning the copy of this letter or by acceding to it by any
other means, each Borrower hereunder represents and warrants to the
Bank as follows (each such representation and warranty to survive
such countersignature and the making of any drawing hereunder):-
8.1 Each Borrower is incorporated and existing under the laws of England
and Wales and has full power and authority to enter into, exercise
its rights and perform and comply with its obligations hereunder and,
where applicable, under the Share Charge and the New Share Charge.
(a) All action, conditions and things required by BFDSL's
Memorandum and Articles of Association and the laws of
England to be taken, fulfilled and done (including the
obtaining of any consents, or the making of any
registrations or filings) in order to:-
(i) enable BFDSL lawfully to agree to be bound by,
enter into, exercise its rights and perform and
comply with its obligations hereunder and under the
New Share Charge;
(ii) to ensure that those obligations are legal, valid,
binding and enforceable; and
(iii) to make this letter and the New Share Charge (when
executed and delivered) and BFDSL's countersignature
hereunder admissible in evidence in the English
courts
have been taken, fulfilled and done;
(b) All action, conditions and things required by Big Flower's
Memorandum and Articles of Association and the laws of
England to be taken, fulfilled and done (including the
obtaining of any consents, or the making of any
registrations or filings) in order to:
(i) enable Big Flower lawfully to be bound, enter
into, exercise its rights and perform and comply
with its obligations hereunder and under the
deed of amendment to the Share Charge;
11
<PAGE>
(ii) to ensure that those obligations are legal,
valid, binding and enforceable; and
(iii) to make this letter and the deed of amendment to
the Share Charge and Big Flower's
countersignature hereunder admissible in
evidence in the English courts
have been taken, fulfilled and done;
(c) All actions, conditions and things required by Olwen's and
each Acceding Borrower's Memorandum and Articles of
Association and the laws of England to be taken, fulfilled
and done (including the obtaining of any consents, or the
making of any registrations or filings) in order to:
(i) enable Olwen and each Acceding Borrower lawfully
to agree to be bound by, enter into, exercise
its rights and perform and comply with its
obligations hereunder;
(ii) to ensure that those obligations are legal,
valid, binding and enforceable; and
(iii) to make this letter and Olwen's and each
Acceding Borrower's countersignature hereunder
admissible in evidence in the English courts
have been taken, fulfilled and done.
8.2 The obligations expressed to be assumed by the Borrowers hereunder,
by Big Flower under the Share Charge and by BFDSL under the New Share
Charge are legal, valid, binding and enforceable;
8.3 None of the Borrowers, nor the Guarantor nor any of their respective
subsidiaries is in default in respect of any obligation nor does any
default exist in respect of, or under any agreement relating to, any
of its indebtedness for or in respect of moneys borrowed or raised
(whether as principal debtor or otherwise) which default has or could
reasonably be expected to have a material adverse effect on the
ability of any of the Borrowers to perform and comply with its
obligations hereunder or the Guarantor's ability to perform and
comply with its obligations under the Guarantee;
8.4 No Event of Default or Default (nor any event referred to in Clause
7.1(a)(ix) and 7.2 (a)(ix)) has occurred or will occur as a result or
making any drawing under this facility;
8.5 It is not necessary in order to ensure the legality, validity,
enforceability or admissibility in evidence of this letter, the Share
Charge, the New Share Charge or the Guarantee that any stamp,
registration or similar duty or tax be paid in England and Wales or
in the States of Delaware or New York or under the federal laws of
the United States of America on or in relation to such documents;
8.6 No litigation, arbitration or administrative proceedings are current
or, to its knowledge, pending or threatened, which could reasonably
be expected to be adversely determined or if pursued to their final
conclusions whether or not adversely determined, would have a
material adverse effect on the business or financial condition of any
of the Borrowers or
12
<PAGE>
their ability to perform their obligations under this letter, the New
Share Charge or the Share Charge;
8.7 All information given to the Bank in writing by or on behalf of the
Borrowers concerning any of the Borrowers and their respective
businesses, affairs, assets or liabilities was when given and is on
the date hereof (to the best of that Borrowers knowledge) true and
correct in all material respects and (to the best of that Borrowers
knowledge) no matter or fact has not been disclosed in writing to the
Bank which could render any such information untrue or misleading in
any material respect; and
8.8 Following the acquisition of Troypeak Limited and Pismo Limited,
BFDSL will be the legal and beneficial owner of the property which is
the subject of the New Share Charge with full title guarantee, and
the New Share Charge will create an Encumbrance of the type and with
the priority that such New Share Charge purports to create, over all
such property.
8.9 Each of the representations and warranties in this Clause will be
correct and complied with as though made on and as of the date of any
Notice of Drawing and the date of any drawing hereunder.
9. Undertakings
By countersigning the copy of this letter or by acceding to it by any
other means, each Borrower will undertake to the Bank that, so long
as any sum remains to be drawn or remains payable under this
facility:-
9.1 It will notify the Bank of the occurrence of any Event of Default (or
of any event referred to in Clause 7.1(a)(ix) or 7.2(a)(ix)) within
five Business Days of becoming aware of the same;
9.2 It will not, and will cause its subsidiaries not to, create, incur,
assume or suffer to exist any Encumbrance on or with respect to any
of its properties, assets or revenues, whether now owned or hereafter
acquired, to secure any Indebtedness (as defined in the Credit
Agreement) other than Permitted Liens (as defined in the Credit
Agreement) or as contemplated in this letter.
9.3 In the case of BFDSL only, immediately on the acquisition by it of
Troypeak Limited and Pismo Limited, it shall enter into the New Share
Charge and provide any documents or other instruments required to be
provided to the Bank pursuant thereto.
9.4
(a) In the case of Big Flower only, it shall duly and
punctually perform and observe all terms, covenants and
conditions on its part to be performed and observed under
the Share Charge and shall not permit Olwen to re-register
as an unlimited company;
(b) In the case of BFDSL only, it shall duly and punctually
perform and observe all terms, covenants and conditions on
its part to be performed and observed under the New Share
Charge and shall not permit either Troypeak Limited or
Pismo Limited to register as an unlimited company.
13
<PAGE>
9.5 It shall ensure that its payment obligations under this letter shall
at all times be direct, unconditional, and general obligations and
shall at all times rank at least pari passu in right of payment with
all its other outstanding unsubordinated indebtedness;
9.6 It shall keep its business and assets insured and use all reasonable
efforts to procure that the business and assets of its subsidiaries
are insured with reputable underwriters or insurance companies in the
manner and to the extent usual for such business and assets and, from
time to time upon the reasonable request of the Bank and to the
extent practicable, furnish the Bank with evidence as to its
compliance with its obligations under this paragraph; and
10. Events of Default
10.1 At any time after the occurrence (for whatever reason and whether
within or beyond the Borrowers' control) of an Event of Default (as
defined below) the Bank, by written notice to the Borrowers, may:
(a) terminate the Bank's commitment to lend hereunder;
(b) demand immediate repayment of the outstanding principal
amount of the drawings together with accrued interest (if
any) and any other sums payable hereunder;
(c) give written notice to the Guarantor to pay under the
Guarantee; and/or
(d) if 30 days after giving notice to the Guarantor under
paragraph (c) above no payment under the Guarantee has been
made, enforce all or any part of its security constituted
under the Share Charge and/or the New Share Charge.
10.2 The following shall each be an "Event of Default":
(a) Any Borrower or the Guarantor fails to pay any principal
sum expressed to be due hereunder or under the Guarantee as
and when provided in this letter or the Guarantee, as
applicable, or fails to pay any other amount within three
Business Days of the date such amount falls due hereunder
or under the Guarantee;
(b) Any representation, warranty or statement by any Borrower
hereunder or in connection with this letter, the Share
Charge or the New Share Charge or by the Guarantor under
the Guarantee is not complied with in any material respect,
or is or proves to have been incorrect in any material
respect when made;
(c) Big Flower fails to perform or comply with any
provisions of Clauses 2, 4 or 5 of the
Share Charge;
(d) BFDSL fails to perform or comply with any provisions
of Clauses 2, 4 or 5 of the New Share Charge;
(e) The Guarantor fails to perform or comply with any of the
provisions of the Guarantee (other than payment
obligations) and such failure is not remedied within 30
days after notice of that failure has been given to the
Guarantor by the Bank;
14
<PAGE>
(f) The Guarantee or the obligations of the Borrowers under
this letter, of Big Flower under the Share Charge or of
BFDSL under the New Share Charge shall, for any reason
whatsoever, cease to be in full force and effect or any
person acting by or on behalf of the Guarantor shall deny
or disaffirm the Guarantor's obligations under the
Guarantee;
(g) The security constituted by the Share Charge or the New
Share Charge ceases to be effective or is materially
impaired;
(h) The Indebtedness of the Guarantor under the Credit
Agreement either (a) shall become capable of acceleration
in accordance with Section 10 thereof (as a result of the
occurrence of an Event of Default (as defined in the Credit
Agreement), (b) is accelerated or placed on demand or (c)
is not paid when due and before the end of any applicable
grace period;
(i) An Event of Default as defined in Section 10.02 (in respect
of the Guarantor), 10.04, 10.05 or 10.09 of the Credit
Agreement shall occur in relation to any Borrower or the
Guarantor (notwithstanding any provision to the contrary in
the Credit Agreement each Borrower is deemed to be a
Subsidiary and not an Insignificant Subsidiary for the
purposes of this Section 10.2(h)).
10.3 If a Borrower does not pay any sum expressed to be payable hereunder
as provided in this letter, such Borrower shall on demand pay
interest on the amount from time to time outstanding in respect of
that overdue sum for the period beginning on its due date and ending
on the date of its receipt by the Bank (both before and after
judgement). The rate of interest applicable shall be the rate per
annum equal to the sum of 1% and the rate which would be applicable
under Clause 4.2 if that overdue sum were of principal. If however
the overdue sum is of principal and becomes due otherwise than on the
last day of an Interest Period, the first default Interest Period
applicable to that overdue sum shall end on the last day of the
Interest Period first-mentioned in this sentence and the rate of
interest applicable to that sum for that period shall be the sum of
1% and the rate applicable to it immediately before it became due.
Any such interest not paid on demand shall itself bear interest
accordingly.
10.4 The Borrowers shall on demand indemnify the Bank against any funding
or other cost, loss, expense or liability (including loss of Margin)
which has been or will be sustained or incurred by the Bank as a
result of any Event of Default, or its receipt or recovery of all or
any part of any drawing or any overdue sum otherwise than on the last
day of an Interest Period relating thereto or any drawing duly
requested failing to be made due to any of the conditions precedent
for such drawing specified in Clause 7 not being satisfied.
11. Expenses
11.1 The Borrowers will reimburse the Bank on demand:-
(a) all reasonable expenses (including reasonable legal fees)
incurred by the Bank in preparing and negotiating,
executing and completing the transactions contemplated in
this letter, the Share Charge, the New Share Charge and the
Guarantee and any other documents referred to therein and
all expenses (including reasonable legal fees) incurred by
the Bank in enforcing and/or preserving any of its rights
hereunder or under the Guarantee, the Share Charge or the
New Share Charge; and
15
<PAGE>
(b) any stamp, registration or similar fees or taxes of any
kind payable in connection with this letter, the Guarantee,
the Share Charge or the New Share Charge and any penalty
for late payment thereof.
11.2 The Borrowers agree to pay to the Bank a commitment fee (the
"Commitment Fee") in respect of the Commitment Period computed at a
rate equal to 0.375 per cent. per annum on the unutilised commitment
from time to time of the Bank. Accrued Commitment Fee shall be due
and payable in arrears on 31st March, 30th June, 30th September and
31st December in each year and on the Final Maturity Date or such
earlier date as the commitment shall be terminated.
11.3 Upon signing of the Facility Letter, Big Flower paid the Bank an
up-front facility fee of L33,750.
12. Accession
12.1 Each of the parties to this facility agrees that after the date of
this letter Troypeak Limited and Pismo Limited may each become an
Acceding Borrower to this facility on the terms and conditions set
out in this Clause 12, provided that neither Acceding Borrower shall
have any liability under this letter in respect of any drawing made
by Big Flower, Olwen, BFDSL or the other Acceding Borrower hereunder
or any interest thereon or any other amounts payable hereunder in
respect thereof.
12.2 Troypeak Limited and Pismo Limited may each become an Acceding
Borrower under this letter if:
12.2.1 BFDSL gives written notice to the Bank (such notice to be,
mutatis mutandis, in the form of the certificate delivered
pursuant to Clause 7.1(a)(iii), be accompanied by certified
copies of Troypeak Limited's and Pismo Limited's most
recent management accounts, their most recent audited
accounts and be otherwise in form and substance
satisfactory to the Bank, acting reasonably);
12.2.2 each of the Bank, Troypeak Limited or Pismo Limited, as the
case may be, and each Borrower executes and delivers the
Deed of Accession (attached to this letter as Appendix C);
12.2.3 the Bank receives a legal opinion from Ashurst Morris Crisp
in form and substance agreed between it and the Borrowers.
12.3 Each Acceding Borrower shall use the entire proceeds of each drawing
for its working capital requirements, but the Bank need not check
that such Acceding Borrower does so.
12.4 Subject to the liability of each Acceding Borrower being limited as
aforesaid, following the satisfaction of the conditions specified in
Clause 12.2:
12.4.1 Clauses 3.1 to 3.4 (inclusive), 4, 5, 6, 7.2, 10.1, 10.2
and 10.3 of this letter shall apply to the Acceding
Borrower and the word "Borrower" shall be read as
"Borrower(s) or any Acceding Borrower(s), as the case may
be," (except that in Clause 10.1 notice of an Event of
Default shall always be provided to the Borrowers);
16
<PAGE>
12.4.2 Clauses 7.1(b), 10.4, 11.2 and 13 shall apply to the
Acceding Borrowers and in these provisions the word
"Borrower" shall be read as "Borrower(s) and/or any
Acceding Borrower(s)"; and
12.4.3 Each Acceding Borrower shall represent and warrant to the
Bank and undertake to the Bank in the terms of Clauses 8
and 9 as if references to the "Borrower" were references to
an "Acceding Borrower(s)" and references to the Share
Charge, the New Share Charge and Guarantee were deleted.
12.5 For the avoidance of doubt, only this Clause 12 and the provisions
specified in Clauses 12.4.1, 12.4.2 and 12.4.3 shall apply to the
Acceding Borrowers and then only so far as imposing any liability on
the Acceding Borrowers as aforesaid.
13. Liability
13.1 Notwithstanding any other provision of this letter, Big Flower and
BFDSL shall be jointly and severally liable for any and all drawings
made under this letter by any Borrower or any Acceding Borrower or
any interest thereon or any other amounts payable hereunder.
13.2 Notwithstanding any other provision of this letter, Olwen shall have
no liability under this letter in respect of any drawing made by Big
Flower hereunder or any interest thereon or any other amounts payable
hereunder in respect thereof.
14. Miscellaneous
14.1 In this letter:-
"Acceding Borrowers" means Troypeak Limited and Pismo Limited which may become
borrowers to this facility in accordance with the terms and
conditions set out in Clause 12 and "Acceding Borrowers" means either
of them.
"Credit Agreement" means the credit agreement dated as of June 12,
1997 among, inter alia, Big Flower Press Holdings, Inc., as borrower,
and Bankers Trust Company, as Administrative Agent as amended,
modified and/or varied from time to time;
"Encumbrance" means any mortgage, pledge, lien, charge, assignment,
hypothecation or security interest or any other agreement or
arrangement having the effect of conferring security including security
equivalents such as finance leases, sale and re-purchase, sale and
leaseback, sale of receivables on a recourse basis, deferred purchases
and title retention agreements other than any such security interest or
arrangement arising under or in relation to the accounts receivable
facility arrangements between the Bank and the Guarantor and provided
further that if there are any conflicts between this letter and such
arrangements the accounts receivable facility arrangements shall
prevail;
"Guarantee" means the guarantee described in Clause 7.1(a)(ii) or the
Supplemental Guarantee described in Clause 7.2(b)(ii), as the case
may be;
"Guarantor" means Big Flower Press Holdings, Inc.;
"New Share Charge" means the charge over the shares of Troypeak Limited and
Pismo Limited to be granted by BFDSL in favour of the Bank;
17
<PAGE>
"Qualifying Bank" means at any time a bank as defined in Section 840A
of the Taxes Act 1988 for the purposes of Section 349 of that Act which
is within the charge to UK corporation tax as respects any interest
payable or paid to it under this letter;
"Share Charge" means the charge over the shares of Olwen to be
granted by Big Flower in favour of
the Bank; and
"Sterling", "Pounds" and "L" means the lawful currency for the
time being of the United Kingdom.
Unless the context otherwise requires, a reference to a document
includes an amendment or supplement to, or a replacement or a novation
of, that document but disregarding any amendment, supplement,
replacement or novation made in breach of this Deed.
14.2 Except as expressly provided herein, all notices and other
communications provided for hereunder shall be in writing and shall
be by facsimile or letter and shall be sent:-
14.2.1 to the Borrowers at fax no.0171 972 7990 or c/o Ashurst
Morris Crisp, Broadwalk House, 5 Appold Street, London EC2A
2HA (in each case marked for the attention of Jeffrey
Sultoon) and copied to Mark Angelson at fax no. 001 212 521
1640.
14.2.2 to the Bank at fax no. 0171 982 2087 or to 1 Appold
Street, Broadgate, London EC2A 2HE marked for the attention
of Alice Thompson with a copy to 00 353 1 805 1092 or to:
BT Services Ireland Limited, 4th Floor, Abbey Court, Irish
Life Centre, Lower Abbey Street, Dublin 1, Ireland (in each
case, marked for the attention of Mr Tom O'Doherty, Loans
Administration);
or such other fax number or address or marked for such other
attention as the relevant party may from time to time notify the
other for the purpose of this facility. Any notice or communication
hereunder shall be deemed received when sent (if by fax) or when
delivered to the appropriate address or two days after being posted
(if by letter) and shall be effective notwithstanding any change of
fax number or address or that it be returned undelivered (except
that, if received on a non-Business Day or after normal business
hours, it shall be deemed received on the next Business Day after
such receipt). Any notice or other communication shall be
irrevocable.
14.3 For the avoidance of doubt and notwithstanding any other provision of
this letter, receipt of reports, accounts and any other documents
required to be delivered by the Borrowers to the Bank (other than
notices) by Bankers Trust in New York shall constitute delivery to
the Bank.
14.4 All interest and Commitment Fees shall accrue from day to day and be
calculated on the basis of actual days elapsed and a 365 day year.
14.5 Any amount received or recovered by the Bank (whether under this
letter or otherwise) in respect of any sum expressed to be due to it
from a Borrower under this letter in a currency (the "other
currency") other than that in which the relevant obligation is
expressed to be payable, whether as a result of, or enforcement of, a
judgement or order of a court or tribunal of any jurisdiction, in the
dissolution of a Borrower or otherwise, shall only constitute a
discharge of the Borrowers to the extent the amount in the currency
in which the relevant obligation is expressed to be payable which the
Bank would be able to purchase
18
<PAGE>
in accordance with normal banking procedures with the amount so
received or recovered in the other currency (after any premium or
costs of exchange) on the date of that receipt or recovery (or, if it
would not be practicable to make that purchase on that date, on the
first date on which it is practicable to do so). If that amount in
the other currency is less than the amount in the currency in which
the relevant obligation is expressed to be payable to the Bank, the
Borrowers shall indemnify it against any loss sustained by it as a
result. In such event, the Borrowers shall also indemnify the Bank
against the costs of making any such purchase. These indemnities
constitute a separate and independent obligation from the other
obligations in this letter, shall give rise to a separate and
independent cause of action, shall apply irrespective of any
indulgence granted by the Bank and shall continue in full force and
effect despite any judgement, order, claim or proof for a liquidated
amount in respect of any sum due under this letter or any judgement
or order. No proof or evidence of any actual loss may be required
other than proof of the actual amount in the currency in which the
relevant obligation is expressed to be payable purchased by the
Bank as mentioned above and the date upon which such purchase was
effected.
14.6 In case any one or more provisions of this letter shall be invalid,
illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
14.7 No failure by the Bank to exercise or delay by the Bank in exercising
any right or remedy under this letter will operate as a waiver
thereof, nor will any single or partial exercise by the Bank of any
right or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right or remedy. The rights and
remedies provided in this letter are cumulative and not exclusive of
any rights or remedies provided by law.
14.8 The Bank shall be entitled, but not obliged, without notice to the
Borrowers to combine, consolidate or merge all or any of any of the
Borrowers' accounts with any liabilities to the Bank and may set-off
or transfer any sum outstanding to the credit of any of the
Borrowers' accounts (whether or not then due) or any credit balances
on any other accounts with the Bank to which a Borrower is
beneficially entitled in or towards the satisfaction of any of its
liabilities to the Bank and may do so notwithstanding that the
balances on such accounts and the liabilities may not be expressed in
the same currency and the Bank is hereby authorised to use any such
sums or credit balances to effect any necessary conversions at its
own rate of exchange then prevailing.
14.9 The letter shall benefit and be binding on the Bank and the
Borrowers, their respective successors and any permitted assignee or
transferee of some or all of a party's rights or obligations under
this letter. Any reference in this letter to any party shall be
construed accordingly. The Borrowers may not assign or transfer all
or part of its rights or obligations under this letter. The Bank may
transfer all or part of its rights and obligations under this letter
to a Qualifying Bank with a lending office in the UK or change its
lending office within the UK for the purposes of this letter with the
prior written consent of the Borrowers, such consent not to be
unreasonably withheld or delayed. The transfer shall become effective
when the Borrowers have been notified of it by the Bank and has
received from the transferee an undertaking (addressed to it) to be
bound by this letter and to perform the obligations transferred to
it.
14.10 The Bank's initial lending office for the purposes of this letter
is set out at the commencement of this letter.
19
<PAGE>
14.11 This letter, and the agreement of each of the Borrowers to be bound
by it, shall be governed by and construed in accordance with English
law.
Please confirm your agreement to the terms and conditions of this letter by
countersigning and dating the enclosed copy of this letter and returning it to
us at the address set out at the beginning of this letter.
Yours faithfully,
Bankers Trust Company----------------------
We agree to the terms and conditions of your letter dated 13th March, 1998 of
which the above is a copy.
for and on behalf of for and on behalf of
Big Flower Limited Big Flower Digital Services Limited
- --------------------------- ----------------------------------
Name: MARK A. ANGELSON Name: MARK A. ANGELSON
Title: DIRECTOR Title: DIRECTOR
for and on behalf of
Olwen Direct Mail Limited
- ---------------------------
Name: MARK A. ANGELSON
Title: DIRECTOR
20
<PAGE>
APPENDIX A
FORM OF NOTICE OF DRAWING REFERRED TO IN CLAUSE 1.2
[Date]
Bankers Trust Company acting through its branch at London
Attention: [ ]
In accordance with Clause 1.2 of the facility letter dated 18th September, 1997,
as amended (the "Amended and Restated Facility Letter") from the Bank to the
Borrowers, [ ] as a Borrower gives the Bank notice that the Borrower wishes to
make a drawing of L[ ] under that facility on [ ], 1998 (or if not a
Business Day; the next succeeding day which is a Business Day).
The Borrower elects for the interest period relating to the drawing to be of [ ]
week(s).
The Borrower represents, warrants and confirms that:
(A) the representations and warranties contained in Clause 8 of the
Facility Letter and those in the [Share Charge/New Share Charge] and
the Guarantee which are expressed to be made or repeated on the date of
this notice of drawing are true and correct and will be true and
correct immediately after the drawing is made; and
(B) no Event of Default or Default has occurred and is continuing or is
reasonably likely to result from the drawing.
Capitalised terms used herein shall have the respective meanings provided to
such terms in the Facility Letter.
This notice of drawing shall be governed by and construed in accordance with
English law.
Big Flower Limited/Big Flower Digital Services Limited/Olwen Direct Mail Limited
By:---------------------------------
Name:-------------------------------
Title:-------------------------------
21
<PAGE>
APPENDIX B
CALCULATION OF THE MLA COST
(a) The MLA Cost for a drawing denominated in Sterling is calculated in
accordance with the following formula:-
BY + L (Y - X ) + S (Y - Z)
---------------------------
100 - (B + S) % per annum = MLA Cost
where on the day of application of the formula:
B is the percentage of the Bank's eligible liabilities which
the Bank of England requires the Bank to hold on a
non-interest bearing deposit account in accordance with
its cash ratio requirements;
Y is the rate at which Sterling deposits are offered by the
Bank to leading banks in the London interbank market at or
about 11.00 am on that day for the relevant Interest
Period;
L is the percentage of eligible liabilities which the Bank
of England requires the Bank to maintain as secured money
with members of the London Discount Market Association
and/or as secured call money with certain money brokers
and gilt-edged primary market makers;
X is the rate at which secured Sterling deposits in the
relevant amount may be placed by the Bank with members of
the London Discount Market Association and/or as secured
call money with certain money brokers and gilt-edged
primary market makers at or about 11.00 am on that day for
the relevant Interest Period;
S is the percentage of the Bank's eligible liabilities which
the Bank of England requires the Bank to place as a
special deposit; and
Z is the interest rate per annum allowed by the Bank of
England on special deposits.
(b) For the purposes of this Appendix B "eligible liabilities" and
"special deposits" have the meanings given to them at the time of
application of the formula by the Bank of England.
(c) In the application of the formula, B, Y, L, X, S and Z are included
in the formula as figures and not as percentages, eg. If B = 0.5% and
Y = 15%, BY is calculated as 0.5 x 15.
(d) The formula is applied on the first day of the relevant Interest
Period.
(e) If the Bank determines that a change in circumstances has rendered or
will render, the formula inappropriate, the Bank acting reasonably
shall determine and shall notify the Borrower of, the manner in which
the MLA Costs will subsequently be calculated. The manner of
calculation so notified by the Bank shall, in the absence of manifest
error, be binding on the Borrowers.
22
<PAGE>
APPENDIX C
Deed of Accession
THIS DEED OF ACCESSION is made on 1998
BETWEEN:
(1) TROYPEAK LIMITED and PISMO LIMITED;
(2) BIG FLOWER LIMITED, OLWEN DIRECT MAIL LIMITED and BIG FLOWER
DIGITAL SERVICES LIMITED (the "Existing Borrowers"); and
(3) BANKERS TRUST COMPANY (the "Bank").
WHEREAS:
(A) This Deed is entered into in connection with a facility letter dated
18th September 1997, as amended, (the "Facility Letter") from the
Bank to the Existing Borrowers.
(B) The Existing Borrowers wish that Troypeak Limited and Pismo Limited
shall each become an Acceding Borrower as contemplated by Clause 12
of the Facility Letter and the Bank consents thereto.
NOW IT IS HEREBY AGREED AS FOLLOWS:
23
<PAGE>
1. Definitions
Terms defined in the Facility Letter shall have the same meaning when
used in this Deed.
2. Admission of Acceding Borrowers
2.1 Each of the parties to this Deed agrees that each of Troypeak Limited
and Pismo Limited may accede to the Facility Letter in accordance
with Clause 12 thereof, on and with effect from the date hereof.
3. Law
This Deed of Accession shall be governed by and construed in all
respects in accordance with English law.
24
<PAGE>
IN WITNESS whereof the parties have caused this Deed to be duly executed on the
date first written above.
Signed as a Deed by )
Troypeak Limited )
acting by [ ], a )
Director, and [ ] [a )
Director/the Company Secretary] )
Signed as a Deed by )
Pismo Limited )
acting by [ ], a )
Director, and [ ] [a )
Director/the Company Secretary] )
Signed as a Deed by )
Big Flower Limited )
acting by [ ] a )
Director and [ ] [a )
Director/Company Secretary] )
Signed as a Deed by )
Olwen Direct Mail Limited )
acting by [ ] a )
Director and [ ] [a )
Director/Company Secretary] )
Signed as a Deed by )
Big Flower Digital Services Limited )
acting by [ ] a )
Director and [ ] [a )
Director/Company Secretary] )
Signed as a Deed by )
[ ] )
for and on behalf of )
Bankers Trust Company )
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES.
</LEGEND>
<CIK> 0001048662
<NAME> BIG FLOWER HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,775
<SECURITIES> 0
<RECEIVABLES> 146,753
<ALLOWANCES> 11,237
<INVENTORY> 49,910
<CURRENT-ASSETS> 215,750
<PP&E> 544,402
<DEPRECIATION> 149,500
<TOTAL-ASSETS> 1,090,757
<CURRENT-LIABILITIES> 227,095
<BONDS> 0
115,000
0
<COMMON> 194
<OTHER-SE> 69,332
<TOTAL-LIABILITY-AND-EQUITY> 1,090,757
<SALES> 383,902
<TOTAL-REVENUES> 383,902
<CGS> 295,188
<TOTAL-COSTS> 295,188
<OTHER-EXPENSES> 72,770
<LOSS-PROVISION> 905
<INTEREST-EXPENSE> 13,029
<INCOME-PRETAX> 2,010
<INCOME-TAX> 925
<INCOME-CONTINUING> 1,085
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,085
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.05
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BIG FLOWER PRESS HOLDINGS, INC. AND
SUBSIDIARIES.
</LEGEND>
<CIK> 0000924146
<NAME> BIG FLOWER PRESS HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,758
<SECURITIES> 0
<RECEIVABLES> 146,724
<ALLOWANCES> 11,237
<INVENTORY> 49,910
<CURRENT-ASSETS> 215,704
<PP&E> 544,402
<DEPRECIATION> 149,500
<TOTAL-ASSETS> 1,088,450
<CURRENT-LIABILITIES> 227,908
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 181,396
<TOTAL-LIABILITY-AND-EQUITY> 1,088,450
<SALES> 383,902
<TOTAL-REVENUES> 383,902
<CGS> 295,188
<TOTAL-COSTS> 295,188
<OTHER-EXPENSES> 67,518
<LOSS-PROVISION> 905
<INTEREST-EXPENSE> 13,152
<INCOME-PRETAX> 7,139
<INCOME-TAX> 3,284
<INCOME-CONTINUING> 3,855
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,855
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
