<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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)
DELAWARE 13-3971556
DELAWARE 13-3768322
(State of incorporation) (I.R.S. Employer Identification
Nos.)
3 EAST 54TH STREET
NEW YORK, NEW YORK 10022
(212) 521-1600
(Address and telephone number of Registrants' Principal Executive Offices)
------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C>
Common Stock, $0.01 par value, of New York Stock Exchange
Big Flower Holdings, Inc.
Series A Junior Preferred Stock, $0.01 par value, of Big New York Stock Exchange
Flower Holdings, Inc.
</TABLE>
------------------------
Securities registered pursuant to Section 12(g) of the Act: None
------------------------
Indicate by check mark whether the registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of voting stock held by non-affiliates on
February 26, 1999 was $399,338,013. For purposes of the foregoing calculation
only, all directors and executive officers of the registrant have been deemed
affiliates.
As of February 26, 1999, there were approximately 19,700,000 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.
Documents Incorporated By Reference: None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
"COLORSTREAM," "CRAIGBOND," "CRAIGSEAL," "CS COLORSTREAM & DESIGN,"
"ELECTROWEB," "REPLICOLOR," "SCENT-SATIONAL," "W (STYLIZED)," "WEBCRAFT,"
"WEBCRAFT SWIRL LOGO," "WYSDOM," "MAXCESS," "VIXNET VIRTUAL IMAGING XTRANET,"
"BIAS," "BMP," "BROADCAST MANAGEMENT PLUS," AND "TV WORKS" ARE REGISTERED
TRADEMARKS OF BIG FLOWER HOLDINGS, INC. OR ONE OF ITS SUBSIDIARIES. IN ADDITION,
TRADEMARK OR SERVICEMARK REGISTRATIONS HAVE BEEN FILED FOR "NEWSPAPER MARKET
REACH," "NEWSPAPER INSERTS THAT DELIVER," "REACH AMERICA," "S/TRAN," "TARGET
ZONE," "TARGET REACH," "TARGETTED INSERTS THAT DELIVER," "TC ADVERTISING,"
"TOTAL PAPER SUPPLY," "DINER'S DELIGHT," "UV ULTRACOOL," "DSG INTERNATIONAL,"
"FUSION INTERNATIONAL," "LASER TECH COLOR," "LIQUID GRAPHIX," "LIQUID LENS,"
"LIQUID PICTURES," "LIQUID STUDIOS," "LTC," "UFO (ULTRALARGE FILM OUTPUT),"
"VISIONBANK," "COLUMBINE JDS" AND "PARADIGM."
<PAGE>
PART I
SAFE HARBOR STATEMENT
THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN
ITEMS 1, 3, 7 AND 7A HEREOF, AS WELL AS WITHIN THIS REPORT GENERALLY. IN
ADDITION, WHEN USED IN THIS REPORT, THE WORDS "BELIEVES," "ANTICIPATES,"
"EXPECTS," "ESTIMATES," "PLANS," "INTENDS," AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM PROJECTED RESULTS. FACTORS THAT MAY CAUSE THESE
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
- FLUCTUATIONS IN THE COST OF RAW MATERIALS USED BY BIG FLOWER,
- CHANGES IN THE ADVERTISING, MARKETING AND INFORMATION SERVICES MARKETS,
- THE FINANCIAL CONDITION OF BIG FLOWER'S CUSTOMERS,
- THE GENERAL CONDITION OF THE UNITED STATES AND OTHER ECONOMIES,
- THE AVAILABILITY OF QUALIFIED PERSONNEL AND OTHER INFORMATION TECHNOLOGY
RESOURCES,
- CHANGES IN INTEREST AND FOREIGN CURRENCY EXCHANGE RATES, AND
- MATTERS SET FORTH IN THIS REPORT GENERALLY.
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, BIG FLOWER'S
EXPECTATION AS TO WHEN IT WILL COMPLETE THE REMEDIATION AND TESTING PHASES OF
ITS YEAR 2000 PROGRAM AS WELL AS ITS YEAR 2000 CONTINGENCY PLANS, ITS ESTIMATED
COST OF ACHIEVING YEAR 2000 READINESS, AND BIG FLOWER'S BELIEF THAT ITS INTERNAL
SYSTEMS AND EQUIPMENT WILL BE YEAR 2000 COMPLIANT IN A TIMELY MANNER.
FACTORS WHICH MAY AFFECT BIG FLOWER'S YEAR 2000 READINESS INCLUDE, BUT ARE
NOT LIMITED TO,
- THE ABILITY TO IDENTIFY AND REMEDIATE ALL DATE SENSITIVE LINES OF COMPUTER
CODE,
- THE ABILITY TO REPLACE EMBEDDED COMPUTER CHIPS IN SYSTEMS OR EQUIPMENT
AFFECTED BY YEAR 2000 ISSUES, AND
- THE ACTIONS OF GOVERNMENT AGENCIES OR OTHER THIRD PARTIES WITH RESPECT TO
YEAR 2000 ISSUES.
CONSEQUENTLY, SUCH FORWARD-LOOKING STATEMENTS SHOULD BE REGARDED SOLELY AS
BIG FLOWER'S CURRENT PLANS, ESTIMATES AND BELIEFS. BIG FLOWER DOES NOT UNDERTAKE
AND SPECIFICALLY DECLINES ANY OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO ANY 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.
ITEM 1. BUSINESS
INTRODUCTION
Big Flower is a leading advertising and marketing services company with four
business segments: Insert Advertising & Newspaper Services, Direct Marketing
Services, Digital Services, and Specialty Products & Commercial Printing.
- Insert Advertising & Newspaper Services are provided through Treasure
Chest Advertising Company, Inc. ("TC Advertising"), a leading producer of
insert advertising
1
<PAGE>
programs, TV listing magazines, Sunday comics, Sunday magazines and
special supplements for many of the most widely circulated U.S.
newspapers.
- Direct Marketing Services are provided through Webcraft, Inc.
("Webcraft"), a leader in design, development and production of highly
personalized, data-driven direct mail; database solutions and response
management services; and one-to-one digital printing and marketing.
- Digital Services are provided through Big Flower Digital Services, Inc.
("Digital Services"), which offers an array of digital services
principally through its three subsidiaries: Laser Tech Color, Inc. ("Laser
Tech"), Columbine JDS Systems, Inc. ("Columbine") and Reach America, Inc.
("Reach America").
- Laser Tech is a leading provider of outsourced, digital premedia and
content management services to retailers, advertising agencies, and
consumer product companies.
- Columbine is a leading provider of software products and related services
to the advertising agency, cable, satellite and terrestrial broadcast
industries in both the United States and internationally.
- Reach America is a leading provider of targeted advertising software
applications that develops proprietary, target audience databases, tracks
consumer products category sales potential and maps retail trade zones.
- Big Flower's fourth business segment consists of its Speciality Products &
Commercial Printing Services. These products and services are also offered
by Webcraft. This segment includes commercial printing services, the
production of specialty chemicals, adhesives and coatings, and the
production of fragrance samplers. The Company has stated its intention to
de-emphasize this line of business and to focus on the core direct
marketing services area.
On October 17, 1997, as part of a reorganization of Big Flower's legal
structure, Big Flower Holdings, Inc. became the parent of Big Flower Press
Holdings, Inc. ("Big Flower Press"). Unless otherwise indicated or the context
clearly implies otherwise, all references in the Report to "Big Flower" or the
"Company" refer to Big Flower Holdings, Inc. and its subsidiaries, including Big
Flower Press, and all references to the common stock, certificate of
incorporation and by-laws, board of directors, agreements and other incidents of
Big Flower shall be references to such matters with respect to Big Flower Press
prior to such reorganization and to Big Flower Holdings, Inc. thereafter. Big
Flower was incorporated in Delaware in 1997. Big Flower Press was incorporated
in Delaware in 1993. Big Flower's and Big Flower Press' principal executive
offices are located at 3 East 54th Street, New York, New York 10022 and their
telephone number is (212) 521-1600.
INDUSTRY SECTORS
INDUSTRY DATA USED THROUGHOUT THIS REPORT WAS OBTAINED FROM INDUSTRY
PUBLICATIONS AND INTERNAL COMPANY ESTIMATES. WHILE THE COMPANY BELIEVES SUCH
INFORMATION TO BE RELIABLE, ITS ACCURACY HAS NOT BEEN INDEPENDENTLY VERIFIED AND
CANNOT BE GUARANTEED.
Big Flower and its subsidiaries operate in the advertising and marketing
services industry, focusing their products and services on four sectors of this
industry.
2
<PAGE>
INSERT ADVERTISING. Big Flower believes that the insert advertising industry
sector generates revenues of approximately $10 billion per year, with
approximately 45% of this amount attributable to the production of insert
advertising and the balance to distribution of the product. Big Flower believes
this industry sector will continue to grow as non-traditional insert users and
national advertisers have begun to include inserts in their media plans and
traditional users such as retailers are spending more of their advertising
dollars in this medium.
Big Flower further believes insert advertising usage will expand as
advertisers are offered the opportunity to distribute more versions of their
inserts and to target the distribution of their messages more effectively.
According to the 1998 Newspaper Association of America, retail advertisers have
increased their reliance on inserts as advertisers demand more targeting of
their message.
DIRECT MAIL. Big Flower believes that in this industry sector, personalized
direct mail expenditures accounted for approximately $39.3 billion in 1998, with
approximately 33% going to the production of direct mail and the remainder to
other services, including agency services, data analysis and manipulation and
creative development.
DIGITAL SERVICES. The base premedia sector is estimated to generate revenues
of approximately $5.3 billion annually. This does not, however, reflect the
newer digital services that cross into non-traditional areas, including digital
illustration, high speed digital data communications for the movement of image
and graphic data, digital asset management, and New Media products. The
traditional business model for the pre-press industry is continuing to evolve
from one of traditional pre-press film and proofs for point of sale, packaging,
insert, and collateral advertising materials to newer digital services. These
services are designed to take advantage of emerging technology, which include
providing media asset management, high speed digital data communications for the
movement of image and graphic data, as well as state of the art video
teleconferencing and remote file annotation. Big Flower believes that, in the
future, advertisers will need greater flexibility in the production of digital
advertising media and the need for collaboration worldwide should drive the
delivery of new and innovative solutions. The delivery of these solutions is
most evident in the arena of facilities management and customer outsourcing,
which continues to be a key growth area.
Big Flower believes that domestic spending in the broadcast services sector
(including production, distribution and airtime purchasing) is approximately $50
billion per year. Big Flower believes that the digital broadcast services sector
will continue to grow, both domestically and internationally, with the emergence
of digital, multichannel broadcasting environments and the increase in the
number of channels which carry advertising content.
BUSINESS STRATEGY
Big Flower's strategic objective is to enhance its position as an integrated
provider of a diverse range of advertising and marketing services across a broad
spectrum of media. Through internal growth and acquisitions, Big Flower aims to
broaden its technology and services in a manner that allows its subsidiaries to
interact dynamically to create both new services for existing customers and to
acquire new customers for its traditional products.
Marketers aim to reach target customers with the most effective message and
the greatest possible impact. Technological advancements increasingly allow
marketers to understand
3
<PAGE>
customer preferences and to differentiate and individualize advertising
messages. Big Flower's strategy is to assist its customers by providing a broad
array of advertising and marketing services which capitalize on these
advancements. Key elements of this strategy include the following:
PROVIDE INTEGRATED ADVERTISING SOLUTIONS. Big Flower believes that by
combining the products and services of TC Advertising, Webcraft and Digital
Services it can work with customers to develop cost-effective and comprehensive
solutions to their particular advertising and marketing needs. Big Flower has
the expertise to work with customers from inception of an advertising concept
through layout design and production, to targeting and distribution of the
printed product, thereby helping customers achieve their advertising goals in a
cost-effective manner. For example, Big Flower combined the products and
services of the insert advertising business and the digital premedia group to
provide a full-service solution for a significant national office supply
retailer. In addition to producing their insert advertising, Laser Tech operates
a photography studio inside the retailer's headquarters. Staffed by full time
photographers from our premedia group, the studio provides all the imaging work
for the 1.6 billion insert advertising program which TC Advertising produces for
this customer in six production facilities in our nationwide network. Laser Tech
also does all of the photo work for the customer's extensive catalog
advertising. Big Flower believes that by integrating its digital premedia
services, insert advertising capabilities, newspaper publications, geographic
and demographic insert targeting programs, highly customized direct mail and
specialty products, and broadcast industry software products, it offers its
customers certain comprehensive solutions not offered by Big Flower's
competitors.
NEW MEDIA. We are also positioning ourselves for the newest segment of the
advertising world, the Internet. Big Flower's involvement with the Internet is
growing. We see the application of many of our existing skills, including
targeted marketing, list management, telemarketing and digital image production
and archiving as important complements to the explosive growth in Internet
activity. In order to monitor the progress of this technology and to enhance
shareholder value, we have made, primarily through XL Ventures, Inc., our
Internet and new media venture capital subsidiary, minority investments in
Internet-related companies. We are focused on developing our existing services
for the Internet and adding others which demonstrate potential for dynamic
growth and high profitability.
DEVELOP TARGETED ADVERTISING PROGRAMS. Big Flower's customers are
increasingly targeting their advertising messages based on more detailed
knowledge of consumers and what they buy. Big Flower has responded to this trend
throughout the Company and its operating units as follows:
- TC ADVERTISING'S Target Reach system enables Big Flower to attract new
categories of customers by providing them with software services that
utilize the targeted distribution capabilities of major newspapers.
Advertisers can customize their insert advertising programs to match the
demographic characteristics and fulfillment requirements of over 35,000
newspaper delivery zones across the nation. In addition, the underlying
software and analysis capabilities of Target Reach have been used by
newspapers, advertising agencies and national advertisers.
- WEBCRAFT'S highly individualized, multiple component direct mail campaigns
utilize information refined from customers' databases as well as
Webcraft's own expertise in direct mail personalization techniques.
Webcraft's 1998 acquisition of ColorStream
4
<PAGE>
significantly enhanced Webcraft's ability to develop and execute heavily
"data-driven," 100% variable, one-to-one targeted marketing campaigns.
Webcraft's analytical capabilities--database management, telemarketing and
response management--allow it to offer a broad array of services to
current and prospective clients, both "upstream" and "downstream" of its
direct mail production services.
- DIGITAL SERVICES' ongoing introduction of new products and services
fulfills the growing advertising needs of its clients. Laser Tech is
working closely with clients to produce high impact two- and
three-dimensional illustrations, design implementation, and multimedia
effects. The creation of these services provides reduction in cycle time
as well as an integrated approach to design for print applications. Laser
Tech's image management software and network distribution systems allow
customers to gain efficiency in production and to multiply the use of
images, thereby allowing for greater breadth of advertising message
delivery. Columbine's array of software analysis tools for broadcasters,
rep firms and ad agencies allows them to buy or sell advertising in
electronic media in an efficient manner. For example, its TV Works
software product for TV stations allows sales representatives and managers
to make sophisticated presentations to clients, offering highly specific
demographic targeting. On the agency side, Columbine's MediaLine software
provides a powerful analysis of efficiency in media planning and buying.
MAXIMIZE CROSS-SELLING OPPORTUNITIES. Currently, TC Advertising serves a
large customer base of regional and national retailers and newspapers, while
Webcraft's and Laser Tech's customer base consists mainly of consumer product
companies, advertising agencies and national retailers. Columbine's customer
base is mainly TV and radio broadcasters, cable operators and satellite
broadcasters. Big Flower has established employee incentive compensation
programs to promote cross-selling of the entire Big Flower product and services
lines. In addition, certain premedia, ad design, digital photography and content
management functions previously performed by customers of TC Advertising and
Webcraft are now performed by Laser Tech at its facilities or under facilities
management agreements, and some of Laser Tech's customers purchase advertising
services from TC Advertising and Webcraft. Digital Services' operating units,
Columbine and Laser Tech, are also continuing to develop joint service
strategies for advertising agencies, and TC Advertising's Target Reach software
is being promoted to advertising agencies by Columbine's sales force.
DRIVE FOR 100% DIGITAL WORKFLOW. Big Flower continues to expand its
nationwide digital infrastructure by investing in Computer-to-Plate technology
and TC-net, a broad band extranet that links all of the TC Advertising
operations to Laser Tech and their customers. TC-net is a state of the art
network that is based on Laser Tech's ViXNET and the latest Internet
technologies integrated into a fully secure environment. TC Advertising's
production facilities digitally receive, process, plate, and print highly
versioned insert advertising programs that enable TC Advertising's customers to
further reduce their ad production cycle times while achieving superior quality
results through a highly efficient, totally digital workflow. Laser Tech, in
cooperation with TC Advertising and its retail customers, has developed
VisionBank, a series of database driven information management and planning
tools that revolutionize the retail merchandising, planning and ad production
process. VisionBank empowers retailers and advertisers by establishing a
product-centric relational database at the core of their enterprise. The digital
assets and related business data associated with the
5
<PAGE>
planning, design, production, and post-event analysis of the advertising process
are totally coordinated through the VisionBank service. TC Advertising and Laser
Tech jointly market VisionBank services effectively bundled, with facilities
management, premedia, and printing services, in a way that provides advertisers
with a significant competitive advantage. TC Advertising has led the retail
advertising industry in the adoption of PDF(TM) (Adobe Systems Inc.'s Portable
Document Format), a highly-efficient digital file format that is rapidly
changing the way advertisers produce ad pages for premedia applications. This
year, over half of TC's premedia content will be produced in the PDF file
format.
PURSUE STRATEGIC ACQUISITIONS. Big Flower continues to review opportunities
to extend its businesses in the advertising and marketing services industry and
to build its TC Advertising, Webcraft and Digital Services business units. In
addition, Big Flower adds value to strategic acquisitions by identifying
operating synergies and cross-selling opportunities, effecting cost savings and
improving efficiency. Since its initial acquisitions of TC Advertising, Laser
Tech, Webcraft and Columbine, Big Flower has expanded its products and services,
as well as its international presence, through a number of strategic
acquisitions that increased the span and scope of each of these industry sectors
and diversified Big Flower further into the digital services sector, as
summarized in the table below:
<TABLE>
<CAPTION>
BUSINESS UNIT BUSINESS ACQUIRED DATE STRATEGIC SIGNIFICANCE
- ----------------- ---------------------------- ------------------ -------------------------------------------
<S> <C> <C> <C>
TC ADVERTISING KTB Associates, Inc., and April 1994 - Expanded capacity and broadened its
Retail Graphics Holding customer base in the insert advertising
Company industry sector
- Expanded capacity and customer base in
newspaper, TV listing guides and
magazines
PrintCo., Inc. October 1996 - Added significant retail accounts and new
production capacity
Riverside County Publishing October 1997 - Expanded capacity in the western United
Company States
WEBCRAFT Scanforms, Inc. October 1996 - Expanded customer base among leading
financial services and publishing
companies
- Added additional high-quality laser
personalization and short-run
capabilities
Olwen Direct Mail, Limited September 1997 - Established international platform for
Big Flower
- Provided multinational direct mail
expertise
- Enhanced database management capabilities
IMPCO Enterprises, Inc. November 1997 - Expanded direct marketing capabilities to
include database services and response
management
- Positioned Webcraft as a fully integrated
direct marketing service provider
(TABLE CONTINUED ON NEXT PAGE)
</TABLE>
6
<PAGE>
(TABLE CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
BUSINESS UNIT BUSINESS ACQUIRED DATE STRATEGIC SIGNIFICANCE
- ----------------- ---------------------------- ------------------ -------------------------------------------
<S> <C> <C> <C>
WEBCRAFT ColorStream Technologies, May 1998 - Added one-to-one digital printing and
Inc. marketing capabilities and technology
- Provided 100% data-driven response
support for Internet-based marketing
campaigns
Colorgraphic Direct Response January 1999 - Added digital print driven work flow
Limited automation
- Expanded Big Flower's international
platform and critical mass
- Replicates Webcraft's business model,
internationally, with addition of
strategy development and database and
response management services
DIGITAL SERVICES Pacific Color Connection, October 1996 - Enhanced expertise in digital premedia
Inc. services
(LASER TECH) - Expanded presence in California
- Added Internet production services
- Expanded product lines to include large
format advertising products
Designer Color Systems, Ltd. December 1996 - Added capability to produce interactive
multimedia systems for electronic
catalogs and ordering systems
Digital Dimensions, Inc. December 1996 - Enhanced digital imaging services
platform
- Added capability to provide Web site
design and execution
Gamma One, Inc. October 1997 - Provided strategic Northeast presence
- Enhanced digital image management and
facilities management capabilities
Troypeak Limited and Pismo March 1998 - Added digital premedia services capacity
Limited in Europe
- Expanded Big Flower's network for image
movement and management to Europe
Enteron Group, Inc. May 1998 - Added significant presence in New York
and Chicago metropolitan markets
- Expanded customer base among major
advertising agencies
Imaging Consortium, Inc. July 1998 - Enhanced retouching services
- Expanded presence with major New York
metropolitan advertising agencies
(TABLE CONTINUED ON NEXT PAGE)
</TABLE>
7
<PAGE>
(TABLE CONTINUED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
BUSINESS UNIT BUSINESS ACQUIRED DATE STRATEGIC SIGNIFICANCE
- ----------------- ---------------------------- ------------------ -------------------------------------------
<S> <C> <C> <C>
The Admagic Group Limited November 1998 - Enhanced premedia presence in the United
Kingdom
- Added UK-based management depth
DIGITAL SERVICES Columbine JDS Systems, Inc. October 1997 - Diversified Big Flower into broadcast
media services
(COLUMBINE) - Provided strategic coordination between
digital moving images and digital still
images
- Offered software and technology expertise
that can be leveraged throughout Big
Flower
Broadcast Systems Software November 1997 - Expanded Columbine's presence in the
Limited United Kingdom
- Provided PC-based software for television
programming
CJDS Adtraq Inc. June 1998 - Enhanced software solutions to
and CJDS Adserve, Inc. advertising agency and media buying
services markets
- Established Columbine's presence in
Canada
DSI Datatrak Systems, Inc. November 1998 - Expanded advertising agency customer base
- Added research and development expertise
DIGITAL SERVICES Reach America, Inc. April 1998 - Provided targeted advertising software
(REACH AMERICA) applications
</TABLE>
8
<PAGE>
INSERT ADVERTISING & NEWSPAPER SERVICES
The Company provides insert advertising services to leading retailers and
provides newspaper services, such as Sunday magazines, TV listing guides and
special supplements, to some of the most widely circulated U.S. newspapers. In
1998, the Company produced approximately 30 billion insert advertising programs,
1.6 billion Sunday comics, 181 million locally edited Sunday magazines and 902
million TV listing guides. The Company estimates that this represents
approximately 25%, 52%, 24% and 27%, respectively, of the total insert
advertising programs, Sunday comics, Sunday magazines and TV listing guides
produced in the U.S. in 1998. The Company believes it is the largest producer of
insert advertising programs in the United States. TC Advertising, the Company's
operating unit in this industry sector, is headquartered in Baltimore, Maryland
and operates a national network of 20 production facilities.
PRODUCTS AND SERVICES
BACKGROUND. The Company believes the insert advertising programs industry
sector in the U.S. has grown at a faster rate in recent years than overall
newspaper retail run-of-press (ROP) growth and exceeded $10 billion in 1998.
Industry research indicates that more than 75% of consumers read insert
advertising appearing in their Sunday newspaper. In addition, between 46% and
56% of adult readers use insert advertising for making their purchasing
decisions in key retail categories.
INSERT ADVERTISING PROGRAMS. Insert advertising programs are stand-alone
advertisements, generally in color, which display a broad range of products sold
by a single retailer or manufacturer. The primary users of insert advertising
programs are general merchandisers, specialty retailers, grocery stores, home
improvement centers and drug stores. Insert advertising is distributed in
newspapers, mailed to consumers or placed in stores. Insert advertising can be
produced in color on better quality paper than the reproductions that typically
appear in newspapers. Insert advertising programs also allow users to vary
layout, artwork, design, trim size, paper types, color and formats. TC
Advertising's mix of printing capabilities, which include both heatset and cold
web offset presses, enables them to provide a variety of formats and designs to
meet the diverse needs of its retailing customer base.
OTHER NEWSPAPER AND PUBLICATIONS PRODUCTS. The Company produces TV listing
magazines, Sunday comics, Sunday magazines and special supplements for over 300
newspapers, including approximately two-thirds of the 50 most widely circulated
newspapers in the United States.
TC Advertising is the largest single producer of newspaper TV listing guides
in the United States. As of December 31, 1998, TC Advertising produced newspaper
TV listing guides for 48 newspapers including The Baltimore Sun, The Boston
Globe, The Los Angeles Times, The Newark Star-Ledger, Newsday, The New York
Times, The Philadelphia Inquirer and The San Francisco Chronicle.
TC Advertising is the largest producer of Sunday comics nationwide. In 1998,
TC Advertising produced Sunday comics for approximately 280 newspapers,
including The Atlanta Journal, The Baltimore Sun, The Denver Post, The Los
Angeles Times, The Miami Herald, The Newark Star-Ledger and The Philadelphia
Inquirer.
9
<PAGE>
OTHER SERVICES. In connection with its insert advertising programs and
other newspaper publications, the Company offers a number of related services,
including creative and composition, digital photography, image management, film
output, digital file transfer and facilities management.
INSERT ADVERTISING SECTOR BUSINESS STRATEGY
The Company's business strategy for this industry sector is to maximize the
effectiveness of the insert advertising medium for its customers. Successful
application of this strategy will enable TC Advertising's customers to deliver
their advertising and marketing messages on a cost efficient basis, and will
drive profitability for the Company in this industry sector. The cornerstone of
this strategy is the continued development of an organization that focuses on
assisting customers in maximizing the effectiveness of their advertising
dollars. Key elements of this strategy include:
NATIONWIDE VERSIONING CAPABILITY. As the only insert advertising producer
offering a national network of both heatset and cold web offset production
facilities, TC Advertising is able to meet the diverse needs of its customers
and achieve significant cost and distribution advantages. TC Advertising
simultaneously produces major national insert advertising programs and other
products in multiple locations, which shortens turnaround time and reduces
shipping costs to the customers' locations. Furthermore, this nationwide network
allows TC Advertising's customers to use a single insert advertising producer to
target specific distribution areas or distribute different versions of an insert
program in different targeted parts of the United States. As the Company
continues to develop its national digital work-flow platform, TC Advertising
expects to improve efficiencies for insert versioning, improve the timeliness of
insert advertising programs by reducing the production and distribution cycle
time and enhance the cost-effectiveness of the insert advertising medium versus
other advertising media.
TARGETED DISTRIBUTION PROGRAM. TC Advertising has developed a database
information system known as Target Reach, which enables advertisers to use
insert programs to target messages specifically to potential customers who meet
the advertisers' desired geographic, demographic and purchase pattern profiles,
resulting in more cost-effective advertising.
MEASURED MEDIA APPROACH. TC Advertising is marketing insert advertising
programs as a specific category of measured media, like radio or television. TC
Advertising believes that if insert programs are considered a specific measured
media category, TC Advertising may be in a better position to compete for
advertising budgets. To establish insert advertising programs as a specific
measured media category, TC Advertising has developed proprietary research that
positions the power of the insert advertising medium against other types of
measured media.
COMPETITIVE COST POSITION. TC Advertising maintains stringent cost controls
and has implemented programs to enhance efficiency and improve profitability in
recent years. These programs have resulted in increased press speeds, reduced
paper waste and improved capacity utilization. As one of the largest consumers
of newsprint and ink in the United States, TC Advertising believes it is able to
achieve significant purchasing economies under most market conditions.
10
<PAGE>
PRODUCTION LOAD-LEVELING. TC Advertising has implemented targeted programs
which focus on the newspaper, grocery and other industry groups whose production
needs are weekly or monthly in frequency. Printing services for these industry
groups create a more balanced, load-leveling production environment, allowing TC
Advertising to improve planning and utilization of its production capacity. In
addition, TC Advertising is constantly refining its pressline configurations to
optimize equipment utilization, thereby improving operating efficiencies,
service and flexibility and enabling TC Advertising to meet the changing needs
of its customers.
SALES AND CUSTOMERS
The Company's sales force in this industry sector is organized into
geographic business groups. Its three regional geographic groups in this
industry sector cover the northern, southern and western United States. These
sales professionals draw upon their industry expertise, their knowledge of
retailing and the Company's production capabilities to help customers achieve
their advertising objectives on a cost-effective basis. The Company's top ten
customers in this industry sector, which accounted for approximately 35% of the
Company's sales in this industry sector in 1998, were American Drug Stores;
OfficeMax; Rite-Aid; The Home Depot; Kmart; Lowe's Companies, Inc.; Safeway,
Inc.; Walgreen's; Wal-Mart and Western Colorprint. No single customer
represented more than 4.6% of this segment's sales in 1998. As of December 31,
1998, the average length of the Company's relationship with such top ten
customers was approximately 14 years. Consistent with industry practice, TC
Advertising generally does not have long-term contracts with its retail
customers requiring them to use its products or services. The Company does not
believe that the loss of any single customer of TC Advertising would have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
The following table presents the sales by type of customer as a percentage
of total TC Advertising sales:
<TABLE>
<CAPTION>
PERCENTAGE OF
TC ADVERTISING
CUSTOMER TYPE SALES IN 1998
- ------------------------------------------------------------------------------ ---------------
<S> <C>
Specialty retail and furniture................................................ 19.3%
Grocery stores................................................................ 19.1
General merchandisers......................................................... 16.3
Home improvement centers...................................................... 14.2
Drug stores................................................................... 11.3
Non-retail products........................................................... 4.2
-----
Total insert advertising.................................................... 84.4
Newspaper TV listing guides................................................... 6.8
Sunday comics................................................................. 4.4
Other newspaper products and other publications............................... 4.4
-----
Total....................................................................... 100.0%
-----
-----
</TABLE>
COMPETITION
This industry sector is highly fragmented, and TC Advertising competes with
numerous regional and local companies for the production of insert advertising
programs. TC
11
<PAGE>
Advertising also competes for national accounts with several large producers,
some of which have greater resources than the Company. TC Advertising believes
that it and three other companies account for approximately 58% of the insert
advertising programs printed in the United States, with more than 120 regional
and local producers accounting for the balance. In addition, TC Advertising's
products compete with television, radio and other forms of print and electronic
media. In the production of Sunday newspaper comics, TC Advertising competes
with American Color Graphics as well as those newspapers which print their own
comics and others which could do so. TC Advertising's newspaper TV listing
guides, Sunday magazine and newspaper supplement operations also face strong
competition both from other printers and newspapers. TC Advertising's major
competitors in these areas are R.R. Donnelley & Sons Company, Quebecor, Inc.,
American Color Graphics and World Color Press. Although commercial printing in
the United States remains highly fragmented, recent technological developments
and over-capacity in the printing industry have increased industry consolidation
and competitive pressures. The principal methods of competition in these
businesses are pricing, quality, timeliness of delivery, customer service and
value-added services. Pricing is dependent in large part upon the prices of
paper and ink, which are the major components of TC Advertising's products.
Pricing is also influenced by shipping costs, operating efficiencies and the
ability to control costs. TC Advertising believes that the introduction of new
technologies and continued excess capacity in this industry sector, combined
with the cost pressures facing its customers resulting from among other things,
the cost of paper and postal rates, have resulted in downward pricing pressures
and increased competition in its core businesses. See "--Additional Company
Information--Raw Materials."
DIRECT MARKETING SERVICES
The Company designs, develops and produces highly-personalized, data-driven
direct mail; database solutions and response management services; and one-to-one
digital printing and marketing. In addition, Webcraft is well positioned in the
high value-added strategic database and response management businesses, allowing
it to provide fully integrated direct marketing solutions. The Company's main
operating unit in this industry sector, Webcraft, is headquartered in
Lawrenceville, New Jersey and has production facilities in Bristol and Chalfont,
Pennsylvania; Rochester, New York; Newark and North Brunswick, New Jersey;
Salisbury, Maryland; Chicago, Illinois; and Croyden and Leicestershire, England.
PRODUCTS AND SERVICES
BACKGROUND
The Company believes that in the individualized direct mail industry sector
in which Webcraft operates, customized direct mail expenditures accounted for
approximately $39.3 billion in 1998, with approximately 33% going to the
production of direct mail and the remainder to other services, including agency
services, data analysis and manipulation, and creative development. Media
expenditures for direct mail advertising grew at an average annual rate of 7.6%
for the period from 1993 to 1998, and are projected to continue to grow at an
annual rate of 6.0% through 2003, according to the 1998 DMA/WEFA Group Study--
"Economic Impact: U.S. Direct Marketing Today." The Company believes more
advertisers will increasingly rely on and use more sophisticated individualized,
data-driven direct mail techniques as prospect and customer databases grow in
both volume of information stored and sophistication.
12
<PAGE>
SPECIALTY PRODUCTION
PERSONALIZED DIRECT MAIL. The majority of the Company's revenues in this
industry sector are derived from the production of heavily personalized
advertising mailings which are produced by ink-jet, laser and electropress
systems, integrated with an advanced data processing capability. Personalized
direct mail enables consumer goods companies and other marketers to communicate
with their customers on an individual-by-individual basis rather than relying on
the broad, non-targeted mailings which typically generate lower response rates.
The Company can develop, customize, process and manipulate databases to enable
its customers to target direct mail recipients based on hundreds of available
attributes, including the recipient's age, gender, address, spending habits,
such as type of car owned, or whether the recipient is a pet owner. Personalized
direct mail is frequently used in conjunction with larger print, radio or
television promotional campaigns.
STRATEGIC DATABASE SERVICES. The acquisition of IMPCO Enterprises, Inc.
("IMPCO") in November 1997 added leading edge database technology and analytical
tools "upstream" from Webcraft's core direct mail production business. As direct
marketing becomes increasingly data and information driven, sophisticated
database capabilities become critical to successful direct marketers, with a
growing reliance on outsourcing. The third party direct marketing information
services sector was estimated in early 1998 to be $5.6 billion and growing
rapidly. IMPCO's database marketing capabilities include strategic and tactical
consulting, database development and management, modeling analysis, customized
list development and response analysis. They have spent the past 18 months
building a proprietary Consumer Data Warehouse, with extensive demographic,
lifestyle and purchase behavior data on essentially all marketable U.S.
households.
RESPONSE MANAGEMENT SERVICES. The IMPCO acquisition also added important
value-added response management services "downstream" from Webcraft's core
direct mail print production, providing the ability to close the direct response
"promotional loop" on behalf of the customer. These types of programs could
range from a lead management and fulfillment program in support of a high-tech
sales force, to managing and fulfilling an on-going prescription drug sampling
program for a leading pharmaceutical manufacturer. Some of the key capabilities
and technology IMPCO brings to this business include tactical consulting and
program development, account management, teleservices (inbound, outbound and
automated (IVR)), data entry, fulfillment, and database management.
DIGITAL ON-DEMAND PRINTING AND MARKETING SERVICES. With the strategic
acquisition of ColorStream Technologies in May of 1998, Webcraft added
technology, capabilities and expertise that now position it strongly in the
one-to-one, digital on-demand communications arena--one of the fastest growing
direct mail segments. ColorStream develops and executes data-driven, 100%
variable (content and images) direct marketing communication programs, either up
front with customer acquisition or back-end in the response fulfillment. These
highly individualized targeted marketing campaigns can significantly enhance
customer response levels and even improve client marketing efficiencies through
on-demand workflow automation. The growth in customer data availability, the
increasing sophistication of database marketing tools, as well as the growing
use of the Internet for integrated marketing campaigns, are expected to increase
the demand for ColorStream's services.
13
<PAGE>
DIRECT MARKETING SECTOR BUSINESS STRATEGY
The Company's business strategy in this industry sector is to increase
revenues and maximize profitability in its core business of direct mail products
and customized advertising products. The cornerstone of this strategy is to
improve the effectiveness of its customers' advertising products by developing
customized formats and offering complex personalization capabilities designed to
increase response rates. With the addition of strategic database and response
management services, a key component of the overall business strategy is now to
become a leading provider of integrated direct marketing services across
selected key arenas, assisting our customers in developing comprehensive and
cost effective direct response solutions. In fact, in its first year as a
Webcraft company, the acquired IMPCO business experienced 40% growth in sales,
with almost 20% of its total revenue originating as "cross-sales" from the
existing Webcraft client channel. As the trend towards third party outsourcing
of key direct marketing and "customer care" activities accelerates within the
Fortune 1000 companies, the demand for well-positioned integrated solutions
providers should intensify, enhancing profitability and client loyalty. The key
elements of this strategy include:
TECHNOLOGICAL EXPERTISE. Webcraft believes that the continued development
of its production processes enables it to consistently provide high quality,
cost-effective products and services. Webcraft's technological focus is on its
in-line finishing process that combines the personalizing, folding, cutting and
collecting of several multi-color pieces into a formed envelope in one step,
shortening the time needed to produce complex finished products. Additionally,
its unique combination of format design, multi-stage personalization and outer
wrap (envelope) configurations often provides customers with superior response
rates to their direct marketing programs. These same processes also enable
Webcraft to provide its products more rapidly than many of its competitors.
Webcraft believes that these capabilities are becoming increasingly important as
lead time becomes more compressed and customers demand faster turn around times
to respond to time-sensitive market opportunities. In addition, Webcraft's
ink-jet technology is complemented by the traditional laser imaged direct mail
of its Scanforms, Inc. subsidiary. Furthermore, the conversion of new customers
from the more traditional method of laser imaging of Scanforms to Webcraft's
in-line method is made easier because Webcraft will initially be able to provide
services to these new customers in the laser process they are familiar with
before they are converted to Webcraft's in-line method as appropriate. With the
addition of ColorStream, both the ink-jet and laser personalization technologies
are now even further enhanced with ColorStream's full color, digital on-demand
printing technology. This technology extension further refines Webcraft's
ability to develop and execute heavily data-driven customer communications down
to a one-to-one individualized level.
NEW PRODUCTS. Webcraft will continue to work with its customers to develop
new products to meet their advertising needs. Webcraft's in-line process,
coupled with advanced design and personalization capabilities, gives it an
advantage over its competitors in improving the effectiveness of its customers'
direct mail products.
NEW CAPABILITIES AND SERVICES. The acquisition of IMPCO positioned Webcraft
in the high value-added strategic database and response management businesses,
allowing it to provide fully integrated direct marketing solutions. Most of
Webcraft's direct mail clients today are utilizing these services in some
fashion, in their direct marketing activities and related "customer care"
programs, creating many cross-selling opportunities that should
14
<PAGE>
further strengthen customer relationships. As a well positioned, direct
marketing integrated solutions provider, Webcraft should be in an advantageous
position to more aggressively attract new business and to capitalize on new
market opportunities.
ENTER NEW MARKETS. Webcraft will continue to develop new customers and will
work with TC Advertising and Digital Services to target the retail industry.
Webcraft and its U.K. subsidiaries, Olwen Direct Mail Limited ("Olwen") and
Colorgraphic Direct Response Limited ("Colorgraphic"), will also target domestic
and foreign clients with multinational direct mail needs.
INTERNATIONAL EXPANSION. With the acquisition of Olwen and, in January
1999, Colorgraphic, Webcraft has now established a stronghold into the European
direct marketing industry sector. Olwen enjoys an excellent reputation for
targeted, high impact direct mail production. Olwen's wide range of capabilities
spans from five color sheet-fed printing to sophisticated data processing and
personalization, to complex finishing processes, resulting in high-performing
client direct mail programs. They also provide Webcraft with international
address formatting technology with mailing experience throughout the world. In
addition to extensive inline printing and finishing and laser imaging/lettershop
capabilities, Colorgraphic adds strategic consulting/project management,
database marketing, and response fulfillment/ management services. Together, the
two companies create a formidable "integrated player" in the European direct
marketing industry sector, with several significant client cross-sell
initiatives already in discussion, with Webcraft expecting these to continue to
grow as domestic clients increasingly expand their marketing activities
internationally. With the addition of Colorgraphic, and in combination with
Olwen, Webcraft has now replicated its successful "integrated" direct marketing
business model for the U.K. and European marketplaces.
LEVERAGE DATABASE EXPERTISE. Webcraft intends to use its expertise and
leading-edge proprietary Consumer Data Warehouse in managing database
information to work with its customers to design more cost-effective and highly
targeted campaigns.
COST CONTROL AND PRODUCTIVITY IMPROVEMENTS. Webcraft has developed a cost
control program which focuses on minimizing waste, reducing labor-intensive
processes and making its selling effort more efficient. In addition, management
has implemented several programs to improve profitability, including
reorganizing its management information systems and business acquisition
systems, which allow Webcraft to utilize press time more effectively. Webcraft
has implemented a new order confirmation system that strengthens its
relationships with its customers, by providing accurate and detailed job
specifications and electronic templates for ease of customer formatting.
Webcraft has also instituted a new make-ready program, resulting in significant
reduction of make-ready time. This has resulted in lowering set-up costs and
increasing total production capacity of the installed base of equipment.
SALES AND CUSTOMERS
The Company employs approximately 60 sales representatives in this business
segment. They are based in over 20 sales offices and/or production facilities
located in 12 states, the District of Columbia and the United Kingdom. While the
majority of sales are made directly to end users, the Company also sells its
direct mail products and services through advertising agencies, brokers and
other agents. The Company's principal customer groups include
15
<PAGE>
consumer goods manufacturers, financial institutions, non-profit organizations
and government agencies. The Company's ten largest customers in this industry
sector accounted for approximately 40% of its sales in this segment in 1998. On
average, these customers had over a twelve year relationship with the Company. A
consumer products customer and a publishing customer each accounted for
approximately 11% of sales in this segment in 1998. While the loss of either of
these customers may have a material adverse effect on this segment if we are
unable to replace such customer or to shift production to fulfill excess orders
from other existing customers, the Company does not believe that the loss of any
single customer in this segment would have a material adverse effect on the
Company's consolidated financial condition or results of operations.
Prices typically vary from project to project because each direct mail
campaign is unique with its own variables, including run quantity, dimensions of
the printed piece, personalization, special materials such as scratch off, die
cuts and a number of other criteria.
COMPETITION
In this industry sector, the Company competes with a number of different
firms in each of its principal lines of direct mail business. The primary
competitive factors in its specialty products are quality, flexibility, service,
timeliness of delivery and price. However, in certain non-specialty products,
such as the commercial printing and government printing products and services,
price is often the dominant factor. In the personalized direct mail product
category, the Company's major competitors are R.R. Donnelley Specialty Products;
Moore Response Marketing Services, a division of Moore Business Forms, Inc.; and
World Color Press, Inc. In the database and response management business
categories, it competes with companies like Harte-Hanks, Inc., Acxiom
Corporation and Experian.
DIGITAL SERVICES
Digital Services is the parent company of Laser Tech, Columbine and Reach
America and is the third industry sector in which the Company operates. The
Company believes that there are strategic benefits to coordinating (a) Laser
Tech's expertise in digital management of still images, use of server technology
and capacity of broadband data communication networks with (b) Columbine's
expertise in the digital management of moving images used in advertising and
programming services and with (c) Reach America's expertise in targeted
advertising software applications.
PREMEDIA PRODUCTS AND SERVICES
Laser Tech believes it provides an unprecedented range of digital premedia
services for the commercial advertising, retail catalog and packaging
industries. Services and technology include two-and three-dimensional
illustrations, digital photography, design fulfillment, desktop publishing,
turn-key catalog and insert advertising production, electronic retouching,
ultra-large format film, large display ad production, photopolymer platemaking,
client/server software and hardware, digital asset management for high speed
image retrieval, digital telecommunications for the movement of image and
graphic data, and video teleconferencing. Laser Tech is headquartered in Irving,
Texas and offers its customers services in 23 full service outsourcing centers,
eight specialty service facilities and eight facilities which Laser Tech manages
at its client locations.
16
<PAGE>
BACKGROUND. The Company believes that the premedia products and services
industry generates revenues in excess of $5.3 billion annually. Laser Tech
believes that the digital premedia business will continue to grow with the
emergence of new distribution technologies such as CD-ROM and the World Wide Web
that use digitized images. Furthermore, the acceleration of digital technologies
used in premedia services has necessitated greater data processing expertise and
comparatively greater capital expenditure, leading many businesses to outsource
their premedia requirements.
ELECTRONIC PREMEDIA ("EPM") OPERATIONS. EPM involves the electronic capture
of black and white or full color pictures and image retouching combined with
text and graphics into a page layout suitable for distribution in a print or new
media format such as CD-ROM or the World Wide Web. The Company's comprehensive
line of EPM services include the following:
DIGITAL PHOTOGRAPHY. The Company operates ten fully equipped digital
photography studios capable of capturing images greater than 100 megabytes
for an output print size of up to 20" X 30".
ELECTRONIC RETOUCHING. The Company offers its customers high-end
facilities for electronic creation or retouching of visual images. The
resulting digital image can be output as color transparency or offset film
or distributed for Internet or CD-ROM publication.
DIGITAL IMAGE SCANNING. The Company scans and color corrects
transparencies, photo prints or illustrations, then outputs the digital
image file to a variety of media for print or electronic distribution.
PAGE ASSEMBLY. The Company places digital image files into customer
page layouts to form finished printable advertising materials. These same
digital files can be reformatted for output to digital media such as the
Internet or multimedia. The Company utilizes Macintosh and Windows NT
desktop publishing technologies as well as UNIX-based client/server
technologies from Silicon Graphics, Inc., Sun Microsystems, Inc., Digital
Equipment Corporation, Inc. and others.
ELECTRONIC OUTPUT. The Company outputs completed digital image files to
a variety of output media, including regular and oversize lithographic
films, color transparency, digital printing plate, digital new media such as
the Internet or CD-ROM as well as direct digital color display graphics.
PROOFING. For each digital image file produced, the Company offers a
variety of color proofing methods from direct digital methods in which the
digital file is output to a color proof prior to final media output, to
conventional analog proofs in which lithographic films are exposed onto
color proofing materials. The Company operates low cost remote digital
proofing facilities at many customer locations to provide the customer
virtually instantaneous access to final digital files.
PACKAGING. The Company offers full service specialized services to
packaging customers in image capture, art production, page assembly,
proofing and photopolymer platemaking tailored for both lithographic and
flexographic packaging products. Packaging products require different skill
sets and capabilities than advertising materials
17
<PAGE>
due to the varied manufacturing technologies peculiar to consumer packaging
reproduction.
FACILITIES MANAGEMENT. Laser Tech's Facilities Management division
specializes in providing on-site digital premedia services to agencies,
corporate advertisers or printers. Facilities Management sites typically
involve long-term contracts and minimum annual revenue commitments.
DIGITAL ASSET MANAGEMENT. Laser Tech has developed a range of digital
asset management applications designed to provide a turn-key technology
solution to advertisers who desire to manage their digital assets for re-use
or re-sale to third parties. Laser Tech's Digital Solutions Group is
developing additional applications to meet the ever expanding needs of
corporations and advertisers to store, retrieve and distribute
electronically their digital assets. VisionBank, Laser Tech's comprehensive
series of media asset management solutions, is a Web accessible content
database, enabling customers to warehouse, search and retrieve media assets.
VisionBank facilitates communications between the advertiser's merchandising
and advertising departments and streamlines versioning, event management and
page building capabilities.
The Company's objective in this business is to become the leading provider
of outsourced, digital premedia and content management services to retailers,
advertising agencies, and consumer product companies. Key elements of this
strategy include:
DEVELOP DIGITAL IMAGE MANAGEMENT NETWORKS. Laser Tech continues to develop
systems to provide its customers with greater access to and control over their
advertising content. Accordingly, it has formed the Digital Solutions Group to
develop an interactive content management service suite which links advertisers
and graphic designers with a database of images, text and graphics. The database
enables them to avoid re-creation costs and streamline production flows by
creating, storing, retrieving, and editing their advertisements through on-line
connections from their offices. Laser Tech continues to work with TC Advertising
to integrate its digital premedia communications network with TC Advertising's
production facilities.
ENTER NEW MEDIA MARKETS. Laser Tech is leveraging its electronic premedia
services into the emerging technology arenas of electronic distribution of
information via the World Wide Web, CD-ROM and other electronic delivery
methods. Laser Tech's traditional customer base is actively seeking to exploit
these emerging media distribution channels. Laser Tech believes that these new
distribution methods, combined with an increasing need for digital archiving and
retrieval of digital images, present significant growth opportunities.
EXPAND OUTSOURCING FACILITIES. Laser Tech maintains multiple facilities in
major metropolitan areas across the country as well as "outsourced services"
sites on customers' premises and at various TC Advertising production sites.
Electronic imaging hubs are being developed to service Laser Tech's regional and
national customer base. These hubs will provide first-line and overflow imaging
manufacturing support for regional and national sales efforts.
LEVERAGE EXISTING MARKETS. In conjunction with TC Advertising, Laser Tech
is focusing on providing services to the substantial retail customer base of TC
Advertising, including electronic premedia services, image storage and retrieval
services, and customized application
18
<PAGE>
software for increased production efficiency for both print and new media
distribution channels. Furthermore, the acquisition of Designer Color Systems,
Ltd. enhanced Laser Tech's ability to service its retail customer base with its
significant retail insert advertising and catalog production expertise. The
acquisition of Gamma One further extended Laser Tech's ability to leverage cross
selling opportunities between TC Advertising and Webcraft with the addition of
Gamma One's broad-based client list. The acquisitions of Troypeak Limited and
Pismo Limited expanded the Company's service capabilities to Europe, allowing
customer development in the U.S. and Europe and providing seamless image
transport across the Atlantic. The acquisition of The Enteron Group added
strategic locations in Chicago and New York as well as long-term relationships
with major advertising agencies. The acquisition of Imaging Consortium enhanced
Laser Tech's ability to deliver high-end image retouching services to leading
advertisers in New York. The acquisition of Admagic added comprehensive creative
services to the Company's U.K. premedia business.
BROADCAST-RELATED SOFTWARE PRODUCTS AND SERVICES
Columbine provides a full line of software products and related services to
the advertising agency, cable, satellite and terrestrial broadcast industries
both in the United States and internationally. Services and technology include a
proprietary suite of software products that manage the buying and selling
processes for advertising and the placement of broadcast advertisements,
programming material and sales information data for television stations, radio
stations, broadcast and cable networks, cable operators and direct broadcast
satellite providers. The Company currently provides software products and/or
services to clients in all 50 states and in approximately 30 countries around
the world. Columbine is headquartered in Denver, Colorado and has development
and support facilities in the United States, the U.K., Canada and Australia.
BACKGROUND. The Company believes that domestic spending on broadcast
services, including production, distribution and airtime purchasing, is
approximately $50 billion per year. Columbine believes that the digital
broadcast services sector will continue to grow with the emergence of digital,
multi-channel broadcasting environments. This should result in a substantial
expansion of the number of channels on which advertising content will be carried
and consequently expand the utilization of Columbine's advertising insertion
software.
PROPRIETARY SOFTWARE APPLICATIONS. The Company's software assists
broadcasters, advertising agencies and media representation firms in the buying
and selling of advertising time. All or part of these systems schedule and time
commercials, produce sales analysis and proposals, offer master control
automation and provide program management and accounting and finance functions.
The Company's software products are licensed to customers through long-term
contracts with terms generally ranging from three to five years.
In 1997, Columbine launched the core portions of its Paradigm Integrated
Broadcast System, a next-generation software system which integrates and
automates all information management activities and day-to-day operating support
for digital, multi-channel broadcasting environments. The Company believes that
Paradigm, which is comprised of numerous modules, is uniquely positioned to
service complex international environments and is the only traffic software
solution to successfully address the multiple channel, time-zone, censorship,
language and currency needs of international broadcasters. In addition to the
international opportunities, Paradigm is positioned to address the complexity of
regional direct broadcast
19
<PAGE>
satellite systems and other new international delivery systems that require more
sophisticated business solutions.
CONSULTING SERVICES. In addition to its proprietary software products, the
Company's expert staff provides related products and services to the electronic
media industry including management consulting, temporary personnel, custom
software development, on-site training, custom business forms and 24-hour
technical support. The Company also serves as a reseller of hardware and
software technologies for its major technology partners that include IBM,
Tektronix, Hewlett Packard and Microsoft.
The Company's objective in this business is to leverage its products and
services, customer relationships and its reputation in the market place as the
leading global provider of broadcast services to the electronic media in order
to expand its international presence and develop solutions for a complex
industry. Key elements to this strategy include:
LEVERAGE STRONG CUSTOMER RELATIONSHIPS. The Company's success in developing
long-term customer relationships has resulted in over 50% of the Company's
traffic software customers using the Company's products for 10 years or more.
Through the development of next generation technology and through superior
customer service, the Company will seek to leverage customer relationships in
order to capture new business opportunities resulting from consolidation,
digitization and other industry trends.
EXPAND THE DELIVERY OF THE PARADIGM SYSTEM INTERNATIONALLY AND
DOMESTICALLY. Paradigm is a total end-to-end solution consisting of many
integrated subsystems. A single relational database serves all modules in the
system, eliminating duplication of data entry and coordinating all activities
and functions. Paradigm integrates all of the key elements in the advertising
buy/sell process and enhances interdepartmental communication. The Company
launched the core portions of Paradigm in 1997 after an investment of 200 man
years and significant development dollars and intends to control its delivery to
ensure that its customers receive the highest level of service. The Company
continues to develop and roll out additional modules for the Paradigm system,
thereby offering additional features for this product.
DEVELOP NEW PRODUCTS AND SERVICES. The rapidly changing requirements of the
electronic media environment result in the demand for complex regional direct
broadcast satellite systems. Internationally, the privatization of existing
state-owned broadcast facilities and the issuance of new licenses for commercial
broadcasters around the world are creating demand for traffic systems on a
global basis. Domestically, the current transition from analog to digital
technology is expected to result in a significant increase in the number of
channels of program delivery through cable and satellite. Increased channels
will further refine viewing audiences and allow more focused audience targeting
for advertisers. The logistics of scheduling delivery of advertisements to
target audiences will require traffic scheduling systems, creating a significant
increase in the number of potential purchasers of Columbine's products and
providing increased cross-selling opportunities for Digital Services.
SALES AND CUSTOMERS
The Company's premedia sales force, with 197 sales representatives in 32
offices, serves three categories of customers: advertising agencies, consumer
packaging and commercial products manufacturers, and retail advertisers. The
Company provides comprehensive premedia services for print advertising, point of
sale, catalogs, inserts, packaging and large
20
<PAGE>
format display graphics. The largest of these customers include Micron Computer;
Tracy Locke Partnership (a member of Omnicom Group, Inc.); Leo Burnett; J.
Walter Thompson; OfficeMax; Kraft Foods; and Wal-Mart. The Company does not
believe that the loss of any single customer of Laser Tech would have a material
adverse effect on the Company's consolidated financial condition or results of
operations.
The Company sells and markets its broadcast-related products in the United
States and internationally through a direct field sales organization with 43
sales and marketing people. The Company's principal customer groups in the
broadcast services sector include approximately 1,000 television stations,
approximately 530 radio stations, approximately 120 cable multiple station
operators (MSOs), approximately 175 cable networks and direct broadcast
satellite (DBS) operators and approximately 130 advertising agencies, media
buyers and national rep firms. The largest of these customers include TV Azteca,
S.A. de C.V., M-Net Broadcast Service, Telerep, Inc., Harrington Righter &
Parsons, Inc., Turner Broadcasting System, Fox Television, New York Times
Broadcast Group, LIN Television Group, Baton Broadcasting, Inc., Meredith
Broadcasting, and National Digital Television Center. The Company does not
believe the loss of any single customer of Columbine would have a material
adverse effect on the Company's consolidated financial condition or results of
operation.
COMPETITION
The premedia business is highly fragmented and has been undergoing a period
of consolidation. The Company's major competitors in this sector are Applied
Graphics Technologies, Inc., Wace Group and Schawk, Inc. The major competitive
factors in the premedia business are diversification of services, quality of
finished products, distribution capabilities, ongoing customer service and
availability of time on equipment which is appropriate in size and function for
a given project. The consolidation of customers within certain of the Company's
premedia businesses has provided both greater competitive pricing pressures and
opportunities for increased volume solicitation.
In the broadcast television business, Columbine's primary competitors are
Enterprise Software, Inc., a number of other smaller software companies
providing traffic and related systems, particularly to radio stations, and TV
networks who provide their own traffic systems and others which could do so. The
advertising agency segment is highly fragmented, both domestically and
internationally, with a number of relatively small suppliers, including Donovan
Data Systems.
SPECIALTY PRODUCTS & COMMERCIAL PRINTING
The Company's fourth business segment consists of its specialty products and
commercial printing services, which the Company has determined to de-emphasize.
The Company produces specialty chemicals, adhesives and coatings and provides
commercial printing services, including the production of enhanced envelopes,
which are essentially simple printed products involving the formation of an
envelope, such as catalog order forms, film mailers and airline ticket jackets.
In 1998, approximately 84% of these specialty products were sold to industry
customers and the remainder were used internally. The Company also produces
fragrance samplers, which are product samples, typically of perfume, which are
distributed to potential purchasers of the fragrance through magazine inserts or
as billing statement stuffers
21
<PAGE>
for major department stores. The Company is a leading producer of highly
specialized fragrance samplers because of its ability to produce an accurate
rendition of the perfume being marketed and its technological expertise in the
microencapsulation of the fragrance. The Company holds patented technology that
allows for multiple uses of a single magazine scent strip. The Company's
customers in fragrance samplers include Calvin Klein, Inc.; Elizabeth Arden, Co.
and Givenchy. In addition, the Company utilizes its extensive creative design
capabilities in combination with in-line finishing to produce targeted products
which are bound into magazines, inserted into packages or distributed by other
means.
In the fragrance sampler line of business, the Company believes that its
major competitors are Orlandi, Inc., Retail Communications, Arcade, Inc. and
Quebecor Inc. In the non-specialty, commercial printing category, the products
produced do not have the same complexity as specialty printing or direct mail
products. Because of this lack of complexity, there are a number of printers
capable of competing with the Company in this area. In the non-specialty
printing category, the Company competes with Cyril-Scott Company, Double
Envelope Corp. (Convertagraphics) and R.R. Donnelly Specialty Products.
Increases in printing press capacity in this segment have led to over-capacity
in recent years, with resulting pricing pressures. The Company's management has
responded to these pressures by lowering its cost structure for producing
non-specialty products, de-emphasizing this line of business and growing the
specialty products lines to replace non-specialty products.
22
<PAGE>
ADDITIONAL COMPANY INFORMATION
RAW MATERIALS
In 1998, Big Flower spent approximately $670 million on raw materials. The
primary raw materials required in the Company's printing operations are paper,
ink, plates and adhesives. In its premedia operations, the primary raw materials
are film, chemicals, computer supplies and proofing materials. The Company
believes that there are adequate sources of supply for its primary raw materials
and that its relationships with its suppliers yield improved quality, pricing
and overall service to its customers. Although there can be no assurance that
the Company's sources of supply for its primary raw materials will be adequate
in all circumstances, in the event that such sources are not adequate, the
Company believes that alternative sources can be developed in a timely manner.
The Company's results of operations depend to a large extent on the cost of
paper and the ability of the Company to pass along to its customers any
increases in these costs and remain competitive when there are decreases. In
recent years, the Company has substantially reduced the number of its suppliers
of paper and has formed stronger commercial relationships with those suppliers,
resulting in its ability to reduce costs by increasing efficiency, negotiating
favorable price discounts and achieving more assured sourcing of high quality
paper that meets the Company's specifications.
In connection with its acquisition by Big Flower, TC Advertising entered
into a long-term ink supply agreement with a single supplier, effective July 31,
1993 and amended in 1997, pursuant to which it is obligated to purchase from
such supplier a substantial portion of its annual requirements for ink. The
terms of this agreement represent the results of an arms-length negotiation and
are confidential.
A Webcraft subsidiary has an agreement expiring October, 2001 with a
supplier to purchase all of its requirements for mailing services (inserting,
sorting, tying, bagging and applying postage to direct mail). Prices are
negotiated annually. As part of this agreement, this subsidiary's mailing
services receive priority over other customers of this supplier.
The Company internally produces most of the adhesives needed for its
printing operations, through its adhesives and coatings subsidiary, Webcraft
Chemicals, Inc., but believes that there are other ready sources for these
products. This subsidiary also supplies a variety of specialty chemicals for
unusual format applications.
TRADE NAMES, TRADEMARKS AND PATENTS
The Company owns certain trade names, trademarks and patents used in its
business. The Company does not believe the loss of any such trade name,
trademark or patent would have a material adverse effect on the Company's
consolidated financial condition or results of operations.
ENVIRONMENTAL MATTERS
The operations of the Company's subsidiaries are subject to federal, state
and local environmental laws and regulations concerning health and safety issues
and the discharge, emission, storage, handling and disposal of hazardous or
toxic substances. Such laws and regulations provide for significant penalties
for violations. The Company cannot predict what
23
<PAGE>
other environmental legislation or regulations will be enacted in the future or
how existing or future laws or regulations will be administered or interpreted.
The Company's acquisition of Webcraft resulted in certain obligations under
the New Jersey Industrial Site Recovery Act, formerly known as the Environmental
Cleanup Responsibility Act (together, "ISRA"), which is triggered by the
transfer of industrial property. At two sites, Webcraft and the New Jersey
Department of Environmental Protection ("NJDEP") agreed that Webcraft would
continue to maintain financial guarantees that were previously established
pursuant to ISRA, continue site investigations that were already underway, and
institute remediation measures as appropriate. The Company has obtained an
indemnification from the selling shareholders of Webcraft for certain costs
resulting from pre-existing conditions pertaining to Webcraft, including but not
limited to environmental matters. With respect to Webcraft's ISRA obligations,
the Company believes, based on the indemnification agreement, potential
contribution from a third party for contamination at one site, and existing
investigatory and remediation cost estimates, that its liability for such
matters will not have a material adverse effect on the Company's consolidated
financial position or results of operations. However, there can be no assurance
that such matters will not ultimately have such an effect.
Pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA" or "Superfund") and analogous state
laws, TC Advertising and Webcraft have been identified as potentially
responsible parties ("PRPs") for the cleanup of contamination resulting from
alleged disposals of hazardous waste. Courts have interpreted CERCLA to impose
strict, joint and several liability upon all persons liable for response costs
at a site if the harm is indivisible. This generally means that each responsible
party could be held liable for the entire costs of investigation and cleanup. As
a practical matter, however, where there are multiple PRPs, response costs
typically are allocated, according to a volumetric or other standard, among the
parties.
TC Advertising has been identified as a PRP at three sites to which it
allegedly sent waste in the past. Based on a review of the data available to the
Company regarding each site, including the number and viability of other PRPs,
the minor volumes of waste which TC Advertising is alleged to have contributed,
the range of likely cleanup costs, and a comparison of TC Advertising's alleged
liability to settlements previously reached by TC Advertising in similar cases,
the Company believes that such matters will not have a material adverse effect
on the Company's consolidated financial position or results of operations.
Nonetheless, because neither the final cleanup costs at each of the sites have
been ascertained nor TC Advertising's final proportionate share determined,
there can be no assurance that such matters, or any similar liabilities that
arise in the future, will not ultimately have such an effect.
Webcraft has been identified as a PRP at one site to which it allegedly sent
waste in the past. Based on a review of the data available to the Company
regarding the site, including the number and viability of other PRPs, the minor
volumes of waste which Webcraft is alleged to have contributed, the range of
likely cleanup costs, and a comparison of Webcraft's alleged liability to
settlements previously reached by Webcraft in similar cases, the Company
believes that this matter will not have a material adverse effect on the
Company's consolidated financial position or results of operations. Nonetheless,
because the final cleanup cost at the
24
<PAGE>
site has not been ascertained, there can be no assurance that such matter, or
any similar liability that arises in the future, will not ultimately have such
an effect.
In 1990, the United States Environmental Protection Agency ("EPA")
identified Webcraft, among others, as a PRP for regional groundwater
contamination near Webcraft's Chalfont, Pennsylvania facility. Webcraft
responded by disclaiming any responsibility. EPA is also conducting an
environmental assessment of the affected area. Based on information currently
available to the Company, including the possibility of indemnification from the
prior site owner and indemnification from the selling shareholders of Webcraft,
the Company believes that its liability, if any, will not have a material
adverse effect on the Company's consolidated financial position or results of
operations. However, because of the present stage of this matter, there can be
no assurance that it will not ultimately have such an effect.
EMPLOYEES
As of December 31, 1998, the Company had approximately 10,000 employees, of
which approximately 4,000 were salaried and 6,000 were hourly. Most of
Webcraft's hourly employees at its North Brunswick and Newark, New Jersey
facilities (approximately 280 employees) are represented by the United Paper
Workers International Union, AFL-CIO. Webcraft entered into a new three-year
contract with this union on February 1, 1998. Under this agreement, represented
employees received an hourly base rate increase of 2% for 1998 and a 2% lump sum
bonus in 1998, and will receive a 3% hourly base rate increase in 1999 and 2000.
In addition, approximately 160 employees of Laser Tech's Enteron Group are
represented by the Communication Workers of America Typographical Union, Chicago
Local No. 16, the Graphic Communications International Chicago Local No. 458-3M,
or the International Printers and Lithographers Association. The Company
believes it has satisfactory employee and labor relations.
ITEM 2. PROPERTIES
The Company maintains a large number of diverse properties. Management
believes that these properties, taken as a whole, are generally well maintained
and are adequate for current and foreseeable business needs. The majority of
these properties are leased. Substantially all of the Company's material
physical properties are being fully utilized. The Company's properties are
covered by all-risk and liability insurance which the Company believes is
customary for the industry.
EXECUTIVE OFFICES
Big Flower, TC Advertising, Webcraft, and Digital Services (Laser Tech and
Columbine) each lease their executive offices in New York City, New York;
Baltimore, Maryland; Lawrenceville, New Jersey; Irving, Texas and Denver,
Colorado, respectively. The lease terms for Big Flower's, Webcraft's, Laser
Tech's and Columbine's facilities expire in years 2006, 2005, 1999 and 2008,
respectively. TC Advertising occupies its executive offices pursuant to two
leases that expire in years 2000 and 2005, respectively.
25
<PAGE>
PRODUCTION FACILITIES
As of December 31, 1998 (excluding Colographic, which was acquired after
December 31, 1998), the Company owned 13 and leased 64 production facilities,
with lease terms expiring at various times from 1999 to 2018.
TC Advertising owned 8 and leased 12 production facilities, with an
aggregate area of approximately 2,100,000 square feet. Webcraft's production
facilities consisted of 5 owned and 16 leased locations, with an estimated
aggregate area of approximately 1,250,000 square feet. Laser Tech leased its 36
production facilities, with an aggregate area of approximately 575,000 square
feet. Columbine's software development and service facilities consisted of 10
leased locations, with an aggregate area of approximately 160,000 square feet.
SALES OFFICES AND OTHER FACILITIES
As of December 31, 1998, the Company had 67 sales offices and 32 other
facilities. All of the sales offices and all but one of the other facilities are
leased, with lease terms expiring at various times from 1999 to 2018.
ITEM 3. LEGAL PROCEEDINGS
Certain claims, suits and complaints (including those involving
environmental matters) which arise in the ordinary course of the Company's
business have been filed or are pending against the Company. The Company
believes that all such matters would not have a material adverse effect on the
Company's consolidated financial condition or results of operations, if
adversely determined against the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
26
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION FOR COMMON STOCK
The common stock of Big Flower Holdings, Inc. ("Common Stock") is traded on
the New York Stock Exchange, Inc. under the symbol "BGF". Each share of Common
Stock is traded together with a right entitling the holder to purchase one
one-hundredth of a share of Series A Junior Preferred Stock.
The common stock of Big Flower Press first traded on the New York Stock
Exchange on November 22, 1995. Prior to November 22, 1995, there was no
established trading market for such common stock. In connection with its
corporate reorganization on October 17, 1997, the common stock of Big Flower
Press ceased to so trade, and the common stock of Big Flower Holdings, Inc.
began to trade. Set forth below are the high and low closing prices for the
Common Stock for the period indicated, as reported on the New York Stock
Exchange Composite Tape.
FISCAL YEAR ENDED:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
DECEMBER 1998
First Quarter ended March 31................................................... $30 3/8 $25 1/8
Second Quarter ended June 30................................................... 34 9/16 27 7/8
Third Quarter ended September 30............................................... 32 1/8 19 3/8
Fourth Quarter ended December 31............................................... 24 9/16 15 3/8
DECEMBER 1997
First Quarter ended March 31................................................... $20 7/8 $17 7/8
Second Quarter ended June 30................................................... 21 7/8 18 1/8
Third Quarter ended September 30............................................... 25 11/16 20 3/8
Fourth Quarter ended December 31............................................... 24 3/4 21
</TABLE>
As of February 26, 1999, there were approximately 250 holders of record of
the Common Stock.
DIVIDENDS
Big Flower has not paid cash dividends on its Common Stock and intends to
continue this policy for the foreseeable future and retain funds for repayment
of indebtedness and investment in its business.
Because Big Flower is a holding company, holders of its debt and equity
securities, including holders of the Common Stock, are dependent primarily upon
the cash flow from Big Flower's subsidiaries for payment of principal, interest
and dividends. Potential dividends and other advances and transfers from Big
Flower's subsidiaries represent its most significant sources of cash flow.
Applicable state laws and the provisions of the debt instruments and other
capital instruments by which Big Flower's principal subsidiaries are bound limit
the ability of such companies to declare dividends or otherwise provide funds to
Big Flower. Specifically, on June 22, 1998, Big Flower and certain of its
subsidiaries entered into an amended and restated revolving credit facility (as
amended to date, the "Credit Agreement"). The Credit Agreement limits the
ability of the Company to pay dividends. In addition, the indenture governing
the 8 7/8% Notes due July 1, 2007 and the 8 5/8% Notes due December 1, 2008 of
Big Flower Press imposes certain restrictions on Big Flower Press' ability to
make distributions to Big Flower. Also, the indenture governing the 6%
Convertible Quarterly
27
<PAGE>
Income Preferred Securities of Big Flower Trust I restricts the payment of
dividends by Big Flower on its Common Stock in certain circumstances.
For additional information regarding these facilities and securities, see
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources" and the Notes to the Consolidated
Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the selected financial data derived from the
audited financial statements of Big Flower. The financial data for Big Flower
Press Holdings, Inc. and Subsidiaries as of and for the years ended December 31,
1997 and 1998 is substantially equivalent to that of Big Flower for the same
period. For additional information, see the consolidated financial statements of
Big Flower and the notes thereto. The selected historical financial data should
also be read in conjunction with Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
323 DAYS YEAR SIX MONTHS YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996 1997 1998
--------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
OPERATING DATA:
Net sales............................... $587,630 $920,149 $546,840 $1,201,860 $1,376,706 $1,739,715
Operating income........................ 25,488 50,712 39,739 69,343(1) 38,502(2) 137,252(3)
Interest expense........................ 19,735 37,452 19,076 36,165 40,300 55,988
Amortization of deferred financing
costs................................. 1,936 3,437 1,594 1,802 1,696 1,902
(Loss) income before income taxes....... (549) 5,268 12,694 4,998 (11,626) 69,978
(Loss) income before extraordinary
items................................. (3,277) (1,612) 6,491 (3,285) (33,571) 37,676
Extraordinary losses from early
extinguishment of debt, net........... (19,248) (2,078) (13,463)
Net (loss) income....................... (3,277) (1,612) (12,757) (5,363) (47,034) 37,676
Per share:
(Loss) income before extraordinary
items-- basic....................... $ (0.29) $ (0.13) $ 0.36 $ (0.18) $ (1.79) $ 1.92
Net (loss) income--basic.............. (0.29) (0.13) (1.07) (0.30) (2.51) 1.92
(Loss) income before extraordinary
items-- diluted..................... (0.29) (0.13) 0.35 (0.18) (1.79) 1.69
Net (loss) income--diluted............ (0.29) (0.13) (1.03) (0.30) (2.51) 1.69
Average shares outstanding:
Basic................................. 11,218 12,382 13,451 18,046 18,704 19,660
Diluted............................... 11,218 12,382 13,919 18,046 18,704 24,678
OTHER DATA:
EBITDA(4)............................... $ 54,238 $ 93,699 $ 58,372 $ 122,588 $ 164,016 $ 223,883
Capital Expenditures.................... 6,133 8,496 16,812 55,391 74,045 95,433
Cash flows provided by operating
activities(5)......................... 31,514 47,597 27,881 135,936 120,637 118,216
Cash flows used in investing
activities(5)......................... 270,223 7,013 19,050 170,849 316,601 227,097
Cash flows provided by (used in)
financing activities(5)............... 241,975 (39,789) (4,326) 29,941 197,071 112,478
BALANCE SHEET DATA (AT PERIOD END):
Working Capital(6)...................... $ 25,198 $ 34,173 $ 29,797 $ (30,821) $ (17,557) $ (5,781)
Net property, plant and equipment....... 152,306 137,081 145,323 296,426 384,850 457,988
Total assets............................ 521,461 502,939 573,393 749,742 1,059,047 1,328,182
Long-term debt, net of current
portion............................... 331,940 301,935 274,161 430,766 590,045 731,080
Redeemable convertible preferred
securities of a subsidiary trust...... 115,000 115,000
Redeemable preferred stock of a
subsidiary............................ 16,913 19,357
Common stockholders' equity............. 19,449 16,593 84,476 96,350 71,538 127,210
</TABLE>
- --------------------------
(1) Includes $2.7 million of non-recurring costs related to acquisitions.
(2) Includes non-recurring charges of $63.9 million related to acquisitions
(including a $58.2 million in-process acquired technology write off) and
$0.6 million related to the Company's secondary stock offering.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
28
<PAGE>
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(3) Includes $4.6 million of termination costs for executive positions
eliminated and $0.2 million in-process acquired technology write off.
(4) "EBITDA" represents the sum of operating income, depreciation, amortization
of intangibles, in-process acquired technology write offs and merger costs.
EBITDA does not include costs associated with the A/R Securitization
facility (see footnote (6)) and is presented here to provide additional
information about the Company's ability to meet its future debt service,
capital expenditure and working capital requirements. It should not be
considered a better indicator of operating performance than operating income
as determined in accordance with generally accepted accounting principles
("GAAP"), or a better indicator of liquidity than cash flow from operating
activities as determined in accordance with GAAP. The Company's definition
of EBITDA might not be the same as that of other companies.
(5) Cash flows from operating, investing and financing activities are
significantly affected by acquisitions. See the consolidated statements of
cash flows and the related notes and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(6) In 1996, the Company entered into an accounts receivable securitization
agreement (See Note 4 to the consolidated financial statements).
Accordingly, 1996, 1997 and 1998 results and balances reflect the effects of
this securitization agreement.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Readers are cautioned that forward-looking statements contained herein,
including the discussion of Year 2000, should be read in conjunction with the
Company's disclosures under the heading: "SAFE HARBOR STATEMENT" on page 1.
GENERAL
Operating results reflect the impact of acquisitions in all years presented,
as well as non-operational charges and expenses incurred primarily in connection
with acquisition and refinancing transactions. The changing mix of businesses as
acquired companies are integrated into the Company may also affect the
comparability of results from one period to another.
RESULTS OF OPERATIONS
The Company is a leading advertising and marketing services company with
four business segments: Insert Advertising & Newspaper Services, Direct
Marketing Services, Digital Services and Specialty Products & Commercial
Printing.
29
<PAGE>
The following table presents major components from the Consolidated
Statements of Operations and Cash Flows:
<TABLE>
<CAPTION>
(PERCENTAGES OF NET SALES) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................................ 100.0% 100.0% 100.0%
---------- ---------- ----------
Costs of production...................................................... 74.5 77.9 80.9
Selling, general and administrative...................................... 12.6 10.2 8.9
Depreciation............................................................. 3.7 3.6 2.9
Amortization of intangibles.............................................. 1.3 1.3 1.4
In-process acquired technology write off................................. 4.2
Merger costs............................................................. 0.1
---------- ---------- ----------
92.1 97.2 94.2
---------- ---------- ----------
Operating income......................................................... 7.9% 2.8% 5.8%
---------- ---------- ----------
---------- ---------- ----------
OTHER DATA:
EBITDA (in thousands).................................................... $ 223,883 $ 164,016 $ 122,588
---------- ---------- ----------
---------- ---------- ----------
EBITDA as a percentage of net sales...................................... 12.9% 11.9% 10.2%
---------- ---------- ----------
---------- ---------- ----------
(in thousands)
Cash flows provided by operating activities.............................. $ 118,216 $ 120,637 $ 135,936(1)
Cash flows used in investing activities.................................. 227,097 316,601 170,849
Cash flows provided by financing activities.............................. 112,478 197,071 29,941
</TABLE>
- ------------------------
(1) Includes $91.6 million from the initial sale of accounts receivable.
"EBITDA" represents the sum of operating income, depreciation, amortization
of intangibles, in-process acquired technology write offs and merger costs.
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.
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
% CHANGE
--------------------------------
1998 1997 1996 1998 VS. 1997 1997 VS. 1996
------------ ------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales................................. $ 1,739,715 $ 1,376,706 $ 1,201,860 26.4% 14.5%
Operating income.......................... 137,252 38,502 69,343 256.5% (44.5)%
Net income (loss)......................... 37,676 (47,034) (5,363) -- --
Diluted earnings (loss)
per share............................... 1.69 (2.51) (0.30) -- --
</TABLE>
NET SALES
Revenue increases in 1997 and 1998 were significantly impacted by
acquisitions. Slightly offsetting the acquisition impact was the reduction in
Specialty Products & Commercial Printing sales caused by (i) the December 1996
divestiture of Webcraft Games, Inc. and (ii) the April 1998 divestiture of an
investment in a printing venture and the discontinuation of a related production
agreement that generated approximately $20 million of sales annually at
break-even profitability. Adjusting to include all businesses owned on December
31, 1998
30
<PAGE>
for the entire comparable periods (and excluding the sales related to the
divestitures described above) net sales increased slightly in 1997 and rose
approximately 5% in 1998.
In addition to the acquisition impact, revenue amounts can vary based on
changing paper prices and the proportion of paper provided by customers
themselves since a substantial portion of sales in the Insert Advertising &
Newspaper Services business includes the pass-through cost of paper (see also
the discussion of paper costs in OPERATING EXPENSES). Average prices throughout
the paper industry declined in 1997 by nearly 10% from 1996 levels, and
associated declines in the Company's prices caused the sales increase in 1997 to
be relatively modest. Subsequent industry price increases averaging nearly 5% in
1998 contributed to the relatively larger increase in that year. Adjusting the
comparable-business results for the effect of paper variations as well as the
cost of ink (i.e., to exclude the cost of ink and paper entirely), "value added"
revenue increased approximately 10% in both 1997 and 1998.
These comparable-business increases reflect positive growth trends in all of
the Company's principal business segments, particularly Direct Marketing
Services and Digital Services, as well as increased cross-selling activity
whereby two or more operating units have teamed to provide services to each
other's customers as well as new customers. For further discussion of net sales,
see RESULTS BY SEGMENT.
OPERATING EXPENSES
Total operating expenses increased in all years due to the growth of the
Company's businesses and the impact of acquisitions. In addition, selling,
general and administrative expenses fluctuated in all years as a result of the
following non-operational costs:
- 1996 includes $2.7 million of non-recurring costs related to acquisitions,
- 1997 includes $5.7 million of non-recurring costs related to acquisitions
and $0.6 million of non-recurring costs related to the Company's secondary
stock offering, and
- 1998 includes $4.6 million of termination costs related to the elimination
of executive positions.
Operating expenses in 1997 also include a one-time, non-cash charge of $58.2
million recorded in connection with the Columbine acquisition, reflecting the
cost of in-process acquired technology for software in development (see
IN-PROCESS ACQUIRED TECHNOLOGY). Operating expenses in 1998 include a similar
charge of $0.2 million related to the Datatrak acquisition.
Excluding the non-recurring costs detailed above and merger costs in 1996
related to the Scanforms acquisition, the ratio of total operating expenses to
net sales was 91.8% in 1998, 92.5% in 1997 and 93.9% in 1996. Selling, general
and administrative expenses, excluding the non-recurring costs, were 12.4% of
net sales in 1998, 9.7% in 1997 and 8.7% in 1996.
As a percentage of net sales, adjusted operating expenses in total declined
due to increased sales and productivity that more than offset the increased
infrastructure costs
31
<PAGE>
inherent in expanding the individual businesses. Variances in expense category
ratios also reflect:
- the Company's changing business mix as it acquires more companies to
expand the Digital Services and Direct Marketing Services segments, where
paper is a smaller component of costs and a higher proportion of the cost
structure is related to selling rather than to production,
- more rapid organic growth of businesses in the Digital Services and Direct
Marketing Services segments in proportion to the Company's total, and
- increased demand for higher margin products in the Insert Advertising &
Newspaper Services segment.
As a result of these factors, costs of production declined as a percentage
of net sales by 3.0% in 1997 and an additional 3.4% in 1998. Paper costs
accounted for 42% of net sales in 1996, 36% in 1997 and 32% in 1998, reflecting
the Company's changing business mix as well as the higher proportion of paper
supplied by customers in the Insert Advertising & Newspaper Services segment.
Further reflecting the changing business mix, selling, general and
administrative expenses, excluding the non-recurring costs, increased as a
percentage of net sales by 1.0% in 1997 and an additional 2.7% in 1998.
Combined operating expenses (excluding depreciation and amortization) have
decreased as a percentage of net sales, leading to an increase in the margin of
EBITDA to net sales over the three-year period ended December 31, 1998. This
increase reflects the increased productivity of the Company's operations and the
more profitable lines of business in the expanding Digital Services and Direct
Marketing Services segments. For further discussion, see RESULTS BY SEGMENT.
OPERATING INCOME
Operating income increased to represent 7.9% of net sales in 1998 versus
2.8% in 1997 and 5.8% in 1996. Excluding the non-recurring costs discussed in
the previous section, the ratio of operating income to net sales was 8.2% in
1998, 7.5% in 1997 and 6.1% in 1996. Adjusted to exclude the non-recurring costs
in all years and to include comparable businesses for the entire comparable
periods, operating income increased approximately 15% in 1998 and approximately
25% in 1997. The operating income margin on the same basis was approximately 8%
in 1998, 7% in 1997 and 6% in 1996.
The increasing margin of adjusted operating income to net sales reflects the
increased EBITDA margins noted in the previous section which have risen at a
higher rate relative to the increased depreciation and amortization costs
incurred in expanding the Company's businesses.
NET INCOME AND EARNINGS PER SHARE
Net income and diluted earnings per share in each year reflect non-recurring
charges and extraordinary losses.
32
<PAGE>
The net loss for 1996 of 30 cents per basic share included the following
non-operational charges:
- a pre-tax loss of $14.3 million recorded in connection with the sale of
the Webcraft Games business (72 cents per basic share)
- $5.2 million of pre-tax financing costs (recorded in "other expenses")
related to the Webcraft acquisition (14 cents per basic share)
- extraordinary losses of $2.1 million (net of tax benefit), related to
early extinguishment of debt (12 cents per basic share)
- $2.7 million of non-recurring, pre-tax costs related to acquisitions (8
cents per basic share) and
- $1.5 million of pre-tax merger costs related to the Scanforms acquisition
(4 cents per basic share).
Further, excluding these charges, net income would have been positive and
the effect of stock options would have been dilutive to earnings per share,
leading to diluted earnings per share that was 3 cents lower than basic earnings
per share.
The net loss for 1997 of $2.51 per basic share included the following
non-operational charges:
- the $58.2 million write off of in-process acquired technology costs ($3.11
per basic share)
- extraordinary losses of $13.5 million (net of tax benefits) related to
early extinguishment of debt (72 cents per basic share)
- $5.7 million of pre-tax costs related to acquisitions (16 cents per basic
share), and
- $0.6 million of pre-tax costs related to a secondary stock offering (2
cents per basic share).
Further, excluding these charges, net income would have been positive and
the effect of stock options and convertible preferred securities would have been
dilutive to earnings per share, leading to diluted earnings per share that was 9
cents lower than basic earnings per share.
The net income for 1998 of $1.69 per diluted share included the following
non-operational charges:
- $4.6 million of pre-tax severance costs related to executive positions
eliminated (10 cents per diluted share) and
- the $0.2 million write off of in-process acquired technology costs (1 cent
per diluted share).
33
<PAGE>
RESULTS BY SEGMENT
INSERT ADVERTISING & NEWSPAPER SERVICES
<TABLE>
<CAPTION>
% CHANGE
--------------------------------
1998 1997 1996 1998 VS. 1997 1997 VS. 1996
------------ ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales..................................... $ 1,101,875 $ 961,577 $ 900,465 14.6% 6.8%
Operating income.............................. 90,568 72,025 60,124 25.7% 19.8%
</TABLE>
The increases in net sales and operating income were significantly impacted
by the acquisitions of PrintCo in 1996 and RCPC in 1997. Adjusted to include
these businesses for the full 1996 and 1997 periods, net sales decreased
approximately 5% in 1997 and increased approximately 5% in 1998. Fluctuations in
the cost of paper and in the amount of paper supplied by customers caused a
large part of these variances. Adjusting for the cost of paper and the effect of
customer supplied paper, "value added" revenue including all businesses in all
periods increased approximately 10% in 1997 and approximately 5% in 1998.
Operating income in 1997 included $2.2 million of non-recurring costs related to
the RCPC acquisition. Adjusting to exclude these costs, and to include all
businesses owned for all periods, operating income increased approximately 15%
in both 1997 and 1998 over the respective prior year periods.
The comparable "value added" revenue increases reflect the steady growth of
TC Advertising's insert customer categories of grocery, specialty, furniture,
general merchandise, drug and home improvement stores, as well as newspaper
television listings guides. In addition, this segment benefited from higher
demand for targeted inserts and "versioning" services to customize inserts for
delivery in different regions of a customer's business and increased sales of
higher margin products such as heatset printing. The 1998 increase is also due,
in part, to its offering of Reach America's targeted advertising software
products in combination with printing services.
In relation to the value added revenue increases, the higher rates of
operating income growth stemmed from efficient press time utilization, whereby
press capabilities are best matched to the requirements of a given print job,
and volume of production (measured in hours of press operation), both of which
improved in 1998 and 1997. Much of the added volume was in categories with
year-round advertising activity, serving to reduce the seasonality of the
business. Additionally, this segment's rapid move to a complete digital
workflow, including upgrades such as computer-to-plate technology, improved the
prepress and plating processes in many of the production facilities. Finally,
operating synergies with RCPC yielded more efficient production for the combined
business and expense control throughout the organization added to the
profitability of this segment.
DIRECT MARKETING SERVICES
<TABLE>
<CAPTION>
% CHANGE
--------------------------------
1998 1997 1996 1998 VS. 1997 1997 VS. 1996
---------- ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales....................................... $ 282,431 $ 202,197 $ 134,795 39.7% 50.0%
Operating income................................ 34,159 21,035 11,881 62.4% 77.0%
</TABLE>
The 1996 results reflect a full year of operations of Scanforms, but only
includes the operations of Webcraft after its acquisition in March 1996. Net
sales and operating income
34
<PAGE>
increases in 1998 and 1997 also reflect, in part, the impact of acquisitions in
those years. Adjusting to include all companies for the full three-year period,
net sales increased approximately 15% in 1997 and approximately 20% in 1998.
Operating income, excluding merger costs in 1996 and the non-recurring costs
related to the acquisition of Olwen in 1997, increased 81% in 1997 and 41% in
1998. Adjusting further to include all companies for the full three-year
periods, the increases were approximately 45% for 1997 and approximately 35% for
1998.
The comparable net sales increases for both periods reflect increased demand
for individualized direct mail and the 1998 results were also favorably impacted
by the acceleration of customer orders in anticipation of the January 1999
postage rate increase. Newer products such as magnetic stripe technology for
prepaid telephone cards also have added to the volume of this business, as have
the expansion of database analysis and response management services. Sales
increased to customers in many industries, notably the major Company-defined
categories of consumer goods (where 1998 growth approximated 75% over 1997),
financial services (approximately 10% over 1997), media (approximately 10% over
1997) and non-profit (approximately 40% over 1997). Collectively, these
categories grew more than 30% in 1998 over 1997 and represent more than 50% of
segment sales.
The operating income results reflect the impact of the growth in higher-
margin imaged direct mail product lines, higher productivity from increased
plant utilization and the effective management of expenses. The profit increases
were tempered by 1998 investments in data analysis, data mining, digital
printing and response management portions of the business to allow for expansion
of service offerings.
DIGITAL SERVICES
<TABLE>
<CAPTION>
% CHANGE
--------------------------------
1998 1997 1996 1998 VS. 1997 1997 VS. 1996
---------- ---------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales........................................ $ 272,995 $ 108,608 $ 44,443 151.4% 144.4%
Operating income................................. 27,396 (44,699) (178) -- --
</TABLE>
Changes in sales and operating income for this segment were significantly
impacted by acquisitions and related charges. The premedia portion of this
segment was augmented with the acquisitions of (i) Pacific Color Connection,
Designer Color Systems and Digital Dimensions in 1996, (ii) Gamma One in 1997
and (iii) Troypeak, Pismo, Enteron, ICON and Admagic in 1998. Software
development product lines were added to the segment with the acquisitions of
Columbine and Broadcast Systems Software in 1997 and expanded with the
acquisitions of Reach America, Adtraq, Adserve and Datatrak in 1998. Adjusting
to include all of these businesses in all periods, net sales increased
approximately 15% in 1997 and approximately 10% in 1998. Excluding $2.7 million
of non-operational costs in 1996 related to acquisitions and in-process acquired
technology write offs in 1997 and 1998, operating income increased 425% in 1997
and 105% in 1998. Adjusting further to include all businesses owned for all
periods, operating income increased approximately 60% in 1997 and approximately
15% in 1998 over the respective prior year periods.
The increases in comparable-business net sales were due to the expansion of
service offerings to provide integrated solutions to customers. Laser Tech
expanded its national network in 1997 to meet the needs of existing customers
with larger volume requirements and
35
<PAGE>
to capitalize on higher demand for outsourced digital premedia services. All
premedia product lines experienced increased demand, including packaging,
commercial and retail premedia services, which generated growth of approximately
30%, 5% and 10%, respectively over 1997. Together, these categories represent
approximately 70% of this segment's sales. The introduction of the core portions
of Columbine's next-generation Paradigm product line at the end of 1997 also
served to increase sales in 1998. As the Company sells a variety of software
related products and services, a single installation can include sales of
hardware, software and consulting and related services. Total revenues related
to newer broadcast related software systems, which increased by more than 30% in
1998, mitigated a slowing to 5% of revenue growth related to Columbine's legacy
products as the Company focused on the next-generation product lines. These
newer systems have grown to represent nearly 10% of Digital Services net sales.
In addition, continued development of digital asset management services and
high-speed intranet communication systems have increased service offerings to
this segment's customers.
Operating income growth, on a comparable-business basis, exceeded sales
growth in both years as higher margin products have been introduced, operating
efficiencies have been implemented and technology investments have yielded
productivity gains.
SPECIALTY PRODUCTS & COMMERCIAL PRINTING
<TABLE>
<CAPTION>
% CHANGE
--------------------------------
1998 1997 1996 1998 VS. 1997 1997 VS. 1996
--------- ---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales........................................ $ 91,122 $ 109,852 $ 125,846 (17.1)% (12.7)%
Operating income................................. 5,451 4,856 8,635 12.3% (43.8)%
</TABLE>
The 1996 results reflect a partial year of operations as the Company
acquired Webcraft in March 1996. Further, the Company sold the Webcraft Games
business in December 1996 and divested itself of a minority interest in a
commercial printing venture in April 1998, both being part of management's
strategy to re-deploy the assets associated with commercial printing. A
production arrangement related to the minority interest investment had yielded
approximately $20 million of break-even revenue annually. Excluding these sales
from all periods, excluding Webcraft Games from 1996 and adjusting to include
operations still owned for all of 1996, revenues decreased approximately 10% in
1997 and revenues in 1998 were approximately the same as 1997. Operating income,
on the same basis of comparison, decreased approximately 25% in 1997 and
decreased slightly in 1998.
The operating results reflect decreases in catalog printing and fragrance
sampler production in both years and the redeployment of assets historically
used in this segment to the more profitable product lines in the Direct
Marketing Services segment.
36
<PAGE>
INTEREST EXPENSE
<TABLE>
<CAPTION>
% CHANGE
--------------------------------
1998 1997 1996 1998 VS. 1997 1997 VS. 1996
--------- --------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Interest expense.................................... $ 55,988 $ 40,300 $ 36,165 38.9% 11.4%
Average interest rate............................... 8.30% 8.39% 9.01%
Average borrowing rate including the effect of
convertible preferred securities.................. 7.97% 8.22%
</TABLE>
Interest expense in 1998 increased over the 1997 and 1996 periods due to
higher debt levels related primarily to acquisitions although the average rate
of interest declined each year from the prior year level. The decreased interest
rate reflects the lower cost of the Company's variable rate debt and the effects
of a series of refinancing transactions completed in 1997 and 1998. These
transactions included redemption of higher-yield debt in mid-1997, balancing
fixed-rate and variable-rate debt, replacement of revolving credit facilities
and the issuance of redeemable convertible preferred securities with a 6%
dividend rate.
IN-PROCESS ACQUIRED TECHNOLOGY
The Company recorded a $58.2 million write off of acquired technology costs
in 1997 related to the acquisition of Columbine. At the time of its acquisition,
Columbine was developing numerous modules of its Paradigm broadcast management
software product line.
The purchase price for Columbine exceeded the fair value of net tangible
assets acquired, and the Company allocated the excess to identified intangible
assets and existing technology based on values calculated by a third-party
appraiser. In performing this allocation, values were assigned to existing
technology and the research and development modules in process at the
acquisition date. With regard to the in-process research and development
modules, the appraisal considered, among other factors, the stage of development
of each module, the importance of each module to the overall development plan,
the projected incremental cash flows from the modules when completed and the
associated risks. Associated risks included the inherent difficulties and
uncertainties in completing each module to achieve technological feasibility and
risks related to the impact of potential changes in future target markets.
The total projected cost to develop the in-process technology into
commercially viable products was in excess of $10 million, of which the Company
has incurred approximately $5.8 million, related primarily to salaries, through
December 31, 1998. The Company expects to incur the balance of these costs over
the next two years. Development efforts have focused on, and continue to focus
on, addressing multi-station, multi-currency, multi-language, and multi-time
zone capabilities; database architecture issues; domestic functionality;
architectural stability and electronic commerce capabilities. The Company
expects to benefit from the purchased in-process technology beginning in periods
ranging from the 1999-2003 fiscal years. If these modules are not successfully
developed, the Company may not realize the value assigned to the in-process
research and development. In addition, the value of the other acquired
intangible assets may also become impaired.
OTHER EXPENSES, NET
Other expenses, net, consist primarily of costs associated with the
Company's accounts receivable securitization facility (see Note 4 to the
Consolidated Financial Statements). These
37
<PAGE>
costs amounted to $6.4 million in 1998, $6.2 million in 1997 and $5.3 million in
1996 and vary based on the level of receivables sold during each year.
The 1998 results also include $5.9 million of income earned on
tax-advantaged investments accounted for as leveraged leases in accordance with
Statement of Financial Accounting Standards No. 13, "Accounting for Leases" (see
Note 7 to the Consolidated Financial Statements). The amount of investment
income excludes interest costs incurred on borrowings used to finance the
investment, which are recorded as interest expense.
In 1996, other expenses also include $5.2 million of charges for financing
transactions related to the acquisition of Webcraft.
INCOME TAXES
The Company's effective tax rates exceeded the federal statutory rate due
primarily to state and local taxes, non-deductible expenses and amortization of
certain goodwill. Non-deductible expenses included the write offs of in-process
acquired technology costs and a portion of the loss on the sale of Webcraft
Games in 1996.
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Company adopted AICPA Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use". In
accordance with this standard, the Company capitalized approximately $5.6
million of costs in property, plant & equipment related to systems projects
throughout the Company.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Big Flower has grown through acquisitions, and expects to continue to seek
to acquire entities in similar or complementary businesses. Such acquisitions
are likely to require the incurrence and/or assumption of indebtedness and/or
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. Big Flower cannot predict if any
such transactions will be consummated, nor the terms or forms of consideration
which might be required in any such transactions.
SOURCES OF FUNDS
Historically, the Company has funded its operations, acquisitions and
investments with internally generated funds, revolving credit facility
borrowings, sales of accounts receivable, and issuances of stock and debt.
In order to fund acquisitions, and in response to favorable market
conditions, the Company completed several refinancing transactions in 1997 and
1998, including:
- replacement of its credit facility with a more flexible one that also
allows borrowings in British pounds,
- the issuance of $350 million of 8 7/8% notes,
- the issuance of $250 million of 8 5/8% notes,
38
<PAGE>
- the redemption of its 10 3/4% notes and
- the issuance of $115 million of convertible preferred securities.
Management believes that the facilities in place, as well as the Company's
cash flows, will be sufficient to meet operational needs for the next twelve
months. At December 31, 1998, the Company had approximately $410 million
available to borrow under its revolving credit facility, although restrictions
in the credit facility and the indentures governing its outstanding subordinated
notes may limit the amounts borrowed. Approximately $81 million of this amount
was utilized in January 1999 in connection with the acquisition of Colorgraphic
Direct Response Limited.
WORKING CAPITAL
The Company's current liabilities exceeded current assets by $5.8 million at
December 31, 1998 and by $17.6 million at December 31, 1997, an increase in
working capital of $11.8 million. The working capital amounts exclude accounts
receivable sold under a securitization facility (see Note 4 to the Consolidated
Financial Statements), the proceeds of which serve to reduce long-term
borrowings under the Company's revolving credit facility. Excluding the effect
of the securitization (i.e., to add back receivables and reflect the offsetting
increase in long-term debt as if the securitization facility was terminated)
working capital at December 31, 1998 and 1997 would have been $111.8 million and
$83.6 million, respectively. The ratio of current assets to current liabilities
as of December 31, 1998 was 0.98 to 1 (1.41 to 1 excluding the securitization
effect) compared to 0.93 to 1 in 1997 (1.36 to 1 excluding the securitization
effect). The increase is due mostly to higher accounts receivable balances,
primarily as a result of acquisitions and the lower proportional utilization of
the securitization facility.
SUMMARY OF CASH FLOWS
Net cash provided by operating activities declined by $2.4 million in 1998
compared to 1997. Although net earnings before depreciation and amortization in
1998 increased in comparison to 1997, the lower operating cash flows resulted
from the lower proportionate utilization of the accounts receivable
securitization facility and the timing of payments for current liabilities.
Excluding the initial sale of accounts receivable at the inception of the
accounts receivable securitization program, net cash provided by operating
activities increased by $76.2 million in 1997 when compared to 1996. The
increase in 1997 reflects the increase in cash earnings and the significantly
higher level of cash utilized in 1996 to settle liabilities assumed in
connection with acquisitions.
Despite higher capital expenditures, cash flows used in investing activities
decreased in 1998 from the 1997 level due to the relative cost of companies
acquired in each year. Offsetting the decrease was an increase in software
development costs due to the acquisition of Columbine and the growth of the
Digital Services segment, investments in leveraged lease transactions and
minority interest investments in internet businesses. The increase in 1997 over
the 1996 level reflects the higher level of acquisition activity and higher
capital expenditures inherent in expanding the Company's operations. The Company
currently expects to spend approximately $95 million in 1999 for capital
additions.
39
<PAGE>
The amounts of cash provided by financing activities in each year reflect
the relative levels of acquisition activity, capital expenditures and
investments in those years. Additionally, financing cash flows in all years
reflect the repayment of debt assumed in acquisition transactions, which is
generally replaced by borrowings under the Company's revolving credit facility
under more favorable terms.
SEASONALITY AND OTHER FACTORS
While TC Advertising's advertising insert business is seasonal in nature,
the addition of other businesses has reduced the overall seasonality of the
Company's revenues. On a pro forma basis, assuming all businesses owned at
December 31, 1998 had been owned for the full year, net sales for the Company
for 1998 would have been 23% in the first quarter, 24% in the second, 25% in the
third and 28% in the fourth. Profitability, however, continues to follow a more
seasonal pattern due to the higher margins and efficiency during the Christmas
production season and lower margins in the first quarter that do not fully
leverage 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 strongest in the fourth quarter and softest in the first.
The cost of paper is a principal factor in TC Advertising's pricing to
certain customers. As TC Advertising is the Company's largest operating unit,
the cost of paper significantly affects the Company's net sales. TC Advertising
is generally able to pass increases in the cost of paper to its 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.
YEAR 2000
GENERAL
The Company has undertaken a comprehensive program to address the issue of
computer programs and embedded microchips which are unable to distinguish
between the year 1900 and the year 2000 within its organization and with respect
to its material suppliers and customers (the "Year 2000 Project"). The Company
has established Year 2000 teams at TC Advertising, Webcraft, Laser Tech and
Columbine, as well as at the Company's headquarters office.
PROJECT
The general approach employed by each of the Company's Year 2000 teams is:
(1) inventorying assets that may be affected by Year 2000 issues;
(2) assigning priorities to identified items;
(3) assessing the Year 2000 compliance of items determined to be material;
(4) repairing or replacing material items that are determined not to be Year
2000 compliant;
(5) testing material items;
40
<PAGE>
(6) identifying material vendors and customers (collectively, "Trading
Partners") and contacting each Trading Partner to determine whether the
products and/or services purchased from or sold to such Trading Partner
will be materially affected by the millenium year change;
(7) designing and implementing contingency plans where appropriate; and
(8) reviewing progress monthly with the Company's senior executives and
quarterly with the Company's Board of Directors.
TC Advertising has completed its inventory and testing of all material
assets. Computer hardware, software and networking equipment have been
successfully tested. Production equipment was tested, where possible, and
certification received from equipment manufacturers. Although some production
equipment will be upgraded in 1999 to ensure dates appear correctly on monitors
and reports, no embedded chip or production equipment problems were found which
would result in a production failure. Remediation of the human resources system
was completed in March 1999 and testing is expected to be completed by mid-1999.
TC Advertising identified customers with whom it exchanges electronic
transmissions and has tested successfully the material means of transmission
utilized in such exchanges. Contingency plans are being developed to minimize
the potential impact of shortages of critical supplies and the loss of any
production facility.
Webcraft has completed its inventory of all material assets. Webcraft
completed remediation and testing of its main unit business systems prior to
December 31, 1998. Other material computer remediation, upgrade and replacement
projects underway at Webcraft's subsidiaries are expected to be completed by the
middle of 1999. Webcraft has completed a review and testing, where possible, of
its production equipment. Only one type of equipment failure was uncovered that
would impact production, and this equipment is expected to be upgraded or
replaced in the second quarter of 1999. Webcraft has limited electronic
interaction with its customers but intends to test these interactions by the
middle of 1999.
Laser Tech has completed its inventory of all material assets and testing is
expected to be completed during the second quarter of 1999. Since many hardware
and software assets are similar across Laser Tech's numerous sites, centralized
testing is being performed for common assets and each subsidiary is testing
material assets unique to its operations. Many of the electronic premedia assets
are off-the-shelf, Macintosh-based hardware and software which, based upon
manufacturer information, Laser Tech believes are generally less susceptible to
Year 2000 issues. Tests have identified the need to upgrade certain common
technologies and these upgrades are expected to be completed by September 1999.
As planned, Laser Tech is replacing several financial systems with others which
the vendors have represented to be Year 2000 compliant. Implementation of these
systems is underway and completion at all designated sites is expected to be
completed by September 1999.
Columbine has completed its inventory of all material assets. Year 2000
compliant versions of Columbine's major products are currently in use by a
number of customers. Columbine is expected to complete upgrades for a few
remaining products and additional third-party products embedded in its software
by September 1999. It has successfully tested most of its internal systems and
is expected to upgrade or replace non-compliant systems by September 1999.
Columbine continues to communicate often with its customers to encourage them to
install needed upgrades and to test Columbine products thoroughly in the
customer
41
<PAGE>
environment. Columbine recognizes that customers who have not installed the
provided software upgrades or who have not thoroughly tested their own
environments may request unusual levels of support at year-end. Contingency
plans are being developed to meet these anticipated higher-than-normal customer
service demands.
Each group is testing facilities and miscellaneous equipment. Any
remediation is expected to be completed by September 1999. Contingency plans are
being developed to address concerns at each site. The Company anticipates
developing a contingency plan for each material asset which has not been
successfully tested by April 1999. Each group has identified material Trading
Partners and has initiated communications with material suppliers about their
plans and progress in addressing the Year 2000 issue. Detailed evaluations of
the most critical Trading Partners have been initiated and are scheduled for
completion by mid-1999, with follow-up reviews planned during the remainder of
1999. Based on these evaluations, each group will tailor its contingency plans
as appropriate. In general, the Company began its examination of various
contingency plans in the fourth quarter of 1998 and expects to complete the same
by mid-1999. Communications with customers have begun and will continue into
1999 to ensure continued service levels.
As time passes, it is foreseeable that additional Year 2000 issues will
arise due to business acquisitions or other reasons, in which case the Company
will address such issues as they arise. The Company will evaluate future
acquisition candidates for Year 2000 compliance prior to acquisition, where
feasible, and will conduct appropriate assessment, remediation, testing and
contingency planning following completion of any such acquisition. During the
fourth quarter of 1998 and January 1999, the Company made three acquisitions. In
each case, a review of the acquisition candidate's Year 2000 plans and project
status was completed and evaluated. Following acquisition, these new units are
participating in the ongoing company-wide Year 2000 team activities.
The headquarters office Year 2000 team has been coordinating and overseeing
the Year 2000 responses of the operating units. Since mid-1998, a detailed
monthly report has been submitted to and discussed with senior executives of the
Company, including the Chief Executive Officer and Chief Financial Officer.
Since the second quarter of 1998, a quarterly progress report has been submitted
to and discussed with the Company's Board of Directors. The Company plans to
continue such periodic reporting.
COSTS
The estimated total cost of the Year 2000 Project, including that related to
the acquisitions made during the fourth quarter of 1998 and January 1999, is
approximately $5.0 million, of which approximately $2.8 million reflects
allocation of internal costs and approximately $2.2 million reflects amounts for
external consultants, equipment, hardware and software. The total amount spent
on the Year 2000 Project through December 31, 1998 was approximately $3.0
million, of which approximately $2.3 million reflected allocation of internal
costs and approximately $0.7 million related to external costs, principally
consultants. Because the Company had planned to replace certain financial
systems before formal consideration of the Year 2000 issue, the costs of
implementing such systems are not included in these cost estimates, but are
included in the Company's capital expenditure estimates.
42
<PAGE>
RISKS
The failure to address a material Year 2000 issue could result in an
interruption in, or a failure of, certain normal business activities or
operations. Due to the diversity and decentralized nature of the Company's
operations, there are few systems the failure of which would have a material
adverse effect on the Company as a whole. Nonetheless, the Company relies upon
utility companies, telecommunication services providers, the United States
Postal Service, the financial services industry and other suppliers outside of
its control and there can be no assurance that such suppliers or other third
parties will not suffer a Year 2000 business disruption. The failure of the
systems or equipment of one or more third parties (which the Company believes is
the most reasonably likely worst case scenario) could result in the reduction or
suspension of one or more of the Company's operations and could have a material
adverse effect on the Company's consolidated financial position or results of
operations. Due to the general uncertainty inherent in the Year 2000 issue,
resulting in part from the uncertainty of the Year 2000 readiness of its Trading
Partners and its Trading Partners' customers, the Company is unable to determine
at this time whether the consequences of Year 2000 failures will have a material
impact on the Company's consolidated financial position or results of
operations. The Year 2000 Project is expected to significantly reduce the
Company's level of uncertainty about the Year 2000 issue and, in particular,
about the Year 2000 compliance and readiness of its material Trading Partners.
The Company believes that, with the implementation of new business systems and
completion of the Year 2000 Project as scheduled, the possibility of significant
interruptions of normal operations should be greatly reduced.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUALITATIVE INFORMATION
The Company's primary exposures to market risks relate to interest rate
fluctuations on variable rate debt and, to a lesser extent, to the decline in
market values of available-for-sale investments. Its exposure to foreign
currency exchange rate fluctuations is immaterial as foreign operations are a
small proportion of the total Company and foreign currency borrowings act as a
natural hedge against fluctuations in net asset values. The fair values of all
financial instruments, other than investments, debt and redeemable convertible
preferred securities, approximate their carrying values (see Note 2 to the
Consolidated Financial Statements).
The Company's objective in its risk management program is to seek a
reduction in the potential negative earnings effects from changes in interest
rates. The Company's strategy to meet this objective is to maintain a balance
between fixed-rate and variable-rate debt, varying the proportion based on the
Company's perception of interest rate trends and the marketplace for various
debt instruments. In general, the Company does not use derivative financial
instruments in its risk management program and does not use any for trading
purposes. These practices may change in the future as conditions change.
QUANTITATIVE INFORMATION
At December 31, 1998, 85% of the Company's long-term debt was fixed-rate.
Including off-balance sheet debt related to the accounts receivable
securitization facility, the fees on which are variable, fixed-rate debt
represented 73% of total debt. When also including
43
<PAGE>
redeemable convertible preferred securities, which carry a fixed dividend, fixed
rate obligations represented 77% of the total.
If interest rates increased 10%, the expected effect on net income related
to variable-rate debt would be immaterial.
For the purposes of sensitivity analysis, the same percentage change was
assumed for both the revolving credit facility and the accounts receivable
securitization facility. All other factors were held constant. The sensitivity
analysis is limited in that it is based on balances outstanding at December 31,
1998 and does not provide for changes in borrowings that may occur in the
future.
A 10% decline in the market value of all available-for-sale investments
owned at December 31, 1998 would have an insignificant impact on the Company's
assets and no impact on net income as the unrealized gain is deferred until the
investments are sold.
FORWARD-LOOKING STATEMENTS
Readers are cautioned that forward-looking statements contained herein
concerning market risks should be read in conjunction with the Company's
disclosures under the heading: "SAFE HARBOR STATEMENT" on page 1.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index to Consolidated Financial Statements and
Schedules on page F-1 for Big Flower's consolidated financial statements and
notes thereto and supplementary schedules. All other schedules have been omitted
as not required or not applicable or because the information required to be
presented is included in the consolidated financial statements and related
notes.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
44
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Big Flower Holdings, Inc., all of
whom are U.S. citizens, and their ages as of March 29, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
R. Theodore Ammon......................... 49 Class III Director; Chairman of the Board
Peter G. Diamandis........................ 67 Class II Director
Robert M. Kimmitt......................... 51 Class I Director
Joan D. Manley............................ 66 Class II Director
Newton N. Minow........................... 73 Class I Director
Edward T. Reilly.......................... 52 Class III Director; President and Chief Executive Officer
Mark A. Angelson.......................... 48 Executive Vice President--Office of the Chairman, General
Counsel and Secretary of the Board of Directors
Richard L. Ritchie........................ 52 Executive Vice President and Chief Financial Officer
</TABLE>
The board of directors of Big Flower Press consists of Messrs. Ammon, Reilly
and Angelson. The executive officers of Big Flower Press are the same as the
executive officers of Big Flower Holdings, Inc.
Certain information regarding each person listed above, including such
person's principal occupation during the past five years and current
directorships, is set forth below. Unless indicated otherwise, all directors and
executive officers have had the indicated principal occupations for the past
five years.
R. THEODORE AMMON has been the Chairman of the Board of the Company since
its inception and was Chief Executive Officer of Big Flower Press from that date
until April 1997. Mr. Ammon is also the Chairman of XL Ventures, Inc., the
Company's Internet and new media venture capital subsidiary ("XL Ventures"). Mr.
Ammon is also a director of Big Flower Press and Digital Services. Mr. Ammon was
a General Partner of Kohlberg Kravis Roberts & Co. (a New York and San
Francisco-based investment firm) from 1990 to 1992, and an executive of such
firm prior to 1990. Mr. Ammon is also the Chairman of the Board of 24/7 Media,
Inc. and a member of the Board of Directors of Host Marriott Corporation, and
serves on the boards of directors of numerous privately held corporations. Mr.
Ammon is involved in a number of not-for-profit organizations and serves as a
member of the Board of Directors of The Municipal Art Society of New York, The
New York YMCA, and Jazz @ Lincoln Center. He is also a member of the Board of
Trustees of Bucknell University.
PETER G. DIAMANDIS has been a Director of the Company since September 1994.
Mr. Diamandis is also a director of XL Ventures. Mr. Diamandis was Vice Chairman
of Donnelley Marketing, Inc., a marketing company, from 1991 through 1996. Since
1996, he has been the Vice Chairman of DM LLC, the successor entity to Donnelley
Marketing, Inc. He has also been the Chairman of TVSM, Inc., a magazine
publishing company, since 1991. From 1988 to 1991, Mr. Diamandis served as
President and Chief Executive Officer of Hachette Publications, which purchased
Diamandis Communications Inc. in 1988. From 1987 to 1988, Mr. Diamandis served
as Chairman, President and Chief Executive Officer of Diamandis Communications
Inc., a publisher of special interest magazines. In 1982, Mr. Diamandis joined
CBS Magazines ("CBS") as Vice President, Group Publisher, Women's Day, and
45
<PAGE>
served as President of CBS from September 1983 to 1987. Mr. Diamandis is a
former Chairman of Magazine Publishers of America. Mr. Diamandis serves on the
Board of Trustees of Bucknell University.
ROBERT M. KIMMITT has been a Director of the Company since November 1996.
Since May 1997, he has been a partner in the law firm of Wilmer, Cutler &
Pickering. From 1993 to April 1997, Mr. Kimmitt was a managing director of
Lehman Brothers and head of its Washington corporate finance office. Prior to
joining Lehman Brothers, Mr. Kimmitt served from 1991 to 1993 as American
Ambassador to Germany, and from 1989 to 1991 as Under Secretary of State for
Political Affairs. He was a partner in the Washington office of Sidley & Austin
from 1987 to 1989. Mr. Kimmitt served as a member of the National Security
Council staff at the White House from 1978 to 1985 and General Counsel of the
Department of the Treasury from 1985 to 1987. Mr. Kimmitt serves on the boards
of Allianz Life Insurance Company of North America and United Defense
Industries, Inc., as well as on the supervisory boards of Mannesmann AG of
Duesseldorf, Germany, Siemens AG of Munich, Germany, and on the U.S. Group
Council of BMW AG of Munich, Germany. He is also on the Board of the German
Marshall Fund and several other non-profit organizations whose focus is
international affairs.
JOAN D. MANLEY has been a Director of the Company since September 1994. Ms.
Manley retired from Time Incorporated in 1984, where she had held numerous
positions since 1960. At the time of her retirement, Ms. Manley was Group Vice
President and a director of Time Incorporated. Ms. Manley serves on the Board of
Directors of Sara Lee Corporation and Founders Fund and is a Trustee of the
Rocky Mountain Resource Center.
NEWTON N. MINOW has been a Director of the Company since September 1996.
Since 1991, Mr. Minow has been counsel to the law firm of Sidley & Austin, where
he served as Partner from 1965 to 1991. He also served as Chairman of the
Federal Communications Commission from 1961 to 1963. He is a director of Aon
Corporation and Manpower, Inc. Mr. Minow is former Chairman of the Carnegie
Corporation of New York, an Advisory Trustee and former Chairman of the Board of
Trustees of The RAND Corporation and former Chairman of the Board of Governors
of the Public Broadcasting Service. Mr. Minow is also a Life Trustee of the
University of Notre Dame and a Life Trustee of Northwestern University.
EDWARD T. REILLY has been Chief Executive Officer of the Company since April
1997, President of the Company since March 1996 and a Director of the Company
since June 1996. He was also the Chief Operating Officer of Big Flower Press
from March 1996 until April 1997. He is a director of Big Flower Press, TC
Advertising, Digital Services and Webcraft. Prior to joining Big Flower, Mr.
Reilly held a variety of executive positions with McGraw-Hill, Inc., a
publishing and communications company, in their Broadcast and Publication groups
from 1968 to 1996, and served as President of McGraw-Hill Broadcasting from 1987
to 1996. He is Vice Chairman and a member of the executive committee of the Ad
Council and serves on the Board of Trustees of Lynchburg College in Virginia.
Recently, Mr. Reilly was elected to the Board of Directors of The National
Council of La Raza. In addition, Mr. Reilly has been active in television
industry affairs, having served as the Chairman of the Television Bureau of
Advertising and as a member of the Board of Directors of the National
Association of Broadcasters. He is the former Chairman of the Association for
Maximum Service Television (MSTV), a trade association of over 300 television
stations
46
<PAGE>
which has been in the forefront of the effort to facilitate the industry's
transition to high definition television.
MARK A. ANGELSON has been Executive Vice President and General Counsel and
Secretary of the Board of Directors of the Company since March 1996 and
Executive Vice President-- Office of the Chairman since March, 1999. Mr.
Angelson also serves as Deputy Chairman of XL Ventures. He is a director of Big
Flower Press, TC Advertising, Digital Services and Webcraft. Prior to joining
Big Flower, Mr. Angelson practiced law with Sidley & Austin from 1982 to 1996.
Mr. Angelson was Co-Chair of Sidley's international operations, founder of the
firm's English law practice and manager of the firm's offices in Singapore, New
York and London. Mr. Angelson is admitted to practice law in the State of New
York, and as a solicitor in England and Wales. He is also a Trustee of American
School in London Foundation, Inc., a Fellow of Royal Society of Arts, a member
of the Advisory Board of Jobs for the Future, Inc., a member of the Pilgrims of
Great Britain and an officer and director of 78(th) and Park Corporation.
RICHARD L. RITCHIE has been Executive Vice President and Chief Financial
Officer of the Company since January 1997. Prior to joining Big Flower, Mr.
Ritchie served as Senior Vice President and Chief Financial Officer of
Harte-Hanks Communications, Inc. from 1986 to 1996.
The directors of the Company are divided into three classes, designated as
Class I, Class II and Class III. Each class consists, as nearly as possible, of
one third of the total number of directors constituting the entire Board of
Directors. After their initial term, the directors of each class serve for a
term of three years and until their successors are elected and qualified and
subject to prior death, resignation, retirement, disqualification or removal.
Currently, the Class I directors are Messrs. Kimmitt and Minow; the Class II
directors are Mr. Diamandis and Ms. Manley; and the Class III directors are
Messrs. Ammon and Reilly. The current terms of the Class I, Class II and Class
III directors expire at the annual meetings of the Company's stockholders in
1999, 2000 and 2001, respectively. At each annual meeting of stockholders,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional directors of any class elected to fill a vacancy resulting from
an increase in such class shall hold office for a term that shall coincide with
the remaining term of that class, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. The term of office of
each executive officer is until the organizational meeting of the Board of
Directors of the Company following the next annual meeting of the Company's
stockholders and until such director's successor is elected and qualified or
until such director's prior death, resignation, retirement, disqualification or
removal.
COMPENSATION OF DIRECTORS
Directors of Big Flower who are also executive officers of Big Flower or its
subsidiaries do not receive any additional compensation for service as a member
of the Board of Directors of Big Flower or any of its committees. For
information relating to compensation of the Company's management directors, see
"Employment Arrangements with Executive Officers" below.
47
<PAGE>
All other directors of Big Flower (each, a "non-employee director") are paid
an annual fee of $25,000 for serving on the Board. In addition, effective as of
June 24, 1997, (a) the Chairman of each of the Corporation's Standing Committees
(consisting of the Audit, Compensation and Nominating Committees) who is a
non-employee director is paid an annual retainer of $2,500 and (b) each member
of such Standing Committees (including any Chairman who is a non-employee
director) is paid a fee of $1,000 for each Standing Committee meeting attended
by such member. In addition, each non-employee director is given the option of
electing to receive all or a portion of their annual retainer and meeting fees
in the form of (a) shares of Common Stock, (b) options to purchase shares of
Common Stock, or (c) cash. Furthermore, each member of the Board of Directors of
Big Flower who is not an employee of Big Flower, any of its subsidiaries or any
of its affiliates (a "non-management director") receives (i) an option to
purchase 13,400 shares of Common Stock (the "Initial Election Option") on the
date that such director is first elected to the Board of Directors and (ii) an
option to purchase 1,000 shares of Common Stock (the "Reelection Option") on
each anniversary of the date that such director is elected to the Board of
Directors. Each Initial Election Option has a term of ten years, and each
Reelection Option has a term of five years. Each such option vests immediately
upon the date of grant. Each such option has an exercise price equal to the
closing price (the "Closing Price") of a share of Common Stock on the New York
Stock Exchange on the date of grant, which exercise price may be paid in cash,
by check or in previously-acquired unrestricted shares of Common Stock, valued
at the Closing Price on the date of such exercise.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Big Flower's directors, executive officers, and
persons who own more than ten percent of Big Flower's Common Stock, to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange.
Directors, executive officers and greater than ten percent stockholders are
required by the SEC regulations to furnish Big Flower with copies of all Forms
3, 4 and 5 they file.
Based solely on Big Flower's review of the copies of such forms it has
received, or written representations from certain reporting persons that no Form
5's were required for these persons, Big Flower believes that all its directors,
executive officers and greater than ten percent beneficial owners complied with
all filing requirements applicable to them with respect to 1998.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid in respect of the years
ended December 31, 1998, 1997 and 1996 to R. Theodore Ammon, Chairman of Big
Flower, Edward T. Reilly, President and Chief Executive Officer of Big Flower,
and to each of the other most highly paid executive officers of the Company
(collectively, the "Named Executive Officers").
48
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION PERIOD SALARY($) BONUS($) ($) SARS(#)(1) ($)(2)
- ------------------------------------------- ----------- --------- --------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Theodore Ammon.......................... 1998 750,000 675,000 (3) -- 2,400
Chairman 1997 750,000 799,875 (3) -- 2,400
1996 750,000 339,844 (3) -- 2,178
Edward T. Reilly........................... 1998 550,000 495,000 (3) -- 2,400
President and Chief Executive Officer 1997 533,333 586,575 (3) 200,000 2,400
1996 375,000 287,000(4) (3) 200,000 1,593
Mark A. Angelson........................... 1998 505,000 463,500 (3) 25,000 2,400
Executive Vice President--Office of the 1997 468,750 506,588 (3) 58,300 2,400
Chairman, General Counsel and Secretary of 1996 315,000 225,000 343,982(5) 150,000 --
the Board
Richard L. Ritchie(6)...................... 1998 425,000 382,500 (3) 45,000 2,400
Executive Vice President and Chief 1997 395,641 451,600(7) (3) 100,000 2,400
Financial Officer 1996 -- -- -- -- --
</TABLE>
- ------------------------
(1) All stock option grants were made pursuant to the Big Flower Holdings, Inc.
Restated 1993 Stock Award and Incentive Plan (the "Plan") and are described
below under "Options Granted in Fiscal 1998" and "Employment Arrangements
with Executive Officers."
(2) Represents amounts contributed to 401(k) plan by the Company on behalf of
the Named Executive Officer.
(3) Perquisites and other personal benefits did not exceed the lesser of $50,000
or 10% of the total annual salary and bonus reported under the headings of
"Salary" and "Bonus."
(4) Includes a one-time signing bonus of $37,000 to reimburse Mr. Reilly for
certain costs incurred in connection with his leaving his previous position.
(5) Includes relocation costs of $335,862 (including tax gross up).
(6) The Named Executive Officer began his employment with Big Flower in 1997;
therefore the Named Executive Officer did not receive any compensation from
Big Flower prior to that time.
(7) Includes a lump sum payment of $25,000 for incidental moving expenses.
The following table sets forth certain information with respect to options
to purchase shares of Common Stock granted to the Named Executive Officers
during 1998. The Company did not grant any stock appreciation rights to any of
the Named Executive Officers and no stock options were exercised by any Named
Executive Officer during 1998.
49
<PAGE>
OPTIONS GRANTED IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
NUMBER OF % OF TOTAL GRANT DATE VALUE
SECURITIES OPTIONS ------------------
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL 1998 ($/SHARE) DATE VALUE($)(1)
- ----------------------------------------- ----------- ------------ ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Mark A. Angelson(2)...................... 25,000 7.76% $ 28.4375 3/11/08 449,600
Richard L. Ritchie(3).................... 45,000 13.98% $ 26.75 2/17/08 799,700
</TABLE>
- ------------------------
(1) These values were calculated using a Black-Scholes option pricing model. The
actual value, if any, that an executive may realize will depend on the
excess, if any, of the stock price over the exercise price on the date the
options are exercised, and no assurance exists that the value realized by an
executive will be at or near the value estimated by the Black-Scholes model.
The following assumptions were used in the calculations:
(a) assumed option term of 10 years;
(b) stock price volatility factor of 0.4427;
(c) 5.77% annual discount rate;
(d) no dividend payment; and
(e) 3% discount to Black-Scholes ratio for each year an option remains
unvested.
(2) These options were granted on March 11, 1998 and vested in full on the first
anniversary of the date of grant. The exercise price was equal to the
Closing Price on the date of the grant. The options are exercisable at any
time between the date of vesting and the tenth anniversary of the date of
grant.
(3) These options were granted on February 17, 1998 and vest in full on the
second anniversary of the date of grant. The exercise price was equal to the
Closing Price on the date of the grant. The options will be exercisable at
any time between the date of vesting and the tenth anniversary of the date
of grant.
OPTION VALUES AT END OF FISCAL 1998
The following table sets forth certain information concerning the number and
the value at the end of 1998 of unexercised in-the-money options to purchase
Common Stock granted to the Named Executive Officers as of the end of 1998. No
stock appreciation rights have been granted to any of the Named Executive
Officers.
50
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL 1998 END(#) FISCAL 1998 END($)
SHARES ------------------ -------------------
ACQUIRED ON VALUE EXERCISABLE/ EXCERCISABLE/
NAME EXERCISE(#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
- --------------------------------------------- ----------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C>
R. Theodore Ammon............................ 0 0 300,000/0 1,818,750/0
Edward T. Reilly............................. 0 0 253,334/146,666 1,517,334/807,166
Mark A. Angelson............................. 0 0 133,300/100,000 937,369/707,813
Richard L. Ritchie........................... 0 0 25,000/120,000 101,563/304,688
</TABLE>
- ------------------------
(1) Based on the Closing Price of $22.0625 of Big Flower's Common Stock on
December 31, 1998, the last trading day of 1998, less the exercise price
payable for such shares.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The following table sets forth annual amounts payable to the Named Executive
Officers' upon their retirement under TC Advertising's supplemental executive
retirement plan (the "SERP").
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30
- ----------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$150,000..................... $ 7,500 $ 15,000 $ 22,000 $ 30,000 $ 37,500 $ 45,000
175,000...................... 8,750 17,500 26,250 35,000 43,750 52,500
200,000...................... 10,000 20,000 30,000 40,000 50,000 60,000
225,000...................... 11,250 22,500 33,750 45,000 56,250 67,500
250,000...................... 12,500 25,000 37,500 50,000 62,500 75,000
275,000...................... 13,750 27,500 41,250 55,000 68,750 82,500
300,000...................... 15,000 30,000 45,000 60,000 75,000 90,000
500,000...................... 25,000 50,000 75,000 100,000 125,000 150,000
600,000...................... 30,000 60,000 90,000 120,000 150,000 180,000
700,000...................... 35,000 70,000 105,000 140,000 175,000 210,000
800,000...................... 40,000 80,000 120,000 160,000 700,000 240,000
900,000...................... 45,000 90,000 135,000 180,000 225,000 270,000
</TABLE>
The compensation covered by the SERP includes the executive's entire annual
base salary. Messrs. Ammon, Reilly, Angelson and Ritchie, currently have 5, 3, 3
and 2 years of service, respectively. See "Employment Arrangements with
Executive Officers" below. Benefits under the SERP are computed by multiplying
the participant's average salary for the
51
<PAGE>
last five years prior to retirement by a percentage equal to one percent for
each year of service up to a maximum of 30 years. Benefits under the SERP are
not subject to a deduction for Social Security or other offset amounts.
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
AMMON EMPLOYMENT AGREEMENT. The Company has entered into an employment
agreement with Mr. Ammon, effective November 20, 1995 (as amended to date, the
"Ammon Agreement"), pursuant to which Mr. Ammon currently serves as Chairman of
the Board. The initial term of the Ammon Agreement is three years, subject to
automatic one-year extensions, the first of which commenced on the second
anniversary of the Ammon Agreement, unless either the Company or Mr. Ammon
provides specified notice to the contrary. Mr. Ammon is required to devote to
the Company the time necessary for the effective conduct of his duties under the
Ammon Agreement and is permitted to engage in outside business interests that do
not conflict with such duties or otherwise compete with the Company. Under the
Ammon Agreement, Mr. Ammon currently receives a base salary of $750,000 per
year; an annual bonus targeted at not less than 75% of base salary (assuming
bonus targets under the Company's Executive Incentive Plan (the "EIP") are met);
an annual payment of $108,000 with respect to life insurance premiums; and
certain fringe benefits, including participation in the SERP. Mr. Ammon was
granted an option to purchase 300,000 shares of Common Stock (a) with a ten-year
term, (b) at an exercise price equal to $16.00 per share and (c) vesting ratably
over a three-year period.
If Mr. Ammon's employment with the Company is terminated other than for
"cause" (as defined in the Ammon Agreement), Mr. Ammon will be entitled to
receive a supplemental retirement benefit, subject to certain vesting and
benefit accrual requirements and subject to being offset by amounts payable
under the SERP, of up to 50% of his final average compensation (including salary
and EIP bonus), which benefit would commence at age 60. Mr. Ammon will have the
right to terminate the Ammon Agreement in the event of the material breach
thereof by the Company or for other "good reason" (as defined in the Ammon
Agreement). In such event, or if the Company terminates Mr. Ammon's employment
without cause, (i) Mr. Ammon will be entitled generally to receive the salary
and bonus otherwise payable to him over the greater of (x) the remaining term of
the Ammon Agreement and (y) a period of six months; (ii) all outstanding equity
incentive awards (including stock options) would immediately vest; (iii) Mr.
Ammon would receive additional service credit for purposes of the supplemental
retirement benefit; and (iv) the life insurance and certain fringe benefits
would continue during the severance period. Upon the termination of his
employment following a "change in control" of the Company (as defined in the
Ammon Agreement), Mr. Ammon would (i) be entitled to receive a lump sum amount
equal to three times his base salary and bonus, (ii) become vested in all
outstanding equity incentive awards, (iii) have the right to receive a cash
payment equal to the spread on all outstanding stock options, (iv) receive a
lump sum payment with respect to foregone fringe benefits, (v) receive
additional service credit for purposes of the supplemental retirement benefit
and (vi) be entitled to a payment sufficient to offset the effects of any excise
tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"). During the term of the Ammon Agreement (and, in the event Mr.
Ammon terminates his employment other than for good reason or the Company
terminates Mr. Ammon's employment for cause,
52
<PAGE>
for a period of one year beyond the expiration of the employment term), Mr.
Ammon will be subject to certain non-competition and non-solicitation
requirements.
REILLY EMPLOYMENT AGREEMENT. The Company has entered into an employment
agreement with Mr. Reilly, effective March 29, 1996 (the "Reilly Agreement"),
pursuant to which Mr. Reilly currently serves as President and Chief Executive
Officer of the Company. The initial term of the Reilly Agreement is three years,
subject to automatic one-year extensions commencing on the second anniversary of
the Reilly Agreement, unless either the Company or Mr. Reilly provides specified
notice to the contrary. Mr. Reilly is required to devote to the Company all of
his working time, attention and efforts. Under the Reilly Agreement, Mr. Reilly
currently receives a base salary of $550,000 per year; an annual bonus targeted
at not less than 75% of base salary (assuming bonus targets under the EIP are
met); and certain fringe benefits, including participation in the SERP. In
connection with his entering into the Reilly Agreement, Mr. Reilly was granted
an option to purchase 200,000 shares of Common Stock (a) with a ten-year term,
(b) at an exercise price of $12.75 per share (the Closing Price on the date of
grant), and (c) vesting in installments of 20% each on December 31, 1996, 1997,
1998, and 1999 and the remaining 20% on the fourth anniversary of the Reilly
Agreement. On April 29, 1997, Mr. Reilly was granted an option to purchase
100,000 shares of Common Stock (a) with a ten-year term and (b) at an exercise
price of $18.375 (the Closing Price on the date of grant). These options vested
in full on the first anniversary of the date of grant. In addition, on April 29,
1997, Mr. Reilly was granted an option to purchase 100,000 shares of Common
Stock (a) with a ten-year term and (b) at an exercise price of $21.13 (which was
equal to 115% of the Closing Price on the date of grant). One-third of these
options vested on April 29, 1998, with the remainder vesting on the second and
third anniversaries of the date of grant. All of the foregoing options will
immediately vest upon the occurrence of a "change of control" of the Company (as
defined in the Reilly Agreement).
Mr. Reilly will have the right to terminate the Reilly Agreement in the
event of the material breach thereof by the Company or for other "good reason"
(as defined in the Reilly Agreement). In such event, or if the Company
terminates Mr. Reilly's employment without "cause" (as defined in the Reilly
Agreement), (i) Mr. Reilly will be entitled to receive a lump sum amount equal
to the sum of (A) two times the sum of (x) his then base salary plus (y) the
highest annual performance bonus Mr. Reilly received in the three years
preceding such termination of employment, plus (B) the present value of all
fringe benefits payable under the remaining term of the Reilly Agreement, (ii)
all outstanding equity incentive awards (including stock options) will
immediately vest and remain exercisable for a period of one year following the
date of such termination (or, if earlier, until the end of the option term), and
(iii) Mr. Reilly would be entitled to receive a payment sufficient to offset the
effects of any excise tax imposed under Section 4999 of the Code. During the
term of the Reilly Agreement (and, in the event Mr. Reilly terminates his
employment other than for good reason or the Company terminates Mr. Reilly's
employment for cause, for a period of one year beyond the expiration of the
employment term), Mr. Reilly will be subject to certain non-competition and
non-solicitation requirements.
ANGELSON EMPLOYMENT AGREEMENT. The Company has entered into an employment
agreement with Mr. Angelson, effective March 21, 1996 (as amended to date, the
"Angelson Agreement"), pursuant to which Mr. Angelson currently serves as
Executive Vice President-- Office of the Chairman, General Counsel and Secretary
of the Board of Directors of the
53
<PAGE>
Company and as Deputy Chairman of XL Ventures. The initial term of the Angelson
Agreement is three years, subject to automatic one-year extensions, the first of
which commenced on the second anniversary of the Angelson Agreement, unless
either the Company or Mr. Angelson provides specified notice to the contrary.
Mr. Angelson is required to devote to the Company and its affiliates all of his
working time, attention and efforts. Under the Angelson Agreement, Mr. Angelson
currently receives a base salary of $515,000 per year; an annual bonus targeted
at not less than 75% of base salary (assuming bonus targets under the EIP are
met); annual premium payments during the term of employment with respect to a $2
million split-dollar life insurance policy owned by Mr. Angelson; and certain
fringe benefits, including participation in the SERP. In connection with his
entering into the Angelson Agreement, Mr. Angelson was granted an option to
purchase 150,000 shares of Common Stock (a) with a ten-year term, (b) at an
exercise price of $12.625 per share (the Closing Price on the date of grant),
and (c) vesting in installments of 10% on December 31, 1996, 15% on the first
anniversary of the Angelson Agreement and 25% on each of the next three
anniversaries of the Angelson Agreement. On March 25, 1997, Mr. Angelson was
granted an option to purchase 58,300 shares of Common Stock (a) with a ten-year
term and (b) at an exercise price of $18.125 (the Closing Price on the date of
grant). These options vested in full on the first anniversary of the date of
grant. For information regarding options granted to Mr. Angelson in 1998, see
"Options Granted in Fiscal 1998" above. All of the foregoing options will
immediately vest upon the occurrence of a "change of control" of the Company (as
defined in the Angelson Agreement).
Mr. Angelson will have the right to terminate the Angelson Agreement in the
event of the material breach thereof by the Company or for other "good reason"
(as defined in the Angelson Agreement). In such event, or if the Company
terminates Mr. Angelson's employment without "cause" (as defined in the Angelson
Agreement), (i) Mr. Angelson will be entitled to receive a lump sum amount equal
to the sum of (A) two times the sum of (x) his then base salary plus (y) the
highest annual performance bonus Mr. Angelson received in the three years
preceding such termination of employment, plus (B) the present value of all
insurance premium payments and other fringe benefits payable under the remaining
term of the Angelson Agreement, (ii) all outstanding equity incentive awards
(including stock options) will immediately vest and remain exercisable for a
period of one year following the date of such termination (or, if earlier, until
the end of the option term), and (iii) Mr. Angelson would be entitled to receive
a payment sufficient to offset the effects of any excise tax imposed under
Section 4999 of the Code. During the term of the Angelson Agreement (and, in the
event Mr. Angelson terminates his employment other than for good reason or the
Company terminates Mr. Angelson's employment for cause, for a period of one year
beyond the expiration of the employment term), Mr. Angelson will be subject to
certain non-competition and non-solicitation requirements.
RITCHIE EMPLOYMENT ARRANGEMENTS. The Company entered into a letter agreement
with Mr. Ritchie on December 13, 1996 (the "Ritchie Agreement"), pursuant to
which Mr. Ritchie serves as Executive Vice President and Chief Financial Officer
of the Company. Mr. Ritchie is required to devote to the Company all of his
working time, attention and efforts. In the event that Mr. Ritchie's employment
should be terminated by the Company other than for "cause" (as defined in the
Executive Severance Agreement discussed below) prior to a "change in control" of
the Company (as defined in the Executive Severance Agreement discussed below),
Mr. Ritchie will be entitled to a payment equal to one year's base salary. Under
the Ritchie
54
<PAGE>
Agreement, Mr. Ritchie currently receives a base salary of $450,000 per year; an
annual bonus targeted at not less than 75% of base salary (assuming bonus
targets under the EIP are met); and certain fringe benefits, including
participation in the SERP. In connection with his entering into the Ritchie
Agreement, Mr. Ritchie was granted an option to purchase 100,000 shares of
Common Stock (a) with a ten-year term, (b) at an exercise price of $18.00 per
share (the Closing Price on the date of grant), and (c) vesting in installments
of 25% on January 6 of each of 1998, 1999, 2000 and 2001, provided that all such
options will immediately vest upon the occurrence of a "change in control" of
the Company. For information regarding options granted to Mr. Ritchie in 1998,
see "Options Granted in Fiscal 1998" above.
In addition, the Company has entered into a severance agreement with Mr.
Ritchie, effective January 6, 1997 (the "Executive Severance Agreement"), which
provides that if Mr. Ritchie's employment is terminated by the Company without
"cause" or by Mr. Ritchie for "good reason" (as defined in the Executive
Severance Agreement) following a "change in control" of the Company, Mr. Ritchie
will receive a lump sum amount equal to two times the sum of (x) the greater of
his annual base salary in effect immediately prior to the termination of
employment and his annual base salary in effect immediately prior to the "change
in control" and (y) the greater of the target bonus for Mr. Ritchie under the
EIP in the year immediately preceding that in which the termination occurs and
the average such bonus for the three years immediately preceding the "change in
control." In addition, (i) all outstanding stock incentive awards (including
stock options) will immediately vest and remain exercisable until at least 90
days following the "change in control," and (ii) Mr. Ritchie would be entitled
to two years of continued medical and other insurance benefits. The total amount
of benefits payable to Mr. Ritchie would be limited to the extent necessary to
preserve the Company's deduction pursuant to Section 280G of the Code.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership as of February 26,
1999 by each person known by the Company to be the beneficial owner of more than
5% of the outstanding shares of Common Stock (constituting the only class of
voting stock of the Company), each director of the Company, each Named Executive
Officer, and all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------------------------
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP (A) PERCENTAGE OF CLASS
- -------------------------------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
R. Theodore Ammon (b)............................................... 2,517,144 12.6%
c/o Big Flower Holdings, Inc.
3 East 54th Street
New York, New York 10022
EnTrust Capital Inc................................................. 4,049,354 20.5%
650 Madison Avenue
New York, New York 10022
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
55
<PAGE>
(TABLE CONTINUED FROM PRECEEDING PAGE)
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------------------------
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP (A) PERCENTAGE OF CLASS
- -------------------------------------------------------------------- ------------------------ ---------------------
<S> <C> <C>
The Prudential Insurance Company of America......................... 1,287,700 6.5%
751 Broad Street
Newark, New Jersey 07102-3777
Peter G. Diamandis (c).............................................. 24,816 *
700 Canal Street
Stamford, Connecticut 06902
Robert M. Kimmitt (d)............................................... 23,651 *
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Joan D. Manley (e).................................................. 17,004 *
P.O. Box 1353
Dillon, Colorado 80435
Newton N. Minow (f)................................................. 33,651 *
c/o Sidley & Austin
One First National Plaza
Suite 4800
Chicago, Illinois 60603
Edward T. Reilly (g)................................................ 294,467 1.5%
c/o Big Flower Holdings, Inc.
3 East 54th Street
New York, New York 10022
Mark A. Angelson (h)................................................ 201,000 1.0%
c/o Big Flower Holdings, Inc.
3 East 54th Street
New York, New York 10022
Richard L. Ritchie (i).............................................. 50,000 *
c/o Big Flower Holdings, Inc.
3 East 54th Street
New York, New York 10022
All directors and current executive officers as a group
(8 persons) (j)................................................... 3,163,298 15.3%
</TABLE>
- ------------------------
* Less than one percent
(a) This column includes shares which directors and executive officers have the
right to acquire within 60 days. Except as otherwise indicated, each person
and entity has sole voting and dispositive power with respect to the shares
set forth in the table.
(b) Includes (x) 6,000 shares held by Mr. Ammon as general partner of a
partnership in which certain family members are the limited partners and
have 99% of the economic interests, (y) options to
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
56
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEEDING PAGE)
purchase 300,000 shares of Common Stock which are presently exercisable and
(z) 200 shares owned by Mr. Ammon's minor children, as to which Mr. Ammon
disclaims beneficial ownership.
(c) Represents options to purchase 24,816 shares of Common Stock which are
presently exercisable.
(d) Represents options to purchase 23,651 shares of Common Stock which are
presently exercisable.
(e) Includes option to purchase 14,400 shares of Common Stock which are
presently exercisable.
(f) Includes options to purchase 23,651 shares of Common Stock which are
presently exercisable.
(g) Includes options to purchase 253,334 shares of Common Stock which are
presently exercisable and options to purchase 33,333 shares of Common Stock
which will become exercisable within 60 days.
(h) Includes options to purchase 133,300 shares of Common Stock which are
presently exercisable and options to purchase 62,500 shares of Common Stock
which will become exercisable within 60 days.
(i) Represents options to purchase 50,000 shares of Common Stock which are
presently exercisable.
(j) Includes options to purchase 918,985 shares of Common Stock which are
presently exercisable or which will become exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
57
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. Reference is made to the financial statements
listed in Section 1 of the Index to Consolidated Financial Statements and
Schedules on page F-1.
(a)(2) Financial Statement Schedules. Reference is made to the financial
statements listed in Section 2 of the Index to Consolidated Financial Statements
and Schedules on page F-1. All other schedules have been omitted as not
required, not applicable or because the information required to be presented is
included in the financial statements and related notes.
(a)(3) Exhibits. The following exhibits are filed as a part of this report
or incorporated by reference and will be furnished to any security holder upon
request for such exhibit and payment of any reasonable expenses incurred by the
Company. Send any such request to the Company at 3 East 54th Street, New York,
New York 10022; Attention: Secretary.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 10, 1993, by and among Robert E. Milhous, The Robert E.
Milhous Trust, Paul B. Milhous, The Paul Ballard Milhous Trust, Treasure Chest Advertising Company, Inc.,
Big Flower Press, Inc. and TCA Merger Corp.(1)
2.2 Amendment to Agreement and Plan of Merger, dated as of July 30, 1993, by and among Robert E. Milhous, The
Robert E. Milhous Trust, Paul B. Milhous, The Paul Ballard Milhous Trust, Treasure Chest Advertising
Company, Inc., Big Flower Press, Inc. and TCA Merger Corp.(2)
2.3 Stock Purchase Agreement, dated as of January 14, 1994, by and among Lee A. Thompson, John G. Brown and
BFP Holdings Corp.(3)
2.4 Stock Purchase Agreement, dated as of January 14, 1994, by and among Gary W. Pestello, Thomas G. Hansen
and BFP Holdings Corp.(3)
2.5 Asset Purchase Agreement, dated as of January 14, 1994, by and BFP Holdings Corp. and D. Enterprises,
Inc.(3)
2.6 Assignment and Assumption Agreement, dated April 5, 1994, by and between BFP Holdings Corp. and Treasure
Chest Advertising Company, Inc.(5)
2.7 Purchase and Sale Agreement, dated as of March 16, 1994, by and among BFP Holdings Corp., KTB Associates,
Inc., Tomsons Properties, TKB Properties, Thomas Clemente, Brian Clemente and Joseph Clemente.(4)
2.8 Stock Purchase Agreement, dated as of November 27, 1995, between Big Flower Press, Inc. and Brian
Mason.(8)
2.9 Agreement and Plan of Merger, dated February 1, 1996, among Big Flower Press Holdings, Inc., WTI
Acquisition Corp., and Webcraft Technologies, Inc.(8)
2.10 Agreement and Plan of Merger, dated as of July 31, 1996, by and among Big Flower Press Holdings, Inc.,
Scanforms, Inc. and Scanforms Acquisition Corp. (11)
2.11 Purchase Agreement, dated as of October 1, 1996, by and between Treasure Chest Advertising Company, Inc.,
the stockholders of PrintCo., Inc. named therein, Park Properties and the partners in Park Properties
named therein. (12)
2.12 Stock Purchase Agreement, dated as of October 1, 1996, among Laser Tech Color, Inc. and the stockholders
of Pacific Color Connection, Inc. named therein. (12)
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.13 Agreement and Plan of Reorganization, dated as of October 17, 1997, among Big Flower Press Holdings,
Inc., Big Flower Holdings, Inc. and Big Flower Merger Co. (13)
2.14 Agreement, dated September 18, 1997, between Big Flower Limited and Peter Rivett, Andrew Ruddle and 3i
Group PLC. (14)
2.15 Asset Purchase Agreement, dated as of September 19, 1997, between Gruner + Jahr Printing & Publishing Co.
and Treasure Chest Advertising Company, Inc. (15)
2.16 Stock Purchase Agreement, dated as of September 19, 1997, among Big Flower Press Holdings, Inc.,
Columbine JDS Systems, Inc., Columbine BIAS, Ltd., each of the shareholders who is a signatory thereto
and each of the optionees who is a signatory thereto. (16)
2.17 First Amendment to Stock Purchase Agreement, dated as of October 29, 1997, by and among Big Flower Press
Holdings, Inc., Big Flower Holdings, Inc., Columbine JDS Systems, Inc. and its stockholders and option
holders. (16)
2.18 Agreement, dated March 13, 1998, among Big Flower Digital Services Limited, the holders of capital stock
of Troypeak Limited and Pismo Limited, Troypeak Limited and Pismo Limited. (23)
2.19 Agreement, dated December 16, 1998, among Big Flower Limited, Colorgraphic Direct Response Limited and
the holders of capital stock of Colorgraphic Direct Response Limited. (24)
3.1 Restated Certificate of Incorporation of Big Flower Holdings, Inc., effective October 20, 1997. (17)
3.2 Amended and Restated By-Laws of Big Flower Holdings, Inc., effective October 20, 1997. (17)
3.3 Certificate of Designation, Preferences and Rights of Series A Junior Preferred Stock of Big Flower
Holdings, Inc. (17)
4.1 Rights Agreement, dated as of November 28, 1995, between Big Flower Holdings, Inc. and The Bank of New
York, as Rights Agent. (17)
4.2 Indenture, dated as of June 20, 1997, between Big Flower Press Holdings, Inc. and State Street Bank and
Trust Company (as successor in interest to Fleet National Bank), as Trustee, relating to the 8 7/8%
Senior Subordinated Notes due 2007. (18)
4.3 Registration Rights Agreement, dated as of June 20, 1997, between Big Flower Press Holdings, Inc. and BT
Securities Corporation, Credit Suisse First Boston and Goldman, Sachs & Co. (18)
4.4 Amended and Restated Trust Agreement, dated as of October 14, 1997, among (i) Big Flower Holdings, Inc.,
(ii) The Bank of New York as property trustee, (iii) The Bank of New York (Delaware), as Delaware trustee
and (iv) Mark A. Angelson and Richard L. Ritchie, as Administrative Trustees, relating to the Preferred
Securities of Big Flower Trust I. (13)
4.5 Guarantee Agreement, dated as of October 20, 1997, between Big Flower Holdings, Inc., and The Bank of New
York, as Guarantee Trustee, relating to the Preferred Securities of Big Flower Trust I. (13)
4.6 Indenture dated as of October 20, 1997, between Big Flower Holdings, Inc. and The Bank of New York, as
Trustee, relating to the 6% Convertible Subordinated Debentures due October 15, 2027, of Big Flower
Holdings, Inc., issued to Big Flower Trust I. (13)
4.7 Registration Rights Agreement, dated as of October 20, 1997, among Big Flower Trust I, Big Flower
Holdings, Inc. and Goldman, Sachs & Co., on behalf of the purchasers listed therein. (13)
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
4.8 Indenture, dated as of December 9, 1998, between Big Flower Press Holdings, Inc. and State Street Bank
and Trust Company, as Trustee, relating to the 8 5/8% Senior Subordinated Notes due 2008. *
4.9 Registration Rights Agreement, dated as of December 9, 1998, among Big Flower Press Holdings, Inc., BT
Alex. Brown Incorporated, Chase Securities Inc. and Goldman, Sachs & Co. *
10.1 Amended and Restated Credit Agreement, dated as of June 22, 1998, among Big Flower Holdings, Inc., Big
Flower Press Holdings, Inc., certain subsidiaries of Big Flower named therein, 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
(the "Credit Agreement"). (21)
10.2 First Amendment and Consent to the Credit Agreement, dated as of November 10, 1998.*
10.3 Second Amendment and Consent to the Credit Agreement, dated as of November 24, 1998.*
10.4 Certificate Purchase Agreement (Series 1996-1), dated as of March 19, 1996, by BFP Receivables
Corporation, Big Flower Press Holdings, Inc., the Purchasers described therein, Credit Suisse, as
Co-Agent, and Bankers Trust Company, as Agent. (9)
10.5 Receivables Purchase Agreement, dated as of March 19, 1996, as amended as of April 25, 1996, June 10,
1996 and September 24, 1996 (the "Receivables Purchase Agreement"), among Big Flower Press Holdings,
Inc., as initial Servicer, certain subsidiaries of Big Flower Press Holdings, Inc., as Sellers, and BFP
Receivables Corporation, as Buyer. (19)
10.6 Amendment to the Receivables Purchase Agreement, dated January 31, 1997. (19)
10.7 Big Flower Receivables Master Trust Pooling and Servicing Agreement, dated as of March 19, 1996, as
amended as of April 25, 1996, June 10, 1996 and September 24, 1996, among BFP Receivables Corporation, as
Transferor, Big Flower Press Holdings, Inc., as Servicer, and Manufacturers and Traders Trust Company, as
Trustee (the "Pooling and Servicing Agreement"). (19)
10.8 Series 1996-2 Supplement to the Pooling and Servicing Agreement, dated as of October 4, 1996, among BFP
Receivables Corporation, as Transferor, Big Flower Press Holdings, Inc., as Servicer, and Manufacturers
and Traders Trust Company, as Trustee. (19)
10.9 Series 1996-3 Supplement to the Pooling and Servicing Agreement, dated as of October 4, 1996, among BFP
Receivables Corporation, as Transferor, Big Flower Press Holdings, Inc., as Servicer, and Manufacturers
and Traders Trust Company, as Trustee. (19)
10.10 Purchase Agreement (Series 1996-2), dated September 25, 1996, among Big Flower Press Holdings, Inc., BFP
Receivables Corporation, BT Securities Corporation, Bankers Trust International PLC, and CS First Boston
Corporation. (19)
10.11 Certificate Purchase Agreement (Series 1996-3), dated as of October 4, 1996, among BFP Receivables
Corporation, Big Flower Press Holdings, Inc., the purchasers described therein, and Caisse Nationale de
Credit Agricole, as Agent. (19)
10.12 Non-Competition Agreement, dated November 27, 1995, between Big Flower Press Holdings, Inc. and Brian
Mason. (8)
10.13 Non-Competition Agreement, dated as of April 27, 1994, by and among Lee A. Thompson, BFP Holdings Corp.,
Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.14 Non-Competition Agreement, dated as of April 27, 1994, by and among John G. Brown, BFP Holdings Corp.,
Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
10.15 Non-Competition Agreement, dated as of April 27, 1994, by and among Thomas G. Hansen, BFP Holdings Corp.,
Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
10.16 Non-Competition Agreement, dated as of April 27, 1994, by and among Gary W. Pestello, BFP Holdings Corp.,
Treasure Chest Advertising Company, Inc. and Retail Graphics Holding Company. (5)
10.17 Non-Competition Agreement, dated April 27, 1994, by and between Brian T. Clemente and Treasure Chest
Advertising Company, Inc. (19)
10.18 Non-Competition Agreement, dated August 5, 1993, by and among Big Flower Press, Inc., Robert E. Milhous
and Paul B. Milhous, together with assignment to Treasure Chest Advertising Company, Inc. (10)
10.19 Employment Agreement (the "Angelson Agreement"), effective March 21, 1996, by and between Mark A.
Angelson, Big Flower Press Holdings, Inc. and Treasure Chest Advertising Company, Inc. (9)
10.20 Employment Agreement, effective March 29, 1996, by and among Edward T. Reilly, Big Flower Press Holdings,
Inc. and Treasure Chest Advertising Company, Inc. (9)
10.21 Employment Agreement, dated January 1, 1998, by and between Laser Tech Color, Inc. and Damien Gough.*
10.22 Employment Agreement, dated November 20, 1995, by and between Big Flower Press Holdings, Inc., Treasure
Chest Advertising Company, Inc. and R. Theodore Ammon. (8)
10.23 Executive Change in Control Severance Agreement, dated January 6, 1997, by and between Big Flower Press
Holdings, Inc. and Richard L. Ritchie. (19)
10.24 Letter Agreement, dated December 12, 1996, by and between Big Flower Press Holdings, Inc. and Richard L.
Ritchie. (19)
10.25 Employment Agreement, dated April 27, 1994, between Treasure Chest Advertising Company, Inc. and Thomas
R. Clemente. (5)
10.26 Employment Agreement, dated April 27, 1994, between Treasure Chest Advertising Company, Inc. and Joseph
T. Clemente. (5)
10.27 Employment Agreement, dated April 27, 1994, between Treasure Chest Advertising Company, Inc. and Kevin
Clemente. (5)
10.28 Big Flower Holdings, Inc. Restated 1993 Stock Award and Incentive Plan. (20)
10.29 Form of Treasure Chest Advertising Company, Inc.'s Supplemental Executive Retirement Plan, effective
January 1, 1994. (5)
10.30 Registration Rights Agreement, dated as of August 12, 1993, by and among BFP Holdings Corp., each of the
purchasers listed on Schedule 1 thereto, Theodore Ammon, Berenson Minella & Company, and each other
purchaser who executed the agreement ("Registration Rights Agreement"). (5)
10.31 Amendment to Registration Rights Agreement, dated as of April 27, 1994, by and among BFP Holdings Corp.,
each of the purchasers listed on Schedule 1 thereto, Theodore Ammon, Berenson Minella & Company, and each
other purchaser who executed the agreement. (5)
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.32 Boca Raton Letter Agreement, dated May 10, 1993, by and among Robert E. Milhous, Paul B. Milhous, Big
Flower Press, Inc. and Treasure Chest Advertising Company, Inc.(1)
10.33 Ink Supply Requirements Agreement, dated as of July 31, 1993, between Treasure Chest Advertising Company,
Inc. and Marpax, Inc. (the "Ink Supply Agreement"). (6)
10.34 Amendment to Ink Supply Agreement, dated as of July 1, 1997. (22) +
10.35 Master Lease Agreement, dated December 21, 1993, between KTB Associates, Inc. and Chase Equipment
Leasing, Inc. (5)
10.36 Master Lease Agreement No. Atel/Trea3, dated as of August 31, 1993, between ATEL Financial Corporation
and Treasure Chest Advertising Company, Inc. (5)
10.37 Master Lease, dated as of July 7, 1993, between General Electric Capital Corporation and Treasure Chest
Advertising Company, Inc. (5)
10.38 Master Lease, dated as of December 28, 1992, between ITT Capital Finance division of ITT Commercial
Finance Corp. and Treasure Chest Advertising Company, Inc. (7)
10.39 Master Equipment Lease Agreement, dated as of July 28, 1992, between AT&T Commercial Finance Corporation
and Treasure Chest Advertising Company, Inc.(5)
10.40 Master Lease Agreement, dated June 22, 1990, between KTB Associates, Inc. and Chase Lincoln Lease/Way,
Inc.(5)
10.41 Master Lease Agreement, dated May 16, 1991, between KTB Associates, Inc. and Chase Lincoln Lease/Way,
Inc. 10.43 (5)
10.42 Master Lease, dated as of June 21, 1991 (and as amended through 08/31/93), between The CIT
Group/Equipment Financing, Inc. and Treasure Chest Advertising Company, Inc.(5)
10.43 Third Amendment and Consent to the Credit Agreement, dated as of February 23, 1999.*
10.44 Amendment to the Angelson Agreement, effective March 29, 1999, by and between Mark A. Angelson, Big
Flower Press Holdings, Inc. and Treasure Chest Advertising Company, Inc.*
21.1 Subsidiaries of Big Flower Holdings, Inc.*
23.1 Consent of Deloitte & Touche LLP (included in their opinions appearing on pages F-2 and F-28 hereof).
27.1-4 Financial Data Schedules submitted to the Securities and Exchange Commission in electronic format.*
99.1 Form 11-K for the Treasure Chest Advertising Company, Inc. 401 (k) Savings Plus Plan (to be filed on or
before June 29, 1999).
99.2 Form 11-K for the Webcraft Employee Savings Trust (to be filed on or before June 29, 1999).
99.3 Form 11-K for the Webcraft, Inc. Employees Accumulated Savings Trust (to be filed on or before June 29,
1999).
</TABLE>
- ------------------------
* Filed herewith
+ Confidential treatment has been granted for portions of this exhibit.
(1) Incorporated by reference to TCA Holdings Corp. Form S-1, filed on May 26,
1993 (File # 33-63392).
(2) Incorporated by reference to Big Flower Press, Inc. Amendment No. 3 to the
Form S-1, filed on August 4, 1993 (File # 33-63392).
62
<PAGE>
(3) Incorporated by reference to Big Flower Press, Inc. Form 8-K, dated as of
January 24, 1994 (File # 33-63392).
(4) Incorporated by reference to Big Flower Press, Inc. Form 8-K, dated as of
April 27, 1994 (File # 33-63392).
(5) Incorporated by reference to BFP Holdings Corp. Form S-1, filed on May 26,
1994 (File # 33-79406).
(6) Incorporated by reference to Big Flower Press, Inc. Amendment No. 2 to the
Form S-1, filed on July 19, 1993 (File #33-63392).
(7) Incorporated by reference to Big Flower Press Holdings, Inc. Form S-1, filed
on September 19, 1995 (File # 33-97082).
(8) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-Q for
the quarterly period ended December 31, 1995 (File # 1-14084).
(9) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-Q filed
on May 15, 1996 (Accession # 0000912057-96-009947).
(10) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-K for
the transition period from July 1, 1995 to December 31, 1995 (File #
1-14084).
(11) Incorporated by reference to Annex I to the Proxy Statement/Prospectus
dated September 6, 1996, forming part of the Registration Statement on Form
S-4 (Registration No. 333-11225) of Big Flower Press Holdings, Inc.
(12) Incorporated by reference to Big Flower Press Holdings, Inc. Form 8-K,
dated October 1, 1996 (File # 1-14084).
(13) Incorporated by reference to Big Flower Holdings, Inc. Form 10-Q for the
quarterly period ended September 30, 1997 (File # 0-29474).
(14) Incorporated by reference to Big Flower Press Holdings, Inc. Current Report
on Form 8-K, dated September 18, 1997 (File # 1-14084).
(15) Incorporated by reference to Big Flower Press Holdings, Inc. Current Report
on Form 8-K, dated October 15, 1997 (File # 1-14084).
(16) Incorporated by reference to Big Flower Holdings, Inc. Current Report on
Form 8- K, dated October 31, 1997 (File # 0-29474).
(17) Incorporated by reference to Big Flower Holdings, Inc. Registration
Statement on Form S-8 and Post-Effective Amendment No. 1 to Registration
Statement No. 333- 2152, filed on November 4, 1997 (File # 1-14084).
(18) Incorporated by reference to Big Flower Press Holdings, Inc. Registration
Statement on Form S-4 (Registration No. 333-32141).
(19) Incorporated by reference to Big Flower Press Holdings, Inc. Form 10-K for
the fiscal year ended December 31, 1996 (File # 1-14084).
(20) Incorporated by reference to Big Flower Press Holdings, Inc. Notice of
Annual Meeting of Stockholders and Proxy Statement, dated May 13, 1997 (File
# 1- 14084).
63
<PAGE>
(21) Incorporated by reference to Big Flower Holdings, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (File # 0-29474).
(22) Incorporated by reference to Big Flower Holdings, Inc. Form 10-K for the
fiscal year ended December 31, 1997 (File # 0-29474).
(23) Incorporated by reference to Big Flower Holdings, Inc. Current Report on
Form 8-K, dated March 13, 1998 (File # 0-29474).
(24) Incorporated by reference to Big Flower Holdings, Inc. Current Report on
Form 8-K, dated January 4, 1999 (File # 0-29474).
(B) REPORTS ON FORM 8-K.
During the period from October 1, 1998 to December 31, 1998, Big Flower
Press filed the following reports on Form 8-K:
(i) Current Report on Form 8-K, dated December 2, 1998, concerning Big
Flower Press's intention to issue senior subordinated notes due 2008; and
(ii) Current Report on Form 8-K, dated December 4, 1998, concerning Big
Flower Press's issuance of $250 million aggregate principal amount of senior
subordinated notes due 2008.
(c) The exhibits required by Item 601 of Regulation S-K to be filed as part
of this report or incorporated herein by reference are listed in Item 14(a)(3)
above.
(d) See Item 14(a)(2) of this report.
64
<PAGE>
BIG FLOWER HOLDINGS, INC.
BIG FLOWER PRESS HOLDINGS, INC.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULES
1. FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
<S> <C> <C>
F-2 Independent Auditors' Report and Consent re: Big Flower Holdings, Inc.
F-3 Consolidated Balance Sheets of Big Flower Holdings, Inc. and Subsidiaries at
December 31, 1998 and 1997.
F-4 Consolidated Statements of Operations of Big Flower Holdings, Inc. and
Subsidiaries for the Years Ended December 31, 1998, 1997 and 1996.
F-5 Consolidated Statements of Stockholders' Equity of Big Flower Holdings, Inc. and
Subsidiaries for the Years Ended December 31, 1998, 1997 and 1996.
F-6 Consolidated Statements of Cash Flows of Big Flower Holdings, Inc. and
Subsidiaries for the Years Ended December 31, 1998, 1997 and 1996.
F-7 Notes to Consolidated Financial Statements of Big Flower Holdings, Inc. and
Subsidiaries.
F-29 Independent Auditors' Report and Consent re: Big Flower Press Holdings, Inc.
F-30 Consolidated Balance Sheets of Big Flower Press Holdings, Inc. and Subsidiaries
at December 31, 1998 and 1997.
F-31 Consolidated Statements of Operations, Accumulated Deficit and Comprehensive
Income of Big Flower Press Holdings, Inc. and Subsidiaries for the Years Ended
December 31, 1998 and 1997.
F-32 Consolidated Statements of Cash Flows of Big Flower Press Holdings, Inc. and
Subsidiaries for the Years Ended December 31, 1998 and 1997.
F-33 Notes to Consolidated Financial Statements of Big Flower Press Holdings, Inc. and
Subsidiaries.
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES:
<TABLE>
<S> <C> <C>
F-34 I. Condensed Financial information of Big Flower Holdings, Inc. for the Year Ended
December 31, 1998 and the Period Ended December 31, 1997.
F-38 I. Condensed Financial information of Big Flower Press Holdings, Inc. for the Years
Ended December 31, 1998, 1997 and 1996.
F-42 II. Valuation and Qualifying Accounts of Big Flower Holdings, Inc. and Subsidiaries
for the Years Ended December 31, 1998, 1997 and 1996.
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Big Flower Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Big Flower
Holdings, Inc. and subsidiaries ("the Company") as of December 31, 1998 and 1997
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
Our audits also included the consolidated financial statement schedules listed
in the Index on page F-1. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, such
consolidated financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
February 8, 1999
INDEPENDENT AUDITORS' CONSENT
TO INCORPORATION BY REFERENCE IN REGISTRATION STATEMENTS
ON FORM S-3 AND FORM S-8
We consent to the incorporation by reference in Big Flower Holdings, Inc.'s
Registration Statement No. 333-39443 on Form S-8 and Registration No. 333-44445
on Form S-3 of our report dated February 8, 1999 appearing on page F-2 of the
Annual Report on Form 10-K for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
New York, New York
March 31, 1999
F-2
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................... $ 8,504 $ 5,307
Accounts receivable, net............................................................ 186,863 140,138
Inventories......................................................................... 47,954 46,510
Prepaid expenses and other current assets........................................... 15,648 4,599
Deferred income taxes and income tax receivable..................................... 10,880 19,827
------------ ------------
Total current assets.............................................................. 269,849 216,381
Property, plant and equipment, net.................................................... 457,988 384,850
Goodwill, net of accumulated amortization of $40,394 and $25,413...................... 483,373 415,601
Long-term investments................................................................. 74,391
Other assets, net..................................................................... 42,581 42,215
------------ ------------
Total Assets...................................................................... $ 1,328,182 $ 1,059,047
------------ ------------
------------ ------------
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable.................................................................... $ 151,054 $ 133,648
Compensation and benefits payable................................................... 48,983 45,663
Accrued interest.................................................................... 16,991 13,775
Accrued income taxes................................................................ 9,578 9,234
Other current liabilities........................................................... 49,024 31,618
------------ ------------
Total current liabilities......................................................... 275,630 233,938
Long-term debt, net of current portion................................................ 731,080 590,045
Deferred income taxes................................................................. 52,507 27,811
Other long-term liabilities........................................................... 26,755 20,715
------------ ------------
Total liabilities................................................................. 1,085,972 872,509
------------ ------------
Company-obligated mandatorily redeemable convertible preferred securities of a
subsidiary trust whose sole assets are the convertible subordinated debentures of
Big Flower Holdings, Inc............................................................ 115,000 115,000
------------ ------------
Stockholders' equity:
Preferred stock--authorized 10,000 shares; $0.01 par value; none issued
Common stock--authorized 50,000 shares; $0.01 par value; issued and outstanding
19,731 and 19,512................................................................. 197 195
Additional paid-in capital.......................................................... 146,135 140,798
Accumulated deficit................................................................. (30,872) (68,548)
Accumulated other comprehensive income.............................................. 12,522
Other............................................................................... (772) (907)
------------ ------------
Total stockholders' equity........................................................ 127,210 71,538
------------ ------------
Total Liabilities and Equity...................................................... $ 1,328,182 $ 1,059,047
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................................... $ 1,739,715 $ 1,376,706 $ 1,201,860
------------ ------------ ------------
Operating expenses:
Costs of production................................................... 1,296,336 1,072,296 971,789
Selling, general and administrative................................... 219,496 140,394 107,483
Depreciation.......................................................... 64,244 49,651 34,756
Amortization of intangibles........................................... 22,142 17,671 17,003
In-process acquired technology write off.............................. 245 58,192
Merger costs.......................................................... 1,486
------------ ------------ ------------
1,602,463 1,338,204 1,132,517
------------ ------------ ------------
Operating income........................................................ 137,252 38,502 69,343
------------ ------------ ------------
Other expenses (income):
Interest expense...................................................... 55,988 40,300 36,165
Amortization of deferred financing costs.............................. 1,902 1,696 1,802
Interest income....................................................... (498) (349) (712)
Preferred dividends of a subsidiary trust............................. 6,900 1,340
Loss on sale of Webcraft Games, Inc................................... 14,277
Other, net............................................................ 2,982 7,141 12,813
------------ ------------ ------------
67,274 50,128 64,345
------------ ------------ ------------
Income (loss) before income taxes and extraordinary items............... 69,978 (11,626) 4,998
Income tax expense...................................................... 32,302 21,945 8,283
------------ ------------ ------------
Income (loss) before extraordinary items................................ 37,676 (33,571) (3,285)
Extraordinary items, net of income tax benefits of $8,800 and $1,400.... (13,463) (2,078)
------------ ------------ ------------
Net income (loss)....................................................... $ 37,676 $ (47,034) $ (5,363)
------------ ------------ ------------
------------ ------------ ------------
Income (loss) per share--basic:
Income (loss) before extraordinary items.............................. $ 1.92 $ (1.79) $ (0.18)
Extraordinary items, net.............................................. (0.72) (0.12)
------------ ------------ ------------
Net income (loss)..................................................... $ 1.92 $ (2.51) $ (0.30)
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares outstanding--basic............................ 19,660 18,704 18,046
------------ ------------ ------------
------------ ------------ ------------
Income (loss) per share--diluted:
Income (loss) before extraordinary items.............................. $ 1.69 $ (1.79) $ (0.18)
Extraordinary items, net.............................................. (0.72) (0.12)
------------ ------------ ------------
Net income (loss)..................................................... $ 1.69 $ (2.51) $ (0.30)
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares outstanding--diluted.......................... 24,678 18,704 18,046
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
IN THOUSANDS
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL ACCUMU- COMPRE-
COMMON PAID-IN LATED HENSIVE
SHARES STOCK CAPITAL DEFICIT INCOME OTHER TOTAL
--------- ----------- ---------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996............... 17,234 $ 172 $ 102,300 $ (16,151) $ (1,845) $ 84,476
Net loss................................. (5,363) (5,363)
Issuance of common stock for
companies acquired..................... 895 9 15,212 15,221
Reclassification of common stock subject
to redemption.......................... 489 5 1,504 (495) 1,014
Stock option exercised................... 1 3 3
Amortization of unearned compensation.... 803 803
Repayment of notes....................... 196 196
--------- --- ---------- ---------- --------- ----------
BALANCE AT DECEMBER 31, 1996............. 18,619 186 119,019 (21,514) (1,341) 96,350
Net loss................................. (47,034) (47,034)
Issuance of common stock and options for
companies acquired..................... 1,040 10 27,246 27,256
Repurchase of common stock............... (284) (1) (5,980) (5,981)
Shares issued related to compensation
plans.................................. 137 513 513
Amortization of unearned compensation.... 120 120
Repayment of notes....................... 314 314
--------- --- ---------- ---------- --------- ----------
BALANCE AT DECEMBER 31, 1997............. 19,512 195 140,798 (68,548) (907) 71,538
----------
Net income............................... 37,676 37,676
Unrealized gain on investments........... $ 12,706 12,706
Currency translation adjustment.......... (184) (184)
----------
Comprehensive income................... 50,198
----------
Issuance of common stock and
options for companies acquired......... 336 3 11,080 11,083
Repurchase of common stock............... (287) (3) (7,511) (7,514)
Shares issued related to compensation
plans.................................. 170 2 1,768 1,770
Amortization of unearned compensation.... 121 121
Repayment of notes....................... 14 14
--------- --- ---------- ---------- ------------ --------- ----------
BALANCE AT DECEMBER 31, 1998............. 19,731 $ 197 $ 146,135 $ (30,872) $ 12,522 $ (772) $ 127,210
--------- --- ---------- ---------- ------------ --------- ----------
--------- --- ---------- ---------- ------------ --------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................ $ 37,676 $ (47,034) $ (5,363)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization............................................ 86,386 67,322 51,759
In-process acquired technology write off................................. 245 58,192
Extraordinary items, net................................................. 13,463 2,078
Loss on sale of Webcraft Games, Inc...................................... 14,277
Deferred income taxes.................................................... 22,529 4,866 2,548
Other non-cash income and expense, net................................... 4,696 9,384 9,743
Changes in operating assets and liabilities (excluding effect of
acquisitions and disposition):
(Increase) decrease in accounts receivable........................... (29,507) (3,343) 4,580
Proceeds from initial sale of accounts receivable.................... 91,567
Decrease (increase) in inventories................................... 2,085 (5,905) 26,371
Increase in prepaid expenses and other assets........................ (3,008) (1,570) (2,834)
(Decrease) increase in accounts payable and other liabilities........ (2,886) 25,262 (58,790)
----------- ----------- -----------
Net cash provided by operating activities...................................... 118,216 120,637 135,936
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired............................. (70,545) (242,233) (122,144)
Capital expenditures......................................................... (95,433) (74,045) (55,391)
Investments in equity securities and leveraged lease transactions............ (53,423)
Software development costs capitalized....................................... (10,232) (667)
Proceeds from sale of property, plant and equipment and divested assets...... 2,536 344 6,686
----------- ----------- -----------
Net cash used in investing activities.......................................... (227,097) (316,601) (170,849)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt................................................... 267,500 350,125 75,000
Net (repayments) borrowings under lines of credit............................ (127,670) 8,177 82,865
Repayments of long-term debt................................................. (28,100) (239,257) (153,514)
Issuance of redeemable convertible preferred securities...................... 115,000
Increase (decrease) in outstanding checks drawn on controlled disbursement
accounts................................................................... 15,896 (14,650) 26,713
Deferred financing costs..................................................... (9,286) (17,048) (1,313)
Issuance of common stock..................................................... 1,652 705 190
Repurchase of common stock................................................... (7,514) (5,981)
----------- ----------- -----------
Net cash provided by financing activities...................................... 112,478 197,071 29,941
----------- ----------- -----------
Effect of exchange rate changes on cash........................................ (400)
-----------
Net increase (decrease) in cash and cash equivalents........................... 3,197 1,107 (4,972)
Cash and cash equivalents at beginning of year................................. 5,307 4,200 9,172
----------- ----------- -----------
Cash and cash equivalents at end of year....................................... $ 8,504 $ 5,307 $ 4,200
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include those of Big Flower Holdings,
Inc. ("Holdings") and its subsidiaries (together, the "Company"). All material
intercompany balances and transactions have been eliminated.
BUSINESS
The Company is a leading advertising and marketing services company that
provides integrated advertising solutions.
USE OF ESTIMATES
The Company's management must make estimates and assumptions in preparing
financial statements in conformity with generally accepted accounting
principles. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform to the
current period presentation, including the reclassification of in-process
acquired technology write off as a component of operating income.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from printing and direct marketing operations is recognized on a
units-of-work-performed method, with revenue and related accounts receivable
recognized for orders in process and orders completed but not yet delivered.
Revenue from premedia operations is recognized upon completion of orders,
including those not yet delivered.
Initial software license revenue is recognized as Company obligations are
fulfilled as specified in customer contracts. System fee revenue, for the use
and service components of software sales, is recognized over the terms of the
related contracts. Consulting and service revenue is recognized as services are
rendered. Computer hardware sales are recognized upon shipment, while hardware
maintenance fees are recognized over the terms of the related contracts.
F-7
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash equivalents include all investments with initial maturities of 90 days
or less. As the Company's cash management program utilizes zero-balance
accounts, book overdrafts in these accounts are reclassified as current
liabilities.
INVENTORIES
Inventories are recorded at the lower of cost or market determined primarily
on the first-in, first-out method.
INVESTMENTS
Investments in equity securities are classified as available-for-sale and
are recorded at market value, with net unrealized gains recorded in other
comprehensive income.
LONG-LIVED ASSETS
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the assets'
estimated useful lives or, when applicable, the terms of the leases, if shorter.
Software development costs are expensed until technological feasibility is
determined, after which costs are capitalized until the product is ready for
general release and sale. These costs are amortized over five to seven-year
lives beginning at the respective release dates.
Goodwill arising from acquisitions is amortized over periods of 15 or 40
years. The gross amount of goodwill with a useful life of 15 years was $55.6
million at December 31, 1998 and $41.1 million at December 31, 1997.
Other intangible assets, primarily non-compete agreements, are amortized
over the terms of the related agreements. Deferred financing costs are amortized
over the terms of the related financing instruments.
When changes in business circumstances warrant, the Company reviews the
recoverability of long-lived assets to determine if there has been any permanent
impairment. This assessment is based on estimated undiscounted future cash flows
compared with the assets' carrying value. When impairment is indicated, a
write-down to fair value (normally measured by discounting estimated cash flows)
is taken.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and operating loss and
tax credit carryforwards.
F-8
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Basic earnings per share equals net earnings divided by the weighted-average
shares outstanding during the period. Diluted earnings per share equals net
earnings divided by the weighted-average shares outstanding plus dilutive common
stock equivalents and shares assumed issued if convertible securities were
converted.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company determines the fair value of its financial instruments as
follows:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE AND ACCOUNTS
PAYABLE--Carrying amounts approximate fair value because of the short
maturities of these instruments.
INVESTMENTS--Fair value is based on quoted market prices or other
available market information.
REVOLVING CREDIT FACILITY--Carrying amount approximates fair value
because its interest rates are based on variable reference rates.
LONG-TERM DEBT (EXCLUDING REVOLVING CREDIT FACILITY)--The aggregate fair
value, based upon available market information, was approximately $605.9
million at December 31, 1998 and $353.5 million at December 31, 1997.
REDEEMABLE CONVERTIBLE PREFERRED SECURITIES--The fair value, based upon
available market information, was approximately $108.4 million at December
31, 1998 and $118.2 million at December 31, 1997.
CONCENTRATION OF CREDIT RISK
The Company provides services to a wide range of clients who operate in many
industry sectors in varied geographic areas. The Company grants credit to all
qualified clients and does not believe that it is exposed to undue concentration
of credit risk to any significant degree.
EMPLOYEE STOCK OPTIONS
The Company periodically grants employees options to purchase shares of
common stock, with exercise prices equal to the closing price on the grant date.
The Company follows the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" and continues to apply the accounting provisions
of APB Opinion No. 25, "Accounting for Stock Issued to Employees". As such, the
Company does not recognize compensation expense for options granted to
employees.
FOREIGN CURRENCY TRANSLATION
The Company translates the financial statements of foreign subsidiaries by
recording assets and liabilities at exchange rates in effect at the balance
sheet date and income
F-9
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
statement accounts at average rates for the applicable periods. Transaction
gains and losses, recorded in Other expenses, were immaterial in 1998 and 1997.
3. ACQUISITIONS
POOLING TRANSACTION
In 1996, the Company acquired Scanforms, Inc. ("Scanforms") in exchange for
1.5 million shares of common stock. This acquisition was accounted for as a
pooling of interests and, accordingly, the consolidated financial statements
include the results of Scanforms for all periods presented.
PURCHASE TRANSACTIONS
During 1996, 1997 and 1998, the Company completed the following
acquisitions, all accounted for as purchases:
- In March 1996, the Company acquired Webcraft, Inc. ("Webcraft").
During the fourth quarter of 1996, the Company acquired all of the
outstanding capital stock of PrintCo., Inc. ("PrintCo"), Pacific
Color Connection, Inc., Designer Color Systems, Ltd. ("DCS") and
Digital Dimensions, Inc. ("DDI"). The aggregate purchase price was
$168.5 million, including 500,000 shares of common stock.
- Between September and November 1997, the Company acquired Olwen
Direct Mail, Ltd. ("Olwen"), the assets of businesses operating as
Riverside County Publishing Company ("RCPC"), the stock of Columbine
JDS Systems, Inc. ("Columbine"), and the assets of Gamma One, Inc.,
IMPCO Enterprises, Inc. and Broadcast Systems Software Limited. The
aggregate purchase price, including debt repaid and 1.0 million
shares of common stock and options to purchase 396,000 shares of
common stock (with a collective fair value of $27.3 million), was
$300.2 million.
- In 1998, the Company acquired
- Troypeak Limited and Pismo Limited in March,
- Reach America, Inc. in April,
- Enteron Group, Inc. and ColorStream Technologies L.L.C. in May,
- Adtraq Data Systems and CJDS Adserve, Inc. in June,
- Imaging Consortium, Inc. in July, and
- DSI Datatrak Systems, Inc. ("Datatrak") and Admagic Group,
Limited in November.
Aggregate consideration for these acquisitions was approximately
$117.8 million, including debt repaid and the issuance of
approximately 336,000 shares of common stock and options to purchase
23,000 shares of common stock (with a collective fair value of $11.1
million).
F-10
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
The results of operations for all of the businesses acquired in purchase
transactions are included in the consolidated financial statements from their
respective dates of acquisition.
GOODWILL
The excess of the purchase prices of acquired companies over the fair values
of net assets acquired, identified intangibles, acquired computer software and
in-process technology was recorded as goodwill. The assets and liabilities were
recorded at their estimated fair values as of the dates of acquisition.
Identified intangible assets and acquired computer software were recorded based
on third-party appraised values. As of the dates of acquisition, the
technological feasibility of the in-process technology had not been established,
and the technology had no alternative future use, so it was written off
immediately in accordance with generally accepted accounting principles.
Aggregate goodwill recorded in connection with acquisitions was $79.4 million in
1998, $167.2 million in 1997 and $96.3 million in 1996 (of which $65.2 million
related to Webcraft). Amounts and allocations of costs recorded may require
adjustment based upon information coming to the attention of the Company that is
not currently available.
IN-PROCESS TECHNOLOGY
In connection with the Columbine acquisition, the Company wrote off
in-process technology costs of $58.2 million in 1997. The amount allocated to
in-process technology was estimated by:
- estimating the stage of development for each in-process module,
- estimating the cash flows generated by projected revenues for those
modules, and
- discounting those cash flows back to their present values using a
discount rate of 23%, which represented a premium to the discount
rate applied to existing technology.
The estimated revenues for in-process modules assumed average compound annual
revenue growth rates of 26% through 2009 and are based on management's estimates
of market size, market share growth, expected trends in technology and timing of
new product introductions. In connection with the Datatrak acquisition, the
Company also recorded a write off of $0.2 million related to in-process
technology in 1998.
EXTRAORDINARY ITEMS
Subsequent to the acquisitions of Webcraft, PrintCo and Olwen, the Company
repurchased substantially all of their respective outstanding debt which
generated aggregate extraordinary losses of $0.3 million in 1997 and $2.1
million in 1996, net of income tax benefits.
F-11
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
SUBSEQUENT EVENT
On January 4, 1999, the Company acquired Colorgraphic Direct Response
Limited ("Colorgraphic") for approximately $81 million in cash, including debt
repaid, in a purchase transaction. As the acquisition was completed subsequent
to the Company's year-end, the financial statements do not include the effect of
the acquisition or Colorgraphic's results of operations.
PRO FORMA INFORMATION
The following unaudited pro forma information reflects the Company's results
adjusted to include the acquired businesses as though all the purchase
acquisitions and the related financing transactions had occurred at the
beginning of 1997. Although acquired subsequent to year-end, the pro forma
results include Colorgraphic to provide a comprehensive view of the Company's
ongoing operations, although it is not necessarily indicative of future results.
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Net sales....................................................................... $1,842,000(1) $ 1,729,000(1)
Income (loss) before extraordinary
items......................................................................... 37,900(1)(2) (34,600)(1)(3)
Net income (loss)............................................................... 37,900(1)(2) (48,000)(1)(2)
Per share:
Income (loss) before extraordinary
items
Basic..................................................................... $ 1.92(1)(2) $ (1.74)(1)
Diluted................................................................... 1.69(1)(2) (1.74)(1)(3)
Net income (loss)
Basic..................................................................... $ 1.92(1)(2) $ (2.41)(1)(3)
Diluted................................................................... 1.69(1)(2) (2.41)(1)(3)
</TABLE>
- ------------------------
(1) Excludes sales under a production arrangement with an unconsolidated
printing venture in which the Company had a minority interest and the
profits related to those sales. The Company sold its minority interest in
April 1998 and terminated the production arrangement.
(2) Includes the $0.2 million in-process acquired technology write off related
to the Datatrak acquisition and $4.6 million of termination costs related to
executive positions eliminated.
(3) Includes the $58.2 milllion in-process acquired technology write off
related to the Columbine acquisition, $6.3 million of non-operational
charges related to other 1997 acquisitions and the Company's secondary stock
offering, and extraordinary losses related to early extinguishment of debt.
F-12
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Trade--billed......................................................... $ 168,904 $ 124,508
Trade--unbilled....................................................... 15,409 22,630
Other receivables..................................................... 12,322 5,342
---------- ----------
196,635 152,480
Allowance for doubtful accounts....................................... (9,772) (12,342)
---------- ----------
$ 186,863 $ 140,138
---------- ----------
---------- ----------
</TABLE>
In 1996, the Company entered into a six-year agreement (the "A/R
Securitization") to sell interests in certain of its accounts receivable. A
maximum of $150 million can be sold and the amount outstanding at any time
depends upon the level of eligible receivables. The Company retains
substantially the same risk of credit loss as if the receivables had not been
sold and, accordingly, any allowance for doubtful accounts related to the
receivables sold is retained. At December 31, 1998 and 1997, interests of $117.6
million and $101.1 million, respectively, had been sold under the A/R
Securitization and, as such, are reflected as reductions of accounts receivable
and excluded from the balances above. Fees of this program vary based on a
Eurodollar rate plus an average margin of 3/8% per year on the amount of
interest sold. Other expenses include these fees, which totaled $6.4 million in
1998, $6.2 million in 1997 and $5.3 million in 1996.
5. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Paper................................................................... $ 32,556 $ 34,324
Work in process......................................................... 6,189 2,989
Ink and chemicals....................................................... 4,354 5,447
Other................................................................... 4,855 3,750
--------- ---------
$ 47,954 $ 46,510
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
The components and useful lives of property, plant and equipment were:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
(YEARS) 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Land................................................... $ 8,877 $ 8,877
Machinery and equipment................................ 5 to 15 448,228 375,468
Buildings and leasehold improvements................... 3 to 40 82,629 73,807
Furniture and fixtures................................. 5 to 10 48,668 21,164
Acquired and internally developed computer software.... 5 to 7 31,911 18,396
Vehicles............................................... 3 to 4 2,844 1,980
Construction in progress and deposits on equipment
purchases............................................ 31,118 20,519
----------- -----------
654,275 520,211
Accumulated depreciation and amortization.............. (196,287) (135,361)
----------- -----------
$ 457,988 $ 384,850
----------- -----------
----------- -----------
</TABLE>
7. INVESTMENTS
Investments consisted of the following at December 31, 1998:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Investment in leverage leases.................................................. $ 51,755
Investments in equity securities............................................... 28,765
-------------
80,520
Less: portion included in other current assets................................. (6,129)
-------------
Long-term investments.......................................................... $ 74,391
-------------
-------------
</TABLE>
INVESTMENT IN LEVERAGED LEASES
The Company is the head lessee and sub-lessor in two lease-leaseback
transactions entered into in 1998. Under these transactions, buildings with
estimated useful lives of 65 years were leased for terms of 57 years (the
"Headleases") and subleased to the lessor for terms of 52 years (the
"Subleases"). Under the guidelines of SFAS No. 13, "Accounting for Leases", the
Headleases qualify as capital leases and the Subleases qualify as leveraged
leases. The Company's investments represented approximately 24% of the
buildings' combined leasehold values, while the balance was furnished by
third-party financing in the form of long-term debt that provides no recourse
against the Company, but is secured by first liens on the properties. At the end
of the sublease terms, the properties are returned to the Company, although the
sublessee has the option to purchase the leasehold interests for amounts based
on their then-estimated fair market values. The Company has the benefit of tax
deductions
F-14
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INVESTMENTS (CONTINUED)
for advance rental payments under the Headleases and interest on the long-term
debt. During the early years of the transactions, the available tax deductions
exceed the sublease rental income; in later years the taxable rental income will
exceed the deductible amounts. Deferred taxes are provided to reflect these
temporary differences.
The Company's net investment in leveraged leases was composed of the
following components at December 31, 1998:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Rentals receivable............................................................. $ 115,523
Less: unearned income.......................................................... (63,768)
-------------
Investment in leveraged leases, included in long-term investments.............. 51,755
Less: deferred taxes........................................................... (16,592)
-------------
Net investment in leveraged leases............................................. $ 35,163
-------------
-------------
</TABLE>
In 1998, Other expenses include $5.9 million of income earned on the
leveraged lease investments.
INVESTMENTS IN EQUITY SECURITIES
In 1998, the Company invested in several internet businesses at a cost of
$7.6 million. The investment in one of these businesses, 24/7 Media, Inc.
("TFSM"), the stock of which is publicly traded, is recorded at the market price
of the shares. The investments in the other, non-public businesses (including
MiningCo.com, Inc., which was not publicly traded as of December 31, 1998) are
recorded at their cost basis. The unrealized gain of $21.2 million on these
equity investments is included in other comprehensive income, net of tax (see
Note 14).
The unrealized gain does not include warrants which the Company holds to
purchase shares of TFSM, as such warrants are not publicly traded and do not
have a readily determinable market value. The Company had an unrealized pre-tax
gain on these warrants of $16.2 million as of December 31, 1998, based on the
closing price of that company's common stock as compared to the exercise price
of the warrants.
F-15
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Revolving credit facilities........................................... $ 108,758 $ 236,352
8 7/8% Notes due 2007................................................. 350,110 350,122
8 5/8% Notes due 2008................................................. 250,000
Other notes........................................................... 26,908 5,850
---------- ----------
735,776 592,324
Current portion, included in other current liabilities................ (4,696) (2,279)
---------- ----------
$ 731,080 $ 590,045
---------- ----------
---------- ----------
</TABLE>
In 1997, revolving credit facilities included a $475 million U.S. facility
and a separate one in the U.K. providing for borrowings of up to L50 million
(approximately $82 million at December 31, 1997). During 1998, the Company
combined these revolving credit facilities into a single facility (the "Credit
Facility") allowing up to $530 million of borrowings, including borrowings in
British pounds of up to the equivalent of $162 million. The Credit Facility
matures in 2002 with no repayment of principal until maturity. Interest is
payable at the Company's option either (a) at a base rate plus a margin of 0.00%
to 0.75% or (b) at a Eurodollar-based rate plus a margin ranging from 0.50% to
1.75%. At December 31, 1998, the weighted-average interest rate on the Credit
Facility was 7.60%. The weighted-average interest rate on credit facilities
outstanding at December 31, 1997 was 7.53%.
The 8 7/8% Notes due 2007 (the "8 7/8% Notes") and the 8 5/8% Notes due 2008
(the "8 5/8% Notes") are senior subordinated debt with interest payable
semi-annually.
The Credit Facility, the 8 7/8% Notes and the 8 5/8% Notes contain certain
customary covenants including, among other things, restrictions on dividends,
investments and indebtedness and maintenance of specified levels of interest
coverage and cash flows.
F-16
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
At December 31, 1998, the aggregate maturities of long-term debt (excluding
the Credit Facility) were:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
1999........................................................................... $ 4,696
2000........................................................................... 2,271
2001........................................................................... 1,354
2002........................................................................... 758
2003........................................................................... 329
Thereafter..................................................................... 617,610
-------------
$ 627,018
-------------
-------------
</TABLE>
9. LEASES
Facilities and certain equipment are leased under agreements that expire at
various dates through 2009. Rental expense under operating leases for the years
ended December 31, 1998, 1997 and 1996, was $43.7 million, $33.5 million, and
$32.7 million, respectively.
At December 31, 1998, minimum annual rentals under non-cancelable operating
leases (net of subleases) were:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
1999........................................................................... $ 34,345
2000........................................................................... 26,209
2001........................................................................... 18,421
2002........................................................................... 14,430
2003........................................................................... 10,959
Thereafter..................................................................... 32,919
-------------
$ 137,283
-------------
-------------
</TABLE>
Commitments under the lease agreements also extend in most instances to
property taxes, insurance and maintenance and certain leases contain escalation
clauses and extension options.
F-17
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
Income tax expense consisted of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal.................................................... $ 5,569 $ 11,284 $ (741)
State and foreign.......................................... 1,879 5,224 (317)
--------- --------- ---------
7,448 16,508 (1,058)
--------- --------- ---------
Deferred:
Federal.................................................... 20,714 4,733 8,938
State and foreign.......................................... 4,140 704 403
--------- --------- ---------
24,854 5,437 9,341
--------- --------- ---------
Total income tax expense..................................... $ 32,302 $ 21,945 $ 8,283
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's foreign pre-tax income was not a significant component of
total pretax income. No U.S. income taxes have been provided for unremitted
earnings of foreign subsidiaries as the Company intends to reinvest these
earnings permanently or to repatriate the earnings only when it is tax effective
to do so. Accordingly, the Company believes that U.S. foreign tax credits would
substantially offset any U.S. income tax on repatriated earnings.
The following is a reconciliation of the U.S. statutory federal income tax
rate to the Company's effective tax rates:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
PERCENT OF
PRE-TAX INCOME (LOSS)
Statutory income tax rate.......................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefits............. 5.6 (24.8) 20.2
Amortization and write off of goodwill............................. 3.9 (19.7) 97.7
In-process acquired technology write off........................... 0.1 (175.2)
Non-deductible acquisition expenses................................ 9.7
Other non-deductible expenses...................................... 1.6 (4.1) 3.0
--- --------- ---------
Effective tax rate................................................. 46.2% (188.8)% 165.6%
--- --------- ---------
--- --------- ---------
</TABLE>
At December 31, 1998, alternative minimum tax credit carryforwards were $2.5
million, state investment tax credit carryforwards were $1.5 million (which
expire in 2008), and federal net operating loss carryforwards were $23.9 million
(which expire at various dates through 2010).
F-18
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
The tax effects of significant items comprising deferred income taxes were:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Employee benefits..................................................... $ 14,180 $ 15,586
Net operating loss and tax credit carryforwards....................... 13,436 12,498
Accrued expenses and reserves......................................... 16,121 14,817
Other deductible differences.......................................... 5,716 2,295
---------- ----------
49,453 45,196
---------- ----------
Property, plant & equipment........................................... (60,454) (48,714)
Leveraged lease investments........................................... (16,592)
Unrealized gain on investments........................................ (8,471)
Other taxable differences............................................. (686)
---------- ----------
(86,203) (48,714)
---------- ----------
Valuation allowance................................................... (6,261) (6,261)
---------- ----------
Net deferred income tax liability..................................... $ (43,011) $ (9,779)
---------- ----------
---------- ----------
</TABLE>
The valuation allowance was established primarily as a result of IRS
limitations on the utilization of net operating loss carryforwards.
11. RETIREMENT PLANS
DEFINED BENEFIT PLANS
The Company maintains defined benefit plans, including pension and
Supplemental Executive Retirement plans. During 1998, the Company froze the
benefits in one of the pension plans and enhanced certain 401(k) plan benefits.
Information regarding the defined benefit plans is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
COMPONENTS OF NET PERIODIC COST:
Service costs.................................................. $ 1,693 $ 1,546 $ 843
Interest cost.................................................. 1,938 1,819 1,260
Expected return on assets...................................... (1,542) (1,356) (829)
Net amortization and deferral.................................. 94 (7) (7)
Curtailment gain............................................... (1,161)
--------- --------- ---------
$ 1,022 $ 2,002 $ 1,267
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-19
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RETIREMENT PLANS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
(IN THOUSANDS)
CHANGES IN BENEFIT OBLIGATION:
Obligation at beginning of year................................. $ 29,073 $ 23,583
Service costs................................................... 1,693 1,546
Interest cost................................................... 1,938 1,819
Actuarial (gain) loss........................................... (1,062) 3,796
Benefits paid................................................... (3,843) (1,671)
Curtailments and settlements.................................... (1,161)
------------- ------------
Obligation at end of year....................................... 26,638 29,073
------------- ------------
------------- ------------
CHANGES IN PLAN ASSETS:
Fair value of plan assets at beginning of year.................. 17,134 12,783
Actual return on assets......................................... 1,039 3,205
Employer contributions.......................................... 2,772 2,817
Benefits paid................................................... (3,843) (1,671)
------------- ------------
Fair value of plan assets at end of year........................ 17,102 17,134
------------- ------------
------------- ------------
Projected benefit obligation in excess of plan assets........... 9,536 11,939
Unrecognized prior service cost................................. (595) (644)
Unrecognized loss............................................... (367) (972)
------------- ------------
Accrued benefit cost............................................ $ 8,574 $ 10,323
------------- ------------
------------- ------------
ASSUMPTIONS:
Weighted average discount rate.................................. 6.75-7.00% 7.00%
Expected return on plan assets.................................. 9.00% 9.00%
Annual compensation increase.................................... 3.00-3.75% 3.00-3.75%
</TABLE>
DEFERRED COMPENSATION
The Company also maintains a deferred compensation plan in which certain
members of management may defer up to 100% of their total compensation through
the date of their retirement. Long-term liabilities include $3.2 million and
$2.6 million for deferred compensation as of December 31, 1998 and 1997,
respectively.
DEFINED CONTRIBUTION PLANS
The Company maintains 401(k) and other investment plans for eligible
employees. The Company recorded $6.3 million in expense for the year ended
December 31, 1998, $5.0 million in 1997 and $3.1 million in 1996.
F-20
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EARNINGS PER SHARE
For the years ended December 31, 1997 and 1996, the diluted loss per share
equals the basic loss per share as the impact of common stock equivalents (in
both periods) and the potential conversion of convertible securities (in 1997)
would have been anti-dilutive. The following table illustrates the calculation
of basic and diluted earnings per share for the year ended December 31, 1998:
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Basic earnings per share.................................... $ 37,676 19,660 $ 1.92
Effect of dilutive stock options............................ 1,029 (0.10)
Assumed conversion of convertible securities................ 4,140 3,989 (0.13)
--------- --------- -----------
Diluted earnings per share.................................. $ 41,816 24,678 $ 1.69
--------- --------- -----------
--------- --------- -----------
</TABLE>
13. REDEEMABLE CONVERTIBLE PREFERRED SECURITIES
On October 20, 1997, Big Flower Trust I (the "Trust") issued $115 million of
30-year, 6% convertible Quarterly Income Preferred Securities ("QUIPS"). The
Trust is a wholly owned subsidiary of Holdings whose sole assets are $118.6
million aggregate principal amount of 6% Convertible Subordinated Debentures due
2027 (the "Debentures"), which were issued by Holdings. The QUIPS are non-voting
securities, carry a liquidation value of $50 per security and are convertible
into the Company's common stock at an initial rate of 1.7344 shares per security
(equivalent to an initial conversion price of $28.83 per share). They are
convertible at any time at the holders' option and are redeemable, at the
Company's option, after three years. No securities were converted in 1998 or
1997.
Holders of the QUIPS are entitled to preferential cumulative cash
distributions from the Trust at an annual rate of 6% of the liquidation value,
accruing from the original issue date and payable quarterly in arrears beginning
January 15, 1998. The distribution rate and dates correspond to the interest
rate and payment dates for the Debentures. Holdings may defer interest payments
on the Debentures for up to 20 consecutive quarters, but not beyond the maturity
date of the Debentures. If interest payments on the Debentures are deferred, so
are payments on the QUIPS. Under this circumstance, Holdings will not be able to
declare or pay any cash distributions with respect to its capital stock or other
debt ranking on par with or junior to the Debentures. No payments were deferred
in 1998.
Holdings has executed a guarantee with regard to payment of the QUIPS to the
extent that the Trust has sufficient funds to make the required payments. This
guarantee is not a guarantee of collection by QUIPS holders.
Separate financial statements of the Trust are not presented because the
Trust has no independent operations and because of the Company's guarantee
described above.
F-21
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company repurchased and cancelled 287,000 shares of common stock in 1998
and 284,000 shares in 1997. The Company issued 336,000 new common shares in
connection with acquisitions in 1998 and 1.0 million in 1997 (see Note 3).
PREFERRED STOCK
The Company has authorized 10 million shares of preferred stock, none of
which have been issued. Of the shares authorized, 250,000 have been designated
as Series A Junior Preferred Stock.
RIGHTS
The Company has distributed a preferred stock purchase right (a "Right") for
each outstanding share of common stock. Each Right entitles the holder to
purchase from the Company a unit consisting of 1/100 share of Series A Junior
Preferred Stock at an exercise price of $55 per unit if certain entities acquire
a required percentage of the Company's outstanding stock.
ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income at December 31,
1998 were:
<TABLE>
<CAPTION>
GROSS TAX NET
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Unrealized gain on investments................................ $ 21,176 $ 8,470 $ 12,706
Cumulative translation adjustments............................ (184) (184)
--------- --------- ---------
$ 20,992 $ 8,470 $ 12,522
--------- --------- ---------
--------- --------- ---------
</TABLE>
These balances arose in 1998 and there were no corresponding balances in
prior years.
15. STOCK AWARD AND INCENTIVE PLAN
The Company's Restated 1993 Stock Award and Incentive Plan (the "Plan")
authorized grants of common stock and options to purchase shares of common
stock. Options under the Plan generally expire in ten years, and become
exercisable at varying times.
F-22
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. STOCK AWARD AND INCENTIVE PLAN (CONTINUED)
Following is information about shares available for grant:
<TABLE>
<CAPTION>
(THOUSANDS OF SHARES)
<S> <C>
Authorized for issuance................................................. 5,484
Options outstanding at December 31, 1998................................ (3,040)
Options granted and exercised........................................... (285)
Shares sold to management prior to public offering...................... (922)
Shares granted to directors in lieu of fees............................. (4)
------
Available for grant at December 31, 1998................................ 1,233
------
------
</TABLE>
Following is information regarding options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
RANGE OF OPTIONS AVERAGE AVERAGE OPTIONS AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES (THOUSANDS) TERM (YEARS) PRICE (THOUSANDS) PRICE
- -------------- ----------- --------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.68- 3.82 419 5.4 $ 2.63 386 $ 2.53
$ 11.00-16.00 1,077 5.8 13.03 917 13.10
$ 18.00-23.94 1,272 8.3 19.26 930 18.63
$ 26.75-31.25 272 9.0 28.10 27 28.43
----------- ------
3,040 2,260
----------- ------
----------- ------
</TABLE>
Transactions under the Plan were as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE
(THOUSANDS) PRICE
----------- -----------
<S> <C> <C>
Outstanding at January 1, 1996........................................ 862 $ 7.30
Granted............................................................... 507 10.59
Exercised............................................................. (1) 2.33
Expired or cancelled.................................................. (5) 12.63
-----------
Outstanding at December 31, 1996...................................... 1,363 8.51
Granted............................................................... 1,780 17.34
Exercised............................................................. (132) 2.47
Expired or cancelled.................................................. (71) 8.92
-----------
Outstanding at December 31, 1997...................................... 2,940 14.12
Granted............................................................... 357 25.46
Exercised............................................................. (152) 8.36
Expired or cancelled.................................................. (105) 19.73
-----------
Outstanding at December 31, 1998...................................... 3,040 $ 15.55
----------- -----------
----------- -----------
Exercisable at December 31, 1998...................................... 2,260 $ 13.75
----------- -----------
----------- -----------
</TABLE>
F-23
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. STOCK AWARD AND INCENTIVE PLAN (CONTINUED)
Pro forma results of the Company's operations reflecting compensation cost
for the fair value of option awards in 1998, 1997 and 1996 were:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Net income (loss):
As reported............................................... $ 37,676 $ (47,034) $ (5,363)
Pro forma................................................. 32,062 (53,289) (6,521)
Earnings (loss) per share:
As reported
Basic................................................... $ 1.92 $ (2.51) $ (0.30)
Diluted................................................. 1.63 (2.51) (0.30)
Pro forma
Basic................................................... 1.69 (2.85) (0.36)
Diluted................................................. 1.47 (2.85) (0.36)
</TABLE>
The weighted-average fair value per option at the date of grant for options
granted (excluding options issued for acquisitions) was $17.45 in 1998, $12.14
in 1997 and $8.35 in 1996. The fair value per option issued in connection with
acquisitions was $21.41 in 1998 and $15.84 in 1997.
The fair value of options granted during 1998, 1997 and 1996 is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Expected volatility...................................... 44.27% 41.23% 52.36%
Risk-free interest rate.................................. 5.61% 6.56% 6.50%
Dividend yield........................................... 0.00% 0.00% 0.00%
Expected option life (years)............................. 10 10 10
</TABLE>
F-24
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Interest paid............................................ $ 53,654 $ 34,744 $ 34,835
---------- ---------- ----------
---------- ---------- ----------
Income taxes paid........................................ $ 8,451 $ 6,766 $ 10,494
---------- ---------- ----------
---------- ---------- ----------
Non-cash investing and financing activities:
Acquisitions:
Cash paid for acquisitions........................... $ 76,551 $ 245,134 $ 158,605
Fair value of common stock
and options issued................................. 11,082 27,257 9,045
Notes issued......................................... 2,000
Assets acquired...................................... 142,600 347,558 367,993
---------- ---------- ----------
Liabilities assumed.................................. $ 54,967 $ 75,167 $ 198,343
---------- ---------- ----------
---------- ---------- ----------
Other:
Assets acquired through
lease arrangements................................. $ 4,973
----------
----------
Conversion of note payable
into common stock.................................. $ 4,500
----------
----------
</TABLE>
17. QUARTERLY FINANCIAL INFORMATION--UNAUDITED
Summarized quarterly financial information is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1998
Net sales......................................... $383,902 $412,870 $440,107 $502,836
Income before income taxes........................ 2,010 15,380 24,083 28,505(1)
Net income........................................ 1,085 8,306 13,005 15,280(1)
Net income per share--basic....................... $ 0.06 $ 0.42 $ 0.66 $ 0.77(1)
Net income per share--diluted..................... 0.05 0.38 0.57 0.67(1)
(FOOTNOTES ON FOLLOWING PAGE)
</TABLE>
F-25
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. QUARTERLY FINANCIAL INFORMATION--UNAUDITED (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Net sales......................................... $297,501 $316,838 $341,579 $420,788
Income (loss) before income taxes................. 3,296 8,384(2) 11,915(3) (35,221)(4)
Income (loss) before extraordinary
items........................................... 1,681 4,393(2) 6,060(3) (45,705)(4)
Extraordinary items, net.......................... (2,959) (10,504)
Net income (loss)................................. 1,681 1,434)(2) (4,444)(3) (45,705)(4)
Per share--basic
Income (loss) before extraordinary items........ $ 0.09 $ 0.24(2) $ 0.33(3) $ (2.38)(4)
Extraordinary items, net........................ (0.16) (0.57)
Net income (loss)............................... 0.09 0.08(2) (0.24)(3) (2.38)(4)
Per share--diluted
Income (loss) before extraordinary items........ 0.09 0.23(2) 0.31(3) (2.38)(4)
Extraordinary items, net........................ (0.16) (0.54)
Net income (loss)............................... 0.09 0.07(2) (0.23)(3) (2.38)(4)
</TABLE>
- ------------------------
(1) Includes $0.2 million in-process acquired technology write off related to
the Datatrak acquisition (see Note 3) and $4.6 million of termination costs
for executive positions eliminated.
(2) Includes $0.6 million of non-recurring costs related to the Company's
secondary stock offering.
(3) Includes $3.2 million of non-recurring costs related to the Olwen
acquisition (see Note 3).
(4) Includes $58.2 million in-process acquired technology write off related to
the Columbine acquisition and $2.5 million of non-recurring costs related to
other acquisitions (see Note 3).
18. 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.
F-26
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SEGMENT INFORMATION (CONTINUED)
Following is unaudited information regarding the Company's segments:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales........... Insert Advertising & Newspaper
Services $ 1,101,875 $ 961,577 $ 900,465
Direct Marketing Services 282,431 202,197 134,795
Digital Services 272,995 108,608 44,443
Specialty Products & Commercial
Printing 91,122 109,852 125,846
Elimination of intersegment sales (8,708) (5,528) (3,689)
-------------- -------------- --------------
Consolidated $ 1,739,715 $ 1,376,706 $ 1,201,860
-------------- -------------- --------------
-------------- -------------- --------------
Operating Income.... Insert Advertising & Newspaper
Services $ 90,568 $ 72,025(3) $ 60,124
Direct Marketing Services 34,159 21,035(4) 11,881
Digital Services 27,396(1) (44,699)(5) (178)(7)
Specialty Products & Commercial
Printing 5,451 4,856 8,635
General Corporate (20,322)(2) (14,715)(6) (11,119)
-------------- -------------- --------------
Consolidated $ 137,252 $ 38,502 $ 69,343
-------------- -------------- --------------
-------------- -------------- --------------
Depreciation........ Insert Advertising & Newspaper
Services $ 31,526 $ 27,225 $ 19,904
Direct Marketing Services 13,134 11,120 8,208
Digital Services 16,048 6,796 2,721
Specialty Products & Commercial
Printing 2,910 3,800 3,897
General Corporate 626 710 26
-------------- -------------- --------------
Consolidated $ 64,244 $ 49,651 $ 34,756
-------------- -------------- --------------
-------------- -------------- --------------
Amortization of
Intangibles....... Insert Advertising & Newspaper
Services $ 13,209 $ 14,128 $ 14,979
Direct Marketing Services 1,996 1,116 675
Digital Services 5,741 1,771 728
Specialty Products & Commercial
Printing 696 656 621
General Corporate 500
-------------- -------------- --------------
Consolidated $ 22,142 $ 17,671 $ 17,003
-------------- -------------- --------------
-------------- -------------- --------------
Additions to
Long-Lived
Assets............ Insert Advertising & Newspaper
Services $ 46,676 $ 45,030 $ 30,887
(excluding
acquisitions) Direct Marketing Services 18,621 16,253 11,831
Digital Services 34,227 10,671 5,195
Specialty Products & Commercial
Printing 2,498 2,078 4,826
General Corporate 3,643 680 2,652
-------------- -------------- --------------
Consolidated $ 105,665 $ 74,712 $ 55,391
-------------- -------------- --------------
-------------- -------------- --------------
Identifiable
Assets............ Insert Advertising & Newspaper
Services $ 529,996 $ 538,745 $ 412,387
Direct Marketing Services 197,213 196,849 132,299
Digital Services 376,124 185,783 75,376
Specialty Products & Commercial
Printing 53,784 59,613 69,616
General Corporate(8) 171,065 78,057 60,064
-------------- -------------- --------------
Consolidated $ 1,328,182 $ 1,059,047 $ 749,742
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
- ------------------------------
(1) Includes $0.2 million in-process acquired technology write off related to
the Datatrak acquisition (see Note 3).
(2) Includes $4.6 million of termination costs for executive positions
eliminated.
(3) Includes $2.2 million of non-recurring costs related to the RCPC acquisition
(see Note 3).
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
F-27
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SEGMENT INFORMATION (CONTINUED)
(FOOTNOTES CONTINUED FROM PREVIOUS PAGE)
(4) Includes $3.2 million of non-recurring costs related to the Olwen
acquisition (see Note 3).
(5) Includes $58.2 million in-process acquired technology write off related to
the Columbine acquisition (see Note 3).
(6) Includes $0.6 million of non-recurring costs related to the Company's
secondary stock offering and $0.3 million of costs related to acquisitions.
(7) Includes $2.7 million of non-recurring costs related to the acquisitions of
DCS and DDI (see Note 3).
(8) Includes assets of corporate controlled entities including leveraged lease
investments.
The Company had sales of $62.9 million in 1998 and $11.6 million in 1997
generated by its subsidiaries outside the United States, primarily in the United
Kingdom. Identifiable assets of those operations totaled $115.9 million at
December 31, 1998 and $49.7 million at December 31, 1997. The Company had no
operations outside the United States prior to September 1997.
19. COMMITMENTS AND CONTINGENCIES
Certain claims, suits and allegations that arise in the ordinary course of
business and certain environmental claims have been filed or are pending against
the Company. Management believes that all such matters in the aggregate would
not have a material effect on the Company's consolidated financial statements.
20. RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which is
effective with the Company's 2000 fiscal year. Adoption of this statement is
expected to have an insignificant effect on the Company's financial statements.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Big Flower Press Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Big Flower
Press Holdings, Inc. and subsidiaries ("the Company") as of December 31, 1998
and 1997 and the related consolidated statements of operations, accumulated
deficit and comprehensive income and cash flows for each of the years in the
period ended December 31, 1998. Our audits also included the consolidated
financial statement schedules listed in the Index on page F-1. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1998 and 1997 and the results of its operations and its cash flows for each of
the years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, such consolidated
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
February 8, 1999
INDEPENDENT AUDITORS' CONSENT
TO INCORPORATION BY REFERENCE IN REGISTRATION STATEMENTS
ON FORMS S-8 AND S-4
We consent to the incorporation by reference in Big Flower Press Holdings,
Inc.'s Registration Statement Nos. 333-2152 and 333-14637 on Form S-8 and
Registration Statement Nos. 333-32141, 333-42745 and 333-71859 on Form S-4 of
our report dated February 8, 1999 appearing on page F-29 of the Annual Report on
Form 10-K for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
New York, New York
March 31, 1999
F-29
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................... $ 8,499 $ 5,307
Accounts receivable, net............................................................ 186,857 140,138
Inventories......................................................................... 47,954 46,510
Prepaid expenses and other current assets........................................... 14,788 4,599
Deferred income taxes and income tax receivable..................................... 10,910 19,827
------------ ------------
Total current assets.............................................................. 269,008 216,381
Property, plant and equipment, net.................................................... 454,004 384,850
Goodwill, net of accumulated amortization of $40,379 and $25,413...................... 483,373 415,601
Long-term investments................................................................. 70,141
Other assets, net..................................................................... 36,634 37,436
------------ ------------
Total Assets...................................................................... $ 1,313,160 $ 1,054,268
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable.................................................................... $ 150,503 $ 133,702
Compensation and benefits payable................................................... 44,638 45,663
Accrued interest.................................................................... 16,991 13,775
Accrued income taxes................................................................ 15,936 9,625
Other current liabilities........................................................... 47,188 30,224
------------ ------------
Total current liabilities......................................................... 275,256 232,989
Due to parent......................................................................... 2,446 3,466
Long-term debt, net of current portion................................................ 731,080 590,045
Deferred income taxes................................................................. 53,134 27,811
Other long-term liabilities........................................................... 26,355 20,715
------------ ------------
Total liabilities................................................................. 1,088,271 875,026
------------ ------------
Stockholder's equity:
Accumulated deficit................................................................. (36,511) (67,643)
Accumulated other comprehensive income.............................................. 12,522
Other............................................................................... 248,878 246,885
------------ ------------
Total stockholder's equity........................................................ 224,889 179,242
------------ ------------
Total Liabilities and Stockholder's Equity........................................ $ 1,313,160 $ 1,054,268
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements of Big Flower Press Holdings,
Inc. and subsidiaries.
F-30
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS,
ACCUMULATED DEFICIT AND COMPREHENSIVE INCOME
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales............................................................................. $ 1,739,715 $ 1,376,706
------------ ------------
Operating expenses:
Costs of production................................................................. 1,296,336 1,072,296
Selling, general and administrative................................................. 219,876 140,394
Depreciation........................................................................ 63,914 49,651
Amortization of intangibles......................................................... 21,522 17,671
In-process acquired technology write off............................................ 245 58,192
------------ ------------
1,601,893 1,338,204
------------ ------------
Operating income...................................................................... 137,822 38,502
------------ ------------
Other expenses (income):
Interest expense...................................................................... 56,458 40,380
Amortization of deferred financing costs............................................ 1,728 1,660
Interest income..................................................................... (944) (349)
Other, net.......................................................................... 2,982 7,141
------------ ------------
60,224 48,832
------------ ------------
Income (loss) before income taxes and extraordinary items............................. 77,598 (10,330)
Income tax expense.................................................................... 35,366 22,336
------------ ------------
Income (loss) before extraordinary items.............................................. 42,232 (32,666)
Extraordinary items, net of tax benefit of $8,800..................................... (13,463)
------------ ------------
Net income (loss)..................................................................... 42,232 (46,129)
Dividends to parent................................................................... (11,100)
Accumulated deficit at beginning of year.............................................. (67,643) (21,514)
------------ ------------
Accumulated deficit at end of year.................................................... $ (36,511) $ (67,643)
------------ ------------
------------ ------------
Net income (loss)..................................................................... $ 42,232 $ (46,129)
Unrealized gain on investments........................................................ 12,706
Currency translation adjustment....................................................... (184)
------------ ------------
Comprehensive income (loss)........................................................... $ 54,754 $ (46,129)
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements of Big Flower Press Holdings,
Inc. and subsidiaries.
F-31
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $ 42,232 $ (46,129)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization................................... 85,436 67,322
In-process acquired technology write off........................ 245 58,192
Extraordinary items, net........................................ 13,463
Deferred income taxes........................................... 23,125 4,866
Other non-cash income and expense, net.......................... 5,021 9,348
Changes in operating assets and liabilities (excluding effect of
acquisitions):
Increase in accounts receivable............................. (29,475) (3,343)
Decrease (increase) in inventories.......................... 2,085 (5,905)
Increase in prepaid expenses and other assets............... (1,702) (1,570)
(Decrease) increase in accounts payable and other
liabilities............................................... (10,134) 21,844
--------- ---------
Net cash provided by operating activities............................. 116,833 118,088
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired.................... (70,545) (242,233)
Capital expenditures................................................ (93,938) (74,045)
Investments in equity securities and leveraged lease transactions... (53,173)
Software development costs capitalized.............................. (10,232) (667)
Proceeds from sale of property, plant and equipment and divested
assets............................................................ 2,536 344
--------- ---------
Net cash used in investing activities................................. (225,352) (316,601)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt.......................................... 267,500 350,125
Net (repayments) borrowings under lines of credit................... (127,670) 8,177
Repayments of long-term debt........................................ (28,100) (239,257)
Dividends to parent................................................. (6,855)
Capital contribution by parent...................................... 111,148
Increase (decrease) in outstanding checks drawn on controlled
disbursement accounts............................................. 15,897 (14,650)
Deferred financing costs............................................ (8,661) (12,233)
Issuance of common stock............................................ 574
Repurchase of common stock.......................................... (4,264)
--------- ---------
Net cash provided by financing activities............................. 112,111 199,620
--------- ---------
Effect of exchange rate changes on cash............................... (400)
---------
Net increase in cash and cash equivalents............................. 3,192 1,107
Cash and cash equivalents at beginning of year........................ 5,307 4,200
--------- ---------
Cash and cash equivalents at end of year.............................. $ 8,499 $ 5,307
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements of Big Flower Press Holdings,
Inc. and Subsidiaries.
F-32
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Prior to the formation of Big Flower Holdings, Inc. ("Holdings") and the
related reorganization on October 17, 1997, the consolidated financial
statements of the Company represented the accounts of Big Flower Press Holdings,
Inc. and its subsidiaries ("Press"). Information in the Notes to the Company's
consolidated financial statements for periods prior to the reorganization
represents that of Press and its subsidiaries. Separate footnotes are not
provided for the Press financial statements as the information in Notes 1-11 and
14-20 to the Company's consolidated financial statements is substantially
equivalent to that required for the consolidated financial statements of Press
and its subsidiaries. Earnings per share data are not provided as Press is a
wholly-owned subsidiary of Holdings.
2. CAPITAL CONTRIBUTIONS
In October 1997, in connection with acquisitions and the issuance of
redeemable convertible preferred securities, Holdings contributed $111.1 million
of cash to Press. The proceeds of this contribution were used to repay
borrowings under Press' revolving credit facility.
Also in October 1997, Holdings contributed its investment in Columbine to
Press at the fair value of the common stock and stock options issued for the
Columbine acquisition ($21.3 million).
In April 1998, Holdings contributed its investment in Reach America to Press
at the fair value of the stock issued for the Reach America acquisition ($1.7
million).
3. DIVIDENDS TO PARENT
During 1998, Press paid $6.9 million of cash dividends to Holdings in
connection with interest payments on Holdings' debentures (see Note 13 to the
Company's consolidated financial statements). Additionally, certain assets of
Press with aggregate book value of $4.2 million were transferred to Holdings in
the form of dividends.
F-33
<PAGE>
BIG FLOWER HOLDINGS, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
IN THOUSANDS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................... $ 5
Prepaid expenses and other current assets............................................... 866
----------
Total current assets.................................................................. 871
Property, plant and equipment, net........................................................ 3,984
Investments in and advances to subsidiaries............................................... 240,574 $ 185,359
Other assets.............................................................................. 5,947 4,779
---------- ----------
Total Assets.......................................................................... $ 251,376 $ 190,138
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Compensation and benefits payable....................................................... $ 4,345
Other current liabilities............................................................... 951
----------
Total current liabilites.............................................................. 5,296
Long-term debt............................................................................ 118,600 $ 118,600
Other long-term liabilities............................................................... 270
---------- ----------
Total liabilities......................................................................... 124,166 118,600
Stockholders' equity...................................................................... 127,210 71,538
---------- ----------
Total Liabilities and Stockholders' Equity............................................ $ 251,376 $ 190,138
---------- ----------
---------- ----------
</TABLE>
See Notes to condensed financial information.
F-34
<PAGE>
BIG FLOWER HOLDINGS, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Interest and allocation income from affiliates....................................... $ 17,149 $ 122
------------ ------------
Corporate administrative expenses.................................................... 17,031
Interest expense--affiliates......................................................... 7,738 1,418
------------ ------------
Total expenses..................................................................... 24,769 1,418
------------ ------------
Loss before income taxes, extraordinary items and equity in net income (loss) of
subsidiaries....................................................................... (7,620) (1,296)
Income tax benefit................................................................... (3,064) (391)
------------ ------------
Loss before extraordinary items and equity in net income (loss) of subsidiaries...... (4,556) (905)
Equity in net income (loss) of subsidiaries.......................................... 42,232 (32,666)
------------ ------------
Income (loss) before extraordinary items............................................. 37,676 (33,571)
Extraordinary items, net............................................................. (13,463)
------------ ------------
Net income (loss).................................................................... $ 37,676 $ (47,034)
------------ ------------
------------ ------------
</TABLE>
See Notes to condensed financial information.
F-35
<PAGE>
BIG FLOWER HOLDINGS, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities................................................ $ (442) $ (949)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends from subsidiaries........................................................ 6,855
Capital expenditures............................................................... (1,495)
Investments in subsidiaries........................................................ (114,748)
------------ ------------
Net cash provided by (used in) investing activities.................................. 5,360 (114,748)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........................................... 118,600
Proceeds from issuance of common stock............................................. 1,645 121
Repurchase of common stock......................................................... (7,514) (1,716)
Change in intercompany balances, net............................................... 1,581 3,507
Deferred financing costs........................................................... (625) (4,815)
------------ ------------
Net cash (used in) provided by financing activities.................................. (4,913) 115,697
------------ ------------
Net increase in cash and cash equivalents............................................ 5 --
Cash and cash equivalents at beginning of period..................................... -- --
------------ ------------
Cash and cash equivalents at end of period........................................... $ 5 $ --
------------ ------------
------------ ------------
</TABLE>
See Notes to condensed financial information.
F-36
<PAGE>
BIG FLOWER HOLDINGS, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the condensed financial statements of the Registrant do not include
all of the information and notes normally included with financial statements
prepared in accordance with generally accepted accounting principles. It is
therefore suggested that these condensed financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Registrant's Annual Report as listed on page F-1. Certain
financial statement amounts have been reclassified to conform to the current
presentation.
2. LONG-TERM DEBT
Long-term debt consists of debentures issued in connection with a
subsidiary's offering of redeemable convertible preferred securities (see Note
13 to the consolidated financial statements).
3. INVESTMENTS IN SUBSIDIARIES
The Company accounts for the investments in its subsidiaries using the
equity method.
F-37
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
IN THOUSANDS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 10 $ 132
Prepaid expenses and other current assets............................................... 458 468
---------- ----------
Total current assets.................................................................. 468 600
Investments in and advances to subsidiaries............................................... 829,167 729,843
Property, plant and equipment, net........................................................ 1,209
Other assets.............................................................................. 15,335 11,906
---------- ----------
Total Assets.......................................................................... $ 844,970 $ 743,558
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accrued interest........................................................................ $ 16,917 $ 13,976
Other current liabilities............................................................... 1,854 1,351
---------- ----------
Total current liabilities............................................................. 18,771 15,327
Long-term debt, net of current portion.................................................... 601,310 548,989
---------- ----------
Total liabilities..................................................................... 620,081 564,316
Stockholder's equity...................................................................... 224,889 179,242
---------- ----------
Total Liabilities and Stockholder's Equity............................................ $ 844,970 $ 743,558
---------- ----------
---------- ----------
</TABLE>
See Notes to condensed financial information.
F-38
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Interest and allocation income from affiliates................................. $ 58,076 $ 43,583 $ 9,709
--------- ---------- ----------
Corporate administrative expenses.............................................. 3,290 14,797 8,107
Interest expense--affiliates................................................... 9,577
Interest expense--third party.................................................. 41,626 29,699 15,838
--------- ---------- ----------
Total expenses................................................................. 54,493 44,496 23,945
--------- ---------- ----------
Income (loss) before income taxes, extraordinary items and equity in net income
(loss) of subsidiaries....................................................... 3,583 (913) (14,236)
Income tax provision (benefit)................................................. 1,406 (272) (7,081)
--------- ---------- ----------
Income (loss) before extraordinary items and equity in net income (loss) of
subsidiaries................................................................. 2,177 (641) (7,155)
Equity in net income (loss) of subsidiaries.................................... 40,055 (32,025) 3,870
--------- ---------- ----------
Income (loss) before extraordinary items....................................... 42,232 (32,666) (3,285)
Extraordinary items, net....................................................... (13,463) (2,078)
--------- ---------- ----------
Net income (loss).............................................................. $ 42,232 $ (46,129) $ (5,363)
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
See Notes to condensed financial information.
F-39
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash used in operating activities....................................... $ (41,534) $ (35,326) $ (15,956)
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries............................................... (4,000)
Capital expenditures...................................................... (274)
Distributions from subsidiaries........................................... 1,325
----------- ----------- ----------
Net cash (used in) provided by investing activities......................... (4,000) (274) 1,325
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................................. 250,000 350,125
Repayment of long-term debt............................................... (125,166)
Dividends paid to parent.................................................. (6,855)
Capital contribution by parent............................................ 111,148
Net (repayments) borrowings under lines of credit......................... (199,167) 186,796
Proceeds from issuance of common stock.................................... 270
Repurchase of common stock................................................ (4,264)
Change in intercompany balances, net...................................... 9,262 (470,956) 13,439
Deferred financing costs.................................................. (7,828) (12,231)
----------- ----------- ----------
Net cash provided by financing activities................................... 45,412 35,722 13,439
----------- ----------- ----------
Net (decrease) increase in cash and cash equivalents........................ (122) 122 (1,192)
Cash and cash equivalents at beginning of year.............................. 132 10 1,202
----------- ----------- ----------
Cash and cash equivalents at end of year.................................... $ 10 $ 132 $ 10
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See Notes to condensed financial information.
F-40
<PAGE>
BIG FLOWER PRESS HOLDINGS, INC.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the condensed financial statements of the Registrant do not include
all of the information and notes normally included with financial statements
prepared in accordance with generally accepted accounting principles. It is
therefore suggested that these condensed financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Registrant's Annual Report as listed on page F-1. Certain
financial statement amounts have been reclassified to conform to the current
presentation.
2. LONG-TERM DEBT
Long-term debt consists principally of 8 7/8% Notes due 2007 and 8 5/8%
Notes due 2008 (see Note 8 to the consolidated financial statements).
3. INVESTMENTS IN SUBSIDIARIES
The Company accounts for the investments in its subsidiaries using the
equity method.
F-41
<PAGE>
BIG FLOWER HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
IN THOUSANDS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE OFFS BALANCE
BEGINNING COSTS AND NET OF AT END
OF YEAR EXPENSES RECOVERIES OTHER (A) OF YEAR
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1996........................... $ 7,768 $ 658 $ (1,619) $ 1,773 $ 8,580
Year ended December 31, 1997........................... 8,580 1,371 (1,208) 3,599 12,342
Year ended December 31, 1998........................... 12,342 3,729 (4,919) (1,380) 9,772
DEFERRED TAX VALUATION ALLOWANCE
Year ended December 31, 1996........................... $ 1,124 $ 5,137 $ 6,261
Year ended December 31, 1997........................... 6,261 6,261
Year ended December 31, 1998........................... 6,261 6,261
</TABLE>
- ------------------------
(a) Amounts primarily related to acquired companies as of the respective dates
of acquisition, as well as subsequent adjustment of reserves established
upon acquisition.
F-42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the 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.
(REGISTRANT)
By: /s/ R. THEODORE AMMON
-----------------------------------------
R. Theodore Ammon
CHAIRMAN
</TABLE>
Dated: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ R. THEODORE AMMON Chairman and Director
- ------------------------------ (Principal Executive March 31, 1999
R. Theodore Ammon Officer)
President, Chief Executive
/s/ EDWARD T. REILLY Officer and Director
- ------------------------------ (Principal Operating March 31, 1999
Edward T. Reilly Officer)
Executive Vice President
/s/ RICHARD L. RITCHIE and Chief Financial
- ------------------------------ Officer (Principal March 31, 1999
Richard L. Ritchie Financial and Accounting
Officer)
/s/ PETER G. DIAMANDIS
- ------------------------------ Director March 31, 1999
Peter G. Diamandis
/s/ ROBERT M. KIMMITT
- ------------------------------ Director March 31, 1999
Robert M. Kimmitt
/s/ JOAN D. MANLEY
- ------------------------------ Director March 31, 1999
Joan D. Manley
/s/ NEWTON N. MINOW
- ------------------------------ Director March 31, 1999
Newton N. Minow
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
BIG FLOWER PRESS HOLDINGS, INC.
(REGISTRANT)
By: /s/ R. THEODORE AMMON
-----------------------------------------
R. Theodore Ammon
CHAIRMAN
</TABLE>
Dated: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ R. THEODORE AMMON Chairman and Director
- ------------------------------ (Principal Executive March 31, 1999
R. Theodore Ammon Officer)
President, Chief Executive
/s/ EDWARD T. REILLY Officer and Director
- ------------------------------ (Principal Operating March 31, 1999
Edward T. Reilly Officer)
Executive Vice President
/s/ RICHARD L. RITCHIE and Chief Financial
- ------------------------------ Officer (Principal March 31, 1999
Richard L. Ritchie Financial and Accounting
Officer)
/s/ MARK A. ANGELSON
- ------------------------------ Director March 31, 1999
Mark A. Angelson
</TABLE>
<PAGE>
Exhibit 4.8
================================================================================
BIG FLOWER PRESS HOLDINGS, INC.
as Issuer
_____________________
and
STATE STREET BANK AND TRUST COMPANY
_____________________
as Trustee
INDENTURE
Dated as of December 9, 1998
up to $350,000,000
8 5/8% Senior Subordinated Notes due 2008
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
TIA Section Indenture Section
- ----------- -----------------
Sections 310(a)(1) ..................................... 7.10
(a)(2) ..................................... 7.10
(a)(3) ..................................... N.A.
(a)(4) ..................................... N.A.
(a)(5)...................................... 7.10
(b) ........................................ 7.8; 7.10; 11.2
(c) ........................................ N.A.
Sections 311(a) ........................................ 7.11
(b) ........................................ 7.11
(c) ........................................ N.A.
Sections 312(a) ........................................ 2.5
(b) ........................................ 11.3
(c) ........................................ 11.3
Sections 313(a) ........................................ 7.6
(b)(1) ..................................... 7.6
(b)(2) ..................................... 7.6
(c) ........................................ 7.6; 11.2
(d) ........................................ 7.6
Sections 314(a) ........................................ 4.6; 4.7; 11.2
(b) ........................................ N.A.
(c)(1) ..................................... 11.4
(c)(2) ..................................... 11.4
(c)(3) ..................................... N.A.
(d) ........................................ N.A.
(e) ........................................ 11.5
(f) ........................................ N.A.
Sections 315(a) ........................................ 7.1(b)
(b) ........................................ 7.5; 11.2
(c) ........................................ 7.1(a)
(d) ........................................ 7.1(c)
(e) ........................................ 6.11
Sections 316(a) (last sentence) ........................ 2.9
(a)(1)(A) .................................. 6.5
(a)(1)(B) .................................. 6.4
(a)(2) ..................................... N.A.
(b) ........................................ 6.7
(c)......................................... 9.4
Sections 317(a)(1) ..................................... 6.8
(a)(2) ..................................... 6.9
(b) ........................................ 2.4
Sections 318(a) ........................................ 11.1
(c)......................................... 11.1
- --------------------
N.A. means Not Applicable.
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
-i-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE.........................................................1
SECTION 1.1 Definitions.......................................................................................1
SECTION 1.2 Incorporation by Reference of Trust Indenture Act................................................23
SECTION 1.3 Rules of Construction............................................................................24
ARTICLE II THE SECURITIES...................................................................................24
SECTION 2.1 Form and Dating..................................................................................24
SECTION 2.2 Execution and Authentication.....................................................................24
SECTION 2.3 Registrar and Paying Agent.......................................................................26
SECTION 2.4 Paying Agent To Hold Money in Trust..............................................................27
SECTION 2.5 Securityholder Lists.............................................................................27
SECTION 2.6 Transfer and Exchange............................................................................27
SECTION 2.7 Replacement Securities...........................................................................28
SECTION 2.8 Outstanding Securities...........................................................................28
SECTION 2.9 Treasury Securities..............................................................................29
SECTION 2.10 Temporary Securities............................................................................29
SECTION 2.11 Cancellation....................................................................................30
SECTION 2.12 Defaulted Interest..............................................................................30
SECTION 2.13 CUSIP Number....................................................................................30
SECTION 2.14 Book-Entry Provisions for Global Securities.....................................................31
SECTION 2.15 Special Transfer Provisions.....................................................................32
ARTICLE III REDEMPTION......................................................................................34
SECTION 3.1 Notices to Trustee...............................................................................34
SECTION 3.2 Selection of Securities To Be Redeemed...........................................................34
SECTION 3.3 Notice of Redemption.............................................................................35
SECTION 3.4 Effect of Notice of Redemption...................................................................36
SECTION 3.5 Deposit of Redemption Price......................................................................36
SECTION 3.6 Securities Redeemed in Part......................................................................37
ARTICLE IV COVENANTS........................................................................................37
SECTION 4.1 Payment of Securities............................................................................37
SECTION 4.2 Maintenance of Office or Agency..................................................................37
SECTION 4.3 Corporate Existence..............................................................................38
SECTION 4.4 Payment of Taxes and Other Claims................................................................38
SECTION 4.5 Maintenance of Properties; Books and Records; Compliance with Law................................39
SECTION 4.6 Compliance Certificates; Notice of Default.......................................................39
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4.7 Reports..........................................................................................41
SECTION 4.8 Limitation on Restricted Payments................................................................41
SECTION 4.9 Limitation on Additional Indebtedness............................................................44
SECTION 4.10 Dividends and Payment Restrictions..............................................................46
SECTION 4.11 Limitation on Liens.............................................................................47
SECTION 4.12 Limitation on Asset Sales.......................................................................47
SECTION 4.13 Transactions With Affiliates....................................................................51
SECTION 4.14 Limitation on Creation of Senior Subordinated Debt. ...........................................52
SECTION 4.15 Change of Control...............................................................................53
SECTION 4.16 Waiver of Stay; Extension of Usury Laws.........................................................55
SECTION 4.17 Maintenance of Insurance........................................................................55
ARTICLE V SUCCESSOR CORPORATION.............................................................................56
SECTION 5.1 Limitation on Mergers, Consolidations or Sales of Assets.........................................56
SECTION 5.2 Successor Entity Substituted.....................................................................57
ARTICLE VI DEFAULT AND REMEDIES.............................................................................57
SECTION 6.1 Events of Default................................................................................57
SECTION 6.2 Acceleration.....................................................................................60
SECTION 6.3 Other Remedies...................................................................................61
SECTION 6.4 Waiver of Past Default...........................................................................62
SECTION 6.5 Control by Majority..............................................................................62
SECTION 6.6 Limitation on Suits..............................................................................62
SECTION 6.7 Rights of Holders To Receive Payment.............................................................63
SECTION 6.8 Collection Suit by Trustee.......................................................................63
SECTION 6.9 Trustee May File Proofs of Claim.................................................................63
SECTION 6.10 Priorities......................................................................................64
SECTION 6.11 Undertaking for Costs...........................................................................64
SECTION 6.12 Rights and Remedies Cumulative..................................................................65
SECTION 6.13 Delay or Omission Not Waiver....................................................................65
ARTICLE VII TRUSTEE.........................................................................................65
SECTION 7.1 Duties of Trustee................................................................................65
SECTION 7.2 Rights of Trustee................................................................................67
SECTION 7.3 Individual Rights of Trustee.....................................................................68
SECTION 7.4 Trustee's Disclaimer.............................................................................68
SECTION 7.5 Notice of Defaults...............................................................................68
SECTION 7.6 Reports by Trustee to Holders....................................................................68
SECTION 7.7 Compensation and Indemnity.......................................................................69
SECTION 7.8 Replacement of Trustee...........................................................................70
SECTION 7.9 Successor Trustee by Merger, Etc.................................................................71
SECTION 7.10 Eligibility; Disqualification...................................................................71
SECTION 7.11 Preferential Collection of Claims Against Company...............................................71
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VIII DISCHARGE OF INDENTURE; DEFEASANCE.............................................................72
SECTION 8.1 Termination of the Company's Obligations.........................................................72
SECTION 8.2 Legal Defeasance and Covenant Defeasance.........................................................73
SECTION 8.3 Conditions to Legal Defeasance or Covenant Defeasance............................................75
SECTION 8.4 Application of Trust Money.......................................................................77
SECTION 8.5 Repayment to the Company.........................................................................78
SECTION 8.6 Reinstatement....................................................................................78
ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS..............................................................79
SECTION 9.1 Without Consent of Holders.......................................................................79
SECTION 9.2 With Consent of Holders..........................................................................79
SECTION 9.3 Compliance with Trust Indenture Act..............................................................81
SECTION 9.4 Revocation and Effect of Consents................................................................81
SECTION 9.5 Notation on or Exchange of Securities............................................................82
SECTION 9.6 Trustee To Sign Amendments, Etc..................................................................82
ARTICLE X SUBORDINATION.....................................................................................83
SECTION 10.1 Securities Subordinated to Senior Indebtedness..................................................83
SECTION 10.2 No Payment on Securities in Certain Circumstances...............................................83
SECTION 10.3 Securities Subordinated to Prior Payment of All Senior Indebtedness on
Dissolution, Liquidation or Reorganization of Company.......................................85
SECTION 10.4 Holders To Be Subrogated to Rights of Holders of Senior Indebtedness............................86
SECTION 10.5 Obligations of the Company Unconditional........................................................87
SECTION 10.6 Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice.........................88
SECTION 10.7 Subordination Rights Not Impaired by Acts or Omissions of Company or
Holders of Senior Indebtedness..............................................................88
SECTION 10.8 Holders Authorize Trustee to Effectuate Subordination of Securities.............................89
SECTION 10.9 Right of Trustee to Hold Senior Indebtedness....................................................90
SECTION 10.10 Article X Not to Prevent Events of Default.....................................................90
SECTION 10.11 No Fiduciary Duty of Trustee to Holders of Senior Indebtedness.................................90
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XI MISCELLANEOUS....................................................................................90
SECTION 11.1 Trust Indenture Act Controls....................................................................90
SECTION 11.2 Notices.........................................................................................91
SECTION 11.3 Communications by Holders with Other Holders....................................................92
SECTION 11.4 Certificate and Opinion of Counsel as to Conditions Precedent...................................92
SECTION 11.5 Statements Required in Certificate and Opinion of Counsel.......................................93
SECTION 11.6 Rules by Trustee, Paying Agent, Registrar.......................................................93
SECTION 11.7 Legal Holidays..................................................................................93
SECTION 11.8 GOVERNING LAW...................................................................................93
SECTION 11.9 No Recourse Against Others......................................................................94
SECTION 11.10 Successors.....................................................................................94
SECTION 11.11 Counterparts...................................................................................94
SECTION 11.12 Severability...................................................................................94
SECTION 11.13 Table of Contents, Headings, Etc...............................................................94
SECTION 11.14 No Adverse Interpretation of Other Agreements..................................................94
SECTION 11.15 Benefits of Indenture..........................................................................95
SECTION 11.16 Independence of Covenants......................................................................95
</TABLE>
Exhibit A-1 - Form of Series A Security
Exhibit A-2 - Form of Series B Security
Exhibit B - Form of Legend for Global Securities
Exhibit C - Transferee Certificate for Non-QIB Accredited Investors
Exhibit D - Transferee Certificate for Transfers Pursuant Regulation S
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of the Indenture.
-v-
<PAGE>
INDENTURE dated as of December 9, 1998, between BIG FLOWER
PRESS HOLDINGS, INC., a corporation duly organized and existing under the laws
of the State of Delaware, as Issuer (the "Company"), and STATE STREET BANK AND
TRUST COMPANY, a national banking association duly organized and existing under
the laws of the United States, as Trustee (the "Trustee").
The parties hereto agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
"Accrued Bankruptcy Interest" means all interest accruing
subsequent to the occurrence of any events specified in Section 6.1(vi) or (vii)
or which would have accrued but for any such event.
"Adjusted Consolidated Net Income" means, with respect to any
Person for any period, (i) the Consolidated Net Income of such Person for such
period plus (ii) in the case of the Company and its Restricted Subsidiaries, (A)
all cash received during such period by the Company or any Restricted Subsidiary
from its Unrestricted Subsidiaries but only to the extent that the Company
elects to so include such cash payments (in whole or in part) in Adjusted
Consolidated Net Income and not as a reduction in the carrying value of the
Investment in such Unrestricted Subsidiary (whether or not in accordance with
GAAP), such election to be made prior to the making of a Restricted Payment
based upon such cash received and (B) amortization, depreciation and other
non-cash charges relating to acquisitions by the Company since its formation,
including goodwill, non-compete agreements, the stepped-up basis on assets
acquired and deferred financing costs, in each case to the extent such items
reduced Consolidated Net Income. Each item of Adjusted Consolidated Net Income
will be determined in conformity with GAAP, except as set forth in this
definition and except that, for purposes of the application of Accounting
Principles Board Opinions Nos. 16 and 17, such Person may select an amortization
practice allowable by GAAP up to 40 years, notwithstanding the use of a
different amortization in such Person's consolidated financial statements. Any
designation of a Subsidiary of the Company as a Restricted Subsidiary or
Unrestricted Subsidiary at or prior to the time of the calculation
<PAGE>
-2-
of Adjusted Consolidated Net Income of a Subsidiary will be treated as if it had
occurred at the beginning of the applicable period.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. A Person shall be deemed to "control"
(including the correlative meanings, the terms "controlling," "controlled by,"
and "under common control with") another Person if the controlling Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies, of the controlled Person, whether through ownership
of voting securities, by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Agent Bank" means Bankers Trust Company and/or any successor
agent or agents pursuant to the Credit Agreement.
"Agent Members" has the meaning provided in Section 2.14.
"Asset Sale" means, with respect to any Person, in one or a
series of related transactions, the sale, lease, conveyance, disposition or
other transfer by the referent Person of any of its assets (including by way of
sale and leaseback and including the sale or other transfer or issuance of any
of the Capital Stock of any Subsidiary of the referent Person); PROVIDED that
notwithstanding the foregoing, the term "Asset Sale" shall not include the sale,
lease, conveyance, disposition or other transfer of (i) all or substantially all
of the assets of the Company, as permitted pursuant to Section 5.1, (ii) any
assets between the Company and any Restricted Subsidiary, (iii)(A) cash and cash
equivalents, (B) inventory and (C) any other tangible or intangible asset, in
each case in the ordinary course of business of the Company or the Restricted
Subsidiaries, (iv) the sale of accounts receivable pursuant to the Receivables
Financing or (v) the sale or discount, in each case without recourse, of
accounts receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof.
"Asset Sale Payment Date" has the meaning provided in
Section 4.12.
<PAGE>
-3-
"Average Life" means, as of the date of determination, with
respect to any security or instrument, the quotient obtained by dividing (i) the
sum of the products of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment or, in the case of
Redeemable Stock, each successive scheduled mandatory redemption payment of such
security or instrument multiplied by the amount of such principal payment or, in
the case of Redeemable Stock, mandatory redemption payment by (ii) the sum of
all such principal payments or, in the case of Redeemable Stock, mandatory
redemption payments.
"Bankruptcy Law" means Title 11 of the U.S. Code or any
similar federal or state law for the relief of debtors.
"Board of Directors" means with respect to the Company or any
Person, the board of directors of the Company or such Person or any committee of
such board of directors duly authorized to act for it hereunder.
"Board Resolution" means with respect to the Company or any
Person, a copy of a resolution certified by the Secretary or an Assistant
Secretary of the Company or such Person to have been duly adopted by the Board
of Directors of the Company or such Person and to be in full force and effect on
the date of such certification, and delivered to the Trustee.
"Business Day" means any day except a Saturday, a Sunday or
any day on which banking institutions in New York, New York, Hartford,
Connecticut or any city in which the principal trust office of the Trustee is
located are required or authorized by law, regulation or other governmental
action to be closed.
"Capital Lease Obligation" means, with respect to any Person,
at the time any determination thereof is to be made, the amount of the liability
in respect of a capital lease which would at such time be required to be
capitalized on the balance sheet of such Person in accordance with GAAP.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock.
"Cash Equivalents" means, at any time, (i) any evidence of
Indebtedness with a maturity of one year or less from the date of acquisition
issued or directly and fully guaranteed or insured by the United States of
America or any agency or in-
<PAGE>
-4-
strumentality thereof; PROVIDED that the full faith and credit of the United
States of America or any agency or instrumentality thereof is pledged in support
thereof; (ii) bank deposits of, or certificates of deposit or acceptances with a
maturity of one year or less from the date of acquisition of, any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500,000,000; (iii)
commercial paper with a maturity of one year or less from the date of
acquisition issued by a corporation (except an Affiliate of the Company)
organized under the laws of any state of the United States or the District of
Columbia and rated at least A-1 by Standard & Poor's Corporation or at least P-1
by Moody's Investors Service, Inc.; (iv) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; PROVIDED that
the terms of such agreements comply with the guidelines set forth in the Federal
Financial Agreements of Depositary Institutions With Securities Dealers and
Others, as adopted by the Comptroller of the Currency on October 31, 1985; and
(v) money market funds and mutual funds, the assets of which are solely invested
in (i) through (iv) above.
"Change of Control" means (i) an event or series of events by
which any Person (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the beneficial owner (as defined under Rule 13d-3
under the Exchange Act) directly or indirectly of more than 50% of the combined
voting power of the then outstanding securities of the Company ordinarily (and
apart from rights accruing under certain circumstances) having the right to vote
in the election of directors or (ii) the replacement of a majority of the Board
of Directors over a one-year period from the directors who constituted the Board
of Directors at the beginning of such period, which replacement shall not have
been approved by the Board of Directors as so constituted at the beginning of
such period or (a) by directors whose nomination for election by the
stockholders of the Company was approved by such Board of Directors or (b) by
directors elected by such Board of Directors or (c) by directors approved in the
same manner as (a) or (b) above that were nominated or elected by directors
approved as set forth in (a) or (b) above. Notwithstanding the foregoing, a
Change of Control shall not be deemed to have occurred if one or more of the
above events occurs or circumstances exist and, after giving effect to the
transaction giving rise to such events or
<PAGE>
-5-
circumstances, the Company's Fixed Charge Coverage Ratio is 3.0 to 1 or greater.
"Change of Control Date" has the meaning provided in
Section 4.15.
"Change of Control Offer" has the meaning provided in
Section 4.15.
"Change of Control Payment Date" has the meaning provided in
Section 4.15.
"Change of Control Purchase Price" has the meaning provided in
Section 4.15.
"Common Stock" means, with respect to any Person, any and all
shares, interests or other participations in, and other equivalents (however
designated and whether voting or non-voting) of, such Person's common stock,
whether outstanding at the Issue Date or issued after the Issue Date, and
includes, without limitation, all series and classes of such common stock.
"Company" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and, thereafter, means the successor.
"Consolidated EBITDA" means, with respect to any Person for
any period and without duplication, the Adjusted Consolidated Net Income of such
Person for such period plus (a) provision for taxes based on income or profits
to the extent such provision for taxes was included in computing Adjusted
Consolidated Net Income, plus (b) consolidated Interest Expense, whether paid or
accrued, to the extent such expense was deducted in computing Adjusted
Consolidated Net Income (including amortization of original issue discount and
non-cash interest payments), plus (c) depreciation, amortization and other
non-cash charges to the extent such depreciation, amortization and other
non-cash charges were deducted in computing Adjusted Consolidated Net Income
(including amortization of goodwill and other intangibles).
"Consolidated Fixed Charges" means, with respect to any Person
for any period, the (a) consolidated Interest Expense, whether paid or accrued,
to the extent such expense was deducted in computing Adjusted Consolidated Net
Income (including amortization of original issue discount and non-cash inter-
<PAGE>
-6-
est payments) and (b) aggregate amount of all dividends paid or accumulated by
such Person during such period on Qualified Preferred Stock and all cash
dividend payments by such Person during such period on all series of other
preferred stock of such Person and its Subsidiaries, other than dividends paid
by such Person during such period on preferred stock of Unrestricted
Subsidiaries and dividends paid to such Person or its Subsidiaries (other than
in the case of the Company and its Restricted Subsidiaries, Unrestricted
Subsidiaries) times a fraction, the numerator of which is one and the
denominator of which is one minus the then Current Effective Consolidated Tax
Rate of such Person during such period.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate net income (or loss) of such Person and its
Subsidiaries (other than, in the case of the Company and its Subsidiaries,
Unrestricted Subsidiaries) for such period, on a consolidated basis, determined
in accordance with GAAP; PROVIDED that (i) the net income (or loss) of any
Person which is not a Subsidiary of the referent Person or is accounted for by
the equity method of accounting by such referent Person shall be included only
to the extent of the amount of cash dividends or distributions (including tax
sharing payments) paid to the referent Person during such period or a Subsidiary
of the referent Person (other than, in the case of the Company and its
Restricted Subsidiaries, Unrestricted Subsidiaries), (ii) except to the extent
includable pursuant to the foregoing clause (i), the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of such Person or is
merged into or consolidated with such Person or any of its Subsidiaries or that
Person's assets are acquired by such Person or any of its Subsidiaries shall be
excluded, (iii) any gains or losses of such Person for such period attributable
to Asset Sales net of related tax costs or tax benefits, as the case may be,
shall be excluded and (iv) all extraordinary gains or losses of such Person for
such period shall be excluded.
"Consolidated Net Worth" means, with respect to any Person, at
any date of determination, the sum of the Capital Stock and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of such Person and
its Subsidiaries on a consolidated basis, less amounts attributable to
Redeemable Stock of such Person, each item to be determined in conformity with
GAAP (excluding the effects of (i) foreign currency exchange adjustments under
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 52 and
<PAGE>
-7-
(ii) the application of Accounting Principles Board Opinions Nos. 16 and 17 and
related interpretations).
"Consolidated Tangible Assets" means, with respect to any
Person, at any time, the total consolidated assets of such Person less the
consolidated assets of such Person which constitute goodwill, in each case as
set forth on such Person's most recent balance sheet.
"Covenant Defeasance" has the meaning provided in Section 8.2.
"Credit Agreement" means that certain amended and restated
credit agreement dated as of June 22, 1998, by and among the Company, certain of
its Subsidiaries, Big Flower Holdings, Inc., certain financial institutions
parties thereto and Bankers Trust Company and Credit Suisse First Boston, as
agents, providing for a revolving credit facility, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, supplemented,
extended, renewed, refunded, refinanced, restructured or replaced from time to
time (including, without limitation, any extension of maturity thereof, or the
inclusion of additional borrowers or guarantors thereunder), in each case in
whole or in part, whether by the same or any other lender or group of lenders.
"Currency Agreement" means the obligations of any Person
pursuant to any foreign exchange contract, currency swap agreement or other
similar agreement or arrangement designed to protect such Person or any of its
Subsidiaries against fluctuations in currency values.
"Current Effective Consolidated Tax Rate" means, with respect
to any Person for any period, cash income taxes paid or payable by such Person
for such period DIVIDED by the amount of income used in determining the amount
of such cash income taxes paid or payable, in each case without giving effect to
any gains on Asset Sales.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official charged with maintaining possession or control
over property for one or more creditors.
"Default" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
<PAGE>
-8-
"Depository" means The Depositary Trust Company, its nominees
and successors.
"Designated Senior Indebtedness" means (i) all Senior
Indebtedness under the Credit Agreement and (ii) any Senior Indebtedness
permitted under this Indenture having a principal amount of at least $15.0
million that is designated as "Designated Senior Indebtedness" by written notice
from the Company to the Trustee.
"8 7/8% Notes" means the $350 million aggregate principal
amount of the Company's 8 7/8% Senior Subordinated Notes due 2007.
"8 7/8% Issue Date" means June 20, 1997.
"Equity Interests" means Capital Stock, warrants, options or
other rights to acquire Capital Stock (but excluding any debt security which is
convertible into, or exchangeable for, Capital Stock).
"Event of Default" has the meaning provided in Section 6.1.
"Excess Proceeds" has the meaning provided in Section 4.12.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Indebtedness" means Indebtedness of the Company and
the Restricted Subsidiaries (other than Indebtedness under the Credit Agreement)
in existence on the Issue Date.
"fair market value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in good faith and shall, in the case of any
assets or property the fair market value of which exceeds $1.5 million, be
evidenced by a Board Resolution (certified by the Secretary or Assistant
Secretary of the Company) delivered to the Trustee.
<PAGE>
-9-
"Fixed Charge Coverage Ratio" means, with respect to any
Person for any period, the ratio of Consolidated EBITDA for such Person for such
period to Consolidated Fixed Charges for such Person for such period. For
purposes of the foregoing computation, in calculating Consolidated EBITDA and
Consolidated Fixed Charges, (a) the transaction giving rise to the need to
calculate the Fixed Charge Coverage Ratio shall be assumed to have occurred on
the first day of the four-quarter period for which the Fixed Charge Coverage
Ratio is being determined (the "Reference Period"), (b) any acquisition or
divestiture of assets or the Capital Stock of any Subsidiary of such Person
(Restricted Subsidiary, in the case of the Company) which occurred during the
Reference Period or subsequent to the Reference Period and prior to the date of
the transaction referenced in clause (a) above (the "Transaction Date") shall be
assumed to have occurred on the first day of the Reference Period, excluding, in
the case of an acquisition of assets or Capital Stock, any operating expense or
cost reduction of such Person or the Person to be acquired which, in the good
faith estimate of management, will be eliminated or realized, as the case may
be, as a result of such acquisition, as if such acquisition of assets or Capital
Stock (including the incurrence of any Indebtedness in connection with any such
acquisition and the application of the proceeds thereof) took place on the first
day of the Reference Period and as if the elimination of such operating expense
and the realization of such cost reductions were achieved on the first day of
the Reference Period; PROVIDED that the foregoing eliminations of operating
expenses and realizations of cost reductions shall be of the types permitted to
be given effect to in accordance with Article 11 of Regulation S-X under the
Exchange Act as in effect on the Issue Date, (c) the incurrence of any
Indebtedness during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date and the application of the proceeds
therefrom shall be assumed to have occurred on the first day of the Reference
Period, (d) Consolidated Fixed Charges attributable to any Indebtedness (whether
existing or being incurred) computed on a PRO FORMA basis and bearing a floating
interest rate shall be computed as if the rate in effect on the Transaction Date
had been the applicable rate for the entire period, unless such Person or any of
its Subsidiaries (Restricted Subsidiaries, in the case of the Company) is party
to an Interest Rate Agreement which will remain in effect for the twelve-month
period after the Transaction Date and which has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used and (e) there shall be excluded from Consolidated
Fixed Charges any portion of such Consolidated Fixed Charges related
<PAGE>
-10-
to any amount of Indebtedness that was outstanding during or subsequent to the
Reference Period but is not outstanding on the Transaction Date, except for
Consolidated Fixed Charges actually incurred with respect to Indebtedness
borrowed (as adjusted pursuant to clause (d)) under a revolving credit or
similar arrangement to the extent the commitment thereunder remains in effect on
the Transaction Date.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board ("FASB") or in such
other statements by such other entity as approved by a significant segment of
the accounting profession which are in effect in the United States at the time
and for the period as to which such accounting principles are to be applied;
PROVIDED, HOWEVER, that, for purposes of determining compliance with covenants
in this Indenture, "GAAP" means such generally accepted accounting principles as
in effect as of the Issue Date.
"Global Security" has the meaning provided in Section 2.2.
"guarantee" means, as applied to any obligation, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
of all of such obligation and (ii) an agreement, direct or indirect, contingent
or otherwise, the practical or legal effect of which is to assure in any way the
payment or performance (or payment of damages in the event of a non-performance)
of all or any part of such obligation, including, without limitation, the
payment of amounts drawn down by letters of credit.
"Holder" or "Securityholder" means a Person in whose name a
Security is registered. The Holder of a Security will be treated as the owner of
such Security for all purposes.
"incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become directly or indirectly liable
in respect of such Indebtedness or other obligation or the recording, as
required pursuant to generally accepted accounting principles or otherwise, of
any such Indebtedness or other obligation on the balance sheet of such Person
(and "incurrence," "incurred," "in-
<PAGE>
-11-
currable" and "incurring" shall have meanings correlative to the foregoing).
"Indebtedness" means, with respect to any Person, any
indebtedness in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement obligations with respect thereto) or
representing the balance deferred and unpaid of the purchase price of any
property (including pursuant to financing leases), if and to the extent any of
the foregoing indebtedness would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP (except that any such balance that
constitutes a trade payable and/or an accrued liability arising in the ordinary
course of business shall not be considered Indebtedness), and shall also
include, to the extent not otherwise included, any Capital Lease Obligations,
the maximum fixed repurchase price of any Redeemable Stock or preferred stock of
any Subsidiary (Restricted Subsidiary, in the case of the Company) of such
Person (except, with respect to the Company, to the extent such Restricted
Subsidiary guarantees the obligations under the Securities), indebtedness
secured by a Lien to which the property or assets owned or held by such Person
are subject, whether or not the obligations secured thereby shall have been
assumed and guarantees of items that would be included within this definition to
the extent of such guarantees (exclusive of whether such items would appear upon
such balance sheet). For purposes of the preceding sentence, the maximum fixed
repurchase price of any Redeemable Stock or preferred stock of any Restricted
Subsidiary of such Person which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Stock or such
preferred stock as if such Redeemable Stock or such preferred stock were
repurchased on any date on which Indebtedness shall be required to be determined
pursuant to this Indenture; PROVIDED that if such Redeemable Stock or such
preferred stock is not then permitted to be repurchased, the repurchase price
shall be the book value of such Redeemable Stock or such preferred stock. The
amount of Indebtedness of any Person at any date shall be, in the case of
Indebtedness of others secured by a Lien to which the property or assets owned
or held by such Person are subject, the lesser of the fair market value at such
date of any asset subject to a Lien securing the Indebtedness of others and the
amount of the Indebtedness secured.
"Indenture" means this Indenture as amended or supplemented
from time to time pursuant to the terms hereof.
<PAGE>
-12-
"Independent Financial Advisor" means an accounting,
appraisal, investment banking or consulting firm of nationally recognized
standing that is, in the reasonable and good faith judgment of the Board of
Directors of the Company, qualified to perform the task for which such firm has
been engaged and disinterested and independent with respect to the Company and
its Affiliates.
"Initial Purchasers" means BT Alex. Brown Incorporated, Chase
Securities Inc. and Goldman, Sachs & Co.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act.
"interest," when used with respect to any Security, means the
amount of all interest accruing on such Security, including all interest
accruing subsequent to the occurrence of any events specified in Sections
6.1(a)(vi) and (vii) or which would have accrued but for any such event.
"Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest in respect of Indebtedness (including
all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing and the net cost (benefit)
associated with Interest Rate Agreements, and excluding amortization of deferred
finance fees) and all but the principal component of rentals in respect of
Capital Lease Obligations, paid, accrued or scheduled to be paid or accrued by
such Person during such period.
"Interest Payment Date," when used with respect to any
Security, means the stated maturity of an installment of interest specified in
such Security.
"Interest Rate Agreements" means the obligations of any Person
pursuant to any interest rate swap agreement, interest rate collar agreement or
other similar agreement or arrangement designed to protect such Person or any of
its Subsidiaries against fluctuations in interest rates.
"Investment" means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business which are recorded
as accounts receivable on the balance sheet of any Person or its Subsidiaries)
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for
<PAGE>
-13-
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities
issued by any other Person; in each case, other than as a result of the issuance
of Capital Stock of such Person or the delivery of Capital Stock of such
Person's direct or indirect parent. For the purpose of Section 4.8, (i)
"Investment" shall include and be valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary and shall exclude the fair market value
of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the
amount of any Investment shall be the original cost of such Investment plus the
cost of all additional Investments by the Company or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment of dividends or distributions (including tax sharing payments) in
connection with such Investment to the extent such distribution constitutes a
return on capital in accordance with GAAP; PROVIDED, HOWEVER, that in the case
of an Investment in an Unrestricted Subsidiary, the Company may elect to include
such cash payments (in whole or in part) in Adjusted Consolidated Net Income and
not as a reduction in the carrying value of the Investment in such Unrestricted
Subsidiary (whether or not in accordance with GAAP), such election to be made
prior to the making of a Restricted Payment based upon such dividend or
distribution.
"Issue Date" means December 9, 1998, the date of first
issuance of the Notes under this Indenture.
"Legal Defeasance" has the meaning provided in Section 8.2.
"Legal Holiday" means any day other than a Business Day.
"Lien" means any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give any security interest in and any filing or other
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
<PAGE>
-14-
"Maturity Date" means, when used with respect to any Security,
the date specified in such Security as the fixed date on which the final
installment of principal of such Security is due and payable (in the absence of
any acceleration thereof pursuant to Section 6.2 or any Net Proceeds Offer or
Change of Control Offer).
"Net Proceeds" means, with respect to any Asset Sale, the
aggregate amount of U.S. Legal Tender (including any cash received by way of
deferred payment pursuant to a note receivable issued in connection with such
Asset Sale, other than the portion of such deferred payment constituting
interest, and including any amounts received as disbursements or withdrawals
from any escrow or similar account established in connection with any such Asset
Sale, but, in each such case, only as and when so received) received by the
Company or any of its Restricted Subsidiaries in respect of such Asset Sale, net
of (i) the cash expenses of such sale (including, without limitation, the
payment of principal, premium, if any, and interest on Indebtedness required to
be paid as a result of such Asset Sale (other than pursuant to Section 4.12) and
legal, accounting and investment banking fees and sales commissions), (ii) taxes
paid or payable as a result thereof, (iii) any portion of cash proceeds which
the Company determines in good faith should be reserved for post-closing
adjustments, it being understood and agreed that on the day that all such
post-closing adjustments have been determined, the amount (if any) by which the
reserved amount in respect of such Asset Sale exceeds the actual post-closing
adjustments payable by the Company or any of its Subsidiaries shall constitute
Net Proceeds on such date and (iv) any relocation expenses and pension,
severance and shutdown costs incurred as a result thereof.
"Net Proceeds Offer" has the meaning provided in Section 4.12.
"Net Proceeds Payment Date" has the meaning provided in
Section 4.12.
"Non-U.S. Person" means a Person who is not a U.S. Person, as
defined in Regulation S.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
<PAGE>
-15-
"Offering Memorandum" means the Offering Memorandum dated
December 2, 1998 pursuant to which $250.0 million of the Securities were
offered, and any supplement thereto.
"Officer" means the Chairman, the President, any Vice
President, the Chief Financial Officer, the Chief Executive Officer, the Chief
Operating Officer, the Treasurer, the Secretary or the Controller of the
Company.
"Officers' Certificate" means a certificate signed by two
Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of
the Company.
"Offshore Physical Securities" has the meaning provided in
Section 2.2.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee, which may include outside
or in-house counsel to the Company.
"Paying Agent" has the meaning provided in Section 2.3.
"Payment Blockage Period" has the meaning provided in
Section 10.2.
"Permitted Investments" means (i) cash or Cash Equivalents,
(ii) Investments that are in Persons (including Unrestricted Subsidiaries) who
derive substantial revenues from operations similar or ancillary to the business
of the Company or its Restricted Subsidiaries as conducted at the time of such
Investment and that have the purpose of furthering the operations of the Company
and its Restricted Subsidiaries; PROVIDED that Investments of the type described
in this clause (ii) shall not exceed $25.0 million at any one time outstanding
in the case of Persons which are not Restricted Subsidiaries or which do not in
connection with such Investment become a Restricted Subsidiary, (iii) advances
to employees and officers of the Company and its Subsidiaries not in excess of
$1.0 million at any one time outstanding, (iv) loans to employees, officers and
directors of the Company and its Subsidiaries to finance the purchase of Equity
Interests in the Company, (v) accounts receivable created or acquired in the
ordinary course of business, (vi) obligations or shares of Capital Stock
received in connection with any good faith settlement or bankruptcy proceeding
involving a claim relating to a Permitted Investment, (vii) Currency Agreements
and Interest Rate Agreements and other similar agreements designed to hedge
against
<PAGE>
-16-
fluctuations in foreign exchange rates and interest rates entered into in the
ordinary course of business in connection with the operation of the Company's or
its Restricted Subsidiaries' businesses and (viii) agreements designed to hedge
against fluctuations in the cost of raw materials entered into in the ordinary
course of business in connection with the operation of the Company's and its
Restricted Subsidiaries' business ("Raw Material Hedge Agreements").
"Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or claims not yet due or which are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted
and if a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (ii) statutory Liens of
landlords and carriers', warehousemen's, mechanics', suppliers', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business,
deposits made to obtain the release of such Liens, and with respect to amounts
not yet delinquent for a period of more than 60 days or being contested in good
faith by appropriate proceedings, if a reserve or other appropriate provision,
if any, as shall be required in conformity with GAAP shall have been made
therefor; (iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security; (iv) Liens incurred or deposits made to secure
the performance of tenders, bids, leases, statutory obligations, surety and
appeal bonds, government contracts, performance and return of money bonds and
other obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (v) easements,
rights-of-way, zoning or other restrictions, minor defects or irregularities in
title and other similar charges or encumbrances not interfering in any material
respect with the business of the Company or any of its Restricted Subsidiaries
incurred in the ordinary course of business; (vi) Liens (including extensions,
renewals and replacements thereof) upon real or tangible personal property
acquired after the date of this Indenture whether or not such Liens existed on
the date of acquisition of such property; PROVIDED that (a) any such Lien is
created solely for the purpose of securing Indebtedness representing, or
incurred to finance, refinance or refund, the cost (including the cost of
construction) of the item of property subject thereto, (b) the principal amount
of the Indebtedness secured by such Lien does not exceed 100% of such cost, (c)
such Lien does not extend to or cover any other property other than such item of
property and any improvements on such
<PAGE>
-17-
item and (d) the incurrence of such Indebtedness is permitted by Section 4.9;
(vii) Liens securing reimbursement obligations with respect to letters of credit
which encumber documents and other property relating to such letters of credit
and the products and proceeds thereof; (viii) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (ix) judgment and attachment
Liens not giving rise to an Event of Default; (x) leases or subleases granted to
others not interfering in any material respect with the business of the Company
or any of its Restricted Subsidiaries; (xi) Liens encumbering customary initial
deposits and margin deposits, and other Liens incurred in the ordinary course of
business and which are within the general parameters customary in the industry,
in each case securing Indebtedness under Interest Rate Agreements, Currency
Agreements and Raw Material Hedge Agreements; (xii) Liens encumbering deposits
made to secure obligations arising from statutory, regulatory, contractual or
warranty requirements of the Company or its Subsidiaries, (xiii) Liens arising
out of consignment or similar arrangements for the sale of goods entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business of the Company and its Restricted Subsidiaries; (xiv) any interest or
title of a lessor in the property subject to any Capital Lease Obligations or
operating lease; (xv) Liens arising from filing Uniform Commercial Code
financing statements regarding leases; (xvi) Liens permitted or required by the
Credit Agreement as in effect on the Issue Date; (xvii) Liens securing Senior
Indebtedness and Liens on assets of Restricted Subsidiaries securing
Indebtedness of such Restricted Subsidiaries; (xviii) Liens between the Company
and any Restricted Subsidiary or between Restricted Subsidiaries; (xix) Liens on
assets of Restricted Subsidiaries securing letters of credit issued in the
ordinary course of business of such Restricted Subsidiaries; (xx) additional
Liens at any one time outstanding with respect to assets of the Company and its
Restricted Subsidiaries the fair market value of which does not exceed $15.0
million on the date of determination; (xxi) Liens existing on the Issue Date and
any extensions, renewals or replacements thereof; (xxii) Liens deemed to arise
from the Receivables Financing; and (xxiii) the Lien granted to the Trustee
under this Indenture and any substantially equivalent Lien granted to any
trustee or similar institution under any indenture for Indebtedness permitted by
the terms of this Indenture.
"Person" means any individual, corporation, partnership, joint
venture, incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization
<PAGE>
-18-
or government or any agency or political subdivision thereof or other entity of
any kind.
"Physical Security" means, collectively, the Offshore Physical
Securities and the U.S. Physical Securities.
"principal" of a debt security means the principal amount of
the security plus, when appropriate, the premium, if any, on the security.
"preferred stock," as applied to the Capital Stock of any
Person, means Capital Stock of such Person (other than Common Stock of such
Person) of any class or classes (however designated) that ranks prior, as to the
payment of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of any other class of such Person.
"Private Placement Legend" means the legend initially set
forth on the Series A Securities in the form set forth on Exhibit A-1.
"pro forma" means, with respect to any calculation made or
required to be made pursuant to the terms of this Indenture, a calculation in
accordance with Article 11 of Regulation S-X under the Securities Act.
"Qualified Institutional Buyer" or "QIB" shall have the
meaning specified in Rule 144A under the Securities Act.
"Qualified Preferred Stock" means preferred stock of the
Company that is designated as such pursuant to clause (ii) or (iv) of the second
paragraph of Section 4.8.
"Raw Material Hedge Agreements" has the meaning provided in
the definition of "Permitted Investments."
"Receivables Financing" means the receivables facility in
effect on the Issue Date in the amount of $150.0 million, pursuant to which (x)
the Company's Subsidiaries from time to time sell or otherwise transfer accounts
receivable and related assets to a special-purpose corporation (the "Receivables
Subsidiary") and (y) the Receivables Subsidiary sells or otherwise transfers
accounts receivable and related assets (or interests therein) to the purchasers,
as the same may be amended, modified, supplemented, extended, renewed, refunded,
refinanced, restructured or replaced from time to time (includ-
<PAGE>
-19-
ing, without limitation, any extension of maturity thereof, or the inclusion of
additional purchasers thereunder).
"Redeemable Stock" means any Equity Interest which, by its
terms (or by terms of any security into which it is convertible or for which it
is exchangeable before the Stated Maturity of the Securities) or upon the
happening of any event, matures or is mandatorily redeemable (other than for
Capital Stock not constituting Redeemable Stock), in whole or in part, prior to
the Maturity Date, or is, by its terms or upon the happening of any event,
redeemable at the option of the holder thereof, in whole or in part, at any time
prior to the Maturity Date, except for Equity Interests of the Company issued to
employees, officers and directors of the Company and its Subsidiaries pursuant
to agreements containing provisions for the repurchase of such Equity Interest
upon death, disability or termination of employment or directorship of such
Persons; PROVIDED that any Equity Interest that is considered to be Redeemable
Stock solely because it is redeemable upon the occurrence of the same events
that would require a redemption or repurchase of the Securities shall not be
deemed to be Redeemable Stock; PROVIDED, FURTHER, that such Equity Interest is
not convertible or exchangeable into debt.
"Redemption Date" means, with respect to any Security, the
Maturity Date of such Security or the date on which such Security is to be
redeemed by the Company pursuant to the terms of the Securities.
"Refinancing Indebtedness" has the meaning provided in clause
(ix) of the second paragraph of Section 4.9.
"Refunding Equity Interests" has the meaning provided in
clause (ii)(A) of the second paragraph of Section 4.8.
"Registered Exchange Offer" means the offer to exchange the
Series B Securities for all of the outstanding Series A Securities in accordance
with the Registration Rights Agreement.
"Registrar" has the meaning provided in Section 2.3.
"Registration Rights Agreement" means the Registration Rights
Agreement by and among the Company and the Initial Purchasers, relating to
$250.0 million of the Securities and dated the Issue Date, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms thereof.
<PAGE>
-20-
"Regulation S" means Regulation S under the Securities Act.
"Representative" means the indenture trustee or other trustee,
agent or representative for any Senior Indebtedness.
"Restricted Payment" has the meaning provided in Section 4.8.
"Restricted Security" has the meaning set forth in Rule
144(a)(3) under the Securities Act; PROVIDED that the Trustee shall be entitled
to request and conclusively rely upon an Opinion of Counsel with respect to
whether any Security is a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company
which at the time of determination is not an Unrestricted Subsidiary. The Board
of Directors of the Company may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if, immediately after giving effect to such
designation, the Company could incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph of Section 4.9 (without giving effect to clauses
(i) through (xvi) of the second paragraph thereof), on a pro forma basis taking
into account such designation.
"Retired Equity Interests" has the meaning provided in clause
(ii)(A) of the second paragraph of Section 4.8.
"Rule 144A" means Rule 144A under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Series A Securities and Series B
Securities, as amended or supplemented from time to time in accordance with the
terms hereof, that are issued pursuant to this Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholder" means Holder.
"Senior Indebtedness" means any Indebtedness permitted to be
incurred under the terms of this Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Securities. Notwithstanding anything
<PAGE>
-21-
to the contrary in the foregoing, Senior Indebtedness shall not include (a)
Indebtedness that is expressly subordinate or junior in right of payment to any
Indebtedness of the Company, (b) Indebtedness that is represented by Redeemable
Stock, (c) any liability for Federal, state, local or other taxes owed or owing
by the Company, (d) Indebtedness of the Company to any Subsidiary of the
Company, (e) trade payables and (f) Indebtedness that is incurred in violation
of this Indenture (but, as to any such Indebtedness, no such violation shall be
deemed to exist for purposes of this definition if the holder(s) of such
obligation or their representative or the Company shall have furnished to the
Trustee an opinion of counsel unqualified in all material respects, addressed to
the Trustee (which legal counsel may, as to matters of fact, rely upon an
officers' certificate of the Company) to the effect that the incurrence of such
Indebtedness does not violate the provisions of this Indenture).
"Series A Securities" means the 8 5/8% Senior Subordinated
Notes due 2008, Series A, issued, authenticated and delivered under this
Indenture, as amended or supplemented from time to time pursuant to the terms of
this Indenture, substantially in the form set forth in Exhibit A-1.
"Series B Securities" means the 8 5/8% Senior Subordinated
Notes due 2008, Series B (the terms of which are identical to the Series A
Securities except that the Series B Securities shall be registered under the
Securities Act, and shall not contain the restrictive legend on the face of the
form of the Series A Securities), to be issued in exchange for the Series A
Securities pursuant to the Registered Exchange Offer and this Indenture,
substantially in the form set forth in Exhibit A-2.
"Significant Restricted Subsidiary" means any Restricted
Subsidiary which accounted for more than 10% of the Company's Consolidated
Tangible Assets or more than 10% of the Company's consolidated revenues or more
than 10% of the Company's Consolidated EBITDA, in each case as of the end of, or
for, the Company's most recent fiscal year.
"Stated Maturity" means, with respect to any security or
Indebtedness, the date specified in such security or Indebtedness as the fixed
date on which the principal of such security or Indebtedness is due and payable,
including pursuant to any mandatory redemption provision (other than pursuant to
any provision providing for the repurchase of such security at the option of the
holder thereof).
<PAGE>
-22-
"Subsidiary" with respect to any Person, means (i) any
corporation of which the outstanding Capital Stock having at least a majority of
the votes entitled to be cast in the election of directors under ordinary
circumstances shall at the time be owned, directly or indirectly, by such Person
or (ii) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at such time, directly or indirectly, owned by
such Person.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture.
"Trustee" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means such successor.
"Trust Officer" means an officer of the Trustee assigned to
the Corporate Trustee Administration Department or similar department performing
corporate trust work, or any successor to such department or, in the case of a
successor trustee, an officer assigned to the department, division or group
performing the corporate trust work of such successor.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company which at the time of determination is an Unrestricted Subsidiary (as
designated by the Board of Directors, as provided below) and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary, unless such Subsidiary owns any
Capital Stock of, or owns, or holds any Lien on, any property of, any other
Subsidiary of the Company which is not a Subsidiary of the Subsidiary to be so
designated; PROVIDED that (a) the Company certifies that such designation
complies with Section 4.8 and (b) each Subsidiary to be so designated and each
of its Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if, immediately after giving effect to such
designation, the Company could incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph of Section 4.9 (without giving effect to clauses
(i) through (xvi) of
<PAGE>
-23-
the second paragraph thereof) on a PRO FORMA basis taking into account such
designation.
"U.S. Government Obligations" means direct non-callable
obligations of, or non-callable obligations guaranteed by, the United States of
America for the payment of which guarantee or obligation the full faith and
credit of the United States is pledged.
"U.S. Legal Tender" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"U.S. Physical Securities" means Securities issued in the form
of certificated Securities in registered form in substantially the form set
forth in Exhibit A-1 or Exhibit A-2.
SECTION 1.2 INCORPORATION BY REFERENCE OF TRUST INDENTURE
ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision shall be deemed incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
(a) "Commission" means the SEC;
(b) "indenture securities" means the Securities;
(c) "indenture security holder" means a Securityholder;
(d) "indenture to be qualified" means this Indenture;
(e) "indenture trustee" or "institutional trustee" means the
Trustee; and
(f) "obligor" on the indenture securities means the Company or
any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule and
not otherwise defined herein have the meanings so assigned to them therein.
<PAGE>
-24-
SECTION 1.3 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) "or" is exclusive;
(c) words in the singular include the plural, and words in the
plural include the singular;
(d) provisions apply to successive events and transactions;
(e) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other Subdivision; and
(f) unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all accounting determinations
hereunder shall be made, and all financial statements required to be
delivered hereunder shall be prepared in accordance with GAAP as in
effect from time to time, applied on a basis consistent with the most
recent audited consolidated financial statements of the Company.
ARTICLE II
THE SECURITIES
SECTION 2.1 FORM AND DATING.
The Series A Securities and the Series B Securities and the
Trustee's certificate of authentication with respect thereto shall be
substantially in the form set forth in Exhibits A-1 and A-2 annexed hereto,
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, rule,
usage or agreement to which the Company is subject. Each Security shall be dated
the date of its issuance and shall show the date of its authentication. The
terms and provisions contained in the Securities shall constitute, and are
expressly made, a part of this Indenture.
SECTION 2.2 EXECUTION AND AUTHENTICATION.
Two Officers shall execute the Securities on behalf of the
Company by either manual or facsimile signature.
<PAGE>
-25-
If a Person whose signature is on a Security as an Officer no
longer holds that office at the time the Trustee authenticates the Security, the
Security shall be valid nevertheless.
A Security shall not be valid until the Trustee manually signs
the certificate of authentication on the Security. The signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate Series A Securities for
original issue on the Issue Date in the aggregate principal amount not to exceed
$250,000,000, upon receipt of an Officers' Certificate. In addition, on or prior
to the date of consummation of the Registered Exchange Offer, the Trustee or an
authenticating agent shall authenticate Series B Securities and, if required by
the Registration Rights Agreement, Private Exchange Notes (as defined in the
Registration Rights Agreement) to be issued at the time of consummation of the
Registered Exchange Offer in the aggregate principal amount of up to
$250,000,000 upon receipt of an Officers' Certificate. In addition, the Trustee
shall authenticate Securities issued in one or more series (such Securities to
be substantially in the form of Exhibit A-1 or Exhibit A-2 (and if in the form
of Exhibit A-1, the same principal amount of Securities in the form of Exhibit
A-2 in exchange therefor upon consummation of a registered exchange offer)) in
an aggregate principal amount not to exceed $100,000,000 upon receipt of an
Officers' Certificate. In each case, the Officers' Certificate shall specify the
amount of Securities to be authenticated and the date on which the Securities
are to be authenticated and shall be signed by two Officers directing the
Trustee to authenticate the Securities and certifying that all conditions
precedent to the issuance of the Securities contained herein have been complied
with. The aggregate principal amount of Securities outstanding at any time may
not exceed $350,000,000 except as provided in Section 2.7.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. Such authenticating agent shall
have the same authenticating rights and duties as the Trustee in any dealings
hereunder with the Company or with any Affiliate of the Company.
<PAGE>
-26-
The Securities shall be issuable only in registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
Securities offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent Global Securities in
registered form, substantially in the form set forth in Exhibit A-1 ("Global
Securities"), deposited with the Trustee, as custodian for the Depository, and
shall bear the legend set forth on Exhibit B. The aggregate principal amount of
any Global Security may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depository,
as hereinafter provided.
Securities offered and sold in offshore transactions in
reliance on Regulation S shall be issued in the form of certificated Securities
in registered form set forth in Exhibit A-1 ("Offshore Physical Securities").
SECTION 2.3 REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency (which shall be
located in the Borough of Manhattan in the City of New York, State of New York)
where Securities may be presented for registration of transfer or for exchange
(the "Registrar"), an office or agency (which shall be located in the Borough of
Manhattan, City of New York, State of New York) where Securities may be
presented for payment (the "Paying Agent") and an office or agency where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Registrar shall keep a register of the Securities
and of their transfer and exchange. The Company may have one or more
co-registrars and one or more additional paying agents. The term "Paying Agent"
includes any additional paying agent. The Company may act as its own Paying
Agent, except that for the purposes of payments on account of principal on the
Securities pursuant to Sections 4.12 and 4.15, neither the Company nor any
Affiliate of the Company may act as Paying Agent.
The Company shall enter into an appropriate agency agreement
with any Agent not a party to this Indenture, which shall incorporate the
provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of the
name and address of any such Agent. If the Company fails to maintain a Registrar
or Paying Agent, or fails to give the forego-
<PAGE>
-27-
ing notice, the Trustee shall act as such and shall be entitled to appropriate
compensation in accordance with Section 7.7.
The Company initially appoints the Trustee as Registrar and
Paying Agent and agent for service of notices and demands in connection with the
Securities.
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.
Each Paying Agent shall hold in trust for the benefit of the
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal of or interest on the Securities, and shall notify the
Trustee of any default by the Company in making any such payment. Money held in
trust by the Paying Agent need not be segregated except as required by law and
in no event shall the Paying Agent be liable for any interest on any money
received by it hereunder. The Company at any time may require the Paying Agent
to pay all money held by it to the Trustee and account for any funds disbursed
and the Trustee may at any time during the continuance of any Event of Default
specified in Section 6.1(i) or (ii), upon written request to the Paying Agent,
require such Paying Agent to pay forthwith all money so held by it to the
Trustee and to account for any funds disbursed. Upon making such payment, the
Paying Agent shall have no further liability for the money delivered to the
Trustee.
SECTION 2.5 SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of the Securityholders and otherwise comply with TIA Sections 312(a).
If the Trustee is not the Registrar, the Company shall furnish or cause the
Registrar to furnish to the Trustee before each Interest Payment Date, and at
such other times as the Trustee may request in writing, a list in such form and
as of such date as the Trustee may reasonably require of the names and addresses
of the Securityholders.
SECTION 2.6 TRANSFER AND EXCHANGE.
Subject to the provisions of Sections 2.14 and 2.15, when
Securities are presented to the Registrar or a co-Registrar with a request from
the Holder of such Securities to register the transfer or to exchange them for
an equal principal amount of Securities of other authorized denominations, the
Registrar shall register the transfer or make the exchange as requested;
PROVIDED that every Security presented or surren-
<PAGE>
-28-
dered for registration of transfer or exchange shall be duly endorsed or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar, duly executed by the Holder thereof or his attorneys
duly authorized in writing. To permit registrations of transfers and exchanges,
the Company shall issue and execute and the Trustee shall authenticate new
Securities evidencing such transfer or exchange. No service charge shall be made
to the Securityholder for any registration of transfer or exchange. The Company
may require from the Securityholder payment of a sum sufficient to cover any
transfer taxes or other governmental charge that may be imposed in relation to a
transfer or exchange, but this provision shall not apply to any exchange
pursuant to Sections 2.10, 4.12, 4.15 or 9.5 (in which events the Company will
be responsible for the payment of such taxes). The Registrar or co-Registrar
shall not be required to register the transfer of or exchange of any Security
(i) during a period beginning at the opening of business 15 days before the
mailing of a notice of redemption of Securities and ending at the close of
business on the day of such mailing and (ii) selected for redemption in whole or
in part pursuant to Article III, except the unredeemed portion of any Security
being redeemed in part.
SECTION 2.7 REPLACEMENT SECURITIES.
If a mutilated Security is surrendered to the Registrar or the
Trustee or if the Holder of a Security of any series claims that the Security
has been lost, destroyed or wrongfully taken, the Company shall issue and the
Trustee shall authenticate a replacement Security if the Holder of such Security
furnishes to the Company and to the Trustee evidence reasonably acceptable to
them of the ownership and the destruction, loss or theft of such Security. If
required by the Trustee or the Company, an indemnity bond shall be posted,
sufficient in the judgment of the Company or the Trustee, as the case may be, to
protect the Company, the Trustee or any Agent from any loss that any of them may
suffer if such Security is replaced. The Company may charge such Holder for the
Company's expenses in replacing such Security and the Trustee may charge the
Company for the Trustee's expenses in replacing such Security. Every replacement
Security shall constitute an additional obligation of the Company and shall be
entitled to the benefits of this Indenture.
SECTION 2.8 OUTSTANDING SECURITIES.
The Securities outstanding at any time are all Securities that
have been authenticated by the Trustee except for
<PAGE>
-29-
(a) those canceled by it, (b) those delivered to it for cancellation, (c) those
described in this Section 2.8 as not outstanding. A Security does not cease to
be outstanding because the Company or one of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.7, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a BONA FIDE purchaser in whose hands such Security
is a legal, valid and binding obligation of the Company.
If the Paying Agent holds, in its capacity as such, on any
Maturity Date or on any optional redemption date money sufficient to pay all
accrued interest and principal with respect to such Securities payable on that
date and is not prohibited from paying such money to the Holders thereof
pursuant to the terms of this Indenture, then on and after that date such
Securities cease to be outstanding and interest on them ceases to accrue.
SECTION 2.9 TREASURY SECURITIES.
In determining whether the Holders of the required principal
amount of Securities have concurred in any declaration of acceleration or notice
of default or direction, waiver or consent or any amendment, modification or
other change to this Indenture, Securities owned by the Company or any
Subsidiary or an Affiliate of the Company shall be deemed not to be outstanding,
except that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent or any amendment,
modification or other change to this Indenture, only Securities that the Trustee
knows are so owned shall be so disregarded. The Company shall notify the
Trustee, in writing, when it or any of its Affiliates repurchases or otherwise
acquires Securities, of the aggregate principal amount of such Securities so
repurchased or otherwise acquired.
SECTION 2.10 TEMPORARY SECURITIES.
Until definitive Securities are prepared and ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company reasonably
considers appropriate for temporary Securities. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate definitive Securities
in exchange for temporary Securities. Un-
<PAGE>
-30-
til such exchange, such temporary Securities shall be entitled to the same
rights, benefits and privileges as the definitive Securities.
SECTION 2.11 CANCELLATION.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for registration of transfer,
exchange or payment. The Trustee and no one else shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement or
cancellation and shall (subject to the record-retention requirements of the
Exchange Act) dispose of canceled Securities unless the Company directs the
Trustee to return such Securities to the Company, and, if so disposed, shall
deliver a certificate of disposition thereof to the Company. The Company may not
reissue or resell, or issue new Securities to replace, Securities that the
Company has redeemed or paid, or that have been delivered to the Trustee for
cancellation.
SECTION 2.12 DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the
Securities, it shall pay the defaulted interest, plus, to the extent permitted
by law, any interest payable on the defaulted interest, to the Persons who are
Securityholders on a subsequent special record date. Such record date shall be
the fifteenth day next preceding the date fixed by the Company for the payment
of defaulted interest, whether or not such day is a Business Day. At least 15
days before the subsequent special record date, the Company shall mail (or cause
to be mailed) to each Securityholder a notice that states the record date, the
payment date and the amount of defaulted interest to be paid. Notwithstanding
the foregoing, any interest which is paid prior to the expiration of the 30-day
period set forth in Section 6.1(i) shall be paid to Holders of Securities as of
the regular record date for the interest payment date for which interest has not
been paid. Notwithstanding the foregoing, the Company may make payment of any
defaulted interest in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange.
SECTION 2.13 CUSIP NUMBER.
The Company in issuing the Securities may use a "CUSIP"
number, and if so, such CUSIP number shall be included
<PAGE>
-31-
in notices of redemption or exchange as a convenience to Holders; PROVIDED that
any such notice may state that no representation is made as to the correctness
or accuracy of the CUSIP number printed in the notice or on the Securities, and
that reliance may be placed only on the other identification numbers printed on
the Securities. The Company will promptly notify the Trustee of any change in
the CUSIP number.
SECTION 2.14 BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES.
(a) The Global Securities initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Exhibit B.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depository, or the Trustee as its
custodian, or under the Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of the Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a Holder of any
Security.
(b) Transfers of Global Securities shall be limited to
transfers in whole, but not in part, to the Depository, its successors or their
respective nominees. U.S. Physical Securities shall be transferred to all
beneficial owners in exchange for their beneficial interests in Global
Securities, in accordance with the rules and procedures of the Depository, only
if (i) the Depository notifies the Company that it is unwilling or unable to
continue as Depository for any Global Security and a successor depositary is not
appointed by the Company within 90 days of such notice or (ii) an Event of
Default has occurred and is continuing and the Registrar has received a request
from the Depository to issue U.S. Physical Securities.
(c) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b), the Global Securities
shall be deemed to be surren-
<PAGE>
-32-
dered to the Trustee for cancellation, and the Company shall execute, and the
Trustee shall authenticate and deliver, to each beneficial owner identified by
the Depository in exchange for its beneficial interest in the Global Securities,
an equal aggregate principal amount of U.S. Physical Securities of authorized
denominations.
(d) Any U.S. Physical Security constituting a Restricted
Security delivered in exchange for an interest in a Global Security pursuant to
paragraph (b) shall, except as otherwise provided by paragraphs (a)(i)(x) and
(c) of Section 2.15, bear the legend regarding transfer restrictions applicable
to the U.S.
Physical Securities set forth in Exhibit A-1.
(e) The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
SECTION 2.15 SPECIAL TRANSFER PROVISIONS.
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS
AND NON-U.S. PERSONS. The following provisions shall apply with respect to the
registration of any proposed transfer of a Security constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person
the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security
bears the Private Placement Legend, if (x) the requested transfer is
after December 9, 2000 or (y) (1) in the case of a transfer to an
Institutional Accredited Investor which is not a QIB (excluding
Non-U.S. Persons), the proposed transferee has delivered to the
Registrar a certificate substantially in the form of Exhibit C
hereto or (2) in the case of a transfer to a Non-U.S. Person, the
proposed transferee has delivered to the Registrar a certificate
substantially in the form of Exhibit D hereto, together, in the case
of clause (i)(x) with such other certifications, legal opinions or
other information as the Company or the Trustee may reasonably
require to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act.
<PAGE>
-33-
(b) TRANSFERS TO QIBS. The following provisions shall apply
with respect to the registration of any proposed transfer of a Security
constituting a Restricted Security to a QIB (excluding transfers to Non-U.S.
Persons):
(i) the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Security stating, or has otherwise advised
the Company and the Registrar in writing, that the sale has been made
in compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Security stating,
or has otherwise advised the Company and the Registrar in writing, that
it is purchasing the Security for its own account or an account with
respect to which it exercises sole investment discretion and that it
and any such account is a QIB within the meaning of Rule 144A, and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Securities to be transferred consist of Physical Securities which after
transfer are to be evidenced by an interest in the Global Security,
upon receipt by the Registrar of instructions given in accordance with
the Depository's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of the Global Security in an amount equal to the
principal amount of the Physical Securities to be transferred, and the
Trustee shall cancel the Physical Securities so transferred.
(c) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless (i) the circumstances contemplated by
paragraph (a)(i)(x) of this Section 2.15 exist, (ii) there is delivered to the
Registrar an Opinion of Counsel reasonably satisfactory to the Company and
<PAGE>
-34-
the Trustee to the effect that neither such legend nor the related restrictions
on transfer are required in order to maintain compliance with the provisions of
the Securities Act or (iii) such Security has been sold pursuant to an effective
registration statement under the Securities Act.
(d) GENERAL. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 2.14 or this Section
2.15. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar.
ARTICLE III
REDEMPTION
SECTION 3.1 NOTICES TO TRUSTEE.
If the Company elects to redeem Securities pursuant to Section
5 of the Securities, it shall notify the Trustee and the Paying Agent in writing
of the Redemption Date and the principal amount of Securities to be redeemed.
The Company shall give each notice provided for in this
Section 3.1 at least 45 days before the Redemption Date (unless a shorter notice
shall be satisfactory to the Trustee), together with an Officers' Certificate
stating that such redemption will comply with the conditions contained herein
and in the Securities.
SECTION 3.2 SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed, the
Trustee shall select Securities to be so redeemed in compliance with applicable
legal requirements and the requirements of the principal national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not listed on a national securities exchange, by lot, pro rata or in such other
fair and reasonable manner chosen at the discretion of the Trustee; PROVIDED
that, with respect to re-
<PAGE>
-35-
demptions made with net proceeds of issuances of Equity
Interests of the Company as described in the second paragraph of Section 5 of
each of the Securities, such redemptions shall be made on a pro rata basis (to
the extent permitted by the Depository).
The Trustee shall make the selection from the Securities
outstanding and not previously called for redemption. Securities in
denominations of $1,000 may only be redeemed in whole. The Trustee may select
for redemption portions (equal to $1,000 or any integral multiple thereof) of
the principal of Securities that have denominations larger than $1,000.
Provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption. The Trustee shall
promptly notify the Company in writing of the Securities selected for redemption
and, in the case of any Security selected for partial redemption, the principal
amount of each certificate selected for redemption.
SECTION 3.3 NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail or cause the mailing of a notice of redemption by
first-class mail, postage prepaid, to each Holder of Securities to be redeemed
at such Holder's address as it appears on the Securities register maintained by
the Registrar with a copy to the Trustee and any Paying Agent.
The notice shall identify the Securities to be redeemed and
shall state:
(a) the Redemption Date;
(b) the redemption price to be paid;
(c) the name and address of the Paying Agent;
(d) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price and accrued
interest, if any;
(e) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue
on and after the Redemption Date and the only remaining right of the
Holders of such Securities is to receive payment of the redemption
price upon surrender to the Paying Agent of the Securities to be
redeemed;
<PAGE>
-36-
(f) if any Security is to be redeemed in part, the portion of
the principal amount (equal to $1,000 or any integral multiple thereof)
of such Security to be redeemed and that, on or after the Redemption
Date, upon surrender of such Security, a new Security or Securities in
aggregate principal amount equal to the unredeemed portion thereof will
be issued without charge to the Securityholder;
(g) if less than all of the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed; and
(h) the CUSIP number, if any.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the redemption
price. Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price plus accrued interest to the Redemption Date, but interest
installments whose Interest Payment Date is on or prior to such Redemption Date
will be payable on the relevant Interest Payment Dates to the Holders of record
at the close of business on the relevant record dates referred to in the
Securities.
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE.
On or prior to the Redemption Date, the Company shall deposit
with the Paying Agent in immediately available funds U.S. Legal Tender
sufficient to pay the redemption price of and accrued interest on all Securities
or portions thereof to be redeemed on that date.
If any Security surrendered for redemption in the manner
provided in the Securities shall not be so paid on the Redemption Date due to
the failure of the Company to deposit sufficient funds with the Paying Agent,
interest will continue to accrue from and including the Redemption Date until
such payment is made on the unpaid principal and, to the extent lawful, on any
interest not paid on such unpaid principal, in each case at the date and in the
manner provided in the Securities.
<PAGE>
-37-
SECTION 3.6 SECURITIES REDEEMED IN PART.
Upon surrender to the Paying Agent of a Security that is
redeemed in part, the Company shall execute and the Trustee shall authenticate
for the Holder a new Security equal in principal amount to the unredeemed
portion of the Security surrendered.
ARTICLE IV
COVENANTS
SECTION 4.1 PAYMENT OF SECURITIES.
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities and this
Indenture.
An installment of principal or interest shall be considered
paid on the date due if the Trustee or Paying Agent (other than the Company or
any Subsidiary of the Company or any Affiliate of any thereof) holds on such
date immediately available funds designated for and sufficient to pay such
installment.
The Company shall pay interest (including Accrued Bankruptcy
Interest) on overdue principal and on overdue installments of interest, in each
case at the rate per annum specified in the Securities, to the extent lawful.
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency, where Securities may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 11.2.
The Company may also from time to time designate one or more
other offices or agencies where the Securities may be
<PAGE>
-38-
presented or surrendered for any or all such purposes and may from time to time
rescind such designations; PROVIDED that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the Borough of Manhattan, the City of New York, for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby initially designates the corporate trust
office of the Trustee set forth in Section 11.2 as an agency of the Company in
accordance with Section 2.3.
SECTION 4.3 CORPORATE EXISTENCE.
Subject to Article V hereof, the Company shall do or cause to
be done, at its own cost and expense, all things necessary to, and will cause
each of its Restricted Subsidiaries to, preserve and keep in full force and
effect the corporate existence and rights (charter and statutory), licenses
and/or franchises of the Company and each of its Restricted Subsidiaries;
PROVIDED that the Company shall not be required to preserve any such right,
license or franchise, or the corporate existence of any of its Restricted
Subsidiaries, if in the judgment of the Board of Directors or management of the
Company (i) such preservation or existence is not desirable in the conduct of
business of the Company or such Restricted Subsidiary and (ii) the loss of such
right, license or franchise or the dissolution of such Restricted Subsidiary is
not adverse in any material respect to the Holders.
SECTION 4.4 PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall and shall cause each of its Subsidiaries to
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all material taxes, assessments and governmental charges levied
or imposed upon its or its Subsidiaries' income, profits or property and (b) all
material lawful claims for labor, materials and supplies which, if unpaid, would
be reasonably likely to by law become a Lien upon its property or the property
of any of its Subsidiaries; PROVIDED that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate negotiations or proceedings and for which disputed
amounts adequate reserves (in the good faith judgment of the Board of Directors
<PAGE>
-39-
or management of the Company) have been made in accordance with GAAP.
SECTION 4.5 MAINTENANCE OF PROPERTIES; BOOKS AND RECORDS;
COMPLIANCE WITH LAW.
(a) The Company shall and shall cause each of its Restricted
Subsidiaries to, at all times cause all properties used or useful in the conduct
of its business to be maintained and kept in good condition, repair and working
order (reasonable wear and tear excepted) and supplied with all necessary
equipment, and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereto; PROVIDED that nothing in
this Section 4.5 shall prevent the Company or any Restricted Subsidiary from
discontinuing the operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is either (i) in
the ordinary course of business, (ii) in the reasonable and good faith judgment
of the Board of Directors or management of the Company or the Restricted
Subsidiary concerned, as the case may be, desirable in the conduct of the
business of the Company or such Restricted Subsidiary, as the case may be, or
(iii) otherwise permitted by this Indenture.
(b) The Company shall and shall cause each of its Restricted
Subsidiaries to keep proper and true books of record and account, in which full
and correct entries shall be made of all financial transactions and the assets
and business of the Company and each Restricted Subsidiary, and reflect on its
financial statements adequate accruals and appropriations to reserves, all in
accordance with GAAP consistently applied to the Company and its Subsidiaries
taken as a whole.
(c) The Company shall and shall cause each of its Subsidiaries
to comply in all material respects with all statutes, laws, ordinances, or
government rules and regulations to which it is subject, non-compliance with
which would materially adversely affect the business, earnings, properties,
assets or condition (financial or otherwise) of the Company and its Subsidiaries
taken as a whole.
SECTION 4.6 COMPLIANCE CERTIFICATES; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee, within 120 days
after the end of its fiscal year, an Officers' Certificate complying with
Section 314(a)(4) of the TIA stating (i) that a review of the activities of the
Company and the ac-
<PAGE>
-40-
tivities of its Subsidiaries during the preceding fiscal year has been made
under the supervision of the signing Officers with a view to determining whether
the Company has kept, observed, performed and fulfilled its obligations under
this Indenture and the Securities and (ii) that, to the best knowledge of such
Officer after due inquiry, the Company has kept, observed, performed and
fulfilled, in each case in all material respects, each and every covenant and
other obligation contained in this Indenture and the Securities and is not in
default in the performance or observance of any of the terms, provisions and
conditions hereof and has not failed to comply with any other obligation
hereunder (or, if a Default, Event of Default or failure to comply with any
other obligation hereunder shall have occurred, describing with particularity
all such Defaults, Events of Default or failures to comply with any other
obligation hereunder of which such Officer may have knowledge, including, but
not limited to, their status and what action the Company is taking or proposes
to take with respect thereto).
(b) So long as not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
Company shall deliver to the Trustee within 120 days after the end of each
fiscal year a written statement by the Company's independent certified public
accountants stating (A) that their audit examination has included a reading of
the relevant provisions of this Indenture and the Securities as they relate to
accounting matters, and (B) whether, in connection with their audit examination,
any Default or Event of Default has come to their attention as they relate to
accounting matters and if such a Default or Event of Default has come to their
attention, specifying the nature and period of existence thereof; PROVIDED that,
without any restriction as to the scope of the audit examination, such
independent certified public accountants shall not be liable by reason of any
failure to obtain knowledge of any such Default or Event of Default that would
not be disclosed in the course of an audit examination conducted in accordance
with generally accepted auditing standards.
(c) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default or
Event of Default and what action the Company is taking or proposes to take with
respect thereto.
<PAGE>
-41-
SECTION 4.7 REPORTS.
(a) The Company shall deliver to the Trustee and mail to each
Holder, within 15 days after the filing of the same with the SEC, copies of its
annual report and of the information, documents and other reports, if any, which
the Company is required to file with the SEC pursuant to Section 13 or 15(d) of
the Exchange Act. The Company shall also comply with the other provisions of TIA
Sections 314(a).
(b) If the Company ceases to be subject to the requirements of
such Section 13 or 15(d) of the Exchange Act, the Company shall file with the
SEC, to the extent permitted, and distribute to the Trustee and to each Holder
copies of the quarterly and annual financial information that would have been
required to be filed with the SEC pursuant to the Exchange Act had the Company
been subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act. All such financial information shall include consolidated
financial statements (including footnotes) prepared in accordance with GAAP.
Such annual financial information shall also include an opinion thereon
expressed by an independent accounting firm of established national reputation.
All such consolidated financial statements shall be accompanied by a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The financial information to be distributed to Holders shall be
filed with the Trustee and mailed to the Holders at their respective addresses
appearing in the register of the Securities maintained by the Registrar, within
120 days after the end of the Company's fiscal year and within 60 days after the
end of each of the first three quarters of each such fiscal year.
SECTION 4.8 LIMITATION ON RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, (i) declare or pay any
dividend or make any distribution on account of the Company's Capital Stock or
other Equity Interests (other than dividends or distributions payable in Equity
Interests (other than Redeemable Stock) of the Company), (ii) purchase, redeem
or otherwise acquire or retire for value any Equity Interests of the Company or
(iii) make any Investment (other than a Permitted Investment) (the foregoing
actions set forth in clauses (i) through (iii) being referred to as "Restricted
Payments"), if:
<PAGE>
-42-
(a) a Default or Event of Default shall have occurred and be
continuing at the time of such Restricted Payment or shall occur
immediately after giving effect thereto; or
(b) immediately after such Restricted Payment and after giving
effect thereto on a PRO forma basis, the Company could not incur at
least $1.00 of additional Indebtedness pursuant to the first paragraph
of Section 4.9 (without giving effect to clauses (i) through (xvi) of
the second paragraph thereof); or
(c) such Restricted Payment, together with the aggregate of
all other Restricted Payments made after the 8 7/8% Issue Date exceeds
the sum of (1) 50% of the amount of the Adjusted Consolidated Net
Income of the Company for the period (taken as one accounting period)
from January 1, 1997 through the end of the Company's fiscal quarter
ending immediately prior to the time of such Restricted Payment (or, if
Adjusted Consolidated Net Income for such period is a deficit, 100% of
such deficit) PLUS (2) 100% of the aggregate amounts contributed to the
capital of the Company from and after the 8 7/8% Issue Date PLUS (3)
100% of the aggregate net cash proceeds and the fair market value, as
determined in good faith by the Board of Directors of the Company, of
property other than cash received by the Company from and after the 8
7/8% Issue Date from the issue or sale of Equity Interests of the
Company (other than such Equity Interests issued or sold to a
Restricted Subsidiary and other than Redeemable Stock) or any
Indebtedness or security convertible into or exchangeable for any such
Equity Interest that has been so converted or exchanged (excluding the
net cash proceeds from issuances and sales of Equity Interests
financed, directly or indirectly, using borrowed funds from the Company
or any Restricted Subsidiary until and to the extent such borrowing is
repaid) PLUS (4) $75.0 million.
The foregoing provisions will not prohibit (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at the
date of declaration thereof such payment would have complied with the provisions
of this Indenture; (ii)(A) the retirement of any Equity Interests of the Company
(the "Retired Equity Interests") either in exchange for or out of the net
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary) of other Equity Interests of the Company (the "Refunding Equity
Interests") other than any Redeemable Stock and (B) if the Retired Equity
Interest consti-
<PAGE>
-43-
tuted Qualified Preferred Stock, the declaration and payment of dividends on the
Refunding Equity Interest in an aggregate amount per year no greater than the
aggregate amount of dividends per year that was declarable and payable on such
Retired Equity Interest immediately prior to such retirement to the extent such
Refunding Equity Interest is designated to be Qualified Preferred Stock by the
Company at the time of its issuance; (iii) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company
issued to employees, officers or directors of the Company and its Subsidiaries
pursuant to agreements containing provisions for the repurchase of such Equity
Interests upon death, disability or termination of employment or directorship of
such Persons, or in accordance with the Company's insider trading policy, not to
exceed $5.0 million in any fiscal year PLUS the aggregate cash proceeds from any
reissuance during such fiscal year of Equity Interests by the Company to
employees, officers or directors of the Company and its Subsidiaries PLUS the
aggregate cash proceeds from any payments on life insurance policies with
respect to any employees, officers or directors of the Company and its
Subsidiaries which proceeds are used to purchase the Equity Interests of the
Company held by any such employees, officers or directors; (iv) the declaration
and payment of dividends to holders of any class or series of the Company's
preferred stock issued after the Issue Date (including, without limitation, the
declaration and payment of dividends on Refunding Equity Interests in excess of
the dividends declarable and payable thereon pursuant to clause (ii) of this
paragraph); PROVIDED that at the time of such issuance the Company's Fixed
Charge Coverage Ratio for the four full fiscal quarters ending immediately prior
to the date of such issuance would have been at least 1.25 to 1, determined on a
PRO FORMA basis as if such issuance was at the beginning of such four-quarter
period, and at the time of issuance, such preferred stock is designated by the
Company to be Qualified Preferred Stock; and (v) an Investment in any
Unrestricted Subsidiary either in exchange for Equity Interests of the Company
(other than Redeemable Stock) or out of the proceeds of the sale (other than to
a Restricted Subsidiary) of Equity Interests of the Company (other than
Redeemable Stock) received by the Company not more than 12 months prior to the
date of such Investment (to the extent such sale of Equity Interests has not
previously been included in any calculation under clause (c) above for purposes
of permitting a Restricted Payment); PROVIDED that, in the cases of clauses
(iii) (other than with respect to the repurchase of Equity Interests with
insurance proceeds), (iv) and (v), no Default or Event of Default shall have
occurred and be continuing at the
<PAGE>
-44-
time of such Restricted Payment or shall occur immediately after giving effect
thereto.
In determining the aggregate amount expended for Restricted
Payments in accordance with clause (c) above, (1) no amounts expended under
clause (iii) (only with respect to the use of insurance proceeds to repurchase
Equity Interests) of the immediately preceding paragraph shall be included and
(2) 100% of the amounts expended under clauses (i), (ii), (iii) (other than with
respect to the repurchase of Equity Interests with insurance proceeds), (iv) and
(v) of the immediately preceding paragraph shall be included.
SECTION 4.9 LIMITATION ON ADDITIONAL INDEBTEDNESS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness unless the Company's Fixed Charge Coverage Ratio for its
four full fiscal quarters ending immediately prior to the date such additional
Indebtedness is created, incurred, issued, assumed or guaranteed would have been
at least 2.25 to 1, determined on a PRO FORMA basis (including a PRO FORMA
application of the net proceeds of such Indebtedness) as if the additional
Indebtedness had been created, incurred, issued, assumed or guaranteed at the
beginning of such four-quarter period.
The foregoing limitations will not apply to the incurrence of
(i) Indebtedness pursuant to the Credit Agreement in an amount equal to $475.0
million; (ii) Existing Indebtedness, including the 8-7/8% Notes; (iii)
Indebtedness represented by the Securities in an aggregate principal amount
equal to $250.0 million; (iv) Capital Lease Obligations; (v) Indebtedness
constituting purchase money obligations for property acquired in the ordinary
course of business or other similar financing transactions; (vi) Indebtedness
incurred in connection with capital expenditures not to exceed 6% of the
Company's consolidated net sales (as set forth in the Company's consolidated
statement of operations, as determined in accordance with GAAP) in any fiscal
year; (vii) Indebtedness constituting reimbursement obligations with respect to
letters of credit, including, without limitation, letters of credit in respect
of workers' compensation claims, issued for the account of the Company or a
Restricted Subsidiary in the ordinary course of business, or other Indebtedness
with respect to reimbursement-type obligations regarding workers' compensation
<PAGE>
-45-
claims; (viii) additional Indebtedness in an aggregate principal amount up to
$45.0 million at any one time outstanding for the Company and its Restricted
Subsidiaries; (ix) Indebtedness created, incurred, issued, assumed or given in
exchange for, or the proceeds of which are used, to extend, refinance, renew,
replace, substitute or refund any Indebtedness permitted under this Indenture or
any Indebtedness issued to so extend, refinance, renew, replace, substitute or
refund such Indebtedness, including any additional Indebtedness incurred to pay
premiums and fees in connection therewith (the "Refinancing Indebtedness");
PROVIDED that (A) the principal amount of such Refinancing Indebtedness shall
not exceed the outstanding principal amount of Indebtedness (including unused
commitments) so extended, refinanced, renewed, replaced, substituted or refunded
PLUS any amounts incurred to pay premiums and fees in connection therewith, (B)
in the case of Refinancing Indebtedness for Indebtedness permitted under clause
(ii) of this paragraph (other than Senior Indebtedness), the Refinancing
Indebtedness shall have an Average Life equal to or greater than the Average
Life of the Indebtedness being extended, refinanced, renewed, replaced,
substituted or refunded and (C) to the extent such Refinancing Indebtedness
refinances Indebtedness subordinated to the Securities, such Refinancing
Indebtedness is subordinated to the Securities at least to the same extent as
the Indebtedness being extended, refinanced, renewed, replaced, substituted or
refunded; (x) intercompany Indebtedness incurred in connection with Investments
in Unrestricted Subsidiaries; PROVIDED that such Investments are permitted by
Section 4.8; (xi) Indebtedness under Raw Material Hedge Agreements; (xii)
Indebtedness under Currency Agreements and Interest Rate Agreements; PROVIDED
that in the case of Currency Agreements which relate to other Indebtedness, such
Currency Agreements do not increase the Indebtedness of the Company outstanding
other than as a result of fluctuations in foreign currency exchange rates;
(xiii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn against
insufficient funds in the ordinary course of business; (xiv) Indebtedness
between the Company and any Restricted Subsidiary or between Restricted
Subsidiaries; (xv) guarantees by Restricted Subsidiaries of Indebtedness of the
Company or any Restricted Subsidiary if the Indebtedness so guaranteed is
permitted under this Indenture; and (xvi) the Company's Obligations arising from
the repurchase, redemption or other acquisition of Equity Interests from
employees, officers or directors of the Company and its Subsidiaries to the
extent permitted by Section 4.8.
<PAGE>
-46-
Notwithstanding anything in this Indenture to the contrary,
the consummation of the transactions contemplated by the Receivables Financing
shall not be deemed to be the incurrence of Indebtedness by the Company or by
any Restricted Subsidiary.
SECTION 4.10 DIVIDENDS AND PAYMENT RESTRICTIONS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distributions on its Capital Stock, or any other interest or participation in,
or measured by, its profits, owned by the Company or any of its Restricted
Subsidiaries, or pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of: (A) the terms (as in effect on
the Issue Date) of Existing Indebtedness, (B) the terms (as in effect on the
Issue Date) of the Credit Agreement, (C) the terms of Indebtedness of the
Company or any of its Restricted Subsidiaries incurred in accordance with
Section 4.9; PROVIDED that the terms of any such Indebtedness constitute no
greater encumbrance or restriction on the ability of any Restricted Subsidiary
to pay dividends or make distributions, make loans or advances or transfer
properties or assets than the encumbrances or restrictions imposed by the terms
of the Credit Agreement as in effect on the Issue Date, (D) the terms of the
indenture governing the 8 7/8% Notes, the 8 7/8% Notes, this Indenture and the
Securities, (E) applicable law, (F) customary non-assignment provisions entered
into in the ordinary course of business and consistent with past practices, (G)
the terms of purchase money obligations for property acquired in the ordinary
course of business, but only to the extent that such purchase money obligations
restrict or prohibit the transfer of the property so acquired, (H) any
encumbrance or restriction with respect to a Restricted Subsidiary that was not
a Restricted Subsidiary on the Issue Date, which encumbrance or restriction is
in existence at the time such Person becomes a Restricted Subsidiary or is
created on the date it becomes a Restricted Subsidiary, (I) any encumbrance or
restriction with respect to a Restricted Subsidiary imposed pursuant to an
agreement which has been entered into for the sale or disposition of all or
substantially all the
<PAGE>
-47-
Capital Stock or assets of such Restricted Subsidiary, (J) the terms of the
Receivables Financing or (K) any encumbrance or restriction existing under any
amendment to, and any agreement which refinances or replaces, the agreements
described in clauses (A), (B), (C), (D), (H) and (J); PROVIDED that the terms
and conditions of any such encumbrances or restrictions contained in any such
amendment or agreement as determined in good faith by the Board of Directors of
the Company constitute no greater encumbrance or restriction on the ability of
any Restricted Subsidiary to pay dividends or make distributions, make loans or
advances or transfer properties or assets than those under or pursuant to the
agreement evidencing the Indebtedness or obligations so amended, refinanced or
replaced. Nothing contained in this covenant shall prevent the Company or a
Restricted Subsidiary from entering into any agreement permitting or providing
for the incurrence of Liens otherwise permitted by Section 4.11.
SECTION 4.11 LIMITATION ON LIENS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien (other than Permitted Liens) upon any asset now owned
or hereafter acquired by it, or any income or profits therefrom or assign or
convey any right to receive income therefrom. Notwithstanding the foregoing, the
Company or any Restricted Subsidiary may create or assume any Lien upon its
properties or assets if the Company shall cause the Securities to be equally and
ratably secured with all other Indebtedness secured by such Lien for so long as
such other Indebtedness shall be so secured.
SECTION 4.12 LIMITATION ON ASSET SALES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, consummate any Asset Sale
that results in Net Proceeds in excess of $1.5 million (including the sale of
any of the Capital Stock of any Restricted Subsidiary) unless such Asset Sale is
for fair market value as determined by the Board of Directors acting reasonably
and in good faith and the Company or any Restricted Subsidiary applies the Net
Proceeds from such Asset Sale to one or more of the following in such
combination as it shall choose: (a) an investment in assets (including Capital
Stock or other securities purchased in connection with the acquisition of
Capital Stock or property of another Person) used or useful in businesses
similar or ancillary to the business of the Company or its Restricted
Subsidiaries as conducted at the
<PAGE>
-48-
time of such Asset Sale; PROVIDED that such investment occurs on or prior to the
366th day following the date of such Asset Sale (the "Asset Sale Payment Date");
(b) a Net Proceeds Offer (as defined below) expiring on or prior to the Asset
Sale Payment Date; or (c) in the case of an Asset Sale by the Company, the
purchase, redemption or other prepayment or repayment of outstanding Senior
Indebtedness on or prior to the Asset Sale Payment Date and, in the case of an
Asset Sale by any Restricted Subsidiary, the purchase, redemption or other
prepayment or repayment of any Indebtedness of such Restricted Subsidiary on or
prior to the Asset Sale Payment Date; PROVIDED that any prepayment or repayment
of amounts outstanding under the Credit Agreement in excess of $20.0 million in
the aggregate after the Issue Date shall be a permanent reduction in the
commitment thereunder in the amount of such excess. Notwithstanding the
foregoing, in the event such Net Proceeds, after giving effect to any investment
or payment permitted by clause (a) or (c) above (the "Excess Proceeds"), are
less than $15.0 million, the application of the Excess Proceeds to a Net
Proceeds Offer may be deferred until such time as the Excess Proceeds, plus the
aggregate amount of any subsequent Net Proceeds not otherwise invested or
applied to repay amounts outstanding under the Senior Indebtedness of the
Company or under the Indebtedness of any Restricted Subsidiary, as the case may
be, as permitted by clause (a) or (c) above, are at least equal to $15.0
million, at which time the Company shall apply all the Excess Proceeds to a Net
Proceeds Offer. Upon completion of a Net Proceeds Offer, the amount of Excess
Proceeds shall be reset at zero.
For purposes of clause (b) of the preceding paragraph, the
Company will apply that portion of the Net Proceeds of the Asset Sale required
to make a tender offer in accordance with applicable law (a "Net Proceeds
Offer") to repurchase Securities at a price not less than 100% of the principal
amount thereof plus accrued and unpaid interest to the date of repurchase, which
date shall be no earlier than 30 days nor later than 45 days after the date of
mailing of the Net Proceeds Offer (the "Net Proceeds Payment Date"). The Company
may, at its option, receive credit against any Net Proceeds Offer for the
principal amount of Securities acquired by the Company or any of its
Subsidiaries and surrendered for cancellation within six months prior to or at
any time after the date of such Asset Sale relating to such Net Proceeds Offer
and before the Net Proceeds Payment Date. Any Net Proceeds Offer will be made by
the Company only if and to the extent permitted under, and subject to prior
compliance with, the terms of any agreement governing Senior Indebtedness of the
Company or Indebtedness of a
<PAGE>
-49-
Restricted Subsidiary, as the case may be. If the Company commences a Net
Proceeds Offer and securities of the Company ranking PARI PASSU in right of
payment with the Securities are outstanding at the commencement of such Net
Proceeds Offer and the terms of such securities provide that a similar offer
must be made with respect thereto, then the Net Proceeds Offer for the
Securities shall be made concurrently with such other offer and securities of
each issue will be accepted PRO RATA in proportion to the aggregate principal
amount of securities of each issue which the holders of securities of such issue
elect to have purchased. After the last date on which Holders are permitted to
tender their Securities in a Net Proceeds Offer, the Company will not be
restricted under this Section 4.12 as to its use of any remaining Net Proceeds
available to make such Net Proceeds Offer but not used to redeem Securities
pursuant hereto.
Notwithstanding the foregoing, if, at the time of an Asset
Sale by the Company or any Restricted Subsidiary, the Company's Fixed Charge
Coverage Ratio for the four fiscal quarter period ending immediately prior to
the date of such Asset Sale would have been at least 2.75 to 1, determined on a
PRO forma basis as if such Asset Sale occurred at the beginning of such
four-quarter period, then any Net Proceeds received will not be subject to this
Section 4.12.
At such time as the Company determines to make a Net Proceeds
Offer, it shall so notify the Trustee in writing. Within 15 days thereafter, it
shall mail or cause the Trustee to mail (in the Company's name and at its
expense) notice of a Net Proceeds Offer to the Holders of the Securities at
their last registered addresses with a copy to the Trustee and the Paying Agent.
The Net Proceeds Offer shall remain open from the time of mailing for at least
20 Business Days and until the close of business on the third Business Day prior
to the Net Proceeds Payment Date. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Net Proceeds Offer. The notice, which shall govern the terms of the Net Proceeds
Offer, shall state:
(i) that the Net Proceeds Offer is being made pursuant to
this Section 4.12;
(ii) the purchase price (including the amount of accrued and
unpaid interest, if any) for each Security and the Net Proceeds Payment
Date;
<PAGE>
-50-
(iii) that any Security not tendered or accepted for payment
will continue to accrue interest in accordance with the terms thereof;
(iv) that any Security accepted for payment pursuant to the
Net Proceeds Offer shall cease to accrue interest after the Net
Proceeds Payment Date unless the Company shall fail to make payment
therefor;
(v) that Holders electing to have Securities purchased
pursuant to a Net Proceeds Offer will be required to surrender their
Securities to the Paying Agent at the address specified in the notice
prior to 5:00 p.m., New York City time, on the third Business Day
immediately preceding the Net Proceeds Payment Date and must complete
any form letter of transmittal proposed by the Company and acceptable
to the Trustee and the Paying Agent;
(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than 5:00 p.m., New York City
time, on the third Business Day immediately preceding the Net Proceeds
Payment Date, a telex or facsimile transmission (confirmed by overnight
delivery of the original thereof) or letter setting forth the name of
the Holder, the principal amount of Securities the Holder delivered for
purchase, the Security certificate number (if any) and a statement that
such Holder is withdrawing his election to have such Securities
purchased;
(vii) that if Securities in a principal amount in excess of
the Holders' PRO RATA share of the Net Proceeds are tendered pursuant
to a Net Proceeds Offer, the Company shall purchase Securities on a PRO
RATA basis among the Securities tendered (with such adjustments as may
be deemed appropriate by the Company so that only Securities in
denominations of $1,000 or integral multiples of $1,000 shall be
acquired);
(viii) that Holders whose Securities are purchased only in part
will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; and
<PAGE>
-51-
(ix) the instructions that Holders must follow in order to
tender their Securities.
On or before the Net Proceeds Payment Date, the Company shall
(i) accept for payment, on a PRO RATA basis among the Securities, Securities or
portions thereof tendered pursuant to the Net Proceeds Offer, (ii) deposit with
the Paying Agent money, in immediately available funds, in an amount sufficient
to pay the purchase price of all Securities or portions thereof so tendered and
accepted and (iii) deliver to the Paying Agent the Securities so accepted
together with an Officers' Certificate setting forth the Securities or portions
thereof tendered to and accepted for payment by the Company. The Paying Agent
shall promptly mail or deliver to Holders of Securities so accepted payment in
an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered. Any
Securities not so accepted shall be promptly mailed or delivered by the Company
to the Holder thereof. The Company will publicly announce the results of the Net
Proceeds Offer on the first Business Day following the Net Proceeds Payment
Date. To the extent the Holders' PRO RATA portion of a Net Proceeds Offer is not
fully subscribed to by such Holders, the Company may retain such unutilized
portion of the Net Proceeds. The Paying Agent shall promptly deliver to the
Company the balance of any moneys held by the Paying Agent after payment to the
Holders of Securities as aforesaid.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations (including Rule 14e-1 under the Exchange Act) in connection with
the repurchase of Securities pursuant to a Net Proceeds Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.12, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.12 by virtue thereof.
SECTION 4.13 TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate, except for (i)
transactions (including any investments, loans or advances by or to any
Af-
<PAGE>
-52-
filiate) the terms of which in good faith are fair and reasonable to the Company
or such Restricted Subsidiary, as the case may be, and are at least as favorable
as the terms that could be obtained by the Company or such Restricted
Subsidiary, as the case may be, in a comparable transaction made on an arm's
length basis between unaffiliated parties (as determined by the Board of
Directors of the Company acting reasonably and in good faith, as evidenced by a
resolution of such Board of Directors); PROVIDED that, in the case of any
transaction with an Affiliate involving aggregate consideration in excess of
$10.0 million, either (A) such transaction is entered into in the ordinary
course of the business of the Company or its Restricted Subsidiaries, (B) a
majority of the directors of the Company unaffiliated with such Affiliate or, if
there are no such directors, a majority of the directors of the Company approve
such transaction or (C) the Company or such Restricted Subsidiary, as the case
may be, delivers to the Trustee and the Holders a written opinion of a
nationally recognized investment banking firm stating that such transaction is
fair to the Company or such Restricted Subsidiary from a financial point of
view, (ii) payments by the Company or any of its Restricted Subsidiaries made
pursuant to any financial advisory, financing, underwriting or placement
agreement; PROVIDED that the terms of any such arrangement or agreement shall be
on terms which in good faith are fair and reasonable to the Company or such
Restricted Subsidiary, as the case may be (as determined by the Board of
Directors of the Company acting reasonably and in good faith, as evidenced by a
resolution of such Board of Directors), (iii) any Restricted Payment not
otherwise prohibited under Section 4.8, (iv) the payment of reasonable and
customary regular fees to directors of the Company and its Subsidiaries who are
not employees of the Company or its Subsidiaries, (v) advances or loans to
employees, officers and directors of the Company and its Subsidiaries permitted
by clauses (iii) and (iv) of the definition of Permitted Investments and (vi)
transactions between or among any of the Company and its Restricted
Subsidiaries.
SECTION 4.14 LIMITATION ON CREATION OF SENIOR SUBORDINATED
DEBT.
The Company shall not incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that is expressly by its terms
subordinate or junior in right of payment to any Senior Indebtedness and senior
in any respect in right of payment to the Securities.
<PAGE>
-53-
SECTION 4.15 CHANGE OF CONTROL.
In the event of a Change of Control (the date of such
occurrence being the "Change of Control Date"), if either (i) the Company does
not redeem Securities pursuant to the third paragraph of Paragraph 5 of the
Securities or (ii) such Change of Control occurs after December 1, 2003, the
Company shall notify the Holders in writing of such occurrence and shall make an
offer to purchase (the "Change of Control Offer"), on a Business Day (the
"Change of Control Payment Date") not later than 60 days following the Change of
Control Date, all Securities then outstanding at a purchase price (the "Change
of Control Purchase Price") equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the Change of Control Payment Date.
Notice of a Change of Control Offer shall be mailed by the
Company not less than 30 days nor more than 45 days before the Change of Control
Payment Date to the Holders of Securities at their last registered addresses
with a copy to the Trustee and the Paying Agent. The Change of Control Offer
shall remain open from the time of mailing for at least 20 Business Days and
until 5:00 p.m., New York City time, on the third Business Day prior to the
Change of Control Payment Date. The notice, which shall govern the terms of the
Change of Control Offer, shall include such disclosures as are required by law
and shall state:
(a) that the Change of Control Offer is being made pursuant to
this Section 4.15 and that all Securities will be accepted for payment;
(b) the purchase price (including the amount of accrued and
unpaid interest, if any) for each Security and the Change of Control
Payment Date;
(c) that any Security not tendered for payment will continue
to accrue interest in accordance with the terms thereof;
(d) that any Security accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change
of Control Payment Date unless the Company shall fail to make payment
therefor;
(e) that Holders electing to have Securities purchased
pursuant to a Change of Control Offer will be required to surrender
their Securities to the Paying Agent
<PAGE>
-54-
at the address specified in the notice prior to 5:00 p.m., New York
City time, on the third Business Day prior to the Change of Control
Payment Date and must complete any form letter of transmittal
proposed by the Company and acceptable to the Trustee and the Paying
Agent;
(f) that Holders of Securities will be entitled to withdraw
their election if the Paying Agent receives, not later than 5:00 p.m.,
New York City time, on the third Business Day prior to the Change of
Control Payment Date, a telex or facsimile transmission (confirmed by
overnight delivery of the original thereof) or letter setting forth the
name of the Holder, the principal amount of Securities the Holder
delivered for purchase, the Security certificate number (if any) and a
statement that such Holder is withdrawing his election to have such
Securities purchased;
(g) that Holders whose Securities are purchased only in part
will be issued Securities equal in principal amount to the unpurchased
portion of the Securities surrendered;
(h) the instructions that Holders must follow in order to
tender their Securities; and
(i) a brief description of the events resulting in such Change
of Control (including, but not limited to, information with respect to
PRO FORMA historical financial information after giving effect to such
Change of Control, information regarding the Persons acquiring control
and such Person's business plans going forward, in each such case to
the extent available and not subject to confidentiality restrictions).
On the Change of Control Payment Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Securities or portions thereof so tendered and
accepted and (iii) deliver to the Trustee the Securities so accepted together
with an Officers' Certificate setting forth the Securities or portions thereof
tendered to and accepted for payment by the Company. The Paying Agent shall
promptly mail or deliver to the Holders of Securities so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly authenticate
and mail or deliver to such Holders a new Security equal in principal amount to
any unpurchased portion
<PAGE>
-55-
of the Security surrendered. Any Securities not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company will
publicly announce the results of the Change of Control Offer not later than the
first Business Day following the Change of Control Payment Date.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other securities laws
or regulations (including Rule 14e-1 under the Exchange Act) in connection with
the purchase of Securities pursuant to a Change of Control Offer. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this Section 4.15, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.15 by virtue thereof.
SECTION 4.16 WAIVER OF STAY; EXTENSION OF USURY LAWS.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on the Securities as
contemplated herein or in the Securities, wherever enacted, now or at any time
hereafter in force, or that may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) the Company hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 4.17 MAINTENANCE OF INSURANCE.
The Company shall, and shall cause each of its Subsidiaries
to, keep at all times all of their respective properties and assets which are of
an insurable nature (as determined by reference to industry standards) insured
reasonably and appropriately as prudent business judgment would require against
loss or damage and shall obtain such other reasonable and appropriate insurance
as is required or so appropriate for the nature of the business and other risks
encountered by the Company and its Subsidiaries, in each case with insurers
reasonably and in good faith believed by the Company to be responsible
<PAGE>
-56-
and financially sound, to the extent that insurance of a similar character and
nature is usually so obtained by corporations similarly situated and that are at
any such time conducting business substantially similar to that of the Company
and its Subsidiaries in accordance with prudent business practices.
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1 LIMITATION ON MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS.
The Company shall not in a single transaction or a series of
related transactions consolidate with or merge with or into another Person, or
directly or indirectly sell, transfer, lease or convey substantially all of its
properties and assets to another Person (except any Restricted Subsidiary;
PROVIDED that in connection with any merger of the Company with any such
Restricted Subsidiary, no consideration (other than common stock in the
surviving corporation or the Company) shall be issued or distributed to the
stockholders of the Company), or permit any Person to merge with or into it
unless: (i) the Company shall be the continuing Person, or the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or to which the properties and assets of the Company are transferred
shall be a corporation or partnership organized and existing under the laws of
the United States or any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, in form reasonably satisfactory to the Trustee, all of the obligations
of the Company under the Securities and this Indenture; (ii) immediately before
and immediately after giving effect to such transaction or series of
transactions, no Default or Event of Default under this Indenture shall have
occurred and be continuing; and (iii) immediately before and immediately after
giving effect to such transaction or series of transactions on a PRO FORMA basis
(including, without limitation, any Indebtedness incurred or assumed in
anticipation of or in connection with such transaction or series of
transactions), the Company could incur $1.00 of additional Indebtedness under
the first paragraph of Section 4.9 (without giving effect to clauses (i) through
(xvi) of the second paragraph thereof).
<PAGE>
-57-
SECTION 5.2 SUCCESSOR ENTITY SUBSTITUTED.
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.1,
the successor Person formed by such consolidation or into which the Company is
merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such successor Person had been named as the Company
herein; and thereafter, except in the case of a lease, the Company shall be
discharged from all obligations and covenants under this Indenture and the
Securities.
ARTICLE VI
DEFAULT AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
"Event of Default", whenever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether or
not it shall be occasioned or prohibited by the provisions of Article X and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) a default in the payment of interest on any Security
when the same shall become due and payable and the continuance of such
default for a period of 30 days or more; or
(ii) a default in the payment of all or any part of the
principal of any Security when and as the same shall become due and
payable at maturity, or upon acceleration, redemption, or otherwise,
including default in the payment of the purchase price required to be
offered in a Net Proceeds Offer and a Change of Control Offer; or
(iii) a failure by the Company and its Subsidiaries to comply
with any of the other agreements or covenants in or provisions of the
Securities or this Indenture which failure continues for the period and
after the notice specified below;
<PAGE>
-58-
(iv) a default under any mortgage, indenture or instrument
under which there may be issued or evidenced any Indebtedness for
borrowed money by the Company or any of its Restricted Subsidiaries (or
the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee is now
existing or hereafter created if either (x) such default results from
the failure to pay the final scheduled principal installment in an
amount of at least $15.0 million in respect of any such Indebtedness on
the stated maturity date thereof (after giving effect to any applicable
grace periods) or (y) as a result of such default the maturity of such
Indebtedness has been accelerated prior to its express maturity, and
the principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness with respect to which the
principal amount remains unpaid upon its final maturity (after giving
effect to any extension of such maturity date by the holder of such
Indebtedness and the expiration of any applicable grace period) or the
maturity of which has been so accelerated, aggregates $15.0 million or
more;
(v) a final judgment or final judgments for the payment of
money, or the issuance of any warrant of attachment against any portion
of the property or the assets of the Company or any of its Restricted
Subsidiaries, that in the aggregate, equal or exceed $15.0 million at
any one time shall be entered against the Company or any of its
Restricted Subsidiaries and such judgment or judgments or warrant of
attachment shall not be discharged, satisfied, stayed, annulled or
rescinded within 60 days of being entered, or in the case of any final
judgment which provides for payment over time, from any applicable
payment date;
(vi) the Company or any Significant Restricted Subsidiary
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case or proceeding;
<PAGE>
-59-
(B) consents to the entry of an order for relief
against it in an involuntary case or proceeding;
(C) consents to the appointment of a Custodian of it
or for all or substantially all of its property;
(D) makes a general assignment for the benefit of its
creditors;
(E) files an answer or consent seeking reorganization
or relief; or
(F) shall generally not pay its debts as such debts
become due or shall admit in writing its inability to pay its
debts generally; or
(vii) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any
Significant Restricted Subsidiary as a debtor in an
involuntary case or proceeding;
(B) appoints a Custodian of the Company or any
Significant Restricted Subsidiary or a Custodian for all or
substantially all of their respective properties; or
(C) orders the liquidation of the Company or any
Significant Restricted Subsidiary;
and in each case the order or decree remains unstayed and in
effect for 60 days.
A Default under clause (iii) is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in principal
amount of the then outstanding Securities notify the Company and the Trustee, in
writing of the Default and the Company does not cure the Default within 45 days
after receipt of the notice. The notice must specify the Default, demand that it
be remedied and state that the notice is a "Notice of Default."
<PAGE>
-60-
SECTION 6.2 ACCELERATION.
If an Event of Default (other than an Event of Default
specified in Section 6.1(vi) or (vii) above with respect to the Company) occurs
and is continuing, then, and in every such case, unless the principal of all the
Securities shall have already become due and payable, either the Trustee or the
Holders of not less than 25% in aggregate principal amount of the then
outstanding Securities, by notice in writing to the Company (and to the Trustee
if given by Holders), may declare all of the unpaid principal of and accrued
interest thereon to be due and payable immediately. In the event of a
declaration of acceleration because of an Event of Default described in clause
(iv) of Section 6.1 above has occurred and is continuing, such declaration of
acceleration shall be automatically annulled if such payment default is cured or
waived or the holders of the Indebtedness which is the subject of such event of
default have rescinded their declaration of acceleration in respect of such
Indebtedness within 60 days thereof and the Trustee has received written notice
of such cure, waiver or rescission and no other Event of Default described in
clause (iv) of Section 6.1 above has occurred that has not been cured or waived
within 60 days of the declaration of such acceleration in respect thereof and if
(i) the repayment of Indebtedness or annulment of such acceleration, as the case
may be, would not conflict with any judgment or decree of a court of competent
jurisdiction and (ii) all existing Events of Default, except non-payment of
principal or interest which have become due solely due to such acceleration,
have been cured or waived. If an Event of Default specified in Section 6.1(vi)
or (vii) with respect to the Company occurs, all unpaid principal of and accrued
interest due and payable on all the outstanding Securities shall IPSO FACTO
become and be immediately due and payable without any declaration, notice or
other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained,
the Holders of a majority in aggregate principal amount of the then outstanding
Securities, by written notice to the Company and the Trustee, may waive, on
behalf of all Holders, a Default or an Event of Default if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all overdue interest on all Securities, (ii) the
principal of any Securities which would become due otherwise than by
such declaration of acceleration, and interest thereon at the rate
borne by the
<PAGE>
-61-
Securities, (iii) to the extent that payment of such interest is
lawful, interest on overdue interest at the rate borne by the
Securities and (iv) all sums paid or advanced by the Trustee under
this Indenture and the compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel; and
(b) all Events of Default, other than the nonpayment of the
principal of the Securities which have become due solely by such
declaration of acceleration, have been cured or waived. Notwithstanding
the previous sentence, no waiver shall be effective for any Default or
Event of Default in the payment of the principal of or interest on any
Security held by a nonconsenting Holder or any Default or Event of
Default with respect to any covenant or provision which cannot be
modified or amended without the consent of the Holder of each then
outstanding Security, unless all such affected Holders agree, in
writing, to waive such Default or Event of Default. No such waiver
shall cure or waive any subsequent default or impair any right
consequent thereon.
In the event that the maturity of the Securities is
accelerated pursuant to this Section 6.2, 100% of the principal amount thereof
plus accrued interest to the date of payment shall become due and payable.
SECTION 6.3 OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding,
and any such proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
<PAGE>
-62-
SECTION 6.4 WAIVER OF PAST DEFAULT.
Subject to Sections 6.7 and 9.2, prior to the declaration of
acceleration of the maturity of the Securities, the Holder or Holders of not
less than a majority in aggregate principal amount of the Securities at the time
outstanding by written notice to the Company and the Trustee may waive on behalf
of all the Holders any past default under this Indenture and its consequence,
except a default in the payment of principal of or interest on any Security or a
default with respect to any covenant or provision which cannot be modified or
amended without the consent of the Holder of each outstanding Security affected
pursuant to Section 9.2.
SECTION 6.5 CONTROL BY MAJORITY.
The Holders of a majority in aggregate principal amount of the
then outstanding Securities may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on it, including, without limitation, any remedies provided
for in Section 6.3. However, the Trustee may refuse to follow any direction that
conflicts with law, the Securities or this Indenture, or that the Trustee
determines may be unduly prejudicial to the rights of another Securityholder or
that may involve the Trustee in personal liability.
SECTION 6.6 LIMITATION ON SUITS.
A Securityholder may not pursue any remedy with respect to
this Indenture or the Securities unless:
(a) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
then outstanding Securities make a written request to the Trustee to
pursue a remedy;
(c) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity reasonably satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 30
days after receipt of the request and the offer of indemnity; and
<PAGE>
-63-
(e) during such 30-day period the Holders of at least a
majority in principal amount of the then outstanding Securities do not
give the Trustee a direction which is inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over such
other Securityholder.
SECTION 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder to receive payment of principal of and interest on a
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, is absolute and unconditional and shall not be impaired or affected
without the consent of such Holder.
SECTION 6.8 COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.1(i) or (ii)
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company or any other obligor on the
Securities for the whole amount of principal and accrued interest remaining
unpaid, together with interest overdue on principal and, to the extent that
payment of such interest is lawful, interest on overdue installments of
interest, in each case at the interest rate and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee shall be entitled and empowered to file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel) and the Securityholders allowed in any judicial
proceedings relative to the Company or any of its Subsidiaries (or any other
obligor upon the Securities), its creditors or its property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each
<PAGE>
-64-
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, and any other amounts due the Trustee under Section 7.7. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Securityholder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities or the rights of
any Holder thereof, or to authorize the Trustee to vote in respect of the claim
of any Securityholder in any such proceeding.
SECTION 6.10 PRIORITIES.
If the Trustee collects any money pursuant to this Article VI,
it shall pay out such money in the following order:
First: to the Trustee for amounts due under Section 7.7;
Second: to Holders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference
or priority of any kind, according to the amounts due and payable on
the Securities for principal and interest, respectively; and
Third: to the Company.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Securityholders pursuant to
this Article VI.
SECTION 6.11 UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.7, or a suit by any Holder, or
<PAGE>
-65-
group of Holders, holding in the aggregate more than 10% in principal amount of
the outstanding Securities.
SECTION 6.12 RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 6.13 DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article VI or by law to the Trustee or to the Holders may be exercised from time
to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
ARTICLE VII
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent Person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties as are
specifically set forth in this Indenture or the TIA and no others and
no implied covenants or obligations shall be read into this Indenture
against the Trustee.
<PAGE>
-66-
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificate or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine such certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained,
the Trustee may not be relieved from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) This paragraph does not limit the effect of paragraph
(b) of this Section 7.1.
(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Sections 6.4 and 6.5.
(d) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
7.1.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
<PAGE>
-67-
SECTION 7.2 RIGHTS OF TRUSTEE.
Subject to Section 7.1:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any document reasonably believed by it to
be genuine and to have been signed or presented by the proper Person.
The Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may
see fit.
(b) Before the Trustee acts or refrains from acting with
respect to any matter contemplated by this Indenture, it may require an
Officers' Certificate or an Opinion of Counsel, which shall conform to
the provisions of Section 11.5. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
(other than the negligence or willful misconduct of an agent who is an
employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith and without negligence which it reasonably
believes to be authorized or within its rights or powers conferred upon
it by this Indenture or the TIA.
(e) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Holders, pursuant to the provisions of
this Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
<PAGE>
-68-
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual capacity or any other capacity
may become the owner or pledgee of Securities and may otherwise deal with the
Company, or its Subsidiaries and Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However, the
Trustee is subject to Sections 7.10 and 7.11.
SECTION 7.4 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Securities, and it shall not be accountable
for the Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement of the Company in this Indenture, or any statement
in the Securities other than the Trustee's certificate of authentication.
SECTION 7.5 NOTICE OF DEFAULTS.
If a Default or an Event of Default with respect to the
Securities occurs and is continuing and is known to a Trust Officer, the Trustee
shall mail to each Holder a notice of the Default or Event of Default within 30
days after it occurs or, if later, within 10 days after such Default or Event of
Default becomes known to the Trustee, unless such Default or Event of Default
has been cured. Except in the case of a Default or Event of Default in the
payment of principal of or interest on any Security, including an acceleration,
and the failure to make payment when required by Sections 4.12 and 4.15, the
Trustee may withhold the notice to the Holders if and so long as a committee of
its Trust Officers determines in good faith that withholding the notice is in
the interest of the Holders.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each May 15 beginning with May 15, 1999,
the Trustee shall transmit to each Securityholder a report dated as of May 15 of
the relevant year that complies with the requirements of TIA Sections 313(a).
The Trustee also shall comply with TIA Sections 313(b) and TIA Sections 313(c)
and (d). A copy of such report at the time of its transmission to
Securityholders shall be filed with the SEC, if required, with each stock
exchange, if any, on which the Securities are listed and with the Company.
<PAGE>
-69-
The Company shall promptly notify the Trustee if the
Securities become listed on any stock exchange and the Trustee shall comply with
TIA Sections 313(d).
SECTION 7.7 COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee, the Paying Agent and the
Registrar from time to time reasonable compensation for their respective
services rendered hereunder. The Trustee's compensation shall not be limited by
any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket
disbursements, expenses and advances (including reasonable fees and expenses of
counsel) incurred or made by each of them in connection with the performance of
its duties under this Indenture. Such expenses shall include the reasonable
compensation, reasonable out-of-pocket disbursements and reasonable expenses of
the Trustee's agents and counsel.
The Company shall indemnify and hold harmless the Trustee and
its agents, employees, officers, directors and shareholders against any claim,
demand, expense (including but not limited to attorneys' fees and expenses),
loss or liability incurred by it arising out of or in connection with the
administration of its duties under this Indenture. The Trustee shall notify the
Company promptly of any claim asserted against it for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall provide
reasonable cooperation at the Company's expense in the defense. The Trustee may
have separate counsel and the Company shall pay the reasonable fees and expenses
of such counsel; PROVIDED that the Company will not be required to pay such fees
and expenses if it assumes the Trustee's defense and there is no conflict of
interest between the Company and the Trustee in connection with such defense.
The Company need not pay for any settlement made without its written consent.
The Company need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through the Trustee's own willful misconduct,
negligence or bad faith.
To secure the Company's payment obligations in this Section
7.7, the Trustee shall have a lien prior to the Securities on all money or
property held or collected by it in its capacity as Trustee, except money or
property held in trust to pay principal of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(vi) or (vii)
<PAGE>
-70-
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Law.
SECTION 7.8 REPLACEMENT OF TRUSTEE.
The Trustee may resign at any time by so notifying the Company
in writing, such resignation to be effective upon the appointment of a successor
Trustee. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Trustee in writing and may
appoint a successor Trustee with the Company's consent which consent shall not
be unreasonably withheld. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or other public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee (subject to the lien provided in Section 7.7), the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 25% in
<PAGE>
-71-
principal amount of then outstanding Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Company's obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or national banking association, the resulting, surviving or
transferee corporation or national banking association without any further act
shall be the successor Trustee; PROVIDED such corporation shall be otherwise
qualified and eligible under this Article VII.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sections 310(a)(1) and (2). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
Sections 310(b); PROVIDed that there shall be excluded from the operation of TIA
Sections 310(b)(1) any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the Company
are outstanding if the requirements for such exclusion set forth in TIA Sections
310(b)(1) are met. The provisions of TIA Sections 310 shall apply to the
Company, as obligor of the Securities.
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST
COMPANY.
The Trustee shall comply with TIA Sections 311(a), excluding
any creditor relationship listed in TIA Sections 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Sections 311(a) to the extent
indicated therein.
<PAGE>
-72-
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.1 TERMINATION OF THE COMPANY'S OBLIGATIONS.
The Company may terminate its obligations under the Securities
and this Indenture, except those obligations referred to in the penultimate
paragraph of this Section 8.1, if all Securities previously authenticated and
delivered (other than destroyed, lost or stolen Securities which have been
replaced or paid or Securities for whose payment U.S. Legal Tender has
theretofore been deposited with the Trustee or the Paying Agent in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company, as provided in Section 8.5) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it hereunder, or if:
(a) either (i) pursuant to Article III, the Company shall have
given notice to the Trustee and mailed a notice of redemption to each
Holder of the redemption of all of the Securities under arrangements
satisfactory to the Trustee for the giving of such notice or (ii) all
Securities have otherwise become due and payable hereunder;
(b) the Company shall have irrevocably deposited or caused to
be deposited with the Trustee or a trustee satisfactory to the Trustee,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the
benefit of the Holders for that purpose, U.S. Legal Tender in such
amount as is sufficient without consideration of reinvestment of
interest, to pay principal of, premium, if any, and interest on the
outstanding Securities to maturity or redemption; PROVIDED that the
Trustee shall have been irrevocably instructed to apply such U.S. Legal
Tender to the payment of said principal, premium, if any, and interest
with respect to the Securities and, PROVIDED, FURTHER, that from and
after the time of deposit, the money deposited shall not be subject to
the rights of holders of Senior Indebtedness pursuant to the provisions
of Article X;
(c) no Default or Event of Default with respect to this
Indenture or the Securities shall have occurred and be continuing on
the date of such deposit or shall occur
<PAGE>
-73-
immediately after giving effect to such deposit and such deposit
will not result in a breach or violation of, or constitute a default
under, any other instrument to which the Company is a party or by
which it is bound;
(d) the Company shall have paid all other sums payable by it
hereunder; and
(e) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent providing for or relating to the termination of
the Company's obligations under the Securities and this Indenture have
been complied with. Such Opinion of Counsel shall also state that such
satisfaction and discharge does not result in a default under the
Credit Agreement (if then in effect) or any other material agreement or
material instrument then known to such counsel that binds or affects
the Company.
Notwithstanding the foregoing paragraph, the Company's
obligations in Sections 2.5, 2.6, 2.7, 4.1, 4.2, 7.7, 8.5 and 8.6 shall survive
until the Securities are no longer outstanding pursuant to the last paragraph of
Section 2.8. After the Securities are no longer outstanding, the Company's
obligations in Sections 7.7, 8.5 and 8.6 shall survive.
After such delivery or irrevocable deposit, the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
under the Securities and this Indenture except for those surviving obligations
specified above.
SECTION 8.2 LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
(a) The Company may, at its option by Board Resolution of the
Board of Directors of the Company, at any time, elect to have either paragraph
(b) or (c) below be applied to all outstanding Securities upon compliance with
the conditions set forth in Section 8.3.
(b) Upon the Company's exercise under paragraph (a) hereof of
the option applicable to this paragraph (b), the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.3, be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and dis-
<PAGE>
-74-
charged the entire Indebtedness represented by the outstanding Securities, which
shall thereafter be deemed to be "outstanding" only for the purposes of Section
8.4 hereof and the other Sections of this Indenture referred to in (i) and (ii)
below, and to have satisfied all its other obligations under such Securities and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), and Holders of the
Securities and any amounts deposited under Section 8.3 hereof shall cease to be
subject to any obligations to, or the rights of, any holder of Senior
Indebtedness under Article X or otherwise, except for the following provisions,
which shall survive until otherwise terminated or discharged hereunder: (i) the
rights of Holders of outstanding Securities to receive solely from the trust
fund described in Section 8.4 hereof, and as more fully set forth in such
Section, payments in respect of the principal of and interest on such Securities
when and to the extent such payments are due, (ii) the Company's obligations
with respect to such Securities under Article II and Section 4.2 hereof, (iii)
the rights, powers, trusts, duties and immunities of the Trustee hereunder and
the Company's obligations in connection therewith, including Section 7.7 hereof
and (iv) this Article VIII. Subject to compliance with this Article VIII, the
Company may exercise its option under this paragraph (b) notwithstanding the
prior exercise of its option under paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of
the option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.3 hereof, be released from
its obligations under the covenants contained in Sections 4.8 through 4.15 and
Article V hereof with respect to the outstanding Securities on and after the
date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Securities shall thereafter be deemed not "outstanding"
for the purposes of any direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder
(it being understood that such Securities shall not be deemed outstanding for
accounting purposes) and Holders of the Securities and any amounts deposited
under Section 8.3 hereof shall cease to be subject to any obligations to, or the
rights of, any holder of Senior Indebtedness under Article X or otherwise. For
this purpose, such Covenant Defeasance means that, with respect to the
outstanding Securities, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by
<PAGE>
-75-
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
or Default under Section 6.1(iii) hereof, but, except as specified above, the
remainder of this Indenture and such Securities shall be unaffected thereby. In
addition, upon the Company's exercise under paragraph (a) hereof of the option
applicable to this paragraph (c), subject to the satisfaction of the conditions
set forth in Section 8.3 hereof, Sections 6.1(iii), 6.1(iv) and 6.1(v) shall not
constitute Events of Default.
SECTION 8.3 CONDITIONS TO LEGAL DEFEASANCE OR COVENANT
DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.2(b) or 8.2(c) hereof to the outstanding Securities:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, U.S. Legal Tender or U.S.
Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment on
the Securities, U.S. Legal Tender, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest on the Securities on the stated date
for payment thereof or on the applicable redemption date, as the case
may be, of such principal or installment of principal of or interest on
the Securities; PROVIDED that the Trustee shall have received an
irrevocable written order from the Company instructing the Trustee to
apply such U.S. Legal Tender or the proceeds of such U.S. Government
Obligations to said payments with respect to the Securities;
(b) in the case of an election under Section 8.2(b) hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (B) since the date of this
<PAGE>
-76-
Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the Holders of the Securities will not
recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.2(c) hereof,
the Company shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that the Holders of the Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default or event which with notice
or lapse of time or both would become a Default or an Event of Default
with respect to the Securities shall have occurred and be continuing on
the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the
proceeds of which will be used to defease the Securities pursuant to
this Article VIII concurrently with such incurrence) or insofar as
Sections 6.1(vi) and 6.1(vii) hereof are concerned, at any time in the
period ending on the 91st day after the date of such deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of or constitute a default under this
Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over any other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding any other creditors of the Company or others;
<PAGE>
-77-
(g) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance
or the Covenant Defeasance have been complied with; and
(h) the Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that (i) the trust funds will not be subject
to any rights of any holders of Senior Indebtedness, including, without
limitation, those arising under this Indenture, and (ii) assuming no
intervening bankruptcy or insolvency of the Company between the date of
deposit and the 91st day following the deposit and that no Holder is an
insider of the Company, after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable
Bankruptcy Law.
Notwithstanding the foregoing, the Opinion of Counsel required
by clause (b) above of this Section 8.3 need not be delivered if all Securities
not theretofore delivered to the Trustee for cancellation (i) have become due
and payable, (ii) will become due and payable on the Maturity Date within one
year or (iii) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company.
SECTION 8.4 APPLICATION OF TRUST MONEY.
The Trustee or Paying Agent shall hold in trust U.S. Legal
Tender or U.S. Government Obligations deposited with it pursuant to this Article
VIII, and shall apply the deposited U.S. Legal Tender and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of
principal of and interest on the Securities. The Trustee shall be under no
obligation to invest said U.S. Legal Tender or U.S. Government Obligations
except as it may agree with the Company.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Legal Tender or
U.S. Government Obligations deposited pursuant to Section 8.3 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Securities.
Anything in this Article VIII to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company
<PAGE>
-78-
from time to time upon the Company's request any U.S. Legal Tender or U. S.
Government Obligations held by it as provided in Section 8.3 hereof which, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof that would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.5 REPAYMENT TO THE COMPANY.
Subject to this Article VIII, the Trustee and the Paying Agent
shall promptly pay to the Company upon request any excess U.S. Legal Tender or
U.S. Government Obligations held by them at any time and thereupon shall be
relieved from all liability with respect to such money. The Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years;
PROVIDED that the Trustee or such Paying Agent, before being required to make
any payment, may at the expense of the Company cause to be published once in a
newspaper of general circulation in the City of New York or mail to each Holder
entitled to such money notice that such money remains unclaimed and that after a
date specified therein which shall be at least 30 days from the date of such
publication or mailing any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company, Holders entitled to such
money must look to the Company for payment as general creditors unless an
applicable law designates another Person.
SECTION 8.6 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S.
Legal Tender or U.S. Government Obligations in accordance with this Article VIII
by reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article VIII until such time as the Trustee or Paying Agent is
permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in
accordance with this Article VIII; PROVIDED that if the Company has made any
payment of interest on or principal of any Securities because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the U.S. Legal
Tender or
<PAGE>
-79-
U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1 WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, when
authorized by resolutions of its Board of Directors (copies of which shall be
delivered to the Trustee) and the Trustee may amend or supplement this Indenture
or the Securities without notice to any Holder for any of the following
purposes:
(a) to cure any ambiguity, defect or inconsistency herein;
(b) to add to the covenants of the Company for the benefit of
the Holders, or surrender any right or power herein conferred upon the
Company;
(c) to provide for collateral for the Securities;
(d) to provide for uncertificated Securities in addition to or
in place of certificated Securities;
(e) to effect or maintain the qualification of this Indenture
under the TIA;
(f) to evidence the succession in accordance with Article V
hereof of another Person to the Company and the assumption by any such
successor of the covenants of the Company herein and in the Securities;
or
(g) to make any other change that does not adversely affect
the rights of any Holder; PROVIDED that in making such change, the
Trustee may rely upon an Opinion of Counsel stating that such change
does not adversely affect the rights of any Holder.
SECTION 9.2 WITH CONSENT OF HOLDERS.
Subject to Section 6.7 and the provisions of this Section 9.2,
the Company, when authorized by resolution of its Board of Directors (copies of
which shall be delivered to the Trustee), and the Trustee may amend or
supplement this Indenture with the written consent of the Holders of at least a
ma-
<PAGE>
-80-
jority in aggregate principal amount of the Securities then outstanding. Subject
to Section 6.7 and the provisions of this Section 9.2, the Holders of, in the
aggregate, at least a majority in principal amount of the then outstanding
Securities affected may waive compliance by the Company with any provision of
this Indenture without notice to any other Securityholder. However, without the
consent of each Securityholder affected, an amendment, supplement or waiver,
including a waiver pursuant to Section 6.4 may not:
(a) reduce the percentage of principal amount of Securities
whose Holders must consent to an amendment, supplement or waiver of any
provision of this Indenture or the Securities;
(b) reduce the rate or extend the time for payment of interest
on any Security;
(c) reduce the principal amount of any Security, or reduce the
redemption price or the repurchase price pursuant to Section 4.12 or
4.15;
(d) change the Maturity Date, the Net Proceeds Payment Date
(other than in accordance with Section 4.12) or Change of Control
Payment Date (other than in accordance with Section 4.15) of any
Security;
(e) alter the redemption provisions of Article III in a manner
adverse to any Holder;
(f) make any changes in the provisions concerning waivers of
Defaults or Events of Default by Holders of the Securities or the
rights of Holders to recover the principal of, interest on, or
redemption payment with respect to, any Security;
(g) make any changes in Section 6.4, 6.7 or this clause (g);
(h) make the principal of, or the interest on, any Security
payable with anything or in any manner other than as provided for in
this Indenture and the Securities as in effect on the Issue Date;
(i) waive a Default or an Event of Default in the payment of
principal of or interest on the Securities or that resulted from
failure to make the payments required by Section 4.12 or 4.15;
<PAGE>
-81-
(j) make any change to the subordination provisions of this
Indenture and the Securities in a manner that adversely affects the
Holders; or
(k) make any changes relating to (i) the right of the Trustee
to file proof of claim in any bankruptcy or similar proceeding, or (ii)
the limitation on the right of Holders to direct the Trustee to
institute legal proceedings with respect to this Indenture or to such
provision.
It shall not be necessary for the consent of the Holders under
this Section 9.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
Notwithstanding the foregoing, no amendment shall modify any
provision of Article X of the Indenture without the consent of each holder of
any then outstanding Designated Senior Indebtedness.
After an amendment, supplement or waiver under this Section
9.2 becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
In connection with any amendment, supplement or waiver under
this Article IX, the Company may, but shall not be obligated to, offer to any
Holder who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to or supplement of this Indenture or the
Securities shall be set forth in a supplemental indenture that complies with the
TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of that Security or portion of that Security that evidences
the same debt as the consenting Holder's Security, even if notation of the
consent is
<PAGE>
-82-
not made on any Security. However, any such Holder or subsequent Holder may
revoke the consent as to his Security or portion of a Security. Such revocation
shall be effective only if the Trustee receives the notice of revocation before
the date the amendment, supplement or waiver becomes effective. Notwithstanding
the above, nothing in this paragraph shall impair the right of any
Securityholder under Sections 316(b) of the TIA.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver which record date shall be at least 10 days
prior to the first solicitation of such consent. If a record date is fixed, then
notwithstanding the second and third sentences of the immediately preceding
paragraph, those Persons who were Holders at such record date (or their duly
designated proxies), and only those Persons, shall be entitled to consent to
such amendment, supplement or waiver or to revoke any consent previously given,
whether or not such Persons continue to be Holders after such record date. Such
consent shall be effective only for actions taken within 90 days after such
record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Securityholder unless it makes a change described in any of
clauses (a) through (k) of Section 9.2. In that case the amendment, supplement
or waiver shall bind each Holder of a Security who has consented to it.
SECTION 9.5 NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may (in accordance with the specific direction of the
Company) request the Holder of the Security to deliver it to the Trustee. The
Trustee may (in accordance with the specific direction of the Company) place an
appropriate notation on the Security about the changed terms and return it to
the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make the
appropriate notation or issue a new Security shall not affect the validity and
effect of such amendment, supplement or waiver.
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment, supplement or waiver
authorized pursuant to this Article IX if the amendment,
<PAGE>
-83-
supplement or waiver does not adversely affect the rights, duties or immunities
of the Trustee. If it does, the Trustee may, but need not, sign it. In signing
any amendment, supplement or waiver, the Trustee shall be entitled to receive,
if requested, an indemnity reasonably satisfactory to it and to receive, and
shall be fully protected in relying upon, an Officers' Certificate and an
Opinion of Counsel stating that the execution of any amendment, supplement or
waiver authorized pursuant to this Article IX is authorized or permitted by this
Indenture. The Company may not sign an amendment until its Board of Directors
approves it.
ARTICLE X
SUBORDINATION
SECTION 10.1 SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company, for itself and its successors, and each Holder,
by his acceptance of Securities, agrees that the payment of the principal of and
interest on the Securities is subordinated, to the extent and in the manner
provided in this Article X, to the prior payment in full in cash or cash
equivalents of all Senior Indebtedness, whether outstanding on the Issue Date or
thereafter incurred, including any interest accruing subsequent to a bankruptcy
or other similar proceeding whether or not such interest is an allowed claim
enforceable against the Company in a bankruptcy case under Title 11 of the
United States Code.
This Article X shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue to
hold, Senior Indebtedness, and such provisions are made for the benefit of the
holders of Senior Indebtedness, and such holders are made obligees hereunder and
any one or more of them may enforce such provisions.
SECTION 10.2 NO PAYMENT ON SECURITIES IN CERTAIN
CIRCUMSTANCES.
(a) No direct or indirect payment by or on behalf of the
Company of principal of or interest on the Securities whether pursuant to the
terms of the Securities or upon acceleration or otherwise shall be made if, at
the time of such payment, there exists a default in the payment of all or any
portion of principal of or interest on any Senior Indebtedness, and such default
shall not have been cured or waived or the
<PAGE>
-84-
benefits of this sentence waived by or on behalf of the holders of the Senior
Indebtedness. In addition, during the continuance of any other event of default
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be accelerated, upon the occurrence of (a) receipt by the
Trustee of written notice from the holders of a majority of the outstanding
principal amount of the Designated Senior Indebtedness or their Representative,
or (b) if such event of default results from the acceleration of the Securities,
the date of such acceleration, no such payment may be made by or on behalf of
the Company upon or in respect of the Securities for a period ("Payment Blockage
Period") commencing on the earlier of the date of receipt of such notice or the
date of such acceleration and ending 179 days thereafter (unless such Payment
Blockage Period shall be terminated by written notice to the Trustee from the
holders of a majority of the outstanding principal amount of the Designated
Senior Indebtedness or their Representative who delivered such notice).
Notwithstanding anything herein to the contrary, in no event will a Payment
Blockage Period extend beyond 179 days from the date on which such Payment
Blockage Period was commenced. Not more than one Payment Blockage Period may be
commenced with respect to the Securities during any period of 360 consecutive
days. For all purposes of this paragraph, no event of default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Indebtedness initiating such Payment
Blockage Period shall be, or be made, the basis for the commencement of a second
Payment Blockage Period by the holders of such Designated Senior Indebtedness or
their Representative whether or not within a period of 360 consecutive days
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days.
(b) In furtherance of the provisions of Section 10.1, in the
event that, notwithstanding the foregoing provisions of this Section 10.2, any
payment on account of principal of or interest on the Securities or to redeem
(or make a deposit in redemption of), defease or acquire any of the Securities
shall be made by or on behalf of the Company and received by the Trustee, by any
Holder or by any Paying Agent (or, if the Company is acting as its own Paying
Agent, money for any such payment shall be segregated and held in trust), at a
time when such payment was prohibited by the provisions of this Section 10.2,
then, unless and until such payment is no longer prohibited by this Section
10.2, such payment (subject to the provisions of Section 10.6) shall be received
and held in trust by the Trustee or such Holder or Paying Agent for the
<PAGE>
-85-
benefit of the holders of Senior Indebtedness or their Representative, ratably
according to the respective amounts of the Senior Indebtedness held or
represented by each, and shall be paid over or delivered to the holders of the
Senior Indebtedness remaining unpaid to the extent necessary to enable payment
in full in cash and cash equivalents to the holders of Senior Indebtedness of
all Senior Indebtedness remaining unpaid, after giving effect to all concurrent
payments and such distributions to or for the holders of Senior Indebtedness.
The Company shall give prompt written notice to the Trustee of
any default or event of default, and any cure or waiver thereof, or any
acceleration under any Senior Indebtedness or under any agreement pursuant to
which Senior Indebtedness may have been issued.
SECTION 10.3 SECURITIES SUBORDINATED TO PRIOR PAYMENT OF ALL
SENIOR INDEBTEDNESS ON DISSOLUTION, LIQUIDATION
OR REORGANIZATION OF COMPANY.
Upon any distribution of assets of the Company of any kind or
character, whether in cash, property or securities upon any dissolution, winding
up, total or partial liquidation or reorganization of the Company (including,
without limitation, in bankruptcy, insolvency or receivership proceedings or
upon any assignment for the benefit of creditors or any other marshalling of
assets and liabilities of the Company):
(a) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full in cash or cash equivalents of all
amounts payable under Senior Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the
applicable Senior Indebtedness whether or not such interest is an
allowed claim against the Company in any such proceeding), before the
Holders or the Trustee on behalf of the Holders are entitled to receive
any payment on account of the principal of or interest on the
Securities;
(b) any payment or distribution of assets or securities of the
Company of any kind or character, whether in cash, property or
securities, to which the Holders or the Trustee on behalf of the
Holders would be entitled except for the provisions of this Article X,
shall be paid by the Company or by any liquidating trustee or agent or
other Person making such a payment or distribution, directly to the
holders of Senior Indebtedness or their Representa-
<PAGE>
-86-
tive, ratably according to the respective amounts of Senior
Indebtedness held or represented by each, to the extent necessary to
make payment in full in cash or cash equivalents of all Senior
Indebtedness remaining unpaid after giving effect to all concurrent
payments and distributions to or for the holders of such Senior
Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any
payment or distribution of assets or securities of the Company of any
kind or character, whether in cash, property or securities, shall be
received by the Trustee or the Holders or any Paying Agent (or, if the
Company is acting as its own Paying Agent, money for any such payment
or distribution shall be segregated or held in trust) on account of
principal of or interest on the Securities before all Senior
Indebtedness is paid in full in cash or cash equivalents, such payment
or distribution (subject to the provisions of Section 10.6) shall be
received and held in trust by the Trustee or such Holder or Paying
Agent for the benefit of the holders of the Senior Indebtedness or
their Representative, ratably according to the respective amounts of
Senior Indebtedness held or represented by each, and shall be paid over
or delivered to the holders of the Senior Indebtedness remaining unpaid
to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid after giving effect to all concurrent
payments and distributions to or for the holders of such Senior
Indebtedness.
The Company shall give prompt written notice to the Trustee of
any dissolution, winding up, liquidation or reorganization of the Company or
assignment for the benefit of creditors by the Company.
SECTION 10.4 HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF
SENIOR INDEBTEDNESS.
Subject to the payment in full in cash or cash equivalents of
all Senior Indebtedness, the Holders of Securities shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness
until all amounts owing on the Securities shall be paid in full, and for the
purpose of such subrogation no such payments or distributions to the holders of
Senior Indebtedness by or on behalf of the Company, or by or behalf of the
Holders by virtue of this Article X, which otherwise would have been made to the
Holders,
<PAGE>
-87-
shall, as between the Company and the Holders, be deemed to be payment by the
Company to or on account of the Senior Indebtedness, it being understood that
the provisions of this Article X are and are intended solely for the purpose of
defining the relative rights of the Holders, on the one hand, and the holders of
Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article X shall have
been applied, pursuant to the provisions of this Article X, to the payment of
amounts payable under the Senior Indebtedness, then the Holders shall be
entitled to receive from the holders of such Senior Indebtedness any payments or
distributions received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable under or in respect of the Senior
Indebtedness in full in cash or cash equivalents.
SECTION 10.5 OBLIGATIONS OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article X or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as between the
Company and the Holders, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders the principal of and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Company other than the holders of the Senior
Indebtedness, nor shall anything herein or therein prevent the Trustee or any
Holder from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
X, of the holders of Senior Indebtedness in respect of cash, property or
securities of the Company received upon the exercise of any such remedy. Upon
any distribution of assets or securities of the Company referred to in this
Article X, the Trustee, subject to the provisions of Sections 7.1 and 7.2, and
the Holders shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other Person making any distribution to the Trustee or to
the Holders for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts per-
<PAGE>
-88-
tinent thereto or to this Article X. Nothing in this Section 10.5 shall apply to
the claims of, or payments to, the Trustee under or pursuant to Section 7.7.
SECTION 10.6 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT
PROHIBITED IN ABSENCE OF NOTICE.
The Trustee or any Paying Agent shall not at any time be
charged with the knowledge of the existence of any facts which would prohibit
the making of any payment to or by the Trustee or Paying Agent, unless and until
the Trustee or Paying Agent shall have received written notice thereof from the
Company or one or more holders of Senior Indebtedness or from any trustee or
agent therefor, and, prior to the receipt of any such written notice, the
Trustee or paying agent shall be entitled to assume conclusively that no such
facts exist. Unless at least three Business Days prior to the date on which by
the terms of this Indenture any moneys are to be deposited by the Company with
the Trustee or any Paying Agent (whether or not in trust) for any purpose
(including, without limitation, the payment of the principal, the interest or
other amounts due on any Security), the Trustee or Paying Agent shall have
received with respect to such moneys the notice provided for in the preceding
sentence, the Trustee or Paying Agent shall have full power and authority to
receive such moneys and to apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it on or after such date. The foregoing shall not apply to the
Paying Agent if the Company is acting as Paying Agent. Nothing contained in this
Section 10.6 shall limit the right of the holders of Senior Indebtedness to
recover payments as contemplated by Section 10.2.
SECTION 10.7 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR
OMISSIONS OF COMPANY OR HOLDERS OF SENIOR
INDEBTEDNESS.
(a) No right of any present or future holders of any Senior
Indebtedness to enforce subordination provisions contained in this Article X
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms of
this Indenture, regardless of any knowledge thereof which any such holder may
have or be otherwise charged with.
<PAGE>
-89-
(b) Without in any way limiting the generality of the
foregoing paragraph, the holders of Senior Indebtedness may, at any time and
from time to time, without the consent of or notice to the holders of any
Indebtedness of the Company, without incurring responsibility to the holders of
any Indebtedness of the Company and without impairing or releasing the
subordination provisions contained in this Article X, or the obligations
hereunder of the holders of the Indebtedness of the Company do any one or more
of the following: (i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness or fail to perfect
or delay the perfection of any such lien; (iii) release any Person liable in any
manner for the collection of Senior Indebtedness; and (iv) exercise or refrain
from exercising any rights against the Company and any other Person.
SECTION 10.8 HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE
SUBORDINATION OF SECURITIES.
Each Holder of the Securities by his acceptance thereof
authorizes and expressly directs the Trustee on his behalf to take such action
as may be necessary or appropriate to effectuate the subordination provisions
contained in this Article X and to protect the rights of the Holders pursuant to
this Indenture, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company) tending towards
liquidation of the business and assets of the Company, the immediate filing of a
claim for the unpaid balance of his securities in the form required in said
proceedings and cause said claim to be approved. If the Trustee does not file a
proper claim or proof of debt in the form required in such proceeding prior to
30 days before the expiration of the time to file such claim or claims, then the
holders of the Senior Indebtedness or their Representative are or is hereby
authorized to have the right to file and are or is hereby authorized to file an
appropriate claim for and on behalf of the Holders of said Securities. Nothing
herein contained shall be deemed to authorize the Trustee or the holders of
Senior Indebtedness or their Representative to authorize or consent to or accept
or adopt on behalf of any Holder any plan of reorganization, ar-
<PAGE>
-90-
rangement, adjustment or composition affecting the Securities or the rights of
any Holder thereof, or to authorize the Trustee or the holders of Senior
Indebtedness or their Representative to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 10.9 RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS.
The Trustee shall be entitled to all of the rights set forth
in this Article X in respect of any Senior Indebtedness at any time held by it
to the same extent as any other holder of Senior Indebtedness, and nothing in
this Indenture shall be construed to deprive the Trustee of any of its rights as
such holder.
SECTION 10.10 ARTICLE X NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal of or
interest on the securities by reason of any provision of this Article X shall
not be construed as preventing the occurrence of a Default or an Event of
Default under Section 6.1.
SECTION 10.11 NO FIDUCIARY DUTY OF TRUSTEE TO HOLDERS OF
SENIOR INDEBTEDNESS.
The Trustee shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness, and shall not be liable to any such holders
(other than for its willful misconduct or negligence) if it shall in good faith
mistakenly pay over or distribute to the Holders of Securities or the Company or
any other Person, cash, property or securities to which any holders of Senior
Indebtedness shall be entitled by virtue of this Article X or otherwise. Nothing
in this Section 10.11 shall affect the obligation of any other such Person to
hold such payment for the benefit of, and to pay such payment over to, the
holders of Senior Indebtedness or their Representative.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 TRUST INDENTURE ACT CONTROLS.
The provisions of TIA ss.ss. 310 through 317 that impose
duties on any Person (including the provisions automatically deemed included
unless expressly excluded by this Indenture)
<PAGE>
-91-
are a part of and govern this Indenture, whether or not physically contained
herein.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by the above paragraph, the imposed duties
shall control.
SECTION 11.2 NOTICES.
Any notice or communication shall be sufficiently given if in
writing and delivered in Person or mailed by first-class mail or by telecopier,
followed by first-class mail, or by overnight service guaranteeing next-day
delivery, addressed as follows:
(a) if to the Company:
BIG FLOWER PRESS HOLDINGS, INC.
3 East 54th Street
17th Floor
New York, New York 10022
Attention: Secretary
Telecopier Number: (212) 521-1640
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Robert E. Buckholz, Jr., Esq.
Telecopier Number: (212) 558-3588
(b) if to the Trustee:
State Street Bank and Trust Company
Goodwin Square, 23rd Floor
225 Asylum Street
Hartford, Connecticut 06103
Attention: Corporate Trust Administration
Telecopier Number: (860) 244-1889
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
<PAGE>
-92-
Any notice or communication mailed to a Securityholder,
including any notice delivered in connection with TIA Sections 310(b), TIA
Sections 313(c), TIA Sections 314(a) and TIA Sections 315(b), shall be mailed to
such Holder, first-class postage prepaid, at his address as it appears on the
registration books of the Registrar and shall be sufficiently given to such
Holder if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given only
when received, if a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Sections
312(b) with other Securityholders with respect to their rights under this
Indenture or the Securities. The Company, the Trustee, the Registrar and any
other Person shall have the protection of TIA Sections 312(c).
SECTION 11.4 CERTIFICATE AND OPINION OF COUNSEL AS TO
CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee at the request of the Trustee (a) an Officers' Certificate in form and
substance reasonably satisfactory to the Trustee stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with (which officer signing
such certificate may rely, as to matters of law, on an Opinion of Counsel), (b)
an Opinion of Counsel in form and substance reasonably satisfactory to the
Trustee stating that, in the opinion of counsel, all such conditions have been
complied with (which counsel, as to factual matters, may rely on an Officers'
Certificate and certificates of public officials) and (c) where applicable, a
certificate or opinion by an independent certified public accountant
satisfactory to the Trustee that complies with TIA Sections 314(c).
<PAGE>
-93-
SECTION 11.5 STATEMENTS REQUIRED IN CERTIFICATE AND OPINION
OF COUNSEL.
Each certificate and Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(a) a statement that the Person making such certificate or
rendering such Opinion of Counsel has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements contained in
such certificate or Opinion of Counsel are based;
(c) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
SECTION 11.6 RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee may make reasonable rules in accordance with the
Trustee's customary practices for action by or at a meeting of Securityholders.
The Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 11.7 LEGAL HOLIDAYS.
If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 11.8 GOVERNING LAW.
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE
AND THE SECURITIES WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY
AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN
ANY
<PAGE>
-94-
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE
SECURITIES.
SECTION 11.9 NO RECOURSE AGAINST OTHERS.
No past, present or future director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Securities.
SECTION 11.10 SUCCESSORS.
All agreements of the Company in this Indenture and the
Securities shall bind its successor. All agreements of the Trustee in this
Indenture shall bind its successor.
SECTION 11.11 COUNTERPARTS.
The parties may sign any number of counterparts of this
Indenture. Each such counterpart shall be an original, but all of them together
represent the same agreement.
SECTION 11.12 SEVERABILITY.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and a Holder shall have no claim therefor against any party
hereto.
SECTION 11.13 TABLE OF CONTENTS, HEADINGS, ETC.
The table of contents, cross-reference sheet and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, and are not to be considered a part hereof, and shall in no
way modify or restrict any of the terms or provisions hereof.
SECTION 11.14 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any of its
<PAGE>
-95-
Subsidiaries. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 11.15 BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder and the Holders, any benefit or any legal or equitable
right, remedy or claim under this Indenture or the Securities.
SECTION 11.16 INDEPENDENCE OF COVENANTS.
All covenants and agreements in this Indenture shall be given
independent effect so that if any particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
<PAGE>
-96-
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.
BIG FLOWER PRESS HOLDINGS, INC.,
as Issuer
By: /s/ Authorized Signatory
-------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Authorized Signatory
-------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A-1
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) AND IT IS ACQUIRING THIS SECURITY
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER OR (B)
IT IS NOT A U.S. PERSON (AND IS NOT PURCHASING FOR THE ACCOUNT OR BENEFIT OF A
U.S. PERSON) AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION PURSUANT
TO REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT WITHIN TWO
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO BIG FLOWER PRESS HOLDINGS, INC. (THE "COMPANY"), (B)
INSIDE THE UNITED STATES TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C)
INSIDE THE UNITED STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED
IN RULE 501 (a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT)
(AN "ACCREDITED INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS
FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 (IF AVAILABLE), OR (F)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS
SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED
<PAGE>
-2-
STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER
THE SECURITIES ACT.
THIS SECURITY AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR
RESALES AND OTHER TRANSFERS OF THIS SECURITY TO REFLECT ANY CHANGE IN APPLICABLE
LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO
THE RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS
SECURITY SHALL BE DEEMED BY THE ACCEPTANCE OF THIS SECURITY TO HAVE AGREED TO
ANY SUCH AMENDMENT OR SUPPLEMENT.
THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE
BENEFITS OF, A REGISTRATION RIGHTS AGREEMENT, DATED AS OF DECEMBER 9, 1998,
ENTERED INTO BY THE COMPANY FOR THE BENEFIT OF CERTAIN HOLDERS FROM TIME TO TIME
OF SECURITIES.
<PAGE>
-3-
No. $
BIG FLOWER PRESS HOLDINGS, INC.
8 5/8% SENIOR SUBORDINATED NOTE DUE 2008
BIG FLOWER PRESS HOLDINGS, INC. promises to pay to
or registered assigns the principal sum of
Dollars on December 1, 2008.
Interest Payment Dates: January 1 and July 1
Record Dates: June 15 and December 15
BIG FLOWER PRESS HOLDINGS, INC.,
as Issuer
By:
------------------------------------
Authorized Signature
By:
------------------------------------
Authorized Signature
Dated: December 9, 1998
CERTIFICATE OF AUTHENTICATION
This is one of the 8 5/8% Senior Subordinated Notes due 2008
referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
------------------------------------
Authorized Signature
<PAGE>
-4-
(REVERSE OF SECURITY)
8 5/8% SENIOR SUBORDINATED NOTE DUE 2008
1. INTEREST. BIG FLOWER PRESS HOLDINGS, INC., a Delaware
corporation (the "Company", which term shall include any successor thereto in
accordance with the Indenture), promises to pay, until the principal hereof is
paid or made available for payment, interest (including any Accrued Bankruptcy
Interest) on the principal amount set forth on the reverse side hereof at a rate
of 8 5/8% PER ANNUM. Interest on the Securities will accrue from and including
the most recent date to which interest has been paid or, if no interest has been
paid, from and including the date of issuance of such Securities through but
excluding the date on which interest is paid. Interest shall be payable in
arrears on January 1 and July 1 (each an "Interest Payment Date"), commencing
July 1, 1999. Interest will be computed on the basis of a 360-day year of twelve
full 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on
the Securities (except defaulted interest) to the Persons who are registered
Holders of Securities at the close of business on the June 15 and December 15
immediately preceding the Interest Payment Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will pay
principal, premium, if any, and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts. At
the Company's option, interest may be paid by check mailed to the registered
address of the Holder of this Security.
3. PAYING AGENT AND REGISTRAR. Initially, Sate Street Bank
and Trust Company (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice.
4. INDENTURE. The Company issued the Securities under an
Indenture dated as of December 9, 1998 (the "Indenture") between the Company and
the Trustee. This Security is one of an issue of Securities of the Company
issued under the Indenture. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) as amended from time to
time. The Securities are subject to all such terms, and Securityholders are
referred to the
<PAGE>
-5-
Indenture and such Act for a statement of them. Capitalized terms used herein
and not otherwise defined have the meanings set forth in the Indenture. The
Securities are general unsecured obligations of the Company limited in aggregate
principal amount to $350,000,000.
5. OPTIONAL REDEMPTION. The Company, at its option, may
redeem all or any of the Securities, in whole or in part, at any time on or
after December 1, 2003 at the redemption prices (expressed in percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the Redemption Date, if redeemed during the 12-month period beginning December 1
of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003...........................................104.313%
2004...........................................102.875%
2005...........................................101.438%
2006 and thereafter............................100.000%
</TABLE>
In addition, at any time prior to December 1, 2001, the
Company may redeem up to 35% of the principal amount of the Securities
originally issued with the net proceeds from issuances of Equity Interests of
the Company (other than Redeemable Stock) at a redemption price equal to
108.625% of the principal thereof, plus accrued and unpaid interest to the
Redemption Date; PROVIDED that at least 65% of the aggregate principal amount of
the Notes issued under this Indenture shall remain outstanding after each such
redemption. Any such redemption shall occur on or prior to 180 days after the
receipt of the proceeds of such issuances of Equity Interests.
In addition, at any time prior to December 1, 2003, upon the
occurrence of a Change of Control that has been approved by a majority of the
Board of Directors of the Company as such Board of Directors was constituted
immediately prior to the transaction giving rise to such Change of Control, the
Company may redeem the Securities, in whole but not in part, at a redemption
price equal to the principal amount thereof plus the Applicable Premium plus
accrued and unpaid interest, if any, to the date of redemption. Notice of
redemption of the Securities pursuant to this paragraph shall be mailed to
holders of the Securities not more than 30 days following the occurrence of a
Change of Control. The Company may not redeem Securities pursuant to this
paragraph if it has made an offer to repurchase the Securities in accordance
with the Indenture with respect to such Change of Control.
<PAGE>
-6-
"Applicable Premium" means, with respect to a Security, the
greater of (i) 4.313% of the then outstanding principal amount of such Security
and (ii)(a) the present value of all remaining required interest and principal
payments due on such Security and all premium payments relating thereto assuming
a redemption date of December 1, 2003, computed using a discount rate equal to
the Treasury Rate plus 75 basis points minus (b) the then outstanding principal
amount of such Security minus (c) accrued interest required to be paid on the
redemption date. The Applicable Premium will be stated in an Officers'
Certificate, on which the Trustee will be able to rely conclusively.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least two business days prior
to the date fixed for redemption (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining term to December 1, 2003; PROVIDED, HOWEVER, that if
the then remaining term to December 1, 2003 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the then remaining term to December 1, 2003 is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
6. NOTICE OF REDEMPTION. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the redemption date to
each holder of Securities to be redeemed at his registered address. On and after
the Redemption Date, unless the Company defaults in making the redemption
payment, interest ceases to accrue on Securities or portions thereof called for
redemption.
7. OFFERS TO PURCHASE. Sections 4.12 and 4.15 of the
Indenture provide that after an Asset Sale, or upon the occurrence of a Change
of Control, and subject to further limitations contained therein, the Company
shall make an offer to purchase certain amounts of Securities in accordance with
the procedures set forth in the Indenture.
<PAGE>
-7-
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are
in registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. A Holder may transfer or exchange Securities in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay to it any
taxes and fees required by law or permitted by the Indenture. The Registrar need
not transfer or exchange any Security or portion of a Security selected for
redemption, or transfer or exchange any Securities for a period of 15 days
before a selection of Securities to be redeemed.
9. PERSONS DEEMED OWNERS. The registered holder of a
Security may be treated as the owner of it for all purposes.
10. UNCLAIMED MONEY. If money for the payment of
principal or interest remains unclaimed for two years, the Trustee or Paying
Agent will pay the money back to the Company at its request. After that, Holders
entitled to the money must look to the Company for payment as general creditors
unless an "abandoned property" law designates another Person.
11. AMENDMENT, SUPPLEMENT, WAIVER. The Company and the
Trustee may, without the consent of the holders of any outstanding Securities,
amend, waive or supplement the Indenture or the Securities for certain specified
purposes, including, among other things, curing ambiguities, defects or
inconsistencies, maintaining the qualification of the Indenture under the Trust
Indenture Act of 1939 or making any other change that does not adversely affect
the rights of any Holder. Other amendments and modifications of the Indenture or
the Securities may be made by the Company and the Trustee with the consent of
the Holders of not less than a majority in aggregate principal amount of the
outstanding Securities, subject to certain exceptions requiring the consent of
the Holders of the particular Securities (and, in certain cases, holders of
Designated Senior Indebtedness) to be affected.
12. SUCCESSOR CORPORATION. When a successor corporation
assumes all the obligations of its predecessor under the Securities and the
Indenture and the transaction complies with the terms of Article V of the
Indenture, the predecessor corporation will, subject to certain exceptions, be
released from those obligations.
13. DEFAULTS AND REMEDIES. Events of Default include:
default in payment of interest on any Security for 30 days; default in payment
of principal of or premium on the Se-
<PAGE>
-8-
curities at maturity, or upon acceleration, redemption or otherwise; failure by
the Company and its Subsidiaries for 45 days after written notice to it from the
Trustee or Holders of at least 25% in principal amount of the then outstanding
Securities, to comply with any of the other agreements or covenants in or
provisions of the Indenture or the Securities; certain defaults under other
Indebtedness; certain final judgments that remain undischarged for 60 days after
being entered; and certain events of bankruptcy or insolvency with respect to
the Company and its Significant Restricted Subsidiaries. If an Event of Default
occurs and is continuing (and has not been waived in accordance with the
provisions of the Indenture), the Trustee or the Holders of at least 25% in
aggregate principal amount of the then outstanding Securities may declare all
the Securities to be immediately due and payable for an amount equal to 100% of
the principal amount of the Securities plus accrued interest to the date of
payment, except that in the case of an Event of Default arising from certain
events of bankruptcy or insolvency, all outstanding Securities become due and
payable immediately without further action or notice, subject to the rights of
holders of Senior Indebtedness. Holders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders notice of any continuing Default
or Event of Default (except a Default or an Event of Default in payment of
principal, premium, if any, or interest) if and so long as a committee of its
Trust Officers determines in good faith that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to the
Trustee.
14. RESTRICTIVE COVENANTS. The Indenture imposes certain
limitations on the ability of the Company and its Subsidiaries to, among other
things, pay dividends and make distributions with respect to or repurchase or
otherwise acquire or retire for value any of their Equity Interests, make
certain Investments, incur additional Indebtedness, enter into transactions with
Affiliates, incur Liens, sell assets, merge or consolidate with any other Person
and sell, lease, transfer or otherwise dispose of substantially all of their
properties or assets. The limitations are subject to a number of important
qualifications and exceptions. The Company must annually report to the Trustee
on compliance with such limitations.
<PAGE>
-9-
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not Trustee.
16. NO RECOURSE AGAINST OTHERS. No past, present or
future director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder by accepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Securities.
17. DISCHARGE OF INDENTURE; DEFEASANCE. The Indenture
contains provisions for defeasance at any time, upon compliance with certain
conditions set forth therein, of (i) the entire indebtedness of this Security or
(ii) certain restrictive covenants and Events of Default with respect to this
Security.
18. AUTHENTICATION. This Security shall not be valid
until the Trustee signs the certificate of authentication on the other side of
this Security.
19. ABBREVIATIONS. Customary abbreviations may be used in
the name of a Securityholder or an assignee, such as: TEN COM (= tenants in
common), TENANT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
20. SUBORDINATION. The Securities are subordinated to all
Senior Indebtedness, which includes any Indebtedness permitted to be incurred
pursuant to the terms of the "Limitation on Additional Indebtedness" covenant in
the Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Securities. Notwithstanding anything to the contrary, Senior
Indebtedness shall not include (i) Indebtedness that is expressly subordinated
or junior in right of payment to any Indebtedness of the Company, (ii)
Indebtedness that is represented by Redeemable Stock, (iii) any liability for
federal, state, or local taxes owed or owing by the Company, (iv) Indebtedness
of the Company to any Subsidiary of the Company, (v) trade payables and (vi)
Indebtedness that
<PAGE>
-10-
is incurred in violation of the Indenture. To the extent provided in the
Indenture, Senior Indebtedness must be paid before the Securities may be paid.
The Company agrees, and each Holder by accepting a Security consents and agrees,
to the subordination provided in the Indenture and authorizes the Trustee to
give it effect.
21. REGISTRATION RIGHTS. Pursuant to the Registration
Rights Agreement, the Company will be obligated to consummate an exchange offer
pursuant to which the Holder of this Security shall have the right to exchange
this Security for Securities of a separate series issued under the Indenture (or
a trust indenture substantially identical to the Indenture in accordance with
the terms of the Registration Rights Agreement) which have been registered under
the Securities Act, in like principal amount and having identical terms as this
Security. The Holders of the Securities shall be entitled to receive certain
additional interest payments in the event such exchange offer is not consummated
and upon certain other conditions, all pursuant to and in accordance with the
terms of the Registration Rights Agreement.
22. GOVERNING LAW. THE INDENTURE AND THIS SECURITY SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
The provisions of this Security are expressly made subject to
the more detailed provisions set forth in the Indenture and the Registration
Rights Agreement, which shall for all purposes be controlling. The Company will
furnish to any Holder upon written request and without charge a copy of the
Indenture. Requests may be made to:
BIG FLOWER PRESS HOLDINGS, INC.
3 East 54th Street
17th Floor
New York, New York 10022
Attention: Secretary
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the form below and have
your signature guaranteed:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date: Your signature:
-------------- ---------------------------------------------
(Sign exactly as your name appears on the
other side of this Security)
Signature Guarantee:
------------------------------------------------------------
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company
pursuant to Section 4.12 or 4.15 of the Indenture, check the Box: [ ]
If you wish to have a portion of this Security purchased by
the Company pursuant to Section 4.12 or 4.15 of the Indenture, state the amount:
$
=============
Date: Your signature:
-------------- ---------------------------------------------
(Sign exactly as your name appears on the
other side of this Security)
Signature Guarantee:
------------------------------------------------------------
<PAGE>
[FORM OF SERIES B SECURITIES]
Exhibit A-2
No. $
BIG FLOWER PRESS HOLDINGS, INC.
8 5/8% SENIOR SUBORDINATED NOTE DUE 2008
BIG FLOWER PRESS HOLDINGS, INC. promises to pay to
or registered assigns the principal sum of
Dollars on December 1, 2008.
Interest Payment Dates: January 1 and July 1
Record Dates: June 15 and December 15
BIG FLOWER PRESS HOLDINGS, INC.,
as Issuer
By:
------------------------------------
Authorized Signature
By:
------------------------------------
Authorized Signature
Dated:
CERTIFICATE OF AUTHENTICATION
This is one of the 8 5/8% Senior Subordinated Notes due 2008
referred to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:
------------------------------------
Authorized Signature
<PAGE>
-2-
(REVERSE OF SECURITY)
8 5/8% SENIOR SUBORDINATED NOTE DUE 2008
1. INTEREST. BIG FLOWER PRESS HOLDINGS, INC., a Delaware
corporation (the "Company", which term shall include any successor thereto in
accordance with the Indenture), promises to pay, until the principal hereof is
paid or made available for payment, interest (including any Accrued Bankruptcy
Interest) on the principal amount set forth on the reverse side hereof at a rate
of 8 5/8% PER ANNUM. Interest on the Securities will accrue from and including
the most recent date to which interest has been paid or, if no interest has been
paid, from and including the date of issuance of such Securities through but
excluding the date on which interest is paid. Interest shall be payable in
arrears on January 1 and July 1 (each an "Interest Payment Date"), commencing
July 1, 1999. Interest will be computed on the basis of a 360-day year of twelve
full 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the
Securities (except defaulted interest) to the Persons who are registered Holders
of Securities at the close of business on the June 15 and December 15
immediately preceding the Interest Payment Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will pay
principal, premium, if any, and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts. At
the Company's option, interest may be paid by check mailed to the registered
address of the Holder of this Security.
3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank
and Trust Company (the "Trustee") will act as Paying Agent and Registrar. The
Company may change any Paying Agent, Registrar or co-Registrar without notice.
4. INDENTURE. The Company issued the Securities under an
Indenture dated as of December 9, 1998 (the "Indenture") between the Company and
the Trustee. This Security is one of an issue of Securities of the Company
issued under the Indenture. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) as amended from time to
time. The Securities are subject to all such terms, and Securityholders are
referred to the
<PAGE>
-3-
Indenture and such Act for a statement of them. Capitalized terms used herein
and not otherwise defined have the meanings set forth in the Indenture. The
Securities are general unsecured obligations of the Company limited in aggregate
principal amount to $350,000,000.
5. OPTIONAL REDEMPTION. The Company, at its option, may redeem
all or any of the Securities, in whole or in part, at any time on or after
December 1, 2003 at the redemption prices (expressed in percentages of principal
amount) set forth below plus accrued and unpaid interest thereon to the
Redemption Date, if redeemed during the 12-month period beginning of the years
indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003.............................................104.313%
2004.............................................102.875%
2005.............................................101.438%
2006 and thereafter..............................100.000%
</TABLE>
In addition, at any time prior to December 1, 2001, the
Company may redeem up to 35% of the principal amount of the Securities
originally issued with the net proceeds from issuances of Equity Interests of
the Company (other than Redeemable Stock) at a redemption price equal to
108.625% of the principal thereof, plus accrued and unpaid interest to the
Redemption Date; PROVIDED that at least 65% of the aggregate principal amount of
the Notes issued under the Indenture shall remain outstanding after each such
redemption. Any such redemption shall occur on or prior to 180 days after the
receipt of the proceeds of such issuances of Equity Interests.
In addition, at any time prior to December 1, 2003, upon the
occurrence of a Change of Control that has been approved by a majority of the
Board of Directors of the Company as such Board of Directors was constituted
immediately prior to the transaction giving rise to such Change of Control, the
Company may redeem the Securities, in whole but not in part, at a redemption
price equal to the principal amount thereof plus the Applicable Premium plus
accrued and unpaid interest, if any, to the date of redemption. Notice of
redemption of the Securities pursuant to this paragraph shall be mailed to
holders of the Securities not more than 30 days following the occurrence of a
Change of Control. The Company may not redeem Securities pursuant to this
paragraph if it has made an offer to repurchase the Securities in accordance
with the Indenture with respect to such Change of Control.
<PAGE>
-4-
"Applicable Premium" means, with respect to a Security, the
greater of (i) 4.313% of the then outstanding principal amount of such Security
and (ii)(a) the present value of all remaining required interest and principal
payments due on such Security and all premium payments relating thereto assuming
a redemption date of December 1, 2003, computed using a discount rate equal to
the Treasury Rate plus 75 basis points minus (b) the then outstanding principal
amount of such Security minus (c) accrued interest required to be paid on the
redemption date. The Applicable Premium will be stated in an Officers'
Certificate, on which the Trustee will be able to rely conclusively.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15(519) which has become publicly available at least two business days prior
to the date fixed for redemption (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining term to December 1, 2003; PROVIDED, HOWEVER, that if
the then remaining term to December 1, 2003 is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given, except
that if the then remaining term to December 1, 2003 is less than one year, the
weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed
at least 30 days but not more than 60 days before the redemption date to each
holder of Securities to be redeemed at his registered address. On and after the
Redemption Date, unless the Company defaults in making the redemption payment,
interest ceases to accrue on Securities or portions thereof called for
redemption.
7. OFFERS TO PURCHASE. Sections 4.12 and 4.15 of the Indenture
provide that after an Asset Sale, or upon the occurrence of a Change of Control,
and subject to further limitations contained therein, the Company shall make an
offer to purchase certain amounts of Securities in accordance with the
procedures set forth in the Indenture.
<PAGE>
-5-
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Securities are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. A Holder may transfer or exchange Securities in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay to it any
taxes and fees required by law or permitted by the Indenture. The Registrar need
not transfer or exchange any Security or portion of a Security selected for
redemption, or transfer or exchange any Securities for a period of 15 days
before a selection of Securities to be redeemed.
9. PERSONS DEEMED OWNERS. The registered holder of a Security
may be treated as the owner of it for all purposes.
10. UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee or Paying Agent will pay
the money back to the Company at its request. After that, Holders entitled to
the money must look to the Company for payment as general creditors unless an
"abandoned property" law designates another Person.
11. AMENDMENT, SUPPLEMENT, WAIVER. The Company and the Trustee
may, without the consent of the holders of any outstanding Securities, amend,
waive or supplement the Indenture or the Securities for certain specified
purposes, including, among other things, curing ambiguities, defects or
inconsistencies, maintaining the qualification of the Indenture under the Trust
Indenture Act of 1939 or making any other change that does not adversely affect
the rights of any Holder. Other amendments and modifications of the Indenture or
the Securities may be made by the Company and the Trustee with the consent of
the Holders of not less than a majority in aggregate principal amount of the
outstanding Securities, subject to certain exceptions requiring the consent of
the Holders of the particular Securities (and, in certain cases, holders of
Designated Senior Indebtedness) to be affected.
12. SUCCESSOR CORPORATION. When a successor corporation
assumes all the obligations of its predecessor under the Securities and the
Indenture and the transaction complies with the terms of Article V of the
Indenture, the predecessor corporation will, subject to certain exceptions, be
released from those obligations.
13. DEFAULTS AND REMEDIES. Events of Default include: default
in payment of interest on any Security for 30 days; default in payment of
principal of or premium on the Se-
<PAGE>
-6-
curities at maturity, or upon acceleration, redemption or otherwise; failure by
the Company or its Subsidiaries for 45 days after written notice to it from the
Trustee or Holders of at least 25% in principal amount of the then outstanding
Securities, to comply with any of the other agreements or covenants in or
provisions of the Indenture or the Securities; certain defaults under other
Indebtedness; certain final judgments that remain undischarged for 60 days after
being entered; and certain events of bankruptcy or insolvency with respect to
the Company and its Significant Restricted Subsidiaries. If an Event of Default
occurs and is continuing (and has not been waived in accordance with the
provisions of the Indenture), the Trustee or the Holders of at least 25% in
aggregate principal amount of the then outstanding Securities may declare all
the Securities to be immediately due and payable for an amount equal to 100% of
the principal amount of the Securities plus accrued interest to the date of
payment, except that in the case of an Event of Default arising from certain
events of bankruptcy or insolvency, all outstanding Securities become due and
payable immediately without further action or notice, subject to the rights of
holders of Senior Indebtedness. Holders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders notice of any continuing Default
or Event of Default (except a Default or an Event of Default in payment of
principal, premium, if any, or interest) if and so long as a committee of its
Trust Officers determines in good faith that withholding notice is in their
interests. The Company must furnish an annual compliance certificate to the
Trustee.
14. RESTRICTIVE COVENANTS. The Indenture imposes certain
limitations on the ability of the Company and its Subsidiaries to, among other
things, pay dividends and make distributions with respect to or repurchase or
otherwise acquire or retire for value any of their Equity Interests, make
certain Investments, incur additional Indebtedness, enter into transactions with
Affiliates, incur Liens, sell assets, merge or consolidate with any other Person
and sell, lease, transfer or otherwise dispose of substantially all of their
properties or assets. The limitations are subject to a number of important
qualifications and exceptions. The Company must annually report to the Trustee
on compliance with such limitations.
<PAGE>
-7-
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not Trustee.
16. NO RECOURSE AGAINST OTHERS. No past, present or future
director, officer, employee, incorporator or stockholder of the Company, as
such, shall have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder by accepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Securities.
17. DISCHARGE OF INDENTURE; DEFEASANCE. The Indenture contains
provisions for defeasance at any time, upon compliance with certain conditions
set forth therein, of (i) the entire indebtedness of this Security or (ii)
certain restrictive covenants and Events of Default with respect to this
Security.
18. AUTHENTICATION. This Security shall not be valid until the
Trustee signs the certificate of authentication on the other side of this
Security.
19. ABBREVIATIONS. Customary abbreviations may be used in the
name of a Securityholder or an assignee, such as: TEN COM (= tenants in common),
TENANT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
20. SUBORDINATION. The Securities are subordinated to all
Senior Indebtedness, which includes any Indebtedness permitted to be incurred
pursuant to the terms of the "Limitation on Additional Indebtedness" covenant in
the Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Securities. Notwithstanding anything to the contrary, Senior
Indebtedness shall not include (i) Indebtedness that is expressly subordinated
or junior in right of payment to any Indebtedness of the Company, (ii)
Indebtedness that is represented by Redeemable Stock, (iii) any liability for
federal, state, or local taxes owed or owing by the Company, (iv) Indebtedness
of the Company to any Subsidiary of the Company, (v) trade payables and (vi)
Indebtedness that
<PAGE>
-8-
is incurred in violation of the Indenture. To the extent provided in the
Indenture, Senior Indebtedness must be paid before the Securities may be paid.
The Company agrees, and each Holder by accepting a Security consents and agrees,
to the subordination provided in the Indenture and authorizes the Trustee to
give it effect.
21. GOVERNING LAW. THE INDENTURE AND THIS SECURITY SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
The provisions of this Security are expressly made subject to
the more detailed provisions set forth in the Indenture, which shall for all
purposes be controlling. The Company will furnish to any Holder upon written
request and without charge a copy of the Indenture. Requests may be made to:
BIG FLOWER PRESS HOLDINGS, INC.
3 East 54th Street
17th Floor
New York, New York 10022
Attention: Secretary
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the
form below and have your signature guaranteed:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
---------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
- --------------------------------------------------------------------------------
Date: Your signature:
-------------- ---------------------------------------------
(Sign exactly as your name appears on the
other side of this Security)
Signature Guarantee:
------------------------------------------------------------
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company
pursuant to Section 4.12 or 4.15 of the Indenture, check the Box: [ ]
If you wish to have a portion of this Security purchased by
the Company pursuant to Section 4.12 or 4.15 of the Indenture, state the amount:
$
=============
Date: Your signature:
-------------- ---------------------------------------------
(Sign exactly as your name appears on the
other side of this Security)
Signature Guarantee:
------------------------------------------------------------
<PAGE>
EXHIBIT B
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Security authenticated and delivered hereunder
shall bear a legend (which would be in addition to any other legends required in
the case of a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS
SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A
PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE
DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY
BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, DATED AS OF DECEMBER 9, 1998, ENTERED INTO BY THE COMPANY
AND THE TRUSTEE NAMED THEREIN.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE>
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
TRANSFERS TO NON-QIB ACCREDITED INVESTORS
-----------, ----
State Street Bank and Trust
Company
Goodwin Square, 23rd Floor
225 Asylum Street
Hartford, CT 06103
Attention: Corporate Trust Administration Department
Re: Big Flower Press Holdings, Inc. (the
"Company") 8 5/8% Senior Subordinated
Notes Due 2008 (The "Securities")
--------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of $_______ aggregate
principal amount of the Securities, we confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), dated December 2, 1998, relating to the Securities and
such other information as we deem necessary in order to make our investment
decision. We acknowledge that we have read and agreed to the matters stated in
the section entitled "Transfer Restrictions" of the Offering Memorandum,
including the restrictions on duplication and circulation of the Offering
Memorandum.
2. We understand that any subsequent transfer of the
Securities is subject to certain restrictions and conditions set forth in the
Indenture dated as of December 9, 1998 relating to the Securities (the
"Indenture") and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Securities except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act").
3. We understand that the offer and sale of the Securities
have not been registered under the Securities Act, and that the Securities may
not be offered or sold except as permitted in the following sentence. We agree,
on our own behalf
<PAGE>
-2-
and on behalf of any accounts for which we are acting as hereinafter stated,
that if we should sell or otherwise transfer any Securities prior to the date
which is two years after the original issuance of the Securities, we will do so
only (i) to the Company, (ii) inside the United States in accordance with Rule
144A under the Securities Act to a person whom we reasonably believe is a
"qualified institutional buyer" (as defined in Rule 144A under the Securities
Act), (iii) inside the United States to an accredited investor (as defined
below) that, prior to such transfer, furnishes (or has furnished on its behalf
by a U.S. broker-dealer) to you a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Securities, (iv) outside the United States in an offshore transaction in
accordance with Rule 904 of Regulation S under the Securities Act, (v) pursuant
to the exemption from registration provided by Rule 144 under the Securities Act
(if available), or (vi) pursuant to an effective registration statement under
the Securities Act, and we further agree to provide to any Person purchasing any
of the Securities from us a notice advising such purchaser that resales of the
Securities are restricted as stated herein.
4. We understand that, on any proposed resale of any
Securities, we will be required to furnish to you and the Company such
certification, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities purchased by us will
bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)(an
"accredited investor") and have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of our
investment in the Securities, and we and any accounts for which we are acting
are each able to bear the economic risk of our or their investment, as the case
may be.
6. We are acquiring the Securities purchased by us for our
account or for one or more accounts (each of which is an accredited investor) as
to each of which we exercise sole investment discretion.
<PAGE>
-3-
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
-------------------------------------
Authorized Signature
<PAGE>
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
PURSUANT TO REGULATION S
--------------, ----
State Street Bank and Trust
Company
Goodwin Square, 23rd Floor
225 Asylum Street
Hartford, CT 06103
Attention: Corporate Trust Administration
Re: Big Flower Press Holdings, Inc. (the
"Company") 8 5/8% Senior Subordinated
Notes Due 2008 (The "Securities")
-------------------------------------
Dear Sirs:
In connection with our proposed sale of $___________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a Person in
the United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any Person acting on
our behalf reasonably believed that the transferee was outside the
United States, or (b) the transaction was executed in, on or through
the facilities of a designated off-shore securities market and neither
we nor any Person acting on our behalf knows that the transaction has
been pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable;
<PAGE>
-2-
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer
restrictions applicable to the Securities.
You and the Company are entitled to rely upon this letter and
are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate have
the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferee]
By:
-------------------------------------
Authorized Signature
<PAGE>
Exhibit 4.9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated as of December 9, 1998
By and Among
BIG FLOWER PRESS HOLDINGS, INC.
and
BT ALEX. BROWN INCORPORATED,
CHASE SECURITIES INC. and
GOLDMAN, SACHS & CO.
as Initial Purchasers
8 5/8% Senior Subordinated Notes due 2008
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions................................................................1
2. Exchange Offer.............................................................5
3. Shelf Registration.........................................................9
4. Additional Interest.......................................................11
5. Registration Procedures...................................................13
6. Registration Expenses.....................................................23
7. Indemnification...........................................................24
8. Rules 144 and 144A........................................................29
9. Underwritten Registrations................................................29
10. Miscellaneous.............................................................30
(a) No Inconsistent Agreements...........................................30
(b) Adjustments Affecting Registrable Notes..............................30
(c) Amendments and Waivers...............................................30
(d) Notices..............................................................31
(e) Successors and Assigns...............................................32
(f) Counterparts.........................................................32
(g) Headings.............................................................32
(h) GOVERNING LAW........................................................32
(i) Severability.........................................................32
(j) Securities Held by the Company or its Affiliates.....................33
(k) Third Party Beneficiaries............................................33
-i-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is dated
as of December 9, 1998, by and among BIG FLOWER PRESS HOLDINGS, INC., a Delaware
corporation (the "Company"), and BT ALEX. BROWN INCORPORATED, CHASE SECURITIES
INC. and GOLDMAN, SACHS & CO. (collectively, the "INITIAL PURCHASERS").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of December 2, 1998, by and among the Company and the
Initial Purchasers (the "PURCHASE AGREEMENT"), which provides for the sale by
the Company to the Initial Purchasers of $250,000,000 aggregate principal amount
of its 8 5/8% Senior Subordinated Notes due 2008 (the "NOTES"). In order to
induce the Initial Purchasers to enter into the Purchase Agreement, the Company
has agreed to provide the registration rights set forth in this Agreement for
the benefit of the Initial Purchasers and any subsequent holder or holders of
the Notes. The execution and delivery of this Agreement is a condition to the
Initial Purchasers' obligation to purchase the Notes under the Purchase
Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
ADDITIONAL INTEREST: See Section 4(a) hereof.
ADVICE: See the last paragraph of Section 5 hereof.
AGREEMENT: See the introductory paragraphs hereto.
APPLICABLE PERIOD: See Section 2(b) hereof.
COMPANY: See the introductory paragraphs hereto.
EFFECTIVENESS DATE: With respect to (i) the Exchange Offer
Registration Statement, the 120th day after the Issue Date and (ii) any Shelf
Registration Statement, the 60th day after the Filing Date with respect thereto.
EFFECTIVENESS PERIOD: See Section 3(a) hereof.
EVENT DATE: See Section 4(b) hereof.
<PAGE>
-2-
EXCHANGE ACT: The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
EXCHANGE NOTES: See Section 2(a) hereof.
EXCHANGE OFFER: See Section 2(a) hereof.
EXCHANGE OFFER REGISTRATION STATEMENT: See Section 2(a)
hereof.
FILING DATE: (A) If no Registration Statement has been filed
by the Company pursuant to this Agreement, the 60th day after the Issue Date;
and (B) in any other case (which may be applicable notwithstanding the
consummation of the Exchange Offer), the 30th day after the delivery of a Shelf
Notice.
HOLDER: Any holder of a Registrable Note or Registrable
Notes.
INDEMNIFIED PERSON: See Section 7(c) hereof.
INDEMNIFYING PERSON: See Section 7(c) hereof.
INDENTURE: The Indenture, dated as of December 9, 1998,
between the Company and State Street Bank and Trust Company, as Trustee
thereunder, pursuant to which the Notes are issued, as amended or supplemented
from time to time in accordance with the terms thereof.
INITIAL PURCHASERS: See the introductory paragraphs hereto.
INITIAL SHELF REGISTRATION: See Section 3(a) hereof.
INSPECTORS: See Section 5(n) hereof.
ISSUE DATE: December 9, 1998, the date of original issuance
of the Notes.
NASD: See Section 5(s) hereof.
NOTES: See the introductory paragraphs hereto.
PARTICIPANT: See Section 7(a) hereof.
PARTICIPATING BROKER-DEALER: See Section 2(b) hereof.
<PAGE>
-3-
PERSON: An individual, trustee, corporation, partnership,
joint stock company, trust, unincorporated association, union, business
association, firm or other legal entity.
PRIVATE EXCHANGE: See Section 2(b) hereof.
PRIVATE EXCHANGE NOTES: See Section 2(b) hereof.
PROSPECTUS: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A under the Securities Act and any term sheet filed pursuant to Rule 434
under the Securities Act), as amended or supplemented by any prospectus
supplement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
PURCHASE AGREEMENT: See the introductory paragraphs hereto.
RECORDS: See Section 5(n) hereof.
REGISTRABLE NOTES: Each Note upon its original issuance and at
all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv)
hereof is applicable upon original issuance and at all times subsequent thereto
and each Private Exchange Note upon original issuance thereof and at all times
subsequent thereto, until (i) a Registration Statement (other than, with respect
to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the
Exchange Offer Registration Statement) covering such Note, Exchange Note or
Private Exchange Note has been declared effective by the SEC and such Note,
Exchange Note or such Private Exchange Note, as the case may be, has been
disposed of in accordance with such effective Registration Statement, (ii) such
Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or
Exchange Notes that may be resold without restriction under federal securities
laws, (iii) such Note, Exchange Note or Private Exchange Note, as the case may
be, ceases to be outstanding for purposes of the Indenture or (iv) such Note,
Exchange Note or Private Exchange Note, as the case may be, may be resold
without restriction pursuant to Rule 144 under the Securities Act.
REGISTRATION STATEMENT: Any registration statement of the
Company that covers any of the Notes, the Exchange Notes
<PAGE>
-4-
or the Private Exchange Notes filed with the SEC under the Securities Act,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
RULE 144: Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC providing for offers and sales
of securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of the Company of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
RULE 144A: Rule 144A promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule (other than Rule
144) or regulation hereafter adopted by the SEC.
RULE 415: Rule 415 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
SHELF NOTICE: See Section 2(b) hereof.
SHELF REGISTRATION: See Section 3(b) hereof.
SHELF REGISTRATION STATEMENT: Any Registration Statement
relating to a Shelf Registration.
SUBSEQUENT SHELF REGISTRATION: See Section 3(b) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
TRUSTEE: The trustee under the Indenture.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
<PAGE>
-5-
2. EXCHANGE OFFER
(a) To the extent not prohibited by applicable laws, rules,
regulations or applicable interpretations of the staff of the SEC, the Company
shall file with the SEC, no later than the Filing Date, a Registration Statement
(the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate registration
form with respect to a registered offer (the "EXCHANGE OFFER") to exchange any
and all of the Registrable Notes for the same aggregate principal amount of
notes (the "EXCHANGE NOTES") of the Company that are identical in all material
respects to the Notes except that the Exchange Notes shall contain no
restrictive legend thereon. The Exchange Offer shall comply with all applicable
tender offer rules and regulations under the Exchange Act and other applicable
laws. The Company shall use its reasonable best efforts to (x) cause the
Exchange Offer Registration Statement to be declared effective under the
Securities Act on or before the Effectiveness Date; (y) keep the Exchange Offer
open for not less than 20 business days (or longer if required by applicable
law) after the date that notice of the Exchange Offer is mailed to Holders; and
(z) consummate the Exchange Offer on or prior to the 45th day following the date
on which the Exchange Offer Registration Statement is declared effective by the
SEC. If, after the Exchange Offer Registration Statement is initially declared
effective by the SEC, the Exchange Offer or the issuance of the Exchange Notes
thereunder is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, the Exchange
Offer Registration Statement shall be deemed not to have become effective for
purposes of this Agreement.
Each Holder that participates in the Exchange Offer will be
required to represent that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, that at the time of the
consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any Person to participate in the distribution of the Exchange
Notes in violation of the provisions of the Securities Act, and that such Holder
is not an affiliate of the Company within the meaning of the Securities Act.
Upon consummation of the Exchange Offer in accordance with
this Section 2, the provisions of this Agreement shall continue to apply, solely
with respect to Registrable Notes that are Private Exchange Notes, Exchange
Notes as to which Section 2(c)(iv) is applicable and Exchange Notes held by
Participating Broker-Dealers, and the Company shall have no fur-
<PAGE>
-6-
ther obligation to register Registrable Notes (other than Private Exchange Notes
and other than in respect of any Exchange Notes as to which clause 2(c)(iv)
hereof applies) pursuant to this Agreement. No securities other than the
Exchange Notes shall be included in the Exchange Offer Registration Statement.
(b) The Company shall include within the Prospectus contained
in the Exchange Offer Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Holders, which shall contain such
information as the Initial Purchasers shall reasonably request.
The Company shall use its reasonable best efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as is necessary to comply with applicable
law in connection with any resale of the Exchange Notes covered thereby;
PROVIDED, HOWEVER, that such period shall not exceed 180 days after such
Exchange Offer Registration Statement is declared effective (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"APPLICABLE PERIOD").
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Notes acquired by them that have, or that are reasonably
likely to be determined to have, the status of an unsold allotment in an initial
distribution, or any Holder is not entitled to participate in the Exchange
Offer, the Company upon the request of any such Holder shall simultaneously with
the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to
any such Holder, in exchange (the "PRIVATE EXCHANGE") for such Notes held by any
such Holder, the same principal amount of notes (the "PRIVATE EXCHANGE NOTES")
of the Company that are identical in all material respects to the Exchange Notes
(except that they may bear a customary legend with respect to restrictions on
transfer). The Private Exchange Notes shall be issued pursuant to the same
indenture as the Exchange Notes. The Company shall use its reasonable best
efforts to cause the Private Exchange Notes, subsequent to the sale thereof
pursuant to an effective Shelf Registration (as defined in Section 3(b) hereof)
and removal of any legends restricting the transfer of such Private Exchange
Notes, to bear the same CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes
will accrue from (A) the later of (i) the last in-
<PAGE>
-7-
terest payment date on which interest was paid on the Notes surrendered in
exchange therefor or (ii) if the Notes are surrendered for exchange on a date in
a period which includes the record date for an interest payment date to occur on
or after the date of such exchange and as to which interest will be paid, the
date of such interest payment or (B) if no interest has been paid on the Notes,
from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(1) mail, or cause to be mailed, to each Holder entitled to
participate in the Exchange Offer a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(2) keep the Exchange Offer open for not less than 20 business
days after the date that notice of the Exchange Offer is mailed to
Holders (or longer if required by applicable law);
(3) utilize the services of a depositary for the Exchange
Offer with an address in the Borough of Manhattan, The City of New
York;
(4) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York time, on the last business day
on which the Exchange Offer shall remain open; and
(5) otherwise comply in all material respects with all
applicable laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer
and the Private Exchange, if any, the Company shall:
(1) accept for exchange all Registrable Notes validly tendered
and not validly withdrawn pursuant to the Exchange Offer and the
Private Exchange, if any;
(2) deliver to the Trustee for cancellation all Registrable
Notes so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver to each
Holder of Notes, Exchange Notes or Private Exchange
<PAGE>
-8-
Notes, as the case may be, equal in principal amount to the Notes of
such Holder so accepted for exchange.
The Exchange Offer and the Private Exchange shall not be
subject to any conditions, other than that (i) the Exchange Offer or Private
Exchange, as the case may be, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) no action or proceeding shall have
been instituted or threatened in any court or by any governmental agency which
would be reasonably likely to materially impair the ability of the Company to
proceed with the Exchange Offer or the Private Exchange, and no material adverse
development shall have occurred in any existing action or proceeding with
respect to the Company and (iii) all governmental approvals shall have been
obtained, which approvals the Company deems necessary for the consummation of
the Exchange Offer or Private Exchange.
The Exchange Notes and the Private Exchange Notes shall be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture and which, in either case, has been qualified under
the TIA or is exempt from such qualification and shall provide that the Exchange
Notes shall not be subject to the transfer restrictions set forth in the
Indenture. The Indenture or such indenture shall provide that the Exchange
Notes, the Private Exchange Notes and the Notes shall vote and consent together
on all matters as one class and that none of the Exchange Notes, the Private
Exchange Notes or the Notes will have the right to vote or consent as a separate
class on any matter.
(c) If, (i) because of any change in law or in currently
prevailing interpretations of the staff of the SEC, the Company is not permitted
to effect the Exchange Offer, (ii) the Exchange Offer is not consummated within
180 days of the Issue Date, (iii) the Initial Purchasers or any holder of
Private Exchange Notes so requests in writing to the Company at any time after
the consummation of the Exchange Offer, or (iv) in the case of any Holder that
participates in the Exchange Offer, such Holder does not receive Exchange Notes
on the date of the exchange that may be sold without restriction under state and
federal securities laws (other than due solely to the status of such Holder as
an affiliate of the Company within the meaning of the Securities Act) and so
notifies the Company within 30 days after such Holder first becomes aware of
such restrictions, in the case of each of clauses (i) to and including (iv) of
this sentence, then the Company shall promptly deliver to the Holders and the
Trustee written notice thereof (the "SHELF
<PAGE>
-9-
NOTICE") and as promptly as possible shall file a Shelf Registration pursuant to
Section 3 hereof.
3. SHELF REGISTRATION
If at any time a Shelf Notice is delivered as contemplated by
Section 2(c) hereof, then:
(a) SHELF REGISTRATION. The Company shall as promptly as
possible file with the SEC a Registration Statement for an offering to be made
on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes
not permitted to be exchanged in the Exchange Offer in accordance with the terms
of this Agreement, Private Exchange Notes and Exchange Notes as to which Section
2(c)(iv) is applicable (the "INITIAL SHELF REGISTRATION"). The Company shall use
its reasonable best efforts to file with the SEC the Initial Shelf Registration
on or before the applicable Filing Date. The Initial Shelf Registration shall be
on Form S-1 or another appropriate form permitting registration of such
Registrable Notes for resale by Holders in the manner or manners designated by
them (including, without limitation, one or more underwritten offerings). The
Company shall not permit any securities other than the Registrable Notes to be
included in the Initial Shelf Registration or any Subsequent Shelf Registration
(as defined below).
The Company shall use its reasonable best efforts to cause the
Initial Shelf Registration to be declared effective under the Securities Act on
or prior to the Effectiveness Date and to keep the Initial Shelf Registration
continuously effective under the Securities Act until the date which is the
earlier of two years after the Issue Date (the "EFFECTIVENESS PERIOD"), or such
shorter period ending when all Registrable Notes covered by the Shelf
Registration have been sold in the manner set forth and as contemplated in the
Initial Shelf Registration or, if applicable, a Subsequent Shelf Registration;
PROVIDED, HOWEVER, that the Effectiveness Period in respect of the Initial Shelf
Registration shall be extended to the extent required to permit dealers to
comply with the applicable prospectus delivery requirements of Rule 174 under
the Securities Act and as otherwise provided herein and shall be subject to
reduction to the extent that the applicable provisions of Rule 144(k) are
amended or revised to reduce the two year holding period set forth therein.
No holder of Registrable Notes may include any of its
Registrable Notes in any Shelf Registration Statement pursuant to this Agreement
unless and until such holder furnishes to the
<PAGE>
-10-
Company in writing, within 15 business days after receipt of a request therefor,
such information as the Company may reasonably request for use in connection
with any Shelf Registration Statement or Prospectus or preliminary prospectus
included therein. No holder of Registrable Notes shall be entitled to Additional
Interest pursuant to Section 4 hereof unless and until such holder shall have
provided all such reasonably requested information. Each holder of Registrable
Notes as to which any Shelf Registration Statement is being effected agrees to
furnish promptly to the Company all information required to be disclosed in
order to make information previously furnished to the Company by such Holder not
materially misleading.
(b) SUBSEQUENT SHELF REGISTRATIONS. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale of all of the securities registered thereunder), the Company shall use its
reasonable best efforts to obtain the prompt withdrawal of any order suspending
the effectiveness thereof, and in any event shall within 30 days of such
cessation of effectiveness amend the Initial Shelf Registration in a manner to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional Shelf Registration Statement pursuant to Rule 415 covering all of
the Registrable Notes covered by and not sold under the Initial Shelf
Registration or an earlier Subsequent Shelf Registration (each, a "SUBSEQUENT
SHELF REGISTRATION"). If a Subsequent Shelf Registration is filed, the Company
shall use its reasonable best efforts to cause the Subsequent Shelf Registration
to be declared effective under the Securities Act as soon as practicable after
such filing and to keep such subsequent Shelf Registration continuously
effective for a period equal to the number of days in the Effectiveness Period
less the aggregate number of days during which the Initial Shelf Registration or
any Subsequent Shelf Registration was previously continuously effective. As used
herein the term "SHELF Registration" means the Initial Shelf Registration and
any Subsequent Shelf Registration.
(c) SUPPLEMENTS AND AMENDMENTS. The Company shall promptly
supplement and amend any Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement or by any underwriter
of such Registrable Notes.
<PAGE>
-11-
(d) WITHDRAWAL OF STOP ORDERS. If the Shelf Registration
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), the Company shall use its reasonable best efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof.
4. ADDITIONAL INTEREST
(a) The Company and the Initial Purchasers agree that the
Holders will suffer damages if the Company fails to fulfill its obligations
under Section 2 or Section 3 hereof and that it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, the Company
agrees to pay, as liquidated damages, additional interest on the Notes
("ADDITIONAL INTEREST") under the circumstances and to the extent set forth
below (each of which shall be given independent effect):
(i) if (A) neither the Exchange Offer Registration Statement
nor the Initial Shelf Registration has been filed on or prior to the
Filing Date applicable thereto (I.E., 60 days after the Issue Date) or
(B) notwithstanding that the Company has consummated or will consummate
the Exchange Offer, the Company is required to file a Shelf
Registration and such Shelf Registration is not filed on or prior to
the Filing Date applicable thereto, then, commencing on the day after
any such Filing Date, Additional Interest shall accrue on the principal
amount of the Notes at a rate of 0.50% per annum for the first 90 days
immediately following such applicable Filing Date, and such Additional
Interest rate shall increase by an additional 0.25% per annum at the
beginning of each subsequent 90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement
nor the Initial Shelf Registration is declared effective by the SEC on
or prior to the Effectiveness Date applicable thereto (I.E., 120 days
after the Issue Date) or (B) notwithstanding that the Company has
consummated or will consummate the Exchange Offer, the Company is
required to file a Shelf Registration and such Shelf Registration is
not declared effective by the SEC on or prior to the Effectiveness Date
applicable to such Shelf Registration, then, commencing on the day
after such Effectiveness Date, Additional Interest shall accrue on the
principal amount of the Notes at a rate of 0.50% per annum for the
first 90 days immediately following the day after such
<PAGE>
-12-
Effectiveness Date, and such Additional Interest rate shall increase by
an additional 0.25% per annum at the beginning of each subsequent
90-day period; or
(iii) if (A) the Company has not exchanged Exchange Notes for
all Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to the 45th day after the date on which the Exchange
Offer Registration Statement relating thereto was declared effective or
(B) if applicable, a Shelf Registration has been declared effective and
such Shelf Registration ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue on the
principal amount of the Notes at a rate of 0.50% per annum for the
first 90 days commencing on the (x) 46th day after such effective date,
in the case of (A) above, or (y) the day such Shelf Registration ceases
to be effective in the case of (B) above, and such Additional Interest
rate shall increase by an additional 0.25% per annum at the beginning
of each such subsequent 90-day period;
PROVIDED, HOWEVER, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate 1.0% per annum; PROVIDED, FURTHER, HOWEVER,
that (1) upon the filing of the applicable Exchange Offer Registration Statement
or the applicable Shelf Registration as required hereunder (in the case of
clause (i) above of this Section 4), (2) upon the effectiveness of the Exchange
Offer Registration Statement or the applicable Shelf Registration Statement as
required hereunder (in the case of clause (ii) of this Section 4), or (3) upon
the exchange of the Exchange Notes for all Notes tendered (in the case of clause
(iii)(A) of this Section 4), or upon the effectiveness of the applicable Shelf
Registration Statement which had ceased to remain effective (in the case of
(iii)(B) of this Section 4), Additional Interest on the Notes in respect of
which such events relate as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within one business
day after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "EVENT DATE"). Any amounts of
Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section
4 will be payable in cash semi-annually on each January 1 and July 1 (to the
holders of record on the December 15 and June 15 immediately preceding such
dates), commencing with the first such date occurring after any such Additional
Interest commences to
<PAGE>
-13-
accrue. The amount of Additional Interest will be determined by multiplying the
applicable Additional Interest rate by the principal amount of the Registrable
Notes, multiplied by a fraction, the numerator of which is the number of days
such Additional Interest rate was applicable during such period (determined on
the basis of a 360-day year comprised of twelve 30-day months and, in the case
of a partial month, the actual number of days elapsed), and the denominator of
which is 360.
5. REGISTRATION PROCEDURES
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof. The Company shall effect such registrations
to permit the sale of the securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Company hereunder the
Company shall:
(a) Prepare and file with the SEC prior to the applicable
Filing Date, a Registration Statement or Registration Statements as
prescribed by Sections 2 or 3 hereof, and use its reasonable best
efforts to cause each such Registration Statement to become effective
and remain effective as provided herein; PROVIDED, HOWEVER, that, if
(1) such filing is pursuant to Section 3 hereof or (2) a Prospectus
contained in the Exchange Offer Registration Statement filed pursuant
to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes
during the Applicable Period relating thereto, before filing any
Registration Statement or Prospectus or any amendments or supplements
thereto, the Company shall furnish to and afford the Holders of the
Registrable Notes covered by such Registration Statement or each such
Participating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any, a reasonable opportunity to review
copies of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto) proposed to
be filed (in each case at least five business days prior to such
filing, or such later date as is reasonable under the circumstances).
The Company shall not file any Registration Statement or Prospectus or
any amendments or supplements thereto if the Holders of a majority in
aggregate principal amount of the Registrable Notes covered by such
Registration Statement, their counsel, or the managing underwriters, if
any, shall reasonably object.
<PAGE>
-14-
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration Statement or
Exchange Offer Registration Statement, as the case may be, as may be
necessary to keep such Registration Statement continuously effective
for the Effectiveness Period or the Applicable Period or until
consummation of the Exchange Offer, as the case may be; cause the
related Prospectus to be supplemented by any Prospectus supplement
required by applicable law, and as so supplemented to be filed pursuant
to Rule 424 (or any similar provisions then in force) promulgated under
the Securities Act; and comply with the provisions of the Securities
Act and the Exchange Act applicable to it with respect to the
disposition of all securities covered by such Registration Statement as
so amended or in such Prospectus as so supplemented and with respect to
the subsequent resale of any securities being sold by a Participating
Broker-Dealer covered by any such Prospectus.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period relating thereto from whom the Company has received written
notice that it will be a Participating Broker-Dealer in the Exchange
Offer, notify the selling Holders of Registrable Notes, or each such
Participating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any, promptly (but in any event within two
business days), and confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective under the
Securities Act (including in such notice a written statement that any
Holder may, upon request, obtain, at the sole expense of the Company,
one conformed copy of such Registration Statement or post-effective
amendment including financial statements and schedules, documents
incorporated or deemed to be incorporated by reference therein and
exhibits), (ii) of the issuance by the SEC of any stop order suspending
the effectiveness of a Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time
when a prospectus is required by the Securities Act to be delivered in
connection with
<PAGE>
-15-
sales of the Registrable Notes or resales of Exchange Notes by
Participating Broker-Dealers the representations and warranties of
the Company contained in any agreement (including any underwriting
agreement) contemplated by Section 5(m) hereof cease to be true and
correct in all material respects, (iv) of the receipt by the Company
of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration
Statement or any of the Registrable Notes or the Exchange Notes to
be sold by any Participating Broker-Dealer for offer or sale in any
jurisdiction, or the initiation or threatening of any proceeding for
such purpose, (v) of the happening of any event, the existence of
any condition or any information becoming known that makes any
statement made in such Registration Statement or related Prospectus
or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making
of any changes in or amendments or supplements to such Registration
Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading, and (vi) of any of the Company's
determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, use its reasonable best efforts to prevent the issuance of any
order suspending the effectiveness of a Registration Statement or of
any order preventing or suspending the use of a Prospectus or
suspending the qualification (or exemption from qualification) of any
of the Registrable Notes or the Exchange Notes to be sold by any
Participating Broker-Dealer, for sale in any jurisdiction, and, if any
such order is issued, to use its best efforts to obtain the
<PAGE>
-16-
withdrawal of any such order at the earliest possible date.
(e) If a Shelf Registration is filed pursuant to Section 3 and
if requested by the managing underwriter or underwriters (if any), the
Holders of a majority in aggregate principal amount of the Registrable
Notes being sold in connection with an underwritten offering or any
Participating Broker-Dealer, (i) promptly as commercially practicable
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or underwriters (if any), such
Holders, any Participating Broker-Dealer or counsel for any of them
reasonably request to be included therein, (ii) make all required
filings of such prospectus supplement or such post-effective amendment
as soon as commercially practicable after the Company has received
notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment, and (iii) supplement or make
amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, furnish to each selling Holder of Registrable Notes and to each
such Participating Broker-Dealer who so requests and to counsel and
each managing underwriter, if any, at the sole expense of the Company,
one conformed copy of the Registration Statement or Registration
Statements and each post-effective amendment thereto, including
financial statements and schedules, and, if requested, all documents
incorporated or deemed to be incorporated therein by reference and all
exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, deliver to each selling Holder of Registrable Notes, or each
such Participating Broker-Dealer, as the case may be, their respective
counsel, and the underwriters, if any, at the sole expense of the
Company, as many copies of the Prospectus or Prospectuses (including
each form of pre-
<PAGE>
-17-
liminary prospectus) and each amendment or supplement thereto and
any documents incorporated by reference therein as such Persons may
reasonably request; and, subject to the last paragraph of this
Section 5, the Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling
Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, and the underwriters or agents,
if any, and dealers (if any), in connection with the offering and
sale of the Registrable Notes covered by, or the sale by
Participating Broker-Dealers of the Exchange Notes pursuant to, such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Offer Registration
Statement by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, to use its reasonable best efforts
to register or qualify, and to cooperate with the selling Holders of
Registrable Notes or each such Participating Broker-Dealer, as the case
may be, the managing underwriter or underwriters, if any, and their
respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such
Registrable Notes for offer and sale under the securities or Blue Sky
laws of such jurisdictions within the United States as any selling
Holder, Participating Broker-Dealer, or the managing underwriter or
underwriters reasonably request in writing; PROVIDED, HOWEVER, that
where Exchange Notes held by Participating Broker-Dealers or
Registrable Notes are offered other than through an underwritten
offering, the Company agrees to cause its counsel to perform Blue Sky
investigations and file registrations and qualifications required to be
filed pursuant to this Section 5(h); keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and
all other acts or things reasonably necessary to enable the disposition
in such jurisdictions of the Exchange Notes held by Participating
Broker-Dealers or the Registrable Notes covered by the applicable
Registration Statement; PROVIDED, HOWEVER, that the Company shall not
be required to (A) qualify generally to do business in any jurisdiction
where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where
it is not then so subject or (C) subject itself to taxa-
<PAGE>
-18-
tion in excess of the dollar amount in any such jurisdiction where it
is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3
hereof, cooperate with the selling Holders of Registrable Notes and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes
to be sold, which certificates shall not bear any restrictive legends
and shall be in a form eligible for deposit with The Depository Trust
Company; and enable such Registrable Notes to be in such denominations
and registered in such names as the managing underwriter or
underwriters, if any, or Holders may request.
(j) Use its reasonable best efforts to cause the Registrable
Notes covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
reasonably necessary to enable the seller or sellers thereof or the
underwriter or underwriters, if any, to consummate the disposition of
such Registrable Notes, except as may be required solely as a
consequence of the nature of such selling Holder's business, in which
case the Company will cooperate in all reasonable respects with the
filing of such Registration Statement and the granting of such
approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) hereof, as promptly as commercially practicable
prepare and (subject to Section 5(a) hereof) file with the SEC, at the
sole expense of the Company, a supplement or post-effective amendment
to the Registration Statement or a supplement to the related Prospectus
or any document incorporated or deemed to be incorporated therein by
reference, or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Notes being sold
thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of
<PAGE>
-19-
the circumstances under which they were made, not misleading.
(l) Prior to the effective date of the first Registration
Statement relating to the Registrable Notes, (i) provide the Trustee
with certificates for the Registrable Notes or Exchange Notes, as the
case may be, in a form eligible for deposit with The Depository Trust
Company and (ii) provide a CUSIP number for the Registrable Notes or
Exchange Notes, as the case may be.
(m) In connection with any underwritten offering of
Registrable Notes pursuant to a Shelf Registration, enter into an
underwriting agreement as is customary in underwritten offerings of
debt securities similar to the Notes in form and substance reasonably
satisfactory to the Company and take all such other actions as are
reasonably requested by the managing underwriter or underwriters in
order to expedite or facilitate the registration or the disposition of
such Registrable Notes and, in such connection, (i) make such
representations and warranties to, and covenants with, the underwriters
with respect to the business of the Company and its subsidiaries and
the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each
case, as are customarily made by issuers to underwriters in
underwritten offerings of debt securities similar to the Notes, and
confirm the same in writing if and when requested in form and substance
reasonably satisfactory to the Company; (ii) obtain the written opinion
of counsel to the Company and written updates thereof in form, scope
and substance reasonably satisfactory to the managing underwriter or
underwriters, addressed to the underwriters covering the matters
customarily covered in opinions reasonably requested in underwritten
offerings of debt securities similar to the Notes and such other
matters as may be reasonably requested by the managing underwriter or
underwriters; (iii) use its reasonable best efforts to obtain "cold
comfort" letters and updates thereof in form, scope and substance
reasonably satisfactory to the managing underwriter or underwriters
from the independent certified public accountants of the Company (and,
if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company
for which financial statements and financial data are, or are required
to be, included or incorporated by reference in the Registration
Statement), addressed to the underwriter, such letters to
<PAGE>
-20-
be in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with underwritten
offerings of debt securities similar to the Notes and such other
matters as reasonably requested by the managing underwriter or
underwriters as permitted by the Statement on Auditing Standards No.
72; and (iv) if an underwriting agreement is entered into, the same
shall contain indemnification provisions and procedures no less
favorable to the sellers and underwriters, if any, than those set
forth in Section 7 hereof (or such other provisions and procedures
acceptable to Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement and the
managing underwriter or underwriters or agents, if any). The above
shall be done at each closing under such underwriting agreement, or
as and to the extent required thereunder.
(n) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in the Exchange Offer
Registration Statement filed pursuant to Section 2 hereof is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable
Period, make available for inspection by any selling Holder of such
Registrable Notes being sold, or each such Participating Broker-Dealer,
as the case may be, any underwriter participating in any such
disposition of Registrable Notes, if any, and any attorney, accountant
or other agent retained by any such selling Holder or each such
Participating Broker-Dealer, as the case may be, or underwriter
(collectively, the "INSPECTORS"), at the offices where normally kept,
during reasonable business hours, all financial and other records,
pertinent corporate documents and instruments of the Company and its
subsidiaries (collectively, the "RECORDS") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of
the Company and their subsidiaries to supply all information reasonably
requested by any such Inspector in connection with such Registration
Statement and Prospectus. Each Inspector shall agree in writing that it
will keep the Records confidential and that it will not disclose any of
the Records unless (i) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in such Registration
Statement or Prospectus, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction, (iii) disclosure of such information
<PAGE>
-21-
is necessary or advisable, in the opinion of counsel for any
Inspector, in connection with any action, claim, suit or proceeding,
directly or indirectly, involving or potentially involving such
Inspector and arising out of, based upon, relating to, or involving
this Agreement or the Purchase Agreement, or any transactions
contemplated hereby or thereby or arising hereunder or thereunder,
or (iv) the information in such Records has been made generally
available to the public. Each selling Holder of such Registrable
Notes and each such Participating Broker-Dealer will be required to
agree that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it
as the basis for any market transactions in the securities of the
Company unless and until such is made generally available to the
public. Each selling Holder of such Registrable Notes and each such
Participating Broker-Dealer will be required to further agree that
it will, upon learning that disclosure of such Records is sought in
a court of competent jurisdiction, give notice to the Company and
allow the Company to undertake appropriate action to prevent
disclosure of the Records deemed confidential at the Company's
expense.
(o) Provide the Trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the
trust indenture provided for in Section 2(a) hereof, as the case may
be, to be qualified under the TIA not later than the effective date of
the first Registration Statement relating to the Registrable Notes; and
in connection therewith, cooperate with the trustee under any such
indenture and the Holders of the Registrable Notes, to effect such
changes to such indenture as may be required for such indenture to be
so qualified in accordance with the terms of the TIA; and execute, and
use its reasonable best efforts to cause such trustee to execute, all
documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable such
indenture to be so qualified in a timely manner.
(p) Comply with all applicable rules and regulations of the
SEC and make generally available to their respective securityholders
earnings statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule promulgated
under the Securities Act) no later than 45 days after the end of any
12-month period (or 90 days after the end of any 12-month period if
such period is a fiscal year) (i) commenc-
<PAGE>
-22-
ing at the end of any fiscal quarter in which Registrable Notes are
sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such
an offering, commencing on the first day of the first fiscal quarter
of the Company after the effective date of a Registration Statement,
which statements shall cover said 12-month periods.
(q) If the Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders to the
Company (or to such other Person as directed by the Company) in
exchange for the Exchange Notes or the Private Exchange Notes, as the
case may be, the Company shall mark, or cause to be marked, on such
Registrable Notes that such Registrable Notes are being cancelled in
exchange for the Exchange Notes or the Private Exchange Notes, as the
case may be; in no event shall such Registrable Notes be marked as paid
or otherwise satisfied.
(r) Use its best efforts to cause the Registrable Notes
covered by a Registration Statement or the Exchange Notes, as the case
may be, to be rated with the appropriate rating agencies, if so
requested by the Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement or the
Exchange Notes, as the case may be, or the managing underwriter or
underwriters, if any.
(s) Cooperate with each seller of Registrable Notes covered by
any Registration Statement and each underwriter, if any, participating
in the disposition of such Registrable Notes and their respective
counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD").
(t) Use its reasonable best efforts to take all other steps
reasonably necessary to effect the registration of the Exchange Notes
and/or Registrable Notes covered by a Registration Statement
contemplated hereby.
The Company may require each seller of Registrable Notes as to
which any registration is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable Notes
as the Company may, from time to time, reasonably request. The Company may
exclude from such registration the Registrable Notes of any seller so long
<PAGE>
-23-
as such seller fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by its acquisition of such Registrable Notes or Exchange
Notes to be sold by such Participating Broker-Dealer, as the case may be, that,
upon actual receipt of any notice from the Company of the happening of any event
of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi)
hereof, such Holder will forthwith discontinue disposition of such Registrable
Notes covered by such Registration Statement or Prospectus or Exchange Notes to
be sold by such Holder or Participating Broker-Dealer, as the case may be, until
such Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "ADVICE") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event that the Company shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Notes covered by such Registration Statement or Exchange Notes to be
sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice.
6. REGISTRATION EXPENSES
All reasonable fees and expenses incident to the performance
of or compliance with this Agreement by the Company shall be borne by the
Company whether or not the Exchange Offer Registration Statement or any Shelf
Registration Statement is filed or becomes effective or the Exchange Offer is
consummated, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of counsel in connection
with Blue Sky qualifications of the Registrable Notes or Exchange Notes and
determination of the eligibil-
<PAGE>
-24-
ity of the Registrable Notes or Exchange Notes for investment under the laws of
such jurisdictions (x) where the holders of Registrable Notes are located, in
the case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in
the case of Registrable Notes or Exchange Notes to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) reasonable printing expenses,
including, without limitation, reasonable expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is reasonably requested by the managing underwriter or
underwriters, if any, by the Holders of a majority in aggregate principal amount
of the Registrable Notes included in any Registration Statement or in respect of
Exchange Notes to be sold by any Participating Broker-Dealer during the
Applicable Period, as the case may be, (iii) reasonable messenger, telephone and
delivery expenses, (iv) reasonable fees and disbursements of counsel for the
Company and, in the case of a Shelf Registration, reasonable fees and
disbursements of one special counsel for all of the sellers of Registrable Notes
(exclusive of any counsel retained pursuant to Section 7 hereof), (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(m)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (vi) Securities Act liability insurance, if the Company desires
such insurance, (vii) fees and expenses of all other Persons retained by the
Company, (viii) internal expenses of the Company (including, without limitation,
all salaries and expenses of officers and employees of the Company performing
legal or accounting duties), (ix) the expense of any annual audit, (x) the fees
and expenses incurred in connection with the listing of the securities to be
registered on any securities exchange, and the obtaining of a rating of the
securities, in each case, if applicable, and (xi) the reasonable expenses
relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, indentures and any other documents
necessary in order to comply with this Agreement.
7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each
Holder of Registrable Notes and each Participating Broker-Dealer selling
Exchange Notes during the Applicable Period, the officers, directors, employees
and agents of each such Person, and each Person, if any, who controls any such
Person within the meaning of either Section 15 of the Securi
<PAGE>
-25-
- -ties Act or Section 20 of the Exchange Act (each, a "PARTICIPANT"), from and
against any and all losses, claims, damages, judgments, liabilities and expenses
(including, without limitation, the reasonable legal fees and other expenses
actually incurred in connection with any suit, action or proceeding or any claim
asserted) caused by, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) or Prospectus (as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto) or
any preliminary prospectus, or caused by, arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the case of the
Prospectus in the light of the circumstances under which they were made, not
misleading, EXCEPT insofar as such losses, claims, damages or liabilities are
caused by, arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information relating to any Participant furnished to the Company in writing
by such Participant expressly for use therein; provided, however, that the
Company will not be liable if such untrue statement or omission or alleged
untrue statement or omission was contained or made in any preliminary prospectus
and corrected in the final Prospectus or any amendment or supplement thereto and
any such loss, liability, claim, or damage or expense suffered or incurred by
the Participants resulted from any action, claim or suit by any Person who
purchased Registrable Notes or Exchange Notes which are the subject thereof from
such Participant and it is established in the related proceeding that such
Participant failed to deliver or provide a copy of the final Prospectus (as
amended or supplemented) to such Person with or prior to the confirmation of the
sale of such Registrable Notes or Exchange Notes sold to such Person if required
by applicable law, unless such failure to deliver or provide a copy of the
Prospectus (as amended or supplemented) was a result of noncompliance by the
Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and its employees and agents and each Person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to each Participant, but only with reference to information
relating to such Participant furnished to the Company in writing by such
Participant ex-
<PAGE>
-26-
pressly for use in any Registration Statement or Prospectus, any amendment or
supplement thereto, or any preliminary prospectus. The liability of any
Participant under this paragraph shall in no event exceed the proceeds received
by such Participant from sales of Registrable Notes or Exchange Notes giving
rise to such obligations.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or
asserted against any Person in respect of which indemnity may be sought pursuant
to either of the two preceding paragraphs, such Person (the "INDEMNIFIED
PERSON") shall promptly notify the Persons against whom such indemnity may be
sought (the "INDEMNIFYING PERSONS") in writing, and the Indemnifying Persons,
upon request of the Indemnified Person, shall retain counsel reasonably
satisfactory to the Indemnified Person to represent the Indemnified Person and
any others the Indemnifying Persons may reasonably designate in such proceeding
and shall pay the reasonable fees and expenses actually incurred by such counsel
related to such proceeding; PROVIDED, HOWEVER, that the failure to so notify the
Indemnifying Persons shall not relieve any of them of any obligation or
liability which any of them may have hereunder or otherwise except to the extent
it is materially prejudiced by such failure. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Persons and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Persons shall have failed
within a reasonable period of time to retain counsel reasonably satisfactory to
the Indemnified Person or (iii) the named parties in any such proceeding
(including any impleaded parties) include both any Indemnifying Person and the
Indemnified Person or any affiliate thereof and representation of both parties
by the same counsel would be inappropriate due to actual or potential
conflicting interests between them. It is understood that, unless there exists a
conflict among Indemnified Persons, the Indemnifying Persons shall not, in
connection with such proceeding or separate but substantially similar related
proceeding in the same jurisdiction arising out of the same general allegations,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all Indemnified Persons, and that all such fees and
expenses shall be reimbursed as they are incurred. Any such separate firm for
the Participants and such control Persons of Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable Notes and
Exchange Notes sold by all such Participants and any
<PAGE>
-27-
such separate firm for the Company, its directors, its officers and such control
Persons of the Company shall be designated in writing by the Company and shall
be reasonably acceptable to the Holders. The Indemnifying Persons shall not be
liable for any settlement of any proceeding effected without its prior written
consent (which consent shall not be unreasonably withheld or delayed), but if
settled with such consent or if there be a final non-appealable judgment for the
plaintiff for which the Indemnified Person is entitled to indemnification
pursuant to this Agreement, each of the Indemnifying Persons agrees to indemnify
and hold harmless each Indemnified Person from and against any loss or liability
by reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an Indemnified Person shall have requested an
Indemnifying Person to reimburse the Indemnified Person for reasonable fees and
expenses actually incurred by counsel as contemplated by the third sentence of
this paragraph, the Indemnifying Person agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such Indemnifying
Person of the aforesaid request and (ii) such Indemnifying Person shall not have
reimbursed the Indemnified Person in accordance with such request prior to the
date of such settlement; PROVIDED, HOWEVER, that the Indemnifying Person shall
not be liable for any settlement effected without its consent pursuant to this
sentence if the Indemnifying Person is contesting, in good faith, the request
for reimbursement. No Indemnifying Person shall, without the prior written
consent of the Indemnified Persons (which consent shall not be unreasonably
withheld or delayed), effect any settlement or compromise of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party, or indemnity could have been sought hereunder by such
Indemnified Person, unless such settlement (A) includes an unconditional written
release of such Indemnified Person, in form and substance reasonably
satisfactory to such Indemnified Person, from all liability on claims that are
the subject matter of such proceeding and (B) does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of such
Indemnified Person.
(d) If the indemnification provided for in clauses (a) and (b)
of this Section 7 is for any reason unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Person under such
paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in
order to provide for just and equitable contribution, shall
<PAGE>
-28-
contribute to the amount paid or payable by such Indemnified Person as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Person or Persons
on the one hand and the Indemnified Person or Persons on the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof) as well as any other relevant equitable considerations. The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Participant or such other
Indemnified Person, as the case may be, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by PRO RATA
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages, judgments, liabilities and expenses referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any reasonable legal or other expenses actually
incurred by such Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7, in no event shall a Participant be required to contribute any amount
in excess of the amount by which proceeds received by such Participant from
sales of Registrable Notes or Exchange Notes, as the case may be, exceeds the
amount of any damages that such Participant has otherwise been required to pay
or has paid by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 7 shall be paid by the Indemnifying Party to the Indemnified Party
as such losses,
<PAGE>
-29-
claims, damages, liabilities or expenses are incurred. The indemnity and
contribution agreements contained in this Section 7 and the representations and
warranties of the Company set forth in this Agreement shall remain operative and
in full force and effect, regardless of (i) any investigation made by or on
behalf of any Holder or any person who controls a Holder, the Company and its
directors, officers, employees or agents or any person controlling the Company,
and (ii) any termination of this Agreement.
(g) The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. RULES 144 AND 144A
The Company covenants and agrees that, so long as Registrable
Notes remain outstanding, it will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder in a timely manner in accordance with the
requirements of the Securities Act and the Exchange Act and, if at any time the
Company is not permitted to file such reports, the Company will, upon the
request of any Holder or beneficial owner of Registrable Notes, make publicly
available annual reports and such information, documents and other reports of
the type specified in Sections 13 and 15(d) of the Exchange Act. The Company
further covenants for so long as any Registrable Notes remain outstanding, to
make available to any Holder or beneficial owner of Registrable Notes in
connection with any sale thereof and any prospective purchaser of such
Registrable Notes from such Holder or beneficial owner the information required
by Rule 144A(d)(4) under the Securities Act in order to permit resales of such
Registrable Notes pursuant to Rule 144A.
9. UNDERWRITTEN REGISTRATIONS
If any of the Registrable Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will manage the offering will
be selected by the Holders of a majority in aggregate principal amount of such
Registrable Notes included in such offering and shall be reasonably acceptable
to the Company.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder
<PAGE>
-30-
(a) agrees to sell such Holder's Registrable Notes on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
10. MISCELLANEOUS
(a) NO INCONSISTENT AGREEMENTS. As of the date hereof, the
Company has not entered into any agreement with respect to any of its securities
that is inconsistent with the rights granted to the Holders of Registrable Notes
in this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of any of the Company's
other issued and outstanding securities. As of the date hereof, the Company has
not entered into any agreement with respect to any of its securities which will
grant to any Person piggy-back registration rights with respect to any
Registration Statement required to be filed by the Company pursuant to this
Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE NOTES. The Company shall
not knowingly, directly or indirectly, take any action with respect to the
Registrable Notes as a class that would adversely affect the ability of the
Holders of Registrable Notes to include such Registrable Notes in a registration
undertaken pursuant to this Agreement.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of (I) the Company and (II)(A) the Holders of not less
than a majority in aggregate principal amount of the then outstanding
Registrable Notes and (B) in circumstances that would adversely affect the
Participating Broker-Dealers, the Participating Broker-Dealers holding not less
than a majority in aggregate principal amount of the Exchange Notes held by all
Participating Broker-Dealers; PROVIDED, HOWEVER, that Section 7 and this Section
10(c) may not be amended, modified or supplemented without the prior written
consent of each Holder and each Participating Broker-Dealer (including any
person who was a Holder or Participating Broker-Dealer of Registrable Notes or
Exchange Notes, as the case may be, disposed of pursuant to any Registration
Statement) affected by any such amendment, modification or supplement.
Notwithstanding the foregoing, a waiver or con-
<PAGE>
-31-
sent to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders of Registrable Notes whose securities are
being sold pursuant to a Registration Statement and that does not directly or
indirectly affect, impair, limit or compromise the rights of other Holders of
Registrable Notes may be given by Holders of at least a majority in aggregate
principal amount of the Registrable Notes being sold pursuant to such
Registration Statement.
(d) NOTICES. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
(i) if to a Holder of the Registrable Notes or any
Participating Broker-Dealer, at the most current address of such Holder
or Participating Broker-Dealer, as the case may be, set forth on the
records of the registrar under the Indenture, with a copy in like
manner to the Initial Purchasers as follows:
BT Alex. Brown Incorporated
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Facsimile No: (212) 250-7200
Attention: Corporate Finance
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No: (212) 269-5420
Attention: William M. Hartnett, Esq.
(ii) if to the Initial Purchasers, at the address specified in
Section 10(d)(1);
(iii) if to the Company, at the address as follows:
Big Flower Press Holdings, Inc.
3 East 54th Street
New York, New York 10022
Facsimile No.: (212) 521-1640
Attention: Secretary
<PAGE>
-32-
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Facsimile No.: (212) 558-3588
Attention: Robert E. Buckholz, Jr.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one business
day after being timely delivered to a next-day air courier; and upon receiving
confirmation receipt by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address and in the manner specified in such Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, the Holders and the Participating Broker-Dealers, PROVIDED that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Registrable Notes in violation of the terms of the Purchase Agreement or the
Indenture.
(f) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(i) SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforce-
<PAGE>
-33-
able, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(j) SECURITIES HELD BY THE COMPANY OR ITS AFFILIATES. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Notes is required hereunder, Registrable Notes held by the Company or any of its
affiliates (as such term is defined in Rule 405 under the Securities Act) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(k) THIRD PARTY BENEFICIARIES. Holders of Registrable Notes
and Participating Broker-Dealers are intended third party beneficiaries of this
Agreement, and this Agreement may be enforced by such Persons.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
BIG FLOWER PRESS HOLDINGS, INC.
By: /s/ Authorized Signatory
------------------------------------------
Name:
Title:
INITIAL PURCHASERS:
BT ALEX. BROWN INCORPORATED
By: /s/ Authorized Signatory
------------------------------------------
Name:
Title:
CHASE SECURITIES INC.
By: /s/ Authorized Signatory
------------------------------------------
Name:
Title:
/s/ Authorized Signatory
---------------------------------------------
(Goldman, Sachs & Co.)
<PAGE>
Exhibit 10.2
FIRST AMENDMENT AND CONSENT
FIRST AMENDMENT AND CONSENT (this "Amendment"), dated as of November 10,
1998, among BIG FLOWER HOLDINGS, INC., a Delaware corporation ("Holdings"), BIG
FLOWER PRESS HOLDINGS, INC., a Delaware corporation ("BFPH"), TREASURE CHEST
ADVERTISING COMPANY, INC., a Delaware corporation and a Wholly-Owned Subsidiary
of BFPH ("Treasure Chest"), WEBCRAFT, INC., a Delaware corporation and a
Wholly-Owned Subsidiary of BFPH ("Webcraft"), BIG FLOWER DIGITAL SERVICES, INC.,
a Delaware corporation and a Wholly-Owned Subsidiary of BFPH ("BF Digital"), BIG
FLOWER LIMITED, a Wholly-Owned Subsidiary of BFPH and a limited company
organized under the laws of England ("BFL"), OLWEN DIRECT MAIL LIMITED, a
Wholly-Owned Subsidiary of BFL and a limited company organized under the laws of
England ("Olwen"), BIG FLOWER DIGITAL SERVICES LIMITED, an indirect Wholly-Owned
Subsidiary of BF Digital and a limited company organized under the laws of
England ("BFDSL"), TROYPEAK LIMITED, an indirect Wholly-Owned Subsidiary of BF
Digital and a limited company organized under the laws of England ("Troypeak"),
PISMO LIMITED, an indirect Wholly-Owned Subsidiary of BF Digital and a limited
company organized under the laws of England ("Pismo"), and BROADCAST SYSTEMS
SOFTWARE LIMITED, an indirect Wholly-Owned Subsidiary of BF Digital and a
limited company organized under the laws of England ("Broadcast", and together
with Treasure Chest, Webcraft, BF Digital, BFL, Olwen, BFDSL, Troypeak and
Pismo, the "Borrowers", and each, a "Borrower"), the Banks from time to time
party to the Credit Agreement referred to below, BANK OF AMERICA NT & SA and THE
INDUSTRIAL BANK OF JAPAN, LIMITED, as Co-Agents (collectively, the "Co-Agents,"
and each, a "Co-Agent"), CREDIT SUISSE FIRST BOSTON, as Documentation Agent, and
BANKERS TRUST COMPANY, as Administrative Agent (the "Administrative Agent"). All
capitalized terms used herein and not otherwise defined shall have the
respective meanings provided such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, Holdings, BFPH, the Borrowers, the Banks, the Co-Agents, the
Documentation Agent and the Administrative Agent are parties to an Amended and
Restated Credit Agreement, dated as of June 22, 1998 (as in effect on the date
hereof, the "Credit Agreement"); and
WHEREAS, subject to the terms and conditions of this Amendment, the Banks
wish to grant certain consents under the Credit Agreement and the parties hereto
wish to amend the Credit Agreement, in each case as herein provided;
NOW, THEREFORE, it is agreed:
<PAGE>
I. AMENDMENTS AND CONSENTS TO CREDIT AGREEMENT.
1. Section 8.11(a) of the Credit Agreement is hereby amended by (i)
inserting the text "(other than a Shell Corporation, so long as it remains a
Shell Corporation)" immediately after the text "each Domestic Subsidiary"
appearing in clause (x) of said Section, (ii) inserting the text "(other than a
Shell Corporation, so long as it remains a Shell Corporation)" immediately after
the text "each U.K. Subsidiary" appearing in clause (y) of said Section, (iii)
inserting the text "(I) in the case of an Immaterial U.K. Subsidiary, as soon as
reasonably practicable but in any event within 90 days after its establishment,
creation or acquisition, and (II) in the case of any other U.K. Subsidiary, at
the time of its establishment, creation or acquisition," immediately following
the text "that does not become a U.K. Borrower pursuant to Section 6," appearing
in clause (y)(i) of said Section and (iv) inserting the text "(I) in the case of
an Immaterial U.K. Subsidiary, as soon as reasonably practicable but in any
event within 90 days after its establishment, creation or acquisition, and (II)
in the case of any other U.K. Subsidiary, at the time of its establishment,
creation or acquisition," immediately after the text "(ii)" appearing in clause
(y) of said Section.
2. Notwithstanding anything to the contrary contained in Section 9.01 of
the Credit Agreement, Liens incurred or deposits made by a U.K. Credit Party to
secure the Indebtedness permitted pursuant to Section 6 of Part I of this
Amendment below shall be permitted.
3. Notwithstanding anything to the contrary contained in Section 9.02,
9.04 or 9.05 of the Credit Agreement, (i) Holdings may transfer to the
Investment Subsidiary any equity interests representing an Investment
distributed to it as permitted by clause (ii) of Section 4 below in exchange for
a promissory note substantially in the form of an Intercompany Note (the
"Holdings Intercompany Note"), so long as such Holdings Intercompany Note is
pledged to the Collateral Agent pursuant to the U.S. Pledge and Security
Agreement and (ii) the Investment Subsidiary may incur Indebtedness to Holdings
evidenced by Holdings Intercompany Notes to the extent issued in connection with
a transfer permitted by clause (i) above.
4. Notwithstanding anything to the contrary contained in Section 9.02 or
9.03 of the Credit Agreement, (i) BFPH may distribute all of the capital stock
of the Investment Subsidiary to Holdings, so long as, immediately after giving
effect to such distribution, all of the capital stock of the Investment
Subsidiary is pledged to the Collateral Agent pursuant to, and in accordance
with the requirements of, Section 9.11(y)(ii) of the Credit Agreement and (ii)
BFPH may distribute to Holdings any equity interests representing an existing
Investment set forth on Schedule IX to the Credit Agreement (other than the
Investment referred to in item 2 on said Schedule) held by BFPH, so long as,
immediately following such distribution, (x) Holdings contributes any such
Investment as a capital contribution to the Investment Subsidiary or transfers
such Investment to the Investment Subsidiary in exchange for a Holdings
Intercompany Note and (y) any such Holdings Intercompany Note is pledged to the
Collateral Agent pursuant to the U.S. Pledge and Security Agreement.
-2-
<PAGE>
5. Section 9.03(x) of the Credit Agreement is hereby amended by inserting
the text ", either directly or through a Wholly-Owned Subsidiary of Holdings,"
immediately following the text "are used by Holdings" appearing in said Section.
6. Notwithstanding anything to the contrary contained in Section 9.04 of
the Credit Agreement, Indebtedness of any U.K. Credit Party evidenced by a
secured promissory note (each, a "U.K. Permitted Seller Note") issued as
consideration to a seller in connection with a Permitted Acquisition shall be
permitted, so long as (i) no Default or Event of Default is then in existence or
would result from the respective issuance, (ii) the aggregate principal amount
of any such U.K. Permitted Seller Note at any time outstanding does not exceed
the remainder of (x) the initial aggregate principal amount of such U.K.
Permitted Seller Note LESS (y) the sum of (I) the aggregate amount of all
repayments of principal thereof after the date of its issuance, (II) the
aggregate amount of all redemptions or other acquisitions for value of such U.K.
Permitted Seller Note after the date of its issuance pursuant to, and in
accordance with the terms of, such U.K. Permitted Seller Note and (III) the
aggregate amount of all reductions to the principal amount thereof permitted or
required under the terms of such U.K. Permitted Seller Note or the acquisition
agreement governing the respective Permitted Acquisition and (iii) such
Indebtedness is secured only by a cash deposit made by or on behalf of such U.K.
Credit Party in an account at a financial institution in an amount not to exceed
the then principal amount owing by such U.K. Credit Party under such U.K.
Permitted Seller Note.
7. Section 9.11 of the Credit Agreement is hereby amended by (i) deleting
the text "and (vi) in the case of a U.K. Subsidiary, such new U.K. Subsidiary"
appearing in said Section and inserting the text ", (vi) in the case of an
Immaterial U.K. Subsidiary, as soon as reasonably practicable but in any event
within 90 days after its establishment, creation or acquisition, such new
Immaterial U.K. Subsidiary executes a counterpart of the Non-Borrower U.K.
Subsidiaries Guaranty (in the event such Immaterial U.K. Subsidiary does not
become a U.K. Borrower pursuant to Section 6) or complies with the requirements
of Section 6 and becomes a U.K. Borrower hereunder and (in all cases) executes a
counterpart of the U.K. Charge Over Shares and Notes and, to the extent required
pursuant to Section 8.15, executes a counterpart of the Non-Borrower U.S.
Subsidiaries Guaranty and the U.S. Pledge Agreement, (vii) in the case of a U.K.
Subsidiary that is not an Immaterial U.K. Subsidiary, such new U.K. Subsidiary"
in lieu thereof, and (ii) deleting the text "and (v)" appearing in said Section
and inserting the text "and (viii)" in lieu thereof.
8. Section 9.13 of the Credit Agreement is hereby amended by (i) deleting
the text "Treasure Chest, Webcraft and BF Digital" appearing in clause (d) of
said Section and inserting the text "any U.S. Borrower or any U.S. Subsidiary
Guarantor" in lieu thereof and (ii) inserting the following new clause (e) at
the end of said Section:
"(e) Notwithstanding anything to the contrary contained in Section
9.13(a), the Investment Subsidiary may engage, directly or indirectly, in the
Media Business.".
9. The definition of "Shell Corporation" appearing in Section 10 of the
Credit Agreement is hereby amended by (i) inserting the text "(x)" immediately
following the
-3-
<PAGE>
text "Section 8.11(e)," appearing in said definition, (ii) inserting the text
"and (y) any U.K. Subsidiary which does not trade (whether for its own account
or for that of another) or owe or have outstanding any material liabilities"
immediately following the text "which has not yet occurred" appearing in said
definition and (iii) inserting the text "or owned (whether legally or
beneficially)" immediately after the text "at any time held" appearing in said
definition.
10. The definition of "Special Unrestricted Leasing Subsidiary" appearing
in Section 10 of the Credit Agreement is hereby amended by deleting the text
"and a direct subsidiary of Treasure Chest, Webcraft and BF Digital" appearing
in said definition in its entirety.
11. The definition of "Unrestricted Subsidiary" appearing in Section 10 of
the Credit Agreement is hereby amended by deleting clause (iii) appearing in
said definition in its entirety and redesignating clause (iv) of said definition
as clause (iii).
12. Section 10 of the Credit Agreement is hereby further amended by
inserting the following definition in appropriate alphabetical order in said
Section:
"Immaterial U.K. Subsidiary" shall mean, at any time, any U.K. Subsidiary
the book value of the gross assets as of the end of fiscal quarter then last
ended of which, and the net revenues for the four fiscal quarters then last
ended of which, do not exceed at such time 10% of the book value of the
consolidated gross assets or consolidated net revenues, as the case may be, of
Holdings and its Subsidiaries as of the end of the fiscal quarter of Holdings
then last ended or for the four fiscal quarters of Holdings then last ended.
"Investment Subsidiary" shall mean XL Capital Corporation (formerly known
as Big Flower Capital Corporation), a Delaware corporation.
II. MISCELLANEOUS PROVISIONS.
1. In order to induce the Banks to enter into this Amendment, each Credit
Agreement Party hereby represents and warrants that:
(a) no Default or Event of Default exists as of the Amendment
Effective Date, both immediately before and immediately after giving
effect to this Amendment; and
(b) all of the representations and warranties contained in the
Credit Agreement or the other Credit Documents are true and correct in all
material respects on the Amendment Effective Date both immediately 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 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).
-4-
<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 Holdings 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 "Amendment
Effective Date") when (i) each Credit Agreement Party 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 and (ii)
the Investment Subsidiary shall have complied with the requirements of clause
(y)(v) of Section 9.11 of the Credit Agreement.
6. From and after the 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.
-5-
<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 HOLDINGS, INC.,
as a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
BIG FLOWER PRESS HOLDINGS, INC.,
as a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
TREASURE CHEST ADVERTISING
COMPANY, INC., as a Borrower and a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
WEBCRAFT, INC.,
as a Borrower and a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
BIG FLOWER DIGITAL SERVICES, INC.,
as a Borrower and a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
-6-
<PAGE>
Title:
BIG FLOWER LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
OLWEN DIRECT MAIL LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
TROYPEAK LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
PISMO LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
BIG FLOWER DIGITAL SERVICES LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
-7-
<PAGE>
BROADCAST SYSTEMS SOFTWARE LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
BANKERS TRUST COMPANY,
Individually and as
Administrative Agent
By /s/ Authorized Signatory
-------------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON,
Individually
By
-------------------------------------------
Title:
By
-------------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON,
as Documentation Agent
By
-------------------------------------------
Title:
By
-------------------------------------------
Title:
-8-
<PAGE>
ABN AMRO BANK N.V.,
NEW YORK BRANCH
By /s/ Authorized Signatory
-------------------------------------------
Title:
By /s/ Authorized Signatory
-------------------------------------------
Title:
BANK OF AMERICA NT & SA
By /s/ Authorized Signatory
-------------------------------------------
Title:
BANKBOSTON, N.A.
By /s/ Authorized Signatory
-------------------------------------------
Title:
BANK OF MONTREAL
By /s/ Authorized Signatory
-------------------------------------------
Title:
-9-
<PAGE>
THE BANK OF NEW YORK
By /s/ Authorized Signatory
-------------------------------------------
Title:
BANK POLSKA KASA OPIEKI, S.A.
PEKAO S.A. Group, New York Branch
By /s/ Authorized Signatory
-------------------------------------------
Title:
PARIBAS
By /s/ Authorized Signatory
-------------------------------------------
Title:
By /s/ Authorized Signatory
-------------------------------------------
Title:
FIRST UNION NATIONAL BANK
By /s/ Authorized Signatory
-------------------------------------------
Title:
CREDIT AGRICOLE INDOSUEZ
By /s/ Authorized Signatory
-------------------------------------------
Title:
-10-
<PAGE>
CITY NATIONAL BANK
By
-------------------------------------------
Title:
CREDIT LYONNAIS, NEW YORK BRANCH
By
-------------------------------------------
Title:
DAI-ICHI KANGYO BANK, LIMITED
By
-------------------------------------------
Title:
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By /s/ Authorized Signatory
-------------------------------------------
Title:
By /s/ Authorized Signatory
-------------------------------------------
Title:
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By
-------------------------------------------
Title:
-11-
<PAGE>
ERSTE BANK DER
OESTERREICHISCHEN SPARKASSEN AG
By /s/ Authorized Signatory
-------------------------------------------
Title:
IMPERIAL BANK
By
-------------------------------------------
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By /s/ Authorized Signatory
-------------------------------------------
Title:
NATIONSBANK, N.A.
By /s/ Authorized Signatory
-------------------------------------------
Title:
CALIFORNIA BANK AND TRUST,
formerly Sumitomo Bank of California
By /s/ Authorized Signatory
-------------------------------------------
Title:
-12-
<PAGE>
THE TOKAI BANK, LIMITED
By
-------------------------------------------
Title:
THE TOYO TRUST & BANKING CO., LTD.
By
-------------------------------------------
Title:
UNION BANK OF CALIFORNIA, N.A.
By /s/ Authorized Signatory
-------------------------------------------
Title:
-13-
<PAGE>
MICHIGAN NATIONAL CORPORATION
By /s/ Authorized Signatory
-------------------------------------------
Title:
-14-
<PAGE>
Exhibit 10.3
SECOND AMENDMENT AND CONSENT
SECOND AMENDMENT AND CONSENT (this "Amendment"), dated as of November 24,
1998, among BIG FLOWER HOLDINGS, INC., a Delaware corporation ("Holdings"), BIG
FLOWER PRESS HOLDINGS, INC., a Delaware corporation ("BFPH"), TREASURE CHEST
ADVERTISING COMPANY, INC., a Delaware corporation and a Wholly-Owned Subsidiary
of BFPH ("Treasure Chest"), WEBCRAFT, INC., a Delaware corporation and a
Wholly-Owned Subsidiary of BFPH ("Webcraft"), BIG FLOWER DIGITAL SERVICES, INC.,
a Delaware corporation and a Wholly-Owned Subsidiary of BFPH ("BF Digital"), BIG
FLOWER LIMITED, a Wholly-Owned Subsidiary of BFPH and a limited company
organized under the laws of England ("BFL"), OLWEN DIRECT MAIL LIMITED, a
Wholly-Owned Subsidiary of BFL and a limited company organized under the laws of
England ("Olwen"), BIG FLOWER DIGITAL SERVICES LIMITED, an indirect Wholly-Owned
Subsidiary of BF Digital and a limited company organized under the laws of
England ("BFDSL"), TROYPEAK LIMITED, an indirect Wholly-Owned Subsidiary of BF
Digital and a limited company organized under the laws of England ("Troypeak"),
PISMO LIMITED, an indirect Wholly-Owned Subsidiary of BF Digital and a limited
company organized under the laws of England ("Pismo"), and BROADCAST SYSTEMS
SOFTWARE LIMITED, an indirect Wholly-Owned Subsidiary of BF Digital and a
limited company organized under the laws of England ("Broadcast", and together
with Treasure Chest, Webcraft, BF Digital, BFL, Olwen, BFDSL, Troypeak and
Pismo, the "Borrowers", and each, a "Borrower"), the Banks from time to time
party to the Credit Agreement referred to below, BANK OF AMERICA NT & SA and THE
INDUSTRIAL BANK OF JAPAN, LIMITED, as Co-Agents (collectively, the "Co-Agents,"
and each, a "Co-Agent"), CREDIT SUISSE FIRST BOSTON, as Documentation Agent,
BANKERS TRUST COMPANY, as Administrative Agent (the "Administrative Agent") and
BANKERS TRUST COMPANY, as Pledgee and Collateral Agent (the "Pledgee") . All
capitalized terms used herein and not otherwise defined shall have the
respective meanings provided such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, Holdings, BFPH, the Borrowers, the Banks, the Co-Agents, the
Documentation Agent and the Administrative Agent are parties to an Amended and
Restated Credit Agreement, dated as of June 22, 1998 (as in effect on the date
hereof, the "Credit Agreement");
WHEREAS, Holdings, BFPH, the U.S. Borrowers, the U.S. Subsidiary
Guarantors and the Pledgee are parties to a U.S. Pledge and Security Agreement,
dated as of June 12, 1997 and amended and restated as of June 22, 1998 (as in
effect on the date hereof, the "U.S. Pledge and Security Agreement"); and
WHEREAS, subject to the terms and conditions of this Amendment, the Banks
hereby agree to grant certain consents under the Credit Agreement and the
parties hereto wish to
<PAGE>
amend the Credit Agreement and the U.S. Pledge and Security Agreement, in each
case as herein provided;
NOW, THEREFORE, it is agreed:
I. AMENDMENTS 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 and agree that (i) one or more U.S. Borrowers and/or U.S.
Subsidiary Guarantors (collectively, the "U.S. Investing Credit Parties") shall
be permitted to form a Delaware limited liability company, which shall
thereafter be at all times a direct subsidiary of such U.S. Investing Credit
Parties and an indirect Wholly-Owned Subsidiary of Holdings ("Special
Unrestricted Leasing Subsidiary II") and shall be deemed to be an Unrestricted
Subsidiary for all purposes of the Credit Agreement, (ii) Special Unrestricted
Leasing Subsidiary II shall not be required to engage in a Media Business and
(iii) each U.S. Investing Credit Party shall be permitted to make Investments
from time to time in Special Unrestricted Leasing Subsidiary II in an aggregate
amount for all such entities not to exceed $22,000,000, so long as the proceeds
of such Investments are used by Special Unrestricted Leasing Subsidiary II as
soon as reasonably practicable to make Investments in one or more special
purpose Delaware business trusts to be formed by (and thereafter to be at all
times direct Wholly-Owned Subsidiaries of) Special Unrestricted Leasing
Subsidiary II (collectively, "Special Purpose Leasing Trusts II"), which, in
turn, shall as soon as reasonably practicable use the proceeds thereof to make
advance payments of rent owing by them pursuant to lease agreements to be
entered into between them and a foreign corporation in respect of certain
property located outside the United States (the "Lease II 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 (x) at the time of the creation of Special Unrestricted Leasing
Subsidiary II, all of the equity interests in Special Unrestricted Leasing
Subsidiary II shall be owned by the U.S. Investing Credit Parties and shall be
pledged to the Collateral Agent pursuant to the U.S. Pledge and Security
Agreement, (y) Special Unrestricted Leasing Subsidiary II shall not engage
(directly or indirectly) in any business other than (1) the ownership of all of
the equity interests in Special Purpose Leasing Trusts II, (2) entering into and
performing its obligations under the Lease II 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 the U.S. Investing Credit Parties in Special
Unrestricted Leasing Subsidiary II and by Special Unrestricted Leasing
Subsidiary II in Special Purpose Leasing Trusts II pursuant to clause (iii)
above shall be made on or prior to January 31, 1999.
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 each Special Purpose Leasing Trust II (i)
shall be an Unrestricted Subsidiary for all purposes of
-2-
<PAGE>
the Credit Agreement and (ii) shall not be required to engage in a Media
Business; PROVIDED that no Special Purpose Leasing Trust II shall engage
(directly or indirectly) in any business other than the entering into, and
performance of its obligations under, the Lease II 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. The definition of "Applicable Margin" appearing in Section 11 of the
Credit Agreement is hereby amended by (i) deleting the text "0.375%" appearing
in clause (iii) of the first sentence of said definition and inserting the text
"0.500%" in lieu thereof, (ii) deleting the text "0.375%" in each place it
appears under the column entitled "Commitment Commission Fee" in the table in
said definition and inserting the text "0.500%" in lieu thereof and (iii)
deleting the text "0.250%" in each place it appears under the column entitled
"Commitment Commission Fee" in the table in said definition and inserting the
text "0.375%" in lieu thereof.
4. The definition of "Permitted Subordinated Indebtedness" appearing in
Section 11 of the Credit Agreement is hereby amended by inserting the following
sentence immediately after the first sentence appearing in said Section:
"Notwithstanding the foregoing, additional general unsecured subordinated
Indebtedness for borrowed money incurred by Holdings or BFPH in an aggregate
principal amount not to exceed $250,000,000 at any time outstanding shall also
constitute Permitted Subordinated Indebtedness for all purposes of this
Agreement, so long as (i) such additional Indebtedness is incurred on or prior
to May 31, 1999, (ii) no such Indebtedness shall be secured by any asset of
Holdings or any of its Subsidiaries, (iii) such Indebtedness shall have
substantially the same (or, from the perspective of the Banks, more favorable)
terms and provisions as are contained in the 8-7/8% Senior Subordinated Note
Indenture (including, without limitation, maturity, defaults, remedies and
subordination provisions) and (iv) promptly after the incurrence of such
Indebtedness, Holdings shall have distributed the documentation therefor to the
Agents."
II. AMENDMENTS TO U.S. PLEDGE AND SECURITY AGREEMENT.
1. Section 2 of the Pledge Agreement is hereby amended by (I) deleting
clause (A) to the proviso to clause (i) appearing in the first sentence of said
Section in its entirety and inserting the following new clause (A) in lieu
thereof:
"(A) the term "Stock" shall not include (x) any capital stock of any
corporation (other than an Excluded Investment Subsidiary Entity) that is not a
Subsidiary of any Pledgor to the extent (and only to the extent) the aggregate
amount invested in all such capital stock owned or held by the Pledgors, when
combined with the aggregate amount invested in all membership interests and
partnership interests owned or held by the Pledgors in any limited liability
company or partnership, as the case may be, (other than an Excluded Investment
Subsidiary Entity) that is not
-3-
<PAGE>
a Subsidiary of any Pledgor, does not exceed $5,000,000 and (y) any capital
stock of any Excluded Investment Subsidiary Entity",
(II) inserting the following text at the end of clause (iii) appearing in the
first sentence of said Section:
"PROVIDED that the term "Partnership Interest" shall not include (x) any
partnership interest in any partnership (other than an Excluded Investment
Subsidiary Entity) that is not a Subsidiary of any Pledgor to the extent (and
only to the extent) the aggregate amount invested in all such partnership
interests owned or held by the Pledgors, when combined with the aggregate amount
invested in all capital stock and membership interests owned or held by the
Pledgors of or in any corporation or limited liability company, as the case may
be, (other than an Excluded Investment Subsidiary Entity) that is not a
Subsidiary of any Pledgor, does not exceed $5,000,000 and (y) any partnership
interest in any Excluded Investment Subsidiary Entity",
(III) deleting the proviso to clause (iv) appearing in the first sentence of
said Section and inserting the following new proviso in lieu thereof:
"PROVIDED that the term "Membership Interest" shall not include (x) any
membership interest in any limited liability company (other than an Excluded
Investment Subsidiary Entity) that is not a Subsidiary of any Pledgor to the
extent (and only to the extent) the aggregate amount invested in all such
membership interests owned or held by the Pledgors, when combined with the
aggregate amount invested in all capital stock and partnership interests owned
or held by the Pledgors of or in any corporation or partnership, as the case may
be, (other than an Excluded Investment Subsidiary Entity) that is not a
Subsidiary of any Pledgor, does not exceed $5,000,000 and (y) any membership
interest in any Excluded Investment Subsidiary Entity",
(IV) deleting the word "and" appearing at the end of clause (vi) of the first
sentence of said Section and inserting a comma in lieu thereof and (V) inserting
the text "and (viii) the term "Excluded Investment Subsidiary Entity" shall mean
any corporation, partnership or limited liability company that is not a
Subsidiary of the Investment Subsidiary (or any other Pledgor) but in which the
Investment Subsidiary owns or holds capital stock, partnership interests or
membership interests, as the case may be" after clause (vii) appearing in the
first sentence of said Section.
III. MISCELLANEOUS PROVISIONS.
1. In order to induce the Banks to enter into this Amendment, each Credit
Agreement Party hereby represents and warrants that:
-4-
<PAGE>
(a) no Default or Event of Default exists as of the Second Amendment
Effective Date, both immediately before and immediately after giving
effect to this Amendment; and
(b) all of the representations and warranties contained in the
Credit Agreement or the other Credit Documents are true and correct in all
material respects on the Second Amendment Effective Date both immediately
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 Second 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 Holdings 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 "Second
Amendment Effective Date") when each Credit Agreement Party, the Required Banks
and the Pledgee 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. So long as the Second Amendment Effective Date occurs, Holdings shall
pay (or cause one or more to its relevant Subsidiaries to pay) to each Bank
which has executed a counterpart hereof on or prior to 5:00 P.M. (New York time)
on the later to occur of December 1, 1998 or the Second Amendment Effective
Date, a consent fee equal to 0.05% of its Revolving Loan Commitment as in effect
on the Second Amendment Effective Date. All fees payable pursuant to the
immediately preceding sentence shall be paid to the Administrative Agent within
one Business Day after the later date specified in the immediately preceding
sentence, which fees shall be distributed by the Administrative Agent to the
relevant Banks in the amounts specified in the immediately preceding sentence.
7. From and after the Second Amendment Effective Date, all references in
the Credit Agreement and each of the other Credit Documents to the Credit
Agreement and the U.S. Pledge and Security Agreement shall be deemed to be
references to the Credit Agreement or the U.S. Pledge and Security Agreement, as
the case may be, as modified hereby.
-5-
<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 HOLDINGS, INC.,
as a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
BIG FLOWER PRESS HOLDINGS, INC.,
as a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
TREASURE CHEST ADVERTISING
COMPANY, INC., as a Borrower and a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
WEBCRAFT, INC.,
as a Borrower and a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
BIG FLOWER DIGITAL SERVICES, INC.,
as a Borrower and a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
-6-
<PAGE>
Title:
BIG FLOWER LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
OLWEN DIRECT MAIL LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
TROYPEAK LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
PISMO LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
BIG FLOWER DIGITAL SERVICES LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
-7-
<PAGE>
BROADCAST SYSTEMS SOFTWARE LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
BANKERS TRUST COMPANY,
Individually, as Administrative Agent
and as Collateral Agent, as Pledgee
By /s/ Authorized Signatory
-------------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON,
Individually
By /s/ Authorized Signatory
-------------------------------------------
Title:
By /s/ Authorized Signatory
-------------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON,
as Documentation Agent
By /s/ Authorized Signatory
-------------------------------------------
Title:
By /s/ Authorized Signatory
-------------------------------------------
Title:
-8-
<PAGE>
ABN AMRO BANK N.V.,
NEW YORK BRANCH
By
-------------------------------------------
Title:
By
-------------------------------------------
Title:
BANK OF AMERICA NT & SA
By /s/ Authorized Signatory
-------------------------------------------
Title:
BANKBOSTON, N.A.
By /s/ Authorized Signatory
-------------------------------------------
Title:
BANK OF MONTREAL
By
-------------------------------------------
Title:
-9-
<PAGE>
THE BANK OF NEW YORK
By /s/ Authorized Signatory
-------------------------------------------
Title:
BANK POLSKA KASA OPIEKI, S.A.
PEKAO S.A. Group, New York Branch
By /s/ Authorized Signatory
-------------------------------------------
Title:
PARIBAS
By /s/ Authorized Signatory
-------------------------------------------
Title:
By /s/ Authorized Signatory
-------------------------------------------
Title:
FIRST UNION NATIONAL BANK
By /s/ Authorized Signatory
-------------------------------------------
Title:
CREDIT AGRICOLE INDOSUEZ
By /s/ Authorized Signatory
-------------------------------------------
Title:
-10-
<PAGE>
CITY NATIONAL BANK
By
-------------------------------------------
Title:
CREDIT LYONNAIS, NEW YORK BRANCH
By
-------------------------------------------
Title:
DAI-ICHI KANGYO BANK, LIMITED
By
-------------------------------------------
Title:
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By /s/ Authorized Signatory
-------------------------------------------
Title:
By /s/ Authorized Signatory
-------------------------------------------
Title:
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By
-------------------------------------------
Title:
-11-
<PAGE>
ERSTE BANK DER
OESTERREICHISCHEN SPARKASSEN AG
By /s/ Authorized Signatory
-------------------------------------------
Title:
IMPERIAL BANK
By
-------------------------------------------
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By /s/ Authorized Signatory
-------------------------------------------
Title:
NATIONSBANK, N.A.
By /s/ Authorized Signatory
-------------------------------------------
Title:
CALIFORNIA BANK AND TRUST,
formerly Sumitomo Bank of California
By
-------------------------------------------
Title:
-12-
<PAGE>
THE TOKAI BANK, LIMITED
By
-------------------------------------------
Title:
THE TOYO TRUST & BANKING CO., LTD.
By /s/ Authorized Signatory
-------------------------------------------
Title:
UNION BANK OF CALIFORNIA, N.A.
By /s/ Authorized Signatory
-------------------------------------------
Title:
-13-
<PAGE>
MICHIGAN NATIONAL CORPORATION
By /s/ Authorized Signatory
-------------------------------------------
Title:
-14-
<PAGE>
Exhibit 10.21
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT dated as of January 1, 1998 between LASER TECH
COLOR, INC., a Delaware corporation (the "Company"), and DAMIEN GOUGH (the
"Executive").
WHEREAS, the Company and the Executive have entered into an employment
agreement dated November 27, 1995, the term of which is scheduled to expire on
the third anniversary of such date (the "Prior Agreement");
WHEREAS, the Company desires to continue to employ the Executive to
serve as President of the Company, upon the terms and subject to the conditions
set forth herein (the terms of which shall supersede the Prior Agreement);
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereby agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and
the Executive hereby agrees to be employed by the Company upon the terms and
subject to the conditions contained in this Agreement. The term of employment of
the Executive by the Company pursuant to this Agreement shall commence on
January 1, 1998 and, unless earlier terminated pursuant to Section 4, shall end
on December 31, 2001 (the "Employment Period.")
2. DUTIES AND RESPONSIBILITIES. The Company shall employ the Executive
during the Employment Period as its President. Subject to the powers, authority
and responsibilities vested in the Board, in duly constituted committees of the
Board and in the Chief Executive Officer of the Company, Executive shall have
responsibility in the areas of manufacturing, sales, marketing and
administration of the Company. During the Employment Period, the Executive shall
perform faithfully and loyally and to the best of his abilities the duties
assigned to him hereunder, shall devote his full business time, attention and
effort to the affairs of the Company, and shall use his reasonable best efforts
to promote the interests of the Company. During the Employment Period, the
Executive shall also perform such other duties (not inconsistent with the
position of a senior executive of the Company) on behalf of the Company, or on
behalf of Big Flower Holdings, Inc. (the "Parent") and its affiliated
<PAGE>
companies, as may from time to time be authorized or directed by the Board of
Directors of the Company (the "Board"). The Executive shall report to the Chief
Executive Officer of the Company.
3. COMPENSATION. (a) BASE SALARY. During the Employment Period, the
Company shall pay to the Executive a base salary, payable in accordance with the
Company's executive payroll policy, at an initial rate of $250,000 for the
Company's 1998 fiscal year commencing on January 1, 1998, increasing by $25,000
per annum effective as of the first day of each subsequent fiscal year in the
Employment Period ("Base Salary"). In the event this Agreement is executed after
the first day of the Employment Period, the Company shall, as soon as
practicable thereafter, make additional payments of cash compensation to the
Executive to the extent necessary to provide him with an annual rate of
compensation of $250,000 for the Company's 1998 fiscal year.
(b) ANNUAL PERFORMANCE BONUS. For each fiscal year in the Employment
Period, the Executive shall be eligible to receive an annual cash incentive
bonus as determined pursuant to the bonus program established by the Board for
executives of the Company for each fiscal year (the "Annual Bonus"). The amount
of the Annual Bonus payable to the Executive under such bonus program shall be
equal to $100,000 if the Company's achieves the target financial objectives
prescribed by such bonus program, based on the Company's budget for such fiscal
year as approved by the Board. The program may provide for an increased Annual
Bonus (up to an additional $100,000) in the event the Company exceeds the target
financial objectives prescribed by such program, or may provide for a reduced
Annual Bonus (or no Annual Bonus) in the event such targets are not achieved.
The bonus program shall prescribe the formula pursuant to which these amounts
are calculated, and the target financial objectives related thereto. The Annual
Bonus to which the Executive is entitled hereunder shall be paid as soon as
practicable after the Company's independent accountants certify or otherwise
issue an opinion concerning the Company's consolidated financial statements for
the fiscal year to which such Annual Bonus relates.
(c) RETENTION BONUS. If the Executive is employed by the Company on
the last day of the Employment Period and has not received a notice of
termination from the Company pursuant to this Agreement as of such date, the
Executive shall be entitled to a cash bonus (the "Retention Bonus"). The amount
of the Retention Bonus shall be equal to 25% of the total Annual Bonuses, if
any, payable under Section 3(b) hereof for each of the four fiscal years of the
Company in the Employment Period.
<PAGE>
The Retention Bonus to which the Executive is entitled hereunder shall be paid
as soon as practicable after the Company's independent accountants certify or
otherwise issue an opinion concerning the Company's consolidated financial
statements for the fiscal year ending December 31, 2001.
(d) STOCK OPTIONS. In connection with this Agreement, the Executive
was granted an option, pursuant to the Big Flower Holdings, Inc. 1993 Stock
Award and Incentive Plan to purchase from the Parent 85,000 shares of the
Parent's common stock, par value $0.01, at a purchase price per share equal to
$26.75 per share (which is equal to the closing price of the Parent's common
stock on February 17, 1998, the date on which the Compensation Committee of the
Board approved the grant of such option). The stock option agreement evidencing
such option and prescribing the terms and conditions for the exercise thereof is
attached to this Agreement as EXHIBIT A.
(e) OTHER BENEFITS. During the Employment Period, the Executive shall
be entitled to participate in the Company's employee benefit plans generally
available to senior executives of the Company, including group health, long-term
disability, pension and retirement plans (all such benefits being hereinafter
referred to as the "Employee Benefits"), on the same terms and conditions as
such benefits are available to such other senior executives. The Executive shall
be entitled to take time off for vacation or illness in accordance with the
Company's policy for senior executives and to receive all other fringe benefits
as are from time to time made generally available to senior executives of the
Company.
(f) EXPENSE REIMBURSEMENT. During the Employment Period, the Company
shall reimburse the Executive for all proper expenses incurred by him in the
performance of his duties hereunder in accordance with the Company's policies
and procedures, including, but not limited to, reasonable entertainment
expenses, automobile expenses, and travel and lodging expenses.
4. TERMINATION OF EMPLOYMENT DURING EMPLOYMENT PERIOD.
(a) TERMINATION WITHOUT CAUSE. At any time during the Employment
Period, the Company may terminate the Executive's employment without Cause (as
defined below) by giving the Executive at least 30 days' prior written notice of
the effective date of termination. If the Company terminates the employment of
the Executive hereunder, the Executive shall be entitled to:
(1) continued payments of Base Salary (as increased
<PAGE>
from time to time in accordance with Section 3(a) hereof) through the last
day of the Employment Period, or, if later, through the first anniversary
of the date on which the Company provides written notice to the Executive
of its intent to terminate his employment hereunder (paid on substantially
the same schedule that payroll payments would have been made if the
Executive had continued in active employment with the Company); and
(2) any Annual Bonus earned but not yet paid for any fiscal year of
the Company ended on or prior to the effective date of the Executive's
termination of employment, plus additional Annual Bonuses in an amount
equal to $100,000 for each subsequent fiscal year in the Employment Period
(each of which shall be payable as soon as practicable after the end of
each such fiscal year).
Notwithstanding clauses (1) and (2) above and subject to the provisions of
Section 7 hereof, the amounts payable to the Executive hereunder shall be
reduced by the amount of salary, bonus and other compensation that the Executive
receives from a subsequent employer for employment during the Employment Period.
The Executive shall use reasonable efforts to seek other employment for this
purpose.
(b) TERMINATION FOR CAUSE. At any time during the Employment Period,
the Company may terminate the Executive's employment for Cause (as defined
below). Such termination shall be effective as of the date on which the Company
provides the Executive with written notice of such termination (or such later
date as the Company may specify in such written notice). If the Company
terminates the employment of the Executive hereunder, the Executive shall be
entitled to:
(1) payment of Base Salary earned but not yet paid through the date of
termination; and
(2) any Annual Bonus earned but not yet paid for any fiscal year of
the Company ended on or prior to the effective date of the Executive's
termination of employment.
For purposes of this Agreement, "Cause" shall mean:
(i) fraud, misrepresentation, embezzlement, or other act of material
misconduct (including, without limitation, a violation of Section 7 hereof)
against the Company, the Parent, or any direct or indirect subsidiary
thereof (collectively, the "Controlled Group");
(ii) substantial and willful failure, as determined by
<PAGE>
the Board, to render services in accordance with the terms of this
Agreement provided that (A) a demand for performance of services had been
delivered to the Executive by the Board at least 15 days prior to
termination identifying the manner in which such Board believes that the
Executive has failed to perform and (B) the Executive thereafter has failed
to remedy such failure to perform during such 15-day period;
(iii) substantial and willful violation of any rules or regulations of
any governmental or regulatory body material to the business of any member
of the Controlled Group; or
(iv) conviction of or plea of guilty or NOLO CONTENDERE to a felony.
The exercise of the right of the Company to terminate the Executive's employment
pursuant to this Section 4(b) shall not abrogate, and shall be in addition to,
the rights or remedies of the Company in respect of the breach giving rise to
such termination.
(c) TERMINATION ON ACCOUNT OF DEATH. Upon the death of the Executive,
this Agreement shall automatically terminate on the date of death, and the
Executive's beneficiary (as determined below) shall be entitled to:
(1) payment of Base Salary earned but not yet paid through the date of
termination, plus an additional payment equal to the Executive=s rate of
Base Salary in effect on the date of the Executive's death for a period of
six months following the date of the Executive=s death (or until the last
day of the Employment Period, if earlier); and
(2) any Annual Bonus earned but not yet paid for any fiscal year of
the Company ended on or prior to the date of the Executive's death.
(d) VOLUNTARY TERMINATION BY EXECUTIVE. The Executive shall have the
right to terminate his employment with the Company for any reason by giving at
least 30 days= written notice to the Company (which period of notice may be
waived by agreement of the Executive and the Company). In the event of the
Executive=s termination of employment hereunder, he shall be entitled to:
(1) accrued Base Salary through and including the effective date of
the Executive's termination of employment, plus continued payments (paid on
substantially the same schedule that payroll payments would have been made
if the Executive had continued active employment with the Company) at the
rate of Base Salary in effect on the date of termination of employment for
a period of 18 months
<PAGE>
following the date of termination; PROVIDED, HOWEVER, that the Company, in
its sole discretion, may at any time during such 18-month period notify the
Executive in writing that he is no longer subject to the non-competition
restrictions prescribed by Section 7(b), at which time the Executive shall
no longer be entitled to received continued payments pursuant to this
paragraph; and
(2) any Annual Bonus earned but not yet paid for any fiscal year of
the Company ended on or prior to the effective date of the Executive's
termination of employment.
(e) TERMINATION OF EMPLOYMENT ON ACCOUNT OF DISABILITY. The Company
may, upon at least 20 days= prior written notice to the Executive, terminate
this Agreement in the event of the Executive=s Disability (as hereinafter
defined). For purposes of this Agreement, "Disability" means a physical or
mental condition that causes the Executive to be unable to perform, with or
without reasonable accommodation, the essential functions of President of the
Company during at least 90 days of any 12-month period, or which is expected to
cause the Executive to be unable to perform such functions, with or without
reasonable accommodation, during at least 90 days in a succeeding 12-month
period. In the event of termination of this Agreement hereunder, the Executive
shall be entitled to:
(1) accrued Base Salary through and including the effective date of
termination of this Agreement, plus an additional payment equal to the
Executive=s rate of Base Salary in effect on the date of termination of
this Agreement for a period of six months following the date of such
termination (or until the last day of the Employment Period, if earlier);
and
(2) any Annual Bonus earned but not yet paid for any fiscal year of
the Company ended on or prior to the effective date of termination of this
Agreement.
In the event of any dispute regarding the existence of the Executive's
Disability hereunder, the matter shall be resolved by the good faith
determination of a majority of the Board upon consultation with a physician
qualified to practice medicine in the state of the Executive's residence to be
selected by the Board in its sole discretion. For this purpose, the Executive
shall submit to appropriate medical examinations.
5. EMPLOYEE BENEFITS PAYABLE UPON TERMINATION OF EMPLOYMENT. The
benefits to which the Executive (or his beneficiary) is entitled upon
termination of employment shall be determined in accordance with the terms of
the Company's employee
<PAGE>
benefit plans. Nothing in this Agreement shall provide for payment of welfare
benefits for claims incurred after the date of such termination of employment or
shall provide any vesting or accrual rights upon or after termination of
employment in addition to those prescribed by the terms of the Company's
employee benefit plans.
6. FEDERAL AND STATE WITHHOLDING. The Company shall be entitled to
deduct from the amounts payable to the Executive pursuant to this Agreement the
amount of all required federal, state, local or other withholding taxes in
accordance with the Executive's Form W-4 on file with the Company, and all
applicable federal employment taxes.
7. CONFIDENTIALITY; NON-COMPETITION.
(a) CONFIDENTIALITY. During the Employment Period and thereafter, the
Executive shall not, except as may be required to perform his duties hereunder
or as required by applicable law, disclose to others or use, whether directly or
indirectly, any Confidential Information (as hereinafter defined) regarding any
member of the Controlled Group. For purposes of this Agreement, "Confidential
Information" shall mean information about any member of the Controlled Group,
and its respective business, operations, clients and customers, that is not
available to the general public and that was learned by the Executive in the
course of his employment by any member of the Controlled Group during the
Employment Period or prior thereto, including (without limitation) any data,
formulae, information, proprietary knowledge, trade secrets and client and
customer lists and all papers, resumes, records and the documents containing
such Confidential Information. The Executive acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the Company,
and that such information gives the Company a competitive advantage. Upon the
termination of his employment with the Company or any of its affiliates for any
reason whatsoever, the Executive shall promptly deliver to the Company all
documents (and all copies thereof) containing any Confidential Information as
well as all other property of the Company.
(b) NON-COMPETITION. In consideration of the premises contained
herein, the Executive agrees that for the period commencing with the first day
of the Employment Period and ending with the date that is 18 months after the
date on which the Executive terminates employment with the Company (or with
Parent or any subsidiary thereof) or, if later, the last date for which the
Executive receives continued payments of Base Salary after
<PAGE>
termination of employment pursuant to Section 4 (the "Term"), he shall not,
without the prior written consent of the Board:
(1) directly or indirectly (through an affiliate or associate of the
Executive (each, an "Affiliate"), or otherwise) or by action in concert
with others, own, manage, operate, join, control, finance or participate in
the ownership, management, operation, control or financing of, or be
connected as a principal, agent, representative, consultant, investor,
owner, partner, manager, joint venturer or otherwise with, or permit his
name to be used by or in connection with, any business, enterprise or other
entity engaged anywhere in the United States, Canada, Mexico or the United
Kingdom in competition with any business or operations of the Company or
any member of the Controlled Group for which the Executive has any
Confidential Information, including but not limited to (A) electronic
pre-press services (including, but not limited to, image capture, image
retouching, page composition proofing or any manufacturing process designed
to prepare images for printing) or (B) the business of retail inserts,
advertising circulars or newspaper printing; PROVIDED, HOWEVER, that
nothing contained in this paragraph shall prohibit the Executive from
having passive investments of less that 5% of the outstanding equity
securities in any entity listed for trading on a national stock exchange or
quoted on any automated quotation system; PROVIDED, FURTHER, HOWEVER, that
the foregoing shall not prohibit the Executive from (I) engaging in
competition with a business or operation of the Controlled Group which
represents less than 5% of the Controlled Group's consolidated net revenue
during the 12-month period ending on the Controlled Group's most recently
completed fiscal quarter prior to the Executive engaging in such business
(the "Period") (other than those businesses and operations enumerated in
clauses (A) and (B) above), or (II) engaging in competition with a business
or operation of the Company which represents less than 15% of the Company's
net revenue during the Period (other than those businesses and operations
enumerated in clauses (A) and (B) above), if, in each case, the Executive
has not had active personal involvement in such business or operation of
the Controlled Group or the Company, as the case may be, at any time during
the Period or thereafter;
(2) directly or indirectly (through an Affiliate or otherwise) hire or
seek to otherwise employ in any capacity, as employee, consultant, agent or
otherwise any individual who is an employee of any member of the Controlled
Group on the date of this Agreement or the date on which the individual is
solicited for employment by the Executive; or
<PAGE>
(3) directly or indirectly (through an Affiliate or otherwise)
acquire, manage, operate, join, control, finance, or participate in the
acquisition, management, operation, control or financing of, or be
connected as a principal, agent, representative, consultant, investor,
owner, partner, manager, joint venturer or otherwise with, any Person with
whom any member of the Controlled Group at any time during the Term
contemplated a similar relationship, if the Executive was at any time
during the Term aware of such contemplated relationship.
In addition, the Executive shall not, without the prior written consent of the
Board, directly or indirectly (through an Affiliate or otherwise), enter into
any contract, agreement or arrangement, whether oral or written, with the
Company.
(c) INVENTIONS. The Executive hereby assigns to the Company his entire
right, title and interest in and to all discoveries and improvements, patentable
or otherwise, trade secrets and ideas, writings and copyrightable material,
which may be conceived by the Executive or developed or acquired by him during
the Employment Period, which may pertain directly or indirectly to the business
of the Company or any other member of the Controlled Group. The Executive agrees
to disclose fully all such developments to the Company upon its request, which
disclosure shall be made in writing promptly following any such request. The
Executive shall, upon the Company's request, execute, acknowledge and deliver to
the Company all instruments and do all other acts which are necessary or
desirable to enable the Company or any other member of the Controlled Group to
file and prosecute applications for, and to acquire, maintain and enforce, all
patents, trademarks and copyrights in all countries.
(d) ENFORCEMENT. The Executive acknowledges that (i) the provisions of
this Section 7 are reasonable and necessary to protect the legitimate interests
of the Company, (ii) any violation of this Section 7 will result in irreparable
injury to the Company, and damages at law will not be reasonable or adequate
compensation to the Company for a violation of this Section 7, and (iii) the
Company shall be entitled to have the provisions of this Section 7 specifically
enforced by preliminary and permanent injunctive relief without the necessity of
proving actual damages and without posting bond or other security. In the event
that any of the provisions of this Section 7 should ever be deemed by a court or
an arbitrator to exceed the time, geographic, product or any other limitations
prescribed by applicable law, then such provisions shall be deemed reformed so
that such provisions shall be valid, binding and enforceable to the maximum
extent permitted by applicable law. In connection
<PAGE>
with any action by one of the parties to enforce an arbitration award against
the other party or to obtain interim injunctive or other relief pending an
arbitration decision, the Executive and the Company each intend to and do hereby
(a) consent to personal jurisdiction of the courts of the State of Delaware, (b)
consent to service of process by certified mail to the address set forth in
Section 11, (c) waive any objection to venue in such jurisdiction, and (d) waive
any claim that any such court is an inconvenient forum. Nothing in this
subsection shall affect the right of either party to serve process in any other
manner permitted by law.
8. EXECUTIVE REPRESENTATIONS. The Executive represents and warrants to
the Company that (a) the execution, delivery and performance of this Agreement
by the Executive do not and will not breach, violate or cause a default under
any contract, agreement, instrument, order, judgment or decree to which the
Executive is a party or by which he is bound, (b) except for the Prior
Agreement, the Executive is not a party to or bound by any employment agreement,
non-competition agreement or confidentiality agreement with any other person or
entity, and (c) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and binding obligation of the
Executive, enforceable in accordance with its terms.
9. ARBITRATION. Any dispute or controversy between the Company and the
Executive, whether arising out of or relating to this Agreement, the breach of
this Agreement, any statutory or common law claim arising out of the Executive's
employment relationship with the Company, or otherwise, shall be settled by
arbitration administered by the American Arbitration Association ("AAA") in
accordance with its Commercial Rules then in effect and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Any arbitration shall be held before a single arbitrator who shall be
selected by the mutual agreement of the Company and the Executive, unless the
parties are unable to agree to an arbitrator, in which case, the arbitrator will
be selected under the procedures of the AAA. The arbitrator shall have the
authority to award any remedy or relief that a court of competent jurisdiction
could order or grant, including, without limitation, the issuance of an
injunction. However, either party may, without inconsistency with this
arbitration provision, apply to any court having jurisdiction over such dispute
or controversy and seek interim provisional, injunctive or other equitable
relief until the arbitration award is rendered or the controversy is otherwise
resolved. Except as necessary in court proceedings to enforce this arbitration
provision or an award rendered hereunder, or to obtain interim relief, neither a
party to such an arbitration proceeding nor an arbitrator may disclose the
<PAGE>
existence, content or results of any arbitration hereunder without the prior
written consent of the Company and the Executive. The Company and the Executive
acknowledge that this Agreement evidences a transaction involving interstate
commerce. Notwithstanding any choice of law provision included in this
Agreement, the United States Federal Arbitration Act shall govern the
interpretation and enforcement of this arbitration provision. The arbitration
proceeding shall be conducted in Chicago, Illinois or such other location to
which the parties may agree.
The foregoing paragraph shall apply to any dispute or controversy
between the Executive and any member of the Controlled Group other than the
Company, or between the Executive and any officer of a member of the Controlled
Group (including an officer of the Company), only if such Controlled Group
member or officer, as the case may be, consents thereto. If this Section 9
applies to the resolution of any such dispute or controversy, any reference in
the foregoing paragraph to the "Company" or a "party" shall be deemed a
reference to such Controlled Group member or officer, as the context requires.
10. SURVIVAL. Sections 5, 7, 8 and 9 of this Agreement shall survive
and continue in full force and effect in accordance with their respective terms,
notwithstanding any termination of the Employment Period.
11. NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed given when (a)
delivered personally or by overnight courier to the following addresses of the
other party hereto (or such other address for such party as shall be specified
by notice given pursuant to this Section) or (b) sent by telecopy to the
following telecopy numbers of the other party hereto (or such other telecopy
number for such party as shall be specified by notice given pursuant to this
Section), with the confirmatory copy delivered by overnight courier or United
States Postal Service to the addresses of such party pursuant to this Section:
If to the Company, to:
Laser Tech Color, Inc.
Attention: Corporate Secretary
2010 Westridge Drive
Irving, Texas 75038
Telecopy No.: (972) 753-7829
with a copy to:
Big Flower Holdings, Inc.
Attention: Mark A. Angelson
<PAGE>
3 East 54th Street
New York, New York 10022
Telecopy No.: (212) 521-1640
If to the Executive, to:
Damien Gough
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
12. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement or the validity, legality or enforceability of such provision in any
other jurisdiction, but, subject to Section 7(d), this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. ENTIRE AGREEMENT. This Agreement, and the agreements referenced
herein, constitute the entire agreement and understanding between the parties
with respect to the subject matter hereof and supersede and preempt any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related in any manner to the subject matter hereof.
14. SUCCESSORS AND ASSIGNS. This Agreement shall be enforceable by the
Executive and his heirs, executors, administrators and legal representatives,
and by the Company and its successors and assigns. Any successor of the Company
shall assume the liabilities of the Company hereunder. This agreement may not be
assigned to any person by the Executive.
15. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware
without regard to principles of conflict of laws.
<PAGE>
16. AMENDMENT AND WAIVER. The provisions of this Agreement may be
amended or waived only by the written agreement of the Company and the
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
17. BENEFICIARIES/REFERENCES. The Executive shall be entitled, to the
fullest extent permitted by law, to select and to change a beneficiary or
beneficiaries to receive any compensation or benefit hereunder following the
Executive's death, by giving written notice to the Company. In the event of the
Executive's death or a judicial determination of his incompetence, references in
this Agreement to the Executive shall be deemed, where appropriate, to refer to
his beneficiary, estate or other legal representative.
18. HEADINGS. The headings of the Sections contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
19. INTERPRETATION. Both parties and their counsel have participated
in the drafting and review of this Agreement, and this Agreement shall not be
construed for or against either party.
20. EXECUTION. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original and both of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
this 17th day of August, 1998.
LASER TECH COLOR, INC.
By: /s/ Mark Angelson
-------------------------------------
Title: Exec. V.P.
----------------------------------
/s/ Damien Gough
----------------------------------------
Damien Gough
<PAGE>
EXHIBIT A
NON-QUALIFIED STOCK OPTION AGREEMENT
NON-QUALIFIED STOCK OPTION AGREEMENT (the "Agreement"), dated as of
February 17, 1998, by and between Big Flower Holdings, Inc., a Delaware
corporation (the "Company"), and Damien Gough (the "Optionee"), an executive of
Laser Tech Color, Inc., a subsidiary of the Company ("Laser Tech").
Pursuant to the Company's Restated 1993 Stock Award and Incentive Plan
(as amended to date, the "Plan"), the Compensation Committee of the Board of
Directors of the Company, as the Administrator of the Plan (the "Committee"),
has determined that the Optionee is to be granted an option (the "Option") to
purchase shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"), on the terms and conditions set forth herein, and hereby grants
such Option. It is intended that the Option constitute a non-qualified stock
option. Any capitalized terms not defined herein shall have their respective
meanings set forth in the Plan.
1. NUMBER OF SHARES AND OPTION PRICE. The Option entitles the Optionee
to purchase 85,000 shares of Common Stock (the "Option Shares") at a price (the
"Option Price") of $26.75 per share, which is equal to the closing price per
share of Common Stock on the date hereof as reported on the New York Stock
Exchange.
2. MAXIMUM OPTION TERM. Unless previously terminated pursuant to this
Agreement, the term of the Option and of this Agreement shall expire on the
tenth anniversary of the date hereof (the "Option Term").
3. CONDITIONS OF EXERCISE. (a) The Option shall vest and become
exercisable:
(i) with respect to 25% of the Option Shares on December 31,
2000 if the Optionee is employed by any member of the Controlled Group
(as defined in Section 6) on that date, and
(ii) with respect to all remaining Option Shares on December 31,
2001 if the Optionee is employed by any member of the Controlled Group
(as defined in Section 6) on that date.
(b) To the extent exercisable in accordance with subsection (a) above,
the Option may be exercised in whole or in part at any
<PAGE>
time or from time to time prior to expiration of the Option Term.
4. NONTRANSFERABILITY OF OPTION. Except as otherwise provided herein,
the Option and this Agreement are not transferable. More particularly, but not
by way of limiting the generality of the foregoing, except as otherwise provided
herein, the Option may not be assigned, transferred, pledged or hypothecated in
any way, shall not be assignable by operation of law, except in the event of
death, and shall not be subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other disposition of
the Option contrary to the provisions hereof, and the levy of any execution,
attachment or similar process upon the Option shall be null and void and without
effect.
5. METHOD OF EXERCISE OF OPTION. The Option may be exercised by means
of written notice of exercise to the Company specifying the number of shares to
be purchased, accompanied by payment in full of the aggregate Option Price in
cash or by certified or cashier's check.
6. EFFECT OF TERMINATION OF EMPLOYMENT. (a) In the event the
Optionee's employment with Laser Tech (or with the Company or any direct or
indirect subsidiary thereof (the "Controlled Group") is terminated for Cause (as
defined in the Optionee's employment agreement with Laser Tech dated as of
January 1, 1998), the Option shall expire immediately.
(b) If the Optionee ceases to be employed with all members of the
Controlled Group for any reason other than for Cause (including, without
limitation, on account of death, disability or retirement of the Optionee), all
Options that are exercisable on the effective date of the Optionee's termination
of employment shall remain exercisable for a period of 90 days from the
effective date of such termination of employment, but in no event beyond the
expiration of the Option Term.
7. NOTICES. Any notice required or permitted under this Agreement
shall be in writing and shall be deemed given when delivered personally or by
facsimile, or when deposited in a United States Post Office or an overnight
delivery service, in either case, postage prepaid, addressed, as appropriate, to
the Optionee at the address set forth below or such other address as the
Optionee may designate in writing to the Company, or to the Company: Attention:
Secretary (or his/her designee), at the Company's address or such other address
as the Company may designate in writing to the Optionee.
8. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company to
enforce at any time any provision of this Agreement
<PAGE>
shall in no way be construed to be a waiver of such provision or of any other
provision hereof.
9. GOVERNING LAW. This Agreement shall be governed by and construed
according to the laws of the State of Delaware without regard to its principles
of conflict of laws.
10. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part hereof, and the Option and this Agreement shall be
subject to all terms and conditions of the Plan.
11. AMENDMENTS. This Agreement may be amended or modified at any time
only by an instrument in writing signed by the parties hereto.
12. RIGHTS AS A STOCKHOLDER. Neither the Optionee nor any of
Optionee's successors in interest shall have any rights as a stockholder of the
Company with respect to any Option Shares until the date of issuance of a stock
certificate for such shares of Common Stock.
13. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Plan, the
granting of the Option, this Agreement nor any other action taken pursuant to
the Plan shall constitute or be evidence of any agreement or understanding,
express or implied, that the Optionee has a right to continue as an employee of
any member of the Controlled Group for any period of time or at any specific
rate of compensation.
14. AUTHORITY OF THE COMMITTEE. The Committee shall have full
authority to interpret and construe the terms of the Plan and this Agreement.
The determination of the Committee as to any such matter of interpretation or
construction shall be final, binding and conclusive.
IN WITNESS WHEREOF, the parties have executed and delivered this
Non-Qualified Stock Option Agreement on the day and year first above written.
BIG FLOWER HOLDINGS, INC.
By:
-------------------------------------
Title:
----------------------------------
The undersigned hereby accepts and
agrees to all the terms and
provisions of the foregoing
Agreement and to all the terms and
provisions of the Plan herein
incorporated by reference.
----------------------------------------
Damien Gough
<PAGE>
Exhibit 10.43
THIRD AMENDMENT AND CONSENT
THIRD AMENDMENT AND CONSENT (this "Amendment"), dated as of February 23,
1999, among BIG FLOWER HOLDINGS, INC., a Delaware corporation ("Holdings"), BIG
FLOWER PRESS HOLDINGS, INC., a Delaware corporation ("BFPH"), TREASURE CHEST
ADVERTISING COMPANY, INC., a Delaware corporation and a Wholly-Owned Subsidiary
of BFPH ("Treasure Chest"), WEBCRAFT, INC., a Delaware corporation and a
Wholly-Owned Subsidiary of BFPH ("Webcraft"), BIG FLOWER DIGITAL SERVICES, INC.,
a Delaware corporation and a Wholly-Owned Subsidiary of BFPH ("BF Digital"), BIG
FLOWER LIMITED, a Wholly-Owned Subsidiary of BFPH and a limited company
organized under the laws of England ("BFL"), OLWEN DIRECT MAIL LIMITED, a
Wholly-Owned Subsidiary of BFL and a limited company organized under the laws of
England ("Olwen"), BIG FLOWER DIGITAL SERVICES LIMITED, an indirect Wholly-Owned
Subsidiary of BF Digital and a limited company organized under the laws of
England ("BFDSL"), TROYPEAK LIMITED, an indirect Wholly-Owned Subsidiary of BF
Digital and a limited company organized under the laws of England ("Troypeak"),
PISMO LIMITED, an indirect Wholly-Owned Subsidiary of BF Digital and a limited
company organized under the laws of England ("Pismo"), and BROADCAST SYSTEMS
SOFTWARE LIMITED, an indirect Wholly-Owned Subsidiary of BF Digital and a
limited company organized under the laws of England ("Broadcast", and together
with Treasure Chest, Webcraft, BF Digital, BFL, Olwen, BFDSL, Troypeak and
Pismo, the "Borrowers", and each, a "Borrower"), the Banks from time to time
party to the Credit Agreement referred to below, BANK OF AMERICA NT & SA and THE
INDUSTRIAL BANK OF JAPAN, LIMITED, as Co-Agents (collectively, the "Co-Agents,"
and each, a "Co-Agent"), CREDIT SUISSE FIRST BOSTON, as Documentation Agent, and
BANKERS TRUST COMPANY, as Administrative Agent (the "Administrative Agent"). All
capitalized terms used herein and not otherwise defined shall have the
respective meanings provided such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, Holdings, BFPH, the Borrowers, the Banks, the Co-Agents, the
Documentation Agent and the Administrative Agent are parties to an Amended and
Restated Credit Agreement, dated as of June 22, 1998 (as in effect on the date
hereof, the "Credit Agreement"); and
WHEREAS, subject to the terms and conditions of this Amendment, the Banks
hereby agree to grant certain consents under the Credit Agreement and the
parties hereto wish to amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
<PAGE>
I. AMENDMENTS AND CONSENTS TO CREDIT AGREEMENT.
1. The Banks hereby agree that the pledge of all of the shares of capital
stock of Pismo (the "Pismo Shares") to the Collateral Agent pursuant to the
Charge Over Shares and Intercompany Promissory Notes, dated as of June 22, 1998,
between BFDSL and the Collateral Agent shall be released on the Third Amendment
Effective Date (as defined below), so long as (i) BFDSL as soon as reasonably
practicable (but in any event within 5 Business Days after the Third Amendment
Effective Date) transfers the Pismo Shares to Troypeak, (ii) immediately after
giving effect to the transfer of the Pismo Shares to Troypeak contemplated
above, the Pismo Shares become subject to the Charge Over Shares and
Intercompany Promissory Notes, dated as of November 19, 1998, between Troypeak
and the Collateral Agent (as in effect on the date hereof, the "Troypeak Charge
Over Shares") and (iii) after giving effect to the release, transfer and pledge
of the Pismo Shares as contemplated above, the security interest granted to the
Collateral Agent in the Pismo Shares pursuant to the Troypeak Charge Over Shares
shall be in full force and effect and perfected (to at least the same extent as
in effect immediately prior to such release and transfer); PROVIDED that
Troypeak shall not be obligated to deliver to the Collateral Agent the share
certificates representing the Pismo Shares and any related documentation until
the earlier to occur of (x) such date as Troypeak has obtained an appropriate
stamp duty exemption or has paid the relevant stamp duty with respect to the
transfer of the Pismo Shares (for which Troypeak shall apply as soon as
reasonably practicable following the transfer of the Pismo Shares to Troypeak)
or (y) the date occurring 60 days following the transfer of the Pismo Shares to
Troypeak as contemplated above.
2. Section 9.11 of the Credit Agreement is hereby amended by inserting
the text "(other than a Negative Equity Entity)" immediately following the
phrase "in the case of a U.K. Subsidiary" appearing in clause (y)(vi) of the
first sentence of said Section.
5. The definition of "Non-Facility Letter of Credit" appearing in Section
11.01 of the Credit Agreement is hereby amended by (i) inserting the text "or
trade" immediately after the text "any standby" appearing in said definition and
(ii) deleting the word "Standby" appearing in said definition.
6. Section 11.01 of the Credit Agreement is hereby further amended by
inserting the following definition in appropriate alphabetical order in said
Section:
"Negative Equity Entity" shall mean and include any U.K. Subsidiary
which, at the time of creation or acquisition thereof, has negative net
assets or positive net assets (i.e., a stockholders' equity) of less than
L25,000 (as set forth on the balance sheet of such entity); PROVIDED that,
if at any time (i) the book value of the gross assets of any such U.K.
Subsidiary exceeds L6,000,000 or (ii) any such U.K. Subsidiary has
positive net assets in excess of L25,000 (in each case, as set forth on
the quarterly balance sheet of such entity), then on the 120th day
following the date on which such U.K. Subsidiary meets the requirements
set forth in clause (i) or (ii) above, such U.K. Subsidiary shall cease to
be a "Negative Equity Entity" for all purposes of this Agreement.
-2-
<PAGE>
III. MISCELLANEOUS PROVISIONS.
1. In order to induce the Banks to enter into this Amendment, each Credit
Agreement Party hereby represents and warrants that:
(a) no Default or Event of Default exists as of the Third Amendment
Effective Date, both immediately before and immediately after giving
effect to this Amendment; and
(b) all of the representations and warranties contained in the
Credit Agreement or the other Credit Documents are true and correct in all
material respects on the Third Amendment Effective Date both immediately
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).
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 Holdings 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 each Credit Agreement Party and the Banks
constituting 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.
-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 HOLDINGS, INC.,
as a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
BIG FLOWER PRESS HOLDINGS, INC.,
as a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
TREASURE CHEST ADVERTISING
COMPANY, INC., as a Borrower and a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
WEBCRAFT, INC.,
as a Borrower and a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
Title:
BIG FLOWER DIGITAL SERVICES, INC.,
as a Borrower and a Guarantor
By /s/ Authorized Signatory
-------------------------------------------
-4-
<PAGE>
Title:
BIG FLOWER LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
OLWEN DIRECT MAIL LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
TROYPEAK LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
PISMO LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
BIG FLOWER DIGITAL SERVICES LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
-5-
<PAGE>
BROADCAST SYSTEMS SOFTWARE LIMITED,
as a Borrower
By /s/ Authorized Signatory
-------------------------------------------
Title:
BANKERS TRUST COMPANY,
Individually, and as Administrative Agent
By /s/ Authorized Signatory
-------------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON,
Individually
By /s/ Authorized Signatory
-------------------------------------------
Title:
By /s/ Authorized Signatory
-------------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON,
as Documentation Agent
By /s/ Authorized Signatory
-------------------------------------------
Title:
By /s/ Authorized Signatory
-------------------------------------------
Title:
-6-
<PAGE>
ABN AMRO BANK N.V.,
NEW YORK BRANCH
By
-------------------------------------------
Title:
By
-------------------------------------------
Title:
BANK OF AMERICA NT & SA
By
-------------------------------------------
Title:
BANKBOSTON, N.A.
By
-------------------------------------------
Title:
BANK OF MONTREAL
By
-------------------------------------------
Title:
-7-
<PAGE>
THE BANK OF NEW YORK
By
-------------------------------------------
Title:
BANK POLSKA KASA OPIEKI, S.A.
PEKAO S.A. Group, New York Branch
By
-------------------------------------------
Title:
PARIBAS
By
-------------------------------------------
Title:
By
-------------------------------------------
Title:
FIRST UNION NATIONAL BANK
By
-------------------------------------------
Title:
CREDIT AGRICOLE INDOSUEZ
By
-------------------------------------------
Title:
-8-
<PAGE>
CITY NATIONAL BANK
By
-------------------------------------------
Title:
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:
-9-
<PAGE>
ERSTE BANK DER
OESTERREICHISCHEN SPARKASSEN AG
By
-------------------------------------------
Title:
IMPERIAL BANK
By
-------------------------------------------
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By
-------------------------------------------
Title:
NATIONSBANK, N.A.
By
-------------------------------------------
Title:
CALIFORNIA BANK AND TRUST,
formerly Sumitomo Bank of California
By
-------------------------------------------
Title:
-10-
<PAGE>
THE TOKAI BANK, LIMITED
By
-------------------------------------------
Title:
THE TOYO TRUST & BANKING CO., LTD.
By
-------------------------------------------
Title:
UNION BANK OF CALIFORNIA, N.A.
By
-------------------------------------------
Title:
-11-
<PAGE>
MICHIGAN NATIONAL CORPORATION
By
-------------------------------------------
Title:
-12-
<PAGE>
Exhibit 10.44
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
SECOND AMENDMENT to the EMPLOYMENT AGREEMENT ("Agreement") effective
March 21, 1996 by and between MARK A. ANGELSON ("Executive"), BIG FLOWER
HOLDINGS, INC. (as successor in interest to Big Flower Press Holdings, Inc.),
a Delaware corporation (the "Company"), and TREASURE CHEST ADVERTISING
COMPANY, INC., a Delaware corporation and a wholly-owned subsidiary of the
Company ("Treasure Chest").
W I T N E S S T H
- - - - - - - - -
WHEREAS, the Executive, the Company and Treasure Chest (the "Parties")
entered into the Agreement effective March 21, 1996; and
WHEREAS, the Parties wish to modify certain provisions of the Agreement;
and
WHEREAS, Paragraph 14. of the Agreement provides (in pertinent part) as
follows:
"14. WAIVER; MODIFICATION.... This agreement shall not be modified
in any respect except by a writing executed by each party hereto."
NOW, THEREFORE, the parties hereby amend the Agreement as follows:
FIRST: Paragraph 1. of the Agreement is amended by inserting after
Executive Vice President "-OFFICE OF THE CHAIRMAN", by inserting
after (the "Board") "AND DEPUTY CHAIRMAN OF XL VENTURES, INC." and
by inserting after affiliates "(INCLUDING R. THEODORE AMMON)."
IN WITNESS WHEREOF, each of the Company and Treasure Chest has caused
this Amendment to be executed by its duly authorized officer, and the
Executive has hereunto signed this Agreement, on the date(s) written below.
BIG FLOWER HOLDINGS, INC.
29 March 99 /s/ R. Theodore Ammon
- ----------------------------- -----------------------------------
Date By: R. Theodore Ammon
Its: Chairman
TREASURE CHEST ADVERTISING
COMPANY, INC.
3/29/99 /s/ William G. Schaefer
- ----------------------------- -----------------------------------
Date By: William G. Schaefer
Its: Senior Vice President
3/29/99 /s/ Mark A. Angelson
- ----------------------------- -----------------------------------
Date Mark A. Angelson
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF BIG FLOWER HOLDINGS, INC.
-----------------------------------------
As of March 31, 1999
<TABLE>
<CAPTION>
ENTITY (1) JURISDICTION
<S> <C>
Big Flower Press Holdings, Inc. Delaware
Treasure Chest Advertising Company, Inc. ("TC Advertising") Delaware
Treasure Chest Advertising Company of New York, Inc. New York
Treasure Chest Advertising Holding Company of Texas, Inc. Delaware
Treasure Chest Advertising Company of Texas, Inc. Delaware
Treasure Chest Advertising Company of Nevada, Inc. Nevada
BFP Receivables Corporation Delaware
PrintCo., Inc. Michigan
BF Aviation Corp. Delaware
Webcraft, Inc. ("Webcraft") Delaware
ColorStream Technologies, Inc. Delaware
ColorStream Technologies, L.L.C. Illinois
Webcraft Midwest, Inc. Delaware
Webcraft Chemicals, Inc. (d/b/a Craig Adhesives & Coatings Co.) New Jersey
KSS Transportation Corporation New Jersey
Scanforms, Inc. Delaware
Impco Enterprises, Inc. Delaware
Big Flower Limited U.K.
Olwen Direct Mail Limited U.K.
Colorgraphic Direct Response Limited U.K.
Harvey/Hunter Holdings Limited U.K.
Colorgraphic (Leicester) Limited U.K.
Iceberg Marketing Limited U.K.
Cobalt Customer Solutions Limited U.K.
Monitor Transactional Mailing Limited U.K.
Big Flower Digital Services, Inc. Delaware
Laser Tech Color, Inc. ("Laser Tech") Delaware
Pacific Color Connection California
DCS, Incorporated Delaware
Gamma One, Inc. Delaware
Enteron Group, Inc. Illinois
Master Eagle Graphics Services, Inc. New York
Master Vu Incorporated New York
Revere Photo Platemakers Company Illinois
Computer Color Graphics, Inc. Illinois
Big Flower Digital Services Limited U.K.
Troypeak Limited U.K.
Production Response Limited U.K.
Eric Studio Limited U.K.
The Admagic Group, Limited U.K.
Admagic Limited U.K.
Sorcery Print Services Limited U.K.
Illusion Limited U.K.
Smith Cashman Borkett Limited U.K.
<PAGE>
Admagic Too Limited U.K.
Abacus Studios Limited U.K.
Pismo Limited (Lifeboat Matey) U.K.
Matelot Productions Limited U.K.
Imaging Consortium, Inc. New York
Columbine JDS Systems, Inc. ("Columbine") Delaware
Columbine Systems, Inc. Colorado
Columbine JDS ABU, Inc. Delaware
Columbine Cable Systems, Inc. Colorado
JDS Systems, Inc. Delaware
Broadcast Systems Software Limited U.K.
Broadcast Systems Software Pty Limited Austrailia
CJDS Adserve, Inc. Delaware
CJDS Adtraq Inc. New Brunswick, CN
DSI Datatrak Systems, Inc. Delaware
Reach America, Inc. Delaware
Big Flower Digital Services (Delaware), Inc. Delaware
Big Flower Digital LLC Delaware
XL Ventures, Inc. Delaware
XL Ventures (Delaware), Inc. Delaware
XL Ventures LLC Delaware
Big Flower Trust I Delaware
</TABLE>
(1) Each entity is owned directly by the nearest preceding entity which is
indented one less position than such entity. The entities listed in the position
farthest to the left are owned directly by Big Flower Holdings, Inc.
In addition to the above, Big Flower Leasing LLC and Big Flower Leasing II LLC
are each owned by TC Advertising (33%), Webcraft (33%), Laser Tech (17%) and
Columbine (17%).
2
<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
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001048662
<NAME> BIG FLOWER HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,504
<SECURITIES> 0
<RECEIVABLES> 196,635
<ALLOWANCES> 9,772
<INVENTORY> 47,954
<CURRENT-ASSETS> 269,849
<PP&E> 654,275
<DEPRECIATION> 196,287
<TOTAL-ASSETS> 1,328,182
<CURRENT-LIABILITIES> 275,630
<BONDS> 0
115,000
0
<COMMON> 197
<OTHER-SE> 127,013
<TOTAL-LIABILITY-AND-EQUITY> 1,328,182
<SALES> 1,739,715
<TOTAL-REVENUES> 1,739,715
<CGS> 1,296,336
<TOTAL-COSTS> 1,296,336
<OTHER-EXPENSES> 311,782
<LOSS-PROVISION> 3,729
<INTEREST-EXPENSE> 57,890
<INCOME-PRETAX> 69,978
<INCOME-TAX> 32,302
<INCOME-CONTINUING> 37,676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,676
<EPS-PRIMARY> 1.92
<EPS-DILUTED> 1.69
</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
SUBSIDIAIRIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000924146
<NAME> BIG FLOWER PRESS HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,499
<SECURITIES> 0
<RECEIVABLES> 196,629
<ALLOWANCES> 9,772
<INVENTORY> 47,954
<CURRENT-ASSETS> 269,008
<PP&E> 649,552
<DEPRECIATION> 195,548
<TOTAL-ASSETS> 1,313,160
<CURRENT-LIABILITIES> 275,256
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 224,889
<TOTAL-LIABILITY-AND-EQUITY> 1,313,160
<SALES> 1,739,715
<TOTAL-REVENUES> 1,739,715
<CGS> 1,296,336
<TOTAL-COSTS> 1,296,336
<OTHER-EXPENSES> 303,866
<LOSS-PROVISION> 3,729
<INTEREST-EXPENSE> 58,186
<INCOME-PRETAX> 77,598
<INCOME-TAX> 35,366
<INCOME-CONTINUING> 42,232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,232
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<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,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001048662
<NAME> BIG FLOWER HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,307
<SECURITIES> 0
<RECEIVABLES> 152,480
<ALLOWANCES> 12,342
<INVENTORY> 46,510
<CURRENT-ASSETS> 216,381
<PP&E> 520,211
<DEPRECIATION> 135,361
<TOTAL-ASSETS> 1,059,047
<CURRENT-LIABILITIES> 233,938
<BONDS> 0
115,000
0
<COMMON> 195
<OTHER-SE> 71,343
<TOTAL-LIABILITY-AND-EQUITY> 1,059,047
<SALES> 1,376,706
<TOTAL-REVENUES> 1,376,706
<CGS> 1,072,296
<TOTAL-COSTS> 1,072,296
<OTHER-EXPENSES> 272,669
<LOSS-PROVISION> 1,371
<INTEREST-EXPENSE> 41,996
<INCOME-PRETAX> (11,626)
<INCOME-TAX> 21,945
<INCOME-CONTINUING> (33,571)
<DISCONTINUED> 0
<EXTRAORDINARY> (13,463)
<CHANGES> 0
<NET-INCOME> (47,034)
<EPS-PRIMARY> (2.51)
<EPS-DILUTED> (2.51)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF BIG FLOWER PRESS HOLDINGS, INC. AND
SUBSIDIAIRIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000924146
<NAME> BIG FLOWER PRESS HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,307
<SECURITIES> 0
<RECEIVABLES> 152,480
<ALLOWANCES> 12,342
<INVENTORY> 46,510
<CURRENT-ASSETS> 216,381
<PP&E> 520,211
<DEPRECIATION> 135,361
<TOTAL-ASSETS> 1,054,268
<CURRENT-LIABILITIES> 232,989
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 179,242
<TOTAL-LIABILITY-AND-EQUITY> 1,054,268
<SALES> 1,376,706
<TOTAL-REVENUES> 1,376,706
<CGS> 1,072,296
<TOTAL-COSTS> 1,072,296
<OTHER-EXPENSES> 271,329
<LOSS-PROVISION> 1,371
<INTEREST-EXPENSE> 42,040
<INCOME-PRETAX> (10,330)
<INCOME-TAX> 22,336
<INCOME-CONTINUING> (32,666)
<DISCONTINUED> 0
<EXTRAORDINARY> (13,463)
<CHANGES> 0
<NET-INCOME> (46,129)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
